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Like millions of others, I was watching intently as Steve Jobs unveiled the new IPad.

I’m definitely getting one.  I honestly don’t think I know exactly how I will use it, but I know I will… a lot.

It’s always hard to predict exactly what impact a device like this will have, especially before it’s been in the hands of users.  But one thing I do know is that at least one old, tired industry has finally woken up to a new day.

I’ve blogged about how baffled I am with the textbook industry before.  It’s amazing to me that 10 years after Half.com (and 10 years since the end of encyclopedias), the best that we have is Chegg and its imitators.  And 10, 50, 75 years before that, our grandparents and great grand parents were educated by the same old textbook product used in college campuses today.

But the events of the day made it obvious that those days are finally over.  First was a conversation with my old colleague Bill Rieders, who runs the Digital Business for Cengage Learning.  He really gets the evolving media ecosystem, and even if big companies aren’t always the most nimble, I feel confident that the educational publishers know that the days of expensive paper books are over.  More than ever, I think they are trying hard to be part of a better solution, rather than defending an old one.

Then the iPad announcement confirmed what has already been obvious since the Kindle and iPhone.  Our consumption of content is changing dramatically as the medium through which we consume it changes.  It doesn’t actually matter if the iPad wins, or the Nook wins, or something from a startup wins.  Something different from a laptop will be in the backpacks of millions of kids soon that will be infinitely better suited for delivering an educational experience to students.  And that experience will be incredibly deep and broad, social, interactive, and dynamic.

It’s fun watching an old industry get reborn.  And it’s even more fun when that industry is in the business of enriching the minds and lives of students everywhere.  Talk about change you can believe in!

I’ve been thinking about this post for a while.  Basically since the great NYT Piece came out on Shane Battier. I think Shane’s story is a remarkable one, and there are a lot of lessons that can be applied to startups and to careers in general.  It’s also interesting to juxtapose his experience with a lesser known Blue Devil - Chris Burgess.

Shane Battier and Chris Burgess were both in my class at Duke.  Both were very highly touted new recruits on an amazing freshman class that also included Elton Brand. Both were McDonald’s High School All Americans.  But they had very different careers in college:

Battier: (Year: PPG/RPG)

1998: 7.6/6.4, 1999: 9.1/4.9, 2000: 17.4/5.6, 2001: 19.9/7.3, 2002: NBA

Burgess: (Year: PPG/RPG)

1998: 4.3/3.4, 1999: 5.4/3.9, 2000: Transferred, 2001: 7.8/5.9, 2002: 13.2/7.2

Today, Shane is with the Houston Rockets and one of the most well regarded role players in the NBA.  Chris has bounced around the European league and is currently playing with a team in Dubai.

I think there are a couple generalizable lessons from these two careers.

1. Find product/market fit early, and be realistic when it isn’t there.

In this case, the player is the product and the team and the NCAA broadly is the market.  Unfortunately Burgess didn’t fit into the Duke system.  It was painfully obvious fairly early on.  Coach K typically has one dominant big man, and a bunch of wing players who shoot threes.  Brand emerged early as that dominant center, and Burgess was left without a role.  Unfortunately, he had to battle through it for two years before he transferred, and unfortunately, he also battled a string of injuries once he started playing for Utah.

Startup entrepreneurs search for product market fit from the very beginning.  I think the challenge in the early stages of a company is to find that fit as quickly and as painlessly as possible.  Until you get there, you want to avoid spending a lot of money on a team, marketing, or infrastructure.  The problem comes when a founder is too attached to his product concept, that he keeps plowing forward even when users are only lukewarm about the product.

Sean Ellis has a very simple way to measure whether PMF is achieved.  The basic idea is to get to a point where 40% of users say they would be very dissappointed if they could no longer use your product.  I think this is something all early stage companies should be measuring and trying to achieve.

In Burgess’ case, he did not achieve PM fit at Duke.  Unlike a web startup, basketball players can’t experiment anywhere near as nimbly with their product. So he had to make the painful decision to leave after two years, redshirt for one year, before continuing his career in Utah.

2. Do A Few Things So Well It Becomes a Thing of Beauty

Shane Battier fit well within the Duke system.  He was very versatile and was a great defender and rebounder.  But he started at Duke as an all-around smart player.  I think it was pretty clear early on that he wouldn’t be a dominant superstar.

What Shane did do was focus on a few things that he did very well, and perfected them.  Specifically, he became the best defender in the NCAA.  He also made an art out of taking charges (a stat that most people don’t pay any attention to). When players faced Shane 1-on-1 when driving the basket, you could actually see fear in their eyes as he got into position to take a charge.

It’s also interesting to see what Shane didn’t become.  He didn’t handle the ball very much, and actually looked quite awkward doing so.  His rebounding numbers didn’t go through the roof, and he didn’t really create scoring opportunities for himself.

