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Ryan’s Journal: Losing The Forest For The Trees

Thursday, May 25th, 2017

https://www.flickr.com/photos/arturtula/15564944217/I was having a conversation this week about Silicon Valley companies. Some of them are doing amazing things.

When I was job hunting I would look at several and imagine myself there changing the world.

There were several though that also had great funding, great people, but I could not understand for the life of me what they did. They had a great list of customers, but I could not understand the value they brought.

There are two possible solutions to that conundrum.

One, I am just not savvy enough to understand (a very real possibility).

Two, they were full of hype and energy, but not substance. I can imagine that both statements are true when you look at the vast array of companies in the valley.

With that said, have we lost the forest for the trees? Have some companies been so hyped that people continue to pour money into them hoping for a huge payday that may never come to fruition?

Uber is in the news for a variety of reasons, some good, some bad. I recently read an article that Uber and Google are working on flying cars. While the concept of flying cars seems cool… I guess, I am more concerned with the participating companies.

Google provides value, products and that elusive quality, profit. They are well established, have multiple streams of income and could fail at this endeavor and live another day. It’s exciting to see them using their money for grand ideas, but it won’t decimate them either.

Uber provides value and services, but zero profit.

In fact, if Uber was run like a traditional company or household, they would have never even gone to market.

They operate more like a country that can print its own money. They take on debt, lose billions every year, yet keep on trucking.

Venture capital and perhaps greed are what allow this to occur. If they fail at the flying car concept what does it mean for the rest of the business?

I know there are very smart folks who are there and who are invested. I often wonder what their long game is. Do they believe they will become profitable at some point if they hang on long enough?

Another thing to consider is the economy. We have easy money right now with very low rates of interest.

For an investor it makes more sense to go with a high risk investment versus storing it in savings, because they essentially lose money due to inflation.

When the markets tighten does that mean Uber cannot seek out another round of funding?

My point is this.

Have we lost sight of the incremental steps it takes for us to achieve greatness by thinking we can accelerate the whole process with enough capital or am I the Luddite here?

I am a believer that debt can be good when there is a viable business model. I am less impressed though when a company has never turned a profit and had no projections to do so at any point soon, but can be valued so highly. What makes Uber so unique?

I say we need to keep dreaming the big dreams, but also look at the foundation.

Is it built on sand or rock?

Image credit: Artur (RUS) Potosi

Ducks in a Row: Behavioral Addiction Means Profit

Tuesday, March 7th, 2017


Do you believe that Twitter was founded with effects like Arab Spring in mind? Or that Mark Zukerberg started Facebook for altruistic reasons? Or that Instagram, Snapchat and other similar sites actually have your wellbeing in mind?

If so, you probably also believe in Santa Claus, the Easter Bunny and the Tooth Fairy.

The primary purpose of every one of these sites is simple: to make as much money as possible.


By using personalization to achieve behavioral addiction.

Infinite personalization comprises the artificial intelligence-driven, big-data based tools that allow algorithms to build a personalized Internet echo chamber customized just for you, designed to make you feel great. Infinite personalization feeds you the real, the fake, and everything in between, with the simple goal of holding your attention and getting you to come back for more. It is the process by which companies can measure, match, and predict consumers’ individual preferences with amazing accuracy and then tailor offerings to maximize revenue.

It’s done with full knowledge and, in my opinion, malice afore thought.

It’s why tech titans, starting with Steve Jobs in 2010, limit their kids, as I said a couple of years ago in The Hypocrites of Tech.

They want their kids to grow to positions of leadership and power and know they can’t if their world shrinks to a self-enhancing echo chamber that only regurgitates information that fits their preconceived ideas.

Personalization is active in the real world, too, and has been for several years, with young adults inventing ways to shrink their world by curating their college roommates and demanding “safe places.”  

All I can say it ‘good luck’ when their carefully curated echo chamber has to function in the work-world.

