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The Times They Are A-Changin’

Come gather ‘round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who
That it’s namin’
For the loser now
Will be later to win
For the times they are a-changin’.

Come senators, congressmen
Please heed the call
Don’t stand in the doorway
Don’t block up the hall
For he that gets hurt
Will be he who has stalled
There’s a battle outside
And it is ragin’
It’ll soon shake your windows
And rattle your walls
For the times they are a-changin’.

Come mothers and fathers
Throughout the land
And don’t criticize
What you can’t understand
Your sons and your daughters
Are beyond your command
Your old road is
Rapidly agin’
Please get out of the new one
If you can’t lend your hand
For the times they are a-changin’.

The line it is drawn
The curse it is cast
The slow one now
Will later be fast
As the present now
Will later be past
The order is
Rapidly fadin’
And the first one now
Will later be last
For the times they are a-changin’.

My Open Innovation Article on Fast Company

Head over to Fast Company to read my article on “5 Lessons For Using Open Innovation To Maximize The Wisdom Of The Crowd” - it’s one of my better ones (I think). :)

And please know - I wouldn’t have been able to write this article if not for the superior work of some of the smartest people I know. I couldn’t give them credit in my article, so I do it here:

• John Lilly, who essentially developed the framework I lay out in the article. Watch his amazing talk about the “7 Lessons from Mozilla” at Wordcamp 2009, read his blog and follow him on Twitter. He’s one of the smartest and nicest people I know.

• Asa Dotzler, who taught me Mozilla. His intuitive understanding of community and what it means to be a Mozillian formed my thinking about the power of being an open organization. You should read his blog and follow him on Twitter - he’s smart and outspoken.

• Mitchell Baker, who keeps pushing me to think about what’s important, why it matters and how we can make it better - in the open. Every time I become comfortable with where I am and what I think I know, I sit down with her. She continues to challenge me in the very best possible way. Read her blog and follow her on Twitter if you want to understand Mozilla on a fundamental level.

• Chris Beard and Todd Simpson, who in their capacity as my bosses allowed and encouraged me to experiment, try things out, risk failure and celebrate success.

• Karim Lakhani, Eric von Hippel and Kevin Boudreau, who are way out there when it comes to think about open innovation and from whom I have learned so much. I wish I could spent more time in their proximity.

• The whole Mozilla community which taught me The Mozilla Way.

I stand on the shoulders of giants.

Mozilla for Entrepreneurs

My dear friends at Pollenizer recently asked me if I could write a guest post on their blog discussing the lessons we learned at Mozilla, which are particularly interesting for entrepreneurs and startups.

Head over to the Pollenizer site for the article and do let me know what you think of it!

about:me

Last week I was invited to speak at Stanford’s E-Bootcamp event about… myself. The invitation to the event read:

The event will feature 100 of the best entrepreneurial students around the world and over 50 of the most successful and inspiring Silicon Valley leaders. As an E-Bootcamp speaker, you will share your personal story and entrepreneurial spirit with our student participants. You will give two 20 minute presentations to two different groups of 10 students, leaving 10 minutes each for questions and answers with time for transitions. I believe the students will be excited to learn about your personal experience and insights from having worked at Mozilla and other startups.

It was an intriguing and interesting experience. Usually, even if I talk about my career and the lessons I learned along the way, I weave this into a broader discussion about some aspects of creating and running a business.

I decided to do a quick screencast to record the talk - probably it’s interesting for you. You can find the slides on Scribd as well.

Platform Wars - The Video

A few weeks ago I talked at the inaugural tl;dr conference about “platform wars”. I recently was asked by the organizers of Russia’s Internet Forum to give the same talk to their audience. As we had to work with some nasty timezone challenges, we decided to go with a recorded version of my talk. Here it is:

Putting exits into perspective

Are you also wondering about the sky-high valuations and exits some Silicon Valley companies are seeing for a little while now? Well, consider this a black swan - they are anomalies, outliers - but not the norm.

In Inc. Magazine’s latest issue you find this neat little infographic - which is eye-opening: Only 2% of all private companies being sold in the time-period from 1995 to 2012 fetched more than $2 million. A whopping two thirds got sold for less than $250,000. And this doesn’t take into account that a whole bunch of companies never make it.

Now - this is all not bad news. The challenge is - human bias is to believe that your startup can be the next Instagram. Which leads to behavior which values user growth over profits - and, unless you win the startup lottery (and your chances are probably as good as playing the lottery), will bite you in the backside.

So - just focus on building an amazing product which users love. The rest will come. Don’t fret an exit. Ever. It will happen - or not. And if you do things right, it doesn’t really mater.

Incubators don’t work - and it’s fine

A few weeks ago I had the great fortune and pleasure to pick Jed Christiansen’s brain for a good two hours. Jed is probably the one person on this planet with the best data set about incubator and accelerator programs around the world, the companies which go through them and the possible reasons why some incubators are so much more successful than others.

I fundamentally believe that most incubators (which seem to shoot up like mushrooms after a rainy late summer day) are destined to fail - and I also believe that it doesn’t matter.

