Value = Signal, Cool = Noise

Great post today from John Furrier on Furrier.org.

He points out – rightly – that:

I fully agree that it is the best time to start a company both for entrepreneur and the venture capitalist. In fact the angels are out there. I ran into one yesterday (granted I live in Palo Alto and you can swing a dead cat without hitting an angel or VC). There is big interest in seed, super seed, and full blown Series A deals.

In these downturn times the opportunities just fall out of the trees. In a downturn the noise level is reduced and it’s all signal. Thanks to the memo from Sequoia which was a strong signal from the Silicon Valley elite money machine on which behavior will be tolerated (translation they want less Seesmics and more real companies). The other them is that innovation is coming out strong. The real opportunities are presenting themselves. The real web 2.0 will emerge from this downturn.

Or – in the language I would use:

If you are building a startup that delivers real value to your prospective customers – real value they will pay for – now is a great time to get started. If you have a cool idea that lots of people will sign up for, but you are not sure anyone would pay for – keep your day job.

The idea that you can do something cool and aggregate subscribers and only then “monetize” the subscriber base is dead (and hopefully gone for good).

Paul Graham’s Advice to Startups

TechCrunch published a post referencing Paul Graham’s (of Y Combinator) advice on why you should start a company now. He makes some great points. I would argue that Mr. Graham’s advice should apply in any economic environment.

A financial nuclear winter may be upon us, but many startups will still survive and even thrive in this environment. Y Combinator’s Paul Graham argues that, in fact, now may be the best time to launch a startup. In an essay titled “Why to Start a Startup in a Bad Economy,” he notes that “what matters is who you are, not when you do it.”

[From Paul Graham’s Startup Survival Guide For The Coming Nuclear Winter: Be a Cockroach]

One of the downsides to VC funding is that it forces a company to immediately chase exponential growth – ready or not. Often that leads to strange thinking. The metrics become out of touch with reality and revenues (and profit) take a back seat to subscriber growth, or aggregating eyeballs (remember when portals were huge and search was not?).

Listen – VCs are smart. But they want big multiples (if the invest 3MM they way 300MM back – that is their ideal deal). The problem with that is it is really, really rare. You should take Mr. Graham’s advice and focus on managing costs, generating revenues and being sustainable.

It is time for Applications that make Communications an Advantage for Small Businesses

The current trend in communications is more (and more) communication technologies, providers, mechanisms and buzz words. Social Media, VoIP, Blogs, Wikis, Unified Communications, TelePresence, WebMeetings, SMS, IM, Chat, Mobile, MicroBlogging, etc.

You can hop on any tech site and see daily skirmishes over which technology is the best – or how you should leverage social media in PR and Marketing. But at the end of the day we are doing an awful job creating applications that solve real challenges faced by Small Businesses – which is ironic, because communication between businesses and their prospects and customers is a significant source of pain.

All this technology isn’t making the situation better for small businesses and their customers – it is making it worse. How many ways does a person need to make a phone call? How many “channels” of web reviews, posts, comments and rankings can a small business legitimately afford to monitor and react to. It is a deluge – and for the most part it is noise. And because of that signal to noise gap we are missing the real opportunity – Why aren’t we creating applications that leverage communications to make transactions easier (for both seller and buyer) and more efficient?

We’ve all seen it whether in our own small business or in our transactions (or attempted transactions) with small businesses. Annoying appointment reminder calls, customers who fail to show, unreturned phone calls, calls outside business hours, unanswered emails, frustrated blog posts, bad reviews, etc.

How many times have you attempted to get a contractor to simply show up to give you an estimate? How many times have you (Mr. contractor) shown up to do an estimate to find no one home? How many hours a day does the salon owner spend calling to make sure her appointments will show up… and how many don’t show up anyway?

Improving communications between small businesses and their prospects and customers is a huge problem space that has been largely ignored. It is a massive opportunity to improve both the lives of small business owners, by helping them acquire and retain customers and at the same time make them more efficient; and small business customers, by making small businesses easier to do business with.

I’m not just telling you this – I’m obsessed with it. So much so that it is now the entire purpose of cosinity. It is the whole point of page2call – helping small businesses get better at customer acquisition by making them easier to do business with and allowing them to better track the effectiveness of their online presence.

I’ve spent years (too many years) solving these problems in fortune 500 companies. And while I admit – most of the time large companies use these technologies as barriers to communication – that was in every instance a failure of vision and will. For fortune 500 communicating with customers is a cost to be minimized. For small businesses communicating with prospects and customers is a matter of survival – and when leveraged as an advantage a key driver of growth.

I know creating these applications for small businesses is nearly as sexy as another micoblogging service, or anything you can stamp social media on, but it does have one significant advantage. 25 million target customers who have no problem spending money to acquire and retain customers.

A Return to Sensibility

In some very important ways the current financial crisis is a good thing. First, it will preemptively pop the Web 2.0 bubble. Why is that important? Well – and this is just my opinion – we’ve returned to the same type of fundamental philosophy we saw in the Dot Com bubble – version 1.0 was “get big fast”; version 2.0 is “business model isn’t important – figure that out once you’ve aggregated lots of subscribers”.

