Silicon Valley Uber Alles? I think so… Some of their Secret Weapons.

Name(required)

Email(required)

Website

Comment(required)

Submit

Δ

Can any other region “catch up” to Silicon Valley, or be the next Silicon Valley? Statistics show that it’s probably kind of futile to even try. Many have tried, but must be content with their small market shares. How can other regions will ever match the MACHINE: Stanford, Andreesen, Draper, Valentine, Doerr, Facebook/Apple/Google Millionaires, 4 Generation VC firms, Hardware/Software partnerships, over 100 Billon $ market cap cos.

Because high tech and software industries are now being seen as lucrative, job creating, imperative and oh so sexy, many regions are trying as never before to get in on this – mobilizing their governments, old school industries, universities and grandmas to unite to be the next Silicon Valley, calling themselves Silicon- Beach, Forest, Plains, Alley, Prairie, Coast, etc. These towns are setting their expectations way too high while the real Silicon Valley giggles at the sight.

Here are some of the secret weapons that make Silicon Valley stronger than any other “region” and act as its barriers to entry:

1. Silicon – Uh, yeah, that word? It’s what started all this. Silicon Valley launched and was launched by the mainstreaming of the Silicon chip over 50 years ago, which is now part of everything. There was no other part of the planet where anything close in innovation, design manufacturing, equipment, marketing and sale of semiconductors has emanated from. This foundation still drives the area and the world, even thought it gets less attention now than the software side.

2. 100 Years of Growth – It all began with military electronics, low cost housing, lots of empty land and Stanford University. It has spread way beyond to the east bay. San Francisco, over 50 universities and trillions of dollars in revenue. The growth has had bumps but over time has increased more steadily than any other economy in history.

3. Recruitment – Most of the leaders in SV are from elsewhere because Silicon Valley aggressively acquires the best from all over the world. Why not? Via Stanford, Berkeley, Facebook, Google, recruiting Harvard and MIT undergrads, their wonderful PR machine, advertising free meals, free car washes, free dry cleaning, free day care. $150,000 salary right out of college. Unlimited vacation. Where else can you gat all this?

4. Stanford – Not sure this even needs explaining, but Stanford has been a wole new entity in the past 20 years, beyond anyones imagination in wealth creation, funding, computer science, a recruiting engine into SV then on to local companies, pride, confidence, location.

5. Money, money, money – There are so many giant sources of money in SV that it’s staggering. VCs of course, Angels, they invented the term Super Angel, San Francisco, Real Estate leverage, IPO millionaires, corporate funding, Asian and European money, and on and on.

6. Tolerance for Weak Links – Here’s one most people don’t know – most people in SV aren’t stellar; I know several weak players who fake it well and are millionaires or millionaires-to-be just because they’re in the right zip code. The public tagline is everybody has a high IQ, but in reality there are lots of dwebes running around – I know, I’ve managed plenty of them. SVs leaders smartly realize the win ratio can be pretty low if you have a few enormous winners. Most SV projects die, most SV companies die, but if you build the algorithm to plan for this you’ll put more possible winners in play. So what if a few totally unqualified employees that snuck in make a few million. Like any organization, there are several who skate by or get by on good politics. That’s OK if you plan for it, “engineer” for it.

That’s just 6, there are plenty more reasons why there will only be 1 Silicon Valley for along time to come. The best answer for any other local economy is to just make the most of who you are, embrace your own identity, partner with Silicon Valley. And don’t use the word “silicon” in your name. Take Boulder, Colorado as a model, they’ve successfully created their own very strong economy for startups. There’s a startup for every 50 or so people there. They have all the pieces and they are heavily connected to Silicon Valley without envying them.

@tomnora

Median CEO Compensation: $363K (private) vs. $9.6M (S&P500)

The median private company CEO compensation package totaled $362,900 in 2011 — just 3.8% of the $9.6 million median compensation package given to S&P 500 CEOs.

Median total compensation for private company CEOs increased only 1.9% from 2010’s $356,133.

The Board of Directors sets CEO pay in 58.5% of all private companies, but for companies with $100 million or more in annual revenue, this number increases to 73.9%.

Only 54.4% of private companies have formal long-term incentive plans for executives, but this number increases to over 68% for companies backed by private equity investors. There is high correlation between a company’s profitability and whether or not they have formal long term incentive plans for executives.

J.P. Donlon
Editor-in-Chief
Chief Executive�Magazine

 

It’s The Profit and Growth, Stupid.

I’m paraphrasing a Clinton/Carville line “It’s The Economy, Stupid” in the title above. They used this to win the 1996 election by rallying people who were tired of such a weak, debt ridden economy. Sound familiar?

