Startable – Healy Jones’ & Prasad Thammineni’s Blog

Waiting until the last possible moment before I close the storm windows for the approaching hurricane – so here are a couple of links.

A take on Tim Cook

An acquaintance, Alex Bain, works at Apple and has a post up on his meetings with Tim Cook. It seems that he’s meet with him once a week, and so it’s interesting to hear his take on Tim’s leadership style. Very cool look inside the now most powerful man in tech’s leadership style. (Thanks to Kenny Kellogg for pointing out Alex’s post.)

Updating Mac Apps

I’m proud of a post over on the OfficeDrop blog about how to update apps purchased in the Mac App Store. You’d be surprised at how many people ignore the update icon (or who don’t know how to update their apps!). Anyway, hopefully this how to will make it easier for people to update their apps and perhaps not call our customer service to ask about how to do it. OfficeDrop’s ScanDrop Mac Scanner Software really does work better when it’s the most up to date version!

Dan Primack has a good interview with the CEO of BankRate.com, a company that was public, went private a few years ago, and returned to the public markets recently.

I’m not going to quote the entire interview here, you should just click the link above and read it yourself, but the part that interested me was about how being private with a PE backer let the company make some acquisitions that it would not have been able to make if it was public.

Fortune: Buyout firms often talk about the advantages of being private. Do they exist?
Evans: There definitely were some advantages to being private… We also saw strategic assets available for sale, and that acquiring them could really change the trajectory and competitive position of our company.
We wouldn’t have been able to make those acquisitions if we’d been a public company, both because the private equity backer provided capital and because one wouldn’t have taken our paper.

I’m more than a bit surprised about this reasoning. Usually companies cite having a public currency with which to make acquisitions as a major reason to IPO… this is totally opposite of what you’d usually consider the norm.

It also leads me to think about what happens when a private company that has shares trading on one of the private secondary markets makes acquisitions with stock. Is the acquired company then able to sell stock right away to third party accredited investors? Or is there the standard lock up language like you’d have when a public company acquires a private company? Or does the fact that the private co can control the sale of share on the secondary market negate the need for such a lock up?

I recently posted a piece on OnStartups on the topic of growing an internet company outside of Silicon Valley. I truly believe that this is possible, but recent history shows that a huge percentage of internet companies are based in the San Francisco Bay Area. This bums me out, as an internet guy out here in Boston… Here is my 8 tips for growing an internet company NOT in San Francisco.

Ok, so the Groupon acquisition by Google has fallen through.

Now it’s time to analyze the pieces. Props to the Wall Street Journal for taking on the proposed deal from a different angle. The WSJ compares the proposed Groupon acquisition, at $6 billion, to other large venture backed M&A exits and finds that “If Google had acquired Groupon for up to $6 billion, the deal would have been the largest for a venture-backed company since 1999 and the third largest acquisition on record.” Wow, that’s pretty interesting.

The WSJ goes on to state that this is a sign of the current internet company bubble and negatively compares the price to past bubbles, mainly the telco equipment maker bubble back in the late 90′s.

I find this to be a bit of a stretch, mainly because Groupon is at a run rate of $2 billion in revenue, up from no one having heard of it just a couple of years ago. And it’s cashflow positive. Vs. the telco equipment companies that may have had real IP, but were not generally producing that level of revenue so quickly.

I’m not saying there isn’t a bubble. In fact, I think there is one. But buying a cashflow positive company growing at hundreds of a percent year over year at a 3x revenue run rate doesn’t seem as insane as buying an equipment company growing more slowly with all the logistical headaches of building and distributing a product to a limited number of end customers.

Roy Rodenstein had a recent post on Mass High Tech called 5 Reasons Startups Move to Silicon Valley. He pretty succinctly sums up a number of the bigger issues facing the Boston startup scene and lists a number of smart things the area can do to better retain startups and the talent that creates them. It is a great piece.

The only area where I take issue with his reasons that startups leave is that he is very focused on funding. Basically, four of his five reasons are about the lack of depth of seed/early stage funding in Boston. I left a comment saying that if I was to list five reasons startups leave Boston I wouldn’t have funding be four of them. In other words, I see other issues as more important – onces he touches on in his fifth point, the point on the ecosystem.