However, it’s a sad and scary commentary that in the frenzy to make more and more money tech is providing a detailed roadmap, along with the supporting technology, for demagogs to become dictators.

For a more detailed look at behavioral addiction check out Adam Alter’s Irresistible: The Rise of Addictive Technology and the Business of Keeping Us Hooked

Image credit: Mike Licht, NotionsCapital.com

If The Shoe Fits: Hypocrisy And Greed In Startup Land

Friday, January 27th, 2017

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

5726760809_bf0bf0f558_mTuesday I cited a post by Scott Belsky on Medium talking about how employees are often conned (my word) by founders, especially unicorns, when it comes to the wealth that is supposed to flow from their ISO.

As pithy as the post was, some of the comments were even pithier. I especially like this one from  colorfulfool (21st comment)

If profitability were proportional to hypocrisy, there would be no failed startups in the Valley.

Not just true, but succinctly and elegantly stated.

Founders love to talk about the importance of transparency, trust and authenticity.

However, their stock plans and pitfalls thereof exhibit such a high degree of opaqueness and caveat emptor that they kick a hole the size of Texas in the fabric of the founders’ authenticity.

Another prevalent piece of hypocrisy is “change the world.”

Do you really believe that another dating app or being able to evaluate a new restaurant or a better way to buy your groceries will change the world?

While they may impact one’s personal world, they certainly don’t have the impact of something like Mine Kafon.

What is proportional to the Valley’s hypocrisy is its sheer greed.

Actually, when I stop to think about it, the greed probably exceeds even the hypocrisy.

Image credit: HikingArtist

Role Model: Craig Zoberis and Fusion OEM

Wednesday, January 25th, 2017


In 1914 Henry Ford doubled his workers’ daily wage, much to the consternation of other magnates, who believed, as do most of them today, that success comes from paying as little as possible.

Ford, however, believed that he would benefit if his workers had disposable income and he was correct; they used the extra money to buy Fords.

The same holds true today; modern research has proved that higher wages increase profits.

Businesses, from very large to very small, still don’t believe it and scream at the thought of a so-called living wage.

But not all of them.

Fusion OEM at just $12 million is considered very small, but it’s profitable and founder Craig Zoberis is very happy, because he is meeting his twin goals.

While lots of other manufacturers have moved operations to China or Mexico, Zoberis has kept his plant in the United States – and considers it a point of pride to pay his 55 workers above-market rates. Workers with no experience start at $14-an-hour, he says, and by completing training and gaining skills can reach $18-to-20-an-hour, plus overtime and bonuses, for total pay near $50,000 a year, within a few years.

Zoberis doesn’t expect his people to buy his products, but he did want to have a  place to work that matched his MAP and not his father’s.

My father and his partner never did a good job of hiring the right people with the right attitude. I wanted to be excited to go to work every day, and working for my father’s company, I was not.

Fusion OEM has never had a layoff, but finding great workers in its industry is just as difficult as finding great programmers, hence the need for a creative, long-term solution.

My colleagues were always complaining that there aren’t enough skilled workers who have the right attitude. When I talk about skilled workers I’m talking about machinists (…) What we discovered halfway through our life at Fusion is that we couldn’t always look outside for skilled people. We decided to hire for attitude and train for aptitude.

Fusion OEM is enjoying double digit growth, but Zoberis isn’t interested in taking outside investment. He loves going to work, saying, “This is my hobby, my income, my life,” and knows that hyper growth can kill you.

You can’t grow your company any faster than you can get the right people. If it goes too far, you might go beyond your capabilities and you’ll fail.

The interview is well worth reading, especially their approach to hiring and compensation.

I rarely make predictions, but in this case I feel pretty safe making two.

  1. Zoberis will continue building his company, growing his own people and being a management outlier.
  2. Most companies of whatever size will continue to treat people as disposable, pay them as little as possible and bitch about them to whomever will listen.

