• 19Nov

  The 3 Advantages of a Start-up

  Posted by mark @ 4:36 pm in General 3 Comments

  You’re in a start-up, and you’re about to start competing against some giant company. As an entrepreneur, you know the drill. It’s you against Bill Gates or Jeff Bezos or Michael Dell or Howard Schultz, or even a two-headed monster like Sergey & Larry.

  

  

  Let’s face it–the cards are totally stacked against you. They have SO much in their favor. They have:

  • More Brains
  • Better Technology
  • An Army of Employees
  • Buckets of $
  • Huge Credibility with the Press
  • Lots of Customers

  They can outprice you and outlast you in any market they choose.

  As entrepreneurs, why do we choose to fight this kind of battle? I’m prepping for a presentation I’m giving tonight at the University of Wisconsin and I asked myself that question. How can a start-up ever carve out a space, let alone win the game? Brian and I have had a few successful start-up’s (Brian has 3 to his name, and I’m working on my 3rd with him right now). Thinking about our experiences, I was able to come up with the ONLY three things that you have going for you as a start-up.

  They are:

  (1) Speed & Agility. Big companies can’t move as fast as you can. This is by far the most important advantage for a start-up. You may have a great idea, but I’ll bet that the same idea is kicking around the big company competitor too. The issue for them is that they have a huge organization to drag behind them. They can’t turn on a dime. You can. You can get there first. And getting there first is huge. Jellyfish is a great example of this. We hit upon a new, disruptive search advertising model and got to market with it first. Microsoft saw our head-start and liked it. If we had waited, taken too much time, over analyzed, we would have lost. In a start-up, lack of speed kills.

  (2) No History. What I mean by this is that in a start-up have no baggage, nothing to protect. In a start-up, you can dream up crazy ideas, without any regard to protecting the company’s revenues/ employees/customers, or upsetting the politics of the organization. You are free to think of the way things should be if you could design the perfect world. You have freedom to try to disrupt the status quo. Most big companies worry what will happen if the status quo changes. They worry about protecting next quarter’s number. They worry about getting stuff through legal. You are completely untethered from these kinds of restrictions.

  (3) A Different Kind of Employee. There are lots of really, really smart people that work for big organizations. But there is something that brings the best out of people when they work in a start-up. The start-up environment is so empowering and invigorating when you realize that you have a HUGE impact on the success or failure of your company. It’s on you. You have the power to change a market, and you get caught up in the journey and the mission. I’ve seen the power of a small committed team of start-up employees, and I’ve been fortunate enough to have a business partner that does a tremendous job of cultivating and leading the charge. Small start-up teams can accomplish amazing things.

  So there they are entrepreneuers. Your 3 advantages. Use them wisely.

  And if you were planning on coming to my talk tonight, I just gave away my best stuff, so you can probably just stay home

• 11Nov

  Alice.com Announces $4.3 Million in First Round Funding

  Posted by mark @ 8:00 am in General 22 Comments

  We announced our first round of funding for Alice.com today (full release here).

  

  A few takeaways from our fundraising efforts with Alice:

  We Were Able to Raise a Large Round with Common Stock
  Brian and I are really pleased to have raised over $4 million dollars in common stock financing. We were able to do this by utilizing a couple of great local angel funds and a number of individual angel investors, many of which also invested in us at Jellyfish.com back in 2006-07. I chalk up our success in raising large rounds of angel money (here and at Jellyfish) to the following three things, in order of importance: 1) a track record of success; 2) a disruptive model and clear path for executing on the opportunity; and, 3) a passionate team that effectively communicates the business. If you don’t have #1, the other two become even more important.

  We Avoided Venture Capital, For Now
  This was a big debate in the company, as we had several VC funds at the table. Alice.com is a big model, and we’ll be looking for subsequent investment to take advantage of our opportunity. So why not get hooked up with a solid VC fund from the outset? It really came down to weighing the negatives of granting VC preferred stock rights and other controls to the positives of getting a long term capital partner with lots of “dry power” to fund the future growth. We opted to stay with common stock, a diverse cap table, and maximum options to pick the right partner for our next round. As one Venture Capitalist put it to us, “if you can get the funding you need with a common round, why wouldn’t you?” I’d be very curious to have readers weigh in on this decision. I still think it was the correct one, but arguments can certainly be made against it.

