Startup Lessons - Having industry momentum at your back

Charlie O'Donnell
Path 101, Venture Capital & Technology

Two years ago, I partnered with an awesome CTO, Alex Lines, to start a company called Path 101.  We didn’t get enough traction on the product and business to continue it fulltime, so we’re now working on it as a nights and weekends project as we take on other jobs.  This is the 2nd of a series about what I learned starting up a company. First one is here.

A few months ago, I wrote about the three types of deals VCs do.  One thing I realized was that aside from just betting blindly on an experienced entrepreneur or funding a later stage project, was that when VCs put money into something that's innovative, they tend to do it in an innovative sector.  So, it's not just about the idea, but they want that idea to live in an ecosystem that is in flux or generating new and interesting approaches.  For example, BazaarVoice (a First Round portfolio company) helps power social commerce with a variety of applications that help amplify customer voices to both sellers and to other customers.

No matter what they started with, social shopping was definitely an interesting area when the company started in 2005 and got funded in 2006.  It was clear that reviews and social media were helping sell product, so a bet on a suite of tools that helped companies create conversations around commerce would seem to have the wind at its back.

That's exactly what we didn't have at Path 101 in the jobs space.  In fact, what was fascinating to me, and unexpected, was how negative VCs were on the jobs area--especially for something so monetizable.  There there had been very little innovation in the way that companies hire and the way people find their jobs online in the last 15 years--except for LinkedIn--and investors largely saw that industry as a hopeless dinosaur.  Sure, there were business model innovations, like TheLadders and Indeed, but these were mostly about subtle changes in the way these companies made money.  It was still job ads and resumes at the end of the day.  The average VC didn't quite believe there was a disruptive job play to be had, so the idea of thinking of us as that play was a stretch. 

I can't exactly blame investors either.  Often times, investors bet on the "pivot"--the ability for a startup to stop what they're doing and have a strategic shift in the product or business plan.  It probably happens a majority of the time, and so an investor needs reasonable assurance that the team is going to pivot into something good.  If you're in a dynamic industry that is primed for innovation, not only is it easier to see where the next big thing is going to come from, but you get more experimentation from customers.  They're more willing to try new things because they know business is changing, but they're not sure exactly now. 

On top of that, it's easier to get press if you're in an industry with some buzz around it.  If you were to do a new geolocation startup, like Hot Potato, everyone will want to talk to you because there's obviously something happening in this space.  No one was really that excited about talking about new models in the job space.  Heck, the only blog actually covering new models in the space, Cheezhead, stopped publishing over a month ago.  

The other thing was that ideas don't happen in silos.  It helps to surround yourself with a vibrant community of entrepreneurs--and in the job space, there were only a handful of people I felt like I could talk with about new models.  Everyone else was basically minting cash on businesses that I couldn't understand how they'd even be able to exist in five years.  That meant that our inflow of new ideas and great feedback was pretty limited.

It's hard, because there wasn't another industry that I really wanted to change so badly.  Careers was my thing.  I'm extremely passionate about helping people figure out what to do with their careers, but ultimately, creating a startup in this space was an uphill battle from the beginning.  I'm not saying this was a fixable problem--just more like a warning to new entrepreneurs.  Take a look at your space.  Wipe your finger on the tables.  If it's too dusty, you may want to wait a little bit before trying to move the furniture around.

Startup Lessons – Figuring out the details of the product roadmap ahead before you start

Charlie O'Donnell
Path 101, Venture Capital & Technology

Two years ago, I partnered with an awesome CTO, Alex Lines, to start a company called Path 101.  We didn’t get enough traction on the product and business to continue it fulltime, so we’re now working on it as a nights and weekends thing as we take other jobs.  This is the 1st of a series about what I learned starting up a company.

Raise money--That's the first thing many entrepreneurs think of when starting a business.  They plot world domination schemes that hinge on their ability to get an angel round together, without answering a lot of important product questions first.  That's fine if you're Rich Barton from Zillow and Benchmark gives you 7 million bucks to go do to real estate what you did to travel at Expedia.  If you're running leaner and you're raising "Get something up" or "just feed ourselves for a little while" money, you need a lot more questions answered. 

