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Don’t Drink too Much: Bubbles, Capital, and Staying Scrappy

September 21, 2011

Brad Svrluga

There has been no shortage of writing and discussion in recent months about the ‘maybe-bubble’ that the startup/VC world is currently experiencing. I’ve pledged, for your benefit, not to enter that discussion here, and I intend to honor that pledge. For those interested, you can get all you need on the “not a bubble” side of the debate by Googling Mark Andreesen and bubble – he’s commented widely. As for the “it is a bubble” argument, try Mark Suster.

Bubble or no, it is a simple fact that there is more money flowing right now than there has been at any point in the past ten years. More money is flowing, and more deals are getting done, than at any point since Internet Bubble v1.0, back in ‘97-‘00. The chart below shows quarterly dollars invested and deals done for “First Round Financings.” This represents the number of new companies being funded by VCs, and the dollars associated. These are what I believe to be the most relevant metrics of the frothiness of the environment.

First Round Financings – Deals and Dollars Invested, Q3 2001 – Q2 2011

source: National Venture Capital Association

This environment is enabling a fabulously exciting wave of innovation. But an inevitable, unintended consequence of this environment is that we’ve lost something of the ruthless Darwinism that I think characterizes, at the micro level of any individual company, the healthiest environments for innovation and disruption. In a world of freely flowing cash, companies are able to raise more, hire more, and spend more. The bloated balance sheets of so many startups obfuscates a lot of sins and inefficiencies. That readily available cash enables managers to dodge tough choices, and to abandon a focus on efficiency in favor of an unbridled race for growth.

This all came into renewed focus for me last week when I ran into John Roland, co-founder and CEO of ExtremeReach, on the Acela from NYC to Boston.  John’s company is without question one of the most exciting companies in the Boston scene right now. ExtremeReach is the emerging leader in management and distribution for both offline and online video advertising. It’s been a rocket ship since raising its series A three years ago, and is finally getting the attention it deserves. In just a few short years, John has built a business with revenue that is well into the eight figures, and he’s wildly profitable (think Google-style operating margins).

I passed on leading John’s Series A a few years back, and I’ve since tracked the company closely (painful as that has become!). As John and I were catching up I said to him, “I want you to know, John, that I’m well aware of how wrong I was to have passed on this business.”

John’s response was interesting. He said, “You weren’t wrong, Brad. When we were talking we were so early, and we didn’t have our model figured out yet. We were too hardware focused. You were right that our business was too capital intensive, and that our implementation model was going to make it harder to sell.”

He continued, “Looking back, in many ways the best thing that happened to us was failing to raise capital early on. It made for a very painful year, but it forced us to completely reexamine the business, and we came out in a much better place. I don’t know if we would’ve ever gotten to this point if we’d had the luxury of a lot of capital early on.”

John’s a very bright and reflective guy, and it was interesting (and somewhat comforting) to hear him think back on that transition. While it’s nice to hear him acknowledge that maybe I wasn’t completely wrong, that’s cold consolation when I consider that I did not stick with him and work with his team through the transition to the model that is currently kicking butt. C’est la vie. . .

John’s story is a great example of why, bubble or no bubble, I worry about the ease with which capital is flowing these days. If ExtremeReach were to launch into today’s financing environment, John and his team would no doubt have an embarrassment of options on their hands, even the story they were selling was that original, hardware-intensive model.

And as John recognizes, that’s not a good thing. The availability of capital would have encouraged the pursuit of a suboptimal strategy for some time before realizing how wrong it was. They would have lost valuable time in a competitive marketplace, and likely had to take on more dilution to keep themselves going.

It would be foolhardy, of course, to suggest that every company is somehow better off with less capital. No doubt some great companies would have failed if they hadn’t been able to access abundant early resources. But I am a fan of the discipline and scrappiness that is bred of limited resources, and John’s story is a great example why. Limited cash has a way of focusing managers on what is truly essential, of exposing and rewarding only what really works in an emerging business model.

While the capital continues to flow, I’ll certainly be encouraging most of our companies to eat when served. But not in every case. And even with those that do build big balance sheets, we’ll be aggressively coaching against the sloppy decision-making those resources can enable.

Regardless what your balance sheet looks like, I’d encourage every company to go through the exercise of imagining “what would we do if we had less?” You might be surprised by what you conclude. You might even decide to do it.


Let’s Make This Quick

September 15, 2011

Brad Svrluga

A couple of weeks ago, Mark Suster wrote a post on the importance for entrepreneurs of doing A LOT of coffee meetings. One per day, at least, he says, in the interest of nurturing more relationships that might help with recruiting, PR, sales leads, financing, etc. He even goes so far as to say:

Whatever amount you’re getting out and talking with prospects, customers, employees, recruits, competitors, press, investors, potential investors … it’s never enough.

I take his point, and I’m a big follower of his philosophy of never eating lunch alone. As I wrote several months back, I think that electronic communications – especially email – have led American business culture, or at least our corner of it, to do far too little real talking. Good old-fashioned dialogue, I’m quite certain, is still more often than not the best way to resolve tough issues.

But I’d like to propose an important corollary to my plea for conversation and Suster’s Coffee Meeting Manifesto, and that is the importance of keeping those meetings short. In my world, it seems, there is an unwritten assumption that face-to-face meetings should last an hour. That assumption, followed consistently, becomes a colossal waste of time and a barrier to having these all-important conversations.

