The Accelerator Conundrum and Good Business Sense

Acceleration is the “term du jour” for start-up companies, and entities called “Accelerators” have sprung up across the country to serve the thousands of companies that want to be the next Google, Facebook, or Twitter.  Acceleration services come in several flavors:

• First, there is real estate – as in a space to hang out and collaborate.  Physical accelerators typically house 5 to 25 companies – providing private offices and shared workspaces.  The rent is low, but the landlord is likely to be taking some equity for his trouble as well.  Since entrepreneurs find it hard to rent office space at market prices, this can be valuable, but you should ask yourself this question:  Would the CEO’s kitchen table work just as well for the two meetings a week when the whole is team is required?  Skype and FreeConferenceCall.com work pretty well, too, when group thinking is required.
• Next, there is mentoring.  Start-up companies are notoriously short on expertise across the board, because, generally speaking, it’s the guys who are inventing the product that start the company, and the other functions come later.  Plus, hiring a full management team and all the key employees that would make life easy is very expensive, and, besides expertise, the top thing start-ups lack is money.  For better or worse, early on, company founders drive sales.  Finance is a bank account.  Marketing is a mystery, and human resource management is a subject for another day.  If the mentor team at the Accelerator can provide cogent advice in these areas that saves time and money and juices your company’s performance, this is a huge bonus.
• Third, it’s even better if your mentors know something about your market.  Enterprise software, clean energy, social commerce, and healthcare IT require radically different knowledge and skill sets.  If you’re looking for a physical accelerator, pick one where the operators and mentoring team know something about your market, products, customers, and business model.
• Lastly, there’s the price/value equation.  Typically, Accelerators invest $50,000 to $100,000 for 3 to 7 percent of your company, and some ask for some of this funding back in rent.  Plus, your stay on-site may be short.  You might be “graduating” four to six months after you enter.  Is it worth the price?  For the Accelerator, the risk is small.  Historically, 20 percent of the companies that come through their doors will survive two years or more, and 10 percent will produce an excellent exit.  Your mentors might love young companies, but, for them, it’s a numbers game.  For you, it’s your work life and personal passion all rolled into one.  You should ask yourself:

• Can I get $50-100K in seed funding from some other place more cheaply and without as many strings attached.

• Do I really need office space nowDoes the accelerator offer the right type of mentoring?

• Can I hit key milestones during that four to six months that would attract additional funding?

Here are the other thing syou should ask yourself:

How good is my idea?
Does my idea have legs for the long-term?

These days, there seem to be two types of start-ups:

• Companies that build defensible products and business models.  If you are successful, you end up with a 12 to 18 month lead in the market.  As a result, you can make mistakes and survive them.  I have a client in Austin called StoredIQ that provides a Big Data Management software platform for unstructured data that is better at finding, collecting, indexing, and analyzing huge amounts of data than any other piece of commercial software in the world.  Better than HP-Autonomy, better than EMC.  The IT world is just now catching up to what they do, which means that the market is coming to them.  It’s a good place to be.  It took millions and millions of dollars to build the StoredIQ platform, and, someone wants to enter their market from a standing start, it will take millions and millions to catch them.
• Companies that create a killer model that can be rolled out fast and grow rapidly but is easily copied.  Facebook and LinkedIN have built dominant positions by building social networking platforms, building a critical mass of users, and then figuring out how to charge for access to the masses.  Both started early, built software platforms that appear simple on the surface but are complex underneath – making them hard to replicate on a grand scale, although Google is doing its best.  Therefore, a lot of entrepreneurs have created either niche social networking products – think social networks for doctors, lawyers, or accountants – or tools that connect with and enhance Facebook or LinkedIN – hoping that one or the other will buy them for a good price.  Note, however, that only 2 out of 100 “killer” social analytics tools will end up in the Facebook or LinkedIN product portfolio, and figuring out how to make money off of them as an independent is a big challenge.  

Groupon and LivingSocial have both built up big leads in the Daily Deal space, but barriers to entry are very low, big companies like Amazon and hundreds of small companies have entered the fray. For Groupon and LivingSocial, sustaining a high growth model will be a huge challenge.

If your business model is easily copied, there are two major implications:

1. There’s an added premium on execution.  You have to be as perfect as you can be in an imperfect world, because 25 or 50 companies are trying the same thing.
2. You might not need as much money to get started, but you’ll need more down the road to fund rapid market penetration against a torrent of competitors.

As strategy consultants who do a lot of "acceleration" of young companies at the kitchen table, we're big fans of long-lasting, defensible business models, even if the idea might be a little less sexy.

Here’s the bottom line.  Whether you go into an Accelerator space or leverage the kitchen table, there are three things that you should do right out of the gate:

• Create a great plan.  It can be simple, but you should some idea of where you want to be in 2 to 3 years.  You can do it by writing down simple milestones and documenting your product plan, or you can go deeper and write a full business plan.  Either way, you have to have a plan, and your fellow managers and employees need to understand and endorse it.
• Sharpen your story - continuously.  Never use 100 words when 10 will do.  People talk about the elevator pitch all the time.  You really need one, because, when it comes to attracting investors, employees, and customers, you want to give your pitch and then hear those magic words, “Really.  That’s interesting.  Tell me more.”
• Finally, know your numbers.  You need to set a multi-year forecast out of the gate that tells you what it will cost to build your product, how much revenues your initial customers could bring you, and how much funding you’ll need to reach your goals.  The forecast translates your plan and story into numbers and tells you how big the mountain is that you are fixing to climb.  And, if you can, match your forecast against the projected size of your market.  If you're trying to build a $50 million company in a $75 million market, your funding chances are probably pretty slim.  If you are remaking a $5 billion market that is old and stale or creating a huge, new multi-billion dollar green field market, your chances for funding at a fair valuation are much better.

When It's Time for Entrepreneurs to Give Up the Ghost

Thankfully, entrepreneurs are optimistic creatures.  Most launch their companies on a wing and a prayer and then work with their radically under resourced teams to create their first product and gain initial customers. Sometimes, things go smoothly.  Funding comes in, customers sign up, and product reviews come back positive.  A majority of the time, however, young companies struggle and ultimately don't survive to fight another day. In fact, most start-ups hang on longer than they should, because, as I said before, entrepreneurs are optimists.  They glom on to any shred of evidence that might indicate that they could be successful and ignore or minimize the rest.

Here are the signs that an entrepreneur might want to pursue another career path:

• Your competition is way ahead of you.  Way ahead can have several definitions.

• Your competitors are much better funded and are using that funding effectively to create a lead in product capabilities, marketing, and customer penetration. 

• Customers prefer competing products.  Many entrepreneurs may reason that the next version of their product will fix that, but your competition will have a next version, too, that will probably be much better. 

• You can't sell a date to a sailor on leave.  Some products sell themselves, but yours is incredibly hard to sell and the reasons for this tough sales cycle are a mystery.  Meanwhile, your competitors are making lots of sailors happy.

• Your market is more limited than you thought.  Sometimes, a market looks good, and it just doesn't pan out.  This happens for two, main reasons:

• Customers just aren't interested.  For example, right now, consumers aren't buying nearly as many 3D TVs as consumer electronics companies expect, and, when they are buying them, it's because really good 3D TVs tend to have really outstanding 2D picture quality.
• Your market is subsumed inside of a larger market, and your product becomes a feature of a larger solution as opposed to a discrete product category. This happens a lot in software, where customers prefer integrated enterprise suites over point solutions that need to be supported in the IT department.  One or two targeted solutions is okay, but 30 or 40 isn't. 

• You don't have the talent and determination to compete.  Markets aren't won and lost through analyst reports.  People win markets by creating great products and selling and supporting them effectively.  Usually, victory is relative as in:

We did a better job of making fewer mistakes and spending our money more wisely than our competitors.

