Brad Hargreaves | startup adventures in nyc

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Lots of people talk about startup burn rates. But there isn’t quite as much said about personal burn rates. But if you want to accomplish anything in your life, managing your personal burn is far more critical.

Lack of control over personal finances is the biggest reason why people who want to start companies don’t. It’s difficult (often impossible) to do a startup the right way while managing a full-time job. But quitting the day job cold-turkey is pretty much impossible for most people. Why? Well, expenses have a strange way of rising to meet income. It’s a rule with spooky consistency, especially in a city with so many opportunities to spend money like San Francisco or New York. People who make $50K a year tend to spend approximately $50K, and people who make $200K a year tend to spend $200K. And from from what I can tell, people who are used to making $200K don’t “feel” remarkably wealthier than people who are used to making $50K.

But since expenses tend to scale to meet income, we spend for the job we have. We lock ourselves into apartment leases, phone contracts, credit card debt, car leases and lifestyle expectations based on our current salary. And that sucks, as our material obligations lock us in to work that we don’t want to do forever. Thus, I propose a new rule of personal finance: set your expenditures to meet the anticipated salary of your next job.

If you are planning to leave the corporate world to start your own company, cut your personal burn now. Move into a cheaper place. Ditch your cable TV and your car. Stop going out to expensive dinners. Suddenly, you’ll find that your job becomes a lot more of an option and a lot less of a necessity. Then, you’re free.

And from my experience, you won’t feel much poorer.

Oddly, I think this principle actually works in the other direction as well. If you are solidly on the corporate track and are expecting a promotion to the next rung on the ladder (and salary level), spend a bit more than you would otherwise. Keep following the rule — set your spending to the salary of your next job. Lock yourself into an apartment that is slightly nicer than you can afford. Make yourself a little desperate to have that raise. This is, of course, counter to most of the personal finance advice you’ll read out there. But I think most of the people dishing out financial advice for a living are more interested in telling you want you think you should hear (“Clip coupons!” “Don’t go to Starbucks!”) than something actually meaningful. Necessity on the path to desperation can go a long way to making meaningful things happen.

But so can freedom from material obligations. If you are unmarried and without children, loans or serious health issues in New York or San Francisco, it is entirely feasible to lower your monthly personal burn rate to $1500 – $2000/mo. I know people who have gone lower — the lowest I’ve heard in NYC is approximately $900/mo — but I wouldn’t wish that lifestyle on anyone. And you can reasonably make $2000/mo by tutoring on weekends, waiting tables on Friday and Saturday nights or doing some very part-time development work — which leaves the rest of your time to make startup magic happen.

The smart money says there’s plenty of capital out there. And from the perspective of near-term return optimization, they’re right. In fact, there’s probably too much capital out there, especially in major centers of innovation like New York, Boston and the Valley. If you were to seed fund the “marginal 10%” of companies — the companies that barely miss the current threshold for funding, if such an objective measure were to exist — the financial returns would surely be dismal.

But that’s not the only way to look at it. I argue that — from a long-term perspective — more companies should get funded.

Running a funded startup is an incredible education unlike any other. As someone who has run (a) bootstrapped startups that I couldn’t get funded, (b) bootstrapped startups that purposefully didn’t raise money, (c) angel-funded startups and (d) venture-funded startups, the learning experience delta between {(a),(b)} and {(c),(d)} is incredible. Taking money increases the volume of things going on and pushes your company to the next level. It increases the amount of stuff you have to figure out. It opens doors and enables conversations that few bootstrapped startups can have. If you pick the right investor and leverage it, the things they say about “opening their rolodex” can absolutely be correct. And you learn a lot of critical stuff about how to build a business from those people. Even taking “dumb money” can make it an order of magnitude easier to get in the door.

And most importantly, it’s a guaranteed lifetime addiction to entrepreneurship.

