Lots of semi-formed blog posts swirling around in my head… will try to hammer some out soon.  No promises.  But feel free to let me know if there’s something you want to hear about… could use the focus (too many projects right now)

No blog post is complete without a picture - here’s one:

(inside a glacier at the top of Jungfraujoch ~11,300ft - during a recent trip to Switzerland)

The event packed a lot of geeks into a small room, and was fun and informative. A bunch of others have blogged about the event, so I’m not going to rehash it in detail. You can also watch videos of some of the speakers here and here.

The event began with a talk from lead platform engineer Dave Fetterman, which basically served as a motivational speech on how cool the platform is, and why everyone should develop apps.

With the tone set, R. Tyler Ballance from Slide gave a more technical presentation covering lessons learned in building various popular facebook apps.

Next up were ‘lightning round’ presentations, where 8 Facebook app developers talked for 10 minutes each about their experiences. All were very candid in sharing advice for other Facebook developers.

Apart from some interesting technical tidbits, such as the performance benefits of JSON vs XML, and the fact you can run on Amazon EC2 for around $100 a day, one of the most interesting talks came from Lance Tokuda at Rockyou. I’ll share some details of his talk here:

To achieve strong user growth, first engage the user during the signup process (basically make it very easy for them to install, minimize work), then engage their friends (have them invite their friends etc during installation, as well as ongoing engagement), and thirdly use techniques to encourage viral growth (have a strong call to action when people view the app on others’ profile pages etc).

Lance presented a case study, showing how RockYou worked with Yahoo! Music and used these techniques (as well as cross-selling via RockYou’s ad network), to go from design to 900K users in four weeks. The application is on track to join the million user club very shortly (an enviable position for the vast majority of facebook applications).

RockYou’s real secret to rapid growth is to very quickly gain the first thousand users by cross selling the application within their network. This works so well that they are opening up this network to other developers (and monetizing accordingly).

While Lance mentioned that they will work with individual application developers for free, this rate card (courtesy of Valleywag) shows pricing starting at $5K to acquire 6,500 users.

Pizza and networking followed the lightning round presentations. Apparently there were some more technical discussions later in the afternoon, but I decided to head down the street and check out the Palo Alto Art Festival and enjoy the great weather for the rest of this Saturday afternoon.

Overall, I am definitely more excited about the Facebook Platform after attending this event. It is clear that there is a lot of enthusiasm for the platform from developers and investors alike. One VC in the audience went so far as to claim that Facebook users will be worth between $1 and $10, and we are all now on the ground floor of a real money-making opportunity. I guess time will tell.

When I arrived at the airport at about 3pm the afternoon winds had picked up. According to ATIS they were at 14 knots, but straight down the runway. Feeling nervous about the 14 knot winds I decided to walk over to the runway and watched a few landings. It seemed the winds were straight down the runway for the most part, and other pilots didn’t seem to be having too much difficulty landing (apart from one guy who couldn’t seem to stick it until the second half of the runway every time, and on one attempt couldnt stick it at all so had to go around!)

Anyway, having assessed the winds and deciding I could handle them (although I would have preferred something gentler for my first flight in 6 months), I made my way over to the plane and gave it a pre-flight inspection. Satisfied that everything looked good, I jumped in and started it up, spent a few minutes re-familiarizing myself with the G-1000 avionics, and then called ground control for taxi clearance.

* This is actually a C182T and not the C172SP that I fly - but close enough.

As soon as I started taxiing over to the runway I felt everything come back to me. Again I was at one with the controls and had no trouble making my way to runway 31. I did some run-up checks of the flight controls, engine and instruments, and since everything looked good I called the tower for takeoff clearance.

“November two four five seven victor, right closed traffic approved, cleared for takeoff”

And with that, I advanced the throttle - 1, 2, 3 - added right rudder as I accelerated down the runway, deflected ailerons into the right crosswind and before I knew it I was airborne. Freedom!

As the runway dropped away below I focused on tracking the extended centerline and saw the world open up before me. Ahead the Dumbarton bridge cut across the bay, palo alto and stanford to my left, san francisco off in the distance. I retracted my flaps as I climbed through 200 feet, and at 500 feet I raised my right wing for a peek - no traffic - so I started my climbing crosswind turn to the right.

