Continue Reading]]> Most people in technology are frequently contacted by recruiters. It’s a world I know better than most, and not just because I get the notes from recruiters… For the first few years of my startup career, I worked on recruiting software. Fun fact that most non-recruiters don’t think about: The best candidates aren’t looking for a new job. It makes sense when you think about it– if you’re looking for a job, there’s a non-trivial chance that you were fired/laid-off, you’re considering quitting (or getting fired!), or that you are disgruntled to some degree with your currently position (maybe you don’t play well with others?).

This isn’t entirely fair, but if you are going to play the odds, the best candidates are people who are comfortably employed and 2-3 years into their current employer.

It’s surprising to me that people in technology don’t craft a “reverse resume” and keep it in a public place that that states their career goals and what it’d take for an opportunity to look interesting. Properly written, this doesn’t have to raise flags with their current employer. It can simply be positioned as a “here’s what makes me tick and here’s what I want my career to look like in 5-10 years”. A document like this can make a handy canned reply for any recruiting interest (pro-tip: did you know that Gmail labs has a canned response add-on for gmail?). Henceforth, it’ll take me just 10 seconds or so to reply respectfully to any recruiting interest with a link to this post (as well as a link to my bio).

I’ve been traveling non-stop for 7 months and, as I look forward to returning to my life in the states, I thought it might be interesting to write up a “reverse resume” post. Maybe other folks might find it useful as a framework to post something similar (or at least organize their thoughts). It’s organized in descending order of what I call “make-or-breakitude” – basically, how much that facet impacts the interestingness of an opportunity:

1. Geography: Seattle.  It’d be really challenging to get me to move to the Bay Area, NYC or LA. For a really special opportunity, I’d consider interesting towns like Austin, Boulder, or someplace outside of the US.
2. A “missionary-not-mercenary” culture.  The team has to believe– in something.  This doesn’t necessarily mean that a company has to be a non-profit, touchy-feely company.  Amazon, Google, Microsoft, and Facebook have all had clear missions/visions that their teams believed in.  On the smaller scale, you need to look no further than awesome companies like 37Signals (who are zealots for remote work and bootstrapping) or Moz (who are evangelical about TAGFEE). It’s clear that money and mission can mix nicely.
3. Small team size.  I’d happily start a company again with the right co-founder(s).  I’d also happily join a small/medium company.
4. Growth stage.  It’s important for me to be involved in the early stages or at a time when there is an opportunity for lots of creation/movement.  Mature products can be in the “bug-fix and extract value” phase, which is less rewarding for me.
5. People.  Of course everyone wants to work with awesome/talented people, so I’ll try to nail down the unusual types of awesomeness beyond “I want to work with smart/driven people”:
   • The team believes in the mission (see #2).  That doesn’t mean there aren’t disagreements, but it makes them easier to resolve.
   • Plays together.  Some teams love to hang out and some people spend time with their real friends once they clock out.  I like working with people who hang out together from time to time.  It’s easy to see when this works…  Are team lunches fun or is there a lot of awkward silence?  Do holiday parties “work” or do most people make an appearance and run for the door as soon as it’s not rude to do so?  Are people other than bosses interested in team-building organize social activities?
   • Love/respect for their customers.  It’s surprising to me how often I see software organizations who have some contempt for their users.  Early in my career, I worked on recruiting software, and I was surprised to see how many people on my team hated recruiters.  People at Zynga almost certainly don’t love/respect people who play Farmville.  If you don’t have regard for your users, it’s hard to want to understand them, which makes it awfully hard to make good software.
   • Transparent, not conflict avoidant, and empathetic.  Office politics can happen with even the smallest team.  The way to avoid this is honesty, pro-active discussion, and an honest effort to understand others.  If people on the team try to “spin” news inside the company, it’s a bad sign.  If people love to argue for the sake of winning arguments, it’s a bad sign.  If people try to tell each other what they want to hear, it’s a bad sign.
6. Type of Work.  I love product design and where it intersects with growth. I love to lead and am fascinated by the science/art of management. I’m also happy to be involved as “boots on the ground” if a company is very young/small or when attacking a new/speculative initiative.  That can include wireframing, slinging pixels in Photoshop, writing microcopy or blog posts, checking in front-end code, running marketing experiments, and more.  I love inbound marketing (SEO, viral, content-marketing, etc).  I love evangelism and am happy to do public speaking if the need arises.  I love working with programmers.
7. Lifestyle. I like hard work.  I (sometimes) enjoy crunch time.  I don’t enjoy sustained 70-hour work weeks, nor do I believe that they  produce great results (there’s some great science that backs me up here).  I’m delighted to do business travel when the need arises, within reason.

These are the facets that matter most to me.  Are there any major ones I’ve failed to consider?

Continue Reading]]> This is a bittersweet post to write.  I love Seattle.  I love the people.  I love the scenery.  I love the startup scene and the underdog mentality.  I’ve actually written data-driven posts trying to justify this entrepreneur’s choice to live here.  I’ve cheered on as Glenn Kelman valiantly defended our soggy brand of entrepreneurship.  I actually kinda love the weather.  But over and over again, very smart people tell me that the best thing for my company is to move it to the Valley (see this & this).  The logic is pretty compelling.  Being a founder requires a mix of determination and flexibility.  As I wade into my next company and as I hear stories from my friends down south, I think now is a time to be flexible.  So we’re going to go try the Valley on for size.

As I’ve started to tell people, I’ve had plenty of Seattle folks tell me that I don’t need to go to the Valley to succeed.  Empirically, they are right.  There are obviously successes in Seattle both big and small.  But here’s how I look at it.  Startups are like a big formula.   Maybe it’s “(10 * market) + (7 * product) + (5 * team) + (3 * distribution) + (3 * fundraising) + (10 * blind-ass luck)”.  I suspect that it’s different for each startup.  But I firmly believe that having strong relationships in the Valley adds a meaningful multiplier to important parts of that formula (especially on the fundraising side of things– more on that in a minute).

