Maybe I need a day job.

In a year when Wall Street investment bankers are expected to collect $24 billion in paychecks, according to New York State Comptroller Alan Hevesi, it makes you wonder if working for the man might not be the way to go. Of course then you'd have to wrestle with your inner self over actually being the man, not to mention those incredibly constricting dress shoes.

Nah. It's the endless supply of Hot Pockets and Zena tapes for me.

Taxing Entrepreneures & Risk Takers

I hear a lot about encourageing risk taking and the benefits entrepreneurs provide to an economy. I'm still waiting for all this good will to funnel down to the level I'm at. It's kind of like that saying about Trickle Down Economics: 'The middle class didn't get trickled down... they got trickled on.'

Should We Worry about the Rising Inequality in Income and Wealth?, Judge Richard Posner considers how a high marginal taxes effects entrepreneurs and risk takers:

high marginal tax rates discourage risk-taking. Consider two individuals: one is a salaried worker with an annual income of $100,000 and good job security, and the other is an entrepreneur with a 10 percent chance of earning $1 million in a given year and a 90 percent chance of earning nothing that year. Their average annual incomes are the same, but a highly progressive tax will make the entrepreneur's expected after-tax income much lower than the salaried worker's. Many of the people at the top of the income distribution are risk takers who turned out to be lucky; the unlucky risk takers fell into a lower part of the distribution. It is rich people as a class who are growing relatively richer, not necessarily individual rich persons.

via Venture Voice 

Google Hated 1/4 as much as Microsoft and loved more than Apple.

It seems that with all the Google sniping going on, someones actually looked at it.

Clearly, there is four times the number of people hating Microsoft compared to Google. In the meantime, Apple which is another all time favorite technology company with a religious following comes somewhere in the middle with 42,700 results returned for the query “I hate Apple.”

Want to be a VC? Replace your CEO & and have answers for India & China.

Inside the VC world from Blueprint Ventures.

Startup Equity Splits & Stability

Noam Wasserman, professor in the Entrepreneurial Management unit at Harvard Business School, has the best actual diagnosis of startup founding problems around. (At least that I can find.) Best of all, he makes sense and shows his empirical data.

 

Equity-Split Results, Part 1: When Do Teams Split Equally?

The table below summarizes how these factors tended to increase versus decrease the chances that the equity would be split equally.

Interestingly, the prior relationships among the founders (friends vs. co-workers vs. strangers) did not have any significant effects on the equality of the split in either direction, either because they are non-factors, or because they include conflicting effects that largely cancel each other out.

Equity-Split Results, Part 2: Implications for Team Stability

The table below shows the major factors that had statistically significant effects (at the p<.05 level or better) on team stability (defined as whether all founders were still working or not) at each 6-month milestone, with a "+" showing a significant positive effect on team stability and a "-" showing a significant negative effect on team stability.

998 founders from 326 multi-founder technology ventures.

In non-table form, the results are as follows:

1. When the team invested the same amount of financial capital at founding, the team tended to be more stable throughout the 2 years.
2. When the team had a heterogeneous (i.e., widely differing) amount of prior work experience, the team tended to be less stable for the first 12 months, after which the effect became insignificant.
3. When the team split the equity equally, it tended to be more stable throughout the 2 years.

However, this last result (#3 above) is counter-balanced by two factors:

• Teams that split the equity equally and raised a round of outside financing during a period tended to be much less stable in that period, any time during the first 2 years. (In its magnitude, this effect completely washed out the positive effect from #3 above.)
• Teams that had been friends before founding and split the equity equally tended to be less stable for the first 6 months, after which the effect was insignificant.

Venture Beat: FF Class Stock for Founders

FF Class Stock for Founders 

A form venture capital funding in Silicon Valley is getting increased interest from founders of start-ups.

It is called the “FF class” of stock, for founders who want to cash out a small percentage of their stake in a company so they don’t have to wait until the company is sold or goes public.

This practice is not entirely new. Many founders through the decades, including at Intuit years ago and Jonathan Abrams at Friendster more recently, have sold shares in their company to their venture backers and gotten cash to enjoy life a little more. But with the favorable start-up climate now, VCs are doing more to accommodate founders, entrepreneurs are getting more sophisticated, hearing more about these sorts of terms, and increasingly asking for them.

Raising money in good times

Stanford Entrepreneurial Podcast Series

I've been listening to a number of podcasts the best of which is the Entrepreneurial Thought Leaders lecture series from Stanford University.

Stanford has the access and they've produced the best podcasts for entrepreneures on the net.

• Stanford Entrepreneurial Education Resources Site

• Entrepreneurial Thought Leaders series podcast

Designing Your Product: The sweet spot of lifetime value.

The Sweet Spot for Buying

 
Some people love the charts and graphs. They're helpful in thinking about the business you're in and how you're going to design your product offerings. I actually use a number of these same thoughts in designing medical service businesses and teach them to doctors (who also love to cram in the kitchen sink).  I would guess that the actual sweet spot moves over time.

