Altos Ventures Musings

A Little Warning For All Those Skeptics of the iPad

Boy people sure do seem to hate the name iPad. I heard that iTampon was the #3 trending topic on Twitter yesterday! 

Here are some things that people said about another Apple product - the iPod. IPOD stands for:

• "I Pretend it's an Original Device"
• "Idiots Priced Our Devices"

To be fair, there was so much hype leading up to yesterday's announcement that perhaps there was no way even Steve Jobs could meet expectations. The iPad was supposed to change the world. Create a whole new category of gadget, which, according to Walt Mossberg and others, Steve has never done. By their definition, the pundits will say that Steve Jobs did not create anything new here either. 

Here is another good quote about the iPod from October 2001 (it sounds like many quotes I heard about the iPad yesterday):

"Apple has introduced a product that's neither revolutionary nor breakthrough"

Finally, here is a link to a video of Steve Ballmer laughing about the iPhone in 2007. 

http://www.engadget.com/2007/01/18/steve-ballmer-laughs-off-the-iphone-deems-it-most-expensive-i/

For me personally, I believe the iPad will be the leading product in a killer new category. It has been nearly 10 years since the iPod launched and competitors still have not caught up. I think we could be saying the same thing about the iPad 10 years from now. The integration of hardware (including their own A4 processor - a huge move) and software should keep them in the lead as long as they continue to execute, as they have with the iPod and its successors, including the iPhone. 

I've been anticipating the iPad ever since I got my hands on the Kindle. The Amazon folks have been expecting it too (Apple has been the only competitor the Kindle team feared). 

Over the past few months, I have been anticipating the iPad even more as I have used the iPod Touch and Nexus One more and more as content consumption devices. The Touch, in particular, is just a dream to use; it's really a pleasure. Even though the screen is not nearly as good as the Nexus One (or even my Blackberry) the tactile feel and responsiveness to the touch in my hand as I scroll through information is matched by no other devices I've ever used. Believe it or not, the Touch is the only Apple device I use. I am NOT a particularly big Apple fan. I don't use Macs (although I still do have a 10 year old Mac) and I gave away my iPhone after a year of frustration. 

I am a very loyal Windows and Blackberry user. Yet I have seen glimpses of a product experience that is truly magical with the Touch. If the Touch had the screen resolution of a Nexus One, it would be my only handheld content consumption device. For certain types of content, it's better than my Blackberry, PC or the Kindle. In my office, I have a fantastic laptop which connects to a beautiful, large scree which extends the screen real-estate of my PC. I love working at my desk. But even as I sit in front of two large screens, I often find myself interacting with certain pieces of info on my handheld devices. It's just more intuitive and pleasurable. 

I believe the iPod Touch is one of the most under-rated electronic gadgets ever. However, I have no doubt that Steve Jobs understands its importance. The Apple people know the numbers. Both unit sales and usage/content consumption have been going through the roof. The iPhone gets all the attention but the Touch has quietly become a juggernaut. The iPad, or the "iTouch XL", as some call it will be even bigger (literally and figuratively). It will unleash a whole new content consumption experience. It believe it will become my favorite device. 

In the enterprise world, there are transaction processing systems which require databases that you can write to as well as read from. There are also read only or "mostly read, occasionally write" type of systems which require a totally different database architecture and computer systems. In the consumer world, PCs and phones are much more like transaction processing systems. I use those devices to get work done. I don't find much pleasure using those devices. I just want to be super efficient.

I believe in the personal computing world, iPad and similar type of devices will become the "mostly read, occasionally write" devices that the vast majority of consumers will use and come to love in the coming decades. 

Reference Links:

http://www.businessinsider.com/itampon-reaches-3-on-twitters-trending-topics-2010-1

http://www.wired.com/gadgets/miscellaneous/news/2001/10/47805

http://www.guardian.co.uk/technology/blog/2010/jan/28/apple-ipad-bashed-bloggers-web

http://mossblog.allthingsd.com/20100127/apple-ipad-impressions/

What Makes a Great Teacher (and Entrepreneur)?