There are some great investors in Seattle.  We’ll be working with a few (hi guys!).  But as I look forward in my company’s future, I know we’ll be raising more money.  I believe (I hope!) that we’ll be raising based on a “line“.  Whatever trajectory we’re on, it’s nigh-impossible to argue with this fact– any fundraising effort is easier, faster, and more likely to close with better terms in the Valley.  The key there for me is faster.  Fundraising is expensive.  It saps attention from your product and it takes time/money.  The other key is “more likely”.  I’m pretty confident that I can raise money anywhere in today’s market.  But I don’t know where the market is going to be in 12-24 months.  I *DO* know, that if the market goes south, my odds will be strongest in the Valley.  And, while I don’t want to be a “douchey deal optimizer”, the best Seattle terms I’ve heard of are merely adequate in the Valley…  And terms that are good in the Valley are virtually unheard of in Seattle.

Of course, you can raise remotely.  A flight south is a few hundred bucks and kills the better part of a day.  But it’s hard to build relationships when you only fly down once every month or two.

Blind-ass luck is worth talking about, too.  While you can’t force luck, you can increase your “luck surface area”– do low-cost things that increase your shot at something fortuitous happening.  The obvious example here is: be nice.  Help other people and you increase the chance that they run across an opportunity that they drop in your lap.

While it’s not entirely low-cost to move to the Valley, I think it dramatically increases our luck surface-area.  Reporters and bloggers are constantly sniffing around in the Valley.  Well-armed/high-imagination bizdev folks wander around looking for creative deals to strike.  There are investors and portfolio companies wandering around at every event/party.  There are world-class startup geeks in the Valley on every corner (of course, there are a thousand startups all vying for the same talent, too).

A final consideration is optimism.  I’ve often said that startups only die from 1 thing.  They run out of optimism. They no longer believe in the opportunity (or they believe in a different one).  You can run out of money, but if you believe, you’ll find a way to soldier on.  You’ll raise money, max your credit cards, eat ramen, or otherwise do whatever it takes.  Strangely, I think it’s easier to keep your optimism tank full in the Valley…  In the church of startups (with miracles on display for every sermon), you can’t help but believe.

It’s going to be an interesting ride.  Some of my favorite entrepreneurs from Seattle have blazed a trail southward and, despite their apparent love for Seattle, they haven’t felt compelled to return.  I’m going to head south with an open mind and see how it goes.

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Photo by John O’Nolan

In the nearly 1.5 years since leaving RescueTime (still growing and profitable– woot!), it could reasonably be said that I’ve flailed about with my career.  I’ve done a few gigs at existing startups, ranging from discreet projects to try-before-you-buy gigs that could’ve led to leadership positions.  I helped build Cubeduel.com (read about it on GeekWire or TechCrunch) with the eminent Adam Doppelt (it was a blast) and helped build TouchBase Calendar, a part-time effort to learn iOS development.  As far as flailing goes, I suppose I’ve been pretty effective (in terms of learning and effective hourly rate), but I failed at what I was really shooting for: To find my muse.  To find something BIG to really sink my teeth into.

I wanted to find my next startup mission– something I think that gets more difficult the smarter you get about startups (and the smarter you get about what drives you).  I’ve learned that I’m mostly driven by “give-a-fuckness”– I get excited by software that I’m going to use, that’s going to make people happy, and that’s going to make the world (in some small way) a better place.  If you think about it, that’s a pretty limiting litmus test by itself.  But as a guy who has been around the startup block a few times, I have a few other tests that I care about.  Here’s a quick list:

• Tractability – I blogged about this years ago– I like business ideas where you run meaningful experiments in the first 6 months.  There are great ideas out there that require 2 years of deep geekery before you can come in contact with the market.  Not for me.
• A Big idea – This is a new one for me.  I’ve built and sold a mess of companies and projects.  I’m pretty confident I can get a business off the ground and profitable.  I want to aim bigger now.
• Early & clear monetization – pure-consumer startups where you have to rely on ads (or “we’ll figure it out”) aren’t for me.
• Cult-able – Besides me, are there a subset of people who dream of working in this market?  If you can imagine a truly passionate core of users, it makes it easier to find users and employees (see Justin Kan’s epic TechCrunch post: Trouble Hiring?  Create a Cult!)
• Fundability – While I’m generally wary of early funding (I like to prove a thing or two first), I do believe that raising money makes sense for big opportunities.  I’m honored to have a mess of people who have already expressed a desire to bet on me, but they wouldn’t if I was going to open a bakery or taxi company.

So what makes the cut?  First, it’s got to be Mobile.

We started with the “Mobile First” assumption.  The mobile internet is going to make the old Internet look tiny by comparison– as Amir says, you’ve probably underestimated how big this is.  If you’re a free-floating entrepreneur who is still flexible enough to learn new skills, throw yourself into the mobile maelstrom.  Skate to where the puck is going to be.

But as you start sizing mobile markets, you learn a few ugly truths.

