OnStartups

23 Tweetable Startup Insights From Seth Godin

Dharmesh Shah — Wed, 01 Sep 2010 17:23:00 GMT

Regular readers of this blog know that I’m a long-time admirer of Seth Godin. He’s one of those “big thinkers” that has the added talent of being able to articulate high-level concepts in an immensely approachable way. That’s a very rare, and dare I say remarkable intersection of abilities.

The following is a list of short, pithy insights that I’ve been collecting from Seth’s Blog over the past few months. They were not all written specifically for startups, but I found them to be particularly relevant for entrepreneurs. I, like many, think Seth's ideas deserve to be spread.

Enjoy.

If you find any of these particularly resonant, there’s a convenient link to tweet it.

23 Tweetable Startup Insights From Seth Godin

1) Reliance on the tried and true can backfire. [tweet]

2) Sell the problem. No business buys a solution for a problem they don't have. [tweet]

3) Every activity worth doing has a learning curve. [tweet]

4) As the world gets faster, the glacial changes of years and decades are more important, not less. [tweet]

5) Cultural shifts create long terms evolutionary changes. [tweet]

6) Being 1st helps in the short run. Being a little more right pays off in the long run. Last is the worst. [tweet]

7) Build in virality. [tweet]

8) Subscriptions beat one-off sales. [tweet]

9) Treat different customers differently. [tweet]

10) Generate joy. Don't just satisfy a need for a commodity. [tweet]

11) Plan on remarkable experiences, not remarkable ads. [tweet]

12) Don't build a fortress of secrets, bet on open. [tweet]

13) You can get even more done if you give away credit, relentlessly [tweet]

14) Create scarcity but act with abundance. [tweet]

15) Competition validates you. It creates a category. It permits the sale to be this or that, not yes or no. [tweet]

16) There are lots of good reasons to abandon a project. Having a little competition is not one of them. [tweet]

17) It's not who can benefit from what you sell. It's about choosing the customers you'd like to have. [tweet]

18) The customers you fire and those you pay attention to all send signals to the rest of the group. [tweet]

19) 100 people doing something at the same time has far more power than 300 people doing it over time. [tweet]

20) Are you chasing or being chased? Are you leading or following? Are you fleeing or climbing? [tweet]

21) Get it right for ten people before you rush around scaling up to a thousand. [tweet]

22) Highlighting what's working helps you make that happen more often. [tweet]

23) Perfect is overrated. Perfect doesn't scale, either. [tweet]

Which is your favorite? Any that I missed that you have in your secret stash?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Announcing My New Startup Project: The Most Ambitious Yet

Dharmesh Shah — Thu, 26 Aug 2010 14:59:00 GMT

I am thrilled to announce my most recent — and most ambitious — startup project to date.

My wife Kirsten and I are now expecting our first child — I’m going to be a dad!

New Ambitous Startup Project: The Details

1. Funding: Unlike my current startup HubSpot (which has raised $33 million in venture capital), this particular project will be self-funded. Hopefully, it won’t be quite as capital intensive.

2. Founding Team: Though both founders are new to the domain, we hope to make up for the inexperience with passion and perseverance.

3. Launch Date: Scheduled for January, 2011.

4. Branding: We haven’t kicked off a branding project yet — will do that as the scheduled launch date approaches. Meanwhile, we'll use the term, NewBay, Inc. (inspired by that fantastically inspired name, NewCo, Inc.)

5. Management: Luckily, we have many people interested in helping with this project. Some will be helping grow the effort on a volunteer basis.

6. Parallel Startups: Generally, I’m not a fan of working on multiple startup projects simultaneously. But, in this case, it was not avoidable. HubSpot hasn’t quite hit adulthood yet (and still wants the car keys every Friday night), and this new project couldn't really wait.

7. Distribution: We believe there is a market need as evidenced by some recent survey respondents: “Quit working so hard and focus on life a bit. You’re not getting any younger -My Mom”. “Listen to your mom.” -My Dad. Though the sample size for these surveys is not statistically representative, seems like finding early interest in the project will be easy. Then, using lean startup principles, we’ll iterate from there based on what we learn.

As is the case with any new, early-stage effort, we’re likely to make mistakes. The hope is that in the the long run (and in this case, it’s a really long run), we will have created something great and made the world a tad better. Wish us luck! Exciting times!

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Video From Business Of Software 2009: Building Great Software Businesses

Dharmesh Shah — Mon, 23 Aug 2010 15:52:00 GMT

Of the several conferences I attend or speak each at each year, my favorite is the Business of Software conference organized be Neil Davidson (of Red Gate) and Joel Spolsky (of Fog Creek). There are several reasons for this. The speakers are great and have enough stage time to really get into the topic they’re passionate about. There’s no no “sponsor fluff”. You can’t pay your way into a speaking spot. There are no booths. No panels. It’s single track so you don’t have to make hard decisions around which sessions to attend. But, most importantly, the attendees are awesome. Even when the conference was in Boston (where I live), I rented a hotel room where the conference is held just so I could spend more time with the people there. I plan to do that again this year.

The 2010 conference is in Boston Oct 4^th – October 6^th. It’s a beautiful time of year to be in Boston and the speaker lineup is once again, awesome. Folks like Seth Godin, Eric Ries (Lean Startup Guy), Scott Farquhar (of Atlassian) and of course, Joel Spolsky himself. Check out the schedule, and if you can go, you should go. Just ask someone that’s attended in prior years.

The 2009 conference was held in San Francisco and the title of my talk was “Ideas For Building Better Software Businesses”. There are essentially two parts to the talk — the first half is about inbound marketing (how to pull customers in using Google, social media and blogs). The second half (which starts at about 37 minutes) is about customers and sales. If you enjoyed my talk in 2008 titled “Everything I Know About Startups”, you’ll likely enjoy this one too.

Ideas For Building Better Software Businesses

Some notes from the video, for your convenience:

1. My objective for this particular presentation was to improve the odds of your survival and your success if you're growing a software company.

2. Types of risk: Development risk (given an idea, can you actually build the product?), Market risk (if you do indeed build it, will anybody pay for it?), financial risk (will you have the necessary capital to build a business?) and execution risk (assuming you’ve mitigated the other risks, will you manage not to screw it up?).

3. Introducing the concept of smarketing (sales + marketing).

4. Charge early. Like pre-alpha early. Like it sucks so much I’m surprised people don’t go running out of the room, early.

5. Sell early not because the revenues are going to amount to anything (they’re not), but because the data from paying customers is exceptionally valuable.

6. Sell often, because you want reliable, negative feedback too. Selling early tells you whether people will buy — selling often (i.e. charging smaller amounts in regular intervals) tells you whether they’ll stay. Let customers vote with their dollars (by giving them the option to cancel their subscription).

7. Don’t hire sales people too early. In the early days at a startup, regardless of what your title is, you should be bringing customers on board.

8. Consider creating a sales waterfall chart that shows you daily, how the business is tracking against your sales goals. This proves invaluable as you scale and surfaces problems in the business early.

9. Keep pricing simple in the early days. You’ll have plenty of time to make it more complicated later.

10. In most big markets, you can afford to get pricing wrong in the early days. If your potential market is thousands of customers, then selling the first hundred at a “sub-optimal price” is not fatal. If you end up getting thousands of customers, getting pricing wrong for the first 100 won’t matter. If you end up getting just 100 customers, getting pricing wrong for those 100 won’t matter.

11. You should Implement something like the HubSpot Customer Happiness Index (CHI). It’s a quantitaive method for measuring how happy your customers likely are using available data (like their product usage pattern).

12. Things that you can likely include in your CHI: Frequency of product usage, breadth of product usage and actual benefit received.

13. The CHI can be used for many things, the most important of which is predicting which customers are likely to cancel (because they have a low CHI score and are likely unhappy). Other uses include compensation for sales people, calculating the quality of leads that marketing is generating, and making product roadmap decisions.

If you attended this talk or took the time to watch the video, would love to hear your feedback I can make my talk this year more valuable. Hope to see you at Business of Software 2010!

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

6 Simple Selling Tips For Software Entrepreneurs

Dharmesh Shah — Fri, 20 Aug 2010 16:44:00 GMT

The following is a guest post by David Mytton founder of Boxed Ice, which provides software for server monitoring. Deep down inside, many software entrepreneurs really dislike selling. This article provides some practical tips for “selling without selling”. That is, ways to avoid having to be that stereotypical "sales guy". - Dharmesh

"Sales" is sometimes perceived with an aura of mystery. As a developer, it's something I always assumed was reserved for a "real salesperson" and even though I was selling our products, I thought it was because the customer had come to us directly. Whilst there is an aspect of "sales" that involves cold calling and making visits to prospects, I actually recently realised that many of the things I'm doing on a daily basis are all part of what might be called "sales".

What sales activities consist of will differ depending on what you're selling, who you're selling to (consumers, smaller businesses or enterprise) and how large your organisation is, but there are a few things that can be used universally and to great effect. Here are a few that I use with my own SaaS product.

1. Signup followups

Getting a customer to sign up is a major step but it's not the end of the process - you need to make sure they're actually using the product. E-mail them the next day to remind them of a few of the cool features or recommend things to try. Being smart about it helps - you can easily track whether they have logged in and performed various tasks so include those in an e-mail.

In our case, the e-mail subject is "Have you tried our iPhone app?" and the e-mail highlights the advantages of the free app, with a link to the iTunes Store, plus a reminder of the web UI URL for their account.

In the early days, I used to phone every one of my signups to see how they were doing. We don't collect the phone number as part of the signup process but many customers add it because our product allows for SMS alerts. This helped get early feedback and users were often surprised to get a call before they'd even paid anything.

2. Trial followups

All our users sign up to a 2 week trial before they have to pay. An e-mail is sent to remind them the trial is expiring 2 days before, and we e-mail them again on the day of expiry. The key thing here is to ensure the user has time to upgrade, sometimes requiring internal approval. All our trials are set to expire on a Thursday i.e. mid-week. This means expiry notifications go out on a Tuesday. This avoids being lost in the Monday e-mail overload from the weekend and avoids Fridays when people just want to go home.

And because most of our users are in Europe or the US, we time the e-mails to arrive during the afternoon/late morning rather than overnight. Users will clear out their inbox in the morning so this leaves them clear to receive our e-mails!

3. Mixing automation with real people

I think you're more likely to look at an e-mail that's from a real person than one obviously from a machine "From: David Mytton" vs "From: Boxed Ice Mailer". I mix these up so the day after signup followup comes from "me", is written in a casual style and signed off by me. It also comes from my company e-mail so replies go directly to me and because I'm asking a question about using our iPhone app, I often get replies with feedback or questions.

But our trial reminder e-mails come from the system. You'd expect these to be automated whereas an e-mail asking how things are going is more personal.

4. Making automation interesting

Our signup e-mail with the user's login details and the trial e-mails are sent by the "Boxed Ice Robot Llama". This makes it a little different from other automated systems and we've had some good feedback from users enjoying this differentiation. It all goes towards making the service a little more friendly and has been used to good effect by the guys at Moo, who use "Little Moo" as their order processor.

5. Highlighting the higher value customers

Our product is a server monitoring service so the more servers you monitor, the more you pay. We run a script to highlight users on the trial with more than 3 servers and add a task to our customer system to get in touch with them directly before their trial ends. This will be a phone call if they have provided their details, or we'll e-mail them. This comes directly from me as a real person, asks how they've been getting on, whether they're going to upgrade and includes volume
discount pricing.

I've found that some users do plan to upgrade their accounts but haven't had time to, or have a few questions first. Often these will get pushed to the end of the todo list so getting in touch directly allows you to speed up the sale. You can also be flexible with your
pricing to offer discounts if the customer agrees to a minimum number to get access to the volume discounts in anticipation of future growth, or if they're willing to pay in advance for a discount.

6. Convert With Newsletters

All our signups get subscribed to our monthly newsletter which contains not just product news but interesting links from our blog, Twitter and around the web. We've had many cases where the user has not converted from the trial immediately, but months later they come back when a feature they wanted has been implemented having found out from the newsletter.

Wrap-Up

Although this doesn't fit with the stereotype of the hard sell from the sales guy who just won't give up, these are all legitimate "sales" activities that can be done by any software startup and can easily scale as the customer base grows. We've only recently started highlighting the higher value trial users but this has already proven to be worthwhile. So let me know what you think and what's worked for you in the comments.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

The Magical Founding Team Mix For Web Startups

Dharmesh Shah — Mon, 16 Aug 2010 16:23:00 GMT

At a startup dinner I had with a bunch of really smart software entrepreneurs in Austin, Texas during SXSW earlier this year, something really struck me. Of the 8 founders at the dinner, half of them had a design/ui/ux background. This got me to thinking: What would the ideal founding team at a web startup look like?

[Note: I'm experimenting with a new feature that allows inline tweeting from the article. Please click one of the twitter buttons in the article to try it out. Thanks.]

Magical Web Startup Founding Team

#1. Developer. If a web startup has only one founder, it should be a brilliant developer. And by a developer, I mean a developer — someone who can produce, release and maintain working code. Not a CTO or “architect”. Not someone who thinks they can recruit developers or someone who knows someone who runs a development shop in Croatia. An actual developer.

#2. Designer / UI / UX person. If the startup has two founders, the other founder should be a brilliant designer-type. By this, I mean someone that can take a problem that humans have and come up with a software solution that humans want to use — repeatedly and delightedly. I think great design talent has always been useful in a software company — now, it’s become crucial.

#3. Inbound Marketer. If the startup has three founders, the third one should be an inbound marketer. An inbound marketer is someone who is good at pulling people in (vs. pushing a message out). I decidedly don’t mean someone that’s good at spending a marketing budget on advertising to try and find people that are interested. I mean someone that will create remarkable content that will attract traffic, users and customers.

#4. Sales Person. If there’s a fourth founder on the team (which I’m not a big fan of by the way), it might be useful to have a sales person. And, remember, startups don’t need a VP of Sales — they need actual sales.

The reason I put the designer above the inbound marketer is simple: If the designer is exceptional, half the marketing battle is already won. Ecstatic users do much of your marketing for you. Today, a great product with good marketing usually wins over a good product with great marketing. This makes me happy, because it is as the world should be.

And, if you have an exceptional product and exceptional marketing, you often don’t need sales. Of course, in certain kinds of busineses, sales is critical — but I’m talking about the ideal case here. In my ideal world, it’s nice to not to have sell. [Note: No disrespect to all the great sales people that work at HubSpot — I’m sure in your ideal world, you’d love for there to be a magical machine that produced working code and there was no need to deal with quirky programmers.]

Now one thing that might trouble many of you reading this is that I don’t include a “visionary” business person in the mix. There are a couple of reasons for this: First, it’s near impossible to know if a vision/idea is good one until after someone does something about it. Lots of really smart, competent people have mediocre ideas all the time. Second, no amount of great vision is going to obviate the need to manifest it. It comes back to creating a product humans like. Humans don’t care about other people’s visions.

Finally, it’s entirely possible (and quite desirable) to have some of these traits in a single individual. Some of my favorite combinations are developer/designer (what I call a devigner) and developer/marketer (which I call developer/marketer because I never came up with a more clever name for it).

So, what do you think? Take your current startup out of the picture for a second. If you were betting your life savings on a startup, what would you think the magical mix of founders should be? Would you reorder my list? Add someone? Take someone out?

How would you define the perfect webs startup founding team?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Startup Insights From The Grateful Dead

Dharmesh Shah — Tue, 03 Aug 2010 17:34:00 GMT

The following is a guest post by Brian Halligan, my co-founder at HubSpot. Brian recently released a new book titled “Marketing Lessons From The Grateful Dead”. The book is a brilliant condensation of some strategic insights that should be useful to startups. Brian is currently the co-author of 2 of the top 10 marketing books on Amazon (the other one is “Inbound Marketing”).

The following article is excerpted from one of the chapters of the book.

Create a Unique Business Model

Before the Internet, bands promoted their new albums by scheduling tours across the U.S. and around the world. Fans paid huge bucks to attend sold-out shows where they were treated to pyrotechnics, light shows, and of course the music. Concerts were the same every night and included the bands’ “best of” songs, with cuts from the new album mixed throughout the set. The goal of these concert tours was to sell as many records as possible to ensure your album went gold, platinum or multiplatinum.

Fans bought albums at their local record store where they would find the list of top albums for that week taped to the wall next to the cash register. For an album to go to gold in 1975, a band had to sell 500,000 of them and hit $1 million dollars in sales. To be awarded the coveted platinum certification, bands had to sell 1 million albums and hit the $2 million dollar sales mark.

Doing concert tours to promote these moneymaking albums was the fundamental business model for bands, the record labels and sundry hangers on. The Grateful Dead turned this business model on its ear: rather than focus on selling albums like other bands, they focused on generating revenue from live concerts, and in doing so created a fan “experience” that was unlike any other. Because the concert tours themselves were the main source of revenue, the Grateful Dead ran their concerts in a very different way from other bands. For example, each show had a unique set of songs and each song was played in a unique way, giving fans a strong incentive to see the show for several nights in a row (or weeks, months or years) because every night you were treated to a different musical experience. This is the exact opposite approach taken by other bands.

Since the concert tour was at the heart of their business model, the Grateful Dead didn’t tour periodically to promote an album; with few exceptions, they were permanently on tour. The Grateful Dead invested heavily in their light show and sound systems, both of which were the best in industry, and in doing made the musical experience much more powerful for their fans. Due to these factors and others, the Grateful Dead developed a following of people who would see show after show. These followers became part of the concert experience, especially as you waded through them in the parking lot where you were exposed to tasty food such as veggie burritos, all sorts of exotic drugs, unique clothing, and all the other crazy stuff that went along with a Dead tour. By changing that one fundamental assumption in a typical band’s business model, the Grateful Dead created a cascading effect of benefits for themselves and their fans. Imagine for a moment if the Grateful Dead had put themselves in the care of a manager focused on selling records and increasing the profits of a record company. If they had conformed to “industry best practices,” the Grateful Dead might be one of the thousands of bands on the dead heap of music history. The concert-as-business-model worked, and the Dead created a passionate fan base that became an underground cult that catapulted the Grateful Dead into the rock and roll stratosphere: the fan base grew from thousands to hundreds of thousands to millions with the Grateful Dead selling out shows around the globe.

It’s much easier to follow what other companies are doing and mimic their business model than it is to innovate. Don’t do it! Watch your competition, but avoid the temptation to follow them with every fiber of your soul. Today’s big winners typically win because of unique business model assumptions, rather than some new technology or complicated product improvements. A few common examples include Netflix (versus Blockbuster), Zipcar (versus Hertz), eBay (versus yard sale), Google AdWords (versus Yahoo), iPod + iTunes (versus MP3 + downloading), Southwest Airlines (versus driving a long way), and Walmart (versus the country store). Like the Grateful Dead, these companies turned the core assumption of how their industry works on its head to create an unlevel playing field for themselves. Their rejection of core assumptions in their industry allowed them to really stand out from their competition and create a cascade of benefits for their customers.