Image credit: Fusion OEM

Ducks in a Row: Anything—As Long As It Pays…

Tuesday, December 13th, 2016

https://www.flickr.com/photos/pimkie_fotos/2673197411/Edward Snowden’s revelations made people hyper-conscious of government snooping, while the proliferation of mobile and connected devices has made snooping easier, not to mention very profitable.

And profit is what’s behind the rise of global cyber-arms dealers that sell human suffering and death as surely as their real-world counterparts sell weapons.

Last summer, Bill Marczak stumbled across a program that could spy on your iPhone’s contact list and messages—and even record your calls. Illuminating shadowy firms that sell spyware to corrupt governments across the globe, Marczak’s story reveals the new arena of cyber-warfare.

Marczak’s stumble revealed three zero-day exploits (“Zero days” refers to the amount of time—i.e., none—a target has to fix an entirely new kind of hack before damage can be done.).

It’s called a jailbreak and the ability to do it remotely is every hacker’s dream.

… the ability to hack remotely into the digital brains of the world’s most popular hardware—the desktops, laptops, tablets, and especially the mobile phones made by Apple. And not just break into Apple devices but actually take control of them. It was a hacker’s dream: the ability to monitor a user’s communications in real time and also to turn on his microphone and record his conversations.

In a superhuman effort, Apple patched all three exploits in just 10 days.

It’s an uplifting story, but the fact is Apple and other computer-makers are fighting a losing battle. As long as there are hackers, they will continue to find ways to hack any device that interfaces with them. These dangers were highlighted this fall when a New England company found itself the target of a mass denial-of-service attack from millions of non-computer “zombie devices” connected to the Internet—most notably baby monitors.

“What these cyber-arms dealers have done is democratize digital surveillance,” says the A.C.L.U.’s Chris Soghoian. “The surveillance tools once only used by big governments are now available to anyone with a couple hundred grand to spend.” In fact, they may be coming to your iPhone sometime soon.

Hat tip to KG for sharing the Vanity Fair article about Marczak.

Flickr image credit: Pimkie

If the Shoe Fits: Freemium for Enterprise Doesn’t Pay

Friday, June 10th, 2016

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

5726760809_bf0bf0f558_mIf you doubt those words, just take a look at the difference between Egnyte, and Box and Dropbox.

Founded in 2007, Egnyte never offered free anything, has taken only $62.5 million (nearly half of that in 2013) in funding and says it will be profitable by year-end.

Box and Dropbox are not even close, with their millions of over-hyped, flavor-of-the-last-few-years hypergrowth users who pay nothing.


Consumers used to pay, too, when the service was viable enough.

Angie’s List started in 1995 as a paid subscription service and boasted a 73% renewal rate in 2015.

In 2008 the mantra of hypergrowth exploded, driven by the the fremium model, but converting free users to paid turned out not be all that easy.

Many companies are now trying to sell their multi-million consumer products to corporations and are learning, to their chagrin, that corporations don’t care about freemium, let alone the media hype that drives consumer adoption.

Matt Weeks spelled it out perfectly in a guest post on NTR’s blog that’s well worth your time.

…hypergrowth without a hope of unit economics that lead to profitability has always been a fool’s errand (…) at some point there must be a path to profitable and repeatable unit economics.

Put more simply, the real goal of your startup is sustainable profit.

And there’s always Marc Andreessen’s advice, which really rules out the ‘free’ in freemium.

Marc Andreessen has two words of advice for startups: Raise prices. (…) The No. 1 thing — just the theme and we see it everywhere — the No. 1 theme with our companies have when they get really struggling is they are not charging enough for their product. It has become absolutely conventional wisdom in Silicon Valley that the way to succeed is to price your product as low as possible under the theory that if it’s low-priced everybody can buy it and that’s how you get the volume.”

Don’t bemoan it; own it.

