StartupMuse » StartupMuse - by Alexander Muse http://www.startupmuse.com by Alexander Muse Tue, 04 Aug 2015 15:30:34 +0000 en-US hourly 1 Raising Venture Capital is HARD! http://www.startupmuse.com/raising-venture-capital-in-the-valley-is-hard/ http://www.startupmuse.com/raising-venture-capital-in-the-valley-is-hard/#comments Sun, 02 Aug 2015 19:38:57 +0000 http://www.startupmuse.com/?p=18666 Yesterday I wrote a post suggesting that the funding landscape in Dallas is favorable for startups. I contend in the post that it is easier than ever to raise seed capital in Dallas and that institutional funding is available to ALL viable startups here in North Texas. I was surprised to hear from several people […]

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tumblr_lscnqyt6zM1qz6pqio1_500Yesterday I wrote a post suggesting that the funding landscape in Dallas is favorable for startups. I contend in the post that it is easier than ever to raise seed capital in Dallas and that institutional funding is available to ALL viable startups here in North Texas. I was surprised to hear from several people who vehemently objected to my post. Based on the tone of some of the messages and comments I feel like some people took the post personally – i.e. that I was suggesting that there must be something wrong with THEM. Please don’t get me wrong, I know first hand that is VERY hard to raise capital for the highly speculative investments known as startups. Two things are true in the venture world – a) most entrepreneurs fail to raise venture capital and b) most entrepreneurs who do raise money fail. I don’t care where you live – convincing investors that you can take a dollar from them and return ten is almost impossible.

1% Success Rate. When I sought venture funding for my first startup, LayerOne, I talked to approximately 99 venture capital firms before I found one willing to make an investment. Most entrepreneurs I talk to who suggest that the funding landscape here in Dallas is bleak haven’t talked to 10 venture capital firms, much less a hundred. Be honest with yourself. If you aren’t willing to do what it takes to convince a venture capital firm to invest in your startup are you really willing to do what it takes to actually make your startup successful? Raising money is hard, but building a startup is infinitely harder.

Adapt. When I was out raising money for my first startup I actually listened more than I pitched. Every meeting helped me understand what I was doing right and what I was doing wrong. I’m a pretty hard headed guy, but I knew that the investors weren’t going to change. I had to change. I had to make my deal more attractive to the investors I was pitching. We reinvented the company in a rental car on I-280 on our way to Sand Hill Road just before a pitch and it worked. We raised $15M in our first round of outside capital because we listened.

Bad Deals. Seriously, your deal sucks. The market you’re going after is too small. There are too many competitors. There are huge technology risks. You’re an untested manager/leader. Your credit sucks. Your beard is to big. Your grades sucked. Your numbers are bullshit. Your logo is all wrong. You don’t listen to your mentors. You don’t listen to potential investors. You’re a trainwreck and you know it. Go get a job and quit your bellyaching. If you can’t take this abuse from me, how do you expect to deal with the rejection you’re going to be getting from the venture world? I was channeling some Glengarry Glen Ross there (watch it if you don’t know what I’m talking about).

The fact that you live in Dallas is not the problem – the real issue is that raising capital is REALLY hard regardless of your ZIP code. Here are some interesting statistics you might find helpful:

• Only 1350 Startups Get Funded Each Year (of that 800 raise seed).
• Less than 1% of Startups Seeking Funding Actually Raise Capital Each Year.

 

Raising Venture capital is fucking

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Raising Startup Capital in Dallas http://www.startupmuse.com/raising-startup-capital-in-dallas/ http://www.startupmuse.com/raising-startup-capital-in-dallas/#comments Sat, 01 Aug 2015 13:47:53 +0000 http://www.startupmuse.com/?p=18640 Earlier this week I got a call from a reporter asking about my thoughts on a recent report that startup funding was declining in Dallas. While I hadn’t read the report, lots of the articles I read in the local press about startup funding use data from the National Venture Capital Association and PricewaterhouseCoopers. The most interesting thing […]

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You can build your dreams here...