The Grateful Dead teaches us that business model innovation is just as important, if not more so, than product innovation.

Rue La La Creates Online Buying Destination for Luxury Goods

An exclusive, invitation-only online destination, Rue La La is a website where members can purchase high-end fashion goods at discounted prices. What’s different about Rue La La from a TJ Maxx or other discount retailers is its business model. Rather than offer last year’s items that didn’t sell in the stores at heavily discounted prices, Rue La La developed partnerships with designers and by working closely with them, offers current merchandise and one-of-a-kind items at discounted prices – items which can only be purchased during limited time periods. Here’s how it works: Each day, Rue La La features a designer boutique, say Villeroy & Boch or St. John, that opens at 11:00 AM Eastern and remains open for 48 hours or until merchandise sells out – with a blinking clock counting down the time. Because merchandise can sell out in a matter of minutes, members often set calendar reminders so that they can be at their computers a few minutes before 11:00 AM. The company sends out email reminders a few days in advance that let people know which designers will be featured on the site.

Since its inception in April 2008, Rue La La has built a passionate fan base of 1.6 million members using viral methods. To become a member, you must receive an invitation from another member. Once a member extends an invitation, he/she receives a $10 credit when each friend places their first order, with no limit placed on the number of credits one can receive. Credits can then be used against any boutique purchase.

You would think that the limited availability of fashion items would frustrate people and turn them away. Instead, the opposite is true: Limited availability of items reduces over-exposure of brand partners and their merchandise as well as customer fatigue at seeing the same brand or fashion items over and over. It also creates a sense of urgency – if shoppers don’t buy something immediately, they’ll lose out and will kick themselves for days after for missing a good deal. This is different from the typical shopping experience where if you’re not sure about an item you can go home and “think about it,” which usually means a no sale for the retailer as your ardor cools and you realize you don’t really “need” the item.

Rue La La helps people make fast purchases with its “Quick! Buy It” feature: a member enters her credit card number and billing / shipping information on the account settings page, and when shopping can click the “Quick! Buy It” button, eliminating clicks for hot purchases. Members can even shop via smart phone – making it easy to purchase items while on the run. If a member has a problem with any purchase, she can Tweet Rue La La’s Concierge, who responds immediately.

Instead of competing with retail discounters or high-end department stores, Rue La La has created an innovative business model that targets a distinctive demographic. With passionate fans around the world, the company grew from around $25 million in sales in 2008 to $28 million in the 3rd quarter alone for 2009. Their innovative business model “paid off” as the company was purchased by GSI Commerce, Inc. in early 2010 for $350 million.

Create a Remarkable Business Model

Products that are highly differentiated can still win today, but it’s much harder to win if your business model is the same as your competitors’. Your job is to do research about your industry in order to build a killer business model. You want to break free from the competitive landscape and create a cascade of unique benefits for your customers.

Action: Creating a unique business model is very difficult and no free lunch exists on how to do it. Rather than tell you how to create a unique business model in your industry, we thought we would give you some hard questions to ask yourself that will get your juices flowing on how to create one:

What are you three times better at than you competitors? What are you three times worse at than your competitors? If the answer is “nothing” to both, you are not unique enough to really break out. And “no,” you can’t be better than your competition at all dimensions – you need to rethink the dimensions.

In addition to thinking about your industry competitors, what are the “alternatives” to your product? Can you find ways to erase the traditional “boundaries” of your industry by incorporating or subsuming some of the alternatives? Southwest Airlines, for example didn’t compete with other airlines, they competed with a long car drive.

What new technology is emerging that might enable you to upset your industry’s apple cart? Could the Internet be a new distribution channel? Could an iPad application catapult you past the competition? Could you use Amazon’s mechanical turk system (an online arena that connects those who have relatively small tasks with people who can perform them) to dramatically lower costs or deliver new value?

Are there societal changes happening that you might take advantage of in your industry, such as empty nesters moving back into cities, more people working from home, a shift to outsourcing to rural America than overseas, or increased interest in low carbon footprint lifestyles for companies and families, etc.?

Do you have someone who’s really smart from outside your industry that you can ask to help you with this? The problem with creating a unique business model in an industry you grew up in is that you naturally get bogged down in the industry assumptions you’re trying to break.

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If you liked this article, you'd also likely enjoy a free upcoming webinar titled "How To Market Your Business Like The Most Iconic Band In History". You should also buy the book. It's a quick, easy read. You'll like it even if you're not a Deadhead (I'm not).

So, what do you think? Any other examples of companies that you think did this particularly well?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Startup Culture Lessons From Mad Men

Dharmesh Shah — Mon, 26 Jul 2010 16:02:00 GMT

The following is a guest post by Brian Halligan who is my co-founder and CEO at HubSpot (which means he gets to do most of the really hard work).

I recently did a lecture at a Babson MBA summer class on Entrepreneurial Leadership. I got a lot of questions from students about how and why HubSpot won the Boston Business Journal’s #1 place to work award….hmmm….good question.

At the highest level, we are trying to create a “post-modern culture” (I just came up with that term…too high falutin?). Believe it or not, this post-modern culture was inspired by the TV show Mad Men. The show is set in an advertising company 50 years ago and it pokes fun at corporate culture in that era. For example, almost all of the women in the office are secretaries, many of the married men are sleeping with these secretaries, everyone boozes heavily during work hours, etc. While watching Mad Men, I couldn’t help but wonder what a show might look like 50 years from today that poked fun at current working conditions and company culture. That led us to think a bit about what just didn’t make sense anymore given the realities of the Gen Y worker, broadband in the home, constant connectivity via mobile devices, the modern market for hiring exceptional people, etc.

Here are some of the more interesting features of working life at a post-modern company that have come out of that Mad Men inspired thinking.

1. Vacation Policy = No Policy: In our father’s era where people needed to come to the office to collaborate and do real work, a vacation policy made a lot of sense. The reality is that today I get emails from HubSpotters at all hours of the night and have a steady flow during the weekend. No one asks for vacation credit for being on their iPhone while sitting on the beach on the Cape, so why should they have to ask for permission to take vacation during the week.

2. “We don’t care which 80 hours you work”: In the early days of HubSpot, people used to ask us about working unusual hours or working part of the day at home and Dharmesh and I used to always say, “We don’t care which 80 hours a week you work, so long as you put in your 80.” The reality is that most of us don’t work 80 hours, but you get the idea…

3. Extreme Transparency: Other than salaries, there are few secrets at HubSpot and I wonder whether we should just expose those too. One manifestation of this extreme transparency is on the wiki where I personally write a new wiki article a couple of times a week about what is on my mind about the future of the company, problems I see that need to be solved, opportunities that I’d like folks to look into, board meeting notes, etc. The articles are widely commented on and some of our best initiatives get spurred by these discussion threads. Among my favorite articles written by other HubSpotters have the title “If I Were CEO Of HubSpot, I Would…”

4. No door policy: Many companies have an “open door policy,” but we have a “no door policy.” No HubSpotters have an office – we all sit out in the open next to each other. I am currently writing this article wedged between two developers, Michael and Andrew, whose work I’ve gotten to know quite well when I otherwise would have been out of touch in a corner office.

5. Seat rotation: If have been sitting next to Andrew and Michael for about two months, but we are about to do one of our quarterly seat rotations where we pull numbers from a hat to see who we will be sitting next to. This ensures folks get to know different people from around the company. I’m looking forward to seeing whom I’ll be sitting next to next week!

6. HubSpot Fellows: We hired Professor Andy McAfee from MIT Sloan to help us start the HubSpot Fellows Program, which is like an MBA for HubSpotters. Courses offered so far: Strategy HubSpot Style, Statistics, Learning Leadership From Legends, and Improving Written and Verbal Communications. The courses are open to any HubSpotter and are taught by Andy and me. …We did this because we want our employees to learn and we want to attract employees who like to learn.

7. Free beer: I can’t remember how it got started, but we always have free beer in our fridge. I’ve noticed folks seem to wander around and drink a beer or two at the end of the day to unwind. We are up to about 170 people and I’ve yet to see someone do something stupid. HubSpotters seem to be rewarding the trust we put in them here.

8. Friday 4pm Happy Hour: We are certainly not the only ones who do a Happy Hour on Friday, but we have our own unique twist on it. Every Friday at 4pm ET, we film HubSpot.tv live in our office and encourage employees (and community members) to watch the show, play a little ping-pong or foosball, and hang out.

9. Games: We have a west coast style games room where people can play ping-pong, foosball, hang out on the couch, or hit the beer fridge. We do this because it is a good way for folks to get to know each other and refresh their minds.

10. Tournaments: We have frequent tournaments, including ping-pong, foosball, iron chef, and softball. All of these are just plain fun and bring folks together across groups.

11. Dress code = no dress code: Doesn’t made sense to me to tell people what to wear…we’re not in a boarding school -- we are in a company where we want people to be as productive as possible.

12. Big Hairy Mission: Our mission is to “transform the way the world does marketing.” At least to me, that mission is big enough that I can really get psyched about it and be proud to tell others I’m working on it. I don’t know for sure that other employees feel the same way, but I suspect it is the case. Modern workers are more like cathedral builders than brick layers if you give them the right mission.

13. Social media policy = we trust you: Any of our employees can post an article on our blog, can tweet, can blog privately, etc.

This last point of “trust” is a common theme that runs throughout a post-modern culture. If you are hiring exceptional people who have lots of good options, you should trust them to make good decisions that will improve the enterprise value as your interests are strongly aligned.

What aspects of corporate culture do you think are passé? What creative corporate culture things are you doing at your company that you think we could emulate?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

SaaS 101: 7 Simple Lessons From Inside HubSpot

Dharmesh Shah — Mon, 19 Jul 2010 17:17:00 GMT

It’s been a little over 4 years since I officially launched my internet marketing software company, HubSpot. (The “official” date is June 9^th, 2006 — for those that are curious about such things). So, I’ve had about 4 years on the “inside” of a fast-growing, venture-backed B2B SaaS startup. Quick stats: ~2,900 customers, ~170 employees and $33 million in capital raised. But, this is not an article about HubSpot, it’s an article about things I’ve learned in the process of being a part of one of the fastest growing SaaS startups ever. (I looked at data for a bunch of publicly traded SaaS companies, and the only one that grew revenues faster than HubSpot was Salesforce.com).

In any case, let’s jump right in.

7 Non-Obvious SaaS Startup Lessons From HubSpot

1. You are financing your customers. Most SaaS businesses are subscription-based (there’s usually no big upfront payment when you signup a customer). As a result, sales and marketing costs are front-loaded, but revenue comes in over time. This can create cash-flow issues. The higher your sales growth, the larger the gap in cash-flows. This is why SaaS companies often raise large amounts of capital.

Quick Example: Lets say it costs you about $1,000 to acquire a customer (this covers marketing programs, marketing staff, sales staff, etc.). If customers pay you $100/month for your product and stay (on average) for 30 months, you make $3,000 per customer over their lifetime. That’s a 3:1 ratio of life-time-value to acquisition cost. Not bad. But, here’s the problem. If you sign up 100 customers this month, you will have incurred $100,000 in acquisition costs ($1,000 x 100). You’re going to make $300,000 over the next 30 months on those customers by way of subscriptions. The problem is that you pay the $100,000 today whereas the $300,000 payback will come over time. So, from a cash perspective, you’re down $100,000. If you have the cash to support it, not a big deal. If you don’t, it’s a VERY BIG DEAL. Take that same example, and say you grew your new sales by 100% in 6 months (woo hoo!). Now, you’re depleting your cash at $200,000/month. Basically, in a subscription business, the faster you are growing, the more cash you’re going to need.

2 Retaining customers is critical. In the old enterprise software days, a common model was to have some sort of upfront license fee — and then some ongoing maintenance revenue (15–20%) which covered things like support and upgrades. Sure, the recurring revenue was important (because it added up) but much of the mojo was in those big upfront fees. The holy grail as an enterprise software startup was when you could get these recurring maintenance fees to exceed your operating costs (which meant that in theory, you didn’t have to make a single sale to still keep the lights on). In the SaaS world, everything is usually some sort of recurring revenue. This, in the long-term is a mostly good thing. But, in the short-term, it means you really need to keep those customers that you sell or things are going to get really painful, very quickly. Looking at our example from #1, if you spent $1,000 to acquire a customer, and they quit in 6 months, you lost $400. Also, in the installed-software world, your customers were somewhat likely to have invested in getting your product up and running and customizing it to their needs. As such, switching costs were reasonably high. In SaaS, things are simple by design — and contracts are shorter. The net result is that it is easier for customers to leave.

Quick math: Figure out your total acquisition cost (lets say it’s $1,000) and your monthly subscription revenue (let’s say again say it’s $100). This means that you need a customer to stay at least 10 months in order to “recover” your acquisition cost — otherwise, you’re losing money.

3 It’s Software — But There Are Hard Costs. In the enterprise-installed software business, you shipped disks/CDs/DVDs (or made the software available to download). There were very few infrastructure costs. To deliver software as a service, you need to invest in infrastructure — including people to keep things running. Services like Amazon’s EC2 help a lot (in terms of having flexible scalability and very low up-front costs), but it still doesn’t obviate the need to have people that will manage the infrastructure. And, people still cost money. Oh, and by that way, Amazon’s EC2 is great in terms of low capital expense (i.e. you’re not out of pocket lots of money to buy servers and stuff), but it’s not free. By the time you get a couple of production instances, a QA instance, some S3 storage, perhaps some software load-balancing, and maybe 50% of someone’s time to manage it all (because any one of those things will degrade/fail), you’re talking about real money. Too many non-technical founders hand-wave the infrastructure costs because they think “hey we have cloud computing now, we can scale as we need it.” That’s true, you can scale as you need it, but there are some real dollars just getting the basics up and running.

Quick exercise: Talk to other SaaS companies in your peer group (at your stage), that are willing to share data. Try and figure out what monthly hosting costs you can expect as you grow (and what percentage that is of revenue).

4 It Pays To Know Your Funnel. One of the central drivers in the business will be understanding the shape of your marketing/sales funnel. What channels are driving prospects into your funnel? What’s the conversion rate of a random web visitor to trial? Trial to purchase? Purchase to delighted customer? The better you know your funnel the better decisions you will make as to where to invest your limited resources. If you have a “top of the funnel” problem (i.e. your website is only getting 10 visitors a week), then creating the world’s best landing page and trying to optimize your conversions is unlikely to move the dial much. On the other hand, if only 1 in 10,000 people that visit your website ultimately convert to a lead (or user), growing your web traffic to 100,000 visitors is not going to move the dial either. Understand your funnel, so you can optimize it. The bottleneck (and opportunity for improvement) is always somewhere. Find it, and optimize it — until the bottleneck moves somewhere else. It’s a lot like optimzing your software product. Grab the low-hanging fruit first.

Quick tip: Make sure you have a way to generate the data for your funnel as early in your startup’s history as possible. At a minimum, you need numbers on web visitors, leads/trials generated and customer sign-ups (so you know the percentage conversion at each step).

5 You Need Knobs and Dials In The Business. One of the great things about the SaaS business is you have lots of aspects of the business you can tweak (examples include pricing, packaging/features and trial duration). It’s often tempting to tweak and optimize the business too early. In the early days, the key is to install the knobs and dials and build gauges to measure as much as you can (without driving yourself crazy). Get really good at efficient experimentation (i.e. I can turn this knob and see it have this effect). But, be careful that you don’t make too many changes too quickly (because often, there’s a lag-time before the impact of a change shows up). Also, try not to make several big changes at once — otherwise you won’t know which of the changes actually had the impact. As you grow, you should be spending a fair amount of your time understanding the metrics in your business and how those metrics are moving over time.

Quick advice: If you do experiment with pricing, try hard to take care of your early customers with some sort of “grandparenting” clause. It’s good karma.

6 Visibility and Brakes Let You Go Faster. One of the big benefits of SaaS businesses is that they often operate on a shorter cycle. You’re dealing in days/weeks/months not in quarters/years. What this means is that when bad things start to happen (as many experienced during the start of the economic downturn), you’ll notice it sooner. This is a very good thing. It’s like driving a fast car. Good brakes allow you to go faster (because you can slow down if conditions require). But, great visibility helps too — you can better see what’s happening around you, and what’s coming. The net result is that the risk of going faster is mitigated.

Quick question: If something really big happened in your industry, do you have internal “alarms” that would go off in your business? How long would it take for you to find out?

7 User Interface and Experience Counts: If you’re used to selling client-server enterprise software that was installed on premises, there’s a chance that you didn’t think that much about UI and UX. You were focused on other things (like customization, rules engines and remote troubleshooting). That was mostly OK, because on average, the UI/UX of most of the other applications that were running on user desktops at the enterprise sucked too. So, when you got compared against the other Windows client-server apps, you didn’t fare too badly. In the SaaS world, everything is running in a browser. Now, the applications you are getting compared to are ones where someone likely spent some time thinking about UI/UX. Including those slick consumer apps. You’re going to need to step it up. In this world, design matters much more. Further, as noted in #2 above, success in SaaS is not just about selling customers, it’s also about retaining them. If your user experience makes people want to pull their hair out and run out of the room screaming, there’s a decent chance that your cancellation rate is going to be higher than you want. High cancellation rates kill SaaS startups.

Quick tip: Start recruiting great design and user experience talent now. They’re in-demand and hard to find, so it might take a while.

—-

So, what do you think? Are you running a SaaS startup now? What have you learned? Would love to hear about your experiences in the comments.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Startups: Your Customers Are Not Ignorant, Selfish, Control Freaks

Dharmesh Shah — Mon, 12 Jul 2010 15:05:00 GMT

Imagine you’re having some big, high falutin’ meeting. Perhaps it’s a board meeting. Or, if you don’t have a board, perhaps it’s a management team meeting. Or, if you don’t have a team, perhaps it’s just you talking to yourself at 3:00 a.m. in the morning. Whatever mechanism it is you have to talk about important issues and make decisions, imagine that meeting. Are you imagining it? Good.

Now, imagine that same meeting with one important change: One of your smart, savvy, customers is at the table. And, she has an actual voice. She’s a peer. She makes arguments, some of which are wrong and misguided, just like you and the rest of your team. If the customer were there, I think you’d have better meetings.

Practically speaking, you probably can't actually put a customer in all your meetings. If that’s the case, you should act as if she’s there. Pretend like she’s sitting in the room. In the past, I’ve actually designated an empty chair in the meeting as being where the customer is, and looking in that direction while asking “what does the customer have to say?” (yes, I’m weird). When you’re trying to make an important decision, and you’re sort of divided on the issue, ask yourself: If the customer were here, what would she say? You don’t actually have to do everything she says, but it’s useful to at least factor in her point of view.

Now, you might argue that you’re already factoring in customers in all of your decision-making. And, I’m going to argue that you’re wrong. You’re making decisions all the time where the customer’s voice is either absent or too weak. Just think back on the last five debates you had, and the decisions you made. Perhaps it was a pricing decision. Or a funding decision. Or an office space decision. Did the customer really have a voice? Was it as loud as everyone else’s? Probably not.