I’m not sure where this came from, but it’s real, and it’s a problem. In the name of increasing American productivity, people, we must free ourselves of this trap.

I had a meeting the other day with a guy I very much needed to talk to, as we had a somewhat sticky issue we were working through. It was one of those discussions that was clearly going to be more productively handled in person. And so we found a convenient time to get together – to “get coffee,” as all these meetings are now framed.

(ASIDE: There’s some interesting psychology to the whole coffee thing,. . .apparently we are not able to simply get together with people to talk anymore, or to call these things meetings. In our obsessive, multi-tasking world, we have to be doing something else, too. Thank you, Howard Schultz, for supplying us that something else.)

Anyway, I sat down with this guy, we did the standard 3 minutes of catching up, and then cut to the chase. Twelve minutes later we had the answer to the issue in question. We spent a couple more minutes chatting and then, twenty-one minutes after we sat down, we shook hands and left.

It was a model exchange. As expected, doing the meeting face-to-face was a key to its success. We were able to really read each other and understand quickly where we were coming from. We got to the heart of the matter super-efficiently. And then, rather than go through the motions of some misplaced obligation to waste 39, or even 9, more minutes of each other’s time, we gave ourselves permission to close it out.

I think a big part of the reason that people don’t talk as much is that they feel like meetings and real conversations take too long. And very often they do. But that’s not the medium’s fault. It’s about the behavior.

So I’m hereby publicly declaring something that has become my default: any in-person meeting is scheduled for 30 minutes, unless there’s a really good reason otherwise. And my goal is to end them early so I can squeeze in a few minutes of calls, emails, or just plain thought, before my next 30 minute slot. For phone calls, the default is 15 minutes.

I encourage you to do the same, and predict that if you do, you will:

  • Feel liberated to do more meetings, which will result in more connections that lead to great hires, customer leads, or other business opportunities.
  • Resolve your stickiest situations more quickly and productively.
  • End up with more time for your “real work.”

Sounds like a winning proposition to me.

Time is Always Running Out

September 7, 2011

Brad Svrluga

I have two personally painful stories to share.

First.  On a Tuesday back in early June, we were two days away from closing on the sale of our portfolio companies. A big, honking, bells & whistles press release type deal. An Inbox Will Fill Up with “Holy Shit That’s Great!” Emails type deal. But that evening, the other side of the deal called up and said, “we changed our mind.”

36 hours before the scheduled close of a deal that was more than 60 days in the making, they simply changed their mind.

Countless hours invested already by both sides, huge legal bills already run up, tons of time and energy already spent by both sides executing on things that you’d only do if you were 100% sure the deal was going to happen.

But they changed their mind.

Second.  My car died yesterday morning. I was driving back from a doctors appointment, took a left turn, and when I let off the clutch, the engine just stopped. And wouldn’t restart. F&@#!!!!!

This car has been an absolute dream for every one of its 118,346 miles. I’ve never put a dime into it beyond oil changes, tires, and brakes. Not a dime.

And here’s the kicker. I was going to trade it in next week. While I love it, it’s rear wheel drive, and it sucks in the snow. I just didn’t want to do another winter that way. So I’ve been half-heartedly poking around for a few months, trying to find the right replacement. I knew I needed to get it done before it snowed or I’d have to spend $1,000 on new snow tires. But I hadn’t made it a priority. Finally, realizing that the first snowflakes will fly within 60 days, I focused on it this weekend and found the right car.

So I was trading it in literally next week! I’m just waiting for my new car to get to the dealer. Everything is sorted out and ready to go, we’re just waiting for the car. And now, moments before handing this thing over, after 118K absolutely hassle and expense-free miles, I have to plow a grand or two into it and then plead with the dealer that it’s still worth what they offered me for it. I just looked up ‘frustration’ in the Dictionary, and there was a picture of me.

So why share these two stories? Because they are equally effective illustrations of the importance of getting stuff done, even when hurrying up doesn’t seem like it’s going to make a difference. If you have something important to do, even if it’s not urgent, you’ve simply got to get it done. Because if you don’t, you never know what out-of-your-control thing might pop up and get in the way.

Time is always running out. Always. Everywhere. Be it the time left on my car’s life or the time left on the unbridled enthusiasm of the counterparty of that business deal. Time is always running out for someone.

When interviewing potential employees, talking to founders of companies, or in any situation where I’m evaluating people on whom I may have to depend, I’ve always placed great importance on what I’ve heard academics and HR experts characterize as “bias for action.” Loosely translated, it’s an inclination to get stuff done, to ensure that inertia never takes over.

Of course, you don’t want bias for action at the expense of quality of that action. But you also don’t want quality to get in the way of quantity, or speed.

Prioritizing our daily or weekly tasks and to-do’s is a hard thing. Not that many people get it right. I know I often don’t. And while I think there’s a lot of things we can do to be smarter about it, like mastering the balance of urgent vs. important, we’ll always make some suboptimal choices along the way.

So I focus on bias for action. I want to work with people who don’t spend too much time deliberating. People who focus on getting stuff done. People who have a sense of urgency about knocking down barriers. Because when you’re getting more accomplished, those tough, on the margin choices about doing task A first or task B first matter a lot less – you can probably get them both done.

And if you’re making more progress towards your goals, if you find yourself frustrated that you’re having to drag other people along to keep up, you’re probably the sort of person who isn’t going to let business deals simmer so long that they fall apart, or have a car die on you a few days before you turn it in. And that’s a very good thing.

Now stop reading this and go get something really important done.

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