Despite the fact that my New York Giants failed to make a repeat trip to the Super Bowl, being the diehard football fan that I am, I wasn’t going to miss the Big Game. Whether or not it was the greatest Super Bowl of all time (it wasn’t), one thing that stood out to me was the way in which both teams rallied when they were down and how it took the effort of every player on each team to deliver success. It was clear that no individual player wanted to let down his team by not doing his individual job well.
It strikes me that we’re seeing the same thing play out in the world of startups right now. The companies that are continuing to make progress notwithstanding the challenges in the funding environment and the broader market are the ones with teams that are committed both to the mission of the company and to each other. I would argue that a quality team is the most important factor in the success of a startup, but never is the quality of a team more important than in a down market. After all, there are no unique ideas, only unique execution and execution is the difference between success and failure given the current economic situation.
So what are the characteristics of a successful entrepreneur or team? I don’t know that I have the right answer to that question, but here are the things that I look for when making investments. First is passion. Is the team genuinely excited about the business and the problem that it is addressing? Is it committed to solving the problem and building a sustainable business? Passion is a requirement given that there are so many ups and downs in the life of a startup. Second is flexibility. Rarely is the initial approach to solving a problem or attacking a market the right approach. Entrepreneurs and teams that can’t react to messages from and changes in the market are likely to continue marching down a path that leads to a dead end. Third is expertise. It’s important to note that expertise isn’t defined as years of prior experience building a company or product. I deem expertise to be the possession of unique insight that sheds light on an acute pain and the salve for that pain. In other words, what is it that makes the team uniquely qualified to solve the problem that they have identified? Finally comes integrity. The relationship between an investor and a team of entrepreneurs is often compared to a marriage, and the comparison is only a slight exaggeration. Trust, honesty and candor are the foundations of the entrepreneur-investor relationship. Without those building blocks, the inevitable ups and downs of the corporate marriage are impossible to withstand.
While this isn’t a comprehensive list of what I believe makes an entrepreneur or team successful, these are some of the absolutely critical characteristics. And I would expect that any startup team should be looking for the same qualities in its investors. I’m blessed to work with a group of entrepreneurs whom I am proud to call both great partners and friends. I have absolute confidence that these teams will be able to execute well during the current economic downturn and emerge much stronger and better positioned than the competition. Watching the Super Bowl, it was clear that each player had the same faith in his teammates, even when it looked like the game was over. I hope that the same can be said about the Giants a year from now!
P.S. Many thanks to those of you who sent your thoughts and prayers my way upon hearing about the passing of my father-in-law. Supporting him and my family through his battle with cancer was a major reason that I’ve been remiss in blogging for so long.
In the “Web 2.0” startups of today, innumerable technology choices are the topics of the day when talking about scaling the business. Countless hours and meetings are spent debating the virtues of Ruby on Rails, Amazon Web Services and server virtualization. A fortunate few companies find themselves in the enviable position of having to devote even more time and attention to even more critical, non-technical scaling challenges. When a startup delivers a product to market that fulfills a clear customer need, sometimes the biggest challenge can be addressing that demand with operational scale. In a market with so many startups and established companies competing for dollars, customers and talent, outstanding people and defined processes are vital to any business that is hoping to scale successfully. I encourage the teams that I work with that are lucky enough to be in this situation to answer two key questions to determine whether they are set up to scale effectively.
First, are there any single points of failure amongst your people and processes? A challenge with so many startups is that there a small handful of the oldest employees who have the majority of the business, technical and product knowledge contained within themselves. Pitching the product clearly, implementing customers or addressing bugs can all be bottlenecks to success if only a single expert can manage those tasks. Systematizing the dissemination of knowledge through various media, and importantly, through person-to-person guidance, is as important to scaling a business as documenting code is to scaling an engineering team. Further, even if several people have the ability to execute as needed, without clearly defined processes, those people may be ineffective, inefficient and demoralized. That is not to say that bureaucracy and rigid rules are needed to scale a business. On the contrary, a process that is both flexible and regularly modified based on business needs can aid in delivering consistently good performance.
