Upstart - Empowering The Next Generation of Entrepreneurs

Today the team at Upstart announced what we’ve been up to over the past three months. 

The Upstart mission is inspiring (see Founder/CEO Dave Girouard's blog post here), the team is world-class, and the culture of the company is…well…a ton of fun.  I’m especially thrilled to be joined as a “Backer” by two close friends and trusted colleagues in Boston, Frank Moss and Jim Dougherty.  Their leadership in supporting young people who want to turn their passions into careers as entrepreneurs is exemplary.  I’m also thrilled to be working yet again with the fantastic partners at Kleiner Perkins, NEA and Google Ventures. 

Briefly, Upstart is a new approach to funding and mentorship. Using a crowdfunding model, it allows college grads/would-be entrepreneurs in virtually any field to raise capital in exchange for a small share of their income over a 10-year period.   Upstart aims to provide a modest amount of risk capital, paired with guidance and support from experienced backers, to help grads pursue less-traditional and more-inspiring careers.  

I believe that Upstart has the potential to supercharge the US Innovation Economy - as Dave says "When politicians say we need more entrepreneurs, what they mean is that we need more people creating jobs, rather than taking them." I couldn't agree more - it's time to do the heavy lifting required to create more entrepreneurs so that they can do the heavy lifting required to drive job growth over the next two decades. Upstart believes that one of the key factors in creating more entrepreneurs is early intervention in their career development. Some of the key principles that are driving us include:

●       Innovative and ambitious young people should be empowered to pursue their passions when they are young.  If we don’t empower them when they are young, they risk being numbed by the bureaucracy of the larger organizations that they often join for lack of a viable alternative path as entrepreneurs. It’s not that big companies are bad. It’s just that young people who have a high risk/return profile can quickly lose their edge and passion as they succumb to the broader interests of a large organization vs. pursuing something that they care about deeply.  65% of our job growth over the past 2 decades has come from companies with less than 500 people - over the next 2 decades it's the Millennials/Generation Y that will create those companies and create the bulk of jobs that our country needs so desperately - we need to empower them as much as possible.  It's time to bet on Generation Y.

●        It’s fundamentally valuable for our economy to balance the recruiting machines of large organizations with a social networking-based system that facilitates young people who want to follow more independent, highly individual paths.  This generation just wants to connect with people who could be their mentors in pursuing their interests and passions. Mentors just want to connect with inspiring young people. Upstart makes those connections easy and automatic. 

●        Not every young person has a high risk/return profile, but many more young people will pursue entrepreneurial interests if they have a little bit of  financial flexibility at the right time.  Modest amounts of financial support as young people graduate from school, along with some strong support and encouragement from great mentors, can go a long way.  I know because I've had fantastic support from many great mentors during my career.  

●        Mentorship is just as rewarding for the mentor as for the mentee – if only we can make the right connections. What’s been missing is a system to connect potential mentors and mentees around shared interests and affinities.  I’m a software guy who is interested in the life sciences, so I’m naturally prone to want to mentor smart, young, enthusiastic people who share those interests.  But I’m also passionate about rugby, so anyone who is involved in rugby always gets more of my time than those who don’t ;)  When young people who share my interests ask for my help - I'm compelled to help them - because I get way more back than I give.

●        Most mentors who have the financial resources – when provided with the opportunity to earn a return similar to bonds – would be thrilled to invest their own money in promising young people with similar passions and interests. Upstart matches mentors with the young talent who will power the growth of our economy over the next 20+ years – and does this at scale.  I can't think of a better investment - definitely better than T-Bills.

●        To scale entrepreneurship in the US, we need to scale our ability to empower and coach young people who are capable of taking risks and executing on their passions. I’ve spent a lot of time starting companies from scratch. In my experience, the older and more successful people get, the more they are prone to take for granted the value of a small amount of coaching and financial resources early in the career of a budding entrepreneur.  Small amounts of time and money directed strategically and without friction at scale, can have a huge positive effect on our economy.

●        Most entrepreneurs need help, coaching and advice in order to achieve their missions. Most people are not the kind of superstar entrepreneurs that the media popularizes every day:  Steve Jobs, Bill Gates, and so on.  At the same time, these young people contribute the bulk of the job creation through the number of companies they start and the never ending flow of their ideas, energy, passion. A big part of what Upstart provides to young entrepreneurs is a network that can fill the gaps in their experience, knowledge and contacts so they can reach their full potential.

