Startups – What it takes

Here’s a great video about tech startups from August 17th. The panel is led by Guy Kawasaki, and includes Alex Welch, the co-founder and CEO of Colorado-based Photobucket (covered previously). Others on the panel included Reid Hoffman of LinkedIn, Joe Kraus Of JotSpot, Daniel Mattes of Jajah, and Lauren Elliott of Third Rock Mining.

It’s worth watching, but if you don’t have 90 minutes here’s a summary with notes on the most interesting parts (in my humble opinion).

3:00 CEO Alex Welch updates us on Photobucket’s stats. 22 million members, 15.5 million unique visitors per month. Compare this to LinkedIn which has about 6.5 million users. The audience indicates widespread use of LinkedIn and none of PhotoBucket. Alex points out that if that question were instead asked in a mall in LA, the results would be quite different.

7:00 A Mercedes Benz owner’s car is double parked and being towed (told you I’d save some time). Don’t watch the whole video to find out whose car it was – we never find out.

10:55 Alex Welch is asked to explain the PhotoBucket business model. His answer is advertising, premium services, and mobile services. Photobucket has already been profitable and the reason thus far is that they are delivering advertising effectively to a huge user base. “Advertising + premium services” is an all too common business model with web 2.0 apps, but it certainly does work for top 100 sites like Photobucket.

14:30 Joe Kraus of Jotspot talked about his business model which is essentially a freemium model. They make money when people upgrade to subscription based services. Joe thoughtfully remarked that they want their product to be something people would pay for even if it was not an approved expense. “Expensable not approvable” Joe noted as he described the need to keep the number of buyers JotSpot has to influence to just one.

15:30 Reid Hoffman described the LinkedIn business model – subscriptions, job listings, advertising – and that LinkedIn is now profitable. For this, Reid got snaps.

17:00 There is a discussion by each company about hiring, motivating and retaining employees. Americans as a whole and especially those in Silicon Valley seem to be optimists. When Americans were asked if they felt they were in the top 1% of earners, 19% said yes. Fully 20% more said they expected to be soon. So 39% of Americans feel they are or could soon be in the top 1% of all earners. People gravitate to the legend of Silicon Valley, but the panel noted that lately there is a higher expectation of salary and not as much willingness to view options as “real” compensation. The panel noted that for employees, the intangibles are huge (events, fun, etc).

22:15 – There’s a discussion about the current fervor surrounding startups. There is immense innovation, and it is cheaper than ever before to build a software product. This leads to an improved funding base for entrepreneurs. The chance of a startup surviving today is greater than it has been in the past, and there seems to be a return to people doing startups for the love of it. However, the panel noted that there is a sense of overconfidence among entrepreneurs, perhaps bordering on arrogance. They agree that the thought process behind many web 2.0 companies seems to just be “ajax, adsense, and arrogance“. They referred to this phenomenon as “buzzword bingo.” The panel discusses the “bubble talk” and says that investors who will be hurt this time around will be private investors more than institutional investors, as they are funding most of the speculative work.

30:20 Alex talks about his recent move to Silicon Valley from Denver and talks about the differences in the market for employers.

33:00 This is a great section of the video. Reid tells entrepreneurs about his three rules for startups. I’ve heard these from him before:

1) Test your idea on 3 to 5 of the smartest people you know very early on. People tend to visualize success, and then they don’t go and solicit critical feedback. Using this approach, you can get to the serious potential issues right up front, instead of 3 years into the business.

2) Then, especially for the consumer internet, figure out a distribution plan. It’s not location, location, location, it’s distribution, distribution, distribution. Make sure you can control distribution and that your plan will work. If you can’t get distribution, your consumer internet product will simply not fly.

3) Finally, release often and early. If you’re not embarrassed by the first version of the product you release, then you’ve launched too late.

In summary, Reid said “value speed and intelligent feedback over secrecy”.

40:30 Alex of Photobucket describes how the best ideas are simply based on your own passions or needs. He tells you to “get it out there” and “just listen”. He indicates that 50% of Photobuckets roadmap is based purely on feedback. He also advises us to stay focused on just a few core things and to keep it really simple. He points at Google, MySpace, YouTube and Photobucket as great examples of how to do one thing and do it really well, then grow from there once that works. He said that the equivalent to the simple “google search box” that initially made Photobucket so successful is the “80 lines of code” which allows users to upload a piece of content and simply return a URL that people can link to in order to see their photos. Simple. Obvious. Something people clearly want.

45:45 Joe Kraus (very insightful guy, I really enjoyed listening to him) of Jotspot gives his startup tips.

1) Persistence – “the fun begins when somebody says no”. He advises entrepreneurs to never take no for an answer and gives some great examples from Excite.

2) Opportunity creates opportunity – build your network and talk to smart people. You’ll get amazing advisors, investors, employees, etc.

3) Great hiring – hire only the very best people. If there is any doubt, don’t hire that person. He says he rejects people who will probably work out just fine. He’ll throw lots of false negatives just to guarantee he will never hire someone who is not great. He simply and eloquently points out a central belief that I share with him – “The reason great people come to work at your company is because there are other great people at your company.”

4) Face reality. There is a delusional tendency of entrepreneurs that they believe that they can make the world behave the way they want it to behave. Every day, look at the cold hard facts that are right in front of you, and react.

55:00 Guy tells a story related to Alex of Photobucket and his first experience with the service and begs (half jokingly) to invest now since he did not invest when first given the chance. Guy flew to Denver when he first experienced PhotoBucket, just to meet the founders.

58:30 An audience member asked what was surprising to each entrepreneur as they were building their companies. Reid Hoffman explained his Paypal experience and the fact that their entire original plan (mobile payments on palm) was completely replaced by what customers actually liked and used (email based payments) within two weeks of launch. The lesson was – listen to your customers and don’t be so stuck on your original idea. There is some good discussion here, which Joe Kraus wrapped up by saying to try to be a trendspotter, not a trendsetter.

1:04:00 An audience member asks Alex Welch “what are your regrets when you look back?” Alex says “I wish I could have spent more time coding”. Now that’s an entrepreneur!

1:10:00 Alex is asked about the pros and cons of doing a startup outside of Silicon Valley. Alex says the biggest pro is that he got to focus on the product. He says people tended to be more loyal in Denver and did not jump ship as much as people in the Valley do. He points out that there is more “dealmaking” in the Valley and that it was a “real disadvantage for the company to be in Denver from a business development standpoint.” He made a deal with his board that he would move to the Valley but only if they agreed that they would allow him to live within 5 minutes of the office (he didn’t want to deal with the traffic). Alex pointed out that the “big advantage is the network that you can build” in the Valley.

1:12:00 – Joe Kraus is asked how he has the energy to keep starting companies. He advocated taking time in between to really “quiet down” and get reenergized. He said that the sense of the team working on a “shared struggle” is what gets him going in the morning, and that’s just who he is.

Aw, hell, just watch to the whole thing. Skip Friends and the Simpsons tonight. You’ll get almost as much out of this.

file under: Blog, Startups