Let me explain - and start with a disclaimer: The following is especially true if you’re building your incubator outside of the US and more specifically outside of Silicon Valley. With that out of the way - the reasoning is simple: The math doesn’t work.

Most incubators take a rather small chunk of equity for their investment and services (often in the sub-5% range). I believe the reason for this is that some of the super-successful incubators such as Y Combinator have “poisoned the well” by introducing these terms (and they do work for them - more about that later) and forcing the whole industry to follow suit. Also incubators usually take founders stock - i.e. stock without any preferences or protections as are often found in seed and VC rounds.

What happens is this - by the time a company has an exit, they have often gone through a couple of rounds of financing, diluting the original founders shares by 50% or more. Which means that the initial 5% our incubator held become a mere 2.5% or less. Now apply the typical VC logic that out of 10 companies you can count yourself lucky if one or two of them hit it big, three to four do okay and the rest goes under. Now - in most areas of this world a “good exit” is considered something in the $10m range (even in large markets such as Germany there aren’t that many $10m exits). Take into account that a portfolio takes time to mature (somewhere around 5-10 years for the companies to go through their growth phases and come to an exit) and start doing the math, the picture is rather bleak.

Here’s an example calculation: An incubator runs a class of 10 teams, investing $15k into each team and spending 3 months of intense work with them, running the incubator with three people as staff. Assuming that these people have opportunity costs of $150k p.a. (meaning that the people running the incubator could find work at this rate somewhere else) and taking into account costs for office space, etc. you easily have invested $350k into this batch of 10 teams. Five years later you might (this is a risky proposition - no guarantee that anything comes out of it!) make 2.5% on one $10m exit ($250k) and another 2.5% on three $3m exits ($225k), bringing you to about $.5m in returns. Potentially. With a rather high risk. The math just doesn’t work that well.

And that’s precisely why I think the incubator model doesn’t work. To make it work you would need to do two things - take a higher percentage of equity in your first round (much to the grumbling of the founders) and have the ability to protect your position by being able to do follow-on investments (i.e. you invest alongside other investors in the next rounds to prevent dilution of your equity position) - which requires money most incubators don’t have.

Now - why this all doesn’t matter…

Here’s the thing: As much as I think this is bad news for people building and running incubators, it’s perfectly fine for entrepreneurs and the economy at large. The worst outcome of this scenario is a bunch of failed incubators - which in turn have taught and enabled hordes of people to become entrepreneurs. And who knows - even if their first startup didn’t work out, they hopefully learned a lot and will be better off for their next one.

With all that being said - here’s another disclaimer: The well known and established incubators such as Y Combinator, TechStars, 500 Startups, SeedCamp and some others will be fine. They have built their models around these dynamics, have created very specific value propositions for themselves and thus their teams and they have unparalleled access to the market.

Mozilla for Entrepreneurs

For quite some time now I find myself talking to entrepreneurs all over the world about the lessons we learned here at Mozilla, turning the unlikely contestant Firefox against all odds into a hugely successful product used and loved by millions of people.

I believe that our story holds a couple of key concepts which are highly applicable for startups of all colors. In the past I have used a modified version of John Lilly’s excellent “7 Lessons from Mozilla” deck. Over time I added a couple of lessons of my own - partly based on my work and understanding of Mozilla as well as personal experiences in the world of startups, venture capital and mentoring a ton of startups through programs such as TechStars, Seedcamp or The Unreasonable Institute.

The following deck is a first pass at uniting all those experiences and influences into a coherent deck. What do you think? What’s missing? What doesn’t make sense? What’s good and terrible?

Platform Wars at tl;dr Conference

A few days ago I had the great pleasure to talk at the inaugural tl;dr conference in San Francisco. The conference’s aim was to bring voices around the Post-PC revolution together.

In their own words:

With the launch of the iPhone we entered the era of the Post-PC device. This new generation of connected devices brought the promise of exciting new applications. And these days a massive rolling upgrade of the web into a fully fledged application platform is building incredible momentum, all under the umbrella of HTML5.

We are still in the early days of this new technology cycle and it’s a time of significant opportunity. A time to think beyond the traditional web site. Tomorrow’s users will expect more.

In my talk I focussed on the risky reliance on the new platforms which are currently ruling this world and explore how HTML 5 is emerging as the de-facto lingua franca of the new era of connected devices and the Internet of Things.

My talk contained swear words and a quote by Bob Dylan. Enjoy!

On VC Funding - Food for Thought

And there’s another option for startups that don’t want to go public: Forgo VC and angel investments entirely and fund the company with the profits from your business. That organic-growth option may sound quaint, but it can still be quite successful. Indeed, VC funding is by no means necessary to fund a fast-growing company. In 2009 Paul Kedrosky, a Kauffman Foundation senior fellow and venture capitalist, looked at the Inc. 500 list of the fastest-growing companies in the US for every year between 1997 and 2007—a period that includes the VC boom of 1999-2000. He found about 900 companies in all, of which only 16 percent had VC backing. “Such companies almost certainly could have venture investors, if they wanted them,” Kedrosky wrote in a paper for Kauffman. In other words, the overwhelming majority of the fastest-growing companies decided that they didn’t need VCs.

Good food for thought. And here is the quoted study by Paul Kedrosky.