Last week, Brad wrote a post about why and how he passes on certain investment opportunities.  I’ve gotten to know Brad a bit over the past couple of years, and occasionally introduce start-ups to him that I think might be of interest.  I can confirm that in every case he’s quick to respond, very professional, and very frank.  He doesn’t just say “no” but also doesn’t pull punches or waste people’s time.

For him to take the time to write a post outlining his evaluation process shows how much he cares about the people he’s connecting with.  It’s invaluable — if not a bit intimidating (appropriately) — to any funds-seekers to understand how he looks at deals, especially because I would expect that it’s not all that unique among the top-tier investors in this space.

A dual post today on two great programs that all early-stage web start-up teams should know about: TechStars and LaunchBox. 

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We work with start-ups that are in various stages of fundraising.  I often talk with entrepreneurs about raising money and do what I can to make introductions.  In some cases, we’ll convert a small percentage of our services fees into an investment, so we know what it’s like to have some skin in the game.  We work with clients we believe in, regardless of our “participation,” and love the excitement of early-stage companies.

Having started Viget in 1999, we went through a bit of the tech bubble and all of the bust, and we learned a lot of lessons.  One was: no matter how good it gets, don’t bet the farm on start-ups.  So, we continue to balance our client list with traditional offline companies as well as start-ups, and that balance benefits both kinds of clients in addition our staff and our company.

There continues to be mainstream talk of a recession, and some VC’s are talking about what a downturn could mean to the investment community and start-ups seeking funding.  Even as we grow and expand, we talk about it internally — should we be concerned?

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Gil is the Chief Engineer at Squidoo.  He put up a lens telling the story of how Squidoo went from an idea in Seth’s head to a profitable business and the 14th fastest web site in 2007.  They’ve always had a lean strategy, and early-on that meant hiring Viget.

“To keep our staff as lean as possible, we considered several options, ultimately leading to a partnership with Viget Labs, who helped us build version 1.0 of Squidoo.  Hiring in-house employees vs an outside consulting form can be a difficult choice for any startup. On one hand, hiring employees can be a great (and sometimes inexpensive) way to ensure dedication to your project, but the security of fixed cost development and no long-term employee commitments proved to be the right choice for us.”

It’s great to get an inside perspective on both the good decisions and the mistakes that an online start-up is making.  He touches on the benefits of short iterations and frequent releases:

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TechCrunch reported the end of ProtectMyPhotos, a backup service that competes with Mozy (my service of choice), a few weeks ago.   David posted today another candid interview with an entrepreneur — in this case ProtectMyPhotos founder Cliff Shaw — who is refreshingly open about what went wrong.  A few nuggets I found interesting:

• Be passionate. “We were bored with backup … an idea that put us to sleep.”  It’s impossible to run a small start-up well if you’re bored.
• Know your market.  “On paper, ProtectMyPhotos looked like a slam dunk … People may care - but do they care enough to part with their money?”  Mozy and Carbonite seem to have cracked this code, but, for whatever reason, ProtectMyPhotos couldn’t.  First, know that there is a market.  Then, make sure you know how to serve it.
• Build-in viral.  “ProtectMyPhotos had no way to promote itself to the friends and family of its members.”  If you’re trying to stay small and limit marketing spend, enabling your users to promote the service for you is essential.  Even if you have sizable marketing budget, viral should be part of your core strategy influencing not just into your marketing plan, but your product design.

Cliff offered some specific numbers.  They launched in October, 2006, went through $280,000, and earned 4,400 customers.  They also kept very small - 2 founders and a part-time developer - which Cliff took pride in.

“From the outside, with a 2 person team, we made ProtectMyPhotos look like a heavily-funded market leader.”

While I agree with his suggestion to “fail quickly,” I have to wonder whether the business would have been better able to compete with a slightly larger team and more money.  He says “we could’ve lost $2.8 million” but it would seem they also could have sold for $76 million. 

In the end, I think it’s about balance.  You don’t need to raise VC, but you need the right team, funding, and strategy to create the right product at the right time for the right market. 

Easier said than done.  Luckily, when guys like Cliff share their insights about failure, we can all learn a bit and have a better chance of being successful ourselves.

Congrats to the Razoo team for their coverage on the front-page of the Washington Post business section yesterday. 

Social Networking for the Socially Minded
District Firm Razoo Joins Other Web Site Builders Trying to Reinvent How People Give Money to Charity

The WashBiz blog also picked it up in the post Social Networking For Social Causes.