  The Sky Isn’t Falling, But It Is Tough Out There.
  We started raising this round on August 28th, before the financial crisis and stock market meltdown hit full steam. I’m happy to report that although the round took longer to complete than we anticipated, we did hit our goal fundraising range. Our biggest issue was not getting turned down from people; it was investors cutting back on the amount they ultimately invested. Bottom line is that the company was still able to get the funding needed, even in this tough environment. I hope others are finding the same thing!

  I’m Curious to See Whether the Slow Economy Helps Our Coverage
  I’ve heard several commentators mention that one benefit of starting a company in a recession is that there aren’t as many competitors, and there isn’t as much start-up noise to compete against. This will be a first test for Alice.com of that claim. We don’t have a PR firm (yet), so our outreach on this funding news was somewhat limited. I’m very interested to see whether the economic downturn and lack of activity in the start-up world is one element of our coverage. I’ll do a follow up post on what we did to promote the release and a summary of the coverage we get soon.

  We Are Poised to Launch in March 2009.
  It feels great to get the funding completed and turn full attention back to executing on the business. We’ll be doing a closed beta in January and are poised to launch the first Alice.com offering in March 2009. The pressure to have a successful launch is intense, especially when you have past successes, but that is part of the allure of a start-up.

• 06Nov

  Start-up Advice from John Doerr

  Posted by mark @ 12:32 pm in General 1 Comment

  The folks over at ReadWriteWeb have starting putting up video coverage of the web2.0 Summit (Thanks!).

  I just watched a very interesting interview of VC superstar John Doerr of Kleiner Perkins fame, in which he gave start-ups his list of 12 tips to cope with our current economy. You can watch the full interview here, but his tips were as follows:

  • Act Now, Act with Speed. If you are adjusting your biz to today’s environment, don’t wait.
  • Protect Your Core. Cut fat, not meat.
  • Maintain 18 Months of Cash. In addition, know where you stand with your investors. Are they going to continue supporting you?
  • Defer Facilities Expansion. Be lean with your facilities, software, etc. In other words, run lean.
  • Re-evaluate R&D Priorities.
  • Re-negotiation all Contracts. Including real property leases.
  • Get Everyone in Your Company Selling.
  • Offer Equity Versus Cash.
  • Secure Your Cash. Don’t park your cash in anything risky, including money market funds.
  • Watch Your Leading Indicators. Figure out the metrics that show where your biz is going and watch them like a hawk.
  • Over Communicate.
  • Keep the Faith. We will emerge from this stronger.

  Thanks for that last tip John; I was starting to get pretty depressed! I just wish he would have added one more to his list. Don’t go to conferences; save your money and watch the videos from the event online

• 31Oct

  In re Bilski–Software Patents are Clear as Mud

  Posted by mark @ 12:25 pm in General 4 Comments

  The Federal Circuit struck another confusing blow for software patents yesterday in the case In re Bilski. For you lawyer-types, there is a detailed analysis on the Patently-O blog.

  I won’t go into the legal minutiae of the decision, but it basically confirmed that a business method process is eligible for a patent only “if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

  So now the $64,000 question for software patents: what does it mean to be “tied to a particular machine”? Is it enough that your business process runs on a standard computer?

  Unfortunately, the court leaves this question wide open, stating “We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”

  Thanks for nothing. The industry will now spend millions of dollars in legal fees and lots of time and energy trying to figure out whether this means the end of software patents or whether there are a few “magic computer words” that can be inserted into software/Internet patent applications to satisfy this standard without really effecting the substance of patent coverage for software.

