Today was a very busy day. I spoke about Appcelerator Titanium at the O’Reilly/360 Inside Mobile Conference in San Jose and later served on a discussion panel with Daniel Brusilovsky (Teens in Tech, Techcrunch), Phil Libin (CEO of Evernote) and Christian Sepulveda (Pivotal Labs).

I then spoke tonight at the iPhone Business Meetup in Santa Clara. Tonight, I spoke a little bit about iPhone and the Enterprise and gave some perspective on the opportunities and challenges for developers considering iPhone in the Enterprise.

Below are my slides from the presentation. As always, I generally try and post all of my public presentations on my Slideshare Slidespace.

iPhone in the Enterprise offers a lot of interesting opportunities and some big challenges today. However, some of the challenges are not just inherent in iPhone – they are overall challenges of a rapidly changing marketplace. We’re seeing a massive change in the dynamics of the mobile ecosystem. These changes aren’t just with the emergence of iPhone and Android – new mobile devices that have changed the smartphone marketplace almost overnight – but also in how these new entrants are disrupting carriers and handset manufacturers. In addition, we’re seeing new mobile handset entrants like HTC and Dell Computer also come into play. Of course, we’re also seeing old players like Palm make a play with WebOS in a very exciting way.

It’s an exciting time to be a web developer. I believe web technologies will continue to emerge as the most important pieces of the technology landscape. It’ll be fun to watch how this emerges. I think in the next 24 months we’ll see some pretty big ecosystem changes.

If you’re considering building an iPhone and/or Android application, please consider taking a look at our Appcelerator Titanium product. Titanium allows you to build native mobile applications using web technologies. That’s right – HTML, JavaScript and CSS. These are technologies, tools and skills you have today.

Russell Jurney’s blog post has spurred me out of my blog-laziness to talk about something I’m passionate about – starting companies and helping entrepreneurs. If you haven’t read his most excellent post, titled “The California State of Mind” – stop now and read it.

As a follow-up from his post, I wanted to share something not widely known in Atlanta circles about how Nolan and I funded Appcelerator. Sure, everyone by now around town has heard that Appcelerator was funded by Storm Ventures, a well-known Silicon Valley VC. They’ve probably also heard that we moved Appcelerator from Atlanta to Mountain View, California last summer – almost a year ago now.

But that’s not the full story and I’d short change you if I don’t tell you the rest of the story. How did we get there? So, you know that we moved and that we raised money to follow our dream. But, how did we get there and how did we survive before that?

We had been in business almost a year and half before we raised money and had almost 15 employees when we raised money. The other little known fact – and for good reason – is we also generated just shy of about $1.5M in revenue in ~12 months *before we raised money*. Yes, our little ‘ole poor startup in Atlanta had real revenue from some real customers. Mind you, our revenue was largely services based and was revenue we generated by helping a few select customers implement our technology.

That’s the rest of the story – the back story to the funding. And there’s a lot to learn from that. Of course, as a small private company, I’m not really a big fan of talking about revenue. It’s just not usually fruitful to do that for a lot of reasons. However, it’s easy to misread the situation when you talk about our situation and your situation and the greater situation of the Atlanta startup scene. That’s because, most entrepreneurs get fixated on raising money to build their business – that they forget about what matters: solving real problems for real customers and translating that into cash. Remember the goal of that wonderful startup? Yeah, create revenue. Your cool product idea sucks if it doesn’t somehow, someway, create a path to value – which most of the modern world ultimately weighs as cold hard cash. Facebook’s doing it. Google’s printing it. Even Yahoo, that company we all thought was “dead” is generating billions of it.

The new VC is the old VC and it’s got the best terms on earth: cash.

No equity and no board meetings required. Just build something that they need and they’ll pay you for it.

Do that and you’ll transform your startup. You’ll have lots of options. Worse case, you’ll have a lifestyle business. (I’ve heard that 2 cadillacs and a boat is better than an office at the ATDC these days.)

So, I’m sure I’ve made it sound easy. Well, solving a real problem for a customer that will pay you isn’t always easy. But, guess what, if you can’t do that, you can’t raise money outside of the Bay Area anyway – give it up. And, guess what, the myth is that Valley companies don’t make money. Well, some don’t, sure. But, the pressure here to perform, to measure, to execute … much much much more than Atlanta. Steel sharpens steel.

Here’s what I did to make it happen

I was very, very fortunate to have a few trusted customers that believed in me. That’s right, not too much different than investors. They bought my vision and believed I could help them – and that by doing that, they would also help me (key point). They were willing to take a risk on me and what we were trying to accomplish and that there would be a mutually beneficial outcome.

The mutually beneficial outcome was that if we could help them solve some problems at a certain price and within a smaller than usual timeframe, it would be worth it to them (read: they would pay money). In trade, it would help us improve the product, work to refine our value proposition and give us cash. I love working hands-on with customers because there’s where it matters the most. It’s not as fun as just getting a pile of money to spend and getting in a nice little bubble… but trust me, if you’re not working with customers, you might as well assume you’re doing it all wrong – because you are.

We also tried on purpose to limit how many customers we worked with and what types of deals we did. We were small and wanted to keep it that way. In our case, we didn’t want to build a big services business. We wanted to continue to generate enough incremental revenue to hire 2 more engineers and still have 4-5 months of cash in the bank in case things slowed down. We funded almost 15 souls through around 5-6 full-time billable employees (granted, a number of us were working well over 70-80 hours per week on multiple customers).

But, we couldn’t have done this if we didn’t have great customers that helped. And they were willing to take risks. And we’re forever grateful for that. (One note, our customers weren’t all in Atlanta and in fact, we covered Boston and another area too).

So, why did we raise money?

Nolan and I both have experience in services companies and both have started services companies before Appcelerator. Most service companies are awesome lifestyle business. They’re also feast or famine and very difficult to scale. We’re software guys. I like software – a lot. So, we viewed our strategy as a way to work with customers to help us develop the product and to give us enough runway to figure out how we could scale the product (and really, what the product we wanted to build would be). It always takes a lot longer from the beginning to create “the product”.

We got to a certain point (read: revenue) that we had a choice. We needed to either ramp up considerably given the size of revenue and potential pipeline of new services revenue, or, we needed to raise enough capital to allow us to transition out of the services business to focus on the product full-time. It’s almost impossible, in my opinion, to build out a real product and do services at the same time. We knew that.

So, we had options. I had experience raising VC money and I had contacts. Once we got to a certain level, our advisors and Nolan and I started thinking that it would be time to think about bringing in outside capital. We also were lucky on the timing. We timed things just right, and that’s pretty hard to do given where the economy ended up just 6 months later.

My advice to you is simple. And, it’s a slight twist on Russell’s.

Either:

1/ Move to the Valley and shut up.

2/ Stay in Atlanta and stop complaining.

In either case, you’ll need customers. Fund your startup with customers. Build something that customer’s need and will pay for. If you do that, #1 or #2 really makes little difference in the scheme of things.

(P.S. This advice applies to everywhere else outside of the Bay Area too).

Last night I got the opportunity to come back to my home town and do the keynote this morning at SoCon09 – a very excited event that we started 3 years ago and is still growing!

Here’s my slides.

We recently moved from Atlanta, Georgia to Mountain View, California and during the move I had a chance to go through some old boxes I’ve had for years — twenty years to be exact.

Tonight, I decided to open up some of the boxes and try and see if I could find some old pictures after seeing some of my high school friend’s pictures on Facebook.

I came across a Newsweek magazine in almost perfect shape from almost 20 years ago to the date: October 24, 1988. Spooky?

And on the cover, today’s hero was the wonder kid 20 years ago: Steve Jobs. Yep, that’s right, the man on top of Apple (once again) and by far, one of the world’s most influential technology snobs.

The title: “Mr. Chips”. The subtitle: “Steve Jobs puts the ‘wow’ back in computers.”

How apropos for then, and today.

As an aside, another big box read: “Why Bush is winning: The GOP’s Campaign Machine”. Yeah, that was Bush senior. 20 years later and we’re still talking about a Bush in the white house. But, that’s another story.

