Venture Adventure

Today’s theme is failure.

We start with Paul Bragiel who disects his creation Meetro for TechCrunch. Well, he sort of disects the failure, but ultimately blames it on being too soon for the market, and claiming he could have fixed everything but was ready to move on to bigger and better things.

Next up is David Feinleib of Mohr Davidow, with an actual analysis of why startups fail. David’s thoughts (with my comments):

• Spend too much on Sales & Marketing before their ready
  
  Absolutely an issue – in the early ’90s, NeTpower had an inside sales force of 10 to sell MIPS based NT workstations – before we ever had a product of our own and were simply reselling ACER workstations. And were only selling about 5 units a month.
  
• The market outpaces the startups ability to executeI actually boil this down to simply Poor Execution. David mentions analysis paralysis, which is one cause. Another is just not understanding the time-frame by which startups operate. Chromatic Research attempted to create a kitchen sink multimedia processor ASIC and board while simultaneously creating an Intel x86 clone. Yet all of the internal managers and directors running these two very aggressive projects were ex-HP and believed in management by consensus. We could not make a decision on even the simplest of tasks without a quorum. My particular group had 3 leads, and our weekly staff meetings would run 5 to 6 hours!
  
• There is no EntrepreneurThis is super critical (and I expand upon this below). I’ve seen way too many startups where the founders are sidelined by the VCs for the professional CEO. While the professional CEO may know how to run a business, they have no passion for the technology or for the customer, and are often more interested in deals than in customers or product.
  
• The market takes too long to developThis is Meetro’s complaint. I was also hit by this at Silverback Systems, where we were too early in the iSCSI market. This is where a professional CEO falls apart. The lack of a market becomes an excuse for the lack of success. This was always the claimed cause of failure at Silverback Systems, where we developed an iSCSI offload engine ASIC.

  However, a Real Entrepreneur is able to adapt his company and product to the existing market. At Silverback, we could have retargeted our product (through software changes) to other markets, such as network processing and deep packet inspection for routers, firewalls, and DPI solutions. This is a market where a high cost low volume ASIC can succeed.

Bernard Moon follows up with some additional thoughts:

• Breakdown in team chemistryThis is really a Failure in Leadership. A fundamental component of leadership is team and personnel management. In fact, of Colin Powell’s 13 Rules of Leadership, only one doesn’t relate to people.
  
• Bad VCsBad VCs exacerbate bad situations – typically by making decisions either without truly understanding the underlying causes of the particular situation or without analyzing for unintended side effects and consequences.
  
• Not enough capital at the early stagesReal Entrepreneurs build a business plan so they truly understand what it takes to build their business. The Entrepreneur may do this in their head or on paper or on the computer, but the Entrepreneur understands the true cost of the business.
  
• There is no marketThis may be the Achilles Heal of the Real Entrepreneur – too much passion for the product may cause blindness about the market. And this is one area where good VCs and good advisers can provide significant value.

I think David and Bernard have hit it on the head, but may have missed a couple of critical items:

• Burgers vs. BusinessToo many people these days are creating startups with the intention of flipping them to a Google. Unfortunately, there are very few Googles, and even few ideas worth pursuing by a Google type company. If you build your business, eventually, it will be worthy of additional investment, either in the form of an IPO or an acquisition. If you build your business with the goal of flipping it a few years later, what happens when there’s no one to buy?
• Entrepreneurial PassionI touched on this before - many startup leaders – the founders and the leaders – are in the business to win the lottery – they all want to be the next Google. So, when they don’t win the lottery the first time, they’re unable to figure out what to do next. Real Entrepreneurs (as David says, with a Capital E), have a vision. But, more importantly, they have a drive to make that vision successful, and are unwilling to let anything get in their way. Real Entrepreneurs understand and internalize the old saw “Lead, Follow, or Get Out of the Way!”

As a summary, have a gander at Brad Feld‘s Famous Failures….

The other day, as I was discussing my company with an adviser, he started to ask about barriers to entry.  I have thought long and hard about this, and I believe that there are very effective barriers for existing market players which prevents them from doing anything similar.

However, I didn’t – and still don’t – have a good answer for barriers against new market entrants, and was freely willing to say so.