From 1980 to 2000, Microsoft did the best job of any company of using its talent and resources to compete effectively.  In 1980, Microsoft was tiny and unproven but able to face a larger competitor, Digital Research, head on and win its PC-DOS contract with IBM.  Going forward, Microsoft faced an unending list of powerful foes from IBM to Compaq, Novell, Sun, Apple, and Netscape.  It's not Microsoft didn't make mistakes; it is that, when the chips were down, its competitors made more. Plus, Microsoft hired the best people and let them figure it out. And Microsoft didn't give up when its first attempts didn't go well. Version 3 of a Microsoft product seemed to be the one that changed the game.

So, for all you entrepreneurs out there, please try to think clearly. Customer feedback, competitive actions, the quality of your team, and access to capital are the most important factors in the success of your business.  If you get low scores in any of these areas, chances are that your company has issues.  If you're behind in most or all of these areas, it's probably time to figure out how to bow out gracefully and find the next thing to do.

The Big Consumer Tech Questions for 2012

When it gets to be early January, pundits like to prognosticate.  it doesn't matter whether the subject is technology, politics, or the love lives of celebrities, the news sites, blogs, and TV airwaves are filled with predictions.  This blog is no exception.

Since I am not a celebrity and abandoned my political ambitions in 10th grade, here are my tech predictions for 2012:

• Apple's slow product refresh cycle finally causes headwinds for the world's best run tech company.

There's no doubt about it.  In the last ten years, Apple has more "hit record" products than the Beatles had hit songs in their prime.  Or at least it seems that way.  However, in key areas, Apple is now way behind or at parity.  Beginning next week at CES, the market will be flooded with Ultrabooks, the Intel-based PC architecture that aims to take on the iconic MacBook Air.  The thing is, the first ultrabooks from Lenovo and Thoshiba are very promising.  They match the Macbook Air spec for spec and are very competitive on price.  Windows 7 performs well, and boot up times are much shorter than on traditional laptops.  This morning, Ina Freed of AllThingsD noted that Ultrabook prices are expected to drop by a third in the next 12 months.  Plus, Windows 8, which doubles as a tablet OS, will debut at the end of the year.  Expect Ultrabook/tablet combo devices by this time next year.  Personally, I think there's pent up demand for a Windows tablet that runs all those Windows desktop apps.

Innovation in the Mac hardware area seems to have stopped for an extended nap?  I read rumors of a 15-inch MacBook Air, updates for the Pro and iMac lines, and maybe even an update to the behemoth MacPro desktop, but the roll-out is very slow.  

The 4G revolution is in full swing.  All of the major handset manufacturers have credible 4G devices running on multiple carriers, and, with the broad roll-out of Google's Android 4.0 "Ice Cream Sandwich" OS, Android phones may finally come close to matching the "simple and elegant" look and feel of Apple iOS.  Plus, Google, not Apple, is leading the charge into mobile payments.  I love my iPhone, but I am part of the 10 percent of the US population that is Mac-centric.  The Mac ecosystem is the best solution for me.  Google's cloud apps, social network, integrated mapping and payments, and 400,000 app store get more credible and compelling every day.

Apple faces additional challenges expanding iCloud, broadening its media offerings, inventing its mythical TV that has been coming for years, and getting the next-gen iPhone 5 and iPad 3 out the door.

The bottom line is, Apple needs to step up its game - delivering more products faster with typical Apple quality.  My prediction is that Apple will live up to the challenge.

• Microsoft makes a comeback and becomes a player in digital media in the living room and over connected devices like tablets and smartphones.

Microsoft's biggest problem isn't weak products or poor customer satisfaction; it's snooty members of the tech press that call them a corporate dinosaur or discount innovations in areas like media streaming or mobile phone OSes.  If you look at Microsoft's product history over the last 3 or 4 years, you'll see a bunch of winners:

• Excellent new versions of Office for Windows and the Mac. 

• Windows 7, which largely erased all of the annoying features of Vista and made things faster, too.

• Superior media streaming built into the XBox 360, which is the largest streaming platform in the world.

• Excellent online games.

• Significant upgrades to its enterprise apps and development tools.

• The purchase and relaunch of Skype, which is expanding dramatically.

• A mobile phone OS in Windows Phone 7.5 that many reviewers grudgingly admit is just as easy to use as Apple's iOS.  Maybe the Microsoft-Nokia alliance will see some traction this year.  

Eventually, reporters and analysts will notice.  Microsoft is still insanely profitable with massive amounts of cash in the bank.  It is still a market leader in the most of the segments where it elects to compete aggressively.  Plus, it's a major investor in Facebook, which will go public this year and create even more available cash.  I wonder what they will buy with it.

The tech pundits talk about the Big Four Platform companies - Facebook, Google, Apple, and Amazon - like they will decide the future of the consumer cloud.  Well, 90 percent of consumers use PCs and software from Microsoft and don't seem inclined to change.  The Xbox is the number one selling game console in the US.  None of the Big Four has these advantages. 

My prediction is that, when the battle for the living room reaches maturity 3 or 4 years from now, Microsoft will be a serious challenger.  Eventually, even tech reviewers can recognize quality.

• Cord Cutting is coming, but slower than the pundits predicted and with higher margins for cable and telecom companies.

For several years now, the digerati have predicted that consumers will begin to cut cable/satellite TV connections in an effort to save money and gain access to programming on an ad hoc basis.  I have a client that sells subscriptions to digital services, and the number two top questions in their call center are:

1. "Can I get Netflix with that?"
2. "Can I get rid of some of those stinkin' channels that I don't want and pay less?" 

The answer to both questions is yes.  Someone will do a better job of streaming on-demand TV, although the jury is out on Netflix as the eventual winner.  And your cable/telco provider will be happy sell you TV a la carte by delivering to you through your connected TV over an even faster and more profitable Internet connection.  With the escalating cost of content - particularly ESPN and a few other network bundles - pay TV has become a low profit business, and it's not like the cost of content will decline any time soon.   

Broadband is another story.  It's hugely profitable, and consumers can't live without it in the way they can - say - ditch their home phone line or the Food Network with impunity.  For digital service providers, speed upgrades are a minor cost when compared to putting the lines in the ground to begin with. TV shows look just fine over the Internet, and then there are all of those tablet apps and websites, like Watch ESPN and the Verizon and Comcast programming apps.  It turns out that consumers will watch TV just about anywhere, including on much smaller tablet and smartphone screens.  In fact, yesterday, Comcast and Disney inked a ten year agreement to facilitate content delivery of the most popular pay TV properties on every platform imaginable.  Plus, broadband is the gateway to new services like home security and monitoring, which is hard to turn off once it's installed and is much less expensive to deliver than pay TV.

So, yes, you'll be able to cut the TV cord, but it's likely to be replaced over the next few years with a much more profitable cord or two and more expensive and faster broadband service.

The Real Lessons from the Steve Jobs Bio

I just finished the Walter Isaacson biography of Steve Jobs, and boy is my brain tired.  There have been thousands of reviews written, hundreds of videotaped interviews with pundits who knew him and some who didn't, and psychoanalysis of his personality that is endless and almost certainly half informed.  If I were Laurene Powell Jobs, I'd probably throw my TV in a pool, unplug from the net, and move to a remote mountain for the next year.  Yes, he did seminal things.  Steve Jobs's accomplishments and abilities were so great and his charisma so strong that people overlooked or put up with huge personality flaws that would have sunk a lesser high tech leader.

Tens of thousands of aspiring entrepreneurs will read Mr. Isaacson's book in an effort to glean insight that will help them become the next Jobs, Gates, or Ellison.  The book is event-rich.  It covers all 56 years of Steve Jobs's life. Almost all of us are intimately familiar with products that Apple, NeXT, and Pixar created.  Something interesting happens on almost every page.  The book doesn't read like a novel, but it does provide clarity on the tech wars of the last 35 years.  In short, it's instructive.

