Author Archive

First Office: Arwen Funk, Real Estate Broker

Written by Francis Adanza. Posted in First Office

In earlier interviews Frank Bailey and Ed Correia each recommended using a broker as the most effective approach to finding an office. So I called Arwen Funk, a commercial and residential broker, to get some background. Arwen pointed out some potential land mines in leasing contracts such as property tax protection, methods of pass-throughs, and options to grow or adjust their office space. The Q&A that follows is an edited transcript of our call.

Q: Why do firms hire a commercial real estate broker?

There are a number of pitfalls in the leasing process; renting an office is not a cut-and-dry process. There is a lot of paperwork, sometimes with land mines you can run into from a leasing perspective. It can really help to someone who understands the process and helps you to prepare, explaining issues as you go and often alerting you to the implications of a situation. You should keep in mind, more often than not, it’s the landlord who pays the commission: so finding yourself a representative is normally effectively free. But even when you pay the commission, the up-front expense is normally worth it relative to how much an experienced broker can save you in unexpected costs. When you do it yourself, the three areas you can often get caught on are: property tax protection, reimbursements of operating expenses, and planning for their future.

Q: How are property taxes a risk area?

In the state of California, any property–commercial or residential–is assessed property taxes by its county government. When Proposition 13 passed in 1978, it limited California property taxes to no more than 1% of the assessed value at the time it was purchased, with increases no more than 2% annually. The assessed value is not necessarily the purchase price: people sometimes overpay or underpay, so each county has the authority to reassess for tax purposes if it believes that market value was not paid. In addition to the base property tax of 1% of assessed value, there are usually several bonds and assessments that are also on a property tax bill. These additional fees fund school districts, street work, sewer systems and other local public items. They all add a little bit to your property taxes, but it’s very rare for someone’s total property tax to be more than about 1.25%, normally it’s around 1.15%. As long as the same owner owns the property, the property tax can only go up by a maximum of 2% every year.

If you are a tenant in a building that is sold to a new landlord, however; property taxes get adjusted to a new baseline and this higher cost is passed through to all tenants in the form of expense reimbursements. Assume your landlord bought the property twenty years ago and has only had a 2% increase ever year since. The property taxes are low but the property’s value may have quadrupled in that time. When you started to rent, your property tax expense reimbursement was quite small. It’s a proportional share of the landlord’s total tax bill based on how much of the total property you actually occupy. When the property sells for four times what the original landlord paid for it, this resets the assessed value and the new owner’s property taxes, and therefore your proportional share, will increase significantly.

A broker can help negotiate “Prop 13 protection” for you as a tenant. This protection allows you to set your property tax amount so that you only have to reimburse the landlord at a certain base level, usually the price when you first leased the space. This way no matter how many times the property is sold or how much people paid for it, you will never pay more than the negotiated baseline, plus the 2% increase every year, for the term of your original lease. If the property is sold, the new owner absorbs the expense of those new property taxes. Thus, new tenants that sign after the property sells will probably pay more in property taxes whereas you will be locked in at the contract rate.

Q: Can you explain about reimbursement of operating expenses?

Normally when you need an office you will look at a variety of different spaces on the market that might fit your size requirements. These spaces will be offered for varying lease rates and the rates quoted will either have a letter “G” after the amount, or they will have an “N” or sometimes three N’s. The “G” is for gross and the “N” is for net. Three N’s stands for triple net, but it’s really a net lease, just a finer distinction. In a gross lease, the rate quoted is the gross amount, which means it is the base rent plus the reimbursements (also known as pass-throughs) for all the expenses the tenants owe to the landlord such as electricity, water, property taxes, insurance, common area maintenance, and more. You will not get other bills for other things from your landlord under a gross lease. A net lease, conversely, has these expense items invoiced separately. The rate quoted in a net lease will be the base rent amount only then the tenants will receive a separate bill for all of the expense reimbursements. A broker can help you understand what you are agreeing to as a tenant and get the best deal possible.

Another aspect of expense reimbursement is understanding the pro rata calculation (the portion the tenant leases in relation to the total building space). For example, assume your office is in a 5,000 square foot building, and you’re a tenant using 1,000 square feet. Therefore you use 20% of the pro rata square footage of the building. Subsequently, you will probably be asked to reimburse the landlord for 20% of the electrical that’s used for common areas. Depending on how a property is setup, the tenant might contract with PG&E directly. The important thing to remember is that nothing is free.

Q: What should I look out for in terms of planning for the future?

If you’re in a startup with three people you may only need a small space, say 500 square feet. It is wise to build in some kind of growth pattern for at least the next lease term. For example, you lease a space for $1.00 per square foot, and you lease it for two years. Right next door to you is suite that would be a perfect configuration if you needed to grow and add one or two people – you could simply knock out a wall and add it to your suite. When you negotiate your lease, request if that space next door becomes available during your current lease term, you want to lease it for the same rate that you pay on our current space. More so, you could negotiate for an option to extend the lease on both spaces when those two years come up.

Other ways to protect your costs for future could be to negotiate lease extensions with fixed lease rates (rather than risking paying the higher market rate when the time comes). Or to negotiate for the Right of First Refusal to Lease on other spaces that come available in the same building. Some tenants who plan for big success even negotiate options to purchase a property if the landlord ever wants to sell. Obviously, these options are all key to the future success of small businesses to allow them to plan appropriately for growth.

Q: So a tenant can negotiate to keep future costs down over certain period of time?

Absolutely! As in any industry, a layperson doesn’t know all of the possibilities–that’s why whole industries of “experts” are born! Somewhat who is not very familiar with real estate won’t know to ask for protections in the form of future options. If you own and operate a startup, you’re probably more concerned about operating your business than spending time learning real estate 101. Your worries more likely include funding, market timing, delivery, fulfillment, employees, customers, etc. You assume the business will take off, need ramping up, and ultimately be successful. Well, what do you do if you have signed a five-year lease, but you’ve only got a thousand square feet, and suddenly you are busting at the seams? Now you need more space, but rents have gone up so much that now you are competing with every other tenant in the world who comes up for that space just next door to you in your multi-tenant building. You are stuck and with leasing rates rising (theoretically) you won’t be able to grow without a large increase in your overhead which may stunt your growth. Now is when you’ll wish you’d had a broker who had negotiated some options for you to grow, move, etc. There are a lot of ways to anticipate and negotiate for future needs, the important thing to remember is that almost anything that you can imagine doing in leasing has been done at some point and a skilled representative will help you be prepared.

A good agent will know how to write options for extensions, refusals, expansions, and Prop 13 protection in your original lease.

Q: Founders are often starved for time, how much time would you normally would save a first time tenant?

Hiring a commercial real estate broker will save a newcomer dozens of hours–and headaches–depending on the situation. But I believe that the hours are not the main savings. Hiring an expert in any field is not just about the actual hours that are required to do the job, it’s also the years of experience that allow an expert to do it properly!

When hiring an expert it can be hard to understand what to ask for and what to expect. One way to mitigate the risk is to meet with the person and make sure they have a very clear understanding of what you need. A good broker will go out and do most of the leg work for you. All you need to do is look at a couple of spaces that your broker will have selected for you based on your needs and see which one you think is going to work best. Then listen to your representative’s assessments. They should be able to assess the type of owner of a particular building; is the landlord someone you could work with? Your agent can speak with other tenants on your behalf for feedback or aid you in those interviews. How are they in the negotiations; are they cutthroat or are they pretty easy to work with? Most properties have different people negotiate the leases and manage the property.

Founder Story: John Nash, CEO Color Vision Store

Written by Francis Adanza. Posted in Founder Story

I recently I enjoyed a conversation with John Nash, co founder of the Color Vision Store. I met John at our Great Demos! workshop in October ’07. While doing our due diligence on the workshop registrants, I came across John’s website. Although I am not color blind, I was drawn by his niche market objective. A Google search on “color blindness” will retrieve less than 200,000 hits. Seems like an opportunity waiting to unfold.

Q: Are you color blind? Is that what led you to develop the site?
Yes, I am colorblind. I developed the site with my brother Keith–who is also color blind–over a decade ago as a channel to sell an educational guide that he developed, called the Color Vision Guide. Our goal then was to provide easy to comprehend information on color blindness and create awareness about related issues.

My brother was also a bit of a color blind activist. He took a swipe at the City of Palo Alto when they debuted their color-coded downtown parking zone scheme using purple, blue, lime and coral. My brother said “You know what that does. Makes color blindness a crime.” He got Herb Caen, the San Francisco Chronicle’s famous columnist, to print that.

When the website first launched we just took orders by mail: for the first couple of years there was not a shopping cart built into the website. But once we figured out how to take credit cards and add cart features, the site started carrying clinical color vision tests and other screening instruments. Slowly but surely the tenor of the site was less about education and more about providing tools to the commercial sector designed to screen color blind people from jobs. I’ll be the first to admit I may not want a color blind person reading the color-coded strips on dialysis machine, but over time I think we drifted from our mission of awareness and community for those with color blindness. So after my brother decided to move on to do other things and my mother, who was taking our orders to the post office, became too elderly to keep up the day to day business, I opted to scale back and take us to our roots: return the Color Vision Guide to the forefront, license our original illustrations, and start a blog with a bent toward supporting those with color blindness, not excluding them.

Q: I’m not color blind, can you help me understand some of the challenges you face?
I have a red-green hereditary (genetic) photoreceptor disorder (color blindness of the red-green type), also known as deuteranopia or Daltonism. I fail the Ishihara tests every time I take them. The challenges I face with my impairment are, fortunately, not too severe. In my daily work, as a consultant in the social sector, I don’t have a great deal of issues that need to be resolved due to my color blindness. I work on the computer a great deal, and some interface designers make poor selections when it comes to color that are hard for me to distinguish. I cannot generally tell the difference between purple and blue, and many times I can’t distinguish green and tan even when they are right next to each other. They just look like two shades of green. I recently posted a couple of examples on my blog of instances where color choices made by Google and Apple do not impart information as intended by their designers for people who are color blind.

As a child I dreamt of being the pilot of Boeing 727 and was eventually told that people who are color blind can’t be pilots. However, there are many documented cases of color blind pilots now. The issue comes down to how the aspiring pilot is tested. Many pilots who are color blind fail the clinical printed tests, but pass the practical light test which is conducted while standing in an airfield and identifying lights shone from a control tower. So maybe it’s not too late for me–although I might aspire to pilot something else besides the 727 now.

