Silicon Valley Finally Flaunts Its Failures


TED commandments courtesy of dullhunk

On Tuesday last week, I joined 400 others in the basement of the Hotel Kabuki city for FailCon, the first conference I’ve known to examine past failures to look for secrets to success. While you might think the valley is all about learning from failure, people still struggle to openly celebrate or even discuss failure, presumably at odds with the cultural preference for “winners”.

I’m a big fan of the TED presentations (and would love to go to one of these events), and so I was pleased to be reminded of the TED commandments (pictured right) for talks which include “speak of thy failures as well as thy successes”.   Of course a few speakers couldn’t resist couching success in failure and Dave McClure was quick to shoot down panel members that followed the “my biggest failing is I work too hard” model. In Internet terms if you get more than a million users that’s usually a success story. I imagine Cassie Phillips had to dig a little to find speakers who would be a draw and talk honestly about past errors.

Lynne Johnson of the Advertising Research Foundation kicked things off with some advertising failure examples.  I particularly liked the example of Sir James Dyson of vacuum cleaner fame, most are familiar with the 5000+ prototypes before inventing the dyson vac that doesn’t lose suction as it fills up.  I didn’t know that he was a believer in consciously doing things the wrong way to learn a better way.  Very right brain and anther example of how specialization can trap the mind in familiar ways of thinking.

Seth Sternberg and Sandy Jen, co-founders of Meebo, the popular (42M!) unified instant messaging platform, brought some sage advice on team building.  Seth has learnt not to try and do everything himself and is a strong believer in putting together a team made up of people not like you.  This is an elegant simplification for hiring complementary skills and behavioral characteristics.  It doesn’t address the riddle of how to evaluate their skills (because, by definition, they’ll have skills you aren’t knowledgeable in) and whether the cultural fit will be there (as you’ll naturally be drawn to feel comfortable with people like you and like less those not like you).

I was lucky enough to attend Rotterdam School of Management in 1998.  We had 100 students from 50 countries with no dominant ethnic group as no more than 6 came from any one country.  This drove creativity but also incredible frustration because of varying cultural mores and communication capabilities.  For example, in general, the southern Europeans had a more relaxed perspective on rules and attribution than the Northern Europeans and Americans.   The coping method (and apparent route to greatest output) was typically that only 2-3 in any group of 4-6 would do 90% of the work.  Whether this just indicated that most of us failed as facilitators or moderators, or whether it’s an unreasonable expectation to effectively bridge all team differences on a fast-paced project is still unclear to me.  The answer, as if often the case, is probably in the gray middle, quickly assess the team makeup, recognize the likely team differences and identify any necessary coping mechanisms, start, and then isolate any disruptive influences not easily bridged.

Brandon Schauer, Experience Design Director at Adaptive Path made a beautifully clear and compelling presentation on how to improve use experiences.  I thought Brandon must have been reading Daniel Pink’s A Whole New Mind with all the talk of left brain, right brand and how to get empathy into your business.  There was a rather cool left-brain tool that tried to measure the customer value created by a new design which I’ll have to investigate further.

A fiery panel led by Larry Chiang followed, fuelled mainly by to and from between David Hornik; Partner, August Capital and Adeo Ressi; Founder, (and previously of F&* from the .com days).  Adeo was trying to get David to admit that VC’s have companies in their portfolios that are effectively walking dead that they pay little attention to and have mentally written off.  Having been in two such companies, I had to side with Adeo on this one.  It was nice to hear that even management blunders don’t preclude future funding in new ventures, but major integrity failures probably would.  It wasn’t mentioned but burning bridges also tends to close off options in the VC communtity.

The final session before lunch (fortunately not after lunch) was led by Craig Jacoby,  Partner at Cooley Godward Kronish LLC, one of the best-known law firms for startups in the valley.  Unfortunately many entrepreneurs don’t know the basics when it comes to avoiding major legal SNAFUs.  Craig provided some of the necessary legal downers, such as: don’t create your new business on someone else’s gear (in other words get a personal laptop and phone, and do your side projects on your time, at your place, with your equipment.)  The other one, appropriate for the conflict-averse Bay Area crowd: have the difficult conversation about ownership sooner rather than later, so you don’t have different ideas about exactly how the percentages are defined, determined, and earned.

