Yes, I see that some mobile-social-consumer stuff with very good connections to investors may be overvalued (but who knows?) (and they get huge tech-media attention), they may be in a bubble, but for most startups it is still 'business as usual' I think.
Fair point, just $40m is a lot of money for a start up software business.
If they're looking at something with a bricks and mortar component that would be different but I'm generally with DHH on this one - businesses of this sort can grow quickly without the need for this sort of capital.
There's absolutely nothing in the Techcrunch article that would suggest this company is doing anything so technologically complex that it can't be easily duplicated. They even admitted they have no concrete plan (or proof) they can monetize.
The one thing in their favour (potentially) is network effects.
If they can get everyone using their software before someone else comes along then the collaborative nature of it gives them a significant advantage in that there are more people you can collaborate with.
But even that isn't a particularly strong lock in when the apps are free or cheap and available near instantly anywhere you have a data signal. Someone using a different app? Just go grab it - it's not like convincing all your friends to leave Facebook to go somewhere else.
The would appear to have a coherent story as to why they need $40m, and they found some VCs who agree with them and think they'll make some money (normally 10x, right?) at the end of it all.
But what's the answer? Regulate the size of investments in early stage companies? Point and laugh at seemingly crazy valuations? Ignore the market and concentrate on building our own things?
I'm trying to ignore the market as it really has little significant impact on what I'm doing. The effects it has on me are:
- It is creating a scarcity in developer resources. This just forces me to relearn how to write good software, definitely not a bad thing.
- It is generating a lot of interest and investment in various tools that I can build, saving me effort and producing a better product.
Those are the good impacts.
It does create a sour grapes type of emotion that I try to put aside. $41M would go a long way towards funding a lot of small startups, or supporting animal shelters that are swamped due to people no longer being able to afford their pets, or building companies that would employ people that lack high tech skills or the opportunity to employ those skills if they could acquire them.
(And if you think "Oh, anyone can refocus themselves and get in the game, come live in the rural midwest for awhile and then tell me that.)
No, people can invest what they like and I'm sure that some of the investments that look stupid work out at least OK.
My point was more that you can't just assume that because smart people think X, X is true. I think this is especially true in the world on VC investment where the investors don't believe that every bet they make will come off - what they're looking for is enough of them to work out that they make a profit overall rather than that every single one nets them a return.
For the rest of us we can point and laugh for the most part because, hey, that's fun, and by coming on here and running our mouths we, in our own small way, bet in the investors do (though we gain or lose tiny bits of our reputation rather than cash). But we might also want it to inform our decisions when it comes to investments and choosing our next job.
same thing here except i would know what to do with 40M: use the software we're writing to launch the consumer-facing location-social google killer armed with AI! (buy servers and bandwidth etc)
isn't it strange? well, as a software devs we seem to have longer and harder path to breakeven.
but consumer startups seem need even more money to serve millions of customers, and the success chances seem a little higher than that of a lottery, as you should predict and check if the inconstant masses would like the app or not.
"A $41M investment at this stage in the life cycle of a business is normally associated with either something that is technologically complex and thus capital intensive or that requires new processes to be designed from scratch."
This is what struck me when I heard about the deal. Color is cobbling together existing technologies and not creating anything new. This deal pushed me into the "There is a Bubble" group. They had better have an ace up their sleeve.
don't focus on the features of the product - focus on the team. it might end up being something completely different (there is a word for that)
from the perspective of 'can these guys spin a $40M investment into something that is worth more?', the answer is probably yes (probably enough to worth investing in)
it isn't a bubble because this is still VC money, not crazy mom and pop shooting at the NASDAQ money. during the bubble this company would have already IPO'd and been worth $5B, and you parents would have called you up to ask about it.
From everything I read, Color has a fantastic team and the Techcrunch article is actually pretty positive on the idea. I'm sure that the company will succeed.
But saying a company will likely succeed and deserves an investment does not mean VCs shouldn't be making rational valuations based on real business metrics. And as the OP remarked, this is probably funding at a $80m+ valuation for a company with no product (when funded), no revenue, and plenty of competition.
Cuil was trying to solve a problem that was already solved, and they were so arrogant in their media briefs you could just tell that they were on another planet
Color, on the other hand, if they at least solve the problem of figuring out where somebody is I can see someone paying 200M+ for that (fb or google)
The team behind it makes the work I've seen so far all the more surprising. Have you played with the app? It's horrible. It's really bad. It's not fun to use--it's confusing and frustrating. The UI is a nightmare. It's buggy. I know some of those things can be smoothed out over time, but it doesn't feel like those early apps you see that have tons of promise but a few rough edges. As an investor, I'd be worried.
One of the arguments I've heard that state that things are different this time around goes like this: it is far less capital intensive to do a startup now rather than in the late 90s because of open source software stacks and cloud computing providers. I agree with this statement but it means that the average software startup doesn't need a lot of cash to develop their product. Apart from ads and perhaps domain names (haha), why does anyone need so much cash?
EDIT: I guess it could be patent licensing. I don't buy the technological complexity bit, personally.
Also, if you know that everyone's headed towards a bubble, what is the correct response if you are a rational entrepreneur? Riding the bubble to the top and bailing before the crash does not jive with me.
True and false, assuming color has one tech cofounder. What they need at this point is an Android and IOS client that can take pictures and record the current position of the user then you need a backend system that can handle the massive concurrent upload of pictures and do concurrent geo-spacial lookups. This is by far the most difficult part but MongoDB has a filesystem component and there is a plugin for Nginx that allows you to serve files directly from it.
The geospacial indexing can be accomplished by creating a 2-dimentional index of picture buckets where each bucket contains the pictures taken within a small geographical area (say 2000x2000 meters) then all you only have to iterate over the pictures in the buckets that are within the current distance from your location. The clients can easily sort their images before their are uploaded.
It may sound complicated but games do that kind of thing all the time, and often with bigger constraints (skipping a picture or two isn't going to be a big deal).
So yeah devs are not cheap, but a technical co-founder should be able to develop this.
Just because there might be a bubble doesn't mean that all startups will autofail. However, if I ran a startup with ads as my main source of revenue, I would be worried as advertising budgets are the first thing to be axed in a crisis.
For entrepreneurs crashes are the best times to innovate and launch new ventures because while everyone else is angsting about cutbacks and surviving just another day, the entrepreneur can launch lean businesses and products AND usually get great deals on people, equipment, office space, services, etc.
I seriously doubt that modern democratic-capitalist societies as a whole can avoid bubbles. Individual business owners OTOH can not only survive but also thrive in the aftermath given that some basic conditions are meet.
We might be in a bubble. But that bubble will continue to inflate as long as people are screaming Bubble! Bubble!! The danger moment appears when all those predictions appear false and everyone start to believe, maybe this time, for some reason, exponential growth will continue forever.
The moment when everyone shut up and start to join the bandwagon is when the bubble bursts. <-- That's from my experience.
Your last sentence is very astute, and resonates with me personally. I thought valuations were insane in the late 90s but ultimately gave in. I think that was less than 6 months before the crash!
Regarding exponential growth. We need to think carefully what kind of efficiency improvements can SUSTAIN exponential growth. The adoption of the Internet to the mainstream was a major event. I guess people might be betting that mobile/tablet is another one. I thought this was already priced in about 2 years ago. I can't think of what has changed in fundamentals that justifies the current situation (except for inflation perhaps).
Hmph. If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color.
Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing?
Companies like Color, AdKeeper and Flipboard have "crazy" valuations based on the founders having ridiculous resumes. They have all created billions of dollars of value for their investors, hell, why wouldn't you invest in that potential again?
Rationalising this metaphorical bubble to domain prices is absurd, since domains have always been traded for eyebrow raising prices. You think that the domain color.com or path.com will be worth $10 in 5 years time? Seriously?
Color almost certainly didn't require $41M to get to the product you see today, did people ever consider the company is - gasp - launching early and has the capital to iterate and scale for the next few years? I can think of lots of startups that raised $10M - $20M at company formation and has then spent the next few years (or more) iterating.
Investors are less interested in where you are today, compared to where you are going
Bain Capital, Sequoia Capital, and Silicon Valley Bank, the ones who are funding this, see great potential in the team that is bringing color to market.
They've given a long runway to Color, and if the airplane takes off those investors reap far more rewards then they would have if Color is wildly successful and other investors were able to participate in subsequent rounds of investment.
I cannot emphasize enough that this is a strong team (investors and owners). There are almost certainly specific targets and objectives this team needs to meet before they collectively decide to spend the entire 41 million.