Q: Your site offers some great resources to other links, informative articles, and products. Is your business model a combination of ads and e-commerce?
Yes–that’s a fair assessment. The color blindness business, such as there is one, tends to be a bit seasonal. We see a big uptake in orders for the Color Vision Guide around the time that schools are sponsoring their annual science fairs. Color blindness is a great science project topic for school children. In between the market swings on our Guide sales I would like it if people visited the blog, commented on the articles and, yes, clicked on few ads.

Q: We highly recommend that people introduce their offering into a niche, it seems like you found one. What are some of the challenges you face in promoting your website?
One challenge lies in trying to determine who our readership is. Since I’m trying to wear the white hat and appeal to those with color blindness and others who would like to know more about it, it’s not crystal clear to me how big that audience is. On the other hand, statistically one in eight of your male acquaintances is color blind in some fashion. In pure numbers, about 10.5 million men have the problem I have: cannot distinguish red from green, or cannot see red and green differently. So they’re out there. I just have to find out what they want to know or hear.

Q: What are some strategies or methods you have found useful?
I’ve been touching base with other bloggers in the color blind community. I’ve also been working with a talented writer who helps sift through the myriad of Google alerts I get on everything related to “color” and “colour” blindness.

Q: Are there any practical tools for website and interface designers? Which ones do you recommend?
There are several good tools out that help programmers with normal vision create interfaces that are truly accessible to all. I have listed quite a few on my blog, but two come to mind. I have a post about a tool by Cal Henderson as well as well as a tool called a color decoder for color blind users who want to identify the color they are looking at.

Raphe Patmore, CEO of Buzka, On ANZA

Written by Francis Adanza. Posted in Events

I was able to sit down with Raphe Patmore, CEO Buzka, recently and talk about his experience of participating in the ANZA Gateway Program. Buzka was one of about a dozen companies that were selected to enter the program in Fall ’07. Raphe was also a co-winner for the Guy Manson Hottest Technology Award for innovative Australian and New Zealand companies.

Buzka is an Australian based company that offers web-based software products that allow you to share your favorite web stuff. You can save and organize all your favorite web pages by creating Spots on any interest or topic. Each Spot is a collection of pages that can be shared with family, friends, colleagues and anyone on the web. Below is the Q&A from our conversation.

Q: What were your three biggest concerns about entering the US market?

  1. How to ensure that we really understood the market.
  2. How to understand the demand for our product.
  3. How to access the US market: e.g. people and resources required.

We were also concerned about operational issues such as legal requirements and migration fees.

Q: What were the three biggest surprises from your visit to Silicon Valley?

Well, this was my first time here. I suppose there were too many surprises to list. My overall perspective is that this is turning into a much more intensive operation than I anticipated. The week I spent with my mentor was enlightening and stimulating. I came away with the feeling that we had to think bigger: if we raise the capital necessary to enter this market we will have our work cut out for us.

Q: It sounds like the program gave you a sense of larger possibilities?

Yes. Coming from Perth, there is a tendency for us to understate our ambitions. We did feel we were reaching our limits in in that market, and we had been playing it conservatively, we certainly were not overambitious. After meeting the experts with the ANZA program, I came away thinking that we can be considerably more ambitious.

Q: How specifically has ANZA helped you with this transition?

The Gateway conference the panel discussions focused on specific areas such as legal issues and venture capital. Through these panel sessions, I have made contacts with experts and very experienced people. They have helped me formulate my market entry strategy. They have helped me position the business better for investment and introduce me to prospective customers. Additionally, it’s given me more confidence that what we are trying to do has some validity in this market. The interest from so many people has given our team the confidence to really push to be in this market. ANZA is currently helping us prepare for the DEMO conference. We have a full team attending; the Production Manager, the Vice President of Technology, who is the co-founder, and the Senior Programmer.

Q: What have you liked about the ANZA program?

I think for most entrepreneurs, the most attractive part of the program was giving VC style five minute pitches in front Silicon Valley VC’s and media. Of course, there was some mentoring to help you through this process. I believe that ANZA exceeded their promises: we are very pleased with the outcomes. We didn’t anticipate a term sheet from investors because we thought we were still too early stage. What we learned was that it was perfect timing because we were in the early phases of building our stage two product. We received positive feedback regarding the value and prices. This good news gave us more credibility with our shareholders. Other results included further investments from the current shareholders, a market entry plan, and a product development roadmap. The program helped us to focus on our core product benefits. Working with experienced people has helped us refine our strategy. Our team is comprised of very talented and and creative programmers. However, they are not experienced marketing people, and real issue was could we turn this technology into a viable business?

Q: Is there anything ANZA could have done to improve your experience?

I think they could have better prepared us for the program. From speaking with the other attendees, no one anticipated how rigorous it was going to be. I think more feedback, not just from the mentors, would have been beneficial. I was hoping for more structured feedback from the VC’s regarding the presentation. I was also interested in what the mentors thought about the other companies. Some sort of debriefing later on a case by case basis in a peer group would have been interesting. There were several interesting companies in the program and I wanted to understand the differences in strategy, approaches, strengths and weaknesses for each.

Q: Can you talk a little bit about the Fast Track Program you are in now?

ANZA gave us a twelve page document on market entry strategy requirements. It has been both thought provoking and energizing for the team to fill out. Our temptation can be to over analyze and develop an 80 page business plan, but in the Valley, it seems you just need something that fits in your back pocket. A document like this at the outset of the Gateway program would have helped to sharpen our thinking before we came to the Valley.

Clearly, there were one or two companies who hadn’t done any real deep thinking about their product’s core benefits. I believe it was even more difficult for those who do not have business backgrounds. Some of the folks that came from engineering backgrounds appeared to struggle with the review material provided. They never really thought about looking at the business from other perspectives.

Q: Any tips for other entrepreneurs who might be thinking about working with ANZA?

If you are thinking of entering the US market, then it’s well worth joining the program. Also, if you are thinking about raising capital in the States, definitely join the program. You will quickly realize that it rapidly it expands your network of useful contacts. Folks who can help you frame your strategy, sell your product, and certainly improve your business. In terms of preparation, first decide if you want to enter the US market, because it will probably mean a lot of people moving to the US. Some people from Australia may think they are working hard now, but they will be surprised by the work culture once they get here. A big difference between here and Australia is the amount of networking.

Frank Bailey, Sales VP at RTDA, on First Office Experiences

Written by Francis Adanza. Posted in First Office

Today Sean and I sat down with Frank Bailey, VP of Sales from Runtime Design Automation. RTDA offers automation tools that manage all design resources such as licenses and CPU’s in order to streamline workflow. RTDA products track all licenses in your network, capture all jobs in your project, and automatically dispatch the jobs in the farm, all with one-click simplicity.

Q: I understand that you have had to change offices three times. Can you share a little about your first experience in finding an office?

Well, when Andrea and I first started the business, we were each working out of our homes. Andrea lived in the east bay and I lived in Mountain View. I cannot speak for Andrea, but I did not find this effective because of the distractions from television, the telephone, and the ability to run errands at will.

You could say that our first office kind of found us. One of our early customers, Exemplar Logic, was nice enough to give us space in their facility. Located in Alameda, we utilized the free space for eight months until they were acquired by Mentor Graphics. After the acquisition, we were forced to move out. It was not until this point that we actually had to find a place.

Q: What were your three primary concerns in finding the right first office?

  1. We wanted to be close to our customers and prospects. We spend a significant amount of time on the customers premises.
  2. We wanted something that had conference rooms. By this time we had hired a couple of employees. Not all conversations should be heard, so we wanted something with private meeting rooms.
  3. Finally, we wanted something that was near places where you could get a quick bite to eat. We basically lived at the office so being able to get something that tastes good, but not unhealthy was an issue.

Q: How did you get started when you began searching for an office?

I pulled out a map and drew a perimeter from San Jose to Mountain View and tried to find a place that was central to our customers, accessible from various directions, and easy to find from the street. We found a place on Apollo Way in Sunnyvale. This was a great location because it intersected Central Expressway and Lawrence. It was also close to 101. In 1995 this was the heart of the Valley.

We were there for about three years before the property was acquired by another company. The acquiring company raised the rent, so we moved to a place in Fremont which was about half the price. What we at first anticipated was a bargain on space turned out to be a disaster. Our office building was right next to a probation office building who we shared the same parking lot. It seemed like there were always questionable people hanging around the lot. Often, strange people would walk in and out of our building in search for the probation building. We only had a few theft incidents, but there were several vandalized cars. This office did not have conference rooms so it made meetings with visitors difficult. I observed that our visitors were hesitant to speak out, since they were not sure who was listening. Another problem of being in Fremont was dealing with heavy traffic on 880. It took at least an hour to get to San Jose to visit a customer and an hour back to return to the office.

Q: How did you measure or asses the quality of the office?

We compared a lot of offices before we settled on one. We basically looked at the image of the facility compared to the price. By image, I am referring to the neighborhood, the condition of the building, the common areas, and the amount of outside noise.

Q: Do you have any words of advice or things to look out for that people might over look?

Be careful of who your neighbors are and what types of businesses they are in. One of the businesses in the complex was a delivery service. They took up about a dozen parking spaces with their delivery vans. I would also stay away from sub leasing. We had an issue where we were sub leasing from a guy for six months. Turned out that this guy disappeared and never paid the property manager the entire time of our lease. We were not held liable, but the paper hassles and police reports were time consuming.

Make sure you have a separate machine room. Servers are extremely noisy and radiate a lot of heat. You want a separate room where you can set up a cooling system and keep all the noise regulated. I also recommend a place for miscellaneous stuff. Otherwise your office will look messy and cluttered.

I would recommend using a broker. I found a broker who I used for the next two office relocations. I much rather let an expert deal with all the fine line paperwork. This lets me concentrate on business objectives instead of worrying about none strategic busy work. A good broker will catch liability insurances, and other contract requirements that fluctuate from place to place. I recommend Jeff Rogers from Colliers International.

How much was the cost of the move? How long did it take for you to become operational?

There were five people in the company in Silicon Valley: with furniture, setting up the IT infrastructure, and paying movers, the total cost was $10,000. I would say we were fully operational in about four to six weeks.

Where did you buy your furniture?