You might then further argue that you have someone “representing” the customer (your head of customer support, perhaps). I’d argue that that’s different. Yes, your head of customer support is solving for your customers’ well-being, but that’s not the same thing. Imagine if you were running a hospital. You’d have operations, and finance and marketing and all sorts of other groups. In your big hospital meeting, you might think that the doctors represented the patient’s interest (because they are looking to solve the patient’s problem), but if you’ve ever been a patient, you know that’s not the same thing. Your hospital management meetings would be very different if there was a patient in the room. Your startup is no different. The decisions would be better if there was a customer in the room.

Finally, you might have the most insidious set of fears of all: First, that your customers are ignorant (they don’t understand industry trends or technology). Second, that they’re selfish (all they care about is getting the lowest price and extracting the most value from you). Third, that they’re control-freaks and just want to run your business. All of these are simply not true. Your customers are not ignorant, selfish, control-freaks. Of course, there’s a distribution curve at work here. You might rightfully argue that some of your customers manifest one or more of these attributes. But, that misses the point. I’m not asking you to visualize those customers at your meetings. Visualize the smart, savvy and benevolent customer that wants you to succeed and has no intention of running your company. You have some of those customers. If you don’t, then go get some.

That kind of customer is exceptionally useful. They feel pain with your product that you’re likely not going to feel. They can empathize with your other customers in a way that you can’t. And, in the long term, even though they may not have as loud of a voice or be able to debate as passionately as you, they have a decent chance of being right. Imagine if you were keeping meeting minutes from these meetings and noted her side of the story and her “vote”. If you looked back a year or two later, you might say something like “Hey, you know what, in that meeting, she was right. We would have been better off if we had just listened to her.” Maybe you and your team are way more insightful than average, but I’ve said this to myself many times.

So, the next tiime you have a big, high falutin’ meeting and are attempting to make a big decision, try to give your customer a seat at the table. I think you might make a better decision.

What do you think? How would you make sure the customer has a real voice in your company?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

From Minimally Viable To Maximally Buyable Product

Dharmesh Shah — Mon, 21 Jun 2010 18:10:00 GMT

I’m a big fan of Eric Ries and the lean startup movement that he’s championing at Startup Lessons Learned. I think many of the fundamentals behind the lean startup are things you likely have been practicing for a while. But, seeing it articulated so well and establishing a common vocabularly for us to talk about it is immensely valuable.

One of the key parts of the lean startup is the concept of a “minimally viable product”. The MVP is a product that has the minimum set of features needed to learn what the market wants. The idea behind the MVP is to spend as little energy is possible figuring out whether what you’re building is something people want.

In this article, I’d like to look at what happens after you’ve built the minimally viable product for your market. What’s next? I’m going to suggest that once you know there’s a market, you should work towards the “Maximally Buyable Product” (MBP). Yes, I know that’s not the perfect term, but I’m a sucker for literary symmetry and you have to admit, it’s got a nice ring to it.

Given that this is the first time the term Maximally Buyable Product has been used (I made it up), I’ll take a shot as defining it:

Maximally Buyable Product: The MBP has the set of features needed to capture the maximum potential opportunity in a market. These are the features that make it easy for people to try, buy

Features Of A Maximally Buyable Product

1. Easy To Understand: To be “maximally buyable”, the product should be simple to understand. It’s hard to market and sell things that people don’t understand.

2. Easy To Try: You may think that your product is revolutionary and is creating it’s own category and that you have no direct competition. But, as it turns out, your potential customers didn’t get that memo. Doesn’t matter what market you’re in, people believe they live in an age of abundant choices. Given this perception, to be “maximally buyable”, you need to ensure that the product is designed such that it is easy to try. This takes investment.

3. Easy To Buy: This one’s going to sound obvious, but so many of us trip over this one (including me) that it bears mentioning: To get the maximum amount of sales for your product, you need to have the minimum degree of pain in the buying process. This includes having clear, simple pricing — on your website. It includes a straightforward purchasing process (based on your market). It includes payment mechanisms that map to customer expectations.

4. Easy To Stay: Chances are, your startup makes money from customers over a period of time. This is either because you’re charging on some subscription basis (monthly, quarterly, annually) or because even if you have some large up-front fee, there’s some trailing revenue in terms of maintenance/support/upgrades/cross-sells etc. Given that the revenue you see from a customer is spread out over time, the maximally buyable product ensures that customers are kept happy for as long as possible. If you design for customer longevity (not just customer acquisition), you'll find that often a different set of dynamics are at play.

5. Easy To Leave: Though you want customers to stay with you as long as possible, designing your product to make it easy to leave is an important part of its "buyability". A "feature" that supports this easy to leave notion is a robust "export" feature (to avoid data lock-in). The easier you make it for customers to leave, the more likely that are to buy in the first place.

You may be thinking that each of the above aren’t really about product features, but about marketing (and sales). I’d disagree. I’d argue that even though these aspects of the product are not the features that customers are directly paying for (they’re not the ones that solve the customers immediate problem), they should still be thought of as “features”. You should carefully select these “maximally buyable product” features just like you would select features for your MVP. You should should design them like you would any other feature. It’s a mistake to think of them as being part of finance/accounting/operations/sales/marketing/whatever. They’re part of the product.

If it’s a part of your customer’s experience with you, it’s a feature of your product.

Some examples: The “signup for a trial” process. The “upgrade” process. The “how do I get a receipt or change my billing info” process. All of these are features of the product. You can lose money just as easily by poorly selecting or designing these features as you can by the “core” features.

What do you think? Have you invested sufficient time in building a Maximally Buyable Product? Would love to hear your ideas and experiences in the comments.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Startup Marketing ABCs

Mike Volpe — Wed, 09 Jun 2010 15:12:00 GMT

The following is a guest post from Mike Volpe, the VP of Marketing at HubSpot, who has helped grow our marketing software company from a handful of customers to nearly 3,000 customers over the past 3 years. You can find more of his thoughts through the HubSpot Blog, on Twitter, and his personal blog.

I was recently asked to speak about "startup marketing" at Atlassian Starter Day in San Francisco. I have spoken about marketing at over 50 conferences, but never specifically about marketing at startups. I decided to try to have a little fun and talk about some of the learnings from our experiences at HubSpot according to the alphabet.

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Avoid Addiction

Google AdWords and most forms of advertising are addictive drugs to marketers. They make you feel good (leads!) but they are expensive, and when the good feeling is gone, you need to buy some more to feel good again. This leads to marketers being lazy, and not building assets that improve the value and business model of the company.

A much more sustainable strategy is to build assets - just like equipment in a factory. Marketing assets are blog articles, subscribers, inbound links, SEO rankings, social media followers, opt-in email lists, and other tools that help you generate more and more leads over time without ongoing expenses.

Blog Beforehand

Many startups today have a blog, but most of them do not start blogging until after they have launched a product. One of the smartest things the HubSpot co-founders did was start blogging before HubSpot had a product to sell, helping to build an asset

The second mistake most startups make is that they blog about their own product and on topics that they want people to read about. That works ok, but not nearly as well as thinking about your content from the point of view of the customers that you want to attract through inbound marketing. Media companies think about what content people most want to consume - you should think of your blog as a media company for your market. Don't talk about your product much at all, talk about what people are most interested in reading and sharing.

Create Convenience

More and more people have the expectation and the capability to sever themselves. Making each and every thing that you do to acquire new customers as simple and convenient as possible helps to increase the conversion rates for each step in the process, and improves your yield.

One of the things that has worked well for HubSpot is creating free tools that are really convenient. For instance with Website Graderyou just type in your URL and you get a pretty useful report back quickly. Making our tools and content as easy to use and as easy to share as possible has helped them spread far and wide at a low cost. To date Website Grader has been used to evaluate over 2.4 million websites, and we have spent almost nothing marketing it.

Data Drives Decisions

Most entrepreneurs know that marketing at a startup requires you to do some experimentation and use that marketing data to drive your decisions. We have found that taking this to the extreme works well. Each month the marketing team produces a report about marketing that is over 100 pages long, plus many other special reports. We produce over 2,000 pages of reports each year, just for marketing. We have targets for our key metrics and track those daily. We know within a couple days if we are behind on a certain metric and can adjust our activities to compensate.

Tracking our business each month (or day) helps us optimize and evolve faster. If you track your business monthly, you optimize and improve your marketing 3 times faster than a company that measures quarterly. Measuring in smaller increments is key to evolving your startup marketing faster, by experimenting more and learning more quickly.

Employ the Exceptional

In the Inbound Marketing Book Dharmesh and Brian talk about the DARC criteria for hiring. We use those criteria for hiring at HubSpot, also adding criteria for hiring marketing pros that "get stuff done" and are smarter than we are. Experience is not as important as many people think because marketing is changing and evolving fast, such that too much experience can actually be a liability because you might prefer older and less effective marketing techniques. More than 2 years of experience might not add any additional value in terms of marketing expertise. (It does add value in terms of leadership and management and communication experience.)

What do you think? What are the most important startup marketing lessons you have learned? Leave a comment below and share with the community.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

37 Startup Insights

Dharmesh Shah — Mon, 07 Jun 2010 17:09:00 GMT

Earlier this year, I had a chance to attend SxSW. One of the highlights of my trip was a startup dinner which included Jason Fried and David Heinemeier Hansson, the founders of 37signals. At the time, they had just come out with their new book "Rework". I had downloaded a copy to my Kindle, but hadn't had a chance to read it yet. Now I have. Twice. It's a great book. Lots of practical advice for entrepreneurs. I highly recommend it. My second time through, I decided to pull out some of my favorite parts.

You're encouraged to share your favorite insight by using the convenient "tweet" links next to each one.

37 "Signals" From 37 Signals

1) Great businesses have a point of view, not just a product or service. [tweet]

2) Writing a plan makes you feel in control of things you don’t actually control. [tweet]

3) You have the most information when you’re doing something, not before you've done it. [tweet]

4) Stuff that was impossible just a few years ago is simple today. [tweet]

5) Failure is not a prerequisite for success. [tweet]

6) Don’t make assumptions about how big you should be ahead of time. [tweet]

7) Don’t sit around and wait for someone else to make the change you want to see. [tweet]

8) When you build what you need, you can assess quality directly instead of by proxy. [tweet]

9) Solving your own problem lets you fall in love with what you’re making. [tweet]

10) What you do matters, not what you think or say or plan. [tweet]

11) When you want something bad enough, you make the time. [tweet]

12) The perfect time to start something never arrives. [tweet]

13) Start a business, not a startup. [tweet]

14) You need a committment strategy, not an exit strategy. [tweet]

15) Huge organizations talk instead of act, and meet instead of do. [tweet]

16) Build half a product, not a half-assed product. [tweet]

17) Getting to greatness starts by cutting out stuff that’s merely good. [tweet]

18) The real world isn’t a place, it's an excuse. It's a justification for not trying. [tweet]

19) The big picture is all you should be worrying about in the beginning. Ignore the details. [tweet]

20) Decide. You’re as likely to make a great call today as you are tomorrow. [tweet]

21) The longer it takes to develop, the less likely it is to launch. [tweet]

22) It’s the stuff you leave out that matters. [tweet]

23) Focus on substance, not fashion. Focus on what won't change. [tweet]

24) When good enough gets the job done, go for it. [tweet]

25) When you make tiny decisions, you can't make big mistakes. [tweet]

26) Pour yourself into your product. [tweet]

27) You rarely regret saying no but you often regret saying yes. [tweet]

28) Better your customers grow out of your product, than never grow into them. [tweet]

29) You can’t paint over a bad experience with good marketing. [tweet]

30) All companies have customers. Fortunate companies have audiences too. [tweet]

31) Instead of out-spending your competitors, out-teach them. [tweet]

32) Let customers look behind the curtain. [tweet]

33) Leave the poetry in what you make, there is beauty in imperfection. [tweet]

34) Marketing is not a department, it's the sum total of everything you do. [tweet]

35) Don’t hire for pleasure; hire to kill pain. [tweet]

36) Don’t make up problems you don’t have yet. [tweet]

37) A business without a path to profit is a hobby. [tweet]

What are your favorite insights from Rework?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Get Help Starting Up: Win A Free Scholarship To StartupToDo

Jason Cohen — Wed, 19 May 2010 13:21:00 GMT

I've run three startups, and every time it felt more like stumbling around in the dark than confidently striding along a path. Most everyone I meet feels the same way.

It's worse the first time around of course. You read blogs and books, you take other business founders out to lunch, and you join entrepreneur support groups (I mean, meet-ups).

But still. There's like 1,000 things to do, none of which you've ever done before or even seen before, and certainly nothing any school has prepared you for. What about all that stuff?

Bob Walsh, author of several startup how-to books and the Micro-ISV blog and podcast, has all the answers at StartupToDo -- a combination web application, guidebook, and community for startup founders.

And better still, here at OnStartups we're giving away 10 scholarships, so you get all this love without paying a cent! Even if you don't get the scholarship, however, check it out.

Here's how StartupToDo works.

First, there's already 50 guides walking through every aspect of a business from deciding on a name to selecting a web host to Google AdWords to creating your elevator pitch, .... you name it.

Second, as you progress through those guides -- in any order you please -- you can watch your progress exactly like a burn-up chart for software development:

This makes it easy to ensure you're making steady progress on important areas of business while you tend to the obvious fires and daily chaos.

Third, the guides aren't static -- it's more like a Wiki + comment system so you can also learn from everyone else on StartupToDo who has gone through that guide. So it's a living, breathing lesson and checklist, not just some stale prose from 1994.

Fourth, there's amply opportunity to not just go through guides but to interact with other founders through things you've heard of (e.g. forums) and brand new things (e.g. "What do you think of my website" system). Now you're not just guessing by yourself -- you're part of a thriving, intelligent community of people just like you, helping each other get through the pain and thrill of running your own company.

Ever need help answering questions like these?

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Startup Insights From Paul English, Co-Founder of Kayak

Dharmesh Shah — Mon, 10 May 2010 14:35:00 GMT

I’m just wrapping up several weeks of attending conferences across both coasts. Of the ones I have been to recently, the Nantucket Conference has been my favorite. A great group of people and a small enough gathering that you can actually get to know many/most of them. My thanks to Scott Kirsner who organizes the conference and was kind enough to invite me to speak this year.

One of the sessions at the conference was an interview with Paul English, founder and CTO of Kayak. The interview was conducted by Larry Bohn of General Catalyst (Larry also happens to be an investor in my startup, HubSpot and sits on our board of directors). In case you are one of the few people that hasn’t heard of Kayak yet, it’s the most popular travel search site on the web (and one of the top 1,000 most popular sites on the web). Kayak is great Boston-area success story. One quick point on that: In Dec 2007, with just 39 employees, Kayak raised $230 million (at a much higher than that valuation) to acquire their largest competitor, SideStep. Paul is on my list of “best entrepreneurs I’ve met”. Lots to learn from him.

The following are some notes I pulled from the interview. I encourage you to listen to the entire session (high quality audio, and lasts about 45 minutes). Just hit "play" on the widget below. Or, if you’d prefer, you can read the entire transcript at the bottom of this post.

Or, you can download the MP3 directly

1. “I've started four or five companies now, based on how you count. There is one I am trying to forget.” Most serial entrepreneurs that I know don’t have a 100% “hit rate”. Just about everyone has had at least one venture that didn’t quite turn out the way they had hoped. I like that Paul’s able

2. Like me, Paul also started a company with his brother. I have to remember to chat with him about that over a beer someday. [Note to self: Write article titled “Starting Something With A Sibling: Understanding The Tradeoffs”.

3. Like many of my favorite software entrepreneurs, Paul’s a programmer by training. Interesting side note: In my recent travels and interactions with entrepreneurs, I’m finding that an increasing number of founders have a design/UI/UX background.

4. When asked “Why do you start companies”, Paul has one of the best answers I’ve ever heard: I start companies because it gives me an opportunity to create teams.

5. “Our priorities are always team first, customer second and profit third.”

6. The difference between an A team and an A+ team is the difference between a million in revenue and a billion in revenue.

7. Sometimes people Paul is interviewing say “I’ve heard a lot of great things about you.”. Paul: “Trust me, after a few months, you’ll learn that the reason you’re here is not me, but the people around you”

8. Paul English on recruiting (I’m paraphrasing this from a meeting I had with him and some pieces from this interview): When someone mentions the name of a person that they’ve worked with that they think is exceptional, a little clock starts ticking in my head. My world goes to black and white, and this clock is in color. From when the clock starts, I give myself seven days to track them down, back channel, get them in for two series of interviews that are intense and focused, and make an offer and have them accept it. That's seven days from when I hear the person's name. [`

9. At least one of the co-founders needs to be passionate about recruiting because that absolutely makes all the difference in the world.

10. When Paul started Kayak, one thing that was very important to him was building something that his friends could use. Before Kaya, when people asked "What do you do?", his response was "I work in an operations research group at data general, and we're studying advanced processes for doing disc drive manufacturing." Clearly, unlikely to be fascinating to most people. With Kayak he wanted it to be different. I have had almost precisely this experience. For my current startup, I wanted to work on something that when random strangers asked me what I did, I wanted a decent chance that the answer would be relevant to them.

11. “I had sold two companies. I didn't want to sell a company again. So my venture guys would sometimes say, "You know, explore it." And I'd have the meeting knowing in my mind that there is no way I am going to sell this company.”

12. When Paul was hiring his early team, he refused to hire people from the travel industry. He didn’t want travel people, he wanted consumer product people.

13. One of Paul’s investors said, “You’ll name this company Kayak over my dead body.” Paul: “Thanks for the input.”

14. The Red Phone: Paul found the most obnoxious, loud-ringing red phone he could find and plugged it in right in the engineering office. About 30% of the time, when a Kayak web visitor saw a support phone number on the website, it was the number of that phone. The idea was to build a culture that was centered around the customer.

15. “I guess this is the first time I'm talking about this. But I'm at the beginning of a new project, which will be my next 10 year project. I'll be at Kayak, of course, pushing it, pushing it, but I'm starting a new project that has an audacious goal of creating free low-bandwidth Internet for the whole continent of Africa. [This super-cool.]

16. In an uncharacteristic moment, I actually asked Paul a question in the session about how his advice around recruiting as a company grows from 5 to 50 to 500 people. He had two points: First, make sure you identify the stars. He does this by asking people on his team who the brightest people they’ve worked with is. Then, make sure that they know how much emphasis you put on the team and go after them — aggressively.

17. If you visit Kayak.com and hit the feedback button, you will get a response via email. Kayak responds, individually, to every email. That’s impressive. What is crazy-impressive is that the email response comes from either Paul or someone on the engineering team. He gets flack for using a $150k/engineer to answer support emails when the rest of the world is outsourcing it for $8/hour or something. Why does he do this? Because, when engineers respond to support issues, when the same issues arise time and time again, they are more likely to stop what they are doing and go fix the problem so that they don’t have to answer that same question again. And, because it sends a message to the entire team that they take these issues very seriously.

