Furrier.org - Business & Technology Blog

War! What is it good for! Absolutely nothing! - Say it again!

Are wars really good for business? Is tech entrepreneurship in recession heading toward depression? The battle between Microsoft and Yahoo is reaching it’s climax (if not already). However, there are some very interesting and unique perspectives come from two blog posts that jumped out at me - Kara Swisher and Fred Wilson. Kara has the funniest headline saying “Jesus is coming” with the storyline about the inside scoop on the ‘dance’ between the two. What strikes me with Kara’s post is that Yahoo might already be defeated in the ‘braindrain’ that they have been experiencing. Even if Yahoo survives is it already dead on the vine?

Fred Wilson only draws a reference to the battle in his post about liquidity - saying that with no IPO market we are in trouble and worse the tech giants are playing with assets like toys. I think that Fred is on to something with no liquidity (other than M&A by big firms). Is this really a robust market for innovation where the big guys are doing all the acquiring? Is this the ecosystem that produces good entrepreneurship?

What ties both these posts together is the trend that acquisitions might not be the best for innovation - Kara bluntly states that AOL’s acquisitions aren’t doing well. While Fred says it’s great to get the cash but Yahoo hasn’t done well with their acquisitions. Meanwhile the capital markets are a mess.

As an entrepreneur with four kids I’m concerned about the prospects for all entrepreneurs in this current environment. Maybe I’m just not feeling good today. Startups should have some friction, but not outright frustration. I’ve been doing early stage startups for 10+ years and never seen this much frustration since 2002-03. We are in a tech recession or at least a grinding halt.

I’m one of the most optimistic guys (all entrepreneurs are), but my mood on this startup market: Bear

Getting financed by a VC is a marriage.  When it doesn’t work out it’s a divorce.

Josh Kopelman writes a great post on entrepreneurs pitching him.  He talks about Founder Credibility.  It works the other way as well - VC Credibility.  Both parties (the founder and VC) are looking for partnership - founder: money/business partner and VC: investment partner so chemistry is key.

If the VC doesn’t understand or believe in the founders vision then it will never work out.  For VCs they do this all the time- they take hundreds of meeting until they find that chemistry.

Here is Josh’s post.

This past week I had two distinctly different meetings with entrepreneurs.  They both were successful serial entrepreneurs.  Both were exceptionally smart.  Both had good ideas.

And, by the way, the same applies for venture capitalists.  I often feel that during company pitches — and board of directors meetings — we’re expected to have an immediate opinion.  Should we double our marketing budget?  Should I hire this person?  Will this strategy work?  While it’s OK to offer opinions and thoughts, I think it is also appropriate to acknowledge uncertainty.    

One point in his post that is worth highlighting is how the second enterpreneur views the market. He looks at the market as a fluid dynamic - “running tests” with “base assumptions”. Many entrepreneurs have been scorned for this view (myself included) in being “not focused”. I hate that word. All early stage entrepreneurs are ‘very focused’ on the fluid market how to enter and plans based upon certain market conditions or scenarios. Key is the focus on the possible scenarios - for that there is no one answer.

Josh’s last point is important: VC Credibility - When VCs sit on 9 boards and shows up once a qtr for board meetings with ‘the answers’ then their credibility is on the line.

Early stage is about entering the market with a narrow value proposition that has the opportunity to take advantage of a massive growth trend when in market. For this the entry strategy should be very clear and the answers to the so called ‘billion dollar’ revenue plan should be scenario based.

Cnet has a story headline “Is venture capital’s love affair with Web 2.0 over?”- Ironic??

According to this massive trend 2007 deals are down an amazing amount - total deal numbers down an amazing 5.   “Web 2.0 deals in the Bay Area actually dropped from 74 deals in 2006 to 69 last year” -Wow.

Entrepreneurs are starting companies that require less capital and no venture capital at all.  Maybe entrepreneur’s love affair with venture capital is over.  It’s clear to me that entrepreneurs that I talk to are bootstrapping longer and financing ventures themselves.

