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Cashflow matters.

If there is a single thing, a single activity and a single metric you should care about when building a business (or a sustainable open project - which you should run like a business anyway), it is cashflow.

Cashflow is simple: Money in minus money out. If your cashflow is positive your business lives, if your cashflow is negative your business dies. Simple as that.

Yet I am befuddled by the lack of understanding for this essential fact of business. I literally haven’t had a single discussion about the actions which lead a particular business to get to positive cashflow or even the notion of cashflow with any of the many startups I’ve met over the course of the last couple of years. It seems that Silicon Valley’s obsession with growth and the vague notion of “we’ll figure out the business model later” led to a culture of people building companies with the single goal of selling them. And as Silicon Valley culture spreads throughout the world these days, founders all around the globe follow suit.

I cannot stress enough how important it is to get to positive cashflow as soon as possible. Unless you’re the next Facebook/AirBnB/Name-your-preferred-hot-startup and swim in heaps of venture capital (which to be honest you most likely won’t be - the cards are clearly stacked against you… just look at the stats) having positive cashflow means you are master of your own destiny. Cashflow puts you into the driver seat. It allows you to do the things you want to do. And even if you want to raise money to accelerate your growth it puts you into a position of power, not one where you need to beg for money.

So - unless you want to build your business as an acquisition target (nothing wrong with that - just know that the odds are heavily stacked against you) but want to build a business which lasts, read up on cashflow, understand the principals by heart and make it one of your key objectives!

And to that end - we’ll make cashflow discipline an essential part of Mozilla’s WebFWD program. Time to build the next crop of 100 year organizations!

P.S. Here’s some recommended reading for you - Don’t Build A Company To Sell, Build It To Last by Kanyi Maqubela and anything you can find by Norm Brodsky (a columnist at Inc Magazine), e.g. this piece on cashflow.

Trade in personal data has emerged as a driver of the digital economy. Many tech companies offer products for free and get income from online ads that are customized using data about customers. These companies compete for ads, in part, based on the quality of the information they possess about users.

There is no free lunch.

Putting my money where my mouth is

Two days ago I mentioned that I intend to write a book about Open Innovation (the Mozilla way).

I am thinking about finding a company (ideally not in tech) which is interested in implementing an Open Innovation strategy into their business process and which would like my support/help to do so. It would help me refine my thinking and gain insights into challenges, problems and opportunities outside of Mozilla’s world and hopefully would help the company on their own journey (and make the book more useful).

This is all still pretty raw in terms of thinking - but do let me know if you represent such a company (ideally mid to large size) and are interested.

The Rewards of Growing Your Mission vs Your Headcount

A little while ago I met the wonderful people from SecondSight, a Dutch think tank which publishes a quarterly magazine/book on future trends (their tagline is rather fittingly: “Open Your Eyes to the Future”). They asked me to write a piece for their latest edition titled “New More Free Power”.

After a long, engaged discussion with the team we settled on a story on the rewards you get from growing your mission as opposed to your headcount (i.e. you choose to stay small and forgo certain aspects of growth).

Here’s the article:

Your organization is growing rapidly, which is good. Or so you think.

When organizations (including companies as well as non-profits) grow, they tend to hit plateaus they must pass to successfully continue on their chosen path. Unfortunately, growth rarely (if ever) happens linearly, and to scale an organization from garage to multi-national corporation you need to accomodate massive changes along the way. You will have to change the way you operate.

Often this change is painful. When you were three people in a garage everyone knew about and helped out with everything. This won’t happen when you run and manage a multi-national corporation. Growth will change your corporate culture from one built on deep levels of trust to systems which include the awkwardness of more formal, scheduled performance reviews. This change will touch the very root of your organization: when a little sandwich shop that you start in the hopes of changing the world one sandwich at a time evolves into a national food chain, you start measuring success in three-letter acronyms.