Which means this thing could crash and burn after spending 3 million, and they unwind from there.
I believe Silicon Valley Bank does debt financing rather than equity financing. On top of that, I believe all 7 co-founders are worth over $1M each and several are worth multiple $M with multiple startup exits over the last 10 years.
- If it is going to take them a few years to get to their eventual, profitable, goal, why invest $41M now? Why not invest $20M now and another $21M when they're on the track that will be truly profitable, once they've demonstrated where they are going?
- Is calling the investment "crazy" really offensive to the entrepreneurs? It is more a compliment to them than anything else. The investment may be crazy, but the entrepreneurs managed to get people to shell out $41M. That takes serious talent.
- Getting $41M for color is insulting to a lot of other entrepreneurs that have dedicated their lives to products like color and received nothing. Give half of that $41M in $250,000 chunks to 80 other startups and Color would still have $20M to play with.
If you know how these large investments work, $41M in Color may seem very sane, but to a large percentage of the population, it does appear crazy, particularly in light of the dot com bubble.
Perhaps you could point us to a good article showing why this is a sound investment?
I cannot point to an article about why this is a sound investment, I guess my entire point was that I do not understand why everyone has to jump all over this as to why it is a bad investment, since you have such a hilariously small data point to base any opinion on.
You assume that we have a small set of data points, which is a really bad assumption, even if you were just making it about me, personally. Assuming that the HN community commenting on this bubble/not bubble doesn't have a lot of experience is a bad idea. Even more so if you cannot point to a single article covering why this investment is sound.
Picking up on your third point, if your investment thesis is that mobile social networks are a huge untapped winner-takes-all market, spreading your cash index-fund-style over the most promising 80 mobile social startups (kids in college dorms without the resume maybe...) and saving the rest of your war chest and partner attention for the ones showing signs of traction would also probably be a safer bet.
Wait, it's insulting to other entrepreneurs who have created apps similar to color? Since when was capitalism fair? The large funding just might mean color will have the resources necessary for years to completely dominate the mobile photo market.
To put it into perspective, say YC are giving out an average of $17000 a startup, time 43 startups is $731000 for the round.
For the same amount as this investment you could probably set up seed funds in 10 cities and cover all of the overheads involved. I know which option I would pick.
"Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing?"
Neither Merril Lynch nor Lehman Brother knew what they were doing.
"Investors are less interested in where you are today, compared to where you are going"
Yes the future is important, but there's the risk-reward trade-off. If a company looks badly risky today, a rational investor will steer away from it.
"If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color."
And for your first point, a well functioning entrepreneurs ecosystem require both dedicated entrepreneurs AND rational investors. This is not to demean the entrepreneur.
So now whenever someone with a successful past history does something moderately contrarian, people are just going to recite the banking collapse?
"Rebecca Black signed onto the same record label as Miley Cyrus, I think the label knows what they are doing" ... "We all though Lehman Bros knew what they were doing, dude"
Anyway, I like people that stray from the field and do contrarian things that other people think are crazy, if nothing else in 10 years it'll be exceedingly satisfying for these kinds of investors to point at all the haters (and if they fail, well, everyone was right blah blah serves them right for taking risks)
Ok agree the Lehman Brother example was a bit corny, but the point I'm trying to make is that we all make mistakes, including top investors like Sequoia - in fact the business model of a VC fund is to invest in 10 equally promising startups and hope 1 of them will make 100x profit and cover the loss of the other 9, and Color could be one of the 9.
Also, being a contrarian investor means you sell in a bubble (when everyone is buying) and buy in a crash (when everyone is selling).
I don't agree with your argumentation but I upvoted you because there is something very disgusting when people downvote simply because they disagree with an opinion. Why people cannot reserve their downvotes for factually incorrect, FUD-y, abusive or trollish posts is beyond me.
The hero worship of folks associated/intrinsic to a previous success has a shakey foundation. A good number of successes were at the right place, at the right time. The details of who was manning the ship were, ok not irrelevant, but not meaningfully correlated with the magnitude of the previous win. Sure they were competent managers, which is required of any company to succeed. But they were not Responsible for the success.
So its a little like sympathetic magic - if we get guys who were close to that other success, maybe some of the halo is still stuck to them and voila! investment rationalization.
Some of us have seen dozens of sure-fire new companies, staffed with experienced professionals, fall on their faces. Younger, perhaps naieve investors still have some lessons to learn.
Admittedly, the article pointed to 6 indicators of a bubble which are probably not quite right; then defended only 1 of them, and waved their hands about the others. That is what I found a little offensive, but to my logical sensibility and not as an entrepreneur. Entrepreneurs have to weather a lot more than link-bait, and need to grow a much thicker skin.
What's worrying is that these guys are Bain Capital, Sequoia Capital, and Silicon Valley Bank - some of the most influential tech investors in the world. They should know better. That or they have some incredible inside info on the Color team and their product.
If there is a bubble, then it's balancing stuff like this that will keep things in check. I've been noticing it too, and I think that's a sign that things are getting crazier as the months go by.
It is not necessarily a bubble yet. I think investors think the mobile-social-local market will be owned by very few companies. (Only a few can survive because of the network effect). They invest into one company and hope that with a lot of advertisement money they can win. There would be a bubble if they would invest the same money into 10-20 or more similar companies randomly.
I don't know about the rest of the world, but we sure are in a bubble here at Hacker News. There seems to be a real disconnect between what people want to build/invest in and what people in the real world actually need and want to pay for. Just as sample of what I've witnessed in the past few years:
Ask HN: How do you like my file sharing app?
Ask HN: How do you like my social app for niche <x>?
Ask HN: How do you like my twitter app?
Ask HN: How do you like my facebook app?
Ask HN: How do you like my iphone app?
Ask HN: How do you like my facebook app that writes twitter apps?
Ask HN: How do you like my game?
Ask HN: How do you like my photo sharing app?
Ask HN: How do you like my video sharing app?
Ask HN: How do I monetize my free flashcard app?
Ask HN: How do you like my app that helps other hackers to do <x>?
Ask HN: How do I get traffic to my freemium app?
Ask HN: How do I get angels/VCs interested?
Ask HN: Look what I wrote this weekend!
Ask HN: Look what I wrote in one night!
Ask HN: Look what I wrote in 7 seconds!
Customer 1: How can we sell through Amazon.com?
Customer 2: How can we reduce inventory by $300 million?
Customer 3: How can we increase conversion from 2% to 4%?
Customer 4: How can we use software to reduce energy costs?
Customer 5: How can we migrate one app into another?
Customer 6: How can we get our phones to talk to our legacy apps?
Customer 7: How can we take orders through the internet?
Customer 8: How can we get our software package to do <x>?
Customer 9: How can we reduce credit card fraud?
Customer 10: How can we increase SEO effectiveness?
Customer 11: How can we connect fulfillment and ecommerce?
Customer 12: How can we increase revenue?
Customers 13-200: How can we increase profitability?
That's really unfair. Whilst I agree there's a disconnect, I wouldn't say it's specific to HN, but rather to the entire industry. The reason why you see those Ask HN posts is because people are looking around and realizing that those types of services have been getting tons of funding and attention.
There's a disconnect, but it's in the social web world, not just HN. And I would say HNers are trying to capitalize on the hype.
I think the reason you see those kind of posts is that those kind of applications are low-hanging fruit. The development of Yet Another File-Sharing App or Social Media Service can be accomplished by anyone with a "Learn Rails In 21 Days" book and a credit card.
Companies that are also getting tons of funding right now are biotechnology and solar energy startups, but I have never seen anything along the lines of a "Ask HN: Review my research on getting 3.3% more current per solar flux unit by doping gallium with boron" post, despite the fact that such an accomplishment would likely garner extremely good investment and/or business prospects.
More to the point, people lack any domain experience.
Don't get me wrong: it's cool to be an awesome hacker... but if you don't know about anything outside of hacking.. chances are some neck-beard somewhere has already solved all of the problems of which you are aware.
> if you don't know about anything outside of hacking.. chances are some neck-beard somewhere has already solved all of the problems of which you are aware.
The other issue with domain knowledge, at least in my experience, is that it takes a significant effort to become sufficiently knowledgeable in a new domain to discover and solve the real problems faced by people working in that domain.
Which is why you never engage in business ventures based on what customers claim they need/want. How many companies expressed a need that would make Twitter or Facebook happen? Yet these services are nowadays a crucial part of many companies marketing efforts simply because a bunch of business people had a vision or scratched their own itches.
