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Best practices in hiring June 8, 2007

Posted by jeremyliew in Entrepreneur, hiring, start-up, startups.
4 comments

Marc Andressen’s latest post on how to hire the best people you’ve ever worked with is long but useful reading for all entrepreneurs. It reminded me to post a hiring process that I recommended to some entrepreneurs recently; I figured I’d paste it from the email as it may be of broader interest:

1. Get resumes prescreened against a profile from a recruiter (or from some referral source you trust like me or friends in the industry or whatever)

2. For resumes you like, do a phone interview of no more than 30 minutes – you’re looking for reasons to say “no” at this point

3. For people that you like on the phone, have one person do an initial interview in person for one hour. Ideal is to aim for end of day, say 4pm or later.If it IS working out, make sure that others are available to meet afterwards if the first interviewer likes them so that you don’t have to bring them back. But If its not working out, be frank about it, and don’t be afraid to cut the interview short rather than wasting your time and theirs. You can just say “thanks, bye” and not waste anyones time.

Make sure that you have a standard set of questions that you ask people interviewing for the same job. I personally prefer “behavioral interviewing”. e.g. focus on behaviors and not just skills. Skills you can test quickly and from resume. But behaviors are things like “Can you tell me about a time when you had to launch a new product – a release 1.0, rather than an upgrade of an existing product”; “We work on short deadlines here – can you tell me about a time when you had a project to do on what you thought was an unrealistically short timeframe”. etc. You frame up a specific behavior that you need and ask them about a time when they faced that same behavior. They often tell you what they WOULD do – make sure you keep them focused on a REAL SITUATION and what they DID do. Then look for behaviors in their answer that would either fit or not fit.

4. If you like ‘em, make an offer almost right away. Its a hot labor market right now, so know what “market comp” is beforehand (we can help with this; so can a contingent recruiting firm”) and the best folks are not on the market for long.

5. Reference check yourself (ie don’t rely on the recruiter), and do it obsessively. Not just the people that they supply you with – look deeper, call people you know at those companies, ask the references for other people that they worked with etc. This is a massive time suck, and you will hate doing it, but it is the single most important thing that you can do.

6. Once you find people you like, sell them hard and from every angle. [Your investors] can help with this, so can partners, other employees etc.

7. Its not likely for top calibre talent that you can bring them on as a contractor first, then transition to full time. Some employees (a small minority) prefer this becasue they are test driving you as much as you’re test driving them, but don’t count on it.

8. If its not working out, don’t let it fester – move quickly to terminate. You’re too small to be able to afford people who are a bad fit and you can’t carry dead weight. And people rarely come around – your first instincts are usually right.

If you forget everything else, make sure you remember #5. Reference check obsessively. People don’t do it anywhere near enough.

Ecommerce 2.0 is happening now June 7, 2007

Posted by jeremyliew in business models, Ecommerce, Entrepreneur, Internet, start-up, startups, web 2.0.
12 comments

I just spent the last two days at the Internet Retailer conference, and emerged convinced more than ever that we’ve just scratching the tip of the iceberg with ecommerce opportunities. There are still many more $500m+ revenue ecommerce companies to be built, and many of the people building them were at the show.

A lot of attendees were entrepreneurs running businesses doing single to double digit millions in revenues in categories ranging from diapers to skis, from power tools to blinds. While many had built their technology in house, there really isn’t any need to do that anymore. The sheer volume of vendors who can help with everything from the ecommerce platform to the affiliate and search engine marketing, from alternative payment systems to pick, pack and ship, was just remarkable. An entrepreneur willing to do the work to pick a good category and line up vendors could launch a business with very little technological expertise.

To illustrate the depth and range of vendors to whom you can outsource just about anything, two of the more interesting companies I talked to were PAC Worldwide and Arroweye Solutions.

PAC supplies customized and branded mailing/packaging material to ecommerce vendors. For example, they produce the envelopes that your Netflix DVD’s arrive in. Its a great idea for e-tailers focusing on building a brand and an ongoing relationship with their consumers.