I’ll try to elaborate on a few of the problems I see in Boston – problems that make it less desirable for startup founders to want to found/keep their companies here. My point of view is colored by the years I spent living in San Francisco and by the fact that I am not originally from New England. Also, please keep in mind that as a guy helping run a startup in Cambridge I actually do think this is a great place to found a technology company.

1) Willingness to take a risk on less experienced founders. Or lack thereof. I think there are investors here who are willing to back new, cool companies. However, I don’t see that many investors who are willing to back young, unproven entrepreneurs. I can think of a number of successful companies on the West Coast who have very young founders who received funding. Everyone always points to Facebook, but the one that I really think of is Box.net. Very young founder focusing on an enterprise space gets funding from well known West Coast VCs. Are there any Boston area b2b companies where an early 20 something got funded and remains the CEO? Or even got funded?

2) Little willingness to roll up the sleeves and mentor/help other companies. This is a follow up to the first point – is Boston willing to help young company founders grow? I kind of feel that very few people in Boston will back young founders because few people really want to take the time to actually mentor them. I’m hopeful that things like TechStars and the Mass Challenge will provide a bit of the framework – and more importantly create lasting relationships between younger entrepreneurs and experienced mentor-types who can help them grow into executives like Zukerberg or Gates.

Ok, maybe those first two points could be considered somewhat related to “funding” so I’ll go in the opposite direction with the next.

3) Very few here-is-how-you-grow-your-company events. There are so many Boston events on getting funding – boring. What I want to know is how do I grow my company. I want events where people from successful local companies like Monster and Smart Bargains and Constant Contact tell war stories. Where the hell are these people? I have no desire to see a group of VCs talk about how they back management teams and pick big end markets. I want to hear what works and what doesn’t from people who have just created big, awesome tech companies. Some of the recent customer development and unconferences are big steps in the right direction.

4) Very little national, customer driving press. I can only think of one blogger/reporter in Boston who can actually get me customers – Scott Kirsner of the Boston Globe. The other journalists here try hard, but appearing in their publications doesn’t drive traffic to my site that converts into paying customers. TechCrunch, Mashable, Lifehacker, GigaOm, Gizmodo… I don’t think they have anyone in Boston. Connecting with reporters directly is very important to starting a dialog that gets your startup featured. I can’t do that here very easily. I am hopeful that both Xcomony and BostInnovation will grow into publications that DO drive customer growth – the reason why I think this will happen is because they both do in depth style writeups on products, not just articles around which companies are getting funded by whom. (Please note, I still love getting any and all press for OfficeDrop!)

5) It is hard to feel welcome as a “non-native” in Boston. When I first moved to San Francisco I felt like it was my city in just a few months. It took over a year to even begin to feel welcome in Boston. It’s hard to meet new people here. Mobility, which is a big part of getting to know and feel at home, is very challenging due to the fact that the drivers here are worse than those in third world countries that I’ve visited. It’s not just that there are no street signs, it is also that I really think there is a basic lack of understanding of the rules of the road,  civility in the car and enforcement of driving rules. There is also something strange about the culture that makes it harder for people to strike up conversations and relationships with people they’ve never met before. I believe that small steps are being taken by things like the Shutup Startup weekend coming up this weekend (I think I’ll go to the Friday night event). Hopefully this be a move in the right direction in helping students feel like part of the Boston community. (Also, since this particular point is becoming a little bit of an all over the place rant – Boston needs real happy hours. I think part of the reason I quickly made so many friends in SF was how easy it is to bond with people over cheap, after-work drinks. Ok, so that particular point is a stretch, but I really really miss happy hours.)

Boston is a great place to start a company. We have funding, world class universities, blah blah. But more importantly to young founders, Cambridge and Boston are great places to live. Unlike Silicon Valley, which is a really boring place to live when you are 24, Cambridge provides both a fun atmosphere and somewhat affordable startup real estate (trust me, I tried to live in Menlo Park when I was in my early twenties and only lasted 9 months. It is the most boring place in the world to live when you are young; other than the great Indian food it is way worse than Cambridge.)

So, if you want startups to thrive in Boston, do your part. I’m trying to get a group of experienced marketing folks together to mentor startups (calling it Boston Internet Guild, BIG). I’m making an effort to attend events where young startup folks gather. I’m talking up how great of a place Boston is to be. I’m sure I haven’t thought of everything – help me think of other things we should be doing to keep startups in Boston.

Quick link to some interesting recent stats on technology M&A as the “new” exit paradigm on gigaOM.