This challenge is compounded at the point you no longer become the sole master of your own destiny: shareholders demanding quarterly growth and board members calling for industry benchmarking change your focus. You inadvertedly find yourself, as Author Steven Pressfield once described, “in the belly of the beast.” And this beast demands to be fed by further growth.

But your evolution need not occur in these ways. Organizations choose not to grow at any price. These organizations put their principles, values, beliefs - and quite often a specific mission - first.

Take for example the backbone of Germany’s industrial success, the Mittelstand (loosely translated into English as “SMBs”: small- and medium-sized businesses). These companies are typically just a few hundred employees strong. They pride themselves in producing to the highest quality standards. They are the reason why “Made in Germany” is such an accolade. And they choose to be big fish in small ponds. They are typically family-owned businesses with strong beliefs and principles. These are companies where the founder typically hangs in the CEO’s office and is often his great-grandfather.

What’s notable is how these companies deliberate choose to prioritize values (such as quality and the way they treat their employees) over growth. Quite a few of these companies would be highly attractive acquisition targets for large multi-national corporations or prime candidates for a public listing on the stock market. Yet their owners decided to grow slowly, organically and only to the extent that their values & beliefs are preserved, if not advanced.

The Open Source movement is a fascinating angle on this approach to growth. In Silicon Valley (and now, effectively around the world) a growing number of founders, dissatisfied with the way business is done, start companies with Open Source at its core. They are out to change the world - but they are doing it under their own terms, with strong beliefs, cultures and missions.

Mozilla, the maker of the popular Firefox web browser, is one of these organizations. Founded as a non-profit with a mission to “provide choice and innovation on the Internet,” Mozilla took on the mighty Microsoft Corporation and turned a virtually monopolized browser market (thanks to Microsoft’s Internet Explorer) into a thriving and competitive ecosystem. Firefox is a feather in Mozilla’s mission cap. To continue building on its mission, Mozilla is creating WebFWD, an incubator and accelerator program for mission-based Open Source organizations.

Among the first organizations Mozilla is fostering is CASH Music, a non-profit startup founded by musicians to help fellow independent artists market themselves on the Web, effectively making artists masters of their own destiny. When CASH grows, Mozilla grows - not in revenues or headcount, but in expanding its core mission.

Let’s return to that sandwich store. There is a wonderful story from the founders of 37 Signals, a software company which itself chose to grow slowly, carefully and organically. Their neighborhood has a sandwich shop which makes the best sandwiches. They use carefully-selected ingredients and ensure each sandwich is freshly-made. Customers love the little shop. Every day at lunch time long queues form outside of the shop. Usually the shop sells out long before meeting all the demand. They are often asked why they don’t produce more sandwiches, as higher production would allow them to serve more customers, grow their business and ultimately make more money, The owner’s response is: “it wouldn’t be the same shop. It would hamper quality as we couldn’t deliver the same product for our customers.” They wouldn’t be able to change the world one sandwich at a time.

Building your organization around true values, beliefs and a mission gives it a human quality. Which can be far more valuable than growth and sheer profit. And just what we need. As human beings.

The Mozilla Way - Innovate in the Open

It all began with a rather innocent question: After experiencing the amazing qualities of operating completely in the open here at Mozilla, creating and leading some very exciting Open Innovation projects such as Mozilla’s Design Challenges & since last year our WebFWD accelerator program and thinking, analyzing, discussing and talking more and more about Open Innovation and how we do things here at Mozilla… wouldn’t it be great if we document this knowledge and thus enable more organizations to benefit from it?

This lead to a slightly less innocent tweet:

And so here we are – I am going to write this thing. And use this blog as a testbed for ideas, text fragments, discuss interesting source material I find elsewhere and generally rant about my inability to express myself properly in the English language.

To be clear: Anything I write will only be possible because I stand on the shoulders of giants. So many awesome people have done so much amazing work on this - both inside and outside of Mozilla. I am just a messenger.

