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Top 5 Reasons Business Execs Fail to Work Effectively with Product and Engineering Execs

Sat, 16 Aug 2008 09:12:11 -0700

All too often, technology companies fail to find the right balance within their business executives. When a business exec is too technical, she may not have the aggressiveness or “street smarts” to help a young company succeed. If a business exec isn’t technical enough, he might swim out of his depth and make wrong decisions about key technology or product hires.

You may have heard it referred to (unkindly) as the Mechanic Dilemma: Business execs, like car owners, rarely have the knowledge to understand or question what their “mechanic” (tech team) tells them. The word “hostage” is also used, as in “Our management is being held hostage by our tech team!” Whatever the words used to describe it, there are few things more harmful to a company’s prospects than a lack of trust between the business leaders and product and engineering leaders.

The truth is, business execs don’t need to be very technical — they just need to have a strong understanding of, and respect for, the ethos of their technical leads and show the hallmark qualities of good leadership: ethics, determination, discipline and humility. By examining the top five reasons business execs fail to work effectively with technical execs, it’s possible to anticipate and avoid some common problems.

5. Failure to Focus
Young technology companies can be “organized chaos,” with rapidly changing business models and plans. Still, business execs need to demonstrate that their approach makes sense — even if it involves a period of experimentation, so they can “fail fast” until they hit on the right strategy. There’s no surer way to alienate product and engineering teams than to whipsaw them from project to project with an ill-conceived “Idea of the Day” approach.

4. Failure to Show Respect
When in Rome, do as the Romans do. If you’re a tourist overseas, you shouldn’t assume that everyone speaks English. That’s just plain rude. Natives of your host country will appreciate any attempt to speak their language, however feeble it might be; it’s a sign of respect and will go a long way to making sure the waiters don’t spit in your food. Likewise, even if business execs don’t understand the “language” of their technical counterparts, they need to do their homework and try to gain a basic awareness of the job at hand. It shows respect and breeds confidence. Business execs also often fail to appreciate what inspires and motivates technical and product folks, who sometimes are creative types more interested in building cool, innovative and useful stuff than making a busload of cash.

3. Failure to Delegate to an Ally
Micromanaging is bad enough when the micromanager is in his or her comfort zone. But it’s really intolerable when a non-technical business exec tries to micromanage the intricacies of product development and release cycles. Most successful companies have a technical-minded product or operations person who is also fluent in business matters. The engineers all know and like her and are happy to follow her lead. A pure business exec would do well to make this person an ally and delegate to her.

2. Failure to Build Consensus
Disliking the consequences of a decision, including the work that flows from it, is much different than disagreeing with the decision itself. Business execs should make every attempt to build consensus for the decisions they make, so that the long hours of work that flow from them do not cause resentment. The product and technical teams may dislike the fallout from those decisions, but if they understand and agree with the decisions themselves, they will support the mission.

1. Failure to Be Humble
Humility, or a lack thereof, is a theme that runs through this whole list. As Jim Collins says in “Good to Great,” the most effective leaders are humble and strong-willed rather than outgoing and full of ego. Unfortunately, the technology industry has a lot of big egos and charlatanism, and the snake-oil tactics aren’t limited to outward-facing communications. Ego-driven business execs often try to “sell” internally, rather than admit what they don’t know and learn from the folks around them. They don’t call it a technology company for nothing. Without the technologists and product people, there would be no company. Be humble.

Kevin Fortuna and Marty Abbott are partners with AKF Partners.

F|R: Zoho Founder Offers 5 Rules for Recruiting Well

Sun, 10 Aug 2008 10:12:19 -0700

Finding good employees is challenging for companies of any size, but for cash-strapped startups in the midst of a talent war, it’s particularly difficult. AdventNet, Zoho’s parent company, is no longer small (now more than 700 employees), but our recruiting strategy was forged from the challenges we faced when we were just starting out.

Most HR departments use fairly conventional criteria to identify talent, namely an individual’s academic and employment pedigrees. There is nothing wrong with this, except that when everyone uses them, the candidate pool gets over-fished. As a bootstrapping startup unable to compete with compensation, Zoho had to recruit a different way.

Since we didn’t find any significant correlation between traditional pedigrees and real-world performance anyway, we thought, why not look to non-pedigreed workers and evaluate talent in terms of actual job performance? OK, performance can only be evaluated after a candidate is hired. But Zoho has developed a practice that allow us to recruit non-traditionally — and effectively.

Keep in mind that most of Zoho’s staff are in India, so our experience must be taken in context. But we have used the same recruiting rules for our operations in the U.S. and Japan, if on a smaller scale.

1. Use internal referrals
The best recruitment source is our own current employees; almost two-thirds of our hiring is done through this route. Rather than relying on monetary incentives for referrals, which merely produce a flood of resumes, we ask referrers to indicate how well they know the candidate and if they would be willing to make a strong recommendation. Referrers build a track record and hiring managers stay in close touch with them, which creates accountability.

2. Evaluate for passion, determination and adaptability
What about the remaining one-third of employees not coming in through a referral? We look for strong analytical and reasoning skills. Crucially, we also look for an ability to passionately argue a point of view, or for a level of enthusiasm and initiative in some non-academic area, such as sports. Particularly in India, where sports is barely encouraged in schools, people have to jump through hoops (no pun intended) to excel in sports. Since we have fairly flexible role definitions, we also look for a willingness to adapt, a key attribute of successful employees.

3. Be willing to train
For a system like ours to work, we have to invest in training. We used to simply have colleagues mentor and coach new hires. We still do that, but we augment it with classroom instruction if we feel that a new recruit has a substantial gap to cover.