I’m honored to be partnering with my great friend and trusted colleague Dave Girouard as the Founding BOD Member at Upstart and thrilled to be the #1 Backer. 

Let’s take the “post-industrial reins” off our brightest, ambitious young people and empower them to leverage the Information Economy to change the world for the better.  Our country was founded on a core principle of rugged individualism. Let’s coach our young people to take control of their own careers, professional lives and interests and pursue their passions.  We will benefit as an economy and a society in ways that we can't begin to imagine. 

Steve Blank on Demystifying the Start-Up Culture

In his remarks yesterday at the closing session of the National Governors Association Annual Meeting, author, successful entrepreneur and educator Steve Blank did a great job of articulating in layman’s terms how the start-up ecosystem in Silicon Valley works, why start-ups are different and require specific expertise, and why embracing start-up culture and expertise is so critical.  I believe Steve's work is going to be a primary driver of innovation at scale for our country. It’s BRILLIANT.  

If you care about start-up/founder culture or start-ups, you should watch his talk in its entirety.  

Steve mentions the importance of researchers who focus not only on world-class research going on inside of their respective academic institutions, but also on the application of their research at scale in the public and private sectors.  Some of my favorite role-model researchers in Cambridge include:  

George Church 
Eric Lander
Bob Langer
Marvin Minsky
Mike Stonebraker

These innovators have done not just one or two start-ups each, but many dozens of start-ups. It's this combination of world-class academic research and commercial innovation that creates exponential value in our economy and in society.  

Here is a quick summary of Steve's talk and some highlights that really hit home with me.

A Quick Summary  

Four lessons: 

• Different types of start-ups
• What a start-up ecosystem looks like
• How to make start-ups fail less
• Can we actually teach what we now know?

Types of start-ups: 

• Lifestyle start-up - small businesses that serve known customers with known products and feed the family
• Scalable start-ups – which are designed to grow big (“We’re going to build a company that will take over the universe!”)
• Buyable start-ups – which have low capital requirements and can be very valuable very quickly
• Large companies that focus on “sustaining innovation.” They innovate on core products but cycle time is compressing, creating pressure for large companies to innovate faster

Important Highlights

Referring to the Nokia Board of Directors’ reaction to the iPhone on day of launch – “It's a toy. Why should we worry about this?” – Steve said: “To a big company, a disruptive innovation always looks like a toy on day 1.”

“The secret history of Silicon Valley” [another great video]

“The first venture capital was an unintended consequence of Sputnik”

“We want the engineering department at Stanford to face outward as well as inward”  

“Recognize that 90% of start-ups fail”

“Failure = Experience. We understand that these are the risks”

“Start-up culture is not just about the great entrepreneurs. It's about the ecosystem. Building this ecosystem is critical in getting any cluster off the ground.”

"Start-ups are not just small versions of big companies" - Steve Blank

“Embrace failure as part of the process”

“95% of start-ups fail because they didn't find customers or markets”

“We now know that start-ups search for something and large companies execute...The difference between search and execution are not just words...it's actually the difference in how we build these things”

“On day one, start-ups just have guesses...A start-up is a faith-based enterprise.. You want to turn the faith into facts as quickly as possible”

“What we now know is that no business plan survives first contact with customers”

“A start-up is a temporary organization”

“A start-up is designed to search for something that is repeatable and scalable”

“In the Customer Development Process, everything you know or think you know is a guess"

“In a start-up, it used to be when you failed you fired the VP of Sales, then fired the VP of Marketing, then the CEO.  We know now that start-ups go from failure to failure…Pivot says that this is going to happen all the time.”

And, I love the fact that he was the only dude not in a suit. Now there’s a lesson in itself :)

Vertica - Remembering the Early Days

I had an awesome visit @ Vertica earlier this week for lunch. Cool new space in Cambridge and so many fantastic new people. Thanks to Colin Mahony for the invite and to all the talented engineers and business people at Vertica for building such an amazing product and a great organization!

Couple of memories that came to life for me during my visit:

Reading the draft of Mike Stonebraker's  "One Size Does Not Fit All" paper and thinking:  "This is the mission of an important new company: to prove that One Size Does Not Fit All in Database Systems."

