The cereal box sold by Team AirBnB to raise money to fund the company
You can really pass on a great deal based on how you think. Here is a great post by Fred Wilson with the title “You can do too much Due Diligence“, it is a classic case of mea culpa and analysis paralysis. I really admire Fred for coming out and admitting his mistakes, he did that with AirBnB as well. In the last couple of weeks, there have been many people who have reached out to me and do the same about CLARA. As I have mentioned before, we were very lucky to find Team CLARA and the work that we were able to do get the deal done. That being said, I am sure if me and my partners had put on the hat of figuring out what could go wrong with our investment and done too much due diligence we may have passed on the deal. Here is an excerpt from Fred’s post:
So what did I learn from this lesson? First, trust your gut. I was using Feedburner and knew it was a very useful service. I felt that others would see that too. They did, but it took some time. Second, I learned that a service can get traction with the little guys and in time, the big guys will come along. I have seen that happen quite a bit since then. And finally, I learned that you can do too much due diligence. It’s important to talk to the market and hear what it is saying. But you have to balance that with other things; the quality of the team, the product, the user experience, etc. You cannot rely alone on due diligence, particularly early on in the development of a company and a market.
I can relate to what Fred is talking about, I have really had to change my thinking to trust my gut. Our understanding of the world is very limited, we fool ourselves into talking and thinking ourselves into not following our heart or our gut. These tools have been given to us through the ages, over millennia of evolution. I surprise myself how we use our epistemological arrogance to suppress our primal instincts… there are times we need to do that, but not when it comes to investing in people or ventures. You need to take chance and work to mitigate the risk. All things are risky but the tricky part is no-one knows what is risky … that being said I would not do what Tom Hanks and Shelley Long did either
I got connected to John through Kristjan Freyr Kristjanson, CEO of Innovit+Klak and who runs Startup Weekend in Iceland. I had always felt that what we lacked in Iceland was broader participation of investors and mentors in the Startup community. John has been solving that problem in Seattle and in the greater Washington state. I am excited to hear about how he has been able to get new Angels to invest into the startup companies. I am also really excited by the philosophy that John has put into practice through his Seattle Angels Network. Startup companies need a lot of due diligence and investors need to play a role in actually helping the startup get off the ground. I believe strongly that Investor group has to work as hard as the Entrepreneur to make the startup a success. I have been writing about Brad Feld, Brad Burnham and Fred Wilson, in my opinion the successful venture investors work much harder than any entrepreneur I know. Check out the documentary “Something Ventured“, it is obvious how much effort the early VCs started to invest much like Angel investors and how much effort they put into each of the companies that they invested in. I think the advent of the Investment Management profession has killed the spirit of each and everyone to become an investor and entrepreneur. I think we have some really smart people working in the Investment management and Asset management business but I don’t think Investment is something that we should outsource. By getting involved with early stage companies with the partnership of experienced angel investors and investor mentors I believe anyone and everyone can invest in Startups and be successful. Don’t believe the fear mongering that your Financial Advisor gives you, Risk is misunderstood consistently by everyone so Investment or Fund managers are no different or better than any of us.
Anyways, I have digressed enough. The post was about John, John Sechrest is the founder of the Seattle Angel Conference and the Willamette Angel Conference, each providing a venue for new angel investors to explore the process. He is a co-organizer of the Lean Startup Seattle, helping entrepreneurs get focused on stronger company processes. As a global facilitator for Startup Weekend, he has worked with several communities take a step forward on entrepreneurial ecosystem development. The motivation to get John to visit Iceland and participate in Startup Iceland is to bring some knowledge on how we can create an Effective Angel Investor community here. I want to expand on the idea that John and other successful Angels have created. Maybe we will launch as I had wrote about before an Accelerator for Investors so young and new investors can get started early and participate in building an Antifragile Startup Community in Iceland.