The ultimate extension of this philosophy is what we call AdventNet University. In southern India, where colleges are little more than degree-granting mills, we found that college just doesn’t provide much in the way of an education. We decided to offer an alternative, and take students directly after high school.

We have a full-time faculty that devised a curriculum based on a typical undergraduate Computer Science course, with a heavy emphasis on actual programming. (We noticed that our students prefer the practical to the abstract. One reason college students get turned off Computer Science is the heavy emphasis on theory.) The program has been very successful for us, and it has been expanded recently, which has also allowed us to bring in fresh recruits from our Japan office.

4. Be flexible on role definitions
We find that it helps not to centralize job definitions too much, particularly for fresh employees. We have fairly fluid boundaries between development & QA, systems administration, sales and marketing, and so forth. We leave it to ground-level team managers to determine the role/responsibilities that will best leverage an individual’s talents.

5. Be patient
When we do these things right, the rewards are high commitment, high productivity, high job satisfaction and low attrition.

So, what’s the catch? Our approach requires patience: We cannot ramp up hiring quickly. This has implications for a VC-funded company with time-bound exit expectations, which is one reason we have elected to bootstrap, growing at a pace our recruitment model can handle.

Sridhar Vembu is co-founder and CEO of AdventNet, parent company of Zoho. Check out GigaOM’s video Q&A with Sri and his co-founder, Raju Vegesna, at Structure 08 here.

F|R Crib Sheet: 7 More Sites to Cut Your Startup Costs

Sat, 09 Aug 2008 09:11:42 -0700

Last month we offered bootstrapping founders a short index of cost-optimization sites to help cut expenses for things like health insurance, web hosting, wireless plans and electric bills.

Many of you wrote in to offer your own recommendations, so this week we’re expanding the list with seven additional resources to help you cut costs associated with project management, conferencing, financial planning and accounting — plus, an entire search engine devoted to sourcing free applications for just about everything else, including: data backup, CRM, product price tracking, professional video editing and more.

As always, if you’ve discovered additional tools for cutting startups’ commodity costs, please share them in the comments section.

1. Financial Modeling

Even if you never plan to raise professional money, you need to know how to build and read financial and accounting models in order to run your business effectively — especially during a recession. FinancialModelingGuide.com offers free tutorials and Excel spreadsheets (available for download once you register) that you can use to round out the capital-investment and cash-flow models in your business plan and help you with ongoing operations accounting. You’ll likely find the template for the enterprise software company useful. The site claims an active community of some 4,000 finance professionals, entrepreneurs, and academics who can give you quick and unbiased feedback.

Also take the time to listen to this lecture, by Prof. Aswath Damodaran of New York University’s Stern School of Business, in which he explains the how to easily assess the beta risk (or market correlation, a.k.a. recession exposure) of your business. (Ever wonder what tobacco companies and Twitter have in common? A low beta!) Other valuation resources are here.

2. Web Hosting (Addenda)

Slicehost.com is a reader-recommended site for web hosting and applications development. It includes a community for seasoned developers to share their tips and war stories and a very long list of free tutorials for building e-books working in MySQL, Ubuntu, Debian, Capistrano, etc. (Reviews of the tutorials are positive.)

WebhostNinja.com is another reader-recommended site that aggregates hosting vendors so you price-compare and buy wisely. We especially like this site for its index of coupons for further discounts and this handy list of articles, such as “The 3 key numbers when buying Web Hosting.”

3. Credit Assistance

Interactive media and online advertising firm MediaTrust is behind SmarterChoices.com, which aims to help consumers and startup founders (some of whom are also, we presume, MediaTrust’s clients) with certain finance and credit pressures. The site already provides auto loans, cash advances and will help you repair your poor credit. Apparently health insurance, debt consolidation and auto refinance are on the way. The sites seem a bit predatory at first, but MediaTrust is an established company, and heck, it’s an ugly truth that such services will be needed in tough times.

4. Conference calls

Freeconferencecall.com offers reliable and free conference calls under a variety of plans, including one you can use for a mini-conference, called Simple Event, in which up to 96 organizers and panelists can conduct a presentation for up to 1,000 passive listeners. One caveat: we hear this service isn’t as effective for some VoIP users.

5. Task Management

Priacta.com offers a list of 108 free or low-cost software tools designed for various kinds of task management. They’re intended to save you time and, therefore, money. The site trades on author David Allen’s best-selling book, Getting Things Done: The Art of Stress-Free Productivity. If this doctrine appeals to you, consider the coaching pages — but know that Priacta’s Totally Relaxed Organization (or TROG) toolbar, for which the site serves as a lead-generator, is only free during trial. If you like how it manages your calendar, you’ll have to pay to keep it.

6. Free Apps for Everything!

The SearchFreeApps.com engine was built by our friend and early Found|READ contributor Bruce Judson, of the Yale School of Management, expressly to help bootstrapping startup founders access free (or mostly free) resources for building and running their companies. Bruce personally vets every application entered into his database (we don’t know where he finds the time), which now includes applications for things as basic as business cards, virus protection, data storage, legal forms and CRM, as well as business-enhancing applications for things like video editing, foreign language instruction, mind mapping. Bruce adds new applications daily.

Also consider Bruce’s book: Go It Alone!: The Secret to Building a Successful Business All On Your Own.

