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Tuesday, 02 July 2013 00:55
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Think you're ready to start up? Put yourself to the test. Check out the five crucial keys to knowing it's time.

Andy Palmer has started at least five companies by my count--and I’d guess he has invested in dozens of others. Based on that experience, I’d consider him an expert when it comes to deciding whether you have what it takes to be an entrepreneur.

After graduating from Bowdoin with a major in English, History, and Computer Science, the passionate Rugby player was injured and decided to become serious about a career. So he got an MBA from Dartmouth’s Tuck School.

From there, Palmer went on to be part of the founding team of five start-ups: Austin’s Trilogy; pcOrder.com, a Trilogy spinoff for buying PCs and software online, that was spun back in; Bowstreet, a “portal-based tool provider,” that IBM acquired in 2006, Infinity Pharmaceuticals, a cancer drug developer that went public 2000; and Vertica Systems, a database company that Hewlett Packard bought in 2011.

Now Palmer spends half his time on life sciences and half on tech start-ups. He has invested an average of $75,000 in some 30 ventures; is a founding board member for six companies; and works on more altruistic projects--such as collaborating with MIT’s Broad Institute to help develop a genomics information system.

Here are five thoughts Palmer offered on what he would tell a young person considering whether to become an entrepreneur.

1. Know how good you really are.

Palmer pointed out that potential entrepreneurs must know where they are on the “bell curve.” As he said, “Some people like Steve Jobs or Bill Gates are destined to be entrepreneurs and nothing will stop them. Others are one standard deviation out of the bell curve. They could be entrepreneurs under the right circumstances. But most people are just average when it comes to their entrepreneurial potential.”

This self-assessment has important implications. If you are destined to be an entrepreneur, there is no need to ask anyone else’s opinion. You will start companies. If you are one standard deviation out, then you need to find the right circumstances--meaning you must pick the right opportunity to target and figure out which key entrepreneurial talent you bring to the party and partner to find your missing piece.

2. Be willing to team up.

This brings us to Palmer’s idea that the idea of the hero entrepreneur--Larry Ellison against the world--is outmoded. He looks at Google as a model which is run by a troika of Larry Page, Sergey Brin, and Eric Schmidt. Each of them have different strengths and they are willing to work together to apply those strengths to helping the company grow and adapt to change.

For most technology start-ups, there are two skills needed at the beginning, business (which includes sales, marketing, and handling capital raising and accounting) and technology development. If you are excellent at one or the other of these skills, you should find a partner who excels at the other skill.

For example, when Palmer started Vertica, he was in charge of the business side and he partnered with a database expert, Michael Stonebraker.

3. Share the right values.

How the business person know which technology person to partner with and vice versa? Palmer believes that values make all the difference. He argued, “It is a big responsibility to be developing a new product for a customer. As a business person, I want to make sure that potential customers do not get an overly optimistic view of where we are in our development process.”

Palmer wants a partner who shares his belief in the importance of setting realistic expectations. “Simply put, I want to partner with a technologist who shares the value I place on giving potential customers an intellectually honest set of expectations. It is too easy in high tech to exaggerate your accomplishments.”

4. Have unquenchable passion.

Palmer argues that an entrepreneur must know why he is starting a venture. “When it comes to figuring out where you are on the bell curve, it is essential that you ask yourself honestly why you want to start a company. If you are doing it to get rich, you should not proceed. The best reason to start a company is because you are passionate about it,” said Palmer.

This passion was something that drove him to join the start-up team at Infinity. As Palmer explained, “By the time I joined Infinity, I was feeling that the software companies I had started were not going to make the world a better place. But when I went to work for Infinity, I believed that I was helping to solve a big societal problem-curing cancer.”

5. Fit your operating style to the opportunity.

Palmer has seen two kinds of start-ups: blessed and bootstrapped. And they demand different operating styles.

A blessed start-up has access to the most capital, the best investors, the best executives, and top talent at all levels. “Before I started Vertica, I was an executive-in-residence at Kleiner Perkins. Ray Lane told me that he was expecting me to build it into a billion dollar company. If you’re in a blessed start-up like that, you have to get used to the enormous pressure to achieve excellence and react accordingly,” said Palmer.

But a bootstrapped start-up is very different. It makes “every dollar an investment that yields a five-fold return” quipped Palmer. “In one start-up we had a conference room that contained all our servers, and it was hot in there. And our other conference room had a big glass window so it was always cold. We channeled the heat from the server conference room to warm up the cold one.”