I hardly think that a reduction of 5 deals validates a venture capitalist trend.  Most VCs are not that savvy on Web 2.0 and are generally skeptical on web deals.  The ones that do get it are doing many deals.  Jeff Clavier has already pounded out 16+ deals in his new fund.

For the past three years I’ve been working with over 40 corporate advertisers in developing, testing, deploying, and measuring social media. I’ve discovered many things and learning more everyday.  As I am documenting my findings I have to highlight Charline Li’s post from yesterday.

Charlene Li has a great post on her views of Social Graphs and business models. It’s about “Social Everything”.

The big trend in Charlene’s post is that social individuals, groups, networks, graphs are great, but they still don’t connect to real world value. This linchpin to real world benefits is where I have the vision for social everything - it’s about collaboration. Virtual activity is highly productive, but seems to dead end when translating and scaling to real world offline benefits.

If you have been one of the 10k people following my blog you know where I stand and have a sense of what I’m working on for my next venture- Social Advertising, Social Media, Social Graph, Social Everything.   Charlene’s post reasonated with alot of my findings and the direction that I’m heading.  Here are some nice gems in Charlene’s post:

“.. the idea of social graphs being “owned” by different social networks makes no sense. Yet, all of today’s social networks build their business model and competitive advantage on having the largest, most complete social graph. The result: I have a close colleague who enjoys exploring all of the new social networks and “friends” me on all of them, figuring I’m a pretty good person to have in his new network. In a world with a single social graph, he would be able to import his existing personal, social graph into any new service, and immediately begin enjoying the new service without having to wait for his friends to catch up. And I would be spared the insanity of having to accept his umpteenth “friend” invitation!….In a world of a single social graph, social networks will have to compete on the basis of creating the best experience for its members – not because it controls a unique social graph.”….

…”The brilliance of Facebook Platform is that it greatly expanded what people could do on social networks. The problem is that what people do is still pretty limited. Take a look at the top applications on Facebook – they can be roughly grouped into 1) managing/comparing/interacting with friends in a general context; 2) self-expression (FunWall, Bumper Sticker); 3) games; and 4) media preferences (iLike, Flikster). These are all fun and interesting, but they only begin to scratch the surface of what I do every day.”….

…”A business model where social influence defines marketing value. Today’s advertising models don’t work on social networking sites – that’s because simply targeting better on profile or social graph details is still the same old media model of CPM and CPC pricing. What’s missing is marketing value based on how valuable I am in the context of my influence. For example, Steve Rubel is a highly influential person because he is an authority on social media, the people in his social graph tend to interested in his views, and they in turn have a great deal of authority as well. (Several people came up to me after the speech and said that this is similar to a “PageRank of people”, a very easy way to crystallize the idea.)

This means that each person will have their own “personal CPM”, an idea I heard JWT’s Marian Salzman discuss at a private event in February (here are more details on the JWT’s Top Trends for 2008). The idea is that marketers want to reach highly influential people, and hopefully curry their endorsements. This has traditionally been the province of public relations, where they reach out to key influencers. But in the world of social networks, this is influence writ large and wide – every person has their own network of influence, and hence, their own personal CPM or value that they contribute to a social network.

..”There are several start-ups as well as established agencies that are already looking at marketing, brokering, measuring, etc. social influence, so you can expect to hear more about this topic soon. But don’t expect advertising spending to quickly embrace social influence – after all, the vast majority of ad budgets are spent by media buyers who still cleave to the tried and true reach and frequency, CPM models.”

Why is this relevant? Because as pointed out yesterday by industry visionaries, the iPhone SDK announcement represents the biggest trend since the PC revolution - socially connected individuals, groups, and media are at the heart of this new revolution.

Social Everything includes devices (iphone) to connect to networks (open social + social graphs) to consume media and information (social media). Users love it and so advertisers will soon have solutions - hopefully provided by us entrepreneurs.