7. Spending Priorities

We’ve linked to The Calacanis Cost-Cutting Hacks post before, but we include it again for his very useful instructions on how to prioritize your startup spending (e.g., why you should pay for expensive chairs, but not a phone system). He also offers tips on how to minimize some of the latent but recurring “costs” that drain your day-to-day operating efficiency (e.g. the hours your workers spend each month standing in line at Starbucks). But we think Jason’s most important cost-cutting tip is No. 15:

“Go to each of your vendors every 6-9 months and ask for 10-30% off. If half of them say yes you’ll save 5-15% on fixed costs. People will give you a discount if they think they are going to lose the business.”

We suggest you print out this advice and frame it on your wall.

F|R Crib Sheet: A Digital Hack to Trim Your Startup Legal Fees

Sat, 26 Jul 2008 09:53:27 -0700

When I began my career in corporate law 10 years ago, I was floored by the amount of time, money and paper consumed during the closing process of a business transaction. Every deal produces multiple sets of original documents and signature pages, so each party (and sometimes their lawyers, too) can end up with a bound volume containing a full record of everything, just for safe-keeping.

I recently worked on a financing for a young tech company that involved parties in Washington, Paris, San Francisco and Santa Clara, Calif. When the terms were finalized, I assembled the relevant documents and signatures, fed them into a scanner and sent the parties a digital PDF of the deal record. But one party decided they wanted a complete set of originals for their records. So after waiting days for more signature pages to arrive from France, we reassembled everything and physically shipped out a much thicker version in hard copy.

A financing like this one typically costs about $15,000 in legal fees. I’d estimate that the extra documentation and billable attorneys’ hours added another $1,000 to my client’s tab, for zero legal benefit.

Startups, especially those that are bootstrapping, are heavily burdened by such legal costs. The good news is that it’s getting easier, and more acceptable, to use scanned signatures for your transaction documentation. Doing this can save your startup a lot of pain – and thousands of dollars.

In 2000, Congress passed the Electronic Signatures in Global and National Commerce Act, making electronic contracts as valid as physical ones in most situations. (Checks, promissory notes and stock certificates are treated like legal tender, so originals of these are still required.)

But for a startup’s major legal transactions — licensing agreements, employment contracts, even funding rounds — there is no need to produce multiple sets of hard copy documents and original signatures, because the full weight of U.S. law applies to digital versions of both.

Some Web 2.0 startups offer tools to produce actual digital signatures (EchoSign is one), but even these aren’t necessary. The law focuses on “proof of authenticity,” meaning a copy of a manual signature need only be recognizable as the signer’s to be valid, so good old-fashioned scanning is just fine.

Scanned signatures are easier to forge than originals, so a bit more care is required to avoid fraud, but I think the cost benefits outweigh the risks. For one thing, digital documents are not only “greener” but also easier to store, archive and search, which can be handy down the road if conflicts arise concerning a legal contract.

And consider this: A funding round can easily cost your startup as much as $40,000 in legal fees. Bear in mind that in a Series A, the startup foots the bill for the company’s — and the investors’ — attorney fees. Using scanned signatures will not only reduce the administrative headaches of your deal, but also save you thousands of dollars.

Here’s a four-step remedy for avoiding the costly hassle of excessive legal fees in your next business transaction:

1) Establish an administrative custodian to be responsible for sending a final digital record of your deal document(s) to both parties.

2) Require that Party A and Party B each produce a list of signatures from its relevant officers that they scan and email to the custodian.

3) Have the custodian attach the scanned signatures to a final PDF, consisting of all the deal documents, and email the “dealbook PDF” to both parties.

4) Stop. This is the big change: No multiple hard copies; no multiple original signature pages; no FedEx charges for overnighting anything. In my scenario, each side can decide, after the fact, whether to print and maintain a hard copy for its company records.

But be warned: Old habits die hard. The ESIGN law is eight years old, yet many people still aren’t familiar with it, or just don’t recognize that the age-old signature tradition is superfluous. The next time your attorneys or an investor asks you for a set of “originals,” point out that it won’t confer any value, or security, above and beyond that of scanned copies.

Jay Parkhill serves as outsourced general counsel to startups and growth-oriented companies, and writes on legal and business matters at his blog, StartupToolbox.

Meebo’s Jen: How to Find Hard-to-Find Talent

Sat, 05 Jul 2008 10:52:28 -0700

At GigaOM???s recent Structure 08 event, Meebo co-founder and engineering chief, Sandy Jen, joined a panel to talk about scaling your computing infrastructure for explosive growth. Jen also spoke with Found|READ, this time to offer founders tips on how to overcome what she calls the internal scaling challenge: hiring.

Meebo launched in September 2005, when it unveiled the first Ajax application that allowed users to access several instant messaging clients (AIM, Jabber, Google Talk, etc.) from its home page. Back then, Jen and co-founders Seth Sternberg and Elaine Wherry were bootstrapping, even using personal credit cards to lease the three servers they needed in order to launch. With no money left over for marketing, they went guerrilla.

???Digg had started about six months earlier, so we said, ???Let???s just Digg ourselves,’” Jen recalled. “We wrote a quick description of Meebo ??? ‘Web IM: AIM! Yahoo!; No downloads; draggable windows! It???s free!?????? and went to bed. The next morning we had 600 Diggs, and our servers were overloaded.???

Three years later, Meebo has raised $37.5 million in venture capital, has all sorts of new products (and servers), gets 30 million unique visitors a month, and faces its toughest scaling challenge yet: ???The No. 1 thing we worry about is hiring,??? said Jen. To keep up with user demand, Meebo must grown to 50 employees from its current 30 by 2009 ??? a 67 percent increase.

In a fast-growing startup, maintaining your core values is crucial. ???But how do you hire and keep your small team culture? It???s really hard,??? Jen told us. ???In the beginning it???s easy to ask your friends and people you trust for names. But eventually you???ll tap out your networks. Then where do you look for talent????