When you boil both of them down you see the same fundamental flaw – failure to plan for success. To be clear – by success I mean a profitable business.

Second, it will – hopefully – result in a fundamental change in the US economy. For the last three years American families have been spending more than they make. Our government has been doing the same thing since 1980 (with a brief respite during the Clinton administration). We have to start balancing consumerism with savings. That means credit will be harder to get and more expensive. That means that businesses will have to be prepared to face stiffer competition for scarce consumer dollars.

But most of all, it means innovators and entrepreneurs will have to begin by determining if they are creating and delivering something that adds value and, as importantly, is that value something their customers will be willing to put hard dollars on the counter to get.

I actually welcome both of these changes. Will it make the odds of success longer, yes.

That being said, if you can return to the fundamentals:

  • Solve important problems
  • Meet unmet needs
  • Create value added services over commodity services
  • Focus on delivering value your customers will trade for dollars
  • Focus on long term growth (not next year’s exit)

You can still found and grow a successful company.

Only 55 VC Funds Raised Money In The Third Quarter (Down 29 Percent).

From TechCrunch. This pretty much speaks for itself. The important note is that all of this happened before the last 3 weeks during which the dow has fallen ~ 3000 points.

This is not about doom and gloom for startups – it is about understanding the environment you are operating in.

The third quarter saw the number of U.S. venture funds raising new cash decline by 29 percent to 55 funds, according to data from the National Venture Capital Association and Thomson Reuters. That compares to 78 new funds a year ago and 76 new funds in the second quarter of 2008. And 45 of that 55 were follow-on funds rather than new funds.

Each of those funds, though, raised a lot more money on average. The total raised for the third quarter was $8.1 billion, down only 6 percent from the third quarter of 2007 (but down 12 percent from the $9.2 billion raised in the previous quarter of this year).

And remember, all of this was before the financial meltdown of the past two weeks that had alarm bells ringing at every VC firm.

The three largest funds in the quarter were Sequoia Capital’s $930 million late-stage fund, Austin Ventures’ $900 million balanced-stage fund, and InterWest Partners’ $650 million early-stage fund. In general, more money is going towards later stage, proven businesses than early stage financings. (More at VentureBeat).

Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0

[From Only 55 VC Funds Raised Money In The Third Quarter (Down 29 Percent).]

The financial crisis – Finaly a levelheaded assessment: Fareed Zakaria GPS – Interview with George Soros

This morning I watched Fareed Zakaria GPS on CNN. He interviewed George Soros who presented the most intelligent and balanced view of the current financial crisis I’ve seen yet. Soros – a free marketeer – points out that free markets are human constructs, just like governments – as such both are imperfect. His stance is the market is more efficient and perhaps better at solving problems – but not perfect – and left to it’s own devices suffers from problems as bad or worse than well designed regulation.

SOROS: Every bubble has two components: something – some real trend, and a misconception about that trend.

Now, the real trend has been credit expansion, ever-increasing use of leverage. And the misconception has been what I call market fundamentalism, the belief that markets correct their own excesses, that you can leave it to the markets, give them free rein.

And, of course, that’s false. The markets don’t tend towards equilibrium. And occasionally, therefore, they create financial crises.

But it really started with President Reagan, who talked about the magic of the marketplace, Margaret Thatcher. You see, when they came to power in 1980, then this belief became the dominant creed. And this, then, led to the globalization of markets, the deregulation of markets and the increased use of leverage and all those financial engineering.

Now, since markets don’t tend towards equilibrium, but are – left to their own devices, go to extremes and create bubbles. And then the bubbles burst.

We have had a number of financial crises since 1980, and quite a few of them. But each time the authorities intervened, and, you know, merged away the failing institution, stimulated the economy if necessary, lowered interest rates, fiscal stimulus, and so on.

And so, the crises, the previous crises actually reinforced the mistaken belief that markets correct their own excesses.

What Soros is telling us is that we’ve swung too far to free market thinking. And I’m with him. It isn’t that I want socialism or government control of the economy – it is that I want balance. Our error was swinging the pendulum too far to one side – and it has to come back.

Will we swing it too far toward government involvement and regulation – probably. But that isn’t what we should be afraid of – we should be afraid that dogma will outweigh outcomes. If that happens we will insist on free markets and vilify regulation because we believe it to be so. That is what will cause the current situation to spiral out of control.

To be clear – I’m a fee marketeer – but the market exists within the bounds of society. And governments are social contracts designed to form well ordered societies. They define the guardrails within which we operate freely. It is time to put the regulatory guardrails back in place.

You can read the transcript of the interview here.

Invest Southwest names presenters

Invest Southwest announced the presenting companies for the 2008 Invest Southwest Conference.

Congratulations to these firms.

Thirteen firms made the cut for December’s Invest Southwest conference.

Organizers for the annual event, which aims to pair promising new technology firms with investors who can help finance future growth, have announced which companies will be presenting.