Full Transcript of Paul English Interview

[applause 0:00:00]

Larry Bohn: [0:05] So let me begin this way. Paul and I have known each other for, I calculated, 23 years.

Paul English: [0:14] That sounds right. 1989.

Larry: [0:16] 1989. And we're sort of neighbors. And we've known each other through many different lives and journeys, the most recent of which is my firm, General Catalyst, is an early investor in Paul's company, KAYAK. [0:33] So we'll let other things come out during the dialogue, but I thought it would be great to get Paul here to talk about what he does, what his passions are, what his philosophy of building companies. I think many of you follow his blog or have heard him quoted about everything from customer service to how to manage development teams, as well as a lot of his interests in terms of helping out in the third world.
[0:59] So I have a bunch of questions that I probably won't get to ask, but we'll start, and then we'll open up to questions later from anyone in the audience. So first thing, why don't you give just a quick personal bio of how you got to where you are today in your professional life?

Paul: [1:16] It's all due to Larry; everything I learned working for Larry. So, I'm a Boston boy. Those of you who are not Bostonians will tell from my speech dysfunction. I have to speak very clearly so I don't sound too - to kind of hide the Boston accent a little bit. [1:36] I am a software engineer by training. I went to school UMass Boston. And I've started four or five companies now, based on how you count. This one I am trying to forget. Actually, it was in Boulder, Colorado and I lost a lot of money.
[1:51] But prior to starting KAYAK, I can tell you a little bit about it. My brother Ed and I had started a company called InterMute to get rid of spyware. We ended up selling that to Trend Micro. I also created a small company in Arlington called Boston Light Software named after the lighthouse. And we built eCommerce software for small businesses. We ended up selling that to Intuit, where I became VP of Technology and was at Intuit for about three and a half years.

[2:18] That was a really, really fun job. I learned a lot about customer service and focus, and also helped lead the creation of the Intuit Innovation Lab - how you do innovation at a big company, and the Intuit Developer Network - how to build open platforms on top of a wide set of applications which might not have been built for a platform.

[2:38] So, programmer by training, and have always had hunger to start new things.

Larry: [2:46] Great. So, you left out your first job with Interleaf.

Paul: [2:51] Interleaf, that's right. Interleaf was a fantastic job. You know, my first job, actually, was working - OK, the first job that was legal was working for Mini-Mart. I was a 16 year old stock boy or something. I remember one time crushing the giant box in the box-pressing machine. And the pharmacist who ran that store came to me and screamed at me a stream of obscenities and said, "You're an idiot! You'll never do anything in life! I can't believe you can't even use a compacting machine." Think about that. But that was my first job. [laughter]
[3:29] When I went to Mass, I didn't apply to college. I wasn't going to go to school. Last minute, I did end up going to school. And I had a series of jobs, everything from working for the Air Force doing data acquisition and control systems, doing some operations research for Data General, doing medical device software for Humanetics and Braintree, and doing video game development for my brother Ed English for one of his companies.

[3:53] But my first real, real job after I actually had a degree was working for this guy. And I must say it was a lot of fun. I have a list that I keep of things I've learned in management over the last 20 years. And probably three of those 15 things in that list are things I learned from Larry, the most important of which, I think, is how to defuse tension, diffuse tense situations.

[4:18] And we had a number of staff meetings - Larry had an extraordinary staff that I felt very lucky to be a member of. It was a really special team. And that helped bond, in me, the need to form good teams. But also, he was very good, when there was fighting between the team or whatever, he had some very good techniques for just making that stuff go away. And it's lessons that I've continued to use to this day.

Larry: [4:41] Well, one of the reasons that I wanted to bring that up is that when you first came to Interleaf, I think you were right out UMass, and within like nine months you took over the development organization, because you were just a tremendous technical talent. [4:56] But then, what's interesting is that team that you started and you really built has followed you through several companies. And so some of what I think you've done in just a spectacular way has been to lead that development team. So I wanted you to talk a little bit about your philosophy. How do you develop high quality teams? Especially, you talk a lot about how you recruit people. You know, what your philosophy is around competence and performance. And I think that would be really useful for people to hear.

Paul: [5:27] Sometimes I give talks at local universities about starting companies. And I remember once one of the students asked me, "Why do you start companies?" And my first thought was, actually, "I want something to do when my kids are in school." But I really look at starting companies as an opportunity to create a team. And for me, at KAYAK, I've always been very clear that our priorities are team first, customer second. And I think for a company that is so explicit about customer second, we have more intense customer focus than any tech company I've seen yet. I mean we can talk a little bit about that, and then profit third. [6:05] And I really feel very strongly to the core that focusing that way is what happens. On the team first, there's recruiting, there's hiring, there's firing, and there's leading. In each of those areas, I try to apply what I've learned from people I thought were good leaders, whether it was at Intuit or Interleaf, or any other company.
[6:28] Part of the recruiting thing, forming a good team, is you do want to start with a nucleus of people who have worked together and have a proven formula. And you want to do anything to get that team together. And also, you want to do anything to get your team as strong as you can.

[6:44] The difference between an A player or an A+ player is the difference between a million in revenue or a billion in revenue. It's really extraordinary how much just putting that little extra effort into recruiting and the dividends that can pay back to you.

[6:58] When we formed KAYAK - and I think Larry was modest when he said that General Catalyst was an investor in KAYAK. I look at General Catalyst as the creator of KAYAK. Larry was the one who introduced me and my co-founder, Steve Hafner. Joel Cutler is our director. And we really started the company within General Catalyst.

[7:16] But when we started that, there were two guys in particular I wanted to join my team, a guy named Paul Schwenk, who is currently Senior Vice President of Engineering for KAYAK, and then a guy named Bill O'Donnell who is...I think the title I've given him is Ultra Vice President of Code.

[7:32] When I wanted Paul and Bill to work with me again, I called them and said, "I'm starting another company. I want you guys to come join us." And I think at the time they were each working - they were still at Intuit. I had left more than a year...

Larry: [7:45] But they had followed you there.

Paul: [7:46] They had followed me to Intuit, yeah. So we worked on and off together for 20 years. But when I tried to pull them out of Intuit, I had taken a year off to help care for my dad and do some other things. I remember one of the questions... [7:59] So these guys are making three and four hundred thousand dollars a year as programmers at Intuit; very, very gifted guys. And they said, "Well, what's the company?" I said, "It's a travel search engine." "Do you have funding?" "Well, sort of. You know, we're about to get funding." "How much will you pay us?" I said, "100K." I'm sure their wives were really excited about this.
[laughter 0:08:19]

Paul: [8:19] And then they said, "Well, where will the company be located?" I said, "I really don't care. You can put it in your backyard." And unfortunately, they said, "Maynard." I was like, "Shit!" [laughter 0:08:29]

Paul: [8:29] I hope I'm not offending anyone here, but... [laughter 0:08:34]

Paul: [8:32] It wasn't my favorite commute. But I really wanted these guys. And my belief is, in recruiting, if you do whatever it takes to get this extraordinary team together, that team will build the next team. I think a lot about energy. At times I've recruited at KAYAK, I've brought people in and I've found people on buses or trains or whatever and I detect talent, I'll aggressively recruit and I'll bring them in, and they'll meet my team. [9:00] Sometimes they'll see they've heard good things about me or they liked an interview with me, and I'll ways just say to them, "Trust me, you'll be here a few months and you will realize the reason you are here is not for me. It's for these other people that will be around you."
[9:10] And I just take it really seriously, the commitment to just do whatever it takes to make that team strong. I have, even at Intuit, one of the things I did was I led recruiting for them. I instituted something that, at least during my time there, was a seven day rule.

[9:24] The first time you hear someone's name - so if Larry had mentioned to me there is a VP of Marketing he used to know and he thinks the guy is in Australia. He's not quite sure, but the guy was unbelievable. As soon as he mentions this guy's name, it's like a clock starts ticking and that goes into color and my world goes black and white. I have seven days to track him down, back channel, get him in for two series of interviews that are intense and focused, and make an offer and have him accept it. That's seven days when I hear the person's name.

[9:51] And I think having that speed, you might think that makes me sloppy. I think it's actually quite the reverse. When you force yourself to do something fast, the only way you can execute fast is if you have process.

[10:03] And a lot of forming great teams, to me, is just, how hungry are you? How aggressive are you? And my advice to other entrepreneurs when you are starting new ventures, if you look yourself in the mirror, you know that, really, it's not like the thing you are most hungry for in the middle of the day, you will read your emails instead of look at that resume. You have to find a co-founder that I would say is 50/50 split with you, that that's what they care about, because it just makes absolutely all the difference in the world.

Larry: [10:29] So, maybe talk a little bit about starting KAYAK, founding KAYAK. And especially, you know, you were not a consumer Internet guy. You weren't at travel guy. And yet, you built, arguably, the best and biggest online travel company in the world, and one that's competing now with Google and others. So how'd you do it? How'd you build a team? What's the culture like? And, you know, what could you share about that?

Paul: [10:57] Sure. It's a fun company. There are some unusual things about it. One of them is my co-founder and I. My co-founder's name is Steve Hafner. He is one of the founders of Orbitz, and he left Orbitz in December of '03, which is when I met him. [11:10] I was introduced to Steve - I was actually working with Bill Kaiser as an EI over at Greylock. But I was over at General Catalyst one day looking at a mobile company for John Simon, I believe. And then on my way out, Larry and Joel Cutler introduced me to this guy Steve Hafner and said he is starting a travel company. He's leaving Orbitz, would I give him some advice?
[11:32] So Steve and I went downstairs to Legal Sea Foods in Harvard Square, had a couple drinks. And I think within 45 minutes we agreed to do it as co-founders. We each were going to throw a bunch of money in. And I think part of that was both of us, my co-founder and I, are risk takers, and both of us, I think, have a very good read on other people.

[11:53] And Steve and I are similar in many ways, but we are also very different in actual technical skill set. But we both detected a level of aggression or commitment in the other one, and we both felt that, "Wow, if you put two co-founders together that are this aggressive..."

[12:11] I might not sound aggressive now, because I just arrived on a redeye from San Francisco, so I am a little bit tired. But, we thought that starting with a team that our job was just to state a plan and say, "We're going to get there. We're going to build the biggest travel company in the world," when we just had six slides of PowerPoint. And then somehow getting people to believe us that we were going to do that, and recruiting people to help execute that plan.

[12:37] So I think it starts with belief.

Larry: [12:38] Yep. So, one of the things I remember that I think was tremendous was when we first talked about you coming into KAYAK, you were thrilled at the idea of building software that your friends could use. Because up to then, I think most of the stuff you built, even though, at Intuit, people were...

Paul: [12:58] Intuit was really eye-opening for me. Before then, when I would tell people - "What do you do?" "I work in an operations research group at data general, and we're studying advanced processes for doing disc drive manufacturing." [laughter 0:13:12]

Paul: [13:13] It didn't go over well.

Larry: [13:15] Right. So I remember you being, like, thrilled, like, "I'm going to build something fabulous that my friends can use, and it's going to be really exciting." And I think that was a big motivation when you were recruiting some of the members of the team.

Paul: [13:24] It was.

Larry: [13:25] Talk a little bit about how the company was founded. Certain journalists in Boston reported that you stole the idea. Talk a little bit about the beginning and then how it developed, the acquisition and things like that. I think that's a great story about a Boston company.

Paul: [13:45] So, we were not the first to do travel as a search engine. If you think about the creation of online travel industry with the formation of companies like Travelocity and Expedia, and then followed by Orbitz, and Priceline, etc, those guys are all merchants, where they show you a limited set of inventory. [14:04] If you look for a hotel in New York tonight, Expedia won't show you every hotel in New York. They only show you the ones that they rep. KAYAK will show you ever hotel because we are a search engine. We weren't the first guys out there to be a pure search engine. Saying, "Gee, this Google thing seems to be working. Can we build one of those but just for travel?" There were FairChase, SideStep; a couple companies before us that did different approaches to what we ended up taking.
[14:30] SideStep was interesting. They had a downloadable toolbar that if you searched Expedia, they would pop up a window in the side showing you other rates if you could search other sites. They were a couple years ahead of us. They were much bigger than us in revenue on our second or third year, but we ended up acquiring them. They tried to acquire us a couple times.

[14:52] I had sold two companies. I didn't want to sell a company again. So my venture guys would sometimes say, "You know, explore it." And I'd have the meeting knowing in my mind that there is no way I am going to sell this company.

[laughter 0:15:01]

[15:01] But each time, we would negotiate and valuations would come up, and there would be always a mis-set expectation about what the other company was worth, because if you do a stock deal, it's more percentage, but then it's this game of what you are each worth.

[15:16] And in each of these meetings over the years when there were bigger companies than us who were interested in what we had built and our team, et cetera, if we had disagreements, I would just say, "That's all right. Let's just talk again in a year." And I just had this belief that our valuation grew quicker than the other party.

[15:33] In the case of SideStep, it did. In December of '07, we had 39 employees and we raised $230 million at a very high valuation to acquire what was our biggest competitor, SideStep, in California. And that was a very good deal for us for getting their customer base. And it's just one important milestone. It's fun to take out your big competitor.

Larry: [15:57] Paul is a very competitive person, and I remember, at the beginning, when SideStep was a couple years ahead, it was a West Coast company funded by good venture people. How did you win? You ended up blowing by SideStep, and you ended up buying them and really taking advantage of them. How did you do it?

Paul: [16:18] And I did love the East Coast acquires West? [applause 0:16:23]

Paul: [16:25] We could spend an hour just on that topic. And I know there's some powerful people in the room here. I hope all you guys are encouraging all your companies to say, "Don't give up. At least don't give up early. Push something bigger." [16:38] I really want to create extraordinary East Coast companies and change the culture here, and there's a lot of work to be done with that. I think if you compare us to SideStep, they were good guys, but, I don't know.
[16:53] Not to be harsh, but the simplest way to say this to compare the two companies, it had nothing to do with strategy. It had to do with the team. We had one project manager. They had seven. And we just recruited a different level of talent than they did.

[17:11] And you go down the line, finance, sales, marketing, whatever, I think people would say, when they would go to a KAYAK meeting, or they go to a SideStep meeting and then they go visit KAYAK, they'd leave. We usually get good feedback when people leave meeting with our team. Everything from people saying things like, I'm vibrating from that meeting, or there's some electricity, or whatever. And I think we out-executed so many people, because we out-hired, is the simplest thing.

[17:37] Second of that, the way our team organizes around customers is different than what I've seen in other tech companies.

Larry Bohn: [17:41] Yeah, talk about that, and talk about - because I really do, I started as you build a much better product. And talk about how you build a great product, and how you got feedback about that product, and how you still do.

Paul: [17:55] Yeah, so travel is something that I love. I've never worked in the travel industry. In fact, when hiring the tech team at KAYAK, when we were mostly the first five years - we're six years old now - the first five years, it's a bit of an oversimplification, but I would say there were only two types who worked at KAYAK. You were either a programmer, or you were a business development manager, and two-thirds of them were programmers. [18:16] We're growing now on the marketing side and the finance side, but, in general, when I hired the tech team, one of my requirements was I refused to hire someone who has ever worked in travel before. And my board didn't like this. We recruited a good board. Part of this, is the aggression we had in recruiting, but we recruited Terry Jones, the original founder of Travelocity, was, became, our Chairman. Greg Slyngstad, the original creator of Microsoft Expedia, became a Director and investor. So this amazing travel portfolio on our board, but I refused to hire travel people.
And what would happen is, at our board meetings, I would present, this is the product plan. The board would sit back, you seem like a really nice guy, you seem really smart, but I can't believe you don't know what a passenger type code is [Larry laughs 0: [18:46] 18:54] . It's not possible to fly a plane, from here to here, without doing this. And they kept saying that I would be proposing stupid things, and they kept begging me to hire someone who had actually worked in travel before. And I would do what - are we allowed to swear here?

Larry: [19:09] Yeah, absolutely. You're among friends.

Paul: [laughs 0:19:11] [19:11] I would do what later became know as a grin fuck, where... [laughter 0:19:14]

Larry: [19:14] Which he does a lot to his investors.

Paul: [19:17] Yeah.

Larry: [19:17] Totally.

Paul: [19:18] The most famous one is when our board told us - we incorporated as Travel Search Company as a placeholder and we told the board we were going to call the company KAYAK - one of the investors said, "You'll name this company KAYAK over my dead body." And I said, thanks for the input.

Larry: [19:33] Right. [laughter 0:19:33]

Paul: [19:34] But we tend to, you know, on the hiring thing, I didn't want travel people. I wanted consumer people. And I wanted people that were committed to the best team ever. I wanted people committed to intense focus on customer. [19:48] We don't have enough time here now, but there's eight key processes that we use at KAYAK right now, for how customers get engaged with engineers. I'm about to add the ninth, which is going to be live web chat over Skype. If you just randomly hit our feedback page, you'll connect live in our engineering team.
[20:04] But another one, that is we've become a little bit known for, is we have this red phone in our office. And I took some time to try to find the most obnoxious phone I could, with a really loud ringer, and it's directly wired into our engineering office.

[20:19] And when you click the help button on KAYAK, you see this phone number, it shows up every now and then. We have two million people a day coming to the website. The phone number shows up, right now, about 30 percent of the time. But I can dial that up and down.

[20:30] And when the phone rings, it rings very loudly. And the engineers used to complain to me that this is so annoying, this phone. I was like, if it's too loud and it interrupts you, it's very simple what to do. Number one, if you actually pick up the receiver, and lift it off the phone, it stops ringing.

[laughter 0:20:47]

Paul: [20:49] The second thing is, if you then hold it, and there's a human on the other end of the line, do whatever it takes to make them happy, like really happy. And when you're done, you can hang up the phone, you can unplug it, walk down to the other end of the hall and plug it in down there. And we had a little bit of a hot potato. [laughter 0:21:07]
[21:06] But if you visit us, my office, we're across from Pepperazzi, on Route two in Concord now, getting a little bit closer to where I live in Arlington, from my original home in Maynard. But if you visit us, you'll see that when the phone rings, I will literally jump over desks to answer it.

[21:22] And I think there are two reasons. One, I love talking to customers. And two, I'm trying to set the tone for the company, that we're a company that executes in real time. And by executing in real time, it means time is defined by customers and what's going on with them right now.

Larry: [21:36] So, KAYAK's a big company now. It's a couple hundred million dollars. It's very profitable. It's very high profile. It's probably the top consumer Internet company in the area and it gets noticed. So there are some big players coming into this space.

Paul: [21:53] Sure.

Larry: [21:55] So talk a little bit about how you compete at that level. How do you build a really significant company? What do you worry about as the company gets bigger? Things like that.