Image credit: HikingArtist

If the Shoe Fits: Your Survival is Spelled P-R-O-F-I-T

Friday, May 6th, 2016

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.


Users, users, we’ve got users.

Hypergrowth has been all the rage for the last few years, but is it enough?

Twitter’s Q1 revenues  were $595 million, but it’s still not profitable. The stock tanked 14% in after hours trading and is about $35 below its 52 week high and $11 below its IPO price.

The company continued to lose money in the first quarter, posting a net loss of $80 million. That’s less than the $162.4 million that it lost in the year-ago period.

Meanwhile, Etsy turned a surprise profit a year after it went public; the stock jumped 12% in after hours trading, but that’s still down nearly 50% from its IPO price.

The crafty online marketplace posted its quarterly earnings on Tuesday, and reported its first quarterly profit since going public in April 2015.

For years, the attitude, fueled by the likes of Paul Graham, has been who needs profit?

Bill Gurley’s recent post was not only a wakeup call, but scared the hell out of a lot of founders who looked to funding, instead of profits, for their valuations.

In Silicon Valley boardrooms, where “growth at all costs” had been the mantra for many years, people began to imagine a world where the cost of capital could rise dramatically, and profits could come back in vogue. Anxiety slowly crept into everyone’s world.

Harry Edwards, an emeritus sociology professor at Cal, recently made a very apropos comment, although he was talking about race and the NFL.

“Progress is one of those issues that’s like profit: It really comes down to who’s keeping the books.”

“They” keep saying that the problems today are different than those that caused the dot com crash. But I think at heart they are very similar.

In both cases the emperor had no clothes.

Granted, for a long time his clothes were described differently than in 2000.

But the in both cases, the clothes were strictly in the mind of the beholder.

Image credit: HikingArtist

If the Shoe Fits: Revenue vs. Hypergrowth

Friday, March 4th, 2016

matthew weeks

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

I saw a great article in BI about Postmates CEO Bastian Lehmann’s attitude towards hypergrowth.

For years, venture capitalists have been pushing hypergrowth over profits, at least though the initial phases of investment rounds. Investors told Lehmann to reinvest the company’s money in pushing more growth over building a sustainable business.

That advice didn’t go far with the Postmates CEO. (…) Lehmann argues that it’s the CEO’s fundamental job to have looked at the margins and made decisions early on.

“Companies that run for the last two years in hyper growth are now wondering how to make money.”

I completely agree — hypergrowth without a hope of unit economics that lead to profitability has always been a fool’s errand with precious few exceptions, and even those had their “come to Jesus” realization points that the investors were getting nervous and were anxious for at least a hope of a repeatable, profitable set of unit economics. 

There has been a sense that pushing the bidding of sequential funding rounds at ever-increasing valuations would create a kind of de-facto “momentum” and crowd-out 2nd and 3rd and 4th place contenders, or at least amass a large enough war chest to drive pricing down as much as needed to push competitors out of the running (usually also by creating such a huge and dominant brand that customer acquisition in a noisy market is too expensive to make progress to catch up with the so-called leader).

This is ultimately as silly as the Texas and Miami and Las Vegas housing bubbles, that depended on “the next fool” to buy-in at a higher valuation, depending themselves on having a subsequent investor bail them out at a higher valuation, and so goes the escalator.  The problem is, the escalator gets to the top at some point and there has to be a “destination” where value exists and with it, a hope of profitability.

The unsteady IPO market of last year and the continued bearishness of the IPO exit market this year has effectively called-out that “top of the escalator” and there are no more “next fools” (i.e. large enterprise buyers at the >$1 Bil level and no robust IPO appetite from capital market leaders that demand value and cash flow and a hope of profits).

So now, once again we are back to reality.

The great news about being back to reality is two-fold.

1)  Sub-billion dollar valuations are no longer an “embarrassment” to VCs; and

2)  Entrepreneurs can reasonably weigh a variety of capital structures that include bank and trade debt as well as investment equity and debt structures, all supported by revenue and that means free cash-flow.