After lunch in the eerie, haunting and deserted world of Japan Town, Max Ventilla, co-founder of Aardvark suggested that entrepreneurs should actively seek to reduce risk.  Given the inherently risky nature of startups it makes tremendous sense to evaluate risks and develop mitigation strategies, just as one should for any project management. He also stressed the need to hire A-players.  Given all the current press on Ayn Rand driven by two new biographies, I’ve started thinking her philosophy might be the origin of the valley cliché about A’s move you forward, B’s hold you in place and C’s take you backwards.  It’s no doubt delightful to dream of creating a Galtian utopia, or that the valley has somehow created the same, but the harsh reality is most people are by definition B’s, so either you’re not going to have enough employees, or your fooling yourself that you’re surrounded by A’s.  I’m sure the answer is you have to hire the best you can find, but in the heat of the moment, when you’ve evaluated the candidates for an urgent position and none are ideal, does that really mean you should just not hire? Tough call.

Eric Marcoullier, co-founder of MyBlogLog told an authentic heart-wrenching story of realizing his business was wrong and having to fire 7 of 12 engineers.  The quotable quote: “Misery is nature’s way of telling you to do something else”.  You might be able to fool your investors and your colleagues but you can’t fool yourself.  If you keep waking up dreading going to work, you know its time to make a change.

An interview with Max Levchin, founder of PayPal and founder and CEO of Slide, revealed an amusing metric of success: the success of his employees: would the cash they generated by them a house (Google-style), a car, a bike or just lunch?

My personal favorite of the day was an authentic, off-the-cuff presentation by Mark Pincus, CEO of Zynga, a hugely successful social gaming company, full of quotes like “don’t try to build your resume: you screwed that up when you became an entrepreneur, so just go for it”.   An interesting tip from experience was always to negotiate for control, not valuation: he said he’d take 1/2 the valuation for more control. If it’s your ship you want to be able to steer it where you want to go, which may be different to what the investors want.  I saw this with Abilizer, when we were forced into the general portal market by the investors because they believed we should “follow the money”.  If we’d stayed in the less technically attractive HR market which we dominated, we may well have been much more successful than the also-ran we became competing with ~500 other dot coms in the general portal market.

Ali Moiz, of Peanut Labs presented start up screw up lessons including: #3: Funding. Too Frequent, Too Much. Makes you lazy. As I wrote in Year 2: Raise As Little As Possible, this is certainly my experience.

Miracles do happen. The standout stroke-of-luck story was related by Phil Libin, CEO of Evernote, the awesome online unified memory application with over two million users.  Apparently last October, on the eve of shutting down the business due to lack of cash, Phil received an email at 3:23 am from a Swede, who loved the application and wondered if he was still looking for investors.  $500,000 later, Phil’s lesson was never ignore emails from Sweden J  Perhaps what he meant to say was don’t ever give up, you never know where help will come from.

My lesson of Change or Die was oft repeated.  If you’re driving into a brick wall (a changed or non-responsive market) you’ve got to course correct.  Interestingly Scott Rafer, CEO and Co-Founder of The Lookery spoke from the heart about having to shut down his business, and how he would not pivot in the future.  The subtle distinction here is that a pivot is easily accomplished when you’re in the early stages shaping the business, but once you’re up and running and funded, and trying to scale, a pivot is nearly impossible.  I certainly saw this at Abilizer and Edge Dynamics.

The after-party at 111 Minna was well attended.  The San Francisco start up networking crowd always appears so hip compared to their staid colleagues in button-down shirts or polos and khakis on the peninsula.  I can’t quite work out whether its just the effect of the suburbs or the type of events held in each location, as many of these startups are actually based in Palo Alto, Mountain View and other areas of the valley.

