operational challenges for startups
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Mr. Britton: For the first part, it's because they didn't give us money.
Mr. Robertson: Fair enough.
Mr. Britton: It was the cheapest form of funding at the time, but, looking back now,
I realize why they didn't give us money. We weren't ready for it.
We didn't understand ourselves enough to communicate clearly and
effectively what it is that we do in order to convince them to
give us that money. Luckily, we did get an angel who has been a tremendous help.
As Duke was saying, it's the mentorship that is worth more
than the money itself. I would still be willing to give up the money and the equity just
to have that same mentorship.
It comes back down to the people, the knowledge that they can
open up for you, and teaching you to build the business to where
you want it to be.
Now we're at a
stage where we know how to communicate effectively to the VC
community. We even have VCs as customers who fully understand what
it is that we do. We will start looking for money as it comes
along, but it's because we're ready to grow now, not to build. If
you're building a company, I would still suggest that you don't
necessarily go the VC route because they aren’t going to help
you build as much as an angel or a mentor who will get involved
versus just making an investment.
Mr. Robertson: Great. We're going to wrap up
with that. I want to
highlight, if it's not a case of stating the obvious, that these
are four very different entrepreneurs with four very different
companies. Yet, in one way or another, they all faced the same challenge
areas, and there are some common threads. Among them are a deep
personal commitment, and that came out in different ways. There's also personal honesty about what you do well versus what
you don't. Are you
ready to sacrifice 14 months without a salary, and so on? There
was a common theme of balancing what you do well with the real
need in the market and the value placed on it relative to what you
do. It’s also
apparent that each of these entrepreneurs answered these
challenges in their own way, and that's a pretty important
message. I don't think there is one magic solution to any of these questions
or challenge areas, and that was a nice contrast across this
panel. Finally, it's
quite clear that, before you jump into things, whether these folks
knew it ahead of time or learned it pretty quickly off the bat,
you’d better know what you're doing.
I want to thank
everybody very much for coming, and to thank our panelists.
Now, Mario is going to do a wrap-up, then he'll move on to
talk more about Netpreneur.
mario morino: wrap-up
morning. I want to
thank everybody who came today, especially Larry, Duke, Don, Alba,
and P.V. for a great discussion. There were some very good points
raised today, and they deserve a summary before I come back to
talk about the future of Netpreneur.
said it well: It is a great time to start a business.
crazy as that sounds, it really is a great time to start a
business. You're back
to being real entrepreneurs, and all the foolishness of the last
six years is gone.
We went through
a bubble, folks. Forget it.
was an article written about eight months ago that basically said,
for those who came in during the bubble, you've got to unlearn
everything you learned. It's back to real life now. It's
back to 1994 or 1990 or 1985 or 1972 when being an entrepreneur
meant going 14 months without a salary. It meant bootstrapping. It
meant begging for what you were going to get next. It meant
scraping through things.
what it's about.
went through a bubble. It
was false. We allowed far too many people to believe they were entrepreneurs,
and that's what the bubble caused.
Some people made a tremendous amount of money, but it wasn't
necessarily because of their skill; it had a lot to do with market
momentum. Don't ever forget that. Market
momentum. That's not
taking anything away from anybody, but now real life is back.
in all honesty, it isn't as bad as it seems.
That may be hard to hear if you're not employed today, but, on
balance, it really isn't.
I just left a
meeting at a private investment firm where we spent two days
going through some numbers. It was pretty interesting.
There are upticks out there, although they’re not obvious. If you're in the venture field right now, don't kid yourself, some
more firms will crash and burn.
There may still be more venture firms going down because the
down economy won't allow a their portfolio companies to get enough
runway. They won't have the survival resources to make it through
the next one or two years.
The key right
now is survival for many in the tech sector.
As bleak as that sounds, that's it. Have enough sustenance and
sustainability in your business that you're going to make it
through this drop. When
it comes out, we'll be back in business.
We've lived through these cycles before, although this last
four-year cycle was one of the biggest aberrations since the
of you are not as old as I am, so this is the only one you ever
saw. We started our business, Morino Associates, in 1973, and it was a
bear. You couldn't get
the time of day from anybody, but we were oblivious to that. We didn't know the economy was bad; we were just starting a
company. You go out,
you start a company, and that's what an entrepreneur does.