With this in mind, the VCs and the investment community in general must start to become “reasonable,” because they are suddenly back in the traditional capital markets and will have to compete with other capital sources and structures for the hot deals.

Middle and nascent deals will have to become cash-flow generating, and for this reason they will also (wisely) become more reluctant to give up huge chunks of equity just to bring in working capital (at least not until the enterprise value pops to a higher tier by using bank debt, trade debt and other creative capital structures).

Savvy entrepreneurs and founding teams will also be less excited about creating an early and dramatic bump in valuation just to bank growth capital, because a down-round will likely wipe out a giant proportion of their equity.  The giddy “we are a unicorn” has turned into “what happens in a down round?” reality check, that most people forgot about.  Early venture investors have protected their downside with special preferred terms that founders and exec teams rarely consider or can demand.  If this were real-estate, it might even start to look like over-aggressive venture investors that pump up valuations too early, only to have the market adjust to “reasonable” later, were “predatory.”  It is an interesting parallel that will not be lost on founding teams, angel investors and early exec team members that hope to be rewarded via their equity stake.

The reticence to of many of the younger venture investors (those with fewer than 20 years of experience) having yet to bring in a 5X or 10X much less a Unicorn, to invest in early stage deals, is now balanced by the abundance of crowdfunding and syndicate fundraising at the seed and angel level.  This is a great organic re-shaping of the investment and capital markets in favor of the early stage company and entrepreneur.  

There is also a growing recognition that the early stage deals that do get picked up by venture investors have been in a long slow decline and “narrowing” of deals to known insiders and repeat successful (i.e. “brought a good exit to a venture fund’) founders.  I think that this is largely common sense (bet on the horse that won the last race for you), and also based on the reality that it is a rare and elite breed of entrepreneur that can see an opportunity and execute a successful solution.  That said, a close examination of the venture deals that have been funded in favor of known founders pales next to the stats behind the successful new ventures that have been founded by first time startup teams.  The difference is largely that part of the value-add from the venture investors is the addition of those “experienced” startup executives onto the exec team as soon as the big money comes into play.  Thus the risk of execution is somewhat reduced.

What does that mean to today’s startups?  It means that the old concepts of cash-flow, repeatable and scalable selling and service delivery models, the idea of managing customer acquisition, retention and lifetime customer value, are again in vogue.  

As they should have always been.  While there will continue to be many good reasons for companies to temporarily sacrifice cash flow and profitability for raw user or customer growth, the days of “just get 1 million users and we’ll figure out how to make money later” are – at least for the time being, gone.  And we celebrate that.  

Unit economics always wins.  This goes back to the days of “the lemonade stand” cash-flow exercise. It’s what built the world’s greatest capital markets.  And it will always remain the best place to start.  Water, sugar, lemons, cups and napkins.  And a sign and a cardboard box. “How many cups of lemonade must we sell at what price to pay for the supplies, time and sign?”  Simple.  One does not need an MBA or to be a dropout PhD candidate to start with those basic principles.  

In another parallel with the real estate (mortgage) market, today’s startup teams should be asking themselves the same questions that prudent investors will be asking them (kind of like the new mortgage market, where everyone has to go through “full documentation” to get a standard mortgage loan):

How can I make money?  How can I do it at scale?  What is my selling process and is it repeatable?  Who will pay for my service or product and what will they pay, and why?  How much money do I need in working capital to find my perfect product-market fit and establish the right selling model and price point/margin?  What are the unit economics of my business?  What drives retention and churn?  What prevents others from copying me and disintermediating my base?  Is there a brand value that creates loyalty, or is this market driven by other values and factors?  What are my logical exits?  Who are the logical acquirers?  Is there a realistic IPO path? 

