Thanks to cloud computing, open development platforms, and a ubiquitous and healthy mobile ecosystem, company formation costs are at an all time low, yet startup failure rate is at same levels. The problem is not money but execution and most VC firms or even Angel investors are spread out too thin to be able to engage with the entrepreneur, understand the business, listen to their unique "songs" and provide the resources needed to take them to the next level. Money is needed, but senior resources @ star-up cost are often a challenge.
In exploring a way to reinvent the VC model and bring more tech startups to Seattle, Thomas Nault and I spend some breakfasts and lunches at our favorite spot in Kirkland, WA. Last week he wrote me back a fantastic email, a fresh perspective on successful entrepreneurship making the analogy between successful business ventures and successful bands and after removing some personal details I reproduce his letter below as it deserves to be shared. Thanks Thomas!
"I spent a lot of years of my life as a professional musician. It's what got me through college and exposed me to a lot of really talented people. I learned a lot about business from that experience, especially in terms of successful management teams and how they generate their own personality. When you think of the great bands that produce incredible music, it's proof that extraordinary things can happen when certain types of talents are brought together, yet it's extremely difficult for a record label to bring individual musicians together and turn them into a successful working band. You almost never see a record label create a prolific, sustainable group of musicians who crank out hit after hit on their own. However, iTunes is jammed with examples of such groups existing, the difference is that the most successful bands usually form on their own.
Most successful record labels found bands the old fashioned way. They went out and found existing talent that already had something unique in the group. That intangible, that sum of the parts, didn't usually exist with just one member, but instead that sum created a unique sound, the result of working together, often over many years. A good label then would examine their fan base and see how the group was trending, and how the relationships all hang together in order to preserve what works.
What VCs typically do is take the reverse approach, it would be as if someone brought in a song and they decided to assemble the band that would turn it into a hit. This is completely counter my own sense of what works and why. You were talking about the lack of experienced M&A within VC partners and I found that to be very interesting. In contrast, I've never had a failure under my watch. Every company I've ever started was bought or attempted to be bought by someone much larger. The sale of OI to Qualcomm was my third under my complete control. My company Cravings, Inc., received an extraordinary buyout offer from ConAgra; an offer that was turned down by our VC partner who held controlling interest. It was then that I elected to sell my minority interest knowing that I'd not see a better offer in many years and I was all about moving to the next thing. I'd just turned 30 and I was hungry for the next thing. I immediately started another company and it was bought out just eighteen months later. That led to my trust company and that was exciting for a while, but I didn't own the companies I was fixing.
The point is, in my experience, it's all about the people, and creating the right team, always with the exit in mind. I start thinking about what an exit will look like before I ever get involved and that plan runs in parallel to building the company. From the time we received our offer from Qualcomm to closing, it was just 62 days. That's in large part because we had everything running right and there were no skeletons that needed a resolution.
I had 100% support from the shareholders and made a very conscious effort to meet face to face with our Japanese minority shareholders at least twice a year to report on our progress. Over the years, I earned their trust and support.
When I bought OI, revenues were nearly zero. They had debts and little working capital. They had product ideas but no traction just yet. I bought the company because of the engineering team. I was completely captivated by how well they worked together. I didn't entirely care if Bluetooth failed, as I knew I had a team who could do anything and keeping them together is what mattered most. I was thinking about bands; that it was like finding a group of musicians that knew how to play extremely well together and turned out an incredible sound. I had a great band and I knew it. From the day I bought the company, my entire mission was to not disrupt the band but instead get them to pursue the hits that were already in their heads. One of the first things I did was take them off site for an all day meeting where the whole company sat in a room talking about what they wanted to do and why. The results of that meeting set our direction for the next five years and created our prolific roadmap.
Qualcomm bought us because of our innovation pipeline and nothing more, really. They didn't care much about revenues, they wanted the technology we created, technology that's now in every iPhone, iPad, AppleTV, and built into virtually every one of their MSM processors.
I love to fix broken companies because all too often, it's nothing more than the equivalent of a few crappy musicians in the band somewhere; sometimes well credentialed but a bad cultural fit. I think most VC firms I've encountered don't understand this fundamental principal and thus assemble the equivalent of a bunch of hack musicians who have terrific academic backgrounds but don't have a clue how to work together or for that matter have even a remote understanding of where they are going and lack true entrepreneurial experience to begin with."