Via: LukeW

In response to my Sweet Spot on the Curve article, Klaus Kaasgaard, Yahoo! Director of User Experience Research, pointed me toward a Harvard Business Review article titled Defeating Feature Fatigue that highlighted some additional considerations for determining the feature curve sweet spot. To paraphrase Klaus:

“Before using a product, people will judge its desirability and quality based on ‘what it does’ (i.e. the number of features). Even though they may be aware that usability is likely to suffer, they will mostly choose products with many features. After having used these products however, usability will start to matter more than features and people will choose easy-to-use products over products with many features. The dilemma is that in order to maximize initial sales one needs to build products with many features, products that do lots of “stuff”. But in order to maximize repeat sales, customer satisfaction and retention one needs to prioritize ease-of-use over features.”

Barry Schwartz echoed this situation in his talk at User Interface 11 when he articulated the capability vs. usability tension inherent in decision-making. In a test Barry referenced, participants preferred to have CD players with 21 features to ones with 7. But if they first used the 21-feature player for a while, they preferred the 7-feature one.

No flaming comments are safe.

I think that most businesses should be running their own blog. Most businesses don't.

The most common excuses I hear are no time and no knowledge. 

For the first time today on any of my blogs I deleted a comment. Damn. Simply a knee jerk reaction and something I regret. Adam, owner of My Secret Chef in Bountiful, flamed me for my post about customer service. I didn't even get the whole thing read and deleted it.

But there is something to be learned and it's something I've tried to teach to my daughter. "Never bait anyone who owns the mic". You're stuck in a no win situation. This blog gets a few thousand unique viewers each month from inside Utah. It's not the place to pick a fight since you don't control the mic.

I actually like Adam quite well. He's trying to run a difficult business from what I saw. I'm sure that he was angered when he came across a post that used him as an example of  what I saw as a poor choice. Guess he got a little miffed and decided to use my own blog to flame me. It's not the first time someone's taken exception to my opinion. These things can get a little out of hand and are generally not worth the effort and conflict.

So he flamed me and I deleted his comment. My bad and I'm sorry for it.

So, if you're around Bountiful, My Secret Chef is a great place to pick up dinner on your way home from work.

CEO Startup Networking: Fight Club Lunch

Fight Club had it's first lunch today and a whole new tribe showed up.

We'll, not entirely new but there were a few new faces. As is always the case, I didn't get to talk to everone for any great length of time. My apologies to those I specifically invited and then didn't get time to talk to. I'll have to make a complete FC list when I get a chance. I think I counted 17 and we were overflowing in some areas.

There are some interesting dynamics. I'm suprised at these events that there never seems to be any lapses in the conversations going on. Robin Peng of Design Engine showed up. Robin runs an industrial design shop that creates prototypes of about anything imaginable; cars, aircraft, light switches, medical devices, and the new Apple Core that's hitting the shelves as we speak.

I also got to talk for a while with Ted Broman of Integracore. They manufacture and oursorce anything and everything from DVD's to day planners. Ted's someone I've know and respected for some time now.

Brad Staker of Staker Group was also there but I didn't get a long time to talk to Brad.

Daniel Holsinger showed. I saw his pitch for his startup WikiReview.com at the Funding Univers speed pitching event and fired him off an email.

Judd & Jordy called me since they were at the wrong location. The Overstock duo made it in time to eat though.

Elegant Design

Strive for Elegance, Not Simplicity

“Simplicity is a myth whose time has past, if it ever existed.” Thus claims Don Norman in a new article for Interactions magazine. Joel Splosky concurrs, noting

Making simple, 20% products is an excellent bootstrapping strategy because you can create them with limited resources and build an audience. It’s a Judo strategy, using your weakness as a strength, like the way the Blair Witch Project, filmed by kids with no money at all, used the only camera they could afford, a handheld video camera, but they invented a plot in which that was actually a virtue. So you sell “simple” as if it were this wonderful thing, when, coincidentally, it’s the only thing you have the resources to produce. Happy coincidence, that’s all, but it really is wonderful.

Startup Entrepreneure: 9 business selection criteria.

From Fabrice Grindas 9 business selection criteria:

 
Fabrice Gringa has an interesting history in startups. Listen to Fabrice Gringas podcast on Venture Voice and you'll see what I mean.

He also has taken the time to detail what he sees as the 9 criteria that need to be filled in order to undertake or launch a new venture. It's a great list. I've added my own views as a counterpoint. 

Fabrice details an number of points that stem from his self analysis that he has a lack of creativity so he must ride the coat tails of others if he's going to be successful. It seems to have worked so far. 

Note: The 9 criteria are all represented here but some extraneous comments are not included. Fabrice's entire post is here.