Earlier this week I got a call from a reporter asking about my thoughts on a recent report that startup funding was declining in Dallas. While I hadn’t read the report, lots of the articles I read in the local press about startup funding use data from the National Venture Capital Association and PricewaterhouseCoopers. The most interesting thing about the data is the fact that it isn’t accurate. In many cases local deals aren’t reflected in the numbers. In others the funding is attributed to the location of the investor and not the startup. For example, our first round was included in the NVCA numbers as an investment that occurred in San Francisco and not Dallas (some of our investors are located in San Francisco). In the aggregate the data is great for revealing trends such as the fact that last year saw the most venture investment since 2000, but it isn’t very good at giving you an understanding of the local funding scene. Here is my view of the current state of startup funding in Dallas:

Raising Seed Capital in Dallas ($25K to $1M)

Raising seed capital in Dallas between 2001 and 2010 was almost impossible. For years I encouraged early stage entrepreneurs to move to San Francisco primarily because of the easy access to seed capital. Over the past five years everything has changed. It has never been easier to raise early stage capital in Dallas. In fact, I would argue that it might be easier to raise seed capital in Dallas than it is in Silicon Valley today. There is a thirst for access to early stage deal flow here in Dallas like I’ve never seen before. If you’ve got a novel idea and the ability/skill to execute on it you WILL find investors eager to give you a chance here in Dallas. 

Raising Venture Capital in Dallas ($1M+)

Once a startup is ready to raise their first institutional round, regardless of location, the capital markets are wide open for companies with real traction. I can’t think of a single Dallas startup that was doing well who failed to raise a Series A. In the Valley, unlike Dallas, it is very possible to raise your Series A without any traction. I would argue that the fact that we don’t see ‘traction-less’ funding rounds here in Dallas is a blessing in disguise. Dumping a bunch of money into a struggling startup (we call them zombies) keeps a potentially great entrepreneur on the sidelines for years. Instead of pivoting or starting a new startup, a funded entrepreneur in a zombie is trapped. He can’t abandon his investors so he will keep ‘trying’ until the money runs dry. If you’re struggling to raise your Series A take a long hard look at your business and be honest with yourself – investors are dying to get into great deals – if they’re not dying to get in your deal it is likely that your deal sucks. Fix it or do something else, but don’t complain that their isn’t any money available for Dallas startups (primarily because it isn’t true). 

At the end of the day Dallas is a great place to start a business and raise a family. There is plenty of monetary and human capital. Now get busy.

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Deconstructing CultureMap to Go Mobile http://www.startupmuse.com/deconstructing-culturemap-to-go-mobile/ http://www.startupmuse.com/deconstructing-culturemap-to-go-mobile/#comments Fri, 24 Jul 2015 17:38:09 +0000 http://www.startupmuse.com/?p=18411 Shortly after we purchased CultureMap the calls for a mobile app became louder and louder. Given our background building mobile apps it made sense that everyone at CultureMap assumed we had a mobile plan in the works, but to be honest, it wasn’t obvious to me that a mobile app made sense. To put the […]

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Shortly after we purchased CultureMap the calls for a mobile app became louder and louder. Given our background building mobile apps it made sense that everyone at CultureMap assumed we had a mobile plan in the works, but to be honest, it wasn’t obvious to me that a mobile app made sense. To put the enormity of the challenge into perspective, by June of 2015 there were more than 4 million mobile apps available for download from the various app stores. Building a mobile app is easy, but finding an audience is more than daunting – it is all but impossible today. It occurred to us that to find a reason to build a mobile app we needed to reduce CultureMap to its constituent parts:

EDITORS (Creating Compelling Content)
READERS (25-35 Tastemakers and Trendsetters)

ibeaconBuilding a mobile app that simply recreated the experience our readers get when reading CultureMap.com seemed like a dumb idea. Why bother recreating the wheel? But quickly it occurred to us that we might be able to take what was great about our team and our readers and create something compelling and unique. Each week our editors uncover interesting and compelling stories about the places our readers go to eat and drink. What if we could have our editors create a highly curated list of the top places in each of the cities we cover (Houston, Dallas, Austin and soon Fort Worth and San Antonio) and then let our readers vote on their favorites? You’d end up with a very highly curated list of THE places you needed to visit in each city. Of course voting requires interaction and engagement, something I wasn’t entirely sure we could count on. Getting mobile users to download your app, much less actually use it is beyond daunting. We needed a solution that would allow our readers/users to help us curate content without changing their behavior. The solution was obvious, iBeacons.

If we placed iBeacons (tiny bluetooth transmitters) in each of the restaurants/bars that our editors selected (we them HOTSPOTS) we could let our readers/users help us create a highly curated list of great restaurants and bars (and eventually shops, spas and salons) by simply visiting each location. We could let their behavior replace their ‘vote’. Our readers ARE the trendsetters and stylemakers in their cities – they define what is hot and what is not. By letting our editors and readers team up (leveraging technology), we can create the ultimate city guide. By leveraging the expertise of our talented editors and the behavior of our trendsetting readers we can reveal to everyone the coolest and best places to eat and drink in the State of Texas. We’ve begun the process of deploying iBeacons all over Houston, Dallas and Austin.

REDEFINE SUCCESS

ibeacon_and_deviceWill we get millions of downloads? I have no idea, but do we need millions to make our mobile application effort a success? I argue we don’t. For example, Nielsen (the folks that do television ratings) rely on around 1,300 families in Dallas to reveal the television watching behavior of millions. If we could get at least 1,000 of our most loyal readers to download our app in each city we’d have a VERY statistically relevant sample size – these 1,000 readers/users would easily be able to partner with our editors to reveal the hottest and best places to eat and drink in their respective cities. We could then take this data and use it on our website to help organize our existing City Guides as well as use the data in our soon to be launched retail stores in airports around the state. More than 2.5 million people look to CultureMap each month to help them determine where to eat, drink and shop and the data generated by our mobile app will make our content just that much better. Hopefully MILLIONS of people will use our app, but we can achieve success with hundreds of users.

DO LESS

The CultureMap mobile app we’re building today will do FAR less than what you’d expect from a restaurant/bar recommendation app. Just open Yelp. It will tell you EVERYWHERE you can eat. Open OpenTable and it will tell you EVERYWHERE you can get a reservation. We’re only going to tell you WHERE the top places are to eat/drink today. We won’t bother to tell you that there is a pizza place next door or a McDonalds across the street (we figure you already have Yelp to tell you that). We’re not going to give you the address, phone number, menu, hours – instead we’re going to tell you who the owner/chef is, we’re going to reveal to you one single secret about the venue (i.e. ask for table number 33 or congratulate Mark on his new baby or ask Jeff to pair the perfect bottle of white Burgundy to go with your sole). We’ll have a link to the restaurant’s City Guide listing on CultureMap if you need the normal stuff like maps, hours and phone numbers. The point of the app is to help you know where to go and what to do when you get there. We want you to feel like an insider. The app will be sleek, visually stunning and terribly straight forward. By doing less we hope to make the app more compelling and engaging for the user.

TIMELINE

We’re getting closer and closer to release. Our plan is to have the front and backend completed by the end of August and submit to the app store the first week in September. Of course, I’ll keep you posted. Cheers!

PS

If you’re a restaurant owner and you want an iBeacon in your location, please feel free to signup here. We’re being very selective, but just because you haven’t heard from us yet doesn’t mean we don’t want to make your venue a HOTSPOT.