I forgot how quickly this Skyhawk climbs with only me inside - I reached my pattern altitude of 900ft in no time, and turned downwind parallel to the runway. Now it was time to clear my mind and get ready to land this thing :)

I didn’t have anyone in front of me so I turned a normal base and tried to stabilize my final approach. I managed to stay somewhat on the glide slope and didn’t play with the throttle too much… although the approach was far from perfect. The windsocks were showing a moderate right crosswind… I figure 320-330 @ 16kt. I decided to slip rather than crab because it would give me more time to setup for the crosswind. I seemed to do pretty well at crossing the threshold over the centerline, however by the time I finally stuck my wheels I was significantly left of the centerline. I think while concentrating on trying to kiss the ground lightly I lost focus on my crosswind correction.

Anyway, it was good enough for my first landing, I straightened up, raised flaps to 10 degrees and added full throttle down the remainder of the runway. Before long I was airborne again.

Another trip around the pattern, and my second landing was much the same as the first. Crossed the threshold over the centerline, bounced a bit this time I think, and by the time I stuck I was left of centerline again. I decided I really needed to focus on holding my crosswind correction all the way through the touchdown.

Another trip around the pattern, my third landing was much better. I concentrated on the crosswind correction and managed to end up somewhat in the middle of the runway.

Off again, but this time just as I was about to turn crosswind the tower called and asked me to make left traffic because the airport was becoming busy. A bit of variety would be fun. I turned left and flew my left downwind parallel to the 101. The tower called my traffic on right downwind, and I couldnt see him until he turned base. I called traffic in sight, and began to turn base as my traffic turned final…. or so I thought. I was actually looking at the guy AHEAD of my traffic, and it turned out my traffic was on right base as I was on left base… we were both converging head on. The tower called to inform me, and when I finally saw him I slowed right down and started doing some S-turns to get behind him. This was my worst performance of the day. I let my airspeed get way too low for this critical phase of flight… I really should have turned back downwind to add some more spacing. Anyway, I flew final approach at around 65 knots and made a bunch of S turns, and despite that little drama made a pretty smooth landing on the centerline.

I decided to make it another touch and go, and went around the pattern again - this time right traffic over the bay. The airspace had cleared and so I turned a normal base and final. I advised the tower that I would terminate after this one. I came in nicely over the center line, and touched down pretty smoothly. I tried to make the first exit from the runway as further evidence of a nice landing, but started skidding as I braked (I’m sure I’ve braked harder than that before without skidding… but hey), so I took the second exit.

I called ground control and got clearance to taxi back to parking. After shutting down and parking the plane I called for fuel (I was the last one flying for the day and the tanks were only half full when I started - it’s not good to leave air in the tanks overnight because condensation can contaminate the fuel with water).

By this time it was about 4:30pm. My time in the air was only about 55 mins (which is good for the bank account), and with 5 landings under my belt I’m now current to carry passengers! (I actually only needed 3)

Tomorrow, weather and circumstances permitting, I’ll take another flight and this time venture outside the pattern. I need to practice my cross country skills and maneuvers.

I can’t tell you how good it feels to be in the air again. My biggest concern now is the damage my bank account is going to suffer as I feed my addiction over the next few months…

I don’t buy it, and here’s why:

We can simplify the discussion by forgetting about the idea of ‘valuation’. All that matters is the percentage of the company owned by the VCs, and the percentage owned by the founders (and employees). VCs give us $X in exchange for Y% of our company.

Now, it’s important to realize that when it comes time for an exit (usually an acquisition of our company by some larger company) the VCs will likely have the final say on whether or not to accept the acquisition offer (either through contractual terms as part of the investment, or because they own a majority - more than 50% - of the company).

The VCs linked above argue that if they invest in our company at a high valuation, and we subsequently receive an acquisition offer that does not provide them an adequate return, they will not accept the offer. Thus our company has limited its options to only really big offers.

I’ll use some numbers to clarify this point. Lets assume the VCs are making a Series B investment of $10M in our company. Under Scenario One, the investment is made at an ‘excessively high’ post-money valuation of $50M, which means the VC gets about 20% of our company. Under Scenario Two, the investment is made at a more ‘realistic’ post-money of only $30M, giving the VC 33% of our company.

