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Startup School

Marc Hedlund

Marc Hedlund marc@precipice.org
Entrepreneur in Residence, O'Reilly Media

Background: Knew Tim O'Reilly from a previous startup. Evaluates startups for investments.

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Adaptive Path: Coined the term 'AJAX'. Started as a consultancy company, moved to a product company. Consultancy is easy: everyone can do it, if you have a specialty you can just go out there and get paid to do it.

Colossal Pictures: Red Herring article discussed how they tried to move from working for movie producers (consultancy) to making their own movies (products), and failed to make the jump.

Hard to shift from consulting work to product work when you're used to billable time. 50 people on a project is good news for a consultancy, bad news for a product company.

Bloglines: RSS aggregation site. One of the first web-based RSS aggregators. 70% market share on O'Reilly sites. Acquired after 2 years by Ask Jeeves. One guy at first, acquired for ~20m (rumor). Marketing, dealmaking, graphic designer. Don't underestimate what you can do by yourself.

Guy who started Bloglines was acquired by Yahoo, he had created onelist and egroups. Coding done at night & weekends. "Don't take money from anyone until you have something that works."

Bloglines had no revenue, and no immediate chance of revenue. They had lots of users. Despite the fact there was no money in the company, they were able to get good money for their user base.

Del.icio.us: Social bookmarking site by Joshua Schacter(sp?) in NYC No revenue, Marc is unsure if there is any possibility of revenue. If you're taking VC, you need to expect to have revenue. Don't go get VC unless you know how much you're going to get and from who.

(Article: Tim Oren: No Exit, When Venture Capitalism Isn't Right. Talks about the math VCs are doing when they think about acquiring.)

FeedBurner: These guys had started several companies together. Got VC funding. Great growth, etc. All of RSS feeds for customers go to their servers...Control. Hard for customers to migrate to another service, good position to be in.

flickr: (Beau: woo, hometown team! (Vancouver, BC)) launched by Ludicorp. Originally an online game for girls. Gov't grant from Canada, game never took off, used leftover money to build a flash-based chat room. Allowed for the upload of photos in chat room. Users liked that. That one feature lead to development of flickr.

They went through three product ideas and four funding models in a short period of time:

Ideas: - Game for girls. - Flash-based chat room - Photosharing.

Funding: - Government grants. - Angel funding. - Pro user accounts (customers). - Eventually acquired.

indico: Dan Arkind Purpose of this site: pools unused resumes. Find VCs with cold calls, meet them at conferences, dig 'em up. "Boil the ocean" in order to get this to work. Getting started if you don't know Angel VC's: best way is "any way you can." Send emails. Go to VC conferences. Talk to people. find one person, and network.

jotspot: Beau says: the jotspot guy has a good blog. working around the commercialization of Wikis. Very difficult to start as a big platform (e.g. creating a framework for others to build upon). Maybe not a good idea to say "we want to be the next Microsoft/Google". Get people interested in the product first, then scale.

koders: Two revenue models -- it's very hard to have two different revenue models, pick one, focus on that. koders models:

An enterprise search to search source code behind companies' firewall

Odeo: Podcasting founded by Evan Williams (was at evhead.com, now @ evhead.blogspot.com), founder of Blogger.com. Beau says: Apple introduced Podcasting for free in iTunes. Odeo was built with Ruby on Rails.

Project PlaceSite: Sell software for a Wifi basestation to allow you to do social networks for people with close proximity.

Mistake: selling to individual EVERY cafes. Bad for cafes, they don't want a bunch of people taking space in the cafe with their laptops

Engineers: Don't fear the MBAs. MBAs: Don't fear the engineers.

spike source: -- affiliated with Kleiner-Perkins concept: they service opensource. "one throat to choke". If you have probs w/ opensource code, you call them. If you find yourself competing with big names don't compete with them directly. Move. The middle of the board in "Go" is smaller than it seems. If you don't have the big names or resources look to the bottom of the market because it'll be easier to compete with.

splunk: They make a search engine for logfiles. Allow the searching of logfiles generated w/other apps. Don't chase a hot term.

Find co-founders. Get idea. Build. Release. Get users. Get investors.

Ajax/Web 2.0 is very hot right now. Don't start a Ajax Web 2.0 company! By the time it takes to get your resources together, it'll be cold topic and you won't get funding.

squid labs: MIT guys making disconnected products, like smart rope, website for learning how to build stuff, etc. They got investors interested/excited because they were geniuses -- they'd actually won a MacArthur Genius Award.

37signals: Beau says: 100,000 users (from 37signals.com). no debt, no investment, 5 employees, profitable. They're a web design consultancy, they make management software for web design consultancies (Basecamp). Very simple idea/software. Do one thing very well.

upcoming.org: founded by Andy Baio from Waxy.org 3 guys who had full-time jobs. your fun project may be a good business!

zimbra: Ajax email stuff. Flashy presentation is good. "If you know nothing about horses, bet on the best jockey"

My Advice: Steve Jobs to John Scully: "Do you want to sell sugar water for the rest of your life or do you want to change the world?"

95% of the companies are trying to sell sugar water -- just trying to get rich. Bad approach: "let's get rich! What should we sell? Dunno, who cares!". This approach is transparent.

"Make people substantially happier with their lives."

Questions for this speaker: Q. how did you get your job??? he knew Tim O'Reilly from a previous startup.

From Marc: Tim had invested in a previous company I ran, Popular Power, and he was on the board, so we got to know each other and from my point of view got along well. He offered me my current position when I was unsure what I wanted to do next. My sort of title is unusual, and may not always be a good position (VCs who give people EIR titles do so to try to make sure that person will work with them for their next startup -- which can be great, as with Tim, or can be disadvantageous in negotiation of funding). Better to work with people you really like than to go for any particular title or position.

Q. Compare Ning to Jotspot.

From Marc: I haven't looked at Ning in enough depth to say as of yet. I agree with them that PHP is probably more accessible to the audience for their design. I'm unconvinced on the revenue model -- it seems like they'd need a steady stream of "All Your Base"/"Hot or Not" type sites, and I'm not sure that's a good bet. Those sorts of sites seem too difficult to predict or channel to me. Still, maybe they can build up enough moderate traffic sites that, in aggregate, they'd have reasonable traffic for advertising. We'll see. Jot's technical base is very strong, and I think they're going for a more realistic market, but as I said in the talk, I think it would be good for them to release a particular application that gets people excited about their capabilities, and then open that to a platform play, rather than starting with the platform. It will be interesting to see if Jot and Ning really wind up competing for the same customers, or instead if they are in different markets with only conceptual similarities.

Q. Damn.

From Marc: Not sure how to answer that. :)