Determination and Commitment are Vital to the Success of a Digital Startup

Posted on February 12th, 2010 by John Sostak

This is what an Internet startup looks like.

I just read a good post in a discussion by Greg Satell about digital startups.  Thought I would share some thoughts.  I have enough experience with digital startups to be able to confidently state that the most important quality in a startup founder and team is determination. Determination is the quality needed to drive a startup through the growing pains.

An entrepreneur must be intelligent as well, but intelligence by itself is not enough to start a company, especially an Internet business.  We may feel like we were born with the web, but Internet startups are still new, and the business model lacks the direction of older more conventional business models.

Running a startup is like walking on your hands: it’s possible, but it requires extraordinary effort.  If an ordinary employee were asked to do the things a startup founder has to, they may be insulted, and at the least, discouraged.  Imagine being hired by a business to write code, and in addition to being reminded that the module was due yesterday (even though you were just told about it this morning), but you also are expected you to answer support calls, administer the servers, design the web site, cold-call customers, find the company office space, pick up lunch while your out, and empty the wastebaskets tonight, even if you don’t leave the office, because we have a client/investor visiting in the morning.

You do not get to do all this hard work in a comfortable environment, like a banker, whose only concern financially may be the size of his/her annual bonus, but against a backdrop of constant disasters, and financial insecurity (I hope the checks will cash). That’s the part that really demands determination. In a startup, there’s always some disaster happening. So if you’re the least bit inclined to find an excuse to quit, there’s always one right there.  This is why so many people and start ups fail, rather then fight, they take flight.

Everyone who deals with startups knows how important commitment is, so if partners, clients or investors sense you’re ambivalent, they won’t give you much attention. If you lack commitment, you’ll just find that for some mysterious reason good things happen to everyone but you. If you lack commitment, it will seem to you that you’re unlucky, and Twitter, Facebook, LinkedIn, Paypal, and every other Internet startup are lottery winners.

I have had partners that have the attitude that they’re going to give this startup thing a shot for three months, and if something great happens, they’ll stick with it– “something great” meaning either that someone wants to buy us or invest millions of dollars in our business. I have become a filter, because if this is your attitude, “something great” is very unlikely to happen to you, and this reflects on me. Clients,  acquirers, and investors judge you by your level of commitment.

If an acquirer thinks you’re going to stick around no matter what, they’ll be more likely to buy you, because if they don’t and you stick around, you’ll probably grow, your price will go up, and they’ll be left wishing they’d bought you earlier. Ditto for investors. What really motivates investors, even big VCs, is not the hope of good returns, but the fear of missing out.  So if you make it clear you’re going to succeed no matter what, and the only reason you need them is to make it happen a little faster, you’re much more likely to get funded.

You can’t fake this. The only way to convince everyone that you’re ready to fight to the death is to fight to the death.  With a deferential nod to Seth Godin, and the Dip, by fight, we also mean adapt, and make the necessary changes to find success in your space, which may be poorly defined, and full of blue skies.

You have to be the right kind of determined, though. Determined rather than stubborn.  Stubbornness is a disastrous quality in a startup (I have been both).  You have to be determined, but flexible, like a running back.  Adrian Peterson doesn’t just put his head down and try to run through people.  He improvises: if someone appears in front of him, he runs around them; if someone tries to grab him, he spins out of their grip; he’ll even run in the wrong direction briefly if that will help.  The one thing he’ll never do is stand still.

Tags: IPO, start up, technology

CNBC Interview With Mark Sarvary, CEO of Tempur-Pedic, & Their Social Media Strategy

Posted on February 12th, 2010 by John Sostak

Is your social networking strategy working for you?

Social Media is changing the way marketing is done. Customers, potential customers and competitors share information every day through different Social Media channels to create advantages for everyone. Many people—from start-ups and individuals to well-established companies—are creating sizable returns from social media sites like Twitter, LinkedIn and Facebook.

A new Tempur-pedic commercial is encouraging potential customers to connect with existing customers via Twitter and Facebook, with Mark Sarvary, Tempur-Pedic CEO. The video is from CNBC, yesterday, February 11th. Social media, and the companies that embrace it will become bigger. Companies that are trying to market like dinosaurs will perish.

We must understand that we cannot control every aspect of our message and brand. If we accept this, we can learn from the social outlets that promote our products. We can adapt, and grow. The web based referral is the most powerful sales tool we will see grow this decade. Amazon, Netflix, Google ATG, have perfected this. Tempurpedic “get’s it.”

Tags: CNBC, social media, video

Senate Blocks Craig Becker Appointment, Bipartisan Politics Does Not Exist

Posted on February 12th, 2010 by John Sostak

On Tuesday the Senate voted 52-33 on the nomination of Craig Becker to be appointed to the National Labor Relations Board (NLRB), falling well short of the 60 required votes to proceed. Becker’s nomination was controversial with Republicans and some Democrats due to his close ties with big labor. All Republicans and two

Democrats, Senator Ben Nelson of Nebraska and Senator Blanche Lincoln of Arkansas voted no.