That was our first mistake at Path 101 and I'll take the blame for that one personally.   Or, you could think of that mistake in a different light and say that I should have realized that we were going to have to be a lot more experimental and iterative.  That would mean needing closer to a million dollars than the 350k we raised—and we definitely could have gotten more.  We just had this innate desire to be lean and only take what we thougth we needed.  Nowadays, I tell people to take twice what they think they need, especially if they’re doing this for the first time.  Maybe it should have been a little of both, but regardless, wireframes, specs, etc  should all be done before you take money.  Granted, these will all change, but you can go a long way to honing in on the product roadmap in great detail on your own time. 

For example, Aardvark worked on their product design and user interactions for 8 months before writing any code and before taking a big slug of cash.  The social answers platform started out with a dude on the other side of a chat account manually interacting with users in a structured way in order to product test.  They knew a ton about how their product was going to work and what it needed at the onset of development--and that's something you can do nights and weekends or bootstrapping.  It doesn't need a designer either.  Just tell me your best thinking on exactly what the product will do, in detail--talking basic wireframes here--at each milestone and how much money it will take to get there.

Milestones are important because not only does it help to estimate cost, but it helps figure out revenue and funding potential.  You can (and should) take a wireframe to a customer and say "If we build this, will you buy it...and if no, why not?" 

VCs may be a little different.  They probably won't take a vaporware presentation very seriously unless you know them or someone vouches for your ability to build something.  Get a warm intro.  Scared that they'll take your idea?  Someone can steal your idea a month after launch anyway, so what's the difference?

At Path 101, everyone we talked to thought that the idea of pulling resumes off the web to figure out career paths was really interesting.  We talked about what data you might want to pull out of the Resume Genome Project but not a lot about what the data actually needed to look like to be useful to a user.  There was no way we were going to get that right on the first try, but there's no reason we couldn't have had three or four iterations of that done--not just to show investors but to show developers, too.  This would have helped us get a sense of technical challenges that maybe we weren't considering or just to generate more interest in our vision.

There wasn't a good model out there for what we were trying to do, so answering a lot of the questions about how users were going to interact on the site would have gone a long way.  Instead, we did a lot of this research (and made more mistakes) when we should have been developing to more specific, vetted milestones.

That was lesson number one--more to come.

Where are all the NY tech and small business reporters?

Charlie O'Donnell
Venture Capital & Technology, nextNY

On Tuesday, October 13th, at 6:30PM, 100 Founders and CEO’s of NYC tech companies will gather at Sun Microsystems for nextNY’s “NYC Media: Meet the startups” event.

The idea behind the event was that, on a pretty regular basis, tech and small business reporters find their way to me and want to know about the “comeback” or “birth” or “rebirth” or whatever of the NY tech scene.  Then I have to tell them all about the fact that we’ve been here for years, heads down working.  Half the time, they don’t know about the most successful startups or the most innovative ones. 

It’s not easy, either.  NYC startups blend in pretty easy—squatting in other offices, in coffee shops, in their own apartments.  You never know when the two dudes in the back of your Williamsburgh design showroom are actually a couple of hackers trying to change the world.

Therefore, I thought it would be great to gather a bunch of NYC’s really awesome startups together in  one room—and that’s what we’ll have.  There will be 100 Founders and CEOs of NYC startups all in one room, including:


Brian Adams – AdMeld

(Raised $15 mil in two VC rounds since 11/08)
Seth Besmertnik – Conductor

(Raised $12 mil, including $10 mil this year from Matrix Partners and Firstmark)		  
Zephrim Lasker – Pontiflex

(Raised $8.75 mil since 4/08)
 
Anthony Volodkin – Hype Machine

(Doesn’t need VC to be cool… Inc Top 30 Entrepreneurs Under 30)
Dave Morgan – Simulmedia


(Founder of Tacoda, sold to AOL for $275 million)
Geoff Lewis – Udorse

Up and comer from TechCrunch 50 - $500k from Founders Fund, Private Beta

 

So the big question is… where are all the local tech and small business reporters covering this?  We’re going to have Jenna Wortham from the NY Times and John Abell from Wired, but I expected journalists to be tripping over themselves for this and we haven’t seen it yet. 

