Every once in a while I find someone's blog that I think should be shared with startups. Pat Sullivan is a friend of mine, and a serial entrepreneur/founder. I always wonder why he gets involved with what he does, and here he talks about the DNA of a startup, using as an example his most recent project, Flypaper :
The DNA of a startup includes all sorts of things. What is the problem the product is trying to solve? How it is designed and coded? How is the product envisioned by the founders? How fanatical are the creators about the details of the product? What marketplace itwill compete in? How much money does the startup have? How will the company monetize? What about the founders’ talents, personalities and experience? How will it be sold and distributed? What is the influence of outside investors and advisors, if they exist? What is the price point? What is the economy doing at the time? Just like DNA, these factors and many others are extremely complex. What eventually emerges is a product of the interplay of the many elements that make up that startups’ DNA. The major challenge for the entrepreneur is to recognize just what this product is!! And the earlier the better! At ACT!, we struggled many times with this.
We had already created the Contact Management category in the first few years of the release of the first version of ACT! We gained a 90 percent market share at one point. But as time went on new competitors were introducing Sales Automation products and then CRM products. We were tempted to try to make ACT! fit into those categories as well. But I always found myself saying, “if it walks like a duck, swims like a duck, quacks like a duck, IT’S a DUCK.” We could not change the DNA of what ACT! truly was. It was and still is today, a contact manager. That was its DNA.
With Flypaper the same is very true. It has been four long years in the making. And during its history many influences affected its DNA. But at its core its DNA was really very clear. If only we could see it. As I said, that is the entrepreneurs’ biggest challenge.
At first we tried to make it fit into the cool consumer market where you give a version of the software away to millions and hope that enough people will buy the “pro” version. Well that did not work. And it did not work because it was simply not the products’ DNA. Then we tried to alter the marketing by giving a 30-day free trial to consumers, and that did not work. Again, not in the DNA.
So what is Flypapers DNA? About five months ago, it became crystal clear to me and the other execs here. The problem Flypaper was designed and built to solve has nothing to do with consumers wanting to do cool stuff with Flash for their Myspace or Facebook page. Flypaper was built to solve the problems of companies building mid to large scale Flash projects for eLearning and Marketing.
Don Pierson, the founder of Flypaper has 20 years experience of building large scale Flash projects for large and midsize companies. He saw the problem. Flash was very cool but could only be used by talented and expensive programmers. It could not be edited or maintained by the customer. It took enormous amounts of time and money to build these projects. It involved much collaboration and many approval cycles. Arguments would arise about who approved what and when. This created many billing and payment issues. While building a project in Flash was the best way to do it in terms of a quality result, it was truly a nightmare getting it done. He reasoned, “There has to be a better way!”
That was the beginning of the DNA that ultimately produced Flypaper. Trying to make it something else, as it was being birthed, was a big mistake. But mistakes are common in startups. The good news is that we recognized it soon enough to allow it to become what it today is. Flypaper – The Leading Flash Content Management Platform.
If you look at our brand new, built from the ground up website at www.flypaper.com you will finally see what Flypaper really is. It ain’t for consumers playing around with Adobe’s Flash. It is only for serious producers and consumers of Flash projects. It solves the problems that Don saw years ago. You can now really build Flash projects in a third to half the time. You can collaborate online with all the people involved in the project in really productive ways. You can actually solve virtually all the problems with approvals and billing that inevitably arise. And, on yeah, you can also save a ton of money. Many of the companies we are working with estimate Flypaper will allow them to save millions of dollars a year.
And with Flypaper you get a lot more than you got with the Flash projects you built the old way. Each project you build inherently is tracked in a Dashboard. You know what the viewer has looked at. How long they spent on what pages. If they emailed it to anyone else, you know it and you know what those people did with it. You can edit and maintain your own projects without being dependent on Flash programmers who don’t really like to do the mundane maintenance anyway. Marketing can produce Flash projects that salespeople can easily personalize specifically to the prospect they are trying to sell. And marketing gets to control what elements sales can personalize. Salespeople use the Dashboard to see exactly what a prospect is doing with the marketing materials they sent. The stories (projects) also provide a way for the prospect (or learners in an eLearning application) to communicate with the sales person either by email or even live chat (coming soon).