1. First, the App Store is dominated by games.  Absolutely dominated.  I have a post written about this that I’ll post in the next week, but here’s a tidbit of data:  The #150 ranked top grossing game makes more money than the #5 top grossing app in any other category (if you want to catch the post when it comes out, subscribe via RSS or follow me on Twitter).
2. Second, the App Store is dominated by free apps.  I’m not just saying that people prefer to download free apps.  I’m saying that free apps are dominating the Top Grossing Charts (yep– free apps make more money!).  As of this writing, 16 of the top 20 grossing apps on the App Store are free (19 of the top 20 are games).
3. Third, single-app strategies are extremely high risk.  The best bet seems to be a “portfolio” strategy– plan on having a stable of apps.  I’ve watched extremely high profile, venture-backed apps that were lauded by critics fall down the rankings charts into oblivion.  The Top 25 charts are dominated by incumbents (who’ve spent months or years getting the marketing flywheel turning), web giants (who have massive traffic they can push towards their mobile apps), featured apps (Apple tries very hard to get new folks visibility, but that only gets you in the spotlight for a week or two), and “Unicorns” (new apps that catch fire entirely on a combination of merit and luck).
4. Winners have solid ARPUs (avg. revenue/user) to bolster customer acquisition.  In almost any category, you are competing with people who are making real money from their users (again, with free apps) and are spending that money to buy more users (which artificially drives them up the charts).  Unlike the web, you don’t have much in the way of SEO opportunities, viral channels are less open and users are more reticent to create most content (typing on the phone is a pain in the ass, right?).  So unless you have an amazing customer acquisition hack that no one has thought of on mobile, you should expect to supplement your organic downloads with paid acquisition.
5. There are a few great apps that are making great revenue driving offline revenue.  Look at Uber, Hotel Tonight, or Postagram.  Their ARPUs can support paid acquisition (they are also all great apps who’ve earned organic downloads).

So, after a lot of hand-wringing, we settled into a belief that our mobile ideas should be limited to either games or driving offline revenue.  We should have a credible story how our users could result in a sustainable ARPU.  If possible, we should be able to imagine a stable of complementary apps.  And most of all, we needed to actually give a fuck about what we were building.

Where did we land?  Mobile Apps for On-the-ground Travelers!

Strangely, we landed on an idea that’s been bouncing around in my head for years.  Like a lot of good ideas, it wasn’t really that good until it collided with our mobile thesis (bonus footage: I love the idea that great ideas come from the collision of lesser ideas– check out this video).

For more than a decade, I’ve been a voracious traveler.  And I’ve watched startups grow up to help travelers with their efforts.  But if you look at where startups have focused, it’s always on the holy trinity of pre-trip decisions– airfare, hotels, and rental cars.  This actually makes a lot of sense.  The internet actually sucks for helping you with decisions you have to make while on your trip– largely because you don’t have the internet with you.  Normal people don’t, anyways.  So we all dutifully buy a Lonely Planet guide ($20 for a book– which is probably the worst form factor I could imagine for what is largely a curated catalog and a series of maps).  Or we rely in digging up local wisdom at our destinations.  Or we sift through the SEO’d muck looking for credible information and print it out.  We’re still printing web pages in 2012?

With the growing ubiquity of smartphones, there is a new opportunity for software to help the on-the-ground traveler (where, incidentally, more than 50% of travel spending occurs).  And, while our focus is on being an awesome resource for travelers, we believe that mobile allows for elegant monetization beyond simply selling that content or slapping an ad on it.  More on that soon.  So here it is– a public declaration of intent.  I haven’t been this excited about work in, well, forever.  World, meet Tomo.  Tomo, meet world.

Continue Reading]]> Now that I’ve stepped down from RescueTime, I’m pondering my next thing (whether it’s a product role at a very early stage startup or spinning up my own for the 3rd time). I figure it’s a good time to be introspective and consider my motivations. Why do startups? For me, it’s more about having the choice to work on the stuff I want to work on, work with cool people on small low-friction teams, and wear a lot of hats. I definitely see the lure of the financial reward, but it’s never been a primary motivator for me. I’ve said in the past that stock options for startup employees are generally a sucker’s bet, but the argument extends to founders, too (especially when you’ve got 3+ founders and/or need multiple rounds of investment).

On a recent trip to Alaska, my ideas around “F@#$ You Money” changed pretty radically because of two conversations (which I’ll relate below). First, let’s start with a definition:

F@#$ You Money: any amount of money allowing infinite perpetuation of wealth necessary to maintain a desired lifestyle without needing employment or assistance from anyone. (via Urban Dictionary)

Retirement Plans

The first conversation I had on my Alaskan trip was with an older retired couple who was traveling around Alaska. We’d had a few drinks at a local bar and got to talking about retirement, risk-taking, and (eventually) f@#$ you money. He started talking to me about his finances and told me that he was really anxious about money despite having a “couple million bucks”. “It used to be absolutely true when people said ‘money makes more money’,” he told me. “Be relatively sharp about flipping real estate, have a solid and diverse stock portfolio, and you’re making 6-10% per year or more.” 8% of $2 million is 160,000. Add some Social Security money to that and the fact that older couples generally have a paid off house or a cheap mortgage, and that feels pretty close to permanent retirement. If you want to live more lavishly, you can chip away at the principal.

But this couple was shaken by the new reality. What, exactly, are they supposed to invest their money in that throws off 6-10%? Real estate in major metro areas are looking at a 5-20% drop in the next two years. The stock market is volatile but stagnant (more on that in a minute). Money markets are throwing off less than the rate of inflation. Top all that off with the potential that inflation accelerates, turning their couple of million bucks into dramatically less… Which means that even if they leave it in cash, there is a lot of downside risk.

The formula for a 2 million dollar retirement changes from:

$2,000,000 * 8% = $160k/yr + Social Security

to

$2,000,000 / # of years you expect to live after retirement (say 30) = $66k/yr + Social Security

If that all works out, you die nearly penniless on your 30th year.

The idea of a millionaire couple (surely the top 5% of retirees?) living on a combined wage that is dramatically less that what they were likely earning before they retired was pretty damn shocking to me.

