Engineering Entrepreneurship

CEO of the decade: never settle for good enough

2009-11-07T07:00:00.000-08:00

Apple founder and twice-CEO Steve Jobs was named this week by Fortune magazine to be “CEO of the decade.” Although he’s a liberal arts dropout rather an engineer — and today CEO of a Fortune 100 company rather than a startup — I think Jobs’ career exemplifies the best of what a high-tech startup should be.

Barely removed from his hippie era, the Jobs I era (1976-1985) was clearly about changing the world rather than making a buck. (Until his 1997 return to Apple, Steve made almost all his wealth from Pixar, not Apple).

Reading the Merc summary by John Murrell, it’s clear that the Jobs II era has also succeeded due to Jobs fastidious unwillingness to settle for “good enough.” As Adam Lashinsky wrote in the main Fortune article:

In the past 10 years alone he has radically and lucratively reordered three markets -- music, movies, and mobile telephones -- and his impact on his original industry, computing, has only grown.

Remaking any one business is a career-defining achievement; four is unheard-of. Think about that for a moment. Henry Ford altered the course of the nascent auto industry. PanAm's Juan Trippe invented the global airline. Conrad Hilton internationalized American hospitality.

In all instances, and many more like them, these entrepreneurs turned captains of industry defined a single market that had previously not been dominated by anyone. The industries that Jobs has turned topsy-turvy already existed when he focused on them.

To me, this is what entrepreneurs do, whether Henry Ford and Juan Trippe or Simon Ramo and Irwin Jacobs. Great entrepreneurs — like other change agents — pursue their vision without regard to whether it’s practical.

At the risk of being cliché, this is the epitome of Schumpeter Mark II. As Richard Swedberg said in his introduction to Schumpeter’s Capitalism, Socialism and Democracy:

Schumpeter’s theory was centered around the entrepreneur: he argued that change in economic life always starts with the actions of a forceful individual and then spreads to the rest of the economy.

How did Jobs get where he is? In the Fortune sidebar, fellow IT billionaire Larry Ellison described his friend and former neighbor thus:

"The difference between me and Steve is that I'm willing to live with the best the world can provide. With Steve that's not always good enough." And if you look at how he tackles building a phone, or building a laptop, he really is in pursuit of this technical and aesthetic perfection. And he just won't compromise.

However, as Ellison notes Jobs is proud to have the highest market cap of any Silicon Valley company — ahead of Cisco, Intel, Google and Oracle. Ironically, two years ago Apple’s market cap passed IBM: the same IBM that offered to bail out Apple’s failed management team at $40/share (until they demanded $60) and of course the same IBM that created the PC that bedeviled Apple until Jobs’ return.

Two decades of nanotechnology opportunities

2009-10-02T09:06:00.000-07:00

Visiting IBM’s Almaden Research Center Thursday, I was reminded that 20 years ago this week, an IBM ARC researcher made history by being the first person to move a single atom.

Don Eigler is perhaps better known for his November 1989 accomplishment: arranging 35 Xenon atoms to spell out “IBM.” Either way, these were major breakthroughs that enabled the subsequent growth of nanotechnology-related products and startups.

I must confess my limited knowledge of the technological and business aspects of nanotechnology. However, it was clear from my visit with ARC associate director Moidin Mohiuddin that IBM is continuing to invest in developing these technologies, part of decades of materials science basic research. Once this technology had direct application to IBM products (such as disk drive recording heads or coatings), today IBM will also out-license its technology as part of its seminal open innovation strategy.

As it turns out, two of my fellow Anteaters (UCI alumni) are not so ignorant. Jennifer Woolley and Renee Rottner published an article last year on nanotechnology startups in Entrepreneurship Theory & Practice — one of the top entrepreneurship journals.

Their article focused on the geographic distribution of nanotechnology startups. Their conclusion was that states that most aggressively supported nanotechnology research and commercialization had the most activity. (As a cynical ex-politics reporter, I might posit an alternate hypothesis — that the regions with the strongest nanotechnology base lobbied most effectively for state spending — but I haven’t seen their data).

For those trying to understand the phenomenon of nanotechnology-related entrepreneurship, this will be a seminal piece. Jennifer is continuing to do research in this area, so I recommend her work for those interested in the topic (despite her working for arch-rival Santa Clara).

Useful revenue model ambiguity

2009-09-12T22:18:00.000-07:00

Michael Arrington of TechCrunch remarks on Twitter’s dilemma for starting its revenue model. To reword his points:

Many firms are acquired pre-revenue and thus their valuation is made without proof of its revenue model.
Before a startup has a revenue model, its revenues are anyone’s guess.
Once a firm has revenues, the range of guesses will be much narrower — and often lower than the most optimistic predictions.

Of course, I’ve long been skeptical of Web 2.0 companies and their ability to create viable business models.

Cross-posted to Open IT Strategies.

A solution that found a problem

2009-09-01T17:10:00.001-07:00

Several years ago, one of my students was involved in a business plan concept to use video board graphics processing units to provide extra processing power. The problem was this was a technology — or a solution — without a well-defined problem.

In this morning’s Merc, there was a story about TechniScan, a Salt Lake City company that is using GPU to enhance image processing of medical images (such as CAT scans). This is the targeted solution that my students lacked: a bounded technical problem (in terms of developing code and algorithms) with a well-defined group of customers with similar needs. If ever GPU processing is going to turn into a business, this would be it.

Ironically, the market they’re targeting is not a new one. Back in 1987, when my company was brand new, Peter Marx came down to Vista from Harbor-UCLA Medical Center to tell me how someday all medical imaging would be stored on computers. (At the time, the idea of images being stored on Sun workstations would have been considered technically challenging). He showed me all sorts of cool images that he’d processed on his Macintosh II.

Peter clearly had the right idea, but both the digital image generation and the host-based processing power were decades away.

So here we have examples of some of the factors that distinguish an incipient opportunity from a real one: a well-defined customer with a well-defined problem, and of course technical feasibility to do something about that problem.

The inevitable need for Plan B

2009-08-20T11:38:00.000-07:00

Many if not most tech entrepreneurs eventually face a wrenching problem: when do I give up on Plan A and go to Plan B?

In some cases Plan A and B (or A,B,C,D …) co-exist alongside each other in a successful diversified revenue model. In other cases, the company is too small to have more than one plan or the initial plan is such a loser (or another such a winner) that the answer is obvious.

However, in many cases it’s hard for managers to admit the correct decision — either because the data is ambiguous or because of emotional involvement. I suspect that most founders will have a hard time letting go of Plan A, because of the psychic investment and legacy role. Or if Plan C comes from your new CEO — and it bombs — it’s often hard to decide to ditch the plan if it might also mean ditching the CEO.

On Wednesday, I stopped by Pinger, a mobile software startup located walking distance to my SJSU office. CTO Jocelyn Cloutier — who worked for Yahoo, AOL, Bell Labs and as a Montreal C.S. college professor — happens to be married to one of my friends and co-authors.