According to Josh Kopelman, a VC typically requires a 4-7x return on a series B investment. This means the valuation on exit (i.e. the acquisition offer) under Scenario One must be at least $200M, and preferably more like $350M. Under Scenario Two an acquisition offer of just $120M would be acceptable. According to Josh, 72% of exits are for $150M or less, so he argues that Scenario One greatly limits our options, which is bad for VCs and entrepreneurs alike.

Lets cut to the real issue. The idea of ‘valuations’ is just a proxy. All that matters to the VC is this: if I invest $10M in your company, and my requirement is a return of 4-7x, it means I need to get $40M to $70M back at exit.

I argue that a high valuation is never bad for the entrepreneur, because even though he/she will be in Scenario One, he/she will always have the option to ‘fall back’ to Scenario Two.

Lets assume we are in Scenario One. We receive an exit offer of $150M. As entrepreneurs, we believe this is an accurate valuation of our company and that we probably can’t do any better so lets take it. Our VCs, however, block the acquisition because they only own 20% of the company, thus they will get $30M back. This is $10M less than their required minimum of $40M.

How can we convince the VCs to accept the offer? Simple - we can always just give them another 7% of the company. We can simply agree to grant the VCs an amount of our founder stock. This brings the VCs’ percentage ownership up to 27%, which means they get $40.5M of the acquisition money, and approve the deal.

As entrepreneurs, we are no worse off than if we had accepted a lower valuation and entered Scenario Two from the beginning. In fact, the 27% ownership given to the VCs is less than the 33% we would have given them in Scenario Two, so the entrepreneurs are better off and have still satisfied the VCs.

We kept our options open all along - we kept a larger percentage of the company and if we did happen to get a ‘home run’ acquisition offer we could keep all of our larger share of the company, while still satisfying the VCs.

A higher valuation is always better for the entrepreneur.

Update: Thinking about this more, one scenario where a high valuation may be bad for the entrepreneur is when future investments will be required before exit. These future rounds must be at even higher valuations, which means either taking a LOT of money from VCs, or trying to convince VCs to take a small percentage of the company. It may be hard to find VCs willing to do a deal under these terms. However, it seems to me that the founders could simply do a deal at a not-quite-so-high valuation in this scenario, take a hit by diluting their stock, and be no worse off than if they diluted their stock (raised money at a lower valuation) in the beginning.

I really like the idea of online reputation systems, as they provide a means for a community of peers to self-regulate (e.g. think of eBay’s reputation system). Could we apply a similar community-based scheme to help regulate drivers? I mean, the police do a reasonable job at catching some fraction of drivers that break the law, but there are a whole lot of crappy drivers out there doing annoying and downright dangerous things that aren’t necessarily illegal.

In an ideal world, every car would be fitted with some kind of ‘device’ such that when someone cuts you off for example, you could activate this device and it would identify the offending driver (either by a corresponding device in offender’s car, or by their license plate) and register a negative ‘vote’ for that driver. There may even be a feedback mechanism for the offending driver where his device would alert him that he has just pissed off X drivers - which could go a long way toward solving the problem (it’s not hard for me to imagine that a lot of drivers in California are simply clueless, rather than malicious).

But in addition the potential benefits of real-time feedback, there would also be a central database for aggregating driver reputations. At a basic level this would just serve as a ‘leader board’ of the worst drivers in a given area, but could conceivably be used as a data source to affect drivers’ insurance premiums (as long as the system is secure and trustworthy).

Thinking about this some more, I realized there is already a suitable ‘device’ in almost every car - the cellphone! A very simple implementation of this system would be for a driver to make a phone call or send a text message with the license plate of the offending vehicle, and perhaps even a sentence about what they did. Of course, making a phone call or sending a text message while driving could have negative consequences on the number of bad drivers… but I figure everyone in California is on the phone while in their car anyway :)

There’s even a good revenue model for such a system - premium SMS. In the heat of a ‘road rage moment’, i don’t think many people would think twice about paying 30 or 50 cents to report a bad driver. After the carrier takes their fees for delivering the message, this leaves probably a good 10-30 cents in revenues per message. Not to mention revenue from potential back-end deals to share data with insurance agencies etc.