Thanks to a tweet this morning by @angusdav I came across a great article in The Atlantic about "one of the most stunning findings to come out of education research in the past decade." Here is the punchline: "more than any other variable in education — more than schools or curriculum — teachers matter." 

So that leads to the question what makes a great teacher? (It's the title of the article).

Here are some qualities of great teachers that the article highlights: 

1. "Relentless mind-set" 
2. "History of perseverance - not just an attitude but a track record" 
3. "Grit - defined as perseverance and a passion for long term goals" 
4. "Life satisfaction" which is later defined as enthusiasm - a zeal for life which is contagious. "The best teachers are more adept at engaging their pupils." 

The article struck a chord because, as a venture capitalist, I look for such traits in entrepreneurs every day. It also resonated because my brother is a great high school teacher whose work I've admired for years. I've always thought, even when we were kids, that he would make a great entrepreneur - and the article helped connect the dots.  

Then when I thought about it, people with such characteristics make a difference in ANY endeavor. I would wager that if you did similar research in any field, you would find that a very small number of people make all the difference in the world. Across all fields, there will be common traits among the super-stars and such traits won't be far off from the ones outlined above.

Nexus One and the Real Reason to Get Excited Today

There has been a huge amount of hype surrounding the NexusOne, the Google phone, which was officially launched this morning. 

After playing around with my N1 for a couple of days during the Holiday break, I decided that it was not for me and asked my wife to give it a try. 

Before I go on, I should first explain that my wife is not like any other N1 user I know. She does NOT think that it's "cool" to use a super-secret device before launch. She could care less about technology. If it makes her life easier, then she will use it. If it does not, she will see it as a waste of time. 

Over the past 10 years, I have tried to get my wife to adopt all sort of gadgets (and software) that could/would make her life easier. She has rejected just about 99% of my recommendations. 

The only gadget that she truly LOVED was the iPhone. Yet, after 3 years with various iPhones she is ready to move on. It says something. Google has a real opportunity!

But what is really exciting is the rate of innovation in mobile. Carriers will no longer get in the way of progress; they will keep trying - but won't succeed!

My wife observed recently that there was a period when I went for years without upgrading my mobile phone. Recently, in about a year, I've gone through 5 phones (iPhone 3G, Nokia e71x, Droid,  Blackberry Bold 9700 and the N1). It's an exciting time. Competition is at an all time high and it will push every vendor, including Microsoft, to up their game. 

It's still a wide open playing field and we are early on in the game. The past decade has been a very tough one for venture capital. If I had to guess, the next 10 years will be a lot more exciting. We'll see...

Celebrity Investors, Board Members and Advisors

"The quality and quantity of the financial backing that HomeGrocer.com has received for this latest round of financing clearly indicates that we have a model that is both viable and sustainable." 

- Homegocer's CEO in 1999 Press Release announcing $100mm round 

Chris Dixon's blog post from today about how to select your angel investors talks about a common mistake entrepreneurs make - choosing an investor based on their "celebrity value (by "celebrity" I generally mean in the TechCrunch sense, not the People magazine sense)." 

The same is true for choosing VCs, board members and advisors. We've invested with plenty of famous VCs and board members who were extremely well connected to the CEOs and boards of companies such as Microsoft, Oracle, Cisco, Intel and many other Fortune 500 companies. 

In our experience, celebrity investors and board members do little to help entrepreneurs do what they need to get done. They offer little in the way of strategic or practical advice about hiring, firing, product development, closing deals and financing. Even worse, sometimes the advice can be out of touch with what is going on in the industry or company but due to their celebrity status, some off the cuff comments can carry too much weight. 

Perhaps the most value that celebrities bring to the table are connections (even Chris in his blog post applauded "connectors" who can "introduce you to key people when you need it"). In practice, however, most people with great connections guard their rolodexes. 

Even when an intro is made directly to the CEO of a BIG company, it will get passed down the organization (usually down several levels) to the real decision makers. If the company is well run, the CEO will let his/her people make the decisions. 

