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Harvard Tech Meetup: MBAs Care About Startups Too

November 10, 2011

Harvard Tech Meetup: MBAs Care About Startups Too

On Monday, Mark Zuckerberg came back to Harvard for the first time
since 2005. And by Harvard, I mean the undergrad campus - not the
business school. The event was framed as a “recruiting event” organized
by the Office of Career Services so that they could limit it to 200
“qualified” undergrads, who, granted, likely have more technical talent
than your average Harvard MBA. Little did we at Startup Tribe know that Zuck would grace us with his presence
shortly after his recruiting pitch at the College. However, his
stopping by to shake my hand didn’t really do much to appease me, and
frankly his pitstop at the Innovation Lab was likely to promote the
building and the University’s initiatives, not to expose him to the MBAs
who happened to be there. Let’s not forget that Sheryl Sandberg herself
has a MBA from Harvard and has been fairly critical to Facebook’s
success since her arrival in 2008. As a business school student at a school that
is notorious for sending a majority of its graduates to investment
banks and consulting firms, we are doing our best to shed this “stigma”
and show our passion for entrepreneurship.

I’ve written before how I think business school is very helpful
for aspiring entrepreneurs, and we’re fortunate to have a lot going on
at HBS (the iLab that is used primarily by MBAs, Startup Suppers that
are open to all of Harvard but organized by MBAs, Startup Tribe,
Entrepreneurship Club, TechMedia Club, MVP Fund, business plan
competition) to sate the most entrepreneurial of students. However, for
the most part, these initiatives are confined to our b-school bubble and
the University as a whole.

Enter Harvard Tech Meetup -
November 15 from 7 to 10pm. The name is a bit of a misnomer, as the
only Harvard part about it is that the event is being hosted at Harvard.
You see, this is a startup event open to the entire Boston community
that just happens to be organized almost entirely by Harvard MBAs who
love tech, startups, entrepreneurship, and early stage VC. As of the
writing of this blog post, we have attracted 400+ registered attendees
including students from 10 different universities, VCs from 8 different
firms, and too many entrepreneurs from the community to count. We
received over 20 applications to demo, ultimately choosing 10 to
present. The demand to be a part of this has blown the organizing team
away. It is a true testament to the strength of the Boston startup scene
and the vibrant student population, and we are incredibly humbled that
so many people have shown interest. Not bad for a group of MBAs.

Adam Besvinick is a first year student at Harvard Business School.  You can find this post, as well as additional content on his blog called Ventureminded: Thoughts From an Aspiring VC.  You can also follow Adam on Twitter (@besvinick) by clicking here.

Dark Side of the Cloud: Problems with Storage

November 9, 2011

Dark Side of the Cloud: Problems with Storage

We recently moved from Amazon on-demand “cloud” hosting to our own
dedicated servers.  It took about three months to order and set up the
new servers versus a few minutes to get servers on Amazon.  However, the
new servers are 2.5X faster and so far, more reliable.

We love Amazon for fostering development and innovation.  Cloud
computing systems are great at getting you new servers.  This helps a
lot when you are trying to innovate because you can quickly get new
servers for your new services. If you are in a phase of trying new
things, cloud hosts will help you.

Cloud hosts also help a lot when you are testing.  It’s amazing how
many servers it takes to run an Internet service.  You don’t just need
production systems.  You need failover systems.  You need development
systems.  You need staging/QA systems.  You will need a lot of servers,
and you may need to go to a cloud host.

However, there are problems with cloud hosting that emerge if you
need high data throughput.  The problems aren’t with the servers but
instead, with storage and networking.  To see why, let’s look at how a
cloud architecture differs from a local box architecture.  You can’t
directly attach each storage location to the box that it servers.  You
have to use network attached storage.