The second conversation that I had on my Alaska trip was with a money manager at the Seattle airport. He was one of the top wealth managers at one of the big Wall Street firms. His belief was that it was likelier to get worse before it got better and that it could be 10 years or more before the economy bounced back. “I think we’ll see Dow 4,000 before we see Dow 12,000,” he told me. With the ratio of workers to retirees changing for the worse and with birth rates flattening, he wasn’t sure how much it COULD bounce back. Obviously, his opinion isn’t shared by everyone. But there’s a chance he’s right. Given that, where exactly do you put your f@#$ you money? A balanced portfolio isn’t enough protection against that kind of drop.

(Want to worry some more? Consider how much you have to save to retire if your savings don’t throw off interest.)

Want to be Mercenary? Time to give up on F@#$ You Money and Focus on Other “F@#$ You” Things

Pretend that you sold a startup tomorrow and walked away with a cool $5,000,000 at the age of 30 (well, $4m after taxes). Assuming you live 50 years, that gives you $80k/yr (non-inflation-adjusted dollars). Perfectly comfortable, but certainly not the image of wealth that a $5,000,000 windfall historically brought to mind. So if you’re young and angling for greatness, I think you’re better off aiming for “f@#$ you influence and credibility” (which has as much to do with your personal brand as it does your financial success). THAT is the investment that keeps giving. It allows you to charge $30k+ for a 1 hour speaking engagement. It gets you a feeding frenzy of investors when you start making noises about your next startups (reducing your financial risk to near-zero). It gets you fat advising gigs (where you trade advice and influence for ~1% of startups), seats on boards of directors (which can be compensated for in various ways). It gets you access to the best angel investment opportunities. Hell, it could allow you to raise a $30,000,000 seed fund (rock on, Dave!).

Better yet, in the mercenary vs. missionary debate, don’t think like a mercenary at all. Focus on creating value, being passionate about what you’re building every day and let the windfall (if it happens) be a happy surprise.

Continue Reading]]> A great developer I once worked with was kvetching at lunch one day. He’d been working at a well-funded startup for about a year and had come to terms with the fact that the startup was really a pretty dumb idea. He’d wasted a year of his life and had a pile of stock options that weren’t very interesting. His last two jobs had been similar. He asked me a question that, at the time, I didn’t have a good answer for. “How can you possibly know when joining a startup if it’s going to be successful?” In other words, how can you spot a good startup idea?

Since I’ve announced that I’m moving on in the coming weeks/months, I’ve been bombarded with cool offers at existing startups, larger companies, and, of course, I’ve been pondering some of my own startup ideas. So his question which I didn’t really consider very carefully at the time is now one that I’m thinking a LOT about.

So without further ado, here is my “checklist for good startup ideas”. No startup will do great on every aspect of the checklist, but this allows me to put startups/products to a sniff test that I think is pretty darn useful. Note, this list is in rough order of importance.

1. How deeply do you think the startup will effect people’s lives? Can you imagine them using it every day? Can you imagine them being royally pissed if they couldn’t use it? This can range from utility (gmail) to emotion (twitter), but if a product isn’t in the “I’d rather chew off my own arm than lose it” category for a meaningful percentage of it’s users, it should be a non-starter.
2. Are the hypotheses that form the basis of the startup tractable? In other words, can test the idea(s) in a short period of time? I’ve talked about the importance of tractability before (hat tip, Ev Williams). Bottom line is that most initial hypotheses are wrong to varying degrees. Twitter was very tractable. Tesla is not. I’ll re-use the money quote from Fred Wilson: “…Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold. That means there a 2/3 chance you’ll have to significantly reinvent your business between the time you take a venture capital investment and when you exit your business.”
3. How does the cost-of-acquisition, cost-of-goods-sold (COGS) and revenue-per-customer stack up? Most software startup have a pretty low COGS, so this question generally comes down to, “How much does it cost to buy a customer and how much revenue does that customer represent over their life?” This obviously requires a lot of guesswork early on, but experience is a helluva teacher here. If you haven’t been on the wrong side of this ratio a few times, find a mentor who has. Any way you slice it, you need to fine a “scalable, cost-effective way to get your customer’s attention”. I can’t count the number of startups that aimed squarely at small businesses or “prosumers” with sub-$100 price point and have no idea on how they’re going to buy a customer (other than word of mouth, SEM/SEO, and PR).
   
   I love extremes here. Zynga, Twitter, and Facebook has nailed one extreme– their cost of acquisition is free and nearly infinitely scalable. If you can build a service that grows virally (free and growing customer acquisition), you can focus most of your attention on value creation and revenue-per-user. With a little success there and a little time to let the virus spread, and you can almost not help but succeed. I think it’s hard to overestimate the power of free marketing/customer acquisition.

   There are certainly extremes on the other side. What do you think Oracle’s revenue per customer is? How much can they afford to “buy” a customer for? What about Groupon?

   Pro Tip: If you’re raising angel or Series-A money and you say you’ll be using the proceeds for things like magazine ads and wrappers on busses, you’ve probably already lost.

