Elad Gil had a post this week why fundraising from conventional private capital sources (VCs, angels) will usually take two-three months. It occurs to me that that general rule applies to crowdfunding, too. I think this is important for anyone who wants to go the crowdfunding route to understand from the outset. What takes so much time?
Research, 2 weeks: Almost all crowdfunders are first-time crowdfunders and need to educate themselves on all aspects of the market. While there’s an emerging library of decent resources, a would-be crowdfunder still needs to read and digest it.
Planning, 2 weeks: SeizeTheCrowd is built on the premise that good campaigns are the result of planning and not viral serendipity. At this stage a fundraiser needs to hone in on their marketing message, identify likely backers and start priming the pump among friends and family so they launch strong.
Pre-Campaign Execution, 4 weeks: Video needs to be shot, photos need to be taken, rewards need to be designed and priced out, influencers need to be contacted, social networks need to be expanded, and so on.
Campaign, 4 weeks: Hitting launch is, to paraphrase my high school year book quote, the end of the beginning. You’re going to spend these days beating the bushes, drumming up coverage, reminding friends, family and friends about the campaign, FB posting, tweeting, pinboarding, responding to emails, writing updates, and having trouble sleeping.
So there you have it: The life cycle of a crowdfunding campaign. Remember: Crowdfunding does not just happen; it is not an alternative to other methods of raising capital but NOT NECESSARILY AN EASIER ONE. Good luck!
For all the talk (including on this page) of the revolutionary nature of crowdfunding, it’s really a pretty old fashioned model: It’s more or less what political parties and public radio stations have been doing forever. With that in mind, here are a few things that we can learn from the Obama fundraising machine. (Note: I was on Michelle Bachmann’s mailing list for some reason and her team did a lot of the same; which is to say this is an apolitical post about political fundraising.)
Use relevant influencers: You might not think that the President would need influencers to amplify and disseminate his message but he’s definitely using them. In the past week I’ve gotten emails “from” Bill Clinton, Michelle, Beyonce and Kal Penn and I assume that this group is not random: I’ve been sliced and diced into a cohort that is thought to be susceptible to influence by former presidents, smart women, talented singers and well-educated low-brow comedians. My parents probably get emails from Steven Spielberg, Madeline Albright and other boomers. Point being: Have a deep think about who your target market is and work back from there to figure out which influencers you want on board.
Set up intermediate goals and create (meaningless) deadlines to spur action: Anyone who’s done sales knows that it takes something extra to get an interested person to actually pull their wallet out and pay over some cash. There are all sorts of techniques to close the deal including creating deadlines and meaningless milestones. Obama’s got both of these techniques down. I received an email from Bill Clinton on Friday telling me that the FEC fundraising deadline is approaching and so I should give right now. I don’t know how meaningful this deadline is — and Bill’s email didn’t really clarify — but I did feel a momentary impulse to hurry up and donate. Bill’s email was followed up by a series of emails over the weekend pushing to get the campaign’s 10 millionth donation. Again, a fundamentally meaningless milestone but a useful one in spurring action.
Create lots of impressions: The number of emails Obama sends out borders on insane but I’ll admit that I donated in response to one of those emails. I don’t know if it was the 20th or 30th or 40th they sent my way but the constant bombardment did its job. NB: I’m not suggesting bombarding your supporters but it’s simply true that multiple emails will eventually convert some people. The question is whether the gain in those supporters is worth the possible alienation of others.
Design interesting rewards: Notwithstanding the fact that Obama is asking for donations and that the grand ‘reward’ is a certain electoral result, the campaign offers to give you something of value (even if only sentimental) to get you to act. Photos, bumper stickers, t-shirts, something. Most noteworthy, I think, is that almost all of which serve to broadcast the campaign message. And then, of course, there’s “Dinner with Barack”, which the campaign has tried to convince me has become a well-known and loved tradition. Obviously not every campaign can offer “hang out with the most powerful person on the planet” as a carrot but every campaign can think about rewards that create personal connections between the fundraiser and their supporters.
So, that’s how you raise hundreds of millions of dollars from millions of people.
I've Said it Before and I'll Say it Again: It's a Regular Capital Market
I’ve been saying for months now that crowdfunding represents a brand-new micro-public capital market and should/will act like the conventional capital markets that have evolved over the past couple hundred years around the world.
With this in mind, it’s been obvious to me what should happen when people who have raised funds fail to deliver: Nothing. In a capital market ‘investors’ take on some risk (i.e., they give their money to someone else) in exchange for a chance at a reward. The key is for the investor to have enough information that they can understand just how risky the risk is and decide whether the reward makes the risk worth it.
This is the essence of disclosure and it’s critical.
And, starting today, Kickstarter is going to require more and better disclosure for certain types of projects. Finally!
Projects in the Hardware and Product Design categories will now have to tell backers the “risks and challenges” associated with the project and how they will overcome them. This sounds an awful lot like the “Risk Factors” section of an SEC filing (with the addition of mitigating measures) and moves rewards-based crowdfunding one step closer to functioning like the US capital markets.
In addition, product simulations and product renderings are now prohibited, presumably because they are too often different (and better than) the product that eventually gets delivered. Again, the idea that the marketing materials need to be more or less accurate is one that we find in the conventional capital markets, albeit with a very different formulation.
The upshot to all of this is that Kickstarter helped crowdfunding enter its adolescence today today.
Even in Crowdfunding, It's Buyer Beware (Obviously)
Felix Salmon has a post out today that’s about a topic that’s become (for unknown reasons) near and dear to my heart over the past couple weeks. The focus of the piece is a project to create some sort of awesome LED lightbulb that Felix is pretty sure will never actually ship. He seems to know a lot about what it takes to make a brand-new lightbulb and makes a compelling case that is worth reading but, for our purposes, the final paragraph is the key one.
So my feeling is that both Kickstarter and the tech blogosphere should start being a lot more skeptical about the claims made in Kickstarter videos, where anybody can say pretty much anything. And anybody thinking about supporting Lifx should take a deep breath and just wait until the product exists, instead. It’s funded, now, so pre-ordering on Kickstarter doesn’t cause the product to get made, it just maybe gets you the product a couple of weeks earlier. And in return for that negligible upside, you’re taking on the risk of a huge downside — that you lose all that money entirely, with nothing to show for it at all.
I couldn’t agree more.
My feeling is that the evolution of the crowdfunding market will be towards more thoughtful investing by backers who have been burned themselves, have heard of others getting burned or who are not credulous early adopters and know that, actually, some things are too good to be true.
The evolution will also be to a more nuanced understanding of what crowdfunding actually is, since it’s becoming clear that it’s not a simple pre-sale mechanism. Felix alludes to this when he mentions the “negligible upside” and the “risk of a huge downside”. What you really get when you back a crowdfunding campaign is “exposure” to risks and rewards associated with the project: If the project comes to fruition then your reward is a discount to the retail price, early access to the product, some sort of thanks, etc. The flipside is the risk that the project doesn’t come to fruition and you lose everything. As with the sale of actual securities, the key is for the backer to have enough accurate information to be able to assess the risk and reward.
My post on what should happen when crowdfunded projects fail to deliver — short answer: Nothing — has received a couple of interesting responses, including this one from Fund All Be All, who wrote:
Whoa whoa whoa, why should we be encouraging people to just give up if they can’t deliver? Even if they burn through all of the crowdfunded money shouldn’t they still try to some how deliver on promises? Letting people crash and burn like this would hurt the entire crowdfunded scene.
The first thing to note is that I am definitely not encouraging people to just give up and, of course, I think they should try to deliver on their promises. And I am not suggesting that we let people crash and burn. Instead, I’m trying to figure out what should happen after the crash has happened and the fire has burned out.
In those cases, Fund All Be All’s suggestion that project creators should “keep at it” despite their struggles is not one that a project creator could follow in any meaningful way. As with any enterprise, you can only keep going for as long as you’ve got cash and other necessary resources. Once you’ve run out and can’t find more, there is nothing left to do but give up. This is sad. This is a disappointing. This is a truth that is bigger than crowdfunding.
So, when it comes to failed projects, there is a choice between two evils.
On the one hand, the project creator can persevere despite the futility of the situation. I don’t know what that would mean in practice — should the creator try to take out a loan in order to do what they weren’t able to do with their crowdfunded money or to refund their backers? — and my fear is that the prospects of having to continue down a useless path or ending up with an unaffordable liability will scare off prospective project creators.
On the other hand, campaign backers can accept that they took a risk when they invested and that their gamble didn’t pay off. Fund All Be All’s fear is that this will “hurt the entire crowdfund scene”. I don’t think that’s the case. Crowdfund backers know that they’re taking a risk when they back a campaign and they should do their due diligence just like any other investor. As long as they haven’t been scammed, I think they’ll come back to the crowdfunding market and make wiser decisions.
Given the relative risks — backers losing relatively small investments, project creators having strong disincentives even to try — my inclination is to choose the one that will make it easier for good faith project creators to make a go of it.