  I’ve already blogged about our struggle to decide whether to seek patent protection at Alice.com here. Bilski doesn’t really make the decision any clearer. If all Bilski portends is that you can tie your claims to a computer hooked to the Internet, we need to file. But it could mean that software patents are now dead on arrival. To use Fred Wilson’s great analogy to the nuclear arms race (here), maybe Bilski means those nuclear bombs we’ve been stockpiling just all became duds. Or maybe not. Clear as mud.

  The more I see this mess unfold, the more I think the whole patent system for software/business methods should be replaced. The current system is hopelessly out of sync with the speed of business innovation, has an exclusionary period that stifles innovation rather than encourages it, and adds a huge expense to both small and big companies alike.

  Every company has a built in incentive to create a better way of doing business that attracts customers. Why should they also be rewarded with close to two decades of monopoly power? The patent system for software/business methods should simply exist to ensure that the companies that come up with some really innovative stuff get a small period of time to reap a reward before the rest of the market rushes in to copy what they invented.

  My recommendation: create a system with a quick examination process (perhaps a peer review on obviousness/prior art) and a very short exclusionary period (2-3 years?). 2 years in Internet time is a lifetime.

• 23Oct

  Microsoft is Evil & Crest is Fresh. . . Who is Alice?

  Posted by mark @ 2:01 pm in General 3 Comments

  With our first round of funding now closed (more on that soon), we’ve turned 100% attention to building Alice. For starters, the team kicked out a new version of Alice.com yesterday, which includes a bit more about what we’re up to with the company and links to our favorite song “about Alice.”

  

  But the new site also brings a key question front and center: Who will Alice be in the minds of consumers? Sure, we think we’ve got a great business model, with a unique offer and the opportunity to build a new kind of retail platform with competitive advantages. But we need to take that disruptive model and package it up into an overall promise that will resonate in a simple way with an identifiable set of consumers. In other words, we need to develop a brand and a story that matches the value propositions of our company.

  I recently came across brand tags, a site that does a fantastic job of showing how brands live in minds of consumers (thanks to Adam Singer over at The Future Buzz for clueing me in). The site, a creation of Noah Briar, is brilliantly simple. Enter the first word that pops into your head when you see a brand. Overtime, this has built up a giant aggregation of brand associations that allows you to see into the publics collective brand view. If you spend a little time plugging in brands, you’ll see who is doing a good job branding, and who is not (granted, the branding and the underlying product are inextricably linked). Here are a few of my favorite examples:

  The Good

  • Crest (top thoughts include Bright, Clean, Fresh and Minty)
  • Amazon (top thoughts include Books, Cheap, Convenient, and Everything)

  The Not So Good

  • Hummer (Wasteful, Gas Guzzler and Big)
  • Microsoft (Boring, Monopoly, Evil and Sucks)

  What will we see years from now when Alice.com is up on this list? That’s what our team is working on, arguing about, and deciding right now.

• 16Oct

  Caffeinated Advertising–A Whole New Take on Buzz Marketing

  Posted by mark @ 4:56 pm in General No Comments

  Talk about buzz. Our company was just Yammering about a really creative advertising campaign by 7 Eleven designed to capture buzz from the upcoming Presidential election (and give out some personal buzz in the process). For the next month, you can register your “vote” every morning by stopping into 7 Eleven to fill up your coffee in either a blue Obama or red McCain coffee cup.

  

  This is a fantastic example of viral marketing at its best. When Brian and I founded Jellyfish, we recognized that the rules of advertising were changing. The consumer now has the power to filter out boring, mass marketed, interruptive advertising messages. Advertisers need to give the consumer some tangible value to pay attention.