Flypaper unlocks the power of Flash for everyone in the corporation. It releases Flash from the domain of experts and niches, and unleashes its power for the whole company to sell more and train more effectively. Content creators both inside and outside the company can now work together in ways they could not do before. To our knowledge, there is nothing like Flypaper. I could not be more excited about the potential of Flypaper. I like its DNA!!
For me, this answers the question I always ask businesses: "how will you make money?" You take a persistant, sometimes niggling, problem and create a company that solves it.
Depression, economic or psychological, is paralyzing. Most of the big shots I know are peeing in their custom fitted pants right now. They don't know what to do next.
Not my friend Mark Salustro, who is a supplier to the construction business in Phoenix, Arizona -- the worst real estate market in the world, to paraphrase Keith Olbermann.
Mark segued out of the carpentry business and into the steel truss business, a move he made when he saw the price of lumber going up during the upturn. Now he designs and builds steel trusses, using software to design and automated processes to build. He actually has a small conveyor belt moving through a cabin that contains a saw and cuts the trusses. It is rudimentary automation, but it works really well. It allows him to both design and manufacture with a staff of two.
I had brunch this morning with him after yoga, and I asked him if he had work. Yes, he has work, he says, and he's talking to Saudi Arabia, France, and Italy, all of whom have found him over the internet. While during the upturn he had to argue with people to get them to consider steel trusses, there has suddenly been a move in the direction he thought was necessary all along.
"When you see a commercial building using wood, it looks wrong," he says.
I'll say. The movement to LEED certification and green building has accelerated the move from lumber to steel. Mark, who had his share of problems due to rapid growth during the good times, is destined to survive and thrive in the bad. It's because he has hope.
Hope also characterizes the entrepreneur who started Takeda Thai in Scottsdale, Arizona about a month ago. He and his wife have the best ingredients, the most authentic recipes, and the most beautiful decor I have seen in a Thai restaurant, all in a nondescript strip center just east of Scottsdale Road and south of Shea Blvd. in Scottsdale. They are upbeat about developing a following based on quality, and I didn't even remind them we are in a recession. Instead, I promised I'd come back.
Traditional Indian herbal medicine, Ayurveda, is based on certain constitutional characteristics of the human being called doshas. There are three doshas, vata, pitta and kapha; most of us are a combination of any two of them.
An Ayurvedic physician determines your dosha, and then prescribes you a diet, herbs, and a lifestyle to optimize your health. Like Chinese medicine, Ayurveda has grown more popular as allopathic medicine has grown more expensive, technology-focused, and impersonal.
Today I landed in Delhi to see my favorite Ayurvedic doctor, Dr. Partap Chauhan <http://in.youtube.com/watch?v=y4e7KmoNaBk> . When I met him in 1999, the commercial internet was in its infancy, and yet his company was already selling Ayurvedic remedies over the web. They also had set up a call center of Ayurvedic doctors who answered questions from people in rural villages. Representatives in these villages were given cell phones, and the owners of cell phones became entrepreneurs, charging the patients to make a call to the doctor in Delhi. This form of telemedicine, if I remember correctly, was initially funded in a partnership with MIT. When you realize all this took place ten years ago, when telemedicine wasn't being practiced in the US at all, you understand how necessity in India is the mother of invention.
This company Jiva. com <http://www.jiva.com> typifies the mystery and glory of India, a country where the power may not always work, but the latest technologies are combined with the oldest traditions for social good.
I'm currently visiting Dr. Chauhan's clinic, helping his team expand its business <http://www.jiva.com> through social media. In the nearly ten years I've known this company, they have opened six clinics and built a school for 1000 Indian children in a suburb of Delhi, Faridabad. They have now bought land for a new Ayurvedic campus to be constructed south of Delhi. These have been financed through the sale of Ayurvedic products and consultations. Dr. Chauhan lectures all over the world.
