A TechStars company gets funding, the importance of relationships for VCs and more…

  1. First of all I’d like to congratulate oneForty of TechStars Boston for closing on a seed funding round. There are some other interesting companies in the TechStars Boston program and I’m hopeful that they too will be successful in finding funding to continue to grow their businesses.
  2. Secondly, congratulations are in order for the team over at CloudSwitch for closing on a second round of financing recently. Commonwealth Capital has invested capital into the business, shortly after the company closed on an investment from my former employer, Atlas Venture, and Matrix Partners. There is a simple reason as to why this company was able to raise capital so efficiently in such a difficult funding environment. A well-respected founding team led  by Ellen Rubin was joined by John McEleney, an experienced Boston-area CEO. As I’ve blogged about before, team matters when raising venture capital. (I know, I’m pretty much linking to Innovation Economy today. I guess Scott Kirsner is just writing about interesting stuff today!)
  3. Microsoft is going to sell Razorfish, according to the Financial Times. Pretty interesting stuff. Razorfish is the “creative” arm of aQuantive… Other online ad technology companies have proven that they don’t need a real ad agency arm to do well in the space (such as Google). So does creative matter for online advertising? Well, beyond the basic idea that more interesting display ads are more likely to get clicked, yes, I think it does. Here’s why: social media is growing in importance in online marketing. I’m not talking about targeted ad campaigns run through Facebook’s ad service, but instead the need to engage customers with interesting messages through Twitter, fan pages on Facebook, via engaging iPhone apps, and in other one-to-many social media services. I think it’s pretty clear that customers are getting really good at cutting out the clutter, but are getting pretty into fun “messages as a game” or “messages as entertainment” type marketing programs. I do not believe that simple mathematical formulas can create solid engagement in these areas yet.
  4. Finally, the thing I’ve been thinking about for a while: “The Top 100 Networked Venture Capitalists.” I actually think the title to this Techcrunch article is a bit off, it should be the top networked venture capital firms, but anyways… a while ago some academics parsed venture capital returns by how many other co-investors a particular venture firm invested along side of:

They looked at historic venture returns and found that “better-networked VC firms experience significantly better fund performance,”

But who cares about venture capitalists’ returns. What the entrepreneur needs to think about is which venture capital funds are going to help his/her startup the most. The list presented on Techcrunch is a pretty good indicator of the funds that adopt an aggressive investment syndication approach. As I’ve mentioned several times in the past, syndication is a very good idea. If you are an entrepreneur and you are looking for a list of venture capital firms that you should try to network into, this list isn’t a bad place to start. These are the VCs who have the relationships you will need to find additional capital to support the growth of your company. Your fund raise doesn’t stop after the Series A, and these funds are the best at helping their portfolio companies find their next round of financing.

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Delight your customers – How Intuit Out-Competed Microsoft?

intuitlogoI was at a private luncheon 10 days ago with Scott Cook, the founder and Chairman of Intuit. Coincidentally, Microsoft officially withdrew MS Money from the market on the same day – a huge achievement for Scott Cook and Intuit. When asked how he managed to stem off competition from Microsoft, this is what he had to say:

Solve Customer Pain Point(s)

Most companies are founded with an objective to solve a pain point but only few firms continue to focus on the customer after they have achieved success. What Intuit has done in the last 25 years and is relentlessly focussed on what the customer pain points are and then go about solving them. They engage the customer before, during and after each release cycle to ensure what they build is what the customer wants.

Delight the customer

Solving the customer pain point is not just enough but doing it in a manner that the customer loves it is what counts. The customer interact with a company and its products in various ways and various times. The post-sale customer experience is even more important than the pre-sale experience. How the product satisfies the needs, how accessible the company is (customer service) and how involved the user community is play a major role in enriching the customer experience.

These according to Scott, will create a loyal customer base for life and continue to generate word of mouth. When Scott asked Bill Gates what the main reason to acquire Intuit (in the mid 90s) is, Bill responded by saying that they could replicate everything that Intuit did but not the word of mouth. No wonder, Microsoft pulled out of personal money management market.

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Should internet companies actually TALK to their customers?

Wow, there is an incredible amount of customer feedback that can be collected through a customer support number. I’ve learned some interesting stuff by listening on conversations the Pixily team has had with users of their service. This got me thinking – why don’t more internet-based businesses have phone numbers?

I guess it’s pretty simple to understand why Google doesn’t have a help desk. Think of the calls they would get: “Hey, I can’t find the address of the restaurant I’m going to on Google Maps,” or even more likely, “Why isn’t my company at the top of your search results?” (Or me a few weeks ago: “what the hell just happened to gmail?” This afternoon at TechStars I attended a talk by Nitzan Shaer, who was at Skype for a few years, and he mentioned that Skype consciously did not have a customer service number available because there was no way the service could handle the number of calls they would receive. I can buy that.