Flipping through this issue was literally going back in time. A number of computers advertisements, several cigerrate ads and an article on how “more consumers are ducking the price of perpetual interest by paying off bank cards in full”.

This was the IBM 280 PC. It ran DOS, had VGA graphics, 4MB of memory on the system board, proprietary PS/2 devices and could be configured to run IBM’s OS/2.

You don’t see cigarette ads anymore. This article predicted: “Heads you win. Tails you win.” However, fearing thousands of separate, costly lawsuits from customers with smoke-related health problems, the major U.S. tobacco companies and 46 states signed the Master Settlement Agreement (MSA) on Nov. 23, 1998. The MSA placed restrictions on future tobacco advertising and cigarette sales practices and also provided for a $250 Billion settlement.

The Epson PC? This one was the Equity ET with the tagline: “I don’t need a laptop computer. I need a desktop computer that fits on my lap.” Great vision, terrible execution.

Walmart was on the leading edge of technology stores with this tagline: “Name brand electronics. Always at lower prices: The switch is on to Wal-mart electronics”.

Let’s first start with the cover article on Mr. Jobs – the whiz kid, 33 years old back then.

The article is mainly about Steve Jobs’ comeback after Apple Computer with the NeXT computer. “Love him or hate him, people in the computer world couldn’t wait to see what Jobs had secretly worked on for three years in his Palo Alto headquarters.” The price tag for the initial model (with a university discount): $6,500.

Even Esther Dyson, back then the publisher of the Release 1.0 newsletter, said: “It’s a neat, neat box.”

And Steve Jobs was aimed “where the smart money is going”: the workstation market was $2.5 Billion and broken into the following market leaders:

25.5% – Sun Microsystems
18.6% – Apollo Computer
17.8% – Digital Equipment Corp
17.2% – Hewlett-Packard
17.0% – “Other”
3.9% – Silicon Graphics

Notice anybody missing? IBM, Toshiba, Sony, Dell, Apple?

Notice some that are gone? Apollo, DEC ? I would imagine Sun and SGI together probably own less than 3.9% of the workstation market these days.

The article also had a very familiar name in the article, Bill Gates, with an awesome photo. Back then, Gates was only 32. The article states that Gates is “a virtuoso software engineer with virtually zero charisma, he is the ultimate entreprenerd.” According to the article, Jobs invited Gates to contribute software to the NeXT, but Gates declined, saying there wasn’t enough money in the narrow market Jobs was pursuing. It also has Gates saying: “Steve always yells at me.”

Well, NeXT didn’t exactly take over the computer world, but Steve Jobs did and he did regain control of Apple (along with a number of key people and technologies from NeXT) after Apple bought NeXT only 8 years later for $429 million. Jobs returned as CEO in 2000 and NeXTSTEP was the foundation for the next generation of Apple operating system, OS X.

In this same issue, they outlined some interesting predictions for the future of technology.

Let’s see how we did 20 years later.

Education

Grade school
Prediction: Desktop computers will replace pens and papers.
Reality: Not only do classrooms have desktop and laptop computers, most students now have the full power of a handheld computer in their pocket.

Language
Prediction: Voice simulation will make it possible to learn foreign tongues from mechanical tutors.
Reality: Rosetta Stone, one of the leaders in language tutoring uses voice recognition and a computer to teach foreign languages.

Libraries
Prediction: Buildings full of books will be stored on optical disks.
Reality: Not only stored on optical disk, but stored in the global computer network and instantly available by keyword search thanks to the Google Book Search Library Project.

Programming
Prediction: Flexible software will make it easy for students to create their own computer programs.
Reality: With languages like Squeak, Ruby and HTML, students have a variety of programming languages they are learning way before they reach college.

Business

Design
Prediction: Everyone from architects to dressmakers will be able to make simulations of products – in 3-D.
Reality: Computer Aided Design (CAD) software has become common-place and producers and consumers worldwide can use software provided by companies like MFG.com to work with each other to build just about anything.

Secretarial work
Predictions: Machines will take calls, write memos and organize the busiest of executive schedules.
Reality: Secretaries? The secretary pool has been retired and replaced by the PC, Gates’ multi-billion dollar Office productivity suite and email. Only venture capitalists are the dinosaurs left that still use secretaries.

Networking
Predictions: Using groupware, machines will talk with each other.
Reality: Not only will machines talk with each other all over the world, called the Internet, but people also communicate in social and virtual reality networks.

Travel
Predictions: Laptops will be small enough to slip into a vest pocket.
Reality: Laptops aren’t quite that small, but full-fledged mobile devices from computer pens, mobile phones and RFID chips are fueling the nano revolution.

Science

Medicine
Prediction: Doctors will walk through surgery beforehand – on screen.
Reality: Doctors, even one’s across the world, can now operate on patients using computers and sophisticated video conferencing systems. We’re even now starting to see biocomputers which can enter the body to perform certain medical tasks.

Technology
Prediction: Sophisticated imaging will revolutionize high-tech design.
Reality: Imaging in all parts of science have revolutionized the world. Pocket cameras and mobile phones have more sophisticated imaging software and lenses than expensive professional photography equipment less than a decade ago. 3D ultrasound imaging can produce an almost photorealistic image of a fetus in utero.

Meteorology
Prediction: Computer “models” will track weather patterns and predict major shifts far in advance.
Reality: Computers have become more advanced at tracking weather patterns and creating more accurate prediction models.

Criminology
Prediction: Police will be able to recreate the scene of a crime – and simulate the moves of the criminal.
Reality: Police are using more sophisticated technology – from chemical analysis to DNA to find and prosecute criminals.

The Arts

Graphics
Prediction: Any artist will be able to do super-sophisticated animation or create images that look real.
Reality: Computer software gives artists the ability to create and mash up music, video, animation and photos and produce and distribute them at very little cost.

Music
Prediction: Compositions will be written and stored on computers.
Reality: Not only are they written and stored, music is distributed, re-mixed and stolen all over the world by millions of people each day with the click of a button or mouse.

Video
Prediction: High-resolution screens will revolutionize the field.
Reality: High-resolution video screens are everywhere, from the football field to the local bar to the airport check-in desk. High-definition television is available in many homes.

Games
Prediction: Home computers will be able to generate sounds and special effects of a “Star Wars” movie.
Reality: Not only have home computer games been able to generate sounds and special effects, the gaming industry has grown larger than Hollywood and music labels combined and has bigger production budgets than most movies. Multi-player interactive games can be played on-line at any time of the day, worldwide.

Alan Kay of Xerox’s PARC fame predicted that “portable computers will require built-in cellular-telephone connections – so you can tap into big data banks while sitting under the apple tree.” (The “apple” keyword has a particular significance today as the Apple iPhone takes a predicted 25% of the smart phone market share after only one year on the scene).

Mitch Kapor of Lotus fame said: “We need to build a national infrastructure that will be the information equivalent of the national highway-building of the ’50s and ’60s”. The World Wide Web was invented by English scientist Tim Berners-Lee one year later in 1989.

Wayne Rosig, at the time at Sun Microsystems, predicted: “It’s a waste to have hundreds of computers in a building that share nothing but AC power.” The article predicted that “Groupware will permit an officeful of people to collaborate on, for example, a magazine advertisement, with artists, copywriters and salespeople all contributing, via computer, to the project. When a writer changes a line of copy, it will instantly show up in the layout on the designer’s computer screen.” Today, we have applications like Google Docs and Zoho that have similar capabilities.

John Seely Brown of Xerox’s PARC fame, envisioned “meetings at which every participant has a computer – and the meeting’s progress appears on a ‘decision spreadsheet’ projected on one wall, on which the pros and cons of the argument are analyzed for all to see.” In most meetings today, it’s not uncommon for everyone to have a laptop and mobile device during a meeting. Today, virtual meetings are commonly held online using services like WebEx.

My favorite prediction was from Lawrence Tesler, then the VP of advanced technology at Apple and now at Yahoo: “Sooner or later, more people will carry their computers around than keep them fixed to a desk.” With more than several billion mobile computer devices worldwide in use today, this was probably the one prediction that was difficult to understand in its impact. In some countries like Japan, there are more mobile devices than personal computers. And, with the price of computer chips, storage and memory continuing to fall and with the advent of modern nano technology, we’re seeing more and more miniaturized computers in all sorts of products.