I have written about why this is the best and by far the most exciting time to be a women in technology or for that matter in any leadership role. I have been reading Sheryl Sandberg‘s book “Lean In“. I have to say that it has been a disappointing experience to get women to take a seat at the table or to jump on a opportunity. I think context is in order, as CEO of GreenQloud one of my jobs is to hire world class people to build a world class team. In my opinion, a balanced team is more effective so I have been searching to get more women to join Team GreenQloud. Here is my experience so far… we have made 3 offers to women and all of them have rejected our offer. One of the women was still in school who was interested in what we do, I offered her to spend whatever time she could with Team GreenQloud, we would train her in what we do and when she feels that she is ready to join the team I said we could discuss the role, compensation etc the usual stuff. What do you think happened? she showed up for 2 weeks, then quit. Ok, understandable, she got another opportunity. We got requests from 2 more women who wanted to join us for Summer jobs, we made an offer to both of them to join… guess what? both of them turned it down! I am curious to learn the reasons for their decisions because I very strongly emphasized that we will train them and give them all the opportunity to take on challenging roles and tasks within GreenQloud. But they decided not to participate. I am not complaining, just stating facts. Despite my pep talk that they should not be scared about technology and we are motivated to make them part of Team GreenQloud, they still did not take it. This is not the end of my effort to get more women to join GreenQloud. We are going to make a concerted effort to get more women to join GreenQloud.
I am curious and want to understand why this is so, then I bumped into a TED lecture by Sheryl Sandberg and there it was obvious and clear as is in the book. Here is the lecture by Sheryl:
So, if you a women ready to jump into an exciting Startup company in Iceland and you are not afraid of technology, contact me bala at greenqloud dot com. We want to hear from you and we want you to take a seat at the table. I don’t believe we will win without having the talent, intuition and intelligence of women in our team.
I always enjoyed being a student and that is one of the main reasons why I wanted to teach… that did not pan out as planned because I wanted to do so much more. There are so many fantastic possibilities opening up with the connected world. Fred Wilson had a post a couple of days back of Startup Grind where Mark Suster was interviewing Clay Christensen. I have written a lot about Clay Christensen’s work around “The Innovators Dilemma”, where Clay talks about why disruption happens. The interview was about the disruption happening to higher education and venture capital. In my opinion the biggest disruption of all is going to happen to how we learn. I have to be honest, I am learning more about Price Actions, Reading Stock Charts and Technical Analysis from a very experienced trader, Dan Fitzpatrick, who is running an education website called StockMarketMentor.com and OptionMarketMentor.com. I am hooked I wake up every morning to watch his video analysis of the market, his perspectives on a number of stocks and how he thinks as a trader. This knowledge was usually locked up, but with the advent of the internet anyone can invest the time, learn a new trade or just learn about anything. This is just so mind blowing to me that I am surprise not many people are taking advantage of this. I wish there was more than 24 hours in a day for us to be able to learn all these new things that you always wanted to learn. Do you want to learn to play the Guitar? sure there is GuitarParty.com, do you want to learn to cook? sure there is LearnToCook.com, I am not vouching these are the best educational material out there but it makes education accessible to anyone who has access to an Internet Connected display device.
What the internet based education brings is engagement as opposed to watching a video in a TV or something similar. If you could put together a forum where there is interaction of the community, have a daily/weekly video feed of your thought process and a subscription model then you can start an education business. I have been extremely happy to pay $170/month to learn how to think like an experienced Stock Trader. No, I am not betting my house in the Stock Market and yes, I think the Market is rigged to be biased towards Institutional investors but the price action is fascinating to analyze and learn from, what is even more interesting for me is to learn how a stock market trader thinks, the experienced ones like Dan Fitzpartick admit to their follies, are very good risk managers and do not bet their house on what they know. They are nimble, street smart, think survival and usually are not too much into book learning. Much like how Taleb talks about Fat Tony in his books Antifragile, The Black Swan and Fooled by Randomness. So, what do you want to learn about? what is stopping you? I am sure if you look hard enough you will find a service on the Internet that teaches you something.