During my first meetings with the "Vertica professors" - Mike, Dave Dewitt, Mitch Cherniack, Stan Zdonick, Sam Madden and Dan Abadi - thinking "We have an unfair intellectual advantage."  The technical hurdle was set early by this fantastic team.

Looking up at the new duct work from our original server room (at our original office), which Carty Castaldi vented into the conference room because the conf room was so cold and the servers were running so hot ;)

Inspired Duct Work by Carty Castaldi

The thrill I felt the first time that I watched SELECT work on the Vertica DB :)<

Our first Purchase Order. Thanks to Emmanuelle Skala and Tom O'Connell for that one and the many more that followed and made it possible to build such a great product :)

At our first company summer picnic at Mike's place on Lake Winnipesaukee: taking Shilpa's husband Nitin Sonawane for a ride on the JetSki and him being thrown 10 feet in the air going over a wave. I thought he'd never talk to me again. So glad that he didn't get hurt and that he talks to me regularly ;) 

Our first big customer deal with Verizon and then the first repeat purchases by V. Thanks to Derek Schoettle and Rob O'Brien for building such a great telco vertical and for doing deals with integrity from Day One.

Sitting in the basement at Zip's house in Chicago with Stan, Zip and Mike as they jammed Bluegrass music and we all ate Chicago-style pizza until the wee hours.   Thanks to Zip and to everyone at Getco for being such a great early customer and partner.

Relief I felt when Sybase admitted that Vertica did not infringe on their IP :)  Thanks to Mike Hughes and everyone else involved for the truly awesome result.

Getting early offers from a bunch of big companies to buy Vertica and thinking "These guys don't realize how important Big Data is going to be and how great our product is and how incredibly talented our engineering team is."  Thank you to our BOD for resisting the early temptation in spite of tough economic conditions at the time and thanks to Chris Lynch for negotiating such a great deal with HP.  

During lunch on Wednesday, realizing that Vertica's product is truly world-class and has proven that one size does not fit all. Special thanks to every engineer at Vertica, especially Chuck B. : you all ROCK!

I have a much more detailed post in the works, about the early days of Vertica and what I as a founder learned from the experience.  Stay tuned for this post in the next few months.

Founders: Are You Stuck Before You Start?

Where Start-ups Get Stuck – and How to Avoid Going There

Between us, my long-time friend (and fellow blogger) Jim McHugh and I have started a lot of companies. We also advise many other companies and look at even more pitches from start-ups.  A shared observation is that while a few start-ups shine (or at least glimmer) and go on to some success, other start-ups seem stuck before they start.  Why?

Here are our observations on where start-up founders get stuck and our advice on how to prevent Stuck situations, presented Q&A style.  

Q.        Jim, where are the most common places you see founders getting stuck – and why?

In my experience, the two most common causes of becoming stuck are 1) an incomplete or muddled business model (see Stuck in the Fog) and 2) directly related to that, not clearly understanding the specific needs of their customers (see Stuck in a Rut).

Jim McHugh
McHugh & Company

What do I mean by an incomplete business model?  A well-defined business model (i.e., the “guts of the business”) states how the company is organized; what products and services it sells to whom; and how the company “goes to market.” In addition, the whole company clearly understands the associated operational policies, processes and needs (both for the supplier and the customer).

Start-up and early-stage teams become obsessed (as they should) with the product/prototype, the team, and the market potential. However, they sometimes fall short in three important areas.  First, they are naive about all aspects of the business model. Second, they don’t understand – or they have chosen to ignore – the specific linkages of their product to their customer’s product. Third, they have not solved or put in place key components of the business model and assume it will be easy to “finish those later.”

The business model can be pretty straightforward if it is a simple B2C or B2B connection – that is, “we make it, you consume it.” The linkages become more difficult to sort out if the start-up’s product becomes embedded in their customer’s product offerings – for example, as a component. 

One striking example I have seen of an incomplete business model was a food ingredient technology company that had considerable success raising seed money from a group of angels. This company had traction:

●       The technically elegant prototype demonstrated product effectiveness and potential significant benefits to consumers

●       The company had received approval from a key regulatory agency

●       The product was going to revolutionize one segment of the food industry

●       There were positive (but limited) real-world test applications

●       The expected market was huge

Then the company’s traction stalled; they became stuck. How could that happen?  

