The New Startup Cultures: SXSW 2006

Today I attended a panel at SXSW titled “The New Startup Cultures“.

It was moderated by (MOD) Lane Becker Director of New Ventures, Adaptive Path.

The panelists were:
(BB) Ben Brown: Internet Rockstar, Consumating.com
(TC) Tony Conrad: CEO/Founder, Sphere
(TS) Tony Schneider: Automattic Inc
(AW) Anita Wilhelm: Co-Founder, Caterpillar Mobile

The description of the panel was

“Joe Kraus, founder of Excite, said not long ago, “There’s never been a better time to be an entrepreneur because it’s never been cheaper to be one.” Much has changed since the first Web boom, not the least the way that technology companies invent, build, and create value with their products. Starting a startup is a very different experience today, with more options available to people, different yet still viable business models, and multiple options for how to operate. So what does it take to be an entrepreneur these days? How can one succeed? Which choices are the best? This panel will cover four panelists talking about the choices they’ve made and how they worked (or didn’t) for them.”

Note that unless you see quotation marks, these are not exact quotations; this is my synopsis of the event.

LB: Adaptive Path founder; gives introductions

• BB: sold Consumating.com to C|Net
• TS: best known for CEO of oddpost (mail.yahoo.com), sold to Yahoo!
• TC: CEO of sphere — user-generated content discovery engine aka blogsearch (also a VC)
• AW: runs caterpillarmobile

LB: asks questions of audience: Who has started a start-up? [almost all raise their hands] Who wants to? [again, almost all raise their hands] Who is just here for VC money? [two or three raise their hands]; asks TS to tell us about his new co.

TS: I left yahoo; joined Matt Mullenweg @ WordPress; 5th start-up, first one based on open source; first company he’s worked at that’s virtual (by design, not necessity); explained early days of WP; don’t need to be in SF to be a part of the company

LB: how’s that working’ out?

TS: hardest on me. partners think it’s weird. always meeting at coffee shops.

LB: asks BB to tell us about him

BB: deepleep only burned through $50! doesn’t want to talk about working at C|Net now. consumating started as a joke. a snarky hipster dating site; realized that there’s a lot of money in internet dating; started working seriously on it. didn’t quit day job as consultant, worked only from 8pm to midnight on Consumating.com in underwear. had all the same problems as a “real” company. went into match.com to talk about consumating and they thought it was weird that it was just him. C|Net wanted to meet him “in his office” but that was his home.

QUESTION: Did you start a dating site to fulfill a need you had? (general laughter)

BB: my girlfriend and her mom are sitting here!

LB: TC, tell us about you

TC: I didn’t pay myself for one thing. realize the other night while talking to matt, some guys are doing CORE development pieces that I’ve never met. responsible for 10% of site and yet I don’t know them. other thing that’s different is “culture of help“. if you’re smart and network well, it expedites process. ex. worked with adaptive path who gave us source code. wouldn’t have happened 4/5 years ago. 3rd: have a co-founder not involved in operating business as a VC, I would have said no way.

LB: So you would not have funded yourself?!

TC: probably not.

LB: did you take investment?

TC: we haven’t announced it, but yes…

LB: well you have now! AW, tell us about you

AW: we got lucky. working on a mobile phone game. was a master’s thesis of mine at Berkeley; a man liked it and asked me to quit my job and start a company. only taken a small amount of angel money, not going typical investment route. using our own skills.

LB: so how’s it going?

AW: large learning curve; business aspects hardest; think a lot of creative people have to deal with it; specifically in mobile world (cell phone) b/c so many different platforms. a giant learning curve

LB: BB, did you GO to C|Net? did they approach you?

BB: we didn’t go to C|Net. we didn’t go to anybody. when I started to take it seriously and not as a joke…

LB: how long did that take?

BB: still working on it! [laughter] got some press in about 2 months from “dating industry” reps. C|Net called looking. essentially just BB and a couple of volunteers; BB was wearing all the hats; tried to license Consumating.com to C|Net. after 15 min they said, we don’t want to partner, we want to buy. they said it on first call. it was luck, ass-kissing, and luck.

AW: so you get here by being lucky.

LB: I came up with name Consumating.com. TS knew TC. basically it’s all incest. this “culture of help” that TC brought up… have any of you experienced it?

TS: I’m still blown away. meeting more and more people all the time. people who spend 6-8 hours/day doing tech support as volunteers. people driving around the country in an RV doing tech support

LB: why are they driving an RV?