Jiva.com <http://www.jiva.com> has always been a social venture whose mission was to sell Ayurvedic therapies and use the proceeds to fund a school where Indian children would learn new life skills for the modern world --problem solving and critical thinking especially. I just got here this afternoon, but I've already had a necklace of mums given to me by the students, and I have a tour of all the clinics and the new land ahead of me.
I'm sure I will have more to say about this wonderful company. Talk about whether it is possible to start a company during a downturn -- try starting one in India. Talk about whether it's possible to grow a company outside Silicon Valley -- this one's growing quite nicely in Delhi.
Why should places like Arizona place so much emphasis on the presence or absence of venture capital? Only a very small percentage of companies ever get venture capital. Most start with self-financing and raise money later, typically from angels. Especially in places like Arizona, most companies have to do without venture capita forever. Can they still succeed? Does Arizona have the kind of companies that spin off serial entrepreneurs and help build the local economy?
This is a question hotly debated by entrepreneurs and economic development officials alike. The entrepreneurs want to know where the money is, and the investors want to know where the experienced managementment teams are. Usually, it's the lawyers who do the deals who know the answers.
Bill Hardin, a partner at Osborn Maledon, one of the go-to law firms for entrepreneurial companies in Phoenix, says both capital and management teams do exist in Arizona--in ample suppy. In nearly thirty years of doing mergers and acquisitions work, he has seen companies like Viasoft and Sales Logix , venture-backed themselves, thrive in Phoenix and get acquired, releasing skilled management to do other things, like form new companies. There have been a surprising number of mid-tier enterprise application companies in Arizona, with successful -- if less trumpeted -- exits.
In a half hour phone conversation with Bill, he reeled off the names of about a dozen people who had come out of Viasoft and SalesLogix alone and gone on to start Homebid and run Netpro, which itself was recently sold to Quest. Some of these companies I remembered, and some I had forgotten about. But all of them had raised money, hired people, and proceeded down the road to an exit.
And these are the deals Bill himself has worked on with partners at his firm. It's just a microcosm of what has happened over the past twenty-five years. He also reminded me of Greg Patras' National Health Enhancement Systems, which was also successfully sold.
In Bill's opinion, which should be taken very seriously, it's a night and day difference in Arizona over the past 25 years from the entrepreneurship perspective. The state is now seeing a lot of action in medical device and healthcare IT companies, and in alternative energy.
(He also says a recently completed (but not yet released) report from Governor Napolitano's Arizona Economic Research Organization, which he co-chaired, will talk about further capital formation initiatives.)
The good news is that innovation is on everybody's lips in Arizona, especially since the collapse of the real estate market, which keeps the entrepreneurs and the financiers busy in the good times and stuns them with the ferocity of its downturns in the bad. The entrepreneurs I work with, often earlier stage than Bill's clients, have plenty of innovation. Watch for that innovation to lead us out of the downturn, money or not. It is, after all, really about changing the world.
I started all three of my businesses during downturns. Now I sit on dozens of advisory boards and run programs through which we advise hundreds of entrepreneurs who sometimes even pay me for my advice. So I guess I've got the street "cred" to write something on startups and downturns, although this won't be one of those pieces on how a downturn is the best time to build a startup. There IS NO GOOD TIME to build a startup. It is always next to impossible, which is why such a large percentage of new businesses fail. But there are some observations I can make. Take them for what they are worth.
1. If you are doing a startup, you won't even know you are in a downturn. I sure didn't. I was so focused on my own day-to-day problems (averting starvation as a single mom) that I didn't even notice the interest rates of 12-16% around me. No one was going to lend me money anyway, because I was a startup. So why would a downturn make a difference?
2. Downturns do, however, make you clever. In 1980, when I started my first business, secretaries were still commonplace and considered a necessity, but I couldn't afford one. So I bought one of the earliest answering machines and one of the first personal computers (the Apple 2e). To disguise my poverty, I concocted an outgoing message that enjoined my callers to "trust the technology" to take a better message than a secretary. Ironically, this made me a thought leader.
3. Don't hire. Hiring people only means laying them off later. Outsource, contract, partner, but don't hire. It lays you open to so much grief: payroll processing, tax issues, HR issues. You don't need to own the people.
