The unanimous ‘word on the street’ is that recession is ahead and the social media is filled with ‘advice’ for web 2.0 start-up-ists on how to get through the storm. The most common (some would say irritating) advice is “Raise a lot of quickly! The gate is about to close!”.

Err…Great advice! Duh! Do you personally know any company that would say no to a big financial infusion right now? Web start ups that measure themselves in terms of ‘traction’ and ‘growth’ need venture money for survival. But the current problem is not with the desire for money but with the state of the feeding hand. When bull turns to bear the hand tightens and the ’Raise now’ chant becomes totally obsolete. As a matter of fact, it may even divert attention towards an endless street, causing more harm than good.

So what can you do? Well, to start with there’s an easy way to avoid dependence on VC money and that is to simply not need it. When you actually earn money your dependence on external financial sources is no longer vital for your survival. However when you do need survival money you’ll find it to be the most expensive money on earth. The logical conclusion is to become profitable at the earliest possible stage. Simple, isn’t it?

I know, it’s pretty difficult for a 3 person start up to become profitable as a result of a decision, before having developed groundbreaking technology o a critical mass of eyeballs. Still, the foundation of every business is with its ability to create value that can be measured in hard currency. Many web companies managed to postpone that part and to raise significant funding based on some promise for traffic that would eventually be monetized. Others banked on some innovative technology that would eventually be worth a lot to someone. Most of these companies are slightly more comfortable at this very moment, but will realize the meaning of life at a later stage and will have a very tough time adjusting. Earlier is better.

So how can you turn your web 2.0 business to a profitable one?

First, you need to stop thinking in terms of raising VC money. As a matter of fact, imagine you have already raised the last penny you would ever raise. Once you get over the panic stage, start working your brain towards getting out of such a mess. Does this mean the end of the road for you? If so, quit now. If you find this new curve ball motivating then you’re probably made of the right stuff.

The next step is to let go of your start up ego. Yeah, your service is groundbreaking, your technology is superb, your user experience is flawless, but chances are you’ll profit from the most unexpected angles of your efforts. Some unique piece of knowledge here and a bit of cunning technology there, everything someone would pay for should get priority. Don’t fear diversion from your roadmap. The sad truth is that nobody cares about your roadmap but yourselves. Most of your innovation will never be used regardless of your success, so why not stick to what makes money at the very beginning?

Last but not least, stop thinking in terms of an exit. Don’t pretend to be a venture capitalist, you’re not. You read about exits everyday and you tend to forget that this type of success is mostly random. The excitement from growing user bases is wearing off and web technologies were never considered big assets anyway. A profitable company, on the other hand, is always attractive. Sequoia asked you to come back with a billion dollar market opportunity? Let it go, there isn’t any, they should look someplace else. Don’t worry, as founders of a profitable company you’ll have no problem raising, not even at times of recession.

      

Yeah yeah, Led Zeppelin performed live….

The race for a ticket a ticket became such a reality show. Weddings rescheduled, funerals postponed, births put on hold. 20 lucky Israelis managed to get a chance to squeeze in between 20,000 lucky fans. The big prize? 4 old geezers (sorry, 3 and a decedent) recycling old records from the 70s.

I haven’t been to the show and it might as well have been a great show. I, too, grew up listening to Led Zep. I, too, felt the enlightenment when I was kicked out of a guitar store for playing Stairway to Heaven. But with all due respect, Led Zep were not a romantic band but a commercialized organization. I would have been happy to have seen them playing again, mostly for pure curiosity, but to me this specific concert is a big joke.

So what point am I trying to make?

Jimmy Page and Robert Plant are aging musicians with more money than they will ever need. Their legacy was sort of ok just the way it was. Young teenagers still play ‘Stairway’, People in my age group still listen to ’Kashmir’ and ‘All of My Love’ and Baby Boomers can still name every track that was published on Led Zep I-IV.

Their new addition to that legacy is a single VIP concert followed by a DVD collection. Wow.

Led Zep is one of a few groups that can actually do whatever the hell they wish to do. They could have broadcasted the concert for free on the internet and to 180 countries on live TV. Why not?  They could have released the DVD on the official website. Make a wide impact on the industry. Why not?

But they chose more money instead. Whatever.  

      

Baseball is my favorite sport. I was fortunate to be living in NY during the later half of the 1980s. I was even more fortunate to have witnessed Game 6 of the 1986 world series with my own eyes. I also played baseball in high school. I was a mediocre hitter, to be honest, not really disciplined and with some technique flaws. My batting average was ok, but I had too many strikeouts (patience!) and too little home runs (technique!). However, I was a great fielder. I played a mean shortstop (great glove) and was often used in center field as well (good sped and arm). Not a trivial combination. At 36, I still reminisce on the few home runs I managed to pull 20 years ago. I follow the game closely, I have written about it and I still get heartbroken every time the Mets collapse.

