30 second view on #flashboys April 1, 2014Posted by bernardlunn in Uncategorized.
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Only from reading an online excerpt – and many years selling tech to Wall Street:
1. Rollicking good yarn, reads well (as always with Lewis).
2. Front running should be illegal no matter how it is done. For some bizarre reason front running using HFT tech is not illegal today. This book may help change that.
3. HFT kills day traders but is only minor loss for long term investors. Don’t think Buffet is worried by this.
4. Consumer loss of confidence in markets due to perception that they are rigged is the big issue, undermines a free enterprise society.
Tags: crowdfunding, facebook, kickstarter, oculus
The Oculus founders got $2.4m of free seed funding via Kickstarter. Let’s say that had been a traditional Angel or Seed VC equity round for 25% of the company. Those seed funders would have got, in aggregate, 25% of the $2bn that Facebook paid, which is a substantial $500m.
I believe that the Oculus Facebook deal will accelerate the equity Crowdfunding revolution. Yes, this is good news for the future, even if a lot of people who gave free funding to Oculus via Kickstarter in return for a beta product and a T Shirt feel a bit burned today.
FWIW, the terms were clear, the folks who ponied up cash were promised an early version of the product and got what “it said on the tin”. As Matt Asay points out on ReadWrite, this is the same issue as people who contribute to open source and watch an entrepreneur get rich.
Personally I think how millions of people make a living as we emerge out of the Great Recession – the crowdfunding story – is more interesting than how a bunch of overstimulated people ramp up the stimulation to the max on the dial – the VR Oculus story. Page views – the currency of the Internet – will undoubtedly prove me wrong.
Tales of an early stage/seed funding bubble get a wry laugh outside Silicon Valley. The Oculus story is also about a “unicorn” ($1 billion plus exit) spotted outside the Valley. Unicorns are rare enough, but Unicorns outside the Valley leads one to refer to Skype – and who else? Well now it is Skype and Oculus. Oculus is from Southern California, which might as well be Ulan Bator (capital of Mongolia) to the Sand Hill Road VCs. If Oculus had been in the Valley they would have easily got Angel funding – and given 25% to those Angels.
Hmm, being outside the Valley is better, you just get free equity financing via Kickstarter?
Not so fast, this is the last deal like this. Nobody wants a bunch of T Shirts plus being the first kid on the block with a new toy for $500m of equity value.
Kickstarter, which was born in New York, is an unexploded bomb on the tree-lined streets of Sand Hill Road. The economic impact of Crowdfunding will be felt outside the Valley. It is a simple need issue. Crowdfunding is much less needed in the Valley compared to Europe, Asia and other parts of the world that have so far been less impacted by the digital revolution. Or compared to LA or New York or New Jersey or (a few other places in America where most people live).
However we are still in the really, really early days of crowdfunding, the days when we have not yet moved from the “first they laugh at you” phase. There are also different forms of crowdfunding. As an adviser to startups, I recently had conversations with two entrepreneurs both of whom were looking at Crowdfunding as a way to get their dreams realized:
1. Niche electronic product, using Arduino. The entrepreneur lives in UK and has no access to the VC world.
2. SaaS product. The entrepreneur lives in New Jersey, close enough to some good VCs. The bigger problem is that he is older than is considered optimal by VC. Of course no VC would reject him for that reason, other reasons would be given (as this article on ageism in the Valley describes so vividly).
The old joke from the early days of the Internet – “on the Internet, nobody knows you are a dog” – has a new life for entrepreneurs who are not young white males living in the Valley. Crowdfunding means that nobody knows that you are old, female, colored or live in the middle of nowhere when you are seeking funding. You can pay a friend to star in the Kickstarter demo video.
The fact that Kickstarter is now in the UK is a big deal, a sign that this is a global revolution, but it is only a start, we need to see this in every remote corner of the globe. An entrepreneur in Africa (where mobile money disruption is happening for real) should be able to tap into both local and global markets using these networks.
This has revolutionary implications for the VC business. The cost of building the first MVP has already plummeted to the extent that, in many cases, no external funding beyond Friends & Family is needed. The Angel/Seed VC round is now needed to fund the go to market phase. If Crowdfunding takes an axe to those go to market costs, the balance of power between talent and capital will shift dramatically.