4. Related lesson. Don't rent space. Unless you are producing something, you don't need it. There's a structural change coming in the commercial real estate market as people realize during this downturn that the work can go to the people instead of the people coming to the work.
5. Forget funding. You won't get it anyway, and you will waste a lot of time searching for it. In the mean time, your competitors will beat you to the window of opportunity.
6. If you happen to get an offer of funding, turn it down if you can. The terms will be Draconian, and you may easily get thrown out of your own company by the funding sources. This has happened to two or three entrepreneurial friends of mine.
7. Spend money on lawyers or use all the startup documents Y-Combinator has open-sourced for entrepreneurs. Your partner may leave, die, change his mind, or embezzle. Your intellectual property may actually be worth something. Make sure you document relationships, entities, and IP going in.
8. On the other hand, don't incur overhead before it's time, so if you don't truly have intellectual property, don't throw away thousands trying to protect something no one wants or could replicate, or something not patentable. Ask a reputable intellectual property attorney.
9. Make somebody pay for your product or service immediately. This will tell you whether there's a market. It may also tell you how and what to charge. You can even get a customer to fund the development of your product if you have something that is truly desirable. But this is where the rubber meets the road. If no one will pay, you may not have anything worthwhile. Only Twitter can afford to figure out its business model after the fact.
10. If your idea has too big a struggle getting traction, quit and change the model. Most good ideas get traction immediately, especially in this era of social media. Which doesn't mean they break even. It just means someone besides you knows their value. There's no real set time to allow your business to gestate before declaring it a failure, but you will know inside that it's time to move on. You can move on by tweaking the business model, the price, the product, the concept, or the team. Do it. Don't wait fifteen years to find out your market will NEVER support your service.
Starting a business is not for the faint of heart. On the other hand, after you have done it two or three times you know it’s just a matter of a good idea, some necessary pieces of paper, and some good people. You may notice that “upturn” or “downturn” don’t figure into this equation. And they shouldn’t.
There's not much love between Silicon Valley and Hollywood, although more and more they need each other to thrive. Years into the digital revolution, it is still difficult to find venture funds that understand content creation like Hollywood does.
Venrock, Accel, At&T and William Morris Agency have formed a joint venture to slice and dice content, but it is difficult to find cash on cash returns for a venture investor in pure content and media plays, even though Venrock did give BlogHer a seed round. VCs stay away from content creation, because it's a hits-driven business (although isn't venture capital?)
An area ripe for innovation is developing cost-efficient content that runs against the big budget approach to building content. The notion of wanting to be a network has played out, but there's still a huge opportunity to own content. Most of the large buyers have a lot of traffic and and struggling for ways to monetize that traffic. Nate Redmond, from Rustic Canyon, based in Los Angeles, feels that his region has found good ways to monetize its content, from gaming, to TV to movies, but Silicon Valley doesn't understand it.
For him, owning content has tremendous upside.
Companies want to own the content but not bear the production costs. You want to catch it at the right time and get the rights to sequels, etc. The money will come to the studios and not the production companies.
NextNewNetworks is the closest to a pure content play that has been funded this year: by Goldman in New York. In a venture-funded environment, monetization strategies are getting more important than they used to be.
NBC has contents, brands, and a promotion engine. They invest in technology platforms that allow them to reach new ways to get audiences to their advertisers. So they funded Adify through their Peacock Investment Fund. NBC also funded BlogHer.
There are many independent production companies that exist and operate: Radical Media is one of the largest. NBC has a partnership with them that creates the videos for in-market car buyers and then distributes them.
Silicon Valley can have a major role as an enabler, allowing content to be more data-driven, and allowing it to be found more easily. Content has to get past RSS distribution, which is too publisher-driven.
On the plus side for entrepreneurs today, it's cheap to build some kinds of products, but not entire new platforms.
Many startups are attacking somebody's old business, like games, video, or newspapers, and the older companies can't do that to their own businesses very easily. But they are going to be forced to disrupt themselves or get disrupted from outside.
Most of the disruption has happened in print media, where video can now tap into new below-the-line marketing dollars like classifieds and lead generation.