In order to uncover new recruits ??? and not just the very talented people, but the right people ??? for her company, Jen has developed a few tricks:

1. Go to industry events. You want to hire people who are interested in the same things that you’re interested in. That means reaching out to people who attend the same events that you do. Once you???ve seen the same person at four of five events, make your move.

2. Keep track of smart comments in blogs and forums. Pay attention to the people who are commenting smartly on the stories you’re reading — especially if they’re doing so frequently. This is an indicator of their engagement and passion.

3. Look for people through your extra-curricular activities. You want people interested in your technology, but the right cultural fit means finding people who share your other values, too. A good indicator of shared values is a shared extra-curricular activity. Do you rock climb? Play ultimate Frisbee? (Jen does.) Common fun offers opportunities for bonding, which can be a great way to find new staff.

4. Go outside your geographic circle. There’s a lot of talent in the world. One of the first things Meebo did was commission its graphic design from a guy in Italy, whose work they found on an art web site. They hired him on a trial basis; today he’s Meebo???s Agent Icon.

5. Leverage contract arrangements. As Jen acknowledged, getting H-1B visas is a long process and a pain in the butt. But they’re worth it. If you find someone you want on your team, get them in the door, excited about your company and under contract as soon as possible. Meebo usually has six or seven people working under contract at any time.

6. Commit and be generous. Really talented people rarely advertise themselves, at least not as much as we’d like them to. You must court them. There is a lot of competition, so this could mean being flexible with hours or remote work options. And once you decide to hire someone, you have to welcome them with open arms.

7. Fire fast. When someone isn???t working out, have them leave quickly. In three years, two people have left Meebo — one left in three weeks, the other, in a few months. But a bad fit will contaminate your culture. You can???t afford that.

(Photo credit: Lea Suzuki, San Francisco Chronicle.)

For more on how Jen manages Meebo’s infrastructure, check out her interview with Om, below.

Meebo’s Jen: How to Find Hard-to-Find Talent

Sat, 05 Jul 2008 09:49:48 -0700

In order to uncover new recruits ??? and not just the very talented people, but the right people ??? for her company, Jen has developed a few tricks:

(Photo credit: Lea Suzuki, San Francisco Chronicle.)

For more on how Jen manages Meebo’s infrastructure, check out her interview with Om, below.

A Founder’s “Daily Flash” for Executing in the First 6 Months

Sun, 29 Jun 2008 10:06:33 -0700

Before he became a founder, Ian Shea spent eight years at DVR maker (and TiVo predecessor) ReplayTV. During that time, the company went through — among other things — a massive restructuring, layoffs, bankruptcy and a turnaround before finally being bought by DirectTV for an undisclosed amount in December 2007. “We went through it all,” Shea told me recently.

And as soon as the DirectTV deal closed, Shea sought out an operating challenge he hadn’t yet faced: a startup.

Since January, Shea has been working alone out of his house on Project Maestro, an online marketplace for connecting experts from any number of fields to individuals that want top-dollar tutoring. So a retired minor league pitcher, for example, might be matched to a high schooler aspiring to earn a college scholarship on his fast ball, or a gerontology nurse might be matched to an investing club for Baby Boomers. Maestro will also handle the scheduling and billing, much like a virtual talent agency might.

But starting an online marketplace is different from running a consumer electronics outfit. I asked Shea what lessons from ReplayTV he can apply to Maestro. What he shared was a simple recipe for incremental execution that will benefit any founder — one that doesn’t include a draft business plan until month six.

“The main lesson I got at Replay was the importance of metrics and milestones,” he said. Prior to its acquisition by DirectTV, he explained, Replay was owned by a Japanese company. “They stressed the importance of metrics. It was their culture, so it became our culture.” Replay subsequently starting published what it called the “Daily Flash,” a simple one-pager that showed daily service activations, the top three customer calls, DVR box returns and its total user base, “so we could see our churn.”

The measurable results proved to be especially valuable when DirectTV came calling — after all, investors need data to build their financial models. Venture capitalists do, too. So Shea recreated “Daily Flash” for Maestro, which he has graciously shared with us:

1. January: Create Vision
Daily task: Talk to 3-5 people about my idea to socialize thoughts. Did they get it? Transcribe notes.
Weekly task: Discuss idea with one potential adviser.
End of Month: Find 5 competitors that lack right product offering; use as anchor for counterstrategy.

2. February: Discuss Vision
Daily: Talk to 3-5 people about market problem. Transcribe notes.
Weekly: Begin discussing potential customers and product features. Transcribe notes.
Month end: Find 4 advisers on whom I can lean each day to discuss process, who will take me through the development of vision.

3. March: Prepare Written “Vision Brief”
Daily: Edit vision brief; consult advisers; edit again.
Weekly: Create contact list of people to receive brief; list specific feedback needed from each.
Month end: Complete 2-page vision brief; begin developing metrics for ‘Go/No Go’ on business, such as: Is potential consumer base big enough?

4. April: Test Vision
Daily: Send vision brief to 10 people. Personalize each email.
Weekly: At week two, begin scheduling daily meetings for face-to-face feedback from respondents.
Month end: Will have sent business brief to 300+ people.

5. May: Vet Feedback, Validate Vision
Daily: Take 3-5 live meetings with vision brief reviewers. Take notes, transcribe daily.
Weekly: Compare respondents’ feedback for common denominators in perceived market problem, and desired solutions.
Month end: Validate Maestro’s solution against commonalities. Decide whether to launch company.