Which is why I almost get angry when I see baseball being abused.

Shai Tsur, in his recent posts, has taken a brave swing at explaining the VC model. While Shai has done well explaining the rational of VCs, he has brought to my attention a Marc Andreessen’s post in which he compared the VC model to the game of baseball:

“The whole structure of how the technology industry gets funded — by venture capitalists, angel investors, and Wall Street — is predicated on the baseball model. Out of ten swings at the bat, you get maybe seven strikeouts, two base hits, and if you are lucky, one home run. The base hits and the home runs pay for all the strikeouts.”

In other words, it’s about slugging percentage.

Yeah well.

That’s the only similarity I can find. The differences, however, are more striking. the game is so fundamentally different I don’t really know where to start.

First of all, a baseball hitter doesn’t choose his at at bats. When you’re up to the plate you have got to face the pitcher, be it Johan Santana or Roger Clemens. You can choose your hitting strategy - wait off some pitches and see if you can get ahead in the count, or be aggressive and jump on the first pitch - but in each case you HAVE to perform. VC’s choose their pitchers, pitches, teams, fields, leagues, arenas. Imagine what kind of batting average a decent Major League would pile up if he had such privilege.

The second difference is even more fundamental. In baseball, your goal is to win as many games as possible during the season. Not a single game or a single at bat, but a pennant. This is the source of terms such as pitching rotation, sacrifice, intentional walk, middle relief, etc. Slugging percentage is nice, but it doesn’t really say that much. Barry Bonds had a great slugging percentage but San Francisco hasn’t won anything in who knows how many years.

The third difference is with the true meaning of stats. Baseball is all about stats. If you hit .320 with 35 home runs this season, chances are you’ll hit more or less the same next season. In the start up industry your last at bat doesn’t mean much. In baseball terms, you can have an MVP season and then follow up with a sub mandoza line season. You can find yourself with seed stock at Google and be considered a genius. You can pass on the opportunity to have invested in Facebook and go down as a fool. It’s much more about the guts than about the stats.

VC’s are not baseball teams. A typical VC is a group of talented individuals who work at a firm whose sole purpose is to wisely invest other people’s money. Everybody likes hitting home runs, but striking out in this case could mean hurting someone else’s pension fund. It’s different than waiting for your next at bat. It’s different than losing today and winning tomorrow. In this case, sadly perhaps, every loss counts. You could argue that the law of averages takes care of that, but in reality when it comes to making decisions about investments VCs are much more risk averse than baseball players. The think many times before they swing, a privilege a 95 MPH fastball doesn’t grant.

I’m not saying the models don’t count. They do. VCs do try to make intelligent investments and earn the highest returns they can. But human factors count just as much, which is why people tend to invest in entrepreneurs they already know from past experiences. Images count, which is why VCs look to invest in big names. Job security counts, which is you need to be safe when its time to explaining killing a portfolio company. Nobody knows which company is the next Google and honestly, very few people trust their own judgment when it comes to making such predictions. In the end, the system works its way to its own optimum. It’s only natural, but don’t compare that to baseball.

      

One factor that as a startupist you can’t help escaping is dealing with the size of your ego. It’s not that your ego wasn’t around before, but starting up is definitely a catalyst for its surfacing. There are plenty of reasons for it. You need to make many judgment calls during a single day. You need to fight off inferiority complexes triggered by watching the bigger players and their success. You need to motivate your team (and yourself) continuously and you have got to sell your vision to everyone almost every single minute.

No matter how successful you become, every time something happens to others your ego gets involved. You envy your friend next door for having raised $10M and when YOU get the $10M investment you envy your other friends’ big contract, or exit. You get pissed with a swift move from a bigger competitor that just blew off your business pitch. You feel sour after seeing the VC that turned you down 3 months ago investing in another company in your space. As romantic as it may sometimes seem, starting up involves dealing with rejection, a lot of rejection, much more than in any ordinary job.

It is commonly believed that for an entrepreneur, a big ego is not only a plus but a virtue. One of my friends who is also a partner in a leading Israeli VC has even admitted that they are somewhat looking for a big ego when they scout new ventures. A founder with a big ego (and big balls) can fight this rejection off while claiming an ability to beat Microsoft or Google - all with a confident face. You can’t become big if you don’t think you’re huge, right?

