The Business Mechanic:9 Simple Ways To Improve Your Business And The Hawk and the Dove: Paul Nitze, George Kennan, and the History of the Cold War .  These are the next two books on my reading list.   If What Would Google Do is any indication, interesting authors write compelling books.

I like the thinking behind Yael Hochberg, Alexander Ljungqvist, and Yang Lu’s research on predicting venture investment return.  Their study, “Whom You Know Matters: Venture Capital Networks and Investment Performance” shows how, historically, Angels and VCs that make a habit of co-investing outperform funds that tend to participate in more limited syndicates.   As TechCrunch explains:

A venture firm’s network in the study was defined as being made up of all the other venture firms who co-invested with it in funding rounds. The more co-investors a venture firm has, the better its network. The better its network, the better its overall returns. The correlation between the size of a venture firm’s network and its returns may have something to do with better access to deal flow, talent, advisers, potential customers, and potential exits.

If this is true, then who are the most connected venture firms and angel investors today? Vijay Dondeti , a graduate student in bioinformatics, applied the analysis in the Hochberg paper to about 2,700 investors in CrunchBase  who participated in over 3,300 startup funding rounds between 2006 and 2008. He scored each investor based on how well connected they are to other investors as well as how well-connected their co-investors are to other investors. “In summary,” says Dondeti, “to get a high score, you need to co-invest often with others that also co-invest often.”

But I think the “Whom You Know” study is missing an important correlation. Networked investors tend invest earlier, often at the seed stage, and seed investments, on average outperform the VC investment class.  Small funds and Angels need to co-invest, because they don’t have huge funds. Without a huge fund, an investor runs the substantial risk of being unable to meet the needs of the portfolio company. This is why small investors ban together to make sure they can invest a meaningful amount, while still keeping funds in reserve.   Small funds make their money on the upside; large funds often make substantial money on their management fees.  The result is not a big surprise; small funds tend to obsess on helping their portfolio.   Don’t get me wrong, I respect several large funds. There are several great large funds that have a proven track record both participating at all stages and also adding value beyond simply writing a check.  DFJ and Sequoia are good examples, and are ranked high on Vijay Dondeti's ranking.

So I salute Yael Hochberg, Alexander Ljungqvist, and Yang Lu.  I hope there is a next version of their study where they try to statistically separate Alpha from “stage” from Alpha from “network” (a hard task given the opaqueness of venture returns).  As for Vijay Dondeti, I salute you also…your analysis was excellent. I don’t claim your ranking of me (at 63) above Cisco (at 65) is perfect, but if someone knows a better statistical predictor of venture/angel performance… please speak up.

BTW, when reviewing the "Whom You Know Matters" study in the Journal of Finance I noticed an outcome tree for 16,315 venture investments from 1980 to 1999, following their outcome through 2003.  For my own edification, I created a pie chart showing outcomes. 

Only 18.5% of all deals resulted in an exit over the course of the dataset. So the takeaway for Angels: if you can't see at least a 10X+ return on investment, don’t make the investment, unless you have some method of avoiding the other 81.5%.  If you have a method of avoiding exitless investments… please speak up. 

Perhaps the folks at Sharespost will help create exit opportunities for early shareholders? Til then I am sticking to co-investing with a 10X+ hurdle.

more at: http://dshort.com/articles/2009/four-bad-bears-alternate-real.html

Next NY’s “Jumpstarting Sales in Your Startup” panel last night featured Mark LaRosa of QuotaCrush and Jeff Stewart of Urgent Career.  Though the group was lively to begin with, the question that generated the most buzz - "What are the best ways to get past a gatekeeper?" - was such a classic that I had to post the best responses.

Here’s the best of the best that came out of the crowd last night:

1. Give the gatekeeper the benefit of the doubt.  Most salespeople assume that an assistant doesn’t have the time, judgment, or influence to help them, and therefore ask immediately for the decision-maker.  Huge mistake!  Treat every assistant with the courtesy and respect of a CEO.  Doors will magically open for you. 