If you can pass these five test, you may be ready to start-up. Otherwise, think again.

Monday, 01 July 2013 10:50
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It's official: Mark Pincus is stepping aside as CEO of Zynga. It's hardly surprising: Founders rarely make good public-company CEOs.

Mark Pincus has left the building.

Well, sort of. In a statement issued earlier today, Pincus, the founder and CEO of Zynga, the troubled gaming start-up that's been struggling to maintain its relevance ever since its IPO in December 2011, announced he's fired himself, and hired another industry veteran--Don Mattrick, a former head of Microsoft's Xbox division--as his replacement.

"As I reflect on the past six years, I realize that I’ve had the greatest impact working as an entrepreneur with product teams, developing games that could entertain and connect millions," Pincus wrote.

"I've always said to Bing and our Board that if I could find someone who could do a better job as our CEO I'd do all I could to recruit and bring that person in. I'm confident that Don is that leader."

He adds, "Going forward I'll continue in my role as Chairman and Chief Product Officer."

It's a rosy spin on a likely turbulent departure. Zynga has taken a beating in the press over the last couple of years, mostly over rampant employee turnover and complaints about the company's culture. Suffice it to say the company has a bad rap in the Valley.

But despite what the critics will say about Pincus himself amidst his departure, I empathize with the guy: Founders don't always make the best corporate CEOs of publicly-held companies. In fact, they very rarely do.

Consider the research from Noam Wasserman, a Harvard Business School professor, who has been studying founder-CEO succession for over a decade. Back in 2003, Wasserman published a fascinating report that detailed the succession histories of founders of 202 Internet companies. The paper, titled "Founder-CEO Succession and the Paradox of Entrepreneurial Success," brilliantly details how and why start-up founders tend to find it so difficult to stay CEO as the company grows and becomes more successful.

Of course, not all founders get fired by their board (or decide to fire themselves)--but it's more common than you might think.

He writes:

Early on, Founder-CEOs who are adept at solving such challenges are often able to attract high-quality technical people, to manage the product development process well, and to help their organizations succeed at developing the product efciently. However, once the initial product has been developed, the CEO's job broadens and gets much more complex, for he or she has to begin selling the product to customers, building an organization to support the product, and creating a marketing team.

This dramatic change in the contingencies faced by the rm often results in a mismatch between the skills of the technically adept Founder-CEE--whose skills were the key to success until now--and the new needs of the organization. The fact that the rate of succession increases immediately after the completion of product development suggests that company owners proactively assess the quality of this skills-contingencies t and make CEO changes before a mismatch would cause problems.

Of the last 100 consumer Internet IPOs since 1996, only about 20 percent of the company founders remain as the company's sole CEO. Clearly, leaders like Jeff Bezos, Mark Zuckerberg, and Jeremy Stoppelman are the outliers--which is probably why they get so much media attention. But that media attention can create a false echo chamber that might lead you to believe that "most" founders are able to lead a publicly-held company. That's just not the case. Mark Pincus, quite frankly, is the more common example.

The lesson here for founders is important. As Wasserman puts it:

A founder's early passion, confidence, and attachment to a vision are often the magical ingredients that fuel the launch of a startup rocket ship. Visionary founders are usually the most central, irreplaceable players in a startup. Seen as the guardians of the corporate culture and the ones with deep ties to early employees and customers, such founders enjoy being the generals leading the troops.

However, these early strengths can become Achilles' heels if a founder is not aware of the downsides of passion and attachment. The downsides include things that the founder can’t do and things that the founder won’t do. On the "can't" side, founders fail to realize that success breeds a new class of challenges; challenges that require skills they do not have, such as scaling a larger organization or managing functions in which they haven’t worked. On the "won't" side, they stick with their initial ideas for too long, ignoring clear signals that it is time to pivot. They stick with their early employees and executives, even when those people are not up to the new challenges and demands.

When news circulated on Monday that Pincus would be leaving the company, Zynga's stock price jumped about 10 percent, which makes you wonder: What if Pincus had removed himself even earlier? Would Zynga be in such doldrums?

Monday, 01 July 2013 03:00
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Inc.'s Editor in Chief Eric Schurenberg reveals why the longtime series is always compelling and dramatic read.

I had coffee on a recent morning with an entrepreneur, as I often do. What struck me about this founder, an enthusiastic Ohioan named Austin Allison, was how unremarkable his remarkable story was. He is CEO of dotloop, a maker of cloud-based software that streamlines the maddeningly slow dance of documentation that accompanies any home sale.

