The Case for B2B Startups: Profits #tech #startups #b2b

b2bIt seems all the “cool” start-ups these days are in the B2C space. List after list of the startups to follow includes mobile apps that you and your friends have got to have.  You read about what they are doing and some of them are absolutely cool and have the potential to change the world. A lot of them also have no monetization strategy.

Which brings us to the “uncool”, “unsexy” world of the B2B startups.  Those of us working on creating a business to solve a business pain often get overlooked as we probably lack the cool factor. We are also highly focused on solving a business pain that we have personally experienced, so only people who have experienced that specific pain in their business can fully understand what is the value we bring to the table.  But the real advantage in the B2B space is the ability to monetize and to monetize early.

So if you are thinking about starting a startup, here are some thoughts on why you should give a B2B idea a chance…

  1. You can get to market validation faster than in the B2C space. In the B2C space,  you require a massive amount of users. In the B2B space you can validate the value of what you are building early and pivot if necessary
  2. You may not need investors. In the B2C space the revenue models are uncertain, and revenue is a long-term strategy.  In the B2B space you can become self-sufficient early. Revenue is a short-term strategy.
  3. 80% of the US tech startups most likely to go public are B2B companies (Source: CB Insights tech IPO pipeline report)
  4. Estimated amount businesses will spend on enterprise software in 2013 (Source: Gartner)

In addition, if you already have experience in the B2B space, you may have two things that are critical to the success of a B2B business:

  1. Relevant business experience.  You have lived a pain and in the process of addressing it you have come up with an idea or a way to solve it. You will be able to understand what your clients go through. You will be able to talk the talk.
  2. You have a network. You have built a network of connections that can be either potential clients or that can help you connect with other potential clients.

What is Startup School? My experience attending @startupschool 2013

Startup School 2013 SpeakersWhat is Startup School?

Startup School is an annual event created by YCombinator’s Paul Graham. It is also a must attend event for any aspiring technology entrepreneur.

The best part? attending the event is free.  However, if you want to attend, there is a lot of competition for limited seats. You will have to fill out an application and provide information about your education, work, developer tools, and “the coolest thing you’ve built”.  So you better have something interesting to say as not everyone that applies gets to attend.  Graham has stated: “Many founders have told us that this event was what finally made them take the leap”. It’s also probably a very good first step to applying to YCombinator if you want to get into the world’s most prestigious accelerator program.

I was one of the lucky attendees selected this year and it was a life changing experience.  If you are starting a startup, or even thinking about it, you must try to attend. Every speaker provides a different perspective into their story and their learnings, but the one thing that is common to all of them is their passion for what they are doing, and for how they are potentially changing the world. Also, spending a day surrounded by energetic like-minded individuals is extremely inspiring.

Some of my notes from the event:

Phil Libin. Evernote Founder

The most important thing to do as young in age as possible is to cultivate a group of brilliant, high energy, willing to work for free best friends for life. I would go so far as to say…You shouldn’t even make friends with people who you don’t see starting a company with. You only have so many best friends in life, and you should imagine them as co-founders…

Evernote is his third startup. He has worked with the same team of friends throughout the 3 businesses and he has learned some important lessons

First lesson: don’t be consultants. His first company was an ecommerce consulting business and he felt that although the rewards of building something for someone else were immediate, they were really not building anything lasting.

Second lesson: build a product.  After the consulting business he felt he wanted to build a product.  He established a partnership with a brilliant individual but the problem was….. not one of them was in love with the product.

Third lesson: build a product that you love. You should not build any product.  Investors kept telling him to think about what the market wanted and reminded him that “he was not the target audience”. Which is important advice in the B2B space but not necessarily in the consumer space. In the consumer space you need to build something you love, and make it something that lasts as a company. To build something lasting as a company, you must not have an exit strategy, only a liquidity strategy.