Eric Savitz has a great blog post on HP Labs new focus.  According to a release the company is issuing today, HP Labs will zero in on 20-30 large research projects, rather than the 150 or smaller projects which marked the company’s approach previously.

This interests me because way back in the day when I spent 9 years at HP I interviewed for a job to commercialize new technology out of the labs.  My supporter was Dwayne Zitner who ran the server group at the time, but corporate development poo pooed it.  At that time HP Labs was out of touch with how innovation got done.  Now it looks like HP has a great vision. 

This announcment makes me think that HP could implement an ‘Amazon’ model of leveraging their core assets in IP and open it up.  Key to success is how they work with entrepreneurs like me.  If they can help me I’m interested in embedding their technologies in my ventures. 

Here is what I think are important points made today:

• They have a plan to sharpen the focus on 20-30 big bets, away from the smaller projects they used to work on. Place entire resources of HP Labs on these big bets. Target is solving most pressing problems facing customers in the next decade.
• Dynamic cloud service: based on location, preferences, calendar and communities. One approach: Cloud Print: store documents in the cloud and then retrieve and print on any printer in the world. Also Cloud View, which allows you view stock quotes, weather, sports scores without a browser on a mobile phone.
• Content transformation: transforming analog to digital, from device to device, from digital to physical. Researchers working on technology to seamlessly transfer information from device to device. Also digital content to physical products.
• Intelligent infrastructure: designing smarter, more secure devices, networks and architectures, that connect to rich content and services.
• HP Labs is committed to “open innovation,” to work with VCs, startups, partner companies, etc. “We realize that not all the smart people work for HP Labs,”
• Another: an entrepreneur-in-residence program. VCs in touch with the marketplace. Form partnerships with VCs. Know what the business trends and market development opportunities are.
• “Everything as a Service.”
• Merger between business intelligence and the Web. BI not just for top executive anymore. Prediction systems will be common places. Challenge is getting right information into the right hands. Business will use a radically different approach to reach business decisions. They have an approach they call BRAIN to make business predictions.
• Speed is everything.

Kudos to HP for this approach.  Like Eric Savitz says “speed is everything”.  Lets see if HP can walk the talk.

Human Resource Management, INSEAD, Fontainebleau, France; The European Institute for Business Administration (INSEAD), Boulevard de Constance, 77305 Fontainebleau Cedex, France.

Paul Kedrosky twittered about the Ananomy of an Entrepreneur today.  I found this article facinating because there has always been a debate “are you born an entrepreneur .. or can it be taught”.  This research suggests that you are born with it.   This was Paul’s comment which I had the same reaction …“Gosh, sounds like most of my friends — okay, and me for that matter. I’m particularly fond of the line about “difficulties in the regulation of self-esteem”. You mean we entrepreneurial sorts are often preening, irritating blowhards? What a surprise.”   

Here is the entire intro paragraph from the report written by Manfred F.R. Kets de Vries 

In psychoanalytic theory, studies of work behavior have been relatively scarce. Most of the existing literature concerns itself with cases of work inhibition or compulsion. Occasionally, one finds a discussion of people in the creative professions. No attention has been paid, however, to a major contributor to economic development in society, the entrepreneur. This contrasts sharply with the amount of attention given to entrepreneurs by other disciplines. The object of this study is to better understand the dynamics of entrepreneurship, and in particular the work behavior of entrepreneurs. First, there is a brief overview of the role of work in psychoanalytic theory. Then a number of factors important to entrepreneurship are reviewed from the perspective of economic, sociological, anthropological, psychological, and organizational theory. A case history is presented of one entrepreneur who chose to be treated through psychoanalysis. The intensity of this type of treatment means that continuity in observation is provided. This case study therefore offers a unique insight into the complex “inner theater” of one particular entrepreneur.