In exploring a way to reinvent the VC model and bring more tech startups to Seattle, Thomas Nault and I spend some breakfasts and lunches at our favorite spot in Kirkland, WA. Last week he wrote me back a fantastic email, a fresh perspective on successful entrepreneurship making the analogy between successful business ventures and successful bands and after removing some personal details I reproduce his letter below as it deserves to be shared. Thanks Thomas!
"I spent a lot of years of my life as a professional musician. It's what got me through college and exposed me to a lot of really talented people. I learned a lot about business from that experience, especially in terms of successful management teams and how they generate their own personality. When you think of the great bands that produce incredible music, it's proof that extraordinary things can happen when certain types of talents are brought together, yet it's extremely difficult for a record label to bring individual musicians together and turn them into a successful working band. You almost never see a record label create a prolific, sustainable group of musicians who crank out hit after hit on their own. However, iTunes is jammed with examples of such groups existing, the difference is that the most successful bands usually form on their own.
Most successful record labels found bands the old fashioned way. They went out and found existing talent that already had something unique in the group. That intangible, that sum of the parts, didn't usually exist with just one member, but instead that sum created a unique sound, the result of working together, often over many years. A good label then would examine their fan base and see how the group was trending, and how the relationships all hang together in order to preserve what works.
What VCs typically do is take the reverse approach, it would be as if someone brought in a song and they decided to assemble the band that would turn it into a hit. This is completely counter my own sense of what works and why. You were talking about the lack of experienced M&A within VC partners and I found that to be very interesting. In contrast, I've never had a failure under my watch. Every company I've ever started was bought or attempted to be bought by someone much larger. The sale of OI to Qualcomm was my third under my complete control. My company Cravings, Inc., received an extraordinary buyout offer from ConAgra; an offer that was turned down by our VC partner who held controlling interest. It was then that I elected to sell my minority interest knowing that I'd not see a better offer in many years and I was all about moving to the next thing. I'd just turned 30 and I was hungry for the next thing. I immediately started another company and it was bought out just eighteen months later. That led to my trust company and that was exciting for a while, but I didn't own the companies I was fixing.
The point is, in my experience, it's all about the people, and creating the right team, always with the exit in mind. I start thinking about what an exit will look like before I ever get involved and that plan runs in parallel to building the company. From the time we received our offer from Qualcomm to closing, it was just 62 days. That's in large part because we had everything running right and there were no skeletons that needed a resolution.
I had 100% support from the shareholders and made a very conscious effort to meet face to face with our Japanese minority shareholders at least twice a year to report on our progress. Over the years, I earned their trust and support.
When I bought OI, revenues were nearly zero. They had debts and little working capital. They had product ideas but no traction just yet. I bought the company because of the engineering team. I was completely captivated by how well they worked together. I didn't entirely care if Bluetooth failed, as I knew I had a team who could do anything and keeping them together is what mattered most. I was thinking about bands; that it was like finding a group of musicians that knew how to play extremely well together and turned out an incredible sound. I had a great band and I knew it. From the day I bought the company, my entire mission was to not disrupt the band but instead get them to pursue the hits that were already in their heads. One of the first things I did was take them off site for an all day meeting where the whole company sat in a room talking about what they wanted to do and why. The results of that meeting set our direction for the next five years and created our prolific roadmap.
Qualcomm bought us because of our innovation pipeline and nothing more, really. They didn't care much about revenues, they wanted the technology we created, technology that's now in every iPhone, iPad, AppleTV, and built into virtually every one of their MSM processors.
I love to fix broken companies because all too often, it's nothing more than the equivalent of a few crappy musicians in the band somewhere; sometimes well credentialed but a bad cultural fit. I think most VC firms I've encountered don't understand this fundamental principal and thus assemble the equivalent of a bunch of hack musicians who have terrific academic backgrounds but don't have a clue how to work together or for that matter have even a remote understanding of where they are going and lack true entrepreneurial experience to begin with."
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