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??

I’ve been one of those quarter of US households without landline service for the past… I think five or seven years. (The last time I had a landline I was living in San Francisco and I needed one for my Tivo. I don’t even think Tivo needs a landline anymore.) Much ado has been made about the slow death of landline telephone service…

from ReadWriteWeb article

This is a very clear trend (as the ReadWriteWeb article mentions) “younger adults under 35 are more likely to have cut their landlines, but the CDC also reports that the number of wireless-only households increased among all age groups. About half of all adults aged 25 to 29 now live in households that are wireless-only…”

But all that changed last month for my house, as my wife is starting a SEO/marketing business – and she has realized that she can’t rely on her mobile phone connection. (We are on AT&T). She can simply not rely on the constant dropped calls when she is talking with clients, so she needed the reliability of a landline. (No one needs to mention Skype; I’ve never found it to be reliable enough to speak with clients.)

Pundits are now mentioning the upcoming strain on AT&T’s network that will come from the new iPhone 4.  Also, it sounds like Android is really taking off – will this stress other carriers networks too?

If cellular networks become clogged, will people who actually need/like to talk on their phone switch back to having landlines?

I have no idea, but in my own little world this has just happened. Has anyone else seen this/experienced this/thought about this?

Hiring talent is one of the most challenging things facing a startup. Hiring the best programming and technical talent is even harder. Taking data from The Entrepreneurs Census, which I wrote about yesterday, we can get a glimpse into how hard it is to hire programmers in Boston, Palo Alto and New York.

It may be easier for startups in Boston to hire programmers than startups in Palo Alto

Startups in Boston may have a better time hiring programmers, as measured by how long it takes to fill an open position and by the percent of startups that have open positions.

Hiring Programmers in Boston vs Palo Alto

The two thirds of startups in Boston were able to fill open positions in under three months – verses about half in Palo Alto and 63% in New York City. (OK, the difference between New York and Boston is probably statistically insignificant.) Three months is a lifetime for many software and web startups; being unable to add a critical developer in that period of time could derail product launches and critical feature updates. Heck, a lot of startups are out of business in 6 months to a year, so if you can’t fill your positions by then who knows if it’s even worth still looking…

The data collected by the study would fit with anecdotal evidence that I have heard from friends starting companies in Palo Alto. Many people have told me that it’s impossible to find talent in the SF Bay area… especially at a reasonable price. I know it is hard to find good people in Boston as well, but this study would suggest it is a bit easier here than in Palo Alto.

Compensation of programmers in Palo Alto is higher than Boston and New York

And of course the other important part of the equation is how much it costs to hire talent. From the study:

Compensation for Programmers Palo Alto Boston

Doing some really crude math, it looks like programming talent in Palo Alto is 13% more expensive than Boston and 36% more expensive than New York. (I very roughly calculated that the average comp in Boston was $66.85k, Palo Alto 75.65k and New York $55.75k; I assumed the comp for each salary range was in the middle of each range for my calculation. Again, the numbers are small so the difference may not be statistically significant.)

The other data point in the above compensation chart that I’m trying to get my head around is low end and high end. The high end is easy enough to understand; you have to really pay up to get good talent in some cases in Palo Alto (and NYC). This doesn’t surprise me too much, but it is interesting that the high end is zero for Boston. Maybe due to a small sample set? I just don’t know enough.

The low end is also pretty intriguing. I’d bet that most of the sub $50k programmers are working for equity. It looks like regions OTHER than Boston have more programmers working for a pittance, trying to get equity. Does this mean that Boston has less of a founders culture???

Pretty ironic and not really very important, but Gmail decided to add in this little advertisement to the top of an email conversation that I’m having with someone about this post… it looks like Google is hiring developers in Boston!

ComScore is reporting that ecommerce actually shrank in 2009 due to a major decline in travel spending (via Online Media Daily). Online retail spending decreased 2% year-over-year to $209.6 billion.

Weighing down the broader numbers, travel e-commerce spending dropped 5% in 2009 to $79.8 billion, while retail — non-travel — e-commerce spending actually remained flat at $129.8 billion.

The holiday period grew vs. the previous year, so this is a good sign.

Another interesting point is that Bing grew search volume share to 10.7% from 8.3%. I believe that a viable competitor in the search space is important, so I’m hopeful that Bing will be able to produce good enough results to bring over a real volume of people.