Startable – Healy Jones’ & Prasad Thammineni’s Blog

On MLK day it is fitting to point out how technology is helping to positively change our world. Twitter (and Facebook) are once again being used as critical communication tools in a regime change, this time in Tunisia. Read the TechCrunch commentary here. Of course, who knows what type of government will replace the old one in the country, but we can hope for the best…

There are some posts going around on a recent conversation had between Fred Wilson and John Doerr where they debate how innovative Google and Facebook are.

Fred takes the point that Facebook and Google aren’t really innovating anymore, instead they are buying small companies and scaling their innovation. John disagrees, although supposedly was hard pressed to come up with concrete examples.

My opinion:

Scaling is innovation.

Just because we, as consumers, aren’t seeing the innovation doesn’t mean it isn’t happening. The plumbing required to support the search volume on Google and the traffic volume on Facebook is amazing. And the growth both companies have experienced over the past 5 years is unprecedented. The engineers and sys admins at these two companies are experiencing problems + creating solutions no other company in the history of the internet has had to experience (OK, Twitter is probably getting some of this too).

A better question would be are either of these companies producing business model innovations. Since Google seems to like to give a lot of stuff away for free to get ad revenue, and I’m not really sure how Facebook will make $ other than advertising, I think this may be the bigger issue these two were actually debating.

There is a cool post on TechCrunch by Ajay Kulkarni, Sensobi CEO/TechStars alumni, on cutting edge email applications. A few of these were founded/funded out of Boston, which is really great. Email is still a killer app, in my mind. I realize that younger people don’t use it as much as I did when I was in college, but still it is an everyday app that is a part of most workflows. Innovations, like the ones Ajay mentions in this article, are going to keep email’s utility high for the foreseeable future IMHO.

A few of the companies with Boston connections are:

Boomerang, which lets you schedule emails

Followup.cc, an email reminder service

Rapportive, which connects to social networks and give you info on the people you email (bonus points if you can guess the Boston connection.)

A CNN piece alerted me to a Pew Research study on the penetration of checkin apps, and claimed that only 4% of people in the US have actually used a checkin app.

I’ve been thinking about checkin apps for a while, mainly because I’m slowly using Foursquare less and less as time goes by. I’m finding it slow (although I think my ancient iPhone is part of the problem), that it doesn’t really fit into my workflow (i.e. my friends and wife think it’s annoying that I always have to pull out my phone whenever I go into any store) and to be totally honest, am not getting enough utility out of it anymore.

I was worried that this study was going to only include landline phones, but they somehow included cell phone users in the study. (see my older piece on landlines vs. cellular congestion). So there could be some interesting data in the piece.

Here is some cool information from the survey:

24% of online adults use Twitter or another service to share updates about themselves or to see updates about others. Ten percent of these status update site users use a location-based service, over twice the rate of the general online population.

twitter penetration

The other chart I found interesting shows a funny barbell in terms of education – less educated and more educated people checking more often (note this is not statistically significant but I’ll pretend that it is.) And middle of the road income people checkin more than higher income people – but again, not stats significant and may be a function of the age – younger people also make less $ so this may be the cause.

% of people who checkin by demo

Anyways, cool research by the Pew people.

Read the rest of this entry »

CB Insights’ data is showing that Massachusetts early stage fund raising, as a $ volume, really dropped in the past quarter.

Massachusetts Funding Plummets – The state sees a five quarter low dropping below half a billion dollars of funding while dealflow stays consistent. Healthcare remains dominant but loses some share of dollars and deals to internet and software. Portion of state’s deals going to seed deals significantly less than New York and California.

While the number of deals in the state remains the same, the dollar volume is way, way off. A chart from CB Insights’ report:

Basically, it looks like the size of dollars invested by deal has dropped in half since Q1 (~$10mm per deal vs ~$5mm per deal.)

It also seems like NYC has surpassed Boston for early stage internet deals. This is actually a pretty big thing. I’m not against NYC doing well, and also postulate that there is some positive spill over to Boston for a good funding environment in NYC – in fact, OfficeDrop‘s funding source in NYC based.

But what is prompting the drop in Boston, while both CA and NYC have gone up? What is going on?

Some potential ideas on the funding situation in Massachusetts

Healthcare seems to have been hit hard this quarter. Healthcare has been a very important part of the Boston venture scene, and also tends to have higher average deal size. Over the past three quarters, for example, the average healthcare deal size has been about $10mm per deal, vs about $6mm for internet investments. See page 41 of the report to see some charts on this in Mass.

Lack of big deals. Other regions have some serious Series C deals – that have lots of capital invested, thus dramatically popping the average + total deal size. Did Mass have any really big later stage deals?

Lack of clean tech. “energy and utilities” are 7% of deal volume in California – but only 3% in Mass. These tend to be bigger deals than internet. Did Massachusetts miss the cleantech boom?

