New look, same Seth
With thanks to Ross for actually pulling everything together, I’m launching a new look and a new site today. Seth Levine’s VC Adventure is now hosted on my own domain – www.sethlevine.com – and is sporting an updated look. My old TypePad site is still active (although I’m no longer posting there) and in theory (at least until it breaks) is redirecting traffic to my new site (and should be directly specific posts to their respective post here at sethlevine.com). Let me know if you find anything broken or in need of editing/updating/improvement/better design.
eWork CEO Hans Bukow on OutsourcingTV
Ok. I can’t say that I’ve ever heard of OutsourcingTV.com but apparently it exists and they did an “interview” with Hans Bukow, the CEO of eWork on the recent eWork/ProSavvy merger (see my last blog post). You can check out the interview at the following link:
http://www.outsourcingtv.com/ot/index.jsp?movieid=13688&channel=
I’m in the middle of writing a post on whether blogging means an end to traditional media and, not to steal my thunder, but I think this interview backs up the point I’m going to make – there’s lots of room in the world for niche media (or point media) to exist along side more traditional media sources. Clearly enough people care about the outsourcing market for there to be a website that supports it (and magazines, etc.). While the merger of two companies like eWork and ProSavvy won’t necessarily make it to traditional media (other than perhaps an inch blurb in the business section), it’s clearly important to people who follow the industry and, as this piece shows, warrants further discussion/elaboration.
And then there was Foundry . . .
There are a couple of very key dates in the history of Foundry Group. The day when Brad, Chris, Jason, Ryan and I actually formed the legal entity that is Foundry . . . the day last fall of the first close on our first fund, Foundry Venture Capital 2007 . . . the day shortly thereafter when we held our final close of that fund . . . and today – the day we’re launching a real web site. www.foundrygroup.com is now up and running and is much improved from the brochure-ware site we had as a stand-in during fundraising.
We think it represents our collective personality well with a front page blog, links to ask questions at askthevc.com and easy navigation to find out how to contact us. Jason has authored our initial blog post – Hello World and we also have a portfolio page that links to 4 of our initial investments. We’ve talked about Memeo (here and here) and Zynga (here) on our personal blogs in the past, but our investments in Oblong and Lijit are new. You’ll see us write more about those soon as well as some of the key investment themes we’re concentrating on in the coming weeks. So check it out; subscribe to our blog; and check back in to see what we’re up to.
Financial Models – Too Much Information?
At Mobius Venture Capital, as in many venture firms, we don’t have analysts (people whose primary responsibility is to run models, cap tables and the like). As a result, each of us does most of our own financial modeling. I actually like this set-up, because it makes sure that I’m both directly responsible for my work and am up to speed on the financials of each of the companies I work with. Reviewing financial models is not the largest part of my job, but is an important part of what I do – for screening new investments; tracking portfolio company performance as well as analyzing follow-on investments into companies in which we already have a financial interest. In the course of reviewing many many many such models, something rather counter-intuitive has struck me: most financial models are too detailed. That’s right – most models have too much information in them; too many assumptions; too many inputs; and are too hard to follow. Now, don’t get me wrong – there is definitely a place and time for a detailed line item budget (say for a rolling 12 month operating plan). That said, trying to detail out line item projections over a 5 year period I think makes models less rather than more useful. When I was in college I really enjoyed theoretical economics. One of the classes that I liked the most was Econometrics. As a relatively green econ student, I remember that my inclination (and that of my classmates) when building econometric models was to put in as much data as possible – the theory being that more data wouldn’t harm the model and would potentially help it. Our professor, Gary Krueger, pounded into us that this was in fact not the case – weak data hurt your model and taking out mediocre variables actually strengthened the veracity of the output (the garbage in/garbage out theory – although he had more colorful way of describing it at the time). I think a lot of modelers fall into a similar trap as me and my classmates first did – instead of simplifying their business to a reasonable and manageable number of inputs and variables, they attempt to put every complexity of their company into the model.
In mathematical terms here’s what I’m referring to: Take one variable V that you have 80% confidence in.