Even if the companies built with this seed money don’t succeed, these entrepreneurs are the foundation for successful companies in five or ten years. Every entrepreneur that fails to raise money and is forced to go back to the day job is a potential groundbreaking innovation that will never see the light of day. Claiming that “real entrepreneurs will always persevere” is bullshit. The people who create awesome, world-changing things are not always the people who are willing to work eighteen hours a day for no salary for years. They may be people without savings, with mortgages and with families. Creativity and innovation isn’t the just domain of scrappy 20-somethings, so why is entrepreneurship?

In economic terms, there’s a huge positive externality to all of this connecting and learning. That means that more of it should happen than will actually happen if every player is simply looking to maximize profit. If more startups are going to get funded, investors must believe in the positive social benefit of funding.

And I think it will happen. The comps are changing — more wealthy independent investors are looking at seed funding as philanthropy rather than a component of a diversified investment portfolio. A certain group of investors are considering their seed investments in the same pot as their patronage at the Met or contribution to an off-Broadway production rather than their private equity assets. This is a really, really important distinction, as it makes the returns of these capital deployments less of a factor. Wealthy independent investors aren’t blind — they see need for funding and innovation as the savior of our nation and economy. This isn’t just an investment; this is a moral imperative. And you can’t ignore the sexiness and cocktail party benefit of being in on the ground floor of a new hot startup.

There are good counter-arguments to be made here, but I think they are outweighed by the curation of a future generation of entrepreneurs. For instance, it is absolutely true that more capital will lead to more competition for the means of production (e.g., developers), driving up prices and making it more difficult for “good” startups to hire. This is absolutely true, but higher salaries for developers in startups isn’t a bad thing for the startup environment as a whole. After all, the world — even the world of hackers — operates by the rules of supply and demand, and higher salaries from startups will draw more developers from established tech companies and banks, for instance.

Seed funding is entering the world of philanthropy, and I think it’s a very good thing.

Charlie O’Donnell had an interesting post this morning on what Diaspora should do with their Kickstarter riches. One thing he didn’t mention? Figure out your market positioning and brand.

Let’s think of this in terms of the possible likely outcomes of Diaspora’s work:

Low: The team / product / initiative falls apart for some reason or another. Nothing is accomplished.

Middle: Diaspora creates a product that is useful but is restricted to the tech community and never gains strong adoption. Even techies still have both Facebook and Diaspora profiles, limiting the impact and fulfillment of the mission.

High: Diaspora gains mainstream traction, becoming the first legitimate threat to Facebook in years.

Right now, most of the focus is on the distinction between the “low” and “middle” scenarios: How does the team focus and produce anything at all? How do they build the basic operations of their business? These are important, but they aren’t the elements that are going to separate the “middle” and “high” scenarios. And to me, that’s the really important distinction — if they’re aiming to open the social graph, they have to reach beyond a small circle. But what are some of those upside differentiators, you ask?

Usability: How easy is Diaspora to install and customize? Does it “feel” nice?

Dynamics: Facebook spread because it is viral. It uses the fundamental structure of the social graph to spread and stick. Can Diaspora capture those similar dynamics?

Brand Association: This is Diaspora’s biggest long-term problem. Right now their brand is closely associated with a techie revolt against Facebook, and there are real questions about (a) how long this revolt will last and (b) how “deep” the revolt spreads into Facebook’s user base. Diaspora is currently riding a wave that may simply peter out in the near future, perhaps withing weeks if previous Facebook user “revolts” are any indication. In this frame, the Diaspora founders need to take the money they harvested from dissatisfied Facebook users and quickly pivot to a brand that has long-lasting and broader appeal.

Many great companies do this eventually (e.g., Facebook’s shift from a geeky Ivy League classes and social site to a full-blown online manifestation of the social graph), but Diaspora risks being pigeonholed sooner rather than later. It’s getting lots of press way too early and around a message that may work for them now but probably doesn’t reinforce their ultimate goals — and risks forever framing them as something very specific to a tech audience.