Agreed. It's not to say these products aren't successful, but you and I seem to be very traditional business people. I always find at least a few customers willing to pay for what I'm going to build and some sort of a competitive advantage I have over the potential competition.
The customers in your first list are individual consumers, and the customers in your second list are businesses.
You're right about the triteness of those Ask HN examples, but let's not go so far as to suggest that we should all be building for businesses, and only businesses.
Those needs are dismissed as lifestyle businesses that can be bootstrapped and/or cater to enterprises and SMB. It's more glamorous and HN-friendly to be working with the latest technologies and recreational uses of them for consumers.
B2C (and tools for programmers) is overrepresented amongst hackers because it is easier to gain domain knowledge in these territories especially for young hackers.
I also think that B2B is still underrepresented, and I am more interested in that. But we should also note that solving Customer n's problem is very different than solving Customer M's problems at once where M is s big set of customers. The first is 'consulting', the second is building a product and a scalable startup. The second is much harder than the first, that may be also a reason for not being there that much B2B startups (but lots of consulatants).
I also think that B2B is still underrepresented, and I am more interested in that.
It is, but there are a few of us around. I'm working on an enterprise software startup, focused on information retrieval and knowledge management. Pretty far removed from the typical HN "location aware, social photo-sharing with gamification" stuff, but I think it's actually more interesting. But that's just me...
b2b startup here! We got our idea b/c 2 of my cofounders worked in the industry, and spent 3 years noting the problems with their field.
That's a very difficult thing for a 23 year old hacker to get exposure to. In order to get that job in the first place, you'd need a mechanical engineering degree, then spend several years at the plant.
On the flip side, we've just started to place ads on our sites via google's adsense, and we're getting > $15 RPM already.
B2B is where the easier money is, in my opinion. (That also applies to women-focused companies).
Definitely agree. There are lots of large problems and lots of behind the times applications being used by businesses. There is a lot of room to improve efficiency and cut down on costs.
I have a couple ideas for B2B type systems, my real problems are how to market and sell those applications. I guess I don't really have knowledge in how companies adopt technology. It seems easier (although less profitable) to sell to individuals since it's one person's decision process, not an entire organization.
A1) Well, this [file sharing/social/twitter/facebook/iphone/game/photo/video] application sure has people's attention. Their developers are wicked smart and have a plan for monetization by utilizing the geo/demographic/taste data of their customers to make it easier for you, the b2c business to target them with advertisements.
Q2) How can we increase revenue?
A2) See A1.
Q3) How can we increase profitability?
A3) See A1.
See also: why should anyone publish this magazine, TV show, blog?
I'm fairly often here, but I've never, even once, saw "How do you like my game?" except for that little airplanes game (but it was mentioned in the comments, not a post)... care to provide me with some links to those games? I'm interested to see those.
Who would take pleasure in reading Hacker News if it became about almost any of that customer stuff? All that stuff could be getting submitted and just not upvoted, because it is boring.
Charge for something- Building a consumer property dependent upon advertising has easily made many millionaires, but it isn’t the surest path. It takes a lot of time and scale, which due to cashflow issues will require large outside investment probably before you are a millionaire. Build something that you can charge for. That’s how business has worked for thousands of years prior to the 1990s.
Make Sure You’re Robbing A Bank- When Willie Sutton was asked why he robbed banks, he said because that’s where the money is (Thanks to edw519 for this phrase). Make sure whatever you’re going after is where the money actually is ie- a customer that will pay you. Consumer markets are tough, especially with web based products. People expect everything to be free. Businesses are usually your best bet.
If you buy into that, then reading about customers (and business customers in particular) is VERY interesting.
To add, approximately one half of people in the real world share a common demographic category with a sliver of HN users and a fraction of a sliver of what we create.
Women have money. Go take it. Nobody else wants it in tech. (Well, aside from Groupon, Zynga, and a few other companies that missed the opportunity to make an iPhone app that you could wiggle to share photos.)
People are taught to focus on a market they understand, specifically themselves if nothing else. Women, on the other hand, are hard to understand, even to other women.
They pretty much do, it's just that women aren't the only target demographic that you can do this with. Think comic book movies, etc. They're all aiming at a very specific subset of the population and tailoring films to that group.
They do, it's just not what you'd expect. For example, here in the UK, Volvo are big sponsors of the Twilight franchise. How does that make any sort of sense!? Well of course it does, because Twilight's core readers aren't teenagers at all, they're 30-something women. Same demographic that're buying all the Kindles.
Any ad you see that you don't understand, any product you think is irrelevant, someone must be buying it or it wouldn't exist. So, pause for a second and think, this is not for me, who is it for?
You may not be aware but there are a lot of other websites taking money from women. IE. shoe website innovations. I recall there was also some fashion site at TC Disrupt that reminded me of Swoopo. I wonder what happened to it.
Women are interested in much more than fashion and shoes (and there are many men who are interested in fashion and shoes). The market seems pretty poorly understood by tech innovators.
I know what you mean. When I've suggested targeting a female demographic with things that are somewhat silly, but most women just go crazy over (seen by how many women get into similar thing in several businesses) I was dismissed out of hand.
The Palm Pre used this strategy. Not that it's necessarily bad, but I don't think it's necessarily an instant cash-in either. You have to do things correctly and carefully, and I think the difference between appealing primarily to women and appealing to men is fundamentally a stylistic one.
I don't know how the hell they did it, but it worked for Palm. I was watching 'born rich' recently and one of the celebutantes says, referring to a handbag, 'it has room for my palm pilot, or paper, if you are still into that'.
It's about what humans want. Humans act the same, for the most part, accounting for cultural differences. (Fashion is an example of a cultural difference, In Turkey, for example, men often place as much importance on being stylish as American women do.)
So, think culture development. Talk To Customers. (And don't try to flirt. Look at their faces. Write notes.) Talk to them both individually and in groups.
This is common advice, but I find it frustratingly vague. Talk to people? I talk to people all the time. Heck, I talk to women all the time — half my friends are women, I currently live with two female housemates and used to live with a third, and my mother is a middle-aged office manager. After years of talking to them, I can only conclude that I've missed the boat on making Facebook, Etsy, The Sims and Model Mayhem.
I imagine a lot of people are in the same boat. It's hard to talk to people in a way that reveals product opportunities. That's why they make things for the only people who will actually tell them what they want — themselves.
There is also a huge (multi-Billion dollar) "industry" for corporate level software that is under serviced in many areas (i.e. the software is churned out by large development houses and is below par).
Yet very few startups seem to target these areas.
We took a product into a badly serviced industry and were wildly profitable within about a year on minimal funding. I always worry that there is a growing amount of speculation on "great teams"/social media and less focus on creating useful stuff that companies/people want/need (and, damn, there is a lot of it).
My boss always moans when I talk to him about startups and VC's, he usually says "if you give me $100,000 and 6 months I could come out with at least 5 profitable pieces of software and sales to return your investment by the end of the next year".
Selling software to large corporations however requires significant support effort and bending over backwards to make the sale. I seem to recall an article about hunting elephant versus deer that covered the issues quite well.
Dealing with just the development side of it in my day job, no way does dealing with them on my own or in a small startup team appeal.
It depends which industry you pick - but often the problems are over-hyped. It's true; I had the same trepidation you talk about when first having to face doing sales... and at the start it can be a disaster ;) but you can soon pick up the tips & tricks needed to sell to corporates.
In fact; as hackers we are actually at an advantage selling to corporates, so long as you "get" the process, because they tend to be "attuned" to the sort of tactics employed by sales types. Often you can cut through that using feigned ignorance and a little simple social engineering :)
And at the end of the day... once you have a little traction hiring a dedicated sales guy is easy :) Many startups do exactly that when completing the first major round.
I may well be somewhat jaded because my job is coding for the financial side of things. When you're dealing with money and banks things... suck. A lot.
There's no real secret to any of it (that's the first pointer).
The few things that spring to mind:
Be polite but persistent
Procurement people at corporates are used to really pushy sales people; so if you barely make any effort you won't get through at all :)
Judge who you are talking too
Most people you talk to won't be able to give you a "yes", get past them as fast as you can (I usually just ask straight out to speak to their superior/boss etc.), they are there mostly as a filter. Also consider what sort of firm you're calling - in a 50+ person company it is likely to be a specific department who buy things (even if it is just an individual), below that the person probably has a different day-to-day job. I've had a lot of success, when talking to smaller firms, with the line "lets just drop all the corporate nonsense, we're both small firms and there is no need for me to make this the normal pain in the neck".