A lot of startups have big aspirations of how the product will evolve.  Entrepreneurs are excited about solving huge problems and there are a lot of them out there to tackle.  But most game changing companies start out doing one thing extremely well.  In fact, they do that one thing so well that they uncover unique opportunities that weren’t obvious before.  As an early stage company, it’s important to figure out what it is you will do far better than anyone else.  The most dangerous startups are probably the one that do everything ok, because it’s not immediately obvious that things aren’t going to work out.

3. Know Where You Hope to Get To and What You Need to Get There

Great startups can’t be single product companies that do only one thing well forever.  They eventually have to mature and become real, meaningful businesses. In the same way, great college basketball players often struggle to make the leap into the NBA because their areas of strength are insufficient in a much more competitive league.

I don’t know how intentional this was, but Battier seemed to have a plan for what an NBA version of him would look like, and evolved him game to fit that vision.  During his junior year, he added a three point shot that made him a viable offensive threat.  In the NBA, he improved his quickness and evolved his defensive abilities to be able to handle quicker guards and forwards as opposed to the post players he had defended during most of his college career. His evolution was amazing to watch.  It seemed almost perfectly calculated, fit his god given talents, and matched the needs of the NBA perfectly.

Often, I meet with entrepreneurs who don’t have a great core product that I think could achieve PMF.  But even the ones that do need to have a clear idea of where they are going and the steps necessary to achieve those goals.  Things obviously change over time, but it’s comforting for an investor to know that the entrepreneur has a reasonable roadmap to becoming a big successful company.  Good entrepreneurs know this is more than just imprecise jargon.  It usually involves deep appreciation for the market they compete in, intimate understanding of competitors, and knowledge of the 2 or 3 things that need to go right for their company to win big.

Shane and Chris are both pretty young guys so it’s still early in their careers.  I was a huge Burgess fan, and do hope that he can make it into the NBA one day and have a few solid seasons.  For Battier, it will be interesting to see if he is able to squeeze out even more output from his talents and become a real All-Star.  I wouldn’t bet against him - he’s done a phenomenal job so far.

I will be holding my next “Open Office Hours” on Friday, January 29th, 2010 from 10AM – Noon.  

The purpose of these meetings is to provide the Boston entrepreneur community greater access to investors for their perspective, feedback, and help.  I will schedule six 20-minute time slots, so please respond quickly if you are interested. The format is informal, but time is short, so please be very clear about how you want to utilize this time.

The location this time will be the Andala Cafe in Central Square.

Please see below for details and how to reserve a spot.

Location: Andala Cafe, Central Square (286 Franklin Street)
Date & Time: January 29, 2010.  10:00AM – Noon
How to reserve time: Send an email to julie@sparkcapital.com with your name and preferred time.  Also include a brief (< 3 sentence) summary of a) what you are working on and b) what you hope to get out of the meeting.

See you there!

One of my favorite quotations about innovation is attributed to Henry Ford:

“If I had asked customers what they wanted, they would have said ‘Faster Horses’”

It’s a great reminder to me how unpredictable the product creation process is, especially in brand new markets.  Often, marketers are fooled into thinking that they can research their way into great products and solutions.  That may work sometimes, but for capital efficient internet companies, I think this is rarely the right way to go.

I think the better route is to build something, find users, understand what works and what doesn’t work, and then iterate.  Up front research has a place, but it’s less useful for figuring out what product to build and more useful for testing specific hypothesis about what your users are already doing.  There’s a ton more written about this by guys like Steve Blank so I’ll save my ink.

That’s why I’m a big fan of programs like YCombinator and TechStars (by the way, the TechStars Boston deadline is approaching fast). There is an emphasis on getting products out the door and quickly iterating to find product-market fit.  The goal isn’t to build the most bulletproof product in a short amount of time, but to build a product that gets users engaged and maximizes learning.  A lot of folks don’t understand this - that’s why these products are often considered “toys” in their early days.

So, for those of you who’ve been thinking about starting something for a while - make it your new year’s resolution to build something.  Get something out the door cheaply, test it with users, and see where things go.  I have an idea or two of my own that I’m going to try to execute on, so this is a resolution for me as well.

Here’s to a great 2010.  Let’s build some great products to solve some big problems.

VC’s often ask entrepreneurs of early stage companies questions that they can’t realistically answer.  For example:

1. What’s the cost of customer acquisition? (most entrepreneurs have no clue.  Plus, even with early data, this answer can change radically with scale)

2. What will the product look like in 5 years? (Who knows?  Product evolution is rarely linear.  You may be going after a completely different problem in 2 years)

3. What’s the competitive landscape? (who knows what players will emerge?  Who knows what Google/MSFT/Apple will do to suck the air out of your industry?)

4. How will this business scale to millions of users?

As I type this, I’m almost laughing at myself. I think entrepreneurs are understandably annoyed when they get peppered with questions they can’t possibly have the answer for.

My advice is this: Answer the questions beneath the question. What I think VC’s are really trying to answer are the following:

1. Is this an attractive industry and how do you win? Hopefully, you’ve targeted a VC that has a clue about your industry, but our knowledge is usually not nearly as deep as it could be.  Help us understand the trends, customer challenges, and business levers that matter.