DEDICATED ARCHITECTURE:  Server Box -> bus or lan or SAN -> Storage

CLOUD ARCHITECTURE:  Server Box -> Mesh network -> Storage cluster with network replication

1) Underlying problem:  Big data, slow networks

Network attached storage becomes a problem because there is a
fundamental mismatch between networking and storage.  Storage capacity
almost doubles every year.  Networking speed grows by a factor of ten
about every 10 years – 100 times lower.  The net result is that storage
gets much bigger than network capacity, and it takes a really long time
to copy data over a network.  I first heard this trend analyzed by John
Landry, who called it “Landry’s law.”  In my experience, this problem
has gotten to the point where even sneakernet (putting on sneakers and
carrying data on big storage media) cannot save us because after you
lace up your sneakers, you have to copy the data OVER A NETWORK to get
it onto the storage media and then copy it again to get it off.  When we
replicated the Assembla data to the new datacenter, we realized that it
would be slower to do those two copies than to replicate over  the
Internet, which is slower than sneakernet for long distance transport
but only requires one local network copy.

2) Mesh network inconsistency

The Internet was designed as a hub and spoke network, and that part
of it works great.  When you send a packet up from your spoke, it
travels a predictable route through various hubs to its destination. 
When you plug dedicated servers into the Internet, you plug a spoke into
the hub, and it works in the traditional way.  The IP network inside a
cloud datacenter is more of a “mesh.”  Packets can take a variety of
routes between the servers and the storage.  The mesh component is
vulnerable to both packet loss and capacity problems.  I can’t present
any technical reason why this is true, but in our observation, it is
true.  We have seen two different issues:

* Slowdowns and brownouts:  This is a problem at both Amazon and
GoGrid, but it is easier to see at Amazon.  Their network, and
consequently their storage, has variable performance, with slow periods
that I call “brownouts.”

* Packet loss:  This is related to the capacity problems as routers
will throw away packets when they are overloaded.  However, the source
of the packet loss seems to be much harder to debug in a mesh network. 
We see these problems on the GoGrid network, and their attempts to
diagnose it are often ineffectual.

3) Replication stoppages

The second goal of cloud computing is to provide high availability.
The first goal is to never lose data.  When there is a failure in the
storage cluster, the first goal (don’t lose data) kicks in and stomps on
the second goal (high availability).  Systems will stop accepting new
data and make sure that old data gets replicated.  Network attached
storage will typically start replicating data to a new node.  It may
either refuse new data until it can be replicated reliably, or it will
absorb all network capacity and block normal operation in the mesh.

Note that in a large complex systems, variations in both network
speed and storage capacity will follow a power law distribution.  This
happens "chaotically."  When the variation reaches a certain low level
of performance, the system fails because of the replication problem. 

I think that we should be able to predict the rate of major failures
by observing the smaller variations and extrapolating them with a power
law.  Amazon had  a major outage in April 2011. Throughout the previous
18 months, they had performance brownouts, and I think the frequency of
one could be predicted from the other.

CONCLUSION

So, if your application is storage intensive and high availability, you must either:

1) Design it so that lots of replication is running all of the time,
and you can afford to lose access to any specific storage node.  This
places limits on the speed that your application can absorb data because
you need to reserve a big percentage of scarce network capacity for
replication.  So, you will have only a small percentage of network
capacity available to for absorbing external data.  However, it is the
required architecture for very large systems.  It  works well if you
have a high ratio of output to input, since output just uses the
replicated data rather than adding to it.

If you try this replication strategy, you will need to deal with two
engineering issues.  First, you will think through replication
specifically for your application.  There are many new database
architectures that make this tradeoff in various ways.  Each has
strengths and weaknesses, so if you design a distributed system, you
will probably end up using several of these new architectures.  Second,
you will need to distribute across multiple mesh network locations. It's
not enough just to have several places to get your data, in the same
network neighborhood.  If there is a problem, the entire mesh will jam
up.  Ask about this.

2) Use local storage

Andy Singleton is the Founder & President of Assembla.  You can find this post, as well as additional content on the Assembla Blog

How early product failures led to huge successes

November 8, 2011

How early product failures led to huge successes

Failure is not an option...it is a requirement...to future success.
Failure gets a bad rap. It is actually an important element of success.
When I speak at conferences around the world I say "In America we
don't use the word failure...we call it experience". You learn far more
from failure than you do from success. And those lessons from failure
are what prepares you for future success.

Angry BirdsAngry
Birds became an overnight success...after 51 failures. Thats right,
Rovio produced 51 other games before hitting it big with Angry Birds.
Can you name any of the 51 games Rovio produced before Angry Birds? I
doubt it. No one remembers failures. And that is a good thing. It means
your reputation is not irreparably harmed by failures.

