boom.2014.4.2.103-f03

Boom and Bust and What Comes Next

startup CEO

Boom and Bust and What Comes Next

by Celia and Peter Wiley

The view from our window.

From Boom Summer 2014, Vol 4, No 2

“Boom and bust is our lot and we must follow the ancient advice. . .that Joseph gave to the Pharaoh: Put away your surplus during the years of great plenty so you will be ready for the lean years which are sure to follow.”

—Governor Jerry Brown, State of the State speech, January 2014

The red circles look like bomb splats in an illustrated history of World War II. They begin on the eastern edge of the city near the Ferry Building and spread westward along Market Street. The graphic is a map of “Tech Hot Spots” printed in the San Francisco Business Times (21-27 February 2014). Each circle represents one of the fifty largest technology companies in the city, the size of each circle determined by the number of the company’s employees. The largest tech employer, according to SFBT, is Salesforce.com with 4,000 employees as of January 2014 (an increase of a thousand from one year earlier). Currently located in the historic Southern Pacific building at One Market Street, Salesforce has plans to occupy a twenty-seven-floor tower at 350 Mission across from the new Transbay Terminal in 2015.

A large cluster of red spots resembling a measles outbreak runs along either side of Montgomery Street in the Financial District. The cluster extends southward into SoMa, the South of Market district. A third cluster sits near Showplace Square where Zynga has its headquarters on Eighth Street between Townsend and Brannan, and Adobe has its headquarters around the corner on Townsend. Until recently Showplace Square’s post-quake red-brick warehouses were home to furniture and interior design showrooms, but soon, if the real estate developers have their way and the tech economy continues to expand, they will be converted to offices filled with even more “techies.” (As the Bay Area’s tech sector has evolved, so have the terms used to identify—and vilify—its workforce. The “dot-commers” of the nineties have become the “techies” of the twenty-teens, but apparently the label doesn’t sit well with everyone. Last December when one techie interviewed by an SFGate reporter equated the word with a racial slur, a popular industry blog suggested it be replaced with the term “Software American.”)

“Do you know,” exclaimed an elderly venture capitalist over lunch in the Garden Court at the Palace Hotel on New Montgomery Street, “within a ten-block radius of where we are sitting is the cloud computing center of the world?” He would know; he’s been backing tech start-ups since 1984, incubating at least one hen house full of millionaires. . .and probably a few empty ones.

A smaller grouping of red circles on the SFBT map near AT&T Park on Third and King streets covers Multimedia Gulch, the major hub for start-ups during the first dot-com boom of the 1990s. Back then, in the relatively innocent days of the digital Neolithic, San Francisco was a boutique outpost hovering beyond the northern border of the Silicon Valley heartland. Today “The City” itself is becoming a major digital epicenter or an annex of Silicon Valley, depending on your perspective—some maps of the Valley, defying geography, extend all the way to the Golden Gate Bridge.

The headline above the bomb-splat map reads: “TOO MUCH OF A GOOD THING?”A subhead notes that “as tech firms and tech wealth become subjects of controversy in San Francisco, those who remember the dot-com bubble worry about the city’s breakneck pursuit of tech jobs.” So what of the tech sector and its bubbles? By all accounts, the first one burst in 2000 when the NASDAQ crash brought the first dot-com era to a close. While the global financial crash of 2008 and the resulting Great Recession initially slowed job growth in Silicon Valley, the meteoric rise of smart phones and social media helped the tech industry as a whole to power ahead despite the near collapse of the global economy. It is unclear (and probably irrelevant) at this point whether the events of the last several years place us in the middle or at the end of a technological era, but the irrational exuberance that appears to be driving contemporary investment in technology companies is inspiring more and more questions about whether the tech sector can sustain current levels of expansion or if we are headed for another bust.

Consulting Google, the oracle of the Internet, indicates that there is little in the way of consensus regarding the possibility of a tech boom/bust scenario playing out in the near term. The first page results of a search for “tech 2.0 bubble” include articles and tweets from the Wall Street Journal, Business Insider, Forbes, and CNET. A Wired article entitled “Will 2014 Be the Year the Tech Bubble Bursts?” is mostly sanguine, claiming that the market’s standards for viability have increased since the 2000 bust and citing Twitter (revenue but no profit) as the model for the new public tech company. A brief entry further down the page from the open source, pseudonymous online journal Zero Hedge (tagline: “On a long enough timeline the survival rate for everyone drops to zero”) points out that of the tech companies that went public in often wildly lucrative IPOs in 2013, 73 percent have never turned a profit, compared to 27 percent in 1999.

First Street and Market Street by Leo vanMunching.

Beale Street and Market Street by Leo vanMunching.

A more urgent question may be: what might happen to San Francisco if current trends continue? The new tech workers settling in San Francisco (and adjacent communities such as Oakland, slated to become the Brooklyn of the West Coast) are mostly young, predominantly male, and if 2010 Census records for the Silicon Valley workforce hold true, almost evenly split between white and Asian, with Asians (both American born and immigrant) a slight majority. They are well educated, well paid, well connected, and often regarded by locals as the vanguard of an invading army (“local” being a relative term when only 37 percent of San Francisco residents were even born in California, according to the 2010 census).