As they built Evernote, they were running out of funds and as he was making the decision to shut down, he got an email from a random guy in Sweden who said: “I love Evernote. I have used it for 2 months and it has changed my life. Do you by any chance need investment?”. They spent 20 minutes on Skype and the random guy wired him half a million dollars which was enough  for the company to survive for 6 months. They received additional investment from international investors, but not Silicon Valley, and every investor was a fan of the product. Don’t be in this business if you want easy! It gets better but harder. In some sense more fun. It is not fun day to day. It is fun month to month. The only reason he can do this for the rest of his life is because he is doing something he loves, not just making some money.

So remember to build something for you, something that you love, as that way you will know when it is great. Make something epic and you will know when you have achieved greatness.

Dan Siroker. Optimizely Founder.

As you build your product, get feedback. Learn the value of the feedback loop. Focus on continuous improvement to build a lasting product.

Dan shared what he would have wanted to hear when he originally attended startup school. His first approach into entrepreneurship started after doing research on machine learning and sentiment classification. He tried to apply it to the stock market, but never made a profit. Time from launch to first paying customer: infinity. He then decided to work for Google as he wanted to learn the skills that would make him successful as an entrepreneur. The most important thing he learned was the value of the feedback loop. (In his first startup he had no customers, so he never had feedback and could not turn that product into a successful one).  In 2007 he heard Obama speak about how to bring data to government. He quit his job at Google and signed up as a volunteer. He joined the new media team to run A/B tests and became Director of Analytics for the campaign. His job was figuring out how to use data to help make better decisions. He used Adobe and Google products and got a ton of value out of those products.

His second business was Carrot Sticks, an online game to teach math. His clients were teachers, parents, and kids. They were neither and had a difficult time prioritizing what to do next. Then they founded Spreadly, a platform to monetize social sharing. This time it took them a month to get their first paying customer.

His current venture is Optimizely.  The inspiration came from the time spent at the political campaign.  He was running A/B tests but always required the use of a developer. He created a visual interface, and this gave clients the ability to do one time implementations without needing technical resources. It took him one day to get his first paying customer. It was also very easy to build this product because it is something he would have wanted for himself.

Ron Conway, SV Angel Partner

When looking for investors, look for those that add value to your business. Do not focus exclusively on valuation

Ron is an investor on Google, twitter, and snapshot among others.  40% of their startups go out of business.  So they invest in human quality, sometimes not even caring about what the product is. What they look for….

Promising signs of successful founders

  • Product focus.
  • Decisiveness.  They need to make decisions and keep momentum in growing their company.
  • They need to hire fast and fire fast. If there is dead wood in the organization, everybody else knows it. Morale can actually increase by making that decision even if it’s a co-founder.
  • Clear vision
  • Are other people going to work for her/him? Are they a team builder ? are they leaders? can they manage 1000 people? or can they grow into it?

Chris Dixon, Andreessen Horowitz Partner.

The best idea is a good idea that looks like a bad idea. Good ideas that look like good ideas are already being worked on by academics, government, and large companies.

A simple example of a good idea that looked like a bad idea is Google. When search engines started they were portals and the main objective was to get people to stick.  Google’s innovation was to get people to leave. Other examples are airbnb disrupting the hotel business, and ebay (why would you want to sell junk?)

How do you develop a good idea that looks like a bad idea? You need to know a secret. Something you believe that most other people don’t believe. How do you develop it?

  1. Know technical tools better than anyone else. Know technology better than other people. Dropbox is an example. File sharing needed to feel like a local drive. A brilliant MIT engineer cracked it.
  2. Know a problem better than anyone else. An example is Kickstarter. They spent 10 years trying to get funding.
  3. Draw from your unique life experience. An example is companies that specialized in protecting computers from spyware.  Virus companies felt that wasn’t important because it wasn’t technical enough.

What are the characteristics of a good idea that looks like a bad idea?