This revolutionary product was not sold directly to end-user consumers. It was an ingredient that became part of other companies’ product formulations. The industrial and consumer target customers who evaluated the start-up’s product realized they would have to change their end-use product specs, add equipment and processes to their production line, and change their quality control testing procedures. They would also have to change their existing descriptive product information and packaging.

For some customers that would mean altering (for the better?) very successful, stable products that were established with consumers. 

Were the customers prepared to take the market and product risk (with a start-up) and incur the costs and aggravation associated with adopting this new technology? Having a great product was a prerequisite for the big food ingredient companies, but it quickly became apparent to the start-up that many other factors influenced the prospective customers’ decision-making process.

Q.        So, what’s your advice for avoiding getting Stuck before you Start?

To be sure, the business model for early-stage companies evolves over time. It gets fine-tuned, even changed.  But fine-tuning is a lot different from having a naive view of the customers’ needs out of the gate.

It’s a cliché, but how many times does “knowing the customer’s needs” have to be said to founders? 

Q.        Any general tips about how to avoid getting stuck?

Yes, it really helps to have the right people on the team who understand and have experience in the industry they are selling into.

Q,        Andy, where are the most common places you see founders getting stuck, and why?

Andy Palmer
Start-Up Specialist 

I see a lot of founders get stuck at the very earliest stages – by being distracted by fundraising.  I’ve said before – over and over again – founders should focus on developing their business first and not worry about fundraising nearly as much as they would probably like.  It’s natural to be nervous when you don’t have any money in the bank.  But it’s a healthy discipline to figure out how you are going to create value for customers who will pay you instead of spending time thinking about how to extract money from venture capitalists or seed investors.  As an angel investor, I’m always looking for people who are mission-driven and focused on their customers, as Jim says, instead of worrying about what potential investors might think.

 Q.        So how can entrepreneurs avoid getting distracted by fundraising? 

Just focus on your business and your customers.  Wake up every morning thinking about how you are going to create value for your customers. Go to sleep at night considering which of your customers you helped that day and how.  Be maniacally focused on your customers’ needs.  It sounds simple – and it is – but executing this when you are starting from scratch – with no product, no credibility, and no people –  is really hard. It requires all your energy and your concentration. 

Q.        Any final tips on how to avoid getting stuck?

Be maniacally focused on your mission, particularly understanding and meeting your customers’ needs. In my experience, the money will follow.

Medio and The Future of Big Data Analytics

Why I Joined the Advisory BoD of Medio Systems

Today, I'm thrilled to announce that I've joined the advisory Board of Directors of Medio Systems.  

Over the past nine months, I've had a chance to work with Brian Lent, Rob Lilleness and many of the other folks on the team at Medio.  I've been approached by dozens of "Big Data" companies over the past two to three years as more people have begun to focus on large-scale database challenges.  Medio is one of the few companies that I've chosen to work with directly because they're creatively tackling some of the most pressing challenges, including: 

• Big Data Analytics in Real Time:  Over the past 10 years I've watched as database systems have become more and more "real time": as data is generated, users expect to see that data and be able to analyze it immediately.  Medio has created a  platform that enables its customers to analyze their data in real time without the daily-latency constraints of traditional data warehouse solutions. Incredibly powerful. 

• Mobile/Tablet Devices: As I sit here writing this blog post, my wife and father-in-law are playing Words with Friends on their respective iPads. Two years ago, my wife told me she would never use an iPad. Now, she's addicted. Mobile/tablet devices matter, and they generate a wealth of Big Data that can help businesses understand and get closer to their customers than ever before. The Medio team has uniquely deep experience with mobile app analytics.

• Democratizing Analytics: As we were building Vertica back in 2005-2010, it became clear to me that once people had figured out how to represent their data more efficiently, the bottleneck would quickly become how to enable regular people (not just database experts or business analysts) to take advantage of the data and use the data plus statistics to ask complex questions and solve cool problems.  Medio's focus has been on empowering business people with the tools necessary to make better business decisions, truly democratizing analytics.  