I went to Repo Depo. People think they save money by purchasing the low end stuff at Office Depot. However, I think even though that furniture may be brand new, it can break down before the well built high end items you can get second hand.

Founder Story: Mike Lanza’s Lessons Learned from Two Startups

Written by Francis Adanza. Posted in Founder Story, Startups

Last week I had lunch with Mike Lanza, a serial entrepreneur, who I met at the SDForum Startup SIG in September ’07. He gave a thought provoking presentation on his entrepreneurial career, bootstrapping a company, and working with VC’s, which I blogged about here: Mike Lanza: Starting Companies Without Venture Capital. I thought a more in depth personal analysis of his “Lessons Learned” would be a great addition to our Founders Story series.

Q: What are your thoughts about partners compared to going at it alone? Did you have co-founder(s) for any of your companies? If so, how did you find them?

I have seen several approaches to starting a company. Some founding teams are formed before they think of the idea. A group of really smart people join forces, brainstorm a bunch of ideas, pick one and then go. I think I am more of a visionary, so I like to think of the ideas first and then assemble the team. I believe the idea is the core of the business and that you need the idea to attract the right people.

I have built companies with and without partners. Once I come up with something, I start off by informing all my contacts about my idea and plans. Then I ask them to spread the word to see if anyone is interested in joining the team. At first, I always try to find partners, but if I can’t find partners I hire doers. In the early stages, its more about execution and follow through. If you have too many senior people on the project, nothing ever gets done because its all strategic.

Unless I happen to find the perfect partners, I like to hire more mature junior personnel rather than experienced veterans.

Q: For those looking to hire ambitious junior personnel, can you share any tips on recruiting, retaining, and managing them?

When you interview them, figure out whether they can take a particular project tomorrow and make a big impact right away, without a lot of supervision. These are the ideal first employees. I call them “heat-seeking missiles.”

As for retaining and managing them, people like this thrive if they are constantly given new challenges. Don’t give them challenges that are too big – give them things that are a bit outside of their comfort zone, and let them knock down success after success. If you’ve got the right person, you’ll find them growing tremendously in a very short time.

Q: After you figure out the idea, develop the team, and hire the necessary people, how do you start building a company?

Most important thing you can do is manage your time. In early market exploration, I believe most of your time is spent evaluating the market and incorporating customer feedback into your product development efforts in order to get a purchase decision. Reference customers are key. After you have identified a target market, figure out who in the market will serves as a reference to other potential prospects. Make sure your first reference customers are not too big. Big reference customers take a long time to close, beat you up on price, require additional services, and extra support. They will consume all your resources and you won’t even have the time to use them as a reference for new prospects. You don’t want a big brand name, otherwise you will get killed on the deal.

A good reference customer is usually a company that is roughly the same size as you. They will help you refine your product and your technology will play an important role in their success. For as much as you put in for them, you will get out in return. They will vouch for your offering and put a name behind the testimonial. Another strategy I use is what I call a “throw away customer.” This is a prospect whom you have a lot of bargaining power. Consider walking away from the deal early but come back later when you get a favorable price.

You need to realize that you’re not going to do a very good job with that customer initially, so you want someone who is a cutting edge enthusiast, familiar to you and understanding when you fail to deliver perfectly. There’s no away around the fact that you’ll learn a lot from servicing this first customer, so you don’t want to do this first project for the largest potential customer in your market.

Q: What was the hardest decision you had to make in any of your ventures?

At 1 View Networks I realized that a bubble was forming and it was a good time to get out of the business. Word got out that the company was going to be acquired. There was a group of employees that approached me and threatened to quit if they were not given more stock.

At the time I had a convertible note from investors that were pleasant to work with. I had a short window of time to issue them stock so that they could participate in the acquisition benefit. I was basically juggling a group of disgruntled employees, trying to sell a company, and do good for some investors who I wanted to do business with in the future.

I did not want the employees to quit because it would look bad to the acquiring company. However, the three that were threatening had all been there less than six months, so I felt that they had not even earn what they were asking. Ultimately, I gave in to the blackmail. It was one of the toughest decisions I’ve ever made, but it was the right one. Unfortunately, my most loyal employee resented me intensely for this. So, I got no love from anyone for this decision – the blackmailers just took the stock and ran, and the person closest to me ended up hating me. However, we closed the deal. Welcome to the loneliness of being a CEO…

Q: What were three things that worked from Just In Time Solutions that you implemented into 1View Network?

  1. Sell to big, fat customers that don’t have adequate internal resources but have big budgets. Then, go “crazy” to satisfy them, but bill for every minute you spend.
  2. In the sales discussions, tell them exactly what you think they need. Don’t give a “here are our capabilities – we can do whatever you want” presentation. Remember – you’re trying to build a company, not a one-off project, so you need to sell a product vision that works for your entire market.
  3. Always be true to your ideals, even in the most tiring of management situations.

Q: I am sure there are many problems, but if you could just pin point one thing you learned from Just In Time Solutions that you made sure to avoid in starting 1View Network, what would it be?

I would avoid raising venture capital as long as possible. Most of the time the founders get replaced. Also people associate raising capital as a form of success. I have seen founders raise capital and then set the speedometer on cruise control. People begin to spend money carelessly. If money is around, companies tend to start spending it and relax a bit, even if their largest challenges lie ahead of them.

Q: What are you up to now?

Right now, I am working on a project that is more of a cause than a business. Who knows, it might turn into a business, but I right now I am having fun and doing something that I have always wanted to do. I am developing an online community for parents who want their children to go outside and play, but are frustrated with the lack of opportunities in their particular neighborhoods. It’s called Playborhood.

Our goal is to reach out to people who seek better play-based communities and neighborhoods for their children. So many families now have structured play all the time and neighborhoods where they don’t feel safe letting their kids play outside unsupervised. We’re lucky to find the rare place where they can. So Playborhood aims to become a great community resource where parents can go to find the right neighborhood for them and engage others in that neighborhood in the process of creating a safe, inviting Playborhood.

Founder Story: Dave Stubenvoll of Wowza Media Systems

Written by Francis Adanza. Posted in Founder Story

I interviewed Dave Stubenvoll late last November as a part of our Founder Story series. I first met him at the Streaming Media 2006 show and was immediately impressed by him. Sean invited him to be on a panel at Startup Epicenter on “Scaling Up Your Product Development” and Dave made some of points there that he expands on in this interview. What follows is an edited transcript with hyperlinks added to provide context and background for some of Dave’s remarks.

Q: You’ve been through 5 startups; can you compare and contrast your experiences between them?

Three of them were independent startups: GALT Technologies, Freeworks and WOWZA; two of them were intrapreneurship projects, that is new businesses within large companies. The two intrapreneurship projects were in different companies that looked at things very, very differently. The first one was when I was at Intuit leading the payroll business application set, and we knew we were absolutely starting a new line of business, no doubt about it. The second one was when I was at Adobe and it was a skunk works project: let’s see what we can do in this area.

As far as the startups, the first one, GALT Technologies, was a website for mutual fund information. We were venture-backed, but didn’t raise very much money at all. It took less than a million dollars in total. I was not actually a founder for this one. I was the third person in the firm and was lucky enough to get a very reasonable sized equity stake. I joined in 1993 and to tell you the truth, nobody really knew what the heck they were doing. This was during the early days of the web and we kind of just built something and stumbled into some good situations. We ended up selling the company to Intuit in 1995.

The first company that I founded was Freeworks, which did not work out so well. We raised significantly more money, but it was during the dotcom bubble, and the company ultimately folded when the bubble burst. We offered an ad-supported suite of free services targeted to individuals working in small businesses. We were trying to develop marketing collateral automation for small business employees.

And now, with WOWZA, the only commercially available alternative to Adobe’s Flash Media Server, we have not taken any venture money at all. We just did it ourselves and became profitable very, very quickly. In terms of comparing and contrasting the three experiences, I definitely kept the same sort of cost methodology and management philosophy

Q: Can you please elaborate on your cost methodology and management philosophy?

For example during Freeworks, we had a Business Week interview. The reporting crew came in, interviewed us, and wrote an article comparing us to a startup in San Francisco. Honestly the reporter came in and said, “Dave, I don’t want to offend you, but this place is a dump.” For our team, this was the nicest office any of us have ever had. It’s about understanding the value of the capital that you have or don’t have. And it’s about using your capital properly to get the best people and to invest in the right projects, for example a marketing vehicle or product feature set. With WOWZA we were able to read the market, react quickly, and reach profitability: as a result we did not need to raise money.

The management philosophy was really refined during Freeworks. It’s really about letting people make decisions. It’s not all about me, it’s not all about the other founders, it’s about everyone making the best decisions that they can to move it forward. Micro managing people becomes time consuming. You have to have faith and trust that you have surrounded yourself with the best people and just let them work.

Q: Your cost methodology and your management philosophy make a lot of sense. Besides raising money, what were some of the things you made sure to avoid in starting WOWZA?

One thing that we work darn hard to avoid is running out of runway, which is wrapped up in a number of other things. It’s about making sure that the company is going to be here for the long term and that we are not going to be dependent upon any specific event or any other single party.

Many people tell us constantly, “You know you are building this to sell.” Part of my response is, “if I was dependent upon the sale of this company to some single entity, I probably wouldn’t survive.” If their comments were true, I would be doing things to sell as opposed to doing things to make sure that the business is around next year and the year after, and the year after.”

At WOWZA, we’ve taken a much more pragmatic approach. It begins with, what do customers want? What do customers want today and what are they willing to pay for now? The number one job is making sure we have products people want to buy. Then layering on top of that, what do we think they are going to want to buy two years from now? How can we gauge where the market is going? The number two job is having a really good architecture for our products and aligning our product roadmap with our customers’ objectives. If we do this successfully, we can assume that the company is going to be around years from now.

For example, we are porting our Pro offering to the new Amazon virtualization servers, Amazon EC2. We are going to host our product there. As we are developing it for beta, which will be released shortly, we will run the standard evaluation questions. Can we do this? Should we do this? What are our options? Which one is more flexible? Which one is going to constrain what we can do in the future? Which one is going to let us do more in the future? Since it’s also about gauging the market, how good do we have to be to start the beta? It doesn’t have to be perfect for the beta, because we really don’t know what people want. But it does have to be good enough.

Q: It seems like you have had a clear sense of priorities with WOWZA?

