Monthly Archives: November 2011

Why is capitalism maligned by the Left?

Have you followed the latest meme started by Mike Arrington? It began with a post titled, “Startups are hard. So work more, cry less and quit all the whining.” The title seemed innocuous and content to of the post basically explained that startups have always been hard, highlighting a 1994 quote from early Netscape engineer Jamie Zawinski. Mike argues that more and more of the people have been showing up in Silicon Valley are shocked by how hard they have to work and how rare successful startup exits actually are. He predicts that in the near future our fearless leaders on the Left will be talking about ‘maximum working hours, minimum number of engineers assigned to complete a given task and ultimately unionization of startup workers.’  More and more ‘startup workers’ seem to be suggesting they have a ‘right’ to a certain level of wealth without risk and hard work. Mike explains the answer is very simple: if you don’t want to work crazy hours you should find a less demanding job. Of course he is ever the optimist suggesting,

“deep down you know that you’re part of history, that the things you are building will be written about and thought about forever, then maybe after that good cry after a short sleep under your desk you’ll pull yourself together and remember. That you are a person in the Arena. A Pirate. That you are here to make a dent in the universe.”

If you are like me you read the post and thought, ‘meh…no shit‘, and moved on to the next post on Techmeme. Turns out that Netscape engineer that Mike quoted didn’t appreciate the attribution. He responded with a post titled, “Watch a VC use my name to sell a con.” Jeremy suggests that the entire venture capital system is corrupt – they make money off of your hard work and provide no value whatsoever. Mike responds point by point here. I won’t bother to rehash the points here, but I did want to point out that a LOT of people are starting to get the idea that capital formation is bad – that perhaps capitalism is dead.

I think it all began with the bailout of the investment banks (and mainly AIG). The outrage against the bankers and the insurance companies was well earned and appropriate. More recently that outrage has taken shape as the Occupy Wall Street movement. The general feeling seems to be that capital formation is bad – i.e. accumulating wealth is bad as it allows the rich to get richer. The undertone is that our economic system has failed – that capitalism is somehow dead. Jeremy’s post suggests that VCs don’t actually write any code and as a result any money they make from investing in your startup is somehow ill gotten or as he suggests a ‘con’.

The Left is against capitalism because it’s outcome is by definition unequal. The framers of our Constitution sought to provide a nation of equal opportunity – a nation where a child born of an unwed mother, given up for adoption to a working class family could one day build the most valuable corporation on the planet (his name was Steve Jobs). In America anyone can succeed (and fail) regardless of who their parents were. On the other hand the Left seeks equality of outcome – everyone should be rich or no one should be rich. The Left believes, like Jeremy, that anyone with money must have had some sort of unfair advantage. The formation of capital – i.e. in this case by venture capitalists – is vital to create this equality of opportunity. Without capital how could Steve have built Apple?

My thoughts on our latest release: ShopSavvy 5

I can’t believe it, but we have been working on ShopSavvy for over three years – the original version of the app was released in November 2008. Today we released the fifth major update to the application (on iOS and Android). The primary focus of the release is our new wallet feature. Here is a short video where I describe what is new this year:

Think twice about using the courts to get even. . .

Liz Gannes from All Things D recently wrote a story about a founder who is suing Benchmark Capital for stealing his idea. The founder, Raj Abhyanker, tells a oft repeated story about how his ‘idea’ was lifted by a venture capital firm. After reading the details I am fairly certain Raj doesn’t have a case – but that isn’t the point of my post. Suing someone over the ‘theft’ of an idea is both arrogant and futile – suing a venture capital firm is entrepreneurial suicide.

First, you have to be VERY arrogant to think you are the only person in the world who has thought of your idea. EVERY time I have ever had a ‘unique’ idea I have ultimately found at least ten other people working on something very similar. Additionally, hundreds, if not thousands, of other folks have likely ‘thought’ about my idea, but failed to act on it. For example, at ShopSavvy we struggle to keep our focus narrow, but that doesn’t mean we don’t have ideas for other potentially very cool apps that leverage our technology. Lots of people outside of ShopSavvy contact us all of the time with their ‘unique’ ideas. They almost always want us to sign an NDA so they can reveal their idea to us – an idea that has likely occurred to us previously given our focus on the space. We began licensing our technology (barcode scanning SDK and product API) so that we could help these people develop their ideas. Nine out of ten people who bring their ideas to us never take us up on our offer to license our technology, but hundreds of companies have – building all sorts of applications.

Second, suing someone for ‘stealing’ your idea is plain silly. All of the time, energy and capital that you will spend suing the ‘idea thief’ would be better spent actually turning your idea into a business. The sad sad truth is that your idea wasn’t all that great to begin with and the person or company that stole your idea will fail. Most entrepreneurs must ‘pivot’ multiple times before their company turns into an instant success. Stay out of the court room – get back in the board room.

Finally, Sand Hill Road is an amazing resource for entrepreneurs. Billions of dollars to be had by entrepreneurs all on a single road in a single town. At no other point in history has been easier to raise as much money as quickly – don’t burn your bridge. Raj may be right or wrong. Nirav Tolia might have ‘stolen’ Raj’s idea, but the solution is not to sue Benchmark. We have all heard the stories about bad actors in the Valley, but the vast majority of VCs are professionals who are great to work with. Find a bad actor? The solution is to NOT work with them again. By suing a VC, Raj is forever burning his bridge to Sand Hill Road. Do you think he will ever be able to get a meeting to pitch an idea again? I doubt it. Don’t commit suicide to get even…

Counteroffers and Threats

Companies like ShopSavvy are in hiring mode. They are looking for the best and brightest in their fields to come join their teams. Often the ‘best and brightest’ are working for other companies and aren’t actively seeking new employment. Of course many of these candidates aren’t opposed to looking at new opportunities.