Guitar Hero, the music game, was another overnight success that took
10 years to materialize. Harmonix produced nine other games before
hitting it big with Guitar Hero. All the previous failures were
required to get to the huge success.

Wd40WD40
is a popular lubricant with hundreds of uses. Do you know why it is
called WD40? Because the first 39 formulations didn't work. The 40th
one did and they called it WD40. The WD stands for Water Displacement.

Now I bet you can guess how Formula 409 got its name. Thats right,
the first 408 formulations didn't work. In fact, lots of very successful
products were the result of previous failures.

Post-It Notes are the result of a failed experiment by engineers at
3M to develop a new adhesive. It would stick to some surfaces but could
be easily peeled off, or fall off with too much force. It was considered
a failure until the 3M engineers thought of different possible uses.
Super Glue was another product success born from a failed experiment.

Odeo was a startup focused on building a new podcasting product. They
weren't having much success. One of the engineers was playing around
with a side project to publish short messages to a small audience. That
project became Twitter.

Can you think of other product success that came after initial
failure? Or startup companies that succeeded after their first ideas
failed? If so, leave a comment on the far right side of this blog.

Don Dodge
is a Developer Advocate at Google.  You can find this
post as well as additional content on his blog called: Don Dodge on The Next
Big Thing
.  You can also follow Don (@dondodge) on Twitter by clicking here or on Google+ by clicking here.

The Consumerization of Business Software

November 7, 2011

The Consumerization of Business Software

One of the themes that we've been most interested in at
NextView over the last 12+ months has been the impact of consumer web
trends on business software.  

I'm not the first person to describe this trend, and my prior
background has been primarily as a consumer web guy more than in B2B
companies.  But I've seen an acceleration of the impact consumer web
trends are having on business software, and believe strongly that it
will provide a thread of innovation for SaaS companies for the next 5+
years.  The classic delineations of web products for business and
consumer ("enterprise" direct selling, on premise vs cloud, etc) are
only getting blurrier.

There's a couple different forces I see at work:

1) Selling & Customer Acquisition - In the last 5
years, the biggest force in business software was the impact of the
cloud as an infrastructure layer and product/service delivery mechanism.
 But in the next 5 years the web and mobile app stores will
increasingly be a force in selling and customer acquisition for busines
software.  People have been selling software over the web for awhile and
indirect selling via screensharing and webinar, etc isn't new.  But as
social media continues to pervade businesses large and small, and
purchase decisions increasingly happen at the user level (see #2) we
will see dramatically more customer acquisition happen via the web.  The
lessons learned from consumer Web 2.0 companies on user acquisition are
increasingly being applied to SaaS companies.    

2) Users Drive Enterprise Tech Adoption -
Historically centralized IT departments drove adoption of technology
within businesses large and small, but today user-level adoption is the
norm.  Whether tablets and smartphones via the BYOD movement
or SaaS tools like Yammer, Salesforce, and others (most of which
started bottom up at the user or workgroup level, not enterprise-wide
from top down), regular users are driving new software purchases.  This
is one component of why companies like RIMM are having a tough time of
late.

3) UI/UX Matters in B2B - For decades, B2B
application developers could skimp on innovating in the presentation
layer.  This was in part because purchase decisions were driven by other
factors, but also because until comparatively recently most end users
didn't use software and digital media that much in their personal lives.
 Now that end users spend as much of their personal time with software
(in the form of social networks, tablet/smartphone apps, streaming
media, etc) as they do with business software they've become much more
discriminating buyers. B2B software can no longer just get away with
crappy UI... it has to at least match the ease of use and aesthetics of
all the consumer web products users love.  

We've invested in a bunch of B2B software companies at NextView and
I'm thrilled to see them steal pages out of the playbooks of successful
consumer web companies.  GrabCAD has used search optimization to drive the bulk of it's user acquisition, very similar to the way Yelp and others did.  InsightSquared
is tackling business intelligence software (hardly a sexy market) with
an incredibly sexy product that incorporates Facebook style timelines
and other features.  RentJuice is doing much the same in real estate software.  And as B2B selling is increasingly done over the web, SalesCrunch
is becoming one of the arms dealers to sales forces everywhere.  I hate
indulging in wanton portfolio self-promotion, but my partners & I
are incredibly excited about these companies and will undoubtedly
continue to make more investments in this vein.  