Arroweye allows retailers to sell customized giftcards and greeting cards. A customer can not only buy a giftcard for a friend, but can put their own picture on the card, get it inserted into a custom printed greeting card, and get the whole thing mailed, all from inside the browser. Its an incredible boon for the delinquent gifter, and an additional revenue line for retailers.

Excitingly, many of the vendors work on a SaaS/variable cost basis, so an ecommerce merchant can trial with very low risk (both technological and financial) new functionality whether it be customized gift cards, behavioural marketing (NB Lightspeed is an investor in MyBuys), collaborative filtering, or customer reviews. How very “web 2.0″.

Its definitely a good time to be an ecommerce entrepreneur! I’m interested in hearing from merchants who have passed the $10m sales mark, see real sales momentum, and are looking to raise capital to accelerate growth and address large market opportunities, as well as vendors looking to address a common pain point for etailers.

How to make the most of your pitch to a VC March 7, 2007

Posted by jeremyliew in Entrepreneur, start-up, startups, VC, Venture Capital.
7 comments

Thanks to a glitch in my Netvibes reader, I got exposed to an old but very useful post by David Cowan on “How to NOT write a business plan“. It sparked me to post on how to get the most out of your pitch to a VC.

The overriding point is that your intention in a first meeting is not to fully explain your business. Its just to get to a second meeting.

You are likely to have around 45 minutes with the VC after pleasantries have been exchanged, laptops booted up and projectors connected. That isn’t long. Resist the temptation to fully explain the intricacies of your technology, or to explain everything you’ve done. Instead, focus on the big “hooks” that will get an investor intrigued in what you’re doing. Most slides take about three minutes to cover, so try to keep your presentation to ten slides, and leave yourself fifteen minutes for questions, and to learn a little about the Venture firm that you’re pitching.

Ten slides doesn’t sound like a lot, but its an excellent discipline that will force you to really crystalize what you’re doing. Its also all you’ll have time for. Its very unlikely that your business is so special that you can’t do this. Its usually more of a comment on you than your business!

David’s post suggests what the 10 pages should be, which I’ll summarize here (but you should read his original post which goes into more detail):

1. Cover slide with complete contact info, and a tagline.
2. A mission statement (that is specific, achievable, but not yet achieved).
3. Team background, including key hires yet to be made.
4. Nature of the problem you address. Emphasize the pain level and the inability of incumbents to satisfy the need.
5. Product overview, including benefits.
6. Elaboration on the technology or methodology you have developed to enable your unique approach. If appropriate, mention patent status.
7. Early customer or distribution progress: traffic, revenue, number of customers/users/whatever, logos, testimonials, other key metrics.
8. Sales strategy. Show the expected channels and cost of customer acquisition.
9. Market size and competitive landscape.
10. Earnings Statement, historical and forecast (including total future financing requirements)

(The Appendix can be as long as you want but shouldn’t be a key part of the presentation – just used to answer questions)

For an internet company, I’d also suggest a live demo. If you’re an internet company seeking a Series A or later and you don’t have a site up (at least in beta) then I’d advise waiting until you do. The technology for most internet sites isn’t that hard or expensive, and its well worth getting something up so that a potential investor can better visualize the product and user experience.

Keep focused on your objective, to get a second meeting, and you’ll find yourself much more “on message” during your pitch.

It’s All About the Team March 5, 2007

Posted by John Vrionis in advertising, browsers, Consumer internet, Digital Media, Ecommerce, Entrepreneur, Infrastructure, Internet, Security, Semiconductor, social networks, start-up, startups, Storage, Uncategorized.
4 comments

As a venture capitalist, I often get the question, ‘Is it people or market?’

My answer is ‘Yes.’

There’s no doubt that great markets facilitate the building of great companies. But as we saw during the bubble, great markets can facilitate the development of some not-so-great companies as well. When talking with aspiring entrepreneurs I try to emphasize that finding the big idea or the big market shouldn’t be their first priority.

