Crash Dev

Product vs. Platform -- Competing at right angles

2012-01-25T16:57:00.000-08:00

I seems like every self-respecting entrepreneur these days is building a platform, not a product.

Many (but certainly not all) of these "platform" aspirants are smart enough to understand that most true platforms (think Facebook, iOS, Android) didn't start out that way.

Platforms tend to emerge in one of two ways:

EITHER: a disruptive new service (e.g. Facebook, Twitter) achieves massive adoption by end-users, and then opens itself to developers to accelerate innovation on behalf of its users.

OR: An incumbent player with a massive existing installed base (e.g., Apple with iTunes, Google with Gmail, Maps + Search, Amazon with its services architecture) leverages that base to offer developers instant distribution via a new platform technology (e.g., iOS, Android, AWS).

But there are just enough exceptions to this rule -- think Heroku for Rails developers, Urban Airship for mobile messaging, Twilio in telephony, GitHub for software development, Etsy for e-commerce -- where a startup actually succeeds in becoming a platform worthy of the name, feeding the dreams of ambitious entrepreneurs who believe they can beat the odds.

Platforms + Reference Apps

Unlike the incumbent players that start out with a big installed base, these aspiring platforms start out empty of both users and applications. Bootstrapping a customer community is brutally hard, and many entrepreneurs are too aggressive, and too impatient, to wait for adoption to come.

To demonstrate the capabilities of their new platform, the founders often choose to create one or more "reference apps" -- specific (vertical) implementations that shine a light on the platform's general (horizontal) capabilities. If the team doesn't handle this well, their "reference app" effort can create dangerous confusion among customers, core team members and potential investors.

Startups are resource-constrained at the best of times, never more so than when they're just starting out. The more "real" their reference app is, the more resources it consumes -- resources that aren't being invested in extending the core platform.

In the most extreme cases, the company finds itself "competing at right angles" -- trying to win on both the vertical (app) and horizontal (platform) axes simultaneously.

Instead of focusing on the big bet, the team is forced to fight on two fronts. This rarely turns out well.

This predicament resolves itself in one of three ways:

Company fails -- instead of nailing one important thing, the team fragments its efforts and underperforms at two, with predictable results. (This is the default case whenever a team's attention is split)
Platform wins -- the team keeps the reference app in perspective (a demo, not a product) and leans in on delighting platform users. (Twilio provided a set of open-source demo apps at launch, but was crystal clear about not putting itself in competition with its developer community).
App wins -- in a few examples I can think of (Z2Live here in Seattle is a notable one), the reference app becomes the business, and the platform effort is abandoned in favor of the surprise hit.

How to Avoid the Trap

If you aspire to build a true platform and plan to build one or more reference apps to demonstrate its capabilities, here are three things you can do to avoid falling into the trap of "competing at right angles":

Over-communicate -- make it abundantly clear to team members, platform customers and investors that your reference apps are that and nothing more, so no reasonable person can misinterpret your intent.
Under-resource -- Don't let your reference designs take on the status of "real" products or you'll undermine credibility (and mis-allocate scarce resources).
Open-source -- the best way to prove that your reference designs are nothing more is to give away the source code to your developer community.
Partner with customers -- instead of creating your own reference apps, work with a few early-adopter customers to create showcase apps that demonstrate the capabilities of the platform, but aren't controlled or maintained by your team.

Seen other clever ways of hacking adoption on nascent platforms? I'd love to hear about them!

Does your first-use experience have a massive "me-value delta"?

2012-01-13T14:03:00.000-08:00

I took a swing at this idea over four years ago, but in retrospect I buried the lede. It keeps coming up in my conversations with entrepreneurs, so I figured I'd try again with a more direct approach.

It's insanely hard to get people to adopt new behaviors.

Almost by definition, startups need customers to try something new: a new brand, a new product, a new experience. Some people (the kind that start new companies) are *always* looking for new ideas. But *most* people don't spend their time scouring the world for new products to try.

There's so much crap out there that the default customer attitude toward any new service is skepticism. And rightfully so.

Given how hard it is to talk people into trying something new, I'm always amazed when I meet entrepreneurs who expect users to do a ton of manual setup and data entry in order to get value from their product. They're so in love with their own ideas that they can't imagine others won't be as well.

If you want people to fall in love your product as much as you do, remember the principle of "beginner's mind" and create a first-use experience that has a massive "me-value delta":

Ask as little as possible of your customers, and use that tiny bit of commitment to generate a magical amount of value in return.

The more wired your customers are, the easier this should be. The amount of personal data embedded in the average Twitter, Facebook or Gmail account trumps anything you could possibly ask for in a signup process. So why the hell would you ask users to fill out page after page of form fields when you could just let them log in with an existing account? Once you have access to the data in that existing account, it's your job to parse, sift and analyze it to create some new intelligence -- and a new experience -- that blows them away.

Take Flipboard as just one example: all you have to do to experience the magic of that application is connect one of your social media accounts. Almost instantaneously, you have a beautiful iPad magazine full of content that's uniquely relevant to you -- because it's sourced from your friends. Tiny effort, huge payoff.

If your onboarding process feels like an effort to capture data about your customers, you're signaling that you don't have much faith in your ability to retain them over time. Your first-use experience is a chance to surprise and delight, not fill your database.

Make magic for your users and they will love you. Earn their love -- and their trust -- and they'll follow you to the ends of the earth.

"Self Provisioning" -- the guerilla assault on enterprise IT picks up steam

2012-01-10T22:12:00.000-08:00

"Self-provisioning" is the enterprise IT manager's description for services that users can select, install, configure and use all by themselves.

The name reeks of corporate-speak, but the impact is all startup. Combine "self-provisioning" with...

- No contract / low monthly pricing -- so no procurement officer has to bless it, and...

- User-centered design -- so no help desk staffer gets called to support it

... and you have the makings of a full-fledged assault on the traditional enterprise software market.

This isn't a new idea. Before anyone was talking about "cloud computing" or "SaaS" Salesforce created a billion-dollar enterprise software business by renting simple, web-based CRM tools to individual salespeople at $25 a month.

While traditional enterprise IT vendors attacked from the top-down -- with expensive sales teams and executive golf junkets -- Salesforce infiltrated customers from the bottom up: single-user adoption led to teams, then workgroups, and ultimately to enterprise-wide adoption.

What's changed in the last few years is the convergence of Salesforce-style self-provisioning with the dual assaults of agile / lean startup methods (building software products quickly / at low cost) and social media / content / inbound marketing (acquiring customers cheaply through search and word of mouth).

Together, these forces are radically reducing the costs of building an enterprise software company -- making it possible for small, lightly-financed teams to attack opportunities that were once limited to massive VC-backed players.

We absolutely love this theme and are watching it play out all over the Founders Co-op portfolio:

In Business Intelligence / Analytics, Simply Measured turns social media marketers into data-powered quant jocks, stitching together multiple real-time data sources into beautiful visualizations of business insights. No database. No custom reporting request to IT. No technical expertise required.

In Digital Marketing, Unbounce lets online marketers create, publish, test and analyze beautiful landing pages for their campaigns with no coding and no IT support. And Smore (still in private beta) makes it effortless for anyone to create, publish, promote and analyze beautiful "online flyers" for their business.

In Digital / Education Publishing, Highlighter turns any professor into a digital textbook publisher -- with one-click publishing, collaborative social highlighting and commenting, and analytics dashboards to track student engagement -- all entirely for free.

In Enterprise Productivity, Thinkfuse (still in private beta) turns the dreaded weekly status report into a social collaboration tool (at the workgroup level) and business intelligence platform (at the enterprise level).

We didn't set out to be enterprise software investors -- and we shudder when we see ideas that require armies of bag-carrying field sales reps -- but we love companies that actually make money, and enterprise IT is still a great place to do that.

Gratitude

2012-01-07T11:15:00.000-08:00

I've been singing a song in my head for the last few weeks -- if you're an old-school Beastie Boys fan like me you might recognize it...

"What's gonna set you free?
Look inside and you'll see
When you've got so much to say
It's called gratitude, and that's right"

- Beastie Boys, "Gratitude", Check Your Head (1992)

Last Friday, Andy and I announced the official close of Founders Co-op II, our second fund as "professional" early-stage investors. With the close of this new fund, we now have a fresh $8 million in capital to do what we love best: scouting out the most talented and ambitious software entrepreneurs in the Pacific Northwest and helping them make a dent in the universe.

I have so much in life to be grateful for, but right now I'm full of gratitude for...

Our portfolio company founders and team members

Money is the least part of entrepreneurial success. Talent is the limiting reagent in the innovation business -- crazy-smart teams with huge product vision, mad coding chops, design genius, marketing hustle, and buckets of raw grit + determination.

Every time an entrepreneur agrees to work with us, we get another chance to help an insanely talented team make a difference in the world. We do everything we can to honor those relationships every day.

Our Limited Partners

These are the 64 people (66 counting Andy and myself) whose money is behind every check we write. The investors in Founders Co-op are our secret weapon -- 64 successful innovators and business leaders who believe so passionately in the power of entrepreneurship that they put their money (and often their time) where their mouth is by joining our community.

Without them, Founders Co-op wouldn't exist. With them, we can move mountains on behalf of our growing family of portfolio companies.

Our VC mentors + co-investors

$8 million is a drop in the ocean when it comes to building big, disruptive technology businesses. As John Cook noted in his article on our raise, we hope to be "catalysts" for software innovation, but as our portfolio companies grow we inevitably wind up in a supporting role and count on bigger firms with the capital and strategic leverage needed to make success possible.

Over the past four years Andy and I have had a chance to work with -- and learn from -- some of the best investors in the business. First among these is Brad Feld at Foundry Group. Brad was an investor and board member in Andy's and my last business (we lost his money), and is now a key investor with us on both Big Door and (with his partner Jason Mendelson) Urban Airship.

Among many other great co-investors, the partners at First Round Capital, True Ventures, Madrona Venture Group and Ignition Partners have also helped us learn the ropes and help turn our early-stage bets into bigger + more aggressive insurgents in their respective industries.

