DC Startup Community 2.010

A few days ago I had a chance to catch up with an old friend with whom I first met back in 2006 when he had his (then) startup.  We had a great conversation this week.  Four years later he’s working for a big company and looking for his next new job.  He would really like to work for a startup again, but even more he’s looking for a job that he enjoys.  A lot happens in four years.  Since then I have seen hundreds of millions of dollars go into DC startups, dozens of startups go belly up, about a dozen of DC’s smartest startup guys move to the bay area, and about a dozen of DC’s smartest consultants move to New York and Austin.  I haven’t quite figured out the draw of Austin yet, but for New York it is a clear one; the money is tempting (if you ignore the cost of living adjustments you will have to make).  During the same period at least two dozen new super smart people have moved to DC.  Others, here, there, and everywhere in between are plotting their moves too.  This “musical chairs” effect isn’t all that different from what happened after the .com bubble in the early 2000’s.  Back then people made their moves as markets settled down.

The point is that people change and so does the community.  Hence the title: Community 2.010!

A handful of people moving in and out of the community can have a very profound impact.  I am looking forward to the fresh batch of startup founders, consultants, event organizers, and contributors that are arriving daily or who are stepping off the sidelines.  2010 is already shaping up to be the best year for the DC Startup Community ever.

US Copyright Office Changes DMCA Rules, Upsets Apple (Others Too)

If you have an iPhone, you probably have read about people trying to jailbreak their iPhone to make it perform in ways that Apple doesn’t want.  Apparently, Apple spent some time trying to make this illegal based on the Digitial Millennium Copyright Act (DMCA).  In response, the Electronic Frontier Foundation (EFF) asked the U.S. Copyright Office and the Library of Congress to oppose this.  Today, EFF has announced success with their petition to limit Apple’s efforts.

The ruling essentially allows circumvention of copyright protection measures put in place by companies like Apple under a specific set of circumstances including mobile phone operating systems playing host to software applications, movies, video games, and e-books.  Some notable examples of exceptions beyond jailbreaking iPhones include educational uses and documentary film making.

More information on this ruling by the US Copyright Office can be found in the official ruling at Copyright.gov.

Pattern Recognition for Entrepreneurs, not just VC’s

by Don Rainey (blog)

VC’s use “pattern recognition” to assess the viability of deals.  Pattern recognition is a method of seeing commonalities between a current , novel concept and previous ideas.  And while it is a great tool commonly used by Venture Capitalists, the pattern recognition tool is mostly ignored by entrepreneurs.  Which is a shame, because every investor pitch would benefit from substantive comparisons to previous successes and differentiation from previous failures.

I use the adjective “substantive” precisely here.   For an entrepreneur to say we are a cross between “Facebook and Twitter” is not substantive.

Substantive comparisons need to be as precise as possible to be worthwhile.

To say, “We anticipate a go-to-market approach quite comparable to Companies X and Y, both of which relied on $5 per lead CPA and conversion rates of 3% to generate first year revenues in excess of $2M” is very substantive.  And it is convincing.  Substantive comparisons can leverage almost every aspect of an investment pitch.

Picture the proverbial hockey stick revenue slide.   One line going out and up, dramatically so, in year 2, 3 or 4.  We see a lot of these, at least in investor pitches — we see a lot of these — and the entrepreneur that can make it seem highly likely is quite rare.   Rarer still is the one that can actually do it.  Now picture adding two or three companies historical data, who have grown comparably to the hockey stick slide, and make an argument that your company can do the same.  Because, for example, your value proposition is similar or the target audience is the same.  Or, specifically, talk about the distribution partners or other critical events in the company’s history that led to this hyper growth and what the comparable event will be for the company you’re pitching.  Do the legwork, people who do their homework tend to succeed.  This isn’t news.

Simply, turn the power of pattern recognition in your favor by consistently finding factual examples to support your probability of success.

Most of what you need to do this is online.  The rest is generally available from current or former employees of the companies that will serve as your com-parables.  No, you generally don’t want or need secret information.  But, even to say something like in a pitch meeting like, ” I consider three successful Companies, X, Y, and Z, to be the most comparable.  And I’ve talked to marketing and sales folks from each about the key things that drove their phenomenal growth.  It boils down to the following four things that we need to do……”.

Holy cow, talking about having me at hello.

