28
Jul
14

Consumer Startups Everywhere Else – Why Silicon Valley Whiffed on the Daily Deals Space

I ran into Michael Tavani last week - after co-founding Scoutmob, he is in the process of ramping up Switchyards, an incubator with the express goal of launching design-led consumer startups in Atlanta. This led to a bigger question – how should non NYC/SF startups approach B2C differently?

Atlanta, like most startup hubs outside the Bay Area and New York, has a better hit rate in B2B startups, with only a few B2C successes and some current companies with good upside potential.

Scoutmob is still in process, powering through a pivot from their roots in the Daily Deal space into Ecommerce, focused on sourcing unique local goods through their Shoppe. This is fascinating because they are actually touching on 2 startup categories that have been least centralized. Groupon started in Chicago. Outside of the fashion category, most big deal sites were elsewhere – Living Social (Washington D.C.), Woot! (Dallas), even late-entrant nCrowd (Knoxville). Except for a fashion deal cluster in NYC, eCommerce is even more decentralized. My startup, PerfectPost, often works well for eCommerce companies, and the number of ecommerce startups doing $20 million or even over $100 million in revenue in some suburban warehouse of any major city is just staggering.

Contrast this with the waves of consumer startup that have thrived in the Bay Area and New York. Social networks (Facebook, LinkedIn, Twitter), Mobile apps (Foursquare, WhatsApp, Instagram), and now emerging, Convenience (AirBNB, Uber, SpoonRocket, HomeJoy, Blue Apron). Young startups thrive on early adopters and effective distribution, and when it comes to consumer startups, it’s about meeting a need for an individual, and often, word of mouth.

The Bay Area in particular is flush with intelligent and curious people who feel the need to be “in the know” and innovative. If there is something new, many people will try it. If it doesn’t suck, they’ll probably tell a friend about it as proof they were inquisitive enough to be there first. You can argue about whether that is a real need, but it is effective and it gives young companies the early adoption and feedback they need to become a meaningful company, even if the initial experience isn’t perfect. Social sites grew this way. Mobile apps combined this dynamic with the world’s highest concentration of iPhones to get a head start, before the App Stores were overcrowded.

I would argue that the “Convenience” category of startup is arising from early adopters and technology with constraints unique to their home cities, and consumers with more money than time. When I first heard of Uber, I couldn’t understand the need to have an expensive black car roll me around town. For early adopters in expensive cities, it wasn’t that expensive for people who were looking to not own a car, or who were already highly paid. Their early adoption got Uber through the initial stage and to a scale where prices on normal cars dispatched through UberX are often worth a look for a less-techie Atlantan. But you can’t start a B2C company at scale.

Blue Apron, Plated, and HelloFresh are all high-end food delivery startups, all started in New York. New York is expensive and crowded, and apparently, grocery shopping in New York is an unpleasant experience. Paying $50 for a box holding the ingredients for 2 organic meals for 2 people seems outrageous when I have a family of 5, a car, and a Publix with a huge parking lot every 3 miles. But they can find enough New Yorkers for whom this sounds like a deal that they can reach new scales, offer new products, and probably get to the point where they can make sense in less expensive, organic-focused cities. Blue Apron offers 6 menus each week. A new startup in the space is only going to be able to offer 2 menus, for logistical reasons. In a price-sensitive market that likes to grocery shop, you can’t catch these guys, not head on.

So why did Silicon Valley whiff on the daily deal space? Because it was entirely about price sensitivity and trying new restaurants/stores based on a deal. These deals weren’t initially in apps – they were on web sites with printable coupons or delivered via email and text message. Chattered about on mature social networks. Distribution channels loved by the suburban set, but probably not sophisticated enough for the technorati, and certainly not worth trying some new restaurant without any FourSquare tips or Yelp reviews. In hindsight, missing this space was only a small mistake in view of its’ implosion, but the theme of finding Bay Area blind spots and exploiting them seems right.

Similarly, ecommerce doesn’t really depend on early adopters – not since most people got comfortable with ordering things on the internet. Country Outfitter sells over $100 million per year in cowboy boots, based out of Northwest Arkansas. The distribution approach is commodity stuff that most normal people use – Google Search/SEO, Adwords, Social Media, Email. They built a brand based on the shift of country style into mainstream culture. They ship product, so there’s no “one place” for early adopters. Also the exit multiples are often not as VC friendly.