Forget all the marketing nonsense
You'll see a lot of "marketing best practices"; I mostly ignore them, they are designed for a company with a number of sales people to normalise the sales routines. You're hacking the sales routine, so take it naturally.
I particularly advise avoiding the template emails that you stick a name in front of... keep the templated stuff to short paragraphs in your emails & material you attach (i.e. PDF's) and try to write an honest "personal" note.
Honesty does get noticed BTW, it can set you apart from the usual inundation of marketing they get.
Be open to adaption, but have a firm limit
I once committed us to a normal sale but "with a few tweaks", it took me the best part of a month to get the tweaks in place. :) Accomodating companies requirements gets you a good name, but really consider if it is worthwhile, and be happy to say no.
Be prepared to walk away
You can't sell every time. And if you are desperate to sell then they can take advantage of it! Either by getting impractical modifications (see above point) or drumming down your price. Either that or they are just not interested, and you end up sounding desperate and silly.
Invest in CRM
Biggest piece of advice IMO; it is so so so so so easy to forget who you contacted & about what. It might take you weeks to find the right person to talk to at a firm, but in 6 months when you try to upsell them the new product you don't want to have to do all that work again :) Plus I had a silly incident a while back where I kept emailing the same introductory email to a poor CEO; I think he got it about 86 times before calling to ask me to stop :)
Call the CEO
Doesn't work all the time, but sometimes (particularly in smaller firms) you can get things moving (and seal a sale) by calling the CEO. It takes a bit of balls and a fast pitch (or social engineering) to stop them hanging up :)
My favourite line was "X suggested I call you about this product, Y, we're selling you so you can have an idea of how it will improve your business"
Where X is someone in the middle of the food chain who has, at some point, said "you need to talk to my boss". :)
"Yet very few startups seem to target these areas."
Perhaps you're seeing an artifact. Generally the startups you hear about on HN and elsewhere are trying to generate 'buzz' and 'raise awareness' to get to 'closing a funding round.'
As you yourself demonstrate when one starts a company to solve a problem for which there are already customers in pain (and thus willing to buy the product), they can generally, if they execute well, get started and get profitable early on and then grow organically by expanding out from their customer base to adjacent markets. All without any big funding round or 'buzz gathering.'
Solving known problems well, gets you a steady paycheck, its not 'sexy' and its not usually 'disruptive' and it is very very rarely even brought up in places like this.
Because the problems are known it also means are are usually several players trying to get to the same dollars and margins are limited right from the start as people compete to be the chosen solution out of a variety of solutions.
Disruptive changes on the other hand, take a market with a reasonable capital flow and shift it all to a single player. Depending on how long that shift lasts, the return on investment for that player is 10, 100, even 1000 times higher.
The other problem here is that if you are a VC fund you can't leave the money you've raised in T-bills forever, you really really do need to invest it. So there is pressure to put it out there and get it working for you, and if its been getting 2 - 3% in T-bills and your clients were expecting 20 - 30% then the longer its been sitting the bigger a pop you want to spend it on. A very strange but measurable forcing function.
This is very true. I can give another example(maybe bit-offtopic for HN).
A very good friend of mine worked in IT for like 10 yrs. He was quite good programmer, CTO etc.
One day he decided to radically change his carrer and opened... 5 Subways in Eastern Europe (he is originally from there). FFW 2 yrs => his restaurants making him $400-500k/yr, he spends zero time managing them and just focused on opening new ones.
His lesson: IT industry has one of the hardest competition rates cause all super-smart geeks are competing on relatively small marktets. Other industries competition (esp in emerging markets) is seriously overrated.
Another example - my very stupid app for selling video files just crossed $1000/day mark in sales. Ppl just need simple tools to get things done.
Argh, don't remind me about Subways in Eastern Europe. When Subway opened in Indiana, I told my (Hungarian) wife that if she wanted to make serious money, we'd open a Subway franchise in Budapest. She said, "Why would you try to sell crappy bread like that in Hungary?"
Most geeks that I know aren't trying to build apps that make money, they're trying to build apps that are fun, and that their friends think are fun.
If you offered me two choices
A) Make a million dollars a year doing something you hate that nobody will know about or care about
B) Make no money doing something you love that your friends think is cool.
I will almost always choose B, and I think most hackers will also always choose B. I would go as far as saying that choosing B is one of the defining characteristics of a hacker.
I got into computers because it was fun, not because I saw dollar signs at the end of it. Writing a video sharing app is a lot more fun than writing a software that reduces credit card fraud.
Can't you have both? Take option A for a few years. Save most of that money, then quit. Take option B for a lot longer than you could have if you didn't take option A first.
But seriously, I understand that option A almost never pays that well and is usually not guaranteed. For example, working for stock options that you'll most likely never see vest.
Also option B is not guaranteed to make no money either, and at least you like option B. So, I'd take B too.
Am I correct in my opinion that people following option A tend to be, though perhaps not universally, driven by a certain kind of greed that promotes cold, unfeeling non-authenticity? These effects ripple throughout our society at a deep level.
Some superficial examples--Zynga, advertisements for female facial creams, etc. But I feel it goes much deeper. It's like an emergent phenomenon, a parasitic infliction upon our society. Imagine where those dollars and energies and attentions could go.
I haven't looked for the article I am talking about since I last read it (back when dead trees still dominated). So I can't vouch for its veracity anymore. Its essence may be interesting or jog someone else's memory. (I may try to find it later)
The article stated that a group of college (MBA perhaps) students was surveyed and asked "would you work for the highest paying salary once you graduate?", or "would you work for what you want to do and enjoy after you leave college."
The answers were compared against reality and the respondents life after a few years - It showed that whoever chose to do what they were interested in were more successful in monetary and career terms than people who chose to follow just the cash.
It does have further support, in that we generally value passion and drive as key predictors of success over someones ability to choose better paying jobs.
When I was younger, all I wanted to do was make video games. But as I got older, I found I had writing business apps was more fun (especially when I picked the language).
A) Make a million dollars a year doing something you hate that nobody will know about or care about
If you got million dollars paid for the thing you built, that is million times "know about" + million times "care about"
B) Make no money doing something you love that your friends think is cool.
I will almost always choose B, and I think most hackers will also always choose B.
I would go as far as saying that choosing B is one of the defining characteristics of a hacker.
One can find the golden path to make something one loves, something his friends think it is cool and yet, something which million people will find it worth paying a dollar a year.
Doing cool things, things "friend think it is cool" is nice, but you cannot go to the grocery with, nor pay your bills with it, right?
Besides, that cool thing, will soon loose it glory to something cooler unless it will be maintained and evolved. Money is a great way having one stick to a project and keep it up and running.
A) Make a million dollars a year doing something you love that nobody will know about or care about OR
B) Make no money doing something you hate that your friends think is cool?
...
If the question that you're trying to ask is, with all other things being equal, would you:
A) Make a million dollars a year doing something that none of your friends would know about or care about OR
B) Make no money doing something that your friends think is cool.
I would choose A every time. Also I'm not sure how you can say that writing a video sharing application is a lot more fun that writing software that reduces credit card fraud without knowing about the techniques used in the particular pieces of software. I'm interested in algorithms and neat techniques, not sharing videos or credit card fraud.
I'm still vain enough to think I'm a hacker, though:)
I would take A without question. After just a year or two I'd have enough money to work on my own fun-as-can-be-but-will-never-make-money projects for a decade or two.
Writing a video sharing app is a lot more fun than writing a software that reduces credit card fraud.
I knew a guy who wrote software to reduce credit card fraud and he thought it was great fun with lots cool statistical analysis and data mining problems to play with. And personally I think that sounds a lot more fun than writing video sharing apps.
That does not a bubble make. Hackers are hacking a lot != we're in a bubble. A bubble is a stock market bubble based on mass amounts of over-investment by VCs and the public.
Re: Customer 2: How can we reduce inventory by $300 million?
I'm wondering if anyone has explored the outsourcing of inventory? In other words, would it be viable to establish a giant warehouse of all things that people could use as their own personal warehouse... like co-locating a server.
This is how a lot of businesses work. You place an order with company A. Company A orders from company B, then delivers to you.
There are reasons some companies do well at this. A lot of it has to do with setting expectations, and giving accurate information about pricing and availability.
Company B may only ever sell to a handful of other "retailers".