If you read the Bay Area press or local blogs, techies are the people fueling the astronomical leap in San Francisco’s housing prices, inspiring property owners to evict long-time tenants in order to flip rental buildings or convert them to condos, and making the city the most expensive in the country with rents rising 10.6 percent over the past year, three times the national average. Techies are clogging city bus stops as they line up to wait for enormous private buses with blacked out windows to wheel them off to their destinations in Silicon Valley—Google, or perhaps Netflix, indicated only by discretely placed signs the size of large index cards—where their employers provide luxurious perks such as free gourmet meals (organic, natch), haircuts, massages, and on-site medical care.

In addition to the programmers, developers, and other highly skilled workers dependent on the current boom in San Francisco, the rise of tech has helped create a class of service workers who make their often meager livelihoods catering to the techeoisie’s preference for fine living. Most visible in the city’s abundant cafes and restaurants, members of the new service class—whether tattooed and pierced artistic types or newly arrived immigrants—provide the amenities, from serving lattes and waiting tables to cleaning houses and caring for children and pets.

Second Street and Mission Street by Leo vanMunching.

Being a classic Western booster journal with little interest in critical examination, the SFBT’sanswer to the chatter about a new tech bubble is don’t worry; come west, young men—or east from Asia as the case may be—and let the money roll in. This is The City’s siren song, born in the days of the Gold Rush. Others are less confident in the staying power of this latest in a long series of booms that have marked the history of the California economy. In his January 2014 State of the State speech, once and future governor (and former seminarian) Jerry Brown harked back to the Book of Genesis to warn Californians against taking good times for granted. Brown has been credited with bringing the state’s budget—laid low by the Great Recession of 2008 and the decline in tax revenues caused by the exercise of tech company options, among other things—under control. As the scion of a California political dynasty that dates back to the invention of the microchip, however, Brown has been around long enough to know that in these parts change—often rapid change—is the rule rather than the exception.

Back on the Right Coast, New York Times Bits blogger Nick Bilton (24 November 2013) points to the NASDAQ composite index, which has soared above its highest point since the first tech boom ended, and notes that Twitter is losing money: “A price-to-earnings ratio? There is no E in the P/E. But its stock is trading at twenty-odd times the company’s annual sales.” Is Twitter really the new model for a viable tech giant or will it become the canary in the digital coalmine? The company is currently the darling of The City’s political establishment, headed by former mayor Willie Brown and current mayor Ed Lee. Encouraged by a payroll tax break worth an estimated $56 million, Twitter recently moved into the empty Merchandise Mart on Market between Ninth and Tenth Streets, leading some to question whether San Francisco politicians are in the business of feeding the bubble, funding gentrification, or building the local workforce by reducing taxes on wages and options for the 1,500 jobs that Twitter brings. How will Twitter’s presence impact low-income residents of the Mid-Market area and the Tenderloin, which some wags are already calling the Twitterloin? While the city’s tax break deal included provisions that encourage “good faith efforts” to hire locals, there is no binding agreement compelling Twitter to do so and, not surprisingly, the company appears reluctant to engage in the kind of substantial outreach that would prepare Mid-Market residents for entry-level positions in its workforce.

Is Wall Street going sour on tech? According to Bits blogger Bilton, when Bloomberg surveyed Wall Street investors, “roughly half said that the bubble was here or soon to be.” In Silicon Valley, they say there is no bubble, just gas pains at the birth of a brave new world. We don’t claim to be economic prognosticators, but as we gaze upon the hoodie-clad masses strolling by clutching theirsushirritos and their burrotis from our perch here in the “cloud” at Third and Market streets, it’s tempting to think about history and wonder what might trigger California’s next bust.

The Big One?

Anyone who grows in a city with schools that require regular earthquake drills knows that The Big One could happen at any time. The Loma Prieta earthquake of 1989 registered a mere 6.9 on the Richter scale, but it severed the Bay Bridge, flattened a section of freeway in Oakland, and killed sixty-three people. What would an event on the scale of the earthquake and tsunami that destroyed the Fukushima nuclear plant (9.0) or the 1960 Chilean earthquake (approximately 9.5) do to the local economy? Scientists currently estimate that there is a 67 percent chance that a quake the size of the Loma Prieta temblor or greater will occur in the San Francisco Bay Area in the next twenty-five years,1 raising the specter of Twitter tweeting its own demise in real time from its headquarters on Market.

A Variation on the First Dot-Bomb?

During the first dot-bomb, the tech-heavy NASDAQ lost 78 percent of its value. The 2000 collapse followed a period of manic investing when entrepreneurs with off-the-wall ideas and ridiculous or nonexistent business plans sought and received funding from ill-informed investors blinded by the magical aura of the Internet or just simple greed. When the video began to run backward and start-ups in the city shut down like massage parlors during a vice raid, the San Francisco Chronicle ran lists of restaurant closings, and the nightly bacchanal along newly gentrified Valencia Street in the Mission District evaporated like a morning-after dream. Office furniture flooded the secondhand market, with office rentals sometimes featuring a full suite of furniture and even the occasional foosball table. There are longtime residents of the city who think back with nostalgia to the time when advance reservations were required to rent the trucks that ferried the first wave of geek geniuses and their possessions out of The City and back to where they came from.