4. How MANY lives could you imagine touching in 5 years? This is different than asking about total addressable market (TAM). Craigslist started as a classified ads mailing list for San Francisco. Amazon started selling books. Have some imagination and consider what your company could morph into. Is it interesting enough to justify the opportunity cost and the fact that you’re looking at a drastically reduced salary for 2-5 years?
5. Is it an invention or re-invention? Hats off to you inventors out there, but I strongly prefer an existing market to creating one from scratch. The companies whose equity I covet didn’t build anything NEW, they just built something BETTER (Google, Facebook, Apple, Amazon, Craigslist, eBay, Zynga etc). In short, the first mover advantage is a crock of shit (most of the time).
6. Is it worth talking about? Can you tell a story about the product that would make a blogger say, “Holy crap– I could write a story around that that would get tons of links, tweets, and comments?” One of my favorite products is Visual Website Optimizer (it’s a brilliant A/B testing tool). The founder (a great product designer who I’ve had a few conversations with) sent out a barrage of emails to major tech bloggers and heard nothing but crickets (he appealed to Hacker News readers for advice– I think the discussion is interesting). His fundamental problem is that he doesn’t have a story that will drive links/tweets/comments/pageviews– all of the metrics that pro-bloggers care about. Oftentimes, clever PR people can create a story out of something that has nothing to do with the product (see: 37Signals & Zappos), but it certainly helps a lot if your product is funny, controversial, unusually useful, or inherently exhibitionist.
7. Are you passionate about the end-game? This one is hard to rank. All of the points above assume you are a “mercenary” founder (maximizing for opportunity) rather than a “missionary” founder (passionate about a vision that keeps you awake at night). Great video on that point here. Regardless of whether your end game is a vision realized or a big pile of cash (or some combination thereof), you need to be passionate about it… You need to have something that powers you through the bumps in the road where a rational person would cut and run. Both motivations are dangerous, by the way. If you’re motivated by cash, you might have a hard time sticking through tough times when you realize what you’ve built might only be a single or a double. If you’re motivated by vision, you might not like the pivots your startup needs to take to survive/succeed.
8. Is the market moving in the right direction? Can you imagine there being a LOT of growth and consolidation in the next 5-10 years? I just saw my first RedBox the other day (it’s a cool box outside of supermarkets that allow you to rent DVDs). They are currently on the wrong side of a market shift away from physical media– can you imagine people renting DVDs in 10 years? I think this one is particularly hard to get right (which is why it’s low on the list).

That’s my list. Am I missing something that’s on yours?

Continue Reading]]> Wow, I’ve felt bad about neglecting my blog. Not guilty-bad (though there’s a bit of that too), but bad because I feel like I have a LOT of stuff I want to write about. I literally have 15 or so blog posts that are pretty much just titles and topic sentences that I’m eager to write.

This isn’t one of ‘em.

John Cook just wrote that I was leaving RescueTime, and I feel like it makes sense that I should talk about this a bit to clarify what’s going through my head. Though I have to admit that it’s tempting as hell to do what Alex Payne did– which is pretty much leave it at “I just quit Twitter and I’m doing something new“.

Leaving any job is a personal choice with a lot of factors. Leaving a company that you’ve founded and nurtured from idea to prototype to product to business can be downright agonizing. The product is your baby and the team and investors you built it with are your brothers-in-arms. You think about it so long and so constantly that it gets to be an addiction. Not in a BAD way, mind you. The years I’ve spent on RescueTime have been some of the best of my life.

So Why Leave a Good Thing?

This is the most common question I’m getting right now– “If things are going so well at RescueTime, why leave?”. I’ve asked myself that question a TON over the last few months as I’ve been considering this move. RescueTime is enjoying some pretty awesome growth (51% quarterly revenue growth on average over the last 4 quarters– solid!). Not to say that there aren’t daunting challenges ahead for RescueTime, but all of the graphs are moving up and to the right. So, why the heck would I leave on the cusp of profitability? My reasons are largely internal… I know, I know. “Seriously, Tony? The ‘it’s not you, it’s me’ breakup line?’”. Seriously. Leaving RescueTime is like breaking up with an awesome women who you know you could be happy with, but no longer believe is the right woman for you. I have a mess of specific thoughts, but they all boil down to the fact that I’m more excited about what could be next– and I’ve always been driven by the “Regret Minimization Framework”. Watch this short video below:

Jeff’s boss’s response? “This sounds like a good idea. But it sounds like a BETTER idea for someone who already doesn’t have a good job!” I clearly have a great job at a great/growing company. But there are new things that are happening in technology/business that I find too darn exciting to not dive in. I want to get uncomfortable again, and trade reliable growth for blue sky. Given the stage that RescueTime is in, I think this is a reasonable time to make that leap. We’ve got a growing company that’s providing a livelihood for a great team and that (eventually, I hope) will provide a great return for the investors who made their bet on RescueTime (including myself!).

What’s next for RescueTime?

RescueTime’s focus right now is to scale, get new customers, and grow. We’re pretty convinced the entire team could answer support requests and play checkers and we’d grow every month (a testement to the fact that we focused on scalable marketing). But the team is going to continue to rock on A/B testing, outreach to our growing collection of Fortune 500 customers, back-end scaling so the servers don’t melt (processing hundreds of thousands of man hours of attention data per day isn’t easy, folks!), and (of course) making the product a little bit better every day.

I’m going to keep working with RescueTime on a few initiatives, and I’ll always be a founder (and advisor for as long as the team thinks I’m useful). Don’t be surprised if I answer a support request from time to time or do some writing on the RescueTime blog.

What’s next for Me?

(second most popular question, behind the “Why?”) Short answer, I don’t know– and that’s exciting. Longer answer, I’m looking for early stage opportunities in a few markets that I find particularly interesting. I want an opportunity where I can be strategically involved (hacking on business models) and tactically involved (managing UX, doing PR/outreach, A/B testing, writing copy, slinging pixels and CSS). Upside is a must for me– I’m eager to have skin in the game as opposed to a steady paycheck (though some combination of both could be interesting). I’ve written a bit about how I think stock options for most employees are a bit of a sucker’s bet unless you’re getting in VERY early (it turns out the only way to get meaningful reward is to buy it with risk). But at the end of the day, I’m only partially motivated by upside. I’m more motivated by the opportunity to make a BIG impact, the autonomy to do stuff that I think is important, being in a “fast” environment, and being surrounded by people I respect and like. This seems theoretically possible at a larger company, but seems likelier the earlier stage you go on the spectrum. It might ultimately mean that I have to start something new.

High Five, RescueTeam

The team of hackers that work at RescueTime are breathtakingly good. With a small team, we’ve built and maintained a windows app, a mac app, a web app, and a monster data warehouse that processes hundreds of thousands of man hours of attention data per day, all with a hosting bill that any startup would envy. We’re adding 600-1000 new users and 15-30 new paying customers per day without a single marketing dollar and without any marketing effort. We’ve built a machine that we’re really damn proud of.