With WOWZA our focus is on three key things: making sure that we will be around, making sure that we are meeting customer needs today, and staying flexible enough to meet customer needs for the future.

Q: I talk to many entrepreneurs who take a “if I build it they will come approach.” We met just over a year ago, before you had even launched. Can you talk about the amount of preparation, the strategies, and your implementation plan just to get ready for launch?

This time with WOWZA, launch was sort of a crazy thing for us. We basically started the company because we wanted to explore the possibilities for new applications that emerging media technologies enabled. Originally, we never actually expected to make money with what we built. Not really your typical way of starting a business.

My co-founder and I had prototyped a hybrid video blogging system. It was this unholy hybrid of WordPress, the Adobe Flash Communication Server, and then Flash Media Server. While messing around, we found out that Adobe Flash Communication Server, Flash Media Server was just not good enough. The product wasn’t stable enough, it was unreliable, it had lousy performance, it was ridiculously expensive, and it just was not good enough for us. So, we decided to write our own, and we put that into our product.

Prior to launch we did all the standard things like press releases, some advertising, having reference customers, having customers ready to buy on the launch date, and building up the market. However, we did not pour boatloads of money into the initial marketing. For two reasons: first we figured we would get it wrong at the start, and second we felt that this was a one off product. Our primary intention was to establish the company and build a reputation. We want to be the guys who know what they are doing, tell you the truth, and deliver a damn good product. The truth is with a one off product there are going to be problems, no doubt about it. We went ahead and launched in February 2007, got out there, got press in a couple of places, people came, and we made sales.

Our first sale started with a twenty minute phone conversation where I sold our first customer the ability to license our server for fifteen hundred dollars a month for a maximum of seventy-five connections. It was ridiculously expensive compared to where we are priced today. Our server was performing phenomenally well, and we exceeded our forty-five day sales goal, which was insane. So far it’s working out well, in October we revised our estimate for our 2007 revenue. That was six weeks or seven weeks ago, and then yesterday we reached that goal. It could be that I’m a really poor forecaster, but we are extraordinarily pleased.

We continue to evolve both our marketing and the product. Our focus is on three things; market development, product development, and organizational development. We are finding that if you take an evolutionary approach to organizing yourself to ensure survival, performing enough trials so that no one mistake can kill you, you get stronger.

Q: Can you elaborate on this evolutionary approach? What led you to start the company?

My founding partner, Charlie Good, and I enjoy working together. We were working with a venture capital firm, Kleiner Perkins, on some projects they were incubating and we decided to explore video blogging. We created the corporate shell so we wouldn’t put our personal assets at risk.

There is a great book, “The Origin and Evolution of New Business” by Amar Bhide. It’s a very dry academic tome that talks about how small businesses get to be big. He looked at the Inc 500 instead of the Fortune 500–which I think is a more accurate approach than looking at a big business–and wondered “how did it get that way?”

What Bhide found was that there are basically three sources of new businesses: large businesses creating new businesses, venture backed startups, and the crazy entrepreneur. What was surprising was that you get the greatest returns from the crazy entrepreneur hitting it big. Large businesses only invest in other businesses that are guaranteed to be large: think about Toyota investing billions to develop and introduce a new car. Venture capitalists invest millions in a startup but only if they believe their return is going to be large: they have to see a billion dollar market from the beginning. With so much money at stake they can’t take large risks.

When you look at the businesses created by entrepreneurs–which include Cisco, Intuit, and arguably Google–it wasn’t with the expectation of a large return but structured for survival. These entrepreneurs didn’t quit their day jobs. They took an evolutionary approach that spread a large risk over many small experiments. When Google started, Yahoo owned search. Who in their right mind would start a search company? I haven’t met the founders but they are certainly very smart and they created something that was interesting and ultimately compelling: when they made it available people were clamoring for it. They wouldn’t have received Venture Capital funding if that hadn’t happened, right? They were able to prove success on a shoestring just with their interest. Then they had to decide whether to build the company or finish their doctorates. That’s what success looks like: you can consider quitting your day job because your side project has taken off to the point where you can make that decision.

Q: So, do you compare what you are doing with WOWZA going up against Adobe’s Flash to what Google did to Yahoo?

Ha, that’s a good question. I’ll put it like this, if you asked Larry and Serge when they started writing the algorithm if they were going after Yahoo, they’d probably say no, we just think this is kind of interesting and I have no idea where it’s headed. We started out just to meet our own need. We created the server because we needed it to get our little video blogging application working.

Even today as WOWZA Media Systems, still a very small company, we are not trying to take on Adobe, just pursue opportunities as they present themselves. I don’t think it’s a valid to compare us to Google except that we started this venture doing things that we wanted to do, and found out that other people were interested in it. We were not and are not trying to take on Adobe. That said, we are able to fit into what many people want.

I believe this is a common thread for software startups. It’s pretty rare when someone sits back and says, “I’m going to create this new market.” OK, a few people say it, and it might make all the sense in the world, but most of the time it doesn’t actually happen. Look at Intuit’s QuickBooks business. It is a huge, phenomenal business. Do you know how it started? They had Quicken, a personal finance manager, and found out that many of their customers were actually using it for their own small businesses. So they designed a new product that’s focused on small business instead of just household checking. And the customers loved it. It’s about reacting flexibly when you get nudged by customers, keeping your eyes open to a new opportunity, and making sure that whatever you do is isn’t going to kill you.

I like this “Do Not Run Out of Runway” approach. However, I have also heard fail fast. How do you fail fast if you never run out of runway? How do you measure progress?

Our approach is fail fast and fix. It’s an evolutionary approach where you tolerate a lot of mistakes, but you make sure that none of them are fatal. The truth is, this methodology of infinite runway is really hard to do. Fundamentally it’s based upon not quitting your day job until you are certain you can cover your living expenses. It’s hard to do these things when you quit your day job. The team has to be able to invest time in the idea and not rely on outsiders to get it up and off the ground.

If you are a lone entrepreneur it’s better to team up: far, far, far better to team up than to do something alone. With two, you both can commit a certain amount of time to it, but keep your day job. Slowly this side project develops and you just keep plugging at it, plugging at it, plugging at it. Eventually, if you are reasonably smart, you’ll find something. Listen to the market, be aware of opportunities, and make sure nothing you do absolutely kills it. It’s hard to do. It takes a lot out of you, but it’s definitely possible.

Q: You mentioned how valuable it was to find partners and team up. How did you find your co-founders?

Well, the GALT guys found me. The two founders asked me to join, which was wonderful and worked out well. There were three of us there, and we sold the company to Intuit. Then Freeworks was founded by me and three other guys, two of whom were with me at GALT. The fourth person was part of the department that GALT merged with at Intuit. The four of us made a great team and had great chemistry. I still believe Freeworks had a chance, but bottom line is we ran out of runway. At GALT, I took a chance because I really didn’t know the founders well. I got lucky, but be careful because after six, eight, ten dinners with someone and you think you know them and you don’t; you just don’t.

By the time we started Freeworks, I knew these guys well. I knew them all for years, and that was a good thing. We were all very comfortable working together. People change over time and all that, but we had the type of relationship where we didn’t hold back, everyone was brutally honest with each other. We just got along well, we could yell and scream when we disagreed on something, and then go out to lunch and have a great time. We understood how each other worked; we understood that it was okay to be confrontational.

Now, with WOWZA, Charlie and I have known each other for several years. We met at Adobe and ended up working on a Marketing Collateral Automation project. He turned out to be a guy that I certainly trust. We are very similar in a lot of respects, but our skill sets are very different. So, we fit very well together as a team, and I think it’s vitally important that you don’t go through this alone. If you’ve got to start something, you need to get a buddy.

Q: WOWZA sounds like it’s starting to take off. What do you see as the significant challenges ahead?

Our product focus today is Flash centric; the WOWZA Pro is a Flash streaming server. When you mention Flash most people think of Adobe because they acquired Macromedia the inventor of Flash. We have a cordial relationship with Adobe, frankly because we are still way too small for them to worry about us. They need to pay attention to and react to Microsoft. But streaming media is becoming more and more important; it’s becoming a bigger industry, which raises the stakes. Adobe, Microsoft, and others continue to make significant investments in the space.

It’s hard to believe, but we were selected as the number three player in this space. The 2007 Streaming Media Magazine readers’ choice poll voted Adobe, Microsoft and WOWZA as the top three choices for streaming media servers. Behind us were Apple and Real, who are both much larger companies.

If you look at all four of the major players–Adobe, Microsoft, Apple, and Real–they all care more about other things than their streaming media server. They care about particular codes, particular clients, operating systems, and all of these other things. We are the only independent streaming media software company out there, and we think that that’s a significant opportunity as this market evolves. Our mantra as we enter 2008 is any code, any protocol, any device, any client. Going forward we plan to deliver the necessary components to wherever the customer needs to stream content, whether it’s the desktop, a mobile device, or the living room. We believe we are in a unique position to be able to provide that.

Q: It’s been quite a journey for you. What advice would you give to others, so that they can avoid any of the challenges you encountered in your experiences? Any words of wisdom, tips, gotchas?

I think the two biggest pieces of advice would be: (1) get a partner you can trust. (2) figure out how to get things rolling without quitting your day job. I know people don’t want to hear that second one, but it’s that infinite runway that is your absolute, absolute greatest strength. It allows you to fail fast and fix.

First Office: Ed Correia, Sagacent Technologies CEO

Written by Francis Adanza. Posted in First Office

For my third post in the “First office” series, I wanted to learn about alternative office options to incubators. Earlier this month I sat down with Ed Correia, founder of Sagacent Technologies, to learn about his experience in finding the right first office.

Sagacent Technologies specializes in business technology management services. Clients benefit from highly skilled professional service resources utilizing a proven methodology for assessing challenging IT environments or implementing complex technical solutions. Sagacent Solutions are carefully tailored to meet the specific business needs with strategic and farsighted planning. Below are the question and answers from our conversation.

Q: What were your three biggest concerns in finding the right office?

Location was the most important concern in finding the right office. We wanted something that was central to our current client base and close to our target market. One of the things that differentiates us from some other IT management firms is that we not only do remote monitoring but our staff spends most of the time in the field at different customer locations. Driving time for my employees and heavy traffic hours was definitely an issue. We are not a store, so being close to the road or in a strip mall was irrelevant. The look of the building and the surrounding location was the second biggest concern. I did not want to be in a run down building or in a questionable neighborhood. We wanted something that was aesthetically appealing and in a professional office space so that we didn’t undercut our credibility. I would say our third biggest concern was security.