Had a chance to meet with Hakon Gunnarsson, the Managing Director of Gekon and he has been leading the initiative to bring all the Icelandic Geothermal related companies in forming a cluster. I am not a big fan of these cluster concept, if you have read my previous blog post about the Seafood Cluster. That being said, I do believe creating an accelerator program for new startups in the Geothermal space is not such a bad idea. I think that is precisely what Hakon is planning to do. It was interesting to hear all the work that has gone into mapping the cluster, interfacing with all the service providers and research organizations. I am usually amazed at the amount of time that is wasted in doing all of this and the money that it takes to organize these things but I guess it is cost of engaging with established companies who really are not in the business of disrupting their own business model. Geothermal has always been a fascinating source of energy for me, I got a lot of knowledge about it while I was working for Glitnir.
There is an abundance of this energy in Iceland, Dr. Michael Porter believes that there is an great opportunity for Iceland in this space. I am not that smart but I believe creating an ecosystem where new companies can innovate and create value in this niche technology is not such a bad idea. I believe this because there is a reservoir of knowledge and experience and experimentable area in Iceland, however tapping it and using it in a responsible manner is always a debate. I think the challenge Geothermal Energy development companies have is the large capital need in the early stage and I believe software and data can solve this problem for the typical engineering challenge. I have worked with Engineering companies like Mannvit who are experts in doing feasibility studies and designing and implementing the engineering solution to tap this energy source. There is so much more that can be done, I think the biggest opportunity is in applying the latest software and data techniques to mitigate one of the biggest risks in Geothermal development which is the risk of sucking the water table below the earth and also predicting the real potential of the source of geothermal energy across the globe. Unfortunately, there is not a lot of work being done in this area and once again there is a huge generational gap in people working in this area. I am excited to see how Hakon is going to take this idea forward.
There is a calendar of events related to this starting to happen in Iceland and I am glad to see an entrepreneur taking the lead on this. If you are in the Geothermal space reach out to Hakon and be a mentor to the new generation of companies that he plans to facilitate through the establishment of Startup Geothermal… an accelerator for Geothermal entrepreneurs. I am starting to see a trend here What do you think?
I was reading an article in the guardian titled “Microsoft threatened, as smartphones and tablets rise, Gartner warns” and another post by Fred Wilson/Christina about “Monopolies and Startups” both are connected to the theme of transformation that I have been referring to for sometime now. My colleague was telling me that someone asked him a question What about Surface? when they were discussing some device and technology choice, and his response was What about Surface? i.e who cares? That is the problem, when fringe products that are suppose to appeal to everyone usually does not appeal to anyone. Focus and niche strategy is the best way to launch a new product. It also goes back to the Innovators dilemma, on the new entrant. Microsoft is a new entrant in this space, and they should have acted like one instead they are acting like a big company they are which is sad to see because have many choices is good the consumer. In additino, the interesting part about these transformations is that everyone ignores it until it is too late. The Gartner report about the rise of Smartphones and Tablets is very interesting because few of us were seeing this before it has hit mainstream. IMHO, Microsoft lost out on this battle and Google has gained a huge advantage with their Chromebook, Android Ecosystem. This is the projection of Gartner and Fred Wilson actually wrote about this a while back. I believe the problem with the competition to the Android and iOS ecosystems should have been fought by Microsoft in a different way. They should have entered the low end market i.e a price point that works in large markets like India, China or Brazil or Latin America less that $150 like the Chromebook with their new operating system. The problem for Microsoft is that they want to be in the enterprise and the Enterprise IT is getting consumerized right in front of our eyes, Deloitte, one of the big 4 Accounting and Consulting firms allows their consultants now to bring their own device and they even subsidize a iPhone 5. I know because my wife just got a new iPhone and she DOES NOT like Apple products, but she now loves her new phone. I think it is a matter of time before the smartphone/tablet User Interface takes over the Laptop/Desktop. I think that is the inflection point that Gartner is alluding to. I think the biggest winner in this over the long haul is going to be Google, because they are very quietly innovating and coming up with Cloud based solutions that work seamlessly with their Android and Chromium ecosystems. Microsoft has found itself in a perfect storm, the assault by Apple in the high end devices and by Google, Amazon and many smaller startups in the lower end. To add insult to injury, enterprises are starting to see if they dont adapt their IT systems they will be left behind by their competitors so they are also looking for newer things that consumers are using. All the people who sell to the Enterprise continue to live in this dream world of yesterday. I have a strange feeling that in a couple of years, I will refer to this post to say I told you so. Consumers i.e employees in the enterprise will dictate what kind of software and device and infrastructure they want to run on rather than the IT department.