While this might sound like a cold way to treat generous people I’m pretty sure it’s entirely fair (assuming the crowfundraiser didn’t flat-out scam their backers). Lots can happen between the funding of a project and its coming to fruition and the risk that something adverse happens during that period is one that project backers willingly expose themselves to and which they’re compensated for with the promise of a “reward”. It’s classic: Risk —> Reward.
Let’s say a campaigner wants to raise money to start a new line of hand bags. Their campaign page features sketches of the bags, videos of the founders and, of course, an array of tiered “rewards” that campaign supporters will receive for financially backing the project. All of the rewards are variations on an opportunity to pre-buy the bag at a discount. That is, the “reward” for being an early supporter of the hand bag company is the sum of (i) the value of the bag and (ii) the difference between the regular retail price and the discount price. (If the retail price is $100 and you get it for $75 then the net value of the reward is $25.)
Except, that’s not a complete description of the reward.
The real reward is either (A) the sum of (i) the value of the bag and (ii) the difference between the regular retail price and the discount price if it ever gets made or (B) nothing, if the bag never gets made.
It is a campaign backer’s willingness to expose themselves to the risk that scenario B occurs that entitles them to their reward. The corollary is that if the risk comes to pass they have no claim to compensation.
So now let’s assume that the campaign met its campaign goal, received the money from Kickstarter, spent all its money in a good faith effort to produce the handbags but is not able to deliver. What should happen?
My feeling is that nothing should happen. The project backers took the risk that the project creator would fail and now that the creator has, in fact, failed they are in no position to complain. There are lots of differences between getting “rewards” and getting equity in exchange for investing but in this crucial way they are similar: You run the risk of losing your investment.
So, a general rule: A project creator who spends his crowdfundraised money on the project does not owe his backers a refund if he fails to deliver.
One exception to this general rule: If the handbag people didn’t spend all of the money in their failed attempt to produce or can somehow recover the cash (sell off the bolts of leather and sewing machins, et cetera) then I do think they should reimburse their backers on a proportional basis with whatever they’ve got left or can recover. Analogizing to the equity situation, this is like the winding down of the company and backers should get their proportional share of whatever is left over once all “senior” people have been paid. (Aside: Maybe there’s an opportunity for an enterprising person to buy these ‘claims’ for pennies on the dollar and try to recover en masse.)
Bottom line: If what you want is a guaranteed opportunity to get some object that is going to be produced then you should wait until it has been produced and pay full price. If what you want is an opportunity to pre-order that object at a discounted rate then you should be prepared for the prospect that it never gets made and that you might not get anything for your money.
I’ve spent a lot of time lately thinking about crowdfunding strategies and, judging by the number of “Secrets of Crowdfunding” posts and expert talks out there, I’m not the only one trying to figure out how to crack this nut. (I’m one of the few, however, who’s trying to make a business of it.) A few examples: Venture Beat wrote a “Secrets of" post a couple days ago based on a talk given by Adam Chapnick of Indiegogo; RockThePost ran a how-to session last week; and Scott Steinberg did a “Secrets of” Q&A way back in May (he’s also written the “Bible”)
If you’re thinking of doing a campaign, you should read at least two but no more than four of these “Secrets of” posts. (If you’re a person who learns by listening, you should go to one “Secrets of” talk.) While it might feel like you’re working on your campaign by reading/attending more than four of these, you’re probably procrastinating. The dirty secret of crowdfunding is that, like most things, the key is to execute on whatever plan you come up with.
That means spending serious time researching campaigns in your vertical. Dan Misener’s Kickback Machine is a very helpful resource, especially if you’re doing your campaign on Kickstarter.
That means thinking deeply about who your project’s stakeholders are — hint, it’s not just your end user — and figuring out how to engage them as supporters and message amplifiers. The gold standard here is still join.app.net and Ouya.
That means designing compelling rewards and making sure that the economics of each one makes sense — another hint, the time you spend organizing/packing/shipping is money.
That means figuring out what the message of your campaign is beyond that you want money to do something. For Neighborhoodies, the message was ‘we want to initiate some local economic stimulus’ and not ‘we want to make high-end hooded sweatshirts’.
That means designing a strategy to maintain momentum throughout your entire campaign. One idea: Hold back a killer reward and announce it half-way through.
That means figuring out what skills you don’t have and that don’t make sense for your to learn and getting people on board who can help you. Before the crowd comes the team.
Crowdfunding is a public act and by studying the state of the art (and reading a couple “Secrets of” posts) you’ll have a decent idea of what to do. The true challenge — and the problem that I’m trying to solve with SeizeTheCrowd — is doing what you know you’re supposed to do.
SeizeTheCrowd’s first campaign, Neighborhoodies on SmallKnot, finished up yesterday and was a big success all around. Their goal was $7500 and ended up raising $9450 from 72 different investors. I’m very happy for Lori and her team and proud of Josh (marketing/PR) and Dave (video) for helping them achieve this success. So, what’d they do right?
Strong community-centric message: Neighborhoodies’ was raising money to fund a new line of higher-end sweatshirts but the message of the campaign was more about the social impact of supporting the new line. Namely, Neighborhoodies plans to do their production in Brooklyn, where they’re located, and contract with single mothers on a flexible basis. While the new line was prominent in their video and text pitches, I think they made the right move in emphasizing the ‘local economic stimulus’ aspect since it gave backers a common link beyond an interest in cool sweatshirts bought at a discount.
Strong pre-launch effort: It’s well-known that the first 1/4 to 1/3 of a campaign’s supporters will come from the campaigner’s personal and professional networks. That is, strangers jump in and support only after they see that others have been willing to put their money down. To get the ball rolling campaigns need to do off-line pre-launch sales to their core supporters and make sure that this core group is ready to go when the campaign launches officially. Neighborhoodies did a good job with this.
Intra-campaign flexibility and excitement: Another well-known fact of crowdfunding is that campaigns tend to stall a bit after the initial excitement has worn off and before the frantic final days begin. I’ve thought a lot about strategies to make the boring middle a bit more exciting and think that Neighborhoodies did a good job in this area. They tweeted and posted to FB regularly and, interestingly, they came up with exciting “news” to share with their community. A lot of the news came out of partnerships with other Brooklyn companies: The Mutual sweetened the rewards by offering free membership to campaign backers, others stepped in by offering to a host a party, et cetera. Each of these partnerships provided good reasons for Neighborhoodies to contact their community and effectively expanded their network since each of these partner-allies had an incentive to support the campaign.
As I said, I’m extremely proud of everyone who worked on this and am grateful to Neighborhoodies for the opportunity!
Creative Mornings' Big Raise -- It Doesn't Just Happen
I wrote a blind item-type post a couple weeks ago about how working in NYC’s high creative metabolism neighborhoods allowed me to reconnect with a linchpin of the world’s creative community. Well, that linchpin was Tina Eisenberg (aka Swiss-Miss) and when I said that she is a linchpin of the world’s creative community, I wasn’t being hyperbolic. Tina is the woman behind Creative Mornings, the “monthly breakfast lecture series for creative types”, which started in NYC and now has chapters in dozens of cities around the world and which launched a Kickstarter campaign last week that blew past its goal of $35,000 in only a few hours.
It just so happened that my first day in Tina’s studio, Studiomates, was about a week before the campaign launch. I’ll never know whether the timing was serendipity or a function of Tina’s shrewd puppet-mastery — I had told her about SeizeTheCrowd when we met in the deli — but it gave me the opportunity both to observe talented people game-planning their campaign and offer up my two cents on what they might do. They were far along the right path before I ever showed up but I gave them a hand by suggesting some ways that they might maintain excitement and momentum throughout the campaign and avoid the middle-third doldrums.
This past Friday was my second day at Studiomates and I was welcomed with shouts of “perfect timing!” since Tina’s mouse was literally hovering over the “click here to launch your Kickstarter campaign” button as I entered the studio. We took a couple giddy photos and screenshots and then Tina hit “Launch”. The first supporter stepped up a minute later, both of the $10,000 rewards got snapped up in the next couple hours and the campaign was well beyond its $35,000 goal by the end of the day. Incredible.
Tina has done such an amazing job building a creative empire that Creative Morning’s eventual campaign success was to my mind a bit of a foregone conclusion. Her team, nevertheless, worked incredibly hard and did some textbook things right that allowed Creative Mornings to have such phenomenal success.
First, develop a network that is ready to jump. Not everyone will have 300,000 Twitter followers when they push their launch button but every would-be campaigner should do their best to increase their network and make sure they’re excited for the launch. Your first-degree network will be your earliest supporters and will help amplify your message to the world-at-large. (As an aside, it’ll be interesting to see whether and how the composition of backers will shift from people who were already fans of Creative Mornings to people who discovered it during the course of the campaign.)