Previous research on entrepreneurship has identified a number of themes common among some entrepreneurs. In the entrepreneurial theater a need for control, a sense of distrust, a desire for applause, and resorting to primitive defensive mechanisms such as splitting, projection, denial, and the flight into action (”the manic defense”) appear to be common. The behavior of a number of entrepreneurs also seems to have a cyclothymic quality. Moreover, for many of them, their narcissistic development tends to be of a “reactive” nature reflecting difficulties in the regulation of self-esteem. This case history illustrates these themes, and furthermore, shows that running a business is not necessarily a rational process. On the contrary, in many instances, the process seems to be more a question of retrospective “rationalizing” of decisions already made. Finally, inferences are made about the person-organization interface by identifying some of the characteristics of the dramatic organization, a configuration typically created by a number of entrepreneurs.

Attention Fresh Ex-Yahoo employees or future Ex Yahoo employees.

I am looking for product and engineering startup employees for my upcoming startup. This is a pure startup opportunity in Palo Alto. I’ve been working on this new opportunity with my wife Linda.

Consider this an open call for Yahoo entrepreneurs who know social networks and social graph technology: I’m looking for product managers and engineers for my new social advertising startup.

For more information read through some of the posts here at Furrier.org

I also posted on Techcrunch comments as well.

Update:

I saw Susan Mernit at the Yahoo campus today while I was attending the SDForum Social Graph Search Developer Event.  She was bummed.  Wait I’d say more stunned.  Susan blogged about it here.  Susan is a good person who takes pride in her work.  It must have been a surprise.  Susan: lets get together next week.  I’m happy to share with you the months of research on the landscape.  Ping me if you need anything.

Another employee named Ryan twittered the layoff.   Randy Farmer who I met when Yahoo launched Yahoo 360 (their social network beta) blogged the surprise layoff.  

Hello Web 2.0 Real Time Communication.  I hope that we can use these same tools for Real Time Collaboration and get people back to doing great work.

Marc Andreessen wrote a post on the impact to Silicon Valley if Microsoft and Yahoo buyout happens.    I believe that this massive war is changing the landscape but in a positive way.   This tech war becomes a catalyst the urgency is now.   Marc has experience living the last war when he was a Netscape.  Some might have forgot but the Microsoft assault on Netscape actually validated the market and created the wave and bubble of Web 1.0. 

What Marc is trying to say is that this war might actually propel Web 2.0 up in a big way.   Nice post Marc - it’s a must read - inside baseball - post. 

I agree with his post that it will be a net positive in that other companies will have to ’shore up’ their positions.  I like how he put it..Marc says “if the Microsoft/Yahoo deal does go through, those same companies in many cases will be looking down a very scary double-barreled shotgun of an ascendant Google and an armored-up Microsoft”.   

As I mentioned in my previous posts, entrepreneurs and big companies have to understand the mentality in a war time venture.   If a business big or small gets caught in the battle during wartime, they need to be a supplier or arms dealer.  

Here are a few strategies for business during tech war time:  1) be a supplier or arm dealer, 2) build value and cash flow positive and stay out of the way - bunker away, 3) pick a side and join their mission.  

Entrepreneurs beware Microsoft buying Yahoo could shut down the tech startup scene.  It could send the startup climate back to 2001 levels - nuclear winter shut down.  I lived through 2001-2004.  It was ugly.  

Brad Burnham has hit on a narrow topic about the downside of the Yahoo buyout for Silicon Valley.  Brad’s story is very relevant with ‘macro’ implications to the tech world not just Silicon Valley.   This deal could cripple startup activity.

Efficiency for Microsoft means leverage with suppliers.  Translation:  Startups are suppliers and Microsoft just became Walmart.  This could have a chilling effect on the VC and tech investment community.  This new industry structure puts even more of an emphasis on ‘hits’ or category specific deals.   If the Venture Capitalists are confused today can you imaging what they will do going forward.   This could get ugly. 

Advice for Technology Startups and VCs:  Understand where your company is in the pecking order in this war.  If you’re not an arms dealer then you might want to rethink your strategy. 

Update:   others are thinking the same….  A VC -Fred Wilson; Opportunity for another big player to bid:   News Corp.