Archive for the ‘Startups’ Category
March 18, 2007
All of us in software have been in a little bit of a funk over the new new thing in Silicon Valley, alternative energy. It’s the preeminent challenge of our time, and it’s largely in the realms of material science, not computer science.
Watching a new vanguard go by is a novel experience for many of us, and so we all have felt at least a momentary impulse to leap into the fray and join the next Exxon, the one based on technology rather than plunder.
But I’m not sure the Internet crowd is cut out for that. Harrison Ford once said that George Lucas only gave two types of direction to the Star Wars cast: “faster” and “the same, but better.” This is what the alternative energy folks are doing, which is a different kind of creativity than building software.
A fuel cell or a solar panel doesn’t have to be beautiful like Netvibes, or fun like Flickr. It won’t help people fall in love, find a home, or write a novel as they do on MySpace, or Redfin, or Zoetrope. It isn’t a Second Life or a World of Warcraft. You won’t have an immediate emotional reaction to it the way you did — I still remember this moment, that sound! — when you first turned on a Mac. It won’t be compulsive like blogs, or make you smile in surprise like YouTube.
Somewhere in your basement, under your hood, in the belly of big ships headed out to sea, alternative energy will make the world a profoundly better & wealthier place. Software has sometimes done that too. But our main consolation lies in what Yeats described as the rag-and-bone shop of the heart: making stuff that delights people. This is something we think about here at Redfin, even if it’s just a real estate site, even if we have a very long way to go yet in that effort…
Bonus tidbit from a friend of Redfin: [Jesse] Owens never met Hitler, but his victories were recorded by the Fuhrer’s favorite filmmaker, Leni Riefenstahl, in her remarkable documentary about the games, “Olympia.” (While cajoling Nazi leaders, Riefenstahl carried on an affair with the American athlete Glenn Morris, who later played Tarzan in the movies. After winning the gold medal in the decathlon, Morris ripped open Riefenstahl’s blouse and kissed her breasts in full view of 100,000 spectators.)
And, finally, Redfin shows up on the front page of the San Francisco Chronicle’s business section this Sunday… the print article apparently has a cartoon of us dressed up like Don Quixote.
January 29, 2007
Steve Jobs is the Internet generation’s Robert Kennedy. Close your eyes, and the Apple CEO even sounds like a Kennedy: follow your passion, the charismatic icon tells our youth; change the world. Except Jobs is selling gadgets, not civil rights.
No one seems to have noticed. Now, oil companies gush over the environment. Insurance ads quote Thoreau. Retailers fight HIV. And it all started in Silicon Valley.
I worked there from 1995 - 2005, and saw Silicon Valley take in the world’s best and brightest. Unlike other fortune-seekers, many of us were idealists, the kind of people who in a different time might have become teachers, doctors and social workers. In 1997, just after Netscape’s public offering inaugurated the Internet era, medical school applications declined precipitously for six straight years. Over that same period, the U.S. faced the worst teacher shortage in its history. The idealists had become virtual idealists.
It’s hard afterwards to come back to genuine ideals. Two years ago, my twin brother left a law firm protecting the Internet bubble’s investment bankers, for a government job protecting the environment. Now he complains you can’t turn the lights on in his office over the weekend without calling a special number. Before that, he worked for a non-profit that represented asylum seekers, who often showed up late for meetings. “No one ever did that when I cost $390 an hour,” he said.
In a year away from high-tech, I volunteered at inner-city schools and felt the same way: my time was lightly valued because I was giving it away, and many of the tutors seemed unmotivated compared to my old colleagues.
So now I’m back in Internet software, mostly because I missed the sense of purpose and importance that being around other driven people gave me. I believe in what we’re doing. But since we’re also out to turn a profit, some have ventured to call this belief disingenuous.
And it may seem so, but not to anyone in high technology, which has so thoroughly mixed virtue with commerce that you can hardly tell the two apart. Apple launched the Mac with an ad showing a woman heaving a hammer at a televised image of Big Brother. Google is famous for its promise to not be evil, and eBay’s latest slogan is “people are good.”