So I think building a B2C startup based on early adoption of technology and “cool” apps or price insensitivity outside of New York and San Francisco borders on suicide. I think you have 2 choices – contend in a space that is mostly geography agnostic (eCommerce), or come with a strategy where your geography gives you early adopters that give you an unfair advantage over other people. An example of this could be Switchyards hackathon company Vacayway, started by one of our advisors, Lance Weatherby. 7 of the top 10 vacation rental markets are in Florida, our southern neighbor, and traffic in this space is probably driven by word-of-mouth, search (Key West Rentals), and AdWords.

Consumer startups elsewhere need to claim local advantages or play on even playing fields instead of trying to beat the Valley at its’ own game.

01
Mar
13

Atlanta: The Unsurprising Home of the $200 Million Series A

The big news over the weekend was Atlanta’s own Mobile Device Management startup, Airwatch, raising $200 million in its’ first institutional round of funding. That’s an eye-popping Series A round in any market, and no fluke from a founding team that built Manhattan Associates into a public company. Atlanta has enough of the right ingredients for startup success that our near absence of institutional investors spawns startups with the survivability of cockroaches, undaunted by the nuclear apocalypse of the “Series A Crunch”, fed by a steady diet of customer revenue. Georgia’s the regional, national, and international headquarters of many a company, and the crumbs in their budget are meaningful meals for growing, scrappy startups in businesses that many would ignore as “unsexy”.

It’s been pointed out that Atlanta isn’t one of the top ten startup markets, but this is a flaw of measuring only the measurable. When you measure with investment dollars in funding rounds, you don’t count companies like Pardot, that sell for $100 million with NO outside funding. When you only count exits, you miss companies like MailChimp, fully bootstrapped and potentially worth over $1 billion. How do you financially measure a MailChimp?

We have three email marketing startups (possibly four) that send over 3 billion emails per month each. Only ONE of them (Silverpop) has taken measurable outside funding.

Spanx is private with no outside funding, probably worth > $1 billion. InComm has massive market share in the HUGE market of physical and digital gift cards – private with no investors and immensely valuable. I can’t find definitive details, but it certainly appears that Radiant Systems built their business with no reported investments, possibly some strategic investors. Cloud Sherpas leapt to an impressive $40 million Series B after 2 prior rounds that would qualify only as “seed rounds” elsewhere.

This pattern is both nature and nurture. With limited seed capital and even more limited venture capital, many viable Atlanta startups reach sustainability before they ever encounter an interested, appropriate investor. A $200 million Series A isn’t shocking, because it’s been preceded by 8-figure Series A & B rounds, 9-figure acquisitions of bootstrapped startups, and $1 billion+ companies build without outside funding.

And there are fresh, silent, killer startups rising through the ranks in Atlanta. Some have funding, some don’t, few have the sizzle and press of their peers in the top 2 markets. If you’re one of these startups, make some noise along the way – some of our low profile happens because we just don’t seem to know how to highlight our wins along the way. If you’re on the sidelines admiring startups from the “safety” of a corporate job, make the sacrifices to get in the game – big things are happening. If you’re an out of town investor, make like 500 Startups’ Paul Singh and find the hidden gems of Atlanta companies that you can move the needle on. They’re here.

And don’t be surprised when the next few 8 or 9 figure Series A rounds drop in Atlanta. Those companies are here and growing like southern Kudzu, taking over, whether or not you help them.

11
Feb
13

Do Memorable Things, and Make Them More Memorable

Last year, my wife and family conspired to send me to the Super Bowl in Indianapolis. She and my family are awesome. I’m sure many people received such a gift. I’m sure many people took this gift, headed to Indianapolis, drank some beer, watched the game, and went home. I doubt that many people had my experience of meeting the eventual lead investor in their startup’s seed funding round.

I do credit this unfolding of events to divine providence, but it’s also an unlikely unlikely turn of events if you just stay in your hotel room. Going to the Super Bowl is memorable. It’s even more memorable if you watch Shark Tank next to Mark Cuban, get a last-minute pass to watch the Celebrity Beach Bowl, watch The Fray perform at the VIP after-party, get Priceline co-founder Scott Case’s $800 VIP pass to the Taste of the NFL, get into HDNet/axsTV’s invite-only party without an invite, watch the 2nd half of the Super Bowl from the 7th row on the 40 yard line, and meet Jimmy Fallon at his show after-party, where Katy Perry is chilling in the back with 10 of her friends.