The Bubble Begins To Pop

Today it was announced that Betterworks is shutting down after $10.5 million in investment and 18 months of operation. Incredible but not. Around town people have been saying that BetterWorks is one of the strongest startups in L.A. They actually threw a party a month ago “The Silicon Beach 500”, celebrating the amazing growth of local startups.

Betterworks is one of many companies these days that aren’t really companies, they’re an idea, good hype, the ability to trick the public while they’re trying to work it out (We’re doing Great, We’re killing it. We’re hiring.) and the arrogance to say we don’t need any help. I could name another 20 startup in L.A. alone that are in the same boat – they are failing and will shut down eventually, but right now are promoting the facade of success and growth when they’re not either. I won’t names names, but I see their ads on the web. “we’re growing”, “dog friendly workplace”” We Love Startups!”. What about REVENUE and GROWTH and PROFIT and PREDICTABILITY? These are the definitions of Scalability.

Currently early stage startups all want the Facebook model – L U C K. Mark Zuckerberg invented something by accident that grew so far beyond his wildest dreams that it could cover a thousand mistakes. He got funded while wearing jeans and a hoodie. But eventually Facebook had to make Revenue and Profit. Be Scalable.

Most companies aren’t like that. They require good decisions and actions DAILY for YEARS.

Betterworks actually has/had a great idea, they just didn’t quite know how to properly build a business for the long term, and refused to listen to advice. I know that’s harsh, but another few hundred companies are doing the same right now. These companies stifle innovation, not promote it and teach the wrong skils – they need to be called out.

The result will be thousands of pissed off, unemployed people sitting on the beach in Santa Monica wondering what the hell happened. After the 2000 crash Profit and Revenue came back into style, spawning and reinforcing real companies like Google and Salesforce.com which are Profitable and Grow. 2013 will repeat the cycle, so let’s all change our thinking, get back to basics, put the egos aside and respect the expertise available to us.  Contact me if you’re in this camp. @tomnora

Big Revenues vs. little revenues

Big Revenues vs. little revenues – a strategy question that startups often struggle with. Should we focus on a business model that supports small payments, subscriptions, etc., or look for major large chunks of money from partnerships or strategic investors? There are strong arguments for both types of incoming dollars for a startup, but the correct answer is have both coming in simultaneously; it will balance your cash flow get you through valleys and help you avoid raising expensive equity capital. And will get you more respect all around.

Almost every company with long term success has used this dual revenue plan, throughout history.

little revenues

Many easy-to-set-up payment systems and business models on the Internet have recently popularized little revenues – micro-payments, price per transaction, low cost, SaaS, freemium, monthly payments. Easy to use systems like PayPal, Square, and several other new online cash acceptance systems are hen there are the thousands of derivative companies that are thriving from commissions from larger companies – Google ads, Facebook ads, and the all encompassing affiliate market industry.

I went to an affiliate marketing meetup recently (kind of by accident) and was knocked out of my chair by the size and sophistication of this world. The speaker (Shoemoney) told a great rags to riches story of making tens of millions from affiliate marketing tricks, getting ~$1 to 50 per referral. That’s a machine, maybe one that only produces for a bit, but still and semi-automatic mechanism for short term scalable revenue. He’s been at it for 10 years, so I guess he’s got the long term figured out, too.

Little revenue systems have vastly lowered the barriers to entry to starting a business, no longer must you have bricks and mortar, a merchant account, office equipment or even a staff to do business. It hasn’t decreased the need for innovation, salesmanship or marketing prowess. Many 2.0/3.0 startups are learning this the hard way.

Big Revenues

As a product company, very large injections of cash are always a nice add on to any business as long as they don’t disrupt your business strategy, kill margins or cause you to customize your offering too much. I was with a startup once where we sold our software products for average $500 each generating about $1 million per year, running as fast as we could. I was lucky enough to close 2 large contracts for $900K each within a month, and while we were negotiating a funding round. They were volume sales of standard product so caused no disruption to our processes. Those 2 deals changed our company forever, put us on the map for long term.

In the Shoemoney example above, the ultimate in trickle revenue, he has actually had several Big Revenue transactions, selling entire websites or business models, or taking on expert consultant gigs, all these for high six figure injections to compliment his $20 per click businesses.

In the auto industry, most large companies augment their car unit sales with $ multi-million R&D contracts – Ford, Cadillac, and Porsche get over 20% in extra revenues doing this.

Back to early stage startups. No matter how early, the most sophisticated startups are looking for these Big Revenues from the beginning. They bring on the expertise required to make this happen. It’s often called OEM, white labeling, or strategic partnership, but it’s big chunks of money when you need them most.