TS: they don’t want a 9-5. they want to live on their own terms. don’t have to — as a start-up — force people into a corporation mold. but, you WANT to be purchased by the big guys. try to stay ahead of the curve, which is possible as a SMALL company, but harder for a big one. don’t be different just for the sake of NOT being a big company.

TC: having been on Tony’s board, and watching the way oddpost guys worked it… gmail was introduced and yahoo mail — which is absolutely critical to yahoo — TS was meeting with Yahoo! guys all the time; look to competitors as possible purchasers all the time; options always create options; get in the cycle early; talk to big guys early; paid off for oddpost

BB: I talked to match.com, met w/ 3 VPs, etc. had no idea what they wanted. I went in to steal ideas. [much laughter; LB makes snarky comment] they didn’t suspect b/c it was me and my laptop. you’re a weird punk rock guy, do you really want to work in an office in SF? uh, yes. don’t be weird “just because”.

TS: for a big company, there is an element of… you don’t want to buy someone that’s not going to work out. the big company might look stupid; requires cultural fit; ex. what would it be like for you to live here?

BB: people legitimately concerned about cultures mixing

LB: a number of disaster acquisitions at end of 90s.

[at this point I received a phone call and missed a minute or two; sorry!]

TS: At their oddpost office, b/c of lack of funds, they had 10 people sitting around a big table; after being purchased by yahoo, the big company guys recreated this table for them to try to get them to feel comfortable — funny story; they wanted oddpost to NOT get assimilated; wanted oddpost to influence yahoo

BB: that speaks to your culture; we want you to bring what you do to our company. what was that for you?

TS: innovation; agile development, focus on product. flat structure that can get stuff done w/o distractions; yahoo underestimated the SLAM of moving ten people into a 5000 person company. my advice was to not bring people in; don’t try to integrate too quickly; too overwhelming; innovation & agility

LB: want to pull conversation away from acquisition; before you can be acquired, you need to build something. curious about funding strategy

AW: enter the competition at school

LB: after you got that, how do you pay the bills? how do you keep the lights on?

AW: we met w/ investors; decided not for us

LB: why?

AW: 1) we needed more bus competence to handle lot of money and I couldn’t handle it 2) we just decided it wasn’t the best fit; want to establish credibility so that we can get funding on better terms; improving product & consulting 1st

LB: you mean do consulting / mobile consulting on the side?

AW: we’re using our own skills that we’re confident it and planning for the future

LB: is that hard?

AW: yes, time management and client management is hard; have to make sure everyone else is happy; it’s a resources and time challenge and it’s split. I prefer to be focused on the product. wouldn’t recommend it as a long-term solution

LB: basically you’re saying you want to get further along in the dev process so you can give away less of the company and get more for it

AW: yeah

LB: read a post about how cheap it is to start a company today. all the costs have been commoditized; bandwidth costs, server costs, etc. as a strategy this makes a lot of success [think he meant “sense”] TC what do you think?

TC: we had an individual strategy instead of a company strategy. Oracle started out as 3-person company but was always thinking about large company. in our case we each had unique needs predefined. 2 guys kept consulting on the side and took their own money. that was 1st stage. 2nd stage was looking for structure and angel money.

LB: how long was that 1st stage?

TC: 4 mo

LB: why did it take that long?

TC: didn’t want to take angel money until we knew what we were going to build.

LB: had you prototyped anything?

TC: yes. so when we took the money it was clear what we were doing.

QUESTION: [basically says I agree with you.] You’re not Irish, so where do you get the luck? How did you make the luck?

BB: b/c I said I was lucky, let me talk about it. connects w/ something else. luck was less important. b/c I didn’t quit. I know it’s not always an option. I have heard this week that you can get funding based on a PowerPoint pres w/which is a lot less than me taking a year to build Consumating.com. w/in 1 year I wanted to do it fulltime. that was my success measurement. yeah, it was luck that someone read a blog about how cool I am and someone else believed it; the reason I didn’t succeed before was b/c I took money from myself, from funders, doing the SAME thing… but I quit, so it was much scarier. I didn’t quit to start Consumating.com. so I wasn’t going to be screwed if it failed. spent no money on Consumating.com. didn’t incorporate; managing risks makes it look lucky

TS: you find money somehow builds value; if your goal is to raise money, investors look for PEOPLE ; what is the product I want to build? how do I bring together a team of people I can make happy and that will want to build with me? if you get the money first, you’re not prepared (and you likely won’t get money w/o people anyway) great ways to get started are to get PEOPLE

LB: I agree w/ everything said. passion, etc. you can have an exit strategy, doesn’t matter. 37 signals are great b/c Jason has a different philosophy, but you can tell when you’re using anything that he cares about the products, etc. you cannot neglect the other part: the networking, getting out there, following up, going to conferences; try to be immediately interesting when you are in front of people who interest you

QUESTION: my email is gordon… [laughter]

LB: we’ll talk later. or maybe not. [lots of laughter] every industry is 12 people. 12 people is what you need to meet. meeting those 12 will do more than anything else.