If you do choose to use high level connections to force a deal through you should be warned that such a deal can backfire. If you don't take the time to build real support with the right people in the organization, they can do many things on a day to day basis which can ultimately sabotage the deal down the road (and distract you from what you should have been doing in the first place). 

My advice to entrepreneurs is to build your own buzz, based on fundamentals (an excellent banker advised one of our companies to "build your own heat" - it was good advice). You have to deliver real value! 

Also, please, please, please focus on generating your own leads. No matter how big your board or how well connected your advisors are they will NEVER produce the quantity or quality of leads your own team (and sales/marketing engine) will produce for you if you are going to be successful building a real business. 

In my experience, the entrepreneurs who see the most value from celebrity investors/board members and "advisors" build nothing of real value themselves. On the flip side, the best entrepreneurs see little value from celebrities (in fact, they probably find them distracting, if not somewhat annoying). 

Ironically, celebrities begin to embrace entrepreneurs once they think they are going to be successful anyway - with or without them. As it turns out, most celebrities need you more than you need them.

As far as I'm concerned, the real stars are entrepreneurs who create something from nothing.

Disclosure: As Chris D. admitted, as a non-celebrity but hard working small investor, this post is almost entirely self serving.

Overcommitted

Hard working entrepreneurs and their companies often feel over-committed. There are always too many things to get done and not enough resources.

One of our companies that is growing at 200%+ this year was feeling that way and we had a serious discussion about various options. One was to do a better job of account management so that expectations of customers and partners do not get ahead of our ability to deliver. Another option was to raise more funding and hire more people. A third option was to make tough decisions about what to cut (this is not an exhaustive list but will give you a flavor for the discussion).

The third option is a hard one to swallow, especially when things are going well. We have customers lining up and a window of opportunity that may close if we don't go for it - NOW! An easy answer would be to raise more money and ride the momentum.

After much discussion/debate, we made a decision to cut. We did not cut people. In fact, we will continue to hire. But we cut some very promising initiatives and we will have to turn away customers that are ready to pay (or have already paid).

Cutting can be scary, but it can also be liberating. It is not 100% clear that we made the right decision but here are two interesting quotes to think about, if you ever find yourself in a similar discussion with your board/investors:

"The essence of commitment is making a decision. The Latin root for decision is to 'cut away from,' as in an incision. When you commit to something, you are cutting away all your other possibilities, all your other options."
    -The Lombardi Rules, Rule #6 - Be Totally Committed 

"A great company is more likely to die of indigestion (from too much opportunity) than starvation (from too little)."
    -David Packard ("Packard's Law")

A Modest Proposal for the Venture Industry: Better Customer Service

There has been much talk lately about the demise of the venture capital industry.  Big funds are imploding after a decade of poor industry returns.  The causes are many: wacky capital markets, Sarbanes-Oxley regulation, ballooning fund sizes, misaligned incentives, generational turnover, etc.  Reviving the industry was such a big topic at this year’s National Venture Capital Association meeting that NVCA leaders issued a bold set of proposals to jumpstart the industry.

I haven't spent much time trying to dissect the causes of our industry’s current malaise.  But one thing I know for sure is that we are doing a lousy job of basic customer service.  How bad?  If you google “venture capitalists suck” you will get more results than “United Airlines sucks”.  A totally inaccurate measure to be sure, but to be anywhere near United Airlines on the suckage scale is not something that our profession should be proud of.  I think we can do better. 

So let me make a more modest proposal.     

We venture investors could do a lot for the reputation and health of our profession by getting back to the basics of good customer service. 

Many of us have forgotten that our business, after all, is to serve investors who entrust us with their capital and entrepreneurs who entrust us with their dreams.   Having raised money at three start-ups before starting in venture, I have more than a few opinions on how venture professionals could act more, well, professional.  Let me start with a few simple ones:

1.    Return calls (and emails)
One of the classiest and most successful venture investors I’ve ever met is Brook Byers of Kleiner Perkins.  Early in my career, I asked him at a panel discussion to share the secret to his success.  He explained that one of his basic rules of doing business was to call people back by the following day.  It sounds so simple, yet every week I talk to entrepreneurs who drive themselves insane wondering when the VC they met is going to call them back.  I’m not talking about unsolicited inquiries (only the appropriate ones of which deserve a response); I’m talking about getting back to people with whom we’ve already met.   Email overload is no excuse.  Not when we’re checking our Blackberries every five minutes.