Are Mass companies too quiet? For example, when my company raised funding last year we didn’t really let any of the data providers know, do a press release, or even a blog post. I know of several other MA companies that have raised $500k+ that haven’t announced it. Maybe fund raising isn’t enough of a status thing in MA?

Is seed funding too popular in Mass? This chart is from page 42.

Actually, now that I compare the above chart to California, I think the answer is no. CA not only has more seed deals, but also has more Series D+ deals. Maybe the real idea is that MA companies get sold before needing huge capital raises? IDK.

This is a very good report. Download it.

I just read a piece on Newsweek that is a reaction to the new Facebook movie. The author’s basic premise is that innovation in the US is dead because the only problems Silicon Valley is trying to target are silly ones. Daniel Lyons (the author) is pretty clear in his dislike of the current crop of VC darlings:

The Valley used to be a place run by scientists and engineers, people like Robert Noyce, the Ph.D. physicist who helped invent the integrated circuit and cofounded Intel. The Valley, in those days, was focused on hard science and making things. At first there were semiconductors, which is how Silicon Valley got its name; then came computers and software. But now the Valley has become a casino, a place where smart kids arrive hoping to make an easy fortune building companies that seem, if not pointless, at least not as serious as, say, old-guard companies like HP, Intel, Cisco, and Apple.

The three hottest tech companies today are Facebook, Twitter, and Zynga. What, exactly, do they do? Facebook lets you keep in touch with your friends; for this profound service to mankind it will generate about $1.5 billion in revenue this year by bombarding its 500 million members with ads. Twitter is a noisy circus of spats and celebrity watching, and its hapless founders still can’t figure out how to make money.

I agree that the major use for these services, for most of the population, seems to be amusement.

However, I totally disagree with the idea that Facebook and Twitter are not important, innovative and world-changing services.

I left the following comment on the article:

I disagree with the author’s premise that Twitter and Facebook have no serious value. As communication tools these two companies are in the process of doing something very amazing. Wasn’t easy, fast, free, global communication one of the dreams of the internet? I think these two companies have really lowered the barriers of sharing information across the world. For example, Twitter was used extensively in Iran during the recent protests over the election results. It is highly unlikely that the Western world would have such hard-hitting pictures, videos, etc were it not for Twitter. This is a direct quote from a Newsweek article: “A Twitter Timeline of the Iran Election   In some ways, social media defined the protests surrounding Iran’s election. Here are the most noteworthy events, as told through tweets.” Remember that the US State Department asked Twitter to hold off on taking the service down for a scheduled maintenance because it was providing such valuable information about the situation there.

The author is missing the beautiful thing about innovation in America – when something is created here the consumers of the product are free to use it as they see fit. I’m sure the Twitter founders didn’t think that they were creating a tool for spreading democracy. But because it is built in the way that embodies the current version of US innovation – i.e., open, flexible and extensible – it can become anything its users need. I would take the birth and death of 100 silly imitators to get another service as important as Twitter going. Thankfully, I’m pretty sure there will be at least that many silly ideas coming out of Silicon Valley in the next few years!

I did not add the following, but maybe I should have:

Facebook, while it can be silly at times, is not useless. I believe that a tremendous number of people find real value in sharing things like baby pictures, important family events, etc. Didn’t someone somewhere once claim that human connections are the most important things? Liking the photo of my friends newborn on Facebook is not the same as actually seeing the kid in person, but when he’s on the other side of the country it sure beats hearing from someone else that his wife just birth a few weeks ago. Let’s not discount the positive impact of human connections.

*here is a link to the Newsweek Twitter timeline of the Iranian elections – it’s pretty cool.

Last night’s Web Innovator’s meeting was great, maybe the best one so far this year. I really enjoyed the “self funded success stories” talk. Three successful startup founders who bootstrapped their businesses spoke about the trial s, tribulations and lessons-learned of self funding. It was really inspiring to see local companies that were doing well without the need for any outside funding!

Laura Fitton of OneForty moderated the panel, which had:

• Steve Conine, Co-Founder of CSN Stores
• David Hauser, Co-Founder of Grasshopper
• Todd Garland, Founder of BuySellAds

Bootstrapped Startups Lessons

Some of the key takeaways on how to bootstrap your startup, as I understood them from these founders:

1. Even if you were not trained as a developer it is very helpful to be able to take part in your products development. Bootstrapping is a lot easier if you don’t have to pay anyone to develop your service/site/product.
2. Start pushing right away for a product that you can sell ASAP. When you have funding you have the luxury of taking time to get to market; when you are self funded you need to get selling fast.
3. Be sales and support in the early days. If you do not have lots of capital in the bank you need to be very careful that your service is resonating with customers. The only way to do this on a budget is to do it yourself. Listen carefully to your customers and change your product as fast as you can to meet their needs.
4. You don’t need a 50 page business plan. Two of the three founders used a spreadsheet to define their company’s early stage goals and track their progress; one had a two page business plan and a spreadsheet. You don’t have time to do a beautiful 50 page bplan – just figure out what you think your metrics and costs will be and start executing (and monitoring your progress against your plans.)