At present the consumer web is the tail wagging the enterprise dog,
in that you see business software companies copying consumer companies'
marketing strategies, product features, etc.  I think this will continue
for a few years at least.  But hopefully B2B software companies will
innovate in some interesting ways that will bleed into consumer-facing
products.  

Lee Hower is a Partner & Co-Founder with NextView Ventures.  You can find this blog post, as well as additional content on his blog called AgileVC.  You can also follow Lee (@leehower) on Twitter by clicking here.

Startups: You're Not Really Ramen Profitable, You're Ramen Sustainable

November 6, 2011

Startups: You're Not Really Ramen Profitable, You're Ramen Sustainable

A new phrase entered the startup vocabulary a little while ago: “Ramen
Profitable”. The phrase is used to reference startups that are making
enough money for the founders to live on the startup staple of Ramen
noodles. [For our friends in India, Ramen noodles are similar to what
you would know locally as “Maggie”, which is what I grew up on. I like
the Masala flavored one].

So, here's my issue with the term “Ramen Profitable” — in most cases where it's being applied, the company's not really
profitable. Reason? Because the entrepreneurs/founders are paying
themselves negligible (if any) salary. This distorts the actual value
being created. Some of you might argue that founder's are simply making
an investment of their time/energy, in lieu of salary. That's a
wonderful thing, but from an accounting perspective, just because you're
not properly calculating expenses, doesn't mean it's profit. To be fair
and more accurate, founders should look at their fair market value to determine actual profitability.  

For example: Lets say you happened to inherit some prime real-estate
in downtown San Francisco. You got it for free. Now, you open a really
swank gelato bar for Python developers. If you weren't charging yourself
any rent for that space, nor paying yourself anything, and the business
made $100/day, would you really consider that profitable? You could
have rented the space out at fair market value for much more money than
that.  I'd argue you're losing money -- and I'd be right.

My point: It's awesome for startups to get to a point that they're
not reliant on external funding sources to survive. Paul Graham
describes this well in "Ramen Profitable".
 Great article and I agree with his points -- particularly around the
morale boost.  But, I'd call this stage of a startup “Ramen
Sustainable”. This stage gets a startup “infinite runway”. This can be a
very good thing, because the entrepreneur can than tweak, iterate,
pivot to her heart's content. But, that's also the problem with
Ramen Sustainable startups. The entrepreneur may keep going longer than
would have been warranted, instead of moving on to their next big idea.
 

Oh, and on a closing note (which came up in discussion as a result of
an article by Scott Kirsner (of the Boston Globe), titled “Is Boston spawning too many startups, and starving growth companies for talent?” My thoughts on this:

You can never have too many startups, but you can have too few shutdowns.

Do you think I'm right about the Ramen Sustainable vs. Ramen
Profitable characterization? Any thoughts on the pros and cons of
reaching this stage in a startup?  How do you know when your Ramen
Sustainble startup is better off being shutdown so you can move on to
bigger things?

Dharmesh

Shah is the CTO & Founder of HubSpot

in Cambridge, Massachusetts.  You can find this blog post, as well as
additional content on his blog called On

Startups.  You can also follow him on Twitter: @dharmesh.

Top 5 Scaling Lessons From Superhero CEOs

November 2, 2011

Top 5 Scaling Lessons From Superhero CEOs

JLA

Scott Kirsner of The Boston Globe called them the startup equivalent of the Justice League of America. Seven superhero CEOs gathered on Friday afternoon at the Mass TLC Unconference to discuss the challenges of scaling their young companies. The CEOs on the panel were (from left to right):

  • Michael Simon, CEO/founder of LogMeIn (2009 IPO) 
  • Scott Griffith, CEO ZipCar (2010 IPO)
  • Gail Goodman, CEO Constant Contact (2007 IPO)
  • Niraj Shah, CEO/cofounder of Wayfair ($500m revenue)
  • Colin Angle, CEO/cofounder of iRobot (2005 IPO)
  • Paul English, CTO/cofounder of Kayak ($200m revenue, S-1 filed)
  • Matt Lauzon, CEO/cofounder of Gemvara (reportedly $10m revenue) 

The panel was particularly fun because the environment was very relaxed - the Unconference uniquely creates a dynamic free-for-all where different topics are created spontaneously and teams are formed throughout the day to address big issues.  This panel on scaling was touted by Scott over the course of the week via numererous tweets and so attracted a large audience.