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My Sharing Economy Experience http://www.startupmuse.com/my-sharing-economy-experience/ http://www.startupmuse.com/my-sharing-economy-experience/#comments Wed, 22 Jul 2015 14:45:17 +0000 http://www.startupmuse.com/?p=18380 Four months ago my partner and I bought CultureMap, one of the largest lifestyle brands in Texas. As a result I’ve been traveling throughout the state visiting our current markets (Houston, Dallas & Austin) and our expansion markets (San Antonio & Fort Worth). This week I’m in Houston and as I was riding from the airport […]

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Sharing is the fastest way to startFour months ago my partner and I bought CultureMap, one of the largest lifestyle brands in Texas. As a result I’ve been traveling throughout the state visiting our current markets (Houston, Dallas & Austin) and our expansion markets (San Antonio & Fort Worth). This week I’m in Houston and as I was riding from the airport in an ‘Uber’ I realized just how much the sharing economy has changed how I do business. For example, yesterday I flew to Houston on my ‘shared private plane’, got to the office in a ‘shared private car’ and stayed in a ‘shared private home’ – the sharing economy is saving me a bundle and making my life a lot more comfortable. And I did it all on my mobile phone without talking to a single person. It occurred to me that sharing is the fastest way to start living a life of abundance.

flight-exec1Private Plane Sharing:
Flying private has always presented HUGE advantages and disadvantages to travelers. The advantages are being able to show up to the airport five minutes prior to departure without having to worry about parking or security. Just pull up and and walk on the plane. The biggest disadvantage? Cost. Not anymore. My friend, Nick Kennedy, created Rise as a way for everyone to share a private plane experience. For a low, flat monthly fee you can book a flight on one of the company’s private planes and get to Houston and Austin any day of the week. For example, yesterday I was sitting in one of his King Airs ten minutes after leaving my house. In an hour I was in Houston where my Uber was waiting to pick me up.

downloadCar Sharing: If you account for all of the time you spend driving to the airport, standing in security, deplaning and standing in the car rental line waiting to fill out a thousand forms it almost always makes more sense to drive to Houston/Austin from Dallas. Rise solves the airport riddle and Uber solves the car rental problem. When you account for parking, valets and rental fees is is ALWAYS cheaper and more convenient to take Uber. If you aren’t using Uber yet signup for Uber (you’ll get $20 in free rides and so will I). Pick the UberX option to start (it is very inexpensive and you meet some interesting people).

UntitledHouse Sharing: In some cities finding a great hotel is easy (thanks to Hotel Tonight), but in places like Houston and Austin it is often a lot more fun (and cheaper) to rent someone’s house through Airbnb. For example our office is at the Decorative Center near the Galleria. The Omni is close and a great hotel, but a room is $250 (when they’re not booked). For $100 I was able to book a really charming modern condo across the street from my office. Sign up for Airbnb (you’ll get $25 in credit and so will I).

 

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Do you have a right to work for free? http://www.startupmuse.com/do-you-have-a-right-to-work-for-free/ http://www.startupmuse.com/do-you-have-a-right-to-work-for-free/#comments Tue, 14 Jul 2015 21:47:47 +0000 http://www.startupmuse.com/?p=18196 Over my career I’ve worked for several employers and in each case local, state and federal governments had a say in my wages and my benefits. Eventually most of my employers came to the conclusion I’d be happier working for myself or as Donald Trump would say, “You’re fired!” Since then I’ve started several companies and […]

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downloadOver my career I’ve worked for several employers and in each case local, state and federal governments had a say in my wages and my benefits. Eventually most of my employers came to the conclusion I’d be happier working for myself or as Donald Trump would say, “You’re fired!” Since then I’ve started several companies and in each case I was fortunate because the government had no problem with me not getting paid. In fact, in EVERY case I worked for free to get my company started – sometimes for two years. More recently I’ve been hearing more and more rhetoric about how we need to protect ‘workers’ from themselves and that’s got me really concerned for entrepreneurs and small business owners. We need to allow them the chance to fail – just as we need to allow them the chance to succeed.