On the concept
of “model” that was talked about, it’s a wonderful word, but
it basically amounts to: those who can, do, and those who don't,
choose not to. It's
very simple; it's all about execution.
The world is full of ideas, but it’s not full of people who
deliver. An entrepreneur delivers. You
have an idea and you're going to figure out how to deliver it,
driving it home no matter what.
We just went
through a discussion recently with some investors.
Do you know what the discussion was about? Do you invest like an investment banker, which means looking at it
analytically, or do you bet on the person?
The answer? You bet
on the person. Here's why: “Professional management” is a
wonderful term, but don't bet on it in the early days of a startup
because their staying power is lower than that of the
the early stages you want somebody who has unbelievable
conviction. You want to invest in somebody who knows that they are
not just going to win; they are going to dominate a sector.
That's what you buy. If
you don't see it, you walk.
The team sees that fervor, that excitement, and they form
around it. You have to
have this belief.
Alba said, pick your spot, but, when you pick it, know it in a
compelling fashion. This is not about “studying” your markets.
You should know your market.
You should have lived your market.
Then you don't have to worry about the research because you're
using firsthand knowledge. You
lived this, you were part of it.
We just did an investment in a firm doing a payment system.
After talking to the guy, you walked away from the table
knowing he had an absolutely compelling understanding of that
space. He ran human
services for a state government for years; he was a consultant in
the field after that; he developed systems for years; and he
decided to create a business.
He knows his field backwards, forwards, sideways.
No market researcher could ever tell him about his field, so
you walk away with great confidence.
You have to
feel in your heart that you can really beat the next person, and
then you do it.
You execute. As Alba said, you beat the giant because you
know more than the giant in your space.
It's guerrilla warfare.
That's what it's all about.
In my day, we went up against IBM. They were far stronger than
we were, but in our piece of the business we often won because we
knew what we knew better than they did.
As to the idea
of needing cash when you're ready to go to market, well, don't be
afraid to bring out your product or service, and don't be afraid
to sell vapor—as long as you know that you can deliver.
Larry Ellison made a fortune by selling ahead of himself.
The next version was always going to solve your problem. It wouldn't get there until two years later, but the world bought
it, and Ellison and Oracle delivered.
There was a
company created here many years ago called VM Software, which
became Systems Center, which became Sterling Software.
Bob Cook sold that product before the product was developed.
He sold contracts, but he knew he would deliver the thing. Our first product, I'm not kidding you, we sold it and it wasn't
ready. We were sitting
on the floor of a company in Worcester, Massachusetts, on
Christmas Eve writing code. They thought we were writing
documentation, but we were writing code for the product.
We stayed on that floor through New Year's Eve, through
January, and we came up with every excuse in the world until that
baby ran. You get out
ahead of yourself, just don’t get as far ahead of yourself as we
did! In fact, if you're
not out ahead of yourself, you're too conservative to be an
entrepreneur. There's a risk/reward equation. Don't be foolish, of course.
As I said, don't
do what we did that first time, but you've got to take a chance
when you don't have all this behind you.
When do you go
after venture capital? As was said here, you don't necessarily have to go after itl.
At my company we never had a dollar of it in our business.
was a different era, of course. We each put in $600, and that
was to clear the books in DC. After many permutations, it was
eventually sold for $2 billion, so there’s at least one example
that you don't need to do the VC route for funding.
Once again, you've got to forget the bubble.
There are times
when venture capital is really more than the money.
You may have a certain type of business or competition that
drives you there, or, as PV mentioned, you may need a certain
connection base. As
Alba said, and as Don is living through, however, you can actually
build a business today without it. Remember, the bubble distorted
everything. The bubble
told you that you couldn't do it.
The bubble is gone. You
can bootstrap. The
point is this: As long as the need in the market is there and the competition
isn't filling that need—that's the other issue, of course; if
the competition is there, you're dead—but if you've picked your
niche, you have the time to move.
you don't have capital, do you know what you do?
You either go without salary or you work another job. Then,
the other 16 hours, you work on this job.
That means you don't sleep a heck of a lot, but that's the
price. You either want to pay the price or you get out of the
kitchen. That’s what separates you from the others.
I know several
of these speakers here today.
