VCinJerusalem

SKYPE: Cheap.Com Just Isn't Interesting...Especially if Not an RFB

I learned the expression RFB (Real Frikkin Business) from my friend Jeff Pulver , in response to my describing a new start-up idea. As many of you know, I believe should pay for things, and I believe businesses should only continue to operate if they have a coherent business model.

Officially I am on vacation this week, due to the Jewish holiday of Pesach [Passover], but made the mistake of reading the free International Herald Tribune left in front of my hotel door this morning. In the business section was this headline: "Skype offers a flat rate calling plan." Bottom line of Skype's innovation, is that for certain groups of countries, pay one price and then "unlimited" calling (there is fine print which actually limits it to fair use). This "innovation" has been offered for at least 4-5 years by  probably over a dozen companies.

This is it...this is the big innovation we see from Skype ...how depressing. Cheap telephony is so 90s (believe me, I helped create it!). No wonder my old company, Delta Three , trades below its cash and was just delisted from NASDAQ--they too failed to bring out any new innovations since 2000.

As we head to the second half of Passover, may we be blessed to emerge cleansed of all this [over]leavened bread -- all these companies that fail to innovate and/or republish old stories. Its time to move on, to liberate IP telephony from "cheap,"and have VoIP become cool again.

VC as Motiviating Coach: GO FOR IT! Vyond a Finalist for Start-Up of the Year

One of the most important characteristics of a successful start-up CEO is the ability to inspire his team, much like the team captain in many sports. But who motivates the motivator? The coach. A successful coach can empower the CEO, inspiring her to be a better captain. A good coach  does not try to replace the team captain, but helps keep her spirits up, pushing her to reach deep down and lead the team as best she can--and sometimes to go beyond what she thinks possible, "winning against the odds."

In my short career as VC, I have found that  my best moments are when I inspire (OK, sometimes more like nudge....) my CEOs to be the best they can be, and more.

To jump into start-up life is not easy--and to be the CEO of an early stage start-up is probably the most stressful position in business life.  VCs, I believe, need to provide  a good  support system,  that sometimes reminds the CEO how much  she should believe in herself -- to  Go For It!

I experience this almost every day, but one pleasant example: TheMarker, Israel's leading business publication, together with Microsoft, are running the annual Most Promising Internet Start-Up (in Israel)competition. With the deadline approaching, I coached/nudged Adi Ashkenazy, CEO of our portfolio company Vyond to enter the competition. Adi, like all start-up CEOs, is juggling many things, under all kinds of pressure...and did not at all think Vyond would win...I coached him through it, reminded him just how cool our product is, and he got the application in. I am proud to say Vyond is one of the three finalists (chosen from hundreds of start-ups), with the overall winner to be chosen/announced at TheMarker annual conference on Sunday. I will be there, very proud of Vyond whether we come in first or not.

Are VCs To Blame For "Free?" And Is Free Model One Size Fits All?

Excellent posting by Hank Williams today on Silicon Alley Insider, which is one of my favorite sources. See full text of his original post below, and definitely check out the discussion that erupted within minutes on SAI...back and forth brings out the angst that many of us have been dealing with over the past few years.

With the success of Google, who weave billions of dollars of profit from millions of "keywords", convincing the world that a "click" has inherent value, there has been a run on the bank. Literally. Everything is now supposed to be supported by "advertising." But remember, as I have often said, in the end someone needs to buy something. That's how advertising works. Otherwise its a massive ponzi scheme.

Traditional media companies have always had (and will have) advertising as a dominant (and sometimes sole) source of revenues. But advertising was never 100% of the revenues, think of movies, video games, even most daily newspapers. There is a price. It is not free.

And now think of services that are not media companies -- there is no historical justification for free. Salesforce.com, a pioneer of using Web X.0, charges. And many gladly pay. Is Gmail free? For now. I doubt it will last, and if it does will mean a re-shuffling, but not complete revolution.

Advertising has its place, but I for one am tired of very smart entrepreneurs acting like deer in the headlights, who have been brainwashed by VCs with too much money that usage/users  are all that's important. We will be facing a capital crunch in the days, months, and years ahead -- those who have developed real revenue generating businesses will survive.

I agree with Hank, that VCs are killing many businesses, but there will be a revival of the dead. Make sure you are prepared!

Free" is Killing Us--Blame The VCs

             

Hank Williams             April 4, 2008 9:20 AM        
                          I believe it should be possible to start a small business and to have a small number of profitable customers, and to earn a living. From there, it should be possible to work hard, and to grow your business into something substantial. Until recently, this was the American way, and it applied to technology as much as to any other business. But no more.

In today’s “free” world, in most online business categories, it is inherently impossible to start a small self-sustaining business and to grow it. This is because in the digital world, advertising, the only real revenue stream, cannot support a small digital business. If businesses were based on the idea that people paid for services then small companies could succeed at a small scale and grow. But it is very hard to charge when your competition is free.