Where have all the reporters gone??   If you cover innovation, small business, technology, etc. you absolutely need to be here!  We’re also going to include a short presention called “Your Guide to the NYC Tech Community”.  Reporters, RSVP here!

PS… If you are an entrepreneur, we are sold out (or more like free’d out, since everything at nextNY is always free).  Please do not try to sneak in with a media ticket.  I will find you and hunt you down like the dog that you are.  Grazie.

Happy to participate in the Donor’s Choose Social Media Challenge again

Charlie O'Donnell
Random Stuff

Donor’s Choose is a fantastic way to get educational projects funded.  I had a great time with it last year and raised $1875.58, to be exact. 

This year, I want to double it:  $3751.16  Check out my giving page.

Here’s what I need from you: $3000

If I make it to $3000, I will kick in the $751.16, because I think this is an awesome way to get people involved.  Also, I’d like to beat the pants off the O’Reilly folks.  That’s right Tim.  I’m calling you out!  (The way I figure it, I probably wasn’t going to get invited back to another Foo anyway, so might as well go down in flames, right?)

Here’s an additional challenge…  if you get me to $4000, I will kick in another $1000, b/c $5000 is a psychologically satisfying number.   Anyone else want to throw in some matches at different levels?  Comment away.

So let’s get started!  I handpicked the projects this year… and they represent about $10,000 in needed funds.  Getting halfway there would be amazing!

Unintentional Benefits and a Test for NYC Seed

Charlie O'Donnell
Path 101, Venture Capital & Technology, nextNY

Last December,  Owen Davis from NYC Seed decided to make my company, Path 101, the fund's first investment.  Given my recent announcement that I'm taking a full time job at First Round Capital and that the Path 101 team is going part time, I have to imagine we've been written off as an investment--from a financial point of view.  God help the next company that has to pitch to the NYC Seed board now.  The board is a room full of about a dozen folks, which is about ten people too many for making early bets on seed stage companies.    Undoubtedly their mindset after the news will shift even further to risk mitigation versus additional risk taking, especially after what our experience might be saying about the funding environment. 

That would be a mistake, however.  Experienced angel investors know that a 50% loss rate is about average--they expect half their portfolio not to return any capital.  That's how the business works.  So, if another NYC Seed company fails soon, that would pretty much be well within normal expectations.  I feel like a group of government folks isn't really going to buy that, but they have to.  The Bloomberg administration trumpeted the fund as a way to spur on innovative technology ideas and fill the funding gap for cutting edge startups.  If it had to only pick from companies that could break even on $200k, you'd see little in the way of large scale market disruption coming from these companies.  In other words, you don't pick the next Google by mandating that the company generate enough funds to cover itself within the next nine months.  You might as well invest in a couple of accounting firms or food stores--very little chance of losing your money on those. 

In fact, one could easily make the argument that a heck of a lot of good could be done while still losing the whole entire fund--laying a big fat goose egg.  People learn a lot from failure, and having a culture that excepts high failure rates is critical to a truly innovative scene.  Also, when companies don't work out, founders and employees often move on to other startups, taking their experience and making themselves more prepared for the next challenge.

Take the investment in Path 101, for example.  By enabling us to continue an extra year, we were able to build better relationships with the innovation community and investors.  I was able to pitch and continue communication with Josh Kopelman from First Round Capital.  In turn, First Round is now opening an office here in NYC.  There's no doubt in my mind that First Round will invest *at least* $2 million more dollars in NYC than they would have anyway now that they have an office here--so this development is actually a net positive for the city.  We all said there wasn't enough early stage capital located in NYC, and now, we have a new top tier VC fund setting up shop right in the Union Square/Shakeshackville area.  Add in the fact that my partner Alex Lines is joining Betaworks.  Who knows, he could hack something up that winds up becoming huge.  In a way, NYC Seed enabled him to find someone to fund his hacking.

Plus, we've now unleashed machine learning PhD/scientist Hilary Mason's data mining expertise on the NYC startup market.  After moving here to NYC, she's now looking for neat data projects to work on, particularly locally.  She has a highly soughtafter expertise and our company attracted her back to NYC in the first place. 