Break that variable into 3 sub-variables – A, B, C – each of which you have 90% confidence in.
Since your confidence in your original variable (V = 80%) is greater than the product of the three sub variables (A*B*C = 73%) you are actually better off sticking to the simpler variable even though you have less confidence in it than in the sub variables individually.
There’s a balance here that is important to strive for because financial models need to be sufficiently detailed as to accurately reflect the business, be able to run realistic sensitivity analysis on, etc. However if you end up with a 10MB model for your start-up (and I’ve seen these), you’ve probably gone too far.
Here are a couple of specific thoughts:
– Before you start modeling list out the key drivers of your business – really distill what the key assumptions are and make sure you call these out in your model
– Add detail where it really helps – a lag from bookings to revenue reflect what is really going
on in your business – that’s good; deciding on an employee by employee basis what various raises are to be in year 4 doesn’t add much (simplify this assumption)
– Break out your assumptions – be explicit about the drivers of the business and group them together (perhaps at the top of each page) so that a reviewer can easily see what each of the drivers are
– Don’t hide assumptions within formulas – formulas should be driven off of numbers that are exposed,
not contained within the formula cell
– Be clear (by color coding or some other mechanism) what cells are assumptions (i.e., you
input a specific number) vs. derived from other cells
– Don’t be afraid to make general assumptions where the detail doesn’t really add value to your
model – for instance on T&E load for employees (I’ve seen many models with 3 tabs to try to calculate things such as year 6 cell phone use per employee)
I could keep going, but I think you get the picture. Perhaps more important than anything else, don’t forget to step back from the model when you’re done and look at the macro trends that you are predicting. Does the revenue ramp make sense? Do the revenue and expense totals per employee seem reasonable and do they grow (or shrink) logically? Are variables such as your days receivables and payables in the ball-park? Are your working capital assumptions generally reasonable?
More variables and assumptions are perhaps not the key to better modeling – smarter and more well thought out ones are.
sjl
Factiva says ‘yes’ to RSS
Yesterday Factiva and Newsgator announced a deal that will allow Factiva customers to access their Factiva content via RSS (specifically through Newsgator’s Outlook reader and on-line system). This is a great milestone in the development and adoption of RSS – here’s my take on the deal: First, for those of you who are not familiar with Factiva, it’s a joint venture between Reuters and Dow Jones that provides their users with customizable content (from news articles to D&B reports to other types of company profiles). The idea is to allow their customers to stay up to date on news that is relevant to their business (customers, competitors, etc.). The deal with Newsgator marries specialized and proprietary content (Factiva) with a distribution platform (Newsgator) and is an example of where I think corporations are moving in how they consume information. Interestingly, the partnership came about in part because Factiva CEO Clare Hart was a user of Newsgator (and had been for quite some time) and she quickly recognized its power as a way to distribute information.
The idea is really simple. Factiva recognized two important things: 1) many information workers want the collection of important data integrated into their existing workflow (i.e., not in a separate application) and 2) these workers also want a single point of access for multiple data sources. By integrating Factiva “feeds” into the Newsgator platform they are addressing both of these concerns – driving adoption and usage in their existing customers and expanding their potential pool of users.
However, this is only the first step in the new model of information workflow. Imagine this idea applied to internal data. I’m using RSS, for example, to track changes on an internal Wiki for one of my companies – obviating the need for me to check in to the Wiki site to see if anything new has been posted and saving me quite a bit of time in the process. You could also imagine RSS feeds coming from a CRM system to alert account managers to problems that one of their major accounts is experiencing. You could also see this tied to a SFA system to automatically generate search feeds for a sales person’s key contacts and allowing them to easily keep up with news on their prospect. In every case delivering this information directly to the workspace (Outlook, most likely, but also to a desktop client or web based client if desired) of the worker that needs to know about these changes. This is jus the tip of the iceberg . . . watch for more from Newsgator as they lead the charge to make information easily available.