This doesn’t necessarily involve a change in strategy or mission — just the frame. Product is still the king, but brand matters if we’re going to be talking about these guys in six months, let alone two or three years.

I don’t usually like pointing out others’ failures (I prefer to focus on my own), but one particular demo by a startup at this past Tuesday’s New York Tech Meetup is particularly instructive in How to Fail at Presenting to Hackers.

A brief guide to failure, courtesy this demo:

Expect your connections to high profile individuals will build credibility: Exceptions include Richard Stallman, Cory Doctorow and probably Steve Jobs. Don’t rattle off a list of Silicon Valley investors and expect us to be impressed. We’ll just wonder why you’re not showing us a product.

Put the conclusion before the story: It’s fine to say that you’re raking in cash or you have amazing clients, but do it after you show us the product you used to get there. Otherwise the story seems backwards and you seem full of yourself. Explain how something was built from the ground up, gained traction and eventually convinced people with money to buy your product and support you. That’s a story that resonates with hackers.

Ignore the allegiances and perspectives of the audience: This is more of a general presentation rule, but this company couldn’t have blown it worse with a hacker crowd. For instance: if your product has applicability to hiring for both Fortune 500 companies and early-stage startups, don’t show examples of how Fortune 500 companies can use it to gain leverage over potential employees. You seem to be enabling a corporate culture that your audience is rebelling against.

Send someone who isn’t a cultural fit with the audience: I’m sure your company has hackers. Even an executive CTO or VP of Engineering. Send them, not the business development executive you just recruited out of an investment bank.

Like any audience, presenting to hackers isn’t hard. But just as it wouldn’t be a good idea to wear jeans and Birkenstocks when making a presentation to the board of a Fortune 500 company, pitching a crowd of hackers requires a level of understanding and respect of the group’s culture. Anything less is simply going to waste everyone’s time.

I hosted a party with Superconductor’s Matt Brimer a couple weeks back. Since I’m more or less incapable of throwing a party these days that doesn’t turn into a NYC tech mixer, we decided to embrace it and craft an appropriate drink menu.

I wish I could take credit for more of this, but it’s primarily the work of Brimer and HomeField‘s Reece Pacheco.

[Click to enlarge]

They tried to capture the spirit / theme of each startup in the drink. Or something like that.

The Bit.ly: Tequila shot

The Boxee: Vodka, triple sec, lime, shaken, serve on rocks in tumbler

The Drop.io: Beer + Shot of Bourbon, Vodka or Tequila

The Etsy: Vodka, muddled lemon, sugar, ginger ale

The Foursquare: Vodka, sour (shaken), garnish w/cherry + orange

The GoodCrush: Vodka, triple sec, lime juice, cranberry, shake on ice and strain into martini glass.

The Hot Potato: Jager-Bomb

The Hunch: Gin and tonic

The Kickstarter: Muddled bitters, sugar, orange, cherry, add rocks, bourbon.

The OMGPOP: Lemonade, Gin, Peach Schnapps, sour mix. shake. Highball or glass on the rocks.

The Parse.ly: Muddled mint + sugar, bourbon, sour. Tumbler glass on rocks.

The Postling: Bourbon, Ginger Ale, highball or tumbler on the rocks.

The ScoopSt: Vodka, Gin, Rum, Tequila, Triple Sec, Sour Mix, Jagermeister

The SpeakerText: Tequila, mixers

The Tumblr: Vodka Cranberry with a lime.

The Yipit: PBR

During World War II, many remote Pacific islanders received their first taste of modern goods when Allied or Japanese armies showed up and took over. Soldiers built airstrips, control towers and barracks, and planes regularly flew in and out. To avoid conflict, the islanders were bribed with food, alcohol and amenities. Then, the war was over and the soldiers left, tearing up their bases and taking their planes with them.