And, as a final bonus, the political carton section from this issue:

Even then, Donald Trump ruled the world. After a rise, and fall, and rise again, he’s back on top just like Steve Jobs. Funny how much things have changed, and in some ways, they’re still the same.

What will the next 20 years bring us? Any predictions for the next 20 years you’d like to share?

As everyone is aware, the global economic downturn is upon us and we’re all standing around trying to figure out what this means for all of us — especially us startups. I hope nobody is living in a bubble and believes we’re at the bottom and it can’t get much worse. My prediction, and plenty of others, is that it’s going to get much, much worse and last a lot longer than we can imagine. Maybe decades at this point, although that’s even hard to fathom.

The public markets are going to take a really bad beating and many companies, even companies with fairly strong balance sheets and business fundamentals, could find themselves in terrible terriority – either by a takeover or massive layoffs and cost reductions.

All-in-all, I do believe that this is a necessary cycle – part of the normal cycle of things. If you look at the chart for the past 30 years, we’ve been on the up and up for a long time. An overall correction is due.

DOW since 1970

I also believe that a large portion of the spiral is psychological. Nonetheless, the spiral will spin out of control for a good bit of time and we all need to be prepared. As a startup, you’ve got some really, really tough choices to make. Some are obvious, some are not so obvious. My advice would be to think long and hard about survival, forget everything you thought you knew a week ago and assume you’re going to have to get heads down and grunt through this. Even well funded startups are going to be in big trouble soon if they’re not careful. All your models, your predictions, yours forecasts and best guesses are gone. Throw them out and assume ZERO.

My advice to a startup that’s not cash flow positive right now is to assume ZERO revenue for 24 months. If you can’t survive right now with the cash you have in the bank for 24 months, you have a few options you should consider right now:

1. If you have access to capital, get it now. (And assume you won’t get it)
2. If you have access to debt of any kind, get it now.
3. If you have anyone you can live without, get rid of them now.
4. If you have outstanding AR, collect it right now – offer a discount or more product to get it in the bank.
5. If you’re negotiating a term sheet, sign one right now – regardless of the terms.
6. If you have a business line of credit, use it now.
7. Look to cut as many fixed expenses as you can right now. Get rid of anything that is monthly if you possibly can — even consider the cost of breaking obligations short-term over the long-term cost.
8. Look at your business and strongly consider simplifying everything you can.

If you’re cash flow positive, well, you’re in a different position but most likely have similar things you should consider (including above):

1. Cut your 12 month forecast by 50%. IF you make it up, wonderful, you’ll be that much better. Assume that your customer is going to get killed as well and will be going through similar cuts and reductions and assume you’re on that list.
2. Examine your bottom 25% of your sales force and eliminate it now.
3. Take the top 15% of your sales force and consider changing the incentive plan — consider lowering bases (they’re already top performers) considerably and making it up for consistency of exceeding their numbers. Consider increasing your accelerators, but try to tie your accelerators (even consider compounding them) to consistency on a quarterly basis. If you do #1, you’ll be in an even better position.
4. Reserve your cash as much as you can, you’ll be in a good position to sweep up around your market and get some of your competition on the cheap in the next 18 months.
5. Don’t hire anyone unless you absolutely have to for the next 3-6 months. There is going to be top talent on the street soon and you want to have reserves to pick them up opportunistically.

I remember quite vividly the first dot com crash. I was in the middle of it and it was very depressing for a long time. This feels much, much worse and feels like it’s going to sweep much faster than even the dot com crash. Why? This is much more widespread – global even. Because of that, it’s going to hit all very, very hard. And each part of society will be affected, not just one sector or set of markets.

There’s a lot more qualified people out there giving some good advice this week. I received this internal letter (below) that Benchmark sent out to their portfolio CEOs:

The recent downtown in the public markets (now known affectionately as “the U.S. Financial Crisis”) is obviously on everyone’s mind. Some of the entrepreneurs and executives with which we are privileged to work have reached out and asked what this means for private companies, the VC world, and Benchmark. As such, I thought it might be a good idea to send you our thoughts on the current situation, and specifically what it means for venture backed companies.

From a high level, this downturn is different from the Internet bubble of 1999. First, the last downturn started in our backyard. We were the speculators; this time it is someone else. This means that the “crash on the beach” won’t be nearly as severe. In the Internet crash, many times the customer was actually another VC-backed company and as such, there was strong negative spiral. That said, while this downturn might be shallower than last; it could last longer in terms of absolute time. The American consumer is super-leveraged which wasn’t true before the 1930’s or the 1970’s. The overall economy will have trouble gaining momentum with this debt anchor, and my best guess is the contraction is not yet finished. As such, it might take a long, long time before we see glory days again.

Like every major shift in the environment, this one will offer opportunities as well as risks. JP Morgan was able to buy two great assets at substantial discounts with government assurances, precisely because they played the game frugally while others were more risk seeking. The real key is to have a keen understanding of the game on the field and to be the one that adjusts swiftly, rather than the one that moves after it’s become blatantly obvious to everyone else it’s time to move. Many companies that thrived post 2001-2003 were simply “Last Man Standing” in their industry. It doesn’t sound all that glamorous, but it was the exact right strategy to deploy at the time.

In terms of defining our current situation, let’s start with the impact on the actual capital in “venture capital”. The institutions (limited partners) that typically invest with Benchmark and other venture funds are not the ones on the cover of the financial news everyday. In fact, these limited partners are typically quite conservative and have a very long-term perspective. Certainly, new precedents are being set every day, so it’s hard to say the word “never” in this environment. Still, we are unaware of any situation where capital availability for us or any other VC firm is in question.

One would also expect across-the-board reductions in follow-on financing valuations. As financial markets deteriorate three things happen. First, investors get nervous. As such, they tend to “choke up on the bat” and be more conservative. We have already witnessed skittishness on behalf of follow-on funders, as well as a lengthening of the time it takes to complete a fundraising. The second reason valuations will fall is that the public market comparable valuations have fallen materially. This will have a direct impact on exit prices, be they an eventual I.P.O, or M&A. In fact, I was recently at a gathering of corporate development execs, and their number one concern was that private company executives have not realized that the scoring system was just reset (expectations too high). Lastly, investors are more concerned that a protracted economic downturn will negatively impact each private company’s specific results, increasing the likelihood of a revenue or cash flow miss.

If we leave you with one message it would be this: financings as we know it just got a whole lot tougher. Basically, the cost of capital is going way up. This is, of course, a sweeping generalization. Some of you have tons of cash, and some of you are profitable, so the immediate impact will obviously be less. That said, if you do need to go to the market for capital in the foreseeable future, you should consider that the environment will be much less hospitable than it has been for the past 3-4 years (which have actually been pretty benign), and that this less hospitable environment could first for time measured in years not quarters.

Another obvious strategy is to extend the runway. Hopefully, everyone is aware of exactly how many “months of cash” they have at their current cash level and burn rate. If you have a method for increasing this runway, we think you should do it, and quickly. This serves two purposes. First, it gives you the opportunity to outlast the competition, and second, it puts more time between now and when you are forced to re-enter the capital markets. One could argue you should draw down your bank lines right now. Why? When you need the money, the funding source may just say no (they did last time). What are you going to do? Sue them? Take away their warrant coverage? So what. If they get cold feet – you won’t see the cash, I don’t care what the term sheet says. The bottom line is that you should watch “months of cash” as your most important variable.

Be calm, but pragmatic. The purpose of this letter isn’t to send everyone off in a panic. It’s simply to convey that the rules of the game have changed. One key problem is that during these market downturns, most people don’t adjust quickly enough. As an example, not hiring heads that were previous TBH isn’t really a reduction in expense. Also, 10% cuts rarely lead to anything other than multiple rounds of cuts, which have a harrowing affect on culture. It’s easy to mentally understand this is the right thing to do. It is ten times harder to make the actual decisions to affect change. These are extremely hard decisions.