Of course, it’s non-trivial to design a system like this that is resilient to gaming and other types of malicious attacks. There are several measures you could take - some sort of algorithm that weights votes based on the number and frequency of votes from the voter (maybe some voters are just easily annoyed). Privacy is also a very important consideration, it’s probably best to identify drivers by their license plate only. But what about when a vehicle changes ownership? You would need to interface with the DMV to ‘wipe the slate clean’ in such a case…

Anyway, I just thought I’d post my thoughts up here and maybe inspire someone to build something like this (if you do, sign me up for your beta :). I’m focused right now on too many other projects to invest any real time into it - although from my brief investigations it would be pretty low-cost to hook up a server and a cell phone and see if the thing gets traction.

Also, since initially having these thoughts I have discovered PlateWire, which seems to be doing something similar - started on the East Coast last year and seems to be expanding nationwide.

I guess I’m just used to trade shows like RSA which are 5-10x bigger. I figured there are so many web 2.0 companies popping up each day that the expo would be at least aslarge - but if you think about it, all of these companies are running on fumes and probably can’t spare a few grand for a trade show booth (not to mention 3 days of lost development time :)
The after-conference activities are great, however. I went to the netvibes party at 111 minna last night - I arrived about 9:15 (it started at 9), and the line to get in ran around the corner and almost down to the next block! The lure of an open bar and good music, plus the chance to rub shoulders with up-and-coming internet entrepreneurs, was obviously strong. I caught a glimpse of James Hong from hot or not, and Justin Kan from justin.tv. I’m sure there were a lot of other interesting people there but I couldnt stay as long as I wanted to. Thanks netvibes for a great event - and a great product (I’ve actually had netvibes set as my homepage for the last 6 months or so - it’s how I keep up on all my blog reading).

Trends I’m picking up are that livecasting (live broadcasting of video by individuals) is getting hot (thanks to justin.tv) and could turn into something big in the next few years. Scoble tried it himself yesterday, but since changed his mind. Twitter is still going strong despite some earlier claims that it had already jumped the shark (interesting side note - looks like Twitter has become the first example of a large scale rails deployment, and is exposing - and hopefully fixing - some growing pains of the framework).

Separate to the web 2.0 expo, I attended an MIT/Stanford Venture Lab event tonight on online ad distribution networks. Lots of interesting information which I didn’t really capture (but rest assured vlab will start podcasting their events soon). If there’s one takeaway it’s that online advertising is huge, and growing at an enormous rate. There is still lots of room for growth in interesting areas such as P2P, in-game advertising, mobile etc. There’s also room to squeeze a lot of waste and inefficiency out of the current ad distribution model, which will help with more targeted and relevant advertising, and higher revenues for sites selling ads.

I’ll stick with my usual style and highlight some of the points I found most interesting/insightful:

• The current meebo product is actually the third idea that the team attempted.  They spent 8 months on each of their first two ideas before deciding to shelve them.  I think this shows a lot of courage, and shows they had a strong and dedicated team.
• The initial launch process of meebo:
• Created a semi-private site meebo.com/shh.html and invited 10 friends to check it out
• Received a variety of bug reports, fixed them, and launched publicly 10 days later
• Initially not many users, until they were written up in techcrunch, gigaom etc.
• The initial blog spike served them well - their service survived the load and has continued to grow since.
• A consumer internet startup should expect to get around 50k users over 2 days when written up in the tech blogs.  You must make sure your servers can handle this load - a crashing site does not create a good first impression.
• After the initial blog spike you will see a traffic drop.  Whether it recovers from here and begins to grow again, stays flat, or drops off completely, depends on whether the initial techcrunch readers tell their friends.  This means you really need to built a quality product that people are excited about.
• A good proxy to use to examine whether you have a ‘mainstream’ audience or just the tech early adopters is to look at your IE to Firefox visitor ratio.  Mainstream looks something like 83%:15%.  If you have a lot more firefox users, then you have a lot of tech early adopters.
• Meebo has a blog/communication mechanism built into the site.  This allows them effectively communicate with their users, and has been used to run surveys to improve the feature set.
• On VC funding: wait for VCs to come to you.  Wait until you have launched, have been featured in techcrunch, and have some traction.  There is no point talking to VCs with just an idea and a team (this only works if you have successfully launched a venture in the past and have a reputation).
• When you talk to VCs, you need a convincing story of why your market will be very, very large
• When valuing a consumer internet startup, VCs will most likely use two methods:
• They want 20-40% of the company, so calculate the required valuation based on the amount of money being raised
• Look at the valuations of comparable companies
• If raising Angel funding, Seth recommends structuring it as convertible debt and not equity
• When going international, meebo looked into paying for a translation service which ended up being prohibitively expensive.  Instead they asked their user base to translate the site, and had 15 new languages in 3 days.
• Press coverage in sites like the NY Times, Business Week etc do nothing for user growth.  This coverage is valuable, however, for raising VC funding, hiring people, forming partnerships etc.
• If your goal is mass market adoption, then a SIMPLE product is best (google search was simple, Yahoo directory was simple etc)
• Hiring people is Seth’s number 1 challenge (and is also the biggest challenge of larger more established companies that Seth has spoken to)
• Meebo tends to make 1 offer for every 100-150 interviews
• Its important to keep standards very high (once you hire B engineers into leadership roles it’s hard to get rid of them, and so you end up with a broken/slow product development process)
• Make sure you have really good advisors/mentors.  Having an official ‘advisory board’ is not necessary for raising VC, but make sure you have advisors you can go to when you have questions.
• Meebo is proactively approaching the IM network owners (AOL, Yahoo, Microsoft) and offering to share any revenues they earn, in order to avoid a messy battle later.
• It is a good idea to buy all international domains before you launch.  meebo.cn is currently held by someone asking for $20k!
• Big companies are often not a good partner for a small startup (take too much time and can devote key engineers away from core development tasks)