TechStars

Founders Co-op -- along with the entire Seattle early-stage community -- has benefited hugely from the support of David Cohen's TechStars accelerator program. My partner Andy is the Executive Director for the Seattle program, and we host the 10 companies in each year's class in our South Lake Union office.

TechStars Seattle has become the essential "glue" that binds together many of the most influential players in the local startup ecosystem -- every major venture firm has committed both capital and partner-level advisors to the program, and over 100 experienced software execs (many of them active angel investors) have signed on as volunteer mentors to the companies selected to attend.

The Seattle Startup Community

I grew up in Seattle but spent much of my early career in the Bay Area. When I moved back in 2001 I struggled to find people who shared my passion for the pirate's life -- until I met my now-business partner Andy Sack.

Over the past 10 years we have witnessed -- and made our own efforts to contribute to -- an incredible transformation in the culture of our city. No, we aren't Silicon Valley, nor are we likely to ever challenge the Bay Area's primacy as the center of global tech innovation. But what we lack in heft and global reach we more than make up for with underdog spirit.

As a community, we punch way above our weight, and I'm convinced it's because we're working together, celebrating each other's successes and cheering each other on. I miss the weather and the cycling in the Bay Area, but I wouldn't trade our culture for theirs on my worst day.

My partner, Andy Sack

It's getting late, and this post is already way too long for anyone to read, but if you got this far then you can stick with me for a few more sentences.

I didn't set out in life to be a venture capitalist, or even an entrepreneur -- I just kept trying different kinds of work and learning what I didn't want to do, until I figured out what I needed to be happy:

working with insanely smart + relentlessly curious people

pursuing ideas I'm stay-up-all-night passionate about, and

being part of a team with an unshakable level of trust + mutual support

Andy and I didn't start a business and find someone to do it with, we started with a partnership -- and a friendship -- and built a business around it.

So thank you to all the people who let me do what I love to do. I have a ton to learn about being an effective venture investor, and I won't know for years if I'm any good at it, but I've never had more fun in my life, and it's all thanks to you.

Portland is on! Join me for PIE Demo Day, Tuesday 1/17/12

2012-01-03T14:20:00.000-08:00

Happy 2012 startup people!

I'm just getting my calendar back together after the holidays and the first event on the books is PIE Demo Day, Tuesday January 17 at Portland's Bagdad Theater.

A little over two years ago, Portland-based creative firm Wieden+Kennedy created the Portland Incubator Experiment (PIE). This coworking space was the spawning ground for two Founders Co-op portfolio companies -- Urban Airship + AppFog -- among many others.

Last fall, in partnership with Coca-Cola, Target and Google, PIE packaged up the learnings from those early days and created an accelerator program for promising early stage startups. Demo Day is show-and-tell time for their inaugural class of startups.

Among the eight companies coming out of PIE this year, several have already announced significant fundraising milestones (including Trinity Ventures' support of cloud cost management platform Cloudability). Tho whole gang will be showing their stuff at Demo Day, and Portland's startup scene will be out in force to see what they've got.

Love startups? Want to see what's cooking in Portland? You should be there!

The "Enterprise Innovation API"

2011-12-13T10:37:00.001-08:00

I've written before about the seemingly unbridgeable gap between the elite class of software "makers" and the enterprise customers who most need their help.

I was reminded of the problem by Fred Wilson's post this morning on "vertical accelerators" -- specifically the FinTech program in New York.

In Fred's words...

"the secret sauce of these programs is the leadership of the CIOs and CTOs of the largest banks and financial services companies...

"When I talked to the teams that went through last year's program, this was the thing that all of them gushed about. Getting regular access to the highest level technology execs in these institutions was a game changer for most of the teams"

I'm already on record as a huge fan of accelerator programs, and the pattern Fred describes is playing out all over the early-stage community (other examples include Weiden + Kennedy's PIE program, Rackspace-sponsored TechStars Cloud, and Microsoft-sponsored TechStars Kinect).

Big companies are desperate for access to digital innovation, and are "leaning in" to the accelerator movement for access and influence.

But "access" and "influence" are weak sauce for huge incumbent firms faced with looming digital threats. How can big companies access technology innovation on *their* agenda, with the kind of urgency and impact they need to avoid being disrupted out of business?

The traditional solution to the problem of enterprise innovation-at-scale is M&A: waiting until a disruptor is operating at a "meaningful" level of revenue or impact, and then paying a huge premium to take those innovations in-house (where they usually die a quiet death for lack of cultural and strategic fit).

The new trend of enterprise-focused accelerators is a tacit acknowledgment that M&A is often too little, too late: disruption is happening too fast, on too many fronts, to wait until its potential is obvious to the entire industry.

I'm delighted to see enterprise players engaged with the early-stage community, but I don't actually believe it's really going to solve the problem of fostering digital innovation within the enterprise.

The enterprise-accelerator trend suggests that corporate buyers are ready for a new approach to this hard-but-important problem, a translation layer that connects corporates seeking innovation with the elites of the digital creative class, with the scale + velocity required to help tech-laggard bigcos survive.

Toward an "Enterprise Innovation API"...

There is no one company or product I'm aware of that's solving this problem today, but I expect a successful pattern here to combine the following elements:

Trusted Executive Access

Delivering impact at enterprise scale requires access and support at the highest levels of the organization, because that's where strategy is formulated and money + power are controlled. Traditional enterprise consulting firms excel at this -- from McKinsey + BCG in strategy; to Accenture and IBM in tech; to WPP, Omnicom, IPG and Publicis in brand + creative.

Companies will always reject a truly disruptive innovation effort if this layer of the organization isn't bought in -- gaining + maintaining access is critical.

"Outside-In" Approach

Traditional enterprise IT projects are black holes (or gold mines, if you're an old-school system integrator), requiring costly and time-consuming coordination of technical and leadership resources across many different departments and budgets.

Delivering truly disruptive technical innovation at enterprise scale requires extreme tactical agility -- tapping strategic data and organizational resources as needed, but pulling them into lightweight frameworks that (largely) sit outside the tangled web of legacy enterprise systems.

Assemble More, Develop Less

Another key tactic of old-line enterprise IT consultants is to encourage deep system-level platform development and customization, deploying armies of low-level coders to wrap custom software (and sometimes even bespoke hardware) around enterprise-specific business rules.

Looking forward, high-impact enterprise innovation will be driven by firms that can convince their enterprise customers to embrace the power + agility of modern tools + platforms (e.g., LAMP, AWS, iOS / Android, Twitter, Facebook, SMS / Push, SaaS, IaaS), instead of trying to channel their technology spend into a proprietary system.
A Platform, Not a Pyramid

Traditional services firms always wind up looking more-or-less the same -- a few seasoned + strategic folks at the top (the "partners"), a bigger tier of smart + hungry lieutenants below that ("team leads" or "engagement managers"), and a high-churn mass of inexperienced kids at the bottom (which is where the margin comes from).

In a world of high-velocity, software-powered disruption, the pyramid model fails: it's too slow, the needed skills are too diverse, and the quality of "digital creatives" willing to work in the lower tiers of a traditional pyramid structure is too low (for all the same reasons that apply to enterprise recruiting of technical talent).

A winning approach to enterprise-scale innovation will federate the talents of elite performers at each layer in the stack -- senior strategy consultants, brand and creative professionals, IT infrastructure experts and software creatives conversant with the current (i.e., mobile / social / cloud-based) state of the art.

No single firm can credibly claim to deliver a best-in-class solution across these functions, and I actually don't expect any single entity to emerge as a leader here. Instead, I see an opportunity for a "virtual industry" of boutique advisory firms, led by "partner-level" refugees from the old pyramids who understand how innovation happens now.

These "innovation boutiques" will call in elite teams of specialists, assembled from the emerging class of high-performance talent marketplaces (think Forrst and Dribble for visual design, GroupTalent and oDesk for software execution, Contently for content creation, etc.), to deliver short-duration, high-impact solutions to their corporate clients.

So the "Enterprise Innovation API" isn't a company at all, it's a loosely-federated web of specialist firms, teams and individual contributors that make themselves available for high-impact strategic engagements on behalf of the biggest and most powerful brands on the planet.

The components of this new enterprise innovation market are already emerging and -- as demonstrated by the corporate accelerator trend -- the customers are eager to buy.

Secondary Market Kung Fu

2011-12-13T09:36:00.000-08:00

I'm going to catch a ton of shit for this, but here's the truth: Seattle is a secondary market for software entrepreneurship.

But before all you PNW partisans jump all over me, let me qualify that statement:

Compared to Silicon Valley, *every* city in the world -- including New York, Boston, Austin, Beijing and Bangalore -- is a secondary market for software entrepreneurship.

There simply is no other place on the planet with a greater concentration of talent, money, tech incumbents (a.k.a., acquirers) and self-reinforcing media attention for early-stage innovation than the Bay Area.

Entrepreneurs who live anywhere other than Silicon Valley -- which is most of the world's entrepreneurs -- have two choices: pick up and move, or learn a little secondary market Kung Fu.

First, let's talk about what you *don't* get if you choose to build your startup in a secondary market:

Credibility -- As Mike Arrington will tell you, any entrepreneur worthy of the name will get his (or her) ass to the Valley and never look back. In this view, if you aren't serious enough about your startup to bring it to the show, you don't deserve to be called an entrepreneur.

Access -- Most entrepreneurial exits are via acquisition, and most tech acquirers are in the Valley. Want to get bought by a tech bigco? You stand a much better chance of getting on the radar -- both formally and informally -- if you're just down the street, not a plane flight away. The same goes for VCs, mentors, or any other scarce human resource -- physical proximity + repeat interactions increase your odds of getting the help you need.

Coverage -- Journalists thrive on access too, so it's no surprise that the loudest media voices on tech and startups make their home in the Bay Area (unless they're temporarily avoiding income taxes). Since journalists are people too, they apply the same heuristics to startups that investors and acquirers do: if you aren't in the Valley, you must not be serious; and if you're not serious, you're not worth covering.

Talent -- Not only are there more digital creatives in the Bay Area than anywhere else on earth, but (even more importantly) the culture of entrepreneurship there runs so deep that only the weirdos and lamesters are actually willing to work at a bigco. Any Valley developer with an ounce of creativity and grit is building their own business, not working for someone else.