Going to the Super Bowl is extremely memorable. Finding opportunity for awesome experiences in the creases around the Super Bowl is even more memorable, and such experiences come from hustle – a relentless desire to upgrade your experience.

Last year, I went to the SxSW [South by Southwest] Interactive conference for the first time, in my 1st year as a startup founder. SxSWi used to be small, offering the opportunity to meet Foursquare Founder Dennis Crowley and other startup “celebrities” with minimal effort. Last year, I heard many people dismiss SxSW as “played out” and “overrun by brands and agencies”. I saw this as an opportunity. Badgy works with brands and agencies, especially those with online commerce in their business. While I didn’t meet many “celebrities”, I met many people that Badgy can help, and with that comes an early startup’s real celebrity: revenue. It takes work, but it’s worth it.

Today and tomorrow, I’m at the Everywhere Else Conference in Memphis. I’m here because the conference runners asked me to come – they organized the party in Indianapolis where I met our lead investor, so coming here to speak on a panel is a small favor to return, and still a huge opportunity. I work VERY hard to avoid being the “Conference Ho” Mark Suster writes about, so I had to think about what opportunities would be available here.

First, there’s the funny dichotomy of investors. If you’re attending conferences hoping to meet investors who will fund you, just stop. Even profile venture conferences are largely entertainment and social gatherings, but by the same token, founders should always be ready to tell their story in a way that will intrigue investors. I do think we’ll meet some medium-size businesses that are good potential customers for us. With the startup bent of this conference, I fully expect many attendees to be far too early in their business for Badgy to help. I can give them some advice, which is worth what they’ll pay for it, but I’m constantly thinking about how to make this conference even more memorable.

So I’m looking ahead to SxSW. This year, we have a product that’s out in the market, so I’ll be working hard to meet potential customers. We have growing traction and money in the bank, which makes for an optimal time for whatever investor conversations may happen. Last year at SxSW, the most effective moments came either when I was holding a microphone or talking to people one-on-one. One opportunity for both of these is the SxSW VC Fast Pitch event. I’ve found that the awesome #ee2013 audience has been kind enough to help vote for us – we’re in the top 5 now, and need a few more votes to make our selection a certainty – to share our story and get individual conversations with people who can help. If you’ve taken the time to read this far, please take another 60 seconds (or less) to vote for Badgy for this event, helping us make the massive event of SxSW a more memorable event. I’ll look forward to coming back here and telling the story of how you helped us make a memorable event more memorable.

02
Nov
12

What Commercial Real Estate Doesn’t Understand About Startups

Between David Cumming’s post on Costs of an Initial Startup Office, the Atlanta Business Chronicle’s article on Buckhead startup real estate (mysterious contents hidden behind the paywall, [edit] at the time of writing, this article’s mysterious contents were hidden behind a paywall – apparently the best social conversations start 30 days after an article is published), and the swarms of CRE agents wooing startups at Venture Atlanta, it’s clear to me that most commercial real estate professionals in most markets have no clue about the needs of startups.

I’m speaking primarily for startups that haven’t yet raised a sizable Series B round or attained scalable profitability. I know because I’ve been on the executive team of 3 prior startups where I searched for office space, and now weigh these decisions now for Badgy.

Here’s what CRE doesn’t understand:

  • We WILL NOT sign a 2-5 year lease - a funded startup is betting on growth or extinction in a very short time frame. Most startups will vacate their initial office space in the first year, due to either growth or death. In growth, the remaining lease can significantly hurt the company. If you make the founders personally rep the lease, you harm them. If not, it’s your own illusion they’ll pay. 6-12 month leases are best. Month to month with a 60-day kickout provision is better and helps YOU while you wait for that big-ticket 5 YEAR lessee that DOES want to spend $10/sq ft on build out.
  • We don’t need a build-out allowance - Cummings cites $30k built into the lease to cover changing carpet and moving walls. Young startups evaluate space on a “take it or leave it” basis. Either the space is adequate, or it isn’t. Open team environments matter. Spending 3% of a $1 million seed round on office build-out is irresponsible. Maybe you want to force lessees to help you modernize the space. Startups don’t care. Now matters. Pretty doesn’t.
  • Flexibility Matters - longer leases CAN make sense for a startup IF you have a nice portfolio of space in the same building and nearby buildings that they can transfer to WITH NO PENALTY (other than larger square footage) if they need to expand. This flexibility can be an asset for owners AND startups. Fluidity is among the most important considerations for a startup.
  • Fiber connectivity IS important - maybe it blows your mind that a company of 10 people will accept old carpet and imperfect office configuration but won’t sign a lease on an office that tops out with a crummy Comcast DSL connection. Welcome to priorities. Startups don’t live or die by pretty offices. They live or die by delivering releases to customers and getting better leverage on their developers and designers. Bandwidth matters. Pretty glass conference rooms don’t.
  • PARKING - For startups, parking is not an allowable profit center. You have empty space in your building. We want to pay for it. We DON’T want to pay an extra 6% because we live in a car-centric city and our employees need to park cars. If your parking deck is nearly full, by all means, charge for it. If not, chill out and give a startup a break. We’ll ditch your parking and walk a few blocks from a surface lot if it’s REALLY that important to you to charge a premium. We see it as just another part of rent.
  • We’re not amused by your never-ending vacancies - some of our companies may not last a long time, but WE do. We know when we are looking for space for one company, are confronted with a 3 year lease, and our next company looks at the SAME space 3 years later. Nobody has occupied the space in that entire time, and you STILL ask for a 3 year lease. It’s a joke. We’re short term. Make money off of us for shorter seasons while you wait for your perfect tenant. Spaces sitting vacant mean we neither trust nor understand your multi-year leases.
  • We don’t often have ‘Sugar Daddies’ - We have had the privilege of setting up shop at Flashpoint and Hypepotamus. In both cases, we’ve benefitted from the benevolence of others willing to make an investment in building startup communities. Commercial brokers have remarked to me that we needed MORE people like Hypepotamus’ Kevin and Heath to bridge the gap between startups and commercial real estate. Betting on benefactors to reserve large chunks of space over several years for  startups is NOT a scalable or dependable business model.
  • We’re not going to trash the place – Do your homework. By the time a company has raised at least a seed round they’ve been through enough vetting that they’re not about to go and throw a college keg party in the space and destroy it. Examples to the contrary are welcome, but likely infrequent and perhaps even spread across companies of all stages.

Almost every major local conference I go to is blanketed with service providers scouting for clients. Commercial Real Estate agents see startups cashing big investor checks, and see a potential solution to their vacant building problems. Startups can be this solution, but you need to understand that they have different needs. These aren’t law or accounting firms that want to make their office super-plush on a long-term lease. For startups, growth is important, and planning for growth is fundamentally incompatible with the stagnant trajectory many commercial leases take.

If you’re in a major startup market, and you need renters for your vacant office space near the startup cores, there is a VERY real opportunity. Understand the needs of startups, craft your lease terms accordingly, and you will quickly gain a reputation that will fill your buildings with smart, energetic, young companies.

12
Oct
12

Proof of Atlanta’s Marketing Tech Startup Hub – 1/2 a Billion Dollars – Pardot, Vitrue, BLiNQ

It’s often said that “good things come in threes”, and today’s announcement that Exact Target is acquiring Pardot for $100 million completes just such a trifecta. The deal caps a theme started by Oracle’s acquisition of Vitrue for $300+ million and Gannett buying BLiNQ Media for up to $92 million. That’s nearly a half billion dollars in Atlanta exits from marketing technology companies in less than 6 months. MailChimp is here, thriving, and possibly worth more than all of them combined. That’s not an accident.

Pardot CEO David Cummings noted this trend 2 years ago, and Half Off Depot COO Lance Weatherby delved into some of the fundamental reasons later that year. We are in an era where the Chief Marketing Officer of major companies can buy technology products and services without the approval or even recommendation of their CTO or CIO. Atlanta is flush with large, consumer-facing companies – they haven’t always been strong customers or acquirers of startups, but their very presence shapes the character and mindset of the town and its’ entrepreneurs.