The SAAS entrepreneur does not need funding to develop the product, he has built it on his own time. He is looking at crowdfunding as part of his go to market strategy, by selling equity at a bargain basement price to early adopters in his niche who will give him good feedback and evangelize the product after launch. Selling Equity is not part of a capital raising strategy, it is part of his go to market strategy. After the Oculus Facebook deal, this could become the norm. Peter Lynch, a legendary investor who is up there with Warren Buffet, advised investors to invest in what they knew (check out the company that makes a product that you and your friends love). The gaming enthusisasts who backed Oculus on Kickstarter knew what was good well before the VCs who made money by watching them. Many VCs today are like an A&R guy watching the audience for a hot new band and recording the enthusiasm on his clapometer – “the kids seem to like these Beatles”.
These days, retail investors have to wait until the easy money has been made by VC, in order to invest at IPO time. Yet these are the people who spot the brilliant new products well before the VCs do.
This brings our attention to which Crowdfunding networks will win and how will they evolve? I tend to think of Kickstarter and IndieGoGo when I think of Crowdfunding. That will annoy all those building other networks, but this is a classic winner takes all network effects market. I can envisage two maybe three networks in ten years time, but I cannot envisage 5, let alone 10 or more. The winning networks will have to scale to cover all the Four Crowdfunding options which are:
1. PreOrder Plus Reward. This is how Kickstarter and IndieGoGo work today. This is how Oculus got funded via Kickstarter. This is relatively easy from a regulatory POV as it is about e-commerce rather than financial markets, so this is easy to globalise.
2. Equity. This is where regulatory complexity arrives (for good reason, this is where scam artists will operate). Even if the primary use is PreOrder Plus Reward, you may still want to offer Equity and it makes the process dramatically easier if this is done on a single platform. The JOBS Act in America leads the way. Even though other countries pioneered this, most countries will take the lead from America or miss out on the wealth/job creation from innovation. I think that networks that combine PreOrder Plus Reward with Equity will win out over pure Equity funding platforms such as Angel List. This is where the Oculus Facebook deal changes the game. The funders of a future product will expect equity in addition to beta product and T Shirt.
3. Debt. Why add this to Crowdfunding networks when perfectly good Peer Lending networks already exist? The reason is that the loan is done within context of the product being built/launched, there is less collateral or cash flow but the lender might still be motivated to lend because they know the entrepreneur and/or share the passion. In some cases equity will be appropriate (it’s a big market and there will be an exit) and in other cases debt will be appropriate (it’s a niche market and a big exit is unlikely).
4. Donation. Some wealthy investors may prefer to donate (and circumstances permitting, get a tax write off).
Crowdfunding networks will have to be big to do all four on a global scale, but the opportunity is massive.
Many VCs want to believe that the entrepreneurs who use Crowdfunding to get started will need them when they want to scale. It certainly worked that way in the case of Oculus. I am not sure that will be true in future. Crowdfunding naturally works in markets that are not capital intensive. The VCs don’t want to stuck investing in capital intensive businesses (like renewable energy, new healthcare drugs & devices, the kinds of products that take serious R&D $$$ before a launch is feasible). Other sources of funding such as Hedge Funds can jump in when they see momentum at a later stage.
The Mobile Capability Maturity Model February 4, 2014Posted by bernardlunn in Uncategorized.
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I like being out and about, dislike being chained to a desk so my iPhone is my primary work tool. My laptop is relegated to those things I cannot do properly on an iPhone (eg word processing and spreadsheets).
So I look at any productivity app through the lens of “how good is it on mobile?” I see three levels:
1. The Old Baseline is notification and reply by email. These are systems that somebody else chooses and I participate in the minimum possible.
2. An app that lets you do your daily tasks on a mobile device but which forces you to a browser to configure and set it up. This is the Modern Baseline.
3. An app that gets you configured and running in minutes all on a phone, no harder than a consumer app like Instagram. Trello is like this. This is competitive advantage today and will soon be baseline.
Why I Like Writing January 8, 2014Posted by bernardlunn in Blogging, Journalism.
Tags: blogging, writing
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I have friends who are dyslexic. One saw me writing and asked “what are you doing?”. He assumed I was doing something painful and difficult because I had to.