Overall I find Seth to be very open and candid, and a great resource for learning about startups from ‘ground zero’.  He’s also written a lot on the meebo blog, check it out.

Anyway, the event did live up to its apparent reputation. With a full day of talks I can’t hope to reproduce much here, so I’ll select a few of my favorite points from each speaker. You can find more here, here, and here. I believe there will also soon be podcasts on the startup school site.

Mark Macenka - Partner, Goodwin Procter

• It’s important to have confidentiality agreements in place when you discuss your ideas with people, if for no other reason than to show intent (in case you need to later prove in court that it really was confidential information - this would be hard if it can be shown you have talked to a bunch of people openly about it).
• Founders should agree early on about things like who owns what percentage of the company, who is on the board etc.
• Look into I.R.C 83(b) for a tax break on founder stock - you only get 30 days to use this!
• Overall with your early stage ‘legal stuff’: do it early, document things, keep it simple.

Paul Buchheit - Creator of GMail

• When defining a new product idea, try adding the phrase “that actually works” to the end (e.g. “an online email client that actually works”) to help you think about ways of doing something differently than what’s out there
• On scaling your infrastructure: treat disks as sequential access devices. Keep your ‘big data’ (e.g. media) on disk or a service like Amazon S3, and your ’small data’ (tags, meta-data) in RAM. DB updates should avoid seeks.

Chris Anderson - Editor in Chief, Wired Magazine

• On his ‘Long Tail’ theory: The Gaussian (normal) distribution is an artifact of scarcity - applies if there is a significant cost to moving many SD from the mean. E.g. distribution costs a lot of money - a 20th century view
• Forces leading us towards the new ‘long tail’ world: 1) democratization of production (PCs, Rails etc), 2) democratization of distribution (Internet), 3) Connecting niche supply and demand (search, recommendation engines etc).
• Old: dozens of markets of millions; new: millions of markets of dozens (attributed to Joe Krauss).

Paul Graham - Partner, Y Combinator; Founder, Viaweb

• Discussed 16 reasons why people go and get jobs instead of starting a company, and proceeded to show why most of them aren’t very good reasons
• Basically a good motivational speech for the type of hackers in the audience.
• Interesting stats that 50% of the first batch of Y Combinator companies were ’successful’, 25% are now rich, 0% would have traded the experience for a cube job :)

Michael Mandel - Chief Economist, BusinessWeek

• Productivity growth has started to decline since 2003. It is very important that we reverse this. Need to unlock more possibilities for growth (new applications of technology).