2. Is this a good entrepreneur? The entire fundraising process is an evaluation of the entrepreneur.  We want to know how resourceful you are, how self aware you are, whether great people will work for you, and whether you can withstand the challenges of a startup.  A lot of the questions I ask are meant to understand how an entrepreneur thinks and will respond to the challenges of the entrepreneurial process.  In a way, I’m also asking myself “if I were interviewing for a job with this person, would these answers give me confidence to work for them?”  Also, I’m trying to figure out whether this entrepreneur is trustworthy and listens to feedback.  It’s great when entrepreneurs realize that I’m hung up on a particular problem about their business and comes back later with a potential solution and plan to test it.  It’s not great when an entrepreneur tells me about a customer they are about to sign and the diligence shows that they’ve only spoken to the company once.

3. Does this entrepreneur understand the business she is getting into? Even if startups have a lot of uncertainty, there is a big difference between entrepreneurs who understand their business and those that don’t.  Experienced consumer internet executives rarely say: “we will acquire customers through word of mouth and Web 2.0 techniques.”  Instead, they have very specific thoughts about distribution partners, specific social media outlets they can tap, how to market effectively through SEM and SEO, etc.  I want to back an entrepreneur who demonstrates intimate knowledge of the industry she is focused on, even if she has never worked in that industry before.  History is littered with previously successful entrepreneurs who failed because they went after a market they did not understand.

4. Will this entrepreneur spend my money wisely? This isn’t just about being cheap.  It’s about investing in the right areas at the right time in the right amounts.  I want every dollar spent to reduce as much risk as possible or increase as much upside as possible (or both).  This usually comes back to #2 and #3.  Good entrepreneurs may say something like this:

“I know I can’t get scale in this business by selling directly.  I need channel partners.  But I DON’T know what customer segments I should be targeting first. So, I will spend a little money to test my product with a bunch of customers before spending a lot of time and money marketing the product and securing a big channel partner.”

Bad entrepreneurs will spend millions of dollars building a product and millions more marketing a product before realizing that no one really wants it.  Shockingly, this happens a lot more than people think.

5. Do I believe in the proposed product? This is very hard to figure out.  Usually, this is answered by a combination of a) customer feedback or b) gut.  Customer feedback means lots of people are using the product (aka traction), or we have called a bunch of potential customers and done technical due diligence and the feedback is positive. Gut means that we have a strong point of view of how the market will evolve and what solutions will be important, and your product meets that vision.

The threshold for this question isn’t as high as the others if I’m satisfied by the answers to questions 1-4.  If that’s the case, then it’s in the bucket of “this is a good entrepreneur going after a big opportunity, and I believe he will use my funding wisely to figure it out”.  For true early stage companies, I think this is the most an investor can realistically ask for.

bijan:

This time of year, many venture backed startups have created or are putting together their operating plan for 2010.

Few suggestions for early stage/pre revenue companies:

0. Keep it simple.

1. Start with the ending. What do you want to accomplish by the end of next year and why?

2. Set quarterly objectives

Quarterly objectives help your board identify what’s going well and not well at the company. Are the goals realistic? Are we understaffed? Do we have the right people in the company? Does the company execute well? Is the product on track?

Some early stage companies are hesitant to create quarterly objectives. I know it can be challenging for a few reasons: (a) some entrepreneurs are worried that they will look bad if they miss their objectives and (b) startups have to be flexible at times and priorities may need to change

Here’s how to deal with these concerns. First, take the time to pick your investors wisely. The best ones will help you and your company be successful. The worst investors suffer absentee landlord syndrome which is a nightmare.

It’s also essential to have an open communication style and culture amongst your board members. Don’t wait until the board meeting to propose a big change in the plan or priorities. Early stage investors and board members understand that things will change. That’s part of the deal so don’t sweat it.

3. Operating Budget

For early stage/pre revenue companies, i suggest that you operate the business assuming you are going to miss your 2010 revenue forecast entirely or significantly. You can always spend more if revenue (or user engagement) grows nicely. But cutting is painful at best.

4. Fund raising

If you need to raise additional capital in 2010, assume you will need 4-5 months to raise money. Clearly there are exceptions but for most companies that is the general rule. Get some feedback from your existing investors what they want to see to support the next round.

5. Tell your board how they can help you. Give them assignments and hold them accountable. This is a two way street.

All slots from 10AM - Noon on Dec 11 are now filled.  I’ve very pleased with the response and I hope that the time proves to be valuable for the entrepreneurs that we meet with.

Due to the high level of demand, I am going to do 2 things:

1. I am going to arrive at Cosi on the 11th at 9AM.  From 9AM-10AM, I’ll meet casually with any entrepreneur that comes by.  There will be no scheduled time slots.  Just first come first serve.  And if folks just want to have more of a group discussion similar to what happens with OpenCoffee, I’m game for that too.

2. I will be having my next Office Hours on Friday, January 29th.  For those of you who are interested, please email julie@sparkcapital.com.  Same guidelines as in my previous post.