Yes, we are back to reality.  It sucks for some people.  And that’s okay.  Those people should get with the program or get out of the startup business.  Disrupt and question everything.  Be bold, revolutionary, even bombastic and disrespectful of the incumbents and status quo. But don’t ignore the fundamental rules of business that underly the path all companies must tread to go from small to large, and startup to profit and successful exit.  After all is said and done, you have to make payroll. Sell to a customer a second time.  Own a brand people love and trust.

Reality only sucks because it makes you work harder to win, and forces you to confront inconvenient tasks and difficult questions.  Short cuts are nice but when they don’t work you end up falling off of a cliff.  Better to work harder than run headlong at a cliff you can’t see coming.


Image credit: HikingArtist

Entrepreneurs: KG at the AA-ISP Conference

Thursday, February 25th, 2016


FANTASTIC! An absolutely fantastic, no-frills conference that went to the core of what any startup CEO needs to know about starting and scaling sales, how to align with marketing and what types of people to hire and how.

AA-ISP stands for the American Association of Inside Sales Professionals and is an international association dedicated exclusively to advancing the profession of Inside Sales. The association engages in research studies, organizational benchmarking and leadership round tables to better understand and analyze the trends, challenges, and key components of the growth and development of the Inside Sales industry.

When I arrived I was exhausted after pulling an all-nighter and having had only 1.5 hours of sleep. I was sitting in the parking lot before to going into the conference (of course I was an hour late for the start) and kept nodding off as I was collecting my thoughts prior to going into registration. Eventually I did go in, registered and went to my first session, which I mostly dozed through.

However, by my second session called “The Uberization of Sales”, I was perky and awake, and the subject matter held my total attention. It continued this way until I left the conference at about 8:30 pm, elated that I’d had lucked out in this manner.

In fact, I had been dubious about whether I should attend at all, as I had slept so little and my impression was that it would be of only limited interest or relevance to Quarrio and me personally. I was embarrassingly wrong.

This conference is among the best I’ve attended as a startup CEO and addressed a number of issues I’ve struggled with throughout my career in startups.

After creating a product, the most challenging aspect of making the company successful is not continuous rounds of funding, but rather building the sales organization, getting the product out to customers and driving revenue.

The AA-ISP conference was wholly devoted to this. In fact, it’s the first conference I’ve attended with this focus.

In my experience, sales is the most under-emphasized area of knowledge for the startup CEO.

For some strange reason, we are just supposed to understand the process, how to build the team, how to hire reps and managers and how to manage them.

We are supposed to be able to know how to hire people whose profession it is to sell, while being immune to their ability to make us like them and make us oblivious to their weaknesses.

They are professional sales people — this is what they do every day, and most of us just have no defenses or ability to properly identify a good sales person from a bad one.

I know this has certainly been one of my areas of failure in the past.

This conference should be attended by every B2B startup CEO – other than creating the product, this is the best way to learn and network with people who are in the business of selling, building sales teams and getting new products into the market.

This is the place to learn how they think and how to hire and collaborate with them. I’d say that this is a must attend conference for anyone who hasn’t built several B2B companies.

I highly recommend joining the AA-ISP to gain knowledge and save yourself a ton of pain.

If the Shoe Fits: Revenue Makes It Real

Friday, October 30th, 2015

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

5726760809_bf0bf0f558_mYou build an app that is greeted with raves.

You have 15 million installs and counting.

You have 36 talented, motivated employees.

You raise 35 million dollars from top investors, including Draper Fisher Jurvetson.

What’s your next step?

You shut it down before you run out of money.


Because you can’t identify a viable business model.

In short, you can’t figure out a way to generate revenue.

That’s what just happened to Everything.me.

The startup had seasoned founders and did everything right.

The investors were smart, savvy and experienced.

But one thing slipped by everyone’s radar.

No clear, or even murky, path to revenue.

Not profit.

You can live without profits, but you die without revenue.

Lesson learned: no vision/business plan is complete without a viable way to make money.

Image credit: HikingArtist

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