by Brad Feld
In my personal relationships, I enjoy the feeling of freely doing favors for friends and family that endear me to them and make them happy. I also enjoy the feeling of someone else doing me a favor because they really like me and want me to be happy. I prefer being in a surplus situation, where I have done more for my loved ones than they have done for me. This would be the exact opposite in business, where I would feel cheated or used if there were a negative balance of trade.
So, it’s a rare occasion when you find yourself in a business relationship that has the characteristics of a friendship (or a friendship that starts making money). But that’s what happened with one of my closest friends, Brad Feld (otherwise known as Vladimir Schlockfeld to those who know his true identity).
My wife, Ilana, worked for Brad at his first company, Feld Technologies. Though Brad and I never worked together, we certainly felt the kinship of fellow entrepreneurs. Brad was a couple of years ahead of me in the pursuit of our mutual startups. I considered Brad a mentor and not coincidentally the very first dollar of business that my company, MÄK Technologies, billed was to Brad’s company to do some system administration work for one of Feld Technologies’ clients. Brad could have obtained those services elsewhere for less money, but I knew he was doing it just to do me a favor and help get my company off the ground. And so it began, our relationship of doing favors for each other.
A few years later, Brad showed up at my house with a demo of a music-generating game where a user could manipulate a joystick and generate reasonable-sounding music. A couple of brilliant guys out of the MIT Media Lab came up with this technology, and Brad was going to be one of their first outside investors. It was a relatively tiny amount of money by today’s standards and I’m guessing that Brad felt that it would make him look better in the eyes of the Media Lab guys if he could persuade a couple of his other entrepreneur buddies to co-invest. Remembering that first dollar of revenue at MÄK, I would have invested in anything Brad asked me to (and that still is pretty much the case to this day). So, I wrote the biggest investment check of my life (until that day) and with the same peace of mind felt by someone giving a charitable donation, jumped into the boat with Brad (and the two MIT geniuses).
Over the course of the next decade-plus, every once in a while Brad and I would call each other to mention something we were throwing some money into and ask if the other was interested, much the same way I might ask another friend to go fishing with me, my wife to go out to dinner, or my brother or sister to go in on an anniversary gift for our parents. When I receive such calls, I answer them with the mindset of “My friend is calling me to go out and play.” As Brad and his wife, Amy, my wife, Ilana, and I often vacation together, the topics are often commingled anyway. Even though many of the investments went belly-up, we were in it together and having fun.
Brad once emailed me because he and his partner at Foundry Group, Jason Mendelson, were thinking about investing in a motion capture company in New York City called Organic Motion. I was in the simulation industry, so I’m a consumer of motion capture technology and know some of the players. I also know some people in the video game industry, so I can reach out and find out what the scoop is on these guys. I was a little puzzled at first, since the motion capture market is pretty crowded, and the consumers are mostly video game companies that are notoriously cheap and have huge “not invented here” syndrome. I was wondering why my friend was considering throwing money at something like that. But Brad had asked me to check it out, so I had one conference call with the company, and, lo and behold, they appeared to have something that nobody else had. I hopped in my car a couple of weeks later to visit them and I was completely blown away by what they had created. So here we have an example of a favor that I think I’m doing for Brad turning out to be one he is actually doing for me. Jason and Brad allowed me to throw in some money alongside the Foundry Group investment and away we went.
When I look back on the past 20 years, I actually don’t have any relationship like this other than with my wife, who theoretically owns half my stuff. Having a deep friendship combined with a hobby that actually makes money is pretty cool (hobby for me, profession for him). It’s cool, but it’s pretty rare. You hear about other famous relationships like this (Buffett and Munger, Gates and Allen) and perhaps it’s a little unfair to crow too loudly about this because we’re very much in the black together on our investments, but I would flatter myself to think that even if we were losing overall on our investments, the relationship would still have that friendship, camaraderie, and trust at its core.
Oh, by the way, that favor I did Brad by throwing money into that strange music game company to help him look good in front of the Media Lab guys? That little investment I tried to write off as a tax loss to offset gains from the sale of MÄK? A decade after our initial investment, that company, Harmonix, came out with a game called Guitar Hero, and then another called Rock Band, before being acquired by Viacom for over $600 million, making my tiny investment worth a lot. Karma.
You’ll read more about this in a later chapter by Eran Egozy titled “Practice Your Passion.” One night, Warren, Brad, and Eran had dinner together in Cambridge and reflected on the various things they had worked together on over the years. As MIT graduates, they talked about how they were helping the newest generation of MIT entrepreneurs. They also sat quietly and appreciated each other’s friendship independent of any particular business or financial success. It was a great evening.