You may know that I am involved in Zillow. They did a survey of their users to ask what they thought was the current impact on home prices across America. The average answer was that homes in America were down 20-30% in value. The survey then asked what the user thought had happened to the value of their own home. Miraculously they thought their own home had retained value against the odds! Surprised? It is human nature. As most of you read this, you will be thinking in the back of your mind why your company is different than the average company (like these homeowners) and why you are the exception that doesn’t need to take action right now. This could be rationalization.

Recently, I spoke with an entrepreneur who as CEO during the dot-com crash and oversaw a headcount reduction from 130 to 28 (through two major layoffs), and eventually back to profitability and an IPO. If you think a 10% layoff is tough, imaging laying-off 78% of your employees. It is one of the hardest things I have ever seen anyone do. I recently asked him how that experience has shaped the way he would advise people on running a startup. He had a list at the tip of his tongue (included now):

1. You don’t realize how fast things spin out of control. There are self-reinforcing negative effects in a downturn.

2. Don’t spend money until you have to:
a. Don’t move out of your office until you are sitting on top of one another
b. Don’t hire any incremental employee until you just can’t stand it
c. Don’t get more capacity in your data center until your site is going down

3. Better to be “late to the party” than to be early and run out of money

4. Line item review of the budget every month (legal, accounting, everything)

5. Not just a CEO mindset, but a company mindset:
a. Everyone must buy in to the process
b. But in a calm way – not run for the hills

6. Create 2 or 3 different burn scenarios – know at any point in time how many months cash is left

I include this mainly because it highlights a “very high bar” in terms of frugality. It’s one thing to say you don’t “waste money” and another to live as lean as you possibly can. As mentioned before, in market downturns, frugality is not only a virtue, but also it could be the difference between survival and failure.

Many great companies emerged from the 2001-2002 time-frame. Companies built during tough times typically have incredible focus, great cultures, and true desire to compete and win in all environments. For many, this downturn period could be opportunistic: a real chance to differentiate yourselves from the other players in the market. However, it is imperative to understand that the environment has just shifted to one where differentiation will likely be defined not be aggressiveness, but rather by adaptability.

Folks, the game has changed. Time to get serious, get focused and sober up. The world’s going to be a much different place for awhile. And, I sure hope we’re all much better off for it in the long term.

This past week was a pretty significant event in the web2.0 world – at least to people who follow startups and Techcrunch. This week was the equivalent of the web emmy’s for startups, called the Techcrunch 50. Most startups presenting had absolutely no business model. Except one that really stood out. And, it not only stood out, but the guys at Yammer took top prize.

I’ve been a pretty active twitterer for quite awhile now. It’s quite addictive and impossible to explain. Here’s one way we discussed today at the office in an attempt to explain it:

• Phone calls are for urgency
• Emails are for content and detail
• IM is for immediacy
• SMS is for quick confirmations
• Blogs are for news and commentary
• Wikis are for knowledge sharing
• Twitter is for casual, micro conversations

With so many different ways to communicate, and so much more information available at all times, it’s becoming very difficult to manage our digital lives. However, on the other hand, we have more and more tools at our disposal.

If you don’t twitter, it’s probably hard to understand. I’d urge you to try it — but I warn you: you’ll probably hate it initially and give up quick. But, it’s one of those transformative events that will happen and you will “get it”. It’s OK – some people never get it (and shouldn’t). Others get it pretty much right away.

Yammer gave me one of those a-ha moments this morning. When I heard about Yammer, I thought, “hmmm…. that’s very interesting and obvious”. I signed up (it was a great experience) and invited a few people around me. They all joined within a few minutes. I started yamming (what do you call it?) — and within not too long — I decided to invite the rest of our employees. Within a few hours, everyone had joined (except one person who was traveling). And by the end of the day today (remember, we signed up mid-morning Pacific time), we had already had 11 members, 3 tags and 105 posts.

Yammer is twitter – but for business communications. It essentially is a clone; with finer control and a decent revenue model. With Yammer, you can use it for free. However, if you pay $1 per user per month, you unlock a number of enterprise features such as access control features (IP ranges), custom logos, etc.

Yammer will be a very powerful internal tool for communication – especially for passive information that can be followed or produced as desired. It’s much less invasive than email, a lot less urgent than a call, and provides a nice way to organize content across the company.

It’s especially nice for distributed teams like ours. We have people now in Atlanta, Texas and California. This is a nice way to bring everyone together in ways that aren’t possible with email or phone calls. It allows everyone to participate in cross-concerns across our organization.

Congratulations on the Yammer team. This is a great product.

As a parting note, there are others that are clamoring for this market as well. One that announced a little prematurely, namely because of Yammer’s announcement this week, was Present.ly. I haven’t been able to do a review yet of their application, but it looks similar and they seem to have quite a number of nice features as well and they’re ready to rumble. Ahhh, the fighting entrepreneurial spirit is so refreshing.

So, if you already twitter or are now considering it: you can follow me on twitter for random, sometimes useless, sometimes interesting tweets. You never know what might happen….

A bunch of the usual Atlanta suspects (Sanjay, Lance, Stephen, Scott and Paul) have just announced Startup Gauntlet. I love the name. Pitching is like being in a gauntlet.

Your pitch probably sucks — they all do. It takes a lot of going around and around to hone your pitch and most importantly, become confident in what your pitch is. You have too many slides, too much text on each slide, you’re trying to cram 3 hours into 30 minutes. That’s just how it is. Pitching to VCs is much more of an art than a science. It takes lots and lots of practice (read: failures) and a bunch of luck. But most importantly, you have to iterate and get it down to a few key slides that convey your message.

Remember: the goal of the meeting is to get another meeting. And ultimately, if you can keep them interested, you will make a deal (or quickly, it will end). Don’t try and answer every question possible in your slides — you’ll fail. Don’t try and cram a bunch of information on the slides for them to read, they can’t.

Slides should act more like an outline of the discussion. They should help you direct the conversation in a flow. But, in most cases, if you’re getting through the slides in an orderly fashion — you’re probably doomed. If they’re REALLY interested, you won’t be able to get through your deck. And don’t get pissed if you get off track, anticipate this. You will if you’re doing your job right. If you’re doing your job and they’re interested, their heads will be spinning with lots of ideas and questions and they will be engaged. If they’re just saying “uhhh huhh” and shaking their head — they’re probably just being polite. If they’re glancing at their iphone constantly, it’s time to wrap it up and move on.

Some of the best pitches I have done were one’s where at the end of the meeting, I was still on the 2nd or 3rd slide.

It’s not about the deck, stupid.

Think less is more when you put your presentation together.

I like to think in these terms:

• Who are we? (The team is 85-90% of the investment)
• What’s the problem? (Why do we need you?)
• What are we doing? (The solution to the problem and how’s it unique)
• The plan (The how and when, what are we doing today and what will we do with the money)

I’d suggest no more than 8-10 slides. You should put very little text on each slide. Instead, frame the topic transition with a bold and short title: “Our Team” Then, 4-5 big bullets. Watch out for the small text, you can’t read it.

Another tip: watch out on the contrast of your presentation. I once was pitching in the valley and was at a really big VC — really well know. I was my first introduction to these guys. They had really really cool offices with big logos of really well known Internet companies. I went into one of their conference rooms – and they were very nice. White everywhere. It was like being in a palace, literally. Then, they pulled down the backdrop (out of the ceiling) for the projector and it was white. And it was a bright and sunny day (even will shades turned).

I pulled up my slide deck, and I had a white background. FAIL. The contrast wasn’t too chipper and my deck was white washed out with everything else in the room. Completely impossible to have predicted this. But, as an entrepreneur, I was able to get around pretty easily by just quickly opening up the master and changing the colors. Lucky for me, I had followed the tips above and had simple text and only 8 slides.