Join me for the ride - and please provide feedback!

Concentrate on learning a new habit: brevity. Respond to emails with as few words as possible. Aim for a sentence, but if just a word will do, use it. It will take practice, and some might dislike it. I argue that this is a fair trade for getting more time to work (and live) productively.

I’m sold. I’m hooked. Count me in. And please excuse if you find my brevity rude. I am just trying to get some things done in life. Plus I’m German.

Also read this from Fred Wilson: The Black Hole Of Email

Coffee - The Rabbit Hole Edition

As you might know I am pretty obsessed with good artisan coffee making (espresso to be precise). Recently I found myself in the middle of a long discussion about the “right” equipment.

Good coffee is pretty much a function of 1) the right beans, 2) the right grinder, 3) the right machine, 4) the right temper and 5) skill.

If you ever want to go down the espresso rabbit hole - here’s my current top 5 list.

1. I buy beans from tonx.org - these guys are positively obsessed about getting the right beans and roasting them to perfection. My second source is Verve in Santa Cruz, CA and if I get my hands on them, pretty much any beans from one of the many artisan roasters in Portland, OR and Seattle.
2. Baratza produces some of the finest burr grinders on the market. Their new Vario-W is phenomenal.
3. The espresso machine I now use is a Rocket Cellini Premium Plus, the tool of choice for a lot of coffee aficionados. A great alternative is the Izzo Alex Duetto.
4. Tempering is mostly about applying the right pressure. Getting the right temper tool helps a ton with this - the tool of choice for a lot of serious barristas is a Reg Barber. Personally I love their C-Ripple base - used by the World Barrista champion.
5. The videos produced by my favorite store Seattle Coffee Gear are an amazing starting point to learn how to pull the perfect shot.

Innovate in the Open!

Today I had the great honor & pleasure of keynoting the Technology Convergence Conference 2012, talking about Open Innovation, Mozilla and how to apply all this to your business.

The summary of my talk reads:

Open Innovation, Crowd Sourcing, Community-driven Innovation, Chaords (describing organizations which are a mixture of Chaos and Order) - the world around us is using “open” as the new default. Fearless leaders are unleashing the beast which redefines the core of many innovation practices. Pascal Finette recounts the inspiring story of Mozilla, the Open Source non-profit organization which managed to break Microsoft’s stronghold on the browser market and today has more than 450 million users worldwide. Alongside this fascinating David vs Goliath tale you will learn how Mozilla won by being completely open, working with the wider community and redefining how innovation can be done. At the end of his session, Pascal will have enabled you to tame the beast and make it work for you and your organization.

Here’s the deck:

How to not approach a VC (or incubator or angel or seed fund or …)

Every once in a while (and sadly more often than you would expect) I get an email from someone seeking an investment (be it through Mozilla’s WebFWD program, FoundersLink, the VC fund in Europe I am a venture partner at or my own angel investing) which just riles me. Take this prime example (details have been removed to protect the innocent):

Dear Sir / Madam !

Please, examine the project searching for investments.

The ∎∎∎∎∎∎∎∎ project is oriented to USA market and the company will be located in the USA.