A venture funded startup that’s not quite 4 years, Pinger spent 2 ½ years trying to get its Pinger voicemail multicast system established. Despite a few high profile wins (like the 2008 presidential campaign of John Edwards), like so many other tech startups it found itself flogging a solution in search of a problem.

Cloutier said that at some point, the management team had to admit that the original company concept wasn’t working: “I just put two years of my life into there, so let’s try something different.”

So when the iPhone App Store launched in the summer of 2008, Pinger carefully evaluated it. On the one hand, ”we didn't know at that time that app store is going to be the thing.” In retrospect, the App Store proved to be a smash success — but as in any startup, it’s tough to make a decision when the future is unknown.

Still, Pinger saw iPhone apps as a big potential opportunity, based on the prior success of the iPhone and its increasing momentum. It jumped in with both feet: in little more than a year, Pinger released four iPhone aps:

Dec 2008 Pinger Phone: an enhanced souped up IM client (ala Adium) with some other friend features. ad supported
Feb 2009. Textfree: a freemium SMS client, naturally segmented by the # of messages per day
July 2009: Doodle Buddy, a kid -oriented drawing program (that allows collaborative color sketching over a network)
Today (Aug. 20). Free2Call, a new app (approved while I was there at Pinger) that tells consumers which calls are in-network.

While the first application is no longer being sold — the cost structure didn’t work — it paved the way for all the future apps. As Cloutier said: "Pinger phone showed us there's volume there. We can put an application out there and we are going to have a lot of downloads. Now the question is how can we have an application that they're going to use every day and are going to pay for?"

For Pinger, Plan A was a hosted service and Plan B was peddling iPhone apps at $0-$5 each. (Textfree Unlimited has an annual subscription).

It turns out the technology wasn't very similar between Plan A and Plan B, but the technologists were. The founders were veterans of Handspring — and thus understood the whole device-constrained software model — which enables the team to do a good job of designing something for a 320x480 screen with no keyboard and no mouse.

Pursuing Plan B, Pinger has made it so far, but there are lots of uncertainties and no guarantees. International growth is problematic: most of their products are tied to US-specific telecom industry features (Free2Call) which would require data or localization or negotiation for each country. The iPhone/iPT is only a small part of the US market; although ISVs would like to reach other handset owners, it's not clear which app store will catch on next.

More generally, there's also the inerhent problem of package software sales — as opposed to services like If you’re Google or Verizon Wireless, which make ongoing revenue off a customer after acquiring only once.

Software products — like vidoegames, records, movies — are prone to the one hit wonder problem. Once everyone buys your hit, what do you sell them next? If you don’t sell them another product — or an upgrade like Office 2023 or EA’s annual NFL Football update — then once everyone in your segment has bought the product, the income flow stops.

This one-time nature of software product sales nearly killed my own company, as initial strong sales fizzled out as we quickly reached the limits of unexpectedly small niches.

At Palomar we went from Plan A (consumer apps) to Plan B (developer apps) to Plan C (semi-custom OEM utilities) to Plan D (retail OEM utilities). We worked through the 4 business models in the first 4 years. At year 6 dumped all but Plan C (which was cash flow positive and the long run the only one that made any money).

What’s the take home? Entrepreneurs face several tough decisions, including when to look for Plan B (or C or …), when to implement Plan B, when to abandon Plan A. This choice is obscured by the various uncertainties: not knowing what customers will want, what competitors will do, where the industry will go and how effective our execution will be.

There is also the diversification vs. focus problem. Do you hedge your bets, or does spreading your bets guarantee that neither will succeed? Do you put all your eggs in one basket — all the weight behind the arrow? If so, how can you recognize that all-or-nothing bet has become controlled flight into terrain?

Famous lie slightly more true

2009-08-17T16:00:00.000-07:00

As is well known in the US, there are three great lies:

"I'll respect you in the morning."
"The check is in the mail."
"I'm from the government, and I'm here to help you."

In a man-bites-dog story, Entrepreneur magazine (which is a lot more pro-free enterprise than Inc.) is praising a government website for actually helping small business owners:

There's something new at business.gov, the official online business link to the U.S. government: community. OK, starting a blog site isn't that new an idea generally. But the business.gov blog, which just got going in July, offers a unique opportunity for small business owners to learn how to do business with the feds.
…
With all the new federal funding floating around from the stimulus bill, this seems like a great place to maybe get a quick answer if you're stymied on how to apply to get stimulus funds, apply for an SBA loan, or about anything else governmental. …

Not enough small businesses even look at trying to snag government contracts if you ask me. Hopefully, this blog will help demystify the process.

I don’t think anyone is going to change the list of lies, but every rule has its exception. It’s good to see sensible, low-cost efforts to disseminate information about existing government programs.

Innovation is more than invention

2009-08-07T20:37:00.001-07:00

We thought we were home run hitters, but then we learned that we were born on third base. — Attributed to an AT&T alumnus

This quote by Stanford economist Tim Bresnhan (at Tuesday‘s State of the Net West conference) nicely captures the key problem facing innovative engineers working for any company smaller than the old Ma Bell.

Bell Telephone Laboratories had a better research staff (and working conditions) than all but a handful of universities. The monopoly profits of The Phone Company fueled some of the greatest inventions and scientific discoveries of the latter 20th century — things like lasers, satellites, information theory, etc. etc.

However, as this quote suggests, there are two reasons why such inventive output doesn’t provide a good measure of success:

It’s easy to bring technology to market (e.g. electronic switching, microwave long distance) if your captive customers comprise 90+% of the largest economy in the world.
When you can’t bring your expensive new technology to market, the guaranteed rate of return means there is no penalty for waste or inefficiency.

Invention is never enough. Except at Ma Bell, big innovations require (as Hank Chesbrough demonstrated in his Xerox studies) a business model and someone entrepreneurial enough to create a market if it doesn’t exist already.

Killing a business

2009-07-10T14:19:00.001-07:00

Friday’s paper brought news of the planned liquidation of the Smith & Hawken, the premium garden store founded in 1979 in Marin County. Although I’ve never visited one of their stores, it was nonetheless sad news, because the company provided important inspiration for my early days as a tech entrepreneur.

When we founded our company in July 1987, my partner Neil Rhodes and I were intentionally (and ultimately unsuccessfully) emulating Hewlett & Packard. Like Bill & Dave, we started in a garage, and we deliberately emulated certain elements of the HP culture (which also became our biggest customer).

However, it was Smith & Hawken that provided explicit validation for some of our ideas about what a business was and could be. A year after we launched, in 1988 we read Paul Hawken’s Growing a Business; this was decades before the two comparable HP histories, The HP Way and Biil & Dave.

In his book, Hawken talked about issues that resonated closely with us, things like how to treat employees and the meaning of business. Although it’s been 20 years since I opened the book, I recall his view as being that creating and growing a business was more than just about money, and that founders could and should shape the firm to reflect what they believed important.