Q: In terms of getting started, when you made the decision to move, what was the first thing you did?

I called a broker from California Properties and then developed a map of Silicon Valley. The broker and I figured out where our current customers were located and then determined where our target prospects are located. Then we outlined a tight circle of locations that would suit our needs. We looked at 20 properties before I decided on the ideal office place and location.

Q: How did you measure or assess the quality of the office?

I looked at the facility to see how well it was maintained. Then I spoke with some of the other tenants to understand their impressions of the place. Finally, did I like the building manager? Was this someone I could work with?

Q: How long did the whole process take from making th first call to moving in and being functional?

It took about a month and a half to see all the properties and then another month in a half to move the essentials over to become fully operational. However, the place was a mess and was not presentable to visitors. It took a total of 6 months to paint, gather furniture, and organize everything before we invited people to our headquarters.

Q: How big an expense was furniture for you? Did you find a store or other source for good used furniture?

We put the word and were surprised at the number of people who had a surplus chairs, tables, or desks they were happy to part with if we would do the hauling. We spent hardly any money on furniture as a result.

Q: Was this a frustrating search? At one point you thought you had found a good location but the deal fell through.

We knew it was a big decision for us so I wouldn’t say that it was frustrating. At one point we had signed a contract and I thought we were done. I took a few days off for vacation with my wife to celebrate and when I came back our prospective landlord had left a message that they had gotten a better offer and were rescinding our deal. So at that point I realized I wasn’t just picking an office, I needed to take a harder look at the landlord. I had been looking at a lot of “objective measures” of the office, but that experience made me realize that leasing an office is the start of multi-year relationship with your landlord. And you want to select one who will be a good business partner whatever happens to your business.

Q: Even with a surplus of office space you were surprised that a number of landlords didn’t want your business?

Yes, I was shocked that IT firms have a bad reputation among landlords. I don’t know if it’s lingering fallout from the dotcom crash but several times they would immediately lose interest in working with us when I described the basics of our business.

Q: What were the three biggest surprises you discovered in your search or after you moved in?

The biggest surprise was the amount of paper work involved in negotiating the lease. There are all kinds of hidden fees and tenant responsibilities in the contract. I recommend that you have your attorney read over the contract for you. The next surprise was the poor quality of building’s DSL line. We ended up having to install our own T1 line. The third surprise was being able to rent more space. Our business doubled less than a year after the move. We are already looking to rent an additional 1000 sq ft. Our property manager has been great in helping us plan for the expansion.

Q: What has the impact of the office been on your business?

I have been pleased at how our getting an office has allowed us to communicate our professional approach. We have always been committed to our customers in the way that we do assessments, in our thorough proposals, and our contracts. But for many prospects who have visited us in the office, it’s been another proof point in their minds that we are committed to the business and are growing. We have also done a number of open house events that have made new prospects aware of our services and let our current customers come by and give us informal feedback.

Update Feb-29-2008: Ed Correia was profiled in a San Jose Business Journal article “Sagacent Grows by Helping Small Business Avoid IT Woes.

Search Engine Optimization Best Practice Basics

Written by Francis Adanza. Posted in Events

Last night I attended the monthly PATCA dinner. The featured speaker of the evening was Kevin Dean, a certified Internet marketing consultant, from WSI (We Simplify the Internet). It was an interactive question and answer session in which Kevin covered “Search Engine Optimization Best Practice Basics.” Kevin’s key point was that SEO is easily misunderstood: no one should believe that SEO alone will allow you to close business, it’s just one aspect of your overall marketing mix.

Here are some helpful tips to increase your web presence and make your website more relevant to search engines.

  • Content is king. A search engine has never purchased anything, so do not substitute tacky headlines and searchable jargon for pure, unfiltered, original content. Write to your target readers, use good sentences, and get to the point. Try to keep key content/messages to no more than three per webpage, so as not to dilute the keywords for SEO.
  • Key phrase selection is important. Phrases that have two or more meanings can increase your competition and confuse searchers. Key phrases are primarily the verbiage picked up in the titles and descriptions. When you choose key phrases, make sure you describe yourself the way people would remember what you do. A good way to figure this out is to ask your customers what they think of your offering.
  • Understand how your page structure is read by the search engines. One thing you should be aware of is pictures and images cannot be read by search engines. Be sure to create subtitles or add an alt tag to the picture/image in a way that relates to your business.

There are over thirty components that make up SEO. If you would like to see how relevant your website is visit http://www.websitegrader.com. The free tool diagnoses your website and shows you many of the components you need to improve.

John Holton of Symphony Consulting on Business Incubators

Written by Francis Adanza. Posted in First Office

Following up on my “Silicon Valley Incubators” post in the “First Office” series I wanted to get a tenant’s perspective on the the advantages and drawbacks of locating in a business incubator.

Symphony Consulting is a manufacturing outsourcing, procurement, and supply chain consulting firm that helps original equipment manufacturers and their supply chain partners in three key areas: revenue, assets, profitability. I talked with John Holton, co founder of Symphony Consulting, about his experience of finding his first office. Below are the questions and answers from our short discussion.

Q: What were your three biggest concerns in finding the right office?
A: Our three biggest concerns were location, IT infrastructure, and professional appearance. We wanted something that was easily accessible by major highways and close to our clients (technology companies). IT infrastructure is expensive, so the incubator system was an attractive proposition. We also wanted a place that looked professional. Plug and Play has a professional appearance from the outside and great facilities inside.

Q: What were three things that surprised you after choosing your office space?
A: There are about a hundred companies in this incubator so I appreciate the amount of energy from other entrepreneurs in the building. However, I must admit, the noise from the other people can sometimes be distracting. I knew I would be more productive in a regular office setting but I was surprised by how much more I can focus on tasks important to my business.

Q: What specific benefits does your office leaser offer as a part of their service?
A: Plug and Play Tech Center has really nice conference rooms, cafeteria with good food, and 24 hour coffee. The administrative assistants and staff are helpful. The cubicles come furnished with desks and chairs. Finally, there is plenty of parking.

Q: How do you measure or assess the quality of the facilities you looked at?
A: Basically, we just judged the place by the location, the appearance of the building and its interior, and the amenities it offered.

Q: Is there anything else you would like to comment on or make suggestions to others looking for their first office?
A: I think it was a good investment. It makes the business seem more professional and credible. I also think it makes me more disciplined and productive.

Are You Generating iPod Fishbowl Leads?

Written by Francis Adanza. Posted in Events

While at the Sales 2.0 Conference on Oct 30, 2007, I attended a panel presentation titled Leads Qualification & Cultivation. The complete transcripts are available at the Sales 2.0 portal, I have extracted Stu’s opening story to pair it with one of my own about iPod fishbowl leads.

Moderator: Stu Silverman, CEO, SalesRamp

Panelists:

From Stu Silverman’s opening remarks:

So let me first start off by giving my definition of the old way [of lead generation]. So we’ve got a $40 million early stage venture-backed company, maybe 12 reps in the field, no inside sales group. And you’ve got a good marketing group and they’ve gone to a tradeshow and they have acquired 400 leads from that tradeshow. So some of those leads are good of course, some of those leads are not good of course.

And then there’s the hundred or so that came from the fishbowl where you were raffling off the iPod and hoping to get a number of good quality leads from the iPod leads as I used to call them.

So let’s say you come back with these 400 leads and what usually happens? In many companies there’s no qualification of those leads and they’re given to the field sales force. And then we all kind of know what happens there. The field sales reps start to call a few of them, they hit or miss and they then feel that the leads are really crap and then they don’t follow up with them. They complain with them and there’s enormous amount of waste of money and time and really significantly a lot of frustration between sales and marketing. So that’s what my example of the old way is and believe me it’s still going on.

I recently attended the Streaming Media West conference. Just like Stu described it, almost every booth was an early stage venture-backed company with approximately six reps in the field and no inside sales group. These booths had the exact same lead generation strategy, raffling off an iPod for business cards. Having made this mistake before, I can confidently assume that at the end of the show, the marketing team feels ecstatic because they have acquired hundreds of leads. Of course, some of those leads are good, but most of them are not. So now what?

Back at the office each rep is given a stack of cards to start the cold calling process. Having been there, done that, this usually results with frustrated sales reps because of the enormous amount of wasted time and money spent on dialing for dollars. This could have been avoided if the booth people were more concerned with qualifying “real leads” instead of collecting business cards.

At trade shows, its not just the number of leads but the quality of leads. It’s a chance to have a conversation with a prospect, which is more difficult if you are drawing folks who are only interested in the iPod. As Stu coins it, “its not what is inside your funnel but what is moving through your funnel.” Startups do not have the time or the budget to waste trying to filter through hundreds of business cards. Startups are much better served using show floor time to qualify a hand full of serious prospects instead of wasting time afterward eliminating the prize entries.

Legal Issues: Q&A with Pete Tormey of Action Patents

Written by Francis Adanza. Posted in Legal Issues, skmurphy

Today I was able to sit down with Pete Tormey, founder of Action Patents. Pete is a registered patent agent who specializes in providing patents for Software, Electronics, Life Science Instrumentation and Business Methods. From blogs to entrepreneurial events, patents are always a controversial topic. This is why I took the opportunity to speak with an expert. Below are the questions and answers from our conversation.

Q: What is the difference between a patent and a trademark?
A patent protects an inventor for the production or sale of a new useful invention. Whereas a trademark is protection for a distinctive name, symbol, motto or emblem that identifies a product.

Q: If I were to hire a patent practitioner, what are three specific things I can include in my description to make your job easier and reduce costs?
The most important thing is to move beyond just the new idea so that you can explain to the patent prosecutor how to make and use the invention. Secondly provide at least one good sketch illustrating the invention, and finally provide a good description of the technical background and need for the invention. This helps the patent practitioner explain the purpose and value to the patent examiner.

Q: Looking beyond the value in a legal action, how else can patents help me?
A patent has marketing value too. For example customers may view patented technology as superior to a competitor’s product which can greatly help your sales process. Also, for startup companies, getting investment capital may be dependent on having an idea that’s patentable. Patents provide your company with the ability to show people what you do that no one else does. That is a significant competitive advantage.