QUESTION: I own 2 companies. a for profit and a not for profit. moving into e-commerce… [basically asks how to be a good start-up]

TC: Do favors for people. #1 thing. think of what you can do for others all the time. the power of being liked, being thought of is incredible. HOW CAN I HELP THIS PERSON? building up good chits. you might never play them. it’s all karma.

AW: you open yourself up to the opportunity. go out there. enter competitions. go to conferences.

TC: the fact that adaptivepath gave me a little source code on my site is amazing. I want to give something back now. making yourself open is a great thing

AW: amazed at how small network of folks is. it’s all about the people you meet

BB: I hear that all the time. I met lane who runs adaptive path: everyone eventually meets him.

LB: I don’t RUN adaptive path.

BB: whatever. no hierarchy. if it wasn’t for the dude I knew from college who was a Unix sysadmin. don’t undervalue random dude who will fix your JavaScript. especially if you don’t have money. have your pal herb host your site. random ex-co-workers.

TS: the theme of this panel is sort of becoming “the culture of help”; LB referenced Krauss post about cheaper to be a start-up made him mad; I don’t think

[at this point my laptop battery finally expires after 4+ hours of non-stop work; missed a minute while I switched to paper and pen]

TS: The culture of help is the reason start-ups are more often now; NOT that it’s cheaper now.

LB: True. and it’s reflected in the products people are making. It’s all about networking [referring to social nature of “web 2.0”]

QUESTION: [Out of nowhere, random guy in front row asks what is essentially a five-minute long, advanced calculus exam-type question. It was terribly annoying. Something on the order of, if I want to start a company and my brother-in-law wants to help, and he wants to have 50% equity in the company, but he only wants to do 20% of the work, and he mortgages his house to help fund it, and I have a full-time job so I don’t have to do that, in one year, what percentage of the company… blah blah blah… it was outrageously lame]

BB: You’re too risk averse.

LB: I don’t understand the question.

TC: Different founders have different needs. Strive to find the right answer, even if we…

QUESTION: [the same guy interrupts and rambles for another full three minutes about percentages and equity and stake in the company and how he doesn’t want to possibly screw his brother-in-law over]

TS: You need two answers. Pick something that makes sense based on how hard you work. If you’re working 90% and he’s working 10%, then do that.

QUESTION: [again, same guy; he says something about how the equity in a start-up is a fictional number]

LB: Everything in a start-up is fiction.

BB: My partner was the guy who I told the joke to! I called him when I got funding and said, is 60/40 split ok? He didn’t even come to the signing or do ANY work on the site. But you have to stick to your word when you make a deal. Don’t take your brother-in-law’s house. Be up-front about it.

LB: There is no safe hedge.

QUESTION: [Thank God, from a different person in the back of the room.] If you have limited funding, how do you pay your employees if you don’t want to give them stock in the company?

LB: Why don’t you want them to own part of the company?

QUESTION: [basically says, because we have too many products]

TC: Think of it as a distributed environment. Can YOU get it done? People will decide if they want to work for you. You don’t want to set someone up to be a martyr.

TS: Everyone has different needs. Some people just want to be a part of a project. Give people options and they will find you.

TC: We had a great engineer temporarily. He was a pal that I knew wanted to do the kind of thing we were doing, but we knew it was going to be short-term and we were all okay with that.

LB: Think about how much elasticity you have. Let’s have a conversation about level of interest. You want to make sure nobody feels like they are getting screwed.

QUESTION: [Amazingly, it’s the crazy guy in the front row again. He talks about how some guy (maybe him?) was using his parents’ retirement money to fund a start-up; asks if they think that “having skin in the game” makes people more dedicated.]

TS: Yeah, you have to be careful. My experience is that bootstrapped companies are the best. You build better stuff when you bootstrap. Find investors and partners.

BB: We’re having a party tonight at The Velvet Spade!

[end of panel; yes, I went to the party]