Viget has been working with Razoo, which launched a public beta this past summer, for more than a year.  It’s always a thrill to see clients earn major coverage like this.  I expect this is just the beginning of this kind of press for Razoo.

Mike has a good post that offers a bit of a history lesson on the late 90’s venture funding frenzy and how that drove absurd decisions.  In my brief stint at CMGI, I also experience first-hand some of the nonsense that Mike refers to.  He notes that some entrepreneurs who went through that period have battle scars that make them too timid to now, at a point when funding sources are back and start-ups can again take changes in the hopes that they can change the world.

The analysis is interesting and no doubt accurate, but I’m a big fan of experience and perspective.  I think that really smart entrepreneurs can see what worked and what didn’t last time — what made sense and what, in retrospect, didn’t make any sense at all.  Making smart, hard, risky decisions is what entrepreneurs do all the time, whether they’re trying to establish trust funds for their great grandkids or just trying to make payroll.  Sometimes it works, sometimes it doesn’t, but being confident enough to make them at all is what counts.

One nugget from Mike:

“Taking risks doesn’t mean raising more money than you realistically need. It doesn’t mean hiring 20 people to do what 4 can do just fine. And it certainly doesn’t mean taking massive losses in exchange for a small amount of revenue.”

Too true.  Run lean.

Tom, a new contributor on ColoradoStartups.com, posted an interview with Andrew Hyde, founder of Startup Weekend.  If you’re wondering what SW is all about, give it a read.

We are growing quickly at Viget, working to hire the best in the industry into a bootstrapped consulting business.  Part of the motivation to grow is our work with web start-ups.  We see tons of opportunity to do great work with funded, fast-moving ventures.  We went through the Internet boom and bust in our first year, though, and we’ve always maintained a balance in our clients because we know how quickly funding sources — and our start-up clients who depend on them — can disappear.

As we analyze our growth plans, we keep an eye on the overall economy.  Fred wrote a good post yesterday called How Will Tougher Economic Times Impact The Web? that touches on this topic.

“We (me and my colleagues at Union Square Ventures) believe that the web is accelerating its transformative power and that businesses built around a web foundation will continue to take share of the worldwide economic pie.  So I suspect that there will continue to be a healthy supply of capital targeted at web applications and services for as far as I can see.”

One of the guys I got to know during Startup Weekend is Micah (say “me hah”) Baldwin.  We talked about Colorado, lacrosse, and excessive partying, among other things.  He’s a classic connector, and he’s just getting into angel investing.  Like a lot of web guys these days, he’s sharing his experiences along the way on his blog and on twitter, much to the benefit of those who pay attention.

Micah wrote a post called Relationships Can Be Based On Money last week that is worth reading if you’re looking for angel money and wondering what the other guys might be thinking.  Don’t take my word for it — BusinessWeek wrote it up in Confessions of an Angel Investor.

Derek Scruggs, founder and CEO of The Enthusiast Group, gives a candid interview to David at Colorado Startups.  His company just decided to shut down after working for a couple of years to create a series of niche social networks targeting outdoor enthusiasts with sites like Your Cycling and Your Running. 

With web businesses hot again and huge acquisitions grabbing headlines, it’s good to get a dose of reality.  Most startups (web or otherwise) fail.  Not surprisingly, when they do, most of the founders don’t feel like talking about it publicly.  Derek’s willingness to share his experience is valuable for any would-be entrepreneur, but it’s particularly relevant for anyone considering launching a web-based business.

I’m wrapping up a long weekend here at Viget, but before I sign-off for my pre-real-work-day nap, I wanted to get some more thoughts down on how it all went.  Hosting Startup Weekend was exhausting, in a good way.  As hyped, we started the weekend with 70+ people picking a business idea, and finished tonight last night by launching a site at midnight.  I can honestly say that it went better than I’d expected in almost every aspect.  Some examples:

• It launched.  I have to admit, I thought all along that we’d end up not launching, but to the credit of the dev team, at midnight tonight there was a somewhat functioning site live at holaneighbor.com.  It didn’t work well exactly, and it’s not really a compelling feature set yet, and the nicely designed screens aren’t in there yet, but technically we launched, and that alone is impressive.
• People stuck.  There were times Friday night, before there was any clarity in the concept, that I was sure we’d have no one back on Saturday.  The night ended on an upswing, though, and the vast majority of people decided to give it a shot on Saturday morning, which fed into the evening and beyond.
• I met a lot of good people.  I made new friends.  I got to know some folks I’d met before.  There’s nothing like collaborating in person with people on a project for stuff like that.
• Viget HQ held up.  Having recently moved in, I wasn’t sure how the space would hold up to all the people.  There are a few bumps here and there, but the space plan (big conference rooms, various huddle / collaboration spaces, the lounge, etc.) worked great for the distinct teams and break-out sessions. 
• It wasn’t about the company.  People were passionate and excited and wanted to get it done, but my perception was that it was more about having a chance to work with good people.
• Negative conflict was rare.  With so many talented, opinionated people crammed together forced to make group decisions quickly, I was prepared for some major blowups.  There were heated debates here and there, but things seemed to work themselves out with generally positive outcomes.
• The group had manners.  Pretty much everyone pitched in to help with the grunt work of keeping the office in shape (thanks, guys!). They appreciated Viget putting up the space, and they helped get it back to working order before leaving.  Even Andrew Hyde, founder of Startup Weekend, was here cleaning white boards at 1 am (4 hours before his departing flight).

Not surprisingly, just like with the first weekend in Boulder, it all came down to the dev team.  There’s lots of valid hype about how you can quickly build web apps these days, but the fact remains that it just takes time to build a really good product, and a lot of that time goes to writing good code.  Having launched anything at all is an accomplishment, especially given the potential complexity for the concept we chose.

What now?  Good question.  The group decided to decompress for a few days before figuring out a core team to take HolaNeighbor on to the next level.  There’s still a lot to do to make it a viable business, and I hope it has a life beyond today.  Can the passion for the concept that was alive this weekend carry on?  Only time will tell, but regardless, the experience of the weekend was certainly positive for me.

Update: checkout the article about Startup Weekend in the Washington Post.

A few quick updates:

• Viget South hosted the innagural Refresh the Triangle meeting on Thursday in our Durham office.  Jackson Fox gave a talk to a packed crowd.  From the looks of it, a good time was had by all. 
• I managed to make it up this morning to chat with Geoff Livingston and Hart Rossman on John Hrastar’s 8 am “Business Destiny” radio show on WTNT 570 AM.  We talked about how Web 2.0 is impacting business - a bit of a precursor to next week’s New New Internet conference (both Geoff and Hart are speakers).
• Startup Weekend DC is in full swing here at Viget HQ.  Photos are going up on Flickr and we even have a real idea in the works.  More soon …

Mike Chasen was the speaker at the Potomac Officers Club event last week.  He talked about his experiences as the founding CEO of Blackboard, which he’s built from a 2 person partnership crammed into a tiny office in DC in 1997 to an 850 person publicly traded company with offices around the world.  Blackboard provides software that helps universities put their courses online.  Some points he stressed that stuck out at me in terms of lessons for growing start-ups:

• Focus.  He recognizes that a lot of entrepreneurs try to get started part-time, but he believes in 100% focus for start-ups.  Their original idea was to put college applications online (not courses), but he and his partner tried to do it while keeping their day jobs at KPMG, and it never got over the hump of initial resistance.  They faced the same resistance with putting courses online, but, because they were focused, they pushed through and made it work.
• Charge.  They’ve always stuck with a model of charging for software rather than giving it away for free in the hopes that their audience would grow and ad revenue would follow.  They faced pressure to “go free” in the dot com bubble, and while their decision not to makes them look smart now, he notes that the only reason they didn’t consider it was that they didn’t understand the model.
• Know your model.  One early day of fundraising involved two VC meetings.  In the first, after Mike explained that their model of long-term software licenses would create predictable revenue, the VC told him he was nuts — that everyone in DC makes money on consulting, and that they should give away the software but charge big for integration services.  A quick study, on his 2nd VC meeting that afternoon, Mike explained their model would be to give away software and charge for services, to which the VC countered that the margins on software sales were way more attractive and that services would be a bust. 
• Embrace turnover. He’s been through six heads of sales, and clarified that doing so was a natural reflection of their evolution as a company.  At each stage of their growth, Blackboard needed a different skill set to handle the specific challenges of that stage.  He also noted that they’re “right” about a hire about 50% of the time.
• Network. He credits local networking events for leading him to their first angel investor, who put up $200,000 as part of a $500k round.  They went on to raise more than $100 million. 
• Take it. He recommends raising as much money as you can in each round, even though he admits that their final round of funding (~$50 M) was hampered by their excess in the previous round.
• Pie. His ownership stake in Blackboard is down to 4%, but he points out that if he’d tried to hold on to more equity he wouldn’t have been able to grow Blackboard the way he did.  He’d rather have 4% of a big pie than 50% of nothing.