Although his industry was very different, this was a view quite consonant with tech startups of the 1980s, back when people tried to build a business for the long haul and before IBM and HP layoffs changed forever the idea that somehow tech companies were different.

Perhaps Smith and Hawken weren’t different, either. Hawken used the success of the book and the company to branch out into other things, leaving the company in 1992, which was then sold in 1993 for $15 million to the parent of NordicTrack. Some of the experiments by the founders (losses on an unsuccessful clothing line) were seen as contributing to the company’s need to be acquired

Since 1993, Smith & Hawken has had three corporate parents. The last owner was Scotts Miracle-Gro, which bought the company in 2004 and has been unable to find a buyer for the firm. Some of the turnaround moves sounded plausible, but nothing worked.

The two founders showed none of the remorse one might expect of a parent outliving its child:

"Scotts couldn't have been a worse corporate owner," said Hawken, who lives in Mill Valley. "Smith & Hawken had become just a ghost of itself."

[David] Smith, who lives in Mendocino County and owns Mulligan Books in Ukiah, said he had gone so far as to ask friends not to shop there.

"When Scotts bought it and Smith & Hawken was owned by the largest pesticide seller in the U.S., I suggested people boycott it," he said. "It had completely lost its roots."
…
Hawken, chairman and CEO of engineering company Pax Group, used the occasion of the closing to host a party Wednesday night. "I couldn't be happier to see my name come down," he said.

What’s the moral of the story? Perhaps that nothing lives forever. Certainly that (as my mentor Charlie Jackson advised me 15+ years ago) once you sell a company, you have to let go and accept what happens. Also, people change — even visionary founders — and their passions will also change.

Most of all, I think it says that even with a unique business concept and vision, firms need to have the management depth and the dispersed leadership and the culture to continue on after their founder is gone. This is certainly a crucial issue for Apple to deal with, more than a decade after Steve Jobs undid the terrible damage done by his three CEO predecessors, and nearly five years after his initial cancer surgery.

Is entrepreneurship down, and why?

2009-07-07T23:03:00.001-07:00

Scott Shane of Case Western argues that entrepreneurial activity is declining, due to competition from larger rivals with superior scale.

Meanwhile, Jonathan Adler (also of Case Western) has a contrary argument:

It seems to me that another likely contributor is the increased regulatory burden. It is well documented that regulation can increase industry concentration. Smaller firms typically bear significantly greater regulatory costs per employee than larger firms (see, e.g., this study), and regulatory costs can also increase start-up costs and serve as a barrier to entry.

What I find interesting is that entrepreneurial opportunities and activities are not equally distributed across the country: more firm formation happens per capita in Silicon Valley than in (say) Northeastern cities. And California is larger than any other state, the total numbers will be even higher than the ratios.

Today, California is going through a series of changes that are making the business climate less attractive, especially for startups:

a shortage of venture capital
increasing taxes
cutbacks in education and other infrastructure spending
a political climate that is encouraging increased regulation

California entrepreneurs may continue despite such burdens, or they may move somewhere else, or they may not start a company after all. But a decline in entrepreneurship in California would certainly reduce the total number of US startups more than in a smaller or less entrepreneurial state.

Panel on bootstrapping tech companies

2009-05-18T07:35:00.000-07:00

Not surprisingly given the membership pool, the MIT Club of Northern California has four activities related to technical entrepreneurship. This includes separate speaker series on semiconductors and clean technology, as well the Venture Mentoring Series for alumni (more at a later date).

One that I didn’t know about is the C3 group (Convergence, Community and Commerce), which put on a panel last month called “The Art and Science of Bootstrapping.” The four bootstrapping panelists were

Paul Kocher, Founder, President and Chief Scientist of Cryptography Research
Michelle Munson, CEO and Co-founder of Aspera Software
Beatrice Tarka, CEO and Co-founder of Mobissimo
Sridhar Vembu, CEO and Founder of AdventNet

Although I didn’t make it, there is a long report in the Spring 2009 edition of the MITCNC newsletter.

Not surprisingly, the interest in bootstrapping is motivated by the increasing risk aversion of VCs, making it difficult to get seed funding. Entrepreneurs are having to bootstrap off of personal (or 3F) money to grow the business to a point where it’s interesting to VCs.

There are two paragraphs that caught my attention:

All panelists agreed that a company cannot always remain bootstrapped and there are circumstances when the founder should be open to accepting outside ﬁnancing. Paul Kochar further elaborated that if a company is in a market that is poised to takeoff and there are no barriers to entry for other competitors to come in, moving fast is key to capturing market share. In such circumstances when a company can grow very quickly, it is imperative to look for the type of ﬁnancing that can facilitate such growth, for example, to develop customer support and sales organizations or to invest in user experience. On the other hand, if a company is in a niche market with no competitors, then one can afford to bootstrap and slow the growth to maintain ﬁnancial control.

I am guessing from the report that all of the entrepreneurs had high growth aspirations — and hence their concern about growing quickly before the window of opportunity closed. Here is the other paragraph:

Regarding how long a company can be bootstrapped, Michelle said that it is easy to bootstrap in the ﬁrst two years of a company’s life, but beyond that it was less clear because the window of opportunity remains open only for so long. Sridhar said that if one does not have a big idea and no big discontinuity, it is better to be bootstrapped. Only 1% of new businesses are venture ﬁnanced. Paul pointed out that some arenas, such as clean tech or semiconductors, are not generally good candidates for bootstrapping.

Actually, 1% is much too generous a number. By my own calculation, funding peaked in 1999 (during the dot com bubble) at about 0.15%, but in the early 2000s averaged about 0.037% — one company out of 2,700.

Obviously some of the other 2,699 companies are those (like my own) that are high-tech startups or have a strong technology component. Many of these are bootstrapped forever, but this normally consigns the venture to slow growth niches.

This is how I would have summarized the event if I’d attended:

Bootstrapping is a way of getting launched and proving viability to outsiders. However, if you are pursuing a rapid growth opportunity, then you will soon need sizable outside funding — either VC or corporate VC. If your competitors have it and you don’t, you will be left behind.

The greatest source of tech entrepreneurs

2009-05-13T19:31:00.000-07:00

Journalists love anniversaries, particularly ones with big round numbers. Politicians (and others seeking publicity) love them two. They’re what we call a “news peg.”

On Sunday, the San Jose Mercury published a long article by Scott Duke Harris celebrating the 100h anniversary of the founding of Federal Telegraph and Telephone in Menlo Park. The article mentioned two other Stanford-related startups founded in the first half of the 20th century — HP [founded in 1937] and Varian Associates [1948] — as well as the familiar list of IT firms from the 1980s and 1990s.

Harris used this history to make a point about Stanford’s role in promoting high-tech entrepreneurial culture:

Stanford University's 100-year tradition of entrepreneurialism, which has spawned such tech giants as Hewlett-Packard, Cisco Systems and Google, has been recognized as a catalyst to Silicon Valley's emergence as the globe's pre-eminent tech hub.