When these remote islands were visited again by anthropologists years (or even decades) later, some islanders had created “cargo cults” mimicking the soldiers’ activities. By building landing strips, wooden control towers and straw planes, islanders hoped to re-create the bounties of cargo. That is, they were copying the process without understanding the underlying principles.

As the idea of building game mechanisms into everything becomes the next new hot thing, I’m seeing a lot more cargo cult game design, or “let’s stick a leaderboard on it”. Lots of companies are copying the games they see others build without really understanding what they’re building or why they’re building it.

Don’t get me wrong — the people who are thinking today about building game mechanics into their non-game products are way ahead of the curve and should be commended. But good game design is hard – look at how long it took some of the smartest game designers in the world to figure out how to create really compelling, blockbuster games on Facebook. The Facebook platform was lost in the wilderness for over a year before anyone started figuring it out — but when they did, they revolutionized an industry.

I get a couple emails a week from people interested in making their company’s products more game-like. The person tasked with this is typically in product development, product management or marketing. They’re all pretty smart people, so they look around to see what else is working. Sadly, examples of good games built into non-game products after a product release are few and far between. So they find something that May Be Kinda Similar But May Also Be Different In Some Fundamental Ways (really, that just means foursquare) and co-opt it to their company’s product development plan while changing as little of the original game as possible.

But this doesn’t really work. In fact, it’s not that much different than building a plane from sticks and bamboo and expecting to receive wondrous gifts from the heavens in return. Games are fun when they fit organically into the theme around them. If everything has its own standardized leaderboard of people who have generated points doing X, I’m going to get tired of leaderboards pretty quickly. Game design isn’t black magic (that’s SEO), but it does have to be tailored — or even re-engineered — to fit its environment, audience and purpose. And often, the fundamental questions that need to be answered in these companies can’t be addressed by game design. Game design must come after there are answers to core questions like who are the users? and what do we want them to do? In other words, it’s not a cure-all for core business issues.

So when friends ask me how to wrap a game around whatever they’re doing, I point them in the direction of some fundamental game design writings by guys like Raph Koster and Greg Costikyan. Ultimately, you’re better served by building something from the ground up. Start with the basic principles of psychology and game design and build them into your product at a fundamental level. Otherwise, it’s just an elaborate cargo cult ritual that mimics the process but fails to understand the underlying truths.

If you’re living in San Francisco and working in a hot Valley startup or tech company, you probably have a bit of a commute. If you’re living in NYC and working in a hot startup in the area, not so much. Unlike those in the Valley, most tech companies in New York are in the city itself.

For the entertainment and edification of my northeastern readers, I’ve created a map that superimposes Valley companies on New York and Connecticut, assuming identical driving times (from midtown Manhattan and downtown San Francisco, respectively) and distance from commuter rail (Caltrain and Metro North’s New Haven line, respectively).

To make this more explicit, here are exactly where our Silicon Valley darlings would find themselves:

Adobe: Noroton Heights, Connecticut

Sun Microsystems: north side of Stamford, Connecticut

Apple: North Mianus, Connecticut

Google: North Greenwich, Connecticut

YCombinator: Greenwich, Connecticut

Facebook: Greenwich, Connecticut

Electronic Arts: between Mamaroneck and Eastchester, New York

Oracle: between Mamaroneck and Eastchester, New York

Wikia: Pelham Manor, New York

YouTube: Soundview, Bronx, New York

Zynga: Harlem, Manhattan, New York

When most venture capitalists think of “barriers to entry”, they think of things like:

- Intellectual property (e.g., patents, copyrights)
- Strategic relationships
- Infrastructure and information

But I think the value of community as a barrier to entry is greatly underappreciated. And I’m not just talking about the network effect that keeps competitors away from Facebook. I’m simply talking about the existence of a community at a particular destination site. When you dive into it, there are thousands of examples of online communities outlasting the purposes and active management of the sites they inhabit.