I read the other day that 85% of venture-backed companies are dead inside 3 years– I’m damn proud of the fact that our business and team are going to be in the 15% minority. High-five guys, and godspeed!

Continue Reading]]> [Timely note! We’re hosting a Y Combinator Meetup in Seattle on Thursday Feb 25… details here!]

March 3 is the deadline for YC’s Summer 2010 session. I figured that I ought to throw my thoughts out there on the decisions that lead up to the application, the app itself, and the interview process that follows (if your app makes the cut!).

Making the Decision to Apply

• First off, I think the most important thing to emphasize as an entrepreneur is that you should optimize for your chance of success a meaningful exit, NOT the magnitude of it, should it happen. It may seem like selling for millions to Google is a foregone conclusion given how brilliant you are, but it’s not. Startup success is a tough slog with lots of randomness outside of your control. If you can trade a little bit of equity to nudge up your shot at success by a few percentage points, you should do so. Thankfully, YC from this perspective is a no-brainer. No one can argue that it doesn’t improve your shot (with the amazing mentoring they provide, the investor introductions/credibility, and PR bump), and if you calculate YC’s take is if you sell for $100m (divided by the number of founders), it isn’t too painful.
• Think about what you’re building, what market you’re playing in, and whether it’s appropriate for venture financing. I think I recall reading about someone applying who was proposing to build an app to manage Dungeons and Dragons campaigns. While there’s probably a business there, it’s pretty unlikely that the pen-and-paper RPG market is going to be the next big thing to change the world. Pick a big market– or better yet, pick a small market that can eventually morph into a huge market (like classifieds for San Francisco, selling books online, or an online garage sale).
• Read everything here and make sure you agree with some of it, but don’t be afraid to disagree with some of it either!
• Do something bold. You aren’t going to be thinking to yourself on your deathbed that you really should’ve taken less risks. YC is a blast. You get to meet amazing mentors, other great startup founders, and a few fairly impressive robots.
• Consider how committed you are to your idea/market, your company, and your co-founders. YC has plenty of flips, but the majority of ‘em seem to be going concerns for years. Can you get excited about what you’re doing (and who you’re doing it with) for 7 years?
• Do a gut-check on your team. Do they have the rough ingredients necessary to kick ass? If the better mousetrap you propose to build is going to be better because of an amazing UI, make sure you have a great UI guy. If you’re doing a vertical search/UGC play, make sure someone is at least a little interested in SEO. If you’re going to sell software to businesses, make sure someone is willing to sell stuff. And, of course, if you’re tackling something with big technical challenges (like most of us are) make sure you have some great hackers.

The Application Process

• Read Paul’s essays. It provides good insight into what’s important to him (and YC). Reading Founders at Work is a good idea, too. It’s a great book and shows you some patterns for startup success.
• Remember that the app is a sales pitch and focus your answers on the things that are important to YC. The biggest risks to YC are:
  • That you don’t have the chops to build something good. The best way to deal with this concern is to show them something good that you’ve built. Preferably several things, and preferably things that you’ve built with your co-founders.
  • That you’ll get bored/discouraged and quit. So try to work in examples of times when you’ve persevered despite significant obstacles.
  • That you’ll fail to make something that people want. So do what you can to show that you’re in tune with the market you’re proposing to serve. You can be a badass hacker with unflagging dedication, but if you don’t/can’t understand your users, you’re probably not going to be a big win for YC.
• Don’t be too shy or too arrogant to sell. I remember reading a comment on Hacker News that said, “My code speaks for itself.” No, it doesn’t. At least, not to investors, customers, employees, reporters, and the zillions of other people out there you’re going to have to sell to.
• Get working on your software ASAP. If you apply with a functional product (or even a launched product that people love), you remove a lot of the risks listed above.
• Get working on the YC app ASAP. If you’re unsure, apply! The app takes a few hours and it’ll help focus your thinking if nothing else.
• If possible, make sure that your whole team is ready to dive in whole hog. Starting something up is a commitment to your founders and to your new investors. Having a team member who has other commitments can be a source of contention.
• Hack the system! Every session I get emails from people asking me to review their apps. I usually do. I can’t imagine why you wouldn’t do this… YC founders are people who wrote successful applications and spent at least 3 months getting repeatedly kicked in the junk by Paul Graham and friends. I’m sure we must know something about how YC thinks that might not be obvious. If you can’t bring yourself to ask a stranger for some time, how are you going to raise money after YC? How are you going to hire your first employee?

The Interview

I don’t recall the stats on how many applications make the cut, but if you get asked in for an interview, congratulations! Now get to work building something (hopefully you already have).

• Get started on a demo. If you walk in and start monologuing, you’ll fairly quickly get interrupted and asked to start showing stuff.
• The “demo” will be less like Steve Jobs and more like Guantanamo Bay. You’ll be derailed almost instantly and peppered with questions and objections.
• Have a backup idea that you’re comfortable talking about. I know several founders who were essentially told, “we don’t like that idea. Do you have any others?” This may be a test of how much you love your idea as much as anything else. Founders who refuse to pivot often die from it. It also might be a test of your ability to have good ideas. If they don’t like your idea OR your backup, they might los faith in your ability to grok what people want.
• Practice. Ask 10 smart people to name 10 things that will make your idea fail. Have good responses for those objections. Don’t practice a speech. Don’t practice a 10 minute demo, practice little 1-2 minute chunks of a demo that you can string together if they leave you alone. Practice individual talking points and responses.
• Be willing to be wrong but also be willing to disagree. YC doesn’t want lapdog PG fanboys(and girls!), but they also want people who are coachable and willing to learn. Don’t be afraid to say, “That’s one of the things we’re going to have to figure out, but we have a few ideas.”
• Be dynamic and energetic. You’re a storyteller here. Your job is to get YC excited about your business. Make them believe that it (and YOU) are an investment opportunity. Work on eye contact, not talking to too fast, and thinking on your feet. Have someone role-play an aggressive interviewer.