Serendipity -- Good ideas come from frequent collisions between people and ideas spanning divergent domains. If you want to increase your odds of producing a truly disruptive innovation, you need to put yourself in the way of as many serendipitous idea-generating interactions as possible. Once again, based on numbers alone, Silicon Valley looks like a winner.

Now, since a Kung Fu master prizes his ability to use his opponent's strengths against him, let's talk about how Caine (photo above) would use those disadvantages to his advantage...

Credibility -- Secondary-market companies actually *can* find success without the built-in support systems Bay Area folks take for granted -- it's harder to do, and all the more impressive for that. Chicago-based Groupon didn't attract investor and media attention because it was in the Valley. It attracted attention by generating "$1 billion in sales faster than any company, ever".

In my experience, smart investors and journalists actually *like* to learn about companies operating outside the bubble -- there's less competition for the story (or deal), and the excitement of finding a "hidden gem" (or "undervalued asset") is part of the appeal.

Access -- This one is hard to hack -- the advantages of regular, face-to-face interactions are real and powerful -- but there are ways to tap the bubble without living in it, and most of them come down to two words: relationships + trust.

If you want access to a Bay Area company, investor or journalist and you're not a local, find a way to engage the people you *do* know who can help. If you're an entrepreneur, seek angel investors or advisors who are well-connected within your target firms. If you're an out-of-town investor (as I am), go out of your way to work with local syndication partners who can help your portfolio companies reach the right folks.

(Neither of these strategies is a silver bullet, but both beat standing outside the store with your nose pressed against the glass...)

Coverage -- If you think Silicon Valley is a competitive place to be an entrepreneur, try spending a little time with a tech blogger. Thanks to our industry's ongoing disruption of the news business, it's gotten insanely difficult to sustain an audience for high-quality reporting. The league tables are measured article by article, in the form of views, shares and Techmeme hits, and journalists care as much as ever about scoops and exclusives.

Seen through this lens, getting good coverage in the tech press is a lot like the Access point above: "outside the beltway" entrepreneurs can earn high impact coverage by investing in relationships with the journalists they respect the most.

Where to begin? Try: 1) offering stories + hooks worth writing about; 2) being respectful of the journalist's time and professional pressures; 3) helping out (e.g., with background interviews / story referrals) that have nothing to do with your own agenda; and 4) regularly "showing up" as a constructive commenter + social amplifier for the writers you follow.

Talent -- this story's been told so I won't belabor it here, but the "war for talent" in the Bay Area has a significant downside: recruiting is insanely hard, employee loyalty is low and the prevailing culture focuses more on quick flips and big paydays than teamwork and sustainability. You know things are bad when even Zuck gets in on the culture-bashing:

"If I were starting now I would do things very differently. I didn’t know anything. In Silicon Valley, you get this feeling that you have to be out here. But it’s not the only place to be. If I were starting now, I would have stayed in Boston. [Silicon Valley] is a little short-term focused and that bothers me."

Secondary markets may have fewer entrepreneurial devs, but they also tend to have less-intense cultural and competitive pressures to exacerbate the talent problem. There's a good reason why Bay Area tech darlings like Zynga and Facebook look to cities like Seattle, New York and Boston for expansion offices (and it ain't the weather...)

Serendipity -- An ironic downside of the intense concentration of startup activity in the Bay Area is that -- despite the seeming diversity among startups, there is a kind of self-referential monoculture that has developed around the Bay Area tech ecosystem; as a recent article described it, "The Problem With Silicon Valley is Itself"

If -- as Steven Johnson convincingly argues -- good ideas come from the interplay among divergent fields of inquiry, cities with a less-dominant tech culture (or with equally strong intellectual alternatives) are actually better-positioned to generate truly breakthrough innovations than Silicon Valley (even if they're not as well-equipped to productize, finance or wring value from those ideas)

So -- given all of the above -- why would any serious entrepreneur choose to live anywhere other than Silicon Valley?

The more time I spend with entrepreneurs (and between Founders Co-op and TechStars Seattle that's pretty much all I do), the more convinced I am that founders are artists first and capitalists, opportunists and every other kind of -ist second, third, or (sometimes) not at all.

In my experience, artist-entrepreneurs value things like creative expression, personal autonomy and values-based relationships more than anything else. They resist systems that demand intellectual conformity and compliance, and deliberately (sometimes self-destructively) push against constraints that they perceive to be arbitrary or inconsistent with their creative vision -- including the idea that they "have to be" somewhere else to pursue their dreams.

The world is full of entrepreneurial artists -- empowered technology creatives that are absolutely inspired by Silicon Valley, but by no means in its thrall. Thanks to our mobile, social, ubiquitous technology, these people are finding each other and forging their own communities right in their own cities. They may admire the Bay Area for its many strengths, but they are anything but paralyzed by their outsider status -- it's actually a source of contrarian pride and determination.

Silicon Valley will always be the first and the best, but -- thanks to technology itself -- there is no geographic monopoly on technology innovation, and many paths to get there...

Software with soul

2011-11-30T12:21:00.001-08:00

Over the past few weeks I've had my mind blown by several teams, each pursuing very different ideas, but with fundamentally similar views about what a "magically good" software experience feels like.

I've been trying to come up with a good description for the ideas these teams are pursuing, and the title of this post -- software with soul -- is the best I've come up with so far.

The vision that these teams are pursing expands the definition of functional web "software" -- the bounded universe of pixels on a screen, with forms, rules and datastores behind them -- to embrace unplanned, user-scripted events, pseudo-AI rulesets, even participation by live human "coaches", all within the software experience.

The explicit goal of the creative minds behind these projects is to develop an authentic, sustained, empathetic relationship with the end-user -- to make their customers feel powerful, magical and cared for by their software.

It's impossible not to see Steve Jobs' intellectual fingerprints on these kinds of creative aspirations. No technology company has done more to inspire digital creatives than Jobs and his lead designer Jony Ive. As researchers in the UK demonstrated earlier this year, Apple fans experience feelings similar to those evoked by religious icons when in the presence of Apple brand imagery.

But as good as Apple is at device design and experience-layer software, they've never really delivered the kind of emergent software experience I'm seeing in its early stages today (and this assessment includes the remarkable voice interface that is Siri).

The difference I see in these new platforms is that they are designed not only to deliver an emotionally satisfying experience when in active use, but to actually *anticipate* needs and pro-actively re-engage the user (e.g., via email, text and mobile push messaging) to help address them.

Some of the patterning for these experiences comes from the story-driven digital gaming world, where roles and characters can evolve over time based on player choices and interactions. The most exciting of these new tools take full advantage of modern mobile devices, not only as vectors for user engagement and notification, but as sensor packages that bundle relevant meta-data (e.g., location, time of day, proximity to real-world places and people, even local weather) along with user-created inputs to create rich intelligence about the users' needs -- often without having to ask.

Some of these ideas border on the creepy (the image at top is of HAL 9000, the malevolent software intelligence from 2001: A Space Odyssey), and part of the creative magic is to stay on the right side of that line with intelligent disclosures, permissions and settings. But in the right hands -- and with genuine empathy for the customer -- the accelerating capacity for software to bring joy is inspiring to behold.

To all the digital creatives out there who aspire to beauty and magic in their creations, it's a great time to be alive.

Welcoming Unbounce (our first Vancouver BC investment!) to the Founders Co-op family

2011-11-29T20:31:00.001-08:00

Andy and I created Founders Co-op to serve entrepreneurs throughout the Pacific Northwest -- from Portland, OR through our home base of Seattle and across the border to Vancouver, BC.

We love our Portland-based portfolio companies Urban Airship and AppFog, but hadn't really given Vancouver our full attention until this year, when I attended GrowConf at the urging of our friend and regular co-investor Boriz Wertz.

As I wrote then:

"From the beginning, we thought of Vancouver as 'in bounds' for our investment activity, but after three years and more than 25 investments we still haven't placed a bet north of the border."

Until today.

We're delighted to announce our investment in Unbounce -- a company I first got to know on that August trip (thanks to Ian Bell and Brent Holliday for making the introduction over post-conference beers).

Unbounce is a great example of the kind of company that grows up here in the rainy Northwest: quietly excellent, intensely customer-focused, solving a real business problem and unafraid to actually charge customers money for the value they deliver.

Unbounce helps enterprise marketing professionals execute quantitative market tests without IT support by making it drop-dead-simple to build, publish, manage and measure results from web-based landing pages. When I met them, they had already built a fantastic product and business with the help of a few local angel investors, but they saw a much larger opportunity that they could only address with additional capital and support.

We weren't the only ones to notice what Rick and his team had built. Mark MacLeod of Montreal's Real Ventures and Dave McClure of 500 Startups fame signed on early, and as the round came together several more excellent early stage investors joined the syndicate as well.

We're incredibly excited to be a part of the new investor team supporting Unbounce. Not only do we get to play a small role in the company's continued success, we also have a good excuse to spend even more time north of the border.

Congrats Rick + team -- welcome to the Founders Co-op family!

Make sure you handle the money

2011-11-28T09:30:00.001-08:00

Third party monetization systems -- from AdSense and affiliate programs to display ad networks and in-app "offer walls" -- are a tempting drug for time-strapped entrepreneurs.

In the short term, outsourcing your revenue generation might feel smart: it lets you stay focused on on the "core" projects of building product and audience, without being "distracted" by the grueling and time-consuming work of asking customers for money directly.

But if you want to build a big, valuable business -- the kind that investors like to back and strategic acquirers like to buy -- what feels like a time-saving shortcut on the road to success may actually be a nasty detour down the wrong road.

If you're the kind of entrepreneur who plays to win (and not just to make a quick buck), here's a piece of advice: make sure you handle the money.

Here are three simple reasons why...

Insight

Every business exists by permission of its customers. If you solve a customer problem, you might get to live. Solve it better than anyone else and your customers will give you permission to grow, thrive, and maybe even lead the industry you choose to serve.

If you aren't talking to your customers daily about what problems you solve, what solving those problems is worth to them and how you could do better (and be worth more), you aren't learning what you need to learn to survive, much less thrive.