9 Business Selection Criteria

The traditional cliché of entrepreneurs is that they have an idea and vision. They build companies to fulfill that vision. I am not this type of entrepreneur. I realized long ago I lacked the creativity to come up with brilliant new ideas. Frankly I lack creative skills in general including the ability to paint, dance or sing :)

To cover up for that deficiency, I use a rational thought process in evaluating business ideas to decide which business I will create, invest in, buy or join. These are my 9 criteria:

1. At least a $1 billion addressable market
This criteria is inherently personal and depends on the entrepreneur’s ambition, but there are good reasons to target larger markets:

• It’s easier to obtain funding
• Many Internet businesses have a certain amount of fixed costs but limited variable costs, therefore the larger the business, the higher the net margin
• I find it more interesting to build larger companies

This does not mean that the market must be a $1 billion market at the launch of the company, but that it must have the potential. 

2. A valid business model understood from the get go
There is only a 5% chance that a company created today will still be around in 5 years. I have not seen official statistics, but many VCs seem to believe that only 0.1% of the company started without a valid business model succeed. It’s so risky to create a company to begin with, I would rather have all the odds in my favor…

3. Does not require more than $2 million in seed or $15 million in first round VC money
If it requires much more, the business might be too capital intensive which could lead to too much dilution and suggest that this is an idea that is easier for a large incumbent to fund rather than a new startup.

4. A business where you have a real shot at being one of the top players - at least in the region you are targeting
Avoid entering businesses where many players are well funded or where the incumbents have a sustainable advantage. That is not to say not to enter businesses where there are incumbents - just make you have a hard to replicate edge on them - after all Skype did extremely well because it entered the telephony market with a radically lower cost structure than the traditional telcos and used it to its advantage.

5. A scalable idea
This is again a very personal criteria. Walmart and Starbucks are great businesses, but I would rather not be in a business where I need to open a new store to increase my sales as it leads to slower growth and greater capital requirements. Internet businesses are magical as they give you the ability to build and grow global companies in record times - just look at what Google, eBay, Skype and many others accomplished in less than 10 years - in some cases in less than 5 years!

6. A business with little or no risk of disintermediation and/or margin compression by suppliers and/or customers
You are in a much safer position if you are much larger than your customers and/or suppliers. Walmart exerts tremendous pressure on its suppliers which are much smaller than it is and depend on its sales. eBay can also continuously increase prices on its sellers - none of which is in a meaningful position to fight back on its own. 

7. A business that is in a rapidly growing market
A rising tide raises all boats. Growing markets generate more interest from the press, consumers, customers and suppliers. Moreover, if you are gaining share in a rapidly growing market, this can create exponential growth.

8. An idea that I know how to execute on or can learn how to execute on
For now I will probably focus on technology ideas as I have a clear comparative advantage in the field as I understand technology and know how to manage technology organizations.

9. An idea that I like and want to do!
One of the keys to happiness and success in life is to do things you love and are passionate about…

A few things to note:
As you can see, I did not mention barriers to entry as a business selection criteria. While it would be nice to be in a position to have strong barriers to entry from the get go - it’s relatively rare to be in a position to have a sustainable barriers to entry from the start especially as it is becoming easier to duplicate technology or even get around many patents. I prefer to focus on building the barriers to entry with the business - the very fact of operating a business - having customers, suppliers, press attention, creating a brand - creates barriers to entry.

Googles Radio Ads: Taking on the mainstream media.

From the Wall Street journal: Google selling radio advertising

"You'll be able to target your customers by location, station type, day of the week, and time of day," wrote a member of the Google Audio Ads team on the company's Inside AdWords blog. "After the radio ads are run, you will be able to view online reports that tell you exactly when your ad played."

The ads can by played on "hundreds" of radio stations across the country, Google said. Using the online interface, advertisers will be able to set a weekly budget and define their campaigns, and then Google will let customers see and alter how their ad budgets will be spent.

This is going to put Google on a collision course with the media companies. I would expect that after letting Google develop the market the larger media companies would go direct with their own solutions leaving Google with the smaller players. The larger players won't let Google have control of their inventory. This may still make sense since the aggregate of the smaller players may be substantial by themselves.

Yahoo can't be far behind. 

Craigslist, Local Search, & Money

Craigslist just won't sell out.

"If  YouTube was worth $1.65 billion, who knows what Craigslist would be worth if Jim and [site founder] Craig Newmark ever considred becoming — what’s the word? — capitalists.”

Nope, Craigslist is throwback to the 60's. Free lovers and bra burners unite. 

The BYU Marriott School of Business ranks 3rd in regional business schools.

Brigham Young University at No. 3 in The Wall Street Journal/Harris Interactive Regional ranking.

In this year's survey, recruiters gave the Marriott School its top scores for students' teamwork skills, work ethic, and analytical and problem-solving abilities.

It was rated lowest for students' previous work experience, experiential learning in the curriculum, the career-services office, and graduates' willingness to relocate.

Brigham Young's major deficiency, recruiters say, is its lack of diversity, with women accounting for only 17% of its M.B.A. students, minorities 10% and foreign nationals 12%. The school hopes to boost those percentages through its "diversity initiative" for recruiting more underrepresented students and faculty and offering special scholarships to minorities.

Evidently all those hard working, team oriented, puzzle solving white boys just don't want to give up living in Provo. Bowling and eating ice cream must be a lot more fun than I realize.