What each of these companies fears most is the loss of their original idealistic zeal: for CEO Jeff Bezos, it is still “day one” at Amazon; topping 10,000 employees, Google insists that it has “a small-company feel.” With near-monopolies in online bookselling, music, search and auctions, these companies imagine themselves as Davids, not Goliaths.
The touchstone of this idealism is the Internet itself, which for many of us has the conceptual magnitude of a new America, with new possibilities of community (MySpace), self-expression (YouTube), freedom (Second Life), love (Match.com), and authenticity (blogs). We forget about the porn, the spam, the get-rich-quick schemes. Nothing could be more American than dressing up an historic money-grab into a City on the Hill.
And every entrepreneur is straining to be John Winthrop. The most coveted role in Silicon Valley is that of the visionary, the pied piper who leads the poets and the dreamers on a mission to build a better gizmo. These entrepreneurs are the kind of free spirits who could have started a movement.
Together, we’ve made our corner of capitalism a bit better: many of the rewards go to those who actually do the work, the engineers; the work itself is done in small groups, so we have a meaningful connection to what we make; our product is the purest form of creativity, built from ones and zeros rather than coal and trees; and the result is often useful and delightful to other people — occasionally it even changes the world.
It can, more rarely than we would like, also make us rich. It’s considered a bit grubby to make things that people will pay for, even when — as was the case with Google, Yahoo!, eBay (and yes, Redfin) - we make it before having any idea how people will pay. But it isn’t hard to choose between the grubbiness of making something (even if it’s just a website) and what my brother does at his non-profit job, which is essentially trying to stop people from making something. Making something might be the most basic and fulfilling compulsion humans have.
And so that’s why, for my generation, Apple is our Woodstock. Google is our Chicago Democratic Convention. The class of 1967 would not have campaigned so vociferously against Vietnam if they could have imagined themselves starting Google. And the class of 2007 might be marching against Darfur now if it could think of anything but starting another Google.
We’re still idealistic, but about e-mail spam, online privacy and net neutrality, not war, or poverty, or racism. The world around us is falling apart and we can hardly look up from our computer screens, where the Internet becomes more beautiful every day.
January 3, 2007
Jobster CEO Jason Goldberg announced layoffs at his company yesterday: 60 people, or over 40% of the staff. It reminded me of Sequoia Capital’s only advice about a lay-off: cut once, cut deep.
And now, as an angry mob forms in outrage at the idea that a new company could struggle for its life, every start-up CEO in Seattle has had to wonder if her start-up could at some point get in the same jam.
Redfin is not contemplating lay-offs; in fact we are desperate to hire in every department except G&A. Despite taking too long to expand to Los Angeles, San Diego and the East Coast, our business is growing more quickly than we had projected. That’s not what worries us. What worries us is that, aside from some very good word-of-mouth, we have no idea why our business is growing (I don’t think many startups do).
Half a dozen people - a lot for us — made offers on New Year’s Day. Someone submitted a question about a property at 11:58 on New Year’s Eve. Which means that, while the Jobster news was still on my screen, someone else was in my office on January 2 arguing, quite correctly, that we need more people. I signed two job offers yesterday (and also read that Google is attempting to hire 10,000 people this year).
But once you’ve been through a lay-off, you’ll never hire anyone without wondering if he’ll one day be sitting across from you as you describe his heart-breakingly small severance package. This is why Redfin has hired so haltingly, so carefully. It is why we work so hard, and why, even when sitting in a shaft of sunlight, we wonder about the future all the time.
I went through a layoff at a company I co-founded, so it’s easy to imagine what’s happening at Jobster this week.
We believed we were going to change the world, and in some ways more meaningful but probably less grand than we had intended, we did. For some young employees, many of whom left college or moved cross-country before being hired, the company had been like a family.