Third party monetization sets you on a path to maximizing what your money source values, not what your customers care about. You'll probably spend lots of time doing things that aren't good for customers but still make you more money, like increasing your rankings in search results, or generating more pageviews from the same content. The more those strategies pay off, the less time you'll spend thinking about -- and working on -- what makes life better for your *real* customers.

We are entering an era of perfect competition for software ideas -- the only sustainable competitive advantage is solving a problem for your customer better than anyone else and continuing to learn and innovate so that you're always ahead of even your most nimble competitors. If you aren't listening, you aren't learning, and asking for money is a great way to find out what your customers really value.
Value

Third-party monetization is subject to the same competitive laws as everything else on the web. The supply of web (and increasingly, mobile) content is effectively infinite, and more is being added every second of every day. With so much content available to them, third-party monetization networks have zero incentive to offer premium pricing to any individual participant; all but the largest publishers are functional equivalents, and the loss of any one publisher has a negligible effect on their overall yield.

If your business creates value, it's important to capture as much of that value as you can to generate the cashflows and profits you need to grow and thrive. If your value creation is so limited -- or such a commodity -- that the "best" monetization option is to give your inventory away to someone else, you should probably be thinking harder about how to create more value so you can "climb the value ladder" to a stronger and more defensible position.
Control

Price is a powerful signal: your price helps customers interpret your position in the competitive landscape, and changes in price (up or down) are levers you can use to drive or throttle demand, reward loyal customers, or steal share from competitors.

When you set price and handle the money your customers spend on (or through) your product, you have greater control over this powerful lever. If you give that power to someone else, you have to work that much harder to differentiate your offering and manage seasonal or competitive pressures on demand. (Even when you "control" price, never forget that your customers retain the ultimate control, which is to take their business elsewhere -- so use it wisely).

What does this mean for entrepreneurs working on their next business? The universe of possible startup ideas is at least as large as the supply of entrepreneurs, but here are few rules of thumb I'd consider when choosing your next project:

Solve a real problem - businesses exist to take away pain. The more pain they take away, the more they get to charge. The "pain" you solve with your next business could be boredom, or inefficiency, or the need to be loved -- just make sure the pain is real and strongly felt by many people besides yourself, or you may spend a frustrating several years of your life.
Ask for money early - don't wait until your product is "perfect" (whatever that means) before you ask your customers to pay. If they won't pay, understand why not and what you'd have to do to move more of them from "no" to "yes". The work of turning 'no' into 'yes' is the heart of your discovery process as an entrepreneur.
Don't expect scale to solve your business model problems - every business idea I've ever been pitched works great at scale. Even an economically dubious idea like Twitter starts to make a ton of sense when 200 million people use it. Most businesses -- yours included -- won't ever hit the scale at which that kind of magic happens, so make sure you have an idea of how real money gets made at every meaningful level of customer adoption. If you can't make that pencil, you probably should think again.

Sounds simple, doesn't it? You'd be amazed how many investor pitches on the market today don't pass these screening criteria. (I also know a bunch of investors who have done fantastically well by ignoring all three, so maybe I'm the idiot...)

[PLEASE READ BEFORE COMMENTING: Yes, I'm fully aware that Demand Media built a public company almost entirely on the back of AdSense. Smarter people than me have unpacked that story already. And yes, there are lots of examples of profitable businesses that rely heavily on 3rd-party monetization. My argument isn't that you can't make money this way, it's that your odds of attracting investment capital and realizing a strategic premium for your business are significantly lower if you do.]

The TechStars "recipe" -- patterns of a successful accelerator program

2011-11-16T14:30:00.001-08:00

Software is eating the world and everyone wants (really, needs) to get in the game.

For software creatives and engineering-centric companies, participating in digital innovation and disruption is second nature.

But for the vast majority of people and organizations, IT has traditionally been treated like the slightly embarrassing nerdy uncle who shows up for Thanksgiving: he's welcome to stay, but he has to sit at the kids table, and everyone raises their eyebrows when he asks for a second helping of pie.

As non-technical organizations wake up to the power of software-powered innovation, they quickly realize how hard it is to attract top-tier technical talent to full-time positions. Once they hit the brick wall of hiring, the smart ones step back and ask themselves:

"How the hell do I get hackers to care about my brand / my data / my problems?"

There *are* patterns for success here, but they aren't found in the traditional recruiting playbook.

In the current market -- where demand for engineering talent far outstrips supply -- the most successful model for attracting elite software creatives to hard business problems is the "accelerator" model. Pioneered by Y combinator and TechStars, this approach is now being applied in dozens of cities across the U.S.

Big tech companies like Rackspace and Microsoft are now working with TechStars to apply the accelerator model to their business, and even non-tech players like Weiden + Kennedy (an ad agency best known for their work with Nike) are creating accelerators to bring software creatives into closer contact with their brand clients.

I just came from brainstorming meeting sponsored by a state agency with a mandate to deploy money (not a ton, but enough to make a dent) to catalyze software innovation in the public interest. I'm an unabashed advocate for the "TechStars model", and I did my best to articulate what I believe are the key elements of the pattern as an input to the discussion...

The "TechStars Recipe"

Scarcity

The biggest single variable in a successful accelerator program is the quality of the class. Limiting the number of spots available and applying a rigorous screening model to all applicants are the bedrock of a quality program.

TechStars has built such a strong reputation that it now screens >100 applicants for every spot, radically increasing the odds that the teams and companies coming out of the program are going to make a dent. Teams are screened for engineering talent, agility and openness to feedback; the actual problem they plan to solve matters far less than the skills and approach they can bring to it.

Not every program will have the luxury of a huge applicant funnel, but maximizing awareness, enforcing scarcity and being disciplined about selection have a massive impact on a program's effectiveness and quality.
Urgency

Deadlines brings out the best in teams and mentors. Twelve weeks is an insanely short time to create product, lock in on a go-to-market strategy, and make a case for outside investment. Knowing that a roomful of qualified investors will be waiting for you on Demo Day helps keep everyone focused on bringing it all together, and the level of sustained intensity created by a well-run program is incredible to see.
Commitment

Lots of people say they want to be entrepreneurs; few actually make the leap and commit to the hard work of building a business. If you want your program to actually produce companies (and not just hobby projects), requiring a full-time commitment to the program is essential. This means no outside professional commitments, no mid-program vacations, and no remote team members.
Proximity

For each class of companies, having a cohort of peers who have made a similar commitment and passed through the same rigorous screening process is both inspiring and energizing. Bringing all the teams together in a single workspace allows everyone to make the most of that commitment. It also ensures maximum leverage of the program's mentors, presenters and leadership. Having everyone in one place maximizes the odds of serendipity, the chance interaction between people and ideas that create breakthroughs.
Leadership

Like any great company, an accelerator program is only as good as the people running it. Running a great program is an incredibly demanding job, requiring exceptional skills in fundraising, recruiting, people management, conflict resolution, inspirational leadership and public communication. All of this has to happen on a deliberately compressed schedule that typically requires 12+ hour workdays, late nights and frayed nerves all around.

If you're recruiting a leader for an accelerator program, you can't just screen for skills and experience; the job requires someone with an intense passion for the entrepreneurial journey and an evangelical fire that inspires the same in others.
Mentoring

TechStars calls itself a "mentorship-driven" organization for a reason. The core of the program is hands-on coaching from hundreds of mentors who have volunteered their time to help build the next generation of entrepreneurial leaders. Each team builds relationships with several mentors over the course of the program, getting world-class feedback on everything from product and engineering to sales, PR, customer acquisition, financing, hiring and organizational development. TechStars teams inevitably describe the mentorship they receive as the most powerful aspect of the program.

Recruiting an all-star group of mentors and helping them engage constructively with teams are critical success factors for any serious accelerator program. This is harder than it looks -- the most effective mentors are typically people with lots of other demands on their time, and they need to believe in the model and have confidence in the quality of the teams selected to commit time and effort to the program.
Promotion

As the cost of starting a software business approaches zero, we are entering an era of perfect competition for talent, money and attention. One of the reasons top teams apply to elite accelerator programs is for the signaling value -- being lifted up above the noise and showcased as a team worthy of attention.

Delivering on this promise requires the accelerator itself to invest in brandbuilding and communication -- creating a platform that can help its graduates stand out. The best advertising for any accelerator program is the success of its participants, but running great events, building relationships with influential media outlets and consistently producing compelling content about the program are all required activities.
Persistence

Creating a successful accelerator program takes time, and the longer you stick with it the better it gets. There is a powerful positive feedback loop created by any program that can turn out class after class of great teams, working with engaged mentors, attracting high-quality investors, and realizing market success.

Any accelerator that aspires to success should begin life with a multi-year plan and funding to match. Two years would be a minimum, and solid support for three or more years will radically increase your odds of building the kind of positive feedback loop that separates the really great programs from the also-rans.

For all of you accelerator veterans out there, what did I miss? Any of the above not as critical as I've made it out to be?

So what are you waiting for?!

The best online marketing isn't always about conversion

2011-11-15T15:57:00.001-08:00

Felix Salmon wrote a provocative piece this morning titled "The future of online advertising." In it, he makes a forceful case for the value of digital advertising as content, not just a gimmick optimized to drive clickthroughs.

He drives the point home by describing a recent speaking engagement to a group of digital advertising professionals:

"Most of the people in the audience literally didn’t know that when people buy Vogue they want to read the ads; in a very real sense, the editorial is something which just gets in the way."

In the old-school world of print and TV, this makes total sense. But to all of us in the digital world, ads have become nothing more than the top of a conversion funnel; an ad that doesn't convert is the definition of failure.

Taken to its logical extreme, all forms of online advertising trend toward direct marketing, and all direct marketing eventually becomes CRM.

Consider Groupon, which has passed through these phases faster than most companies: they began with massive display advertising to build email lists; parlayed those lists into a repeat direct marketing channel that could blast new prospects in the door of local merchants; and are now attempting to slice and dice those lists into finely-divided cells of preference and location, to deliver "yield management as a service" to merchants that quickly wearied of one-time visits from bargain hunters.

Groupon's long-term success may be in question, but their meteoric rise was made possible not by slow and steady brandbuilding, but by applying the digital marketing playbook with massive force.