2. Treat the assistant like a human being.  This is obvious, but most assistants don’t aspire to be assistants forever.  Google their name.  See if they blog or tweet.  What’s their web presence?  Find something that they are genuinely interested in and run with it. 
3. Use your arsenal.  Make a joke.  Play good cop/bad cop.  Talk about the weather.  Mention a tidbit you saw in the news.  Ask about their company’s latest release.  Ask if they’re running the company yet.  Whatever your style, get the assistant on your side.  After all, they’re controlling your access to the company.  There’s no need to make them enemy #1.
4. Write down the assistant’s name.  Refer to them by name, every time.  Be friendly, polite, and direct.  Remember that you are not yet their highest priority, and being impatient, self-righteous, and vague is never going to get you there.
5. Be honest and forthright about your solution.  Value the assistant’s time - it’s just as important as the decision maker’s.  Explain to them up front what you are calling about and why you think it will add value.  Don’t hang up and try again if your target is unavailable – it’s disruptive and dismissive.  Worse, you’ve wasted an opportunity.
6. Ask for help. The more you can engage the gatekeeper in the process, the better.  Ask the assistant about the best time to call, the easiest way to get in touch, direct numbers, cell phone numbers, etc.  Ask if it’s better to leave a voicemail, leave a message, or just to call back.  But before you do that…
7. Assume the assistant is a decision maker.  Believe it or not, the assistant’s job isn’t to keep you at bay.  Rather, their job is to discern potential value for their executive and/or their company.  By that logic, you should involve the assistant’s judgment as much as possible. Gatekeepers have an ear to the ground about every aspect of the business.  Ask them about their pain points.  Where would they see the most value added?  What’s most important this quarter?  Next quarter?  Next year?  What’s their growth strategy and what are their bottlenecks?  What’s their biggest frustration?  Assistants offer unique insights that can help you refine your pitch.
8. Ask who else is involved.  Gatekeepers have the ear of everyone that will be involved in your sale.  They know who you should be talking to.  Ask if you are targeting the right person.  Do they know anyone that might be of assistance?  Who should you talk to first and why?  Who is the ultimate decision maker?  Let the assistant paint the relationship structure for you and guide you up the ladder.
9. Alleviate their burden.  Assistants are responsible for sourcing and evaluating vendors.  If you’ve called them at the right time, you’ve eliminated their legwork.  Let them be responsible for walking your sale through the company.  Don’t blow it by presuming that they won’t be involved in the process.
10. Let the gatekeeper advocate.  If you’ve effectively engaged the gatekeeper, they will be your advocate throughout the entire sales cycle.   Let them make introductions on your behalf.  Ask about the best ways to engage various decision makers.  Ask their opinion on what’s most important to each decision maker.  Use them as a strategic sounding board as your deal goes through the pipe.  The more they are engaged in the value, the more value they add to you.  

Got any more of your own?  We’d love to hear them in the comments.  

About the Guest Blogger: Lauren Gilchrist is Urgent Career's "Jill of All Trades," managing operations ranging from finance to marketing to strategy and beyond.  A young entrepreneur interested in the intersection of sales and technology, Lauren plans to contribute regularly to Urgent Career's growing web presence as an authority on all things sales.  Look for more of Lauren in the coming weeks.

Eric Janszen does a masterful job articulating the conditions needed for a massive innovation bubble.  His article is required reading for any entrepreneur looking change the world.     The move away form oil will be as big as the transformation from animal power to steam, or transformation from steam to oil.  
 

The Tulips Bubble of 1637 is the classic example of an asset bubble.   More recently the assets of real-estate, oil, and gold have all had their bubbles.  I believe asset bubbles are a natural occurrence given our collective human nature.  (I wonder if algometric trading amplifies or dampens our human propensity for froth and panic.) 

But innovation bubbles are a different organism. Innovation bubbles are the markets (our collective intelligence) realization that technological change is afoot. Canals and Railroads are the classic example form the 1800.   More recent examples include Radio, Automobiles, TV, and the Internet.   Fortunes will be made and lost, but in the wake of the bubble a new technology will have taken root. 

I can’t wait to see what technologies replace oil and coal, and even more so; I can’t wait to see what entrepreneurs make it happen.  Will it be microbiologist hackers modifying algae to produce cheep fuel? Maybe nanotechnologists will invent cheep solar cells that are super efficient.  Perhaps some grad student is about to drop out of college to commercialize his ultra-capacitor thus ending the need for batteries.
  
Moving away from oil will take dozens of new inventions and business models; I am just glad Eric Janszen gives us a roadmap.

In Mike Nichols’ 1967 classic “The Graduate”, Dustin Hoffman’s character gets “just one word” of advice: “plastics.”  It was a sign of the times; the groundbreaking technology was changing everything from consumer goods to space equipment.  