Alas, to quote Will Rogers, “It isn't what we don't know that gives us trouble, it's what we know that ain't so.”

OK, I’m a little biased here. I’m an MIT grad, active in the local MIT club, and onetime entrepreneur alum. I have been researching MIT-trained entrepreneurs as part of a book tentatively named From MIT to Qualcomm. There are also key Stanford rivalries, with strong personal and family ties to the UC system, and today teaching tech entrepreneurship in the shadow of the world’s second richest university. (Full disclosure: I was accepted by Stanford the only time I applied, as a high school senior).

And by no means do I want to minimize the role that Stanford has played in sparcing alumni (and faculty) entrepreneurship in Silicon Valley, starting with Cypress Semiconductor, Electronic Arts and Sun Microsystems in 1982, and extending through Cisco, Yahoo and Google (among many others). After benign neglect by the business school, Stanford’s engineering school has played an incomparable role in promoting technology entrepreneurship among students at Stanford and elsewhere, with efforts like the Stanford Technology Ventures Program and its free iTunes U podcasts.

However, after talking to Silicon Valley historian (and Palo Alto native) Stephen B. Adams, I believe claims of Stanford’s role in the early 20th century are greatly exaggerated. As Steve wrote me in an email responding to the Merc article:

The early start-ups (pre HP) did not take because the Valley lacked critical mass of high tech talent. Therefore, local firms such as Federal and Farnsworth moved to areas (New York/New Jersey and Philadelphia respectively) that already had clusters going. The 1939 Census of Manufacturing showed the same thing that Fred Terman later said: by then the Valley had fewer than 100 scientists and engineers in industry. Not exactly critical mass!

In fact, there wasn’t much to HP until it wartime orders swelled its ranks to 200 employees, and it laid off more than half of those after the war.

At best, Stanford’s role as an entrepreneurial incubator began when Fred Terman was appointed engineering dean in 1946, or when Stanford decided in 1951 to allocate some of its land to form the pioneering Stanford Industrial Park. Even in the 1970s, Stanford’s role in creating startups was not obvious. Shockley (and then Fairchild and Intel) put the “silicon” in Silicon Valley without direct ties to Stanford.

Adams points out that Stanford was aggressively ahead of Berkeley for a very simple reason: without Berkeley’s ongoing support from Sacramento, Stanford badly needed the money. Necessity is the mother of invention.

Which brings me to the other point. As Anna-Lee Saxenian documented in her 1994 book, Regional Advantage, Silicon Valley surpassed Route 128 in the 1980s and never looked back. Saxenian says it’s because of the valley’s open culture, but others argue that it’s because Boston bet on minicomputers while the Bay Area bet on PCs.

However, in the period 1920-1970, there was no question which university was inspiring and fueling technological entrepreneurship: it was MIT.

Losing its land grant status and rejecting a proposed merger with Harvard, in the early 1920s MIT was scrambling to raise resources both for the Institute and for its faculty. (Remember, big Federal R&D spending started with WW II).

During the interwar era, MIT invented its industrial cooperative program (allowing students like Andy Viterbi to work in real jobs to pay for their schooling). It also invented the now-standard consulting rubric used by all American research universities, the “one day a week rule.” This is well recounted by Henry Etzkowitz and his fascinating book, MIT and the Rise of Entrepreneurial Science.

Through the end of the 1960s, MIT was also the world’s leading university in creating the field of electrical engineering and establishing computer science as an academic discipline. MIT has its own list of alumni- and faculty- (co)founded companies, with an impressive run of electronics-related startups from 1922-1985 in both Massachusetts and California that included Raytheon (co-founded in 1922 by Vannevar Bush), EG&G, BBN, TI, DEC, Bose, Lotus, PictureTel, 3Com, and Qualcomm. Among those launching its many Bay Area startups were the two men who put the Silicon in Silicon Valley: William Shockley and Robert Noyce.

By the way, where did Terman (son of a Stanford psychologist) learn his trade as a radio engineer? As one biographical article recounts:

Stanford’s own Electrical Engineering Department chairman told Terman that the biggest and best EE department in the country was at MIT. So in 1922 Terman joined a generation of promising EE graduate students on a pilgrimage to Cambridge.

At MIT, Fred undertook graduate study under Vannevar Bush. Fred earned his Doctorate Degree in electrical engineering in 1924, and having a fascination with all of the exciting events at MIT, Fred was to accept a teaching position there.

Due to health reasons, Terman returned to Stanford, but he spent 1941-1945 running the Harvard Radio Research Laboratory, an auxiliary to the much larger MIT Rad Lab.

Today, both MIT and Stanford have exceptionally qualified faculty, undergraduate and graduate students in engineering and the sciences. MIT’s technical role remains strong, but certainly (as the Merc argues) Stanford has taken the lead in fostering tech startups. Stanford has a much better local environment for entrepreneurs, but it’s an open question whether that’s due to West Coast vs. East Coast cultural differences, the availability of VCs, or the wealth of successful entrepreneurs (and entrepreneurial wealth).

If MIT has been eclipsed by Stanford in firm creation, there’s no guarantee that the latter will remain pre-eminent indefinitely. Stanford’s main rival will not be Cal (or even MIT), but instead Tsinghua or the various campuses of IIT.

I don’t think it will happen right away: these other schools may be able to imitate Stanford’s talent, but it will be longer before than can replicate the ecosystem that lies in its back yard. So even if the Merc has the history garbled, the contemporary story of Stanford’s entrepreneurial success is true (at least for the time being).

End of the IPO anomaly?

2009-04-13T12:00:00.000-07:00

In 2008, there were only six IPOs nationwide, compared to 365 twenty years earlier. The end of IPOs means that founders no longer run their companies, but instead get acquired by big firms and then quit to do something else.

Sunday’s Merc, presented its annual compilation of the Silicon Valley 150. One noticeable result was a reduction in the number of public companies and also of IPOs.

Columnist Chris O’Brien remarked on the trend:

From 2001 to 2008, there have been 90 IPOs in the valley, an average of 11 annually — and the last one was more than a year ago. Compare that with 331 IPOs in the years from 1990 to 1998, an average of 41 annually. The two years in between were so insane — producing 163 IPOs — that it's no use considering them for sake of comparisons.

We’ve long known that Silicon Valley has a higher rate of IPOs than in other countries, but the evidence also suggests it has a higher rate than the rest of the US.

In my own research on communications startups in San Diego, I’ve noticed a much lower rate of IPOs. By my most recent tally, there are eight public companies in the telecom cluster (a few were either acquired or died after their IPO).

So, I’m sorry to say, the data is starting to confirm my conjecture. The 1980s and 1990s offered an unusual window of opportunity for IPOs — both in terms of the availability of financing and the ability to create a new stand-alone company.

Acquisitions do have a few advantages: they are quicker, available to a wider range of firms, and less dependent on the cyclical capital markets. My mentor Charlie Jackson planned for an IPO but sold his company to Aldus in 1990 when the IPO market closed.