Salmon's point -- too easily forgotten in a world obsessed with "lean" methods and quantified results -- is that the best advertising is actually welcomed by consumers not just as content, but as entertainment.

An entire industry is emerging around "viral" ads -- branded messages that are so fun to watch that consumers seek them out, share them and watch them -- on purpose -- hundreds of millions of times.

This kind of advertising isn't what traditional agencies are used to producing. A handful of creative firms -- like Portland's Weiden + Kennedy, creators of the massively successful Old Spice campaign (an example is embedded above) -- have started to figure it out. But they've done so largely by embracing another key point from Salmon's article, which is to...

"... treat with suspicion the idea that it’s possible to deliver a beautiful, self-contained brand proposition online in the same way that you can in Vogue or on TV"

Effective digital marketing doesn't have to drive prospects into a conversion funnel, but the best content campaigns *do* produce measurable results in the form of "engagement": shares, saves, comments, +1's, Likes, remixes, even animated spoofs constitute positive signs that your effort to reach people has hit the target.

Most companies can't afford to pay a big-name agency to execute high-concept viral ad campaigns. But every company -- and especially early-stage companies with limited marketing budgets -- should make content-based marketing an important part of their marketing mix.

The term of art for this type of branded communication is "inbound marketing" -- so named because it draws customers in to "soft" engagement with content without an explicit ask, vs. "hard" conversion- and sales-oriented methods.

What does this "soft" marketing look like? Guest-authoring articles on popular news sites, publishing infographics and white papers, creating instructional videos, being a frequent and articulate commenter on relevant articles by others, retweeting helpful posts from experts on the topic: all of these play a role in the inbound marketing toolkit.

None of these methods are easily automated or outsourced, and most require hands-on engagement by the most time-stretched people in the business -- the CEO is often the person most qualified to both craft and deliver a killer inbound marketing piece -- but all of them deliver what customers crave most: a chance to get to know (and even like) your brand *before* being asked to buy anything.

SEO is dead? The link spammers haven't gotten the memo

2011-11-15T13:47:00.001-08:00

In the past year some really smart folks that I respect a lot have declared the death of SEO. And while this may be true for high-quality / high-concepts sites building on new domains, it clearly hasn't stopped the old-school, gray-hat (and worse) SEO hustlers from plying their trade.

When even low-traffic specialty bloggers like me are regularly targeted with link-spam offers like the one below (which I just received today), you know the trade is alive and well...

It's hard to believe that a Blogger link is worth $40 to me - makes me wonder what the link buyer is paying ($100?). My favorite part is the line that "the link would go to an education site", backed up with the heartfelt footer message. I don't think I want to know what kind of "education" that site is selling...

The Money API

2011-11-09T23:15:00.000-08:00

The web is a platform, and every modern web developer relies on Application Programming Interfaces -- APIs -- as critical building blocks in their development process.

ProgrammableWeb -- a pioneer in the cataloging of public APIs -- currently lists 4,290 APIs on their site, from mega-platforms like Google Maps, Twitter and Facebook to uber-niche offerings like We Feel Fine (an art project that harvests feelings from blogs)

But of all the APIs out there, the ones that interest me the most are those that deliver money.

In the early '90s, the Internet was just a place for goofy personal webpages and IRC chat. There weren't enough people online for advertising to make much sense, and e-commerce sites made some money for the sellers, but not for anyone else. It was free and fun, but there wasn't much money in it.

In 1994 CDnow brought the real-world concept of referral marketing to the web, and in 1996 Amazon introduced its Associates Program and took the idea mainstream. With a few lines of HTML, affiliate marketing programs turned any online publisher into a paid sales agent, generating commissions for sales of products they never touched. All of a sudden, those goofy personal webpages could make you money! The money API was born.

At about the same time that CDnow was introducing their pioneering BuyNow affiliate program, clickable banner advertising was taking root at HotWired, the digital publishing arm of Wired magazine (the media bible of the web's early adopter set). This innovation was quickly followed by the development of the first ad server (in 1995), paving the way for the rapid development of an automated, ad-supported web.

Search marketing was the next big innovation in web monetization, but it wasn't until Google introduced their AdSense program (based on the 2003 acquisition of Applied Semantics) that the web's greatest money-spinner was offered as an API.

Like an affiliate program, AdSense-enabled publishers could now earn a share of revenue for the ad clicks they generated. But unlike any program that had ever existed before, Google could match their ads to your content, not the other way around (an innovation that's now worth about $10B a year to Google, or 28% of their total revenue).

Now, instead of hustling on behalf of someone else, you could write about whatever you wanted and Google would find you relevant advertisers and start sending you money.

AdSense is still the most amazing "money API" on the web, but its best days may be behind it. As user attention shifts from PC-based web browsing to social networks like Facebook, social game environments like Zynga's Ville franchise, and (my personal favorite) the app-centric world of iOS and Android devices, the field of 3rd-party monetization is suddenly wide open again.

There aren't any clear leaders yet. Despite the fond hopes of traditional ad network operators, in-app monetization on mobile devices isn't anything like web advertising. And selling virtual goods is huge business for game publishers and the big platform owners, but that hasn't yet translated into a truly portable money API for games.

You can bet that Facebook is cranking away on an embeddable social advertising API to rival AdSense, and Twitter is thinking deep thoughts about how to monetize the intent embedded in their stream without pissing users off. But what about the rest of us?

We've already made a couple of very obvious "money API" bets at Founders Co-op -- like Urban Airship in mobile and Big Door in gaming -- but our core belief in the power of "money platforms" is written all over the portfolio.

Consider Bonanza (a selling platform for indie fashion retailers), or Deal Co-op (a white label platform for daily deals entrepreneurs), or GroupTalent (a labor market for high-end dev teams), or Smore (a promotional publishing platform for small business owners) -- all of these services exist to help a specific group of entrepreneurs make more money, more easily.

If you're an entrepreneur looking for inspiration for your next startup, think about what a "money API" would look like in the markets you know best. If it doesn't exist yet, is legal, and uses the magic of software to help a lot of people make a lot more money, I'd love to hear about it.

The Island of Misfit Toys

2011-11-08T21:28:00.000-08:00

I was asked to speak to the Tech Club at the UW Foster School of Business tonight (thanks again for the invite, Saurabh).

During the discussion, one of the students in the group asked how I planned my career. My off-the-cuff response was that there wasn't a lot of planning in it -- I actually tried to follow a traditional corporate career path and just didn't feel like I fit in any of the big companies I tried.

I kept switching to smaller and scrappier gigs until I found my real home in the company of entrepreneurs.

This got me going on the topic of the entrepreneurial community, and the incredibly warm welcome typically extended to anyone who shows up with a sincere desire to make a difference. My analogy -- which may not make sense to anyone who didn't grow up watching those stop-motion animated Christmas specials from the '70's -- was the "Island of Misfit Toys" section from Rudolph the Red-Nosed Reindeer.

In my experience, entrepreneurs are the "misfit toys" of the corporate world. At first glance, we look like anyone else in business -- we believe in markets and capitalism, we sing the praises of job creation and innovation -- but spend a little more time with us and our imperfections come in to view...

We're impatient and demanding... we value autonomy and creative freedom more than money... we think the world can be a better place, and we're just naive and egotistical enough to believe that we can help make it that way.

Strangest of all, when we find other people who think the way we do, rather than look for ways to compete with or cut down what they do, we look for ways to help.

A few weeks ago Micah Baldwin wrote a great piece on the same theme called A Weirdo's World. He said a lot of true things in that post, but the idea that stuck with me the most was this one, describing the community of software entrepreneurs:

"We are an offer help first culture, and that mentally is finally beginning to seep into the world at large."

I don't know if Micah's right about the back half of that sentence but he's dead-on right about the first, and that's why I'm so glad I found my way to the Island of Misfit Toys.

Founders Co-op takes a bite of Smore (delicious!)

2011-11-04T11:32:00.000-07:00

We just invested in Smore -- a member of the TechStars Seattle class of 2011. If you've been following our investment activity for a while now, you'll understand why.

Last spring I wrote a post titled "'Platforms' aren't just for developers: accelerate your startup by empowering others." As I said then:

"...any system that honestly seeks to makes life easier for passionate individual entrepreneurs to chase their vision and realize their dreams is nothing but goodness in my book."

Smore is a commercial publishing platform that makes it easy and fun for non-technical people to create beautiful, functional "online flyers" -- promotional webpages with a specific purpose, like selling a product, advertising a service or, promoting an event. Once you've published your flyer, Smore brings the same level of ease and user delight to tools for promoting your page (via email, social media and search engine marketing), and to understanding the effectiveness of your page as a marketing tool (via easy-to-read data visualizations).

In short, Smore turns every business owner that wants to be on the web and doesn't know how into a design and online marketing rockstar. And if that isn't empowering entrepreneurs I don't know what is.

The founders -- Gilad Avidan and Shlomi Atar -- are what my friend (and fellow unicorn) Aviel Ginzburg likes to call "unicorns" : pixel-perfect design obsessives who also happen to be gifted full-stack developers. They came all the way from Israel to participate in TechStars Seattle and in three short months have lined up a stellar group of mentors and investors. We're delighted to be in that group. Welcome, guys!

Here's just a sample of their work...

.

Welcoming Beamit Mobile to the Founders Co-op family

2011-11-04T09:53:00.000-07:00

We're delighted to announce that Founders Co-op is now an investor in Beamit Mobile -- a member of the TechStars Seattle Class of 2011.

Co-founders Matt Oppenheimer, Josh Hug and Shivas Gulati are on a mission to blow up the current market for international money transfers by taking full advantage of the global ubiquity and advancing technical capabilities of connected mobile devices.

Almost $1 billion is transferred between individual recipients across international borders every day.

Current approaches are inconvenient, expensive and slow, making the market ripe for disruption. But this is also an industry wrapped in red tape and notoriously "leaky" due to fraud, so it's not for the faint of heart. To manage risk and hone their approach, the team is beginning with just one international market -- the Philippines -- from one U.S. jurisdiction -- Washington State -- and that alone is a $300 million opportunity. But as they made clear in their Demo Day pitch yesterday, their ambitions are global and they're moving with lightning speed.