Why Microsoft needs RSS
Everyone knows that Microsoft announced at this year’s Gnomedex their support for RSS in their Longhorn (now Vista) release. A quick search on Google or Technorati comes up with plenty of people who have already weighed in on the subject (I particularly like Nick Bradbury’s post here). Most of the talk, however has been around how RSS integrates into IE (see the IE blog post on RSS integration here) and the associated ease with which IE users will be able to subscribe to feeds, create feeds and some of the ways they are extending RSS to handle lists and a common data store, etc. The rest has been centered around Microsoft’s RSS effort for developers to enable them to more easily pull feeds from applications. All great stuff, but that’s not at all why I’m excited about Microsoft embracing RSS and since no one else was writing about it I thought I’d throw my 2c into the ring. Love it or hate it, the Microsoft Office suite is a critical part of most businesses (with apologies to Star Office . . . ). Unfortunately their organizational/search/storage/retrieva paradigm is all wrong. While trying to ease users into the computer age, Microsoft has unfortunately created programs that attempt to mimic how people use and store information in the off-line world (i.e., in logical hierarchies, folders, etc) – which limited the power of the new computing medium. This is true both within applications and between them; in our file folder hierarchies and in how we store mail; in how we save bookmarks to the admin of an LDAP directory. Anyone who has ever tried to search in Outlook for a contact for whom you had only limited information or for a file that you misplaced understands the limitation of this system – it works great for structured data, but not so great for unstructured data (i.e., if you know you’re looking for Joe Smith in your contacts you’re fine; if you remember meeting someone name Joe who was an investment banker and who you met sometime in the summer of 2003 you’re screwed). The current system is fine for storing basic information, but lacks the database like ability to assign attributes and then search on those attributes (there are some limited ways to do this both in outlook, in contacts and for files – i.e., you can create different categories of contacts or add certain information to file properties but neither is very powerful and neither is meaningfully searchable). Enter the Internet age and people have discovered the power of unstructured data. Google built an entire service around it in the form of Gmail (lots of storage is great, but their real innovation was the elimination of folders in favor of fast and easy search and what essentially amounts to the ‘tagging’ of conversations). Both Google and Microsoft recognize it in their efforts in desktop search. And companies like del.icio.us and social text really really get it in allowing us to control how we label and categorize information. Perhaps I’m stretching some or perhaps being a bit too hopeful, but I believe RSS can bring Office into the 21st century. Imagine being able to tag a contact or a file with various attributes that you can later quickly and easily search on. Imagine being able to subscribe to a shared document folder to know when someone in a workgroup updates a file (enabling shared folders to function almost as a wiki). Imagine being able to stop placing files in work folders altogether but rather tagging then with the pertinent information which will enable you to much more easily find them later (and remember what they were for).
Great stuff – I hope MSFT is listening . . .
Colorado’s State-Wide Mask Order
Yesterday evening, Colorado Governor, Jared Polis, announced a state-wide mask order directing Colorado residents to wear a mask or face covering while in indoor public spaces. Citing the rise in COVID-19 cases in the state, Jared said, “…Masks are the ticket to the Colorado we love and a critical part of supporting Colorado’s economy and prosperity. The best way to support Colorado workers and businesses right now is to wear a mask.”
Measuring customer satisfaction
There was a great thread this week on the Foundry CEO email list about Net Promoter Score and how companies are using it to measure the satisfaction of their customers (specifically in the case of NPS, their propensity to recommend the product or service to others). NPS can be a useful tool when used properly (which was much of the discussion on the email thread – who to measure, how often, etc.). But NPS can be cumbersome to measure, hard to understand granularly and not very helpful in letting you know what any given customer is really thinking about their interactions with your company (other than the extreme outliers).
The discussion and thinking about both the benefits and limitations of NPS got me thinking about a clever way that Trada measures customer satisfaction in their app on a customer by customer basis that I thought was worth passing along.
