Atomic Energy

I read a great post earlier this week, whose thesis can be summed up as “your startup isn’t unique, and it doesn’t matter.” Adam Ludwin, of RRE Ventures, argued that the success of a startup is not determined by its unique technology or innovation, but rather by the mix of good timing (the market must be ready for it) and good people (solid execution).

This is probably the most important post I have seen, for entrepreneurs, in a long time. Entrepreneurs come from all backgrounds. Technologists usually believe they will succeed because they have something new; salespeople think they will succeed because they can sell better; marketers are convinced success is theirs because they can better manage and penetrate the market.

In the end, all of them are true, and one alone very rarely is. Sure, a very innovative product for which the market is screaming can succeed on the product’s merits alone for some time; similarly, slow incumbents that are underserving their markets can be undercut by a startup with existing products and technology but better customer service, pricing and segmentation. But overall, it is about executing on all of the elements.

The biggest danger I have seen is the belief in a “secret sauce,” usually technological, that will “guarantee” unique advantage to this startup. Whenever I hear that from an investor, I advise an entrepreneur to stay far away. Investors like that are far more likely to drive too much effort into R&D at the expense of customer service, sales and marketing, and panic at the first sign of a competitor. You may have their cash, but they have your shares and may even be on your board of directors.

The only secret sauce to success in startups is the same as in every other business: execution, with due respect (or not) to Docteur Guillotin, who invented that rather gruesome and often ineffective form of execution, the Guillotine. Get the right product, new or otherwise, in the right market, with the right mix of features (product), market, price and customer service. Execute execute execute.

I read an interesting article today about what Peter Thiel, one of the best-known early investors, asks any startup founder. He wants to know why employee number 20 will join your company. Employee number 1,000 is easy: company is stable (relatively speaking; ask Dick Fuld), money is relatively plentiful, lots of different career paths. Employee number 5 is also easy: lots of equity at a low valuation, which means huge upside if the company does well (which is the definition of risk). But employee number 20 joins when there is still equity, but not quite as much to make an enormous payday, but not enough stability to appeal to number 1,000 (or even 100). You need to be able to articulate compelling vision to the “late-early stage” employees. The equity is not big enough for the risk, but the current stability and upside aren’t there.

What Thiel calls “employee #20″, I call “feet on the ground.” In the years when I worked in corporate IT, I always made it my habit to visit a vendor before I bought their products or services, especially small ones, no matter where they were, no matter how large or small the purchase, even if the executive management offered – and did – come visit me. Besides meeting the COO, CFO, CMO, CTO and CEO, not to mention the VP R&D and Customer Service, I always wanted to walk the ground, “shmooze” with the customer service reps, sales staff and engineers, the grunts in the trenches. Often, I would discover a company with a phenomenal product or service, but engineers who, I knew, could not possibly have built what they are selling me. To put a fine point on it, it was way out of their league. Dig deeper, and I would discover top talent had lost faith and left. I would walk away from the deal. Sometimes, the reverse was true, and a lost deal would be salvaged.

The most important part to me, though, even in a large company, was to get a feel of the spirit of the company. If there was a positive energy, people were doing work, happy, and really felt part of something that I, as a customer, actually wanted to buy at something within reasonable range of their ask price, that was a company I would invest in.

One particular incident stands out in my memory. In 2001-2002, I was looking at buying a notification management system. Everyone (and I mean everyone) was using a simple configuration file driven system called TelAlert. But TelAlert had a lot of shortcomings, and since I headed up Enterprise Management, it was my decision to continue or replace. I found a small company called AlarmPoint (different name back then), based in Pleasanton, CA, a little Southeast of Oakland, that had a still maturing but much better product. I met with them, did trials, gave feedback, and they listened. Our investment was not *that* big, but I got onto a plane first thing in the morning, spent most of the day with everyone from their great CEO Troy McAlpin down to the first-line engineers, and came away convinced they were a good investment. In my terms, I got feet on the ground and found good paths; in Thiel’s lingo, I found out why employee #20 joined.

HP, intrepid acquirer of erstwhile darling of the mobile set Palm, has taken the little bit of value left in Palm, WebOS, and is building its new platform on it. It is important to remember that HP used to be the vendor to go to to get Windows Phones (or WinCE, or Windows Mobile, or whatever branding they stuck on it in an attempt to make it palatable). Windows Phone is basically dead in the water, and HP, which sees the beginning of a death spiral for Nokia, and an advanced one for Blackberry, wants to save its mobile business.

HP really had two choices: go Android, or walk away. It chose the third, and picked up the one remaining, if non-existent market share, platform left: WebOS.

One of the more interesting things in WebOS is that its development model is totally unlike every other mobile platform, both new (iOS, Android) and old (Symbian, Blackberry). Rather than a specialized computing platform, variant on C/C++ that underlies most complex desktop applications, WebOS applications are build entirely on HTML5+JavaScript, on top of Ryan Dahl’s NodeJS platform.

WebOS has chosen to go for the same environment in which every single advanced Web application is written, essentially harnessing, or at least giving a huge leg up to, millions of Web application developers.