Atlanta thinks about problems that large, growing, and huge companies have – information security is one class of problem Atlanta rose to solve quite well. Now it is marketing technology’s turn to join the conversation. We have fresh generations of founders and companies focused on these problems. We have the talent to start these companies and the talent to grow them – as these companies grow, they pluck some of the best talent from Atlanta’s thriving marketing agencies and consumer brands, and form the foundation for the following generation of founders.

I first started working on Badgy around the time Lance and David started having this conversation. Feedback from many mentors, investors, and others was that marketing wasn’t an area for technology startups, and that I should focus on “something Atlanta is good at, like Health Care IT or Information Security”, both of which I find about as appealing as pink slime, with all respect to the founders who love such things (slime, health care, or security). Starting a company requires a balance of taking advice and completely ignoring it. I’m glad some of us ignored such advice.

We’re just getting started on this. This is the moment where people stop just thinking that Vitrue was a fluke or that BLiNQ was a coincident echo. Marketing Tech is real in Atlanta. We have exited founders and early employees equipped to invest in and start new companies. This is the time for Georgia’s advocacy groups to begin drawing up the maps of companies in Atlanta’s marketing technology cluster. This is the time for our local, large public and private companies to get serious about tapping into the local technology that can help their business and spur innovation, and it’s also the time for them to dive into the ecosystem and buy some companies where it makes sense.

Kudos to David Cummings, Reggie Bradford, Dave Williams, and their teams on building outstanding companies and outcomes. Let’s do a great job telling these stories and building a narrative going forward. This very week, someone from a local marketing agency said to me, “it’s a shame there’s not much going on with startups in Atlanta.” Nothing could be more false, but it is the perception because we can be pretty terrible about building these narratives. Great things are happening, Let’s keep talking about it.

18
Sep
12

Comparing Accelerator Classes, and the Evolution of Flashpoint

It’s inevitable that successive classes of startup accelerators will be compared, and so, with this week’s demo day for the second class of Flashpoint, Georgia Tech’s startup accelerator, I’ve heard countless comparisons to the first class, which I was a part of. So how do you compare different classes from a startup accelerator?

Comparing startup accelerator classes can be as misleading as comparing children. Comparing a class of 9 month old startups to a class of 3 month old startups is as absurd as comparing 9 month old and 3 month old babies. You may think you remember what those 9 month olds were like, but without photos, video, and careful note taking, the comparisons are likely to be wrong. Further, Survivorship Bias means we’re likely to recall the successful survivors of each accelerator class while forgetting the failures.

So what empirical criteria exist to evaluate startup accelerator classes? I would suggest that initial quality of companies entering a class, viability of graduating companies after 6-12 months, and funding outcomes are all plausible metrics for evaluating startup accelerator classes.

Incoming Company Reputation – How hot are the companies even before they start the accelerator? This can be an indicator of the reputation of the accelerator. Any new accelerator will do well to cherry-pick a bit on their first class and pick some known commodities. Success takes time. Picking companies closer to success helps the early reputation of the accelerator. Our first class had local brand-names in Pindrop Security, CodeGuard, RideCell, and SportsCrunch, who had all raised real-deal rounds. The new class’ only known company was We & Co, with some funding in the bank, and a west coast swagger that confused some locals.

Founder Pedigree – I’ll naively examine this from a perspective of previous startup exits. The first Flashpoint class had Pindrop’s Paul Judge as Chairman and a couple of founders with 8-figure exits in their past. This second class has been impressive. 3 companies have founders who have built $100M+ companies, and at least one other company has founders with an 8-figure exit. Flashpoint attracted more proven founders in its’ 2nd class, which is a good thing for everyone involved. Flashpoint attracted more proven founders in its’ 2nd class, which is a good thing for everyone involved.

Survival - Long term viability is not comparable for a newly graduated accelerator class. Few will mention it, but 3 companies from Flashpoint’s 1st class have effectively folded (moving on from an unviable business is a good thing).

Fundability & Exits - 7 companies from the 1st class have more funding behind them (), and 6 more companies are still active without new funding. 6 months from now, we’ll see how this fresh class has done, even though the thriving survivors from the first class will be even more advanced by then, and presumably some of the new grads will have moved on.

Atlanta can be a tough town for young startups. Few graduates from either Flashpoint class have their entire business sorted out. If they did, few of them would be asking for investor money. If you compare 6 month graduates to fresh graduates, the older class looks better. Comparing incoming momentum, my Flashpoint class had a certain shimmer, but the fresh crop has a nice track record. Over the long term, we’ll all help each other succeed.

