Studying History: How Westward Expansion Still Inspires Small Businesses
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At VatorNews, we have been building up a great library of "Lessons learned and advice" for entrepreneurs from top VCs to successful entrepreneurs since 2007. (See our Lessons Learned archive) In 2009, we added about 50 video interviews to our library of more than a thousand videos and articles specifically designed to educate entrepreneurs. Unlike 2008 lessons, where we saw a number of entrepreneurs and VCs share their advice on how to survive a nuclear winter, in 2009, the lessons were those that were not cyclical, but practical pieces of advice for every entrepreneur to consider and embrace.
1) Vision is bumbling around
The first lesson to keep in mind is to know that vision isn't something that you necessarily need, or importantly have, at the start of your venture. Vision is a process. And, an entrepreneur needs to learn to love that process as much as the vision itself because the vision unfolds and manifests itself over time.
No one said it better than Vinod Khosla, the founder of Khosla Ventures , a leading VC firm that just raised $1 billion this year. Khosla was also a partner at blue-chip venture firm Kleiner Perkins and co-founded Sun Microsystems back in the 80's, upon graudating Standford University.
Here are excerpts from a speech on vision, after he received a visionary award from SDForum. "Vision is great, especially when you can do it with 20/20 hindsight... The best thing to do to have vision is to pray to Lady Luck because frankly, you never know vision when you see it. And, I still don't really believe in vision... I believe in bumbling around long enough to not give up on things. Eventually, when success comes your way because you've failed in every possible way, and the only way that’s left is the one successful way. And, always for those of you who are entrepreneurs, it seems to come last... This bumbling around is to me what vision is about. It’s the best way to be a visionary. You just keep failing enough, and not giving up."
To see all of Khosla's speech, which I captured with my handy cam at Aunt Heidi's house, click here: Vision is bumbling around.
Other lessons that refer to staying the course:
Be relentless, don't compromise
Startups take a long time to bake
2) Know that you will fail
Since 2007, VatorNews has collected hundreds of lessons learned. When I've asked entrepreneurs to talk about a failure, they often quip: "Where do I start?" Failure is right of passage and very much a part of the entrepreneurial process. Successful entrepreneurs know this all too well, and are often proud of their war wounds. Take for instance, Mark Pincus, founder and CEO of Zynga, the largest social gaming company, with $219 million raised from blue-chip venture capitalists. Prior to Zynga, Pincus founded Tribe, a social network, back in 2003. Its technology was sold to Cisco Systems in 2007. Tribe wasn't exactly a home run. Here's excerpts from my interview with Mark earlier this year about what happened at Tribe and the lessons about building a social network.
"I would consider Tribe a failure from an investor standpoint. So, lessons learned from Tribe - No. 1, especially if you’re going after consumer Internet, pick the macro and test continually to get the metrics that work. One lesson was that we didn’t test enough to get to virality. The problem we had with Tribe was that the lack of virality was masked by a huge word of mouth. Our traffic did grow, but it grew at a straight line and not asymptotic. It didn’t grow exponentially. It grew straight line. It can fool you for a while. Early success can mask a lot of flaws in your strategy. Sometimes it’s an embarrassment of riches. Sometimes in social networking, anything can get a lot of users. We mistook great community for great social virality. We didn’t have social virality. People weren’t connecting with their real friends. They were coming online to find a new community. The biggest lesson in social networking is that there is an unbelievable opportunity to let people network with their real friends and worlds, and that is much more powerful than letting them network with people they don’t know at all.
To view all of Mark's "Lessons Learned" segment, click here: Lessons from Tribe - fail fast
Other lessons that refer to failure:
Entrepreneurs should accept failure
Reid Hoffman: Pursue as a learning cycle
3) Dare to dream
It's hardly worth saying that entrepreneurs, by nature, are risk takers and dreamers. Bright-eyed entrepreneurs have to keep the dream alive to endure the slogging toward every milestone, until finally hitting the exit summit. The entrepreneur course is just as intimidating as it is exhilarating, much like the arterial mountain trails that lead to the forbidding peaks in the Himalayas.
One serial entrepreneur who said it best this year was Venky Harinarayan, who hit his own summit as an entrepreneur. Back in the '90s, Harinarayan started one of the first, if not the first, e-commerce search engine, Junglee. It was sold to Amazon in 1998 for $250 million. In 2005, Harinarayan and his business partner Anand Rajaraman, co-founded Kosmix, an alternative search engine, or Web guide. Rajaraman was also a co-founder of Junglee. Here are excerpts from his Lessons Learned interview:
Firstly, you have to be able to dream, he said. You have to believe you’re doing something fundamentally different and that you’re going to change the world. If you don’t have a dream, you’re not passionate, and it just doesn’t work. “If you don’t have the passion, you won’t go through the walls, climb the hills, jump the hoops that need to be jumped," he said. Secondly, "clarity is worth its weight in gold. It doesn’t matter if you’re right or wrong. Just be clear about where you want to go. You’re better off being clear than being right. Focus is value in itself. If you’re focused, you’ll get somewhere."