When he asked me why I was writing, I had to think about the question because nobody was paying me to write and even in the most convoluted indirect economic justification for the use of my time seemed a massive stretch. So I just said “because it is fun”. He gave me a “you are weird” look. I could only say “guilty as charged your honor, yes I am weird”.
So I thought about this a bit more and decided to – yes - write about it. For I am not the only weird person who writes for fun. In fact a lot of Internet entrepreneurs have got rich off our free labors. No worries, Ev Williams et al, I do it willingly and so I don’t begrudge you getting rich from free tools that make it easier for me to indulge my folly.
My inner editor is saying “cut to the chase, write the lede”. I like writing because:
1. It helps me to get my thinking clear. Sometimes this has an economic purpose, I am trying to understand some rapidly changing space in the technology business. I talk to lots of people, read a lot and then the process of writing helps me synthesise. Sometimes (this piece for example), it is just because understanding something is err, fun.
2. Feedback to complete my understanding. This is the beauty of online writing. The most obscure subject finds those other weird souls who are thinking about the same obscure subjects. That is why the Interest Graph is different from the Social Graph and why I tend to enjoy Twitter more than Facebook. Don’t get me wrong, I love my friends and family, I just don’t expect them to share all my obscure interests.
3. Communicating. Its a social acceptable form of madness. The guy opposite me on the train is muttering to himself, talking to somebody who seems real to him but who is clearly not with him in meatspace. He is clearly mad as defined by society. Blogging/tweeting is a socially sanctioned form of this insanity. Thats OK with me, I saw the line recently that falling in love is a socially sanctioned form of insanity; so I am OK with another socially sanctioned form of insanity.
Before blogging enabled everybody to get published, many people made a good living from writing. I do sometimes have a twinge of guilt that I am yet another amateur helping to make life a bit harder for professional writers.
Getting “the vision thing” right in Enterprise Software December 12, 2013Posted by bernardlunn in Corporate Strategy, Enterprise Sales, SAAS, start-ups.
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Lou Gerstner wrote one of the best business books of all time, an educational thriller about how he took an IBM that was on the ropes in 1992 (having failed to adapt to a PC centric world) and made it great again, which he called “Who says Elephants Can’t Dance?”
IBM was in total crisis in 1992. He was asked by a journalist what his vision was for IBM. His reply became famous and much misunderstood. He said something along the lines of “the last thing IBM needs right now is a vision”. A couple of years later he did unveil a classic bland corporate vision statement and then said what he really thought which was:
“So the most important strategic priority for IBM becomes, when you peel it to the core, to execute what it knows – and has known for years. Execution will lead IBM back to success.”
Gerstner did have a vision – to make IBM a customer-centric business – but he recognized that realizing this vision was all about execution. Later in the book he revealed his growing understanding that execution was all about changing the culture.
At IBM’s scale he was right. It was 99% execution and 1% vision. For tiny startups struggling to get noticed in a crowded market, that balance is different. Execution is critical – it always is – but startups need crystal clarity on vision, mission, positioning and so on. Mind-share precedes market-share.
In many enterprise software startups, this is harder than it should be, because executives are like blind folks around an elephant. Each one feels a different part, but only one part, such as the side or the tusk. They then compare notes and learn that they are in complete disagreement.
The different parts of the enterprise software elephant are:
A. Technological Advantage aka “secret sauce”. Externally this is irrelevant. Your customers only care what you can do for them, not how you do it. You actually want to hide this externally and protect it with patents. However, internally you must know where your source of competitive advantage comes from.
B. Customer pain. You must know “what keeps them awake at night” and how you can use your technical secret sauce to solve these problems. The difficulty that horizontal platforms have is that the language used to describe this pain varies dramatically by market. The way that a CXO level person talks about the pain is totally different in a Bank, in a Pharma company, in Government, in FMCG etc.
C. Market Space Labels. This happens when some bright analyst does some pattern matching across vertical markets. They spot that the customer pain being described in such different ways in a Bank, in a Pharma company, in Government, in FMCG etc all have a common theme. They give it a name, a label for the market “space”. All the participants in the market realign to position into this new space and to get into the magic quadrant or other short list paradigm.