• Analytics Made Easy: I watched dozens of our customers at Vertica deploy solutions that required them to integrate database technologies with reporting and visualization tools and then tune/tweak those tools and the integrations. This turned out to be a  never-ending problem that distracted them from the actual problems and questions they were trying to analyze. Customers didn't want to be experts at database systems or visualization: what they wanted were tools to help them answer business questions faster and more effectively. Medio has created the infrastructure that enables  customers to focus on asking and getting answers to their questions without worrying about how the underlying technology works.  

• Predictive Capabilities: I strongly believe that analytic systems must have forward-looking/predictive capabilities. Just analyzing history is no longer enough. The next wave of analytic systems will empower users to anticipate what might happen in the future and model the potential impact of decisions they make today, leveraging history as the basis for those models.  Medio CTO Brian Lent has been an early proponent and tireless champion of using information to help support decision-making with predictive capabilities. His vision and the technology the Medio team has created are unique.  

To see for yourself, check out Medio.  This is a company worth watching.

Enterprise Software Sales and Procurement Need a Makeover

Time to Tie Payment to the True Measure of ROI:  User Adoption

Today, I believe that the only way for IT organizations to truly measure their effectiveness is by analyzing the usage patterns, satisfaction and productivity of their customers: end-users.  Period.  Any IT organization that doesn’t use this kind of measurement won’t be successful over the next 10 years.  As David Sacks, the founder/CEO of Yammer, has said: “Voluntary adoption is the new ROI.”

One of the things that bugs me the most about the software industry is the sub-optimal behavior that exists between vendors and buyers.   Software buyers and vendors are engaged in a dysfunctional dance that wastes money and stifles innovation – on both sides. This dysfunction is driven by outdated software business models, and further complicated by non-technical sales and procurement people whose identity is tied to controlling the buying process instead of optimizing value created for end users.

Simply put, times have changed dramatically; enterprise software sales and procurement haven’t.  Here are the new realities, as I see them.  (Most of these realities also apply to how software is sold to and purchased by federal and state governments.)

12 Realities That Vendors and Buyers Can Ignore – But at Their Peril

1.       The pressure of the “consumerization of IT” is game-changing. This pressure is coming down on enterprise IT organizations, although most still have their heads in the sand.  This pressure is going to get acute over the next few years as the gap widens between what is available to the average consumer on the Internet and what an employee’s IT ecosystem provides at work. This gap will reveal just how wasteful and disconnected most IT organizations are from end-users’ real needs. 

2.      Buyers purchase a ton of software that they don’t ever use, much less realize value from.  The enterprise software emperor has no clothes. 

Buyers need to step away from the standard perpetual license agreement.  Just put it down... and pick up a subscription/term agreement: it will be okay, really. Businesses haven’t imploded because they don’t use perpetual agreements.  Short-term, subscription-based agreements are working great for all those Google Enterprise and Salesforce.com customers who have month-to-month agreements.  Subscription/term agreements help ensure that buyers don’t waste bazillions of dollars buying software they don’t use. 

Now, the finance dudes will come in with their spreadsheets and models that show how you can finance perpetual agreements at a lower cost of capital.  Don’t believe them.  What these models don’t take into account is one important fact: that if you pay a vendor a bunch of money for a product that is supposed to do something and the vendor isn’t on the hook financially for this, then the vendor probably won’t do it.  There is little incentive for the vendor to ensure that the software is deployed, adopted and improved over time. The vendor (particularly if it’s one that’s oriented toward short-term goals) will likely take the money and run. Not necessarily because they are “bad people” but because the business (like everyone else) is under pressure to deliver more, faster, better. 

3.      Vendors sell a ton of software that is never deployed (see#2). And many of them don’t care.  As their businesses have matured, many of these vendors have sacrificed their souls to short-term thinking and financials. They are no longer driven by missions to deliver value or great experiences for end-users.  By comparison, the consumer Internet companies that have moved into the enterprise software market have used alternative models and behaviors and begun to disrupt the ecosystem.  Those customers that have embraced new usage-oriented models have benefited significantly. Those customers that haven’t are just wasting money and causing their end-users to continue to suffer with outdated and expensive technology that preserves the short term job security of narrow minded IT staff members.  