Matt's background as the Head of Mobile and Internet Banking for Barclay's Bank in Kenya gives him unique insight into both the opportunity and risks presented by this market. Chief Product Officer Josh Hug's experience as CEO and co-founder of social book-sharing service Shelfari (acquired by Amazon) adds proven customer experience (and customer acquisition) chops to the team. Add in Carnegie Mellon-trained startup vet Shivas Gulati on the engineering side and you have a core team with the chops and discipline to make a hard run at a very big idea.

We've been sitting next to the team for the past three months as they cranked through the crucible of TechStars and we're incredibly excited to have the opportunity to carry the relationship forward as investors and advisors to the business. Welcome to the family, guys.

Inbound marketing in an App Store world

2011-10-29T11:21:00.000-07:00

Fred Wilson wrote a great piece this week on the pain and frustration felt by mobile app publishers who rely on iTunes or Android Market as the primary distribution channel for their apps. In Fred's words:

"Centralized control of an ecosytem never offers as much opportunity and diversity as a decentralized system. And in the leaderboard driven app store model, we have centralized control. Let's rise up and protest against this model. It's not healthy for anyone, most certainly not healthy for small developers of the kind we like to work with."

I'm all in favor of breaking the app store's stranglehold on app distribution (and have been working with the team at AppStoreHQ to create alternative modes of app discovery for a while now), but blaming the app stores for poor discoverability is a little like blaming Google for not putting your site on the first page of results -- getting found is the responsibility of the publisher, and is as much a part of the entrepreneurial game as building a great product.

Web publishers have faced this problem for more than a decade now, and a sizable industry has grown up around the problem of getting found in an vast and turbulent ocean of information. Broadly defined as "inbound marketing", this includes new disciplines like search engine optimization (SEO), blogging and social media marketing, as well as time-honored crafts like "earned media" and public relations.

In the early days of the smartphone revolution, the app stores had so few apps that traditional retail merchandising -- category browsing and "top seller" lists -- worked well enough that most app publishers didn't bother with out-of-store marketing efforts. But that time has passed, and expecting the app stores to do your heavy lifting is a little like expecting DMOZ to drive your web traffic.

Wake up app publishers: You are responsible for your own demand generation!

Instead of waiting for the app stores to fix the discoverability problem, app publishers need to dig deeper into their entrepreneurial toolkits and embrace the power of inbound marketing to generate their own demand. Inbound marketing for mobile apps is an emerging discipline -- the methods and tools that have evolved for web publishing won't necessarily apply. But taking control of your own lead generation isn't a nice-to-have in the app world any longer, it's essential to your survival.

I'm aware of at least two companies that are out in front on this effort to adapt the tools and techniques of traditional inbound marketing to the app store world:

MobileDevHQ (disclosure: I'm an investor) is currently in private beta on a suite of app store optimization tools, including app store search rankings, keyword analysis and competitive benchmarking for app store performance. Ian Sefferman, the company's founder, has embarked on a campaign of "radical transparency" to share the company's own experiences in the app store and how they're using the tools they've developed in-house to drive organic demand.
Smore (disclosure: they're a TechStars Seattle 2011 company, I'm a mentor) is "Tumblr for products, services and events", a lightweight publishing platform that makes it trivially easy to build, publish, promote and analyze beautifully-designed online flyers. Mobile app developers are a core audience for the platform -- Smore is building a really smart set of tools designed to showcase apps in ways the app stores don't allow, and to drive and measure demand to a marketing platform 100% controlled by the publisher, not the app store.

Are there other companies out there pioneering the discipline of inbound marketing for mobile apps? Sound off in the comments and let's start Fred's #OccupyAppStore revolution!

Starting a Fund vs. Starting a Company: Turtles all the way down?

2011-10-23T22:16:00.000-07:00

I recently had a fun and wide-ranging conversation with a Founders Co-op limited partner (i.e., an investor in our fund) who's now a principal at another early-stage fund.

One of the recurring themes in the discussion was the fractal similarities between starting a new company and starting a new fund -- as my friend observed, "it's turtles all the way down."

Like most comparisons, you have to squint a little to see it, but based on my experience to date, here are the top five similarities between starting a new venture fund and starting a venture-backed business...

Always Be Raising

Unless your startup gushes cash -- and sometimes even when it does -- good entrepreneurs are always weighing cash on hand vs. monthly burn with an eye on the next raise. Wait too long and you (and your current investors) can get stuffed by a round raised under duress. Raise too early and you risk wasting a ton of time (and having your deal be perceived as "stale" by the investor community) chasing cash when you should be chasing customers and partners.

Fund cycles may seem longer -- the typical venture fund has a 10-year life -- but the investment period is much shorter, usually just 3-4 years, with the balance consumed by follow-on investments, portfolio support and (hopefully) liquidity. You never want to be perceived as being "out of market" -- not having funds to invest in new deals -- and venture fundraises can take as long as (or longer than) any company raise. So by the time you're a year or two into your investment period you'd better be warming folks up for your next fund so you don't cut it too close.
It's All About the Talent

Great companies are built by great people, and the best founders have a gift for finding amazing folks and convincing them to sign up for whatever dream they're currently working on. (Really exceptional founders often have a "warm bench" of amazing people that they call into battle each time they start a new company). Especially now, when the market for engineering talent is as tight as I've ever seen it, quality recruiting is the engine that powers everything else a company does.

The relationship between money and talent has changed significantly over the past several years. As the capital costs of starting a software business have fallen, the power dynamic between funders and entrepreneurs has done a 180. Back when it took $1 million or more just to get in business, talent had to chase money. Now that any skilled developer can start a commercially viable, globally visible company on a few thousand bucks, the tables have turned and money now chases talent.

To a fund investor, the founders themselves are the talent pool we're targeting, and we need to deliver an incredibly compelling value proposition to get them to join our "team" -- which in our case is our portfolio of invested companies. The shortest, simplest description for what we do at Founders Co-op is this: we're talent scouts, looking for the most incredibly talented entrepreneurial engineering teams in the Pacific Northwest. If we build a great team, we're well on our way to building a great fund.
Distribution is King

Most first-time entrepreneurs don't appreciate the power of distribution. In a world of nearly perfect competition in software -- where plummeting capital costs and the dream of easy success spawns dozens of entrants for each new idea -- winning the fight takes more than great product. Killer execution on "distribution" -- my loose description for the intertwined disciplines of sales, promotion, PR and partnerships -- is usually the difference between the top dog and the also rans.

Effective fund investors bring the same focus on "distribution" to their "product" -- the founders and companies they back: building trust with the next tier of venture investors (the ones most likely to lead follow-on rounds in your portfolio companies); understanding the corporate development needs of the most active and strategic acquirers; even building an audience of blog readers or social media followers can be seen as a "distribution" strategy for investors looking to maximize the opportunities for their portfolio companies to succeed.
Mentors Matter

Building a company for the first time is a wild plunge into the unknown. Almost everything about the experience, from setting up the entity to building a team, raising money, navigating competitive markets and engineering an exit (or winding down gracefully) are new experiences for the first-time founder. Luckily, there is a huge and welcoming community of experienced entrepreneurs who understand the journey you've embarked on and are willing to help (typically with no expectation of compensation).

Leading accelerator programs like TechStars have built their entire brands around the idea that effective mentorship is a critical ingredient to startup success (and as a TechStars mentor and co-host -- with my partner Andy -- of the TechStars Seattle program, I'm 100% convinced that it's true).

When we started Founders Co-op, I didn't even know what I didn't know about being a professional investor. We started out doing what we'd done as angel investors -- looking for great teams and trying to help them succeed in any way we could. And that was -- and continues to be -- a part of what we do every day.

But running money for other people isn't the same as making your own bets. You have to understand why they gave you the money -- what job they're expecting you to do, and what role that check plays in their overall asset allocation. Instead of playing checkers -- looking for one great deal at a time -- you have to learn how to play chess, building a portfolio and a firm that can deliver returns to founders and investors that more than justify your fees and carry over the long haul.

We're just two funds in at FC and I still have a ton to learn about how this game is played. Fortunately for us, we have an amazing group of advisors and mentors, many of whom have been in the business much longer than we have (and have both the trophies and scars to show for it). We continue to be incredibly grateful for their advice, feedback and patience as we learn the craft.
It's a Long Journey, Enjoy the Ride

The more time I spend with entrepreneurs, the more convinced I am that entrepreneurship is a benign pathology, not just a personal choice. Just as artists have an innate need to realize their visions, so too do entrepreneurs. The "vision" of the startup founder isn't a painting or object made of metal or clay, but an idea about the world as a different and better place. The "work" of the entrepreneur -- which may take several attempts to be realized, if it's realized at all -- is to relentlessly pursue that vision with the help of talented team members, like-minded investors and all the luck that hard work can produce.

Most founders have more than one vision in their heads at any given time, and are always coming up with new ideas about how the world is broken and needs to be fixed. There is no endpoint to entrepreneurship, it is a life journey that -- once embarked upon -- is almost impossible to turn away from.

When Andy and I started Founders Co-op, I didn't really know where it would lead us, all I knew is that it somehow "felt right" as the next step in our partnership. I had no real appreciation for how long a journey it would be -- each time we raise a new fund we re-up for another 10 years together -- or all the new things I'd have to learn to even approach competence in my new role.

What I know now -- just four years in -- is that we have given ourselves the greatest gift I could have imagined: a lifetime pursuit full of meaning, for ourselves, for the entrepreneurs we work with, and -- if we're lucky -- for the community in which we and our families live.

As Brad Feld has been known to say, building entrepreneurial communities is a 20-year journey. We're just getting started, there's a long road ahead, and I can't imagine doing anything else.

Beware of "angels" with sticky fingers

2011-10-19T15:04:00.000-07:00

I've heard several disappointing stories recently from first-time entrepreneurs who are out building their mentor and investor networks.

The companies' specific situations differ, but the basic story goes like this:

-- A credible-seeming business person reaches out to the company offering "help" with their business or fundraising.

-- This person represents themselves as an active angel investor with check-writing capacity, but is uncomfortably vague when describing their own recent investing activity.

-- Before any material "help" has been delivered, the "helper" hints (or flat-out demands) that they be compensated for their valuable services with equity in the entrepreneur's company.