Specifically, here are four areas that one can benefit from pattern recognition in an investor pitch.

1.    Value Proposition

Finding successful companies with analogous value propositions is compelling and enlightening for anyone considering investment.  It validates both the potential market and the likelihood that the market will respond to your offering.  You can have the greatest solution to a large, existing problem but people have to want it.   The old adage from biotech is that is not just how many people have a condition, it is how many people will seek treatment for the condition.   If people want the solution, how will you clearly communicate your product’s ability to meet that desire/need.  The success of previous value propositions within your target market is just a plain, old good thing to know….

2.    Go-To-Market

Can what you’re selling be profitably sold?  You would be surprised how often potential new deals fail to make this argument convincingly.  It isn’t just about price, though price is a factor.  It is about the combination of marketing, sales and price yielding a profitable company.  One cannot succeed selling $25k Saas subscriptions with $150k salespeople, the numbers won’t facilitate or support a growing company.   You can model it any way you want but no one has done it.  Here again, showing the pattern by offering an example proves the point.  Bringing just a “made up spreadsheet” that you authored doesn’t make the point.

3.    Management

Does this team know the processes and approaches critical to success in this company?   This is probably the area where most companies do link back to the previous experience of management as a basis for success in the new venture.  But precision is frequently lacking in these descriptions, be precise — “Jack’s experience at Acme — where they used the same telesales model we’re intended to use — is going to be instrumental”.  Tell with depth and clarity what people learned from the personal/professional experience and company observations related to the company at hand.

4.    Financials

Do you know the critical metrics for the business you’re pitching?  Customer acquisition costs, lifetime value, profitability, churn, etc. are all fundamental to success.  Don’t make them up, don’t estimate them.  Research them and find suitable examples.  Present those examples in your pitch.  Perhaps, even present some you regard as not good examples for comparison and describe why they are not good examples.

A demonstration of real command of expected key metrics and solid examples of those metrics in practice will go a long way to building belief in a model.

Clearly, there are many, many more areas in any pitch that would benefit from pattern recognition.  It is my suspicion that there is a material amount of this information at the fingertips of any CEO building an investment pitch.  My point would be bring this information forward as it builds credibility while it steers an audience to a point of view.

What Can A Founder Do With $500

Earlier today I got an invitation, as a startup founder, to pony up $500 to get some wisdom from a to be announced group of seasoned entrepreneurs.  I made for the event website looking to find out if this event would offer me the opportunity to get a chance to meet Max Levchin, Mark Andreessen, or maybe even someone like Donald Graham or his new Chief Digital Officer.  I’m a bit biased today because last night I stayed up late watching Mark Andreessen give a talk at Stanford talking about the fact that his new VC firm has two recruiters on staff.  That video, along with many others, was free by the way.  But this $500 paid lecture series, like the other one from that recent hit DC like a financial undertow got me to thinking about what a startup founder who is bootstrapping their company could spend $500 on instead.  So I came up with a top ten list.  Check my work and let me know if you would spend your $500 bootstrapping DC startup founder bucks any differently.

10. Hire a lawyer to incorporate your startup

9. Pay for 1 month of health insurance

8. Hire a freelance graphic designer to make your website or application UI shine

7. Two 24″ Monitors for you or you and your co-founder at $250 apiece

6. 20 Job Ads on Craigslist

5. Hire a CPA to help with your tax prep and filing

4. Hire a freelance PR Consultant to help you get some press

3. 1111 very creative ads on Facebook targeting potential customers at .45 cents apiece

2. 12 Lunches with investors or potential advisers at $40 apiece

1. 50 Coffees Meetings with potential co-founders, sweat equity employees, advisers and investors at $10 apiece

Startup Weekend Returns to DC for Round 2

After a long break, the Startup Weekend guys are returning to the Washington, DC for round 2.  The last time they were around the event got very mixed reviews for a variety of reasons.  For starters, the startup that the DC group spawned (Hola Neighbor) – it failed.  As an attendee the main benefit wasn’t starting a company or even learning how to start a company.  Instead it turned out to be a great networking event and quite probably an amazing  scouting event for TechStars (Andrew Hyde, the event organizer is and was their employee).  This time around ticket prices are set at $75 per person.  At that price the event appears to be more of a TechStars fundraiser than anything else.  We wish them the best of luck this time around, but will be watching from the sidelines as we invest our $75 in bootstrapping our own efforts.  The last time around the cover charge was much more reasonable.