Large media companies will only be successful if they can develop a model for developing content in an entirely different cost structure, which is different than taking existing content and repurposing it for new media.
In the game space, there has already been quite a bit of consolidation. EA and Activision are now large enough that they can manage and control the monetary flow in their space, and can make interesting deals with developers. Right now, there's a big area of white space without monetization -- that's the time people spend gaming. Who will get hurt by these new models? THQ is one of the companies that can't seem to monetize the innovation going on in the game space. They have lost the advantage to Sony and Microsoft.
Online gaming is thought to be the biggest opportunity. Online media companies have access to much more customer information than traditional games.
What about the newspaper business? Why is the New York Times in trouble? Because young people don't read? Partly. There is a vastly different dynamic to the relationship between younger people and their brands on the web. That's the structural change. The cyclical change is that display advertising softened 8 months ago. And another change is that classified ads have gone away for good from newspapers, and had been carrying the newsrooms of newspapers for years. Craig'sList finished newspapers.
So what the newspapers need is a completely different, less expensive method of creating content. (I guess that's crowdsourcing or iReports).
What about video? A structural change has happened with the DVR. Branded advertisers can get their message out, but new brands will have a tough time getting noticed. This gives an advantage to established brands that have a deep footprint established in the 80s by prime time TV. So we will go back to product placements and sponsorships like in the 50s.
People will continue to invest in high end great stuff, but the middle realm will suffer.
Wednesday's Third Annual Arizona Entrepreneurship Conference <http://www.azentrepreneurship.com> was one of the best days of my life. Not only did 250 people show up in the middle of a recession to see each other and help each other, but the feeling of hope and optimism among the entrepreneurs and funders in the room was palpable. Those who were not overtly hopeful were at least indifferent to the roiling world around them in the way only entrepreneurs can be.
I stood looking out at the crowd of people who believe the power of the community to manifest its own economy and I nearly wept. Well, I did weep. Ed caught it on video, and it --along with comments from the attendees and some of the presentations from the speakers, is here.
And we raised more money than we have ever raised with these conferences in the past. This is largely because of Microsoft, whose BizSpark program for startups just happened to launch in Arizona at the conference. Microsoft selected us as a network partner for BizSpark, and then put what for us is a large amount of money into the conference. We also had a great law firm sponsor this year, Osborn Maledon , and a new sponsor, C-Scan Technologies, which audits clean rooms, and another new sponsor, HSLFinancial . And our loyal sponsors Infusionsoft , Wells Fargo , the City of Tempe ,and the Business Journal all stuck with us!
People who weren't in a position to contribute treasure contributed time and talent, most specifically Gangplank the East Valley accelerator and Silent Dispatch, who gave us the geek equivalent of "loaned executives." And without Rhonda Lintner from C-Scan, Steve Groves from Silent Dispatch, Merlin Ward from ResponsiblePartying.com and Brian Shaler from Bit Gravity, I would have been dead in the water. There's more, but I will spare you.
There were several notable moments for me that I'd like to recap:
GaryVee pounding his shoe on the podium and telling people to know their customers
Matt Mullenweg telling us he started Akismet because he didn't want his mother to see the spam on blogs
Dan Willis of Microsoft announcing the BizSpark program in Phoenix, a stop on its launch roadshow that he added just for us
Allan Kaplan of Limelight Networks telling us that, indeed, you could raise large amounts of money in Arizona if you had a good enough plan and sharing with us how he had done it multiple times
Shahi Ghanem, CEO of EmpowHer.com announcing the launch of its new site on which women share their health experiences
Jonathan Smith, President of Earth911 ,telling us the company was going to start monitoring where recycled products go after they are responsibly disposed of by the last user after that horrifying 60 Minutes Video a couple of weeks ago about e-waste dumped in China.
I don't know what to say: I'm so da**ed lucky that entrepreneurship is my passion. I know it will be "my people," the people I spend my days with, who will continue to power the world while the government grinds slowly through the motions of a transition from one President to the next.
If you want to see the photos and the video, the links to aggregated feeds are here. Oh, and I'm told there was an incredible after-party at Gangplank, too. I, of course, was home in bed with my golden retriever family.