Building the right founding team should be.

In a recent Fortune interview with Jim Collins, author of “Built to Last” and “Good to Great,” he commented:

“Our research shows a somewhat negative correlation between pioneering a great idea and building a great company. Many of the greatest [companies] started with either no great idea or even failed ideas. Sony started with a failed rice cooker. Marriott started as a single root beer stand. Bill Hewlett and Dave Packard’s great idea was simply to work together – two best friends who trusted each other – while their first four product failed to get the company out of the garage. They followed the ‘first who’ approach to entrepreneurship: First figure out your partners, then figure out what ideas to pursue. The most important thing isn’t the market you target, the product you develop, or the financing, but the founding team. Starting a company is like scaling an unclimbed face – you don’t know what the mountain will throw at you, so you must pick the right partners, who share your values, on whom you can depend, and who can adapt.”

A great team in a bad market can still build a successful company, perhaps at small scale. More often, like Sony, Marriott and HP, a great team will change course as they learn that their initial market is a difficult one, and they will find their way to a bigger and better opportunity.

A second rate team can also build a successful company in a great market. But they will find themselves facing increasing competition and the company may not stay successful for long.

There’s no substitute for being part of a great team. Resist the temptation to settle for second rate co-founders or employees, or for divergent visions. The extra time to find the right people to work with is always worthwhile. I firmly believe that teams of great people, firmly bound together by shared ethics, vision and values, will always find a way to be successful.

Three ways to build an online media business to $50m in revenue February 26, 2007

Posted by jeremyliew in advertising, Consumer internet, Digital Media, Entrepreneur, Internet, start-up, startups, user generated content, VC, Venture Capital, web 2.0.
227 comments

As a venture capitalist, I’m interested in investing in companies that could be big one day, that could get to at least $50m in revenue.

Here are three ways to get to $50m in revenue as an online media business; indulge me in some math:

1. Be a site with a broad reach (say general social networking, communications, news). At large scale, without a great deal of targeting possible, a startup’s “run of site” or “run of network” advertising might be able to get to the $1 RPM range (Revenue per thousand impressions, including CPM, CPC, and CPA models). To get to $50m in revenue you would need 50 billion pageviews in a year, or just over 4 billion per month. According to Comscore, Bebo had the 10th most Pageviews in the US in Janurary 1007, with 3.4bn, so you would need to be bigger than that.

2. Be a site with demographic targeting (say a Latino portal, or a sports site (targeted at men) or a social network targeted at baby boomers). Although in TV and in magazines, demographic targeting can generate double digit CPMs, online at scale, RPMs tend to be in the low single digit range. Lets assume a $5 RPM. To get to $50m in revenue you would need 10 billion pageviews in a year, or just over 800 million per month. According to Comscore, Microsoft had the 22nd most Pageviews in the US in January 2007, with 792 million, so you would need to be bigger than that. [Microsoft isn't a demographically targeted site - i just use it as a comparison point for overall traffic size.]

3. Be a site with endemic advertising opportunities (say a site about movies that movie studios will want to advertise on, or a site about cars that auto manufacturers will want to advertise on, or a site about travel that hotels and airlines and online travel agencies will want to advertise on). If you have a highly targeted audience that is interested in buying a specific product, you can command RPM’s well into the double digits. Lets assume a $20 RPM. To get to $50m in revenue you would need 2.5 billion pageviews in a year, or just over 200 million per month. According to Comscore, Adelphia.com had the 125th most Pageviews in the US in January 2007, with 198 million, so you would need to be bigger than that. [Adelphia isn't an endemically targeted site - i just use it as a comparison point for overall traffic size.]

Admittedly, all these Comscore #s are US only, and all businesses will have international traffic as well, but the principle still holds.

Which do you think is easiest?

UPDATE: If you liked this post you will likely like my prior post on why new forms of advertising are hard

UPDATE II: To all new visitors, if you like what you read, subscribe to the Lightspeed Venture Partners blog RSS feed. Its at the bottom of the Right Hand Side column. We post 2-3 times per week on topics including consumer internet, web 2.0, lead gen, ecommerce, startups and venture capital.