Yes, "pick and pack" warehousing / shipping facilities will store your stuff and even put it in boxes and ship it to your customers for you. The problem isn't storing the inventory, the problem is owning the inventory. Ultimately, reducing inventory must go along with having a quick delivery time from your upstream suppliers...
If you were at YC demo day this week, you would have seen some very solid companies that are addressing those 'Customer' issues that you list below. I was expecting bubble when I walked into the door at YC, but walked out of there thinking the total opposite.
I can't speak for all the other companies out there.
Back in the old timey days, you made a product people needed or you were through making said product. Today, I'm astounded by how many products/apps do the same thing as their competitors. Take iphone camera apps for example; why are there so many? Why are they getting funding? Do people need a sepia toned camera app? Is it making their lives easier?
This is not so say that innovative and "cool" apps don't have a place - they do. But it is to say that there's something concrete about making a product people need that solves a basic human problem. “My damn phone won’t take a sepia toned picture,” is not a basic human problem. In terms of a bubble, and more so, in terms of revenue – making a product someone needs assures revenue and harkens back to the old timey adage.
So is there a bubble? Yeah. Can it be quelled by a return to making products that help people with basic needs? Yeah. Do I want a camera app with sepia tone? Sure. Do I need it? No.
I come to Hacker News to see what interests a small demographic with whom I share some. To find out everything else, I go out on the street and interact with people.
We're still just starting a watershed moment for ways of finding productivity gains, forms of entertainment, ways to connect and share. We haven't scratched the surface yet. There are huge leaps being worked on in the foundation technology.
Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.
> Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.
That happens eventually, it seems, in a somewhat roundabout way, to some degree. Look at where the money from Viaweb ended up, as one example. Lots of successful people's money ends up as angel funding: Paypal, Delicious, and so on.
I'm pretty sure Dropbox paid a lot more than $7.95 for "dropbox.com" It's actually somewhat difficult to find an unregistered, pronounceable domain that's under 6 or 7 characters.
Dropbox had an already successful product operating on getdropbox.com. When you have some revenue numbers to play with, it makes sense to invest serious capital.
Is it actually important to have a short domain name? I either seldom visit a site, in which case I visit it through google, or I often visit the site, in which case it's in my url history completion list.
The $41m injection might well kill the company. I've never seen startups with too much capital early on to become the next Google/Facebook/Twitter - you lose your chance to become "relentlessly resourceful"!
We might be, but are bubbles always bad? Lots of money gets thrown around. More people get jobs. Ideas are everywhere. People get experience starting and running companies. Interpersonal and business networks are built. Lots of bad ideas are funded, sure, but a few great ones also emerge.
We shouldn't condemn bubbles as automatically bad. We should be aware of them, though.
The problem with a bubble, is not that 'money is thrown around' by investors - but that the source of the money ends up being in public hands.
The founders get their investment from the investors.
The investors get their money back when the company is acquired (or makes money).
In the early stages of a bubble, this process generally consists of 'money being thrown around' as you say.
However, due to the hype of the returns from these 'investments' (e.g. Facebook growth) - it attracts the public investors into wanting to get in on the 'action'.
Typically this is done through an IPO, which allows the public to come on board and potentially pay all previous investors / founders down the chain their money back (plus more).
However, even without the IPO's of the last bubble (and they may still come!) - the public money is finding a way in (e.g. Banks setting up Social Media Investment Funds). Not to mention any other general investment companies having some of their portfolio riding on 'internet based stocks'.
Then when the bubble eventually bursts (The trend reverses and everyone tries to get out while they can) - it is often the public investors which are left out of pocket / losing their homes / etc.
The point made at the end of the article is, if you are in a start up right now (or even a VC) - it is better to get out early, than to get greedy and end up getting burnt when it bursts (e.g. GroupOn).
> No more 'x' buys 'y', where 'x' is some established player and 'y' is some new kid on the block that has a fancy office with pinball machines a hip domain name and an in-house chef.
I don't know if it's a bubble or not, nor do I have any idea if it's just because of where I browse (self selection), but I've noticed a trend lately. The trend is that people are excited about a startup BECAUSE IT'S A STARTUP, and not because of what the underlying value of the business' model/idea/value. As if the fact something is a startup is, in and of itself, somehow magical and has intrinsic worth.
It reminds me of a few years ago when people were all googaw over social networks, because they were social networks. That seems to have passed now and they're focusing a bit more on how social can help this cause or that business model.
Without any real knowledge of the VC industry, to me this "bubble" looks like VCs are just suffering from a lack of things to invest in due to the proliferation of angel investors.
They need to show their investors that they're doing something, so they throw a grip of money at a company with a solid group of founders and a roadmap full of the hot buzzwords of the day.
As someone else commented, Facebook could easily add a feature to show pictures from friends geotagged with your current location. (Not a perfect replacement but a lot of the magic.) Apple also appears to be getting aggressive in this space with the new version of mobile me. Color has an interesting vision, but I think traction as a photo sharing add-on is going to be tough once the social network and the mobile device maker get into the same exact business.
that's exactly what I was thinking. I see this as being a very novel concept that if reaches a certain threshold of brand-awareness and good design could be a perfect acquisition target because merely replicating the feature-set would be like Google Video before Google acquired YouTube (it wouldn't be about the technical capability as much as the culture and community around the novel concept).
Edit: I'd like to clarify that the business model I'm suggesting feels different somehow. Yes people have built companies to flip before, but their valuation was still based on what they do as a company.
If what I am suggesting is true, Color's valuation is based on potential shares in the company that it's being flipped to. These VCs are essentially investing in Facebook, pre-IPO (set for 2012) without going through Goldman's special purpose vehicle, and without dealing with the SEC's 500 shareholder regulations.
If true, that would make this Color investment a very clever hack.
the other scenario is that they have a tiny bluetooth camera pendant/lanyard (like microsoft's sensecam) that would allow people to literally immerse themselves in their friends' surroundings. having this bluetooth device and the platform would allow for a much higher valuation.
I'd say it's the opposite, it's made them very expensive to acquire. It's not inconceivable that with the right team and a very impressive tech demo Facebook might have been prepared to sink >$41 million into a strategic aqui-hire at a very early stage.
Now to give the VCs a return on their investment they're probably expected to exit at north of a billion, which means they're going to have to show Facebook something special in terms of revenue or user-interaction generation or targeting they can't get from any of the many other smart developers who've taken less funding for their location startups.
I'm not sure Facebook's investors would be happy with $400MM in pre-IPO shares, except in the unlikely event the service is generating significant revenue per user or bigger than all their location-based competitors before Facebook IPOs. I believe that's double Y Combinator's biggest exit, so it's not as if you can't pick up great hackers with great products and actual revenues for a lot less, and with pre-profit location-based startups being not-exactly-unfashionable at the moment Facebook are spoilt for choice if they want to make strategic acquisitions in that space.
I think Color have committed themselves to trying to build something big enough to be considered a Facebook alternative. Taking $41 million in a Series A buys you a lot of premature optimisation or a lot of runway if you don't think you're going to get a better valuation in a series B round. It also more or less rules out the quick exit.
That's pure bubble talk - "we don't have to generate profit to justify the investment, we'll just get acquired by someone else"
SOMEONE has to generate a profit based on the technology which justifies the investment or acquisition cost, whether it's color or their eventual acquirer.
And I'm saying, the acquisition is already planned and these investors aren't investing in Color, they're essentially investing in Facebook pre-IPO without going through Goldman's special investment vehicle.
None of the investors mentioned (Sequoia, Bain Capital, SV Bank) are Facebook investors yet.
What about the popularity of the lean startup approach? The focus on data and customers tends to keep those startups real. Shouldn't this mitigate some tendency toward a bubble?
What I don't get, economically speaking, is how we can both be in a bubble and in a barely recovering economy. In other words, how do these angels and VCs still have that much money to invest in such companies?
Most VC's are backed by enormous pension funds and/or other group retirement vehicles. This is how they can afford to bet large sums of money on multiple companies with an expected payoff of only 1 in 10 companies on long time frames.
The pension isn't using that money (right now anyway), so the VC is free to do with it what they want, and in the end the money comes back to the pension in multiples.
At least this is my understanding talking to an actual VC (not in a fund-raising situation, just casually).
One reason I know we're not in a bubble: because everyone is saying we're in a bubble.
For you young whippersnappers who were too young to remember the 90's, a bubble is a manifestation of irrational exuberance- with (almost) everyone saying it's a whole new market, it doesn't matter how much the thing costs it's worth it to buy it because it's price is just going to keep going up up up, so do whatever you need to do to buy in now, because the longer you wait, the less you make.
