One of the realities of starting a company is that sometimes it just doesn’t work out and you shut down.  Check out Andy Sack’s series of posts on shutting down Seattle-company Judy’s Book after several years and over $10MM in venture capital.  Going through a wind down (as I have) is a humbling experience because the wind just leaves the sails and you are dead in the water.  People move on and you lament what could have been.

Andy has some great posts on both his feelings going through the process as well as a real-time postmortem on lessons learned.  Andy is great guy, successful entrepreneur, and ring leader of the Seattle Open Coffee Club (which I have yet to return to) where I met him briefly.  Thanks for sharing Andy.

…or is it? 

Check this out – venture capital meets American Idol.  How did this guy get on Squawk Box???  Good commentary from PE Hub.

That’s the position my Kirkland neighbor OVP Venture Partners is taking on the state of the industry in this newsletter.  They sort through some data from the NVCA Yearbook and iterate it a bit further examining ‘active’ venture funds defined as those having made an investment in the past 12 months.

In 2000, there were 1156 different
venture firms that made at least one new deal. In 2006, there were only 597. This
is more like a 50% drop, not just 15%! We think that is the big, so far unwritten,
story. The US venture industry has been cut in half. That certainly qualifies
as a major shake-out.

Fund sizes are about double what they were in 2000 as most of the smaller funds created during the bubble years have disappeared or become inactive. 

The venture capital industry is healthier
today than most people realize, given the magnitude of the shake-out already behind
us.

Venture capital as an asset class appears to be normalizing with the speculative money going to the ‘quality’ firms.  That said, there is still no shortage of venture money chasing anything with a web 2.0 label on it.  My favorite definition of web 2.0 is from Don Dodge = one web application, 2 founders, and 0 revenue…

I read this post by Marc Andreessen some time ago and it nicely articulates what happens as you start a company and take it to market both in terms of the ups and downs.  I think his point on product/market fit is especially insightful and knowing you are on to something when the market begins to pull your product.  Read the whole thing.

I am (slowly) reading "The Four Steps to the Epiphany" and Blank’s market-centric process around Customer Discovery & Customer Validation ties nicely into Marc’s thinking (guess that’s why he recommended it).

I also think Brad Feld did a nice job of summarizing a key part of starting and growing a business in this piece on horizontal solutions finding their vertical applications based on market factors not marketing ones (he also does a nice job of covering what I see as "natural points of friction" between engineering, product marketing, and sales).

This is a great post by Todd Jaquez-Fissori of Siemens VC on the realities and a few traps that small companies get into as they seek to sell to the large enterprise.  If you have never taken a new product to the enterprise market from a small/unknown company, this post does a great job of providing a bit of insight into how much "fun" the process can be.  Bottom line – know your customer’s problem.  The technology/features of your product are important but you better be laser focused on a pressing problem and do everything possible to avoid committee buying.

This is a quote from my good friend Jim Clifton.  I now have learned that this maxim applies not only to those things you encounter and predict when starting and growing a business including:

1.  Sales/customer traction
2.  Product roadmap/feature release
3.  Revenue projections

But also to fence painting projects. I have now, after spending most of the weekend and a day off today (minus a rain delay yesterday), completed my fence painting project.  I experienced a bit of scope creep (pruning back some trees from the fence), human capital constraints (a staff of one – me), and budget overruns (more than a few trips to Lowe’s).  It took twice as long and I only completed half of what I thought I would by Saturday.  But it is now done and it looks great…

That’s what a crew of folks are attempting to do this weekend in Boulder at Startup Weekend.  David Cohen is providing the play by play and at this point it looks like "Vosnap" is taking shape.  Reminds me of something I did back in business school at UT.  We participated in the Wake Forest MBA Marketing Case Competition in Winston-Salem, NC.  Same kind of pressure cooker although the team was much smaller (5) and the scope was a marketing strategy for Sara Lee/Hanes if memory serves me.  We came in second behind UNC in 1994 although our core theme of the increasing casualness of attire in the workplace was spot on.

Good post by Stephen Fleming out of Atlanta.  He now heads up Georgia Tech’s commercialization program after stints as venture capitalist, entrepreneur, and executive at Nortel.  He talks about a framework for evaluating investments picked up from Kevin Fong at Mayfield Fund.

"We divide business plans into three categories: candy, vitamins, and
painkillers. We throw away the candy. We look at vitamins. We really
like painkillers. We especially like addictive painkillers!"

Here’s some good perspective from Stephen:

"Honestly, I think most of Web 2.0 is vitamins at best, candy at worst.
(Which is perhaps why most of the Web 2.0 services are free. Here’s a
tip: If no one wants to pay for what you’re providing, maybe that’s a
hint that it isn’t worth much.)"

Bottom line:  focus on the problem you are solving and why people would pay for it

Got an email from a good friend after this post on online vs. offline.  Jim gave me my first product manager job and was a great guy to work with…am still trying to figure out a way to work together again at some point. 

He taught me some valuable things about product management including that product folks will tell you the truth sans spin when asked a question and that building software is like making sausage (apologies in advance to you vegetarians out there) – you don’t want to see it being made but the end product is fantastic.

Anyway, here is some text from his email:

…just continued decentralization…Sun had it right — the network is the computer and that’s where Google is going.  The Telecoms never adjusted and now Microsoft must adjust….Dumb pipes, smart peripherals, data storage costs zero, unconstrained bandwidth (this is the real kicker).

He goes on to point out that a good read on this is George Gilder’s Telecosm .  Do I smell sausage?

Had the chance to attend another one of these this morning.  The Northwest Entrepreneurs Network is a great organization here in Seattle that puts on a variety of events including these breakfast meetings.  The last one I attended featuring Sujal Patel, founder of recently IPO’d Isilon Systems, was really good.  His point on disruptive innovation having to be 10x better than what is out there still resonates in my head.

Anyway, James Gwertzman spoke this morning at the Bellevue Harbor Club on lessons learned from failure.  There have been some other good blog posts on learning from failure including these by Brad Feld.  I think it is important for everyone to have a flame out at some point in their entrepreneurial careers to drive key lessons home.  I had mine with Idapta although the code lives on at MSA.

James is an ex-Microsoftie that started a gaming company called Escape Factory that went bust.  He regrouped, started another company, and was acquired by PopCap Games where he is now working.  Definitely an "out of the ashes" story.

Gaming is not really my thing or something I know much about, but his presentation was informative and pretty entertaining.  Here’s a few nuggets:

1. Companies succeed for different reasons, but most fail for similar ones
2. Spending too many cycles on process and administration out of the gate is a time and money drag
3. As a CEO you must avoid the tendency to personally fill gaps in the organization – dropping into a line role robs you of the valuable time you need to be doing CEO things
4. Too many eggs in one basket – they had one major deal and when it was pulled there was nothing else (see above)
5. Too much office space sucks the energy out of a company – they went from cramped to spacious…and lost something
6. Manage your business everyday like it is the last – you’ll be amazed at what doesn’t seem important
7. In people, focus on experience vs. potential – you don’t have the luxury to develop people in the early days of a company (referring to his attempt to implement the MSFT professional development model)
8. Forgot their unique selling proposition – after landing the first deal because of it, they trimmed features and lost "uniqueness" in trying to unsuccessfully hit a deadline.
9. Pay yourself first – long leases, deferred salaries, and other debt left him with no fall back after he had stopped taking a salary
10. Have someone on the team that will always tell you the worst case scenario – he was surprised by how little cash/how much debt they had