6. June: Draft Business Plan
Daily: Chart growth phases and performance metrics; edit plan
Weekly: Source a law firm. Begin product specifications; begin talking to developers and consultants.
Month end: Complete draft business plan.

“How you filter information in the first six months is really critical to your learning,” Shea said. Setting up these “deliverables to himself” made it easier. “I could see clearly that if executed properly, this could be big. I should launch Maestro.” Shea is now in phase seven of his startup’s Daily Flash: “The Customer Development Brief.”

The F|R Interview: VMware Co-Founder Mendel Rosenblum

Sat, 28 Jun 2008 09:04:36 -0700

During a break at GigaOM’s Structure 08 conference this week, Found|READ sat down with VMware co-founder and chief scientist, Dr. Mendel Rosenblum.

Dr. Rosenblum developed VMware’s virtualization software while working on a supercomputer research project with his graduate students at Stanford University, where he remains an active professor of computer science. In 1998 he went on leave from Stanford to launch VMware with four business partners, including his spouse, Diane Greene, who remains the company’s CEO. It wasn’t easy going. Back then, VCs had a hard time wrapping their minds around the business opportunity in Dr. Rosenblum’s software, which allows one server to do the work of many.

Today, VMware has 100,000 customers and is expected to sell nearly $2 billion worth of its products this year. And that’s after debuting on the New York Stock Exchange last summer in one of the most successful IPOs since Google.
Om spoke with Dr. Rosenblum in December about the history of the company and state of the virtualization market. Here Dr. Rosenblum talks about being a founder.

F|R: Some of our readers refer to founding as a “lifestyle,” not a job. What convinced you to table your very well-established career in science and academia to risk launching a startup?

Rosenblum: We were working on this supercomputer, trying to figure out how you could build scalable computers of a very big size. I wasn’t really that interested in high-performance computers — for one thing, you’d sell very few of them, other than to the government. What motivated me was wondering whether you could use these computers for something else. I had this idea about virtualization, that you could carve this one, big computer up and use it for a whole enterprise worth of computing. I was just more interested in working on something that would have a large impact on the masses.

One of the nice thing about Stanford is that the path is pretty well worn into entrepreneurship, so it didn’t seem like this radical thing to become a founder. If you had an interesting idea, there were plenty of people who you could talk to about it. Part of what convinced me were the grad students; they’d seen the Yahoo people go off and so they were excited about starting a company. I was sort of trailing along thinking, “Well, it sounds like a fun thing to try out.” But the deciding factor was when my wife, Diane, got interested in it. That made it incredibly easy for me.

F|R: Finding the right co-founder is a critical step. There is an unspoken rule in Silicon Valley that VCs won’t fund husband-and-wife teams. You did not raise VC money to launch VMWare, but what advantages did you and Diane Greene have as a founding team because of your status?

Rosenblum: Yes, we just did some self-funding in the beginning and then brought in some friends later — angel investors — and that was enough to do it. I can imagine that husband-wife teams can work out badly, but in our case, I had confidence in her dealing with the business side and she had confidence in what we were doing on the technical side and so we just partitioned up the company that way. And we didn’t really have any conflicts whatsoever. The nice thing about being married is that is gives you even more time to talk everything through, and it kind of consumed our life for a long time — maybe to the detriment of our children — but we just had great communication. It was a benefit, too, in co-founding with faculty from Stanford (Scott Devine, Dr. Edward Wang and Edouard Bugnion). We knew were launching VMware with people we trusted.

F|R: What was the most difficult thing about VMware’s 10-year run to its IPO? And can you offer a piece of advice to founders just starting out?

Rosenblum: When we first started out the whole challenge was trying to convince people that virtualization was a good ting, what’s it’s good for — and trying to figure out for ourselves what it could be used for! There were challenges on the technology side and challenges about how to go to market. We took the approach that we wanted to partner extensively with [hardware vendors like IBM and Dell]. That ended up working out pretty well, though lots of people have made lots of money in shorter time that we did.

One thing I would say is important: Make sure there is more than one application for your technology. There were a dozen applications for VMware that we didn’t pursue. Some we did, and they didn’t work out. In the dot-com boom, we thought we’d sell our software to ASPs, who’d use it to manage other people’s applications more efficiently. Then all the ASPs went out of business. So we switched strategies to focus on selling VMware into enterprises, so companies could use it to run their own servers better.

Chad Hurley Tells All: How They Built YouTube

Sat, 28 Jun 2008 06:03:17 -0700

Liz Gannes who edits our NewTeeVee site skipped the company dinner to attend an event where Chad Hurley, co-founder of YouTube was going to reveal the entire story of YouTube. She caught the entire event on tape, and has the full report, a must see NTV for anyone who loves start-ups.

* If you can show growth such as a traffic hockey stick, your don’t need a PowerPoint to raise VC money.
* However hard you may try, it is hard to predict the future and your future infrastructure needs.
* Know who to sell and most importantly when to fold your hand.

If you wanted to read the story of less known YouTube co-founder Jawed Karim, click here. Watch Liz’s video.

F|R Crib Sheet: How to Source Good Offshore Developers

Sat, 14 Jun 2008 17:21:36 -0700

If you’re bootstrapping your startup, offshoring your web development is a great way to save money. But it’s also fraught with risk. Working with remote contractors makes it far harder to manage project development and communicate ideas. Taking proper steps to protect yourself is crucial.

I’ve been bootstrapping my e-commerce startup, Aroxo, for the last year and blogging about it for Found|READ and on my own site. My previous post explained how to use your network to build a quality list of prospects. Today I’ll tell you how to vet the list to select the right offshore developer.