I wonder when (or if) the business (or engineering) school courses in entrepreneurship will notice the change, and adjust their curriculum accordingly.

Illegitimate startups

2009-04-09T08:02:00.000-07:00

In grading business plans this week, I was struck by a common blind spot: my undergraduates were overly optimistic about their chances of gaining sales (or distribution) from day one.

They didn’t realize that they would be handicapped by the inherent lack of legitimacy that a brand-new firm has. This is something I lived as a software entrepreneur, but also a well-known problem to strategy researchers.

Just as innovation and entrepreneurship scholars often trace back their core theory to Schumpeter’s “gales of creative destruction,” those worried about the disadvantages faced by young firms go back to sociologist Arthur Stinchcombe and his 1965 book chapter which coined the phrase “liability of newness”.

Subsequent research (such a 1986 ASQ article by Singh et al) has shown that the liability stems in large part to the lack of external legitimacy held by the new organizations. (The test was with nonprofits, but the principle is the same).

I had trouble finding something suitable for undergraduates to read; perhaps this is a publishing opportunity. However, I but did find a closely related 2008 article in Entrepreneur entitled “Credibility is King.”

In class, I tried to tease out the difference between legitimacy and credibility, but given the impromptu nature of the discussion I have to admit I was mostly winging it. In my mind, legitimacy is whether or not you’re in the consideration set. Credibility (as in the political context) is whether or not customers believe what you say.

We brainstormed the reasons or conditions for a lack of legitimacy, and I noticed that they all boiled down to two issues. One is the lack of information (e.g. about the unmeasurable quality of your good). The other is for cases of high risk: making a bad decision on a bicycle helmet is different than doing so for buying an ice cream cone. Again, this is something I hope to elaborate in a future article.

In terms of solutions, most of our options boiled down to two. One is to borrow legitimacy, such as from suppliers (“Intel inside”), dealers, or testimonials by buyers or celebrities. The other is to reduce the risk faced by buyers, such as by providing a free trial.

Again, this is something I’d like to write up sometime, but at least I have a starting point to sensitize future students to this challenge they will face as entrepreneurs.

Are you a bootstrapper?

2009-03-10T10:39:00.001-07:00

At SJSU, I’ve been working with some faculty colleagues to try to better explain how and why firms bootstrap. (Of course, there is a big question about what “bootstrap” means).

Last night, our Silicon Valley Center for Entrepreneurship had a panel discussion entitled “Bootstrapping Startups: The Pros and Cons.” It was moderated by angel investor, blogger and SJSU entrepreneurial finance professor Steve Bennet. His panel consisted of:

Jon Fisher, serial entrepreneur, blogger and author of StrategicEntrepreneurism
Gustavo Alberelli, director of Kennet Venture Partners that specializes in investing in bootstrap companies
Ilya Ronin, a former software engineer and SJSU alumnus who is one of the three executives of bootstrapping Marpo Kinetics (an exercise machine company)

Steve opened by saying “Bootstrapping is a topic near and near to my heart.” As he noted, current difficulties of raising investment capital have raised the interest in bootstrapping.

Jon had an interesting definition of bootstrapping:

Can I approve with my management team a merger? … Do the team and I own 50.1% of the company. … Do we have the ability to exit when and if we should?

Jon noted — as I have argued for a while — that the IPO exit was extraordinary, and the normal exit for most firms is (and will be) acquisition. Thus, he argued, it is important for entrepreneurs to design their companies to be acquire-able.

Gus Alberelli’s Kennet Partners, surprisingly, specializes in investing in companies that have already bootstrapped to significant financial results. As their home page proclaims:

You’ve funded your growth the hard way: by selling real value to real customers.

You don’t need venture capital to validate your idea: the market has already done that. You need a different kind of capital.
…
The companies we invest in often do not need money to survive. They have options.

But the right investment from the right partner can help them keep ahead of their markets, expand internationally, ramp up their sales forces and lead to greater value for shareholders.

This is a very thoughtful argument for the bootstrap strategy (and their ability to profit from them). They have detailed pages on why this helps entrepreneurs, and how they choose firms. They have an entire page about bootstrapping, and a white paper entitled “Bootstrap Your Business for Success.”

During Q&A, Gus said they looked for two key things: “Do you have a repeatable sales model and is there a big enough market?” Unlike other VCs, they claim to be agnostic as to whether they will keep the founding CEO (and grow his/her skills) or bring someone else in.

I didn’t take as careful set of notes for Ilya (my former student), because he had a one hour presentation to my day class that had many more details. At that session, he listed some of the key bootstrapping challenges:

Lots of work
Difficulties in attracting a good team
Small volumes mean less buying power and higher COGS
Slower growth
High level of stress on personal life

Starting with limited funds, the bootstrapper’s way out is to acquire customers quickly that pay the bills. Ilya number one piece of advice:

Look for customers that are most likely to buy quickly
Don’t target big segments that will take longer and are less likely to pay off

I am hoping that the panel will end up on the web or iTunes U. If so, I’ll add a link.

Finally, I want to end where Steve started: with a humorous quiz on bootstrapping, crafted by Greg Gianforte, founder of RightNow Technologies. (Angel Tim Keane has the full quiz online). The theme of the quiz is a self-assessment of the reader’s bootstrapping abilities (or proclivities).

My favorite question:

5. Your product does not do everything a prospect wants. You should?
a. Tell them it won't do those things;
b. Get them to pay for the enhancements;
c. Take the order and tell them it will ship in four weeks;
d. Explain why those things are difficult to do and convince them to buy the current product.

This was funny because it was so real: it exactly fits my experience as the head of a software company that bootstrapped from a $12,500 staring investment to a seven-figure run rate.

Update 1:45pm: Steve Bennet has summarized his own views of the event.

VCs vs. entrepreneurs

2009-01-30T00:01:00.000-08:00

To be successful, any sort of business deal must align conflicting interests. In thinking about venture capital, the decision of entrepreneurs to seek (and accept) VC investments assumes that both parties want the company to succeed, and the only conflict is over the terms of the investment (particularly the dilution).

However, a couple of recent blog posts highlight a second, equally important category of conflicting interests: control over the timing of exit.

On AngelBlog, Basil Peters recounts an example of a tech startup with a chance to exit via acquisition, one that would produce a 3x return for VCs, and perhaps 10x for the angels and 100x for entrepreneurs. The problem is that the VC needs a bigger return (the home run) from its winners to cover its losers. This is consistent with the story of VC investment math told by Bob Zider a decade ago in his HBR article, “How Venture Capital Works.”

Of course, such an early offer may mark a peak in the company’s valuation — in an increasingly competitive segment (as in the Peters example), the total return will only go down. Once faced with an obviously worsening situation — whether firm-specific problems or an increasingly unprofitable industry — VC are known to pull the plug prematurely, saving management attention for the likely winners rather than spending more time salvaging a “dog.” In my SD Telecom study, we had to interview one founder in the final few days before the VCs closed the door forever.