Q: I have heard people say that a patent is only as strong as the dollars you have to back it, what are your thoughts?
Most patents never go through an entire legal challenge. Simply having a patent may be sufficient because your competition does not want an expensive court battle either. If patenting your technology prevents your competitor from attacking you directly in the market, the patent has done its job without the cost of a court battle.

Q: I have also heard people say that the patent is only as strong as the reputation of the patent practitioner who filed it, is this true?

It’s not the reputation that matters, but the technical knowledge and experience in that industry that have the greatest effect. Most inventors are not really aware of the person who actually drafts the patent. Large firms often use technical writers. The practitioner needs to clearly articulate the invention and draft solid claims to it.

Q: Who may apply for a U.S. Patent?
A patent may be granted to the inventor or discoverer of any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, or on any distinct and new variety of plant, which is asexually reproduced, or on any new, original, and ornamental design for an article of manufacture.

Q: On what subject matter may a patent not be granted?
A patent may not be granted on a useless device, on printed matter, on an improvement in a device which would be obvious to a person skilled in the art, or on a machine which is not useful such as an alleged perpetual motion machine. A patent may also not be granted for an idea or abstraction such as a mathematical formula.

Q: If one person furnishes the ideas for invention and another person employs him or finances his experimentation, should the patent application be filed by them jointly?
No. The application should be signed by the true inventor and filed in his or her name.

Q: Is there any danger that the Patent and Trademark Office will give others information contained in my application while it is pending?

All patent applications are maintained in the strictest secrecy until the patent is issued or the application is published. Publication is limited to only certain applications. After the patent is issued, however, the file containing the application and all correspondence leading up to issuance of the patent is made available in the files information room for inspection by anyone, and copies of these files may be purchased from the Patent Office.

Q: I have made some changes in my invention after the filing of my patent application documents. May I amend my patent application by adding a description and illustration of these features?
No. The law provides that new matter cannot be introduced into the disclosure of a patent application. However, there is a procedure called “continuation-in-part application” that allows the patent applicant to file a new application which contains new subject matter to replace or supplement the original. You should notify your patent agent immediately of any changes you make in your invention.

Q: While on vacation last summer, I found an article on sale which has not yet been introduced into the U.S. or patented or described in the U.S. May I get a U.S. patent on this invention?
No. According to the law, a U.S. Patent can only be obtained by the true inventor, not by one who learns of the invention of another.

Q: Does the Patent and Trademark Office control the fees charged by patent agents for their services?
No. The Office maintains a roster of registered patent practitioners, but the Office does not control fees, nor will the Office help you select a patent agent.

Q: If I obtain a patent on my invention, will that protect me against claims of others who say that I am infringing their patents?
No. There may be a patent of a more basic nature on which your invention is an improvement. If your invention is a detailed refinement or feature of such a basically protected invention, you may not use it without the consent of the patentee, just as no one will have the right to use your patented improvements without your consent.

Q: What do the terms “patent pending” and “patent applied for” mean?
They are used by a manufacturer or seller of an article to inform the public that an application for patent on that article is on file in the Patent and Trademark Office. The law imposes a fine on those who use these terms falsely to deceive the public.

Q: Can an inventor sell his right to a patent or patent application to someone else?
Yes. The inventor can sell all or any part of his interest in the patent application or the patent.

Q: Does a U.S. patent protect my invention in other countries?
No. The U.S. patent protects your invention only in this country. If you wish to protect your invention in foreign countries, you must file an application in the patent office of each country within the time limit permitted by law. Check with your patent agent about costs before you decide to file in foreign countries.

Pete has a great website with a lot of practical advice. One question we get a lot “is what does a patent cost?” Pete has a great “Patent Fees” section that addresses this directly

Action Patents charges $100 per hour for patent preparation and prosecution. There are additional costs such as filing fees and possibly drawing fees. The cost of a typical patent application generally runs from $3,000 for simple inventions to over $7,000 for complex business methods and software inventions.

The legal fees vary depending upon the technical complexity of the subject matter, the quality of the written description provided by the inventor, and the number of revisions required to accurately describe your invention. If you provide a good written description of the invention, your legal fees are less. Government fees are subject to change.

Once an application is filed, there are other costs incurred while the patent is pending. The United States Patent and Trademark Office will issue an “Office Action” setting forth their findings on patentability and may require the Applicant to file a response. After one or two responses outstanding issues are usually resolved. Each response generally incurs about $1,000 in legal fees. After the patent is allowed there is an issue fee of $700 plus a $200 preparation fee.

Once a patent issues there are maintenance fees at 3 1/2, 7 1/2, and 11 1/2 years. They are presently $450, $1,150 and $1,900 respectively for small entities. The maintenance fees are subject to change by the U.S. Patent and Trademark Office.

Think You Have a Great Name, Think Again!

Written by Francis Adanza. Posted in Founder Story

We have all heard of brand names like Google, Cisco, Nike, Starbucks , and Lowe’s. Have you ever wondered how these companies got their names? You probably haven’t heard of Ansearch , N-TRON, InSport International, Caribou Coffee, and Handy Andy. To me Ansearch sounds more like a search engine than Google, N-TRON seems more like a network router than Cisco, InSport is closer to sports apparel than Nike, Caribou Coffee appears more relevant to coffee than Starbucks, and Handy Andy sounds more like home improvement than Lowe’s. We all know there is more involved in marketing than just names, but I wanted to learn how developing the right name can improve my marketing effectiveness. Today, I was able to sit down with Athol Foden, Founder of Brighter Naming, to pick his brain for naming insights. Athol has over 15 years of experience in helping clients name companies, products, services, and taglines. Please visit his website for great articles on name generators, characteristics of good names, and naming biases and influences.

In addition to this blog, Athol will be joining us next Friday, December 7th at the Bootstrappers Breakfast in Palo Alto. Come join us and engage in a round table discussion and ask Athol your own questions.

Q: How does a strong company name influence presence in the marketplace?
It allows you to stand out from the crowd, gain quick and clear customer mindshare, and shorten all your sales and marketing messages.

Q: What do you think is more important, a name or a logo?
In retail, a logo (or even more importantly a color scheme) are the most important when you are selling “off the shelf” via packaged goods. For items where the logo cannot be seen, for example fashion clothing, the name recognition is more important. In high tech, when selling via the internet or phone, the name is more important. In some cases, the icon (mini logo) may be also very important e.g. embedded in a website, cell phone, etc.

Q: In our experience we see startups rollout a product name which is different from the company name. We believe they should put all their weight behind one name instead of confusing people with multiple names. What are your thoughts about this strategy?
Most startups only have so many marketing dollars at their disposable, so it is often easier and cheaper to have one name to initially promote. However, if the company will have a number of product lines in the near future (under 18 months), then you need a naming architecture that plays off the company name, or you need separate product names.

Q: It seems like naming the business is an emotional step that most founders want to own, how do you convince people you can produce a better result?
Many smart founders waste many, many hours before they call for help. Very few have the talent, experience and knowledge to do it themselves (unless they will always be a small Mom and Pop). This is especially important for a business that will go nationwide soon. The legal costs and risks alone are enough to have many ask for help. However, they still own the process and final decisions. All we do is enable the creativity, provide names that are legally clear, and facilitate the decision making process.

Q: Your website says you can help a startup come up with a name in three weeks, how much of the founders time does this require for you to deliver?
For a small business, we only engage the founder in meetings and discussions for about 3-4 hours a week during the project. Of course, they spend time (usually after hours) thinking about the names, discussing with colleagues, etc. We want to make sure they are very comfortable with the final name.

Q: What are the legalities of finding a name?
To register a small sole proprietorship, it only has to be clear at your local county business office. They don’t check with anyone else, or to that matter really care. To incorporate, it only has to be clear in your state. They don’t check with anyone else, not even their own counties! All this is OK, as long as no one else in your same line of business has the same name… and you will never run into them doing business anywhere in the world.

So the real protection is to do a thorough nationwide search, starting with both registered and common law (unregistered) trademarks, which provide Federal protection. A simple Google search is not enough.

Q: Without having to hire an expert, what are three pieces of advice you would share with startups to figure out a good name?

  1. Don’t try to find one name. First list as many as you can… 100+ is a minimum starting point.
  2. Don’t be naive. People have been naming businesses for years… and 1000 trademarks are filed a day. You will probably have to be somehow unique or different. Think outside the dictionary.
  3. Remember, you are naming it, not describing it. First list all the major players in your industry and all competitors. Make sure you don’t end up sounding like them.

Using Web 2.0 Technology to Enable Strategic Selling: A Sales Executive Forum

Written by Francis Adanza. Posted in Consulting Business, Events

I have had two interesting conversations with friends who are frustrated with some of the internal deficiencies within their companies. Both of my friends are accountants, but work for different firms and in different departments. However, they are both part of itinerant work forces and have the same problem. While out of the office, they both do not have access to their local area network. The specific pains within the overall problem were that my friends could not access their email while in the field or obtain information about a customer who was not directly their client. Where there is pain, there is opportunity. Although this problem that has been solved 20 years ago, it was interesting that these 100 million dollar firms were still operating under these business conditions.

Thinking back to last months Sales 2.0 Conference, I thought about one of the breakout sessions that I attended, “Using Web 2.0 Technology to Enable Strategic Selling: A Sales Executive Forum.”

Moderator:
Gerhard Gschwandtner, Publisher, Selling Power

Panelist:
Clarence So, Senior VP Marketing, Salesforce.com
Umberto Milletti, CEO & Founder, InsideView
Lisa Caswell, VP Global Sales & Alliances, Aravo

Below are the questions and answers from the panel discussion that I found relevant to addressing the opportunity to solve my friends’ critical business issues.

Question: Please define Sales 2.0.

Umberto: Sales 2.0 means having a more relevant conversation with your customers. It has always been an information problem. I believe that sales people are ultimately information workers that try to match a customer and their needs to a solution. It used to be very difficult to learn about customers. You would get leads without even knowing who is this company and who is this person. With Sales 2.0 it’s drawing lots of information about companies, their people, and making it relevant to your sales force.

Clarence: As a company grows, it not only becomes challenging to manage the business operationally, but also manage the selling process. Sales 2.0 allows companies to automate operational process, sales processes, offer richer customer support, and an overall better customer experience.