Wanted: Innovative Hardware, Software Products

I just got a reminder of how much technology has changed in my lifetime thanks to a photo from my dad.  When I was 6 years old a game cartridge was roughly the size of the cable box remote and the computer (my Atari 600) was about the size of a shoebox + my analog TV.  There was a phone adapter to put the phone onto and a cassette tape drive to store games that I programmed on back then.  The PC that arrived to replace the series of Atari computers that I grew to enjoy was much larger, but not by necessity.  Today the computer, phone, TV remote control, recording device, storage and batteries are roughly the size of that cable box remote!  Games no longer require cartridges I can take photos as well as do a two way video call on the same device.

Ironically, Steve Jobs worked on both my first computer at my iPhone.  He managed to meet and befriend Steve Wozniak.  Together, these guys built the company that brought you the Apple and us the iPhone.  I say that they brought you the Apple because I never owned an Apple.  Nevertheless, it is impressive that Steve Jobs managed to get ahead of the curve at each bend in the road.  Both Steve Jobs and Steve Wozniak were part of the home brew computer club, a group that brought hackers together on a regular basis.  When I look around today the closest thing I see to the home brew computer club here on the East Coast is Hac DC, a group of people who get together to work on hack on electronics.  I love the Hac DC group and wish that there were many more groups like it everywhere.

So here is the challenge.  I have been talking to software engineers and others around the Washington, DC area since the late 1990’s.  In all of the conversations that I have had with people I can count on one hand how many people hacked together something that combined hardware and software in a way that was interesting.  You may recall my mention of an interesting product that was not local recently.  Maybe looking in all of the wrong places.  I would like to find and share stories here on Social Matchbox about products that involve hardware and software.  To be clear, I’m not looking for mobile applications that leverage Android or the iPhone SDK in order to run on the mobile device.  What I am looking for is products from the East Coast engineering community that combine hardware and software to make new products entirely.

If you are wondering what I’m looking for, check out what the folks from NASA put together last year or Johnny Chung Lee’s Wiimote Hacks (some of his more recent work).

If you are working on something interesting that you would like to share or maybe that you are not quite ready to share yet then we would love to hear from you.  If you know someone working on something interesting please do let us know.  Either way, send a note to contact@socialmatchbox.com – I would love to chat.

Hello National ID, Internet Edition, aka US Identity Ecosystem Framework

For many years there have been attempts by legistators to introduce a national ID card system.  Each and every time this has been rejected.  Now it seems that Uncle Sam (including the Obama Administration) wants us submit to a National ID for the Internet according to the June 25, 2010 draft of the National Strategy for Trusted Identities in Cyberspace titled ‘Creating Options for Enhanced Online Security and Privacy’.  The NSTIC’s stated goals include:

Developing a comprehensive Identity Ecosystem Framework
Building an implementing an identity infrastructure consistent with said Identity Ecosystem Framework
Enhancing confidence and willingness to participate in the Identity Ecosystem
Ensuring the long-term success of the Identity Ecosystem

The last two goals could be summed up as SUBMIT!  Did I mention that this document is being hosted by the Department of Homeland Security?  What could possibly be wrong with letting DHS control how people use the web?  While I recognize that there are some national security benefits associated with doing this, I am quite sure that DHS is not the organization to be leading such an initiative.  This is clearly a task for a more competent and citizen minded group or agency. 

Did I mention that this document actually proposes a world in which an individual is issued a “smart identity card” that they use to authenticate themselves for online services including:

Credit Card Purchases
Online Banking
Accessing Electronic Health Care Records
Accessing Your Laptop
Anonymously Posting Blog Entries
Using Email

Uh, what could possibly be wrong with DHS or ANY government agency having a direct point of control for all of an individual’s online activities?  Maybe the benefits of having the DHS monitor anonymous blog posting will cut down on snarky commenting on blog posts. 

The document goes on to to tie this new National (Internet) ID Card into monitoring electric usage and purchases made via online auction websites.  Oh, did I mention they suggest that this will help improve privacy?  Where is big brother when you need him, right?

I give this idea two thumbs down.  But that’s me.  If you want to provide some feedback to NSTIC on their ideas you can do so here.

Related:
White House Proposes Vast Federal Internet Identity Scheme