  1. Powerful people dismiss them as toys.  Telephone inventions vs. telegraphs.  Skype (could not work because people did not have microphones).  Broadband (who could possibly want it?)
  2. They unbundle functions done by others. Look at newspapers.  They have a brand (NY Times) and they have a curatorial function.  They tell you what matters on the front page. They have classified ads. These functions over time have been picked off one by one by technologies like craiglist, social media, and blogs. Now, individual reporters are the main attraction (for example Nate Silver). Let’s look at education.  Universities have a social role, educational role (coursework) and they act as credentials. Now let’s look at Udacity, coursera, all MOOCS.  They do not completely replace the university, but they replace pieces of the bundle.
  3. They start as hobbies. Business people vote by putting money into things they love. Engineers vote with their time. They work on what they think is cool usually during nights and weekends. Blogs started as hobbies, as well as web pages, browsers, open source, bitcoin, 3d printing, drones, big data frameworks, and github
  4. Does it challenge social norms? Examples would be ebay or airbnb

Chase Adam. Watsi Founder

Find something to work on that you care more about than yourself.

Watsi was the first nonprofit that made it into Y Combinator. Chase delivered a very emotional presentation describing how while in the Peace Corps sitting at a bus in Central America, he saw a woman get on the bus and collect money from strangers to pay for a health treatment for her child. She showed them medical records and inspired Chase to create Watsi, a portal to match donors with people needing health treatments throughout the world.  He described how difficult it had been to get investors, as most people would pat him on the back, tell him how great it was that he was doing this, but did not invest.  He described all the difficulties to get the business off the ground, and inspired the audience to look within for that “one thing” that we consider to be more important than ourselves. “This work is so hard, that it is only worth doing if it is that relevant to you”.  His presentation was met with a standing ovation.

Diane Greene, VMware Founder

Startups are one lucky break after another and you have to put yourself in the position to take advantage of the lucky breaks

Diane founded VMware, one of the most important enterprise software companies in the industry.  She described how they started, and how one of the initial priorities was to get rock solid patents.  Her conclusion: that did not help at all.  The success of the company was defined by establishing partnerships with hardware vendors.  She found a way for those vendors to make money, worked on building credibility, created a hardware partner program, and  gave all vendors a deadline to sign up.  (Piece of advice: always setup deadlines. Having a deadline helps in almost everything).

Jack Dorsey, Twitter and Square Founder

Build what you want to see in the world. That will resonate with other people. Sometimes you will win the bet. Sometimes you will lose. Put the loss on the shelf and bring it back another day.

Jack’s presentation was unique.  He did not deliver a presentation. Instead he chose to read paragraphs from books that have influenced him positively. He focused on two books:

The art spirit by Robert Henri. He describes an interesting parallel between artists and software creators. The end product is not the only important thing, the craft of making the product is important also. Doing, inventing within the work. Few have stamina to do it. “we are not here to do what is already been done”. Do not follow other footsteps. Do not copy others. Find your own path. A student must be a master. It is not enough to have thought great things before doing the work. We all have many ideas. What really matters is the work to implement those ideas. Don’t worry about rejections. Everyone that is good has gone through them.  Don’t let it matter if your works are not accepted at once. The more personal they are, the more chance of them being rejected. You are painting for yourself. We work hard to get positive feedback. But it takes years and patience.  There is a time and place for all things. What is difficult is to use them only in the proper time and place.  You cannot do anything without common shared purpose. Without common purpose you won’t do anything that is timeless.  Use fewer words, copy fewer things. Be short in words, long in meaning.

The score takes care of itself by Bill Walsh. Bill coached the San Francisco 49ers. He took a team at the bottom and brought them to the top. He did it by focusing on the details. He said.. clean your lockers, tuck in your shirts. You start with an idea, a mission and go and find people to help you implement it.  Establish a new standard of performance, specific attitudes and actions. Be clear communicating expectations of performance. Let everyone know you expect the highest level of expertise in their area. Teach beliefs. Teach connection. Measure.

Habits to be a leader

  1. Be yourself
  2. Be committed to excellence
  3. Be positive. (It is hard to do building a tech company)
  4. Be prepared. Good luck is a product of good planning. Lucky people are not lucky, they are prepared to recognize fortunate situations and act immediately when they occur
  5. Be detailed oriented. Pay attention to what other people don’t
  6. Be organized
  7. Be accountable
  8. Be near-sighted and far-sighted. Far is not easy
  9. Be fair
  10. Be firm
  11. Be flexible
  12. Believe in yourself
  13. Be a leader. Show, not tell.