The other point is that, come hell or high water, the VCs will liquidate their investment before their investment fund matures and must return capital (and earnings) to its principals. As VCs freely admit, this means they seek a quick exit — ideally 3-5 years, with 7 years at the outside. Blogger Sigurd Rinde of Germany notes the disconnect between achieving VC objectives, and the goal of many tech entrepreneurs of creating long-term value.

I had a slow growth, bootstrap startup, which never sought (nor was suitable) for VC. This had its pluses and minuses, but it’s clear (as I used to say back then) that taking VC is like starting a time bomb: you have to come up with an answer before it goes off, or you’re dead.

Best business planning books

2009-01-26T12:00:00.000-08:00

This semester I’m teaching a business plan course for the first time since I left UCI in 2002. (I did use a business plan assignment in a 2006 strategy class — more on that later.) The course is an elective for both our undergraduate entrepreneurship and management majors, although I have a few students from other colleges on campus. At the suggestion of a local VC, we are shifting the title and emphasis of the course from strictly business plans to “Planning the New Venture.”

Although I use textbooks for core courses to cover the recommended corpus of knowledge, where possible I try to use regular (i.e. trade paperback) books for electives. They tend to be more readable, cheaper, more likely to be kept after graduation and more representative of what students will read after they graduate. So in preparing for the class, I searched on the Internet and Amazon for books related to business plans.

In 2006, I asked students to write business plans without much information on how to do it, other than walking them through our standard template, which was derived from the U. Maryland BPC. Both versions were derived originally from the standard MBA entrepreneurship textbook by the dean of entrepreneurship scholars, the late Jeff Timmons.

This year, I wanted to give them more help on the two most difficult tasks — estimating revenues and estimating costs — while also covering the broader questions of starting a new business. After buying five books and getting a 6th from the library, I eventually settled on three books.

The first book I picked was the smaller (and cheaper) Timmons paperback, entitled Business Plans that Work. It‘s not complete, but for an undergraduate course it gives a good consistent way of looking at the problem, and (not surprisingly) matches well to our (i.e. Timmons) BP format.

The second book I chose was Bankable Business Plans by Edward Rogoff. I did not expect to like the book, and with its “action steps” (rather than chapters) it’s a bit of a scattershot. However, I found it a nice complement to the Timmons text. In some areas, it’s much more concrete than Timmons, including one of the most important blind spots from 3 years ago — setting up a sales process.

These two books would have been enough for our 15 week course, if I had built a reader with 4-6 other articles to supplement the gaps in coverage. Together, they are only $28 at Amazon — a steal for anyone involved in entrepreneurship.

However, I wanted to give students a little more of the big picture of starting a business, including a sense of why they want to be entrepreneurs in the first place. In the end, I decided to use Guy Kawasaki’s The Art of the Start, which turned out to be much more substantive than any previous Kawasaki book I’d read. Still, I see Kawasaki and this book as a motivational speaker — identifying some important tricks and traps — rather than providing a business plan checklist.

One problem I’ve found in teaching entrepreneurship — with all the work of Timmons, and also many competing academics — is too much of an emphasis on venture capital-funded IPO-oriented startups. Kawasaki nicely balances this out with an entire chapter on bootstrapping, which (as he notes) can also be used by VC-bound companies to bridge between 3F money and their first professional capital. This nicely fits my course goal, which is to help students to identify the most appropriate funding approach for their idea and industry context.

The VC-centric counterpart to Kawasaki’s book is Raising Venture Capital for the Serious Entrepreneur by Dermot Berkery, a former McKinsey consultant turned VC and MBA lecturer in Dublin. It came highly recommended on Amazon, and after reading it, I saw why. It really walks entrepreneurs through the funding process — as VCs see it — and explains what they must do (and why) to put their best foot forward.

I decided not to use it this year for two reasons. First, it’s so VC centric that it would have undercut my message about being funding agnostic, and secondly, it’s more suitable for those already in business or graduate students. I would strongly consider it if I were teaching high growth-startups in the Stanford or Berkeley engineering school, and I’ll also recommended it for our new venture finance class.

Beyond the classroom, I would also recommend both the Berkery and Kawasaki books for those already in a startup. Despite 20+ years thinking about startups (as a founder, research, teacher and consultant) I picked up valuable tidbits from both — either things I didn’t know, or different ways of thinking about familiar problems. For example, Chapter 2 of Berkery’s book emphasized the importance of identifying 3-4 alternative exit strategies, so that investors (and founders) can still succeed if the initial plan is blocked.

One book that did not fit my immediate goals was The Business Plan Is Dead by Jeffrey Wofford. I’ll write more about it some other time.

Raising capital in difficult times

2009-01-24T12:55:00.001-08:00

In the past six months, it’s become even more difficult for otherwise promising tech startups to new or follow-on funding. On October 7, the now-infamous Sequoia PowerPoint deck advised their (mainly high- tech) portfolio companies:

New Realities
$15M Raise @ $100M post[-money valuation] is gone
Series B/C will be smaller raises
Customer uptake will be slower
Cuts are a must
Need to become cash flow positive

While some suggested this was a bargaining tactic by Sequoia to lower valuations, startup companies now face a double-whammy of declining demand by business and consumers and less availability of investment funds.

Of even more concern to the VCs, exit strategies will be more rare, less lucrative and more time consuming:

Increased Challenges
M&A will decrease
Prices will decrease
Acquiring entities will favor profitable companies
IPOs will continue to decrease and will take longer

Since VCs won’t be able to cash in their investments for a long time, they must set aside more money to keep alive a smaller number of companies.

In Thursday’s Wall Street Journal, veteran tech industry reporter Pui-Wing Tam wrote about [also here] the dilemma faced by a small Oakland-based VC fund:

Claremont Creek Ventures recently had to decide which of its young to forsake.
…
Amid the financial crisis and the plunging stock market, Claremont Creek decided to focus on the fund's best investments and stop backing the less-promising start-ups. It wanted to be sure it had enough cash for the next few years for the winners. The venture firm ranked the start-ups in the fund's 16-company portfolio with an A, B or C grade.

"We're doubling down on the As and likely won't invest any more capital in the C companies," says John Steuart, a Claremont Creek managing director. "The portfolio is competing against itself and it's survival of the fittest. It's brutal."

Angel investor and fellow SJSU entrepreneurship teacher Steve Bennet is one of the few who has beat the odds. In his ProfessorVC blog, he explains how one of his portfolio companies raised $6 million in Series C funds.

For those that have already tapped 3F money and can’t raise professional money, the choices are pretty clear: sell the company, stop operations or find a way to bootstrap.

Steve will be moderating a March 9th panel on bootstrapping at the Silicon Valley Center for Entrepreneurship. More details on the program when they are available.