  The 7 Election campaign does this on several levels:

  • It is fun and incredibly viral (I’ve already sent this out via e-mail and Twitter and there are lots of folks blogging about it), giving 7 Eleven free brand awareness
  • It is timely and press worthy, with traditional news outlets like the WashingtonPost and NewsDay , among many others, writing about it
  • It includes a direct response impulse without dropping price (I want my candidate to win and I’m more inclined to grab that cup at 7 Eleven where I can both register my preference and walk around with an advertisement for both my candidate and 7 Eleven)
  • It is cheap. Print up some cups, and slap together a website. Beats the heck out of annoying us all with 30 second tv ads, billboards, etc.
  • Best yet, it might actual work, as the Company claims to have predicted the last two elections

  

  Don’t like the way the results are shaping? Then you’d better drink up. Kudos to 7 Eleven.

  We are working to make sure that the marketing plan for Alice follows the new rules of advertising. Give consumers a reason to tune you in, make your advertising a mutually beneficial event, and consumers should reward you with their attention and (hopefully) their business.

• 03Oct

  Starting a Company When the Sky is Falling

  Posted by mark @ 6:47 pm in General 4 Comments

  There has been lots of hand wringing this week in the start-up community over the US financial crisis. (for example, here and here and here). The discussion was fueled in large part by a post by Jason Calacanis in which he states that “50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.”

  

  Although I found this claim a bit Chicken-little’ish (even in booming economic times the failure rate on start-ups is very high), I really like the advice Jason gives in his post. Namely, that you should stay lean, and focus relentlessly on your business model without being afraid to quickly adapt in your effort to build a great company. There are lots of similarities between Jason’s tips and the way Brian and I have operated in our past start-ups. In particular, I couldn’t agree more when Jason writes: “If you’re idea is wrong, it really doesn’t matter. What matters is if the original ideas allows you to evolve into your big idea.”

  The only problem I have with the post is that Jason seems to suggest that being a lean, focused, rapidly innovative company is required because of the economic downturn, which infers that crappy ideas and bad execution can actually lead to success in times of economic prosperity. You bring up some great points Jason, but they should apply regardless of the macro-economic climate in which we find ourselves.

  The financial meltdown hasn’t impacted Alice significantly (knock on wood). We are pleased to be wrapping up a large angel round of investment for Alice.com right now. Although the fund raising has been more difficult because of the financial market meltdown, we are still going to close our round as planned and obtain the capital we need to execute. What’s more, Brian and I have met with several potential VC partners in the past few weeks that are still very active in funding new ventures.

  My takeaway is that the future is still bright for start-ups that have a good idea and a good team to execute on that idea. Let’s hope it stays that way, and that trying economic times like these makes us all better at bringing innovation to market regardless of what is happenning in the stock market.

   

• 03Oct

  Watch Wal-Mart Grow

  Posted by mark @ 4:20 pm in General 1 Comment

  Thanks to Brad Feld for helping me find this really cool visual representation of Wal-Mart’s growth:

  Watch Wal-Mart Grow

  As I watch Wal-Mart “take over the world” in this visual like an invading army, I’m struck by the massive amount of investments they’ve made in buildings and pavement and employees and shelves just to create a distribution network to reach the end consumer.

  Alice.com is innovating in this area, and from the positive feedback we’ve gotten by poking fun at Wal-Mart on the Alice home page, there are lots of people that would love to see some fresh ideas and additional choices in this space.

• 24Sep

  We be Yammerin’–A Twitter for Business

  Posted by mark @ 1:27 pm in General 2 Comments

  Call me old school, but I’ve had a hard time warming up to Twitter. I certainly see the business/networking/marketing value in the service (there are lots of posts like this one confirming that value) and I will continue to use the search functionality to eavesdrop on conversations about Alice, and other items that interest me. I’ve even tried to follow some of the companies that are leading the charge on Twitter like Zappos (a company I love, by the way). But do I really want to get tweets from the CEO of Zappos like this one:

  Vegas cab lines highly inefficient. 15 cabs ready, but hotel staff calls them 1×1, ask destination for tip. I repeat destination inside cab.

  Not so much.