Paul: [22:07] Yeah, I'm excited about change and having people take notice. We're a big company in terms of reach. So last month we had 60 million customer sessions on the site. That's pretty good for a startup. [22:20] And these are people who come to KAYAK with the intention of buying something which is going to cost hundreds of thousands of dollars. So it's good traffic. We're a small company in that we're only 100 people.
[22:30] Expedia's a few times bigger than us in traffic, but they are 100 times bigger than us in employees. So, revenue per employee is a very important thing for me. And I have some secret recipes about how you can create companies with $1,000,000 or $2,000,000 or $3,000,000 revenue per employee. It has to do with the type of people you hire and how you align them.

[22:49] But we have been successful. We're continuing to grow very rapidly. Travel is eight percent of the U.S. GDP, but it's almost half of eCommerce. The reason it scales disproportionally high is that travel is something; it's very easy to buy online. You don't need a FedEx truck to show up. And it's also high-ticket items.

[23:10] Because we've been so profitable with the model we've built and we're growing so fast, we're getting attention. Google is entering more and more into our space. There's all kinds of rumors circulating about them maybe even doing an acquisition of another local Boston travel company. It's a company in Cambridge called ITA Software, which is one of the technologies we actually use in our backend.

[23:31] Now, when people ask me if I am afraid of Google, my first response is - and I'm getting excited right now just thinking about this is, "Bring it on!"

[laughter 0:23:40]

Paul: [23:40] And I know how dangerous that is. I know there's probably some idiot at MapQuest that said, "Bring it on!" And they didn't see what happened to them when Google just vanished them from the earth. [laughter 0:23:53]

Paul: [23:53] And I have a friend who worked on the Google Maps team and she told me what they actually did. It was astonishing, the force that Google brought to that space and the massive innovation. But, in general, I like being competitive. I think it motivates a good team and I think it ultimately leads to good products for customers. [24:12] Will Google be successful in travel? I don't know. Let's take a look at some other things Google's working on right now. So you guys all know Twitter and Facebook. How are you liking that Google Buzz and Wave thing? Is everyone going to use that every day?
[laughter 0:24:26]

Paul: [24:27] Google's not successful in everything they do. I don't mean to dis them. I think it's a phenomenal, transformational company. I think it's one of the most, maybe the most, tech company created to date. But if they come with a direct KAYAK competitor, I swear to God it's going to get me excited more than scared. And we have a lot of cool stuff coming out.

Larry: [24:48] Great. So, maybe shift topics a little bit because you do KAYAK during the day and then, at night, you do a million other things. And the million other things, I think, is fascinating; from philanthropy to technology. Why don't you talk a little bit about the thing you're passionate about outside of KAYAK?

Paul: [25:06] Sure. Yeah. So, work related outside of KAYAK. And the other thing - so Scott, who I feel bad, invited me to this conference here, a few times and I kept turning him down. In general, I don't do industry things. I don't read business books. I don't go to travel conferences. I don't go to industry events, because I love my work. I love my team. I love my customers. But, when I'm outside work, I want to be with my kids or with my girlfriend or reading or traveling or whatever.

Larry: [25:30] Our biking, biking. Yeah.

Paul: [25:32] Or biking with Larry, trying to get ready for Pan-Mass if he doesn't kick my ass like he did last year. [laughter 0:25:37]

Paul: [25:39] But there are some things I do, outside of my nine - 5, that are very important to me in areas relating to global health. So, I've been doing some work with Paul Farmer for about 10 years now. I met him through a mutual friend, a guy named Tom White who is 90 years old this year. [25:55] And I have projects now in six countries that I have different levels of involvement in, starting in Haiti, but then in Rwanda, Burundi. In fact, as soon as I leave this, I gotta get to New York for a board meeting for Village Health Works which is a Burundian based clinic we're building.
[26:13] So I have products in different levels of involvement. So, Haiti, Rwanda, Burundi, Uganda, Malawi, Zambia. I guess those are the big six, and then smaller ones elsewhere.

[26:26] One of the things I'm learning recently, as you build medical clinics in new areas, there's three things you need to do in terms of infrastructure in the following order. One is get clean water. There's a lot of cool innovation happening there in cost reduction and quality improvement. And it's dramatic in terms of how much it transforms a village when clean water gets put it. I cannot overstate how much you can change an economy, education, everything by clean water.

[26:56] The second thing you want is clean power. And a lot of power innovation is actually happening in developing countries because it's their only option, is to find new ways to get power. There's some very interesting research and partnerships being done at MIT in different developing country areas.

[27:14] And the third thing you want is clean Tel-Co. I've seen what happens to a clinic, a remote clinic, when they doctors - more likely, there's not enough doctors and nurses, but the community health workers, when they have access to email or Skype, it changes thing in a big way.

[27:31] And I've realized in each of these projects I'm involved in, in different capacities, the Internet thing kept coming up. And so recently - I guess this is the first time I'm talking about this. But I'm at the beginning of a new project, which will be my next 10 year project. I'll be at KAYAK, of course, pushing it, pushing it, but I'm starting a new project that has an audacious goal of creating free low-bandwidth Internet for the whole continent of Africa.

[28:04] And the reason someone would try to do something that crazy is if you see, firsthand, how education, healthcare, and economic development is transformed when information flows freely, the challenge is how to do it and how to do it that big.

[28:22] And the reason I like to think that big is, you know, we all measure the size of our life, and we each want to get a lot of stuff done. And I want to get a lot done. And so, rather than taking about half a dozen countries and villages, it's like, "Let's think much bigger."

[28:40] And when you think bigger, it forces you to innovate in ways in which you wouldn't have thought about if you were just worried about doing something in Cange in rural Haiti. And so I've started a project now. I have two Sloan students working for me fulltime for the summer. And I have some other collaboration at MIT and elsewhere in different countries in Africa. And if anyone here does African IT and you want to get in touch with me about this project and you want to help, my email address is paul {at} kayak {dotcom} .

Larry: [29:08] Great. We have a couple minutes left. Maybe open up to any questions from people in the audience for Paul. Any topic at all.

Man 1: [29:19] Paul, so the Google [indecipherable 0:29:22] . It would seem to me that Google has failed in areas that are not search related, but actually has done, as you indicated, with mapping [indecipherable 0:29:35] search and they've done quite well. So I'm wondering how your investors are reacting to that information.

Paul: [29:46] Yeah. We've seen Google coming for a long time. KAYAK is six years old. For six years, I've told my team, "Google is six months away." I've been saying that for six years, and I'm still saying it. It might be less than that. [30:04] Google has already started encroaching on our space. The Google Maps product, which is a great product, now has the ability to - they're testing showing some hotel availability and pricing. They have this one box solution, if you type in Boston, Miami, you count the dates and kick off searches from there to KAYAK and other sites. Clearly, that could easily be integrated.
[30:27] It's true that Google, if you look at the 30 verticals where Google exists, I think they lead in maybe two of the 30, two or three, search and Gmail. I love Gmail. It's not the number one email service provider yet, but I do love that.

[30:43] But a lot of it - they do have search products which are not the best right now. I think Amazon is a better search for product than is Froogle or Google Products. But when they come after some travel, you'll see that there are a lot of different things we're going to be doing that are things that Google can't do and won't do as well as KAYAK is going to do.

[31:02] There are some things that we are doing with Facebook that Google can't do and won't do. There are some things we're doing with Apple that Google can't do and won't do. There are some things dealing with travel that we are going to have a different spin on it than the way people at Google think about consumer software.

[31:15] And I'm sure I'm going to get some bruises in this fight, but we're looking forward to it. I think travel is too important for someone to just not have a trusted, "This is my travel app. This is the thing that I trust will get the unbiased, every hotel in the world, every flight, every rent-a-car, cruise." And I think having an independent brand for travel makes sense as long as we can keep innovating, and as long as each month our product gets simpler and faster. And, you know, I'm signed up to do it. We'll see what happens.

Larry: [31:48] And your investors are filing behind you.

Paul: [31:49] Yes. [laughter 0:31:50]

Man 2: [31:53] I have a two part question. One is, we spent three weeks in Africa recently, and the availability of healthcare professionals is dismal in Africa in general. One question is: Do you see a solution around that space? And the second question has to do with your philosophy around managing your board of directors and that comment from your board member. Is he dead? [laughter 0:32:20]

Larry: [32:23] He's not on the board! [laughs 0:32:24]

Paul: [32:27] Yeah, he's a bigger guy than me, too. So on the first one, the healthcare, Paul Farmer says there should be no such thing as healthcare volunteers. There should be healthcare workers. [32:43] And so Partners in Health, starting in Haiti, they created a program called A Company at Tour, which is taking someone who is a former patient, maybe dying of AIDS, and once they get in for treatment, you bring them back and make them strong and healthy so they can now care for the kids and whatnot. In most cases, A Company at Tour hires women, women being better providers, and more responsible, in many cases.
[33:10] And what Paul's team has done is take these former patients and say, "OK. You are in good shape now. You've put on 30 pounds. This is what you looked like before. You can now take care of your kids. You're strong. Here is the deal. You now work for us, but it is under the following conditions. We are going to pay you. So we'll pay you maybe $10 a month," which in undeveloped countries, that's an awesome salary.

[33:40] "Number two is we are going to put you through rigorous training and testing and certification. This is not a volunteer organization. This is something that is intense. When you finish our training program, we're going to put you in charge of four, or five, or six homes, and your job is to do whatever it takes to keep people alive and healthy."

[33:57] And the thing that's amazing about this is you go into an area where it's very, you know, economically depressed, where there's no - these things feed on each other - where's there no economy. There's not good education, there's not good healthcare. When you start building healthy members of population who are then given the tools and the finances, which doesn't cost that much, to then help keep everyone else in good shape, there are a lot of good things that happen.

[34:28] Fertility goes down. There's this myth from the Western World that, "Gee, these people are so screwed because they have too many babies." That's not accurate. There's a lot you can do when these health workers become trained and take care of them even if you don't have doctors there's a lot you can do with a village taking care of itself.

[34:46] And Paul Flower has proven again, and again, in the countries he's been in. So I like that model. There are other models, but I like that one. On the second question, the person who relates to that quote is a good friend of mind, David Fialco. He works with Larry at General Catalyst. Like I said, he's a little bigger than me, so I hope he didn't take me too seriously.

Larry: [35:04] If you took literally everything he said he'd be dead 100 times.

Paul: [35:09] But Fialco and I became very good friends. We started off with a little pretentiousness in the relationship but he's an amazing guy.

Larry: [35:21] Talk a little bit more about your board. I mean, you've got Mike Moritz there. You sometimes complain to me about your board. Be honest.

Paul: [35:28] No. We have a great board. We had a board meeting yesterday in San Fran. So in addition to Terry Jones, the founder of Travelocity, as our chairman, he's a great industry guy. Greg Slyngstad, creative expediter is a director and investor. Incredibly product guy. He was the first program manager for Word for the first Sun releases. Even though he gave Larry and me some pain. [35:49] We looked at Word and said, "That little toy, that's not going to hurt us. We are real desktop publishing." So Greg is the guy who kind of kicked both of our asses. Michael Moritz from Sequoia.
[35:59] Michael is arguably the most well known venture capitalist in the world. He's been on Google's board, Yahoo's board, et cetera, et cetera. I spent the whole day with him yesterday. The thing that most impressed me with Michael is confidence, he's concise, just always about what can you do to raise the stakes.

[36:23] And I have so many great stories of things I've learned from him at my time at KAYAK. We also have Harry Nelis from Excel UK. We we were created within General Catalyst series A, and Mike Coffin and I.

[36:35] Series B was Michael Moritz at Sequoia. Series C was Harry Nelis at Accel. The reason I took money out of Accel UK, the theory was if I took European money it would help me with recruiting in Europe. Hasn't worked out exactly the way I wanted. But Harry's a very good guy. An ex-Goldman guy. Don't hold that against him.

[36:51] And then Michael Moritz at our series D again when we did the acquisition of Side Step. So it's a pretty amazing board.

Larry: [36:57] And Joe.

Paul: [36:59] And of course, Joel Cutler. Who I view actually as the creator of KAYAK is Joel Cutler. Joel's the one that put Steve and I together. Joel has deep roots in travel. And if you don't know him, you want to get to know him. He's completely insane. And I love him to death. He's great.

Larry: [37:18] Any other - back there, Scott.

Scott: [37:21] I was just curious, do you much thinking about for AV testing around how do you actually get transactions to happen? What have you learned about kind of what moves the needle with someone who's s just a KAYAK researcher versus a real devoted KAYAK buyer?

Paul: [37:36] Yes. We have a whole experiments platform. A couple of years ago I hired a guy named Giorgos Zacharia at MIT as our chief scientist. I think Giorgos has five of the 25 MIT degrees I've hired in the last couple of years. [37:53] One of his jobs at KAYAK is to run the whole analytics platform, so that at any moment we are running multiple versions of KAYAK. If you run KAYAK on one computer and the next one, side to side, they can look radically different. Some of our experiments are short-lived. We run them just for a day or half a day. Some of them will go on for more than three months. There's a lot we learn from that machine. It's a machine learning platform as well.
[38:15] And we absolutely are one of these companies that fights about what color blue should that blue be. And how many pixels should the lettering be between this line and that line. And part of it is we have a particular aesthetic which I have to admit, I don't think I've said this before, but our original plan was to be the anti-Expedia.

[38:35] So Expedia was the big guy in the space. So we said, "OK we are going to go in this crowded space, there's hundreds of venture backed companies, let's pick the biggest guy and lets do what they're not doing." And Expedia had this very - I'll try to be kind - lush look. And so we took this Craigslist approach.

[38:51] Or Tufty, Simplicity. And we have a certain design that lives within a few of us. But we test it like crazy. And we do evolve it. Every Thursday a new release of KAYAK goes out. On the iPhone, Android, and Blackberry, we release new versions of those software probably every three weeks. And interestingly, those are taking a different look than the website. We are actually taking a more beautiful look on mobile than we do on the website. Any other questions?

Larry: [39:24] Dharmesh.

Dharesh: [39:26] I'm really inspired by the seven day maniacal, go after someone that [indecipherable 0:39:29] . Any advice as the organization grows in terms with recruiting entrepreneurial talent, because that five employees is easier to do than a 50 versus 500, how do you get those entrepreneurial types and recruit them? What did you do? What are your tactics?

Paul: [39:43] Yeah. I mean the first thing is identifying them. And how badly do you want those people. So if you ask any KAYAK employee, "How often does Paul ask you who's the smartest person you ever knew? Who's the fastest person?" Whatever. They are annoyed. Because I ask them the same question. I find 20 ways to ask the same question. If people are with me for 20 years, I keep asking the same question. [40:03] I'm hoping they'll ask me one of these times but it they haven't yet. So part of it is a hunger just to find these people. And there's a woman I just hired. Her name is Iolanthe Chronus.
[40:14] I hired her as program manager for all of mobile for KAYAK. She's 23 years old. It's been an incredible responsibility we are putting on her shoulders. And when I first heard about Iolanthe or Lanthe, there was another young programmer that we had, and I asked her who's the sharpest person you've ever met.

[40:30] He said, "Lanthe." No. He actually didn't give me her name. He said, "There's a woman at MIT." I said well who is she? He goes, "I'm not going to tell you her name." I said, "Why won't you tell me her name?" And instantly like the clock already started ticking, and it took me actually a couple days to get her name. He said, "I don't want to tell you her name because I'm hoping that she might start her own company and I might go join her."

[40:55] And this guy Pete, I love him too. So I'm like, OK, now there's two reasons why I need Lanthe. I don't want to lose Pete.

[41:02] Anyway I finally conned him into getting me a meeting with her. And she had already been in the final stages of accepting a job in California. But, I got her to join KAYAK. And part of it was the aggression the whole team put on. Someone actually interviewed her about what it was like to interview at KAYAK. And she said it was breathtaking because she walked in and she felt like, "Wow, this team not only interviewed her but that team had a mission, which was to get her to join the team."

[41:29] She walked away feeling, "Holy shit." This team is highly competent and they are really, really aggressively going after her. So she turned down the West Coast and stayed with us. I think bringing on young leaders and leaders that have worked in different spaces and think differently, that have different ways of doing risks, is always healthy to reinvent themselves. I hope we are always going to be doing that.

Larry: [41:53] Great. Well, I think we are out of time.

Bill: [41:57] One more question?

Larry: [41:58] Time for one more question. Bill.

Bill: [42:00] Well, it's actually something we had discussed before about the [indecipherable 0:42:04] because I think it's such a groovy thing. But you have an insanely small team. And when you have an insanely small team and really insanely by revenue per employee, that can fuel - and most people don't even believe it's possible to do what you do.

Paul: [42:22] Yeah. And people don't believe that we answer every email. We had two million people on the website today. Try, go to KAYAK, hit the feedback button, send an email. You'll get a personal reply from me or one of the engineers. Like, the math doesn't work. How do you do that? I don't have any support people. And people will say why would you pay an engineer a buck fifty instead of paying someone in Tucson $8.00 an hour. [42:41] And the reason I answer every single email that comes in. I personally read every email. And myself and the engineers answer every email. Is that it's a bit of a tautology, if we take support seriously rather than deflecting you to an IVR or to our frequently asked questions that we take everyone personally.
[43:00] What's going to happen is the second or third time we get the same question we are going to say I am so sick of answering that question. I better stop what I am doing and go back and rewrite that UI so I never get that question again. And we are really, really serious about it. So I think that's been one of our secrets is that we answer every call.

Larry: [43:21] Terrific. Thank you for coming. [applause 0:43:24]

---

A lot to think about and digest. I encourage you to read/listen to the whole thing if you have time.

Any particular points resonate with you? Are you inspired to go buy a loud-ringing red phone for your startup?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Dinner With Tim O'Reilly At 27,000 Feet And Notes From Foo East

Dharmesh Shah — Mon, 03 May 2010 16:37:00 GMT

I’m writing this article on a flight from Boston to San Francisco. In a weird, serendepitous twist of fate, I happen to be sitting right next to Tim O’Reilly on the flight. So yes, I really did get to have dinner with Tim O’Reilly at 27,000 feet.

For those readers that are used to pithy, pointed, helpful articles along the lines of “Startup Marketing: Tips From The Trenches”, this may not be the article for you. This is going to be more of a stream of consciousness thing where I make an (undoubtedly ineffective) attempt to capture some of the things I’ve learned from being on the road the past few weeks at various events and gatherings and having the undeserved opportunity to talk to some really smart people. You need to prepare yourself because I don’t have a particulaly strong knack for narrative (but I’m good at subtlle alliteration, as the more astute of you may have noticed in this sentence). This is going to be a bit wordy. Fasten your seatbelts. (My apologies to Jason Fried, who is brilliantly brief and whose head would explode if he read this article. Sorry, Jason, I’m just not that good yet).

So, lets get started. I’m going to take a LIFO (Last In, First Out for those that are not CPAs or didn’t take remedial accounting in college). Or, for those that are not into accounting, but watched the movie “Memento”, this is kind of like that, only different.