Second, expand your appeal by leveraging other people’s networks. As a linchpin Tina is connected with other influential people and she had the good sense to get them invested in her campaign’s success by baking them into the campaign rewards. So when the campaign launched, the message was amplified and spread by these other influential people and their networks. (Jessica Hische, 47K followers; Stewart Butterfield, 6500 followers, etc.) Seeing the same campaign announced and pushed by multiple people and through several channels is important to getting people to actually take action. (I wrote about this is my post about the nature of ‘campaigns’.)
Third, have a video that communicates community but doesn’t get bogged down in detail. The Creative Mornings video is long on origin story and community and short on details and I think that’s great. In many cases the thing that motivates people to back a campaign is the opportunity to be part of (and give back to) a community and not necessarily the specific nature of the reward or thing being created. For Creative Mornings, community is the secret sauce and even though the campaign is going to fund a technology build-out they rightly focused on how the campaign will pull the community together.
I’m excited to see what Tina and her crew have up their sleeves for the next 26 days!
A friend asked me recently what I thought will happen with all the niche crowdfunding platforms. It’s a question I’ve thought about a bunch and in this post I predict that equity-based funding portals’ two sets of customers — issuers and investors — will allow portals to successfully focus on niches. [Insert caveats about TONS of regulatory uncertainty here.]
Campaigns will rely on portals to deliver investors interested in specific opportunities
Since issuers will have limited ability to promote their offerings, funding portals will be critical for a campaign’s prospect of being discovered by likely backers. The ability to consistently deliver investors will emerge as a major differentiator among platforms and platforms will be much more than commoditized back offices. Given my sense of likely investor behavior (see below) portals will focus on specific verticals in order to build brands known for delivering critical masses of likely backers to companies in their chosen niches.
Investors will frequent portals that have niche inventory so that they can invest in companies that they understand better than the rest of the market
Without investment banks and armies of analysts working to identify good investment opportunities (at least at the beginning), investors will have to rely much more on their own knowledge when making their investment decisions. Since people can’t have information advantages in everything, they’ll narrow their investment focuses to areas where they think they’ve got a shot at having a good insight: doctors invest in healthcare, locals in companies from their neighborhood, et c. Rather than trolling across several funding portals to find a few companies in their sweet spot, investors will park themselves at the one or two portals that consistently have a good inventory of those companies. (On the other hand, if every investor on a platform has the same information advantage … ?)
So … Funding portals will try to dominate a niche or two.
Niche or not, everyone will still face the challenge of running effective campaigns. Hence … SeizeTheCrowd.
I’ve written previously about Ouya’s strong team and great updates but I haven’t yet said much about their rewards. (By the way, with 55 hours left in their campaign Ouya has raised $6.8m from almost 52,000 backers. Expect these totals to increase dramatically as the campaign sprints to the finish line. Kicktraq is predicting $7.5m.)
What is noteworthy about the rewards is that they are aimed at two sets of distinct but symbiotic groups — gamers and developers — and that the values of some of the rewards are correlated with the general value of Ouya.
The first question that comes to my mind when I look at these numbers is the extent to which one group’s support spurred on the other group’s support. Did the developers start signing up once they saw that there was an enthusiastic audience for their games? Or, did the gamers start signing up once they saw that there was a committed community of developers? Did each group support the project without consideration of the other? I’d be very grateful to hear from people who have experience with feedback loops between content creators and content consumers who might be able to explain what likely happened.
The next thing that I notice is the relative size of the developer backers’ contributions. Even excluding the $5,000 level backers, the developers contributed an average of $880. These backers could afford to go big because their rewards are a sort of derivative: They don’t (indeed, can’t) get equity in the company but the value of their reward is derived from Ouya’s overall success. As such, they were willing to make a much larger investment in the project since the return on the reward is a function of Ouya’s success (something of a lock, it would seem) and their own talent (something that they have good information on).
Writing this post has me wondering other novel ways to create “derivative” rewards whose value are a function of a campaigner’s success. Ouya has shown the way for platform-type projects (I think you priced your developer rewards too low, Dalton!) but there might be ways to apply this to other types of campaigns:
consumer apps: ad space rewards —> allow the backers to re-sell;
theater projects: bulk tickets rewards —> allow backers to re-sell at market rates;
Yet another Wall Street Journal story jumped out to me over this past weekend. It was a bit of fluff about why some big and dense cities have high creative and economic “metabolisms” while other big and dense cities don’t. The author’s explanation is that high-metabolism cities do a better job of maximizing ‘the potential informal contact of the average person in a given public space at any given time’.
As an average person who often finds himself in various public spaces, I can confirm anecdotally that when it comes to creative metabolisms New York’s tech neighborhoods are 17 year-old boys.
Here are a couple real-world examples:
I spent a day last week Loosecubing in DUMBO and, having forgotten to bring my lunch, hopped down to the deli on Jay Street. While waiting for my sandwich I found myself standing next to the founder of a very up-and-coming dating site and then, on the way to the cash register, I ran into one of the cornerstones of a very hip creative community who I had known slightly years ago. Two minutes of chatting with the dating site founder yielded a lead for SeizeTheCrowd and five minutes of chatting with the creative cornerstone yielded an invitation to work out of her studio some time.
When I returned to the office I decided to be a friendly co-worker and introduced myself to the woman sitting to my left and the man sitting to my right. Turns out the woman was someone who I had been meaning to connect with based on a mutual friend’s suggestion. And the man was a recent transplant from Austin with experience in building and running large-scale crowdsource-ish contests. Beyond being pleasant to talk to, I am sure that these two will be excellent professional contacts in the coming months and years.
The best part of these interactions were that they didn’t occur in insider-y spaces. We were not at exclusive clubs or expensive power lunch restaurants; the deli was affordable and getting office space through Loosecubes is free.
This was “what a small world!” at its finest and most productive.
I pulled the title for this post from Charles Murray’s recent Wall Street Journal op-ed piece, which is a tiny bit lengthy and much too sophisticated for me to understand perfectly but which is worth reading if you are in love with Steve Jobs, dubious of Mitt Romney and pretty sure you’re a capitalist but not sure why.
Since not everyone has a WSJ subscription (thanks, Andrew!) or the time to read the whole thing, I’ve pulled out a few passages that struck me.
To accept the concept of virtue requires that you believe some ways of behaving are right and others are wrong always and everywhere. That openly judgmental stand is no longer acceptable in America’s schools nor in many American homes.
Surprisingly, Murray does not take the supposed rise of moral relativism to explain why teenage girls are getting pregnant or why people are watching a lot of reality TV these days. Instead, Murray argues that the lack of fixed virtues explains why finance people have been acting like such “dishonorabl[e] and reckless” jerks and not as the “seemly” “stewards” we need them to be. This acknowledgment that a group of people who have screwed up in a variety of really big ways over the past ten years have actually been in the wrong is an anomaly on an opinion page that consistently argues that the screw ups aren’t that bad, that the people who are upset about them are just jealous, and that, in any event, they were the government’s fault.
Another striking passage:
The U.S. was created to foster human flourishing. The means to that end was the exercise of liberty in the pursuit of happiness. Capitalism is the economic expression of liberty. The pursuit of happiness, with happiness defined in the classic sense of justified and lasting satisfaction with life as a whole, depends on economic liberty every bit as much as it depends on other kinds of freedom.
I have no idea whether the U.S. was created to foster human flourishing but I do appreciate Murray’s turn of phrase “capitalism is the economic expression of liberty”. (Can anyone tell me whether that is his formulation?) I also appreciate that Murray acknowledges in no uncertain terms that other types of freedom are as important to happiness as economic liberty. This is a welcome bit of fresh air on a page that is (appropriately, I guess) so single-mindedly focused on matters of economic liberty that it sometimes seems that the road to happiness is paved only with bricks of gold, has no speed limits and could handle more cars going even faster if there were no cops.
One final passage for all you entrepreneurs out there:
Successfully starting a business, no matter how small, is an act of creating something out of nothing that carries satisfactions far beyond those of the money it brings in.
So, so, so, so true. And something for all of us to keep in mind as we keep trying.
When I last wrote about Ouya, they had absolutely killed it in the first couple days of their campaign and had raised $3.8 million from 30,000 backers. I noted at the time that their massive success was not a fluke and, instead, was the result of a professionally run marketing and messaging campaign.
Well, with 12 days left in the campaign the Ouya team is continuing to kill it. They’re up to to $5.7 million and almost 44,000 backers. While the insanity of the early days has clearly died down they’re avoiding the mid-campaign flatlining that’s typical of most campaigns.
And how are they doing this? The clearest answer is updates, updates, updates. They’ve done six so far.
Update 1: The “Can you believe what we’ve done together” thank you post. Critical for everyone from the juggernaut to the glorified friends and family. Remember, the key is creating a sense of community and explicitly sharing the success of your campaign with the backers is a great way to do this.
Update 2: Real-time update on the product itself and teaser about new rewards.
Update 3: Introduction to a critical team member. Sharing the success with the product team is a pretty canny move given that Ouya’s backers probably skew tech-y.