Karma is the tie that binds all of the Techstars mentors. We are often asked “What do they get out of it?” Sure—there’s the fame and glory (ha!) and the chance to invest in the companies. But aside from a nice annual dinner, our mentors aren’t compensated. We think most of the mentors will tell you they’re in it for the karma. They simply love helping energetic entrepreneurs and they assume something good will come out of it someday. We think most of them will tell you that something good already has.
Theme Three: Working Effectively
Startups are in one of two states: controlled chaos or uncontrolled chaos. We see startups flip from one state to the other with surprising frequency. A startup has so many things going on, so much to do, all in uncharted territory, with no real path to follow. It’s like hiking in the woods under a dense fog: you know that the forest is filled with animals, trees, and flowers, but you can only see what’s right in front of you. The best entrepreneurs are those who can manage the chaos—they live with it and they work around it. They focus on what’s important.
Efficiency of execution is so important to startups that we have deliberately designed processes to detect it as part of the Techstars application process. We look for concise and direct emails instead of endless phone calls. We are more impressed by founders who supplement their applications with quick and dirty videos that show the basics of what they are doing rather than with those who waste time creating a highly polished video. There are dozens of other clues that help us determine whether the team has one of the most important entrepreneurial traits—the ability to get stuff done and focus on results.
Some entrepreneurs, like Jeff Powers and Vikas Reddy of Occipital, are execution machines. We know that whenever they put their mind to something they’ll grind it out and get it done. Others, like Andy Smith of DailyBurn, will sneak up on you with their calm, quiet competence. Before you know it, they’ve created something beautiful and amazing that appeals to numerous people. Then there are entrepreneurs like Ari Newman and Tom Chikoore of Filtrbox, who study their data obsessively but can turn on a dime when they see that the path they are going down isn’t working.
Execution doesn’t mean blindly going from point A to point B just to get something done. It means getting things done after collecting an enormous amount of data from many different sources along the way. Great entrepreneurs know how to synthesize data, decide the path they are going down, and execute. At Techstars, we realize that most founders, especially first-time entrepreneurs, are not great at
synthesizing data, deciding, and executing. That’s why we pair inexperienced entrepreneurs with very experienced and successful mentors—to help accelerate the startup and increase the chances for success.
The following chapters provide insights on how entrepreneurs can execute their business model faster.
Co-CEOs David Cohen and David Brown work—and dress—effectively!
Chapter 34
Assume That You’re Wrong
Howard Diamond
Howard has been a CEO and chairman of ThinIdentity Corporation, a health care identity company, and a CEO and chairman of both Corporate Software and ePartners. He is currently CEO of Performance One Media. He has been a Techstars mentor since 2007.
Being able to say “I was wrong” is one of the hardest things for entrepreneurs to do. This is a real problem, since most of us are often wrong despite inclinations to the contrary.
When starting or running a business, making mistakes is a given. It is often obvious that a bad decision was made and it’s usually easy to correct. However, before you can correct a bad decision, you have to admit you made a bad decision; for most people, that is the difficult part. As a result, it is critical to create an environment in every business in which everyone throughout the organization is comfortable admitting their mistakes. For this to be effective, it has to be driven from the top.
I was a cofounder of a startup in 1990 called Course Technology. In five years, we were able to build into a successful business, with $75 million in sales and 20% net income. We sold the company to a large publishing group (then called ITP) and were even able to overachieve on the earn-out that was a part of the deal. That sounds great—and it was.
The things that drove most of our success as we built the company were only vaguely connected to the original business plan. As a management team, we needed to constantly revise our strategy and our market approach based on what we learned. We had to be willing to let go of our own assumptions and really listen to what we were hearing from our customers and our partners. We had to listen when employees had concerns with things that senior management initially saw as givens. The sales model and pricing structures that drove the company’s success changed dramatically from their initial designs. We had to go to our board and tell our investors that what we had told them earlier had turned out to be incorrect, but that we were able to make changes as we went along that adjusted our course and still allowed us to exceed expectations.
One of the exhilarating things about being a part of Techstars is to see the amazing changes that so many of the companies go through during their participation in the program. Often, the teams that are the most exciting at Demo Day are the ones that have evolved the most from what they thought when they applied to the program. There is an enormous difference between exciting technology and an exciting business. Understanding those differences and being able to make changes as they are needed is often the difference between success and failure.
In 2009, at the first Techstars Meet the Mentors event, the team I enjoyed meeting with the most was Next Big Sound. Their business plan, however, didn’t make sense to me. As they talked to other mentors that evening, it was clear that a number of us had the same reaction. Everyone thought they were great guys with a business plan that didn’t inspire much support or enthusiasm from any of us.
As I sat in the audience at Techstars Boulder Demo Day at the end of the summer, I watched the same team knock it out of the park. I was immensely proud of these guys, not just because I believed that they now had a business, but because they had really listened to, understood, and incorporated many of the thoughts and ideas they heard from their mentors over the summer. As a result, they created a business that was exciting, fundable, and had real potential.