This is what politics has devolved into, and I don’t think President Obama is to blame.  I wish each issue could be considered and voted on based on it’s own merit.  I also would like politicians and people to remember that Barack Obama won the Presidential election.  I would personally like to see something come out of his administration that we could evaluate, rather then fight over every issue.

Sen. Nelson (D-NE) said “Mr. Becker’s previous statements strongly indicate that he would take an aggressive personal agenda to the NLRB and that he would pursue a personal agenda there, rather than that of the administration. This is of great concern, considering that the board’s main responsibility is to resolve labor disputes with an even and impartial hand.”

President Obama has warned the Senate that he would go through a recess appointment process should they unnecessarily block his nominations. The NLRB is supposed to have five members but currently only has two.

The AFL-CIO has called the vote reprehensible and it is clear that labor and its supporters are extremely frustrated with the Democratic majority they helped elect. The bigger issue at play for retailers this year will continue to be the Employee Free Choice Act, also know as card check legislation which would allow unions to form without secret ballots.

What Makes a Great Elevator Pitch? Great Question.

Posted on January 25th, 2010 by John Sostak

Reid Hoffman,creator of LinkedIn

Kevin Liebl is in a Digital Marketing group that I belong to, and he asked this question today.

Kevin’s exact question is “what are some of your favorite examples of elevator speeches?”

An elevator pitch is not easy. It is considered a success if it creates an interest in investing in the business, or creates a new client for the business. This is the first thing to remember, the pitch should be tailored to the audience.

It should also be fresh, and as a small business owner, I know my business and it is important for me to be able to concisely describe it, in it’s current form. All of our companies, clients and projects change. My pitch and what I promote is modified because of these changes.

If your pitch works, you will be asked a few questions. A rehearsed speech means nothing if the first question asked by the audience is met by a blank stare and “uhhhh, I don’t know.” Consider your elevator pitch a dialogue. You should understand what you are pitching or promoting and be eager to expand on the pitch.

The elevator pitch for my company, Arcade Digital is:

Arcade Digital is a web development company that improves businesses through Internet marketing. We develop custom web sites, mobile apps and Internet marketing campaigns that are tailored to our clients business and it’s specific needs.

That by itself is pretty bland, and unimpressive. I welcome a question from the person I am speaking with to elaborate, and if I do not get one, I need to engage one from them. I consider this a launching pad for a dialogue about their business, which will then allow me a chance to brainstorm a way we could help their company improve. Although Arcade is an Internet company, we need to be able to help non Internet companies realize that we can help their business grow.

I admit, I am envious of the simple pitch that describes a eureka product that everyone thinks they thought of. A pitch like:

You may have heard of my company, LinkedIn? LinkedIn is a community website made up of people in business. Members commonly have contacts which are colleagues, clients and entrepreneurs that they may know well, or only know through LinkedIn. The individuals create profiles, and engage each other in groups. It is free to join, and we charge for advertising and premium memberships.

Great elevator pitch Reid Hoffman. This brings me to a closing point. A great idea, makes a great pitch, and ultimately, a potentially great company.

Do you have an example of an elevator pitch or speech you like or use?

Tags: LinkedIn

2010 Tech IPO Candidates from TechCrunch.com

Posted on December 24th, 2009 by John Sostak

Wall Street Bull

Article by Eric Schonfel, TechCruch, December 24, 2009.

It’s been a long drought for IPO’s, but venture capitalists and tech entrepreneurs are hopeful that 2010 will be the year they rain down on the Valley once gain. Earlier this year, a handful of IPO’s trickled out, such as Open Table, Rackspace and A123Systems.  But what people are really waiting for is another Netscape or Google moment —an iconic IPO which will whet investor’s appetites and open the floodgates for others to follow.

Below is Tech Crunch list of the top ten IPO candidates for 2010 in the technology industry (and, no, it doesn’t include Twitter). I conducted an informal survey of some top VCs and angel investors. These are the names whispered about the most in the Valley and other tech circles. The hope is that the economy will swing back and the public markets will become receptive to IPOs, especially towards the second half of the year.  The stock market in general is finding its legs already.  The S&P 500 is up 24 percent this year. If the bull market continues, that will be good for the prospects of seeing these potential IPOs.  And if it doesn’t, there’s always M&A.

1. Facebook Total raised: $716 million.

If there is one company which everyone is looking towards for a new Netscape moment, it is Facebook.  The company can pretty much go public any time it wants.  It is already the fourth largest site in the world.  It’s last private common stock sale valued the company at $11 Billion, which may or may not be rational.  The key to a large public valuation will be whether Facebook can figure out how to turn all of that attention into advertising dollars.  So far it is said to be on track to beat its $550 Million revenue projections from earlier this year.  A Facebook IPO would certainly create a halo effect for other tech offerings.  Even if it doesn’t go out in 2010, the prospect that it might could still help other companies go public as hungry investors grab what they can get.

