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 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 have been writing a lot about Entrepreneurship and Startups, but I am not a big fan of the Clusterconcept primarily because getting established companies to be Entrepreneurial is very hard because they look at different metrics and the incentive for the established companies to participate in Cluster building is a long term game, however established companies are relatively short term focused because they are trying to increase their yield on invested capital by getting more efficient on the operation, sales etc. On the other hand a startup in the same sector is more or less not too focused on efficiency, they are trying to exploit a weakness or a problem in the existing solutions, therein lies the challenge. It would take visionary leaders in established companies to harness, foster and encourage the building of a ecosystem around the sector that their companies are built in. This is exactly what Dr.Thor Sigfusson has done with his startup/project Seafood Cluster a.k.a Sjávarklasinn in Icelandic. It is fascinating to see how he has convinced established companies in the Seafood sector and new emerging companies to co-located in a building in harbor of Reykjavik. He has ambitious plans to expand the facility to allow more startups and established companies to have meetup spaces. It was exciting for me to watch this because Seafood is the sector that is as traditional as they come, we are talking about really established fishermen looking into working with young new startups, mentoring them and seeing if they can improve the established methods using new technology.
There is a wealth of information and reports around the concept, I have not read all the reports but I believe this is something that I believe can work. I like the idea and the execution of the fact that if you put new companies and established companies near each other and once they start talking magic usually happens. In addition, the same location has some support services like legal, marketing and publishing etc Think of this as an Accelerator for a startup in the Seafood Sector. I think the missing piece is what typical accelerators do which is a 3 month bootcamp like environment that basically focuses on the validation of the new startups and also getting investors to be part of the project. I think Dr.Thor Sigfusson has already done that because the Seafood sector or the Fishermen are the richest cohort in Iceland and they are starting to see the value of having such a place and are investing in this.
We have invited Dr.Thor Sigfusson to be a Speaker in Startup Iceland 2013, I think this concept needs to be communicated in the Startup Iceland platform, and he has agreed to do that. In addition, it would be interesting to learn from his talk what were the challenges, opportunities and road block that he had to cross to get this project off the ground. If you are interested you should definitely buy the tickets soon as they tend to run out fast.
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.
Startup Weekend Reykjavik happend this last weekend. I volunteered again as a mentor and it was a lot of fun.
Source: iceland.startupweekend.org
This time around the organizing team at Innovit had brought an external facilitator from the UK, and I was also impressed that the organizing team nudged the participants to aggregate around ideas that actually had some meat in the bones. In the previous few Startup Weekend that I have participated in Iceland, the challenge has been that some of the team members were married to their idea but the idea did not have a big enough market or potential of becoming a business. Anyways, the teams that were working on the ideas this time had some programming resources with them and some designers. It was obvious as they could actually develop the websites and have some working apps within the 54 hours of the weekend. There were 13 teams presenting at the end of the day, I met with most of them and talked to all of them and I learnt a lot and I was tempted to write a check to a couple of the teams, but realized that it would be too soon and the teams were not ready for that. I intend to follow up with the teams to see how they are doing and who knows maybe I will invest
I think what is missing is if an Angel Investor would show up and write a check at the end of the Weekend to the winning team and get them started on the journey to becoming entrepreneurs. My intention is to be able to do that here and also in Startup Reykjavik. I think we are starting to see the green shoots of yearly activities showing up in Iceland which goes back to the strategy of building a startup community here in Iceland. In my opinion, we are on Year II on the journey to building an Antifragile Startup Ecosystem here in Iceland.
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.
I had planned to do a meetup this week and discuss the above topic. Never got around to it, but I thought the least I could do is write about it. Here is a Kauffman Sketchbook with the title “Where do Entrepreneurs get their money?”
Here are a couple of references on fund raising from some smart people who have done this before:
My 2 cents is that try to bootstrap as much as you can to eliminate most of the risks in your startup. Think of it this way, every risk you eliminate to build a business is value you are building into your company that is your equity. The equation becomes simpler when you don’t take money to eliminate or reduce the risk of starting a new venture. The biggest risk that startups have, I have said this many times and it is worth repeating, startups don’t fail because they have a bad idea… startups fail because they don’t have customers. Eliminate that risk first ie. go and get your customers first, solve their problem, get paid something for it then you have a product/service to market fit. Eliminating that risk really increases the value of your effort, even if you have to raise money the discussion is much different than when you talk to an investor when you have no customers and no revenue.
Obviously there are businesses that need capital to acquire customers or start out for example manufacturing businesses need machines, labor etc those cannot be bootstrapped, however software companies can be easily bootstrapped these days, all you need is a laptop a coffee shop that has WiFi and knowledge to use Cloud Computing infrastructure like GreenQloud or AWS or Rackspace or Azure. I encourage every entrepreneur to delay the fund raising exercise until the Product to Market fit has been achieved. Once you solve the Product/Service to market problem, raise capital if you are in the Land grab business. I wrote about organic growth vs grow fast a while back based on a talk by Joel Spolsky. The most important decision point for a startup to raise capital is based on deciding where is the business. If you are in a Ben&Jerry’s kind of business raising capital is a bad idea. If you are in Amazon Web Service kind of business then you need capital to do a land grab as fast as you can so not raising capital will spell certain doom.
The word Disruption has a negative context, the definition according to Dictionary.com is
1.