Max Levchin - Founder, Slide; Founder, PayPal

• Statistics are important - product managers should measure everything.
• Analytics packages out there are not good enough - need to build your own. Google Analytics is a good start, however.
• Tail your logs, graph results, look for anomalies (shows what users want to do). If all your metrics are flat this is a big problem.
• The color blue is used extensively on the web so sites are more accessible to those with red/green color blindness
• You can now design sites that require scrolling (don’t fit on one screen) because scroll wheels have become quite good.
• Your business should appeal to at least one of the seven deadly sins. This is a good motivator.
• If you make things too simple, there is no commitment from the user. Make them do a little bit of work to get value (but not too much - find the balance)

Ali Partovi - Founder, iLike; CEO, GarageBand.com; Founder, LinkExchange
& Hadi Partovi - President, iLike; GM, MSN.com; Founder, Tellme

• Make sure you can explain your customer need in one or two sentences.
• Network effects are a good barrier to entry to establish (value increases with the number of users in the system - makes you harder to displace)
• Listen to your customers - read forums yourself, know customers top 5 likes and dislikes about your product.
• Align the top X problems in the business with the top X people in the organization.
• Hiring and recruiting should be top priority. It’s better to have false negatives (turn away good people) than false positives (hire sub-par people).
• Company culture takes work. There is a natural tendency for a company to become political/bureaucratic and once this happens it’s hard to reverse. Usually occurs when you hit around 20 people - hold this off as long as you can.

Rahoul Seth - CFO, Adteractive

• Plan your cash requirements early - before you seek seed stage funding.
• VCs often approach valuation in ‘reverse’ - working backwards from their desired percentage ownership
• Founders should aim for 5-10% at liquidity
• Employee stock option strike price is usually at a discount to the preferred stock price of the latest round.

Mitch Kapor - President, Open Source Applications Foundation; Founder, Lotus

• Considers himself a (very) early adopter, and able to spot trends
• Current trends he thinks are important:
• Social production (e.g. wikipedia)
• Virtual worlds (e.g. second life)
• Gave some interesting stories about the early days of Lotus, and how things for early stage startups haven’t changed much in 25 years.
• On corporate culture: every action and inaction sends a message. Walk the talk (mind the gap between the message and practice). Hold people accountable - don’t tolerate abusive behavior (even from star performers)

Greg McAdoo - Partner, Sequoia Capital

• Introduced as the world’s best VC firm :)
• Very useful talk on what Sequoia looks for in investments:
• Clarity of purpose
• A spectacular market
• Alleviate a customer pain
• Team DNA
• Incredible product focus
• Real operating margins
• Frugality
• Inferno from a single match
• Get your product out early and innovate
• Know your competition - and respect them.
• Sequoia likes it when there are large potential competitors (means the market is worth pursuing)
• Can’t just be linearly better than competitors - need a reason why big competitors really can’t serve this market as well as you can.
• As a startup you can’t create large waves, so you need to ride large waves
• Understand TAM, SAM, SOM (who is and is not a customer)
• Make it clear early on whether you see yourself as a long-term CEO (e.g. Bill Gates, Jeff Bezos) or if you will need to bring in a CEO. Be realistic.
• Figure out what corners you can get away with cutting, and cut them.
• Look for folks whose hair is on fire, and build a fire hose (doesn’t matter what color the hose is or if it leaks a bit). Similar to the vitamin vs aspirin metaphor.
• For a software company a TAM of 0.5B+ is attractive, for HW 1B+, for services 2-3B (due to lower margins)
• It is OK to not have a fully baked business model at the beginning
• Big waves aren’t necessarily created by R&D but are a consequence of a confluence of many things.
• Recommends locating your management team in silicon valley or Route 128 corridor. Engineering team can be in a lower cost area.

Mark Zuckerberg - Founder, Facebook

• Quite a good speaker for his age - used no PPT and commanded the stage
• Fundamental point: when starting a company it’s important to be smart and young.
• Seems very fond of iterative development (they release code nightly). Repeated this theme often.
• Even your ‘business people’ should be technical
• Don’t keep marketing teams, product management teams etc in silos. Give power to people so they can iterate
• Instill values in your organization and then empower people to make decisions
• Wants everyone to build stuff on top of facebook :)