Of course, at the same time, WebOS is trying to fix some of the issues with iOS, like seeing multiple windows simultaneously, real switching between applications, and other challenges, but at heart, this is an effort to win the masses by winning the developers.

At first blush, I would expect it to fail. Apple has such a large installed base, and Android is growing so rapidly, that it seems impossible WebOS will catch up just by making life easier for developers. At the same time, Microsoft did severe damage to Apple in the PC Wars largely by recruiting many developers, and thus making the number of installable applications too compelling to users. In many ways, Apple recognizes this with its constant reminders that, “there’s an app for that”, and the number of applications available on the App Store.

However it turns out, HP is taking a risk, but one that makes sense. Rather than giving up on the market entirely, or ceding control to Google via Android (which might as well be the same thing), or trying to face Apple + Google head-on and lose, it is taking a different approach, attempting to win customers by sheer developer mass. It is a risk, but given HP’s situation, if HP management has the staying power (pun intended, given its turnovers and travails), it might make a real contender.

Of course, I did type most of this on my iPhone….

Mark Feldman, the CEO of Ziontours in Jerusalem, wrote an article in today’s Jerusalem Post describing the many changes in baggage policies of airlines over the last several years. Since Mark is based in Israel, unsurprisingly he focuses on the policies of major carriers to/from Tel Aviv.

Americans and Europeans who have gotten used to being squeezed on baggage charges over the last decade would probably be surprised to hear that most carriers – El Al and all the North American based ones – offer two free bags of up to 50lbs/23kg to Tel Aviv. Many who regularly fly this route tend to view it almost as a self-evident truth, to paraphrase Thomas Jefferson et al, that all travelers are entitle to two free (and often overweight) bags.

Once of the challenges of a competitive market – and the benefit of it to consumers – is that it can be hard to raise prices on just about anything. As long as El Al and a few other carriers give free bags, other carriers will find it very hard to charge for bags, unless they offer drastically discounted fares to lure customers in. The situation is different Tel Aviv to Europe, where, since El Al does not offer two free bags, most European carriers can get away with offering their usual one bag, if that.

Mark argues that squeezing out bag fares is pennywise and pound foolish (although that is not his terminology). He points to Southwest Airlines, the discount carrier that still offers two bags free, and markets it very heavily. Clearly, the market is responding, and customers are flying Southwest (although I suspect it is more due to being treated like a customer, not like a commodity).

Personally, if I were running an airline, I would charge for baggage… but on a rising scale. At reservation, $10/bag; up to 72 hours before, $20/bag; and at the airport, $30-50/bag. All of it nonrefundable. Baggage service is just that, a service, and people pay for a service. Somewhere built into the cost of your ticket is the cost of checking, scanning, loading, flying, unloading and dispensing your luggage. Let airlines charge less for tickets, and more for bags. Let other airlines (Southwest?) give two bags free. As long as it is transparent, it is good, varied competition.

I have read many many articles that suggest startup developers should be conscious not to aim for perfection early on – they will get the perfect product that will be irrelevant by the time they finish it – but to pay close attention to architectural choices. What they do today may be one day in one direction or another, but can be millions and months or years of work to change down the road. Peter Drucker once called this the difference between doing things right (engineering) and doing the right things (product). Nonetheless, even Drucker would say when you do the right thing, do it the right way. Not the perfect way, but the right way.

Just this morning, I saw a perfect example of this. The Blackberry PlayBook, RIM’s feeble attempt at doing a tablet, for some unknown reason, had no email. Email, the killer app for Blackberry, the one thing they normally did better than everyone else, was not on their one-time-only attempt to push into tablets. That is almost like Apple, who is famous for user experience, having one attempt to get into productivity apps and releasing one that made saving files nearly impossible, and much harder than vintage 1984 WordStar. Worst was, no one could explain why or how RIM could release a product without email.

Today, I finally saw a reasonable explanation. Apparently, RIM’s mail server cannot support more than one device per user account. If you already have a BlackBerry, you cannot have another one, or a PlayBook, for that matter. Obviously, someone made this architectural choice very early on, either as part of a conscious security decision or, more likely, because someone said, “no one has mobile access to email, we are giving it to them now, how could they possibly want more than one device?!?!”

The architectural decision you make early on have an enormous impact. Make them right.

According to today’s WSJ, Ron Johnson, the head of Apple retail, left to become President (slated to be CEO in a few months) of JCPenney.

This is a big loss for Apple, and a gain for Penney. However, Apple is an upscale brand with strong brand equity. Penney, on the other hand, is a low discount retail chain. Before Apple, Johnson was a VP at Target, the mire upscale big box store.

It remains to be seen what Johnson can do in a different class environment.

When looking at starting a venture, most entrepreneurs and investors tend to categorize the type of industry and the requirements for success. Commonly used differentiators are retail vs corporate, direct vs indirect sales (eg the Facebook model where the actual users are different than the paying advertisers), capital intensive vs light (eg chip design vs web services), etc. Many investor groups explicitly focus on one or more differentiators, since they know the requirements for success.