I know what they've been through because
I've lived it. Don housesat for me. I would come in at 1:00 in
the morning. There's Don, he's working.
I would get up at 7:00. Where's Don? He's out of the house
already. I work
hard, and he's as bad as I am, but that's what it's about.
I don't want to
be discouraging. I think it's a phenomenal time to start a business because the
flight to quality is on. You'll
get the best people, you'll get the best funders, and you're going
to find the best clients. It
just means you're going to have to be the best, too.
That's all. If you
feel that about yourself, good.
I don't think this is necessarily a bad time at all.
It's a hard time, but, if you've got it in you to be an
entrepreneur, you're going to make it.
It’s a question of choice and what you're willing to give up
in your life to get there.
Now, to move on
to the second part of this discussion, we put out our announcement
yesterday about sunsetting Netpreneur at the end of this year. To
a lot of people that wasn't news, but to some of you it probably
was. It was really my
decision. It was a very personal
decision. I went
through the thought process starting a year ago August, so it was
something that had been going on for a while.
I came up with two conclusions.
Number one, I needed to have more focus on my family.
Anybody who has been around me knows this has been a growing
issue for me. I've been
doing a better job ever since 1992. Number two, we had to focus on
the single most important, passionate part of what we are doing to
make a difference, and that is dealing with the lives of children
and the nonprofit sector that helps them.
As you go through your lives, you will make hard decisions
about how you're going to spend your time.
That's what this decision is about.
It has nothing to do with Netpreneur, it has nothing to do
with the economy, it has nothing to do with the region.
It's a very personal decision about where to spend our
enjoyed this beyond any measure. I get my jollies when you people
come up and we talk about entrepreneurship.
I live and die on this stuff.
The reality, though, is that I also live to serve nonprofits
who are working to help children.
the same way that you're
trying to change a market and build your businesses, we have an
opportunity to change how philanthropy supports nonprofit
organizations. Today, you give to a nonprofit based on how low their overhead is.
It's the dumbest thing.
We choke them. We don't let them grow. We don't encourage them
to manage. We don't encourage them to think long-term. It's not
that the business people are any smarter than nonprofit people. In
many cases we're not. You'll
find absolutely remarkable leaders in that community who have not
been given the same kind of chances we've been given in the
business world. They
don't have the resource base that we have.
I'll give you
an example of what we're doing with some of the organizations
we've already funded. I
know you haven’t heard the full story, but we were very
fortunate. We started Venture
Philanthropy Partners during the bubble—keep that in mind,
timing is everything—and we got commitments for $35 million.
That’s unheard of in the country, by the way. No one has put together this kind of multi-donor fund that matches
its size. We actually
didn't start collecting money until the meltdown began.
We now have $28 million in the bank, thanks to the 30 families
involved, and we still have $6 million to collect, but the fact
that $28 million has been put away is significant by itself.
Institute has funded the startup costs of this operation, and, as
of next year, the yield on that $28 million begins to fund its
remaining operations costs through early 2006. Our objective is to deploy all $35 million in five years.
We either live or die by performance, and, if we don't
perform, we'll go away. If
we perform, we'll get some more money, we'll get a whole new fund,
and keep going. The
likelihood is very high.
To give you an
idea of what we're trying to do, we're now engaged with five
organizations in the region. They go from organizations that do mentoring and tutoring for
children in the District; to a program in Virginia that deals with
mental health interventions for immigrants, specifically refugees,
which is a huge problem in our region today; to childcare centers
in Alexandria; to our most recent investment, a group that deals
with Asian-American children and the problems they face dealing
with two cultures.
If you think
your funding is a challenge for your field, Lowell Weiss and I
wrote an article last year after September 11 called “The
Perfect Storm.” It
discussed the potential for what could happen to funding for
social services programs. We
just updated it for our board yesterday, and that scenario has
played out. Go ask Governor Warner in Virginia what's happening to social
services funding in Virginia, or Governor Glendening in Maryland.
Ask Mayor Williams where the money has gone in DC for afterschool
and preschool funding for kids.
It's almost like we've created a society that hates our
children. The money is
imploding. The giving
patterns are still there, but they've changed. Corporate funding
and philanthropy have been cut back because of the economy. The big issue now is not September 11, it's the economy. At the
very time where the demand for services for these families and
children is the highest we've seen in a while, many of the
potential funding cuts for the next several years have already
started, and it could be devastating. That puts in perspective the
role we're trying to play.