Update 4: Introduction of first game. Definitely a tweet-able tidbit.
Update 5: Quirk. A birthday message and a branded giveaway. Increasing the sense of intimacy between the campaign and the backers plus an easy trojan horse messaging opportunity.
Update 6: Another update on the product itselfwith images and a critical strategic partner. Again, both are easily shared tidbits.
The moral of this story is that the campaign has continued to engage and enlarge their community by periodically doling out share-able updates. Keep up the good work!
The other moral of this story is that successful crowdfunding requires a level of sophistication that SeizeTheCrowd is trying to provide to everyone.
I launched a Meetup group focused on crowdfunding a couple weeks ago and the first event was Monday night at Flavorpill’s offices. (Thanks @jainspotting!)
It was a great and diverse group and I think I managed to speak with almost all of the 30-something people who showed up. There were inventors, developers and non-profit board members contemplating campaigns. There were startup crowdfunding platforms looking to out-maneuver the big boys. There were forward thinkers wondering how the market will evolve in the coming months and years. There were lawyers, real estate investors and graphic designers. In short, there was the seed of a community that will grow and evolve as this brand-new capital market grows and evolves.
Judging by the number of people who suggested that I send out a list of attendees’ contact info (with permission only, naturally), I got the sense that getting this group together in one room has prompted thoughts even beyond the cutting edge.
The next event will be August 28 at Flavorpill’s office and will feature a short presentation by an industry expert. Given that the first event was oversubscribed it’d be a good idea to RSVP early.
Creative Financing: Neither an oxymoron nor a euphemism
Who do you believe when it comes to the prospects for equity crowdfunding in the US once the JOBS Act comes on line in the next few months?
Do you believe Fred Wilson, who has predicted that the crowd will invest $300 billion?
Do you believe the venture capitalist that I spoke to last week who was a seed investor in a prominent rewards-based crowdfunding platform and/but thinks that the JOBS Act will be a bust?
Do you believe Ernst & Young, which thinks that companies might start thinking creatively when it comes to their fundraises and will take the crowdfunding option more seriously?
They all may be right and they all may be wrong but my sense is that each of them is making predictions on not easily justified assumptions: Assumptions about whether and how people will shift their investment dollars; Assumptions about what rules SEC will write; Assumptions about how difficult market conditions might affect a small number of companies.
Here’s my early take: This capital market is evolving faster than the SEC is managing to draft its rules. I’ve seen first-hand that small but reasonably well-known companies are seriously considering having the crowd fund their next capital expenditure, which suggests that blue-chip issuers might soon be on the scene. [Coinage: Aqua chip company.] And judging from the turnout at last night’s Crowdfunding Cutting Edge meetup there is a community here in the financial capital of the world that is thinking deeply about how this capital market will evolve in the months and years to come and, indeed, will be driving that evolution.
Dalton over at join.app.net has posted a response to some of the criticisms and critiques he’s received since launching a crowdfunding campaign to raise $500K for a user-fee supported Twitter community.
The first thing to say is that, while the campaign is less-than-perfect, it is getting much more traction than many other campaigns ever manage: They’ve got about $62,000 in commitments so far and more than 880 backers. Both of these are serious numbers and the result of doing something right.
The second thing to say is that Dalton is now doing one of the most important crowdfunding campaign things right: He’s giving useful and community-building updates. This latest blog post, beyond being well-written, powerful and non-defensive, captures his group’s passion, gives the sense that there is, in fact, a community thinking deeply about this project and that a movement is afoot.
That said, I stand behind most of my critiques of the campaign (as opposed to of the idea/product).
The update is (to my layman’s eyes) relatively technical and addresses questions that the average user would never consider. This reinforces the notion that the campaign’s target are early adopters and developers and not the masses who will ultimately decide whether a new social media tool will succeed or fail. I still think this is a mistake but hope to be proven wrong.
And although the blog post gives some insights into the guts of join.app.net, it still gives no sense of what the experience of using it will feel like nor what it will look like. I suspect that even early adopters are swayed by elegant visual design.
The take-away point is that Dalton has done a good job activating the campaign’s target market through his passion and vision but I am still concerned that this is not a broad enough base to get to $500K. I wonder whether a tranched approach might have been the way to go. As in, raise the minimum cash needed to create some proof of concept from the early adopters who already hate twitter and want an alternative and then do a second bigger raise to take the concept to scale.
Scott Britton's lifehack class will change your life
Last week I went to a great lifehack Skillshare class taught by Scott Britton of SinglePlatform. Even if you don’t care about how to get free coffee from Starbucks and have no position in the credit card points vs. miles debate, I strongly suggest taking this class. There were lots of great tips and I won’t steal Scott’s thunder by giving out specifics but I think I can boil a lot of it down to a couple general principles.
Any sort of success takes consistent hard work: As with marketing campaigns, which I wrote about last month, success comes from sustained effort over time, not from one killer retweet.
Consistent hard work takes discipline: Some of Scott’s strongest lifehacks were ways to reinvigorate flagging discipline.
Discipline and willpower must be conserved whenever possible: Scott had great suggestions on how to limit the number of things in your day that you need be disciplined about so that you can expend that energy on the things that matter.
Scott is a perfect example of my “it’s no coincidence that he/she is so successful”. He’s figured out how to systematize creating true and sincere connections with people and uses that skill to his own and his entire network’s advantage. Go to this class.
A short post by Gordon Bowman turned me on to a $500K crowdfunding campaign for app.net, a user-fee supported version of Twitter. Even though they’re only three days into a 30 day campaign, app.net is already instructive but mostly for the mistakes which may doom it.
Target market: We can guess at who app.net’s campaign’s target market is by the rewards they’re offering: for users, pre-pay first year and guarantee access to your handle; for developers, get access to developer toolchain. They’re aiming for early adopters and hardcore technology people. This might make sense for a $50K raise but for $500K you need a broader base.
Video: Given their target market, the manifesto-like nature of the video is appropriate but it works to keep the band of people who might be interested in this project artificially narrow. It is probably 45 seconds or a minute too long and lacks a sense of humor and, surprisingly, a sense of community.
Creation myth: The disappointing thing is that there does seem to be a compelling creation myth behind app.net: The founder, Dalton Caldwell, wrote what was apparently a well-received blog post about what Twitter could have been but you have to dig through FAQs to find this out. The passion behind the post and the responses needed to come through.
No sense of community: This is ironic since they’re trying to create a new community. One of the nice things about the various crowdfunding platforms is that they give campaigns the tools to create a community out of their backers. I couldn’t even find a Twitter feed to follow!
No visuals: Dalton’s blog post was written on July 1 and this campaign went live about two weeks later. They did themselves no favor by rushing into the action without putting together at least mock-up of what app.net will look like.
Platform: One of the FAQs asks why they’re not on Kickstarter and the answer is that this does not fit Kickstarter’s definition of a project. I wonder, however, if they investigated other platforms that would’ve been excited to host such an audacious campaign. In any event, I have the growing sense that platformless campaigns are a tough road for two reasons. First, there is a growing community of people who give to crowdfunding campaigns regularly and the place to find them is at the platforms; going platformless takes you a step away from your most likely backers. Second, I suspect that the market discounts slightly platformless campaigns since there may be a higher chance of it being a scam.
If I were the app.net guys I would consider hitting ‘pause’ on the campaign, catching my breath, thinking through the plan for their campaign and start again.
Ouya: That just happened; But it didn't _just happen_
Unbelievably, Kickstarter’s launch in the UK is the second biggest crowdfunding story of the week. The biggest story, of course, is Ouya the video game console that (as of 7:21 AM in New York) had raised $3.8 million and had more than 30,000 backers. As a friend put it to me in a gchat:
those aren’t some kids in a dorm room
those are professionals raising capital
for their product
He’s absolutely right. This phenomenal success is not happenstance and, to me, is the clearest indication yet that (i) crowdfunding is a viable route to significant capital and (ii) nobody lucks into $3.8 million.
Beyond the work Ouya has done so far on their product — funded by friends and family, apparently — their Kickstarter page indicates how much work they did on their campaign.
Video: Super-slick, sophisticated and good looking. Exactly what you’d hope for and expect from a team that is trying to sell a forward-thinking tech-y product.
Solid copy: Compelling combination of revolution (“Take back the console!”) and nostalgia (“Remember how great playing games on TV was?!”).
Social proof: Quotes from people who (I assume) are well-known and well-respected in that industry.
Rewards: Pretty straightforward but a nice early bird option to get things going.
And it’s not a coincidence that the page was so well done.
I emailed Ouya and heard back from Tiffany Spencer who told me that she wrote the copy and that the video was produced by Heist. Tiffany is not, as far as I can tell, a full-time member of Ouya. Tiffany is (in the best way) a hired gun, an experienced and (apparently) talented communications specialist. Heist is not a friend with a camera; they work with “the world’s best known brands”. Point being that Ouya’s very professional and experienced management team has a very professional and experienced promotional team working for them. I don’t know when Tiffany started promoting Ouya but I can guarantee that it was way before the campaign launched.