2.    Pay attention
Which brings me to my next suggestion.  I vividly recall pitching my third startup to a famous Sand Hill venture capitalist back in 1999.  We had studied his portfolio, prepared a customized presentation and shown up early for the meeting, only to have him spend the hour distractedly munching a bag of peanuts and tossing the shells on the table in front of us.  Now that a decade has passed and peanuts have given way to Blackberries, it is a rarity that I sit through a meeting where a VC is not checking email, surfing the Web or popping out to make a phone call.  What’s the point of making all the physical effort to get face-to-face only to be mentally absent?  I’m as guilty as any, so let me resolve immediately and publicly to put my Blackberry away when meeting with entrepreneurs, or at least use it as a drink coaster.

3.    Just say NO
Given that we need to turn down 99% of the ideas that come our way, you would think that VCs would be pretty good at saying “no” to entrepreneurs.   The best salespeople and entrepreneurs know that a quick “no” is better than a long “maybe”.  Some of my VC colleagues don’t like to say “no” to keep their options open for a potential investment, but the vast majority just don’t like using the two-letter word because they are nice people.  They hem and haw and say something about having to “talk to the partnership”, then worry for weeks about how to make up a reason for declining the opportunity.  I’ve resolved to either tell entrepreneurs in the meeting or get back to them within a week.  It sure has made my life a lot easier and I hope it’s helped them waste less of their precious time.

4.    Be accountable
All this is easy to say, but aside from some community rating sites like thefunded.com, venture capitalists are simply not accountable to entrepreneurs.  At Altos, we’ve begun measuring the time it takes us to get initial and follow-up responses to entrepreneurs, but we are by no means perfect.  For a profession that generates all of its returns from the hard work of entrepreneurs, we sure do a lousy job of customer service.  So hold me to what I say.  Call me on it.  If I (or my partners) don’t follow my own advice in this blog, just email alee@altosventures.com and you’ll get a response from me.  If I still don’t get back to you, then you should probably give up on us and try United Airlines instead.

Top 10 VCs on Facebook

We recently set up a "Page" on Facebook (we had to get 100+ fans before we could lock in the official URL www.facebook.com/altosventures).

Given that Facebook Pages is becoming a web within the web, I wondered how many other VCs had set up official Pages. As it turns not, not many. From browsing around, I came up with a list of the top 10 VC Facebook Pages. If I missed a VC firm that has a significant presence on Facebook Pages, please let me know. I'm curious to learn about how they are using Facebook to connect with entrepreneurs, LPs and others people in their networks.

Top 10 VCs on Facebook Pages (as of 8/28/09)

1. Accel Partners (1,407 fans)
2. Sequoia Capital (1,001 fans)
3. Union Square Ventures (947 fans)
4. Kleiner Perkins Caufield & Byers (383 fans)
5. First Round Capital (314 fans)
6. Altos Ventures (264 fans)
7. Greylock Partners (261 fans)
8. Draper Fisher Jurvetson (253 fans)
   
9. Benchmark Capital (153 fans)
10. Hummer Winblad (59 fans)

Then I decided to take a look at some random tech companies and brands to see how many fans they had. The results were surprising. Some very large companies/brands had no official presence at all (i.e. Apple). Some were definitely using Facebook in better ways than others (Stanford vs. Harvard is an interesting contrast). 

Notable brands and their Facebook Pages:

• Google (305K fans)
• Youtube (3.5M fans)
• Yahoo (84K fans)
• Microsoft (72K fans)
• Oracle (11K fans)
• Stanford (41K fans)
• Harvard (0K fans)
• Barack Obama (6.6M fans)

For comments on this or other blog posts going forward, please do so on the AltosVentures Facebook Page.