Tip One: Make sure you are dissatisfied with your current job before entertaining a meeting with a prospective employer.

Why are you willing to consider another offer? Understanding the ‘why’ is very important. If you are underpaid or under appreciated have you talked to your boss? What would make you happier? Have you discussed these issues with your boss? If not, meet with him and talk about how to get your job back on track before taking a meeting with a new employer. Never make a threat, instead ask your boss for career advice – ask him to help you build a road map for your career at the company.

Tip Two: Before you resign make sure you are ‘sold’ on the new company so that a counter offer won’t persuade you to stay.

If the only reason you are considering making a move is money – I bet you aren’t working hard enough to find the right company to work for. Sure, more money is great, but if your current employer matches or beats the new offer and you are persuaded to stay you are likely committing career suicide. The Capital H Group conducted a study of counteroffers and determined that after accepting a counteroffer the average employee is with the company for less than one year. If you really were dissatisfied with your job more money won’t make you happier. Your dissatisfaction will bleed into every part of your work and personal life. Employees who are dissatisfied with their jobs are 75% less likely to get promoted, are 50% more likely to get a divorce and shorten their lives by an average of seven years. Finally, if you accept a counteroffer your relationships with your coworkers will likely be damaged. They may be envious that you turned in your notice and were rewarded with a raise – they may wonder if you really deserved the raise (this is a good reason companies should not make counteroffers as well). In summary (via):

  1. The current employer is attempting to cover their tush. When you quit they lose money. When you quit the manager looks bad. Better to keep you on board until they can find a replacement. If that happens your pink slip will follow in short order.
  2. You become a fidelity risk to your current employer. You’ve threatened to quit once. It’s only a matter of time before you do it again, and smart companies won’t allow themselves to be put into this situation. You will never be perceived the same to them once you’ve threatened to quit and decided to stay.
  3. Any situation which causes an employee to seek outside offers is suspect. For example, if money is your issue why does it take a full court press for your employer to realize they need to pay you more? If you’re worth more money now, why weren’t you worth it 15 minutes earlier?
  4. The reasons for you wanting to quit will still remain, even if they are temporarily shaded.
  5. Quality, well-run companies won’t give counteroffers…ever! How would you feel if one of your employees forced you into something? ”If you don’t X, then I’m quitting.” I know I’d be angry. I’d be more than angry. If they don’t like working for you then they should go.

Tip Three: Don’t buy an employers threat to sue your or the new company if you quit.

Some employers may skip the counteroffer route and simply threaten to sue you if you take the new offer. First, you don’t really want to work for a company that threatens to sue you. Second, in all likelihood they won’t sue you because they don’t have a case. Here in Texas the law says that the loser pays – it makes it hard to use lawsuits as intimidation. Your employer doesn’t have a case and he knows it and once he realizes that if you call his bluff he will have to pay your legal expenses he will drop the matter. In fact, your new employer will likely cover your legal costs if they are really interested in having you on board (ShopSavvy will).

We just raised $7M, now what?

Back in October I wrote a post titled, “Post Funding, The Real Work Begins…” We had closed on the first million dollars of our eventual $7M round and everyone was spending a lot of time congratulating us. Now that we have closed on the full round (read more about it here) I thought it might be useful to REPEAT that post for a second time.

If you have ever attempted to raise capital for your startup idea you are in pretty good company. Once you have actually raised capital for your startup idea you are part of a relatively exclusive club. Your close friends and family (who know how long you have been working on raising a round) will congratulate you. The other members of your team will want to celebrate. The PR folks will prepare a press release and try to get TechCrunch interested in the funding story. But, if you are like me, you might not feel entirely comfortable accepting congratulations or celebrating or even getting some TechCrunch love.

Raising money is a lot of work. First, you have to come up with a startup idea that resonates with investors – if it doesn’t resonate they won’t meet with you. Of course getting an investor to meet with you based on an elevator pitch is pretty easy once you figure out what sort of investments they are looking for (assuming that is the sort of business you want to start). Once the meetings begin you will experience a roller coaster of excitement, disappointment and despair. Some investors will LOVE your idea, your team and generally be ready to put a term sheet together only to learn their partners aren’t the least bit interested in having your deal on their website. If you are lucky you will hear no a LOT. If you aren’t as lucky you will hear a lot of maybes. But eventually, you might get a term sheet. Of course once you get the term sheet you are on your own 10th yard line. You still must negotiate the terms and agree on a final term sheet. Once you have signed the term sheet you are on the 50th yard line. Of course sometimes closing is harder than you think. Papering disclosures, employment agreements, charters, financial statements – all can throw a wrench into a deal. When you finally get the wire you are likely so exhausted you may feel relieved, but I would argue that you are actually back on your own 10th yard line.

The congratulations, celebrations and press coverage should make you feel uncomfortable. Your team won’t understand at first, but raising outside capital is a HUGE responsibility and you should start feeling the pressure at about the same time the wire hits the bank. Your investor believed in you, your team and your idea – enough to put their hard earned treasure at risk. While your Mom, Dad and close friends were more than happy to cheer you on – how many of them wrote checks to fund your deal? Maybe a few, but generally encouragement is free. Your investor is not looking for a standard return – he is specifically looking for outsized returns 10x is the norm. For every dollar you spend you have to figure out how to make it worth $10. People who can do that are few and far in between. If you think the venture backed entrepreneurs is exclusive – try getting in the ‘provided outsized returns to investors’ club – it is downright lonely there. Outside capital isn’t for every startup or every entrepreneur, but if you decide to accept it be sure you understand the responsibility you have placed firmly on your shoulders.