A Variation on the Global Economic Crash of 2008?

The economic crash of 2008 was triggered by a rapid decline in real estate values and the collapse of numerous financial institutions associated with subprime mortgage scams. California alone lost a million jobs. Between 2008 and 2011, according to the US Census Bureau, 1,026,572 California homes were foreclosed upon, equal to one in thirteen homes and the residences of 1 million children. Home prices in San Francisco dropped 30 percent.

Grant Street and Market Street by Leo vanMunching.

The Great Recession had a very different impact on the tech sector in San Francisco. The number of tech jobs dropped at roughly the same rate as the 2000 crash but for a much shorter time and then began to grow at a faster rate, continuing to the present. Why? A quick look at the SFBT list of the fifty largest tech employers shows that nine out of ten were already well established before 2008. Four of them—Dolby Laboratories (1965), Lucasfilm (now owned by Disney, 1971), Adobe Systems (1982), and Autodesk (1982)—were founded before the first tech boom started around 1993. Another group, launched just before or after 2000, were stable enough to succeed while newer companies like Salesforce (1999), Google (1998), Twitter (2006), and Yelp (2004) have taken off like jackrabbits.

In an WSJ.D interview (3 January 2014), venture capital guru Marc Andreesen, who insists that there is no tech bubble, points out why companies like these survive and grow while others don’t. His argument doesn’t bode well for start-ups in the dog-eat-dog world of today’s high tech economy or for its workforce. He uses the smartphone as an example of what he suggests is the inexorable drive toward faster economic growth and consolidation. Today, says Andreesen, there are two billion smartphones. Within three years, there will be five billion, and it will be a “world where everyone has a supercomputer in their pocket and everybody’s connected.” When asked by the WSJ if there will be enough demand to fund “two or three or more players in these categories,” Andreesen says, “Generally in tech, the markets are winner take all.” And the losers? Bye-bye!

Yesterday’s Grand Vision and the Dustbin of History

Remember when politicians like former mayors Joe Alioto and Dianne Feinstein, and businessmen like the Bechtels, and the CEOs of the Bank of America, Wells Fargo, the Crocker Bank, Utah Mining and Construction, Castle and Cook (Dole), Standard Oil of California, and other old-guard corporations based in San Francisco used to gas on about The City as the capital of a Pacific Basin economy? You may not, because almost all of those heavyweight corporations are either gone or no longer headquartered in San Francisco.

One can trace America’s dreams of Pacific dominion back to the Gold Rush when the Mare Island Naval Base near Vallejo (now decommissioned) was established in 1854 as “the fulcrum of the lever of that power” by which the United States would “maintain its maritime rights and peace upon the vast expanse of the Pacific and Indian Oceans.” Ultimately, maintaining the peace included the annexation of Hawaii (1893), the seizure of the Philippines (1898), and the defeat of Japan in World War II, resulting in the United State’s ascendancy to the position of the imperial power in the Pacific (now challenged by China).

In the post-World War II period, San Francisco banks such as Bank of America, local shipping, mining, insurance, and construction companies, and the agribusiness giants that held sway in the Central Valley and dominated the sugar and pineapple crops in Hawaii backed the formulation of a Pacific Rim strategy with the assistance of the Stanford Research Institute. Those same companies redesigned San Francisco’s skyline, lining Market and California streets with bland office towers, building the Moscone Convention Center and creating a Bay Area Regional Transit system to connect their new skyscrapers to bedroom communities in the suburbs.

The old generation of big thinkers, most of whom are deceased, played a major role in shaping both the global and Pacific Basin economies until the reality of globalization put an end to their dreams of The City as the pivot of the Pacific Basin. Take the Bank of America, once the largest bank in the world, whose signature office tower on California Street was briefly the tallest west of the Mississippi. In the 1980s, the bank sold its tower to the late Walter Shorenstein, one of the city’s largest property owners and a mega-backer of the Democratic Party. Not long after, it reduced the size of its local workforce and eventually sold out to an obscure bank from North Carolina. Crocker is gone, as are San Francisco-based shipping companies. Utah Mining and Construction are long gone. Dole now lists its headquarters as New Jersey—and rumor has it that Chevron, having relocated its headquarters in phases from a tower on Market Street to the East Bay community of San Ramon, is headed for Texas.

Folsom Street and Beale Street by Leo vanMunching.

Market Street and Kearny Street by Leo vanMunching.