Twitter Envy

After what seemed like the biggest PR week ever for a start-up, I did a Google News search this morning on "Twitter" and found 1,612 news articles. It was more than twice the Google News results for Facebook, Google, Microsoft, Amazon, eBay and Yahoo! COMBINED.

Last month, Seth Godin wrote a blog post talking about the difference between PR and publicity. If great PR is the strategic crafting of a compelling story...just what is the Twitter story? Can there be a credible story without customers (not users) and how they make money?

Before you get Twitter envy and start doing dumb things (like Facebook did changing its homepage) be sure you understand what your true mission is as an entrepreneur.

An entrepreneur's mission is not to get publicity or to become famous. It is to build a company. Without revenues and profits, you cannot have a viable company.

There is no doubt that Twitter has innovative product people and great engineers to be able to handle scalability issues. But let's just see if they will still be around when their venture funding runs out and the hype dies down.

In the meantime, don't learn the wrong lessons from Twitter. Don't rush out to hire a new PR agency. I've seen plenty of companies get hyped, raise huge amounts of funding, and land speaking gigs and magazine covers all around the world. It doesn't mean they will make it. In fact, it might decrease their chances (don't confuse cause/effect).

Yes, they might get lucky and flip the company for a princely sum (as Youtube did). But I doubt they will build a successful business or a lasting company.

What is your definition of success? PR or publicity? Build your company or your reputation? Build to last or build to flip?

Burn the Ships!

The past 6 months have been two of the toughest quarters in decades. Almost every company is struggling - but some are surviving and some are not. What separates them?

I want to share an observation. There seems to be one common theme across every Silicon Valley company that I've seen go out of business. For some reason, the management of companies that abruptly shut their doors thought that they would get more funding. It could have been VC funding, debt financing or some other source of outside capital. That was their back-up plan. They were counting on it.

If you are an entrepreneur, you should have the attitude that there will be no-one to save you. There will be no outside capital. You have to generate revenues, cut costs, make the business model work - or find some way to survive until you do.

This doesn't mean that entrepreneurs should not raise any debt or equity financing. It just means they should never, ever count on it.

In Silicon Valley, it almost seems as if entrepreneurs count on VC as a business model. They aspire to become adept at raising VC money and "exiting" in a few years. What ever happened to the idea of building a real business, funded by paying customers? How about building a company that can stand alone, built to last?

In a book called Predictable Irrational, I found a story that every entrepreneur should think about.

In 210 BC, a Chinese commander named Xiang Yu led his troops across the Yangtze River to attack the army of the Qin (Ch'in) dynasty. Pausing on the banks of the river for the night, his troops awakened in the morning to find, to their horror, that their ships were burning. They hurried to their feet to fight off the attackers, but soon discovered that it was Xiang Yu himself who had set their ships on fire... With their ships gone, the soldiers had no route of retreat. Winning was the only option. 

They won 9 battles in a row before defeating the mighty Qin forces.

If you are an entrepreneur and you think that you will need some more funding to survive - or thrive - I have one piece of advice for you. Burn the ships.

Fat and Happy

One of the biggest challenges that start-ups face is inertia. When you hear comments like “things are fine the way they are” or “there is no interest in making a change right now,” entrepreneurs, or any pioneer, will have a very difficult time making headway.

If you're an entrepreneur, I have good news for you. Fat and happy people are in short supply these days.

The world is ready for change. This means that you will be able to accomplish things that were simply not possible before. Isn’t this is one of the reasons that someone like Barack Obama got elected President of the United States?

Entrepreneurs are not only the agents of change, they are the beneficiaries (see creative destruction).

This is not a time to panic. This is the time to act and to take advantage of the great challenges and opportunities that lie ahead.

Over the past few months, I’ve sensed a subtle but real change in attitude. The ones who are not paralyzed seem more determined than ever. People seem more hungry, more creative, more open minded. They are also more realistic. They face problems with new resolve.

Of course, not all start-ups will do well during tumultuous economic times. But I also believe that it is during times like these, when everyone is NOT fat and happy, that the conditions are most ripe for great new companies – and perhaps great new industries - to come out of nowhere and help change the world.