I have been reading the book “Crossing the Chasm” by Geoffrey A. Moore again. I highly recommend the book to anyone in a disruptive business. The book is an easy read and Section 4 sets up the stage for how to really market and sell disruptive technologies. The strategy is simple enough, the author states
The fundamental principle for crossing the chasm as to target a specific niche market as your point of attack and position all your resources on achieving the dominant leadership position in that segment. The approach is first you divide up the universe of possible customers into market segments. Then you evaluate each segment for its attractiveness. After the targets get narrowed down to a very small number, the “finalists”, then you develop estimates of such factors as the market niches’ size, their accessibility to distribution, and the degree to which they are well defended by competitors. Then you pick one and go after it. What’s so hard?
The hard is to the explanation that follows and I agree with that, the action or execution of this strategy is fraught with a low data decision i.e. you don’t know a lot of the prospects of allocating all your resources because you are not sure if this strategy is going to be successful.
Entrepreneurship is a low data decision activity. If the data is obvious and the risk are minimal, I define risk as a loose term, I think the risk is more opportunity cost ie. if you were not doing an entrepreneurial endeavor what else would you be doing and the pay off of that. It is a tough call, and I understand why many people don’t make that choice because we abhor Uncertainty. I used to but not since the financial collapse in 2008, where all my perceptions and biases and epistemological arrogance was turned in its head. Now I cherish uncertainty and randomness, and I wish that everyone gets to experience that feeling it is liberating and exhilarating.
I got to know Brent Beshore, when he participated in Startup Iceland last year and was in the Panel discussion moderated by Matt Wilson. I think Brent is planning to be in Iceland this year as well in June. Have you bought your ticket yet? I am not kidding they run out pretty fast, based on the line up of events and speakers we are starting to see. I tentatively got Nassim Nicholas Taleb to say maybe to Key Note the Conference. Nothing is set in stone yet, but keeping my fingers crossed that he will be able to make it. That would make it incredibly fun, as NNT is one of my all time favorite thinkers, philosophers and authors. Anyways, I digress, Brent is a contributor to Forbes and he wrote a very interesting piece titled “7 bits of wisdom for your life” from Warren Buffett‘s yearly Annual Shareholders Letters to Berkshire Hathaway. I think it is a pretty good piece, one of the bits of wisdom from the Oracle of Omaha is something everyone of us should live by and that is
Excellence always beats a bargain: While there are certainly exceptions, in the long run, bargains never outperform solid investments. “More than 50 years ago, Charlie told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price,” Buffett says. This simple, yet powerful, principle can be applied to virtually every area of life. Diets, discounts, dishonesty, bargains, and shortcuts can work well for a while, but they’re never sustainable.