Agents, real estate brokerages, and homeowners seem to find real value in dotloop's service: According to Allison, in four years the payroll has gone from two to 120, the footprint from five cities to 700, and revenue from zero to $15 million. Along the way, Allison went through a year without salary, maxed out his home equity line of credit, nearly bottomed out on cash, and gambled what little money he could scrounge on a booth at a real estate conference.

By any standard--economic, business, or human--it's a remarkable, dramatic story. But here's the thing: It's not that unusual. Facing the odds and swallowing risks to create jobs and wealth out of nothing are what entrepreneurs do. It happens all the time.

The "How We Did It" cover story in this issue is our annual attempt to pay tribute to the endlessly remarkable and mostly untold stories of entrepreneurs unfolding all around us every day. You'll find some practical tips here, but, speaking for myself, the main takeaway is inspiration--and a little awe.

It's hard to feel otherwise when you read about David Tran, who arrived here from his native Vietnam without any money or English and one month later launched what would become the wildly popular Huy Fong Foods brand of sriracha sauce. Or when you read Bert Jacobs's story of how his Life Is Good team rallied to support an employee (and other victims) who had been wounded in the Boston Marathon bombings.And then there's a whole different kind of inspiration to be gained from the story of our cover subjects, Kevin Systrom and Mike Krieger of Instagram, whose $1 billion sale to Facebook just 18 months after launch set a new high-water mark for the rewards of entrepreneurship.

We've been around long enough at Inc., however, to know that small business is not all upside, to put it mildly. Feature subject Mark Suster has been on a crusade against hype in the start-up scene; Jessica Bruder's story captures a (typically vulgar) piece of his mind. And you'll find features by Christine Lagorio on Uber and Burt Helm on CrossFit, respectively, two controversial businesses that illustrate how much entrepreneurs sometimes have to challenge the rules to make their vision stick.

Over coffee, Allison told me he wants dotloop to be a 100-year company. Statistically, founders are lucky to make it to five. And human nature suggests that if Century 21 or Keller Williams were to show up with a sufficiently generous offer, Allison's horizon might get much shorter. Still, we at Inc. have always preferred the builders to the flippers. They have better stories, and it's our job--and privilege--to tell them.

Monday, 01 July 2013 00:06
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Did you create your budget in gloomier days? Be aware there's new reason for optimism -- and for making mid-year tweaks to your budget.

A few phantom green shoots a couple of years back aside, it’s been a long time since entrepreneurs had much in the way of positive economic news to celebrate. But while it’s still not exactly boom times, author and business expert Ram Charan may have finally located a reason to feel cheery.

What is it? Turns out many businesses’ budgets for this year are too pessimistic, he writes on the HBR Blog Network.

"There are plenty of reasons to be optimistic about the economic outlook for the next five years. The shifting energy equation, for example, sets the stage for growth. Shale gas will allow the US to be energy independent, create an export industry, and reduce energy costs. Lower costs are already making some industrial sectors more competitive," he argues, noting with near heroic levels of positive thinking that "even gridlock in Washington has not stopped the economy from progressing."

Which isn’t to say everything is 100 percent hunky dorey. Europe outside of Germany is still obviously a mess and certain industries (sorry Australian commodity producers) aren’t sharing in the cheer. But unless you’re a copper exporter located Down Under, Charan encourages you to let yourself crack a smile and take a fresh look at your 2013 projections in a more optimistic mood.

"If your budget was created for economic headwinds, then now is the time to revisit your assumptions," he writes. So what might you change in your budget halfway through the year if things are looking up? The post lays out eight possibilities to consider, including:

Reset your goals and KPIs. You may have to make some upward revisions as the economic picture changes. Lack of ambition allows mediocre performance.

Set funds aside for growth. Even as you loosen the purse strings, keep some money on hand to invest in marketing or advertising as the market turns. You don't have to spend it ahead of time but be ready to pounce and outspend competitors segment by segment as consumption rebounds.

Rethink outsourcing. Market growth has shifted to the US, and change happens faster than ever requiring smooth coordination. It may be wise now to source domestically or to bring some functions back in-house. Being close to the market, you'll be able to move faster and also protect your intellectual property.

If you’re convinced that Charan isn’t premature in his slightly sunnier projections then check out the post for the rest of his points to reconsider.

Are you more optimistic about the business climate than you were in 2012?

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