Another factor often used is regulatory sensitive vs independent. For example, bio and Pharma are regulatory required, whereas LinkedIn and Intel are independent. Of course, over time, as any industry grows, we can reasonably expect regulators to try and control it, but at it’s early stages there is no regulation, and for many years thereafter only light.

Even regulatory required industries can generally rely upon a certain set of rules. If product X meets all of the requirements, it will be approved.

In today’s Jerusalem Post, Gil Troy wrote an article on Arava Power, and its travails with government approvals. While I am mostly neutral on solar – if it works and is cost-effective, use it – Israel, with it’s almost unending intense sun, especially in the Arava desert, would seem extremely well suited to solar.

Yet, as Troy writes, the industry is being stymied by government approvals. Unlike even Pharma, solar needs many layers of approval for two reasons:
1- Land. The panels need to be placed on large tracts of land, which always requires signoff, especially for something that is not a house or factory.
2- Power. The power industry is one of the most heavily regulated in most countries.

Thus, unlike bio and Pharma, which require approvals but have a well known process, and can be called regulatory required, and unlike even defense firms, who sell into government but have many governments and independent agencies and customers, solar is “regulatory unpredictable.” Without regulator signoff, in an area where existing regulations do not address the issue and there is no predictability, a venture can be stymied from the get go.

More than anything else, such industries – green, black, purple or anything in between – require, like Pharma, a well known and designed regulatory process, so they can move from regulatory unpredictable to required.

Who remembers AOL Keywords? For that matter, who remembers when AOL actually mattered?

I thought about them this morning. Steve Rubel, on his blog, referenced a googlesystem posting here, that Google is looking to replace URL’s with names in search results. From AOL’s, sorry, I meant Google’s, perspective, that is not surprising. They (a) want their content to be more relevant to real humans, (b) look to optimize (as a commenter on that link indicated), and (c) prefer that the info you get from Google is not necessarily available elsewhere. A URL can be copied, and used elsewhere, whereas a link *must* be clicked, which, as we know, Google uses to improve its search results. It benefits all of us, but Google most of all.

This smells a lot like AOL Keywords, but I am sure Google will come up with a better and cooler name, like, maybe, Google Keywords? Interesting to see how this will play out.

Years ago, my children attended a private Jewish school in New York. As it was a community Jewish school, the school had support programs for children whose parents could not afford the $20k+ tuition.

In a conversation with the school director about the structure of the scholarship program, she explained to me that they distinguish between “cash” problems and “cash flow” problems, or what those of us in the business world would call “income” vs “cash flow.”. For those who, in general, can afford the school, but don’t have cash in hand now, “cash flow” problems, the school would simply arrange a payment schedule (essentially an unofficial loan) on the director’s independent authority. For those with “cash” (i.e. income) issues, a loan obviously won’t help, and they apply for a scholarship.

I was reminded of this conversation by the front page article on Greece’s debt woes in today’s WSJ Europe. Last year, when the EU countries arranged a $160+ BN loan, I was skeptical. After all, Greece didn’t have a cash flow problem – enough income to pay its obligations tomorrow, but not today – it had an income problem – it was spending far more than it had coming in. For that, no amount of loan will help.

Today, they are talking about a “loan exchange”, which is a nicer way of saying restructuring, itself a nicer way to say bankruptcy protection. Unfortunately, though, even this won’t help. Until Greece’s income meets or exceeds its ongoing expenses, a loan, or exchange, or even bankruptcy, is just financial engineering to delay the day of reckoning.

Apparently, Jon Kaplan, the founder of the (sold to Cisco and now shuttered) Flip camera, is going into the grilled cheese business. He is starting a chain of fast grilled cheese sandwich businesses, with $20MM+ from Sequoia to boot.

I have seen a lot of reporters and bloggers surprised, asking what a guy like Kaplan, a tech founder, is doing in the food business, and what Sequoia is doing funding it. I say, all the better.

Tech is by far the most innovative sector of the global (and especially the US) economy. The reason is not just the ability to change rapidly, but the innovative mindset, ability to bring faster returns, and, quite frankly, lighter regulation. In my experience in Israeli business, I have come to the realization that the tech sector succeeded because it grew too quickly for the bureaucratic regulators to crush it, and by the time they wanted to, it was too valuable.

However, the bulk of the economy is not in tech; it is in everyday activities of non-tech sectors. Food, clothing, transportation, travel, manufacturing, furniture, janitorial services, window replacement, etc. etc. Many of these sectors are desperate – and ripe – for innovation of the kind that tech entrepreneurs can bring. Sequoia may be looking at the revenues and market cap of other specialty food chains, but Kaplan, IMHO, is looking at innovation.

Many have bemoaned the loss of jobs to offshoring. Whether the trend is good or bad for local economies and trade is not an issue I want to address here. But, I have no doubt that better innovation in many sectors can bring efficiencies and operations that allow these roles to remain onshore.

Unleash the tech entrepreneurs.