Context

Just occasionally –

One comes across a blog that’s so interesting that it makes you stop and think for days. Courtsey off Guy Kawasaki I found the blog of John Sviokla… a consultant and previous college professor. The title of the Blog is Sviokla’s Context and it can found at: http://www.svioklascontext.com/

In 16 years as an entrepreneur I’ve had to learn some tough lessons – I can sum them up as follows…

1. Vision


2. Believe


3. Team


4. Context

Each of these lessons will be the title(s) of future blogs. Each lesson took four years to fully comprehend. Each were a huge challenge to me. I still haven’t mastered them all but I’ve learned to respect each one for what they are.

The one that’s surprised me the most is context. I’m famous for never adding context to my remarks. Because of this I’m often “accused” of lacking detail and process. Quite the contrary I spend an inordinate amount of time reading and learning each day – at least 3 hours or more. It’s not a chore, it’s a passion. I assimilate vast amounts of data, analyzing, search for patterns. It’s my process.

At the end I simply announce the results – however as my current business partners have pointed out, without context they have little meaning. Of course with context comes detail and understanding which most of the time I’m reluctant to share.

Reading John’s blog I’m struck by the amount of context. It puts everything into perspective. Of the four lessons above it’s hard to put one in front of the other – all are crucial to building something. However without context the other three become “less” understandable.

Web 2.0 – VC’s & Competition

I find this fascinating

“At August Capital, we have funded 4 of the companies on the list: LiveJournal, Technorati, Trumba, and VideoEgg. Considering only those companies that made the list, on average, our four portfolio companies face 33 -- yes, that's right, 33 -- competitors in their respective verticals. That is mind blowing. And this list does not even include Yahoo, Google, Microsoft, IAC, Fox, Vivendi, Ebay and Amazon, all of which are likely competitors of each and every company on the Web 2.0 list. As the venture community continues to look at Web 2.0 companies in the coming months and years, this list is an invaluable piece of perspective .”

Having presented to VC’s in the past one of the questions is always around knowing your competitors. What amazes me is that August Capital has invested in companies that already have on average 33 direct competitors in the same market space “excluding” the heavyweights. Lets say that August puts in a $3-$5 million on each company for an A round. They have to budget probably $8 - $10 million more for additional rounds. The math so far…

A round = $4m * 4 startups      - $16 million
B round = $10m * 2               - $20 million

Total $36 million

OK… not really so much out of a $500 million dollar fund (guestimate)

But now lets factor in the same math on all of the others.

A round = $4m * 132 startups     - $528 million
B round = $10 * 66 (half fail)     - $660 million

Total $1.188 billion

• Total number of funded startups = 132


• Total number that make it to a B round = 66


• Total number that make it to a C round = 10


• Total number that make it into the end zone = 2

What are the chances that August Capital has one of the 2 that make it into the end zone 1 in 132 (as of today’s date). As each day passes and a new company comes on the scene the odds diminish. It doesn’t affect the fund much as less than 10% is at risk in this area.

Ok… next question the VC’s always ask you – what’s your exit strategy? Forget IPO at the moment (none of the startups above have anything that unique). So there are only two plays left – Zombie (the VC’s let you die a slow death) or M&A. (There’s a third which I discuss later on)

What are the chances that anyone of the companies grows big enough fast enough to get acquired by one of the larger players? Tough one to call – but here’s some more math. The big players are only spending in the $30m - $50 million range right now. Therefore for the entrepreneur to really make any money you don’t want to do more than a B round otherwise the dilution is not good. By the B round you should be at about 70/30 (you have the 30 <grin>)
Conclusion…

Here’s the play – you have 24 months from funding to get acquired. The VC’s will force a B round if the play looks hot. Why? Simple they get more equity which in the event of a buyout moves the fund needle.

If you take the B round down and FAIL to execute then unfortunately the Zombie play looms. How do you avoid this – get to cash flow positive on the B round and then you can survive to stay in the poker game and wait out the tough times. (The third exit strategy)

It’s funny how many entrepreneurs in the software industry omit “cash flow positive” as an exit strategy. It keeps you in the poker game, and with a little luck, innovation and “market timing” you can cash out at a later date.

Remember the rule – the person with the gold makes the rules. Cash flow positive lets you call the plays.    

.MOBI – a not so good idea

.MOBI is the supposedly the answer to solving the following problem, “what’s the mobile web address for XYZ (insert your favorite website here) .com So instead of guessing if CNN’s mobile web address is http://www.cnn.com/mobile or http://mobile.cnn.com you will simply type in http://www.cnn.mobi

There are two key requirements for a .mobi domain …

1) You have to end up at a XHTML-MP page if you type in a url that ends in .mobi, either via a primary or secondary domain: i.e. you have to support just domainname.mobi as well as anything.domainname.mobi.

2) You can't use frames. That's it. Pretty easy. You can do redirects to any URL you want, as long as the user ends up at an XHTML-MP page at the end.

Now lets check in with Netcraft and see how many web sites there are around the world…

There are now more than 80 million web sites on the Internet, as the April 2006 survey received responses from 80,655,992 sites, an increase of 3.1 million hostnames from March 2006. The web has doubled in size in the past three years, as the survey hit the 40 million mark in April 2003.

Next lets hop over to Weboptimiser (link) for a quick check on the number of registered domain names (as of June 2005) 77 million. There are currently around 1 billion internet users (PC’s) growing to 3 billion in the next 5 years. There are currently 2 billion cell phone users and that will grow to roughly 4 billion in the next 5 years. Wow – lots of big numbers.

At $35 bucks a pop if everyone converted over (and why wouldn’t they because there’s going to be a HUGE mobile audience) that’s a serious chunk of change for ICANN (or whoever gets to be the registrar of .MOBI). To me there’s only one fly in the ointment – what if someone figures out it’s not needed?

What’s the real problem here? It’s not the users problem. It’s the darn web servers problem. It simply has NO IDEA when it’s talking to a mobile device.  

Imagine that the web server suddenly knew it had a mobile device on the other end, all it would do is simply internally redirect the page request to one formatted for a mobile screen (whatever size that is (a topic for another post)). Problem solved. The customer never needed to remember anything. He simply typed in the .com address and the server took care of business.

You’d think that the W3C would have figured this one out a long time ago – but whoever thought up the USER AGENT field was obviously suffering from a major hangover that day and never thought that it was a stupid idea to connect the two words together…. There’s a USER – i.e. ME and MY device and there’s an AGENT i.e. browser.

All you get right now is the name of the browser that’s calling and as we learned when we did mod_gzip – everybody lies about the name of the browser…