It’s not the idea, it’s you (or them) that’s the problem

Young entrepreneurs often confuse investment with validation. This leads to a lot of frustration towards investors passing on what seems like the most promising opportunities (especially if the opportunity is yours..). From the investor’s perspective though, investment is an elimination game, there are a lot of good (and some bad) opportunities at any given point. Supply (of ventures) always exceeds demand (actual investments) because at the end of the day, time is finite and that is the most demanding resource technology ventures require.

What makes this even more frustrating is that rarely do investors give you back direct feedback to explain their decision. Both because they don’t like to tell you they made an intuitive decision and because they always want to leave the door open that you will come back to them again next round after you have proven your ideas.

So you have the next Google (you also traveled to the future to know that, but can’t share that with anyone) and investors are still passing on your superb venture. Why is that?

Does failing make a better entrepreneur?

Imagine you are given 10 dollars to invest by allocating them between 3 different entrepreneurs (you have to invest in all 3) who are starting a software company (which you know nothing of) and as far as you can tell the only difference between them is their track record. The first has had 1 previous company, which generated a 5x (so they got back 5 dollars for every dollar invested) return for the investors.

Failure caption courtesy of failblog.org

The second has had 3 companies and all of them have either closed or sold for loss.
The third is just starting her first company.

How would you allocate the money? who has a better chance of making it?  the more experienced? the most successful? or maybe it’s the purest of minds out of the 3 (the one who hasn’t tried yet).

An interesting research explains who and why.

David the innovative entrepreneur vs. Goliath the large, powerful, dominant competitor

Competing with the large players on their own terms won't get you far

One of the most common questions an entrepreneur gets when socializing his idea or start-up is “you do know that Microsoft/Cisco/Oracle <place name of a relevant large corporation> is already looking into that field, right?” . As i often tell people, there better be other people looking to solve the same problem as there is no better validation for it. The bigger the company that is looking into that area, the better. That said and done, just trying to do a “me too” or “me cheaper” while competing with the big company is a hard way to win the fight for a start-up. So how does a small entrepreneur makes gains  in a market eyed by large players?  I recently read a book called “Beginnings – first times in the bible ” by a known Israeli author, Meir Shalev, who takes a look at a lot of the famous stories in the Hebrew bible and sheds a brilliant secular light on them. One of the interesting chapters in the book was about the David and Goliath battle and how David’s use of innovative technology and go to market strategy  in the battle shifted the forces to an unpredictable ending.

Mad Men vs. The Matrix – Human Relations or Human Resources?

Human relations (Mad Men TV show)

Human resources (The Matrix)

In the unlikely event that you have never heard of Mad men, it’s  a TV show taking place in a growing advertising agency in the early 1960’s. the show is known for its attention to details and the general sense of nostalgia it projects for the way things were back then. If you start seeing an uptake of smoking and drinking in company meetings, you now know where it came from. In one of the episodes, one of the account managers is fired for poor performance (related to falling asleep on his desk due to chronic heavy drinking). In order to fire him,

What’s luck got to do with it?

It is very common when people ask me about the B-hive story (my previous start-up i co-founded and was acquired by VMware in 2008), that they want to know how much luck was involved in the success and timing of it all. I personally think think luck had very little to do with it but it seems like if you ask some of our brightest technical minds, they would feel luck played a bigger role. here is what i think about luck in general and its role in technology start-ups.

Demotivational poster borrowed from http://www.marcofolio.net/

1.The belief in luck

luck is a religion in the sense that a person that believes in luck basically assumes control to his fate to an external force and that force is a contributor or a detractor mostly to his goals. in addition luck is viewed as an innate treat (you are a lucky guy or bad luck ruins everything in your life) with some vague social rules that define how you can please or upset the gods of luck.  like religion (which according to recent neuro-psychology studies seems to be part of human evolution), Luck helps in providing a set of rules that binds a group and deters foreign group members and it also reduces the burden of responsibility on our actions in life.

BizSessions 1.0 – The rising theory of the lean startup

On July 14th, we had our first BizSessions event (which i helped get off the ground) in a San Francisco venue.  

The general purpose of the event (www.bizsessions.com) is to help tech entreprenuers get more insight into business side of making a successful startups.
The theme for the first event was funding in current cash startved times in which we explored the state of the VC industry, the growing trend of smaller early-stage VCs and the entrepreneur perspective on running a start-up without funding vs. taking VC money.
The panel included 4 members (two entrepreneurs and two VC members):

Why something for someone is better than everything for everyone

Malcolm X said that if you don’t stand for something you will fall for anything and this stands just as true in the world of technology start-ups.

The reality is that most technology start-ups start around cool technology that engineers came up with (even though the stories in retrospective often might say differently). the problem there is that for engineers, the bigger the problem you solve, the better the solution is and engineers just love better solutions.

in the past two weeks i happened to talk to two different start-up CEOs from very different markets (consumer vs. enterprise) who had the same problem, their technology was just too good

How to make sure you never get funded again

In the story that appeared yesterday on TechCrunch, the founders of a company called Mochi Media went to the press to try and kill an acquisition deal that their investors favor and the founders don’t.

Here is why the story irks of BS and how it should have been played:

1. You are worth what people are willing to pay for you

The founders claim the current offer is low and shouldn’t be accepted because of an offer given a year ago (and declined by the investors) gave the company a $65m valuation. The reality is that like the housing and  stock market, your asset is only worth what someone is willing to pay for it. In this case, if the founders are sure the company is worth more, go shop for another offer and bring it to the board, this would be the only way to prove the company shouldn’t be sold at all or at least sell to the highest bidder. A year is a long time and number thrown in the air in the past means nothing to the question

There are so many ideas/ we have no ideas – how do we choose one?

With the team in place, all that is left are two things, the first is to start solving a problem that your team can deliver and that someone will need a solution for  and the second is to execute.

There are two common ways to set the direction of the team, you either start from the solution or you start from the problem. when starting with the solution you might have a concept of something cool that someone needs but you can’t really articulate the who, why and when they would pay for it  and most probably, the problem you will end up solving will be very different than what you had in mind when you started. when starting from a problem you know of a hole that needs or will need  to be filled and you have some idea about how you would start building the solution but most chances you will discover the biggest challenges from the technology side after you started implementing the solution.

The problem you want to solve should take these 3 domains into account

Team vs. Problem/Market

There is an on-going debate about the success indicators of  young start-ups. One camp says a good team and on “OK minus” Problem/Idea/Market is good enough to predict the success of the start-up while the other camp would say that if the team is OK and the problem they are tackling falls in a hot market is good enough.

As i mentioned before, I am definitely on the camp that says it’s all about the people. I also think that if you are starting in a market that everyone knows that is “hot”, it’s going to be a crowded ride.

So what does a good team look like?