Step 1: Send a “Request for Information” to Prospective Vendors:

The RFI is a questionnaire you will draft to help you determine which developer can deliver your project within your price range (here’s a sample). Your RFI should produce the following data:

Vendor’s vital statistics: years in business, number of employees, rates for all billable staff.

Currency the developer will use to invoice.

Confirmation or denial of a fixed cost for your project (which you want)

Description of the vendor’s typical projects (How big are they? How long do they last?)

Vendor’s technology certifications and other technologies they can support.

Source of the vendor’s development design (in-house or sub-contracted?)

3-5 customer references.

Additional RFI Tips:

Include a hypothetical “technical problem” relevant to your project and ask the developer to show how they would solve it. For customer references, ask for projects similar to yours that were completed for clients physically near to you so you can arrange to meet them in person.

Worried about your IP? Don’t discuss the specifics of your business in the RFI. Describe the type of business that you’re launching in general terms (e.g. e-commerce), or refer to similar companies by way of description.

Give the vendors two weeks to respond, and an opportunity to ask you questions. Include your deadline(s) so the developers have a timeline. Not every vendor will respond to your RFI. Some will, but won’t answer all your questions. Others will will send you “documentation packs” that contain all the answers, but not in the format you requested. All of these companies should be dropped from your list.

Step 2: Vetting Your Vendor Prospects

Two weeks after you’ve issued your RFI, you will have all the responses you’re going to get. (Don’t bother chasing companies that don’t reply.) Now you must work through the list until you have at least four — but no more than seven — prospective developers. This is an important yet difficult step. First, think about who your ideal vendor is. Identify the criteria by asking the following questions:

Do you want to work with a small company, or do are you looking for a larger company with ISO or CMM certification?

Do you have a particular development methodology in mind?

Do you want your system built with a particular technology?

Now you’re ready to start “the sift.” First, remove any companies that don’t fit the criteria established above. When I read through my RFI responses I arrange them into three piles: Yes, No, and Questions. I then put my additional questions to the vendor again, and update. I continue this until I have complete Yes and No piles.

When in doubt, go to their references. Don’t just ask if the developer delivered on time and to budget. Also ask: Have they given the vendor any new work? Will they in the future?

The reason I recommend getting to preferably four and no more than seven potential vendors is that you don’t want to take too many through your bidding process because you don’t want any more of them than necessary to know what you’ll be building.

If you don’t end up with four candidates, don’t go back through your pile. Approach new developers until you do.

Matt Rogers is co-founder of Aroxo.

F|R Crib Sheet: Key Terms of a Licensing Agreement

Sun, 01 Jun 2008 09:49:48 -0700

People talk about “selling” technology products all the time, but they usually mean licensing them. Licensing is actually the most common way that technology companies generate revenue. A “sale” occurs when ownership of the product changes hands completely. A “license” is when some portion of ownership is held back. For example, Apple sells iPods, but licenses the software that runs them. The point of this technical distinction is that if you want to “sell” your software to multiple customers, you’ll need to retain ownership, otherwise your first customer is going to walk away with everything. When you license your product, you retain control over how your customers may use it.

License agreements come in a million flavors, but they all contain a few critical elements. Here is a Crib Sheet of 10 Key Licensing Terms you need to comprehend.

1. Scope: What restrictions do you want to impose? The main ones are field-of-use, geography, time and exclusivity. Field-of-use means a customer can only use your product within a specific market. Restricting a license to the automotive sector prevents a customer from using it in aerospace or retail (without paying you again).

2. Geography: Predictably, this determines the physical area where a customer may use your product. Geographic scope is usually worldwide (though I have seen “throughout the universe”), but in some situations a tighter scope makes sense.

3. Time: When pricing your license, you need to decide whether to charge a one-time perpetual fee or a renewable subscription. If renewable, choose an expiration date.

4. Exclusivity: Your customer is the only person who can use your product within the parameters specified. Customers will ask for exclusivity if your product is somehow central to their business. Consider charging a premium for this, unless your product is a commodity (like Microsoft Office), in which case there is no value in negotiating exclusivity.

5. Representations and warranties: This is where you give your customer assurances that the product is yours to deliver, doesn’t infringe on anyone else’s IP, and that you will stand behind it if anything goes wrong. These elements get negotiated frequently. For the warranty, simply find out what your competitors offer and benchmark to it.

Representation of the authenticity of your IP is more challenging. Practically speaking, it is impossible even for big companies to prove that a product does not infringe on existing IP “anywhere else in the world.” Some tips: (a) determine where your customer is likely to use your product and assess whether you need to worry about infringement claims from those parts of the world; (b) limit the scope of your warranty to registered intellectual property in all cases. Patents must be registered to be effective, but trademark and trade secret rights can exist without registration, making due diligence impossible to complete with certainty.

6. Indemnification: If you breach a representation or warranty, and your customer incurs damages, this assures them you will cover the costs. IP claims are foremost in most people’s minds, but personal injuries and property damage (e.g. if your gear causes a fire) are other common grounds for indemnification claims.

7. Limitations on liability: This is your opportunity to state that if any claims on your warranties are made, the maximum amount you will pay will be capped. Most licensors limit it to the fees they will receive from the customer. (Licensees, of course, will want no limits.)

8. Most favored nations: Avoid this provision as much possible. It means that if you ever offer better terms to a new customer, you must give earlier lincensees the benefit of the same terms. Each business deal naturally involves a slightly different set of compromises. But if you give a customer an “MFN” provision, consider yourself warned: You’ll be required to give that person the best part of every deal you do in the future. also.

