Something
Ventured:
December 8th, 2000
By Brent
Holliday
Greenstone
Venture Partners
"They
say I am a dreamer,
But I'm not the only one... "–
John Lennon,
Imagine
Whenever
I send this dispatch from the Silicon Valley, I tend to
want to preach a bit. There is no way to accurately use
typed words to convey how things are done down here. You
have to experience it first hand. We now have three
investments with head offices here and learn more every
time we come down.
If
you are in technology and you want to be a part of a
large, fast growing company, you have to learn the
lessons of the Valley. They have perfected the process
of starting the technology company. They have learned,
through an iterative process, the tactics and strategies
of growing a small technology business quickly into a
large, well known company. They have found what
ingredients need to be sprinkled in with the
entrepreneurs to support the start-up and growth of
these companies.
Among
other things, I am attending and speaking at the Nortel
Next Level 2 Conference put on by my friends at the
Canadian consulate in San Jose. This is not a boring
bureaucratic snoozefest. This meeting is the top
Canadians in technology in the US meeting and speaking
to 300 Canadian based entrepreneurs and giving them tips
on how it is done down here. There is a brain drain rant
in here somewhere, but I want to stay on track.
The
highlight of the first day was the keynote by Guy
Kawasaki, tech marketer extraordinaire at Apple and
founder of Garage.com. He gave a great set of speeches
which were Top 10 Lists, including Top 10 Lies of VCs
and Top 10 Lies of Entrepreneurs. My favourite Lie of
Entrepreneurs is "You should sign my NDA". As
Guy so eloquently put it, "By insisting that a VC
sign your NDA before discussing your idea, you are
basically putting the words I AM CLUELESS on your
forehead." If you don't find that funny or
understand why I am laughing, then you need a crash
course in the way things are done in the Valley.
In
the spirit of Guy's talk, here is your very own top 10
list. Ten things you need to understand about the way
the Valley makes companies:
1)
Fail Fast - There is no honour in failure, but there is
honour in knowing why you failed. The signs of impending
failure should be evident. Cut bait when you see it
coming and get on to the new thing. In the Valley,
investors don't dwell on failure and they don't
blacklist you (unless you are a liar. Abuse of trust is
the kiss of death in any business).
2)
Machiavelli Was a Californian - Understanding that human
compassion takes a back seat to hard work is vital to
understanding the Valley. Starting a world-beating
company is not for the faint of heart or the lazy.
Entrepreneurs down here use terms like, "When your
body is giving you signs of breakdown, ignore
them." It is nearly maniacal. If you are going to
win, you have to sacrifice.
3)
Cash is King - There is a superb article by Rich
Kaarlgard in Fortune this week on this subject. Read
it. Then you will understand how these companies and
their investors think in this post Internet bubble
world. Cash, how to get it and the conservation of it,
is the most important consideration for your company. In
Canada, we suffer from the relative lack of cash
(roughly 4% of the US amounts) for early stage
companies. We are starting from behind.
4)
Risk is Standing at the Edge of a Cliff and Leaning -
You don't know risk. You can't even contemplate it. Have
you put something very important to you at risk to get
the business started? Is your house on the line? Is your
family's money and their eternal trust in you on the
line? Risk and stress are positively correlated. In the
Valley, these people run on adrenaline, part excitement
and optimism and part sheer panic. At Greenstone we
faced the loss of our homes to debt repayment if our
fund did not get raised and a year ago we were very,
very nervous. You can't achieve big success without
staring into the oblivion.
5)
It's a Team Sport - Everyone down here talks about the
team. The team is what raises you money. The team
members that you have attracted from their big salaried
or large optioned jobs to join your start-up are the
first evidence that you have something interesting. VCs
look for a team with domain knowledge and experience in
creating these world beating technology companies. To
raise money, you need the killer team. They can't be
coming "as soon as we are funded". They need
to be their now, leaning over the edge of the cliff with
you. Then the VC knows that the company and its ideas
are interesting.