What was once the corporate headquarters of the Pacific Basin is now the future tech city, but perhaps we should consider a very real possibility suggested by the demise of the Pacific Basin headquarters fantasy: as the cost of living in San Francisco becomes more and more outrageous, Andreesen’s winning tech capitalists, faced with significant competition from future tech giants like China, will need to cut costs. Will they relocate staff to Stockton, or maybe Las Vegas—or simply send the work overseas? Housing is cheap in the Central Valley, but the cost of living is even cheaper in India and Vietnam. What of the techno-proletariat, the pampered Google bus riders, and the people we see from our office window in the “cloud” at Third and Market? What happens to them if this really is a boom about to go bust, or if industry concentration follows the Andreesen model, or if big tech simply decides that instead of importing Indian engineers, it’s more expedient to move to India? If recent history is any guide, the winners of this latest round of economic sweepstakes will remain, along with those members of the service class who can scrape together enough money to afford a bed in a room in an apartment with a multitude of other inhabitants. The techie proles will “go back where they came from” or, like tens of thousands of working and middle-class San Franciscans over the last three decades, leave for greener pastures in that other valley to the east, or even further south and east to the Sunbelt cities—wherever the rent is cheap and the weather is easy.

Notes

These photographs were originally featured in the exhibition Now That You’re Gone. . .San Francisco Neighborhoods Without Us at SF City Hall, February 25 – May 23, 2014. COURTESY OF THE SAN FRANCISCO ARTS COMMISSION GALLERIES AND LEO VANMUNCHING.

tomnora.com

You Need a BoD Now

Angel Investor, CEO Succession, early stage, SaaS

How to design a board of directors

By Tom Nora

There was an article recently in VentureBeat about how much control the startup CEO founder has over his/her board of directors. Unfortunately, this actually isn’t true in most cases, especially for first time founders, for many reasons.

Many factors come into play in early board formation including the founder’s goals, investors, cofounders, early appointees, family, friends. A well designed board can be the critical driving force in making a startup successful; while the wrong board can create disagreements, misdirection, angry members, awkward board dismissals, power struggles and can actually bring a company down.

First time founders usually aren’t sure how to populate the board, and first money from FFF (friends, family, fools) blinds them a bit to their best instincts.

Typical Pre-Funded Board

Here is the typical order of board formation before any professional funding comes in:

1. Founder/CEO

2. at least one Co-Founder

3. FFF

then maybe…

3. a “grown up” – former boss, relative, early (non-professional) investor

4. industry luminary

This is the group that must help grow the company properly, attract professional funding and make industrial strength business decisions. Most of this 1.0 group don’t have much experience, i.e. what it means to be on a board, how to optimize it, what the points of leverage are, what a natural disagreement is vs. a problem of discord. Usually the group is not experienced or cognizant enough to optimize this asset early on.

A Better Way

Here I’ll lay out some key steps to making this organization an asset rather than one with little to negative value.

Step 1 – The Founding Team
It’s fine to have the founder and maybe one cofounder on the board; after all that’s all you have to draw from. The key to success here is to STUDY the topic, learn everything you can, follow proper board.

Also, internally you can determine if and when you actually have something worthy of funding – you must have a real business that is operating – product(s), spreadsheets, a team, Revenues?; asking outsiders to get involved too early can be the kiss of death. I see this happen a lot.

Step 2 – Get Outside Help
In any startup ecosystem these days there are many people who have an interest in your business. The word “Startup” now gets their attention. Among these people are professionals that can get involved as a board member, but how do you do it? Which ones should be advisors instead? Are there consultants that help with this? If you’re near Stanford or in San Francisco, every other person you meet almost seems appropriate, but don’t be fooled. You want people who are qualified but also who come to you via an organic process – you read about them, stumble upon them, meet them.

Listen to these signals. For example, in Los Angeles right now the problem is that a majority of those you meet fall below the level of “qualified” – they’re out there networking but have never sat on a real board or led a startup. Keep asking around and you’ll find the right people. And remember, make sure you have a real company first.

Contact me if you have a going company and this is a hole for you, I’m one of the people I mention above who can help. But not if you just have an idea, or are thinking about starting a company, those are a dime a dozen.

What is your favorite kind of cheese?

startup CEO

Answer by Sarah Amalie Lerstrøm Margolin:

This is probably a matter of availibility more than preference. I can easily get many cheeses here in Denmark, but I rarely get as excited about them, as I do about cheddar from Humbird Cheese Mart in Wisconsin. The last time we were in Chicago, we found out we could order online. The final order (split between my grandmother, my father and I) was of 17 pounds of cheese, I got some 3 and 6 year cheddar… And now that I think about it, I absolutely must have some now.

EDIT: Just saw I had this unposted as a draft from… I think a year and a half ago. Coincidentally, my father just brought home cheddar from the same place, so once again I absolutely must go have some ;)

What is your favorite kind of cheese?

ScalableStartup2012-2-funding.ppt

Caveat Emptor – look out Seed Investors for the $0 return startup.

Angel Investor, CEO Succession, Scalability, startup, startup CEO

By most measures, we are in crazy times right now in the tech startup world. We have thousands of new companies every week, hundreds of funding rounds over $100 million every month, and so many $1 billion exits or calculations that we’re getting used to them. A $1 billion valuation used to be a big deal for a web based company that wasn’t one of the top few.

Everyone thought Facebook was nuts when they walked away from such a deal. But now the funding seems to be flowing everywhere, at many levels, and that almost anyone who starts a startup will be successful, will be “big”. Unfortunately, this is very far from the actual truth; we just don’t hear about the 95% that fail and lose all of whatever money is invested.