Question: How many technology tools do you use today?

Lisa: Technology gives us different ways to collaborate. Sales models have shifted from pushing or pulling to co-creation. Technology allows us to co-create the sale with the customer. Internally, we use several technology tools, but only two for our sales team: Salesforce.com and InsideView. With these tools, we can track the customer relationships, account relationships, and history. Historically, getting everyone on the same page has been a problem. Now, we have common dashboards, reports, and a place to access data to align everybody objectively. This helps us get rid of the anecdotes and use data to drive decisions.

Question: Is a sales more an art or a science?

Lisa: I think the ratio is 85% science and 15% art. If you track the number of phone calls to the leads, to the close rates, and measure what you learn, you take more of a systematic approach than feeling your way through it.

Clarence: I think the ration is 70% science, 30% art. I believe sales is more science because you need metrics to measure your effectiveness. For example, measuring our web presence. We live and die by our website traffic. We drive everyone to the website and measure how many people are bouncing, who is downloading the white papers, how much time people are spending on our site.

In our business model, everybody comes to the website at some point. I know down to the decimal point how many percentage of leads I get inbound through the website. We model how everybody comes in and then try to automate as many as possible. It’s a very substantial operational modeling process that we run. Once you get in through the website we use Salesforce.com and assign the leads.

Gschwandtner: With all the technology that’s out there, we should not forget that the purpose of business is what, to create a customer. How do we create a customer, by helping the customer win. How do we help a customer win? We need to understand. A lot of companies are still arrogant and say I know what our customers need and want. This is height of arrogance and ignorance. We need to know what is on the customer’s dashboard, what metrics they are looking for. If we don’t know what is important to the customer, we have no leverage point for having a conversation.

My thoughts: If everything above is true, then why do my friends have this problem? With all the tools, customer information and resources available, how come someone has not closed a deal with these accounting firms and upgraded their IT infrastructure? How come these firms do not have any team collaboration technologies? Is it because most financial firms have IT departments that assume employees should have access to company applications and data stores only while they are on company premises and connected to an internal local area network? Maybe the partners have not re-thought their business processes in light of what’s now available? Perhaps when the partners were paying their dues on detailed project work many of these technologies were not widely available, and their concept of the work has been shaped by that. These all seem like opportunities for selling. It seems obvious that if you have people in the field, they need access to the firms resources.

An Entrepreneur’s Perspective of the ANZA Gateway Program

Written by Francis Adanza. Posted in Events

The ANZA Technology Network is an independent organization designed to help Australian and New Zealand technology companies explore market opportunities within the US. They offer a variety of programs which connect companies with industry leaders who can help them find the perfect revenue model, market niche, and investor plan. While I was at the 2007 Gateway to the US Summit conference I had a chance to talk with Frank Carbone, one of the featured CEO’s and founder of Wanted World Wide. Below are the questions and answers from the short interview (with some hyperlinks added).

Q: What were your three biggest concerns in trying to penetrate the US market?

  1. How and where do we start?
  2. What is the best way to go about attracting investors?
  3. What are the differences (including legal differences) between doing business in the USA and here in Australia?

Q: What were the three biggest surprises from your visit to Silicon Valley?

  1. The amount and depth of networking that does go on.
  2. The way that people were happy to share their knowledge, talk about their experiences, provide referrals, if they had any, and in general how helpful everyone was.
  3. The biggest surprise was resulting interest and how quickly everything moved (and I’m not talking about how fast everyone seems to drive). We know we have an excellent product and concept but fully expected things to take a little longer than they are shaping up to.

Q: From your own perspective, what specific benefits did ANZA offer as a part of their service?

ANZA allowed us to meet with people that we might have not had any contact with otherwise or would have taken a lot longer to find! The information provided by the other mentors (ours was unfortunately not able to be there), the VC’s, Viki, the panel sessions and Australians now living in the USA was of enormous benefit.

There was a small group of diverse presenters at this program which meant that we received valuable information and feedback from them also without the feeling that we all had to compete against each other. A major benefit of this program was of course the networking and the fact that it exposes different business types to VC’s and other interested parties.

Q: Would you like to share any other thoughts or suggestions?

We received excellent service from the ANZA “Gateway to the US” program. This was the first time we had ever presented at such an event, so we felt a bit under prepared and wishing we had known a few things: e.g. our presentation no doubt could have been better, but we have no complaints about the program itself and the level of service we received. It was quite a learning curve for us.

November 12 update: See ANZA Gateway Summit ’07 – It’s a Wrap! for more info on the 2007 ANZA Gateway Summit.

Inside Sales 2.0: A Report From the Front Lines

Written by Francis Adanza. Posted in Events

While at the Sales 2.0 Conference on Tuesday, I attended a panel presentations titled “Inside Sales 2.0: A Report From the Front Lines.” Below are some questions and answers that I found interesting.

Moderators:

Panel:

Question: Can you describe your inside sales team?

Stephen: There are four groups; corporate accountants, a federal group, and two regional groups broken down by product line.

Shelly: Our sales force is comprised of 50 reps who are geography based.

David: Before the merger with Veritas, we decided to make everyone sell the entire product line. We soon found out this approach would not work. We had too many products for any one person to know enough about to answer customers’ questions. We now have four different layers of product segments mixed with inside and field people.

Question: What is the biggest difference in inside sales from enterprise to on demand?

Shelly: There is not much difference. This goes back to the focus of what are your objectives? Its either owning a market, owning a product or owning some segment of the opportunity, be it by deal size and applying the right execution against it.

Question: What were the biggest challenges you faced with inside sales?

Stephen: The biggest challenges we faced was from all of our mergers and acquisitions. After several acquisitions we offered a wide range of products pricing from a 35 cent label on a cartridge to a 250k enterprise tape library. It was too difficult to incorporate two different strategies and models to sell the product groups so we scrapped everything. We developed new process, new techniques and found new people.

Question: How has the growth impacted your inside sales team?

David: We have had several hyper growth phases. Some happened through our own product sales and some happened through mergers and acquisitions. Employee job security is always a factor in any M&A. In order to manage the acquisition process and empower our employees, our sales managers have their sales teams develop the business plan. This way the employee is working to a plan that they believe in, instead of giving into a process to hold a job.

We found this to be an effective approach because with each acquisition, we had to learn a new set of products and processes. We sat through endless meetings learning how one another did things. However, in the end, this made us more communicative across all departments.

Stephen: We are always interviewing people whether we have positions open or not. This way we do not miss an opportunity on finding a super star. It is important to be aligned with your HR department and educate them on the type of people you are trying to find. We are continuously training, not just product training but real sales training. We are always rebuilding our sales process to meet the needs of the customer.

Shelly: We had a capacity issue. We did not have enough reps to meet our customers needs. Therefore we opened locations based on where we could find pools of talent and customer demand.

Question: Which tool(s) have made the biggest difference for you?

Shelly: We broke our sales process up into three groups: small business, mid-sized, and enterprise level. My secret to laying the infrastructure for a group is to have a solid CRM system for everyone in the company who is customer-facing. This enables us to keep the communication open.

David: I think that the most important thing is building the right foundation by valuing your people and valuing your customers. It’s not the technology. Once you have that culture where collaboration and valuing your people is part of your thinking, then you can bring in technology to help drive it further. Buying the SuccessFactors application has helped us incredibly: it allowed us to align our goals with tracking and reporting capabilities. We can profile our people and see who’s who in the zoo and who should we be promoting.

Stephen: Besides SuccessFactors and a CRM system, instant messaging has been huge for us in terms of being able to communicate with the customer on a real-time basis.

Three lessons I took away for startups:

  1. Organize your marketing and sales in alignment with how your customers want to buy. In particular, requiring each salesperson to be super knowledgeable about the product line is probably unreasonable.
  2. Think about what each employee can own as an area of responsibility, for example a market, a product, or an aspect of a sales opportunity.
  3. Think about using IM to communicate with your customers if they are open to it. One point that wasn’t made is that, like e-mail, it’s nicely self-documenting and easier to manage and recycle than a phone call.

ANZA Tech’s Gateway to the US Summit: Marketing Business Forum

Written by Francis Adanza. Posted in Blogging, Events

While at the ANZA Technology Network2007 Gateway to the US Summit, I attended the Marketing Business Forum panel discussion. This was a question and answer session on how emerging technology companies can gain traction using innovative marketing tools and tactics.

The moderator: Chris Shipley, Co-Founder & Editorial Director, Guidewire Group

The panel speakers:

The two hot topics of the hour were “Social Media” and “Blogging.”

Mike’s thoughts on social media:
Traditional, yet still highly influential, social media mediums include message boards, user groups, and forums. However, blogs, vlogs, podcasts, and wikis are becoming the more popular social mediums of today. If done correctly, social media can be an effective marketing strategy to reach larger audiences. Mike believes that the various mixes of social mediums is developing a new brand of influencers, enabling companies to pinpoint smaller niche audiences.

Buzz shared a story on how blogging helped him enhance his relationship with customers:
Buzz believes you cannot afford not to blog. While working with his technical team, he realized they were the only ones using a certain type of terminology. Through blogging he was able to have conversations with customers and learn that his messaging was wrong. Additionally, he was able to find someone who became their biggest evangelist. Blogging allowed him to obtain feedback from prospects and incorporate features into the product roadmap.

Sean and Ann Marcus have written an article on How Do Blogs and Wiki Help Me Collaborate With My Customers that has some tips that are relevant to this topic, three key ones:

  • Plan Ahead: schedule your level of effort and some publication targets and stick with them.
  • Focus for Effect: pick a few topic areas that are relevant to your prospects and explore them.
  • Cite References: so many new bloggers write as if they were distributing hard copy; link to your sources.

Viki Forrest talks about ANZA Technology Network’s Gateway to US Summit

Written by Francis Adanza. Posted in Events

Today is the kick off to the 2007 Gateway to the US Summit, hosted by the ANZA Technology Network at Plug and Play. The three day conference is the beginning of a three month program designed for Australian and New Zealand companies who are considering the possibility of doing business in the US market. I caught up with Viki Forrest, CEO of ANZA, last week for a short interview.

Q: What are the top three concerns Australian and New Zealand firms have when they try to enter the US market?