A few other things to consider:

• You like your idea way more than anyone else
• There’s a lot you have even considered. Don’t try and have all the answers, it’s OK.
• A lot of the questions are more about how you react and think about the problems, less about their point of view.
• You’re wrong about the numbers
• You’ll need more money than you think
• You’ll need to hire a lot more people than you believe
• Fundraising will take you a lot longer than you’d like
• Most likely, fundraising will almost destroy you’re business during the time you’re doing it(time, money and distraction)
• It will be emotionally draining — highs and lows
• If you’re traveling to raise money (out of state), and you think you’ll be able to do “regular business” around it, you’re probably fooling yourself
• You’re idea might not be that unique
• You need trusted advisors around you that have your vested interest and can help you as a sounding board
• Make sure you take into consideration the people you’re pitching and talk to them on their terms and background — do your research!
• Time is on the VCs side. You need competition, a compelling event (not running out of money!), something to get them off their butts to move. They’ll move fast if they think they’re losing a deal. Don’t push your luck here, though.
• It’s about execution. Results speak much louder than good intentions and plans

And the last and probably key tip I’ll leave you with: DO NOT EVER PITCH OVER THE PHONE. NEVER, NEVER, NEVER. If you can’t meet them in person, you can’t read their body language and build a relationship with them. Sorry, pitching over the phone doesn’t work. You will get hit up on this and let me give you some tips for this. Most likely, they’ll have their analyst won’t to screen you if you’re not getting a really strong, warm intro to a partner. This is a weak sign, but one you may have to deal with. In this case, I would suggest you try and keep it at a very high level, almost act disinterested (but not a dick!). I would tell them you’re really focused on trying to build the business and would love to meet them sometime, but you’d prefer a face-to-face once that time is right. They’ll still try and get a bunch out of you, ask for your pitch deck or other materials, etc. Depending on what you have and at what stage, you can consider sending them some stuff. My recommendation is to never send them your pitch deck ahead of time. If you have a plan (which I would recommend is really very short as well), send that. Push for a face-to-face with a partner. If you can’t, your chance of success (and time suck) is much less. DON’T EVER TRY AND SEND A POWERPOINT AND PITCH OVER THE PHONE. You’ll be sorry you did. Trust me!

My last post generated a lot of great discussion about the good, bad and ugly in the Atlanta startup ecosystem. Thanks for everyone who sent me updates directly, via twitter and right here in the comments on my post. I also appreciated the one or two not so pleasant emails I received. You don’t have to agree with my perspectives on things — and that’s OK. Sorry that I pissed some of you off. My original intent was to provide some discussion in the community in a way to create a dialog that allows us to move forward. I think I’ve done that. It’s now up to you guys, the community, to take it from here.

Before I finally end my blogging about the startup ecosystem in Atlanta, I figured I’d depart with one last post on a more positive note. I want to highlight 2 great companies that I think are under-funded and currently dismissed (no fault to the founders or their businesses). I’ll speak specifically about each below, but both are great companies with great prospects. Will they be billion dollar businesses? Who the hell knows? However, they’ve got a lot of early traction, good people and deserve the community and investor support in Atlanta. As a disclaimer, I’m somehow involved in both companies – not financially by any means – but as a friend/advisor/cheerleader/customer/partner. Regardless of my involvement, I think these 2 companies serve as the great hope for companies being created in Atlanta.

Loopfuse

Loopfuse was started by Roy Russo and Tom Elrod a year or so ago. They had been thinking about it when they were still at Red Hat (after the acquisition of JBoss) and I’ll never forget the night I met with them to talk about starting the company and what their plans were. My advice: “quit your day job”. Like a lot of first-time entrepreneurs with good paying jobs and families – that was not something that was as easy as it sounded. But they did it. And, they struggled through building out the business – and they’ve really built something great. Not only a great product, but a great set of satisfied customers paying them real dollars every month. And some big customers. Appcelerator is a (tiny) customer too – and we put them through the ringer and they made the product better for us and we’re happy.

These guys tipify what local, first-time, startup entrepreneurs go through. They don’t have MBAs and they’ve never been CEO of anything. But they’re passionate, stubborn and just-fine-thank-you if they have to prove it to the world. And they’re doing it one day, one customer at a time.

Loopfuse makes a lead marketing product and it kicks butt. Every person with an online website / business in the world should be using this software if you care about turning those web site visitors into satisfied, life-long customers. You can think of Loopfuse as a Web2.0 version of Eloqua that doesn’t suck and that you can actually afford.

Tom and I worked together at Vocalocity. He and I co-authored JBoss Remoting together and worked on some of JMX for JBoss. Tom later left Vocalocity to join JBoss full-time as a lead developer. Roy joined Tom at JBoss and was the lead for JBoss portal. They’re tech guys and now they’re full-time entrepreneurs building something with real value.

Here’s the thing. These guys will eventually raise money – and my bet it will be before next spring. However, my 2nd bet is that they’ll raise money from the west coast if they don’t raise regional money this Fall. I don’t have any particular insight on this — this is just my opinion. They’ve got a lot of people who they’re helping – companies that have raised a lot of money out here. And, they’re really helping them making their businesses better. If the local investor scene doesn’t jump on this, they’ll be another Appcelerator quick. This is a great opportunity to really get in and help these guys out. I know they’ve been busting their butts working day-and-night to keep up with the business. They barely have any time to talk with anyone about investment because they’re busy running their company. Watch out Atlanta, if you don’t get smart and fund these guys now – you may lose your chance soon.

Skyblox

Dave Payne started Skyblox around a year or so ago. Dave’s an ex-Earthlink guy that worked in the local wifi group in business development. I met Dave through Andrew Zuercher who works for us at Appcelerator. Dave also knows a lot of the same people in Atlanta so we instantly hit it off. Skyblox is a really bold concept. Local marketing is the next big thing if you’ve been stuck under a rock. It’s where the big boys – Google, Microsoft, etc – are going. And Skyblox is dead in the middle of this with their Wi-Fi access point lead to local marketing and content. Think Web2.0 meets City Search + Yelp + Yahoo Local.

We worked with Dave to help him launch Skyblox in Atlanta. I think Dave thought he’d only get a handful of places in the highlands and some other local neigborhoods in Atlanta when they launched. Boy was he wrong – they got a lot of neighborhood’s signed up and from everything I’m seeing and hearing, they can’t sign them up fast enough. And, they haven’t even started their multi-city launch yet – but I think they’re seeing a lot of demand and success just right here in Atlanta.

This is another set of folks that are heads down and kicking butt. They’re making it through blood, sweat and tears. And, like Loopfuse, they’ll definitely get some attention outside of town if the local scene doesn’t wise up, quick. These guys have a big idea and it’s certainly not without concerns and likely capital intensive. But, if they can quickly replicate what they’ve done in Atlanta across the remaining major cities in the U.S., they’ll quickly lock up the entire local content/search/marketing marketplace.

So, in summary, here ya go Atlanta. Let’s see what we can make of these two great companies. They’re bootstrapping it, they have revenue and customers. They’re big, bold business models that will require sufficient capital to get to the next stage. And, if the bet is right, they’ll have a nice ROI. Best of luck to you. If you’d like any helping getting in contact with them, please email at jhaynie [at] gmail [dot] com.

Last thought: if I didn’t mention your company, don’t get upset. there’s lots of other companies. I’m just highlighting two i know about well.

Before I start this long-winded post I want to give a disclaimer for everyone that attempts to spend the time to read this: this post is my thoughts based on my viewpoint and will hurt some people’s feelings. I’m trying to give an honest account from my perspective. Think of it as a constructive exit interview. If you don’t like it or disagree, that’s fine — I can appreciate that. If I step on your toes, I’m sorry – but I feel like I need to say a few things to help clear the air and hopefully give some perspective.

As most people have heard as of last week, I have decide to relocate my family and the Appcelerator headquarters from Atlanta, GA to Mountain View, California – in the heart of silicon valley. There have been a whole host of reasons for this – some I will attempt to explain here. I am going to also attempt to outline some thoughts on what I think Atlanta needs to do to prevent others from doing the same.

Appcelerator and Atlanta

First, it’s important to know that Appcelerator will continue to remain in Atlanta and will continue to invest in Atlanta. We have around 12 employees still in Atlanta (only 4 people, including myself, from Appcelerator made the move), we will continue to have an office and hopefully we’ll grow the local Atlanta office.