CJ0M4amUYAA2xR-This week Hillary Clinton railed against the sharing economy and the entrepreneurs and business owners who are taking advantage of the opportunity it provides. Uber has given millions of people across the globe the ability to start their own businesses. They can work when and where they want. They have total freedom. In fact 60% of them work for Uber’s competitors as well. This ‘ride-sharing’ economy that Uber pioneered is become more and more perfect in matching consumers and small business owners, but the biggest concern for politicians like Mrs. Clinton is the fact that these ‘workers’ fall outside of their control. Entrepreneurs and business owners can decide how much to charge and how many hours per day to work. Progressives fought for decades to have the ability to dictate the number of hours a worker could work and how much they could be paid. They will fight hard to preserve this power.

It makes me sick to hear venture capitalists like Fred Wilson (whom I have always had great respect for) take Mrs. Clinton’s side in this debate. What the New York Business Journal failed to mention was that Fred is an investor in two of Uber’s primary competitors. He’s been a longtime critic of Uber suggesting they demonstrated, “ruthless execution combined with total arrogance“. If politicians had their way the only car you could order would be Yellow®. If Uber’s success is any measure both consumers and drivers prefer their cars to be black.

I’m of the view that every American citizen should have the ability to free themselves from the bonds of their employers and their government. If my 13 year old can start his own business, everyone should have that right. I truly believe that. Allowing entrepreneurs the freedom to fail is a TOTAL requirement of entrepreneurship. Mr. Wilson and Mrs. Clinton have forgotten this important concept. If our safety nets are fool proof; if we prevent people from taking the sort of risks that result in failure will anyone have a chance of real success: we’re ALL doomed to fail. Imagine having to pitch your startup idea to your local city counsel for approval. Uber, Lyft, Postmates, TaskRabbit and Instacart are amazing experiments. Some of them will succeed and some will fail, but we should let entrepreneurs and small business owners do business with these companies as they choose. We shouldn’t let the government intervene. We shouldn’t let the Democrats reclassify entrepreneurs, small business owners and contractors as ‘workers’. We ALL work, but the ‘worker’ is a term better associated with Marx and not Reagan.

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Ten Startup Tips for First Time Entrepreneurs http://www.startupmuse.com/ten-startup-tips-for-first-time-entrepreneurs/ http://www.startupmuse.com/ten-startup-tips-for-first-time-entrepreneurs/#comments Wed, 08 Jul 2015 18:44:30 +0000 http://www.startupmuse.com/?p=18032 Here, in no particular order, are my ten tips for first-time entrepreneurs. Recruit a co-founder. You don’t want to go through the startup process alone. Your first job as a founder/co-founder is to find someone who shares your vision and is willing to take the same risks you’re taking. If you can’t convince anyone to […]

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10 startup tips

Here, in no particular order, are my ten tips for first-time entrepreneurs.