Tech startups are always an experiment

2009-01-13T22:47:00.001-08:00

Last fall, I taught entrepreneurship for only the second time since I got to SJSU. (I’d previously taught it as an adjunct at UCI, building more on my experience as an entrepreneur than any formal preparation).

About 2/3 of the way through the semester, as part of making a point about the lack of sufifcient information in any startup situation, I wrote on the board

Business is an experiment

which will become the mantra for all my future entrepreneurship courses.

To explain my thinking further:

if you’re doing something new whether new to the firm or new to the world — the answer doesn’t exist;
in a startup, for many questions you won’t have the time (or money) to get a definitive answer; so
you need to make and implement a decision with the recognition that the experiment may fail — and thus both look for signs of failure and find an expedient way to mitigate against (rather than prevent) such failure.

That leads me to an an interesting quote from Carol Bartz (newly appointed Yahoo CEO). It came from her 2001 talk at Stanford about encouraging entrepreneurship in established companies: at that time she was CEO of Autodesk, the CAD software company.

As an aside, I’d disagree with her use of the term “entrepreneurship”: if you use the term to refer to any form of innovation or business initiative, then the term doesn’t have any real meaning. While “corporate entrepreneurship” is a bit of an oxymoron, at least it demarks a form of initiative distinct from starting a new company.

However, I couldn’t agree more with her on the philosophy she brought to Autodesk to deal with the turbulent dot-com era, a philosophy she called “Fast Fail Forward.” As transcribed by Scott Fulton of Beta News:

I had to do this during the dot-com time, where everybody panicked and decided that you guys [Stanford students] were going to rule the world. … [P]eople got even more cemented in and scared to take risks, because what did it mean in an established company?

So we started this thing called 'fail-fast-forward,' and the whole idea is, listen, failure is very acceptable. When it happens, make sure you identify it quickly, and hopefully it's in a forward motion. And then start going again.

In other words, nothing new happens without risk, and the only way to deal with risk is to accept it rather than try to completely prevent it.

Hat tip: to Scott M. Fulton, III of BetaNews.

Hewlett & Packard, Bacon & Morgan

2008-12-12T12:12:00.000-08:00

Earlier this week, Merc columnist Mike Cassidy wrote a touching tribute to entrepreneurial engineer Karl Bacon, who died Nov. 14 at age 98:

In 1946, Bacon and partner Ed Morgan opened the Arrow Development Co. in Mountain View. The two were a tight team who started out doing some machine work for HP and just about anything else that would bring cash through the door. Bacon was the math mind, a self-taught engineer who tended to figure out what needed to be made while Morgan concentrated on how to manufacture it.

Then Morgan got the idea that they could build a merry-go-round for the city of San Jose, which they did. Soon a man named Walt Disney was talking to them about coming up with some rides for a new park he was opening in Anaheim. They did that, too.

Mr. Toad's Wild Ride, Mad Tea Party, Dumbo the Flying Elephant, It's a Small World, Alice in Wonderland, Matterhorn Bobsleds, Pirates of the Caribbean, Haunted Mansion and more.

"They did most of the rides in Fantasyland," says Jane Bacon, 87, Karl's wife of 67 years.

The article goes on to talk about all their other major contributions to amusement park rides. While we don’t think of this as a high tech business, during its heyday 40-50 years ago, this was obviously state of the art.

Other tributes on the Internet include a discussion of their Matterhorn design, and the bio on Amusement Today, and a review of the book about them. Amazon also sells that book, which documents their 20 year relationship with Uncle Walt and his fantasy-land.

Engineering is "sexy" again?

2008-11-15T13:52:00.001-08:00

At least Business Week pundit Vivek Wadhwa seems to think so. (Something about Wall Street jobs being in short supply nowadays).

Forbes discovers mobile phone classes

2008-11-11T23:49:00.001-08:00

As a follow up to my earlier post on teaching mobile phone programming, this evening Forbes reported on programming classes. Reporter Elizabeth Woyke talked to professors at MIT, Stanford (iPhone), Columbia (iPhone and Android), as well as a Google evangelist.

The overlap between her story and our visit was the course taught by Prof. Hal Abelson and Andrew Yu, MIT's head of mobile services (who we did not meet). Woyke reported:

Abelson and Yu view themselves as training the next generation of mobile entrepreneurs. The course is structured around weekly critiques to teach students project management and presentation skills. Adult mentors who work in the mobile industry provide guidance in and out of class. "There's a lot of asking, 'Why will people use this?'" Abelson says. "We tell the mentors to treat them like real start-ups."
...
As more mobile development courses pop up, they will naturally become more specialized, Abelson says. He advises future classes to embrace themes, such as creating applications for the developing world, to keep things challenging. "Making something for a phone will be old news. There has to be some other spin," he says.

As with my own first-hand observations, these accounts suggest a win-win proposition. Students get credit for taking a class on programming, but by developing applications in a new and emerging industry segment — as with PCs in the 80s or the web in the 90s — they develop cutting edge skills that may be immediate relevant in a commercial (or entrepreneurial) context.

Teaching mobile programming

2008-11-01T09:23:00.000-07:00

1st of 4 parts.

I’ve spent time the last two weeks visiting various universities to see how they do research and teaching on mobile phone programming. I’m posted on the research elsewhere, but wanted to summarize here what I learned about teaching at MIT, Georgia Tech and UCLA.

Based on what I’ve seen, the model for a mobile phone programming class would be a project-based class that combines needs analysis, use cases and prototype system development. Add in some sort of revenue model analysis, and you have a course that introduces budding software engineers to the possibility of entrepreneurship. (Absent revenue model analysis you have the typical engineering “make something cool and let’s see if we can sell it.”)

The class assumes students already have basic programming down pat, and also have at least one project course under their belt. This would be either a master’s level class or an upper division class that follows (say) software engineering.

MIT

Building Mobile Applications. The most famous course on this topic probably that by Hal Abelson, who is now the dean of teaching programmers at MIT. 24 years ago he shifted the EECS introduction to programming to Scheme (MIT’s local dialect of Lisp) with his text, Structure and Interpretation of Computer Programs.

We met with Abelson for nearly an hour to discuss his Spring and Fall 2008 classes offered to MIT CS undergraduates. The spring course (Building Mobile Applications with Android) got great writeups, perhaps because one of his teams won $300K in prize money from the Android Developer Challenge, Google’s Java programming contest.

The student application, Locale, was one of the first made available on the Android Market, and the team is evaluating commercial possibilities. Not a bad return for a 13-week class.

This semester, the class has 10 teams and about 40 students. For Abelson, a founding director of the Free Software Foundation, the iPhone was ruled out due to Apple’s NDA requirements for iPhone developers (abandoned too late for this semester). The projects are instead spread across three platforms.

Instead of being entirely about Android, the Fall course has more balance. Four projects are using Android in Java. Three are using Microsoft Visual Studio and the Windows Mobile SDK, supported by Microsoft Research New England. The remaining three are supported by the Nokia Research Center in Cambridge — two Java applications and one using Python (PyS60).