By allowing the Path 101 team more time to be out there in the market, NYC Seed unintentionally deposited some innovative human capital back into the innovation ecology here.  The results are likely to be way better than anything just our one company had a realistic shot at, but I wonder how this fund will be measured...  Net returns or overall economic impact.  I hope the board will take a broader view of the impact of the fund and even extend it's life past the mandate for $2 million.  It certainly can't help the portfolio's risk profile if Owen is making bets thinking he's only got six bullets left in his gun and that's what he's going to be judged by.

First Round Capital, NYC, and Our “Born Again” Startup

Charlie O'Donnell
Venture Capital & Technology

For quite some time now, I've been saying that New York City needs more dedicated early stage capital.  Having an office and people on the ground here build community and human capital infrastructure.  Doing it from a dedicated pool of long term, early stage money insures that ecosystem will be more permanent.  You can't jump in and out of early stage depending on the temperature of the market, or do this as a "test" to see if you really want to be in this game.  It's also really difficult to support the innovation community here when no one in your firm can ever stay out late in the city when the entrepreneurs are just getting started.

That's why I'm excited to announce that not only will I by joining First Round Capital, but, more importantly for the NYC startup community, they are going to be opening up a dedicated New York office in the Shakeshackville or Union Square area. 

I’ll be full time in NYC as an Entrepreneur-in-Residence looking at deals (which you can send to me at charlie@firstround.com) and setting up an office here.  I don't mean just building Ikea furniture, but also helping strategize how to best support and inspire startup success in the Big Apple through engagement, conversation, and strategic support of community building.  Helping to build up a firm's physical and virtual presence, as you probably know, is something I've been a part of before. 

I’ll be ramping up my efforts to support the local innovation community through nextNY and other projects.  The more I can help local entrepreneurs, the better the opportunities will be for any early stage investor in NYC, and the better I can do actually proving out the First Round Capital value proposition.  NYC entrepreneurs want and need investors who prove valuable in helping them create successful businesses—and what better way to do that by supporting them even before formal business relationships are built.  The entrepreneur is the customer of a VC firm and in today’s world, customers have choice.  We need to give a lot more upfront if we expect to get your business.

How did this all come about?  Well, not surprisingly, the open dialogue I’ve been having with the innovation community on my blog for over five years is how it happened.  After I wrote my “Free Business Plan” on how to start a VC firm in NYC, Josh Kopelman approached me at the Shake Shack.  He told me how much they believed in NYC as a major opportunity for them, as it has been with all the deals they’ve done here already.  We talked about our shared a vision of the kind of active, open, community focused firm that NYC needs.  They’ve already done 12 NYC deals, and the FRC team spends a fair bit of time here already.  This is a signal that they believe in NYC enough to make a commitment to being on the ground here in a more substantial way.  It's also a reflection of the fact that you can better serve the local community if all the hours that you spend here aren't squatting in other people's offices.

So what about Path 101? 

You’ve probably seen the math—half of all funded startups don’t make it and become zeros, a bunch go sideways, and then a select few shoot the lights out and return your portfolio several times over.  Well, suffice it to say that Path 101 isn’t going to be one of the shoot the lights out deals, but I’m cautiously optimistic that it isn’t going to become a zero either—and may even have some upside.  It's definitely not going anywhere.  It may just take some time to return what went into it—more time than it’s cash resources will allow. 

The three of us—myself, Alex, and Hilary—are no longer going to take a full time salary, small as it had been, from the company after September.  We’re just a couple of weeks away from launching our first revenue generating features—thanks to their hard work on the technical side—but those features probably won’t ramp fast enough to sustain a full time commitment for a team of three.  Therefore, Alex and I will move to a nights and weekends approach—a “born again” startup if you will.  Hilary will move on.