Just to be clear, I don’t see anything wrong with the fact that Ouya’s success is the result of a campaign conceived and executed by professionals. That said, future campaigners should know that the competition in this capital market is evolving and that a typical video and uninspiring copy will not cut it for much longer. And here’s the plug: SeizeTheCrowd.com.
Best reward: $275 —> 12 handles for $23 a piece (encouraging retailers to buy wholesale)
Beyond having a good product this campaign did a lot of things well:
Short and sweet video. They were, of course, aided by the fact that the product is super-simple but a less confident campaign would’ve felt the need to pad it. Had all the critical elements: Personality, clear demonstration of the value, good but not overly slick production value. Not much time spent addressing about obvious questions/objections but I suspect that’s because the product is pretty transparent and doesn’t leave much to the imagination.
Solidly written copy. As with the video they accepted that there’s not really much to write about the product … and they wisely didn’t fight that fact.
Clean photography. Part of why they didn’t need a lot of copy is because the photos told the story. Also, the art makes the product read as “hip” but not intimidating.
Semi-regular updates, with lots of thanks and exclamation points. This is where the community element came out.
I attended a panel discussion on Kickstarter campaigns last night that included five people who managed to pull off very successful crowdfunding campaigns. Unfortunately, the organizers only selected people who had raised money for consumer projects so there was a bit of a lack of diversity in that respect. It was, nonetheless, useful to see five successes lined up next to each other.
The event began with a screening of each panelist’s video and it was a testament to their quality that I managed to sit through the entire 15-minute mini-pitch video film festival.
Two takeaways: (1) The videos were uniformly strong and compelling suggesting a correlation between quality of video and magnitude of success. (2) The videos were not at all uniform in their style and tone suggesting that there are lots of ways to play around with the basic formula.
As I’ve written before, the past few months have been heavily focused on developing relationships with lots of new people; which is to say, I’ve been networking.
While the networking effort has been semi-focused with respect to industry, it’s been free-form and agenda-less with respect to specific people. For the most part I have followed relationship threads wherever they led and have headed into each meeting or networking event with the goal of learning, generally, as opposed to trying to find a specific opportunity. I’ve been the recipient of a huge number of small and large non-transactional favors and have tried to return these when and as I could. It’s been an exhausting, luxurious and fun experience and I owe a great deal of thanks to my parents, my future in-laws and Emma for giving me the space to do this semi-academic work.
Lately, however, there’s been a shift. Interesting business concepts have bubbled up, intriguing partnerships have emerged and opportunities to tap my newly developed network have appeared. It’s still early days and nothing has paid off just yet but it seems apparent to me that I’ve entered a new phase in the process.
I’ve tried to be conscious throughout this process and think that recognizing this subtle but significant shift will help me re-focus and re-prioritize.
Wick came up with a great reward for the $16 donor level: That group’s names became cheat codes in the game. This is a great reward because it has the characteristics of a great gift: Personal, novel and enduring.
About 6,000 people pressed ‘play’ on his pitch video and about 10% of those people watched it all the way through. Of the people who watched to the end, 50% donated. Clearly we can’t tell the extent to which watching to the end caused the person to donate but it seems likely that there’s probably some impact from getting people to make it all the way through your video.
Wick suggested setting up the payment account (where your fundraised money will be wired to) early in the process in order to avoid problems later on when you are owed and actually need the cash to perform.
If I’ve spoken or corresponded with you in the past, say, six weeks it’s very likely that I’ve brought up crowdfunding. My basic thesis is that this brand new capital market is actually much harder to access than it seems and that people who have succeeded have run much more sophisticated campaigns than it may seem. So, starting today I’m going to have a running series of crowdfunding campaigns post-mortems. My hope is that themes will emerge and that we’ll discover best practices.
Joey has helpfully summarized his thoughts and observations in a bulletpoint list and I’ll reduce them down further to a numbered list.
Start with a broad base of support. The action item here is that a prospective campaigner needs to spend some time in the months and weeks leading up to their launch broadening their base as much as possible. Step up the pace of blogging, tweeting, commenting and real-world networking.
Make your message accessible. To do this, you need to know your audience. Joey seems to have done a good job of figuring out how each segment of his supporters might understand and be moved by his idea.
Have a proof of concept for your project. Joey was building off of software he had already developed. This gave him a built-in fan base but it also legitimized himself and the project. A person who has successfully made something out of nothing has a stronger argument as to why he might make something out of your investment.
There’s other good stuff in the post and I encourage you to read the entire thing.
And please pass along other post-mortems when and as you find them!
TheThoughtPolicePolice points out that I might have entirely misunderstood the Kia ad I wrote about earlier today:
Think this ad is saying that a Kia is willfully included in the dream world of awesomeness that will never happen. But the Kia could happen.
Hmm … . I see his point and appreciate the different (and probably more accurate) take: “Your dude-dreams contain beautiful girls, crazy rock bands, unhealthy foods and this car. In the real world you can’t have the girls, the bands or the food. But, you can have the car.”
Read that way, the message makes a lot more sense but it still strikes me as a heavy handed attempt to equate their product with your fantasies. The sense that “one of these things is not like the others” comes through … but not in the way they intended.
Throughout its first five seasons, an occasional theme to Mad Men’s in-show ad campaigns’ has been selling men their fantasies and the corollary of selling women the promise of becoming a man’s fantasy. Season 1 had “Are you a Marilyn or a Jackie” (woman becomes fantasy) and the most recent season equated a Jaguar with a mistress (man buys fantasy). In each case the campaign is not about the thing being sold but, obviously, about the feeling you’ll have once you’ve bought it. While I haven’t yet confused Mad Men with real life, I do think the time spent watching imagined scenes in a fictional ad agency have made me more sensitive to the real ads I see.
For instance, it seems apparent that for an ad campaign predicated on making you’ll feel like you’re living out a fantasy to work it must not make that predicate explicit. No one buys a Jaguar actually thinking it’ll give them the feeling of having a mistress; they buy it (in Mad Men) because they have been convinced that it will give them the same feeling as having a mistress: excitement, virility, whatever. The challenge is communicating that message as a subtext and an ad campaign that made the message explicit — we’re going to sell you this thing but your sense that it will make you feel a certain way is actually a fiction that we’ve invented — would seem likely to be a loser.
And yet Kia is running a campaign (video below) that seems to me doing exactly that; in fact, it’s tag line is “A dream car, for real life”. In the ad we are taken into the dream of an ordinary shlub; he is driving some not-amazing car around a race track and Adriana Lima is in a bathing suit cheering him on and just waiting for him to pull into the winner’s circle; meanwhile, other supposed male fantasies (motley crue concert and giant hoagies) appear in the dream. The ad ends with the shlub somehow finding his wife in the dreamworld and returning us back to the shlub’s real and ordinary suburban bedroom where he is asleep in bed with a smile on his face. Also, the dream is the result of an accidental drugging.
I suppose I appreciate the honesty of the campaign — beautiful girls will be into you and your wife will doll herself up — but I wonder how well the message is working. Who would want to buy a car that lets you live out a fantasy only in your dream? If that’s all they’re saying selling me then shouldn’t I just get some more sleep.
Two years ago I was trying to decide whether to take a career risk by leaving my large and famous law firm in New York for a small and obscure impact investment private equity fund in Australia. I discussed the prospect endlessly with family, friends and my now-fiancee. Would the work be interesting? What would I get to learn and do? Was it too big a pay cut? What story would I be able to tell about this unconventional move once I got back?
Of the many questions that were raised, the one that I felt reasonably confident about was the story one. Given my career goal of arcing away from legal services and toward more entrepreneurial endeavors, I guessed that no matter what happened in Sydney a demonstrated appetite for reasonable risk would be a good credential. That I would read as more than simply a corporate lawyer fantasizing about hitting the lottery in the startup world. (To be clear, Emma and I had reasons unrelated to optics to make this move but that’s for another post.)
Two years into the experiment I think that my intuition about the career narrative was right. In addition to getting to share a once in a lifetime experience with Emma I had a great personal story to tell as I started networking: “I’m Jeremy, trained as an engineer and lawyer, worked on large corporate transactions for four years and, during that time, ran a designer paper goods company at night and on the weekends, moved to Sydney with my fiancee for an adventure and for the opportunity to make socially and financially positive private equity investments, passed level I of the CFA, learned to surf, biked to work, practiced yoga, traveled for a while and just got home.” Since the first couple of months back in New York were spent meeting lots of new people (who had interesting stories of their own, by the way) I got to tell this story a fair amount and felt that it was a good calling card.
However compelling a story it was I knew that it would nevertheless grow stale over time — how long could I keep saying “and I just got home” … — and certainly once I started meeting with people for a second and third time. I knew that to deepen relationships and unearth the opportunities I was looking for I would need new experiences and that it would be up to me to make sure I had them. Things have been happening but this is one of the more intimidating and exciting aspects of working in a world where there is no path: I need to continually decide where I go next and need to keep authoring my story.