9. Jurisdiction and venue: Jurisdiction determines the set of laws that apply to your agreement (e.g. California vs. New York). Venue determines where any subsequent lawsuit will be filed. Litigation is rough on startups; litigating long-distance, worse. Set the venue close to home if possible.

10. Attorney fees. If there is a dispute, the loser pays attorney fees incurred by the victor. In my experience, where this provision exists, the parties stay at the negotiating table longer, resorting to court only if certain they will prevail. It can come back to haunt, however; there is always a risk that you could lose, no matter how good you think your claim is.

Disclaimer: This post is provided for general information purposes and may not be considered legal advice.

Jay Parkhill serves as outsourced general counsel to startups and growth-oriented companies, and writes on legal and business matters at his blog, StartupToolbx.

The F|R Interview: Turn Co-founder, Jim Barnett

Sat, 17 May 2008 09:21:08 -0700

Jim Barnett is co-founder and CEO of Turn, a three-year-old online advertising firm that uses an eBay-like auction to improve the way advertisers are matched to web publishers. Previously, Jim was president of AltaVista, and later, of Overture’s search division, which Yahoo bought for $1.6 billion in 2003. Jim talks to us about why he finally became a founder, why bootstrapping is not always the answer, and why sometimes co-founders need to part ways.

F|R: When did you first get the startup bug?

Barnett: Unlike some of your contributors, I’m a serial CEO. Historically, my passion and expertise has been taking entrepreneurial companies and scaling them into professionally-run companies. I did that with several companies, but ever since I was a kid I wanted to run a company from scratch.

F|R: Many founders find themselves in David vs. Goliath contests. Conventional wisdom is the only way to win is with superior technology. Turn is in a space dominated by DoubleClick, aQuantive, Advertising.com and Google. How do you compete?

Barnett: The Internet space doesn’t require you to have dramatically better technology, but there is no question that you have to be exponentially better at something. It might be technology, or maybe just a better product strategy.

In the ad space it depends on what part of the market you’re going after. Better technology is Turn’s approach because we’re going after the broad, more developed market in display advertising – it’s worth $30 billion now, and growing 20 percent annually. If you’re going after emerging categories, like mobile or video advertising, a lot of innovation comes from strategy; it is not necessarily a requirement to have better technology. Personally, I like to attack mature markets because even a small piece of a big market can lead to a big company, and I always want the vision of a big company. But for most startups, pursuing an emerging market where there is not an entrenched Goliath is a better path. So it’s about finding a new market (eBay, Yahoo, Netflix), a different product (Facebook) or simply a better product (Google).

F|R: Many of our founders are fond of bootstrapping. You’ve raised $22.5 million in venture capital for Turn. Why was this necessary?

Barnett: Bootstrapping is a fine strategy for consumer applications that don’t require deep technology or where a lot of your technology will be off-the-shelf. At Turn, we had to build both a team of PhDs focused on ad-selection algorithms and a best-in-class ad serving platform. It was capital-intensive. Whether you bootstrap or not, keeping your staff small until you get it right is absolutely the right thing to do. The truth is most startups struggle. Very few open their doors and experience life “up and to the right” every day afterwards. Often you have to evolve your strategy midstream, and that almost always requires tremendous persistence and time. We changed our strategy at Turn. If you don’t have capital, you won’t have the time to get it right. Selling equity to get some runway is the right thing to do.

F|R: How did Turn evolve its strategy from Plan A to Plan B and why?

Barnett: When we started we were focused on the long tail in advertising, but around year two, we changed our strategy to focus on larger advertisers and publishers. The problem with the long tail is that it’s the tail, it’s not the heart or the body…it’s not where the mass is. Our service is about aligning advertisers’ needs with publishers’ needs. Higher-quality advertisers want to be on higher-quality publishers and vice versa. The long tail gets a lot of visibility, but the real tonnage in terms of users and revenue is with the larger players.

F|R: Was this change difficult? What consequences did it have on Turn?

Barnett: Initially I had a co-founder at Turn. He’s a brilliant technologist, and he focused really deeply on our technology. But at a certain point I wanted to aggressively move to our new strategy and he had different opinions. So we parted ways. The lesson there is sometimes you have to make a change for change’s sake.

F|R: How do you know when change for the sake of change is what’s needed?

Barnett: You don’t know — you’ve got to trust your instincts. Most of the time there is no proven path, particularly if you’re in an emerging space. You want a collaborative environment, but at critical junctures most organizations ultimately need one leader to make the call, to stand up and say, “Nope, this is what we’re doing and here’s why…” That’s what good CEOs need to do.

The 5 Stages of a Consumer Web Startup

Fri, 09 May 2008 11:17:15 -0700

In my years covering technology, I’ve gotten more than my fair share of pitches related to the latest consumer Internet startup. Thanks to this I’ve been able to witness what amounts to be a near-familiar life cycle for these companies. Not every company hits every step, but most of these will be familiar to those of you in the Silicon Valley Social Media/Web 2.0-Something trenches.

IN THE BEGINNING

One day an entrepreneur is chatting with his friends, gets an idea, writes about the idea on his or her blog, and then starts coding. A few weeks or possibly days, a beta — increasingly a euphemism for a not-fully-thought-out-product — emerges.

THE LAUNCH

Then the buzz builds and the company opens up the beta far and wide. Maybe TechCrunch, ReadWriteWeb, WebWorkerDaily or WebWare write about the product. Either way, this is the first traffic spike and the entrepreneur rejoices. The VCs come calling. If they don’t, the angels will certainly do a fly-by.