UPDATE III: I’ve posted more on the difficulties in building a media business to $50m in revenues here.

Useable Health Vertical Search February 16, 2007

Posted by ravimhatre in Consumer internet, Entrepreneur, Internet, Search, start-up, web 2.0.
2 comments

There was a TechCrunch post today regarding a new search service from Healthline called Symptom Search which attempts to provide an information service suggesting common illnesses related to symptoms that a user is experiencing.

Symptom Search is a great idea. The challenge is to acheive comprehensiveness such that typical symptoms are accurately and completely mapped (in relevant order) to all possible diseases and vice versa.

Just for fun, I tried a couple of not uncommon symptom searches related to actual problems people I know have experienced recently. For example, one person I know experienced chronic tendonitis in reaction to being treated with Cipro. Unfortunately there were no results in Symptom Search that relate these two subjects.

I also had a recent experience with someone who experienced sudden hearing loss as the result of an ear infection however the system was not able to correlate the two and didn’t serve any relevant information.

Health information search is a technically challenging problem and one I believe requires a search metaphor and deep technology to address in a way that is meaningfull to the consumer. See my previous Lightpseed blog post about Vertical Search as a way to better address these types of research oriented searches.

Also, try the following two searches on the Kosmix Health Search portal (full disclosure, Lightpseed is an investor).

http://www.kosm…ro_tendonitis-s

http://www.kosm…ar_infection-s?

I typed in simple search requests such as “Sudden Hearing Loss” and “Cipro Tendonitis” and got back a wealth of topics and articles that linked these symptoms to their underlying causes and also to potential treatments and doctors.

Health Vertical Search is a challenging problem but one, if well solved, that could yield substantial consumer benefits as well as create a company of significant value.

What to do if you are a platform with two-sided network effects February 9, 2007

Posted by jeremyliew in Consumer internet, Digital Media, Ecommerce, Entrepreneur, Internet, start-up, startups, VC, Venture Capital, web 2.0.
2 comments

I subscribe to Harvard Business Review but rarely read it – the long articles intimidate me! However, a friend of mine recently pointed me to a fantastic article in the October 2006 edition entitled “Strategies for Two-Sided Markets” by Thomas Eisenmann, Geoffrey Parker and Marshall W. Van Alstyne that is well worth reading.

The article addresses a common phenomona in technology, where a platform brings together two groups of users, each attracted to the other group. Examples might include Ebay (bringing together buyers and sellers), Monster (bringing together job seekers and employers), Youtube (bringing together video posters and video watchers), even Gaming Consoles (bringing together game developers and players). The article discusses all such platforms, but I found the most interesting cases to be when members of both groups want to be part of the platform where there are the most members of the other group, or “cross-side positive network effects” in the parlance of the article.

The article answers two critical questions to owners of such platforms:

Who do you charge?

In a two sided market, you can charge one side or the other, or both. Typically platforms end up charging one side (the Money side) and subsidizing the other.The article suggests that there are six guidelines in making this decision, some more obvious than others. I’ll highlight three of them here:

    Subsidize the more price sensitive side. E.g. Adobe gives away its PDF reader for free but charges for Acrobat.

    Subsidize the side that is more sensitive to quality (i.e. charge the side that has to PROVIDE quality – and let suppliers use their willingness to pay as a signal of quality). E.g. console game players (PS3, Xbox 360, Wii) demand high quality. Developers pay a high fixed cost to deliver quality so they need a lot of players to make their business models work. They are willing to pay a high royalty and adhere to strict licensing terms to reach those big audiences.

    If strong “same-side negative network effects” exist on one side (e.g. if one side would prefer not to see too many others on the same side, such as competitive suppliers), charge that side and possibly limit the number of available slots. E.g. Autobytel gives zip code exclusivity to dealers in a given territory and charges dearly for that limitation


Proprietary or shared platform?