Today, a new generation of materials is looking to graduate to the status of plastic.  The problem with plastic is its lifecycle.  Plastic production is dependent on oil; therefore, the supply chain is susceptible to the vulgarities of economics and geopolitics.  Plastic disposal often involves landfills, which come at an astounding expense.  The race is on for a greener, cheaper, and more profitable alternative.  Scientific drama will unfold, fortunes will be made and lost, and in the end, plastic will take its place among lead, iron and slate as just another material.   Algae-based, fungal-based, mineral-based and cellulosic alternative are all in the race.  

Paper byproduct Arboform looks like plastic and even employs injection-molding - just like plastic.    

The final product can resemble highly polished wood or have a more matted finish and look like the plastic used in most household items.
 
The transition from Plastic is a saga worth watching, I look forward to the next “New New”.

Note: Greensulate also looks promising.

The first dozen hires are usually the most critical because this core group will set the culture for the next 100 hires.  A hiring mistake early on can set your start-up back months (or worst).   When possible this core group should be recruited from existing relationships. Ideally people you have worked with, or have worked directly with people you respect and trust.   The problem with this approach is it limits your choices to a much smaller pool of talent, and does not scale as your company grows.  That’s where job boards can be handy, especially in a shrinking economy.

As a general rule of thumb I find that the best employees are usually already happily employed.  In a growing economy, that means a founder must be super persuasive to get them to join his/her start-up.  But in a shrinking economy, like the one we are experiencing now, even capable talent is hitting the job boards.

2005
First Choice – Candidates I have worked with, or have worked with close associates
Second Choice – Candidates currently happily employed elsewhere
Third Choice – Candidates from Job Boards

2009
First Choice – Candidates I have worked with, or have worked with close associates
Second Choice – Candidates from Job Boards
Third Choice – Candidates currently happily employed elsewhere

I have compiled a list of the top 50 Job Boards, ranked by traffic.  A mix of well written job postings can yield hundreds of resumes and a handful of viable candidates.

1        Craigslist        http://www.craigslist.com    40,500,000
2        Monster        http://www.monster.com    27,000,000
3        CareerBuilder    http://www.careerbuilder.com    12,600,000
4        LinkedIN    http://www.linkedin.com    7,800,000
5        Indeed    http://www.indeed.com    7,000,000
6        Simply Hired    http://www.simplyhired.com    5,100,000
7        Snag a Job    http://www.snagajob.com    3,600,000
8        USAJOBS    http://www.usajobs.gov    2,800,000
9        EmploymentGuide.com    http://www.employmentguide.com   1,200,000
10        The Ladders    http://www.theladders.com    1,000,000
11        Beyond    http://www.beyond.com    982,000
12        Top USA Jobs    http://www.topusajobs.com    867,000
13        Jobs.com    http://jobs.com    864,000
14        Dice.com    http://www.dice.com    848,000
15        JobFox    http://www.jobfox.com/    670,000
16        jobster.com    http://www.jobster.com    630,000
17        thingamajob.com    http://www.thingamajob.com    565,000
18        Vault    http://www.vault.com    556,000
19        JobIrn    http://www.jobirn.com    517,000
20        JobCentral    http://www.jobcentral.com    476,000
21        Yahoo! HotJobs    http://www.hotjobs.com    418,000
22        Job Bank USA    http://www.jobbankusa.com    416,000
23        FlipDog    http://www.flipdog.com    370,000
24        HigherEdJob    http://www.higheredjobs.com    297,000
25        Net-Temps    http://www.net-temps.com    264,000
26        GoJobs.com    http://gojobs.com    263,000
27        NationJob Network    http://www.nationjob.com    231,000
28        JuJu.com    http://www.juju.com    220,000
29        America's Job Bank    http://www.jobbankinfo.org    207,000
30        sologig    http://www.sologig.com   186,000
31        brightfuse.com    http://www.brightfuse.com    163,000
32        Job Target    http://www.jobtarget.com    155,000
33        xing.com - Europe    http://www.xing.com    136,000
34        jobscore.com    http://jobscore.com/corp    130,000
35        Prohire.com    http://jobs.prohire.com    112,000
36        College Recruiter    http://www.collegerecruiter.com    98,000
37        climber.com    http://www.climber.com    93,000
38        Work Tree    http://worktree.com    74,000
39        yotify.com - linkedin alerts    http://yotify.com    73,000
40        6figurejobs.com    http://6figurejobs.com    72,000
41        Employment911.com    http://www.employment911.com    71,000
42        Jobthread    http://www.jobthread.com    71,000
43        CareerSite.com    http://www.careersite.com    65,000
44        Jobs2web.com    http://www.jobs2web.com    62,000
45        Trovix    http://www.trovix.com    62,000
46        smuz.com    http://smuz.com    59,000
47        VisualCV    http://www.visualcv.com    56,000
48        CareerShop.com    http://www.careershop.com    51,000
49        The Interview Exchange    http://www.interviewexchange.com    51,000
50        Real Match    http://www.realmatch.com    50,000

Looks like Dogbert also expounds the benefit of portfolio diversification.