4.      Software vendor sales people and customers’ procurement staffs are disconnected from how software is used and developed in the enterprise.  Generally, neither procurement folks nor salespeople understand the technology or how it’s used. They are managed to objectives that have nothing to do with successful deployment, much less adoption of the software or technology.  Procurement people generally care about discounts and sales people care about commissions.  It’s time to get these folks out of the way or give them incentives that align with effective adoption and value created for end-users.  One of the powerful benefits of SaaS is that end users can buy their own capabilities and just expense the cost.  This is how many customers start with Salesforce.com, and I’ve seen this same adoption pattern occuring in infrastructure at companies such as Cloudant. 

5.      Software that sucks.  There’s a disconnect between the amount of money that big companies spend on software and the value they get from it. Many big companies only resolve this disconnect over long intervals, after tons of money has been wasted on useless technology projects that aren’t aligned with users’ requirements.  Moving toward shorter-term subscription models helps reinforce the need for software companies to create value within reasonable periods of time.  In other works, deliver software that doesn’t suck.

Part of the reason corporate IT projects take so long is that businesses don’t push their vendors to deploy quickly or drive adoption. Here’s an example, from the Front Office/Customer Relationship Management sector of the software industry.  Siebel Systems launched its system in the early to mid-1990s using the traditional third-party installed and heavily configured model. (I suspect that the rationale was: “It worked for ERP, so let’s do the front office the same way.”)  Unfortunately for Siebel, things didn’t play out this way. As Salesforce.com launched, customers realized that they could get immediate adoption, usage and value by just signing up for the Salesforce.com service. These customers perhaps didn’t get all the customization that usually came with traditional enterprise software, but most of that customization was being sold to big companies by consultants who wanted to make money as part of the enterprise IT ecosystem.  A lot of smaller customers didn’t need the customization, and ending up paying for overhead that they didn’t need.

A general rule of thumb for IT organizations was that you had to spend an additional 2X-5X in services to get a third-party enterprise software application deployed and working.  This never made sense to me, but I participated in the dysfunction along with everyone else for many years, on both the buyer side and the sales side.  As this thinking became more broadly accepted, it became a self-fulfilling prophecy: vendors could make money customizing the solutions for customers (regardless of their actual need for the customization), so it was in their best interests to create software that required a bunch of consulting to get it working for customers. (Software that sucks, in the classic sense of “suck”: time, money, corporate IT resources.) 

With the evolution of SaaS, all vendors now face more accountability, like it or not. Salesforce.com knocked it out of the park as an independent business while Siebel sold out to Oracle and has bounced along the proverbial third-party software bottom, collecting maintenance on software that they sold 10 years ago to big companies who are not capable of switching to Salesforce.com.

6.      Traditional business models encourage vendors to extract as much money from their customers as quickly as possible – regardless of whether the software works or the customer actually needs the software. During the 1980’s and 1990’s, this “sell first, ask questions later” model became standard practice for technology companies, based on the success of proponents like Oracle.  But now, we’ve evolved.  Customers shouldn’t stand for it. There are better alternatives.  And vendors in just about every enterprise-software category should realize that it’s only a matter of time before someone comes along and provides better solutions that work for users quickly.  Let the hangover of enterprise software purchases begin. 

7.      The perpetual-license model creates perverse incentives for both buyers and sellers.  The subscription/term license model creates a much more rational incentive for the seller of technology to deliver both short-term value (through adoption) and long-term value (through improvement to the software) for customers’ end-users.  With a perpetual license model, the seller gets too much value up front, misaligning his interests with those of the buyer.

8.      Traditional “maintenance” is just as dysfunctional as the perpetual license that it stems from.  Fifteen percent (15%) maintenance is not enough money to innovate and improve a new system. Therefore, vendors’ business models put them in a position where they have to “upsell” their customers’ perpetual licenses for some additional usage or a new product. 

9.      Many customers should be happy to pay larger subscription fees over time in exchange for significant probability of greater success, user satisfaction and innovation.  They just don’t realize this, because business owners, end-users and engineers aren’t involved in procurement processes.  This perpetuates a lack of accountability for vendors and feelings of helplessness among users and consumers of these software systems. 