Wrong. As a matter of fact, the more I grow the more my belief is strengthened. The more you let go of you ego the better your chances are to succeed. Big balls have very little to do with big ego. Big balls mean you have faith in your ability to succeed. Big ego means you need an artificial layer to protect you from your own fears.

It’s safe to say every executive I have worked for had an above average ego. Some were good executives and some were bad executives, but none of them benefited from their big ego. It often caused them to never admit an obvious mistake or from taking good advice from people of lower rank but better judgment. When I look at my own career, my ego failed me much more than it helped me for the exact same reasons. It contributed to a wrong perception of reality and to Hubris. Any friction I ever had with a former boss had my ego involved. Professional and personal integrity are great points of character, but we very often disguise our big ass ego by abusing them.

I work with a group of talented individuals at Hooqs.com. All my colleagues are better than I am in at least one aspect of the start up game. The more I tuck in ego in the better I get. The more I listen to my ego, the more I have to regret. Straight and simple.

Getting a start up to a point of success involves a lot of faith, leadership, good perception of reality, resilience, setting personal example and a lot of self hyped confidence. This is called leadership, which in my book does not carry a big ego. You can tell everyone that you can beat Microsoft and that Bill Gates will work for you as a product manager, but it’s a load of crap. The only big shot names you will be able to hire at an early stage for the sake of their name are big shot egos with an agenda you don’t need. Chances are you’ll develop a great gallery of names, a bag of contradicting philosophies and a shitload of political issues to deal with. This doesn’t mean you shouldn’t hire supreme talent, you should, but here again your key to hiring real talent is with your ability to tuck in your ego and to let that talent contribute.

How does that blend with building billion dollar companies? My philosophy is that you can’t plan a billion dollar company. If you build a fantastic company it may eventually become one, but you need to build an excellent company before you even dream of it. The desire to foresee and fore-plan billion dollar companies is an original sin. It’s like trying to predict the future at the expense of decisions in the present. In the early stage, you need to focus on building a good product that people will be happy to use and pay for. You need to execute on a good marketing plan that encapsulates a good perception of reality. You need to make difficult compromises everyday and you mustn’t be deterred. If you do all that well you’ll build a good growing company. 

My ego is not going anywhere, but I am going to do my best to confine it. Confidence, faith, devotion - absolutely. But the border line with just plain ego is very easy to miss.

      

The Israeli high tech scene is going through an interesting shaping debate. A lot has been argued about why Israel has not been producing “a Nokia” or “a new CheckPoint” during the past 15 years. I have put most of the blame on the financial structure of the Israeli start up scene, Shai Tsur and Daniel Cohen wrote their own pieces and have argued that the overall atmosphere and entrepreneurial motivation contribute to early exits even more. The bottom line, though, is unanimous - Israel is underselling its high tech potential and this is a very dangerous trend.

As much as I’d like to blame the overall atmosphere, geography, management and personal greed, I just can’t. These criteria are not new. As a matter of fact, Israel’s situation has never been better in terms of ease of global reach and of management maturity. The “get rich fast” motivation of Israeli entrepreneurs is not different than anyone else’s. What has gone to extreme is the dependency on VCs.

Here’s a fact - a typical Israeli start up must get VC money and usually at an early stage. In order to satisfy the VC benchmark for the definition of potential, the typical Israeli entrepreneur must come up with a ridiculously ambitious dream - one that usually contradicts every bit of operational and marketing common sense.  A dream that factors exponential year by year growth, global market reach, horizontal AND vertical relevance and most importantly - unique and patentable technology. She needs to present as many “$250M+” exit scenarios even if the company has yet to produce a single dollar or customer. Now, everyone knows a company can’t discuss billion dollar dreams before having created hundred dollar realities, but If the dream is too small, it’s not a VC company and if it’s not a VC company, there ain’t no start up. So instead of focusing on the future one can actually see, the debate shifts to whether the company can break the glass ceiling of a “$50M exit bracket”. This is, well, stupid. Nobody, not a single person on earth, has any idea of what company will be a billion dollar company in 5 years. Your guess is as good as anyone’s.

In reality, the entrepreneur doesn’t care about the grand scheme at the moment of marriage to a VC. She cares about getting through the first year so she doesn’t have to fire anyone and go back to moon-shining. So she is pushed to producing a plan of very little merit hoping that things somehow work out. The plan, needless to say, never materializes. The entrepreneur busts her ass and, if lucky talented, gets a few big customers which create growing revenue. Then, all of a sudden, it becomes evident that sales and delivery cycles are much longer than expected, that costs are much higher than planned and that the actual niche is really, really smaller than envisioned. The entrepreneur starts feeling the pressure of having failed to deliver and is developing hypertension. After all, the mortgage may not be paid in full after all and if “only the VCs would understand that this takes time”. Friction is imminent and when an exit becomes the only way out and the focus shifts to ”getting a $200M exit as long as we can”. An effort that usually ends up resulting with a $80M- $120M exit at best, after which everyone happy its over.