As I left our meeting, my adviser again commented on the subject, wondering both about patent protections and the potential for lawsuits (most some of my competitors are very willing to turn to lawsuits as a business strategy to tie down and defocus the opposition).

I commented that if we actually got sued, it meant we were doing something right, as we had become successful enough to appear on our competitors radar screen.  At that point, if we were in a defensible position (which is my intent), given our success we should be able to work our way out of the situation.

However, I’m not a strong proponent of software patents and didn’t have a really good answer.  In part because I had previously stated that should we be sued for patent infringement we could almost always rework our code to work around the issue.

Today comes word from Josh Kopelman of First Round Ventures and founder of Half.com that Half’s software patent was finally issued – 8 years later.  And that he and other VCs (Brad Feld, etc.) don’t really believe that patent (pending) is a valid barrier.

When I look at everything else about me, my partner, our concepts & architecture, experience, etc., I start to say, “we have XXX”.  Then I realize that everyone else has XXX as well:

• There’s no new black magic in what we’re doing.  We’re just integrating existing technology into a unique package that provides significant value-add for our customers – more so than any of the existing solutions on the market.  But once what we’re doing is known, others can emulate…
• We have significant experience in doing what we’re doing.  But there’s nothing that prevents someone else from forming a team with even greater experience to do the same things….
• We are domain experts.  However, there are other domain experts….

While having validated my views on patents, I’m still left with the open question….

About once every six months or so, the meme So You Want to be a VC hits the VC blogs that I follow. As usual, the VCs post wonderful things about both being a VC and how they got there.

What seems to be lacking is an understanding of the motivation. Why does the implementor want to be a manager? Why be a VC? Why does the founder want to be CEO?

As I talk to people, I’m always curious as to their motivations. I have many friends in the engineering world, and most don’t want to be managers. Most that are managers are their because that’s the only career progression to them. And those that really want to be managers usually understand that management is not just a step on the career ladder, but is a jump to a completely different job, with different requirements, tasks, risks and rewards.

I’ve also talked with a number of people, primarily while at SCU B-School, about why they want to be a VC. We even had some VC alums come and talk on that specific topic. The consensus seems to be that VCs get rich quick, and that they have first access to cool toys. But, of course, getting rich quick is not a job description, and most of these people are motivated by the money rather than the job.

The same goes true for many of the Founder/CEOs I’ve talked to over the years at the plethora of entrepreneurial/startup events I’ve attended. The typical founder/CEO is motivated to be a CEO as the path to wealth. But gaining wealth is really an insufficient motivator for the CEO role.

The CEO is responsible for many things – balancing risk/reward; employees concerns vs. customer concerns vs. board concerns; resource allocations; ROI; etc.

But, ultimately, as the Founder/CEO, I’m the father of the business. I give birth to the business through my ideas. I gather the resources required to help my baby grow. I work with my team, so that we all have the same goals for our child. I help our child to grow. Eventually, we have built a business that is successful and can stand on its own without my help.

There is a beauty and creativity to this that I cannot really express, nor can I find in any of my other activities. It’s this creativity and beauty that really motivates me.

I’ve never been a fan of twitter – it’s yet another disjoint communications medium that has a different UI, a different MO, and can be a real time-waster.  However, Larry on Found|Read gives us the new rules for twitter networking. The raw analysis is:

Basically, let’s take networking and make it more convoluted by throwing twitter into the mix.  But why?  Why oh why do you want to do this?

All I can think of is twitter buzzkill.

Sam Butrous, who I met at the CMU Startup meetup on Monday, found this.

July, 1992. I was taking a race-engine design/build class. I can’t remember who gave the class, but he was a good friend of Roy Howell, the Chief Chemist for Redline Oil. Roy came and gave us a talk about oils, and then we went out to dinner (I want to say at the Peppermill, on DeAnza, but my memory could be failing me).

Before the web, we actually communicated this information through mail lists. This one went to the Wheel to Wheel mailing list, which is still in operation 16 years later.

It’s nice that the Vintage Triumph Register reformatted it in HTML, but they missed on the crude ASCII graphics. Ironically, I was racing a Triumph Spitfire 1300cc in F-Prod at the time.

Stuff that I wrote pre-web is turning up in searches.  The Internet really is The Archive!