Last week I blogged about falling solar panel costs.  Several readers theorized offline that the economic downturn might slow production and lead to further panel shortages, thus raising costs and slowing adoption.  Good news.  This morning my friend in the semiconductor industry forwarded me this iSuppli study indicating that prices are expected to fall a record 20% in 2009.  

“In 2009, average prices for panels for new installation contracts will collapse to the US$2.50 to US$2.75 per watt range by the end of 2009, down from the current level of US$4.20 per watt. – iSuppli”

In addition to the advances in solar electric production, we are also seeing advances in power storage, including nano-capacitors.    

All this activity further validates my underling theory: we have seen this game before (CPUs, Memory, and Storage).  The solar game is just like the computer hardware game, and the winners will be businesses and consumers.

So I ask… who are the Robert Noyce, Gordon Moore, Andy Grove, Steve Jobs and Jack Simplot of solar?   

also related: Wall Street and Solar

Back in October, I blogged about the dropping price of solar and the inevitability of cheap electricity.

This Report  illustrates the massive 40% increase in global solar panel production capacity.  The report indicates that “incentive schemes and technical advances are having a positive downward impact on photovoltaic costs.” Market value is estimated to reach €40 billion by 2010 while prices for customers continue to drop. 

Though today solar is an immaterial component of global energy production, if production keeps growing at 40%, solar could get very big fast.

There is a nice summary at mokkikunta

• Like product R&D, don’t invest too much too quickly.  Innovation is an iterative process. Be sure to budget for the time to experiment.
• Like product R&D, don’t put all you eggs in one basket.  You will likely need to experiment with pitching to different market segments, different occupations, and different demographics.  Staff accordingly
• Be ready to commercialize, but don’t commercialize prematurely.  Once you think you have a grasp of your target market and resonating value proposition, scale the sales team.

Adeo at TheFunded is so fed up he has adopted a freestyle approach, but my gut says there has to be a technological solution. 

For years i have been following  Whenisgood.net, and this morning i was invited to schedule a  meeting using the service.  Wow has the service has improved!  Liberal use of AJAX helps, and I think they are on the right track. Similarly to Timebridge, they still haven't hit the nail on the head yet, but I have high hopes.  I wish them and others sucess. 

One hint for Whenisgood: if you're serious about solving the scheduling problem...splurge and buy the .com domain...or even better buy pointment.com from our half-baked attempt to solve this problem. 

Please, someone solve this multi-party-cross-platform-scheduling problem so my assistant and I can move on to other pressing issues.  

I like to have a detailed business plan in place before committing serious resources to a new venture… I figure it is a lot better to catch mistakes on paper, as opposed to discovering them once cash and careers are on the line. 

A business plan should not be viewed simply as a funding document. Even if you don’t expect to have outside investors, it is a great way to solicit feedback from people you respect and trust.  Writing a plan is hard work, but it makes execution easier.  I am surprised how many start-ups don’t invest the time to write down their plan, yet still expect an outside investment. 

Why should an investor risk their cash if the entrepreneur is not willing to think through her idea?

Over the last few years, I have witnessed an increase in the number of entrepreneurs who expect to raise funds with nothing more than a prototype and a PowerPoint.  The general consensus in Silicon Valley is that funding is about to be a lot harder to come by.  I hope that one of the upsides of the nuclear winter  is startups that are more thoroughly thought out. 

There will always be capital available for good management teams with well thought-out plans… Perhaps the ability to think through an idea is the mark of a good management team?

Of course, planning is no substitute for actual selling.   For pitching, Prototypes and PowerPoint reign supreme.

"No battle plan ever survives contact with
the enemy"

Field Marshall von Moltke

"No business plan ever survives
contact with the customer"

Steve Blank

Moltke: 

This picture looks West on Wall Street towards Trinity Church.  It caught my attention because:

1.) The Church is where my Great Grandparents were married
2.) The street is near the offices of my first start-up, and
3.) The picture is from May 14, 1884 when the sudden failure of the Grant and Wood Bank caused a panic. 