Sounds familiar? While this is schematic, shallow, cynical view with a lot of exceptions, I’ve been seeing this happening time and time again, like foretold chronicles. I have many entrepreneur friends and as may friends in the VC circle - all of them are usually very smart - why does this keep happening?

The missing piece, in my humble opinion, is with two elements. One is the creation of growth funds. A fund that invest in growing businesses and not in developing an exit. A fund that looks to solve mezzanine type stages when companies reach the stage of having real, not virtual, potential.

The other piece is with rewarding entrepreneurs so they can be personally calm. Here’s a big secret: if the founders get comfortable when the company is already half successful, chances of real success grows dramatically. They won’t be tempted to dump their shares before it’s too late and they won’t be facing all or nothing situations. Need an example? Take a look at Mark Zuckerberg. He’s a rich a guy but he ain’t going anywhere soon.

      

This is a pessimistic post.

Last week Traiana made a fantastic exit. Interwise was sold a week before for about par value. Saifun was dumped roughly around that time for the cash register and change. 3 Israeli stories, different IRR, similar long term outcome. Founders walk out with money, companies merging with American entities to slowly fade out.

The Israeli high tech scene fails to produce sustainable, ongoingly growing, companies. The problem is not the Israeli landscape, the problem is probably with having a wrong dream.

When it’s all about the Exit, focus shifts from succeeding as a company to succeeding as investors, speculators. From creating to trading. Operational record is overlooked for dream weaving. This is why Boaz Eitan walks out with $100M for having successfully sold a multi billion dollar balloon to investors despite having no operational evidence at any point.

This is no news, but the big question is why. Why do so few Israeli High Tech companies stick to the gold old business of producing goods and generating a profit. Why do so many high tech companies think of nothing but the exit to a large, fat, rich, American uncle. Did we forget how Nokia started? how Samsung came about? Can’t we see how inspiring CheckPoint and Amdocs can be? Or more importantly, do we not understand that this exit frenzy will vert quickly dry out the Israeli high tech mud pool?

As a start-up-ist I’ve been thinking a lot about that issue. I find the major cause to be the financial structure of the Israeli start up scene. Most Israeli startups are funded by VCs, Israeli and American, who in turn get most of their funding from out of Israel investors. This is good and bad. The VC model is based on selling their share for the highest amount in the shortest time. The fundamental focus of a “business” is to create a profit. Unfortunately, these two foci’s correlate less often then they do. An IPO may mean such correlation, as the VC can sell it’s share and the company can grow. However, very few companies fit the IPO model, and most companies are forced to think about their “business” in different terms. Terms such as “comparables”, “size of the (exit) opportunity”, “exit strategy” and “fitting the investment portfolio” take precedence and management attention away from real business decisions. Innovation becomes more important than operations because ideas can be sold earlier in the lifecycle. This means the company must be sold to a company who believes it can turn innovation to operations. Sold to, not become one.

A Solid, profitable, growing business has many advantages. For one, it can finance itself. It can organically grow. It can always be sold. Maybe not always for $250M at a minimum (as if), but the opportunity is continuous. Anywhere else, most investors would fancy investments in such companies.

Contrary to popular belief, it is possible to grow a company without thinking about the Exit. It is possible to grow the business and to develop good operational practices. It is possible to compete for real customers and win. It is possible to grow a Nokia in Israel. The Israeli high tech ground will not stay fertile without a few of those. If you’re unsure, take a look and India and China and see why it is only a question of time.  As a startupist, this means you need to scrutinize your investors and not just “take money when you can from whoever you can”. easier said then done, I know. In away, this is contrary to the old text book approach. I just hope we all gather to update the text book before it’s too late.

      

Yes.

The whole location of the Garage Geek party is quirky but that is exactly what makes it so unique. So yes, look closly, Marissa Mayer - VP Search Products & User Experience @ Google is standing on a fork lift while giving a speech.
And if you look a little closer Yossi Vardi is on her left, standing in as stage master, looking concerned…making sure Marissa doesn’t take a tumble ( ’cause in the spirit of Israeli improvisation he is to blame she is up there in the first place )
You might think Marissa could be ticked off at the settings but I got the feeling she ‘connected’ with the garage groove.