I'll give you
an example. We're investing in a mentoring/tutoring organization, Heads Up.
When we started working with them, they were at about a $1.4
million annual budget for a tutoring network of about 500
children. They pull in
students from colleges to work with the children in the evenings.
You're getting the tutoring benefit, but also a mentoring benefit
as well. The two leaders of this effort are remarkable young men.
Remember, their budget is about $1.4 million. We are investing
$2 million. First of
all, it's almost unheard of to put that kind of money into an
organization of that size that does not go to programmatic
services—it goes exclusively to building the strength of the
organization. This is going to sound familiar to entrepreneurs, it
goes to recruiting the best people, building the funds development
process, understanding how to measure outcomes, understanding how
to be more accountable to the stakeholders, etc. It’s all aimed
so that they become much stronger as an organization, much more
effective. They’ll be
able to reach more children with even more effective services.
This is a
somewhat radical departure in the way much of philanthropy has
been done, but it really goes back to the strategic, engaged
philanthropy of Rockefeller.
The Meyer Foundation was front and center in helping Heads Up
get to this point with their funding; now we build on what Meyer
has already done with our funding and support.
many of the same techniques that we've used working with business
entrepreneurs and now applying the same model to social
entrepreneurs. The difference is that the focus is on improving
the lives of children. I'm
not trying to be melodramatic, but that's where my passion sits. We're not walking away from you entrepreneurs—because we're going
to come back to you in a different way—but the focus is on the
other side. We made an effort to get funding for Netpreneur from
other sources, and, although it didn’t work out, there were
people who stepped up, as Mary mentioned.
will live on, but it will be by your choice.
I've always maintained that Netpreneur, in its essence, was
one thing: an organic network.
It wasn't a program. It wasn't a Coffee & DoughNets event,
it was the people who were involved that made it.
If you could see the emails pouring in since yesterday's
announcement, you would know that it will live on in different
ways. Just look at the people in this room. You've created
networks, sub-networks, small networks, and contacts. Since I walked in
here, three of you came up and asked, “How can I help keep
things going?” It
won't go on in its current form.
The challenge and the opportunity for you, if you want it, is
how do you step forward and let it grow organically.
If you want it to continue, you'll make it work that way.
It's like being an entrepreneur.
Do you want to do it or not?
It's a choice, and it's your choice this time.
We'll help you do it. Mary
has agreed to work on it well into 2003 to help.
We would certainly like to see that happen.
It may not go on with the same robustness, but it will go on
in a very entrepreneurial sense.
We’d love to see it happen.
And, it may be
that no one steps forward. That's
okay, too. Although this program will shut down come December 31, the change
in this region has been enormous in terms of the number of people
who are now connected, who can reach out to each other, and who
have networks. It’s
not because of us; we've been a facilitator. It's because of how
the community came together.
I don't mean that in a corny fashion.
There are relationships and ties that have been built because
our timing and luck were right on the money.
Magic happened in this region during the last five years, and
it will be one of the forces behind this region’s economic
Let me touch on
the idea of the economic future for a minute.
It is a tough time for an entrepreneur, don't kid yourself,
but it's also a good time. If
you really believe in yourself, it's a time when you're going to
get a lot of leeway. If you're good, you're going to have more VCs shaking you down than
you can shake a stick at. I
remember back in the '70s and early '80s when people would say
that venture people didn't look at Washington, DC.
That was baloney. But,
when Bob Cook created VM Software, guess what?
The VCs were all over him like ants on a sandwich.
They wanted every piece of VM Software.
In '85 and '86, we had people calling us at Morino Associates,
wanting us to invest or take us public to get a piece of the
action. If they spot a company that's alive, the money will show up, rest
assured of that fact. Money always moves to a successful company.
That's one thing you can take to the bank in this industry.
The question is, is what you've done good enough to demand
that kind of attention?
So, what is
with this economy today? The interesting statistic I’ve heard is
that for the first time in a while there was a click up in capital
expenditures on technology. If you go back to the beginning of
this year, capital expenditures budgets in technology were running
negative. It was that
bad. They're now projecting a 5%-7% increase for 2003. What's more
important is that the percentage of capital expenditures directed
to information technology—which has dropped down about
50%—they're projecting to go up into the 60%-70% range as 2003
and 2004 come forward. It doesn't mean nirvana, but it means the ship may be turning.