Often in these sorts of markets only one platform will survive because both groups want to be on the platform where there are the largest numbers of the other group. Competitive platforms need to make a “bet the company” decision – to fight to be the winning platform, or to cooperate and share a single platform. The article says that there is typically a single winner if the following conditions apply:

    Multi-homing costs are high for at least one user side – i.e. it is expensive to support multiple platforms. This is true in the case of online auctions (if I only have one antique cuckoo clock, it can only list it in one place) and not true in the case of job sites (its easy to post my resume on both Hotjobs and Monster).

    Neither side’s users have special needs. If the market can be segmented then different platforms can co-exist, each serving a niche.

High definition DVDs looks like a market that fits these criteria. Blu ray and HD DVD are battling it out to be the winning platform. Typically the winner of such a war of attrition will have (i) Cost or differentiation advantages (longer play times, better image quality) (ii) Pre-existing relationships with prospective users (movie studios) (iii) Reputation for past success and (iv) Deep pockets. Often, because of the confidence of the executive teams in their products and the winner-take-all nature of these industries, competitors will choose to fight. However, cooperating can also bring benefits including a greater overall market size (when standards take longer to emerge many users delay commiting to either platform) and lower overall marketing costs.

The article also addresses questions such as when to be a first mover (and more importantly, when not to be a first mover), and how to deal with envelopment from adjacent platforms (relevant to those facing Microsoft’s “Embrace, Extend, Destroy” strategy). If your company is a platform that faces these “cross-side positive network effects”, I highly recommend reading “the article

4 ways to evaluate a VC investor February 5, 2007

Posted by ravimhatre in Entrepreneur, Internet, start-up, VC, Venture Capital.
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Deciding to take outside investment from a VC firm and bring in a new co-owner for your business is a critical decision. Entrepreneurs often want to know how exactly a VC will help once they’ve invested and what could change about the way the company’s board operates and interacts with company management.

VCs can add an important dimension to the collective experience and depth of a “start-up team”. They can also deliver connections and open key doors which accelerate a company’s ability to enter the market and achieve a leadership position. However, its important to know how to assess a specific VCs ability to help and deliver on these key benefits before making a decision. Here are 4 areas to research as part of the process for determing the fit and effectiveness of a potential VC partner in helping to build your business.

1. Ask VCs to explain how they think about your business and be convinced that they have a solid understanding the model and important strategic issues — opportunities as well as risks. Not understanding the details of your business could lead to unrealistic expectations for how things are likely develop and might lead to surprise or disappointment if unanticipated “bumps” occur.

2. Ask VCs for details about their business model for working with companies. Get comfortable that your potential VC partner isn’t over-committed with existing board seats and has the ability to be actively engaged with your company. A robust set of VC network connections isn’t usefull if the partner is too busy to leverage it on your company’s behalf.

3. Ask for references from entrepreneurs and CEOs that a VC is currently working with and has worked with in the past. While these poeple are likely to be generally positive given they were referred by a VC, they will usually be straightforward in speaking about their experiences and describing how a VC reacted during challenging situations faced by the company and will also point to key contributions they feel the VC made in assisting the company.

4. Understand aVC firms culture and make sure it fits. Internal cultures and philosophies at VC firms can vary significantly. Organizationally some are more hierarchical and some are flatter. Some firms are team oriented with multiple partners assisting a company at various times while others can be more individualistic in their approach. Some VCs look to be actively involved while others assist but in a more passive role. Some VCs make fewer investments and focus on each company while some VCs make a larger number of investments per fund and take more of a portfollio approach. VCs can also have different areas of focus or emphasis for adding value to help portfollio companies. Its important discuss these issues with a prospective VC partner to fully understand their approach and motivations.

While each situation is different, researching the above topics will help to identify a VC partner who can be a good match and a supportive partner. Given the multi-year length of a typical investment commitment, its worthwile to go this diligence exercise upfront , just as VCs do for a prospective investment, to be sure there is a strong mutual fit.

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