What do we need to fix an economic crisis? Money! Where do you get money? Banks! With this cheer in mind, a group of bankers, lawyers, entrepreneurs and I forged ahead last year to start a new bank with a new vision. You know me, I'm transparent, so here it is--without violating any SEC rules.
We have a great idea. We are starting three banks at once, under the overall governance of a holding company.
Three banks serve three different communities in three different states, California, Arizona and Texas. They are all states we know well. Three banks diversify risk. Three banks have three different business plans, each unique to the needs of its community. Three banks allow more people to be involved. We have three separate bank boards, and a holding company board. Very difficult to get away with any hanky-panky with that kind of organizational structure, IMHO. Also, there's me, the Town Crier, on the board of the Arizona bank. And the investors. We want LOTS of investors. In the past, banks were often put together by rich guys pooling their money. Not us.
We formed the holding company. We got the charter approved for the first bank. (I can't mention any names because we are in a "quiet period" for raising capital.)
Then the FDIC decided it would not charter any new banks in Arizona for the forseeable future, because the existing banks in Arizona are in such a mess.
Let me see: the existing banks are in real estate. We had no plans to be in real estate. The existing banks don't serve entrepreneurs. We wanted to serve entrepreneurs. The existing banks no longer have the capital to serve operating businesses. We want to serve operating businesses.
So we can't exist because???? Because no one wants to bother applying a new solution to an old problem when they can apply an old solution. (I'm a little frustrated, can you tell?) I understand the FDIC's point of view; they're buried in problems in the state of Arizona, brought about by the real estate meltdown and the credit crunch.
But we want to be part of the solution: we are new community banks coming in with fresh capital raised from small investors who want to be part of a new concept in banking -- community banks actually OWNED and run by the communities they serve.
Radical.
So we hit a bump in the road. We spent five hours in a meeting on Saturday, and we made a new plan. We get the California bank open, we work on getting the Texas bank open, and we pray for Arizona.
I love the team of guys I am working with. Yes, I'm the only woman on the Arizona bank board, but believe me I am not a token. We are a team, working together, and they hear me when I talk about entrepreneurs and their needs.
Stealthmode Partners has been selected to join the Microsoft BizSpark Program as a Network Partner. The BizSpark Program is a new global
program designed to accelerate the success of early stage Startups by connecting them to Network
Partners: active members of the global software ecosystem who can provide mentorship, guidance and
resources to BizSpark Startups. BizSpark creates an ongoing, mutually beneficial ecosystem between
Microsoft, Startups and Network Partners.
Microsoft is committed to helping entrepreneurs to transform their ambitions into sustainable,
dynamic businesses and to foster innovation and entrepreneurialism. To this end, the BizSpark Program
provides Startups with software, support and visibility at a time when they are most valuable and least
affordable—during their first three years, with no upfront costs and minimal requirements.
BizSpark gives Startups fast and easy access to Microsoft’s current full-featured development
tools, platform technologies as well as production licenses to bring to market innovative and interoperable
solutions for the next generation of user experiences.
To be eligible for the Microsoft BizSpark Program, Startups must be actively engaged in
development of a software-based product or service that is a core piece of their business model, have
BizSpark gives Startups fast and easy access to Microsoft’s current full-featured development
tools, platform technologies as well as production licenses to bring to market innovative and interoperable
solutions for the next generation of user experiences.
To be eligible for the Microsoft BizSpark Program, Startups must be actively engaged in
development of a software-based product or service that is a core piece of their business model, have
been in business less than three years, and have less than USD$1M in revenue. Startups may enroll for
the program by obtaining sponsorship from a designated BizSpark Network partner.
Stealthmode Partners (http://www.stealthmode.com) has been incubating early stage startups since 1999. Always the entrepreneur's advocate, we offer the Ewing Marion Kauffman Foundation's FastTrac(R) Entrepreneurial Education programs (http://www.arizonaft.com, the annual Arizona Entrepreneurship Conferences (http://www.azentrepreneurship.com), private coaching and consulting services, and a network of resources that can help start and grow businesses.