What not to do:

  1. Exhibit patience. Paralyzing patience
  2. Massive or too little delegating
  3. Acting tedious
  4. Becoming best buddies with a few employees. Playing Favoritism
  5. Spend excessive amount of time socializing with superiors or subordinates
  6. Fail to continue tough evaluations of long time employees
  7. Fail to actively participate in efforts to get new hires
  8. Trust others to carry out your fundamental duties
  9. Find ways to get out from under the responsibilities, or to move accountability from yourself to others
  10. Promote a too relaxed work environment free of urgency. Aim for fun and tension balance

What happens to an organization when you start winning?

  1. Formally celebrate achievements
  2. Allow pats on the back for a limited time only
  3. Be apprehensive about applause
  4. Develop a plan for staff to go back into operation for success
  5. Address specific situations, mistakes, etc
  6. Be demanding.
  7. Don’t fall prey to overconfidence
  8. Use the time following success as an opportunity to make hard decisions
  9. Never fall prey to the belief that things get easy after success

Jack Dorsey’s personal list

DO:

  1. Stay present
  2. Be vulnerable. Show people your mistakes and fears because they can relate
  3. Drink only lemon water and red wine
  4. Do 6 sets of 20 squats and push ups through the day
  5. Do 6 sets of 30 sec planks
  6. Run for 3 miles
  7. Meditate on this list 🙂
  8. Stand up straight
  9. Say hello to everyone
  10. Create a video journal
  11. Get 7 hours of sleep

DON’T:

  1. Drink hard liquor or beer on weekdays
  2. Avoid eye contact
  3. Be late
  4. Set expectations and not meet them
  5. Eat sugar
  6. Eat wheat, lentils or dairy

Balaji Srinivasan, Counsyl Founder

Four cities used to run the US: Boston (Higher Education), New York (Advertising, Newspapers, Wall Street, Books), LA (Movies, Music), DC (Laws and Regulation).  Silicon Valley is becoming more important than all of them together.

paper belt

Balaji introduced us to the concept of Voice or Exit which is fundamental in Political Science.  He established an interesting parallel between politics and technology, and how when something is not working, you can choose “Voice”  and change the system from within” or “Exit” and leave to star something new.  The US is a nation of immigrants and a nation of emigrants. It is shaped by both Voice and Exit. Silicon Valley is also shaped by Exit. Exit is about alternatives, and Silicon valley is the ultimate exit. Technology has disrupted the main industries in the country, it has reduced costs, and it is allowing people to opt out of the world and into a digital world.

Nate Blecharczyk,Aairbnb Founder.

It is better to find a few customers that love you, than a lot of customers that like you.

Airbnb took 4 years to serve the first 4 million guests.  And only one year to serve the next 5 million.  Nate shared the story of how airbnb started and mentioned the importance of developing confidence. “You are going to fail more times than you succeed. So confidence is needed to persevere”.

Early in his career he took a corporate job and left it because he wasn’t learning.  Every experience in your life should be additive.  If not… Leave!!. After that he joined a startup and learned everything that should NOT be done. But every experience he had helped him be successful now.

On the topic of co-founders he mentioned his belief that the most important quality in a partner is work ethic. But it is also important to have complementary skills.  Choosing your co-founders is one of the most important decisions.  You can change your idea, but it is hard to change partners. Do not rush into a relationship as they need to last years.

Mark Zuckerberg, Facebook Founder

Why was Facebook successful vs. other companies in the space? Because we cared more than everybody else. They had more engineering power, more money, servers, and time. So other companies could have done it, but the fact that we cared so much made a difference.

As a kid he built tons of software that he wanted for himself. Games he wanted to play. Music players he wanted. In college he started building things to connect with people around him. He wrote Class match as he was trying to figure out what classes to take, or what his friends had taken. He wrote a script to scrape the school catalog so that people could comment on the courses. He always felt people were missing from the internet and got 2,000 users out of 6,000 in Harvard . By the time he started Facebook he knew people would be willing to connect and register. He has always been very focused on the idea of channeling the community’s energy. He started Facebook during a 3-week reading period at Harvard. What did it have that competing businesses didn’t? focus on real identity and connections. Before FB, there was information and content, but the one thing we care most about – people – wasn’t there. “Friending” was the key to the success of Facebook. Competitors had the nodes but not the connecting arcs. They also had less emphasis on identity and community.

