Reflections on 2006

What did I learn this past year?

VC is in recovery, but may not be a stable asset class.

Nothing/no one is immortal

Customers are still the only ones to determine if your company lives or dies.

Peace of mind is paramount in making a sale.

No Co-CEOs was the most popular searched/found article I wrote.

If you're going to start a business and succeed, nothing any one else says either encouraging or discouraging will help or stop you. Customers who purchase will determine your success.

Outsourced Sales force

I’m on the record on being very cautious about using outside sales people. My fundamental assertions are outsource everything except innovation and sales.

Using an outside sales force sounds great, works hard.

In using someone else’s sales force, you need to make sure everyone along the critical path is taken care of.

For the sales people themselves, this means a spiff (if you don’t know what that is, you really shouldn’t be using an outside sales force). It also means commission rate, and ease/speed of sale. From the guy on the line, he wants to make as much money as possible, with the least amount of effort. Also recognize that most customers have budgets to spend. So the sales person will try and make sure that the customer is satisfied. But will do so in the most economically advantageous manner for the salesperson.

A real world example in Freakanomics was the real estate broker. Here, the sunk costs for a transaction and the transaction itself was the most valuable. Getting the highest possible price was not. The marginal value of an extra $5000, might translate to $75 (1/2 of the 3% commission). That can be a lot of work for that last $75. So it might be better for the person to push a transaction, and then use the time/effort/energy to get a second transaction going, instead of maximizing the sales price.

Now, if you’re going to use someone else’s sales force, you need to see how the sales manager is rewarded. Is it based upon margins? Volume? Type of transaction? Is this aligned with how the sales force is rewarded? Is this aligned with how easy the transactions are to execute?

Then let’s go up one more level to the C-level folks at this outsourced sales company. What’s their incentive? How are they rewarded? How much revenue/margin is there on one of these sales transactions? How many resources are required for the sale?

Can you answer these questions with confidence? Can you see all the moving parts involved in getting one transaction done? Remember, just because you’ve motivated the sales force, still doesn’t mean you’ll get sales. Now you’ve got to do all the normal work of understanding the customer’s motivations, the user’s adoption cycle, the benefits of your product/service to the buyer. Oh, and one more thing, because you’re outsourcing the sales force, you don’t receive direct feedback from the customer.

If you know how hard it is to get a sales person to do ANYTHING other than sell. Such as fill out expense reports. Then recognize that the feedback you get from most sales folks is “get this feature in.” But at least you’re getting that feedback. With an outsourced sales group, you might not even get that much.

Lunch with an old friend

Talking with an old friend over lunch today.

The discussion went from our shared past, to the possible future. He was contemplating starting one more company. We talked about how it can take 7 to 10 years to become an expert, and that failure was part of the experience.

We also joked how many entrepreneurs managed to get their spouse to support them through the initial phases of companies.

It is hard on relationships, starting companies, growing companies. Not all marriages survive.

Good entrepreneurs are measured by one primary yardstick, the success of their companies. Other aspects of life aren't always rewarded or acknowledged.

Coal Cars

News week article on Coal fueled cars.

Not sure if this article is correct in all the presumptions.

1. sequestration actually works
2. CO2 emissions from the fossil fuel are completely captured

I’m guessing that the CO2 emissions from turning coal into liquid is captured, but there’s still CO2 emissions coming out of the tailpipe.

I won’t argue that this is not ecomonically efficient, it probably is. I’ve written before about the tar sands, shale oil, heavy crude that’s out there, coal is just another form of fossil fuel that requires refining before it turns into gasoline.

The 14% corn for 2% transportation fuel is an easy statistic to throw out there. Again not wrong, but it ignores any further progress possible in biofuels, while presuming highly efficient and effective processes for clean coal.

China stopping their production of corn to ethanol sites, because of the food or fuel dilemma was an interesting bit. Electricity will end up as the final transportation fuel. Liquid fuels, as energy dense as they are, are expensive in the two realms of energy independence and carbon emission.

Personalized written cards.

Reasons why a personal hand written card can make you standout more than a simple email greeting card.

Writing a thank you card is hard work.
Signing your name is rare in today's email world.
Sending Holiday cards this season is hard work. I'll admit I wasn't able to send a card to everyone I should have.

But I was able to send a card to the folks I needed to.

When you're trying to make an impression, make a good impression.
Send cards to customers, send cards to suppliers.
Stay in touch with the folks who will make your business successful.

Lots of water used

USA Today poll of how much water we use

80 gallons a person of potable water each day.