∎∎∎∎∎∎∎∎ is the project in the mobile area of business, providing ∎∎∎∎ ∎∎∎∎∎∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎∎∎∎∎ (∎∎∎∎∎, ∎∎∎∎∎, ∎∎∎∎∎∎∎∎∎, ∎∎∎∎∎∎∎∎, ∎∎∎∎∎, ∎∎∎.) ∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎. ∎∎∎∎∎∎∎∎ is going to be an online ∎∎∎∎∎∎∎ ∎∎∎∎∎ ∎∎∎∎∎ ∎∎∎∎∎ ∎∎∎ ∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎ ∎∎∎∎∎∎∎. It has more than ten years of experience developing ∎∎∎∎-∎∎∎ ∎∎, ∎∎∎-∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎∎∎∎∎. ∎∎∎∎∎∎∎∎ project was implemented as a first attempt to ∎∎∎∎ ∎∎∎∎ ∎∎∎∎∎ ∎∎ ∎∎∎∎∎∎∎∎ ∎∎∎∎∎ ∎∎ ∎∎∎∎∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎. Its products are based on ∎∎∎ ∎∎∎∎∎∎’∎ ∎∎∎∎∎∎∎∎. ∎∎∎ ∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎∎ ∎∎ ∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎∎, ∎∎∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎ ∎∎∎∎∎∎∎∎∎. ∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎ ∎ ∎∎∎, ∎∎∎∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎∎∎∎. ∎∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎ ∎∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎ ∎∎, ∎∎∎∎∎∎∎∎∎∎∎∎∎, ∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎, ∎∎ ∎∎∎∎∎, ∎∎ ∎∎∎∎∎, ∎∎∎∎∎∎∎∎∎, ∎∎∎∎∎∎∎∎, ∎∎∎∎∎, ∎∎∎∎∎, ∎∎∎. ∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎∎ ∎∎ ∎∎∎∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎∎∎, ∎∎∎∎∎∎∎∎∎∎∎∎∎ ∎∎ ∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎∎ ∎∎∎ ∎∎∎∎∎∎ ∎∎∎∎∎∎∎, ∎∎∎∎∎∎∎∎∎∎∎∎∎ ∎∎∎∎∎∎∎∎.

Investment costs - $867 549

Please, find Executive Summary of the project below. I will provide any other additional information if necessary.

Thank you for your time and consideration. I am looking forward to hearing from you.

Attached Documents: 3-Page Executive Summary & Financial Forecast

BEWARE - RANT FOLLOWS:

Here’s what’s fundamentally wrong with this email:

1. You clearly haven’t done your homework, because otherwise you would have known that WebFWD is an accelerator program, not a fund. We also focus on open web, open source and social good projects. Thus we don’t invest in companies such as yours.
2. To further point 1 you didn’t do any research on who the right person within WebFWD to talk to is - instead you sent your email to “Dear Sir / Madam”. This just shows that you very obviously sent your email to every VC under the sun.
3. Your investment requirement is $867 549? Not $867 548 or $867 550? That number shows me that you are mostly clueless about financial forecasting. I bet you serious money that your financial requirements will *not* be $867 549 to the dollar. Stating precise numbers such as this is just silly.
4. Your executive summary starts with a unilateral NDA. That’s plain rude. A VC doesn’t sign NDAs - and surely not unilateral ones. Don’t believe me? Brad Feld blogged about this recently. I didn’t read your pitch nor your financial plan but instead deleted them immediately.
5. Don’t send me all this material. I don’t care. Send me a short (!) summary and a one-pager. Focus on making your pitch exciting. Starting your pitch with the fact that your company is in the US is a wasted opportunity - nobody cares where your company is located but WHAT your company does and why the world should care. If a VC is interested, they will ask you for your financial model and all the other documents.

RANT OVER

So - do yourself a favor (and significantly increase your chances that people will actually read your pitch) and do your research, tell us clearly what you do, why we should care and what you want from us.

P.S.: Found my rant a bit harsh? I just don’t want to waste your (or my) time. Read this.

Disrupting & Innovating - A Reading List

Phil Morle, good friend and cofounder of Pollenizer recently sent me his reading list for disruptors. The list is too good to not share:

• Innovation Tournaments - How to chose an idea
• Blue Ocean Strategy - A way to canvas a business concept to make it distinct from incumbents
• Innovators DNA - How to think innovatively
• Seeing What’s Next - Applying the framework of ‘Innovators Dilemma’ to planning and strategy
• Disrupt - A practical process to unlock disruptive ideas
• Innovator’s Manifesto - another practical way to manufacture disruption

All credits for this awesome list go to Pollenizer. Go, check them out - they are fantastic folks!