But what about smaller/startup internet companies? Can they have a help desk and actually not get overwhelmed helping customers? Should they? I’m starting to think that maybe… I’m pretty sure that for each customer who cares enough to contact a startup there are many, many other users who don’t bother. When you are trying to get something totally novel accepted by an as-of-yet undefined market, any customer feedback that you can get sounds pretty good, even if it is negative feedback. Early product decisions should probably be based on more than just the founders’/programmers’ gut instinct. Most startup internet companies have such a short runway to develop a product that will actually be accepted by the market that minor tweaks to the UI, content, etc. can have a huge impact on customer acquisition and retention.

I realize that actually talking to people is sometimes scary. And constantly picking up the phone can be very distracting. But you may be able to carefully expose a customer support phone number and not only help your business but also help some customers.

I’d imagine that the right way to have a customer service number starts with an easy way to REMOVE the customer service number. After all, if you end up having a Skype level of user adoption you just can’t support a support line very easily. So I’d go with one of those easy to throw away 800 services for the original number. I mean, you don’t want mooches like Mark MacLeod constantly bugging you… On the other hand, if you are an accounting software company and a well known startup CFO is constantly raving about how great your service is, maybe you do.

I’d also think that you will want your developers/product managers to answer a lot of these calls. I know this will slow them down, but on the other hand get the customer info into their hands asap. Also, if they build something that sucks shouldn’t they be the first to hear? :)

The feedback you get should also be taken in the context of customer segmentation. Maybe the particular user group that you are targeting just can’t “get” your product. Or maybe you want a help line specifically for bigger or corporate customers, or as a way to differentiate your free vs. premium app.

I obviously don’t have most of the answers on this topic. I’d love to learn from others who have or have not had a successful experience with their customer support line.

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Technology and the ad agency business

Matt Greitzer of Razorfish posted a thought-provoking piece on the evolution of the ad agency business last Friday over at MediaPost. In his post, Matt talks a lot about how the ad business was wed to a business model of creative + ad buying, and attempted to add value by its ability to make better (i.e. cheaper via volume-type discounts) ad purchases for their client… and then marked up the ad buys by 15%.

Obviously this model is challenged by online ad networks, where anyone, regardless of their volume, can purchase the same online ad unit at auction for the prevailing price. As Matt says:

In an auction-based environment like search, or the budding ad exchange field, buying clout is meaningless. Creative is still important, but what’s even more important is campaign optimization and segmentation, the effective use of which enables the creation of highly qualified audiences independent of the media on which those audiences are found. The media themselves are now interchangeable (feel free to debate me on this last point). Optimization and segmentation require people and technology, and the relentless downward push on agency commissions causes the agencies themselves to under-invest in both.

This got me thinking. Under-investment in technology may end up killing a number of ad agencies, but the forces that cause this sort of under-investment make a lot of sense when put into the context of the agencies’ business models. They can only charge a certain percentage above the end media buy. Their customers have decent visibility into the markup that any give agency is charging. And there are numerous other providers who could claim to offer a similar other service (in other words, it is a very competitive space.) Where is the ability to charge the customer more for a technology purchase? Or, who within the agency has the power to cut the margin on a particular piece of business to buy technology? I’d imagine that there would need to be a solid mandate from the top…

When technology innovation fails to come from within an industry it is sometimes thrust upon an industry from outside. The Google example is over used to the point of being a cliche, but it is true that the company has really challenged the way advertising works. I’ve very excited to see where the next wave of change in the advertising world comes from. I’m not convinced it will be from the agencies…

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VC Pitch #12

So, I’ve seen Prasad pitch quite a bit recently during his fund raising process. And I have to admit, the view from this side of the table is pretty different from the venture capitalist’s side. Thus is born the 12th tip for startup entrepreneurs pitching their business to venture capitalists – and this one is actually useful!

VC Pitch Tip 12 – Have the ability to complete your entire fund raising presentation in 10 minutes

I know that I mentioned in my last VC Pitch Tip that your fund raising presentation should be short. This is a slightly different topic – regardless of how long your formal pitch is, you should be able to deliver the entire pitch in 10 minutes if needed. Yes, most VCs will give you an hour or so to make your presentation, but I guarantee that there will be times when you have to be able to deliver a convincing pitch FAST. There are many reasons why this could happen:

  • The VC is running late
  • You luck into a quick meeting at a conference
  • This is a follow up meeting with several VCs to quickly get them up to speed after one partner has already gotten excited about you
  • You have some outside expert coming in for a particular diligence discussion and you want them to quickly know what the businesses is about
  • Or, best of all, you are having such a good conversation with a potential funding source that you get really behind in your presentation.

There will always be a point in your fund raise when you need to very concisely bring someone up to speed on your startup. And there are so many outside people involved with the diligence that you will need to repitch and repitch, even when the actual pitch isn’t the core reason for the meeting.

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