The frenzy at these higher levels, and the continuous stories of first time entrepreneurs in their early 20s who magically start these amazing companies is creating a demand at the bottom of the funding market, like the pyramid schemes in Southern California in 980 (see below). Look out for this trend, put your wallet away.

Unsophisticated investors, which means family, friends, co-workers, etc. or also called triple-F – friends, family and fools, who have a few thousand dollars they would like to put into the startup “market” are the fuel at the bottom of the market that get things started. It can be anywhere from $5,000 up to $500,000. They help to make ideas into reality, hoping for the higher returns of the early investors. You’ll see many dentists, doctors, parents, Hollywood actors in the crowd. They have a lower probability of return, as expected, but now are losing their money at higher rates than ever before. We don’t hear about this much because they’re embarrassed; who wants to talk about it and admit that they made such a mistake?

This market is reminiscent of the rampant pyramid schemes in the 1970s. Here’s a description from Time Magazine June 16, 1980 issue:

For $1,000 each, 32 newcomers buy slots on the bottom row of a pyramid-shaped roster. Each new player pays half of his $1,000 to the person at the pinnacle, who ends up with $16,000. The new player also pays his remaining $500 to the person directly above him on the next tier, which contains 16 people. Since each person on that tier gets paid by two of the newcomers, he ends up with $1,000, thus recouping his original investment. As more people buy in, the players move up the chart. In time, theoretically, each person reaches the top—and $16,000.

Amazing, huh? The only problem was that the need for newcomers increases exponentially, thus the name pyramid. You needed 32 new people every night, and as the word spread new groups popped up everywhere in L.A. It fizzled out within a couple of weeks, but went on for years in other parts of the country.

Skip to 2013…

Two years ago in the California startup world there was a lot of buzz, or anti-buzz, about the impending pop of the current hyperactive tech market and unsophisticated spending of . The concerns took many forms, one of which was named “Series A Crunch”, another was the gratuitous use of the word “bubble”. Series A is the second round, the one after the seed or other small amount of ignition money. It’s the round that graduates of accelerators seek. It’s also “professional money”, not triple-f.

I remember being asked in a startup panel I was on by the moderator “What do you think of the Series A crunch?”. I replied, “Do you know what a Series A Crunch is?” She tried to explain but didn’t in fact know what it was. That was a sign to me of startup overhype, everybody mimicking each others phrase of the week.

Fast forward to today, 2015, when we’ve been in a possible “end of the boom” for over 3 years. We’ve been hearing the word bubble for that long, people trying to predict a crash, mostly out of envy for not being able to harvest any cash from this current crazy market. Seed funding is at an all time high rate and it has that scary phenomenon of feeding on itself.

There are a number of articles floating around again about the lack of Series A money in the market, which is usually required to take a company to ROI.

At the same time people are bragging about how easy it is to raise seed funding of up to $1 million. Almost anyone with a web based working “app” or mobile app can get funding. No business plan, no ROI. Sometimes you’ll need to show traffic/traction/conversion, but not usually. There are plenty of triple-F investors anxious to empty their 401K or add another mortgage, take a “risk”, for the chance at those 8 to 9 figure exits they keep hearing about.

This is also reminiscent of the late 90s when unsophisticated investors lost billions diving into the dot com boom just before it crashed fairly rapidly. The difference is now it’s not crashing so visibly. There are admittedly many more successful growth startups on the Internet than ever, the second renaissance of the web, but the statistics for success are much worse than ever.

If you look at CrunchBase, almost every day you’ll see a new funding of over $100 million. Almost every day. That’s enticing to a potential angel. You’ll also see several others from $10 to 50 million. This has become the holy grail for that 401K earning slow interest.

But here’s the problem. Most of these investments will return $0. Not 80% or 50%, zero. In this flurry of amazing new Internet startups, a higher percentage are failing after the seed round than ever before, probably close to 99% vs about 85% 20 years ago. That means almost every unsophisticated angel investor is losing their savings and adding new debt to their life.

Why will so many people lose their money and why is no one talking about it? Here are the reasons:

  • It’s very easy now “look real”, i.e to create and deploy an Internet and/or mobile app live on the web or a phone. I get pitched one every day.
  • We’re still in a terrible job market, no matter what the official statistics say. I’ve met more broke unemployed professionals in Beverly Hills and Santa Monica in the past 3 years than ever in my life. They have nothing to lose. Why not start  company.
  • The Triple F effect. Friends, Families and Fools. Those are the people who will give you funding based on no actual research or due diligence.
  • Erosion of true self analysis. One very critical part of succeeding in a business is being able to critique yourself as a business. As part of the new startup world people are avoiding this process. It’s become a casualty of “fail fast” and pivot and other buzzwords.