So, lets talk about Tim O’Reilly. He’s sitting right next to me on the plane (working away furiously himself on his laptop and I think subconsciously grateful that I’m such a good seatmate because I wouldn’t dream of being the obnoxious fellow passenger that has nothing important to do and as such can’t help start-up inane small talk). At first, I didn’t know/realize that it was Tim sitting next to me. What sparked the conversation was that in another weird twist of coincidence, I am reading the latest issue of Inc. Magazine that just happens to feature Tim on the front cover. But, that’s not really that important (other than being freakily weird). What I want to talk about instead is my experience from attending part of the recent “Foo Camp East” (#fooeast for those that are tweeting) in Cambridge yesterday. So, lets rewind…

Late yesterday afternoon, I took a small, 9–person plane from Nantucket Island (ACK) to Boston (BOS). I was on Nantucket Island to attend the simply named “Nantucket Conference” organized in part by the ever clueful Scott Kirsner. More on the Nantucket thing later. It was a beautiful day in Nantucket. Almost perfect. The only reason it wasn’t perfect is that I’m not sure what exactly perfect weather looks like, but in my book, this was pretty damned close for many people. But, I had to leave that perfect weather and fly back with the lovely @kirstennet (my wife) who was inexplicably understanding about this neet to fly home. Here’s the (literal) transcript of our text messaging that afternoon (I’m at Foo Camp, she’s enjoying the beautiful weather in Nantucket):

Me (9:27 a.m., from conference room): Good morning sweetie. I’d like to fly out at 3 pm today so I can attend foo camp. Do you want to stay here an extra day? Skies are calm for flying today.

Kirsten (10:11 a.m.): I’ll pack and come with you.

So, we hopped on a plane and in the taxi from Boston’s Logan airport, I’m like: “You know, I’m already kind of late for this foo camp thing, would you mind if we just stopped in Cambridge and you dropped me off for foo camp and you go on home with our luggage without me?” She’s like “sure, no problem” so that’s what we did, and so I went to Foo Camp. (Note to self: There are many reasons I love my wife, this kind of understanding is but one).

Foo Camp was a little overwhelming at first. It might have been because I was kind of jumping in mid-stream (the event started the day before) but the organization was great, there was someone at the registration desk to greet me, give me a quick lay of the land and a free t-shirt. Foo is mostly an “unconference” (the sessions are constructed “on the fly” and the schedule is kept on a white board and people show up and talk about whatever they’re interested in). I mostly like that concept, with the one negative being that it’s really hard to tell from some of the topic descriptions what’s actually going to be interesting. But, it works in a “life is a box of chocolates” kind of way. Of the sessions I attended, my absolute favorite was “Privacy And Behavorial Economics” conducted by a professor from Carnegie Mellon who had sone some recent research to dig into how people think about privacy (particularly online privacy) and why many of the things that online companies are doing today are diabolically clever.

Here are a few quick take-aways from that session:

1. People make imperfect decisions because not all the information needed for that rational decision is available to them.

2. Even if they had access to all the information needed for optimal decisions, they often don’t have the “computational power” to process all that information (i.e. just because you have access to a bunch of data, doesn’t mean you can absorb it and factor that into your thinking).

3. The ability to “control” one’s privacy (like Facebook does with it’s fairly granular share X with Y feature) actually causes people to irrationally share more information than they would have otherwise.

All of these were highlighted in the presentaiton with some brilliant “experiments” that had been conducted to scientifically study this overall phenomenon. On a side note: There was a sociologist in the room and he was continuously dubious of all of the studies and kept bringing up the “imperfection” of the experiments. The presenter did an outstanding job of making the argument that no experiments are “perfect” and that this imperfection does not, by definition, make the experiments useless. The “reductionist” approach tries to simplify complex systems and control for whatever variables can be pragmatically controlled to try and gain some sort of understanding. He did that, he was very, very clufeul and I enjoyed the presentation immensely. My big takeaway was that we all need to think really hard about privacy as we try and colllectively figure out what the “right” balance is in this “what should be public, what should be private, and who gets to decide” debate.

Another session I sat in on was on “Open Platforms: Apple vs. Twitter vs. Facebook”. Brad Burnham (from Union Square Ventures) led the discussion and Tim O’Reilly was there too. It was a big topic (particularly given the recent news). I don’t have notes on a lot of the other stuff that was said, but I’ll share my thoughts (because hey, it’s my article: Apple is mostly a closed company. They’ve always been that. It’s their strategy. They are closed because they believe that to bring a new technology to market (like the iPhone or iPad), the key is to “control” the entire experience and solve for simplicity and ease-of-use. Steve Jobs like to control the edges so that he can create a brilliant product — which he is a genius at. That’s Apple’s thing. No big surprises there. Over time, as the market gets more comfortable, it starts valuing price/performance/third-party-stuff much more, and we move towards a more “open” system where not everything is vertically integrated. Twitter is mostly open — and has been since its inception. They’ve behaved like a platform provider (or even a utility provider). Some of the recent developments has created some tension within their developer ecosystem, but as long as they don’t do really stupid things (like making some functionality only available to their internal apps), they should be OK.

The really big topic to talk about are the recent announcements from Facebook. There’s big stuff afoot at Facebook. The two really big announcements recently are: 1) The lifting of the restriction on storing data retrieved through the API (effectively meaning, you can have a partial “copy” of the Facebook information stored in your own database. 2) The ability to convert any web page into a page that behaves like a Facebook Fan Page. This page then can be “liked” — and most interestingly, the people that “liked” the page can later be sent messages (just as if they were fans of an internal fan page). Heady stuff. I’ll be playing with all of this once I get through some of this conference and speaking stuff this week.

Foo Camp (East) was held at the Microsoft New England Research and Development center (NERD) an exceptionally nice facility in Cambridge, MA (a block from the current HubSpot offices) that Microsoft has been kind enough to make available for all manner of tech-related events. Hats off to Microsoft for contributing their facilities to the community so readily.

That evening, there were a series of “Ignite” presentations. These are (exactly) 5 minute presentations, with 15 slides, where the slides auto-advance every 15 seconds. It’s an exercise in discipline, constraint, creativity and timing. It looks like it would be really hard. I’d definitely suck at it. Several of the presentations were really good. One of my favorites was Hilary Mason’s presentation “How To Relace Yourself With A Very Small Shell Script V2”. Hilary works for bit.ly now and she is awesome. Tactical tip for Ignite presenters: I saw one of the presenters had a sliding “15–second clock” on the bottom of each slide. That worked really well for her, and the audience.

So, later that night at Foo Camp, I got pulled into a game of “Werewolf” by the lovely Laura Fitton (aka @pistachio) who is a big ‘ole bundle of awesome. (I’d say that even if I were not involved in her company OneForty, which I am). I’d never played the game before, but Laura was kind enough to explain the basics to me. Long story short, I ended up playing the game until around 2:00 a.m. in the morning at which point Danah Boyd, our fantastic “moderator” had to kick us out from the Microsoft facility so she (and others) could get some sleep that night. And, as long as I’m in name-dropping mode, Anil Dash and Gina Trapani (of LifeHacker.com fame) were there playing all night too. For the record, don’t ever play poker with Anil. He’s bad-assed. But, Gina, you rock and we totally nailed it in those last two games. It was diabolically brilliant game play.

But, I digress. So, I was at Foo Camp, and the second “O” stands for O’Reilly and that’s who I’m still sitting next to (thank god I type fast, because I’ve written a lot, and still have an hour and a half before landing). Tim’s one of the very few successful people that I aspire to be more like. Don’t get me wrong, I respect a whole bunch of great people who have accomplished more than I can ever hope to, but Tim is in a special category. He’s got that rare mix of super-smart, hyper-entrepreneurial, highly-successful and, most importantly, cares deeply about his time on this planet and what he can do with it. I respect that. I also respect that he exhibits common human courtesy despite his success — which I’ve gotten to experience first-hand, sitting next to him. It’s hard to respect people that are disrepectufl to others, and Tim is a nice guy even after having a brutally long day/week. In any case, second to this “generally nice guy” part, what I like most about Tim is that he’s a true thinker. He can move between various levels of abstraction based on the situation and the need. He likes patterns. I like people that like to study patterns. He’s also been kind enough to meet with my co-founder and I so that we can get his advice and thinking on HubSpot.

Whew! When I first started this, I thought I was going to write about things from Foo Camp (East) and the Nantucket Conference. But, this article is already way over the limit in terms of normal reader attention-span, so I think I’m going to wrap it up and save the other stuff for a different day. I’ve got a ton of great notes from the Nantucket Conference which I’ll try to post later this week. And I’ll work on being more concise next time too.

I’d like to close with a question: If you could manifest the traits of a successful tech entrepreneur, who it would be? (I’m not talking about the actual success, but the things that you belive made them successful that you’d like to have more of yourself)

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

5 Tips On VC Alignment: Discuss The Exit Before You Enter

Dharmesh Shah — Thu, 29 Apr 2010 14:04:00 GMT

The following is a guest post from Jeff Bussgang. Jeff is a serial entrepreneur and currently a general partner at Flybridge Capital Partners, a Boston-area early-stage venture capital firm. Jeff is also the author of the recently released book “Mastering The VC Game”.

One of the hardest things about venture-backed start-ups is achieving alignment. When there is alignment between entrepreneurs and VCs, all collective energies are directed towards the magic of building an amazing, world-beating start-up from scratch. When the entrepreneur and VC are out of alignment, the likelihood of success plummets and self-inflicting wounds, rather than market- or competition-related issues, tend to dominate the agenda.

In researching my book on entrepreneurship and VC, Mastering the VC Game, the issue of alignment came up again and again from both sides of the table. Here are some of the best practices I heard from the entrepreneurs and VCs I interviewed:

1. Be explicit from the start. Naturally, there will be pockets of misalignment – VCs and entrepreneurs answer to different masters and sometimes have different structural objectives. Making explicit these pockets of misalignment and talking them through openly is often even more critical than the particulars of, say, the deal terms in a financing. One useful technique for clarifying the various scenarios of misalignment in financings and M&A outcomes is to maintain a simple spreadsheet with the entrepreneur-VC split laid out under different exit outcomes. This distribution of proceeds in the event of a sale is often called the “waterfall,” evoking an image of sale proceeds cascading like a river to various shareholders. I recommend entrepreneurs be clear at all times and at every financing about what the waterfall calculations look like for each of the preferred and common shareholders.

2. Seek first to understand, then be understood. I borrowed this one from Steven Covey. It’s important that entrepreneurs understand the VC’s perspective in all situation and through what lens they are looking at things. For example, if everything goes well, most of the control-oriented provisions in a term sheet never come into play—it’s all discussion, earnest debate, and aligned decisions. But when things go poorly and there are the inevitable disagreements, the VC is often in the driver’s seat to make major decisions. Only in rare circumstances can the entrepreneur retain full control of major decisions after they take VC financing. Therefore, entrepreneurs need to invest the time and energy to understand how VCs are compensated, motivated and what the particular interpersonal dynamics of their board member are within their partnership. For example, how much carried interest does their VC board member have in their respective partnership compared to the other partners? VCs always want to know how the equity is split amongst founders. Turnabout is fair play.

3. Don’t take it personally. Zynga founder and CEO Mark Pincus put it very well to me when he said, “I tell entrepreneurs: don't be a victim. It doesn't matter whether you like the venture capitalists or don’t like them, really. Structurally, they have areas of conflict and areas of overlap with you. Depending on the way things go, there's a high likelihood that you're going to run into conflict with them at some point, whether they're your friends or not. And what defines great companies and what defines great venture capitalists and great entrepreneurs is not whether or not you run into those conflicts, but it's how you navigate around them.” The key is to de-personalize this and simply understand what is the job of a venture capitalist and what are their levers. Mark voiced every entrepreneurs fear, “All that we feel as an entrepreneur is, ‘They're trying to get control of my company. They want to mettle. They want to second-guess me when things go bad and ultimately fire and replace me.’” It’s natural for those issues to come up. So talk about them, as dispassionately as you can.

4. Discuss the exit before you enter. Before you accept a VC’s money, make sure you are on the same page about your financial objectives and what defines success in terms of ultimate outcomes. If you don’t see eye to eye on the exit criteria and framework in advance, don’t bother entering into business together. Some VCs, particularly those with smaller funds, like you to raise less money and operate in a more capital-efficient fashion. Others, particularly those with larger funds, will push you to go for the bigger outcome. The nightmare scenario arises when an entrepreneur may be thrilled with a $100 million exit, but the VC doesn’t feel it’s “good enough” and blocks the transaction to play for a bigger win. The VC is swinging for the fences and has many chances in their portfolio to generate enough returns to ensure success for their fund, while the entrepreneur may feel this is their one shot and being a multimillionaire is good enough. Fred Wilson tells a great story I include in the book about a team of entrepreneurs getting pressure from their spouses to take the $100 million offer and cash out. Hard to argue with your spouse that it’s worth doubling down on your start-up when paying down the mortgage and putting enough money to pay for college is priority #1!

5. Communicate, communicate, communicate – no surprises. In trying to ensure VC-entrepreneur alignment, nothing helps like clear, transparent, high frequency communication. And nothing hurts like a lack of transparency. “No secrets. No surprises,” Dave Balter CEO/founder of BzzAgent explained. “I heard that early as a CEO. If something new is going to come up in a board meeting that’s not good, put the calls out early to the directors. ‘Here’s what’s going on, here’s why. I want you to think about it. Help me.’ So when we get in the board meeting, they don’t say, ‘What are you talking about?’” I had one situation where a CEO revealed to me that his technical co-founder was moving to Spain for personal reasons right in the final stages of a new funding process. He was nervous about telling me, but did it in an honest and open way as soon as he found out. His candor was compelling to me, and his plan for recovery was pragmatic and thoughtful, so we still funded the company.

To be successful partners in business-building, entrepreneurs and VCs have to trust each other to be open about their motivations. In the case of the entrepreneur, they may be trying to protect their position of power at the expense of shareholder value. In the case of the VCs, they may be trying to achieve gains on behalf of their limited partners at the expense of the other company shareholders. If entrepreneurs and VCs suspect that the hidden motivations of the other are dominating their behavior and their decision making, they will lose trust in their advice and counsel. That’s when the soap opera stories begin.

In the end, entrepreneurs need to raise the right amount of capital for their business, under terms they can live with (and can achieve under the circumstances) from VCs with whom they have great chemistry and who they believe will be good business partners for the long, hard journey. It’s difficult enough to build a large, valuable company from scratch. Imagine if you get some key decisions wrong and start off with the wind in your face.

But the right decisions and the right VCs put you in a position with the wind at your back, allowing you to focus on all the tough challenges of building a business and creating value in your start-up.

Learn more about Mastering the VC Game at www.jeffbussgang.com. You can follow Jeff on Twitter @bussgang.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Startup Culture: 23 Insights From The NetFlix Culture Deck

Dharmesh Shah — Mon, 19 Apr 2010 16:34:00 GMT

If you have time to read one document on the topic of startup culture, you should read through the NetFlix “culture deck”. If you have time for two, read through the NetFlix deck twice — it’s that good. It is so good, in fact, that I’m surprised when I come across entrepreneurs that haven’t seen the deck yet. These are people that read all sorts of great material on the web to help their startups.

So, as a public service, I’m sharing with you the best presentation on startup culture I’ve ever seen (including one we’ve created ourselves at HubSpot — more on that in a future article).

Insights From The NetFlix Startup Culture Presentation

These are just some of the points that jumped out at me. I’m sure you’ll have your favorite parts too.

1. Comes right out and says who the “freedoms and responsibilities” applies to. In their case, salaried employees only.

2. Lots of companies have nice sounding values, but real values are defined by who gets rewarded and who gets let go.

3. You can articulate what you are, and are not trying to do.

4. You can separate what must be done well now, and what can be improved later.

5. You treat people with respect, independent of their status.

6. You accomplish amazing amounts of important work.

7. You focus on great results, rather than process.

8. You have a bias-to-action rather and avoid “analysis paralysis”

9. You create new ideas that prove useful.

10. You find the time to simplify so we can stay nimble.

11. You are quick to admit mistakes.

12. We’re a team, not a family.

13. A great workplace is stunning colleagues.

14. You behave like an owner of the company.

15. Prevent irrevocable disaster.

16. “There’s no clothing policy at NetFlix, but no one has come work to naked lately.”

17. Act in the company’s best interests.

18. Flexibility is more important than efficiency in the long term.

19. Best managers focus on context rather than control.

20. Titles are not very helpful.

21. Compensation should be about external market value, not internal parity.

22. In some groups, there may not be enough growth opportunity for everyone.

23. Individuals should manage their career paths — not the company.

Which ones do you like? What did you like that you would have included? Which parts of the presentation do you disagree with?

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Y Combinator Finally Gets Some Kick-Butt Competition With Y Permutator

Dharmesh Shah — Thu, 01 Apr 2010 13:35:00 GMT

I’ve been following Y Combinator for several years and have a (sometimes grudging) admiration for them. The “grudging” comes from the fact that they abandoned Boston and are now exclusively running their program in the Bay area.

Given YC’s success, several organizations in the past have tried to replicate or improve on Y Combinator’s revolutionary micro-funding model for startups. Most of these have not really accomplished the objective. The reasons for their failure have been varied, but the primary one was that unlike Y Combinator, they aren’t revolutionary. Nobody sat down and said “how do we really take what YC has done and turn it on it’s head.”

Until now. I just read about Y Permutator. There’s a lot I don’t like about YP — one of which is it seems to be backed by some old school venture capitalists. Not that there’s anything wrong with them, I just have a hard time believing that those that made all of their money in the 1990s and maybe even the 1980s (gasp!) are really going to understand what it takes to start a new kind of investment vehicle. But, I have to give credit where credit is due. It’s different.

It goes back to the basics and brings back some of the same things that made VCs so successful across the decades — but adds some new twists.

I'm going to be particularlly interested in seeing what folks like Brad Feld, Davic Cohen, Dave McClure, Eric Ries, Fred Wilson and Michael Arrington think of this. But, somehow, I don't think the top-tier VCs are going to be shaking in their boots.

If you’re in the market for some micro-funding, check out Y Permutator and let me know what you think. Is this the future of micro-investing? What do you think?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Notes From SXSW 2010 And A Fabulous Startup Dinner

Dharmesh Shah — Fri, 26 Mar 2010 00:27:00 GMT

I am writing this on the plane trip back to Boston from SXSW in Austin, Texas. This was my first time down to the conference that’s been referred to as “Spring Break for Geeks”. I’ve been meaning to go for the last couple of years, but have always had some conflict. This year, I was invited as a speaker to talk about my new book, “Inbound Marketing”, so I went.