That’s about all the advice I have. I’d close with this point– very very very few YC founders wouldn’t do it again in a heartbeat. It’s a killer experience and it’s certainly a needle-mover during the most fragile part of your new company’s life. Applying is cheap in terms of time and rewarding even if you don’t get asked in for an interview. Do it!

]]> http://www.tonywright.com/2010/considering-y-combinator-or-any-seed-funding/feed/ 17 http://www.tonywright.com/2008/followup-answers-re-lifestyle-vs-investment-and-angel-vs-vc/ http://www.tonywright.com/2008/followup-answers-re-lifestyle-vs-investment-and-angel-vs-vc/#comments Thu, 10 Jul 2008 21:12:08 +0000 http://www.tonywright.com/2008/followup-answers-re-lifestyle-vs-investment-and-angel-vs-vc/

Continue Reading]]> Last night I spoke at Seattle Tech Startups. Given that lots of people who go to these meetings tend to be wantrepreneurs (aspiring startup folks), I focused on early decisions that need to be be made. Do you shoot for a great lifestyle business or do you aim for a grandslam? Services biz or product biz? Bootstrap it, find angels, or court VCs? And when you answer all that, how do you settle on an idea when you have lots of them bounding around in your head (for this part, I liberally borrowed from Ev Williams’ great post on evaluating startup ideas, which I posted a riff on a while back).

After my short presentation, there were some really fabulous questions. Two of ‘em kept me thinking and I wanted to expand on the answers a bit. Here they are.

Question (paraphrased): “Given that takinghuge piles of VC money both has the dangers you describe and and firmly closes the door on most early acquisition opportunities, why are people still going after big VC?”

My response was two-fold at the time. First, there are some ideas that require a lot of money– as an example, I mentioned a local northwest guy who is working on a really cool electric motorcycle… It’d be hard to imagine getting that business off the ground with $500k of angel money. I also mentioned that some entrepreneurs look at their valuation as a score. Taking $4m on $12m post-money is essentially saying that, on paper, your company is worth $12m. Feels pretty cool, I suppose.

Two more things to add here.

First, I think people chase VC because it’s available. Angels are purposefully elusive– they don’t exactly hang out a shingle saying, “I’ve got $50k burning a hole in my pocket”. VCs, on the other hand, have a web site, and processes to handle/process deal flow. They almost always want to lead the investment by negotiating terms and putting in a big chunk of the money, while angels sometimes shy away from leading/negotiating, but are happy to pile on with other investors.

I think there is a big hole to be filled here by institutional investors who aim at a larger number of smaller deals (something that most VCs can’t handle because they have too much money under management, take too long to do the deals, and have too few people to sit on boards). There are smaller funds out there that are starting to fill the “early/small” niche (with $250k-$1m investments) but they are rare and (from an outsider’s point of view) are buried in interesting startups to invest in. The good news is that they’re seeing great success, so more are popping up every day. If you want to see a good list of folks who are really looking at early-stage/lower-dollar deals, here’s a great article profiling a few. You’ll notice a decided lack of ‘em in the Northwest. Madrona is mentioned but I think they very rarely do a deal less than $1m.

Second, B2B. Despite Web 2.0 hype, there is tremendous money to be made with B2B software. Going the B2B route requires a sales engine or some clever distribution innovation. If you’re spinning up a sales team, that requires LOTS of money flowing out of your business (salary, commissions) before you recognize revenue for their efforts.

Question #2: “Can you talk about how to decide whether a business/idea should fall into the “lifestyle” category or the “get funding a go big” category?

My answer last night centered around overall magnitude of the idea. Could you imagine it being the next Google/Facebook/Salesforce.com? Is it that ambitious? Can you set out milestones where you end up selling for $100 million? I also mentioned that how much you NEED is important. If you can “run the experiment” for $500k to see if your market/team/idea are as good as you think, raising $10m is silly. If you can roll those same dice taking no funding and working on weekends, raising ANY money might be silly.

What I want to add: Think about how you fit into recent investment trends. Investors closely follow trends. Most seem to focus on trends and recent acquisitions that you’re already reading about– the top tier ones often try to anticipate what’s going to be the next trend. Imagine yourself pitching your idea to someone who religiously follows and tries to anticipate trends. Will their eyes light up? To my amateur eye trends that are important out there right now are: Ad networks, widgets, casual gaming, video advertising, iPhone/mobile apps, Facebook/MySpace apps, social aggregation, and (of course) anything that could credibly take a shot at killing Google. Am I missing any? There are a few tired trends that probably still have legs with some investors like niche social networks, social news sites, photosharing, etc.

If you’re outside these trends, that’s okay (we certainly are, though we think that productivity/information overload is a meme that is growing like gangbusters). It just means that you’re going to have a harder time raising money and you’ll need a bit more traction to pique VC interest. We’re just about ready to close our angel round with a fairly platinum-plated group of investors, so it’s certainly do-able. I’m just glad our founders all had hefty personal bank accounts to allow us to grow the business over the 3 months of fundraising. I know plenty of people who’ve needed 6-10 months to raise a round, so be prepared for that if you’re bucking trends.

Remember, Google came to a market that had well-funded mature players at a time when a lot of really smart people were saying that search was a dead business where you couldn’t make any money.

Another thing to consider on this front is this: Do you have some unique aspect of your business that allows you to acquire new users/customers for zero or near-zero cost? SEO, viral marketing, user-generated content are all fabulous ways to get an organic flow of visitors to your product. VCs love clever distribution wrinkles, and most successful startups have a fabulous (if sometimes accidental) story to tell here.