The bottom line is that people with no experience or particular expertise in almost anything will most likely fail. So get some expertise involved before you go get that wire transfer of $100,00 for the son or friend or co-worker you want to help.

t [at] tomnora dot com

01tomford_senseofhumour_iStock_

Tom Ford : : 15 things every man should have

AdTech, Modern Man

Here’s Tom Ford’s list of essentials for every modern man (from Vogue UK)…

  • A sense of humour.
  • A daily read of a newspaper.
  • A sport that you love and are good at.
  • Tweezers.
  • A good cologne that becomes a signature.
  • A well cut dark suit.
  • A pair of classic black lace up shoes.
  • A smart blazer.
  • The perfect pair of dark denim jeans.
  • Lots of crisp white cotton shirts.
  • Always new socks and underwear, throw away the old ones every 6 months.
  • A classic tuxedo.
  • A beautiful day watch with a metal band.
  • The perfect sunglasses.
  • Perfect teeth. If you don’t have them, save up and get them fixed.

I saw this on ma.tt, a very readable blog by Matt Mullenweg, the founder of #WordPress.

I don’t disagree with any of these, and I think Tom Ford is one of the coolest dudes around, but would add a few…

  1. One or more pieces of fine art. Start with a Black & White photo; they can be had for ~$100.
  2. A car you can be proud of, no matter how old or funky condition.
  3. At least 1 piece of furniture they love.
  4. More than one music player. Jawbone, iPhone, etc. for portable and something big for the home.
  5. A pair of running shoes. Always be ready to go running.
  6. A bicycle. See #5.
unnamed

The life of a Startup CEO – 3 full Time Jobs.

CEO Succession, early stage, founder, startup CEO

This post has been one of my most popular on Quora. I originally wrote it in late 2012 when asked the question – What does it feel like to be a start-up mentor? (link to original post). In it I discuss the 3 full time jobs a real startup CEO has. If you read carefully I didn’t even actually answer the question properly, but I did touch on a few truths. 

One of the points of this is to realize that maybe yu shouldn’t try to be a startup ceo; most fail at it and are miserable. They Zalsohave a lot of fear that they can’t discuss with anybody – not their team not their investors, not their spouse, not the Board of Directors. All of those people have to be held at a bit of a distance. That’s often where I come in…

Enjoy…

– – –

As a Startup Mentor to over 20 companies over 20 years, plus a few currently, I think the first question is what is the CEO going through? (See below) As thementor you need to empathize, coach, help, counsel and help the CEO develop the business.

What is the startup CEO going through?

Being the CEO of a startup is crazy, fun, very hard work, inclusive, humbling and of course can be quite rewarding. Weekends are meaningless. There is a continuous decision stream where each decision informs the next. Your mind is thinking 24 hours a day, even when you sleep.

When you’re the CEO of a startup, a real startup with product and some cash in the bank and/or revenue, there are 3 FULL TIME JOBS.

1. Raising Money – you are constantly doing this, preparing for this and thinking about this, whether it’s pre-seed, seed funding, debt, revenue, partnerships, IPO or other.

2. Managing and Properly Growing The Business – this includes several things, depending on the size of the enterprise: managing employees, administration, hiring, firing, leases, expenses, unhappy employees, fixing other problems, etc.

This piece is what often kills an otherwise great business, which justifys the case for less is more when it comes to employees and infrastructure.

3. Selling – The CEO of a startup must ABS, always be selling. You start every day working this, just like #1 above, they’re closely related. Using the CEO to close sales no matter what size the business is, is vital to success.

This piece emphasizes the importance of having an awesome, mature VP of Sales, if you can afford it; it takes a lot of pressure off and frees up the time of the CEO.

So the job of the mentor is to make sure everything progresses forward and your protege is staying out of the ditches. It requires strong mutual trust but if you have that, it can be a rewarding win-win experience.

Contact me if you’re dead serious and I can help you. The Startup CEO by Tom Nora

©tomnora-notredame-2000x2000

An ongoing discussion on linkedin about Offshore Web Development and building a team in Europe.

Jobs

This discussion began last week and has fostered some great comments and resources…

Offshore resources/Europe company for U.S. web development projects.

Startup Whisperer, Web Market Development

I’m a startup growth consultant who started a digital marketing + web development agency due to such high demand from my startup clients. I’ve used some local and some offshore resources and avoided larger outsourcing companies. I’ve found the best way to do this is to manage the projects daily.

I’m looking for suggestions on how to scale this using people in europe without adding too many “middle men”.

1. Work directly with engineers, no company involved.
2. They start by demoing their skills on my project at no cost for 1-2 days.
3. Hire them 8 hours at a time and review daily by skype, g hangout. I’ve been acting as project manager/dev manager.
4. work is mostly drupal, wordpress, seo and php/lamp.

People in the Philippines or India or eastern europe are very low cost – $7-10/hour.

I’d like to build a europe based high quality partner agency, but not sure how to build the trust required for both sides. I had a company in europe in the past and was very happy with the quality software we created.

Let me know what you think of this, and please feel free to connect.

Tom Nora

Comments

  • Hello Tom, I can answer your questions. I have been able to successfully scale three different software development service centers offshore. You are right about the need for TRUST. You absolutely have to have a person in each service center that you TRUST. You have to know that they have your back in good times and bad times. If you have that one person in each center, then you can easily scale your service center around them and go as high as you want to go. You will need managers, top notch infrastructure and of course eventually an HR team for recruiting, policy enforcement, policy making, benefits coordination and general HR duties.