Take my own GoCrossCampus, for instance. It was a fairly small (100K – 200K uniques / mo) gaming site focused on strategy games and the college market. In Fall 2008, the GoCrossCampus team started building a new site — PickTeams — and greatly scaled down support of the GoCrossCampus community. Yet the members stuck around in large numbers, continuing to play, chat and complain about the low level of support. (I wrote a bit about the reasons why GoCrossCampus failed here).

And GoCrossCampus wasn’t even built to sustain a community of gamers. It was built for large campus events, not a group of dedicated users. Yet the users stuck, even after we wrapped up the company and took the site down to one server.

And it continues. When we took the site down in March of this year, it sent a diaspora of ex-GoCrossCampus users to various sites. To this day, “GoCrossCampus” is still one of the top keywords leading to my blog.

Talk to anyone with experience bringing groups of people together online, and they’ll tell you similar stories. Communities are tough to build and tough to disperse — even when there’s a “better” product or social option out there, and even if the site in question isn’t “capturing the social graph”, so to speak. Look at 4chan, for instance. It’s essentially a klugey, spam-filled message board. There are no accounts. There’s no concept of “friends”. There’s no video support (thank god). Yet millions of people continue to visit it every day.

So is 4chan “defensible”? Not in the eyes of most VCs. It has no specific intellectual property or strategic relationships, and it isn’t capturing any social graph data or asking for any “investment” of profile info from members. Yet it has stuck around for an absurdly long time in the face of intense competition. Perhaps it is worthwhile to take a second look at our concept of defensibility when it comes to online destination sites.

Editor’s Note: This piece was originally published by Greg Costikyan on November 28th, 2007 and dealt with his experiences raising funding for Manifesto Games. I think it’s a wonderful piece that still rings true today, and I’m reblogging it with his permission here.

As a teenager, my subculture wasn’t “punk rockers” or “hippies” or “young Republicans,” but science fiction fandom. I tend to view other subcultures, therefore, from a sort of anthropological standpoint, noting similarities and differences from my own “native” culture. I understand “the science convention” as one of the cultural practices of my own tribe, and therefore perceive other similar cultural practices–such as the trade show, the industry conference, the acadamic conclave, or, in the case of today’s post, the venture conference–as interesting cultural variations on that basic motif.

Earlier this week, I attended the New England Venture Summit–my fifth conference of the venture-investing tribe as an attendee, my third in a money-raising capacity, and the second at which I presented.

As with conferences in other cultures, the focus of the event, which takes place typically over one or two days, is the agenda, a series of speeches and panel discussions. Unlike most other such events (e.g., the science fiction convention or the industry conference), the Dionysian aspect is downplayed–there may perhaps be private dinners sponsored by one VC firm or another after the day’s event itself, but the conceit of the participants is that they are there purely in the Calvinist pursuit of worldly wealth, so that open partying would diminish their own respectability in the eyes of the participants with whom they most desire to build social credit.

The organizers of these event are profit-making enterprises, who charge fairly stiff fees for participation, and target three sorts of potential attendees: entrepreneurs seeking capital; venture investors; and service firms. Under the rubric of “service firms” are included lawyers, accountants, headhunters, providers of outsourced HR services for small businesses, and the like. My impression, in fact, is that half or more of the revenues that such events produce are derived from service firms, both from the (higher) attendance fees they are charged, and through sponsorships.

The events on the agenda are of two types: panel discussions, usually among VCs, and usually moderated by someone from a service firm (who presumably has paid for a sponsorship in another context); and investor presentations.

Panel discussions are common to the conferences of all of the subcultures considered in our current study, but (in all cultures) they vary enormously in how interesting they are. In the worst case, you have as a topic for discussion something that has already been thrashed to death repeatedly at previous events, and a moderator who poses excruciatingly dull questions, eliciting rote answers from the panelists. Whatever your subculture, I’m sure you can bring to mind any number of these, from events you’ve attended. In an SF convention context, I would be very happy never to attend another panel on “Gender in Science Fiction” or “Breaking Into Print.” (Although even in these cases, creative panel members can overturn the conventions; I am unlikely ever to forget Michael Swanwick [writer] on a “Breaking Into Print” panel discussing his relationship with Gardner Dozois [editor], and saying “There’s a reason they call it ‘submission.’”)