2. Zynga Total raised: $219 million.

Social game developer Zynga is on a tear, with more than 230 million people a month actively playing its games such as FarmVille, PetVille, and Texas HoldeEm Poker.  The company just raised a whopping $180 million round.  It is believed to be Facebook’s largest advertiser and pulling in at least $250 million in revenues on its own.  But it is also at the center of the Scamville Controversy over how it makes some of its money from scammy offers.  If it can convince investors it has cleaned up its act, they will gobble up an IPO.

3. LinkedIn Total raised: $103 million.

The other social network, LinkedIn is like the enterprise version of Facebook. It is where business gets done and people find jobs.  LAst year alone it raised about $75 million at a $1 billion valuation. Founder Reid Hoffman has spoken repeatedly about LinkedIn’s ability to IPO.  Earlier this year, he recruited former Yahoo exec Jeff Weiner to be CEO and is spending more time himself as a venture capitalist, which has always been his sideline.

4. Glam Media Total raised: $125 million.

Glam Media is one of the fastest growing ad networks and collection of fashion- and women-oriented sites.  At a time when traditional media and women’s magazines are suffering, Glam is saw display advertising revenues across its network up more than 50 percent in 2009.  CEO Samir Arora expects the company to be profitable in the fourth quarter, and is recruiting executives with big-company experience.  Ad networks which dominate their niche are an easy lay-up for investors.

5. Demand Media Total raised: $355 million.

Demand Media is another LA-based company, started by former MySpace chairman Richard Rosenblatt.  Demand Media owns a collection of sites such as eHow, Livestrong, and countless niche sites.  It also owns domain name registrar eNom, which generates a lot of its cash.  Demand Media is a content mill, churning out articles and videos for its niche sites like Golflink.com and Trails.com  cheaply and quickly in response to what people are searching for.  It may not be sexy, but it is lucrative enough that potential acquirers are sniffing around and AOL’s Tim Armstrong is looking to copy and improve on the niche content model.

6. Gilt Groupe Total raised: $48 million.

Gilt is a private online shopping club for luxury goods.  Its revenues are reportedly around $200 million this year, and expected to more than double next year.  IPO talk is already in the air.  Gilt’s counterpart in Europe, Ventee-Privée, is rumored to be in acquisition talks with Amazon for around $3 billion.  And Kleiner Perkins just invested in One Kings Lane,  another private shopping club based in England.

7. Etsy. Total raised: $31.6 million.

Another niche e-commerce play could be Etsy, the Brooklyn-based marketplace for handcrafted goods.  Sellers on Etsy are on track to trade $200 million worth of goods on the maretplace this year, double from last year.  Founder Rob Kalin recently took over again as CEO and says the company is now profitable.  Etsy will never be as big as eBay, but its focus means that can become a the alternative eBay for buyers and sellers of high-quality, custom-designed apparel, furniture, and other goods.

8. Yelp Total raised: $31 million.

Yelp was nearly acquired by Google for around $500 million before the deal broke down last week.  The fast-rising local reviews site now might try the public markets instead.  The company already has 300 employees and is becoming a powerhouse in the online advertising for local businesses, which is an area of growth every major Web company wants to participate in.  Already the IPO filings are starting to come in, with ReachLocal filing to raise $100 million for its local ad network.

9. Tesla Motors Total raised: $783 million.

Why would you invest in the GM IPO if you could invest in Tesla instead?  Silicon Valley’s electric car company is expected to hit the public markets.  Building a car company takes massive amounts of capital, and Tesla has raised nearly $800 million so far.  Most of that comes in the form of government loans, such as the $465 million it received as part of the government’s $25 billion bailout of the U.S. auto industry.  A lot of the capital also comes from partner Daimler, and billionaire founder Elon Musk.  But, hey, at least Tesla is profitable, which is saying a lot for a car maker.

10. Skype Total raised: $69 million

Despite all the drama surrounding eBay’s recent sale of Skype to a group of private investors including Silver Lake Partners and Andreessen Horowitz for $2.75 billion, the deal got done.  Skype is already a major Internet brand, with more than 500 million users of its Internet calling, IM, and video communications service, and $185 million in quarterly revenues. Before eBay found its buyers, it was very publicly pursuing the IPO route.  Given that eBay retains a 30 percent stake in Skype, that is still an option if its growth continues apace.

Runner’s Up:  The ten names above are the most likely to go public if the markets open up.  Other companies which might tap the public markets include Associated Content, Brightcove, Digg, StumbleUpon, LiveOps, Workday, MerchantCircle, ExactTarget, Chegg, and Reardon Commerce.  Most informed observers do not expect a Twitter IPO next year.  It is too early.  The company just raised $100 million, and still needs to figures out its business model.  Maybe in 2011.

Which of these companies do you think is most likely to IPO?  Which ones would you invest in?

Photo credit: Flickr-David Paul Ohlmer

Tags: IPO, techcrunch