Some people were harsh on the new graduates. The hard truth for Atlanta critics is that people who have seen Flashpoint demo days AND demo days of other cities have said that our startups are much BETTER both in pitch and in company quality than other demo days (with the notable possible exceptions of TechStars, 500 Startups, and YCombinator). I’m encouraged by the current Flashpoint class teams that are carving out their funding rounds with messages refined in the fire of Flashpoint. I’m discouraged by teams that aren’t seeing as much traction. Most of these teams are chasing big markets with plausible plans hatched from real conversations with real customers, and the willingness to admit when their assumptions are wrong and adjust course. They’re good startups working hard to become good companies. It may take more cycles of creating companies, selling, and reinvesting, but Atlanta should be finding ways for these companies to thrive.

07
Sep
12

Pivoting without Passion

For web startups, the “pivot” has become a nearly universally applauded badge of honor. There is much to be said for having the boldness to admit you’re wrong about some aspects of your startup and adjust course. Far too many startups have failed by following the same failing strategy into the ground. I’ll use the term “pivot” loosely, even allowing for a change in vision, but a pivot into an area where a team has no vision is a recipe for failure.

The pivot-madness has grown so strong that the pivot-backlash has begun. The Harvard Business Review slams a YCombinator founder for “Too Many Pivots, Too Little Passion“, but they’ve read the situation exactly wrong. They present the story of Brandon Ballinger, who vacillated between 5 different ideas before settling in on one for YCombinator’s demo day. Startup founders ought to be people of passion – perhaps even people of many diverse passions. If a YCombinator founder explores several markets they’re interested in before identifying one that shows some traction, that’s not a bad thing. In fact, it’s far BETTER than picking one of their passions, chasing it for 12 weeks, and hoping for the best. Having multiple passions doesn’t indicate a lack of passion.

In my time at Georgia Tech’s Flashpoint Startup Accelerator, we saw a number of pivots in our class. We had a company pivot from helping people buy cars to resolving family conflicts, from digital publishing to corporate newsletters, from deals for nerds to deals for churches, and many more. All pivots were rooted in Customer Development, and showed some degree of market traction. In the long run, the success of these teams seems to have been more rooted in passionate the team was about their validated business than about the degree of traction.

My company, Badgy, was pressured heavily and repeatedly to pivot. My passion for Badgy comes from previous work in social networks and social games. While many mentors assumed my strongest passion was for social apps, I knew when they pressured me toward building social analytics or social conversation management solutions, that just wasn’t my passion. My passion is ultimately in a fascination with human behavior and motivation, with finding ways for people to find unexpected joy in activities they haven’t seen or done before. We pivoted to broaden our channels. We pivoted our value proposition from “engagement” to increasing distribution of social content, and eventually to driving sales – all of this still perfectly aligned with my passion around human behavior.

Much ado has been made of YCombinator’s invitation to accept companies with no idea. While this may seem insane at first, and it has been defended as a bet on the team, I believe it’s deeper than that. I believe they are looking for talented teams with things they are passionate about. Vision comes from passion, and I believe that every talented team with things they are passionate about can find a way to build those passions into a high growth startup if they are willing to throw away their assumptions and find the path to connect that passion to a market.

A current Flashpoint company I know, We&Co, is passionate about the service industry, restaurant servers, bartenders, retail workers, etc, and they’ve masterfully experimented in that space to find a growth market. Another killer Atlanta startup, Mowgli Games, is passionate about democratizing the creation of creative content. Although this started as a social game to create music that would monetize their users, they’ve moved beyond initial assumptions and have transcended the mundane label of “social game”.

So if you’re thinking about a “pivot”, take a step back. Figure out what pieces of your startup you are passionate about. “The whole thing” is not an option. “I’m passionate about doing a startup” is the worst option – startup-fever is not a passion, it’s just going along with the crowd. In basketball, once you stop dribbling, you have to keep one foot planted and you can move the other foot around to find an angle at a shot or a pass. If you don’t have any feet planted, you’re just spinning in a circle and looking silly. That’s what pivoting without passion looks like. It looks pointless, and it looks ineffective, because it is. First, figure out what you’re passionate about, then iterate around that passion to discover a business.




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