On most pages in the Trada app (Trada has a b-to-b focused application but this advice holds for b-to-c as well), there’s a small smiley face in the nav bar. It can exist in only one of four states – Happy, Meh…, Unhappy or Confused. It can only be set by the customer themselves (the admin login that the Trada customer service team uses doesn’t allow them to change the state) and customers are regularly prompted to update its status (which does not start “happy” so there’s no bias to just leaving it alone). It’s amazing how powerful such a simple idea has been for keeping tabs on how individual customers are feeling about their interactions with Trada and its application. It’s easy enough to use that customers engage with it. It can only exist in a limited number of states so it gets ride of the gravitation away from the edge that larger measurement scales tend to product, and is a great early sign to Trada’s customer service team that something is wrong with a client. The company uses data from this metric to reach out proactively to customers who are expressing confusion or dissatisfaction with their work on the platform. For Trada this doesn’t replace measuring NPS, which gives management a higher level view of overall customer satisfaction) but has been an extremely effective tool to help them deliver a fantastic customer experience.
Sometimes simple solutions can be very effective.
Entrepreneurship behind the wall: A trip to Palestine
If you’ve been a reader of my blog for any time you’ll know that I’m intrigued by (and a big fan of) the notion of The Democratization of Entrepreneurship. It’s not that I think entrepreneurship solves all the world’s challenges, but I deeply believe in the notion of entrepreneurship as a catalyst for positive social change across the globe. It’s a powerful force and we’re seeing more and more examples of entrepreneurs creating real change around the world, community by community.
Late last year I had the opportunity to spend a week in Palestine working with entrepreneurs and traveling in the region. It was part of my work as an advisor to Sadara Ventures – the only Palestinian focused venture fund (Google, Soros, the EU, Skoll Foundation and others are investors in the fund). It was an eye opening trip to say the least and a truly amazing experience to be working with entrepreneurs in an area that is experiencing so much turmoil.
This is a personal story and one about entrepreneurship. But it’s impossible to tell that story without the context of the political reality on the ground. In fact everything in Palestine to some extent takes place with that backdrop (and perhaps – at least as it relates to business and investment – in spite of it). I’m in no way trivializing the conflict nor suggesting that the answers to the region’s problems are easy ones that can be fixed if we only better supported entrepreneurs. But it was refreshing to spend time with people living literally behind the wall, but looking past the political situation to try to create an environment in which entrepreneurs can survive and thrive. While in Palestine I had the opportunity to work with a number of entrepreneurs, meet with locals in shops and restaurants, but also to meet with a handful of key business leaders as well as the Vice President of the Palestinian Authority. The perspective I gained was a true cross section of Palestinians and as varied as the backgrounds of the people I met.
A little background and context. Palestine can be a rough place. GDP per capita is low – about US$ 1,650 per capita. The overall labor force participation rate is only 43% and unemployment is over 20%. The population is very young – 70% are below the age of 30 (and 40% younger than 15) and youth unemployment is over double the overall rate.
Movement in the territories is pretty restricted (and here I’m referring to the West Bank and not Gaza, which is completely closed off). The West Bank itself is about 5,600 square kilometers (so not exactly tiny) but movement into and out of the territory is difficult. As a foreigner I could come and go as I pleased (as a side note, getting into the West Bank was much easier than getting out – really meaning getting back into Israel; the very heavily armed Israeli soldiers weren’t all that impressed with my US passport, nor I suspect my very Jewish sounding name given where I was coming from). Some Palestinians do have papers that allow them to travel into and out of the West Bank (particularly those born in/living in East Jerusalem which is an area in dispute, but is on the Israeli side of the wall). Israelis are restricted from entering Palestine – by the Israeli government (presumably concerned that any violent act by or on an Israeli would case a political storm) – and several of the Israelis associated with Sadara had to obtain day passes to enter and exit (they were denied the ability to stay overnight in Palestine and instead had to drive back to Jerusalem each night; I was able to stay in the center of Ramallah at what turned out to be a pretty nice hotel). Cars in the West Bank are restricted to the territory if they have a white license plate but can access Israel if they have a yellow one. Even in Israel travel is a somewhat restricted with frequent check-points on the main highways (traffic slows, but does not stop through these).