The finalists were selected from about 80 applicants.

Most of the companies are Arizona-based. Nearly all of them focus on software development or biotechnology.

Here’s the list:

* Captivemotion LLC – The Tempe-based firm uses technology to study facial motions for video games and movies.

* CellTrust Corp. – The Scottsdale-based company provides security software to protect data that is transmitted mobilely.

* Clareity Security – The Scottsdale firm provides identity fraud protection services for the real estate and financial services industries.

* Consolidated Energy Systems LLC – The company in Salt Lake City, Utah is developing a patent-pending process to convert pretroleum coke into fuel for modified diesel engines.

* Grip (R) – The Glendale-based firm provides software systems for businesses in the audiovisual industry.

* iMemories – Based in Scottsdale, the company convers home movies and photos to DVD and hosts consumers’ content online for sharing.

* Medipacs – The Tucson biotech firm has developed programmable infusion pumps for medical use.

* MedTrust Online LLC – The Scottsdale company operates an online community for doctors.

* nanoMR Inc. – The Albuquerque, N.M. firm is developing a replacement for traditional blood cultures that takes less time to develop.

* Octopi LLC – The Tucson company business develops online video games.

* Protein Genomics – Based in Sedona, the company says it has developed the first commercially viable human elastin protein for wound care and regenerative medicine.

* Solar-Breeze LLC – The Phoenix-based firm says it has developed the first solar-powered robotic pool-skimmer.

* Unima Integral Biosecurity – The Jalisco, Mexico-based firm is developing products to control food-borne illnesses in the food-production industry.

To qualify, companies must be seeking between $250,000 and $5 million in financing.

The company’s officers will spend the next several weeks honing their business plans and crafting their investor pitches.

The conference will take place Dec. 11-12 at the Four Seasons Scottsdale at Troon North.

[From Invest Southwest names presenters for VC conference]

More articles predicting doom for startups

I feel like the grim reaper here… really I’m not throwing myself out a window.

So why am I posting these? it is important for entrepreneurs to NOT bury their heads in the sand.

I would also take a moment to point out that the majority of this news is coming from Silicon Valley – by far the easiest place to raise capital. If you are not based in Silicon Valley the news is probably worse.

The important thing is not to panic and plot a course of action TODAY – What should you do – you can start by reading Ron Conway’s letter to the companies he has invested in. I’m following this advice – and you should too.

Sorry, Startups: Party’s Over – Silicon Alley Insider

Sequoia Capital, best known during this bubble as the guys who backed YouTube, gathered some of their startups Tuesday for an emergency meeting. “The attendees were greeted by a cute image of a Grave Stone, with a message: R.I.P.: Good Times,” Om Malik reports.

Super Angel Ron Conway To Would-Be Startups: Don’t Quit Your Day Jobs – Silicon Alley Insider

Different story, says Ron Conway, who is perhaps the most famous angel investor in tech these days. Ron is best known for making very early and very lucrative bets on Google and PayPal, but he’s also known as one of the most adventurous angels of Bubble 2.0, and has invested in 130 companies since 2005. We asked him for his advice to would-be-startups last night, and he wasn’t nearly as encouraging:

“I would tell (entrepreneurs) to keep their day job until they got one year of funding, and if they couldn’t get that, then they’re not meant to start that company right now…. My advice to (start ups that don’t have a year’s worth of money in the bank) would be to raise money by reducing your own spending. If you can’t raise more money, you have to cut costs. And that’s what I’m harping on to my companies.”

Fred Wilson: My Thoughts On ‘Startup Depression’– Silicon Alley Insider

All startups are going to have to batten down the hatches, get leaner, and work to get profitable, but the venture backed startups are going to get more time to get through this process than those that are not venture backed. Here’s why.

Venture capital firms are largely flush with capital from sources that are mostly rock solid. If you look back at the last market downturn, most venture capital firms did not lose their funding sources (we did at Flatiron but that’s a different story). If you are an entrepreneur that is backed by a well established venture capital firm, or ideally a syndicate of well established venture capital firms, then you have investors who have the capacity to support your business for at least 3-5 years (for most companies).

Phoenix Startup Weekend

UPDATE: 10/17/08 – I’ve set up a FriendFeed room enable everyone to live blog the event – see this post for details.

The whole reason I’m going on vacation tomorrow (back next Tuesday) is to rest up for Phoenix Startup Weekend… well not really…

If you have not checked it out – you should. If you aren’t already signed up… you should.

See you there:

Marketers, Web designers, legal experts and others will convene in PhoenixOct. 17-19 to pull off what sounds like an impossible task: develop a product in one weekend from scratch.

The event is called Startup Weekend. It’s the brainchild of technology entrepreneurs Andrew Hyde and Michael Gruen, who operate Startup Weekend LLC. The company organizes the collaborative events in cities across the U.S.

Startup Weekend has a Web site set up for details of the Phoenix event, but it’s currently down.

details of the Phoenix event [From Want to build a product in one weekend?]