10.   Multi-tenant Web services present a compelling alternative. The broad availability of commercial multi-tenant hosted web services (epitomized by Amazon Web Services and GoogleApps) is creating a widening gap.  On one side of the gap, there are buyers and sellers of software who are merely perpetuating outmoded models for consuming and selling software.  On the other side of the gap, are software buyers that demand that their vendors deliver value through reliability and innovation every single day – and have the means to measure this. 

11.    FUD continues to rule – for now.  Many of the procurement and sales establishment are using the FUD (Fear Uncertainty and Doubt) arguments to slow the adoption of new software-as-a-service models.  I can understand why: the new business models including SaaS challenge their very existence.  However, as a result,  their customers are saddled with a  sub-optimal state of productivity for their IT systems and infrastructure.  This is not sustainable as IT organizations are under dramatic pressure to reduce costs significantly.

12.   IT organizations that embrace new software models are more productive and efficient.  They can focus more on high-leverage skills like networking and integration – and worry less about lower-value activities such as racking and stacking servers or building and releasing software. These benefits have been documented among the likes of Google Apps enterprise customers (Genentech for example) as well as large companies that have embraced Amazon Web Services (Netflix for example).  

I believe that all software contracts should tie payments to end-user adoption.  Monthly software subscription deals can be used to accomplish this relatively quickly: if users adopt. you pay; if they don’t, you don’t pay.  

For software industry old-timers this is heresy.  But it’s time to leave this one in the rear-view mirror – or eventually suffer the consequences.  The packaged third-party software industry is due for a reckoning - it's time for vendors to modernize their business models which depend on bilking customers for perpetual licenses and maintenance streams on software that is never used.  And customers should start buying software as a service and not overpaying for big perpetual licenses that they may or may not ever use.  

Spend More Time on Your Mission - The Money Will Follow

Time – and how you use it – is the most important consideration for a Founder.  This is one of the most important lessons I’ve learned in my 20 years as an early employee, founder, and CEO of start-ups.

When you’re starting a new company from scratch, time is your most precious resource because it’s so scarce.  Initially all you have is yourself and one or two partners who are preferably (at least in my case) a lot smarter than you.

If you believe, as I do, that your success is determined by how you spend your time, then start by spending it on your mission and the experience of your customers – not on money.  Randy Komisar at Kleiner Perkins likes to talk about “mission-driven” founders and start-ups. I like that phrase a lot.  And I believe that you need to embrace the concept from Day One – by being mission-driven in how you allocate your time.

Spend your time talking to customers, recruits, and partners; not with consultants or financiers – it’s almost a complete waste of your time. 

As money for early-stage companies increasingly becomes a commodity, entrepreneurs’ success will be determined more by their ability to create a great business – and less by their networks and credibility with a small number of professional early-stage investors (who control the purse strings granted to them by a small number of relatively disconnected Limited Partners). 

I’m not saying that early-stage/venture investors don’t add value. Specific people absolutely do add value and are important to the success of many companies. However, early-stage/venture investors shouldn’t be the primary focus of your time – and the good ones don’t want you to focus on them anyway. They want to help you build a great business – to put the priority of your time ahead of their own.  The ability of a venture investor to prioritize the time of the entrepreneur ahead of their own time is a primary test of a great investor.

The best venture investor partners are those who embrace modesty as a primary quality: in other words, they exist to help make the company (and by definition the founders) successful.  In interviews, Peter Barris of New Enterprise Associates has specifically and frequently cited modesty as a primary cultural dynamic at NEA. I've experienced this first hand working with many partners at NEA – especially Harry Weller and Tom Grossi –and I believe it is a key component of NEA's ability to scale successfully. John Lilly at Greylock is another great example of someone who demonstrates this type of modesty – putting the entrepreneur first.

Often, the problem for Founders and venture partners is conflicting objectives relative to their time.  

As a company Founder, your goal is to get the best possible return on the time you spend achieving the mission of your company. For many venture investors, the goal is to meet with as many prospects as possible because their limited partners are essentially paying them to talk to people and gather information that the partners can use to make optimal investment decisions. This behavior is particularly true of younger, less-experienced early-stage investors, who have lots of time to spend.  Some young venture investors may meet with you even when they have no money to invest. Talk about a waste of time – it happens more than anyone would ever admit.  

You may ask:  “But don’t I get value from every meeting with investors?  Even if the meeting doesn’t result in an investment, won’t I get useful free advice?”  