In other words- it's a bubble when everyone is saying it's not a bubble. But if everyone is saying it IS a bubble, then it's not a bubble.
There is a difference between a healthy (or at least "not on death's doorstop") economy and a bubble.
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[ 2.7 ms ] story [ 284 ms ] threadI don't see what they need $40m for that's going to deliver real value.
If they're looking at something with a bricks and mortar component that would be different but I'm generally with DHH on this one - businesses of this sort can grow quickly without the need for this sort of capital.
If they can get everyone using their software before someone else comes along then the collaborative nature of it gives them a significant advantage in that there are more people you can collaborate with.
But even that isn't a particularly strong lock in when the apps are free or cheap and available near instantly anywhere you have a data signal. Someone using a different app? Just go grab it - it's not like convincing all your friends to leave Facebook to go somewhere else.
More power to 'em.
- It is creating a scarcity in developer resources. This just forces me to relearn how to write good software, definitely not a bad thing. - It is generating a lot of interest and investment in various tools that I can build, saving me effort and producing a better product.
Those are the good impacts.
It does create a sour grapes type of emotion that I try to put aside. $41M would go a long way towards funding a lot of small startups, or supporting animal shelters that are swamped due to people no longer being able to afford their pets, or building companies that would employ people that lack high tech skills or the opportunity to employ those skills if they could acquire them.
(And if you think "Oh, anyone can refocus themselves and get in the game, come live in the rural midwest for awhile and then tell me that.)
My point was more that you can't just assume that because smart people think X, X is true. I think this is especially true in the world on VC investment where the investors don't believe that every bet they make will come off - what they're looking for is enough of them to work out that they make a profit overall rather than that every single one nets them a return.
For the rest of us we can point and laugh for the most part because, hey, that's fun, and by coming on here and running our mouths we, in our own small way, bet in the investors do (though we gain or lose tiny bits of our reputation rather than cash). But we might also want it to inform our decisions when it comes to investments and choosing our next job.
isn't it strange? well, as a software devs we seem to have longer and harder path to breakeven.
but consumer startups seem need even more money to serve millions of customers, and the success chances seem a little higher than that of a lottery, as you should predict and check if the inconstant masses would like the app or not.
why we're not in a bubble then?
This is what struck me when I heard about the deal. Color is cobbling together existing technologies and not creating anything new. This deal pushed me into the "There is a Bubble" group. They had better have an ace up their sleeve.
from the perspective of 'can these guys spin a $40M investment into something that is worth more?', the answer is probably yes (probably enough to worth investing in)
it isn't a bubble because this is still VC money, not crazy mom and pop shooting at the NASDAQ money. during the bubble this company would have already IPO'd and been worth $5B, and you parents would have called you up to ask about it.
But saying a company will likely succeed and deserves an investment does not mean VCs shouldn't be making rational valuations based on real business metrics. And as the OP remarked, this is probably funding at a $80m+ valuation for a company with no product (when funded), no revenue, and plenty of competition.
Is there a $40m+ market for a group photo album app? This app is free, so they'll need a great monetization model even if the market is there.
Color, on the other hand, if they at least solve the problem of figuring out where somebody is I can see someone paying 200M+ for that (fb or google)
who knows, they might end up powering location for foursquare, facebook, and google etc. in 3 years time as the new GPS.
EDIT: I guess it could be patent licensing. I don't buy the technological complexity bit, personally.
Also, if you know that everyone's headed towards a bubble, what is the correct response if you are a rational entrepreneur? Riding the bubble to the top and bailing before the crash does not jive with me.
The geospacial indexing can be accomplished by creating a 2-dimentional index of picture buckets where each bucket contains the pictures taken within a small geographical area (say 2000x2000 meters) then all you only have to iterate over the pictures in the buckets that are within the current distance from your location. The clients can easily sort their images before their are uploaded.
It may sound complicated but games do that kind of thing all the time, and often with bigger constraints (skipping a picture or two isn't going to be a big deal).
So yeah devs are not cheap, but a technical co-founder should be able to develop this.
The service behind? No, but I highly doubt they have been spending only a weekend on it.
In two months? Properly, though it assumes that there is nothing more to it than has been described so far.
For entrepreneurs crashes are the best times to innovate and launch new ventures because while everyone else is angsting about cutbacks and surviving just another day, the entrepreneur can launch lean businesses and products AND usually get great deals on people, equipment, office space, services, etc.
I agree that a bubble doesn't mean all startups with autofail. I would like to learn from the past and understand what worked.
I seriously doubt that modern democratic-capitalist societies as a whole can avoid bubbles. Individual business owners OTOH can not only survive but also thrive in the aftermath given that some basic conditions are meet.
The moment when everyone shut up and start to join the bandwagon is when the bubble bursts. <-- That's from my experience.
Regarding exponential growth. We need to think carefully what kind of efficiency improvements can SUSTAIN exponential growth. The adoption of the Internet to the mainstream was a major event. I guess people might be betting that mobile/tablet is another one. I thought this was already priced in about 2 years ago. I can't think of what has changed in fundamentals that justifies the current situation (except for inflation perhaps).
I actually quite like the concept - makes group photo sharing fun & easy. But worth $41m? Not yet
Did anyone consider that maybe Sequoia, who have invested in companies that make up over 10% of the NASDAQ know what they are doing?
Companies like Color, AdKeeper and Flipboard have "crazy" valuations based on the founders having ridiculous resumes. They have all created billions of dollars of value for their investors, hell, why wouldn't you invest in that potential again?
Rationalising this metaphorical bubble to domain prices is absurd, since domains have always been traded for eyebrow raising prices. You think that the domain color.com or path.com will be worth $10 in 5 years time? Seriously?
Color almost certainly didn't require $41M to get to the product you see today, did people ever consider the company is - gasp - launching early and has the capital to iterate and scale for the next few years? I can think of lots of startups that raised $10M - $20M at company formation and has then spent the next few years (or more) iterating.
Investors are less interested in where you are today, compared to where you are going
They've given a long runway to Color, and if the airplane takes off those investors reap far more rewards then they would have if Color is wildly successful and other investors were able to participate in subsequent rounds of investment.
I cannot emphasize enough that this is a strong team (investors and owners). There are almost certainly specific targets and objectives this team needs to meet before they collectively decide to spend the entire 41 million.
Which means this thing could crash and burn after spending 3 million, and they unwind from there.
A long runway? Sorry, but I had to chuckle on that.
That would be one hell of a runway. More akin to a wormhole.
- Is calling the investment "crazy" really offensive to the entrepreneurs? It is more a compliment to them than anything else. The investment may be crazy, but the entrepreneurs managed to get people to shell out $41M. That takes serious talent.
- Getting $41M for color is insulting to a lot of other entrepreneurs that have dedicated their lives to products like color and received nothing. Give half of that $41M in $250,000 chunks to 80 other startups and Color would still have $20M to play with.
If you know how these large investments work, $41M in Color may seem very sane, but to a large percentage of the population, it does appear crazy, particularly in light of the dot com bubble.
Perhaps you could point us to a good article showing why this is a sound investment?
For the same amount as this investment you could probably set up seed funds in 10 cities and cover all of the overheads involved. I know which option I would pick.
Neither Merril Lynch nor Lehman Brother knew what they were doing.
"Investors are less interested in where you are today, compared to where you are going"
Yes the future is important, but there's the risk-reward trade-off. If a company looks badly risky today, a rational investor will steer away from it.
"If nothing else, posts like this are terribly offensive to the entrepreneurs that dedicate their lives to products like Color."
And for your first point, a well functioning entrepreneurs ecosystem require both dedicated entrepreneurs AND rational investors. This is not to demean the entrepreneur.
"Rebecca Black signed onto the same record label as Miley Cyrus, I think the label knows what they are doing" ... "We all though Lehman Bros knew what they were doing, dude"
Anyway, I like people that stray from the field and do contrarian things that other people think are crazy, if nothing else in 10 years it'll be exceedingly satisfying for these kinds of investors to point at all the haters (and if they fail, well, everyone was right blah blah serves them right for taking risks)
Also, being a contrarian investor means you sell in a bubble (when everyone is buying) and buy in a crash (when everyone is selling).
I'd prefer to see evidence of success before assuming it will happen.
So its a little like sympathetic magic - if we get guys who were close to that other success, maybe some of the halo is still stuck to them and voila! investment rationalization.