The basic problem with the venture conference panel is that the conditions under which they are created mitigate against anything of the slightest interest ever being said. They exist to motivate the attendance of VCs, who may be flattered to participate; to reward service firms for contributing money (by allowing them to provide the moderators); and to attract the interest of entrepreneurs, who may reasonably be expected to find what potential investors say of interest. But the choice of topic is inevitably anodyne (“Emerging Trends” — can’t pass that one up!), and since the moderator is from a service firm, which has an interest in sucking up to both investors and entreprenuers, he is extremely unlikely to ask challenging questions, and is likely to stick to the equally anodyne. E.g., “Which is more important when you’re looking at a company–the finances or the team?” — a question at this actual conference, to which the only honest response is “Which are you, a moron or an idiot?”

(Oh, if you care –So let’s do a gedankenexperiment. 1. My team is Bill Gates, Thomas Alva Edison, and Henry Ford, and my business models is, we sell hot dogs at a loss and make it up on volume. PASS!

(2. My team is three heroin addicts who haven’t bathed in a week — but — wait! Billion dollar oppor… PASS!

( You tell me. Which is more important? The finances or the team?)

So from an entrepreneur’s perspective, there’s only one reason ever to attend these things: To put a face with a name, and know who to button-hole later.

The company pitches are the real meat of this kind of event. Typically, over the course of an hour or ninety minutes, a series of entrepreneurs get up, each allocated something between 6 and ten minutes, to pitch their company. The inevitable tool is the Powerpoint presentation (occasionally you’ll see someone using OpenOffice Impress, and good for them); this is jejune in its own right, and some day I’ll have the guts to do something completely offbeat, like hire a team of mimes and jugglers to provide visual representations of what I’m pitching.

There’s usually a ‘mandatory’ training session the day before, in which entrepreneurs give their pitch to a handful of venture-experienced people and get advice and feedback; this is actually useful, in many cases, since it’s surprising how many entrepreneurs show up under prepared, and quite often advice like “nobody’s going to be able to read 12 point type on your slide, no more than 4 bullets per, thanks” or “I still don’t have a clear idea what you do” is just what they need. For your ultimate six minutes of exposure, it’s a bit of a pain to take half a day off to watch painfully amateurish presentations from other entrepreneurs, but it’s still almost always worth it, even if you’re pretty polished. It never hurts to rehearse before a critical audience. (I didn’t take advantage of that this time, and it was a mistake not to do so.)

Watching entrepreneurs pitch is painful, because each of them has taken months of work and passionate dreams and a universe of ideas and tried to distill them down to six tight minutes. And it’s painful, because so much of what they’re pitching is jejune or just dumb; a minor tweak on the delivery of mobile content, a better way to sell real estate, a mechanism for making mobile games even less interesting than they are already by making them “free” and advertising supported. (Advertising supported inevitably means “dumbed down to the lowest common denominator.”) “Secure DRM,” hah. A mechanism for reducing cigarette theft at convenience stores.

All the kinds of things that maybe might make money, but my god; it makes you despair of capitalism. Is this the best that the Promethean creativity of the market can produce?

But to get back to the anthropological analysis, all conferences, of whatever type, have three purposes, though they vary on which they emphasize: to impart information; to build social ties; and to do business. For me as a teenager, the science fiction convention was first about information; it was an enormous thrill to hear the writers I admired speak, and I learned a great deal about writing, and the business practices of publishing. Later, it served a business purpose; promoting my work in the field, and establishing relationships with editors. And these days, on the rare times I attend one, it’s primarily social–catching up with old friends.