Entrepreneurs in Palestine are like entrepreneurs everywhere – optimistic, hard working, a tad fanatical at times. And while many of the businesses I was helping with were building products targeted to the Arabic speaking world in the EMEA region, the businesses they are creating would be familiar to any entrepreneur – travel and hotel bookings, content for kids, a gaming platform, 3D rendering systems, etc. It’s that passion for their projects combined with their desire to build businesses in Palestine that really stuck out to me from my visit. Many of the entrepreneurs I met with were educated in the US or Europe and had papers that would have allowed them to start their businesses elsewhere. But they’ve chosen to come back to Palestine to work there in an effort to try to make a difference in their homeland. Many spoke eloquently about this choice and the decision to move back home. I have a lot of respect for that kind of national pride. But especially in the context of the political situation in the West Bank where another Intifada would put the region again in a tailspin – business leaders in Palestine talk openly about wanting to avoid this but also with the understanding that there was little anyone could do to either predict or prevent another uprising (although they also recognized that economic stability leads to greater political stability).
I left Palestine completely energized about the work going on there in the entrepreneurial community and hoping that I can continue to help pursue economic development in the region.
What follows are some images from my visit as well as some background about them.
Video from the “no-man” zone on the Palestinian side of the wall but not yet truly in Palestine (the Israelis set this area up basically as a buffer to Israel but its become this sort of bizarre in-between land that’s neither a true part of Israel or Palestine. There are several refugee camps just to the south of this area that we passed on our way in.
https://www.youtube.com/watch?v=S-Q9vaLS0qc&feature=youtu.be
The difference between the Israeli side of the wall and the Palestinian side makes it clear who erected the barrier. The Israeli side is pristine while the Palestinian side is covered with graffiti.
Pictures of Yasser Arafat are everywhere in Palestine.
I was fortunate to have the opportunity to have lunch with Dr. Mohammad Mustafa, Vice President of the Palestinian Authority. He’s widely talked about as the next PM of the Palestinian Authority. Interesting to say the least (my visit happened to coincide with a visit to the region by John Kerry, the US Secretary of State). The details aren’t appropriate to get into, but Dr. Mustafa has an economics background (he was trained in the US and worked for 20 years in Washington) which I think lends itself to a pragmatic view of the world. Although even with that, the severity and length of the conflict leave even practical thinkers on both sides at odds over certain of the most difficult points of contention.
I had a chance to tour Jerusalem for half a day. It was my first time in Jerusalem – obviously a city rich with history. The pictures below include me at the Western Wall as well as some of the marketplaces and architecture around town.
My tour guide in Jerusalem said something to me that, while I hope isn’t true, really stuck out to me. We had just gone through the Church of the Ascension and were ending our tour. Sitting on the steps of the Church I said to him: “You seem like a pretty reasonable guy and you’ve lived here for something like 20 years, what do you think the solution is to the fighting and disagreement in the region?” To which he responded: “That’s such an American question. What makes you think there’s any solution? This is a place where people have been fighting each other for 3,000 years. Maybe that’s just how it’s going to be.” I certainly hope that’s not the case, but the idea of finding a “solution” as being a distinctly American way of thinking was something I’d never thought about in that way before (I asked him if this view was broadly held he said it was, although he and many of his friends do hope that there’s some kind of path to peace).
I was also able to tour around Ramallah and the West Bank a bit and captured some photos from that part of my trip as well. Among the photos below is the “Stars and Bucks” coffee shop in Ramallah, the still under construction city of Rawabi – sometimes referred to as the “Palestinian Settlement” (it’s a full city being constructed for Palestinians in central West Bank; I had a chance to meet Bashar Masri who is a well known Palestinian entrepreneur and the main force behind the project). There’s also a picture below of the Entrepreneur Meet-up that we hosted in Ramallah one of the evenings of my visit. We had over 100 Palestinian entrepreneurs get together to talk about creating entrepreneurial communities and enhancing opportunities for Palestinian entrepreneurs. There’s also a picture of the “Startup Weekend Ramallah” sticker that I saw on many laptops around town – Ramallah has now hosted two such weekends.