( tr ) to throw into turmoil or disorder
2.
( tr ) to interrupt the progress of (a movement, meeting, etc)
3.
to break or split (something) apart
(Photo credit: Wikipedia)
I feel the dictionaries do not do justice to the word. The use of the word Disrupt in the innovation context is more a positive one although it depends on which side of the table you are, are you an incumbent or a new entrant disrupting the established order. Disruption happens due to a number of reasons. I have written about it before, but what is fascinating is that all the things that we use today were disruptive technologies when they were introduced. Think of the Radio, TV, Video, CD Player, Automobile, Air travel etc they fundamentally changed how we perceive the service provided by these tools. I believe we are undergoing a major transformation in disruption, where business models are being disrupted.
Anyone can say what they want about Cloud Computing but it is truly disruptive in terms of the business model. The same is true for Mobile Commerce or for that matter Self Education. All these massive trends are in front of us and the change is not going to be like night and day but it is going to a gradual transition, where one day we wake up and see that 90% of us use Smart Phones not by using the keyboard but by giving voice instructions. I have been very impressed with how good Google Voice Recognition is on my Android. Fred Wilson wrote about it with the title “Simplicity, The Emerging UI and Machine Learning“.
The disruption occurs because of the ability of some entrant to see a new light to an accepted problem. I had a very interesting conversation with a buddy of mine who is in sales for very large network gear company, he was telling me about the conversation that he has with large organizations who basically dismiss the Cloud hype and how he disagreed with that argument. I agree with him, obviously I am biased because of my neck deep involvement in GreenQloud, where we were able to implement a small disruption in how you share and listen to music you own through our StorageQloud offering, it is so simple to do even my grandma can do it, mind you, she was a very very intelligent women. But the facts are facts… these technologies provide tremendous value to those who can embrace them and make the technology work for them, for those who are happy with the status quo it would look like a hype until that day when their competitors have moved over to this new technology and are eating their lunch in the marketplace… think Blockbuster vs. Netflix or Kodak vs. Digital Camera or Nokia vs. Apple, I can go on. You know who else is disrupting Volkswagon… I am sure you have seen this ad
GreenQloud Booth – Career Day Reykjavik University
We had our planning meeting yesterday and Stefan suggested that we should have the startups from Iceland and around the world come and setup a booth during the Hackathon and UNConference event. We all thought that it would be a great idea so we are going to market and allow Startups from Iceland and all over to setup a booth space. This would be a perfect setting where more than 350 people who are interested in Startups, Entrepreneurship and Startup Communities will be present and a great audience to present one’s startup idea
pitch.
Remake Electric – UTMessan 2013
I have felt that it is a great way for people who are starting up to tell a story about their vision. The original idea was to give a 5 min slot to a handful of startups to present during the conference, which is too short a time and does not give enough depth to a startup and the audience will not have time to absorb why they should be interested in the company. So we are calling all startups to contact us by sending an email to booth at startupiceland dot com and reserve your space. This is a perfect opportunity to practice your pitch and who knows maybe you will find your angel investor. Let us know what you think of the idea as well.
Seth Levin of the Foundry Group has a very good post on the transition of a startup from the product focused company to a sales and marketing focused company. I can truly relate to this, I have been associated with a couple of startups that are going through this process. It is a difficult transition, because it is quite easy to hunker down and get into the maker mode i.e Design, Build, Test repeat cycle. Most founders come from the Product side and it is easy to see they struggle with the transition. But it is critical to get out of the Product mode to Marketing and Sales mode, it defines the survival of a startup. I have written about Sustainability, getting cash into the business is a economic sustainability necessity. All the hard work of building something beautiful and useful amounts to hill of beans if you are unable to get it into the hands of people to use it and get paid for it.
The last 7 months have been very interesting for me because I have never been a CEO, this is my first time on the job (for those reading this blog for the first time, I took on the role of CEO of GreenQloud the worlds first cloud computing company that is powered entirely by renewable energy). I can see the challenges of the product team looking at the marketing and sales team as this Evil that is polluting the pure thing that was created by them. It is understandable, we even refer to the Marketing team as the Evil Marketing team for fun in the team standups.
I have been on both sides of the table, i.e built products and solutions and sold products and solutions. There is nothing harder than convincing someone else that what you believe is worth their time. It takes a lot of effort, positive attitude and chutzpa. There is a reason why very good sales people are paid top dollars because they can bring cash into the business. I once heard from Gunnar Holmstein the CEO of Clara, that “Sales is not Rocket Science but it is much harder”.
In addition, people confuse the difference between Marketing and Sales. Even Fred Wilson wrote a very controversial post and changed it with a Bug Report. Fred has a post from Rand Fiskin (who BTW was suppose to participate in Startup Iceland 2013 but due to schedule conflicts could not make it, maybe we will get him next year ), about Marketing and the Bubble where Rand has a great picture.
Source: avc.com
This picture illustrates the need for focus, what happens in early teams is that you are strapped for resource so you basically need to put all your emphasis in finding the Product to Market fit and to make it a Minimum Viable Product, once there is a glimmer to light in that direction you need to have someone else focused on the Sales and Marketing focus. This is hard if you are one man team, unless you know how to do it. I have also written about building killer startup teams. The trick is always to make sure you surround yourself with the people with the right focus to execute. Knowing when to swing the pendulum within your team is an Art, but the signals are usually very clear.