Joel Lehrer - Associate, Goodwin Procter

• Tried hard to make a fairly boring topic (patent law) interesting
• PTO is not allowed to search sites like wikipedia for prior art - Google searches were only recently allowed.
• The allowance % of patents has dropped from ~65% in 2002 to 50-55% today.
• To get a patent your invention must be inventive (new and non-obvious, a high bar) and useful (low bar).
• After disclosing your invention you have a 1 year grace period to file a patent in the US. Not so in other countries
• Getting a software patent takes ~4 years and ~$15k
• The best reason to file a patent is because it forces you to think about and articulate your differentiation in the market
• When building your product, work on your own time and equipment (not at work)
• Understand your current obligations (employment contracts etc)
• Document contributions from others, get assignments
• File a provisional patent before you launch your site
• Do some (not too much) searching for prior patents
• Make sure you use open source software in the right way (less of an issue if you are a hosted service and are not distributing software). Keep a list of what open source projects you use, and the relevant licenses
• Sometimes its better to keep a trade secret than file a patent
• Recommends drafting and filing provisional patents yourself (only costs $100). Get a well-drafted example from a patent attorney
• Search firms like NERAC, INREA may do some searches for free if you tell then you are an exciting new silicon valley startup (and imply you may bring them future business :)

Whew, long entry!

I thought I’d share the results with you, so take a look at my Acid Test spreadsheet.

By ranking each criterion with a score of 1-5 (1 worst, 5 best), and then taking a weighted average of these based on a categorization into 8 important general areas, the spreadsheet will give you a percentage score. The criteria I have used come from a variety of textbooks, lecture notes and blog postings that I have read.
Does this score mean much? I don’t really know. When I sent the spreadsheet to Guy Kawasaki for feedback, his response was “I don’t use such a systemization–I just go with my gut: do I like it or not?“

My feeling is that a tool like this will be useful for someone whose gut instinct is not quite yet ‘honed’. Indeed, I think the value in this tool is not the final number that it spits out, but the thought processes it encourages. After spending an hour or so thinking through the various criteria and how your business idea meets them, you will at the very least have a more thorough understanding of your opportunity, and at best might find this a useful way of ranking and comparing several of them.

Let me know if you find it useful!

The event was hosted by BASES - if you want to hear about other events like this, sign up for the BASES digest (and also check the event listing on the right of this page).

Konstantin started out with his tips for making decisions in startups, which I’ll summarize here:

1. Separate decisions from uncertainties
2. Sequence decisions correctly
3. Look into when uncertainty is likely to be resolved
4. Gather information in the context of a specific decision
5. Get information only if it would change the decision
6. Don’t accept ‘no idea’ as an answer, bracket what you know
7. Which alternatives would you never consider
8. Have a clear standard measure of success
9. Use sensitivity analysis to focus on the key levers

However, Konstantin went on to say that when making decisions in the fast-paced start-up environment there are often many other factors to consider outside of this ‘ideal’ framework:

• You have to make lots of decisions in a short amount of time!
• Early decisions can have important ramifications
• You are dealing with real people who have real feelings
• Influence of the board of directors
• 80:20 rule - few decisions will have a large effect
• Organizational considerations (commitment, buy-in etc)

In a consumer internet business specifically

• You have amazing feedback channels (capture and analyze data about your users)
• This is basically applied market research
• At the same time, ethnographic research is important (get up and close with customers)

For the rest of the session Konstantin went through a few ‘business school’ style case studies on LinkedIn and Jaxtr, which made for an interesting interactive discussion. A few interesting points worth posting here:

• LinkedIn earns more revenues from premium services than from advertising (an interesting data point for all the consumer internet entrepreneurs out there trying to decide on a revenue model)
• Don’t limit your product to one ‘use case’ - let your users decide what they want to do with it, and see which market they take you into. Encourage ‘bottom-up’ optimization of your business based on users, rather than top-down control.
• It’s better if your growth and distribution is viral/organic rather than relying on partnerships (basically so that you control your own destiny)
• LinkedIn considered VCs to be their ‘canary in the coal mine’. VCs were big users of LinkedIn, and the LinkedIn team knew many of them personally. This, coupled with VCs tending to be outspoken meant that the team would hear very quickly if something wasn’t working well. VCs also helped seed distribution - if there are a lot of VCs in the network, then a lot of entrepreneurs will join, which leads to a lot of service providers (e.g. lawyers) joining etc.
• Social networks seem to be moving from a ‘tool’ to a ‘platform’. Many recently successful companies (e.g. YouTube) have leveraged social networking platforms (myspace). Note also that Paypal leveraged eBay’s platform.