Here were some of the key takeaway lessons from this august group:

1) What Got You Here Won't Get You There. Each of the executives talked about tough decisions that they had to make with early team members that helped build the company to the point of scaling, yet held them back because they didn't have the right skills to lead the organization to the next level.  An "A" executive during the scrappy start-up days has a very different profile than an "A" executive at scale.  To drive this point home, I often use a metaphor called The Jungle - there are three stages to the life of a company: The Jungle (where you are hacking away to find a path), The Dirt Road (where the path is established but still bumpy) and The Highway (where the path is smooth and it's all about achieving maximum speed in a well-defined direction).  It is a rare executive that is skilled at two of these stages and nearly unheard of to be great at all three stages.

2) Outside Catalysts Force (Healthy) Change.  Sometimes you need an outside force to act as a catalyst to change the way you do things from scrappy start-up to more process-oriented, scalable business.  The CEOs pointed to this frequently, whether it was an acquisition (cited by Paul English when they acquired SideStep), global expansion (cited by Scott Griffith when they entered the UK) or filing for an IPO - these event jolted the organization into changing the way things were done in a very positive fashion, forcing discipline and processes that didn't exist previously.

3) Create a Culture Based on Integrity.  Paul English pointed out that the word integrity has an important definition beyond truth, and that is consistency.  His point being the consistency of the culture that emanates from the leadership is critical to help companies as they scale.  The implication, which resonated with the others on the panel, was to avoid creating a culture that is inconsistent with your identity and your authentic core as a founder.  Pursue the priorities that get you personally fired up.  Niraj Shah cited the fact that he avoided taking outside money for over 10 years and ignored much of the outside advice that urged Wayfair (fka CSN Stores) to over-expand as an example of staying true to your authentic self  and what strategy feels the best reflection of your mission.

4) Nothing Comes Easy.  When young entrepreneurs read about the success stories of founders like the ones on this panel, they sometimes forget that there were many ups and downs along the way - and there still are!  Many of these companies were "10 year old, overnight success stories" and each of them had their struggles.  Michael Simon talked about taking years to discover the business model that led LogMeIn to be so successful.  Niraj Shah joked wryly that the Wayfair rebranding resulted in his company going from low brand awareness to no brand awareness and each of the public company CEOs clearly struggle quarter by quarter to drive results and demonstrate success.  Michael Simon told me before the panel, with a smile, that when his stock goes up, it's because of LogMeIn's strong business momentum and when it goes down, it's because the market is having a bad day.  None of these CEOs are resting on their laurels.  Gail Goodman once told me she felt Constant Contact was in the second or third inning of a nine inning game.  And she's been CEO for 12 years!

5) Alignment, Alignment, Alignment.  Gail Goodman hammered the importance of alignment.  Some of her investors were ready to sell the company when it hit $30 million of revenue and over $100 million of market value.  She wanted to build a billion dollar company, and had to find investors that were aligned with this bigger vision.  

I could have listened to this panel of CEOs all day.  The hour went by way to fast and I hope there is a sequel coming soon - we need the Justice League to point the way to acehiving entrepreneurial success and scaling!

Ironically, the panel was conducted a day before an interview with Mark Zuckerberg, where he indicated that if he were starting Facebook now, he would have stayed in Boston.  I guess others are noticing that you can scale great companies in Boston nowadays!

Jeff Bussgang is a General Partner with Flybridge Capital Partners.  You can find this post, as well as additional content on his blog called: Seeing Both Sides.  You can also follow Jeff on Twitter (@bussgang) by clicking here.

The Top of the Public Internet Pyramid

October 30, 2011

The Top of the Public Internet Pyramid

There is a very interesting article on Venturebeat by Glenn Solomon
with a great graphic produced by Cowen and Company that separates
public Internet companies by growth and profitability (see below). 