The problem for startups is very simple:
By the time the customer pain across verticals has been aggregated into a “space”, it is too late for a startup to become the dominant player in that space. The incumbents can offer “just good enough” features to be signed off by buyers who have already put them on the approved vendor list.
Startups have two ways to meet this challenge:
1. Name the space while you are creating it. It’s incredibly hard to do. In this post I describe how Tibco did this.
2. Just deliver and don’t label yourself. That is what Splunk does. You deliver value and let the market figure out what label to put on you.
Pivots are usually for consumer ventures. This is what I learned leading an enterprise software pivot November 22, 2013Posted by bernardlunn in Uncategorized.
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The company had built a product for a market that evaporated after we had made a few big sales. I was given the job of finding another market. We had a great product that I could position as a framework, some superb developers and a management team committed to going the extra mile for clients (because company survival depended on them being happy).
All I needed were some problems to solve that were relevant to the technology we had.
A wise fellow suggested I go to the City of London as they have lots of money and lots of problems. That is still true today.
It worked. We found a market, closed a few deals to establish credibility in that market and rebuilt the company around that market.
I started with the usual “what keeps you up at night?” line of questioning. Through this I stumbled on a “blue ocean” market that was just emerging (blue ocean means that no other vendors were targetting the market, as the market did not yet exist, but a simple trend analysis indicated to me that a big market would emerge and it did).
I learned three things from this:
1. The technical killer feature was not what we all thought it would be. I came back from the first meeting a bit despondent, because the problem that the client had – which he had freely admitted was very difficult to solve as per all the tech advice he was getting – was not the problem that I had thought best suited to our platform. I was dejectdly chatting about this with one of the developers and he said “oh, that would be easy”. As the client had told me that he considered it tough to solve, once I had a solution the sale was relatively easy.
2. Once means nothing, twice is coincidence, three times is a trend. The first sale just showed what we could do technically. The market did not yet exist – it was only a gleam in the eye for a few people. So we simply delivered a custom project using our framework. The second sale was closer to the market that was emerging. Also on the second sale we turned it into something more like a product, by the usual productization techniques. The client was recognised as an innovator – “a name to conjure with”. Yet we still needed the third client, a more mainstream one, to prove to the market (which was starting to be perceived as a market) that we had a product. Also on the third deal/project we knew enough and were confident enough to really create a product. Then we launched and scaled from 3 clients to 30.
3. When you hit the mother lode, throway the pickaxe and find the money to get a backhoe. This was where we went wrong. We were a boostrapped company. We did OK, became #2 in a good market, got acquired. We scaled from 3 to 30 clients, even the next 10x to 300; but we stumbled at the next 10x. This is where today in America you get calls from Growth Equity Funds. This was in Europe and before Growth Equity was mainstream. We might have been first in the market, but another venture saw the big picture opportunity and seized it (they are now a multi-$billion public company).
Its harder today. There are lots of software ventures with sophisticated frameworks and great developers. The key is still the same – find a problem to solve in a blue ocean market, get three customers ready to rave about you, then scale to meet the opportunity.
Why I am addicted to Twitter but never got the Facebook habit November 21, 2013Posted by bernardlunn in Uncategorized.
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1. No social pressure. You are not upset if I don’t follow you. The social scene in school kinda sucked, who needs that forever?
2. Funny. The hashtag humor around fast breaking events often make my day. It is a new art form.
4. People I wish I had gone to school with. I went to school/worked with some cool people, but sorry guys the Dalai Lama and Yoko Ono have more to say.
5. Lists. To quickly research a new subject, Lists are the best productivity tool since email.
6. Brevity is good. Nuff said.
7. The sense (false but still fun) that you are eyewitness to history (I woz there in Tahir Square from the safety of my armchair).
10. The journalist habit of 10 point lists dies hard.
Tags: enterprise software, negotiation, sales
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As a sales rookie I was reviewing the key issues before a major contract negotiation with my boss. We made a list of a) showstopper issues and b) “not a big issue for us” clauses.
During the meeting one of the “not a big issue for us” items came up. My boss said;
“Hmm, that is difficult. Do you mind if my colleague and I step out of the meeting to discuss this?”.