There's a Reason They're Called "Campaigns", cont.
I discovered recently that a colleague from my old firm left the law a few months after I did and has been building a fashion consultant business for the past year or so. Her angle is advising female lawyers on how to dress for their workplace. Keen to connect with fellow legal services refugees and fellow entrepreneurs, I met her for a coffee today.
She seemed happy and satisfied with her change and it sounded like she’s had some small successes but it became clear that she had been making the exact wrong assumption about what would trigger serious growth in her business. In fact, unbeknownst to her, she repeated nearly verbatim the totally incorrect things I said to myself when I was running Book City Jackets including “I just need one great mention to get things going”.
I felt like a crusty old vet when I told her that unless she was writing a book and unless the mention were to come from Oprah, she was almost definitely wrong about what will lead to the kind of growth she has envisioned. I told her that being written about in a blog or magazine was a fun short-term boost but not a base to build a business off of and that she needed to figure out how to connect with potential customers on a more consistent basis. But I also told her that I shared her feeling of excitement whenever I managed to close a deal, agreed that whatever successes we achieved in our own businesses felt better than almost any we had while sitting in our Aeron chairs as colleagues, and that (at least for now) the long slog felt worth it.
The game to game, quarter to quarter, and minute to minute momentum swings in the NBA’s Eastern and Western Conference Finals have been amazing. Those ten and fifteen point runs that the best basketball teams can pull off are breathtaking and awe-inspiring. And they’ve got me wondering about what momentum actually is.
It seems to me that for a team it’s a moment of harmony: A moment when each player’s mind is melded to his teammates and when each player’s mind and body are in sync.
What strikes me about momentum is how you can sense it as a force that is influencing what is happening on the court: It makes impossible shots go on, it makes sprints back on defense faster, it makes refs call close calls one way or the other.
What also strikes me is that momentum can discerned in the organized chaos of ten players doing ten different things really quickly. I think it’s rare that there’s confusion or disagreement about which team (if any) has momentum at any given moment and that knowledge is only partly related to the score. I wonder if momentum is something that we intuitively detect or a pattern we learn to see over time.
Like a lot of first-time entrepreneurs, I foolishly believed (okay, hoped) that my company, Book City Jackets, would experience hockey stick growth just as soon as the right blog or magazine wrote about us. With that in mind, a lot of my PR energy went into developing relationships with blogs and magazines that I thought were cool in the hopes of getting that magic mention that would open the sales floodgate. I was successful in getting exciting coverage but I was wrong about its impact. For sure a NY Magazine or Swiss Miss post yielded a bump in traffic and a smaller bump in sales, but the half-life of those bumps was very, very short and we reverted to our mean pretty quickly.
At the height of my Book City Jackets madness, I took some time off to volunteer for Obama in Ohio and discovered that I had made a fundamental mistake by confusing a series of discreet moments with a coordinated campaign (and, worse, believing the stories of “overnight” success). As I watched the Campaign for Change machinery, it occurred to me that “campaign” is really the best word to describe what political campaigns do, what militaries do, what sports teams do and what good companies do.
Since this post is about a word, I’ll resort to the cliche of defining the word to frame an argument:
Campaign (Definition 2): a connected series of operations designed to bring about a particular result
To my mind, the key part of the definition are the words “connected series”.
I realize now that I failed to connect the series of blog mentions, ad buys and encounters at the Brooklyn Flea. Each of these operations happened nearly independently of each other and, as a result, the message I was trying to communicate never broke through enough people’s consciousness. I imagine that some of my customers inadvertently experienced my various efforts as a coherent campaign — after all, NY Mag’s readership probably has significant overlap with the Brooklyn Flea customer — but, if they did, it was a bit of dumb luck. If I could do it all over again, I’d think more deeply about who my target customer was and how I could communicate my message to them consistently over time and not get distracted by the prospect of some exciting but unconnected PR coup.
A significant portion of my days are spent meeting and speaking with people I don’t know. It’s intense work that I put a lot of effort into but the good news is that it’s something that has come naturally to me. My approach to meeting new people is to have and convey a sincere interest in the immediate moment and only later try to think through the strategic prospects of the relationship. My hope is that this approach helps me avoid becoming someone who thinks of other people solely in terms of business prospects.
As I said, it’s hard work that has felt reasonably natural and it occurs to me that a couple experiences I had prepared me for this work.
Drawing in the Park:
In the summer between my freshman and sophomore year of college I took two classes at NYU. One was linear algebra, which was part of my effort to knock out a couple of engineering credits so I could take some other classes. The other was charcoal drawing, which was part of my effort to take some classes other than engineering ones. It was good exercise for both parts of my brain and a very fun summer, generally.
One of the assignments in the drawing class was to draw the profiles of 15 different people. The couple of guys I was rooming with got me part of the way there but I needed more faces. So, I headed to Washington Square Park, roamed the benches and asked strangers if I could draw them. Talking to strangers is scary, asking them if they’d be willing to sit still and be drawn is scarier and then having to show them the sketch is the scariest. But I did it and survived and learned that almost everyone likes having someone else’s undivided attention for a few minutes and the worst thing that can happen is they say no.
Selling at the Flea Market:
I started a designer paper goods company while I was practicing and ran it at night and on the weekends. The nights were usually dedicated to fulfilling orders and the weekends were often spent at the Brooklyn Flea, where I had a booth. The first four hours of the very first day at the Flea were a disaster: It was July, it was hot and I stood in the shade beneath the tent behind the display waiting for customers. And I didn’t sell a thing.
As I stood there watching people streaming by I realized an important thing: There’s a reason companies have sales departments. Which is to say, products don’t sell themselves. So that day I became a salesmen. I came out from under the shade and started pitching. Over time, I developed different ways to engage would be customers as they strolled by, created variations and subvariations of the pitch and, eventually and amazingly, managed to sell some stuff. Standing outside for eight hours trying to pitch your own product to an indifferent public was a transformative experience. It toughened me up and forced me to develop skills that I never thought I’d need including how to engage naturally even when you have an obvious ulterior motive and, most importantly, how to close a deal.
So, now I’m out there. Meeting strangers. Pitching myself. Trying to close some deals.
I attended my 10 year college reunion in Providence this weekend and, in order to avoid holiday weekend traffic insanity, my friend, my fiancee and I took Amtrak.
While we successfully avoided traffic, we were not able to listening to other people’s conversations on the crowded train. The loudest conversations were being held by a crew that was pounding tall boys and headed to Brown for their five year reunion. Listening to them for a few hours contrasted sharply with the conversations my fellow tenners had over the course of the weekend and got me thinking about where and what you are at 5 years and 10 years after college.
The main observation is that fivers are much more showy … and insecure. The guys sitting near me spent the time talking loudly and emphatically about US federal court decisions against the government of Argentina, the pros and cons of Eurobonds and other master of the universe topics. I missed my own five year reunion but as I recall that time it was one when I was just starting to get a sense of how the world worked, discovering my proximity to certain powers and wondering how I stacked up in achievement to my cohort. While I don’t think I took those feelings to quite the same place as my train-mates, I think I understand why they were so intent on discussing such big and impersonal topics.
From my current vantage point — five years older, about to start a family, on a new career trajectory — I know that some of those guys will continue on the paths they’re on but I know that most will spend the next five years deviating to a greater and lesser extent and will become confident enough not to worry about their rank in the alumni class notes. At least that’s what I encountered with my classmates. Almost everyone seemed to be comfortable in their own skin and totally uninterested in keeping score. It was refreshing and welcome and a great weekend.
Having been out of the country when Spotify-mania first hit, I am late getting to the extremely cheap music party. Now that I’m at here I’ve been finding myself playing the same “Top Tracks” over and over again as I hustle from one meeting to the next. While my musical knowledge and imagination are not growing, it’s been a good soundtrack.
Among the Top Tracks, Carly Rae Jepsen’s “Call Me Maybe” has been a favorite, possibly because my fiancee and I met cute on the subway and the song reminds me of that once in a lifetime moment. Nevertheless, I’ve felt some shame in this joy given how deeply fun and pop-y the song is, sure that it was the kind of song that, if discovered on a playlist, could destroy the street cred of a person who has street cred.
Apparently, I’ve also been living under a rock because CRJ’s CMM is an internet sensation. Pop stars love it. NPR is deconstructing it. And it’s been declared the song of the summer.
I studied mechanical engineering as an undergrad and then, after some time working abroad, went to law school. It’s a funny but not unheard of combination and I argued in my law school essay that legal analysis and the scientific method are actually analogous:
facts : law :: data : science
legislation : law :: natural “laws” : science
holdings : law :: conclusion : science
Not only are the analytical processes analogous but an oft-cited benefit of studying those disciplines is the same: You learn a method of thinking. I took on faith that learning how to think like an engineer and a lawyer would be good and have discovered that it’s been critical to demystifying the things I see, read and hear every day. Two classes were particularly helpful in lifting the veil.