This is my second post on what makes a good technology platform company, from the point of view of the companies that integrate into the platform. (I’m calling these companies “platformees.”) Here is a link to the first post, “So you want to be a platform? part one.” Again, this is focused on SaaS applications.

Good communication with partners on your platform. In my previous post on what makes a good platform I mention “consistent strategy.” The world is not perfect and companies do need to make changes sometimes! Solid and early communication with platform partners is the best way to prepare your platformees for change. Email seems to be the  best way to manage this, from my experience. It is also very helpful when the platform itself has good internal communication. When a startup (like mine) has a conversation with a member of the partner team at a platform we use that conversation as a basis for making important decisions (like committing time or effort to developmental or marketing plans.) If another person on the partner team at the platform then does something that destroys the effort we’ve spent it is very costly to us. Companies that want to be platforms need to realize that startups have very, very limited resources. We can’t afford to waste effort, because if we are not growing then we are dying. As an addendum to this, I would add that having a person or team that manages the relationships with your platformees is very helpful.

Reliability. When a big platform app goes down and the customer can’t use the little SaaS company’s integrated offering… well, the customer tends to blame the little guy. Telling a customer who is trying to access critical business data that “so-and-so big company is experiencing technical difficulties again and there is nothing I can do” really doesn’t help him/her have confidence in your app. Secondly, if new users can’t sign up then it means I’m not growing through your channel when you are down. Third, and I think a lot of SaaS companies tend to forget about this – we are still early in the adoption curve for SaaS. Most small business owners and many consumers are still not entirely comfortable with using/storing critical applications online. No one is going to be comfortable switching to online services if they are prone to outages.

I’ve got a few more points that I will try to make in the next post on platforms. Until then, happy integrations!

With the explosion of different staged venture capital sources it is becoming difficult to know where to turn for your first round of financing. How is an ordinary entrepreneur supposed to understand which funding group is the right one for her business? Rather than explaining the difference between micro-VCs, angel groups, big-time venture capitalists, growth funds in text, I thought I would draw a helpful diagram (I haven’t done one of these in a long, long time!)

The X axis is the stage of the company seeking funding – from just an idea on the left to a profitable company with a big revenue base on the right.

The Y axis is the amount of capital required – from a tiny amount at the bottom to many millions at the top.

Finding right 1st round investor

My friend from business school, Matt Soldo, has a well written post on MBAs in the tech startup world, “In Defense of the MBA.”

Matt has held positions with a few different internet companies, and is currently with Box.net. I also know he seriously batted around a few legit startup ideas while getting his MBA as Wharton. So I respect his opinions.

Since I was sort of famously quoted in TC on my MBA experience (and my MBAs and Startups post continues to get good traffic) this is a good opportunity for me to revisit my MBA post from last year.

As OfficeDrop has grown I’ve found my MBA more and more useful. Basic stuff like statistics, pricing strategies, etc are particularly useful. I sure that I could have learned this in a book, but there is something about the classroom learning environment that is good for the way I acquire knowledge.

The connections I made during the MBA are very useful. For example, I wanted to test out an idea for a new verticalized product offering at OfficeDrop. I glanced through LinkedIn, saw several classmates who were in the targeted field and had some quick conversations. I could have done this without the MBA, but it was nice to know that there were people who would pick up the phone. And of course the connections were helpful during our fund raise.

I’ve said it before, but my Managing People at Work class was really good. People, outside of the greedy finance world, are pretty fun to manage because it’s not just about the money. My MBA has provided a structure for me to think about this.

I still wish there had been more emphasis on leading sales teams at Wharton. How is this not the most important skill for almost anyone running a company?

The environment of business school is a real problem for people thinking about starting their own company. So many MBAs run for the safety of things like consulting, banking and big corporate positions (and have their post-graduation jobs sewn up with high salaries by the early part of their second year) that you feel strange trying to do anything different. I know for a fact that this atmosphere pulled some potentially great startup people into the boring safe jobs. My friends at Stanford and Harvard who started their own companies said they felt this pressure there too, so I think it’s safe to say this is a pretty standard MBA program problem.

And, finally, business school loans are the bane of anyone looking to start a company because they destroy so much free cash flow.*

Those are my current, unfiltered, thoughts on my MBA. Just as my position has changed over the past year I’m sure it will change again. Would love your comments, and don’t forget to read Matt’s post!

*On a somewhat unrelated note, does anyone else think that student loan situation in the US is the major cause of the educational cost inflation that we have here? In other words, because the federal government makes loans so easily available it is driving up the cost of higher education? I’m starting to think that government policies may be part of the reason that education is becoming so expensive – flood a market with cheap financing and the asset prices will go up??