I'm excited to share that Alex will be joining Betaworks as Hacker-in-Residence.  It's a fantastic cultural fit.  He'll continue to support Path 101, especially through an upcoming feature launch, and trim the hedges, mow the code, and occasionally (albeit much less frequently I hope) fall asleep tweaking a server in the wee hours.   However, his main focus will be on building awesome stuff FRC can invest in.  :)

Hilary is seeking out cool data problems and will undoubtedly have more opportunities than she can handle--that is, until she optimizes the code and database structure in her head.  Then, she'll take on even more. 

Alex and Hilary have been incredible from day one and I have been extremely lucky to work with them.  I look forward to getting Path 101 on its own two feet so we can all see the fruits of our labor.

In the coming weeks, I’ll be detailing the lessons I learned in working on my own startup—lessons I’ll be taking with me to my job at First Round.  Launching Path 101 taught me enormous lessons about financing, product management, and process that changed the way I look at how innovation happens. 

There’s so much more to write about my experience at Path 101, our upcoming features, my switch back to the other side of the table, First Round Capital, etc…   Look out for quite a bit of content coming out of me over the next week or two.

Oh, and if you’re a reporter covering the local innovation scene here in NYC, you absolutely need to be at this event.  We have almost 100 founders and startup CEOs showing up on October 13th to meet the local media, like Dave Morgan from Simulmedia, Dan Porter from OMGPop, Anthony Volodkin from HypeMachine and tons of the next wave of up and comers.  Don’t call it a comeback—these are the companies that have been making NYC great for quite some time.  It’s time for you, the reporters, journalists, and tech bloggers to meet them.

I'm super psyched to be part of the First Round Team--I actually knew most of them fairly well already. I'm psyched for New York City that another dedicated early stage fund is firming up its commitment here.  Lastly, I'm psyched to be able to do more to help the innovation community in my hometown.  Please do not hesitate to reach out to me with your ideas (no matter how early), thoughts, opportunities, or just to say hi.  Hopefully, you can stop by our new office soon--maybe even within a couple of weeks.  I promise it will be a fun, open, accessible place.

Twitter Spitter: The problem of autotweets from 3rd party apps and how to solve it

Charlie O'Donnell
Venture Capital & Technology

Sarah Tavel posted this morning on something I've been thinking about for a little while now: Twitter Spitter.  That's the term she's given to machine generated updates from apps trying to co-opt Twitter as a viral marketing mechanism.  Whether it's a Foursquare update or a Nike+ run recap, lots of apps are realizing that letting people post to Twitter can drive a lot of growth. 

Here's the problem, in Sarah's view:

"...the natural evolution of this is that Twitter will be increasingly abused by new web apps hoping to leverage Twitter’s effortless word-of-mouth. There is no mechanism in Twitter that I know of to limit what I’ll call web app Twitter “spitter”, and so there is no reason for web app companies not to push their app-specific messages to Twitter. And while conceivably there should be a natural mechanism of Tweeters not wanting to abuse their followers by allowing too much “spitter”, that mechanism is just not that efficient. I’m willing to put up with my friends’ spitter in much the same way that you put up with a friend’s occasional bad jokes or body sounds. But that’s not to say that spitter doesn’t degrade my experience on Twitter. As more applications look at FourSquare as an example of how to leverage Twitter, Twitter is going to increasingly become a jungle of 3rd party tweets."

Justin Shaffer said something similar to me the other day at breakfast--that we'll soon be near 80% conversation and 20% autotweeting from 3rd party apps.  He said, "What happens to the value of Twitter when it's the other way... 80% autotweets?"

I think we all know what happens then--the value of Twitter falls off the table, and it happens long before we hit 80% autotweets.

The problem is that Twitter Spitter is inherently a watered down, out of context version of behavior on the actual app.  Despite being guilty of Foursquare posting myself, I'll admit that to my Twitter followers, hearing that I'm at a particular place isn't as useful via Twitter as it is on Foursquare itself.  Foursquare provides the appropriate context and action steps to deal with this piece of structured information.

This was basically the Friendfeed problem.  Friendfeed waters down a person's activity across social networks and throws it all at me at once.  So, if you follow a person because they have a great blog, you're also going to get pictures of their kids on Flickr.

I go back and forth about this, and while I appreciate the value of getting to know the whole person, I also feel like it degrades me signal.  What I realized is that it's not the fact that this esoteric content is in my feed, it's that the receiving mechanism isn't built to make the most out of the structure it contains.