The economic problem with advertising businesses is that advertising businesses do not work without really significant scale. In the past, a good product or service could address a niche and succeed without being a home run. Today, a home run is required because if you do not reach a massive scale, advertisers are uninterested. And even if advertisers could be attracted, CPMs are so low that the revenue would be inconsequential. Small Internet businesses don’t work.

So how did we get here? In a word, VC.

Venture capital has totally distorted the market. VCs are investing billions of dollars in companies with instructions to get big fast and to worry about advertising revenue later. As a result the competition is for users and not for paying customers.

Unfortunately, to fix this, many more companies need to die.

With less “free” floating around, a more regular supply and demand dynamic can take hold, customers will have to pay for the things that are important to them and non-quantized growth dynamics can return. In the meantime, why should consumers pay for products and services that VCs and their pension fund investors are willing to give away for free?

The good news is at some point VCs will indeed realize how dumb all of this is and stop giving away everything of value on the Internet. This will all stop when the average VC can’t get any of his/her companies to scale because there is just too much VC sponsored free stuff out there. Then and only then will this crazy eyeballs business model redux finally be put to bed.

I cant wait.

SAI Contributor Hank Williams is a New York-based entrepreneur. He recently launched a new blog: Why Does Everything Suck? Exploring the tech marketplace from 10,000 feet.

    

   

When Everything Goes Wrong...VC, CEO, Board Be Prepared

Today I spent a few hours dealing with one of the "downs" in start-up life. Biggest deal portfolio company X was working on came to a screaming halt. Not important for this posting as to why the deal got pulled -- important is how the company deals with it. As we are still too close to this situation, will not speak to how CEO of company X and us, his board, are working through this issue (but trust us, we are, and will not only survive but thrive).

But do want to point out that CEOs and boards of early stage start-ups need to constantly be ready for "When Everything Goes Wrong." Because inevitably it will! If start-ups do not operate in that mode, i.e. always being ready for the worst case scenario, then they are not being responsible start-upists. VCs who want to play in "seed" stage start-ups either need to be really deep pocketed or really smart (that would be us ....;-)). Being really smart means planning for the worst, and working for the best.

Is that an almost impossible tension to live with on daily basis? Sure, but "buyer beware," "enter at your own risk" to start-up land. If you want to have a guaranteed salary and multi-year job security, well, then get tenure at the nearest university.  Yes, Big Company could theoretically provide that job security, but only in theory, because here today and Bear Sterns gone tomorrow...

Back to our main issue, planning for worst scenario, for when everything goes wrong.

Number one, what is your back-up plan? If you need to think about it under fire, you will not be able to think straight. So make sure when everything is going right that you have that plan, constantly updated, just in case.

Number Two, look at your cash. When things "go wrong," will make it obviously much more difficult to raise more money -- and you will need to survive in order to thrive. For most entrepreneurs, going without salary,or reduced salary for some period of time, is acceptable. For staff of start-up, usually more of a stretch. But a charismatic  CEO sometimes can stretch it...to a point. People do need to put food on the table.

Number Three, look at your cap table. Know it by heart at all times. You will need to be prepared for intense pressure on cap table both from bringing in new cash (if necessary) and providing incentives to staff.

And finally, just remember that just as things can go all wrong, they can all go all right -- and pray you have just gone through the worst!

As Determined As A Turtle: Start-Ups Need to Stick To It!

Yesterday, in one of my first mid-week bike rides of the almost-Spring season (officially Spring starts here after Pesach [Passover]) I was thinking to myself how good it was that  I was able to  jump out of the office and into nature, getting in a 1.5 hour ride between conference calls (I don't eat lunch, so have that "extra"  time in the middle of the day....). And of course, like my virtual friend Richard Dale of Venture Cyclist fame, thinking about how my biking weaves its way into thinking about start-up life.

Just as I was musing about how start-up entrepreneurs need to be absolutely dedicated to their cause/company, but still need to stay sane and get fresh air by enjoying nature, I came across this fellow:

Yes, it was a turtle crossing the road (and thank God not a well traveled road, friendly to bikers as well as turtles). That turtle was moving as fast as he could, determined to cross that road (because there is always something better on the other side). Did not matter to the turtle the risk involved, he was forging ahead. Now, truth be told, like any good start-up story, he also had some luck--my friend Robby Berman , who inspired me to ride with him in the middle of the workday, could not bear the thought that after us might come a car, and picked up the turtle and moved him beyond the yellow line...Because with all the dedication in the world, without some luck and helping hands you could end up as roadkill.

Moral of the story: even the turtle realized that he needed to take a chance, enjoy the first hints of Spring, and hope for some luck. May we all be turtles in our own way.