In summary, a most enjoyable day with a few extras to add to my 10 Lessons.  As I mentioned in the preface to those lessons, everyone’s experience will vary with every new business, so this is no surprise.  At the very least, great to bond through shared experiences with others inflicted with a passion for startups and entrepreneurship.


Who is Going to Make the Clouds Play Nice Together?

photo courtesy of chascar

photo courtesy of chascar

I had lunch (at the fabulous Sanchos btw – love the fish tacos and tried a Mexican coke – they really do taste better) with my good friend and ex-boss, Henry Olson.  He has an uncanny ability to think one step ahead.

After our usual ruminations about what went wrong at Edge, and whether we would have the smarts to detect it next time (and, more importantly, the courage to act), Henry made the observation that companies need to shift from product-directed thinking to  market- directed thinking.  You can’t force the product on the customer – the customer defines the product and what they need from it. We covered this in You Don’t Know What Customers Want – make sure the market is driving requirements, not your perceptions of what the market wants.

Not content with cracking this nut, and as we are both headed for Enterprise 2.0, Henry quizzed me on what’s next for the enterprise.  He had observed last year that the SaaS revolution was in some ways a lot of same excrement with a different delivery method (i.e. paving the cowpath) and the gaps every one seems to be missing are between these disparate cloud apps.  Will anyone see that this year?  How do you solve user provisioning, application integration, and reporting and analytics with different data structures, and customer and product masters.  At this rate, there will be a new wave of consultants earning their fortunes wiring all these disparate cloud apps together – SaaS middleware anyone?

I’ve already observed that  enterprise software feels dead.  The new wave of cheaper, better, faster SaaS solutions are chipping away at traditional enterprise software with point solutions.   If we can stereotype who is doing this it’s unlikely to be the young bucks coming out of Stanford et. al. are going to fully grasp the challenges of enterprise computing, or otherwise be attracted to the relatively dismal world of B2B software.  Far more likely is B2B point solutions will be offered by grizzled corporate refugees, who are more interested in building a tidy nest egg than changing the world (as we are led to believe the starry-eyed younger entrepreneurs are wont to do).  This will most likely mean vertically- focused point solutions based on their experience.  In other words, our seasoned vets are unlikely to take on the tougher, larger problem of getting all of these cloud apps to play nicely together.

Henry wondered if NetSuite is the answer (I don’t know – can anyone comment?) It would seem that we need a bunch of open APIs and standards to make these different cloud applications work together.

Perhaps consumer apps not just raising the bar but pointing the way to new enterprise models? Facebook Connect has been a brilliant success for outsourced authentication – but it has the tiny advantage of being used by everyone (well ~300 million anyway). As more people work for themselves and have greater autonomy they will make the purchasing decisions for themselves –  laptops, productivity software, etc.  This market neatly sidesteps the traditional software problems of long sales cycles and difficulty communicating with the user community. This won’t replace SAP, but it might be the right path for collaboration and other productivity apps.

What are your thoughts for Enterprise 2.0?  How will the incumbents change and what new players will emerge?

10 Years, 10 Lessons: Year 10: You Reap What You Sow

Enjoying the wildflowers

Enjoying the wildflowers

The No Asshole Rule and why you should smell the roses

The valley is small.  Your target market is probably smaller.  The internet doesn’t forget, and nor will your network.  More than ever before, people don’t have time to find the perfect candidate.  In this Reputation Economy, inter-personal bridges you have burned will come back to haunt you, and relationships you’ve nurtured will keep bearing fruit.  So, be nice (and helpful). Please.

I don’t know if it’s a function of my age, but I’ve had plenty of reminders recently that life can change at any moment.  This is surely the best reason for enjoying it to the fullest. Don’t take yourself or your work too seriously.

Key Takeaways: Carpe diem and nurture your network.

Sign Posts: Has anyone left because of a difficult co-worker or boss? What is the company doing to help the greater community?