Super Awesome Startup Dinner

The highlight of my entire trip was not the conference itself, but a last-minute dinner I organized with some startup founders that also happened to be there. Here were the folks in attendance:

1. Jason Fried, 37signals

2. Drew Houston, DropBox

3. Mike McDerment, FreshBooks

4. David Greiner , CampaignMonitor

5. Kevin Hale, Wufoo

6. David Heinemeier (DHH), 37signals

7. Adam Smith, Xobni

8. Dharmesh Shah, HubSpot (me)

This was a fantastic group of startup founders all of who have been doing some amazing things with their companies. We spent 4+ hours at the table eating, drinking and debating some of the finer points (and not so finer points) of running a software startup.

So, what did we talk about? A bunch of stuff including (but not limited to): hosting (managed services, colo and EC2), the importance/unimportance of a board of directors, user/customer analytics, referral programs, credit card info and the pain of PCI compliance, user incentives, employment agreements, Jason/DHH’s new book (“Rework”) and whether expensive Scotch was really any better than non-expensive Scotch.

Sessions / Speakers

I attended as many sessions as I could, and live-tweeted many (apologies if you follow me (@dharmesh), and you’re not into that kind of thing). In most cases, I attended the “featured speaker” session (vs. some of the smaller ones). Exceptions were when I knew the speaker. This was for a couple of reasons: a) I figured it was a “safer” bet in terms of quality of the presentation and b) As a frequent speaker myself, I’m always looking to get better and watching the pros helps a lot.

On average, I’d say the sessions were very good — but not great. A few of the sessions fell a little flat. I’ll admit, my expectations were high because I’d figured that SXSW has the pick of the litter when it comes to who gets to speak there. But, given the sheer volume of sessions at the conference, I can’t really blame them for all of them not hitting it out of the park.

And, Of Course, The Parties!

As an introvert, I find it hard to have a good time in large groups but I decided that if I really wanted to get the full effect of SXSW I had to go to the legendary parties. So I did, for several nights. Even at these, I find myself talking “shop” with smaller groups of folks which was fun. And yes, the parties were big.

Overall, I liked SXSW -- a lot (and will definitely be going back next year). It was a great opportunity to meet people I've known online for years and chat with old friends.

Look forward to SXSW 2011. Will you be there?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

How To Pick A Company Name: Tips From The Trenches

Dharmesh Shah — Mon, 22 Mar 2010 13:41:00 GMT

The following is a guest post by Healy Jones. Healy is head of marketing at OfficeDrop, a digital filing system and document scanning service and a former venture capitalist.

Pixily just changed its name to OfficeDrop – this is the story of how we went about making the change.

There comes a time for a lot of companies when they decide that it’s time for a new name. Google was once Back Rub, Nissan - Datsun, and Pepsi Cola used to be Brad’s Drink. Maybe the original name is confusing for customers, maybe it no longer represents the product, or maybe it just becomes stale. For whatever reason, companies find themselves struggling to find a new name. A name change can be just the refreshing boost your company needs to reach the next level. The question is: how do you pick a new name?

Pixily to OfficeDrop

We found ourselves asking, well… ourselves, this very question this past December. We eventually ended up with a new name: OfficeDrop. We think we came up with a pretty good system for name generation, and there were a few techniques we used that we found especially effective. To help you with your potential name change, here is some insight into the process that we used. Parts of it were fun; parts were arduous, but we like the result.

Reasons and Goals for Change

First you should know the reasons we changed our name from Pixily. The main issue was that consumers found no explicit meaning in the name. Customers also had problems remembering and spelling the name. Related to this issue, the name failed to explicitly reflect the nature of the services we provided as a document scanning and document management company that helped small businesses and home offices get organized and go paperless. A lot of people confused us with an online video company.

This being understood, our very first step in deciding on a new name was making sure whatever we chose overcame the issues with Pixily. The new name had to be:

a) Simple to remember
b) Easy to say
c) Highly spellable (Is spellable a word? If not, then consider this bullet ironic.)
d) Illustrative of our service

We also set some parameters for things like length, composition, and interpretability. We decided that our length goal would be ten characters, and that the words could in no way be misinterpreted or confused with another company’s name. Oh yeah, and we had to be able to buy the domain name too – this final part is harder than it sounds!

Brainstorming Session

Now that we knew what we wanted, we had to find a way to generate some names. It turned out that all the resources we needed for a wall of great names were right there in our office. There are a lot of creative minds about, and our main method of name generation was crowd sourcing our employees. To do this, we held a day-long, company-wide brainstorming session. The first part of this session was intended to help us define the character and values of our company. Then we came up with words that represented these ideas. Finally, we hashed out how these words came together or inspired other words that could become our new company’s name. We weren’t expecting to come up with the single answer that would be the best name, but rather a list of great ideas that we could whittle down later into a few solid finalists.

While brainstorming sounds simple enough, there were a few details we found very important. We wanted to make sure everyone had a say in the names, and didn’t want the thoughts of our CEO or other founders to drown out the ideas from our more junior employees. We also wanted to allow everyone to be as creative as possible and openly share their ideas. These precautions made sure we generated as many ideas as possible.

We found three effective ways of avoiding groupthink and producing the largest number of potential names/words:

1. Have people brainstorm independently before sharing their ideas

2. Letting the more junior team members go first so that they did not feel intimidated by the management.

3. Create an open environment, letting employees know it was ok to share outlandish/silly suggestions since we wanted everyone to feel good sharing whatever they came up with (kind of like that scene from Old School where Will Ferrell’s character talks about the trust tree…)

Our CEO and co-founder, Prasad Thammineni, kicked off the session by talking a bit about the vision for the company, describing the passion he felt for it and walking through some of the technologies we were developing to help small businesses manage their paper and information.

Everyone had a pad of paper and a pen, and we sat in a circle facing our fearless marketing intern, Matt, who led the discussion as the most recent, least biased employee. Idea generation was focused by categories that we previously determined. Matt would present a category (example: objects you associate with the company) and allow us an allotted time (5-10 mins) to independently and privately put our thoughts on paper. After we’d worked our way through a series of categories, we shared our ideas with each other and Matt wrote them all on large easel pads and attached them to the wall.

From animals to minerals, we covered pads with people, places, and things that might represent what we do here at Pixily. We then brainstormed a list of action words and values that reflect our service. Over pizza we stared at the hundreds of words on the wall and everyone privately paired nouns with actions to create potential names. We all had a lot of fun doing this and we came up with many great names for our company.

Narrow it Down

With about 100 names on the white board, we needed to narrow it down a bit.

We didn’t want to waste our time (or get too attached) to names where we’d never be able to get the domain name. This is where the fact that we are a technology company was helpful; our CTO built a quick script that queried whois.net to find out if any of the .com domains were already owned. We also split up the list and each enlisted the help of a number of our employees to visit each potential name’s .com address and see if there was a company living there or not. Unfortunately a number of our favorites were ruled out due to unavailability of domain name, but we still had a solid list.

We were left with a list of about 30 decent names. Our next step was to ask our employees to vote for their favorites. By using a vote-based survey emailed throughout the company, it only took a couple of iterations to bring the name list down to a manageable number. We used Google Documents to do this. We now had a decent list of potential names; it was time to talk to customers.

Informal Customer Conversations

We began having phone and in-person conversations with customers and partners. We asked them what they would think if we changed our name and then presented them with the short list of potential names. We asked for candid feedback (and got it!) It was great to speak with customers about the change. We found that a number of them really identified with the Pixily name, but also that a lot of them never really liked the name and didn’t understand how/why that was our company’s name. This step was very important in helping us get down to a final list of potential names and in reassuring us that our decision to change the name was a good one.

Customer Survey

Once we narrowed the names to around 10, we did a formal customer survey to give our users the final say. Our customers were a great help with choosing the name. We wanted the survey to be fast and simple.

The questions we asked were:

1. For the proposed company, rate the following names from 1 to 5 (where 1 is 'Hate it' and 5 is 'Love it') (we then listed the finalist names)

2. Without going back to the previous page, please list as many of the names that you just rated as you can remember. (This question was intended to help us measure recall and spelling ease of each name)

3. What do you think of when you see each of the following names? (We wanted candid thought – and we got them!! We also tallied up positive, negative, on topic and off topic answers. We wanted to find a name that people did not think of negatively and that also made them think of helping small businesses manage documents.)

4. If you can think of any names that would be great for us let us know!

Needless to say, OfficeDrop came out number one in the polls. In particular, not only did people like it but it had high recall. It also came out with a high percentage of positive comments and few negative ones.

We hope you found our name change process interesting. We highly recommend this system for any business considering a name change.

Have you had to change the name of your startup before? If so, how did you go about it? Any tips or lessons learned that you’d like to share? Would love to read them in the comments.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Inbound Networking: 42 People I Want To Connect With at SXSW

Dharmesh Shah — Wed, 10 Mar 2010 21:35:00 GMT

I’m going to be presenting at the big and boisterous SXSW conference in Austin, Texas this Saturday. I’ll be talking about Inbound Marketing. More specifically, I’ll be talking about some insider lessons we’ve learned building a marketing machine at HubSpot. We’ll even be sharing some relatively confidential data. The session is at 11:30 a.m. on the Day Stage. Here are the details: Inbound Marketing at SXSW

In any case, from what I hear, the event is supposed to be lots of fun, but huge. As an introvert, I’m generally not a big fan of huge events. So, I made a list of people that will also be at SXSW who I’d love to connect to. I figured by having a list, I’ll feel more guilty if I head back to Boston and haven’t talked to at least a few of them. I’m also hoping that a few of them will come across this article and be kind enough to reach out. I made it a bit easier on myself by including some folks that I know pretty well.

If you’re on this list and reading this, please leave me a comment. I’d be very grateful.

People I Want To Connect With At SXSW

1. Lane Becker, GetSatisfaction

Why: I met Lane at a Startup2Startup event in Palo, Alto. He was at my dinner table. Smart guy and I’m intrigued by this overall category (though I’m hoping Lane doesn’t ask me why I’m a customer of UserVoice instead of GetSatisfaction).

2. Chris Brogan, ChrisBrogan.com

Why: I always learn something new from Chris and it’s been a while since we had our list dinner plotting global domination. It’s unfortunate that despite living within driving distance of each other, we don’t meet more often.

3. Dries Buytaert, Acquia

Why: I’ve talked to Dries a couple of times on the phone and Acquia’s a local (Boston area), venture-funded startup. Have met several people on the Acquia team (they’re great). Want to ask Dries how Drupal Gardens is going. I’ve been meaning to play with it, but havn’t yet.

4. David Cohen, TechStars

Why: I’m an investor in the new TechStars Boston cohort for 2010 and will be a mentor again this year. David’s super-smart and a big supporter of early-stage startups. I love startups.

5. Evan Cohen, FourSquare

Why: My most recent project (currently in alpha) is SquareGrader (a free tool for analyzing FourSquare users)

6. Dennis Crowley, FourSquare

Why: As I noted in #6, I’m building a new, free tool for FourSquare. I reached out to Dennis just a couple of days ago and he was gracious enough to respond almost immediately. Would love to help FourSquare win in their market (and I’m an avid user too). HubSpot reaches over a million users a month -- many of them should be FourSquare users. We can help make that happen.

7. Chris Dixon, Hunch

Why: I’ve been reading the blog for a while (Chris has been on fire!), it’s one of the better, more practical ones out there on the topic of startups and funding.

8. Laura Fitton, oneforty

Why: I’m an investor in oneforty and Laura’s great. I’m always happier after having met her. She’s energy-generating. And, she might introduce me to some folks because she’s a rockstar and a networker extraordinaire.

9. Pete Cashmore, Mashable.com

Why: I’m an avid reader of Mashable. Mashable frequently writes about HubSpot or one of our grader.com tools — and I’ve love for them to write even more. And, Pete’s a social media celebrity that at least a couple of the women at HubSpot have a crush on (not naming any names or anything, you know who you are). It’ll raise my street-cred to go back to the office and say I met Pete.

10. Jason Fried, 37signals

Why: Jason was kind enough to let me interview him for my graduate thesis and we’ve stayed in touch ever since. Want to chat with him about how his new book Rework is doing and what I can do to help.

11. Paul Graham, Y Combinator

Why: He’s on my short-list of really, really smart entreprenerus and I’m a major fan of Y Combinator (and many of its portfolio founders). I also understand that the recent Y Combinator conference went well (Rand Fishkin from SEOmoz spoke there) and that the next one is going to be about monetization, lead generation and freemium. I’m going to see if I can finagle an invite to it.

12. Kevin Hale, Wufoo

Why: I just love what he’s done with the company and Kevin’s got talents that I’d give-up 10% of my net worth for. And, he says useful, practical stuff about how to actually grow a startup. If I accepted board positions (I don’t) or they’d invite me (they havn’t), Wufoo’s on the short list of companies I’d actually do it for.

13. Reid Hoffman, LinkedIn

Why: Major, major fan and not just because LinkedIn is so successful. He’s just a super-savvy, strategic thinker (and angel investor). He’s the kind of guy that I’d love to have involved with HubSpot some day. (Yes, I aim high).

14. Beth Kanter, BethKanter.org

Why: I first came across Beth because my wife is passionate about non-profits and was working on a paper for a Harvard class she was taking (the paper was on social media). Beth is just awesome. Smart, well-written and has done more to help non-profits than anyone I know. And, she was kind enough to provide some great feedback on a recent, mostly-failed idea I ran to help Room To Read. She’s speaking at the NewComm forum in California — but unfortunately, my session is at the exact same time as hers.

15. Guy Kawasaki, AllTop

Why: Guy’s written what I think is the best books on startups, ever. Art Of The Start and Reality Check. He’s also been kind enough to respond to my emails, write a back-cover blurb for my book and all-around supportive of my entrepreneurial efforts. Would love to actually meet him in person.

16. Ross Kimbarovsky, CrowdSpring

Why: CrowdSpring’s an interesting company, and I’m working on a crowdsource-based project for HubSpot this year. Want to hear how his new project is going and see if there are ways I can help. [Disclosure: I’ve also met the founder of CrowdSpring’s main competitor, 99designs, and like him a lot). I wish both companies well.

17. Jason Kincaid, TechCrunch

Why: Jason’s going to be talking about scaling LAMP applications (which I could totally use help with). He also writes for TechCrunch, and it never hurts to know people at TechCrunch (they’ve been kind enough to write about HubSpot and grader.com several times).

18. Marshall Kirkpatrick, ReadWriteWeb

Why: He fundamentally gets all of this new fangled social media stuff. I’m an avid reader of ReadWriteWeb.

19. Scott Kirsner, Innovation Economy

Why: He’s a great guy that I’ve gotten to know pretty well. I try to meet up with Scott every chance I get — will be interesting to see this “other side” of him (i.e. film/movie stuff). I always think of him as being a tech/startup kind of guy. He’s done a lot for the local tech scene here in Boston. I’m also speaking at his Nantucket Conference coming up next month.

20. Andrew McAfee, MIT

Why: He’s smart and witty and is now at MIT (instead of that other top-tier school in the Boston area). Andy’s a good friend of HubSpot so it’s always fun to catch-up.

21. Dave Mcclure, Founders Found

Why: He’s the hardest working man in show business. I wish I had half his energy or had done a tenth of what he’s done to help startups. It’s humbling, really.

22. Mike McDerment, FreshBooks

Why: All-around great guy and growing a great startup. I learn something from Mike everytime I meet him (which has been several times now).

23. Lori McLeese, Room To Read

Why: I’m a big fan of Room To Read and given my recent failure to generate much money with the Inbound Marketing Charity Challenge, would like to see how I might do better next time.

24. Marc Nathan, Bulldog Financial

Why: I feel like I’ve known Mike for years and am surprised we’ve never crossed paths in person. Hoping to fix that.

25. Charlie O’Donnell, First Round Capital

Why: Charlie and I go way, way back (he may not even remember). We’ve intersected many, many times online — but have never actually met. Now, Charlie’s an investor in Backupify (a company I’m a seed-investor in), so we have even more reasons to meet-up.

26. Jeremiah Owyang, Altimeter Group

Why: One of the more analytical and thoughtful writers on the topic of social media. Minimal hand-waving and such. Would like to hear his thoughts on weighted social graphs.

27. Aaron Patzer, Intuit

Why: Had dinner with Aaron during my last trip to the west coast. Smart guy. Would like to hear how things are going post-deal. I have a suspicion that he’d actually tell me

28. Aviva Rosenstein, Salesforce.com

Why: I’m really impressed with the business they’ve built at salesforce.com. I’m also a customer. I’d love to hear how Aviva is tackling some of the usability challenges in the product. We’re dealing with some of those same issues in my startup.

29. Darren Rowse, ProBlogger

Why: Much of what I know about blogging in the early days, I learned from ProBlogger. He gets this stuff.

30. Chris Sacca, Lowercase Capital

Why: He’s a legend in the tech/investor/startup world. Chris and I are now co-investors in Backupify.

31. Ryan Sarver, Twitter

Why: He’s from the Boston area and I almost met him several times. Now he’s at twitter so a little harder to connect with.

32. David Meerman Scott, WebInk Now

Why: The “Inbound Marketing” book wouldn’t have happened (literally) without him. Great supporter and an all-around fabulous guy. We need more of him.

33. Ramit Sethi, I Will Teach You To Be Rich

Why: Earlier tonight, I did a late night webcast/seminar thing for his members in the earn1k program. Oh, and he’s a NYT Bestselling author. Want to get some inside secrets as to what it takes to break into the list — and what impact it’s had since.

34. Brian Shin, Visible Measures

Why: Brian’s a friend and former classmate. I invested in Visible Measures, and he invested in HubSpot. We go waaay back.

35. Julien Smith, Blah Inc.

Why: He’s partner-in-crime with Chris Brogan on “Trust Agents” and I feel like I should know him.

36. Brian Solis, Future Works

Why: Great guy and recently came out with a new book “Engage”, which I’m reading on my Kindle. Want to show him Book Grader.

37. Jonathan Stark, Jonathan Stark Consulting

Why: Because he knows a thing or two about building iPhone apps. And, I want to do one of those this year.

38. Wayne Sutton, @waynesutton

Why: Wayne’s big in the whole social media thing and was nice enough to be one of the first alpha testers of Square Grader.

39. Gary Swart, oDesk

Why: Awesome entrepreneur that was kind enough to spend some time with me to talk about startups and fund-raising (we were raising our Series C at the time).

40. Gary Vaynerchuk, Vaynermedia

Why: Because he’s a force of nature. And, to congratulate him because he’s #1 in the web marketing books category on Amazon. And, I’m usually #2 or #3.

41. Tim Walker, Hoovers Inc.

Why: Heard him speak at the Inbound Marketing Summit and chatted with him briefly afterwards. Really nice guy — and he knows his stuff.

42. Chris Winfield, 10e20

Why: Have had the chance to spend a bunch of time with him in the last year. Great guy, and was kind enough to donate directly to Room To Read as part of my (mostly failed) experiment, the “Inbound Marketing Charity Challenge”.

—-

Phew! That took some effort. If you’re on the list, please leave me a comment if you’d like to connect (or if you’d like me to stay the heck away, that’s fine too). And, if you’re attending SXSW, and I happen to be on your list — leave a comment too. I’m planning on carving out some time while at the conference to meet with folks. The best way to (initially) find me is to attend my inbound marketing session at the conference. It’s going to be a busy few days.