Some of us have seen dozens of sure-fire new companies, staffed with experienced professionals, fall on their faces. Younger, perhaps naieve investors still have some lessons to learn.
Admittedly, the article pointed to 6 indicators of a bubble which are probably not quite right; then defended only 1 of them, and waved their hands about the others. That is what I found a little offensive, but to my logical sensibility and not as an entrepreneur. Entrepreneurs have to weather a lot more than link-bait, and need to grow a much thicker skin.
There's a disconnect, but it's in the social web world, not just HN. And I would say HNers are trying to capitalize on the hype.
I think the reason you see those kind of posts is that those kind of applications are low-hanging fruit. The development of Yet Another File-Sharing App or Social Media Service can be accomplished by anyone with a "Learn Rails In 21 Days" book and a credit card.
Companies that are also getting tons of funding right now are biotechnology and solar energy startups, but I have never seen anything along the lines of a "Ask HN: Review my research on getting 3.3% more current per solar flux unit by doping gallium with boron" post, despite the fact that such an accomplishment would likely garner extremely good investment and/or business prospects.
Don't get me wrong: it's cool to be an awesome hacker... but if you don't know about anything outside of hacking.. chances are some neck-beard somewhere has already solved all of the problems of which you are aware.
I'm saving that quote for later use.
You're right about the triteness of those Ask HN examples, but let's not go so far as to suggest that we should all be building for businesses, and only businesses.
It is, but there are a few of us around. I'm working on an enterprise software startup, focused on information retrieval and knowledge management. Pretty far removed from the typical HN "location aware, social photo-sharing with gamification" stuff, but I think it's actually more interesting. But that's just me...
That's a very difficult thing for a 23 year old hacker to get exposure to. In order to get that job in the first place, you'd need a mechanical engineering degree, then spend several years at the plant.
On the flip side, we've just started to place ads on our sites via google's adsense, and we're getting > $15 RPM already.
B2B is where the easier money is, in my opinion. (That also applies to women-focused companies).
I have a couple ideas for B2B type systems, my real problems are how to market and sell those applications. I guess I don't really have knowledge in how companies adopt technology. It seems easier (although less profitable) to sell to individuals since it's one person's decision process, not an entire organization.
A1) Well, this [file sharing/social/twitter/facebook/iphone/game/photo/video] application sure has people's attention. Their developers are wicked smart and have a plan for monetization by utilizing the geo/demographic/taste data of their customers to make it easier for you, the b2c business to target them with advertisements.
Q2) How can we increase revenue?
A2) See A1.
Q3) How can we increase profitability?
A3) See A1.
See also: why should anyone publish this magazine, TV show, blog?
It's not boring if you want to become very wealthy. For reference, see jasonlbaptiste's "How to become a millionaire in 3 years?" post:
http://jasonlbaptiste.com/startups/how-to-become-a-millionai...
These bits in particular:
Charge for something- Building a consumer property dependent upon advertising has easily made many millionaires, but it isn’t the surest path. It takes a lot of time and scale, which due to cashflow issues will require large outside investment probably before you are a millionaire. Build something that you can charge for. That’s how business has worked for thousands of years prior to the 1990s.
Make Sure You’re Robbing A Bank- When Willie Sutton was asked why he robbed banks, he said because that’s where the money is (Thanks to edw519 for this phrase). Make sure whatever you’re going after is where the money actually is ie- a customer that will pay you. Consumer markets are tough, especially with web based products. People expect everything to be free. Businesses are usually your best bet.
If you buy into that, then reading about customers (and business customers in particular) is VERY interesting.
Women have money. Go take it. Nobody else wants it in tech. (Well, aside from Groupon, Zynga, and a few other companies that missed the opportunity to make an iPhone app that you could wiggle to share photos.)
It's strange so little companies focus on them
http://www.neosprockets.com/index.php/2010/01/chick-flick-ge...
(actually this does seem to work in the Harlequin romance corner of publishing - if you can apply this to a startup, more power to you)
http://www.cracked.com/article_19012_5-hollywood-secrets-tha...
Any ad you see that you don't understand, any product you think is irrelevant, someone must be buying it or it wouldn't exist. So, pause for a second and think, this is not for me, who is it for?
Also, your joke is not funny.
What do they want?!? I could never figure that one out.
So, think culture development. Talk To Customers. (And don't try to flirt. Look at their faces. Write notes.) Talk to them both individually and in groups.
Have a partner actually in the demographic.
I imagine a lot of people are in the same boat. It's hard to talk to people in a way that reveals product opportunities. That's why they make things for the only people who will actually tell them what they want — themselves.
http://www.dlt.ri.gov/lmi/census/wf/female.htm
Yet very few startups seem to target these areas.
We took a product into a badly serviced industry and were wildly profitable within about a year on minimal funding. I always worry that there is a growing amount of speculation on "great teams"/social media and less focus on creating useful stuff that companies/people want/need (and, damn, there is a lot of it).
My boss always moans when I talk to him about startups and VC's, he usually says "if you give me $100,000 and 6 months I could come out with at least 5 profitable pieces of software and sales to return your investment by the end of the next year".
Dealing with just the development side of it in my day job, no way does dealing with them on my own or in a small startup team appeal.
In fact; as hackers we are actually at an advantage selling to corporates, so long as you "get" the process, because they tend to be "attuned" to the sort of tactics employed by sales types. Often you can cut through that using feigned ignorance and a little simple social engineering :)
And at the end of the day... once you have a little traction hiring a dedicated sales guy is easy :) Many startups do exactly that when completing the first major round.
The few things that spring to mind:
Be polite but persistent
Procurement people at corporates are used to really pushy sales people; so if you barely make any effort you won't get through at all :)
Judge who you are talking too
Most people you talk to won't be able to give you a "yes", get past them as fast as you can (I usually just ask straight out to speak to their superior/boss etc.), they are there mostly as a filter. Also consider what sort of firm you're calling - in a 50+ person company it is likely to be a specific department who buy things (even if it is just an individual), below that the person probably has a different day-to-day job. I've had a lot of success, when talking to smaller firms, with the line "lets just drop all the corporate nonsense, we're both small firms and there is no need for me to make this the normal pain in the neck".
Forget all the marketing nonsense
You'll see a lot of "marketing best practices"; I mostly ignore them, they are designed for a company with a number of sales people to normalise the sales routines. You're hacking the sales routine, so take it naturally.
I particularly advise avoiding the template emails that you stick a name in front of... keep the templated stuff to short paragraphs in your emails & material you attach (i.e. PDF's) and try to write an honest "personal" note.
Honesty does get noticed BTW, it can set you apart from the usual inundation of marketing they get.
Be open to adaption, but have a firm limit
I once committed us to a normal sale but "with a few tweaks", it took me the best part of a month to get the tweaks in place. :) Accomodating companies requirements gets you a good name, but really consider if it is worthwhile, and be happy to say no.
Be prepared to walk away
You can't sell every time. And if you are desperate to sell then they can take advantage of it! Either by getting impractical modifications (see above point) or drumming down your price. Either that or they are just not interested, and you end up sounding desperate and silly.
Invest in CRM
Biggest piece of advice IMO; it is so so so so so easy to forget who you contacted & about what. It might take you weeks to find the right person to talk to at a firm, but in 6 months when you try to upsell them the new product you don't want to have to do all that work again :) Plus I had a silly incident a while back where I kept emailing the same introductory email to a poor CEO; I think he got it about 86 times before calling to ask me to stop :)
Call the CEO
Doesn't work all the time, but sometimes (particularly in smaller firms) you can get things moving (and seal a sale) by calling the CEO. It takes a bit of balls and a fast pitch (or social engineering) to stop them hanging up :)
My favourite line was "X suggested I call you about this product, Y, we're selling you so you can have an idea of how it will improve your business"
Where X is someone in the middle of the food chain who has, at some point, said "you need to talk to my boss". :)
There are loads of industries/areas to disrupt, a quick list from the top of my head:
employment databases,auditing,ISO,internal communications,document control,security control,anything government,caterers (booking systems, big area)
Perhaps you're seeing an artifact. Generally the startups you hear about on HN and elsewhere are trying to generate 'buzz' and 'raise awareness' to get to 'closing a funding round.'
As you yourself demonstrate when one starts a company to solve a problem for which there are already customers in pain (and thus willing to buy the product), they can generally, if they execute well, get started and get profitable early on and then grow organically by expanding out from their customer base to adjacent markets. All without any big funding round or 'buzz gathering.'
Solving known problems well, gets you a steady paycheck, its not 'sexy' and its not usually 'disruptive' and it is very very rarely even brought up in places like this.