  1. Recruit a co-founder. You don’t want to go through the startup process alone. Your first job as a founder/co-founder is to find someone who shares your vision and is willing to take the same risks you’re taking. If you can’t convince anyone to join you, you should seriously reconsider starting a company. 
  2. Be frugal. Don’t rent an office, buy furniture, a phone system or office supplies. Conserve your cash for as long as possible. Leverage co-working spaces.
  3. Go through a startup accelerator. Apply to ALL of them. Being accepted by an accelerator is great social proof that you might be onto something. It is a great signal for investors. 
  4. Don’t worry about dilution or percentage of ownership. Raise as much money as fast as possible. Never worry about valuation or dilution. Startups are basically zero sum, you’re either going to hit a homerun or fail. Negotiating the downside is just a waste of time. Get a reasonable deal and move on. Time is far more valuable than money in the startup world. Get the money in the bank and start building your company.
  5. Don’t be creative when it comes to raising money or organizing your company. You want your company to look like every other company startup investors have seen. Incorporate in Delaware as C-corp. Raise money in the form of a convertible note or a preferred equity offering. Do a seed round, an angel round and a Series A – don’t skip a step even if you don’t need the money. You need the social proof when you’re hiring employees, getting press and raising money from investors. Trust me, don’t get fancy here.
  6. Hire employees slowly and fire them fast. Take your time. Find the best people you can. Never make a rash decision. On the other hand, fire fast. The moment you’re convinced someone isn’t right for the team, terminate them. Don’t feel bad. This is a startup and everyone knows that startups aren’t about safety, they’re all about risk.
  7. Build relationships with investors BEFORE you ask them to invest. Get to know them. Ask them for advice. Tell them what your plan is and what steps you’re going to take. Follow up with them letting them know each time you achieve one of the goals you set for yourself. Build credibility with the investor and when it is time to raise that Series A you’re much more likely to get an investment from an investor who knows you than one you just met.
  8. Communicate with your board and your investors regularly. You should be emailing your board members individually each week. Giving them updates, but more importantly tell them how they can help you. Reach out to your investors in the same way each month. Stay on top of your board and investors or they’ll stay on top of you.
  9. Know your numbers. So many entrepreneurs don’t know how many months of cash they have left in the bank. You should know how much money is in your bank account down to the penny. You should sign every check, every time. Understand your burn rate and keep your board and investors in the loop so they aren’t surprised one day that you’ve only got three months of cash left. 
  10. Celebrate the little wins. Startups are hard. They are a rollercoaster of emotions. When you get a win like a new hire or a new customer, take a step back and celebrate with the team. Celebrate when you have a great meeting with an investor. Celebrate when he gives you a term sheet. Celebrate when he funds. Your team is going to need the encouragement to be able to deal with all the negative stuff that is bombarding them constantly. 

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Startup CEOs: You Don’t Need an Office. http://www.startupmuse.com/startup-ceos-you-dont-need-an-office/ http://www.startupmuse.com/startup-ceos-you-dont-need-an-office/#comments Thu, 02 Jul 2015 01:05:23 +0000 http://www.startupmuse.com/?p=17798 When I got my first ‘real’ job I had a big office and a huge partners desk. Ironically as I moved up the corporate ladder my offices got smaller and smaller until I found myself working from home without an office. By the time I was running my own company I was very focused on the […]

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IMG_0037When I got my first ‘real’ job I had a big office and a huge partners desk. Ironically as I moved up the corporate ladder my offices got smaller and smaller until I found myself working from home without an office. By the time I was running my own company I was very focused on the location and size of my office. In one memorable case I recall explaining to one of my co-founders why I took the bigger, corner office without discussing it first (not my finest moment, sorry Scott). Then one day it occurred to me that my office was actually holding me back.

I needed to get back in the game, connect with my team. So I packed up my office and began sitting in the bullpen with our developers, product managers and salespeople. Suddenly I was in the mix. I was having more fun and I was more connected to our product and our customers. My new office is a very stylish leather case containing my MacBook. I’m just as comfortable and as productive sitting in Cafe Express as I am sitting in the common area at CultureMap or Architel.

If you’re a startup CEO or founder I’d encourage you to pack up your office and turn it into a conference room. Give it a try for a month and let me know what you think. Good luck.

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Sand Hill Road: The VC Address of Choice http://www.startupmuse.com/sand-hill-road-vc-address/ http://www.startupmuse.com/sand-hill-road-vc-address/#comments Tue, 23 Jun 2015 14:14:10 +0000 http://www.startupmuse.com/?p=17098   My first visit to Sand Hill Road was in the late 90s when I was raising money for my first startup, LayerOne. Sand Hill Road, located in Menlo Park, is the address of choice for venture capital firms. The price per square foot of space is the highest in an area known for sky-high […]

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My first visit to Sand Hill Road was in the late 90s when I was raising money for my first startup, LayerOne. Sand Hill Road, located in Menlo Park, is the address of choice for venture capital firms. The price per square foot of space is the highest in an area known for sky-high rents – hovering between $110 and $150 per foot. The first venture capital firm to move to Sand Hill Road was Kleiner Perkins Caufield & Byers in 1972, since then companies such as Microsoft, Amazon.com, Facebook, Twitter, Instagram and Skype have raised money from Sand Hill Road investors. In fact, almost every major silicon valley startup has raised money from one or more Sand Hill Road venture capital firms as seen below (from Bloomberg).