And finally– the best way to decide whether it’s a small biz opportunity or a huge business opportunity is to launch. If you’ve got something big, the market will start dragging you down the growth path. If it’s a big opportunity and you’re growing like gangbusters out in the wild, funding isn’t hard.

Anyhoo– hope folks enjoyed the talk– I’ll post the video if STS puts it up.

]]> http://www.tonywright.com/2008/followup-answers-re-lifestyle-vs-investment-and-angel-vs-vc/feed/ 9 http://www.tonywright.com/2008/the-information-overload-conference-in-nyc-july-15/ http://www.tonywright.com/2008/the-information-overload-conference-in-nyc-july-15/#comments Fri, 27 Jun 2008 19:44:04 +0000 http://www.tonywright.com/2008/the-information-overload-conference-in-nyc-july-15/

Continue Reading]]> I just got word that I’ll be speaking at the Information Overload Research Group 2008 Conference in New York City on July 15th (though I’m not on the page yet… ).

This is the grassroots organization mentioned with RescueTime in the New York Times article “Lost in Email, Tech Firms Face Self-Made Monster” (well, it’s probably fairer to say that this is the article where RescueTime was mentioned with them!).

The conference looks like it’s going to be real interesting (and not just because I’ll be speaking there– I’m positively riveting!). If you’re in the neighborhood (or if you need an excuse to visit NYC), you should sign up (the conference only costs $150 and includes lunch– it’s a helluva deal). Brian Fioca, one of my co-founders will also be in attendance.

If you don’t want to go to the conference but want to grab a beer on the 14th, drop me a line!

]]> http://www.tonywright.com/2008/the-information-overload-conference-in-nyc-july-15/feed/ 0 http://www.tonywright.com/2008/bootstrappers-beware/ http://www.tonywright.com/2008/bootstrappers-beware/#comments Fri, 20 Jun 2008 03:22:16 +0000 http://www.tonywright.com/2008/bootstrappers-beware/

Continue Reading]]> A lot of people are damn religious about bootrapping businesses. Especially nowadays when it’s so easy to start a software business– you just need a few hackers, Ruby on Rails, a cheap virtual server and you’re ready to roll, right?

Sure.

But just because it’s cheaper to start a software company, doesn’t mean that it’s that much cheaper to make it from when you launch a product to the point where you’re sitting back, drinking a margarita, and marveling at the recurring revenue machine you’ve created.

The way I look at it, there are three bars that matter to me.

1) Making enough money that the business brings in enough money to pay the overhead. Rent, servers, lawyers, whatever. Hopefully you keep this really lean.
2) Making enough money that the founders get an insultingly low (but still existent) salary.
3) Making enough money that the founders can take home roughly what they’d make if they went and got a real job.

Bootstrappers are woefully bad at guessing how long it’ll take to get over these bars.

Let’s look at everyone’s favorite example of bootstrapping: 37signals (whose products and philosophies I love, by the way). According to a recent post, it took them about 6 months to build Basecamp, with DHH spending 10 hours a week (they don’t mention how much time other folks invested, but let’s assume it’s 2 other people at 10 hours a week). It turns out that with a really popular blog, a very successful consulting firm, and all of the attention that they got with Ruby on Rails, it took them about a year to get to the point where they could give up consulting and work on it full-time. I assume that they were somewhere between the 2nd and 3rd bar (mentioned above) before they made the leap, though they might’ve taken a pay cut as a leap of faith in the growth that Basecamp was experiencing. DHH sez:

“It didn’t turn into a smash hit overnight either. We ran Basecamp for a year alongside our other obligations before it was doing well enough to pay all the bills and afford our full-time attention. Most good businesses didn’t become great ones within the 12-18 months that the poster boys of the startup lottery did.”

Amen!

I’ll give you an example closer to home. RescueTime (my baby) was on TechCrunch 3 times, LifeHacker twice, and add in a few thousand other blogs (of varying flavors and colors). We are a Y Combinator company, which gives us plenty of geek cred. We’ve been [edit for clarity] mentioned in an article on the cover of the New York Times, and have gotten mentions in PC World, US News and World Report, BusinessWeek, and more. More important than that, we’ve got happy users who seem to like telling their friends (the old fashioned kind of viral marketing!). I think most SaaS startups would feel very lucky to get this kind of attention– we certainly do. But for all of this attention, I really don’t expect to clear that second bar for many many months (we’re only a month or two into having an offering that people can pay money for, so give us time!).

Let me be clear about the type of startups I’m talking about– I’m talking about low-cost (or free) product companies with price points low enough that having a human being actually SELL the damn software would be inane. Whether it’s a payout of $.83 for an ad click or $24 bucks a month for BaseCamp– having a human being wandering around selling this stuff doesn’t scale, and chances are your founding team doesn’t consist of anyone who is a motivated (and skilled) software/ad salesperson anyways.

On the other hand, if your price point is high (generally requiring a more complex or premium offering) or if you have a services component (web development consulting, managed hosting, etc)– you’re golden… Or at least you have great potential to ramp up revenue fast (as you can justify a sales effort and fairly easily convert time into money). Of course, there are the obvious downsides– for enterprise software you have to build… enterprise software (capital intensive and damn ugly). And then you should expect to spend 60-70% of your cash on sales and marketing. If you go the services-heavy route, you’re simply selling time for money… You can make a nice business out of this (I ran a consultancy for 7 years which I eventually sold out of) but there’s virtually no equity to be built– no one wants to buy a consulting business.

In my opinion, if you aren’t prepared for 18-24 months before you actually get your first paycheck (either through savings, doing it part-time / half-assed, or seed funding) you’re setting yourself up for disappointment.

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