      

This is a call for all you early adopters who like to ‘check out stuff’. I downloaded Yoomba before the weekend to see what the buzz is about.

I should take some of the blame for what happened but in this day and age there are some basic trust rules between users and service providers. Tricks are Passé.

I’m what you call a ” Next-next-next-launch” guy. Except that with Yoomba, before I realized it, my whole contact list got spammed with invitations to start talking with me. What an embarrassment! I accepted pulling my contact list info because it helps. What I don’t agree with is that when you accept “Start Chatting with Friends now” the immediate result is a 500 emails blast! I humbly believed it means…start using the service.

By the time I noticed what had happened the emails had been sent. I tried to stop, quit…uninstall… but nothing helped, it was too late.

Since I uninstalled the app I can’t even write a negative software review. What is more important is that User Experience and marketing wise they failed miserably. A cheap ‘product’ trick to instigate viral market backfired big time. Beware!

      

I’d like to present a different take than proposed by Aner below. When I think of the effectiveness of this new marketing channel I look at the wider perspective of the platform and user habits. To pinpoint the discussion further I’d like to address the action that leads to the ad being served. Google’s definition of a mobile ad is as follows:

“Mobile ads are shorter text-based AdWords ads that appear on mobile websites or when users search Google from a mobile device. When users clicks on your mobile ad, you can send them to your mobile webpage or offer them the option to connect to your business phone.”

The issue that I would like to focus on is the fact that content discovery and search habits are COMPLETELY different when it comes to mobile browsing. As such, I believe ‘copying’ a successful ad model on the ‘pc web’ does not guarantee success in the mobile world.

Mobile web browsing is much more focused. You hardly ever start in one place and ‘wander’ to the next or discover new services and information based on advertising and hyperlinks. Its usually a much more focused action. You are ‘on the go’ you look up ’something’ - news, sports –> these are served via direct links in the Operator’s portal or your own bookmarks - done. There is no (or hardly any) plain search. If there is, its in the context of a use case such as maps, music or video search and that usually happens within a specific service (HooQs ).

In his MEM2007 insights post Aner mentioned (point #9) users tried Google mobile search and didn’t like it. I did too, and didn’t like it. Not because of Google but because content is scarce and the chance of random discovery which is part of the Internet’s main ‘wonders’ doesn’t [yet] exist in the mobile web.

I’m willing to agree Google’s drive is positive. If anyone can start some kind of drive that will motivate mobile content to be created thus leading to an eco-system that is able to sustain ads based on that content…it’s Google. Google’s mobile ads are basically an experiment that will hopefully lead to more mobile content and probably also lead to a change in the ad model.

One of the greatest killer apps for mobile search will be the integration of location based with search. Not on a country level, on the neighborhood level! If I want to buy flowers for my wife - Go to Google, search “Flowers” –> results = near by flower shops, with link to number and a map. That’s effective and thats the kind of “fused” service I am looking when it comes to using my mobile for search.

For now, the level of service is basic. The action is welcomed but execution not focused enough on leveraging mobile use cases.

      

Google’s mobile version of AdSense is finally in beta. After months of second hand rumors, these news now seem substantiated as Google has put together a mobile ad FAQ page. Ads are available in 13 countries: the United States, the United Kingdom, Japan, Germany, France, Italy, the Netherlands, Spain, China, Ireland, India, Russia and Australia. Advertisers can choose between 12 and 18 characters per ad.

The pricing and clearance processes are similar to the ones already established on the web with one major exception. In the mobile version, the user can actually place a call to the published business. If this doesn’t drive mobile click through price up then I find it hard to know what will.

Will this work? Absolutely! I believe this is exactly what the industry needs to kick-back. Banners are limited and the collective user patience for them is exhausted. Useful, contextual information on the mobile phone can actually add value to the browsing session.

      

This post is basically public bug reporting but I just feel compelled to report out loud.

Last night I was emailing a buddy and attempted to attach a file that happened to be stored in my Google Docs account. It never occurred to me that there will NOT be an option to browse and attach my online docs through Gmail!

Do you realize that there is no connection between the two? I looked hard for such a link but couldn’t find it. The only attachment option is to upload an attachment from your local PC. Of course, separate login into Google docs and “sharing” is possible but why should I be able to go one way and not the other??? The classic user experience is to start with the email –> text –> attachment. Not send email based on the attachment (the Google Docs route)
Anyway - its a hitch. An annoying one and it should be fixed

If I am wrong please correct me and show me where the he@#$ that “Google Docs attach” link is hidden.