Cradled inside all of the events and occasional commentary are some key lessons that can benefit every entrepreneur.  Here's my take on what they are:

• Don't be a jerk unless you are supremely talented and have something that consumers really want to buy.  Steve Jobs could be a royal jerk.  If you believe the words of his colleagues, business partners, and enemies, he was supremely good at it; however, he made up for his supreme jerkiness with a penchant for breakthrough incredible thinking, a drive to create "perfect" products, and a passion for design that was unique in high tech. To work with him - to be part of the implementation and rewards - people were willing to put up with a lot.  Plus, he wasn't ALWAYS a jerk.  Much of the time, he was quite the opposite; he could be an outstanding and inspirational leader and manager.  The bottom line is, you have to earn the right to be a jerk for even some of the time, and you have to make up for it in other ways.

• Focus on A Players, and get rid of B and C Players.  Steve Jobs respected and had an eye for talent.  Particularly during the second coming of Apple and the building of Pixar, he hired a lot of senior managers and key employees who either amplified his skills or delivered things that he could not.  John Lassiter of Pixar delivered the perfection that Jobs admired but with the gentle persistence that Pixar animators craved, and, after awhile, he kept Jobs out of the day-to-day workings of the company.  Tim Cook became the operational alter ego that Jobs needed at Apple, and Jony Ive, Phil Schiller, Eddy Cue, and Scott Forrestal figured out how to deliver, market, sell, and support breakthrough products. The line in the book is, "A Players want to work with A Players." That's completely true, and the best companies in world - real market leaders - have more than their fair share.

• Most importantly, never lose your love of products.  Several academic and consulting studies have noted that the companies with the best products typically win about 25 percent of the time. It's the combination of product, sales, support, and market image that wins the day.  Steve Jobs says over and over in the book that companies lose their way when products take a back to seat to anything else - especially sales.  So who is right?  Well, the answer is definitely both, but consistently great products always keep you in the game.  

Customers do appreciate the combination of style, reliability, a reasonable price, and enough choice to feel like they bought the features they wanted.  Often, Apple provides far fewer choices and features in its computers, tablets, and software than its competitors; however, the products work flawlessly on their own and with other Apple and Windows products.  The experience far outweighs the omissions.  Even more importantly, Apple has a system to creating consistently great products.  You should do a little mental test.  Think back to 2004 or 2005.  When you held a meeting with outsiders and they through their phones and computers on the table, how many were Apple products?  The answer is, not many.  Today, there are Macs, iPhones, and iPads everywhere.  Apple should be saluted.  Usually, as companies create a broad portfolio of products, the overall commitment to excellence declines.  With Apple, it's quite the opposite.  

• However, great products are not enough.  I have had tech-oriented CEOs express extreme frustration of the substandard ability of their sales leaders and account reps to close deals.  The common refrain is, "This product is the best of its kind ever built. It should sell itself. I am paying these guys good money, and I get nothing." Harsh words, and, usually, the CEO is at best half right. Most products just aren't as good as their inventors think. Code doesn't work right, the version 1.0 design is a little off, and, most importantly, the competitors have been at it longer.  Their approach might be antiquated, but they staked their claim first. Customers aren't going to bolt immediately just because a new, pretty girl walked out on the dance floor. You have to earn it. That's why the quality of the sales force, implementation services, marketing, and support are so important.

Interestingly, Steve Jobs obsessed about products; however, Apple has the best distribution model, support, and marketing programs in the computer and consumer electronics industries. No one else comes close. Isaacson's book talks a lot about the birth of the Apple Stores but hardly at all about Apple's sales prowess in locking up the education, design, or small business markets, and it never mentions the excellence of the AppleCare program. Thousands of people who aren't Steve Jobs did all those things - usually far from the limelight. 

So, what's the result of all this work "beyond the product" for Apple?

• Incredible revenue growth.  Apple is fastest growing big company in high-tech and shows no sign of slowing down.  It is on pace to break $100 billion in annual revenue 

• Immense profits.  Apple is by far the most profitable company on a percentage and real cash basis that produces computer and consumer electronics hardware.  A really PC maker make make an 8 percent after tax profit.  Apple makes more than double that. 

• Apple is the most admired large company in America - more admired than Coca-Cola, Microsoft, Google, or anyone else.  A company with that much good will can survive big missteps and prosper - not that Apple is planning to screw up any time soon.

Pattern Matching = Big Wins

As a professional strategist and business planner, I am obsessed with pattern matching.  Not the kind where you make sure that you don't wear plaids with stripes, but the business kind that lives inside terabytes corporate data, the personal interactions between people inside of a company, and the behavior of customers and competitors towards a company.  The companies that do the best job of combining operational discipline with relentless pattern matching almost always win big for three reasons:

1. Mo' better info earlier.  They gain access to better data earlier on market conditions, competitive behavior, customer wants and needs, and internal operational successes and challenges.  
2. Organize, organize, organize.  They organize information so that they can make good decisions.  When I meet the CEO of a company for the first time, I'll learn many things - what the company does, how it's organized, who its customers are, and how much money it makes, for example.  I might learn 3,000 "facts" in the first few days.  The key task of pattern matching is finding the three things that are most important and then organizing the other 2.997 "facts" underneath. Then I - and the company - can make real progress.  
3. Act on facts, not assertions.  "He said, she said" arguments are all too common.  Ask anyone who has been married for a long time.  Pattern matching solves this problem, because pattern matching lays facts on the table, puts them in a big sorting hat (yes, there is a business version of that, Harry Potter fans), and delivers an organized, rational way to make decisions.

Let's go through some simple examples:

The Capital One Vikings

• Capital One - has become a credit card and banking behemoth, not because of a great tagline, but because it used data better to find the perfect credit card customer - the guy or gal who almost always carried a small balance but periodically paid it off.  Low risk, dependable, and not quite perfect - a difficult customer to find and a big winner for credit card companies.

Creative Zen Nomad

Original Apple iPod

• Apple - is a greatly admired company, but it wasn't always that way.  After Steve Jobs and his team resurrected the Mac, they set about to make the first iPod.  Lots companies in the consumer electronics, recording, and computing industries had the same idea.  Creative and Rio built music players.  Legal and illegal downloading services proliferated,  Record labels built their own digital music formats, and PC makers started shipping computers that could "burn" DVDs and CDs.  There were big brands chasing a big opportunity, but only Apple was able to see the pattern in the opportunity and bring together the right products (iPod + iTunes), content sources (record labels), and distribution (the first Apple stores + the web).  Apple organized its resources better than its competitors.  It figured out that the market already existed in the form of substandard solutions from Napster and Real Networks, The bet was that consumers would like to go legal in the quest to buy new music.  It delivered a beautiful product in the iPod that put 1,000 songs in your pocket - bright white, elegant, durable, and integrated with the Mac (and, later, Windows).  And it figured how to price, package, and deliver new music to consumers in a way that record labels could embrace - albeit grudgingly in some cases.  The idea was a great inspiration, but the execution was great organization by hundreds of people over many months and years.  Apple is now the largest seller of music in the world and sells 75 percent of all portable music devices worldwide.
• GE - I worked for GE for almost six years in 1990s.  It was a highly factual company.  We were guided by a few key metrics that varied by division but basically fell into five categories:
• Sales performance.
• Profitability.
• Relative position versus our competitors.
• Market size and drivers.
• The performance of our people.