To watch all of Venky's "Lessons Learned" segment, click here: Dare to dream; go against conventional wisdom
Other lessons about persistence:
The Stockdale paradox: Faith over optimism
4) Remember, it's about the right team
The biggest reason companies fail or succeed is because of the team. This has become an aphorism among entrepreneurs and venture capitalists. So important is the team, that you have to be willing to fire your best friend to keep your startup alive, Chip Hawkins, founder of Electronic Arts and Digital Chocolate, told me in his Lessons Learned segment on VatorNews last year. The Ooyala founders also said in their Lessons Learned segmenet that the reason their startup works is because the team works well together.
In 2009, the person who captured the essence of the importance of a team was Aydin Senkut, an early-Google-employee-turned angel investor whose portfolio consists of some well-known consumer Internet companies, such as Mint, which was recently sold to Intuit for $170 million, Aardvark, Disqus, Dogster, BrightRoll and Rapleaf. In his Lessons learned segment, he said that often people hire in a hurry and hurry the wrong people. It's critical to look for the right team magic, he said. As he puts it: "A good team is one you can take to the bank."
For more of Aydin's Lessons Learned segment, click here: A good team is one you can take to the bank
Other lessons about the importance of team:
1) Can friends be business partners?
2) Team, proximity, slow and steady wins the race
5) Think about revenue (daily) and milestones
Entrepreneurs have too many things to think about. The startup CEO is the chief cook and bottle washer, Volomedia's CEO said this year. Regardless of their many hats, they need to remember that revenue (and ultimately profits) are what makes the business. So many startups watch Facebook and Twitter and think they don't need to focus on revenue. They think all they need to do is to focus on the next VC round. The problem is that the majority of companies aren't Faceook and Twitter. They'll need to fund themselves sooner rather than later.
A great review on how to think about generating revenue came from Munjal Shah, founder and CEO of Like.com, which is generating more than $20 million in annual sales with more than $100 million products sold off its platform. The $20 million comes from leads it collects from its retail customers whenever a consumer browsing on Like.com clicks through to the customer’s Web site. Here's an excerpt from his 25-minute speech he gave at a Vator event in October.
"The best way to grow revenue is to think about it every day. Like.com’s team focuses on revenue with religious zeal. Daily revenue reports are sent to the entire company as well as investors... You can’t move a number you don’t focus on every single day... If you want to move revenue, you got to look at revenue; You got to know what it is; You got to focus on it.”
To watch more of Munjal's lessons on revenue, click here: The secret behind Like's revenue engine
Other lessons about revenue building:
1) It's never too early to focus on revenue
2) Lessons on Blogger's journey before Google
6) It's OK to hit the reset button; Learn to start over
One of the many strategies for startups to survive is to hit the reset button. That means reset expectations, re-organize the team, and reset the priorities. It's a scary move, but some of the better companies take this route rather than doing the same thing over and over again, to no avail.
One company that's going great guns in 2009 hit the reset button years ago. That company is Pandora, a personalized radio station that creates music stations based on personal preferences. Joe Kennedy, Pandora CEO, talks about how the popular Internet radio company hit the reset button and started over. Here's excerpts of our interview:
"Pandora is a recapitalization, or revision, which started in January of 2000. There still is a core music genome project that is still a part of that. But the core business is entirely different. One piece of advice that I would give to entrepreneurs is that it is incredibly common that it's very rare that the founding idea turns out to be right on the money. There are almost always pretty considerable twists and turns. That's just part of the reality."
To watch more of Joe's Lessons Learned interview, click here: How Pandora hit reset and became a success
7) Stay lean
This is one of the toughest lessons for entrepreneurs to learn. They almost have to run out of money before they even know what this means. Many VCs have said that often entrepreneurs do foolish things with too much money. For instance, they overspend on marketing when there's no product to market. And, many entrepreneurs have said they've been more creative and productive with less money.
Aaron Patzer founded Mint.com and within three years sold it to Intuit for $170 million. He gives a 25-minute presentation on how he kept expenses low, including receiving $30,000 a year as a founder and between $30,000 and $50,000 for engineers. He also spent about $400 for an office cube per month. In this presentation, Patzer lays bare the details of how he kept expenses low to ensure a successful business and exit.
To see more of Aaron's 25-minute presentation, click here: Aaron Patzer lays bare Mint's numbers
Other lessons about staying lean:
It's economic downturns, it's about survivals
Stay lean, don't get ahead of youself
8) Over-communicate with shareholders
One of the best ways to keep investors happy is to not surprise them. The more seasoned entrepreneurs know to keep their shareholders abreast of the latest news, even if it's not that great. The upside is that investors will not lose faith in you and your ability to live up to your fiduciary responsibility to them. Many times, entrepreneurs will have to go back to the same investors for another round of financing. Entrepreneurs who've given their investors monthly or quarterly reports are more likely to keep early investors in the game. One investor who spoke on the virtues of this openness was Ken Sawyer, founder of Saints VC. Here's excerpts from my interview with him:
"The first thing I would say is over communicate. I think in this period of time, we have to recognize that customers, suppliers, employees, shareholders, and venture capitalists all want to learn about what's going on. Communication can be very important during these tough times and I think the fact that our suppliers are struggling, our customers are struggling, and often our venture capitalists are struggling for exits. The communication that a company and a CEO can do for its employee base and its investor base is really important. Because with that communication there is less of a chance of issues evolving into a conflict, and of difference of point of view, and keeping people in line is super important especially in this tough time period."