Jeff and Atlanta

If you didn’t know, I’m an Atlanta-native. I was born in Gainesville, GA and most of my family still remains in or near there. My family and I will continue to be back in Georgia quite often as we can. I love Atlanta for so many reasons. Also, it’s important to know that this is not the first time I have left the area. Each time I left and came back, my horizons have expanded and I’ve been blessed with new opportunities. I first left Atlanta in 1989 to join the U.S. Navy and spent almost 4 years in Tokyo, Japan (with brief stops in Chicago, IL and Whidbey Island, Washington for training). I left Atlanta again around late 1996 for Jacksonville, Florida and returned in 1999 to join Jeff Levy in starting eHatchery – just as the dot com boom was happening. I’m leaving 9 years later and I plan on returning one day. I hope when I return next time, as before, my life will be improved and I will have grown professionally and personally. And, that’s the challenge in front of me and my family.

I’d like to talk with you about why I decided to leave and my perspective on the startup climate in Atlanta.

A little background

I’ve been doing the startup and tech entrepreneurial thing in Atlanta since around 1993. My entrepreneurial experience actually goes back to 1983 when I was quite young. My first company was called Bizzare Software. My step-brother and I tried to make a go at games for the TI-99/4A when we were teenagers (the first game we tried to make was a break dancing game). We ran out of memory since we only had 16K if I remember.

However, since 1993, I’ve been part of 3 fairly decent size VC-funded ventures and associated in some way with many many more. I have personally been involved in raising around ~$35M in venture capital from at least 6 different venture funds and lots of local angels. So, from one point-of-view, I have some experience doing the startup thing. In fact, to be honest, I’ve raised a lot of money and been involved in losing most of it to date. It’s not fun losing other people’s money – at least, not to me. I don’t like losing my own money and I really, really hate losing other people’s money – especially when I know they’ve invested in me personally. At eHatchery, my parents personally invested $250,000 of their own money as well. Yeah, that really hurts. At Vocalocity, we raised a lot of local money (and West Coast money as well) and we didn’t have the outcome Mike and I should have achieved. There were some very odd and unusual circumstances that eventually caused an eventual premature acquisition that I can’t talk about. However, we should have done better. I still feel very unhappy about how we ended that chapter.

Failure, probably as much if not more than success, really shapes a person. I’m a very driven individual if you don’t personally know me — and I’m very passionate. However, I’d like to think I’m also self-aware and always thinking a lot about how to improve myself and my organization. I work hard, demand exceptional results and don’t like to give up. I’m a serial entrepreneur. I would do what I do even if I never made money. I don’t really do it for the money — I’ve calculated before that I would have made much more money I would have had a “regular job”. However, I hope I never have to get a real job. I will do this till I die most likely.

When I started Appcelerator with Nolan Wright almost 2 years ago after Vocalocity – I had no idea ultimately what we’d come up with. However, I knew 2 things: I wanted to start another software company and I wanted to eventually get a shot at raising money and succeed at creating a great return. There were a lot of specific life-lessons I could apply this time around and things always seem to go much smoother with each venture. I think failure really helps you avoid pitfalls – and much faster.

From the outset, I had a very specific plan about how I wanted to grow the company, even though we had no idea what the company would do. I had a few specific objectives:

1. I didn’t want to raise outside investment until we had a product, revenue and customers
2. I wanted to raise money from a reputable venture firm that believed in what I was doing and fit my style
3. I wanted to make sure than when we raised money, we had our stuff together and we had options

We accomplished all 3 objectives.

Appcelerator has been an amazing ride so far, even though we’re just getting started. It feels like everything we’ve set out to do, we’ve done. Not always at the speed I’d like, but certainly, with results that basically have matched expectations.

People around me know that I had very specific ideas about how things would come together with our first investment. However, I really struggled with one major issue: what to do with the local investor community. That’s probably a really strange issue for some locals, I understand. I’ll try and explain.

I don’t have the patent on the prevailing opinion about local VC community. The opinions and frustrations are real and they’re not something that we should just ignore. There are pretty big problems with the local startup community. Here’s what I think are some of them:

• Local VC money is mostly non-existant. It’s a supply-demand problem essentially. Low supply of great startups and some big hits, very little demand. (Note: I didn’t say lack of money)
• The local community is a relationship-based economy. It’s who you know … The ‘ole boy network. The valley is a meritocracy.
• We have no real track record of big successes we can tout. OK, let’s stop using ISS, JBoss and Mindspring. JBoss didn’t raise any local money, ISS was started over 12 years ago and most young people have never heard of Mindspring
• What few winners we’ve had, they don’t feel compelled (or even obliged) to re-invest / give-back to the local community

Local Investors

We don’t have any real early stage venture investors in Atlanta. OK, investors, go ahead and get pissed and stop reading if you’d like. But, it’s the honest truth. Noro-Moseley is one of the largest and oldest firms in Atlanta. They have some good guys there (Greg Foster has recently joined and he seems like a great guy) like Alan Taetle. However, I’m sorry to say this, these guys aren’t early stage guys. They don’t understand early stage. Period. That’s not to say they haven’t made early stage investments – they have. For example, Clearleap. They invested along side Trinity. Trinity is a great Valley firm. We spent time with them. But here’s the rub. Noro probably wouldn’t have done the deal alone, nor would they have done the deal if it was 3 guys just out of GA tech with no experience (in fact, the founders are ex-N2Broadband guys who had a good exit).

Despite what Alan said in a comment on Lance’s blog, Noro had the opportunity to do the Appcelerator deal – 100% as the only lead investor – on a silver platter. Alan and Greg know that – even though they’ll try and say they didn’t, publicly. But the true story is that I gave Alan one week to put a term sheet on the table; he had a told me and several others many times he would. In fact, Alan told several people around town that they wouldn’t lose the Appcelerator deal even before we had decided to raise a round. I’ve known Alan for a long time and I’d like to think of him as a friend – so I know he’ll be pissed at me for putting this out there. However, it’s the truth and I’m sorry if the truth sometimes hurts. I think ultimately, Alan was probably paranoid that he’d lose the deal anyway and I was just using Noro to price the deal. A number of inside people know this: I had told everyone that I would give them the deal if they put a decent term sheet on the table we could live with (which I think was reasonable with expectations). I even told Alan I would give them dibs for a week before we talked to anyone — which I honored. In fact, we waited almost 2 weeks before deciding that they were playing games.

Alan insisted on 2 things that I think ultimately was a proxy for their true colors: he wanted detailed, 5 year financials and several days to “dig through the financials” and he wanted to spend time with our 2 key prominent advisors. In fact, that’s part of normal due diligence especially for a round size we were talking about. However, it’s also symptomatic to part of the local investor problem. I’ll contrast that with all the investors I met with on the west coast: we didn’t even talk about financials to late in the discussion.

Let me be straight here: we had very detailed financial models and we have great advisors which are very active. However, when you don’t know what’s important and you don’t understand how to evaluate a deal like Appcelerator, you gravitate towards what you’re comfortable with.

The problem with Noro isn’t that they’re not a good firm. They are not experienced early stage investors. They haven’t had a great track record and most of their partners haven’t had any amount of reasonable success. OK, I said it. I’m sorry, but it’s the truth. It doesn’t mean that their money isn’t greener than the next guys – it is. And they have a decent amount of money in their latest fund. They should be really leading the charge in Atlanta – but they are not. I hope that changes. I think for a region to have a vibrant startup community, it needs some anchor VC tenants that can lead the charge. We’re really missing that in Atlanta.

And here’s another hard-to-stomach fact. West coast money specifically told me they did not want local money involved. Even after I had decided that Noro wasn’t a good fit and moved on, I was still trying to angle how I could let them in to the deal in some capacity. Up to even after signing a term sheet, I talked 3 different times about a possible local partner and I continue to get the same line: “why? what value can they possibly provide”.

You see, you raise money for more than just the money. Don’t get me wrong, all money is green. However, $4M from a west coast VC is so much different than $4M from a local VC. That’s a hard pill to swallow I realize. But, everyone knows it. Get over it. Sig said in the Atlanta Business Chronicle article that he could (my paraphrasing) help find a VP of Sales but couldn’t help with contacts at Google or Microsoft. Hello…. VP of Sales is important, but to most early stage startups, Google … Microsoft … yeah, you need to have relationships there. It’s just too important for so many reasons.