I walked out thinking WTF; why make so much fuss about a clause that did not matter to us? When we were alone my boss said:
“So what do you think will happen in the cricket today?”
We spent 10 minutes talking about cricket. The idea was simply to make them sweat about a point we were willing to concede so that we could trade it for something we wanted.
Wix, Drupal, WordPress. What my DIY hack taught me November 6, 2013Posted by bernardlunn in Uncategorized.
I am hacking together a site for a startup non profit sporting event. No budget to hire a developer so I drew the short straw (volunteered, yep, I am an idiot). I have never written code but thought I could hack together something using a mix of:
The good news – it works.
The bad news – more painful than I had hoped. More painful for end users but also for your humble hacker. I mean humble. I Am Not A Developer.
Sites like this will thrive by ever deeper integration, increased functionality and superb UX that hides complexity.
Its topical because Wix is doing an IPO. I did not try Wix, I had not heard about them. I also did not try Drupal, too daunting for a non-techie DIY. If I had a budget and my developer wanted to use Drupal I would have said “great”.
So my default was WordPress. I have used it for blogging since 2007, love it. The site I am building is not a blog – that will be one feature in future – but I could set up on my domain and also use Pages. Anybody could see I hacked it with WordPress, not an issue in this project.
WordPress SEO is great. That matters. It plays well with Eventbrite and Paypal (and Wufoo and everything else, WordPress seems to thrive by being a team player).
Eventbrite was great. Toyed with Eventbee and Wufoo, but once again “familiarity breeds contentment” ie I know how to use Eventbrite.
Everybody says “Paypal is a pain” and they are right. Wanted to use Stripe but I am in Switzerland and that was a story of “nearly ready is not good enough”.
Its the programmable web and it works – sort of – and is improving all the time.
There is a quadrant here. Wix and WordPress are in the simple but functionally limited box. Drupal is in the steep learning curve but functionally powerful box. The magic quadrant is still empty.
One observation is that Wix trades on great themes and HTML5. The themes marketplace is cross platform ie I can now choose a theme and implement on Wix or WordPress or Drupal. HTML5 is clearly cross platform.
End note: written on Notes and posted to WordPress by email.
Why Enterprise Software Sales is like Chess (with elements of Poker) November 4, 2013Posted by bernardlunn in Enterprise Sales, SAAS.
Tags: enterprise software, revenue, sales, sales management, software ventures
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Many cerebral developers have an image of sales as a game for smooth talking silver tongued devils who are not over-endowed with grey matter.
Coding is very hard intellectual work. So is enterprise selling. Enterprise sales is like a game of chess with opening moves, middle game and end-game:
- Opening moves in chess are fairly well-defined. You cannot win through brilliant opening moves, but you can lose quite quickly through some dumb moves. The same is true in enterprise sales. People over estimate the value of an introduction. It is not much more than Pawn to Queen four. You need to get through the door to sell, but its what you do when you are through the door that matters. Its not just the credibility of your introduction (first move) but also how you position your value proposition on first email, call and meeting that will determine how well you do when you get to the negotiation phase.
- Middle game is when the sales support guys make all the difference. The process of proving product fit to the specific enterprise requirements is long and complex with a track running from demos to gap analysis to proof of concept. Then the process of aligning stakeholders towards a specific proposal can take place. You cannot plan more than two moves ahead, the best players mix analysis with intuition (“sight of the board”) as well as some time-proven maxims (such as “control the center of the board”).
- End game is when the closers score. Some sales guys are no good in the opening moves (they expect the company to set them up with lots of qualified leads) and they are hands-off during the complex hard work of the middle game. This may annoy the hard-working folks in marketing and sales support, but they can get away with it because they are great closers. Watch out for these guys at your Gorilla competitors. A naive start up can align people around a perfect demo, gap analysis and proof of concept only to find the deal snatched away by salesman sammy at Bigco who trashed you with a well timed comment to the decision-maker over golf or cocktails.
The reason that winning at enterprise sales is so much fun is that it is cerebral but it is not only cerebral. You need good EQ as well as good IQ. Or, to put it another way it is a mix of chess and poker and as Bond says in Casino Royale “in poker you don’t just play the cards, you play the person sitting across from you”.