This concludes the 10 years, 10 lessons.  Hopefully there were a few nuggets in there.  Let me know what you think!

10 Years, 10 Lessons: Year 9: On the Way Down, the First Offer is the Best Offer

photo courtesy of jakerome

photo courtesy of jakerome

Just take it!

When you’re on the way down (you can smell death in the hallways) the first offer you get will always be the highest.  In a failing startup, you lose value quicker than a laptop.  Market sentiment writes off the brand and talent leaves. It can take months to complete due diligence, and months can be significant if cash burn is eroding equity, so take the first reasonable offer.  I know of at least one start up that sold 12 months later for a third of the first offer.

Key Takeaways: When you’re on the way down, sell to the first real bidder.

Sign Posts: How would you characterize the momentum of the company? Is the company for sale?

10 Years, 10 Lessons: Year 8: Enterprise Software is Dead

photo courtesy of Tony the Misfit

photo courtesy of Tony the Misfit

User experience is a necessary organizational capability

Obviously, companies will keep buying software.  But the opportunities for a new SAP or Seibel are few and far between.  I ran a session on this at P-camp 08 last year, and the group was pretty vocal – the traditional software model has to change.  The consumer software market has lifted the bar for expectations for enterprise software: it should be easy to use, offer fast screen response times, constantly improve, and be much, much cheaper.

Customers don’t want:

  • To be sold software by the equivalent of a car salesman that can’t even remember their name after the ink has dried on the contract.
  • Implementation services that focus on the plumbing rather than adoption
  • Training that doesn’t teach them how to fish
  • Non-intuitive user experience
  • To hear that they’ll have to wait a year for the next release to get that desired feature
  • To hear that their infrastructure that is causing poor performance.
  • To hear that they have to upgrade their windows platform, or upgrade to an enterprise version of Oracle to use the software
  • Support that requires them to run a server log to diagnose the problem.
  • Support staff that don’t understand their business.
  • Upgrades that are “free” as part of maintenance but end up costing cost nearly as much as purchase “because” of their customizations and deliver no tangible business value.

Mission critical applications can probably still get away with a poor user experience. Everywhere else the consumer revolution is chipping away at the enterprise software kingdom.  Edge Dynamics won when we had a mission critical application.  As soon as the market changed to a nice-to-have reporting tool, everything we had built became a liability – bad user experience, slow performance, costly upgrades, huge upfront investment, costly upgrades

Key Takeaways: Enterprise software vendors need to stand in their customers shoes and design a “whole product” experience, and total cost of ownership that is significantly better than the alternatives.

Sign Posts: What improvements would customers like to see to your sales process, implementation, training, and support services and to your product? What are the alternatives to your solution?

10 Years, 10 Lessons: Year 7: Change or Die

photo courtesy of asw909

photo courtesy of asw909

It’s not them, it’s you

Often startups can’t understand why they have a group of customers they didn’t expect or who want to use the product in a way they didn’t anticipate.  Don’t fight the power – change.  Particularly when you are creating a new category, it is essential to get it out there early and get user feedback. If you build a perfect solution because you think you know who the customer is and what they want, you will find it is difficult to change when you learn your initial assumptions were wrong.  Founders At Work (as Guy Kawasaki suggested, it really should have been called Flounders At Work) is full of examples of startups launching a product, stumbling, realizing what the market really wanted and revising their offering to suit and then enjoying market success.

A shout out is due to Eric Ries of Startup Lessons Learned for his concept of The Pivot – that critical point when you must change the business to match what the market needs.  I’ve experienced this first hand with Edge Dynamics.  When the market changed structurally, and we finally realized it, our product was way too complex to be easily changed.  We needed to either stay in a shrinking high end market, or change our entire organization for the new reality (to change from mission critical enterprise software to nice-to-have reporting application best delivered as Software as a Service).  We dithered and died.  Abilizer did this better, cutting to the bone and re-launching (in this case from SaaS application to enterprise software).  In both cases, we proved that SaaS and enterprise software are two completely different businesses.  You can’t be both and to change from one to the other is very, very difficult.  The failure of hybrid software delivery business models is another example of the need to Focus!