6)
Models Everywhere - The Valley has reached such a level
of cyncism regarding business plans, that they now
invest based on executive summaries and presentations
(and the team). The reason is that the business models
of a company will change. The ultimate business and
market that the company will succeed in is not the one
on the sheet of paper that arrives on Day One. The point
here is not to write a business plan, but to recognize
early that your current model ain't working and adjust
it. It's painful changing midstream, but it is necessary
for survival in today's rapidly changing markets.
7)
Know Thy Market - Before you approach a VC here, you
better have done your homework. You better know every
company that can be found in a Google search that has
anything to do with your market. Your credibility is
instantly shot if the VC knows someone in your market
that you do not. If you don't think you have
competition, you are wrong. If you can't find a
competitor then make one up. That tidbit came from Guy
in his speech and I really liked it. If you have no
enemy to crush, then you probably don't have a company,
he said.
8)
Share the Wealth - The only way to motivate people in
the Valley is to make them part of the success through
stock in the company. Options are the rule, not the
exception. Everyone in the company gets stock. There is
greater and greater pushback from the employees and
founders of a company to investors owning too much. With
all of the personal wealth around, founders can usually
bootstrap a company to a significant stage before
bringing in outside investment. That way they keep more
of the company. But referring to point #4, they aren't
putting some of their wealth on the line in the new
company, they are putting nearly all of it.
9)
Lead By Example - The best quote from an entrepreneur
this week was when Sandeep Gupta, who sold Stellar to
Broadcom for US$200 M a few months back, said, "I
don't expect anyone in my company to work harder than
me." That is the Valley way. If you are driving
your employees and taking off at 5 pm, you will fail. If
the deadline is approaching and you are hitting the wall
and need some rest, you give the employees a break too.
If you take a big fat salary in a start-up and make your
employees take a pay cut to work for you, you are
doomed.
10)
Think Big - The most important part of the Valley psyche
is the fact that everyone wants to hit one out of the
park. It's in the water or something. There are no small
potatoes. There is no strategy to own your region first
and then go to the bigger market. It's damn the
torpedoes, full on assault of the world market in your
industry. This is the classic problem of entrepreneurs
in Canada. It was said over and over again at this
conference. You have to think like you will own you
market, that you will IPO on the NASDAQ and you will be
on the cover of Fortune. There is no other possible
outcome.
I
have a good anecdote on the fact that Canadians just
don't get the Valley mentality. They haven't been here
and they don't get it. I met Ravi who did his undergrad
and Master's at McMaster and then worked at Bell
Northern Research in Ottawa in optical network
engineering in the early 90's. He received a call in
1995 to go to Boston on a recruiting trip. He had never
been to Boston before and he was sent to a sprawling
office on Rt 126. He said that there were three people
in this new company sitting with him in a bunch of empty
cubicles. They talked about "VC" giving them
money. They waved lavish numbers of "options"
at him. They told him that they were going to be big. He
ran out of their as fast as he could and never looked
back. He thought it was all a big scam. He had never
heard of VC and did not know what an option was. He went
back to BNR and told his tale to his co-workers. They
all told him he had made a good move. None of them had
heard of a VC before either. The company he ran from, as
potentially the 4th employee? Ciena.
Ravi
is now a Canadian living in the Valley and working for
Network Associates as a VP Engineering. He as three
start-ups under his belt, the third bought by McAfee. He
laughs when he tells the story of missing out on Ciena.
But he was in Canada and he didn't get it.
Learn
the Valley way. Or be small potatoes.
Random
Thoughts -
-
I attended the JP Morgan conference on Communications IC
and Optical Component Integration. It was attended by
over 500 people from VCs to companies in the space. They
were there to discuss the biggest trend coming in
optical networking. While it is just beginning today,
eventually companies like JDS Uniphase and PMC-Sierra
could be overlapping in what they deliver to customers.
Very interesting "inflection point" in the
optical networking business and entrepreneurs would be
wise to look at how to exploit it. Vancouver is now
sprouting some interesting companies in the components
and network processing space. Hopefully we can grow it
to a critical mass like Ottawa.
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
myself, thanks).
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