So when you are making a choice between anything really take a closer look and you are buying something for its excellence and not because it is a bargain. I have burnt my fingers many times when I bought something because it was a bargain only to regret the decision. That comes with being brought up in the East where we are always told that life is scarce so you need to look to squeeze a bargain on everything, which is good in some sense but not the best of strategies. The reason I bring this up is the dilemma that I am facing, I plan to get a laptop for my daughter and I have decided to get her a Macbook Pro it is expensive compared to the alternatives ie Windows based machines… my wife is a big fan of the Windows machine because that is what we grew up using so we never experienced Excellence until I switched to the Mac, boy what a difference. I am by no means an Apple Fanboy, as I use a Samsung Galaxy S3Android phone which I think is also an excellent piece of equipment. Again, I digress, the point I am trying to make is that Excellence is worth paying the top dollars for. Lets now think about the service and product that you are delivering, are you striving for Excellence? if not why not? Over time Excellence always commands a premium not because you are squeezing your customer because your customer values the service more than the alternative. I am big believer that Value trumps everything, the only problem is that not everyone value everything the same so you need to find those customers who strive to buy Excellence. If you followed that strategy you cannot go wrong, it is a harder path but hey no one said it was going to be easy. I bought a Macbook Pro for my daughter!
I am the first one to reject the notion that Ideas don’t matter, but to a certain degree they do. Usually a problem drives one to think about how to solve the problem. I actually like this video that talks about this, by the author of the book Where Good Ideas come from? Steven Johnson. There is one element of the video that really appeals to me which is connecting with other people, sharing our thoughts and idea actually helps in formulating, incubating and birth of new ideas. It was the basis for me to found Startup Iceland – A Conference where Entrepreneurs from all over the world could meet in person, share ideas, thoughts and take away a great experience and do it a place like Iceland which is inspiring in its own right. I get inspired every time I leave my home and start running in the running trails. What if we could expand on this notion? Would it not be wonderful if we could have a retreat- a place to basically kick back and let our ideas run loose? well, that is the ultimate plan. My partners and I are also in the Hospitality business, ie. we build hotels, invest in hospitality technologies and run hotels as well. Our intention is to build this retreat in Iceland.
I think it is not a bad idea if I say so myself. Now we just need to Execute and make it happen. There are several insights in the video about Ideas. I have not read the book but I think Accelerators and Incubators that I have been writing about are the same things, they put a bunch of motivated, smart people in a single physical space and let them interact and solve different problem. That is the same reason I love Hackathons, and we are promoting the periodic hackathon events by GreenQloud.
I usually get really worked up when I am speaking with some employees in a bank about Startups and Entrepreneurship, they immediately say that it is Risky. I always ask them could they please tell me why they believe Startups are risky? Their usual answer is well 90% of all startups fail, which is anecdotal evidence because there is no way anyone has documented all the startups in the world and calculated the failure rates. I have written a lot about how we as humans are wired to be fooled by statistics and we just underestimate the risks associated with many things. What is even fascinating is that those same people from the bank were still working in the bank when the entire financial system in Iceland collapsed. I think banks are bigger risks than startups, atleast with Startups you know the risk of failure will only wipe out what you invested, whereas with Banks it can wipe out the entire equity base of Iceland. No wonder, Warren Buffett called Banks sit of Weapons of Mass Destruction. The risk on banks are exasperated by leverage, were as Startups run on equity which means what you put in is what you loose if the company goes under. Typically Startups that I have been pounding the table on require very little capital to validate, build a Minimum Viable Product and get market traction.
I have written about the books that really changed my perspective on Risks and I have Nasim Nicholas Taleb to thank for. I listen to audio books all the time and I think this is the 100th time that I am listening to his classic book “Fooled By Randomness“. There are so many pearls of wisdom in that book that I discover something new every time I listen to it. The only positive aspect of risk taking is in the Startup world because a black swan event ie. the chance of finding a Google or Facebook or Twitter or Amazon is very low but when it does happen it usually results in such a positive impact I don’t know why not everyone invest a small portion of their investment egg in this asset class. The monstrous returns that are possible can only be achieved if one takes enough bets but the size of the bets are usually very small and thats the point of doing this.