A lot of the reason why great stuff gets built is because it is kind of  irrational at the time. But the people who care the most end up doing it. He considers “determination” to be the most important quality contributing to his success. So many things go wrong that you need that. You will make tons of mistakes. The important thing is to learn quickly from them. And not give up. Keep running through the walls.

How do you learn how to manage people? Through lots of mistakes. No one is naturally good at hiring out of the box. You throw yourself in.  He has also developed a heuristic:

Hire someone you would work for in an alternate universe.

The definition of a good team is a group of people that makes better decisions as a whole than they would individually as the sum of the parts. Smart people like learning. One of the thrills of staring a company is the learning curve.  If you setup a team dynamic where you are constantly learning from the people around you. What is better?

What do you care about the most? Connecting everyone. Communities of people can channel energy to create wonderful things.

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Some people have asked me which of the speakers was my favorite and although I got value from every one of them, Chase Adam’s presentation was probably the one I loved the most. His passion, and how emotional he was about his story, coupled with the reflection of “do only what is more important to you than yourself” truly made a difference in how I am approaching entrepreneurship now.

If you want to see any of the videos, they are all posted on the Ycombinator Youtube Channel.

Where are the Women in Computer Science?

If I had to think of a perfect field for a woman, Computer Science would have to be it. It not only offers some of the highest incomes but also the most flexibility, which is… the holly grail of a professional woman.  It provides the skills to get a highly paying good job, but most importantly – in my opinion – it also provides the skills to go out into the world and create… new products, new businesses, while possibly even changing the world in the process. Yet, women are not gravitating to it. In fact:

  • Just 0.4 percent of all female college freshmen say they intend to major in computer science
  • The share of women in computer science has actually fallen over the years. In 1990-91, about 29 % of bachelor’s degrees awarded in computer and information sciences went to women; 20 years later, it has plunged to 18 %.
  • Just 25% of all Americans in computer-related occupations are women

Some research indicates Computer Science has a public image problem. Others indicate the lack of role models plays a part. After all how many of us grow up around women scientists or engineers?  That is why, initiatives like Girls Who Code will slowly start making a difference in the degree of adoption of technology skills by women as well as in their career choices.  But it is interesting to see other sources of inspiration. And it turns out TV shows like CSI, or Bones are beginning to have an impact too. In fact, the most common career aspiration named on Girls Who Code applications is forensic science. And this is relevant because in general there is very low representation of women in engineering positions in TV show and movies. The ratio of men to women in those jobs is 14.25 to 1 in family films and 5.4 to 1 in prime time. While all these initiatives are relevant, there is one area that is lagging behind, and it is our education system overall.  Most elementary and public schools don’t teach computer science, and the few that do usually only teach how to use technology (creating a PowerPoint presentation, say) rather than how to create it.  So what is a parent to do to motivate our daughters and even our sons to learn programming skills? we cannot rely on our school system. We have to explore organizations such as Girls who Code and others to ensure our kids do not become the illiterates of the future.

Mystery of the Missing Women in Science

The mystery continues….

Why are women more reluctant to choose careers in science?  Worldwide, girls’ average math scores are on a par with those of boys. Even among math geniuses who score in the top ten thousandth of the population — the rarefied precinct notoriously deemed a boys’ club by the former Harvard president Lawrence Summers — the male advantage has been shrinking steadily, to about 3 boys per girl today from 13 in the 1980s. Girls also excel in the classroom. Nationwide, their grade point average in high school math and science is 2.76 out of 4, compared with 2.56 for boys.

In a recent study, Anthony Derriso of the University of Alabama reported his analysis of a vast 2009 study of more than 21,000 ninth graders nationwide. Students of both sexes rated boys and girls equally competent in science and math; expressed similar levels of confidence in their own math and science skills; and were equally likely to say they felt they were engaged in math and science and were supported by their teachers, parents and peers.