For more on Ken's "Lessons Learned" segment, click here: Over-communicate with shareholders
9) Relying on VC funding is not a business
By staying in touch with shareholders, many entrepreneurs can pave the way to their next round, without having to go the VC route. Many entrepreneurs believe that the VC round makes them. But it doesn't have to. Entrepreneurs can also look to vendors or customers to fund their venture. Not every company is a venture-backed business, and startups need to realize this. Even so, it's amazing how far can go without having todip into the expensive VC coffers.
Ensequence raised $90 million in funding without venture capitalists.
Here are excerpts from Ensequence CEO Dalen Harrison's Lessons Learned with VatorNews in 2009.
"People told us it couldn't be done," he said, referring to the fact that he raised nearly $100 million without the help of traditional venture capitalist. "They told us, in fact, that you had to have a VC," he added. "The truth of the matter is, you can roll up your sleeves and do it yourself." Indeed, rolling up his sleeves is what Harrison did. It took a lot of "worn-out" shoes and networking, he said. In fact, it took meeting upon meeting to win the hearts of few, who would eventually be his biggest supporters to help him find new capital.
For more on Dalen's Lessons Learned segment, click here: Raising $90 million without VCs
10) Sell as little as possible
All too often, entrepreneurs give away too much of the pie. Certainly, entrepreneurs need to share the wealth and use equity to bring in resources. But entrepreneurs should be more mindful about the cap table and the control he/she is giving up. Bringing a bunch of people and VCS on board is great for credibility and the distribution of labor, but keep in mind the dynamics change dramatically and decisions are often made too slowly as a result. One person who learned this lesson nearly a decade ago is John Battelle, founder and CEO of Federated Media and who founded The Standard back during the Internet heyday. Here's excerpts from what he learned about that experience:
"I should have left The Industry Standard in the beginning of 2000. It was the most profitable and most exciting year but I my gut was telling me to get out because I was in a situation that I couldn't control. I had a new set of shareholders, but we were minority and it was still controlled by a majority of shareholders that I disagreed with fundamentally. I got so caught up with the fact that I built this myself and I couldn't do what I wanted with it. I should have left. If it were to fall into the hands of somebody else, they may have done what they wanted to do but better but instead it was very acrimonious for a year until it fell apart. I should have followed my gut and left. Hanging on was much more painful."
For more on John's "Lessons Learned," click here, Sell as little as possible
What are your lessons as an entrepreneur or what's your advice to entrepreneurs? Please share.
Founder and CEO of Vator, a media and research firm for entrepreneurs and investors; Managing Director of Vator Health Fund; Co-Founder of Invent Health; Author and award-winning journalist.All author posts
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Zynga is the largest social gaming company with 8.5 million daily users and 45 million monthly users. Zynga’s games are available on Facebook, MySpace, Bebo, Hi5, Friendster, Yahoo! and the iPhone, and include Texas Hold’Em Poker, Mafia Wars, YoVille, Vampires, Street Racing, Scramble and Word Twist. The company is funded by Kleiner Perkins Caufield & Byers, IVP, Union Square Ventures, Foundry Group, Avalon Ventures, Pilot Group, Reid Hoffman and Peter Thiel. Zynga is headquartered at the Chip Factory in San Francisco. For more information, please visit www.zynga.com.
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Kosmix was acquired by Walmart in May of 2011 to create @WalmartLabs.
Through the innovative fusion of retail, social and mobile, @WalmartLabs is redefining Commerce for the largest retailer worldwide. We are a group comprised of the brightest technologists and businesspeople in the industry, excited about the limitless opportunities that this next generation of Commerce will bring to billions of people around the globe, all in an effort to help them save money and live better.
Kosmix was funded by Time Warner Investments, Accel Partners, Lightspeed Venture Partners, Dag Ventures, private investor Ed Zander and Jeff Bezos' personal investment company, Bezos Expeditions.
WalmartLabs is hiring.
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Ensequence, the interactive television company, is making TV new again. Ensequence delivers the reach and branding power of television with the engagement and measurability of the Internet. The company partners with the world’s leading programmers, advertisers and distributors to create interactive television experiences that can be delivered across a wide range of platforms – including cable and satellite television, broadband, mobile devices and Blu-ray Discs. The company’s award-winning software and professional services enable its clients to quickly build and deploy a high volume of sophisticated and robust interactive television experiences. Ensequence software and services also enable its clients maximize return on investment by measuring viewer behavior and engagement.