These metrics were clear.  We all understood them.  Every year, GE rolled out one or two metrics or qualitative objectives and took one or two away.  Our bonus plans were largely tied to these simple metrics, so most people felt like they were rowing together in the same boat.  You could connect your job to the performance of your group, division, component, or company as a whole.  15 years later, many multi-billion dollar companies haven't mastered this trick.  Sometimes, simple is better than complex.  

Most of my clients are small to mid-sized companies.  They are going a mile a minute, and, in the interest of speed, often ignore the patterns in their own data.  Here is a list of simple questions that every business should ask itself - at least monthly and preferably more often than that:

• Where are my prospects and customers coming from?  It goes beyond what's in Salesforce.  You need to talk to your human sales force about the sales cycle and competitive pressures in closing the deal, and you need to look for common tendencies across accounts.
• What are my customers buying in terms of features, configurations, support, or anything else that's on the price list?  The things that you think are hot might not be.  You need to know what's most important to your customers in a purchasing decision and in daily use of your products.
• What are my customers complaining about?  Is it a slow drip or a big river of complaints, and what categories do these complaints fall into?  Customers can generally like your products and, as a result, develop work arounds to deal with the more annoying features.  You need to know those work arounds and put fixes in the product roadmap.
• Internally, how are my key processes working?  Am I getting things done faster, cheaper, and with higher quality as my product, processes, and markets mature?  One of the biggest challenges small companies face is moving from brute force, where managers and employees divide and conquer, to systems, where things happen the same way every time for the benefit of customers and the bottom line.
• Are my managers and employees working well together - particularly across organizational lines?  Suppose you have a senior manager that other employees avoid.  Maybe that employee is very good in some technical areas but has the communication skills of an angry badger.  How does this effect the performance of your company in terms of time to market, productivity of other employees, or adding extra costs?

This last question was an interesting one.  We reorganized about every 12 to 18 months.  I would always ask the senior HR people how re-organizations were built.  The answer was:

We put the position titles on the board and then fill in the people and try to make sure that the people match that position description.  Generally speaking, if you have to work around too many weaknesses to accomplish the function, the person or group won't succeed.

Yes, we did pattern matching on people, too, and it usually worked out for the best.

Boards That Rock

I help high tech companies with strategy day-in and day-out.  Strategy can appear in many forms, including:

• Business plans prepared for investors, acquirers, and employees.
• Presentations and white papers intended for customers, partners, and industry analysts.
• Messaging on a web site or in collateral.
• In presentations and position papers written for the Board of Directors.

In most growing tech companies, the Board of Directors approves the strategy and monitors the strategy and operations over time through periodic board meetings, committee meetings related to finance, strategy, and operations, and the delivery of monthly reports by management to the board.  This system has worked well for many companies; however, as a growth company CEO, you should ask yourself one fundamental question:

Are your outside Board Members paying attention?

You would think that answer would always be, "Yes, absolutely."  In fact, frequently, this isn't the case.  Here's why.  Time management issues and competing priorities get in the way.

Growth company boards typically have five or seven members that are divided like this:

• Two inside directors - usually the CEO and another senior executive, like the President, CTO, or CFO.  Obviously, the inside directors are very busy running the business; however, they also have the responsibility for dealing with the Board - both during and between meetings. 
• One or two outside investors, who frequently sit on many outside boards.  I know some investors who sit on 10 or more boards - each of which meets at least once per quarter.  It's a guarantee that at least one of these companies will be experiencing a "big time crisis or opportunity" that will suck up an inordinate amount of time.  Plus, your investors also have to look for and evaluate new investments.  Therefore, they are time management challenged.
• One to three independent directors, who typically have many other corporate responsibilities.

Given these constraints, here are my tips for operating a successful Board of Directors:

• Dealing with investors.  Generally, you won't be able to pick which investors sit on your board.  You will, however, want to establish a strong working relationship early.  Schedule regular communication through conference calls or lunches (if the investor lives in town).  Tell your investors about your successes and challenges between board meetings and ask for advice.  Script your conversations before your make them, but don't hold back material information.  Like in the operation of your business, casual communication is when the most information exchange and work gets done.
• Independent Directors.  You probably will have a say on who your independent directors are - either because you picked them before an investment was made or your consent was required as part of the investment.  Independent directors want to be helpful, and, operationally, they usually bring a ton to the table.  You should look for independent directors who can shadow the key functions in your business and who understand multiple business models - not just the business model that made them successful. For young startups and growth companies, there are three types of independent directors that are particularly valuable:
• Go-to-Market Monsters love selling and marketing and who can give you advice on how to organize and measure a sales force, generate demand, and position against the competition.
• Product and Technology Beasts know how to build and deliver things that businesses or consumers will buy. They understand technology, product management, and product roadmaps.  If you're lucky, they've launched successful products in multiple markets.
• Operations & Scaling Machines are valuable when your company starts to "cook with gas."  It turns cash flow positive, revenues double in a year, and you are hiring people faster than you can meet them.  If you thought the start up phase was hard, wait until you get here. The way you do almost everything from selling to customers to building products and providing aftermarket support will need to change.  You don't need this type of board member out of the gate, but, when you hit your stride, Scalers help you manage the Big Leap to a sustainable growth company.
• Your Management Team & the Board.  So why did I suggest those three types of independent directors?  It's pretty simple. The right directors can help you get to the next level in unexpected ways.  Certainly, your investors will be stewards of their investment, and they will push you to build your company so that you can sell or IPO at the right price down the road.  Your independent directors can serve an equally important purpose; they can work with you and your management team on key issues to avoid problems or seize on opportunities.  Here are some areas where independent directors can be valuable:
• Establishing the right incentive structures for salespeople.
• Working through competitive issues.
• Prioritizing product requirements.
• Resolving HR issues.

Let me just say that you shouldn't be bat phoning your Directors with every little question known to man.  You should organize your information concisely, get the right people in the room, and talk through issues efficiently.  Two hours is a long time for this type of conversation.  Getting to the point is the name of the game.

This approach has several advantages:

• Your directors get to know and appreciate your team.
• Your directors get to understand your business much better than if they were just coming to your board and committee meetings.
• Based on their advice, you can make progress much more quickly on key issues.
• You can identify unexpected issues early and deal with them.

Finally, there are some things you should avoid at all costs when dealing with your board:

• Avoiding Bad News.  Don't withhold bad news or try to spin it to make it look good.  Bad news is bad news.  You need to be straightforward and factual about it and have a plan for dealing with it.  If you need advice remediating a problem, make sure your board members weigh in.
• Behind the Scenes Gossip. It's a simple fact that board members talk to each other when you're not around.  When a company isn't doing well, these conversations happen more often.  You want to make sure that every board member has the same set of facts at roughly the same time and, whenever possible, you are involved in debates over company strategy.
• Star Directors that won't put in the time.  You might get the opportunity to attract a "star" director that would raise the profile of your company and attract investor, customer, and partner interest.  Beware of shiny objects in the form of directors.  The star still has to be willing to work - providing operations advice, coming to board meetings, and opening doors, when needed.  If your star is there to add a halo to your company and nothing more, you should probably think twice about the addition.

In closing, let me discuss something that can inevitable.  Your board might decide that your services as CEO are no longer needed.  Many CEOs are shocked when this happens, but, assuming that you're aren't grossly incompetent, you should just chalk this up to the vagaries of business cycle. There are CEOs that are great at starting, scaling, and driving exits for companies.  It's pretty rare that the same CEO fits in all three categories.  Recently, I came across a couple of statistics that really tell this story in spades:

• On average, newly IPOed companies were on their third CEO.
• On a $100 million exit (either sale or IPO), the founding CEO typically made $6 million.  On a $1 billion exit, the founding CEO also makes $6 million.  Partly, this is because the founding CEO was diluted over time, but, mostly, it's because, by the time a company achieves a $1 billion exit, the founding CEO is on to the next, big thing.