This run reminded me of the recent run on Bear and Lehman.  In 1884 business returned to normal within a few days.  As for Lehman…you be the judge.  It’s easy to forget that bank failures were common before the formation Federal Deposit Insurance Corporation in the 1930’s.  I am often reminded of this when I talk with business owners from former Soviet nations, as they see bank failures as a normal occurrence.   I wonder if the 2000’s will look more like the 1900’s or the 1800’s?  Hopefully neither; the 1900’s were hit by a huge string of failures in the 30s…and the 1800’s were even worse.  

This chat does a good/interesting job of comparing the 1929 stock market crash to the drop in 2008. 

There is something about a market crash that makes me wants to write.  I guess it is a cathartic way to deal with loss. 

Given the huge drop in Japan and London, we might expect the US market to drop substantially this morning.  Though I weep for the NIKKEI, I fear for the DOW.

I think it is easy to lose track of the BIG picture…the long-term view.  This may seem ironic, given my obsession with speed and urgency, but I don’t confuse urgency with short-sightedness.  Rather, I think small improvements implemented urgently can have huge impacts on the long-term outcome.  

I guess you could say my long-term view increases my urgency.  Furthermore, a long-term view needs to be long…maybe 10 years, maybe 100 years, maybe even 1,000 years?  1,000 years really puts things in perspective.  Let’s look at these long-term views:

The 10 Year View:

Because growth compounds, decisions today impact the future in non-linear ways.   If, for example, you have a start-up that is growing 10% a quarter and you decide to invest $10,000, in 10 years your investment will have become $411,000.  If you decided to delay that investment for 180 days, however, you would only accumulate $340,000.  That lack of urgency would have cost you $71,000.

The 100 Year View:

Stock Markets fluctuate, but overall they have done fairly well over the last 100 years.  Despite my belief that the stock market in 2009 – 2010 will struggle due to massive debt and population demographic shifts (baby boomers are moving out of peak earning and spending), pulling out of the market does not make “cents” (bad puns for bad times).    Multiple examples prove that history is on our side… over the long term, including:

• In January of 1970, a bear market started that lasted until May of 1970, during which the market fell 35.4%. In May, a bull market began that lasted until January 1973 and brought a 124% gain in stock values.
• In April 1981, another bear market commenced that lasted nearly a year and brought a 24.7% decline. Then, in March of 1982, the market began to rise and continued doing so until June 1983, bringing an overall gain of 71.7%.
• July 1990 brought a downward market that lasted three months, until October 1990, at which point equity prices had fallen 22.4%. Then, in the same month, a new, now legendary, bull market took hold and lasted nearly eight years, until July 1998, delivering a 330.7% gain for the market.
• Since 1975, 8 of the last 15 bull markets have started in the autumn months of September, October, and November.
• Since 1957 there have been 15 bear markets, as measured from peak to trough, and on average they have lasted 10 months and brought an average decline of 29.4%.
• The duration and degree of these bear markets were significantly less than the duration and magnitude of bull markets. During the same period, there were also 15 bull markets, which lasted, on average, 30 months and brought average gains of 112.5%.

Markets could only drop to ZERO, but they have unlimited upside (the cup is not only half full, but it could overflow).

The 1,000 Year View

Given my long-term view of opportunities, you can imagine how pleased I was this morning to find an 800-year economic data set. 

Here’s the summary of from the study:

The Study goes on:

In the past few years, there have been massive capital flows as the US borrowed billions from abroad while simultaneously sending billions for oil and imports.  These old data sets provide useful insights into the likelihood of inflation. 

So in conclusion:

A well-run market is a balance between Greed and Fear.  Sometimes balance gets out of whack.  Overall, I view market crashes as “nature’s way” of clearing out the dead wood, much like a forest fire.  Sure some good trees burn, but years later the forests emerge stronger. 

Professor Nelson’s article points out:

Sound Familiar?

Correspondingly, if you are a start-up, you need to find a business model that is not dependent on massive cash infusion.  When we founded Mimeo in 1998, we were able to raise $20+ million to hire 45 developers and set up an integrated built-to-order manufacturing facility.  Today at scale, Mimeo is very cash efficient, but I don’t think I would launch a company that needs to burn through millions of dollars before hitting profitability.

I recommend start-ups that use invention and intellectual capital to create cash flow.  Software, web applications, and cleantech come to mind. Truly great start-ups are bigger than any temporary economic downturn. 

The article goes on:

I guess markets are like seasons, sooner or later we will see winter.  May you be Aesop's Ant…I get the feeling there are more than a few Grasshoppers here in America.