SandHillRoadInvestments

 

My father raised capital from Sand Hill road in the late 90s and early 00s for his companies as did I. Many are predicting the demise of Sand Hill Road as more and more venture capital firms move to downtown Palo Alto and South Park. They suggest that Sand Hill Road is where your ‘father’ raised venture capital. Which in my case is true. The truth is that for a VC the “economies of agglomeration” rule – you want, no, need to be near your peers in the venture capital game.

When I’m in fund raising mode I book a room at the Rosewood Sand Hill (directly across the street from most of the VCs). They have a car service that will drop you off and pick you up from each of your meetings. No where else in the world can you schedule 6 meetings in one day with 6 different venture capital firms. If you head south from the Camino Real on Sand Hill Road the first venture firm you’ll run into is Kholsa Ventures and then Lightspeed Venture Partners, GGV Capital, Shasta Ventures, Accel-KKR, August Capital Management, Mayfield Fund, Greylock Partners, Interwest Partners, Kleiner Perkins, KKR, Sequoia Capital, Makena Capital, Silver Lake, NEA, DFJ, Andreessen Horowitz and Menlo Ventures to name a few.

More and more firms are moving to San Francisco to be closer to the ‘cool kids’, but there is no denying that a visit to Sand Hill Road is a requirement for any startup serious about raising venture capital.

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To Taylor, Love Alexander (UPDATED) http://www.startupmuse.com/to-taylor-love-alexander/ http://www.startupmuse.com/to-taylor-love-alexander/#comments Mon, 22 Jun 2015 01:02:33 +0000 http://www.startupmuse.com/?p=17062 UPDATE: Since writing this post Apple’s Eddie Cue announced that the company would not require artists to forgo their cut of subscription revenue during customer’s free 90 day trial. Did Apple just cave or did they call Taylor’s bluff? I tend to think the latter. Apple’s number crunchers must have calculated how much the various anti-trust […]

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This not about me, but

UPDATE: Since writing this post Apple’s Eddie Cue announced that the company would not require artists to forgo their cut of subscription revenue during customer’s free 90 day trial. Did Apple just cave or did they call Taylor’s bluff? I tend to think the latter. Apple’s number crunchers must have calculated how much the various anti-trust lawsuits will cost the company and figured that having Taylor Swift on board was worth the cost. Taylor Swift is VERY popular. Now the only question, will Taylor let Apple stream her latest album – she’s going to lose millions, but with Apple ‘caving’ to her demands I can’t see how she can’t. 

Taylor Swift wrote a love letter to Apple suggesting their decision to give consumers a free 90 trial of their stream service was “shocking and disappointing.” Artists who choose to participate in Apple’s launch must similarly agree to let consumers listen to their music for free during the 90 day free trial. She readily admits that she’s got plenty of money and could afford to forgo her cut of the streaming fees for 90 days, but she is looking out for the ‘little guys’ – the musicians who are just getting started. Of course she knows this argument is total B.S. as most artists, especially new artists or bands get paid next to nothing for their recordings.

The proliferation of ‘360 deals’ are prima facia evidence that most musicians make almost nothing from their recordings anymore. Musicians make their money almost exclusively from live performance and merchandise. Like many technology startups who leverage the ‘freemium model’ musicians basically give their recordings away (the cost to do so is almost nothing with digital distribution) to sell more tickets and merch. Of course some artists, like Taylor, have much better deals that a new band just starting out could get.