I recently met with a respectable high growth early stage startup – increasing revenues, retained all of their equity so far, thousands of customers, even made the Inc 500 recently. But they totally depend on one revenue model for 100% of their revenue, and it’s breaking down. They desperately need the Big Revenue injections before it’s too late.

If you’ve built something compelling enough, there are always larger companies that will welcome you to take their money. Current vs future revenue is very dynamic, two different businesses can leverage each other when their needs compliment each other.  Connect or contact me on twitter: @tomnora

Demise (plancast)

This article written by Mark Henderson of Plancast took a lot of courage. The Uphill Battle Of Social Event Sharing: A Post-Mortem for Plancast | TechCrunch http://j.mp/wCnYov

By putting the words Post-Mortem in the title he made it very clear that the company is failing, a shocking move in our current startup world. So many companies/people/vcs pretend they are succeeding when they are stuck – can’t scale revenues, especially over the past 5 years or so. Once they finally shut it down they often still claim success, or invoke the over-used “pivot” panacea.

By calling it as it is, Mr. Henderson allows a true discussion about what went wrong and other strategies that could possibly change the fate of Plancast and other startups in the same position. He is also helping other startup leaders and investors to possibly follow his lead of raw honesty, so this industry can focus more resources on a smaller number of companies that truly have something special and defendable. That helps people to better learn how to do it right, contribute to bigger better businesses, create profits.

In several of my past postings I’ve touched on this problem. It’s endemic to the startup world right now, and can’t lead to a good future. Of course startups always have a low probability of success anyway, but this current environment of pretending like every company that gets angel or super-angel seed funding is made up of geniuses with genius ideas is a house of cards. Articles like that above could start the process of correcting the market back to realism and eventually streamline resources. Mark has put his ego aside and done a great service to all of us. And who knows, by publishing the companies issues he may crowd source some answers (and funding) to actually save his company.

Here are some of the comments people made about this article:

“I hope TechCrunch publishes more well-composed articles like this in the future.”

“This industry is lacking such honest analysis. Thanks for keeping everything so real.”

“I greatly respect you posting this as a way to help others learn when you could have just disappeared in the startup abyss.”

Ii looks like the beginning of several who will come forward soon. What’s the lesson here? I guess more journalists should launch startups.   @tomnora

FINDING A CO-FOUNDER

Over the past few weeks I’ve been casually looking for someone to work with, to develop and market a suite of mobile applications (iOS, Android) for the entertainment world. Describing this other person variously as a co-founder, partner, CTO, and collaborator, the focus has been on someone with the right combination of technical experience/excellence, mutual chemistry, plus the right timing and inclination in their lives to do this.

I’ve asked around, talked to friends and even put a little ad in craigslist in Los Angeles. Through all this there have been many responses, some very positive, and some pretty weird. I realized what I’m doing is inadvertently conducting a social experiment here. The explosion of mobile phones and mobile apps has created an almost visceral response when you mention mobile, or Droid, or especially iPhone, or iPad. Everyone wants to have a connection with it, whip out their smartphone, show you their aquarium screen saver. You either have one or wish you did. When I was a child, it was having the newest Schwinn bike, in a cool color. $37.95. Or the latest hot record album. You either had them or wished you did.

Now it’s another computer device that you can carry with you, is “always on”, and can do almost everything (and plays the latest hot album). Suddenly waiting in line somewhere you can instantly become productive if you want, or plat a game.

If you carry this one step further – actually being involved in developing and deploying mobile apps, it’s even more compelling. A higher level way to become part of the society and possibly make some money. The focus should be more on the functionality or enjoyment or how you’re improving the world, but it’s not – it’s more the idea of being part of this new baby-app world. The result is many apps and businesses that come and go quickly.

Over 300,000 iOS apps are deployed plus equal amounts of Android and others. Most are unused or have a short lifespan and very little revenue. It’s more of a hobby or personal challenge than a scalable business.

In looking for a co-founder, I’m searching for the combination that will allow us to build a long term growth company, scalable and adaptable over several years. I want to create long term jobs and products people will use. That’s not the sentiment of most CTO-types I talk to. They want Cash Now, to be paid for their work by the hour/project. The economy has changed the focus to short term survival, not entrepreneurship (except in Silicon Valley). People believe they can learn app dev in 3-6 months and then create their own long term income, and they’re right on the mark in many cases. Aside from revenue generation, mobile apps are needed for basic business existence in most areas. Almost all companies are retooling their public image while also increasing their ability to market real-time. The mobile phone/pad is becoming central to our lives, more than our computer in many cases.

I’m going to keep looking for a cofounder. I’ve been lucky enough to create a few new products in this world that stick, which creates the backbone of scalability,  I’m having more fun in this new domains than ever before. If you know anyone, send them my way. @tomnora @cowlow