The Big Three - Of Technology

Over the last 50 years, there have been hundreds of substantial technology companies that, together, have transformed the world.  AT&T brought us the telephone for ubiquitous communications. SAP enabled us to run a big business much more efficiently and predictably. Cisco and Sun brought us the Internet.  HP created great technology for scientists, printers for office workers, and even calculators for finance geeks.  Digital Equipment Corporation democratized the data center by inventing the minicomputer. Google allows us to find almost anything. Yes, list of groundbreaking tech companies is long, and, in their day, each one of these companies were revered for their technical prowess.

In the history of technology companies, however, there are three that stand above all others:

• IBM, which defined computing.
• Microsoft, which democratized computing.
• Apple, which designs beautiful computers, devices, and software and lets evangelism and good will do the rest.

IBM.  Until the PC revolution of the 80s, which put tens of millions of IBM-compatible PCs into offices around the world, IBM was computing.  Like Apple, it was built upon a founder's vision for what computing can do. Thomas Watson, Sr., began Thomas Watson, Jr., begat the era of mainframe computing.  Big companies invested in Big Iron, and IBM delivered not only enormous computers that required raised flooring and cool temperatures but people to ensure that they worked.  In the 60s and 70s, IBM mainframes came with people who helped run them - for free, and the phrase, "Nobody ever got fired for buying IBM" was born.  IBM is still a great company, but it is no longer "the one" - just one of a select few.  IBM's descent was somewhat gradual:

• From 1969 to 1981, the US government and some smaller companies that lost the computer race to IBM spent their time suing IBM for anti-trust.  Eventually, IBM beat the feds, but also lost their way.  Lawyers ascended in influence.  Customers received a little less attention, and competitors took advantage.
• The IBM PC was born.  Originally, this provided  growth engine for IBM, but it also created clones from Compaq, HP, Dell, AST, and many others.  And it created the company that ruled the desktop across all "IBM compatible" makes and models, Microsoft.
• Microsoft was the ultimate arms merchant.  It ensured that IBM would never win the desktop war.

By the early 90s, IBM had lost its way.  Client-server allowed competitors to attack from all sides.  It took an outsider, Lou Gerstner, to right the ship. IBM is more of a services and software than hardware company today, and it no longer sells PCs.  It has its groove back.  The ocean, however, is full of many more dangerous fish than it was 30 years ago.

Microsoft.  Bill Gates & Company democratized computing - first by putting MS-DOS and then Windows on 90+ percent of PCs in the world.  Then Microsoft supplanted Novell and IBM in local area networks, desktop productivity software, development tools, and in large parts of the data center.  Most importantly, despite having big market share in several key markets, Microsoft created tens of thousands of millionaires by enabling the development and distribution of capable software for the Windows desktop and server platforms.  Microsoft was a channel-based company.  It focused better than any company before it on making the channel successful.

Microsoft was always fiercely competitive - beating back challenges from IBM, Compaq, Sun, Novell, Netscape, and others at critical times.  It's not that Microsoft executed perfectly - pundits pointed that out constantly - but it always outperformed its competitors at critical times.  I like to think of it this way:

Sometimes, you only have to suck the least.

Today, Microsoft is under siege - as IBM was before many years ago.  Like IBM, anti-trust litigation took its toll on Microsoft's aggressive and entrepreneurial corporate culture.  New Internet-based technologies have provided businesses and consumers with worthy alternatives to Microsoft products in virtually every area where Microsoft has been dominant.  The Company seems to be experiencing a product rennaissance in several important categories, and it is determined to be a winner in new Internet-based markets, like search, online advertising, and collaboration.  Plus, it still generates obscene profits despite losing billions of dollars a year on its new Internet ventures.  I wouldn't count them out, but rebuilding mojo takes a lot of time and markets are moving faster than ever.

Apple.  Apple isn't a Big Iron or enterprise software company.  It's a customer experience company.  IBM and Microsoft have always wanted to be essential - especially to businesses.  Apple has always wanted to be "insanely great."  Apple's first act from its birth in a garage in 1976 to 1996 when Steve Jobs retook the reigns showed a possible path for computing, but didn't close the deal.  The software was beautiful, but the hardware broke.  Or the file formats weren't compatible with PC.  Or management at the top didn't get the job done.  It was always something.

The last fifteen years are another story.  The greatness of Apple has been in its second act, not the first.  There are six, key elements to their success:

1. Know your core.  Apple fixed manufacturing by outsourcing to companies with more scale and expertise, but kept design close to home so that it wouldn't lose its edge.
2. Address weaknesses - particularly in management.  Having spent 12 years away from Apple working on NeXT and Pixar, Steve Jobs understood his own weaknesses, not just his strengths, and he hired world-class managers who could do things that he could not accomplish himself.
3. Pick the right markets.  Apple targeted markets that already existed but where transformation was possible - like MP3 players, laptop computing, music downloading, tablet computing, and smartphones.
4. Transformative products.  Apple has created devices, software, and services that are impossibly elegant and beautiful - consistently in market after market.  In each new product category, Apple products seem to make their predecessors old and tired instantly.  See Blackberry, Windows, the Creative Labs Nomad, Palm, and many others.
5. Let evangelism do the work.  Apple builds products for broad markets.  It lets its evangelists who build things for their products - like OS X and iOS developers - and consumers do the work.  Why do 92 percent of Fortune 500 companies support the iPhone and now the iPad?  Because their employees wanted them to.  Apple didn't do the heavy lifting.  Apple knows that, if you build products that people admire and the price/performance ratio is right, word of mouth will do the rest.
6. Maximize revenues and profits.  Lots companies are profitable but don't grow.  Some grow like crazy but can't make money.  Apple does both for several reasons:

• Their products command a premium price.
• Their component sourcing practices are world class.
• Their product designs use the same components across platforms.
• Options are limited, and customers are driven to the options that Apple wants them to buy.

Apple is the greatest second act ever.  It is what every company would love to be:

• The number one trendsetter in its industry.
• The largest and most profitable company.
• The company many talented people want to work for.
• The keeper of the flame in product design.
• A continual transformer of markets.

The death of Steve Jobs certainly creates uncertainty, and Apple's competitors are well capitalized and fighting hard.  Google, Microsoft, HP, Samsung, Nokia, and many others have a lot to lose if they finish far back in the race.  However, unlike IBM, which entered the PC market almost by accident, or Microsoft, which has felt the pain of a thousand cuts from competitors and governments in the US and Europe,

Unlike IBM or Microsoft, Apple seems to be ahead of the game in a time of great market upheaval. Apple is the thought leader.  Its thoughts go to market as beautiful products that command premium prices.  Competitors imitate but can't seem to do better, and, before his death, Steve Jobs and his team put in place a product roadmap that is said to stretch out for years. So, while Steve Jobs is gone, you'll see his genius and the genius of his team for many years to come.

Happy iPhone Day

October 5, 2011


9:39 AM ET:
Today is the day.  By Noon Pacific Time, the world will know just what the new iPhone 5 will bring to mobile computing and communications.  There are plenty of rumors:

• A bigger screen with glass all the way to the edge.  Developers will have to update their apps to take advantage of it - gasp.  Somehow, I think they'll get right on that.
• The Home button might move or get smaller or something.  As long as finger can easily find and press it, I think I can handle that one.
• More storage, which would be welcome for music lovers like me and app users.  Apps seem to be getting bigger in size and needing more processing power.
• It's a good thing there's supposed to be a faster, dual-core chip in there, too.
• Then there's the hope for 4g Internet speeds, which would make surfing the Net through an iPhone faster than most home broadband connections - provided that every 4g smartphone user didn't decide to all "4g surf" at the same time.
• There's also hope that you'll be able to talk to your iPhone and get it to do almost anything.  You can talk to it now, but only to dial contacts and phone numbers and maybe play songs.  Apparently, Apple wants you to be able to text, search, and generally control almost any aspect of the phone verbally.  Sounds cool.
• Some people want Near Field Communications, which would allow you to use your smartphone as a credit card in stores that support that.  There aren't very many of those yet, but PayPal, Google, and many others are working hard to fix that problem.
• It's supposed to look like a mini iPad now, too.  Is it me, or did the iPhone become like an annoying little brother when it is sitting next to an iPad?  "Pick me! Pick me!"  "No, sorry, son. The apps are much bigger and better on this one."