One of the tools for economic recovery is technology, although
it will be sold very differently than it was during 1995-2001.
remarkable thing we picked up is that the entire services industry
is going to go through a change. This may not be good news for some of you, but, because of the
boom/bust, a lot of the talented people who previously would have
gone to work at vendor companies are now going back to the user
companies in the Fortune 1000.
It's reversing a trend that started in the late 1980s in which
those companies did not have the internal ability to install the
products and solutions themselves, and that gave birth to an
enormous integration services industry. That trend is beginning to reverse, and my caution to you is that
it's probably not good news if you're a general services company.
User companies are becoming more able to hire first-rate
talent to do project management integration work again, which is a
sea change from what we've seen in the last 10 years. If you have
highly specialized solution services or if you're selling
products, it's a plus for you because your ability to sell into
that company and find the talent inside to work with is higher.
It may open up product sales again because, going back to the
end of the 1980s, the early 1990s, the gating factor in product
sales was not market, but people.
What you're hearing from top CIOs is that they can now hire
the kind of talent they need to start unleashing major development
projects in-house. I
would argue that, long-term, this is a very positive element for
the technology field.
factor—and this may be small comfort to you if you're out of
work today—but Steve Fuller just finished one of his reports at
George Mason University, and they're predicting a net 9% growth in
jobs in the region by the end of the year.
Sometimes we get caught up in the media and we hear the
stories of gloom and doom, but that argument is relative.
Gloom and doom compared to what year?
Gloom and doom compared to 2000?
Oh, yeah, but not compared to 1996 or 1995, and certainly not
to 1990. Why is all
this traffic still on the roads if no one is working? Where are
all of these cars going? If
there have been 30,000 or 40,000 jobs lost, which may be the
number, have we forgotten the 160,000 that were created?
Did we forget how much net wealth was created in this region?
If you took AOL stock, even at its deflated price today, it is a
staggering wealth injection into this region.
In spite of the fiasco at WorldCom and others, you've got to
take a net view. There has been enormous wealth creation, which is
both good and bad. The
wealth creation for the part of our community where most of you
live has been great. At
the same time, going back to those kids, the wealth gap between
the money and the poverty is actually worse.
While this whole explosion was going on, people failed to
realize that the gap kept increasing.
A recent study
showed the degree of the poverty element of DC, which I'll argue
pertains as well to parts of Northern Virginia and Maryland as
well. The poverty is
exasperating, but on your side of the fence the flow of money is
coming out stronger, you're seeing more innovation, and there are
some upticks in the company earnings.
When IBM, Apple, or Microsoft are showing nets coming up,
those are positive indicators.
I'm not trying
to give you an artificially rosy picture of where we're going with
all this, but the reality is that there's great opportunity for
entrepreneurs today. As
hard as it is, there are all kinds of market voids out there.
What you want to do is to get a survival strategy that will
get you through a 12-, 18-, 24-month period.
If you can hold the line through that period, unless there's
some kind of massive macroeconomic hit coming, you're looking at a
24-month window during which you'll start seeing a relatively
healthy tech turnaround.
But don't think
it's going to be 2000 again.
Go back to 1995. It wasn't bad, folks. It just wasn't unreal. You had high venture money moving, you had a lot of interesting
startups going on, you had IPOs.
It was realistic.
leave you with that relatively positive picture if you're an
entrepreneur in the region.
I'll be doing this many, many times over the next seven or eight
months, I want to thank the Netpreneur team members.
“Team” is a sort of amorphous phrase in some ways because,
in many respects, it encompasses hundreds of people in the region,
but the formal team, past and present, that started in 1996, has
been remarkable. I
can't thank them enough. I
sent a note to them yesterday saying that we should take pride in
the fact that we've been able to do what we did in this period of
time, and we should take even more pride watching what you have
done. Not that we
helped do it, but in being around the laboratory of
accomplishments that took place in the region.
Despite all the gloom and doom, let me tell you something:
This region really rocked, and the net benefit is still very
strong. When we start
feeling sorry for ourselves, remember that there are people a heck
of a lot worse off in this country, even in this region.
you very much.