    However, the first step is getting that one person you can trust. I have experience in doing this and can give you more insight if you wish.

  • To start off you should focus on working with a company that offers you direct access to engineers and is willing to work as an extended branch for your team. They keep you involved even from the early stages of the value chain including selecting the right engineers and taking direction and input on the future technical growth plan for those engineers. Most of these offshore locations will offer you the leverage to scale as per your needs as per the ample availability of technical talent and a regular pipeline with many STEM students graduating every term. You can also consider working with freelancers but providing them with the right infrastructure and support mechanism needed to produce work at par with engineers stateside would be difficult for you to manage. Also, it is not about the engineering talent only! But other support function that go with that like HR and Administrative support. For this you should focus on finding that right company which is willing to offer you transparency and keeps you in charge of your team. I would also want to mention here that you would also have to focus on building a culture in your team that represents your company’s persona with which your offshore resources can relate to and understand. This will allow you to bring more and more value out of your offshore resources.

  • If you can manage it, rather than having your unit of workforce as a person (and definitely not a “resource”, that term should be outlawed), try having your unit of workforce the “team” and have relatively stable teams that have learned to work with each other, for whom you know their strengths and weaknesses, and to whom you might be able to augment with people strong in specific skills where the work requires skills in an area that they are weak.

  • Daily reports via skype are good way to check a person skills for good times, how do you test people in bad times (assuming before they occur).
    Secondly I’d like to ask why did you stoped your company back in Europe?

  • The good thing is, you are using Skype and hangout. There is nothing close to that.

  • The way I’ve done it when I wanted to grow an organization in China, was to start with a centralized model where I have local reck leads responsible for offshore engineers.

    While working on a release, we made sure we are building their skills in all possible roles (Dev, QA, Product Owner, Technical writers etc.).

    Our strategy was to move to a distributed model where the entire scrum team works together offshore. Once we got that to work (It took us 1-2 releases) we were able to scale up quickly and grow the offshore organization significantly.

    Startup Whisperer, Web Market Development

    Ron, Thanks for the info. This started as a tiny project, not meant to grow. In the past I’ve acquired an offshore company in China after working together for about a year, that worked well, gave us the chance to get to know each other and protected our IP.

    I guess we’ll see where this one goes.

    • million dollar question. facing the same issues with finding quality and trustworthy mates that have a common goal rather than count minutes and cents. still have hope. diamond in the rough.

    • I got to agree with you but partially. I believe quality is not limited to price or a part of world. You can find great resources in India or in any part of the world. Its like hiring a resource once you hire a great resource you never need to worry about it. So my suggestion is to find a good agency that can work with you and check them before starting work with them by giving them some small piece of work and at the price does not matter but quality does mater.

    • Tom Nora

      Startup Whisperer, Web Market Development

      Abbas and Imran, Thanks for the info. This started as a tiny project, not meant to grow. In the past I’ve acquired an offshore company after working together for about a year, that worked well, gave us the chance to get to know each other and protected our IP.

      I guess we’ll see where this one goes. Lot’s of suggestions to go ahead and try to build something.

      Yes Abbas, that’s the problem, many agencies don’t care enough about the buisness/product. Not their fault, but one of the reasons I’ve avoided that route.

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Online Review Management – A Synopsis of my project with a review management startup.

Angel Investor, Business Development, CEO Succession, Revenue Growth, SaaS, startup CEO, Tom Nora, venture

I recently completed a short term project with ReviewInc (RI), an online review management platform for businesses to mange and enhance their review process. RI is a small Los Angeles are company that’s been in business for about 3 years with a couple of major pivots under their belt.

My role was to analyze all aspects of the company and then find their unique opportunities to “take it to the next level”. It opened my eyes to the fascinating ( never thought I’d say that about reviews) details of this market segment and its ubiquity in all important Online Marketing.

RI primarily needs to accelerate revenue growth and market share in order to build new products, increase salaries to market rate and defend their position against a large number of competitors. I found several areas of excellence as well as several more that need enhancement. In the 90 period of my consulting they made many positive changes in a short time period with their minimal budget.

> The Larger Market:

The Online Review infrastructure industry is highly under exposed in the overall Internet marketing world. When most people think of reviews, they think of negative reviews people write when they’re unhappy about their service at a restaurant or tire dealership. Even expert Internet marketers are pretty unaware of the market and its details. Until recently I was fairly unaware of this market, more focused on social, dat analytics, seo, superior web development, content management and CMS design as my priorities for Online Marketing projects and conversion. But now I realize “the review piece” should be considered in any Online Marketing strategy and execution. It’s content, social, seo enhancing and is impacting a vast majority of online purchasing.

Yelp pioneered 2.0 of this industry over 10 years ago and should be given credit for that. Now the market is estimated at over $10 billion revenue per year, probably a lot more if you include all the sub-markets and service agencies using it for their business development and product lines. It’s a lot more than restaurant reviews.

Online review management systems are an established part of the web for both consumer and B2B. In the consumer markets, 86% of all customers rely on online reviews when they buy something, and 72% of all people say online reviews are their top reason for choosing a local business. For B2B, online reviews and testimonials and becoming a requirement in healthcare, automotive, government and other industries. And there’s a ton of overlap, making the line pretty fuzzy.