Except families never lay off a brother or an uncle. In one day, the company shrank by a little more than 10%. And then all the emotions that worked in Plumtree’s favor - idealism, passion, community - turned against us. Most people weren’t merely down, they were heart-broken (though there are always a few wackos who revel in it). A year or two before our IPO, we showed up on f’d company. A lot.
HR told me not to leave an umbrella, or anything else that could be used to bludgeon me to death, by my office door. Someone left a human turd in the office of our most flamboyant & charismatic executive, who drove his black Corvette home for the day to review security camera tape. He later claimed he could tell who the turd smuggler was by the look on one person’s face as he walked in the door. This seemed like an absurd, paranoid claim until he produced the footage.
The day of the layoff, our CEO called a meeting.
John spoke briefly of endurance, but not success. He did not try to convince anyone that the company was doing well. He apologized for the lay-off and, while all of us executives who had been screaming for headcount over the past year slouched in chairs behind him, took responsibility for it. Then, before anyone was ready for it to end, the meeting was over.
November 30, 2006
There are very few postings about startups that I agree with more than Paul Graham’s 18 Mistakes That Kill Startups. It came out a while ago and I saw it a while ago, but it popped up again in a friend’s del.icio.us feed and for some reason I clicked on it again, and was reminded of all the mistakes I’ve made. Paul’s writing style is as clear, simple and perfect as water. My favorite part is about how to find a good problem to solve: “What do you wish there was?”
November 29, 2006
Guy Kawasaki takes it to the rack again today with a stunning piece about what it takes to be a great VC. But what about the things a VC shouldn’t do?
1. Pressure a small company do more than it can do well: less is more.
2. Try to run the company: if you don’t trust the CEO, fire her.
3. Overlook the technology: the only long-term source of competitive advantage.
4. Pressure you to grow before you’re ready: YouTube envy will get you nowhere.
5. Force a partnership with every other portfolio company: awkward goat sex…
6. Do lunch: it’s hard to concentrate on anything before the food shows, and it’s hard to talk about anything once it does.
There are also a few things a VC can do that Guy didn’t address:
1. Ask for more. I’m always relieved in Board meetings when VC’s do that for you: ship sooner, sell more, work harder.
2. Recruiting: a VC usually has swank offices for interviewing recruits, and he can imply that even if your company fails, he’ll hire the recruit somewhere else.
3. Really think: some board meetings feel staged, with everybody trying to sound good rather than really thinking, but it’s always nice when a VC is able to get down to what’s really going on in a business.
Also, in the non-sequitur department, thanks to Nils Gilman, we have the “greatest obituary headline ever,” from today’s LA Times: “Jack Macpherson, 69; La Jolla legend known for ‘huge beer orgies.’” Macpherson was founder of the Mac Meda Destruction Company that terrorized the La Jolla surf scene in the 1960’s.
November 8, 2006
We complained last week that Google gets too much credit: it hasn’t brought to market a gigantic innovation since search, mail and map (acquisition), despite massive R&D investments, amazing engineers and a much-ballyhooed creative environment. You could even argue that Google hasn’t fundamentally improved its own search experience over how it was, say, four years ago (though I’m not sure how I’d improve it).
Maybe we expect too much from the world’s greatest Internet company.
But I shouldn’t complain: in a board meeting yesterday I noticed that two-thirds of the traffic we generate through marketing spending comes from Google, which gets only one-third of our online marketing budget. Irritatingly, this includes having to outbid competitors buying ads for Redfin searches.
The bottom line is that Google is four times more efficient at generating traffic than the other sites we use; which means that Google ads could get four times more expensive and we’d still buy them. And we’re not alone: the only gripe I’ve ever heard from other advertisers about Google advertising is that they can’t buy enough of it.
So I guess Google will probably keep making Wall Street happy. But what about me? Would it be too much to ask those guys to use our $1,000 a week to ship something earth-shattering soon?
Here by the way is our latest display ad:
Let us know what you think! We’re always poking around for new ideas.