I was impressed by the story of Blackboard.  Mike started the company with only a couple of years of professional experience and grew it through some turbulent times.  For him to remain at the helm through all that change and maintain his passion and effectiveness is remarkable.

Last month I mentioned Rails Rumble, the app dev contest that went down last weekend.  The apps are done — 92 of them, in fact — and now anyone can go play with them and vote for their favorite.  Two Viget-associated teams participated:

Clinton assembled a tiny all-star team with Julia Kulla-Mader and Jackson Fox dubbed “Snack Nut Item” and built Clubhouse:

Clubhouse is a network for clubs or teams or any organizations, providing them with loose and fun event scheduling. Anyone can create and join clubs, create events, and plan the future! It is more filling than a good breakfast. It is like Meetup.com, but free, and what the people want. Also, iCalendar! Yeah!

Ben, who couldn’t play the whole weekend due to “social obligations” (otherwise he’d have been in VL South along side Clinton), formed a solo team called “Texasbenonian People’s Front” and built Irksome:

Irksome is a web-based client for IRC, providing all the normal features of IRC through a much friendlier UI – and with searchable transcripts!

Nice work, guys.  As DC’s Startup Weekend draws closer, I can already tell that the insights from the Rumble will be valuable.

Update: check out Clinton’s post about Rails Rumble on the Viget blog.  He makes some great points …

Paul put up a talk he gave at the final Y Combinator dinner of the summer called How Not to Die.  The message is not only to never give up, but to be as public as you can about your work to add extra motivation — since such publicity will make it “unthinkably humiliating to fail.”

There’s no doubt that without extremely dedicated founders, any start-up is doomed from the beginning.  Working hard and staying motivated through the miserable times (because there will be some) is essential to success.

Quitting makes sense sometimes, though, and the idea that quitting = failure = humiliating is dangerous.  Working extremely hard on a start-up for years only to eventually realise that it never had a chance to be successful no matter how hard and long you worked — that’s humiliating.  Not because hard work is bad, but because all that time could have been spent working hard on a different (and hopefully better) idea.

Good entrepreneurs have great vision and a unique perspective — on the market, their business, and the future of both.  Seeing ahead of time when hard work will get you through and when quitting is the best path to big picture success is what great entrepreneurs do well.

I like Paul’s essay.  His emphasis on focus is spot on.  His statement that “if you can just avoid dying, you get rich” is a bit much, but his analysis is interesting.  There’s a big difference between survival and success.

In this country, I maintain that it is relatively straightforward (but not necessarily easy) for a hard working person to build a sustainable business that supports a full life.  Hard work and decent decision making can pretty much get you through. 

Building an exceptionally successful business is complex (and hard) and often includes at least a few things going your way that are largely outside of your control, but within your ability to identify, understand, and react to — as long as you’re looking for them. 

So work hard, but not with blinders on.  Always balance intense effort with a quest for clarity and perspective.

Thanks to Peter for the link and Seth for inspiration.

Marc continues his “Guide to Startups” series with a post on hiring, managing, promoting, and firing executives.  It’s a good read for people in the midst of such things.  Some things that jumped out at me:

• What’s an executive?  “An executive is a leader …  The manager may ask what the right thing to do is; the executive should know.”
• In a startup, everyone — even executives — need to produce, not just lead producers.
• “Big companies can often tolerate internal rivalries and warfare; startups cannot.”
• Focus on the short-term first.  Hiring for people who will be a perfect fit when you’re 3x your current size will probably prohibit you from getting there.
• Hire from within.  This is a safer route and, when successful, better for the exec and the startup.  Marc estimates that only 50% of your exec hires will work out.
• “If a VC’s ideal investment is a company that will succeed without him, then your ideal executive hire is someone who will succeed without you.”
• “… reference check personality and teamwork, but look first and foremost for a pattern of output.”
• Always hire people who are as strong or stronger than you.  “When hiring the executive to run your former specialty, be careful you don’t hire someone weak on purpose.”
• Founders need to manage — even when the exec has decades more experience — but not micromanage.
• “A great executive never minds when the CEO talks to people in her organization. In fact, she loves it, because it means the CEO just hears more great things about her.  If you have an executive who doesn’t want you to talk to people in her organization, you have a bad executive.”
• When it comes to an exec, there’s no solution to the firing problem — it’s only exacerbated because it takes longer to evaluate their performance and they can do much more damage during that time.