Key Takeaways: Get the simplest, cheapest, bare bones product in front of customers as fast as possible and learn what they want. Then build the product they really want.  You’re either offering SaaS or software – don’t try to do both.

Sign Posts: How do you decide what features your customers need? Who makes the decision on what to include in the next release, and using what criteria? Do you offer on-premise and on-demand software?

10 Years, 10 Lessons: Year 6: If You Can’t Find the Right Person, Don’t Hire

photo courtesy of franckdethier

photo courtesy of franckdethier

Bad choices are worse than no hire

In a startup, the team is the biggest determinant of output and day-to-day happiness. Choose wisely.  You’re going to be effectively married to these people around the clock for years on end.  If something bothers you during the interviews, or the salary negotiations, don’t hire!  Any issues will be magnified a thousand-fold, and getting people out is painful and risky.  I hired someone who performed brilliantly in interviews, but became unnecessarily high maintenance during the negotiations.  Big mistake.

It has been said that you get ahead with A-players, tread water with B’s and go backwards with Cs.  My output and that of my team and our reputation definitely suffered due to this mistake at a critical time in the company’s development.  While it can be very hard to find the right person, it is always worth the wait. Don’t be suckered into settling for less, especially in today’s market.

This is a really challenging issue for most startups, because most startups, be definition, can’t be A-list.  There’s a limited number of killer ideas in growth markets addressed by well-funded, brilliant teams who are awesome fun to work with, have a great office, pay and perks.  Most startups have a least one blemish and the challenge for potential employees is working out which blemishes they can live with.  Likewise for a startup, finding and attracting the perfect talent is hard, and deciding what blemishes you can live with is crucial.

I’ve noticed a tendency amongst startups to put too much weight on experience in the market the startup operates in (anyone remember those hilarious posts in 2000 requiring 10 years of Internet experience?). You don’t hire IDEO or McKinsey for their prior expertise in the space, and I think the same thinking should apply to employees.  From what I’ve seen in both marketing and consulting, an A-player will get to know the space better than most on the team within 6 months of starting, and the right attitude and inter-personal skills, together with the boost in creativity from new thinking from other industries will outweigh the slight improvement in productivity of the experienced B player in months 0-6.  It’s clearly helpful to have some experts on the team, but I’d argue that always hiring experience over potential is an error.  Seth had a good post today on the tendency to prefer apparent risk over actual risk – what seems more risky can actually be less risky.

In that highly successful book, Good To Great, Jim Collins argued for “getting the right people on the bus, the wrong people off, and the right people in the right seats”.  He has posted some helpful mp3s on this topic. About ½ the VC’s I’ve heard, on the excellent iinnovate podcasts from Stanford’s Business and Design schools, say that they’d rather have a good team with an ok idea.  Amusingly, the other ½ say they’d rather have the average team in the killer market over the A-team in the bad market.  That said, my experience suggests you have to win the race your in, and the race has to be worth winning).  A good team will increase the likelihood of winning the race your in.

Key Takeaways: Get the right people on the bus. If you make a mistake, act quickly to resolve it.

Sign Posts: Has it been easy to find the right people? How do you find and evaluate them?

10 Years, 10 Lessons: Year 5: You Don’t Know What Your Customers Want

photo courtesy of clairity

photo courtesy of clairity

Keep talking to customers: you know you should

It’s one of the toughest problems in enterprise software.  It is really hard to find time to meet with customers and get quality feedback.  You have no choice.

When you’re launching a new type of product, its quite likely customers don’t even know what your talking about. At this point you have the vision and are hoping to deliver something useful enough that they’ll get it too.  In these initial stages, companies I’ve worked with talk to prospects initially to understand their needs and define the market.   Once you have something to address these needs, companies typically spend a lot of time with the first few customers getting putting the solution in place and training the users, and testing and refining Release 1.  This is good.   Its after this point, in the initial growth phases, when time and resources are strained that this discipline seems to just slide away.  Just because you knew their business better than they did at that point in time, doesn’t mean you’ll know it better from that point forward.