That’s 10 people’s worth we send down the drain.

We bathe in drinkable water.
We wash with drinkable water
We clean with drinkable water

It's available, and inexpensive, a luxury we enjoy.
But not always appreciated, nor understood how we can have so much clean water available.

Unfotunately, this might not last forever.

Think water’s not important in the US?

Washingtonpost article on water out west.

This bit on the recovery of the Owens River shows how hard it is to distribute water where it used to run.

It’s also a sign of how much work still remains. But if we can solve the scenario out west, there's hope for exporting that knowledge to other parts of the globe.

No halo for being wealthy

An interesting bit on how children equate good fortune with being a good person.

Page 3 has the telling comment:
…need to believe in a just world, where good things happen to good people…

It’s a simplistic world view.
One that is comfortable and untrue.

Why is this significant? It explains the attitude of some people towards funders. If the guys with money have money, they must have done something to get that money. This isn’t always true, but the halo effect seems to exist.

To the Entrepreneurs:

Understand that this might be part of human nature. And don’t get blinded by this.

When an investor tells you to do something that’ll grow the business for the next 3 years, and another investor tells you to use rocket fuel to hit the hockey stick, recognize they’re both telling comfortable lies. Neither one of them really knows what to do. But as you write your bplan and provide credible fiction, you should understand where you want to go and how you hope to get there. Don't take their word, just because they have access to cash.

Listen to the input, and if it's worthless, ignore the advice, and the check.

Words from Branson

Article in Newsweek from Branson

Few interesting tidbits.

He quotes Lovelock’s Gia hypothesis

But biggest for me was this: Cillion investment for 75 mil.

That was what stunned me. Cillion could be a very good investment. Lots of big name players involved, and enough people who want it to succeed so that it might just do well.

But I have my doubts on corn based ethanol systems. The good news is that some visionaries see ethanol as a stepping stone to a different transporation fuel. Most folks don't care what they put in the tank, as long as it's cheap.

So the challenge is easily described. Cheap gas.
The problem is doing it in a way that doesn't incorporate too much risk.

Plug in hybrids

Redherrig article on plug in hybrids.

The electric car has been a joke for a long time in this country.

But this is one step closer to accepting it as reality.

Jim Woolsey, former CIA director, has touted the additional robustness that a nationwide fleet of plug in cars can provide to the national grid.

I’m still of the belief that the upcoming DARPA challenge to get an automatic urban vehicle will be another piece that’s necessary but not sufficient for electric vehicles to succeed.

Power storage is the final puzzle, but we’ve seen improvements in battery technology

Firefly, if they pull it off, could be one of the ones changing that technology.

Powerstorage is an issue, but even with that solved, the auto-piloted vehicle is needed to completely change transportation.

As much as this is based in Science Fiction, movies like Minority Report, a driverless car changes logistics completely. The economics of transportation change. And while this might put the job of the truck driver in the same era of nostalgia as the pony express rider, the change will happen. Drivers get tired after too many hours on the road, but still they push themselves. Automated vehicles hold the promise of continual driving, without rest. Who knows, it might even bring back the trains as ways to move large amounts of heavy cargo across the country, and just have the trucks roll off and onwards to the final destination.

This might be fantasy, but it’s the direction I’m looking in right now.

Source for biodiesel

Redherring's article on various sources for biodiesel.

Kho brings up the topic of food or fuel.

That’s fine. And the idea of using algae as a fuel source is interesting. But it’s still a ways out.

Why not phytoplankton? Grow those critters as efficiently as you can. And what’s the issue with light? Why not some simple light piping/fiber optics through the water? I’m sure there’s a smart reason for that. I’d hate to think that this was all an issue because some biologists won’t talk with a physicist.

This is not an idle issue. Getting a reliable source of biodiesel will change transportation of goods dramatically.

Breathable rubber

Article on a material with 1.2nm wide openings. It’s rubber right now, but the part that got me excited was the desalination capabilities of this material.

At worst, it’ll be the same as the current membranes being used in reverse osmosis systems. At best, it’s a water purification membrane that can filter, and remain sturdy while being self cleaning.

Again, I don’t know which technology will get us cheap clean water, and I don’t really care. Once that issue is resolved, we can work on the other big problems out there.

Tech going Fashion

Washingtonpost article on how Tech is starting to focus on the fashion angle.

Having worked in the fashion industry, it's going to be a crazy time ahead. Remember, there are 4 fashion seasons every year. That's a cycle of products. Lots of margin, but few things have staying power.