Because the problems are known it also means are are usually several players trying to get to the same dollars and margins are limited right from the start as people compete to be the chosen solution out of a variety of solutions.
Disruptive changes on the other hand, take a market with a reasonable capital flow and shift it all to a single player. Depending on how long that shift lasts, the return on investment for that player is 10, 100, even 1000 times higher.
The other problem here is that if you are a VC fund you can't leave the money you've raised in T-bills forever, you really really do need to invest it. So there is pressure to put it out there and get it working for you, and if its been getting 2 - 3% in T-bills and your clients were expecting 20 - 30% then the longer its been sitting the bigger a pop you want to spend it on. A very strange but measurable forcing function.
A very good friend of mine worked in IT for like 10 yrs. He was quite good programmer, CTO etc. One day he decided to radically change his carrer and opened... 5 Subways in Eastern Europe (he is originally from there). FFW 2 yrs => his restaurants making him $400-500k/yr, he spends zero time managing them and just focused on opening new ones.
His lesson: IT industry has one of the hardest competition rates cause all super-smart geeks are competing on relatively small marktets. Other industries competition (esp in emerging markets) is seriously overrated.
Another example - my very stupid app for selling video files just crossed $1000/day mark in sales. Ppl just need simple tools to get things done.
Sigh.
Most geeks that I know aren't trying to build apps that make money, they're trying to build apps that are fun, and that their friends think are fun.
If you offered me two choices
A) Make a million dollars a year doing something you hate that nobody will know about or care about
B) Make no money doing something you love that your friends think is cool.
I will almost always choose B, and I think most hackers will also always choose B. I would go as far as saying that choosing B is one of the defining characteristics of a hacker.
I got into computers because it was fun, not because I saw dollar signs at the end of it. Writing a video sharing app is a lot more fun than writing a software that reduces credit card fraud.
But seriously, I understand that option A almost never pays that well and is usually not guaranteed. For example, working for stock options that you'll most likely never see vest.
Also option B is not guaranteed to make no money either, and at least you like option B. So, I'd take B too.
Some superficial examples--Zynga, advertisements for female facial creams, etc. But I feel it goes much deeper. It's like an emergent phenomenon, a parasitic infliction upon our society. Imagine where those dollars and energies and attentions could go.
The article stated that a group of college (MBA perhaps) students was surveyed and asked "would you work for the highest paying salary once you graduate?", or "would you work for what you want to do and enjoy after you leave college."
The answers were compared against reality and the respondents life after a few years - It showed that whoever chose to do what they were interested in were more successful in monetary and career terms than people who chose to follow just the cash.
It does have further support, in that we generally value passion and drive as key predictors of success over someones ability to choose better paying jobs.
Doing cool things, things "friend think it is cool" is nice, but you cannot go to the grocery with, nor pay your bills with it, right? Besides, that cool thing, will soon loose it glory to something cooler unless it will be maintained and evolved. Money is a great way having one stick to a project and keep it up and running.
A) Make a million dollars a year doing something you love that nobody will know about or care about OR
B) Make no money doing something you hate that your friends think is cool?
...
If the question that you're trying to ask is, with all other things being equal, would you:
A) Make a million dollars a year doing something that none of your friends would know about or care about OR
B) Make no money doing something that your friends think is cool.
I would choose A every time. Also I'm not sure how you can say that writing a video sharing application is a lot more fun that writing software that reduces credit card fraud without knowing about the techniques used in the particular pieces of software. I'm interested in algorithms and neat techniques, not sharing videos or credit card fraud.
I'm still vain enough to think I'm a hacker, though:)
I knew a guy who wrote software to reduce credit card fraud and he thought it was great fun with lots cool statistical analysis and data mining problems to play with. And personally I think that sounds a lot more fun than writing video sharing apps.
I'm wondering if anyone has explored the outsourcing of inventory? In other words, would it be viable to establish a giant warehouse of all things that people could use as their own personal warehouse... like co-locating a server.
There are reasons some companies do well at this. A lot of it has to do with setting expectations, and giving accurate information about pricing and availability.
Company B may only ever sell to a handful of other "retailers".
I can't speak for all the other companies out there.
This is not so say that innovative and "cool" apps don't have a place - they do. But it is to say that there's something concrete about making a product people need that solves a basic human problem. “My damn phone won’t take a sepia toned picture,” is not a basic human problem. In terms of a bubble, and more so, in terms of revenue – making a product someone needs assures revenue and harkens back to the old timey adage.
So is there a bubble? Yeah. Can it be quelled by a return to making products that help people with basic needs? Yeah. Do I want a camera app with sepia tone? Sure. Do I need it? No.
Give us a bubble! Spread it out, so that such 41mm deals go instead to a thousand teams. And we will give you the future.
That happens eventually, it seems, in a somewhat roundabout way, to some degree. Look at where the money from Viaweb ended up, as one example. Lots of successful people's money ends up as angel funding: Paypal, Delicious, and so on.
We shouldn't condemn bubbles as automatically bad. We should be aware of them, though.
The founders get their investment from the investors. The investors get their money back when the company is acquired (or makes money).
In the early stages of a bubble, this process generally consists of 'money being thrown around' as you say.
However, due to the hype of the returns from these 'investments' (e.g. Facebook growth) - it attracts the public investors into wanting to get in on the 'action'.
Typically this is done through an IPO, which allows the public to come on board and potentially pay all previous investors / founders down the chain their money back (plus more).
However, even without the IPO's of the last bubble (and they may still come!) - the public money is finding a way in (e.g. Banks setting up Social Media Investment Funds). Not to mention any other general investment companies having some of their portfolio riding on 'internet based stocks'.
Then when the bubble eventually bursts (The trend reverses and everyone tries to get out while they can) - it is often the public investors which are left out of pocket / losing their homes / etc.
The point made at the end of the article is, if you are in a start up right now (or even a VC) - it is better to get out early, than to get greedy and end up getting burnt when it bursts (e.g. GroupOn).
Or as was often the case, 'y' buys 'x'.
It reminds me of a few years ago when people were all googaw over social networks, because they were social networks. That seems to have passed now and they're focusing a bit more on how social can help this cause or that business model.
They need to show their investors that they're doing something, so they throw a grip of money at a company with a solid group of founders and a roadmap full of the hot buzzwords of the day.
If this is their real company strategy, the $41M investment actually makes sense.
Edit: I'd like to clarify that the business model I'm suggesting feels different somehow. Yes people have built companies to flip before, but their valuation was still based on what they do as a company.
If what I am suggesting is true, Color's valuation is based on potential shares in the company that it's being flipped to. These VCs are essentially investing in Facebook, pre-IPO (set for 2012) without going through Goldman's special purpose vehicle, and without dealing with the SEC's 500 shareholder regulations.
If true, that would make this Color investment a very clever hack.
Now to give the VCs a return on their investment they're probably expected to exit at north of a billion, which means they're going to have to show Facebook something special in terms of revenue or user-interaction generation or targeting they can't get from any of the many other smart developers who've taken less funding for their location startups.
I think Color have committed themselves to trying to build something big enough to be considered a Facebook alternative. Taking $41 million in a Series A buys you a lot of premature optimisation or a lot of runway if you don't think you're going to get a better valuation in a series B round. It also more or less rules out the quick exit.
SOMEONE has to generate a profit based on the technology which justifies the investment or acquisition cost, whether it's color or their eventual acquirer.
None of the investors mentioned (Sequoia, Bain Capital, SV Bank) are Facebook investors yet.
So far I'm missing the special sauce that makes them a must-buy-can't-clone.
http://www.theaustralian.com.au/national-affairs/laundry-sta...
They need investment opportunites and investing in real estate probably isn't popular. Hence angel funds have tons of money to throw around.
The pension isn't using that money (right now anyway), so the VC is free to do with it what they want, and in the end the money comes back to the pension in multiples.
At least this is my understanding talking to an actual VC (not in a fund-raising situation, just casually).
For you young whippersnappers who were too young to remember the 90's, a bubble is a manifestation of irrational exuberance- with (almost) everyone saying it's a whole new market, it doesn't matter how much the thing costs it's worth it to buy it because it's price is just going to keep going up up up, so do whatever you need to do to buy in now, because the longer you wait, the less you make.
In other words- it's a bubble when everyone is saying it's not a bubble. But if everyone is saying it IS a bubble, then it's not a bubble.
There is a difference between a healthy (or at least "not on death's doorstop") economy and a bubble.