Side note about a smaller local VC

I will say that I did have a good experience with Nelson Chu and the partners at Kinetic. While Nelson didn’t invest in Appcelerator, he was extremely aggressive and helpful. Kinetic is out of Maryland and invests all over but Nelson’s base has been in Atlanta for a long time. Nelson’s been a wall flower at events in Atlanta for a long time — Nelson now has some new money and I really hope he gets active in some smaller, local deals. He’s very smart and tries to work hard and really understand what you’re doing.

A new fund?

There’s rumors that Said Mohammadioun is rasing a small fund, around $80M or so I hear. OK, another good example of a persistent problem: Not enough money based on their profile as a VC. They’re going to only be able to make around 5-7 $5M deals to be able to keep enough dry powder ready for follow-on rounds. At least, I’ve been told that’s their target. Maybe they’ll do some $1-2M deals and get it to around 10. But that’s part of the problem. Not enough early stage money that’s ready and willing to invest much earlier than we’re comfortable with in Atlanta. Said is a great guy and was on our board at Vocalocity and I have much respect for him. However, I’m afraid they’ll fall into the same trap we’re already in.

Local Supply and Demand

Part of the local problem is 2 fold: not enough decent deals to invest larger dollars in and not enough smaller capital to invest in smaller deals.

We need a $80M fund that will invest in 80-100 deals with enough follow-on capital. But here’s the dichotomy: even if we had it, we don’t have enough (currently) smaller local deals that are fundable. So, Atlanta would need to be willing to churn through some deals over a period of time to cultivate a culture change, a set of lifestyle changes and major ecosystem changes – and that’s going to be tough and painful.

Here’s what I think are 5 key requirements to make this happen:

1. We need to build up a vibrant, less risk adverse investor / entrepreneur / employee base. Investors need to be funding as much as they can as early as possible, entrepreneurs need to be encouraged to try everything we can pre-revenue, pre-customer and pre-perfection. Employees need to be more excited about working for the next cool startup more than UPS and Turner. This is a symbiotic relationship where the balance needs to be near equilibrium. Right now, it’s all out of whack. Tech and Emory students should be dying to intern and then work for or start a startup as soon as they graduate. We should have a problem of students dropping out to start companies. In fact, the opposite is true. They leave as soon as they graduate and they intern outside of Atlanta during the summer.
2. Lots of deals for some period – say the next 3-4 years – will fail. Our goal should be to fund smaller amounts faster, build some teams up that can execute on different ideas without much concerns for revenue models and salespeople, and then FAIL FAST. Fail as fast as possible with as little capital invested as practical. Once they fail, they must be encouraged to START AGAIN as soon as possible! Refactor. Get back on the horse. What can we do different next time around? These failures should be not be shamed. Let’s go ahead and get rid of the startup scarlet letter. We need more starts. We need an economy that allows the whole thing to get going and fail and get going again – without having to mortgage houses and without having to present 5-year financials to get $50K. Go go go. Dream big and let’s find you some money to try it out.
3. We need to create an ecosystem around startups. TAG is wonderful for big corporate companies who have money, it’s irrelevant for startups (no offense to Tino). We need a heck of a lot more Startup Riots, Startup Lounges, Barcamps, Atlanta Web Entrepreneurs and SoCons. We need more Jelly’s and Open Coffees. In fact, local investors should feel compelled to help pay for as much of these events as possible. They should be sponsoring any person who wants to create one of these events carte blanche. To date, we (the entrepreneurs) have largely had to fund them along with some gracious sponsors – a lot who aren’t necessarily invested locally like Microsoft. Stop that. We need these events. Please show up to them — you’ll learn something. Actually, go to a barcamp and hang out with the locals. At last year’s Barcamp, we had all sorts of really cool ideas and great debates and discussions. At each event, there are very smart people who are tomorrow’s great startup entrepreneurs or startup employees. Get to know them. Get off the golf course and from behind those big conference room tables and get to know some common folk. (And, while we’re on it, can we please get a little less stiff about the dress code. In the valley, i wore jeans or shorts to meetings. I would get stared down at Startup Lounge if I came in looking like that…). How many local investors have a twitter account (that they use, not to lurk) and blog? How many now in the valley or boston?
4. We need to mandate – at least through peer pressure and possibly through some sort of social contract – that entrepreneurs must give back. It must be reciprocal for this to work. In the valley, if you make it, you’re socially compelled to re-invest and give back in some way. In Atlanta, forget it. The one’s that can and should, don’t. There are some that do, so don’t take that as everyone. But most, don’t. Not even close. And, I’m not talking about just money – I’m talking about giving back to other, younger one’s behind them in the form of guidance, assistance, mentoring, etc. Sit on boards, write checks, make connections — but please, HELP. In fact, only put in a little money — since plenty of other locals with help with the money — just help with the connections, help with all the stuff that you’re in the best position to help with: experience.
5. The last major hurdle, which is a major one – is the acquisition economy in Atlanta. Atlanta is a technology laggard. At least, for bigger companies. Even though we are corporate headquarters to some big brands like UPS, Chick-Fil-A, Georgia-Pacific and Delta (just to name a few) – none of those guys are technology leaders or startup acquirers. This makes it pretty difficult for Atlanta given that strong startup communities usually have strong economies around larger companies acquiring smaller ones to grow and innovate. You would think with UPS that Atlanta would have a very active community of shipment, tracking and transportation startups. They probably would if UPS invested and bought local companies doing innovative things in this area. They don’t. And how about CNN, Turner and Cox? Huge media companies with major presence in Atlanta — but all the cool video and new media startups are in San Francisco. Why don’t we have all of these cool local companies built up around new media? We do have a decent cluster built around Security – given ISS and it’s long history (started in 1994 by tech student, Chris Klaus). However, I do believe that’s a relative anomaly. Why? ISS itself hasn’t really been active acquiring security companies locally (or even outside of Atlanta). In fact, most of the local security companies are really the result of a local cluster of security having been created by a number of dissatisfied entrepreneurs leaving ISS to do something better. Either way, with CipherTrust and SPI Dynamics having decent exits – it’s been a good thing for Atlanta and the security cluster. So, as far as larger corporate acquirers, I’m not sure exactly how this can be solved. These local big companies neither make good acquirers or early stage customers.

Here’s the danger

Local money needs to understand a few things I’ve consistently heard:

1. Out of town VCs could care less about local money. In fact, in this day, they’d prefer to not even have them involved. I know that’s going to be contrary to what we hear locally. Locals would like us to believe that out-of-towners like to have a local person in the deal. That’s baloney. It’s just not true. That’s a ruse that locals create to (a) get into an out of town deal and/or (b) mitigate their risk with someone bigger/smarter. In fact, I have repeatably heard that they would prefer to not have smaller, local firms involved *at all*. Out-of-towners have been consistently burned but smaller locals.
2. Clean cap tables and simple terms are much more attractive to bigger firms. We have a problem locally where startups raise money (over and over) in smaller amounts from lots of angels or local firms — and our cap tables look like our 5-year financials: overly complex and exhaustive. We need to ensure that cap tables and terms are clean. I realize that can be tough when you get money from lots of individuals – but we need some solution that’s both practical and protective. And enough with all these silly, overly burdensome terms. For all the money and ill-will we’ve created in all these startups over the years — how’s our track record on all those onerous terms? Hmmm… how about 0%. Please name one company where investors have been able to take a failed company’s IP and make something with it? Name one startup where those 3-4x liquidation preferences have yielded a decent return. C’mon, we’re killing ourselves here and only making the local lawyers rich.

Unfortunately, I don’t believe that the Atlanta startup community is at a cross roads — it’s not that simple. It’s more like a labyrinth. This problem is a multi-variable equation. And, it’s one whereby all parts have to work together pretty consistently.

The local community has a lot of reservations all around. I do believe it can work. I do believe that a few leaders from each constituency can emerge and provide 80% of what’s needed to get us there. I also think it can happen. However, it will take some time. It will probably take 6-8 years for this to really work if we intend to see a major shift. That’s quite a long time in startup time – and here’s why: we need to get several rounds of failed startups (2-3 years) through the system and then get some decent base hits but a great set of teams. Then, we can go back through the normal cycle (4-5 years) to get some really decent hits. At that point, we’d have enough stuff in the pipeline that we could really change things. And, enough decent successes following the formula, that they’ll start their re-investment for the cycle to continue again and again.

