Angel Investing/Venture Funds: January 2012 Archives

I just read Mark Hendrickson's post-mortem for Plancast on Techcrunch and the section on sharing frequency hit a chord.

When I meet startups, I mentally run their product or service through this test, which is the test of frequency of product usage by their customers. Simply put, if the frequency is high, then their product idea stands a greater chance of surviving in the marketplace. If the frequency is low, then the probability of dying is much much higher.

What do I mean by frequency of product usage?

When a user uses a product tens or hundreds of times a day, this is the dream - to work on a product that is so necessary by a large customer base that they need to use it that much! An example of this would be email - too bad it was created and set free to the world because someone could have made a lot of money on that, or at least in the early days.

Once a day is not bad either. Once every few days still OK. I read the New York Times email digest and website once a day generally, so I can remember to go there. What about the other news sites? Hard for me to remember which ones I do read when I visit them so infrequently.

Once a week - hmmm - getting to that limit. Once every 2 or more weeks and I think you're in trouble.

That's because people forget very easily what services and products they use, especially in this crowded world of me-too products. When your memory is sketchy, it's easy for someone else to hop in there and supplant you.

Take travel services for example. How often do people really go on vacation? Normals tend to go maybe once a year, if that. If I find your site, use it to plan a vacation, and don't worry about going on vacation until next year, do you think I would remember to come back to you? If you're a startup, the odds are against you that you'll even be alive by then.

This goes for both consumers or enterprise customers - if a business customer doesn't find a daily or constant use for your product, then how can it find some justification for buying your service?

That doesn't mean that what you're working on shouldn't exist, or couldn't become a big business. The big problem is that you're a startup with limited resources and survivability and some lower frequency services should really be done by more established companies. You, on the other hand, need traction and revenue as fast as possible before you run out of money. This is why frequency of usage is critical at early stage; if you have a product that people only occasionally want or want at special situations, you'll never be able to build enough customers before you die.

So you have three choices. Either you must work on something that has a high frequency of usage, enough to attract users who find you useful enough to use often enough to keep coming back; OR you must find a way to buckle down and exist long enough for enough customers to sign up and generate enough traction and revenue for you to survive as a company. There is one other possibility and that is to add some high frequency elements to your low frequency of usage service to keep interest in and around your main service, despite the fact they may actually use the main service only intermittently.

Any of these could work and convince me to invest but working only on a low frequency of usage service in today's super crowded marketplace definitely will not.

This week I went to a board meeting. It was one of the best board meetings I've been to in a while because it was organized, efficient, and it went fast - about 1.5 hours. We talked about the important high level strategic things we needed to talk about, set actions, scheduled our next board meeting and adjourned.

I thought back over the last year about the many other board meetings I've attended. I thought about why some of them took much longer than 1.5 hours and seemed to drag on and on. One thing I could think of that did stand out was the presentation of product screen shots and the subsequent discussion about the product.

Now I'm not against all discussion of products in the board meeting. You should present the product development pipeline over the next few months or quarters. You can give an overview of the important major products, features, and services you'll be launching (or killing). You can talk about holes in your offering and what competitors are doing that you are not and to have board level approval of a given direction.

But almost always, what derails a board meeting for some lengthy period of time has been the presentation of a product, some deeper dive into features, and the dreaded product screen shots throughout.

When this happens, then the comments come out. And ideas. Lots of them. Innovative ones, some good, some terrible. Everyone wants to chime in and make the product better. They start commenting on the design - the colors, the interface, the copy - everything.

Why not? It's up there on the wall projected for all to see.

Is this bad?

At a high level, no. We should have these discussions about the product. They should involve all the important people they should.

But I would argue that this should not happen at a board meeting.

Board meetings are time to touch on all the major strategic, high level initiatives of the company. It provides oversight and governance, and drives the strategic direction of the company. You get a lot of experienced people in the room who have run companies before and they tell you where you are doing well, where you are doing better, and where you are heading towards danger.

And you take care of board level business like approving acquisitions, key hires, option grants, etc.

I just don't think a board meeting is where you'd want to also have a big product discussion.

Then everyone jumps into the fray, and these discussions go every which way. The discussion is good, but the clock is ticking. All the while I'm glancing at my watch wondering when we're going to get back to the main agenda since we're off on a tangent now and have no idea when we're getting back on track.

Eventually we do, but now a 1.5 hour board meeting has turned into a 3 hour affair. I look back and always note that if we didn't have that product deep dive and discussion, this meeting would have been less than 2 hours.

There is a time and place for product reviews and discussions. Let's schedule a separate meeting to do a focused presentation on it. We can ask for specific feedback, ask people to try it out, present research and findings on why we're doing things a certain way or not.