November 3, 2006
Guy Kawasaki has one more excellent post on how to build a plan. His best advice is to make it bottoms-up (what’s likely to happen vs. what you want to happen, what your best sales rep thinks you can do), to limit variable costs to keep per-unit profits high (Kozmo’s variable costs were all those bike messengers who lost the company money every time it made a sale) and to drive the model off demand-generation, a start-up’s most significant challenge.
He also talks about collaborating with investors to build the plan, which sounds like unrealistic VC advice but really isn’t — if an investor isn’t willing to work with you on a business plan for an innovative product in a large market, the investor is crap. Guy also suggests planning ahead 18 months or less. True dat, but half it: a plan really controls decisions you make over the next 6 - 9 months, best case. But you need five-year projections just to make sure you’re in the ballpark of having a business that can become large.
The best advice I can give is to apply the “Really?” test. Take all the assumptions in your plan that are kind of aggressive and pretend someone you trust said “really?” as in, “Really? $2 million per sales rep per year? Really? I mean dude, come on.” If you can defend it, keep it in there.
A few other suggestions:
Explain your assumptions: key variables in your plan may be how much traffic your site gets, whether your average selling price is $200,000, or when you ship a new release. You should call out those assumptions so your investors can use the model to understand the risks more precisely, tweaking variables in Excel to play around with what-if scenarios.
Share the plan: folks on your team should see the plan in its early stages and before it’s final. This will socialize them to the market dynamics that make you such a hard-ass as a CEO, so they take ownership over controlling costs and driving demand. And it makes it bottoms-up. Every person in the room will go to whatever line is her line and say, “I can’t do that.” Which is what you want.
Don’t get someone else to build the plan: nothing scares you about your own business like trying to make the numbers work. And if you’re not scared when starting a company, you’re doing something wrong. Out-sourcing the plan building to “someone who knows Excel” sets you up to get fried at a board meeting. P.S. if you don’t know how to use Excel, you shouldn’t be starting a high-tech company.
Think about replicating successes: for example, Redfin has started to generate real estate revenue from the Seattle market. So now we build our model off that: how much did it cost to build that market? How long did it take? How many Seattle’s are there? You can do the same thing with your first five customers. Extrapolating from something that feels real, anything at all, is a huge first step.
Think like the guy who has to make the plan work: model-driven projections can easily go off the rails, where a four-person group jumps to eight in one month, or revenues take crazy spikes.
But also, think like an investor: after you’ve built a plan that is doable, evaluate it as an investor. (First, is the plan credible and then…) Given the money raised, is there the potential for a 10x return in five years? One (somewhat dubious) rule of thumb is that a growing, profitable business without any particular superstar appeal can generate a valuation of five times revenues or 25 times earnings, and that a company needs to each $100 million per year in revenues to IPO.
Be able to answer the market-share question: at the end of your projections how much market-share do you have? If you need 70% market-share to make $100 million, you’re in trouble.
Line up reality with projections, literally: for example, you may have a line-item in your projections for marketing spending, which in your financial statements appears as three lines: promotions, tradeshows, advertising. When you miss projections, you’ll need a simple way to say what went wrong. Before finishing up a plan, it’s a good idea to ask your bookkeeper if you can report results in the same format as the plan.
It’s ok to miss revenues but never costs: there’s no excuse for being over-plan on costs, because it’s a number you control, simply by signing every check (which I hope you do).
Use this get out jail free card: if revenues don’t come in, we’ll stop spending. This prevents your plan from ever getting seriously out of whack with reality. And investors love to hear that you’ll run the business out of the cash register. Of course, the one type of spending that is hard to titrate is payroll: once you hire someone, you have to lay him off to get his payroll expense back, which you obviously want to avoid at all costs. So hiring is the expense to be most careful about. Once you’ve done a lay-off at any point in your career, it really changes how you evaluate hiring anyone.