Howard epitomizes the entrepreneur who has massive conviction about what he is doing but is willing to quickly admit when he is wrong. As an executive, Howard takes a clear position and goes after it. When it doesn’t work, he acknowledges the situation, synthesizes the data, and tries a different course of action. He leads his team from the front—being willing to break new ground but also take the blame when things don’t work out.
As a mentor and a board member, Howard challenges entrepreneurs to have a point of view. If they don’t, or if their point of view is weak, he increases the pressure. He doesn’t feel the need to discover the answer at the beginning, but he does believe everyone should have a clear hypothesis and go after it with conviction.
In this way, he is completely comfortable being wrong. It’s not a fault; rather, it’s a stimulus to get to the best answer faster. If you assume that you are wrong, you will ultimately find a better answer and be confident and satisfied when you do. Why is that? Well, if you assume you’re wrong, you’ll collect data before assuming you’re right. This type of data collection and validation has to be done throughout the life of the startup.
Chapter 35
Make Decisions Quickly
Ari Newman
Ari was the CEO and cofounder of Filtrbox, a web service that tracks and monitors new media content and news for small- to medium-size businesses as well as individuals. Filtrbox raised about $1 million from True Ventures and Flywheel Ventures after completing Techstars in 2007. It was acquired by Jive Software in 2010.
Filtrbox lives in a real-time world, in terms of both what we do and how we operate the business. The ability to collect data, look at the facts, and make decisions quickly is a huge asset to an early-stage company. In the words of the great hockey player Wayne Gretzky, you have to “skate to where the puck is going.”
One of the most valuable assets an early-stage company has is that it is nimble. The number of constraints on the business is very limited compared to years down the road when you have a complex product, revenue streams, and masses of customers. The consequence of not making decisions quickly is akin to giving up one of your best assets.
At Filtrbox, we started the company with the vision of solving the information overload problem for business professionals. We launched with a freemium model, where we gave away a limited version of our software for free and—if you liked it and wanted more—you could pay for the full version. We lived the mantra of build something valuable, get the word out, and listen to your customers. Then iterate and repeat.
We also paid close attention to what our metrics told us, since we could track everything our users did. It didn’t take long to see that people loved Filtrbox, but we had to pick up the phone and talk to people to demonstrate the full value and get them to part with dollars to pay for the full version. We looked at everything, including the number of customer interactions, average deal size, and time to close. We could have spent months trying to fine-tune the signup process, the in-trial call to action, or the onboarding process. We knew Filtrbox was delivering the best value to brands, brand managers, and those who needed to listen to their customers.
Instead of continuing to endlessly collect new data, we looked at where the market was going, where we thought the real-time Web would deliver value, where our core customers were coming from, and how they were finding us. Once we started thinking this way, the answer became very clear. We chose to skate to where the puck was going and leverage our greatest assets—our nimbleness and the software platform we had created. In May 2009, we changed gears and decided to focus squarely on the real-time social media monitoring space.
Today we are seeing excellent growth and are using our assets to our advantage. We continue to operate in the same way: collecting data, looking at metrics, and making quick decisions. Changes come daily, weekly, and monthly—not once a quarter or once a year. Since we have an inside sales model, we get to talk to customers and prospects all day, every day. As a result, we are continually learning what our customers want and we are able to quickly make decisions and change directions to meet their needs. I hope to hold on to this style for as long as we can at Filtrbox.
In January 2010, Jive Software acquired Filtrbox. Ari had
been running around raising new financing when he ran into a couple of companies in the enterprise social computing market that were very interested in incorporating social data from the real-time Web into their products. Both Jive and Filtrbox shared similar technology platforms and visions of how this could work, and Jive had established itself as one of the market leaders in enterprise social computing. We watched as Ari evaluated his options thoughtfully and then decided to join forces with Jive.
Chapter 36
It’s Just Data
Bill Warner
Bill was the founder of Avid Technology (the pioneer in video editing software) and Wildfire Communications. He is also a founding investor in Techstars Boston and was the motivating force behind Techstars doing its first geographic expansion.
Good advice is a good thing, right? Therefore, lots of good advice should be an even better thing.
Well, not really. But we do it anyway at Techstars, as the companies get flooded with good advice and some bad advice, too. I know, since I have provided both good and bad advice to startup founders.
In the Techstars Boston 2009 program, brothers Mike and Tom Monaghan started a company called TempMine. The initial idea was simple: build a marketplace for temporary workers through which they can market themselves, let them sell themselves directly to hiring companies, and cut out the middleman. Tom and Mike’s premise was that eliminating temp agencies would be a good thing.
The summer began with advice from many mentors, including negative feedback suggesting that TempMine would be breaking the law, that labor rules are strict and impossible to work around, and there’s no way someone can work directly for companies on a 1099 wage-reporting tax form. So, Mike and Tom started reworking the plan.