Given Taylor’s very favorable recording contract, she stands to lose millions if her latest album were to be available on Apple’s new streaming service even for 90 days. Taylor is grandstanding for the ‘little guy’ so that she won’t lose out on her unique market advantage. I respect her decision, but am bothered by her willingness to create a red herring. The truth is that Apple was precluded by the Justice Department from giving consumers a free 90 day trial while paying the artists as explained by Apple Insider, “Apple has billions of dollars available to pay artists substitute royalties during users’ free streaming trail, but were it to do so, the company would quickly find itself at the wrong end of global antitrust complaints. In many markets, “dumping” free or loss leader products would be considered anti-competitive.”

To make up for the 90 day free trial Apple has offered artists a MUCH bigger payout than their competitors like Spotify, Rdio and Pandora, while charging a similar monthly rate to consumers. By giving consumers a free 90 day trial Apple and the artists are giving the service a fighting chance. If successful Apple streaming service might create a lucrative marketplace for the little guy. Ironically, if Taylor were to just cave in and let her music stand next to other artists during the free trial period she would help create the very marketplace that could REALLY make a difference – allow smaller artists to make living on their music.

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You can decide to live in a scarce or abundant world. http://www.startupmuse.com/you-can-decide-to-live-in-a-scarce-or-abundant-world/ http://www.startupmuse.com/you-can-decide-to-live-in-a-scarce-or-abundant-world/#comments Wed, 17 Jun 2015 15:10:24 +0000 http://www.startupmuse.com/?p=192 The other day a friend was telling me about a book she is reading called “The Power of Intention.” She was explaining how the book described that many people have a scarcity-driven world view. The idea that there just isn’t enough to go around, i.e. the world is zero sum. Many of our ancestors here […]

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the-power-of-intentionThe other day a friend was telling me about a book she is reading called “The Power of Intention.” She was explaining how the book described that many people have a scarcity-driven world view. The idea that there just isn’t enough to go around, i.e. the world is zero sum.

Many of our ancestors here in the U.S. just didn’t accept the idea that scarcity had to rule their lives, instead they decided that they could live lives of abundance. The old world view was that the pie was finite, the new world view was that the pie could get bigger or was infinite (and I am not talking about zero-point energy).
For me this has been proven through our experience with open source software. Architel needed a trouble ticket system to run it’s business. We didn’t want to spend $50,000 to $100,000 on a boxed solution that would require a yearly investment of $10,000 to $30,000 per year for software licensing and support. Instead we decided to build a software program specifically tailored to meet Architel’s needs. If we had a scarcity-driven view of the world we would have locked the software up on our servers and used it to competitive advantage. Instead, viewing the world from abundance, we released the software to anyone interested enough to download it. Over 100 people/companies per day downloaded the software over the course of six months. Since then hundreds of companies have requested that we customize it, host it or manage it for them resulting in a completely new line of business we call SimpleTicket.

Since many people and much of the world lives in a zero sum world of scarcity it is important to realize how they play. The most popular method of play is called minimax, i.e. the idea that one should minimize the maximum possible loss. (remember War Games?) Wikipedia explains better than I can:

\sup_\theta R(\theta,\tilde{\delta}) = \inf_\delta \sup_\theta R(\theta,\delta)A simple version of the algorithm deals with games such as tic-tac-toe, where each player can win, lose, or draw. If player A can win in one move, his best move is that winning move. If player B knows that one move will lead to the situation where player A canwin in one move, while another move will lead to the situation where player A can, at best, draw, then player B’s best move is the one leading to a draw. Late in the game, it’s easy to see what the “best” move is. The Minimax algorithm helps find the best move, by working backwards from the end of the game. At each step it assumes that player A is trying to maximize the chances of A winning when he plays, while on the next turn player B is trying to minimize the chances of A winning (i.e., to maximize B’s own chances of winning).

Minimax doesn’t even allow for the concept that two people could win.  If you don’t have a framework to allow for abundance you will continue to “work backward” from the result you assume most likely.  Isn’t this crazy?  Win, lose or draw?  Thats it? I don’t think so.  If you were to take a look at my office library you would find more than 20 titles on game theory. Only one of them even comes close to explaining why abundance works – it is called the Bible (John 6:5-15)…

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