The requests can be astounding to anyone familiar with early-stage financings -- more than once I've seen self-declared angel investors asking for double-digit percentages of founders stock for their invaluable "advice and assistance" -- with no investment forthcoming.

In the best case, the entrepreneur smells a rat and quickly turns off the relationship. But all too often these deals get struck and the cap table gets loaded up with "advisors" who promise a lot (often including an angel investment) but wind up creating no value and piggybacking on the hard work of the team for the life of the company.

My views on this are probably too strict, but I'd rather not see anyone in an early-stage cap table that isn't (a) a founder or full-time employee of the business, or (b) someone who wrote an actual check (not an "in-kind" contribution of services) when the company really needed the cash. The only exceptions that make sense to me are grants for carefully vetted and truly strategic advisors or board members, and even these should be small (e.g., a fraction of a point for advisors up to a full point for board members) and subject to annual vesting and renewal.

Good mentors are critical to entrepreneurial success, and programs like TechStars earn their reputations by connecting top-tier teams with amazing mentors who serve on an entirely volunteer basis. Every mentor has their own reasons for doing what they do -- some love to teach, some want to give back, some love new ideas and many want to have a chance to invest directly in the teams and ideas they connect with. But...

...no high quality mentor does what they do with the expectation that they're going to receive material compensation for their help.

In my experience, good mentor relationships never start with a request for comp, and any time you find yourself in a conversation with a "mentor" or "angel" who spends too much time focused on how they're going to get paid for their "help", my advice is to turn and run.

Freemium + Adverse Selection (a.k.a., The "Groucho Marx" Problem)

2011-10-17T17:40:00.000-07:00

Eminently quotable comedian Groucho Marx once sent a telegram to the Friar's Club of Beverly Hills -- to which he belonged -- stating:

"PLEASE ACCEPT MY RESIGNATION. I DON'T WANT TO BELONG TO ANY CLUB THAT WILL ACCEPT PEOPLE LIKE ME AS A MEMBER"

This phrase pops into my head at least once a day, usually when I'm talking to an entrepreneur about their business model.

The "consumerization" of enterprise software has shifted a huge chunk of the SaaS market to "freemium" pricing -- allowing anyone to use a basic set of features for free and then mining the large free user base to upsell heavier users (or those with special needs) to paid premium accounts.

This is a fantastic and low-cost way to build an initial customer base, and many companies (including several in our portfolio at Founders Co-op) have used it successfully to build their business. But there's a downside to the freemium approach, and it's particularly acute for companies that facilitate commerce (think eBay-style marketplaces), promotion (directory, coupon or affiliate marketing sites) or publishing (free blogging platforms like Blogger, Tumblr or Posterous).

Long story short, if you expose a free platform for driving sales leads to the public web, the first people to find it will be the ones you least want as customers: porn sites, link spammers, and snake oil salesmen of all description will beat a path to your door and bring their friends.

In economic terms, this is called "adverse selection", and it's one of the harder business and branding problems that freemium companies face. Offering a service that creates economic value for free will tend to attract the most marginal economic players -- the ones for whom almost any amount of low quality free distribution is worth the effort to claim.

If these low-quality early adopters don't impact the overall perception of your service, their negative impact may not be significant...

...but if your customers' content and activity on the service reflect publicly on your own brand, you may find yourself trapped in a negative feedback loop that's hard to break out of.

Shady early adopters attract more shady early adopters and infuse your entire brand with shadiness, driving away higher quality customers who might have been attracted by the value proposition, but are turned off by the "company they'd be keeping" by using your service.

There are many solutions to this problem, but all of them require adding some level of friction to your offering. Examples include:

Closed beta - Announcing a freemium service but keeping the public doors closed until you've amassed a core group of high quality early adopters that reflect the type of brand you aspire to build. Launchrock has built an entire company on the idea of helping startups manage their beta lists.
Public / authenticated identity - Spammers don't usually like to show their faces in public. Requiring validated identity, especially via a "real names" 3rd-party service like Twitter or Facebook, can shine enough light on the person behind the account to limit (but not eliminate) spammers. Oauth emerged as a framework to enable exactly this kind of shared authentication and make the web a safer place.
Payment / micropayment - Because most spammers are marginal economic players that rely on volume and automation to make money, adding even a token "registration tax" to participate in your service can weed out an amazing number of junk signups.
All of the above - I'm not sure one data point qualifies as a trend, but I was interested to see lightweight authoring tool Mightybell require a $1 fee to access their closed beta - a new and compound twist on the idea of adding friction to freemium to ensure quality.

It's a bummer to pour cold water on the magic of free, but if you're building a business -- and a brand -- for the long term it just might be worth adding a little friction to your funnel.

Agree? Disagree? Have a better way? Please sound off in the comments!

Note: Image at top sourced from Wikimedia Commons

Smartphones, "headless" devices and the stealth singularity

2011-10-11T12:55:00.001-07:00

WARNING: This is one of those posts I occasionally write to organize my thoughts and test some ideas -- it won't hold together that well and feedback is what I need most, so please comment if you're interested in the topics below.

Q: What do smartphones, robotics, mobile health, quantified self, and the singularity all have in common?

A: When the "mobile phone" becomes a digital proxy for human identity -- the filter through which we perceive the world and the intimate facilitator of an ever-increasing share of our intellectual and physical activity -- the barrier between human and machine shrinks dramatically.

A corollary: the more powerful, portable and personalized these machines become, the more we will employ them as interfaces to every other machine we interact with -- including our toys, our cars, our televisions, and ourselves.

Smartphones are the Singularity on little cat feet

Since the release of the first iPhone in 2007 this future has been visible, and the competitive energy introduced by Google's Android project has only accelerated our progress in this direction.

In 2010, 19% of the 1.6 billion "mobile phones" sold around the world were smartphones -- personal mobile computing platforms loaded with sensors and pre-configured to run the more than 1 million apps currently available. As technology inevitably does, smartphones keep getting both smarter and cheaper (Huawei is now offering an unlocked Android smartphone in Africa for $80) turning a first-world luxury into a global commonplace and further accelerating the mobile innovation ecosystem.

Early attempts to grasp the envisioned future of technology-enhanced human experience -- "augmented reality" apps like Google Goggles and Layar, "personal instrumentation" offerings like Fitbit and Wakemate -- are faintly ridiculous to "normals" and interesting only to early adopters and future-freaks (myself included) living inside the technology bubble.

But when a leading innovator -- and perfectionist brand -- like Apple decides to include mobile, personalized artificial intelligence in their flagship product, you know something's up.

It's not yet commonplace to ask a machine a question and expect a sensible answer -- particularly not an answer that's conditioned on your current location, past history of questions asked and current appointment calendar (not to mention real-time access to a wide array of cloud-based datastores) -- and it will likely take time for the broad swath of consumer culture to embrace the behavior as "normal".

If any company has demonstrated an ability to shift both behavior and culture it's Apple, so this will be interesting to watch.

+++++++

Smartphones will "behead" most consumer electronics

The "personal computer" was never all that personal, and the ongoing shift to the cloud has made any computer with a modern browser the functional equivalent of any other. But the average mobile user checks his or her device 40 times a day and is never more than three feet away from it.

The Unique Device Identifier (UDID) assigned to each smartphone handset is a key value that unifies every aspect of our lives -- our social graph, how we pass through space and time, and the content, offers, media + entertainment we consume along the way. The more this data is used to enhance and personalize our mobile experience -- as Siri promises to do for iPhone users -- the more tasks we will assign to our little digital helpers.

It's not a wild leap to see that every waking moment of our day (and, via apps like Wakemate, our sleeping hours as well) will ultimately produce a digital crumbtrail -- bound to our UDID -- rich in meta-data and ready to be converted into labor-saving rule-sets and shared back with us (and others) as insight into how we're living and how that might be improved.

As soon as one machine in our lives takes on this central role -- and especially if it endears itself to us with ever-more-clever personalized solutions to our most-common needs -- we won't want to split our time across multiple machines. And we won't tolerate the need to "train up" a new device when we already have one that gets it.

We'll want every other machine in our lives to automatically detect the presence of our "master" device and respond as a "slave" -- performing its specific function under the direction of the primary device.

This has interesting implications for the full spectrum of consumer electronics makers -- especially those that make their margin on hardware sales. Why should anyone have to program their DVR, or the treadmill at the gym, or the navigation system in their car, when their smartphone already has the answers?

Machines that aspire to be "smart" will want to get "dumber" to stay in the game, and machines that "have to" be dumb for cost reasons now have an opportunity to be a whole lot smarter, by borrowing the brain of the master device.

(For one early take on this, check out Romotive, a member of the current TechStars Seattle class)

+++++++

Humans will use machines to become better humans

Even if the Singularity's not your bag, there's still plenty to like about the creeping ubiquity of our smartphone overlords. Business wonks are fond of the saying (apparently misattributed to Dr. Deming): "you can't manage what you don't measure". And there's nothing that humans like to think about, talk about and "manage" (or try to manage) more than themselves.

The "Quantified Self" movement is currently a geeky fringe culture of tech- and data-enthusiasts who are willing to invest significant effort -- and adopt bleeding edge tools and techniques -- to understand themselves better as people and organisms.

Very few people are willing to go to such lengths (the official Quantified Self forum shows just 288 registered members), but the U.S. market for "self-help" was estimated at over $9 billion in 2006, and a quick search through any bookstore shows thousands of titles devoted to the topic of self improvement.

With mass adoption of smartphones, a huge slice of the world's population is voluntarily instrumenting itself with a sensor + transceiver package that effortlessly gathers data about its owner's activities, movements and need states.

Most of those people care deeply about their own well-being. How many of them will be willing to download an app or opt-in to a service that interprets their activity data and feeds it back to them in the form of insights and constructive suggestions for self-improvement?

(For a mind-bending conversation about the technology and business implications of this trend, check in with Buster and Jen at Habit Labs).

+++++++

Am I nuts? Not thinking big enough? Let's discuss!

The future of work: What happens when talent trumps capital?

2011-10-03T22:05:00.000-07:00

I've been thinking about the future of work lately, and I keep coming to the same puzzling conclusion: there is a seemingly unbridgeable gap in the market for engineering talent between the elite class of software "makers" and the wealthy enterprise customers who most need their help.