In terms of imparting information, I would suggest that “the venture conference” is a poor medium, except for very naive entrepreneurs. If it has any value as a social event, it is for venture investors (who often cluster and talk shop with each other, even as the entrepreneurs scan badges and try to figure out how to start a conversation with them–the entrepreneurs have little to say to one another). Which leaves the business function, and since these are events built around a business subculture, that is, or ought to be, their main purpose, redeeming the fact that they don’t do so well on the first two scores.

I would argue, however, that they don’t work particularly well in a business context, either.

Let’s start with venture investors. A typical venture capitalist spends the bulk of his days listening to pitches from entrepreneurs. Just as fiction editors are up to their eyeballs in slush, a VC has seen so many Powerpoints he has trouble remembering which is which, and probably has nightmares in which “the opportunity” and “go-to-market strategy” chase him screaming off a cliff, the jaws of negative EBITDA spreading threatening below.

Now let us say that you are, to pull things more or less at random, a VC who invests in, oh, the enterprise software space, specializing in expansion capital to already-established firms, located in Boston and almost never investing in companies farther than drive-distance.

Your expectation–and a reasonable one–is that anyone who has a company dealing with enterprise software, with some solid base of revenues, and within drive distance of Boston either knows you, or knows of you, or will ask around until he finds someone who does know you, and you will eventually see his business plan. Or if not, he can’t be a very competent entrepreneur, because he damn well should be able to find you.

So you learn of some venture conference, in the Boston area, where umpty-dozen companies will given a six minute pitch.

The basic thesis behind the venture conference is that you should be all excited to attend, because here you’ll get quick exposure to umpty-dozen potential investment opportunities, and all in the space of a day! Efficient use of time, yes?

No.

Out of those umpty-dozen, maybe two will fit your investment criteria, and if they were semi-competent, they’d find you anyway.

So… Maybe you send an associate. You certainly don’t go.

From an entrepreneur’s perspective, the supposed appeal to the venture conference is this: I’m pitching to a room containing maybe 200 people, all interested in venture investing, and even though there’s a fee attached (and maybe travel and a hotel room), and even though it’s a couple of days out of my (and maybe my senior staff’s) life, it’s a more efficient way to reach a lot of potential investors at once!

Right?

Well–no. That room of 200 people is maybe 25% other entrepreneurs waiting their turn or listening to other pitches to get a better sense of how to polish their own, and maybe 50% service folks who actually want to sell you stuff, and maybe the other 25% are investors of one kind or another. Of whom the vast majority would never invest in whatever it is you’re pitching. And of the handful who remain, almost all are so junior that unless they go back foaming at the mouth with excitement, it doesn’t really help.

You would be far better off staying at home, figuring out the right VC firm and the right person there, and figuring out how to network to them, so your submission doesn’t fly over the transom and land in the “slush”, but gets a sympathetic read.

As Michael Swanwick said, “there’s a reason they call it submission.”

***

Which is a nice pat way to end it, but leaves two obvious questions, I think. I’ll take them in order.

1. “So… How did you do?”

Ehn. I think the Powerpoint itself was pretty strong, but this is the first time I’ve tried to do this with a partner; Nathan took half the slides, and I the other half. We both floundered a bit, and were not as crisp, clean, and confident as you want to be in this context. We could have used another few hours of rehearsal to get it down pat. We didn’t, for two reasons; one, Nathan and I live in different cities, and our time for rehearsal was three hours the night before. And second, perhaps, I’m skeptical enough about the value of the whole enterprise that I didn’t make it enough of a priority for us to get together with time to do the work we needed to do. Penny wise and pound foolish; if you invest in the money and time to do this at all, you ought to do it well. I take responsibility.

Not that I think we made idiots of ourselves, but we could certainly have been better.

2. “Would you do it again?”

I think I’ve just made a strong argument for why this kind of thing is useless. But… Yes. And probably will. For two reasons.