  1. The cost of doing business in the US (relative to Australia it is extremely high)
  2. Determining the best market entry strategy (there are so many options!)
  3. Identifying the best partners/channels to market (without a trusted personal network to rely on, this can be extremely daunting)

Q: What were some of the biggest surprises for the companies who visited Silicon Valley last year at the Anzatech Forum?

After a brief visit to Silicon Valley there is enormous excitement about the size of the opportunity and how BIG everyone’s thinking is in the Valley. After a couple of months of working with ANZA most CEOs realize (1st surprise) they will need 2-3 times more money than originally thought, (2nd surprise) their business plans/market entry strategy has been completely re-written and (3rd surprise) they are truly shocked by the cost (cash and options) of employees.

Q: What specific benefits does your organization offer as a part of their service?

Our programs are built around providing seasoned executives who mentor the companies. This delivers benefits at a very personal level to the executives participating in the program. At the end of the day they are far better prepared to do business in the US. Secondly, our mentors and our members provide personal introductions to their trusted networks of executives. The benefit here is that the executive is not starting from scratch in developing a network, this results in huge benefits in terms of speed to market: 80% (at least) of business in the US is conducted through personal/business relationships and networks. Arriving in the US from a foreign country-–without a network-–can be an insurmountable obstacle to doing business. There are exceptions but they are rare. Our programs have been designed to specifically address this obstacle by connecting CEOs in a trusted environment.

Q: How do you think your companies measure or assess the quality of the service you provide?

We track the performance of our clients on 3 dimensions: investments secured, US revenues, and US strategic alliances/relationships. These results form the basis of our program exit interviews with our clients.

Q: Wednesday is full of great business sessions, who within Silicon Valley would you like to attend these sessions?

Our business forums are designed for the Australian and New Zealand executives who generally have not done business in the US before. Any foreign executive new to the US would get a great deal out of attending, as would any young entrepreneur starting their first venture.

First Office: Silicon Valley Business Incubators

Written by Francis Adanza. Posted in First Office

This is the first in a series of blog posts on where a start-up team might look for their first office. One of the first types of office space to consider would be space in a business incubator.

A business incubator is comprised of multiple businesses operating independently within one location or under a membership group. The objective of the incubator is to help its businesses get started and grow. Incubators offer services that can help entrepreneurs overcome a wide range of obstacles by reducing startup costs with a shared system of support and resources. Most incubators offer shared office space, utilities, and services that create a unique environment for new businesses to grow. Incubators are known for helping startups lower overhead costs, create networking opportunities, and increase the chances of survival.

Tenants in business incubators share overhead costs such as utilities, office equipment, IT support, conference rooms, laboratories, and receptionist services. Additionally, basic rent costs are usually below the normal market value for the area. Often, incubator managers and staff members provide insightful advice on a broad spectrum of issues including, business development, market research, strategy, and fund-raising. Jim Robbins, Director of the Environmental Business Cluster believes, “founders are surprised to learn that they can get startup services for no more than the cost of space, furnished units, strategic planning advice, and free common areas like conference rooms.”

With the desire to create an entrepreneurial environment, some incubators host a variety of events that cater to both their internal members and external community. Plug and Play Tech Center, one Silicon Valleys largest incubators, is well known for hosting conferences and entrepreneurial events. Some of their past conferences and events include the TechDirt Greenhouse, ANZA Technology Conference, Web 2.0 Expo, and monthly workshops like the SVASE Startup-U and VC pitch sessions. As a frequent attendee of these conferences, I appreciate the opportunities to meet other entrepreneurs, keep in tune with new technologies, and learn from distinguished guest speakers.

There are many factors involved in transforming an idea into a marketable product. Besides the significant technological challenges, building and operating a business is very complicated. The Small Business Administration reports that over 80 percent of businesses fail in their first five years. However, the National Business Incubation Association claims that 87 percent of businesses that graduate from an incubator program are still in business after five years. Since access to other startups, management professionals, executive mentors, and expert consultants are so readily available, it makes it easier for incubator tenants to fill gaps in their business.

If you are considering a business incubator you should make sure that your firm’s focus is aligned with the incubator’s mission and then schedule an appointment with the director. Most incubators have initial requirements before incubation consideration. Some incubators are industry focused and only cater to certain segments like Biotech, Cleantech, Software, and Semiconductor. Like investors–and remember many of these organizations will ask for equity–directors want to meet with the entire management team and see several written plans like marketing, financial, and product roadmap. Evan Epstein, Chief Operating Officer (Silicon Valley) for the Girvan Institute of Technology says, “It helps to be referenced in from someone within our network.”

First Customers: Targeting The Right Customers To Build And Sustain Your Business

Written by Francis Adanza. Posted in Events

Today I attended a lunch event hosted by SVASE and Pillsbury Winthrop. The title of the event was “First Customers: Targeting The Right Customers To Build And Sustain Your Business.” The featured panelist were John Witchel Of Prosper & Bruce MacNaughton Of Crosslink Capital. It was an informal questions and answer discussion between the crowd and the panelist regarding ideas on targeting your first customers. There were several good questions and answers, however the two I found most beneficial are below.

Audience Question: Can you share your opinion on launching a business to consumer website?

John Witchel’s Answer: For those of you who think all you need to do is put up a website and something will happen, let me make it clear for you… nothing will happen. Launching your website is so crucial to the success of your company, especially in the consumer space. In our model we needed two types of users; the lenders and the borrowers. In planning we learned that we needed more than just lenders and borrowers, we really needed a community of leaders who would monitor specific groups. Therefore we created group leaders who would be responsible for certain types of loan relationships.

I spent months on the phone convincing people to be lenders, borrowers, and group leaders. I asked every favor I could of everyone I knew just so the website had content and an engaged community prior to launch. I had to deal with people concerned about fraud, security, model won’t work, you name it. All I could do is promise that it will work and sell them on the vision.

Really, what do we do? We mediate a transaction for a loan to take place. There are a thousand and one different places you can get loans. We do not loan money, we solve problems. Everyday people need cash to fix a car, build a deck, pay off a credit card. We solve these problems. Lending money allows us to solve the problem but the customer does not think their problem is getting a loan. Their problem is having enough cash to buy a flat screen to host the biggest super bowl party.

The point is nothing just happens, there is always an inside job. Your role as the founder is to orchestrate everything and make it happen.

Audience Question: What does the “right first customer” mean? Isn’t the point to collect revenue?

Bruce MacNaugton: Everyone knows that your first customers are usually your friends and family, so you are not fooling anyone. You need to understand that you have not successfully closed your first true customer until you have sold to a complete stranger.

Your first customer is important because they will help you figure out which features are important and which they do not need. We often see people startups build products with too many features. They have a solution for everything. This really means they have a solution for nothing.

John Wichtel: There are some businesses that are primarily consulting firms that have some IP but not a working product. Then there are product companies that chase the consulting dollars to keep the lights on. Picking your first customer is very important because you are going to feature this customer as a super star. You want to find a customer that you can develop a story around. The next set of customers will want to know who is using your product and if they have the same problem as the person you previously helped.

Mike Lanza: Starting Companies Without Venture capital

Written by Francis Adanza. Posted in Events

Do you need venture capital to build a successful company? Mike Lanza does not think so and he has several experiences to prove it. Last night I attended the SDForum Startup SIG to learn how Mike started four companies without venture capital. It was a interactive presentation where Mike addressed his observations and experiences of entrepreneurship.

Mike’s Entrepreneurial Career

In 1986, fresh out of school Mike started Lanza Laser Publishing. It was a graphic design company which employed Mike and a part-timer. It was not Mike’s intent for this to be a high growth company, but he ended up selling it in 1988.

In 1993 Mike started Digital Newsstand, an online news service. In this venture he had large aspirations of building a high growth company, but ended up spending two years on it without ever hiring employees or launching a product. Although the company folded, Mike started it with his own capital and no outside investment.

In 1995 Mike founded Just in Time Solutions, an online bill presentment and payment system, which is now known as Avolent, Inc. He grew the company to 65 employees and $6+ million revenues. In 1998 he left the company shortly after he took his first round of venture financing.

In 1999, right in the middle of the dot com bubble, Mike founded 1View Network. It was an online financial information consolidation company which he grew to 20+ employees and $1.5million/yr revenues. He raised $1.3 million in angel financing. A year later, in 2000, he successfully sold the company to Digital Insight.

Mike’s most recent experience was developing Click.TV, a web video technology. He founded the company in 2006 with his own capital and grew it to five employees. He recently sold the company with zero revenue. The acquisition has not been disclosed to the public yet, but you can read Christine Herron’s and Michael Arrington’s blogs for more Click.TV coverage.

My three takeaways from the presentation

  1. The value of software patents
  2. Successfully bootstrapping your company
  3. Exit strategies for non venture backed companies

Patents: Mike believes that “patents do not do anything except create work for attorneys; if your technology is so unique and innovative process the paperwork but focus your time on running the business.” I agree with this statement because in my experience, I see too many technologist spend more time worrying about patents rather than building a business. Patents are only as strong as the amount of money you have to back them. Most companies use patents as defense mechanisms in litigation engagements. Your customer will never ask you if your technology is patented.

Bootstrapping: an attendee asked a question regarding his methods for bootstrapping a company. Mike said, the best form of financing is through revenue. In the beginning all of his early sales were consulting jobs. He eventually refined the product and his process so that it could be productized. In Gerald Weinberg’s book “The Secrets of Consulting” he coins the phrase “nothing new ever works.” This is especially true for technology. When the technology is introduced into the market it takes many revisions before it actually leaves the inventors hands. We believe that selling the tool as a consulting service is an effective method for jump starting the sale and finding your early adopters.

Exit: when you finance a company on your own, you have the opportunity to sell whenever you want. When you raise venture capital, sales opportunities are usually ignored until the money dries up. Most selling decisions take a long time because your investors will have to approve the deal. Its just how the economics work when you play the venture game. VC’s will not settle for the moderate gain unless they have to. If you take money early in the fund, they do not want to sell early because then they have to give the money back to their limited partners and they won’t be able to charge as much management fees.

My net net: these days it seems like the trend is to develop a ten slide PowerPoint presentation and try to raise venture capital. From the pitch preparation and networking events I have been to throughout the valley, it seems like most entrepreneurs do not have a real plan for spending the money. My observation is that many of the entrepreneurs are trying to raise money to pay themselves a salary while they entertain an idea.

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