Every customer is different, and their business and their needs will keep changing. So you have to keep making the time to get the feedback.  It’s also the only way you will hear about new problems that may provide opportunities for differentiation.  While new web tools offer ways to facilitate interactive discussions without costly face time to improve and refine existing offerings, you will need to be on site, watching them work to spot the bigger opportunities.

At Edge Dynamics, we assumed we knew our customers after we had spent time on site with them through the first three implementations.  Around that time the market changed structurally.  We didn’t create a dialogue with our customers (once a year user group meetings are not a dialogue).  As we stayed in the ivory tower designing and pumping out ever more complex features, customers became overwhelmed with the feature set and started looking for something simpler.

Key Takeaways: Make time for customer interaction.  Keep your eyes open for structural changes, and opportunities for new products and differentiation.

Sign Posts: How do determine what customers need?  How do you involve the customer in the product design process?

10 Years, 10 Lessons: Year 4: Focus!

photo courtesy of ihtatho

photo courtesy of ihtatho

Geoffrey Moore was right about beachheads

After Year 3’s grisly topic we’re back to comfortable, less controversial ground.  Probably why so many forget this vital lesson.

It’s been said that to appeal to everyone is to appeal to no one.  Keen to win early deals, startups will jump at everyone who shows interest.  Engineers will want to build every possible feature. Opportunism dilutes your message and your solution.

Example 1. dominated its HR market.  As soon as we entered the general portal market we were done.

Example 2. At Edge Dynamics we religiously followed a Crossing the Chasm beachhead strategy with a single application in a single vertical.  We killed it until the market changed (more on this in Year 7).

Example 3. I watch a mobile social networking startup flounder because of a lack of focus.  Was it for college kids or everyone, a dating site or a provider of blinded phone numbers for classified ad postings?  Users were confused too, and growth never materialized.

I’ve also heard it said that VC’s believe: once means you got lucky, twice is a coincidence, and three times is a lock.  I’ll call these three examples my proof.

The benefits of focus are huge.  Every subsequent sale in a vertical market is easier (you have references, you speak their language, you know their business, why they bought, the value, the price, you have a contract template, services template, etc).  Your messaging and marketing materials can be tailored to their specific situation.  And your product will work.  You know the likely systems landscape, data and integration points.  Change the target audience and this all goes out the window.

Key Takeaway: Dominate your niche market before being distracted with other places you could sell.

Sign Posts: Which markets do you serve? What is your expansion strategy?

10 Years, 10 Lesssons: Year 3: Cut Early, Cut Deep

crueltobekindEmotional roller coasters and kindness from cruelty

By 2001 things we’re not good for most dot coms in the valley.  Cash was running out.  Abilizer was no exception.  Today we look at the harsh reality of reducing numbers when things are working against you.

When you devote every waking hour to a venture, and you’ve contributed to its birth and growth, it’s hard not to become emotionally involved.  Success brings the highest highs, failure the lowest lows.  Much like a relationship, or an addiction, it can take as long to get over it as you were in it.

Most startups die a long, slow death (so do most businesses).  As described above, they build for success and wake up one day on the wrong trajectory, burning up all available funds.  If you trim a little here and there, in 12 months time, you’ll still be around, but lacking any power of will, or dollars, to do anything to save yourselves.  You have one chance to spot the change, cut to the absolute bone, regroup, redirect and re-launch. Take it.  In this situation, you’ve gotta be cruel to be kind.

Abilizer did this, and took a real run at a second life.  Edge Dynamics dithered, and even an acquisition failed to save the business.

Key Takeaways: If you know it’s over, do yourself a favor, and get out.  If you’re running the show, act fast, decisively and humanely.  The longer you drag it on, the more it’s going to hurt everyone.

Sign Posts:  Have you had any reductions in force?  Why, when, and how many?