Then there's the pressure that's supposed to be a heavy burden on Tim Cook, the new Apple CEO.  He has to "perform" in his first solo appearance on the big stage.  Sorry, but Tim Cook has the best job in the world.  He has a great team, the world loves his products, his revenues and profits are going through the roof, and, apparently, Apple has a really deep product pipeline that's sure to produce hits for years to come.  I'd like some of that pressure.  In fact, I'll take two.

The Wall Street Journal is reporting this morning that Sprint has bet the farm on Apple iPhones - agreeing to spend $20 billion on iPhones and other Apple products over the next four years.  Hmmm.... $5 billion per year in guaranteed revenues, and, by the way, the iPhone is now available on 228 carriers worldwide, but not T-Mobile in the US.  WTF?

By mid next year, you're likely to see:

• New Macbook Pros that look and feel a lot like Macbook Airs.
• A 4g iPad 3.
• A fully functioning iCloud, which will sync just about anything to anything else, including music libraries across devices.
• Possibly big updates to Apple TV.

11:40 AM ET
It seems that every large technology news source, including CNet, AllThingsD, Mashable, San Jose Mercury News, and Engadget, will be live blogging the show.  Other reporters will be writing finished stories that will debut online only minutes after Mr. Cook wraps things up, and I guarantee that CNet will have a "First Look" at the new phones online by tonight. it's just the way it is.

12:20
I am on the subway now on my way to a meeting in Alexandria, which is about an hour and 20 minutes away.  I'll be underground for most of it, so I won't be following one or more of the Live Blogs, which is kind of disappointing.

14:00
My meeting is about to start.  Tim Cook is probably about halfway through the show now; however, business is business.  Gadget lust will have to wait. They have lemon-flavored sparkling water here. Excellent.

15:30
I am at Starbucks now - re-caffeinating for the long ride home.  Beautiful day outside and an underwhelming announcement from Apple - at least according to the Wall Street Journal.  Most of the changes to the iPhone 4S are under the hood, not on the outside:

• Faster processor - check.
• Faster data speeds - yes, if you're on AT&T or another GSM carrier, but no 4G.
• More storage - check.
• Better camera - big check.
• Bigger screen + slimmer - no check.  It's the same size and shape as the last model, and, yes, it still comes in white.  It most definitely doesn't look like a mini iPad.
• Moved home button - obviously not.
• Talk to your iPhone features - yes, called Siri.  It looks promising.
• Near Field Communications - nope.
• Global phone - the article doesn't say.
• Sprint did get the iPhone, but that won't make me switch to them.

Steve Jobs did not participate.  Apparently, Tim Cook did a bang up job the ringmaster, and the members of the cast were equally good.

18:10
I just read the CNet first look article. It's a global phone. That's very good since we'll be going to Italy in a few weeks for our 25th anniversary trip. It's time for dinner now.  I'll be watching the keynote later.  And, yes, I know that I already know everything I need to know to buy the product or not, but I've watched every keynote since Keynotes came online.  Why would I stop now?  Is this obsessive?  Yes, and I don't care.  This morning, someone posted the Keynote for the iPod from ten years ago.  Jobs was thicker, younger, and just as passionate as he was this past June.

20:01
The Keynote begins.  Tim Cook does an excellent Steve Jobs - more laid back maybe and with a slight Southern accent.  It turns out there are many things to learn about today:

• Mac sales continue to go through the roof.  They now represent 23 percent of all computers sold in the US retail channel.
• Consumers have now downloaded 16 billion songs.
• Apple has paid over $3 billion in sales to application developers.
• There are now over 225 million iOS devices in circulation.

By any measure, the metrics are impressive.  So are the product updates leading up to the anticipated iPhone launch:

• The features in the iPod Touch continue to advance, which is great for music lovers.  It isn't great, however, that there will no longer be a high capacity iPod Classic.  Carrying around 160 gigabytes of music is simply tremendous for a music guy like me.  Now I'm just hoping that mine lasts forever.
• iCloud promises to be a worthy replacement for MobileMe.  Let's hope it works well out of the gate.  I am particularly happy about the MusicMatch service, which will sync tunes across all of my iOS devices.
• iOS 5 has a lot of important enhancements.  The best is Siri, the intelligent speech recognition application that lets you ask your iOS device almost anything and get an answer or perform a task.  The Scott Forrestal demo was very impressive. I really want to try it out.  I also will probably use the Messenger service heavily.  It's the equivalent of Blackberry Messenger but with more features.

The crowd of press, pundits, and fanboys didn't react well to the new iPhone 4S. People are complaining about the lack for 4g networking and NFC and a big screen and other niggling things, but wait a minute:  The iPhone 4S supports HSPDA+, the GSM data standard, which can transmit data at up to 14.4 megabits per second. Most of Apple's 228 carriers are GSM-based, and, even with congestion, for carriers that support this standard, data speeds will increase 3-5x over current levels with minimal investment when compared to investing in a whole new LTE infrastructure in short-term. That's a big jump, and it buys carriers time to upgrade their infrastructure to LTE while providing a better data experience in the meantime.  It makes me wonder whether it's wise to switch to Verizon right now - my current plan - or stick with AT&T to gain access to those higher speeds immediately. I guess it depends on how much I want great service while I am riding the Metro here in Washington, DC.

The market did not react well to Apple's iPhone announcement.  Apple stock was down 5 percent before rallying at the close of the market, and some key pundits piled on.  This tells me that many analysts are missing the key points:

1. It's all about the ecosystem, not just the phone.  Think app stores, iCloud, MusicMatch, iTunes, Macs, iPad, and iPhone all working together.  Once you're committed, it's very hard to escape.
2. Context-based voice recognition will change the fame.  I bet Siri improves dramatically over the next 12 to 24 months.  Right now, it's in Beta.  She'll probably be pretty rock solid by next summer.
3. With so many people buying tablets, a bigger screen on a phone isn't as necessary, and the current Apple screen is fabulous.
4. Apple believes that battery life trumps network speed, and the iPhone continues to improve - 9 hours of talk time, 6 hours of surfing time, 10 hours of video watching, and 40 hours of music listening.

Apple changes the form factor of its devices every 3 to 5 releases.  This is only the second release of the current iPhone form factor.  It actually would have been unusual for them to switch now.

October 6, 2011


12:05

Today is like Boxing Day.  That's the holiday that comes one day after Christmas in many parts of the world.  It's a good holiday, but not as good as Christmas.  For Apple, sentiment is swinging back their way.  Columnists and other pundits have had time to think through Apple's announcements, and sentiment is swinging in their favor.  The importance of that ecosystem thing is becoming apparent.  AllThings D has about 5 articles on subject, and so does CNet's News.com.

I am an Apple guy.  I am getting more excited about it.  I'll probably pre-order on Friday. Now it's time to get back to work.

The Long-Term Tablet War

So far, many have tried, but none have succeeded, in gaining significant share versus Apple in the tablet market.  Today, Amazon officially announced its tablet competitor to the Apple iPad - called the Kindle Fire, which has a 7-inch screen and sells for $200.  The $200 price tag seems to be its number one feature since storage is limited, the OS is an older version of Android, and there is no built-in 3g.  On the plus side, the Amazon skin on top of Android looks great, and so does the integration with Amazon video and music streaming and storage services.  Plus, lots of Android apps work on the device.