The final story from my trip comes as I was leaving. The airport in TelAviv is famous for its security – I had to show my passport 3 times before I even got to the check-in counter. As part of this process every passenger goes through a triage process where they’re asked various questions about why you’re traveling, what they were doing in Israel, etc. Basically trying to suss out whether you’re likely to want to try to sneak a bomb onto your plane (based on this interview they then put you through various tracks of security ranging from pretty much what you’d experience in any US or European airport to hour+ interrogations accompanied by detailed bag and person searches). Upon taking a look at my passport the triage team in my case then spent the next 10 minutes quizzing me in a way that I can only summarize as “Exactly how Jewish are you?” I had provided them some information on the purpose of my visit (but no details on where I went or whom I met with) so that had at least a little context – you would think – to give them reason to ask about what I was doing there. But no – all the questions were centered on where I went to temple, how often I went, etc. Apparently I successfully convinced them that I was Jewish enough because after 10 minutes they let me through the light version of Israeli security.
A huge thank you to Saed and Yadin from Sadara for hosting me. And especially to all the great entrepreneurs I met with while I was there (especially George for the great meal in East Jerusalem and Yousef for our breakfast in Ramallah). It’s both humbling and exciting to be welcomed so warmly into this great community of entrepreneurs.
Join the search revolution! Introducing: Trada
While search marketing is already a huge business, more and more companies each day are discovering the advantages of advertising directly to customers through search engines. Companies like that they can directly measure the impact of their spending – from the clicks they are generating all the way through the products they are selling as a result of those site visits and that they can quickly and easily scale up their spending on what’s working in their search campaigns. With different ad groups, ad copy and landing pages, search marketers can customize their campaigns to fit their business needs.
If there’s a downside to search, however, it’s that effectively managing search campaigns is extremely difficult. Even if you confine your efforts solely to Google the complexities of creating ad groups, generating keywords, pricing each keyword, creating deep links into your product catalogue, managing spend variants by day, figuring out broad match vs. phrase match vs exact match vs negative match, etc are daunting.
One of the ironies of search is that while technology of search itself is in many ways disaggregating the relationship between marketers and consumers (and bringing them directly together), the business of search itself isn’t something that can easily be disaggregated by technology in the same way. Search is simply not something that lends itself well to machine automation. And while there are a few software platforms available for managing search campaigns (mostly focused on the high end of the market spending > $100k/month on search) these packages are primarily designed for people who are already search experts. It’s almost impossible to take search knowledge and put it into an algorithm. As a result, companies that lack this expertise are at a huge disadvantage in the search game (this is true of many agencies as well who use search marketing as a lead-in to offer other more lucrative services).
Today we’re launching Trada. And fundamentally changing the game in search marketing.
Trada has been working in stealth mode for the last 18 months to build a system that harnesses the power of a “crowd” of search experts to work on behalf of advertisers. The Trada system easily allows advertisers to upload campaign information and connect with hundreds of search experts. It’s not a referral site – the Trada experts work together, through the Trada platform, to create the broadest possible campaign for each advertiser. These experts get paid only for generating clicks and/or conversions for Trada advertisers (depending on whether a campaign is in pay per click or pay per action mode). We work in the middle to enable these campaigns and make our margin based on our search experts’ ability to beat your pre-determined CPC or CPA rates.
The company opened its system to a small group of advertisers in January 2009 as it worked out the specifics of the platform. Trada has served over 70 customers in that time period. The average campaign in the Trada system has over 100 ads (most proposed by Trada optimizers), 6,200 keywords and an average of more than 20 optimizers working on behalf of each advertiser. If you’re working in search marketing, these numbers blow you away. Advertisers can currently run campaigns – through a single Trada interface – on Google, Yahoo and Bing.
This company is near and dear to my heart, as I’ve been with CEO Niel Robertson and the rest of the Trada team from the very start of the business (and together with them am a co-founder of the company; read Niel’s post launching the company on the Trada blog). I’ve known Niel for almost 10 years now and one of our goals with Trada has been to step away from the traditional VC/CEO relationship. We’ve done that over the last 18 months of the business and developed an unusually close partnership – the initial result of which you see today. There’s a ton more to come with Trada. Stay tuned!
Learn more about the search revolution at www.trada.com.