Board meetings just aren't the time to do this. Every time, inevitably the board meeting drifts and valuable time is used up when it shouldn't be. So please, let's just let board meetings be board meetings, and if you want to have a great product review, let's set up a separate meeting for that where we can be prepared and have a great focused discussion on it, and not waste valuble board meeting time with it.

As I've said before, ABR. Always be fund raising. It's just a part of your ongoing activities as a founder. Sure, you might not like it. It might not seem 'core' to your business success. It is. Building a business is not about only building a product and seeing if customers like it. You can't just do those things in business that you enjoy. Make fund raising a habit. Don't only engage every 18 months.

- How to Develop Your Fund Raising Strategy by Mark Suster

Every year, I meet entrepreneurs who say they hate fund raising. They don't want to do it, they want to get it over with, they wish they could go back and build their business, doing the coding/designing/etc.

I hate it when they say that.

Fund raising is a necessary evil. YOU MUST DO IT. Without it, your company can't survive. You need the money to get to the next level.

But I hear that nobody wants to do it.

Yes it sucks. Begging for money sucks. From the first time you begged your mom for money to buy that comic book to now when your begging investors for money, it still sucks.

I'm sorry but I'm tired of hearing it. As Mark Suster says in that quote from his latest blog post, it is something every founder needs to do and do well. If you aren't good at it, then there is no better time to start learning how to do it then when you're raising money for your startup.

It never stops. It seems like it does, but as Mark points out, it really never stops. As a founder, you are always out there selling yourself and your company. You need to start building these relationships early, as soon as possible after raising your first round. Big money is best gotten through familiarity over time, not social proof, not a quick glance at a deck, not an emotional reaction to the coolness of your screen shots. So you better get good at selling yourself so that you can get needed money later when you need it.

Raising money is a rite of passage to being a real entrepreneur. Yes it's uncomfortable. Yes it seems like it wastes your time. But it IS a big part of building any business.

So get over it. Get comfortable with it. Use this time to figure out how to sell your startup and get people to invest in you and your venture. Go out and raise your round whether it takes 1 week or 12 months and stop complaining about how much it sucks. The future is filled with things you'll have to do for your startup that suck - you need to get used to doing things that you don't like and get good at all of them if you're going to excel as an entrepreneur.

Today, Brad Feld tweeted this great post about science fiction and its role in prediction and driving the future.

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In a roundabout way, it took me back to grad school at Stanford in 1989 when I was working on my Masters in Product Design, before the department officially became the d.school.

It was when I first heard someone (my graphic arts professor Matt Kahn) say that designers need to travel more in order to broaden their horizons and in increasing their worldliness and knowledge, they could create better designs and become better designers.

Back then, I wasn't very worldly. I didn't care much for traveling or seeing other places. I was from Poughkeepsie, NY and led a pretty sheltered, enclosed life. I hadn't traveled much as a kid and didn't really understand why I might want to travel other than to hang out on a beach. Besides, it cost money which I didn't have at the time.

Time went on, and I got the opportunity to travel more, and slowly but surely seeing other cultures and meeting the people in their broadened my perspective greatly as it related to design. Somehow the expansion of consciousness made me more effective as a designer.

After that, I sought to learn about as much about the world as possible in all aspects. I read everything. I devoured books and magazines on not only design but technology as well. Later, I expanded this to all sorts of topics, ranging from news to economics to everything. I knew enough about a lot of things to be dangerous but it was extremely effective for making me a better designer (and also helped me to be a better conversationalist!).

Which brings me back to science fiction.

Before my consciousness expanding realization, I have always read a lot. But that was limited to almost exclusively science fiction. But now my science fiction reading had another benefit.

As Cory Doctorow wrote in his post, A Vocabulary for Speaking about the Future, science fiction authors are great at painting pictures of the future. Perhaps they are terrible at predicting what the future really might bring; still, they are great at showing us what the future could potentially hold and thus can be extremely useful in expanding our consciousness for creativity in design...or in venture capital.

VCs need to have some intuition about how the world will be in the future as they are betting on things now that will hopefully be big later. In order to do that, you have to be creative and imaginative; you can't analyze what the future brings - look at how Wall Street experts did back in 2010 predicting what would happen in 2011. You can only imagine what the world will be like and then make your bet.

To beef up your intuition, you need to expand your consciousness through travel and experiencing other peoples and cultures and expand your knowledge base to cut across as many disciplines as you can handle. In doing so, you will release all the negativity that only comes with analysis of the future which is unknown and can't really be analyzed. And what better way to increase your creativity of vision of the future than to have people lay it out for you in the form of novels and short stories?