I took “Corporations” as a 2L and learned a couple important things: (1) Corporations are constructions of law and exist in order to maximize shareholder value and (2) A manager of a corporation that deviates from that profit maximizing mission is in breach of their fiduciary duty. I realized sitting in class one day that giant corporations (and movie villains) don’t do terrible and profitable things because they hate the wilderness and the weak; instead, they do them because they must. Accordingly, moral arguments about corporate actions carry no weight; these arguments are like trying to convince a lion that it’s wrong to kill an antelope. (I’m aware of the extensive body of law that actually gives corporations a lot of leeway on how to act and may discuss them and B corps another day.)
Notwithstanding the fact that I studied mechanic engineering, I was required (and glad) to take a class or two on programming. So, I learned a bit of BASIC, some C++ (I think) and enough HTML to be dangerous and, for the first time, the various computers I used every day were more than black boxes. It was as if I suddenly knew how they thought and where they were coming from which made it easier for me to understand and communicate with them. To a developer, this “understanding” might make me sound like a person who “understands” French people because he studied a phrasebook on the way to CDG. Nevertheless, I carry with me the general principles that I learned and understand at a slightly deeper level than I would otherwise the technical innovations that run the world.
Bringing it all together:
The video below is from an Alexis Madrigal post commenting on the fact that (a) almost all cars in America are now automatic transmission and (b) another mechanical system is becoming more opaque to the people who use it. It’s a good and interesting observation and, apropos of this post, I think a similar one can be made about technology. There was a time when to use a computer you had to truly understand it but, unlike manual transmissions, that barrier to entry was so high that it kept technology in the hands of a learned few. And then the people who understood computers figured out how to turn them into automatics and that very opacity made technology accessible.
Among the many things I learned in my brief time working in private equity was the importance of feeding lots of opportunities into the deal pipeline. For us, finding a deal was a matter of keeping the volume of relevant items entering the pipeline as high as possible, turning the crank — having the meetings, reading the decks, debating internally, deciding whether to move forward or not — until, finally, one day, eventually, maybe, a pristine diamond of a deal came out the other end.
The notion that the way to find deals is to mechanically (which is not to say mindlessly) work through lots of leads and prospects is one that I’ve kept in mind these past few months as I’ve moved into the NYC tech/startup scene. I’ve conceived of the position I’m looking for as analogous to the dream deal that investors search high and low for and, with that in mind, have tried to keep my own opportunity pipeline full. This has meant landscaping the market, using my existing network, cultivating new network branches by getting out and about, following up with every interesting person or company, and checking back in regularly. It has meant figuring out ways not to be a 100% ask-er by helping out others when I can — making an introduction, providing informal legal advice or giving honest feedback.
Happily, the process has worked and opportunities have emerged from the black box.
I realized this week, however, that too much of a focus on the meeting treadmill was causing me to de-emphasize deeper thinking. Lately, I’ve spent less time than I like identifying companies that excite me, writing blog posts that tie together different threads, pursuing projects of my own, and so on. Bryce dot VC posted about this very problem from his VC perspective, although his never-ending process analogy was to a hamster wheel instead of a treadmill.
So, my plan is to reserve one day per week for thinking, writing and planning only. While I find days without meetings and spent in front of the computer tough, I suspect that the opportunity to think deeply will be worth it.
A friend responded to my discussion of whether it might be tacky to credentialize yourself by telling people the specific sale price of your previous company by pointing out that, not only is it not tacky, it is the best credential of all. His point was that, at base, entrepreneurs are supposed to create value for their investors and that’s why it’s good to tell people you sold your company.
I get his point and I certainly understand why someone would want to let the world know that they built a company that someone else wanted to buy. However, giving the absolute dollar amount of the sale still strikes me as odd — and, possibly, tasteless — since it’s a useless number absent some of other information. (Not to belabor the point, but it’s pretty obvious that a company that bootstraps for two years, gets a $500K investment and is then bought for $20m is a very different story than a company that raises $100m, burns fast and is then sold for $20m in a fire sale.)
So, what should a successful entrepreneur do to signal to the world that they have a track record of creating companies with true value. First, I think that saying “I sold my company [full stop]” does a lot of the signaling they want but doesn’t mislead quite as affirmatively as quoting the sale price. Second, it might make sense for the entrepreneur to use the type of metric that investors use — IRR, ROI, something else — and let their audience decide whether that’s impressive or not.
All, what should the successful entrepreneur who wants to let the world know about his success without sounding vain do? And, what should I make of the apparent convention to quote sale price?
I attended last week’s Ultra Light Startup pitch night and discovered that critics can be brutal without being malicious. Eight companies pitched for two minutes in front of four judges (real-world VCs) and about 200 audience members. Some pitches were strong and some were weak and there was surprisingly little schaudenfreude when the pitchers stumbled or were stumped.
A couple highlights and thoughts:
I’ve seen Dan Vallejo pitch The Mutual a few times in a few different contexts — cocktail parties, small meetups, and so on — and he’s gotten better each time. (The Mutual is like a health club except 80% of your dues go to a non-profit and you get perks with local businesses instead of having to feel guilty about not working out). Dan comes across as confident and unrehearsed and handles criticism and Q&A well. The best moments for Dan must have been when one of the judges asked whether they were a B Corp — not yet, but in process — and when another said that the subscription donation model was unique. Having seen and heard a lot of pitches over the past few months, it’s becoming clear that these guys definitely have something special and it’s been exciting to watch them evolve in the few months I’ve known them.
If you’re going to pitch an idea, you absolutely must be prepared to answer in multiple ways and multiple times the following questions: (1) What is your revenue stream? (Alternative: How are you going to make money?) (2) What is your value proposition? (3) How are you going to scale? (4) What is your secret sauce? (This question often comes after the observation that the investor has been pitched this idea 10 times this month.) I felt some amount of pity but also a bit of frustration with the presenters who didn’t have killer answers to these obvious questions.
You must know both your competition and potential models almost as well as you know yourself.
Apparently, it is okay to talk about, and credentialize yourself with, how much money you made on your previous startup. At least one judge and one presenter did this. My feeling is that saying “I sold my last company in 2007 [full stop]” signals pretty clearly that the person is now rich and saying it out loud feels gauche. That said, if a candidate for president can’t speak about his personal wealth non-awkwardly, what chance do a bunch of amateurs have?
The Knicks’ Tyson Chandler had two notable achievements this season: He was named Defensive Player of the Year and he had the third highest field goal percentage ever. Each of these distinctions relate to different parts of the game — and opposite ends of the court, to boot — but they are both pretty clearly the result of a single core attribute. Namely, Tyson Chandler works really hard, all the time.
I imagine that Chandler studies defensive sets and opposing players’ tendencies and that there’s lots going on that is invisible to me as a lay-fan but one thing that I don’t have to imagine and that is not invisible is the effort he puts in on defense. I don’t know technical terms — he seems to shuffle his feet well and doesn’t get fixated on the ball — but, in general, he’s the kind of energetic guy who, at the risk of cliche, makes a team function. I’ve worked with and been on teams with people like that and it’s fun to be on their side.
His field-goal achievement is also function of this hard work insofar as the vast majority of his shots always seem to be within a few feet of the basket. He is probably not above average in his ability to make lay-ups and slam-dunks, he just gets a lot of those opportunities (and doesn’t bother taking shots he’s not good at). The point, of course, is that he gets those shots not by luck or hanging around by working to be in a position to take them. Again, a lot of hard work.
As with complaining about calls, I never noticed until my Linsanity-inspired basketball renaissance just how hard these guys work and how brutally they slam fight for every inch and angle. When the announcers say that the guys are ‘battling on the blocks’ they’re not just using hack-y martial imagery. They are fighting and, as I learned from my wrestling days, winning a fight takes everything you’ve got.
I attended a novel networking event last week organized by House of Genius and held at Think Conservatory. House of Genius shares DNA with a lot of tech networking events — three companies presented and received feedback — but the genetic connection is like that of penguins and ostriches.
The defining novelty of House of Genius is that for almost the entire three hours the twenty attendees are known to each other by their first names only. Last names, work talk and credentializing is forbidden. I spent most of the subway ride to DUMBO trying to think of acceptable opening chit-chat lines and finally came up with: “What did you do today besides work?” The line worked well enough that I’m considering using it in other contexts although it’s a bit more cutesy and twee than I generally like.
After 15 or 20 minutes of non-standard chit-chat and milling about, we took seats at a bunch of tables set up in a rectangle so everyone could see eachother, which formation brought to mind certain English high school classes. The format of the company presentations was a two-minute overview (i.e., not a demo or a walk through of a pitch deck but a bit more than an elevator pitch), a couple minutes of clarifying Q&A, a trip around the circle with everyone saying their first thoughts and impressions, and then 20 minutes or so of open discussion.