The class is extremely labor-intensive. Abelson credited Andrew Yu, (manager of mobile services for MIT) with much of the work. Each team has an industry veteran mentor — essentially a voluntary TA. Paul Oka of MSR said he spends 3 hours/week in the class and team meeting, and as much as another 5 hours early in the semester when the students are getting started.

Pervasive Computing. Abelson’s was not the first mobile phone programming course at MIT. Larry Rudolph taught a series of pervasive computing courses, first with the iPaq and then with Nokia phones using PyS60. From this effort, he wrote a boo to provide a Bluetooth programming tutorial and a 2003 pedagogy article in IEEE Pervasive Computing.

NextLab. Abelson’s course is not even the only mobile phone course at MIT this semester. If Rudolph’s course was more technology-oriented than Abelson’s, then the Nextlab course at the Media Lab is more project and need oriented, with a distinct social entrepreneurship spin. The “NextLab” course is part of MIT’s “Next Billion Network,” referring to the next 1 billion cell phone users expected to be added over the next four years — mostly in less developed countries.

We met one of the NextLab instructors (Luis Sarmenta) and visited a class session run by the other (Jhonatan Rotberg). We heard presentations by three projects, servicing Mexican farmers, rural Indian mobile commerce, and Boston low income preschool parents.

UCLA

In Spring 2008, Deborah Estrin taught “Current Topics in Computer System Modeling Analysis.” The class held 25 students — typical for a lab class — mostly master’s students, and was taught uses PyS60 with the Nokia N95.

The assignments are consistent with Estrin’s large research project on mobile sensing, with the students assigned to gather location and sound data and plot the data using Google map APIs. The 12 projects tended (not surprisingly) towards mobile social media.

Georgia Tech

At the College of Computing, there was other interest in mobile computing among researchers. I found two classes.

Mobile Computing. Thad Starner is a longtime (and prolific) researcher on pervasive and ubiquitous computing. Thus, it’s not surprising he’s taught several courses on “Mobile & Ubiquitous Computing.” I couldn’t find the website, but Starner said this semester he’s teaching about 45 students using the OpenMoko handset. Openness is a big deal to Starner, who is well known around Tech for not doing any business with Microsoft.

Augmented Reality Games. Conversely, Blair MacIntyre is teaching augmented reality (the intersection of virtual reality and reality) game programming using Gizmondo. This discontinued Windows CE-based handheld gaming console has limited communications capabilities.

Other Schools

My list is of necessity incomplete: I haven’t been able to visit all of the top C.S. programs in the country. Each school visit took a minimum of 2.5 hours, and then there’s the matter of the plane tickets. Here are a few that I found on the web.

Stanford. At least one faculty that I met this week mentioned Stanford’s course, “iPhone Application Programming,” being offered this quarter (Fall 2008).

Carnegie Mellon is offering a course this semester entitled “Mobile and Pervasive Computing.”

Ending performance reviews

2008-10-21T08:05:00.001-07:00

The WSJ small biz blog this morning highlights a provocative column on HR practices by UCLA Professor Samuel Culbert. That it’s provocative seems to go without saying, since Culbert’s motto (and subtitle of his latest book) is “straight talk at work.”

Culbert wrote in Monday’s WSJ arguing that performance reviews are a bad idea. On the WSJ (inside the paywalll?), he also has a video on dealing with bad performers and a podcast for employees on dealing with a bad review.

From my days as a software entrepreneur, the column resonated with me, because my employees (including the software engineers and testers) always wanted a review, and I always hated doing them. So having someone telling me I shouldn’t do them seems like found money.

To summarize from the pullquote:

The Promise: Performance reviews are supposed to provide an objective evaluation that helps determine pay and lets employees know where they can do better.
The Problems: That's not most people's experience with performance reviews. Inevitably reviews are political and subjective, and create schisms in boss-employee relationships. The link between pay and performance is tenuous at best. And the notion of objectivity is absurd; people who switch jobs often get much different evaluations from their new bosses.

He lists 7 reasons why they’re a bad idea:

Two People, Two Mind-Sets. The review is confrontational because the two sides have different goals.
Performance Doesn't Determine Pay. Often the review is a rationalization for the eventual (budget constrained) salary decision, rather than a review of performance.
Objectivity Is Subjective. Objectivity is a myth: employees change bosses, their reviews change dramatically.
One Size Does Not Fit All. The same checklist is used for all, although people have different strengths and should be evaluated by different criteria.
Personal Development Is Impeded. Employees won’t be honest about areas where they need to improve if it comes back to haunt them at review time.
Disruption To Teamwork. The boss is supposed to lead a team but the review causes employees to conceal and be dishonest, undercutting trust.
Immorality Of Justifying Corporate Improvement. The reviews are supposed to improve performance and the company, but actually they just encourage political behavior.

I don’t completely buy his proposed alternative, which he calls a “performance preview.” However, as a teacher, a parent and someone who was a tech employer for 15 years, I do agree with the goals of his alternative process:

Holding performance previews eliminates the need for the boss to spout self-serving interpretations about what already has taken place and can't be fixed. Previews are problem-solving, not problem-creating, discussions about how we, as teammates, are going to work together even more effectively and efficiently than we've done in the past.

Anything that turns a review from a win-lose to a win-win is a good idea in my book. Also, my personal and business philosophy was always look forward, not back.

The only thing missing is how to adjust salaries, since that was the entire reason employees all pushed for a review. I guess for that I have to buy the book.

Cleantech Venture Challenge

2008-10-16T23:07:00.000-07:00

Cross posted to Cleantech Business

The University of Colorado at Boulder is preparing to host its 4th annual Cleantech Venture Challenge, an international business plan competition for new ventures that somehow address a “sustainability” need. The business plan competition is sponsored by the Deming Center for Entrepreneurship at the Colorado’s Leeds School of Business.

The competition uses a three-stage process. An intent to compete must be filed by Nov. 21, followed by a complete business plan on January 30, 2009. The eight semifinalists will come to Denver March 17-19 for the final rounds and the ultimate selection. The National Renewable Energy Lab (in nearby Golden, CO) will also invite the top renewable energy project to present at NREL.

The top prize is $25,000. The finals will also coincide with a sustainable business summit to be held at the Denver convention center, part of the state’s efforts to position itself in the cleantech business.

10 fatal assumptions

2008-10-07T12:48:00.001-07:00

In providing feedback to my MBA entrepreneurship students, I went looking for information on market sizing assumptions.

I didn’t find what I was looking for, but I did find another interesting document, from Purdue University’s extension program. The note on “Fatal Business Planning Assumptions” by Cole Ehmke of Purdue offers a list of 10 common but flawed assumptions made by new ventures.

Although he’s in agricultural economics, the first three would resonate with any tech entrepreneur or investor:

We have no competition
All we need is 2% of the market
Our product will sell itself

I would love to see a “10 most common tech startup mistakes” list, but for now this is a suitable cautionary list.