Reimagining Tweetdeck

The solution, in my mind, is to make Twitter clients, like Tweetdeck, smarter.  Since Twitter Spitter usually comes with an underlying link, it wouldn't be hard to give users the opportunity to opt out of these kinds of automated updates.

Even further, you could imagine channeling these links into more appropriate interfaces.

For example, how about:

- A map panel that aggregates all the Foursquare, Brightkite, etc. checkins and displays my friends' last known location.

- A play button for music that I can use to play, when I want, all of the aggregated songs posted to twitter throughout the day, even sorted by tags or genre.

- That same play button for video.

- A meme panel that collects and ranks the top links from all the people I follow on Twitter or different groups.

- A suggested user list powered by Follow Friday.

This way, people can post all the Spitter they want, and it doesn't get in the way of the real time conversation I came to Twitter to find in the first place.  Otherwise, Twitter is soon going to become the MySpace of real time--overburdened by so much spam at a critical time that the key users jump ship for more well controlled pastures.

Retraining Wall Street: What you should really be turning bankers into… and how

Charlie O'Donnell
Teaching

When the city announced its 11-point plan to encourage innovation and entrepreneurship in NYC, it was met with quite a bit of skepticism for the few in the startup community who bothered to notice it.  Most of the existing entrepreneurs who didn’t need a financial downtown as an excuse to start a new company didn’t take the two minutes to read the city’s press release because they were too busy working on their businesses.  Much of the plan centered around taking those that had been laid off from Wall St and helping them start their own businesses.

I think the reality is that the mindset, DNA, and maybe more importantly lifestyle of somebody who worked for a big bank and didn’t leave until they were forced to doesn’t exactly overlap with what is needed to start a company—and I’m not sure that a 6 week training program can change that. 

However, what I realized this morning is that there are extremely specific needs at many well funded startup companies that aren’t being met.  For example, I’ve talked to at least four startups in the past two weeks that needed someone to run their web marketing—but not write site copy or do branding work.  They needed some hardcore quants to test strategies for loyalty and affiliate programs, measure ROI on paid search, etc.  Frankly, fine tuning the web marketing strategy and lead conversion of an e-commerce company is not unlike managing a portfolio, trading or doing financial analysis.  It’s putting a person in front of a set of quantitative tools, analyzing large pools of data, goal seeking, and optimizing.  It’s the kind of thing that, if you were awesome at it, you could walk into any startup that sells anything, pitch your ability to add directly to the bottom line and pretty easily get hired to do it. 

What I’m saying is, there are lots of opportunities at the startups we already have, and skillsets that are scarce.  Instead of creating more startups, why don’t we make sure the talent pool is deep for the existing startups that already have some traction and funding.  Let’s create more product managers and web developers, not more entrepreneurs.  While the job market is difficult right now, there are a ton of opportunities in startups that aren’t getting filled because they can’t find a specific skillset.  If someone were to train themselves to be a web marketing analytics ninja, they’d get hired in a second.  How to you get that skillset to a former financial analyst?

I don’t know if programs like Jumpstart NYC are going down to this level of detailed skills training—and the reason I don’t know that is that their classes are closed.   You have to attend in person and there’s no materials or courseware on the web.  Why not just release all the materials in public and record the classes to put them up  online?

Contrast that with how it looks like we’ll run our little learning Python experiment.  We asked the community for feedback on what books do use, how to structure it, and even for people to join Julie Steele and I in our little quest to learn how to program.  We got lots of feedback and we’re going to do the whole thing in public.  We’ll probably just get a little group of 5-10 people together, but we’ll share everything we’re doing so that others can follow along with us or even find the materials in the future and maybe add to them.

Not only would that increase the number of people who could possibly learn—like those who couldn’t make it in person—but it will be available for others to not only find it later, but to add best practices and materials to it as well.  I don’t think a big top down program could be dynamic and flexible enough to teach people the specific, detailed skills that are immediately useful to startups.  Group learning and public materials could get all these Wall Street tech guys working on trading systems coding iPhone apps faster than a city program could.

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