I won’t go into details about the companies that presented — all three seem to have plausible ideas and a lot of work to do — but will focus on the quality [definition 1] of the conversation, which is the entire point of HoG. Not knowing anyone’s background or credentials meant that comments had to be taken and valued on their own terms; a commenter without credentials is only as persuasive as his ideas since listeners have no expectations about the quality [definition 2] of what he’s saying. The final 20 minutes of the session were dedicated to ‘the reveal’ when everyone finally introduced themselves in the conventional way. It was a nice way to finish and I found myself thinking back on each person’s comments from the night and trying to understand them anew in light of who said them.
A few observations.
Some attendees managed to exude expertise/competence/influence even without credentials. I think the relevant factors were: (1) Age — two of the attendees were ~50+ and I think the room figured they must be someone worth listening to; others in the group simply read as more or less experienced and I think their influence correlated with that. (2) Personal style — a couple attendees had a distinct aesthetic which to me signaled that they had attained a level of independence that correlated with their level of success and I gave them ore attention. (3) Length of comments — less is certainly more and people who made their points in 30 seconds were more well-received than those that used 60 seconds or more. [NB: I note the irony w/r/t the length of this post.]
The longer people had to think, the better their comments — The first impression comments started off as sort of nit pick-y but but became more nuanced and substantive as people had more time to think and process and as their questions were raised by earlier commenters. This is something that I should know and will keep in mind in the future: While there is something appealing about talking first — people are still paying attention, maybe you can set the tone and direction — taking a few moments to think is probably worth it.
People are interesting even when not talking about their work — This is not meant to be an anti-work observation, just a statement about how amazing people in New York (and probably elsewhere) tend to be.
House of Genius holds events around the country and they are doing one in Los Angeles next month.
One of the big and mostly pleasant surprises of moving from a well-resourced law firm to a decently funded impact investment private equity fund was that I had unwittingly joined a startup.
It is unusual, I think, to describe an investment company as a startup but that’s what it was (per Ries): The fund was trying to deliver a new service — double bottom line investing on behalf of investors — in conditions of extreme uncertainty — no one really knows whether the service can be delivered; their investment focus was novel; their geographic markets were confounding.
While the fund had a strong team ethos, being as small as it was meant that discreet tasks and responsibilities would sometimes belong to a single person. And, sometimes that person was me. This was in major contrast to being an associate at a large law firm, a position that is often uncreatively and accurately compared to a cog in a machine.
Being solely responsible for down and dirty things like negotiating a lease, supervising an office buildout, setting up phones and IT systems, and obtaining work visas for new hires illustrated to me how far away 99% done is from 100% done. To be clear, 100% is not the same as perfect. In this context, 100% means that the job is done: The lease is signed. The phones are working. The visas are issued. Everyone appreciates effort but for some things you actually need to get to 1.0 and effort put into anything less is waste.
It’s rare to see jaws drop at enterprise tech demos but that was more or less what happened at last week’s New York Enterprise Technology meetup when iRise demoed StudioMX, which lets you create “incredibly realistic simulations of iPhone apps without writing code”.
Over the course of ten minutes, nimble fingered Eli Bozeman created a working mock up of a hypothetical Kayak iphone app right before our very eyes. Sure, he had done a bunch of work beforehand — getting art set up and so on — and has clearly had a lot of practice but it was astounding nonetheless.
Similarly astounding: There is a (somewhat stripped down) free version. Having worked with developers and designers on creating a super-simple website and having encountered the miscommunications, snafus and delays that are endemic to the process I can’t see how any semi-serious developer would not learn this system and make it part of their work process. I can already see the really bold ones incorporating iRise into their pitches.
NBA Complaining: North America's soccer flop? [updated]
[NB: For some reason, tumblr cannot accept apostrophes in post titles.]
I was an avid basketball fan in my youth but, like so many who came of age watching Patrick Ewing almost win an NBA title, I lost interest in the NBA around the time I got my drivers license. When Linsanity hit, I jumped on the bandwagon and have stayed on despite the fact that a knee injury means that the Knicks are now just a team that plays at the world’s most famous arena.
And I’ll tell you: I’ve really enjoyed being a fan again. Beyond the fact that the Knicks are decent and often fun to watch, the compressed season means that they’re playing all the time and there’s no chance to lose interest. My understanding is that the schedule has been brutal on the players but it’s been great for the narrative arc of the season — it’s kind of the same same as watching “In Treatment”. I feel like I really know these guys.
Knowing the Knicks means knowing their defects, including that they complain after almost every single call against them. The worst offenders are, for sure, Baron Davis, JR Smith and Iman Shumpert. These guys complain when the whistle blows as a general rule; sometimes it’s a glaring at the ref and jawing to their teammate sort of complaint and sometimes it’s a mouth open, eyebrows raised, hands up, “how can this be?!” sort of complaint. In any event, it never seems to have much to do with whatever actually happened on the court.
Was it always this way? Am I noticing it now because I’m older or because HD makes it easier to read body language and lips or because I was so partisan at the age of 13 that I, too, was appalled by every call and was glad to have my argument voiced? Or, did something change?
I’ve been enjoying basketball more than I ever have but this one aspect really gets me down. It’s a mild irritant in the same way that flopping in soccer is an irritant: it’s bad sportsmanship and a bad habit and though not quite enough to make me turn off the TV, if I’m ever wavering in my interest/support/fandom it could tip me against.
(Notable exception to all of the above: Tyson Chandler. If he’s complaining, the refs got it wrong.)
Harper, an old friend and, for all I know, a huge Dominique Wilkins fan, pointed me to this clip of Jeff Van Gundy making absolutely fair and reasonable observations regarding the phenomenon of flopping in the NBA. Can two separate annoying NBA things be analogous to soccer flopping?
Sherry Turkle, a professor at MIT and the author of Alone Together: Why We Expect More From Technology and Less From Each Other, had an opinion piece in the Sunday Times describing and lamenting the phenomenon of a smart phone-equipped society that is lonely despite being constantly connected.
It’s a good read and I was struck by the following paragraph:
And we use conversation with others to learn to converse with ourselves. So our flight from conversation can mean diminished chances to learn skills of self-reflection. These days, social media continually asks us what’s “on our mind,” but we have little motivation to say something truly self-reflective. Self-reflection in conversation requires trust. It’s hard to do anything with 3,000 Facebook friends except connect.
It seems pretty obvious to me that almost no one can be honest in front of hundreds or thousands of barely known Facebook friends. But this observation got me thinking about who people feel comfortable sharing honest feelings with in real life. People share when there is trust and the quickest way to develop trust is to make yourself vulnerable. Maybe this willingness is a variation on mutually assured destruction; as in, once I’ve made myself vulnerable by sharing personal with you, you can safely make yourself vulnerable by sharing something personal with me knowing that I won’t betray you for fear of you then betraying me.
Assuming that observation is accurate, a few questions: Would the quality of reflection on social networks be improved if you trusted your social network more? Could you somehow determine who you could trust by looking at their posts (e.g., the more open, honest and candid the posts, the more trustworthy they are)? Could this analysis be done automatically? Once trustworthy friends are identified, will people be more willing to be honestly self-reflective?
Without a doubt, the best chats, meetings and get togethers I have are the ones where I take the time to get to know the other person and their business before we ever met. It makes it easier to understand what they’re saying (including their jargon) when I’ve got a context to place it in and it’s easier to develop a rapport with someone if I have a sense of where they’ve been, what they’ve studied, who they’ve worked with, which yoga style they’ve practiced and so on.
That said, I heard something at last week’s NY Enterprise Technology meetup that reminded me that thinking I actually know the other person can be limiting.
Maria Gotsch of the NYCIF was at the Meetup to spread the word about NYCIF’s FinTech Innovation Lab — their second class is starting this month and they’ll be taking applications for the third class in the fall — and she described a mistake that she sees startup companies making when they finally get in the room with the right people at the big financial institutions.
The mistake is telling the potential customer which problem of theirs your technology is going to solve rather than describing what your technology does. The danger in identifying a specific problem/use case is that, despite best efforts and due diligence, an outsider can’t really know what an opaque enterprise’s problems are. Not only will your chances of closing the deal suffer if you’re solving the wrong problem, indicating that your technology is a solution to a presumed problem might prevent the discussion from turning to ways in which your technology might be used to solve their actual problems.
I think Maria’s advice is, to some extent, specific to enterprise solutions where the potential customers probably has a very clear sense of what their problems are and, more importantly, the capacity to see how your technology (generally presented) could be used to solve their problems. It seems more or less inapplicable to cases where technology was designed from day one to solve a specific problem, in many cases problems that the founders had experienced first-hand. That said, even in the case where the technology was designed with a specific problem in mind, I would want the pitch to allow for some creative thinking about potential applications and would always want to stay open to pivoting.
Maria’s advice is also relevant to less formal meetings, networking events, et cetera and really boils down to a suggestion to be humble about what you can know about another person without asking and listening.