First, the discipline of trying to distill what you want to do down to six minutes and a handful of slides of worthwhile–and refreshing, in its own way. More than that, distilling it down to a business case; it’s obvious, I think that I’m doing what I’m doing for a slew of reasons, many of which have nothing to do with a business case, and if I were doing a six-minute presentation for an audience of, say, game developers, it would look very different. But if I can’t make a strong business case, I shouldn’t be trying to do this as a business–an art project, perhaps, or a non-profit enterprise. But if I can persuade myself that this makes sense in a business context, that’s self-motivating–and an excellent framework to make a case to people–beyond the context of the venture conference–who are utterly motivated by monetary return, and don’t care as passionately as I about the larger issues.

Second… Even if, as I’ve argued, the venture conference is not an efficient fund-raisng tool, if you’re out looking for money… Well, it’s just one of the things you have to do.

Part of the subculture, you know.

Greg’s original writing can be found here.

I meet a lot of entrepreneurs and hear a lot of ideas and business plans from all across the board. Most have — at the very least — a kernel of a good idea in them. But many don’t know what kind of business they are. There are an unbelievable number of entrepreneurs focused on technology when their entire business model is predicated on the success or failure of a marketing campaign, for instance.

This isn’t to say that technology isn’t important for those businesses, but rather that it isn’t the core differentiator that interests investors and makes or breaks the company. If you are running a sweepstakes business, for instance, I don’t want to hear about your awesome Rails architecture. I want to hear about how you are going to acquire users for $1.50 and monetize each for $3.00. Sweepstakes (in most forms) is a marketing business, and that is really what a potential investor or partner wants to hear about.

I like to put startups in three categories as defined by the core factors driving their success:

Technology Businesses: The core differentiator of your business is your technology. Generally, your company either (a) has real intellectual property around your technology and/or (b) is founded by leading engineers in the field.

Marketing Businesses: Your business is driven by its ability to acquire and retain users/customers more effectively than your competitors.

Relationship Businesses: Your business’s success or failure will be determined by your ability to forge lasting relationships with customers and/or strategic partners.

I’ve rarely found businesses that are truly driven by some combination of those factors. In most, one factor greatly outweighs all the others. And there are patterns behind misconceptions — most commonly, first-time entrepreneurs overweight the importance of technology as opposed to marketing or relationships. This makes sense, as an entrepreneur’s first goal is often to get a product up. But products are hard to build real differentiation around unless you are doing really innovative stuff, like building new database backends or search algorithms. In most consumer internet businesses, marketing is the most critical component. In B2B plays, relationship-building tends to make the biggest impact. And in general, progress on the core differentiator is what VCs mean when they talk about needing to “see traction.”

Want to generate awesome startup ideas? An interesting trick is to identify immature industries where the leading players are focused on the wrong differentiators. My own LabApp is an example of this — while the existing (immature) players are focused on relationship-building, I happen to believe that software commercialization is a marketing-differentiated business. As with all startups, time will tell if LabApp is on the right track, but looking at “differentiation-based” pivot points can be a great way to generate innovative and revolutionary products in immature industries. Some off-the-cuff ideas:

1) Take a relationship-based approach to marketing-driven social games to piggyback off of major brands’ name recognition. This is similar to what Arkadium is doing to much success with the social advergaming concept.

2) Use a marketing-driven model to gain independent adoption to a new CRM software product from the bottom up. Almost all SaaS CRM providers are currently relationship-driven, which leaves open a massive long tail of independent salespeople.

3) Use technology differentiation to pry government IT contracts out of the hands of bloated, relationship-driven contractors. Easier said than done, but someone’s gonna make a lot of money from this in the next 15 years.

Happy differentiating.

I’m just going to leave this here.

Venture Firms with a Strong NYC Presence, by Buzz*

Venture Firms with a Strong NYC Presence, by Size of Newest Fund

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