Essentially it shows that there are very few
companies growing revenue at over 30% per year that also have greater
than 30% EBITDA margins and the 6 companies that fit in this category
are all outside the US (Russia, China and Latin America).  One of these
companies, Yandex, was a company we invested in 11 years ago when the
company raised its Series A round.  Today it is the largest search
engine in Russia and completed its IPO in June at an $8 billion
valuation.

My partners’ investment thesis when this investment
was made in 2000 was very straightforward: the Russian Internet market
then looked like the US Internet market in 1993.  It had 2% Internet
penetration and this access rate was growing at 100% per year.  There
were no leaders in search, ecommerce or anything else; remember, it was
like the US in 1993 (ie: Netscape had not even gone public).   We all
know what happened in the US from 1993 to 2000: Netscape, Yahoo, ebay,
Amazon, the rise of Google, and so on.

So, my partners sought out Yandex, Ozon (leading
ecommerce site) and others and backed great entrepreneurs in Series A
investments based on what they thought would be massive market expansion
that would emulate what had occurred in the US from 1993 to 2000 (in
2000 the US had grown to 44% Internet penetration).  The results have
been fantastic.

Glenn is very thoughtful in discussing the
opportunity to invest outside the US in burgeoning Internet markets
where the growth rates dwarf the US and the overall market opportunity
in terms of end users is far greater.  He sites China as a huge
opportunity, which I agree with, but I would also include India in this
opportunity set as well.  I wrote a blog post
recently analyzing the opportunity for US Internet companies to go
global early in their development and India is a market where we think
there is also great market dynamics.  India has over 1.3 billion people,
its Internet penetration looks like the US in 1995 and this rate is
growing at nearly 20%.

Fundamentally, when you have a nascent market that
has the potential for very rapid growth, the cost of customer
acquisition will be much lower and the opportunity to establish
leadership is much greater.  The next ten years of Internet growth and
value creation throughout the world will certainly be extraordinary, a
technology wave of proportions that we literally have never seen
before.

Sean

Marsh is a Co-Founder and General Partner with Point Judith Capital.  You can
find this post, as well as additional content on Point
Judith Capital's blog
.

Are You Brave Enough to Be Wrong?

October 27, 2011

Are You Brave Enough to Be Wrong?

I just finished watching great TED talk by Kathryn Schulz on Being Wrong
Go ahead and watch it now… It starts slow, but bear with me. It has an
important message.  Pay close attention to her slide on the “series of
unfortunate assumption.” Brilliant!

As I listened to her, I reflected on how her talk applies to the world of early stage technology companies and their VCs.

I am surrounded in my professional life by people (mostly men) who
are very smart, very hard working, very passionate about what they do
and think… and very very passionate about being right all the time.

We tend to pay the usual homage to our humility and our readiness to
accept that we are not perfect or that we can be wrong. The reality is
that most of us really hate being wrong, or hate admitting that we are
wrong. There is a strong undercurrent within us that being wrong – or
admitting to it – is a sign of weakness. Especially in the situations
where we are trying to get our point of view across to others who have equally strong points of view.

The reality is that we make mistakes all the time. Sometimes we
realize our mistakes and acknowledge them to ourselves and others. But
most of the time, we don’t even realize it because even if we have the
open mind to admit our mistakes, we may not have the information to
realize when and how we’re wrong. Kathryn calls it “Error Blindness.”

The illusion of being right is a huge problem in early stage
companies. A startup is all about making mistakes. Mistakes are inherent
when creating something new because its newness means venturing into
the unknown.

The quickest path to startup success is the rapid execution of a long
series of small experiments and the rapid iterations based on learning
from mistakes. Eric Ries’ Lean Startup journey is all about this concept.

Fear of being wrong (or the inability to recognize when you’re wrong)
is the biggest impediment to finding the optimal path to success.

Think about that the next time you passionately argue a point with someone that is trying to show you where you may be wrong.

Think about this the next time you bash someone for being wrong.
Instead, celebrate his/her wrongness and use the time to realize your
own. Then learn from it.

Be brave enough to be wrong!

Firas Raouf is a Venture Partner with OpenView Venture Partners.  You may find this post, as well as additional content on OpenView's blog located here.  You can also follow Firas on Twitter (@fraouf) by clicking here

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