The German business magazine WirtschaftsWoche (essentially the German Businessweek) recently published a list of their 100 Internet thought leaders (the German headline is “Welche Menschen die deutsche Internetwirtschaft bewegen”).
They kindly added me to their list at position 55 - which was surprising (especially given that I haven’t spent pretty much any time in Germany for the last couple of years). But there you have it.
I feel honored. Thank you!
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:
I stand on the shoulders of giants.
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!
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.
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:
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.
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.
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?
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!
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.
For High Tech Companies, Going Public Sucks - WIRED
Good food for thought. And here is the quoted study by Paul Kedrosky.
One of the more complicated questions we ask ourselves here at WebFWD every time we receive a new application is: How innovative is the idea? And how do you measure this in an objective fashion?
A while ago I came across Doblin’s “Ten Types of Innovation” model - although it is by far not perfect, it provides a really neat, concise way to look at (and evaluate) innovation. The way Doblin’s model works is: For each innovation (project) you check them on each of the ten factors of the model (which fall into three broad categories: Configuration, Offering and Experience). Essentially you then make a binary decision - does the project innovate on the profit/business model? Does it innovate on the network? etc. The more boxes a project ticks, the more innovative and disruptive it will be. Clean, clear and easy. Not perfect - but usually good enough.
Harvard Business Review published an excellent infographic on the model and its application and if you like long(er) form content, the W.F. Kellogg Foundation has published a paper on “Intentional Innovation” (in the context of philanthropy and social impact”.
If you have ever seen a presentation which talks about customer acquisition or similar topics, you will have inevitably come across the infamous funnel image. The basic premise is: You start out with a whole bunch of prospects (people) and by virtue of the process they get less and less until you end up with your customer(s) (or whatever it was that went through the process). The image most often referenced for this is a funnel.
Now - when I last looked that’s exactly not what is happening in a funnel… A funnel doesn’t “loose” any unit of stuff I put in at the top. The whole premise of a funnel is to not loose anything (and turn your kitchen into a dump in the process).
Well, well… it’s like shooting fish in a barrel, right?
All you need to know about pitching your startup. Seriously.
Graphic from StartX - the Stanford Student Startup Accelerator
…and don’t forget to read Guy Kawasaki’s “Art of the Start”.
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</a>.