Others have taken different approaches.  Here's a summary of market activity in 2011:

• Samsung produced the Galaxy Tab II, which is a spectacular performer, but is stylistically too similar to the iPad.  Apple is suing to prevent its sale in most places around the world and, so far, is mostly winning.
• RIM released the Playbook, which is tied to the Blackberry.  You have to have a Blackberry to access mail. contacts, and your calendar.  Since more people are dumping Blackberries than buying them, this feature was unpopular.  Any day now, a new version of the RIM QNX operating system will come out that fixes this, but, in the meantime, it's like betting you'll win an NFL title with a 40 year-old Brett Favre at quarterback.  Who would do that? Oh, wait....
• HP released the TouchPad only seconds before deciding to spin-out its PC business and exit the tablet business.  Then, with over 200,000 unsold TouchPads lingering in warehouses and a sales channel with pitchforks marching on the castle, it put them on sale for $99 and sold a ton of them.  This was one sweet tablet - fast, intuitive, easy-to-use.  It's just that it had almost no apps beyond the ones that came with it.  All I can say is, it coulda been a contendah.  
• Motorola released the Xoom, which included wifi and 3g, but, if you wanted 4g connectivity, you had to send it back to them for a week for retrofitting.  People hug their tablets close almost every minute of every day like a firstborn child.  Who is going to send their child to camp at such a tender age - even if a free genetic upgrade comes bundled with the camp package?  Nobody knows what will happen when Motorola morphs into Googorola (in actions if not name).
• Asus, Acer, Lenovo, HTC, Vizio, and Toshiba have all weighed in with nice tablets that bring little differentiation to the market.  USB ports, HDMI, SD card slots - the iPad has none of those, and people don't care.  They really don't want their tablets connected to anything except for iTunes to sync - until iCloud comes out in a few weeks or months.
• Sony just launched to tablets that are fatter on one end than the other, feel incredibly comfortable in the hand, and have a software layer on top of Android that make using the tablet much easier.  It shows some promise, but I am not sure you can buy one yet. Time will tell whether the Sony approach creates a PHAT tablet or just a fat tablet.

You would think that, with so many new choices, sales would surge for several companies beyond Apple; however, the cash register has yet to ring for anyone but Apple.  Gartner believes that trend will continue for a very long time.  Here's what all the wannabes -  all huge names in computing and electronics - are missing that Apple has built:

• A truly integrated, simple approach to OS and applications software.
• A learning curve that takes an hour or less.
• A single huge marketplace for all things tablet.
• A cloud-based service that connects all devices easily with little or no technical knowledge required - if iCloud lives up to its promises.  MobileMe didn't.  Google has all these services, but connectivity can be curiously complicated.
• A brand against which all competitors are compared (and fail by comparison).  There can really only be one of these until someone flips the board.

Google had enabled many companies to get in the phone and tablet game. They have provided tools that enable each hardware manufacturer and carrier to create something different and unique.  They have provided Android for free, so that handset makers don't incur licensing fees, because they know that search and ad revenues will more than make up for Android's upfront costs. In the phone market, this has driven Android to a market leading position - great for Google - but 10+ handset makers sell Android phones.  It's likely only a few - Samsung, HTC, and Motorola, in particular - are big winners.  This approach hasn't translated to tablet sales, because users want a completely integrated experience on tablets.  Many consumer and business users have shifted their app use to tablets over the last year - at least on the iOS platform.  Android will continue to get better. Android tablet market share will rise on the tablet side, but frustratingly slowly.

So, who will challenge Apple's tablet dominance?  Their old nemesis, Microsoft, which is taking a marathon runner's approach to phone and tablet market share growth.  They have tens of billions in cash to invest.  They have Nokia as a huge global partner, which has bet its business and hopes for return to market share dominance on Microsoft.  And, somehow, the Nokia alliance hasn't scared away other handset makers that currently bet the ranch on Android.  All the biggies, except for Motorola, will be releasing Windows 7.5 phones.

Most importantly, Microsoft is highly motivated.  The Company wants and NEEDs to unify all these different devices - PC, phone, and tablet - to preserve their Windows, Office, and server software revenue streams.  Plus, making Bing and other cloud services profitable and successful, too, would be hugely helpful.  Having people running the show who have been through epic wars with well-armed competitors provides valuable lessons, too.

The initial reviews are good.  See the CNet roundup of all things Windows Phone 7.5 here:

• Windows Phone 7.5 is integrated experience especially for social networkers and heavy e-mail users.  
• Windows 8, which comes out next year, will be a unified experience on the PC, phones, and tablets.  
• Microsoft's online services seem to work much more easily on mobile devices than on the web, which is kind of weird.  
• Microsoft is taking a soft and nurturing approach to seeding the market - paying the best developers to write for their apps and targeting top influencers like Scott Adams of Dilbert fame and Molly Wood (here and here) of CNet, who, despite their best efforts, had good things to say about the new OS.  Note that Molly hasn't given up Android yet, but she said the phone was a good fit for people who were heavily tied to Microsoft services.

Right now, Google has the spotlight as the tablet challenger.  24 or 36 months from now, Mr. Gates and Mr. Ballmer may be taking the lead.

The Breathtaking Scope of Facebook

750 million people around the world have Facebook accounts.  Maybe 20 percent of them use the service pretty heavily.  The result is a social destination unlike any other ever invented.  I interact daily with friends from England, Belgium, and Australia.  I have connected with people who I barely knew in high school.  These days, we share tons of things in common. Millions of Facebook users have had experiences like this.

The business of Facebook has prospered as a result.  This week, Facebook is holding its developer's conference called f8.  SNL Comic, Andy Sandberg, kicked things off with a dead on Mark Zuckerberg imitation, except that he was saying and doing some very un-Zuck things.  It was quite funny.

Facebook's list of new features was quite outstanding, too, including a Timeline feature that allows you to map out your entire life in one Facebook page.  Then there are the partnerships:

• Facebook will enable Netflix streaming everywhere except in the US.  
• New games from social games developers are showing up a record pace. Zynga, which makes Farmville, Cityville, and several other hit titles, expects to go public - if economic conditions permit - largely due to the success of its Facebook games.  Note that Facebook takes a 30 percent cut on Zynga's Facebook revenues.  
• Facebook has linked up with Spotify - the hit music streaming service that just crossed the pond from the UK - and many others, including IMDb, Blockbuster, DirecTV, Hulu, Flixter - all partnering with Facebook to make money jointly.

Most importantly, from a business perspective, Facebook is hitting the ball out the park.

• CNet is reporting that Facebook revenues are projected to reach $4.27 billion this year - over double 2010 revenues.  Online credits - basically virtual currency - are expected to generate $470 million in real currency this year.  Amazing.
• Industry analysts believe that Facebook is now the runaway leader in display advertising with close to a 20 percent market share. Have you ever noticed how targeted those Facebook ads are on the right?  Creepy, huh?  It's all about your Likes.  The previous leader, Yahoo!, has felt the pinch - hence the departure of controversial CEO, Carol Bartz.
• fCommerce is now a tracked category of eCommerce and is growing faster than any other category.  Whole companies have been formed or repurposed just to exploit fCommerce.

Facebook is also bold when it comes to its service - having updated their user interface radically several times in the last 24 months.  The latest version came out a couple of days ago and has a lot users pining away for the old look-and-feel.  Users will get used it.  New products from Facebook and others will be fed into it.