  I do, however, really like Yammer, a Twitter-like service for the workplace that recently won the TechCrunch 50 award. It is easy to use, and more importantly, it is private to the company, which allows us to yammer about confidential work stuff and not worry about who will read it. It has also allowed us to keep our e-mail much cleaner, since we can microblog on Yammer to the entire group without clogging up everyones’ e-mail box. Here is an example from Alice this morning:

  

  Stephen Baker over at BusinessWeek recently tried Yammer and mentioned a concern for companies with big org charts. Namely, that Yammer might get really unruly and allow your boss to spy on you, but it is perfect for a start-up like Alice. We are up to 11 employees now and spread out over a pretty big space. Yammer makes me feel like all 11 of us are sitting around a conference room table, where anyone can chat up the entire group just by speaking up. This may change as we get bigger, but so far I think it has added to our culture.

  By the way, you can follow me on Twitter here if you want to. I promise not to tweet when I’m waiting in a cab

• 23Sep

  To Patent or Not To Patent?

  Posted by mark @ 11:16 am in General 6 Comments

  Does it make sense for an Internet start-up like Alice to file for patent protection? In the good old days of online business method patents (when the PTO was issuing patents like Amazon’s One Click) the answer was a resounding YES. Today I’m not so sure.

  I’ve tallied up my pros and cons on a yellow pad. Here they are:

  Cons:

  • They are hard to get . The pendulum has swung away from business methods patents. Recent decisions by the PTO require that your software claim be “tied to a particular machine.” Huh? Does that mean you can still claim online software so long as your claim includes some language about how it works on an individual screen? Who knows? Even the great Google PageRank invention may be kicked to the curb (great post here).

  • They take forever . I’ve heard the current wait is around 5 years to get your application examined. This is crazy! Online years are like dog years, meaning most patents will be completely irrelevant for the start-up team. For example, Brian and I filed two patent applications for Jellyfish in 2006. The company has already been sold and we probably aren’t even half way in our wait for the PTO to make its review of the patent. We also filed for patent protection at NameProtect, but we’d changed business models by the time the patent was ultimately rejected.

  • Biz method patents hurt consumers . The original goal of the US patent system was to encourage innovation by rewarding inventors with a monopoly and incentivizing them to teach others to spur more innovation. This doesn’t work in Internet start-up land. I’ve actually been counseled by our lawyer NOT to search pending and issued patents in our market because of fear of finding something and being at risk of willful infringement. So much for innovation. Awarding a monopoly simply hurts consumers, who have less choice. Are consumers better off if Friendster sues Facebook for its issued patent on basic elements of a social network? Hardly. The monopoly may work in industries like life sciences that need to recoup R&D, but it is just plain stupid for business method patents. There are lots of investor/start up folks that feel the same way (check out Brad Feld’s thoughts here as one example). Ok, I’ll step off my soap box now.

  Pros:

  • Investors like them. Ok, maybe not all investors, but lots of them like to hear that you’ve filed for patent protection. I just read this great post by VC Daniel Cohen, in which he counsels his portfolio companies to avoid patents. But even Daniel mentions that having a patent claim or two on file doesn’t mean he will rule out a potential investment. Bottom line: I’ve never heard an investor reject an investment because the company filed for patent protection and lots of investors love to invest in patent-pending stuff (even if they never read the patent).

  • Acquirers may like them. I’ve sold two companies and neither was purchased because of a patent. That said, it is certainly possible that Alice.com’s patent claims may be a key reason for an acquisition or a step up in valuation.

  • We need to join the arms race. Companies like IBM, Microsoft and a host of other big boys are patenting machines. If we ever get sued, it sure will be nice to have a claim or two in our arsenal.

  • They don’t cost that much to file. More about this below.

  My verdict? Alice will be playing the patent game. Despite my dislike of the system, we have to play with the rules that exist. At the end of the day, it really comes down to basic opportunity cost of capital analysis. We’ll likely spend $15k to 20k for our Alice.com patent filings. Sure, we could use that $20k lots of places, but the return we get in raising capital and the potential bigger return we may get in an acquisition or future litigation savings is still worth the investment.

  I’d love to hear whether you think I’m wrong and what experience you’ve had in the land of patents.

« Previous Entries