This is a serious dysfunction, especially for first-time Founders. Sure, some of these folks can provide valuable advice, but to be mission-driven, it's much more important to focus on your customers, the people working for you and your business.   

The nature of the venture capital business is that it’s populated by a lot of people with relatively large egos. In my experience, such people are prone to radically over-estimate the value of the time they “invest” in your business. They do get a lot of data from a broad variety of sources – they get paid to meet with lots of companies ;) So if you're looking for a lot of data – great, go out and ask them a ton of questions. But be specific about what you are trying to get out of the interaction instead of just “catching up.” 

The best investors will want to get to decisions quickly and not waste time – yours or theirs.  They recognize that their success as investors will depend on how wisely you spend your time to build a great business in a short period of time.  In my experience, the best investors almost always start their side of the meeting with "How can I help?" not "You should think about...." They arrive prepared, they listen, they help and they give you decisions very quickly.

So, given all the "red flags" I talked about above, how do you find the best prospective investors and avoid wasting your time?

Time-Saving Tips for Dealing with Investors

Before you meet with any investor, try to qualify the person and the firm.   Sometimes this is difficult because of lack of transparency in the venture business.

Fortunately, transparency is steadily improving. Be sure to read the Kauffman Report, which does a great job moving us toward transparency for early-stage investing.  Kudos to the Kauffman team. 

It's somewhat ironic that so many venture investors  (who profess so much faith in capitalism and free markets) have worked so incredibly hard to limit transparency, both at the micro and macro level.   

• Who are the actual top venture firms by return?  
• Who are the partners who have created value for common shareholders vs. those that jump at the chance to dilute common shareholders at every opportunity?

This kind of information has traditionally been hard to find, even by doing primary research within entrepreneurship inner circles.

Here are some other to-do's:

Look up the investors on The Funded.  Get every source of information you possibly can about not only the firm – and the culture of the firm – but also the PERSON who you are taking money from. Relentlessly pursue personal and professional references. 

Before you agree to meet, ask them the following questions:

• How much of your existing fund(s) is still available to invest?
• When are you planning to raise another fund and what is the target size?
• How many investments have you (firm and partner) made in the past month, quarter, year?

Also, ask yourself:  “Who do I trust that has had experiences with the firm/partner?” Try to have candid conversations with those people.  True character in early-stage companies is measured by what people do during the worst of times and the best of times. This is where you see their true values reflected in their actions – you want to know that they will do when it looks most grim or when there is a ton of money on the table. Those who will support the mission of the company in either of those cases are the people you want to work with.  Empirical evidence is always telling.  

If you do meet with investors and they say anything other than “absolutely yes – we want to do this deal ASAP – here is a term sheet or I will have a term sheet to you within X days,” you should interpret their response as essentially a “NO.” 

Great companies are built by people (including investors) who are fiercely mission-driven.  If external financing is required (which is far less often than most entrepreneurs realize) – make sure that your investors believe that great companies are defined by their ability to create value for ALL shareholders through the achievement of the companies' missions – not a quick flip to pump up the value of a particular venture fund.  This is a long-term view that is all too rare among venture capitalists, but a key attribute of the most consistently successful early-stage investors. 

Transparency: It’s About Time

Fortunately, there is a massive culture change brewing in early-stage investing (thanks again to the Kauffman team and many others). The potential of democratized early-stage investing is becoming obvious: combine AngelList with the potential impact of the Jobs Act.  Entrepreneurs are realizing that it’s their time that’s precious (to themselves and their future investors), NOT the time of the investors.  This has always been true among the best companies and the best people at the high end of the start-up market, but it’s now coming downstream.  Hallelujah.

So, spend your time pursuing your mission, developing your idea and creating your technology.  Spend it with potential customers, turning them into real paying satisfied customers.  If you do this well enough, and are smart, disciplined and mission-driven, there will always be capital available for your company.

Finally, if you’re wasting time thinking “But I have a pit in my stomach because I can’t pay my mortgage,” stop. This is how it feels to take risks. It’s painful but it WILL make you stronger as a person (insert Nietzsche cliche). It will make you stronger as a role model for potential employees and customers, who will respect your commitment and sacrifice in the interest of achieving your mission.   And it will make you more attractive to the right kinds of investors, if and when you need them.