Second, are you hiring and transferring knowledge to make yourself obsolete? The first step is being disciplined about hiring only the best people for your organization. That doesn’t mean that you are hiring the smartest, the most educated or the most accomplished people. Instead, the goal is to hire people who have the skills and the values needed to be successful within your organization. I hesitate to use a term as soft as “values”, but the importance of a shared culture, commitment and vision can’t be overemphasized during the development of a young company. If you are successful in making yourself obsolete, not only have you hired great people, you’ve supplied them with the tools, knowledge and processes needed to do their job (previously yours) consistently well.
So is your organization built to scale? If you’re lucky, you’ll get to find out, because the opposite of scaling isn’t nearly as fun or rewarding!
As a board member of a company in the online video advertising market (FreeWheel), I regularly get to chat with many video content producers, owners and distributors. Without fail, the fervent “holy war” between short form and long form video zealots arises as a top of conversation. Without getting into the nuances of the debate, the short formists argue that the web audience wants its video in bite-sized chunks, unlike a traditional television viewing experience. They inevitably point to the popularity of YouTube as evidence for their perspective. The long formists maintain that short form video only dominates online video viewing because long form content has been slow to come online. Of late, long formists have cited recent data from Nielsen that shows the growth in the online video streaming of Hulu. Neither side seems willing to open their minds to the possibility that there might be a little grey in their black and white worlds.
I’ve found religion and my faith lies with the availability of high quality online video of any length. The only thing that matters online, like across all media channels, is the value that someone gets from the content. There are vast audiences for both books and magazines, arguably the long form and short form, respectively, of the print world. On television, I can get my comedy fix from 23 minutes of Seinfeld or from short sketches on Saturday Night Live. Why can’t the same coexistence of content be true for online video? After all, I’m just as happy to watch two minutes of low production value Riegel & Blatt as I am 43 minutes of Lost in high definition because each video provides me with (very different!) entertainment value. Content producers should not be occupying themselves with discussions about the appropriate duration of online video. Instead, the path to salvation is will be found by focusing on creating quality content and on working to get that content distributed, discovered and monetized.
In recent weeks, everyone that I have spoken with claims to suffer from some form of information overload related to digital media. As content creation has become cheap and simple for the masses, and the cost of building online businesses has dropped, the volume of online content, activity and communication has grown enormously. According to a recent Deloitte & Touche study, nearly half of all U.S. media consumers are now creating content for others to see. People are not only explicitly creating content for consumption, but they are also increasingly broadcasting their online and offline activity via services like Facebook and Twitter. All of this information has led to the development of “meta layer” applications and services to help consumers filter and organize information so that they can find and consume what is most relevant and timely for them.
Examples of these meta layers can be found in many areas. Digg and Google News are meta layers for news. Friendfeed and Socialthing are meta layers for social networks. Bloglines and Google Reader are meta layers for blogs. Mint and Wesabe are meta layers for personal finance. (Even ad networks have meta layers, such as Rubicon Project and Pubmatic.) Unfortunately, the challenge for online consumers remains. Seemingly, the number of meta layers will soon present the same problem as individual sources of information do currently. Further, these meta layers take varying approaches to filtering and organizing information for the consumer. Fine-tuned algorithms, wisdom of the crowds, trusted networks, expert curation, explicit consumer actions and implicitly derived interests are all techniques utilized by meta layers.
Ultimately, consumers only care about the value that they get from using a meta layer and not the approach taken to providing that value. Consumers will want many different filters for content but will want to control when and how content is filtered and presented. Networks effects will be the true differentiator that separates the winners in the meta layer wars from the losers. If a person extracts greater value whenever another person uses the same meta layer, both the value proposition and the adoption of the layer will grow exponentially. Depending on the meta layer application, scale in the user base can provide consumers with higher quality benchmark data, greater market liquidity, more relevant results or unexpected personal connections. I haven’t come across a meta layer that really provides differentiated value via network effects. Until I do, and despite the need for them, I’m skeptical that any single meta layer application or service will reach the critical mass needed to provide outsized venture returns.