As we all connect with friends, post links, and insert status updates, Facebook will be monetizing us as people.  We all want to feel like we're customers of Facebook.  We're not.  We're the product - sold to advertisers and product developers worldwide.  it all seems to work.  We just shouldn't assume that all these changes to the Facebook platform and business model are all about us.

A Note to Tech CEOs: Lessons from the TechCrunch Debacle

Over the past month, Silicon Valley has been filled with drama - not over patent wars in mobile technology or the inability of HP to get out of its own way, but over the fate of TechCrunch, the widely read blog that covers start-up technology companies.  About a year ago, AOL acquired TechCrunch for $30 million and, with it, the site's mercurial editor, Michael Arrington. TechCrunch is widely read, because it covers interesting, young companies in a provocative and insightful way.  It is both a champion for entrepreneurs and a check against entrepreneurial exuberance.  Mr. Arrington is another matter.

At the time of the AOL acquisition, Mr. Arrington wrote that he was really excited about taking the site to the next level through AOL and that he expected to be a happy and productive AOL employee for many years to come.  He might have thought that at the time, but, apparently, being part of the machine can be oppressive.  AOL reorganized its content properties and put Ariana Huffington of the much larger and more successful Huffington Post in charge of rationalizing them all, which she set about doing with vigor.

Apparently, Mr. Arrington believed that this rationalization didn't apply to him or TechCrunch.  A few months ago, he started investing in start-ups after years of swearing it off and announced plans to raise a $20 million venture fund.  AOL was incredibly "understanding" - even investing in the fund - but told Mr. Arrington that he couldn't be both a venture investor and cover the companies he invests in.  This seems like a basic journalistic principle, but this was just too much for Mr. Arrington.

First, he asked AOL if he could buy TechCrunch back after having pocketed a big check not so long ago.  He noted that he would have to raise money to do that - presumably not from his venture fund.  Then he opined that AOL was exerting too much editorial control and, as a conglomerate, really didn't understand journalism.  He did all this right before TechCrunch's annual conference that features the hottest in technology companies - taking most of the attention away from the markets and companies that TechCrunch covers.  In the end, AOL suggested - no doubt in a strongly worded letter along with some pointed in-person meetings - that Mr. Arrington resign, which, thankfully, he did.

CNN's excellent Sunday talk show, "Reliable Sources" hosted by Howard Kurtz, did an excellent job of summarizing the different points of view on the TechCrunch imbroglio by interviewing two people back-to-back with very different opinions on the matter:

• David Carr, a senior TechCrunch editor, who comes across as a "tech brat" with an entitlement complex, and 
• Kara Swisher, the excellent tech journalist with attitude and AllThingsD co-Managing Editor.  

There's a link to it here.  All I can say is, "Go Kara!"  She delivers a very concise paddling of Mr. Arrington and his cohorts in 5 minutes or less.  As a bonus, AllThinsD added this comic, which says sort of the same thing but even less nicely.

I am a strategy consultant for technology entrepreneurs.  Hundreds of my clients have raised significant amounts of money or been acquired. Operational strings and raised expectations are always attached.  Most of the time, the founding entrepreneurs don't survive the transaction for more than 24 months.  Here's why:

• In most big companies, the acquired company is a a new product line, not a transformer of events.  Acquiring companies have to balance new versus old.  They want to reallocate staff to give new opportunities to current employees.  They often have a sales force in place to sell the new product line.  They want to the acquired company to comply with their systems and processes, not invent new ones.  There's about a 100 percent chance that those systems and processes will be more complex and onerous than the ones the acquiree had, but that doesn't necessarily make them worse.  Entrepreneurs hate bureaucracy.  It chafes at them.  Most can't adjust.
• You will have a boss, who will have opinions and give orders.  Get over it.  Most entrepreneurs had one or more bosses before they started their companies; however, many also hope to never have a boss again.  A Board of Directors, sure, but someone telling him what to do every day, definitely not.  
• Different people for different times.  The truth is that there are start-up, mid-sized, and big company people.  Few people fit into all three as a company grows and, therefore, succeeds.  Here are a set of statistics that should put in perspective:

• In a $1 billion IPO or company sale, a company is generally on its third CEO and has replaced most or all of its founding management team.  The founding CEO makes - on average - $6 million off of the transaction, because, by this time, it's been several years and investment rounds since he roamed the halls.
• In a $100 million sale, the founding CEO also makes on average $6 million.  Why is that?  Because investors and new employees have taken many of the newer shares - diluting the founder's shares.

In both of these cases, the Company has gone through multiple scaling phases, where it needed new employees with different skills, more internal governance, and many new business processes.  If the Company didn't do these things, it likely would have gone out of business or never grown to a big size.  This type of dilution is both necessary and "worth it" to gain a high value exit for the largest shareholders, which are the usually institutional investors that funded the scaling efforts.

Mr. Arrington sealed his own fate but good; however, most successful start-up CEOs go through the same thing - albeit with far less drama and, hopefully, none of the ethical problems that Mr. Arrington didn't believe were actual problems.  Some people would say that this is a shame and that entrepreneurial spirit should live on forever.  The truth is, becoming big and successful with big company executives is a natural business occurrence.  Even better, it leaves entrepreneurial CEOs with the time and resources to do the "next, new thing."

A Financial Model That Works

Many entrepreneurs can tell a story with the best of 'em.  The words just flow, and the pictures complement the words.  When it comes to numbers, however, some start-up CEOs get lost trying to navigate a sea of Excel cells. Since most of my clients are in the Washington, DC, area, it could be that the federal government penchant for spending more than it makes is actually contagious, but, more likely, it's just that entrepreneurs would rather sell or build products than model out how they are going to generate revenues and profits.  In truth, there are few things that are more important for an entrepreneur than understanding the numbers that make the business tick.

NewPlan builds financial models for young companies all the time - usually in support of a fundraising effort.  We find that a robust financial model is important, because it shows how you plan to operate your company going forward.  It is a test of your business logic and ability to imagine scaling and growing your company.

Here are our secrets to building a useful financial model:

• Include all of the standard information.  By standard, I mean:

• Revenue calculations
• Costs calculations
• A Profit & Loss Statement
• A Balance Sheet
• A Statement of Cash Flow
• A Dashboard full of reports that cover key metrics\

• Build a monthly, 5 year model.  If it's late in the year, extend the model out an extra year.
• Create logical assumptions.  By logical assumptions, I mean things like:

• Achievable quotas for salespeople.
• Market tested salaries for employees.
• Appropriate levels of marketing spending.  For example, for software companies, marketing spending tends to be 5 to 7 percent of revenues - or slightly more - when the company exits the start-up phase.  The percentage declines some as the company gets bigger.
• Accurate projected costs for infrastructure - like data center, rent, and equipment costs.

• Whenever possible, have those assumptions calculate automatically based on revenue growth or some other key factor.
• Imagine how your organization will look in 5 years, and put that org chart in your model.  We generally build our cost models with three sections:  Go-to-Market, G&A, and Operations & Development.  Within each section, you would see a hierarchical organization that starts with the management position at the top and works downward to the most junior position.  For example, there might be:

• VP of Sales
• Director of Sales
• Senior Account Manager
• Account Manager
• Director of Pre-Sales
• Pre-Sales Specialist
• Direct of Telemarketing
• Telemarketer

• Some of those positions might not be staffed until year 4 or 5, but you'll get bonus points for realizing that you'll need that position when your company matures.
• Make sure that your model is readable.  Like a business plan or presentation, a financial model is a selling document.  If you are raising funds, an investor is going to want to review your model without you looking over his shoulder.  That means he needs to be able to figure out how it's built and change the key assumptions to see what happens

Finally, if you're not good at modeling, it's worth paying a "finance-type" to do the job for you.  More than likely, you'll be able to provide the guidance to build the model in the right way.  The mechanics of doing it are quite another matter.