No matter the segment, reviews directly impact sales, market position and business health. Yelp is the giant in the industry at a $4 billion market cap, but there are over 1,000 other review companies in all segments of business and consumer markets.  Other heavy hitters are Trip Advisor, Glassdoor, Angie’s List, Edmunds.com, NewEgg.com, La Fourchette, Menu Pages, Doctor.com, Best Buy, Michelin, Cityvox Avvo, IMDB, Call a Plumber, Brad’s Deals, HotFrog Gayot.com, Rotten Tomatoes, Ripoff Report and Zagat.

It is a quickly evolving market that will continuously challenge current players, as Yelp has seen as it has lost almost 50% of its market value in the past 12 months.

> Market Segments:

Online Reviews, Review Management, Restaurant Reviews, Employer Reviews, Movie Reviews, Social Analytics, Reputation Management, Customer Service Feedback, Review Aggregation.

> Company Summary:

Saas Product launched, several Fortune 1000 customers, currently growing. Self funded to date, 10-20 employees.

> The Bottom Line:

ReviewInc. is doing a lot of things right in product innovation R&D efficiency and anticipating user needs. They will have to continue to innovate and adapt to the market and win big deals to grow to a sufficient size to be a factor in this market; they have many direct competitors. They need to be sufficiently afraid of this ruthless market and use it for motivation. As Andy Grove says “Only the paranoid survive.”

If RI wants to grow faster they will need to take the company through the chasm and make critical changes to their management team, product line and UX. Not all companies want this; they would prefer to fly under the radar, so 2015 will determine which path RI takes.

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Pinterest gets into the ad “Real Estate” Business

AdTech, CEO Succession, photography, PHP, Scalability, startup, startup CEO, Tom Nora

Pinterest as we know it could be a thing of the past. Beginning January 1, 2015, Pinterest will start putting ads on its site. Real ads in the form of promoted pins. I have mixed feelings about this – I respect their right to do this and I’m happy for them to be able to get a piece of the enormous revenue stream that Google and Facebook dominate, but it will also take away the purity of Pinterest and lessen the experience a bit.

Overall, I say congratulations, you’ve earned it, Pinterest! They will now move up the food chain significantly as Fortune 500 companies can develop more formal relationships with them and build “serious” ad campaigns. All other ad industry professionals and component niches will also take a big step closer to Pinterest. This is like opening up a whole new giant beautiful piece of the web to advertisers.

But there is a cost to this for users. Pinterest is one of my favorite places to go on the Internet, one of my favorite apps. It’s an oasis in the ad strewn desert of social media. There are many indirect ads there already, especially clothing sold by affiliates, but not very intrusive to the experience.

Pinterest is a constant river of pictures, and mostly very high quality pictures, undistracted by ad text or flashing lights. It’s a respite from the rest of the web, with its rectangular boxes of advertising or the sidebar of Google ads – the high value real estate of the web that is rented to the highest bidder.

As a major fan of photography and imagery I like to go over to Pinterest to get away from all that. It’s almost like a relaxation lounge on the web. I’ve slowly built and curated my collection of pins over the past 3 years, with a bit of an eye towards social validation, but mostly to see cool photos. I’ve been pleasantly surprised thousands of times by images I’ve seen. How many products can claim that?

One of the best parts of Pinterest is that it’s participatory, a gamification of looking at photos (and memes and infographics). As you browse build and organize your collection and it shows running totals of several statistics. And there’s minimal social interaction, almost like a library where people tend to be quiet and leave each other alone. A relaxing experience. I even have a board called zen relaxation that I can go to for quiet inspiration.

Pinterest no doubt developed one of the most fascinating products of the last decade, almost as powerful as Google, facebook, and Twitter. It’s addictive, stimulating and makes you smile. Hopefully that won’t change but it could.

The best part of the product is its design. Pinterest pioneered a new type of web page, now referred by everyone as a “Pinterest style”. It’s hard to remember now, but 3 years ago it was revolutionary. That single innovation was more influential than almost anything prior on the web.

Pinterest will do this with a lot of style – use a native ad approach with the Promoted Pin, but it could change them if they’re not careful. They are playing with the big boys now. Giants corporations will have a more formal dedicated part of their ad budget and marketing team focused on Pinterest, like they do now with Google ads and Facebook. Giant corporations will want to “help” Pinterest figure out how to change. Giant corporations will want to acquire Pinterest.  Let’s hope they keep their independence as long as possible.

Billions of dollars will be diverted from other ad channels to Pinterest. It could easily tarnish the brand. The fact that they have waited this long to monetize in this way and have built such great brand equity is quite encouraging.

It will also be a great opportunity for advertisers of all sizes, even the little guys. Buying real estate on Pinterest? Awesome!

No matter what happens, I’ll always be a big Pinterest supporter (is there a name for that? Pinterevist?) I hope they don’t hire a thousand lawyers or get acquired, but I trust them to handle this change with the same style they apply to everything.

@tomnora