Figure out the ratios: expenses/revenues/earnings per head, marketing cost per transaction, other cost per transaction, revenue per transaction, earnings per transaction, these are the numbers you need to know to figure out if you’ve got a good business. Thanks to Marc Singer of BEV Capital for this one…
Alright that’s it. And yeah I know there are some businesses that don’t model out — YouTube is a company that was spending $1M a month on bandwidth with no revenues — but those are the exceptions not the rules. I’ll stop blogging so much next week, it’s a weird mania isn’t it? Next up unless I chicken out is an entry on why there are so few Microsoft-inspired startups.
October 31, 2006
The University of Washington had a big computer science job fair today. Microsoft was there. Google was there. Eight Zillovians were there, all wearing Zillow t-shirts. And Redfin was there too, wearing a T-shirt that said, “NO, we don’t compete with Zillow.” Standing in front of our bare table, I found myself wishing I had something to show, like a mobile of the planets, or a papier-mache volcano that erupted with baking soda on cue.
Our neighbor to the left, Amazon, challenged passersby with ferocious technical questions, scoring the answers on a clipboard in what at first seemed like some kind of friendly “guess-your-weight” carnival skit. Across from us, a medical imaging company decorated its table with Halloween candy and MRI’s of diseased breasts.
Our first visitor of the day was a Green River Community college student who came by because she said we looked “lonely” at a table by ourselves. This was particularly sobering because it meant we had outlosered our neighbor to the right, Ford Motor Company, which was trying to recruit people to work in Detroit after recording one of the largest financial losses in U.S. history. I gamely tried to sell her on a job; she asked me if she had food stuck in her teeth.
Cliques of students congregated in front of our table as if we weren’t there, to see who got the most encouragement from the gods at Microsoft and Google. I felt a bit adolescent (this feeling apparently never stops coming back) standing to one side, trying to catch their attention.
But in the end, and with all the best students, we got to make our pitch: that we’re looking for people who have always been different; that we’re a still-small company trying to do something really big and really good; that we can only afford to hire a few people, so they have to be FREAKISHLY talented stars with huge hearts; that they’ll be able to connect with others in an emotionally meaningful way that may elude them for the rest of their lives; that we’ll need them and count on them as a larger company never could.
Looking at me, rocking back and forth on my heels like a spaz, the engineering students seemed convinced of, if nothing else, this last point. If you know any engineers — or any human beings at all — who fit the bill, send ‘em our way: glenn (at) redfin (dot) com.
May 22, 2006
Guy Kawasaki posted another stunning entry today on all the ways a start-up can screw up in its execution (”After the Honeymoon“). It has pitch-perfect advice on how to handle everything from crappy PR agencies to slipped product schedules. But oftentimes execution is the second, not the first problem. The first problem is that nobody wants what you have, & that the entire premise of a company needs to be revised.
Why is this so unspeakable? Hitting on the right idea is more of a process than many folks realize when they imagine that it’s a simple case of executing against the founder’s vision. The history of successful companies is often re-written to make it seem like they had that vision all along (Oscar Wilde: “history was made to be re-written”). More broadly, historians have glorified “Eureka!” inventors rather than all us plodders who had to work to get it right. In Redfin’s case, we seem to have hit on a doozee of an idea from the start, but before joining Redfin I was a founder at Plumtree Software, and THAT idea needed plenty of work.
Sales blames marketing who blames engineering who blames the CEO who blames the board when what is most difficult to admit is that the company’s core idea needs to be re-thought. You swap out agencies, engineering managers and sales executives without facing this terrifying possibility, which seems unspeakable because it is tantamount to giving in to despair, when in fact it happens all the time, and it isn’t the end of the world, but more like the beginning.
The original idea can just be a way to get a bunch of smart people working on a large problem, who then iterate on a better solution than you had initially imagined. For me what this means is that more than anything else — more even than executing perfectly — a company that has just taken venture funding has to be open to learning quickly, hitting on what works, THEN executing ruthlessly. I know you’re supposed to have the idea figured out before you take money, but nothing ever works out as planned, so you have to keep learning.
