A couple of suggestions from a VC, Josh Kopelman of First Round Capital:
If you come to a fork in the road, take it.
[My first company] Infonautics was in the right place in the right time — but made some wrong decisions. (Or, as Yogi said “We made too many wrong mistakes”). We were so locked into our initial strategy and vision that we were unwilling to “pivot” in response to changes in the market. We had all of the necessary ingredients (funding, search technology, data center, hardware, engineering team, and consumer interface) but were unwilling to change the recipe. Some of the most successful companies have been “pivots”. PayPal started out as a service to beam money through Palm Pilots, while YouTube was originally a video dating site. The truth is that early stage ventures are all about experimentation and iteration. As soon as it’s written, every business plan is wrong. Good entrepreneurs recognize this, and tend to build agile teams that can quickly respond to early market information in order to identify a real business model and minimize risk.It ain’t over till it’s over.
Boy, do I wish Yogi could have been on the Board of Directors of Infonautics. We made a huge mistake by calling “game over” too early - we had already conceded the game during the first inning. (In fact, some could say that we called “game over” while they were still singing the National Anthem). When you are in the middle of the game, you don’t have the benefit of being able to look at the scoreboard to tell you what inning it is in - but I’ve learned that successful entrepreneurs typically resist the natural tendency to assume it’s later than it really is. And while Infonautics was successful enough to go public in April of 1996, the company struggled until it’s ultimate demise.
Now, a couple of suggestions from an entrepreneur (ie. me):
1- When it comes to feedback, get rid of the outliers. Your biggest cheerleader is a fake, and your biggest critic is a hack. The truth lies somewhere in between, up to you to figure out where exactly in between.
2- The people you hire will have good, bad and ugly traits. You can’t pick and choose the good traits alone. Every day, they will do things that makes you scratch your head, but so long as they more frequently do enough positive things, then it’s worth it.
3- Perspective is everything: Good news? Enjoy it because there will be some bad news coming down the pipeline. Bad news? Don’t sweat it, because it could be worst.
4- Respect? You only get it reluctantly, and if people respect you too easily, it’s because they don’t fear you and don’t expect much from you.
5- Manage with a Sense of Urgency: Wake up every day knowing that you have to grow the company like wild, but fear that this day/week/month/quarter/year is your last. Yes, life is a marathon, but the company you are trying to build might not see the light of day.
6- Patience: On the flip side, there is no such thing as an overnight success.
Anything else you can think of?
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Benefits of Online Media
Online media professionals love talking about how wonderful online advertising is because of the 2 T’s:
- trackability
- targetability.
We also like to make up words, as you can see. Anyway, combined, these two benefits give marketers the opportunity to have positive ROI (return on investment) campaigns when advertising on the Web.
Campaign Efficiency vs. Effectiveness
Personally, I agree that online advertising has what it takes to create more efficient campaigns, (though I need to give it some more thought as to whether the Web can make a message and campaign more effective). We still talk about Apple’s 1984 TV ad during the Superbowl, but I doubt anyone talks about the Orbitz pop up, at least not in the same vein.
However, I don’t buy the notion that any campaign - on any medium - returns a positive ROI immediately. I think in the very short term and over the very long term, yes, campaigns can be positive ROI, but most marketing is a form of investment, and as the recent crash reminds us: sometimes investments pay off, sometimes they do not.
Marketing Builds Brands, Brands Build Empires
As sales people, don’t tell would-be clients what they want to hear, tell them the truth: expect to lose money, maybe. But if you play our cards right, then through marketing you can build an empire. Think of Red Bull, or Grey Goose. Some of these brands were literally built on marketing and today they are multi-billion dollar behemoths. Do you think Mr. Bull or Mrs. Goose ran away scared after their first dollars on marketing didn’t gain market share or garner sales? Puh-lease.
Dark Cloud on the Horizon for Investors of VC-Backed Firms
I think what the economic crisis will do is make it all but impossible for 99% of VC-backed companies to have meaningful exits (positive ROE, or return on equity, let alone homeruns). The only way for most of these companies to do multiple-returns (2x, let alone 10x) would be for founders, management, existing investors to be wiped out when they raise additional funding down the road, which never helps morale or results.
Facebook’s $15B paper valuation is but one example, and that despite Facebook’s massive growth… in eyeballs.
Advertising and marketing are but one facet of all of the expenditures a company makes. But marketing and advertising come after a product has been conceived, designed, built and shipped out. To do all of that, it takes a lot of time, and money. Yesterday I came across this story:
Hammerhead, which shut down on March 19, could be a case study of how even startups with talented teams, proven technology and lots of venture funding — about $110 million over seven years for Hammerhead — can be thwarted by circumstances beyond their control, including industry turmoil and the current global recession.
$110M in funding? I cannot even imagine what that’s like. Of course, I am not building a would-be Cisco killer, so I could not even tell you if $110M made sense, even in pre-crash boom times.
Only Jokers Burn Money
Ultimately,
- it’s not enough to build a successful company,
- you have to do and provide a positive return on equity.
Back in the day when VCs still invested, they’d ask me: “how much money do you need to grow WatchMojo.com?”
Clueless about the VC’s desire to spend all of the money they’d raise from hapless investors, I’d say “not much, we can be very efficient.” I could not fathom spending tens of millions of dollars; always trying to do more with less, in the process I would turn off free-wheeling, mass-spending, world-changing VCs with the suggestion that we could do more with less.
I don’t want to sound like a hypocrite, either. If someone actually gave me a check for $10M and said “go spend this, we have more for you”, I am not sure I’d be so cavalier about this, either.
But entering our fourth year of operation, showing an aversion to spending other people’s money recklessly has inadvertently allowed us to
- retain a simple capital structure table, without the hassles that come with draconian term sheets,
- build a massive library of evergreen content,
- overcome the challenges that online video content producers face,
- benefit from pricing power to win guaranteed revenue business,
- build a successful syndication business.
That gives us the chance to add muscle as others scramble to cut off fat. In today’s climate, that is the best currency of them all.