The story goes something like this:

As Marc Andreesen wrote recently in the Wall Street Journal, "software is eating the world" meaning every organization now needs access to software talent to remain competitive.

Because every company needs software talent, the global market for "technology creatives" (from UX design all the way down the stack) is as hot as it's ever been

With the hard costs of starting a software business rapidly approaching zero, the best creatives would rather start their own company than work for someone else -- they don't need anyone's permission to get in business, and the worst-case scenario is that they fail and have to take one of the many jobs available.

The hottest tech companies can still recruit good talent -- if they offer interesting problems to work on, a superstar technical peer group and meaningful participation in the upside, but...

The big, profitable companies with the most urgent need for tech talent are the ones least able to access it.

Those that failed to spot this trend early and lack a native culture of technical competence have very little hope of hiring the talent they need to survive, no matter how much they offer to pay.

Traditionally, the big system integrators and custom dev shops owned the answer to this problem, but increasingly they suffer from the same ailment that their best customers do: no really talented engineer wants to dwell in the bowels of a BDC (big dumb company) for years at a time working on yet another failed enterprise software deployment. And so the vendors who might once have helped solve the problem will increasingly become its victims as well.

One punchline to this story is that we are likely to witness a string of spectacular business failures over the next decade as the incumbents who fail to engage the "technical creative class" are eviscerated by nimbler and more tech-savvy operators. As Chris Dixon writes:

"Predicting the future of the Internet is easy: anything it hasn’t yet dramatically transformed, it will. People, companies, investors and even countries can’t stop this transformation. The only choice you have is whether you join the side of innovation and progress or you don’t."

It's the last sentence in that statement that interests me most.

Many late adopters will eventually want to "join the side of innovation and progress" and face extreme difficulties recruiting their way to a solution. As that happens, I see it opening up a window of opportunity for a new type of marketplace that makes the services of the most talented software creatives available to the biggest and most powerful incumbents via "Innovation-as-a-Service".

The winning providers in this category won't be the traditional SI body shops, nor will they be the low-end "rent-a-coder" platforms like Elance and oDesk. Instead, a successful firm operating in this market will find a way to:

Convince incumbents to expose their most interesting and strategic technical problems to the innovation marketplace
Attract the attention of the global elite among the maker class to tackle these problems on a project basis
Deliver measurable value to incumbent buyers without requiring full-time or long-term commitments by the elite maker class
Transfer enough of the value created back to the makers to reward them for their engagement.

I would argue that the best accelerator programs -- led by TechStars and Y Combinator -- offer an early look at what Innovation-as-a-Service could look like. Paul Graham periodically issues a Request for Startups, pointing YC applicants toward a specific opportunity he sees as ripe for disruption. TechStars Cloud is a further refinement on the model, focusing an entire class of entrepreneurs in a particular direction. And Weiden + Kennedy's PIE program -- which actually engages incumbent brands like Coke and Target in the entrepreneurial process -- looks like another evolutionary step.

What if there were a platform where the world's top brands could offer bounties of cash, support and possible acquisition to entrepreneurs who agreed to take on their knottiest technical innovation challenges? Not just for task-level challenges like InnoCentive, but for bigger and more strategic issues, the ones that are most likely to put them out of business if left unaddressed?

See anything like this? Let me know!

Our mobile, location-based future is coming... but not today

2011-09-21T22:18:00.000-07:00

At the end of a call today with a nascent mobile advertising company, the entrepreneurs described me (fairly) as having dumped "a bucket of cold water" on their idea.

When I spoke at a local event a few weeks ago on "location-based services and the mobile ecosystem" (slides below), an attendee pointed out that I was "a bit of a wet blanket" on the subject.

Don't get me wrong, I'm as excited about the mobile future as anyone -- and after a decade of empty promises the smartphone revolution has finally kicked mobile innovation into high gear. But when I reflect on my time in the "m-Commerce" trenches back in the last bubble ('98-'99), I know in my bones that we're still in early innings on this thing.

Here's what I think will *eventually* happen:

Consumers will increasingly rely on their mobile device as an always-on, personalized enhancement layer on their real-world experiences (think augmented reality, but more effortless, personalized and relevant). Some of this will happen at the app layer, some at the OS layer, but between them the mobile share of attention (or potential on-demand attention) will be nearly constant.

In cooperation with their app- and OS-level partners, massive, data-intensive "mobile engagement enablers" (think OS-agnostic infrastructure players like Urban Airship and SimpleGeo) will maintain real-time maps of all those opted-in mobile consumers by location, demo / psychographics, intent + need states (both declared and inferred from location + social media exhaust), etc., etc., all made available to trusted partners via API.

Performance-based offer networks (notice I didn't say ad networks) will make it possible for anyone to bid for permission-based access to these opted-in mobile consumers by any combination of day-part, location, brand affinity, need state, etc. (Facebook's ad console is the closest thing that exists today, but still a pale approximation of what's to come).

Creative agencies will help their brand clients develop and implement new customer acquisition, latent customer activation and preferred customer incentive strategies (notice that I didn't say "advertising campaigns") across the mobile audience. Campaigns will unfold differently for different blocks of current and potential customers, based in part on those customers' relative influence in social networks and prior engagement history with the brand.

With the help of their creative and execution partners, brands will shift bigger and bigger chunks of ad spend toward personalized offers and incentives designed to reinforce brand loyalty and trigger new behaviors. These offers will mostly be delivered to mobile consumers via 3rd-party proxies (social media platforms, branded entertainment content, social games) but a few elite + high-engagement brands (think Starbucks) will be able to build rich new direct relationships with their mobile customers.

The good news is, lots and lots of really smart entrepreneurs see this same scenario unfolding and are hard at work staking a claim to one or more of the layers or components described above.

The bad news is, none of those players -- with the possible exceptions of Apple, Google, Amazon (soon) and Facebook (a dark horse contender) -- has the power to implement the full stack outlined above at anything resembling workable scale.

So what we have on our hands now -- and for the foreseeable future -- is a colossal battle for the future of consumer marketing and entertainment, worldwide. Since it costs almost nothing to start a software company these days, there will be limitless new entrants clamoring for attention.

As these midgets fight... tech giants will battle with mighty strokes (think massive acquisitions and billion-dollar patent fights)... traditional marketing enablers will delay their own obsolescence through FUD... and brands will sit on the sidelines and wait for the dust to settle.

A smarter person than me once said, "being early is the same as being wrong". It's not too early to play in this market, but your strategic view (and by extension your financing strategy) had better have as its base case a long and bruising battle with victory a long way off.

Location Location Location

View more presentations from Chris DeVore

Seattle's Angel Gap: Too Many Maseratis, Too Few Seed Investments

2011-09-13T21:52:00.000-07:00

A few months ago I was invited to speak to the Bellevue, WA chapter of Rotary International on my favorite topic: how to create a globally competitive early-stage technology ecosystem here in the Pacific Northwest.

As I was putting my thoughts together (full deck below + full props to Brad Feld, Fred Wilson, Mark Suster and Marcelo Calbucci for pushing my thinking on the topic), I found myself wondering for the thousandth time: for all the obvious strengths of the Pacific Northwest tech scene, why do we consistently underperform our considerable potential?

If I could wave a magic wand and change one thing about our local community, it would be to turn every Microsoft and Amazon alum who walked away with at least $5MM in personal net worth into an angel investor.

As a region, the Pacific Northwest is awash in "tech wealth", wealth that was created by some of the most remarkable entrepreneurs the tech world has ever seen. But of the thousands of people who participated in those companies' success, very few self-identify as entrepreneurs -- people who feel connected emotionally and intellectually to the startup experience. Absent that emotional connection to the entrepreneurial life, most wealthy beneficiaries of Bill Gates' and Jeff Bezos' startups put their money elsewhere -- family foundations and hedge funds, real estate and wine collections.

Paradoxically, because the vast entrepreneurial wealth Seattleites enjoy today was created by just a few massively successful companies, too little of that wealth is being recycled in the next generation of local entrepreneurs. And with fewer dollars flowing into the local innovation economy, the odds of the next Microsoft or Amazon emerging in the region are that much lower.

In the short run, Seattle loses because we have fewer startups. In the long run, though, we run a much more serious risk: of losing our position in the global innovation economy and failing to attract the kind of talent needed to make this the kind of city that our children and grandchildren want to live in.

Microsoft is on the ropes. Starbucks is up off mat but has had a tough few years. Amazon is still ascendant, but for how long?

Who among the many thousands of Microsoft and Amazon multimillionaires currently on the sidelines will step forward to help build the next generation of tech giants here in the Pacific Northwest? Raise your hand and I'll do everything I can to connect you with the early-stage community here, and to share the joy I feel every day chasing big dreams about the future with the smartest and hardest-working people I've ever met.

Where will the NEXT Amazon or Microsoft come from?

Crash Dev

Product vs. Platform -- Competing at right angles

Does your first-use experience have a massive "me-value delta"?

"Self Provisioning" -- the guerilla assault on enterprise IT picks up steam

Gratitude

Portland is on! Join me for PIE Demo Day, Tuesday 1/17/12

The "Enterprise Innovation API"

Secondary Market Kung Fu

Software with soul

Welcoming Unbounce (our first Vancouver BC investment!) to the Founders Co-op family

Make sure you handle the money

The TechStars "recipe" -- patterns of a successful accelerator program

The best online marketing isn't always about conversion

SEO is dead? The link spammers haven't gotten the memo

The Money API

The Island of Misfit Toys

Founders Co-op takes a bite of Smore (delicious!)

Welcoming Beamit Mobile to the Founders Co-op family

Inbound marketing in an App Store world

Starting a Fund vs. Starting a Company: Turtles all the way down?

Beware of "angels" with sticky fingers

Freemium + Adverse Selection (a.k.a., The "Groucho Marx" Problem)

Smartphones, "headless" devices and the stealth singularity

The future of work: What happens when talent trumps capital?

Our mobile, location-based future *is* coming... but not today

Seattle's Angel Gap: Too Many Maseratis, Too Few Seed Investments

Our mobile, location-based future is coming... but not today