Hope to see many of you there.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

The 10 Most Tempting Software Startup Categories

Dharmesh Shah — Mon, 01 Mar 2010 17:55:00 GMT

I’ve been in the software startup business for a long time. One thing I have found interesting is that amongst first-time software entrepreneurs, certain “patterns” of applications kept recurring. Time and time again, entrepreneurs are tempted by one of these application categories. Not that it’s always a bad thing — I just found it curious.

1. Project Management / Time Tracking / Bug Tracking

This is likely because the developer had to work at some point with existing software that just sucked and thought “Hey, I can build something better in a weekend and it will do exactly what I want. It’ll support custom fields, and query-by-example and persistent views and all sorts of neat stuff.”

2. Community / Discussion Forums

The developer was kicking off a new online community for whatever hobby area she was interested in. Poked around looking for something to meet her needs, but there was nothing appealing. “Hey, this is easy — the data model is trivial and I can use this project to learn about this new web framework I’ve been meaning to play with.”

3. Personalized News Aggregation/Filtering

I’m not exactly sure why this one keeps cropping up. I think the reason is that it seems obvious that there’s just much more information out there than any normal person can consume. The entrepreneur arrives at some interesting angle on how to better filter the information. Could be individual voting/learning mechanisms, social features (your friends liked this stuff, so you will too).

4. Content Management (website, blog)

Another one of those seemingly simple apps (“how hard could it be?”) combined with the fact that it’s often harder to learn some existing system and make it do what you want than just hacking together a “minimalist” application (that over time, becomes less and less minimal).

5. Social Voting and Reviews

This ones newer to the scene. These applications allow users to vote/rate/review something (movies, books, wines, whatever).

6. Music/Events Location Application

What the world really needs is a way to figure out when their favorite band is going to be in town. Connect with your friends! Figure out where they’re going! Hook-up!

7. Dating and Match-Making

This one requires no explanation. As is the case with most of these application categories, entrepreneurs often like to “scratch their own itch”.

8. Personal Information Management

I think this one is really common because it’s often one of the early applications developers build to learn something new. “Hey, I can use this new ORM system to track my DVD collection. It’ll take just 50 lines of code!”

9. Social Network For ______

These were happening well before MySpace and Facebook. In this case, the application is not completely trivial — but that’s what makes it a bitt more tempting. The data models can be rich and if one has some UI chops, it’s often a fun application to work on.

10. Photo/video/bookmark/whatever sharing

As humans, we like to share stuff. The appeal of this application is it’s broad appeal (hey, my girlfriend needs a way to share her photos from her recent trip to Brazil).

Don’t get me wrong, I’m not saying that building an application in any of these categories is doomed to failure. I just find it curious that these specific themes tend to occur again and again.

Did I miss any? Which application categories do you think entrepreneurs are lured by? Do you just happen to be working on a fun little project that falls into one of these categories?

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

Why I Wish My Competitors Well And You Should Too

Dharmesh Shah — Mon, 22 Feb 2010 20:32:00 GMT

I’m going to start with a story — which includes a confession.

When I started my first company, I didn’t start with a grand mission. The idea behind the business wasn’t transformational. It wasn’t going to change the world. Historians weren’t going to write about it after I was dead. And all of that was OK. Even though there was no grand mission — I was solving a problem and meeting a market need that I cared about. Wait, let me clarify that a bit. I cared in the sense that if I didn’t solve it, I was restless. I couldn’t let it go. I wasn’t satisfied with the way the problems in that industry were being solved and the solutions that other companies were offering. That’s what drove me for 10+ years with that startup.

It wasn’t until much later (well after I had sold that first company), that I gave the topic some additional thought. How do you know whether or not you care about the problem you’re working on? Here’s my litmus test:

1. Define the problem you’re solving in reasonably broad terms.

2. Answer yes/no: If the problem was somehow magically “solved” (to your satisfaction), but you weren’t the one that solved it, would you be fine with it?

Let me clarify by shifting back to my story: In the niche market I was working in, the problem I was working on was relatively small. But, if one day, I woke up and learned that somehow the problem was magically solved — even if it was by a competitor, I would have been fine. A little miffed that they had beaten me, but still OK. As long as they really solved it. I could have stopped toiling away the sleepless nights working on that particular problem and I would have found other problems to work on. The concept here is: You care enough about a problem that you don’t necessarily mind if someone else solves it. What really frustrates us entrepreneurs is when competitors win, but they don’t actually solve the problem.

One way to explain this concept better is to look at an extreme example. Lets say the problem you were working on was curing cancer. Of course, you’d be passionate about finding a cure. You’d be working hard. It’s an important problem, and it’s not surprising that you care. Now, imagine if you woke up one day to learn that someone else had created a cure. You’d be glad that the problem was solved — even though it wasn’t you that solved it. Sure, it would have been great to get the fame and glory, but that surely wouldn’t cause you to wish the other scientists/researchers/doctors ill. Nope. You’d wish them well. Why? Because fundamentally, you care about having the problem solved.

Now, with my current startup, HubSpot, I’m still passionate. But the problem happens to be much, much bigger. This time it’s transformational. This time it’s a mission. I’m working furiously on this startup too. I co-authored a book, “Inbound Marketing” on the topic. I’m doing a fair amount of public speaking (despite the stress it causes me). I believe we’re on the path of truth and justice (we’re helping small businesses grow and reducing junk mail, spam, and marketing calls that interrupt you at dinner). We’re hoping to be the ones that end up transforming the marketing industry. But, if someone else ends up doing it, and winds up delivering on our mission, well, then, more power to them.

I care enough about the problem that I don’t mind if someone else solves it. That’s why I truly wish my competitors well.

But, just because I wish them well doesn’t mean I’m going to make it easy for those competitors. After all, like you, I’m an entrepreneur and as such, I’m fiercely competitive.

Summary: When possible, work on really big problems. They’re more fun, and it’s easier to get excited. But, even if you’re not working on a really big problem, it’s OK, as long as you at least care enough about the problem you are solving that you don’t care who solves it. You just want it solved.

What do you think?

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Oh, and by the way, you should follow me on twitter: @dharmesh.

Why Venture Capitalists Avoid Innovation: They Like Making Money

Dharmesh Shah — Thu, 18 Feb 2010 18:33:00 GMT

The following is a guest post from Andy Singleton, the founder of Assemba. Assembla provides online workspaces for distributed software teams, and helps many startups build their products.

Any given innovation is much more likely to fail than to succeed. Innovation as a whole may even be unprofitable for the innovators. Fortunately, we keep doing it, because in economic terms, innovations are durable (they last forever) and non-rivalrous (anybody can use them), so over the long term, society benefits a lot from the successful innovations. As a society, we look for ways to get around the fact that innovation is generally unprofitable. We subsidize innovation. We honor it.

A recent conversation has me wondering anew about the question of whether venture capitalists actually further the process of innovation. They claim to be in the business of innovation, but they also talk constantly, often in the same paragraph, about how much they want to avoid innovation.

In this latest conversation, the VC said "We look for companies with a product and a proven business model." This should should sound familiar to you. I wish I could run a video montage of the pictures in my head of VC's saying how much they want to avoid innovation. Surely you would laugh. If you ask VC's what they look for, they use words like "traction", "proven business model", "reference customers", and "invest in marketing" or “sales and marketing”. This in itself is a big step forward from "We invest in teams that have done it before" (Greylock partner, 90's), or "We look for the second time around" (Sigma partner, 90's). It doesn't take a genius to understand what they are saying. As much as possible, they want to avoid all innovation (stuff that’s not proven). It’s risky and unprofitable.

VC behavior subsequent to making an investment is also revealing. After looking at hundreds of deals, and falling in love with one particular business plan, and persuading other investors and partners that it's great, VC's generally don't support subsequent changes to the business plan. A self-funded entrepreneur is constantly making major course corrections, to the point of driving his colleagues crazy. VC's will deny this, but a VC investment is basically a ballistic missile launch, without course corrections. They are likely to just shut down the funding, or even to continue investing a lot of money in a concept that is clearly not creating the forecast level of excitement.

In my recent conversation, the VC partner went over the top by saying "We want to invest in companies that own code and have protectable IP", and then going on give the example of SpringSource - a service company working with un-owned open source code.
Are these people as idiotic as they sound? Far from it. They are some of the smartest, most observant, and most successful business people you will meet. They have learned the hard way that innovation is more likely to fail than to succeed, and that the best way to make money is to latch on to a product that people already like. Even with this filter, and their cleverness and experience, and funding one in 100 opportunities, they still have a hard time making money in the current environment. Investors that stray from the established formulas of the VC business (2 and 20 on fees, 5 year fund cycles, "growth capital" for sales and marketing) - are often punished with poor returns.

Note the cruel irony here. In the VC business, a business that claims (with heartfelt feeling) to be devoted to furthering innovation, innovation is deadly. It is the least innovative firms that succeed. Successful firms may excel in a number of areas, but innovation isn't one of them.

So if innovation is actually risky and unprofitable, where does this leave us? It rolls the clock back 80 years to Joseph Schumpeter's observation that entrepreneurs are driven by "animal spirits" rather than money. Being a professional economist, he actually said, "Hedonistically, therefore, the conduct which we usually observe in individuals of our type would be irrational." He also claimed that profit maximizing, utilitarian theory is "unsurpassed in its baldness, shallowness, and its radical lack of understanding for everything that moves man and holds together society."

Limited partners are utilitarians, and they don't invest in irrational animal spirits.

I think that this has some bearing on public policy. Do we really want to be offering big tax breaks to VC's - the carried interest deduction - if it isn't going to get us the innovation which they have wrapped around themselves like a flag?

It also might have some bearing on the VC business itself. VC returns in the last decade are negative. VC partners are making less money now. Many limited partners are not going to reinvest on the old model going forward. VC's also have a diminishing reputation in the entrepreneurial community. They have a strong incentive to get rid of an innovative entrepreneur and just wash out his stock - which they often do. Suddenly, the old models aren't working for anyone.

And, maybe innovation is coming. There has been a burst of micro-venture initiatives that invest small amount of money at the earliest stage. That's a dangerous place for an investor (angel investors are incredibly brave) because one of the tenents of the old rigid VC model is that follow-on investors will usually try to squeeze out the early investors. Maybe this indicates that innovation is happening throughout the investor chain. I also recall a conversation with a partner at General Catalyst, one of the more successful new VC firms, about their practice of "home cooking", or creating their own companies. The speaker dismissed the appeal as "zero pre" (translation: our interest is purely economic, in that we get a better deal if we pay a $0 pre-money valuation) but I think something deeper is going on.

Is it possible that, once in a while, the VC business should look to innovation, for real?

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9 Quick Tips Learned While Raising $33 Million In Venture Capital

Dharmesh Shah — Mon, 08 Feb 2010 13:48:00 GMT

As the market improves, my guess is that many of you will likely be thinking about raising funding for your company. With my latest startup, I’m now a venture-backed startup founder (I’ve raised $33 million in three rounds of capital for my marketing software company). So, I’ve got some direct experience with the process. Several of the companies I’m an angel investor in or otherwise involved with have also been in the fund-raising process. So, along the way, I’ve learned a few things, and I’d like to share them with you.

There’s already lots of great content on the web about raising capital and understanding deal terms. My favorite is the content on Venture Hacks (a must read, if you’re raising capital). But, I figured it wouldn’t hurt to share some of the “lessons learned” from my own experiences. Some of these you’ve probably heard before, but one or two will likely be new to you.

And, a quick note before we jump in: I’m doing a FREE live webinar with my co-founder at HubSpot, Brian Halligan this Wednesday, February 10th at 1 p.m. ET. The title is “Money, Marketing and Management with HubSpot’s Founders”. The idea is to share a bunch of practical tips we’ve learned while building HubSpot (including some insider stuff gleaned from raising $33 million in VC). If you’re intereted in this article, you’ll probably like the webinar. If you can’t make this specific time, you can still register and we’ll send you an email with a link to the recorded version. Oh, and did I mention, it’s free?

Sign-up for: Money, Marketing and Management (aka “Stuff we learned about startups that you’ll probably find useful”)

Ok, back to our article.

Insights From Raising $33 Million In Venture Capital

1. Get the first round right: The terms of your Series A deal are very important. Not just because of the impact on that first round, but because many of those same terms are likely to carry through to future rounds. It’s tempting to concede on some important terms because you’re thinking “well, that’s just life…and it doesn’t seem like that big of a deal.” Try to resist that temptation. One of the things I’ve learned is that when negotiating the term-sheet for your Series B or Series C round, the “base” terms (the starting point of negotiations) is whatever terms were in your Series A. So, if you agree to some non-favorable terms on the “A” round, you’re not just paying the price for that concession in this round, you’re likely going to continue to pay in future rounds as well. Factor that in.

2. Avoid valuation infatuation: Entrepreneurs often become obsessed with the pre-money valuation on the deal. Though this is certainly an important element of the transaction there are other factors at play that have significant impact on the raw direct economics of the transaction including the employee stock option pool (and who pays for it). If you get close to finalizing a deal, it is imperative that you have a spreadsheet that helps you understand the economics of the deal. You should read Jeff Bussgang’s article on the topic. It is worth your time.

3. Raise more than you need: Regardless of how much capital you raise, chances are, you’re going to have wished you raised a little bit more (or perhaps even a lot more). Within reason, if you have access to capital and the terms are decent, raise more than you think you need. Don’t get hung up on dilution. To help you overcome this fear of too much dilution, build yourself a simple spreadsheet that models the actual financial impact to your person bottom-line based on various outcome scenarios. What you will likely find is that if things go really well and your startup is the spectacular success it deserves to be, the extra dilution is not going to change things all that much. And, if things go really poorly, it won’t matter either (because those extra common shares aren’t going to make you money). You might be thinking “I’ll just raise the additional capital in a future round, at a much higher valuation” — which is somewhat right. But, what you should keep in mind is the transactional cost of the additional round. Raising a venture-round is a very time consuming process and when your bank balance is getting low, you’re going to really want to just keep working on the business instead of shifting focus back to the funding game. In short: If you have the ability to raise a slightly larger round, and the terms are reasoanble, you should probably go ahead and take the extra money.

4. Know what “market” is: It’s possible that you’ll encounter some not so favorable terms during your VC negotiation — terms that are not that common. It’s also possible that your potential investor is just pushing on the edges a little bit to see what they can get away with. You need to know which terms are actually rare/uncommon. Your strongest line of defense against weird, non-favorable terms is a line that goes something like “that’s not market”. This is sophisticated VC-speak for “what you’re asking for isn’t very common in VC deals right now.” This line of defense has two advantages: 1) it works 2) it demonstrates your savviness. To figure out what the common deal terms are now, track down the report that one of the larger law firms that does a lot of startup transactions publishes periodically. The report usually includes (among other things), what percentage of transactions have specific deal terms (like participating preferred).

5. Orchestration is important: Try to keep the interested parties moving along at as close to the same pace as possible. You don’t want to get a term-sheet from one VC and have had the first meeting with others. Orchestration is not easy, but it’s important. The reason is that to really get great VC terms in a round, the single largest contributing factor is competition. If you can get two or more VCs competing to invest in your company, you’ll get much better terms. As it turns out, this is not easy to do because to really get credible competition going, you’re going to need to have several VCs at the “termsheet” stage of the conversations. If one VC delivers a termsheet to you, but you still haven’t had the second (or third or fourth) meeting with some of the others, it’s going to be tough to get that competing termsheet. Meanwhile, the VC that gave you the first termsheet is going to be “anxious” for you to accept. This anxiousness could manifest as simple “prodding” or as an out-right “exploding termsheet” (i.e. a termsheet with a deadline). So, try to keep your conversations moving forward with several VCs are a similar pace. The good news is that nothing accelerates the process of other VCs more than knowing that you’ve already gotten a termsheet. Once you get that first termsheet, you’re likely to get more as the VCs try to jostle for position.

6. Beware deal fatigue: Even in good times, fund-raising is an arduous process. Be prepared for yet another round of meetings, yet another level of due diligence and yet another round of negotiations. Don’t try to sprint to the finish line and be exhausted when you get there — you may have another lap to go. And, it might be the most important lap. Much like any large negotiation, there are often relatively important deal terms that get finalized in the final stages of the deal. You need to maintain your energy so that you don’t just give-in on some of these seemingly unimportant “details”.

7. Don’t Use Your Uncle Larry As Your Lawyer: As entrepreneurs, it’s not often that we need to engage legal counsel. In fact, if this is your first startup, it’s possible you’ve never actually hired a lawyer before. If you’re raising venture capital — you need a lawyer. And, your uncle Larry who helped you out with that lease agreement last year is not good enough. You need a lawyer that has done many venture financing deals before. This is a high stakes game. VCs are super-smart and they negotiate financing deals all the time. They do this for a living, you don’t. You need someone that has competency in this area. A great lawyer understands the nuances of this game both from the perspective of which deal terms are important, what “market” is (#4 above) and when to stay firm and when to concede. I’ll say this one more time for effect: You need great counsel that has tons of startup financing experience. Don’t be penny wise and pound foolish on this. Oh, and by the way, you might want to know that you’re likely going to pay for the legal fees of the VC as well (it comes out of the funding round). I’m not sure why this is, and I don’t like it one bit, but it’s common practice.

8. Partner personalities matter: Yes, ideally you’ll be raise funding from a top-tier fund that’s a great brand. But, what’s more important is that you fundamentally like the VC partner that is investing in you. This is a long-term relationship and life is short. You might part ways with one or key team members along the way (which is never fun), but your venture investor will almost certainly be with you until the very, very end. If you have the luxury of choice, you should put strong weight on the person you take money from, not just the firm and not just the deal-terms. I followed my own advice on this in our funding rounds. We had higher offers than the deal(s) we took, but we solved for the best overall deal and the best partner.

9. Switching Partners Is Hard, Do Your Homework: It’s likely that in the early stages of your VC process, you’ll get introduced to a particular partner at a firm. Usually, this is based on what area that partner invests in (i.e. which one you “fit” with). But, in many larger firms, there might be more than one partner that could conceivably do your deal. Or, you might get bucketed wrong (because your startup straddles a couple of areas of intest for the firm). If that’s the case, you need to work hard to figure out who the best partner would be (from your perspective) and try to connect with that partner as early in the process as possible. Once conversations begin in earnest, it’s very, very hard to switch to a different partner within the firm.

So, what do you think? Are you going through the arduous process of raising venture capital now? Or, have you been through the pain before? Any of this stuff ring true? Would love to read your thoughts and experiences in the comment. Oh, and if you have questions you’d like me to address my upcoming webinar (which will spend a fair amount of time on funding), leave them as a comment. I’ll pick a few and address them. Thanks.

Looking for other startup fanatics? Request access to the OnStartups LinkedIn Group. 130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.