But eight weeks later reality sets in. The traffic stops growing or — worse yet– dives. The VCs stop calling and blogs start posting Alexa charts that look like ski slopes or tabletops. But as an ever-optimistic entrepreneur it’s time to regroup, gather your programmers, toss back some Red Bull and…

LAUNCH A SOCIAL NETWORK WIDGET

If the user adoption press releases, the widget and subsequent coverage can’t get your site growing again, it’s time for the big guns...the open API. Now you’re a platform! The startup gets a fresh round of publicity, maybe more exposure to new users, and the founder rejoices again. This time the money men get serious because you have shown them you can survive the Silicon Valley jungle and you have a Facebook strategy.

12 MONTHS LATER

Maybe the media is getting too insistent with their questions about how this service is supposed to make money. Maybe the bills from Amazon Web Services are getting too high, or the VCs are getting impatient. The blogs are back to posting unflattering Alexa numbers. Compete data backs those charts up! So it’s time for advertising.

If the startup is well-funded or has a famous founder, the ad unit might be something novel like a widget, pre-roll voice ads on a mobile phone, or Beacon. Otherwise it’s generally based on banners and Google AdWords with promises of more to come.

THE END IS NEAR

But selling online advertising is hard. If Google, Yahoo, AOL or Microsoft haven’t stopped by with a buyout, it’s time to consider reality. You could always try your hand as an ad network or merge with a competitor, but more than likely it’s time to sell that domain name and user base on eBay or quietly shut your doors. Better luck next time.

FoundRead Finds a New Home

Mon, 28 Apr 2008 18:13:45 -0700

Dear FoundRead readers, after nearly 12 months, the time has come to take a hard look at the progress of this blog. The results have been mixed, and as such, it’s time to make some changes.

First the good news: The concept (and the premise) on which we started the effort was spot on, reflected in the dozens of contributors that became part of the FoundRead roster. In Hollywood lingo, this blog has been a critical hit, with more than 5,000 RSS subscribers, many of them startup founders or aspiring founders. That is very cool.

Popular aggregator and news discovery sites have linked to us occasionally, but there is one site that has embraced us completely: Hacker News (news.ycombinator.com.) To them we say thanks.

And of course many of these achievements can be directly attributed to FoundRead editor Carleen Hawn, who has done an awesome job of building a community, finding interesting writers and drawing the very best stories out of a wide range of startup founders.

Sadly, FoundRead hasn’t really generated the kind of traffic we had hoped for, so it’s time for a change. Here are the details:

FoundRead will stop being a standalone blog and will become a category on GigaOM. Each article in this category will carry FR branding, including the logo.
Readers of FoundRead will be forwarded seamlessly to the new category page.
FoundRead RSS subscribers will continue to get articles from the FoundRead category: no more, no less. [If you want to subscribe to FR feed, click here
Carleen Hawn will remain the editor of the FoundRead channel, so you can still contact her with story ideas, etc.

What I hope to achieve with this change is to keep the concept of FR alive but expose the great content to the larger community of readers who visit GigaOM. I want everyone to know that this has been a painful decision, but given the current economy, a necessary one. I hope you will continue to support us in this new, somewhat more modest format.

What’s on GigaNET

Thu, 17 May 2007 17:13:55 -0700

Web Worker Pay Off: Online Community Manager: The web isn’t the free-for-all that some of us believe it to be. Many sites, especially those catering to niche audiences, use the skills of online community managers to nudge the conversation, seed chat forums with threads, recruit others to take a lead in various topics, and monitor the dialogue to follow site policies. Continue reading.

What Role Should Product Placement Play?: The role of product placement is increasingly important for the emerging online video community to discuss. Does product placement make you worried or excited? Continue reading.

Dangers of a Threesome: A cautionary tale of a threesome gone awry in hopes that may be beneficial to other entrepreneurs. Continue Reading.

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The New & The Old - A Company Update

Fri, 13 Apr 2007 20:53:17 -0700

So it is that time … when I give you a little update on what we are doing at GigaOM. Given it is the weekend, and most of you have little patience for a long boring post, I am going to keep it short.

The bad news first: we are putting GigaGamez on hold. With our current focus, it was one of our blogs that just didn’t catch fire. That blog struggled to get out of first gear. Some might suggest three months wasn’t long enough to make that site work, but the numbers were telling us: hasta la vista baby. So we are now back to the drawing board, rethinking and re-tweaking the focus of the blog, to see if we can bring it back.

Ironically, when we publish the very same pieces by the very same talented team of bloggers led by Wagner James Au on our main site, the page views go through the roof. So it’s not about the quality of the writing, which is superb. But there was a lesson learnt: don’t be a me-too player in whatever category you pick.

Now for the good news: out with GigaGamez, and in with Found+READ, a new blog devoted to the start-up life. The new blog is edited by Carleen Hawn, a friend of mine from Forbes days. (Full details here!) It is a new project, and it is the first time we have not used WordPress as our blogging platform. Instead, we are using PublicSquare, a new CMS that has thus far been used on the very popular Boxes & Arrows. I want to take a moment to thank the PublicSquare team, EastMedia, and the GigaOM team especially Joey Wan who helped pull together this site on such a tight schedule.

And one more bit of good news: Kevin Kelleher, a seasoned journalist who has been involved with some of the top tech publications (Wired, Business 2.0) is going to write a column for us, whenever his schedule permits. He currently is a columnist for TheStreet.com. I hope you enjoy his fresh perspectives on technology as much as I do. His first column on Google is just an appetizer of what’s to come.

Here is what some of what TechCrunch & Thomas Hawk have to say about Found+READ launch.

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