Yet aptitude is one thing, aspiration another. In answer to the question “Are you likely to pursue a scientific career?” some 2,300 students — 11 percent of the total — said yes. Among the ninth-grade yeasayers, 61 percent were male.  Mr. Derriso admits to bafflement. “If boys and girls are equally interested in math and science and feel equally confident about their abilities,” he wondered, “why this humongous difference in intent? I don’t have an answer for that.”

Some interesting facts:

  • While 29 percent of male college students major in math or science, only 15 percent of female do
  • Boys who ace science embrace science, but female mathletes keep their skills at arm’s length.
  • Among students with high scores on the math portion of the SAT, boys cited their desire to major in the physical sciences, engineering or computers, while the girls preferred fields like economics, political science or medicine. One reason for the disparity may be that girls with high math scores, unlike their male counterparts, also tend to have high verbal scores and so may feel their career options are wide open. But still, given the choice, why do so many girls walk away from science and math?
  • Although women now earn close to 60 percent of bachelor’s degrees overall, they only earn 20 percent of the degrees in computer science, 20 percent of those in physics and 18 percent of those in engineering.
  • Women constitute half the nation’s work force but just a quarter of its scientific corps
  • Women with science degrees are less likely than their male counterparts to work in a scientific occupation

Some researchers think girls maybe more reluctant to be labeled “nerds”.  If the issue is not intelligence, or interest, there may be other conditioning factors at play.  Maybe we all need to learn to embrace being smart and celebrate being “nerds”.

Founders are idiots. They have to be!

If you’re a founder, chances are you’ll fail. So seriously consider the following 10 points of advice. You might save yourself a couple failures by doing so.  Read the full article here.

10 Signs you are employee material:

  1. You have never tried a real job
  2. You have already failed at one or more startups
  3. You can’t design or code
  4. You are young and/or inexperienced
  5. You have no network
  6. Your big idea is unoriginal
  7. You get bored really quickly
  8. You have no net worth
  9. You don’t know what you want
  10. You are the primary breadwinner of a multi-person household

The Psychological Price of Entrepreneurship

It is very likely that any entrepreneur reading this article will see her/himself in some of the stories discussed. From sleepless nights, to obsession, hypomania and suicidal thoughts, the article discusses some of the realities of building a business from scratch as well as some of the innate character traits that make entrepreneurs more vulnerable to mood swings.

What can entrepreneurs do to keep their lives from spiraling out of control?

  1. Make time for your loved ones. Don’t let your business squeeze out your connections with human beings.
  2. Limit your financial exposure. When it comes to assessing risk, entrepreneurs’ blind spots are often huge.
  3. Cardiovascular exercise, a healthful diet, and adequate sleep are very important
  4. Cultivate an identity apart from your company.
  5. Re-frame failure and loss. Life is a constant process of trial and error.
  6. Be open about your feelings–don’t mask your emotions.
 Read the whole article “The Psychological Price of Entrepreneurship“.

Crowdfund Yourself!

Did you know that there is now a way to crowdfund yourself? Yes! there are now crowdfunding platforms that let investors back hopeful entrepreneurs who show potential, even if they don’t have a business idea yet.

Upstart was launched in November and utilizes an algorithm that draws on the academic and professional experience of aspiring entrepreneurs to predict their future earnings.  Interested investors can then fund these entrepreneurs in exchange for a percentage of their income over the next decade.  Sign up, fill out a profile highlighting your skills and accomplishments and see if you can find some backers.

22 Crowdfunding Sites

It wasn’t that long ago when if interested in crowdfunding, you only had a handful of platforms to choose from.  There were the 2 big ones: kickstarter and indiegogo and it almost seems like overnight the number of platforms has exploded.  Inc magazine had recently a very interesting list and map of options depending on what you are trying to do: build a company, build an app, work on a science related project, etc.

I am sure by the time you read the full article, the list will already be obsolete, but it can give you a pretty good idea about the different options available.  Read Inc Magazine’s article for the full list of 22 crowdfunding sites.