The other alternative is status quo, or worse, an imbalanced ecosystem. One example of imbalanced ecosystem is what’s happened in the last year in Atlanta. The entrepreneurs have taken the mantle of driving the startup ecosystem. That’s not entirely bad, but it’s also not sustainable. All the local events (that are meaningful) are being driven almost exclusively by entrepreneurs (myself included). The burden is heavy. Everyone needs to participate. Everyone needs to be involved.

So, why move?

Well, frankly, I’m both tired and scared. I’m tired of pushing hard and need to focus on my own startup right now. And I’m scared that if I don’t get every possible advantage in my own court, I’ll fail again. I really want Appcelerator to succeed in a big way. I believe I can change the world – at least the small part of the world that is impacted by what we’re doing. And, I believe that if we can even be partially successful in what we’re attempting to do, we will. I need every advantage I can get to make that happen. The Silicon Valley area is part of that plan because it puts me (and Appcelerator) in the heart of where things are happening today with a set of partners that have done it over and over again. The ecosystem is in place here and it’s working consistently. It’s not without its own set of new challenges: the valley is ruthless, expensive, somewhat overrated and definitely a different pace of life. But, with all that, it’s still the place to be. Very few significant technology companies make it big outside of the Silicon Valley – and that’s just the facts.

One very prominent valley investor told me: “Jeff, if you want to be an actor you go to Hollywood. And, if you want to be a tech entrepreneur, you need to be in the valley.”

So, I’m going to have to put my own self-interest (and that of Appcelerator) ahead of my altruistic concerns for Atlanta. At least for a while. If I’m successful, I do believe it will help Atlanta in many ways.

So for now, I’m outta here. I’ll be living in Mountain View, California just off Castro Street and our new headquarters is in downtown Mountain View (just 3 blocks away from my house).

I wish Atlanta the best of luck and I’ll really miss all my local friends and colleagues. You have been so good to me for so long and I really appreciate everyone’s well-wishes and congratulations. You’re in my heart and on my mind. I really hope we can keep in touch.

One of my goals as part of this transition is to blog more – specifically about this experience and how it’s different (both good and bad). So, please stay tuned and subscribe to my blog (and my twitter stream if you want more rapid updates).

There has been quite a bit of debate in the past few days about the 2008 GRA/TAG Business Launch Competition here in Atlanta. Scott Burkett was spot on in my opinion and was one of the first to publicaly call this insanity out. There were some tweets by some local entrepreneurs and Lance Weatherby attempted to quell the crowd with his peacemaking around trying to turn this into a positive and looking for suggestions about how to improve it.

A little background for those just trying to get up to speed on what’s happened.

The 2008 GRA/TAG Business Launch Competition is a cool annual event that is intended to help provide funding and value-added services in-kind to the lucky startup that is launching a business here in Georgia and looking for help. We had quite a number of companies apply, that was widdledwhittled down to a much smaller group and then to a final set of four companies. I’m an advisor to one company, Skyblox, which I think is worthy of the top 4 status and one of the cooler startups here in town. I’m biased and I freely admit that. But, that’s not really the point here.

Where this all breaks down is that the winner was a company called ATMDirect. I freely admit I know jack about these guys, except that the hidden secret that’s come out since the win is that they’re not really a startup per se. Maybe to the letter of the law, but certainly not the intention of it. You can technically say they’re just launching the business, but really they’re reinventing a company that has had literally millions and millions invested in it and its IP and taking some smart advantages of a bad bankruptcy situation. (And good for them).

Here’s the stated purpose of the event (from their press release):

The purpose of the GRA/TAG Business Launch Competition is to support economic development in Georgia by encouraging and supporting the creation and growth of new companies that will strengthen and expand Georgia’s strategic high tech clusters. To accomplish this, the competition has two specific goals:

• to motivate and support entrepreneurs in creating new high tech businesses in Georgia that will support and expand existing strategic clusters, and
• to create greater awareness within the investment community that Georgia is a great place to launch and grow high tech businesses.

(SIDE NOTE: I have issues with the purpose, especially the clusters concept, but that’s an opinion for another day).

OK, here’s the rules:

Entrepreneurs interested in launching a new Georgia company within targeted technologies and industries are invited to compete for a $100K cash prize and a suite of related professional services (including priority consideration for ATDC membership) that is valued at more than $200K. The competition offers entrants the opportunity to be mentored by a successful high tech entrepreneur.

Entrants must legally reside in the State of Georgia. All awards will be conditioned on the company launching and/or maintaining its operations in Georgia. If the winning company moves a majority of the business outside Georgia within 3 years, the winning company must repay TAG for the $100K cash prize plus 8% annual interest. TAG will make a final determination as to whether a company “moves a majority of the business outside of Georgia” and will have discretion to negotiate a variety of forms of repayment of the cash prize plus interest.

Entrants can be existing companies under certain circumstances. The competition is aimed at “new” businesses, however the time and effort required to launch a successful business in the targeted areas may require that an entrepreneur form a company and begin certain limited functions before any meaningful business operations occur. These functions could include prototype or Intellectual Property development and for these or similar reasons up to $500K in external funding may be allowed. Market trials may also be required and for this or a similar reason some limited revenue may be allowed. The judging process will take all these factors into consideration when making a recommendation to TAG’s President and the decision made by the TAG President is final.

OK, that’s where it gets a little fun. I think the rules are fair. And, it’s their money and their rules – Tino can do what he wants here.

An interesting comment on Lance’s post from John B. Frank:

ATMDirect was neither founded, NOR funded by Nandon Seth. It was founded nearly a decade ago by an individual named Robert Ziegler who raised a couple million dollars. Nandon Seth acquired ATMDirect for $600k during the Pay By Touch bankruptcy. Thus to state that he “founded” and “funded” ATMDirect is simply a misnomer. Just thought I’d set the record straight. FYI: You can visit www.biometricpayments.blogspot.com or www.pindebit.blogspot.com and do an ATMDirect search to learn more about ATMDirect’s history as well as PIN Debit for the Web…

Even on the ATMDirect website it states:

ATM Direct was purchased by Accullink, LLC of Atlanta, Georgia in March 2008.
See our press release for more details.

(Side note: i can’t find the press release they mention specifically from their website which is terrible).

This is from the about page:

ATM Direct is a privately held alternative payments provider offering a suite of products that enable PIN debit payments over the Internet. The technology underlying our products are backed by a suite of intellectual property that includes 10 patent families. Our technology leverages a revolutionary encryption and authentication framework which is easy to implement and integrates seamlessly with existing payment processing protocols and systems.

OK, a “business launch” for a “new startup” doesn’t have 10 patent families. Ten fully prosecuted patents families would be worth at least a million or more dollars alone most likely.

Also, they seem to have violated clearly the investment criteria of less than $500K (at a minimum, not including their post purchase investment if any).

ATMDirect looks like a pretty awesome company with a stellar management team and looks like they’re very sophisticated entrepreneurs that have taken advantage of a great IP issue. They are creating value it appears and looks like their attempting to monetize something that was on the shelf. I applaud them for this. That’s really not the point to some of the discontent we’re hearing and feeling right now — myself included.

We’re all humans and error prone. I’ll be the first to admit I make lots of mistakes and misjudgments on a daily basis — WE ALL DO.

I think there’s really a silver lining in this whole fiasco and some very positive things can come from this – if it’s handled correctly.

First, I think Tino and the TAG/GRA need to somehow address this issue with the community directly. Engage the community and create some dialog around it.

Second, don’t just assume that me and some of the other talking heads around the community are just loud mouths that are unhappy and can’t be satisfied (that’s true by the way). I think most people understand that it’s quite the contrary. (a) we’re not unhappy and generally are trying to work hard to improve the community overall and putting our own time, money and passion into it through various events, etc. (b) we’re only the vocal ones — there’s plenty of people who won’t/don’t/can’t speak out and are talking around the water cooler. I’ve talked to a number of people who wouldn’t dare speak out that aren’t too thrilled about this.

Third, use this opportunity to maybe refine some of the rules (or at least, the intentions and instructions for judging in the future) going forward. Lance has suggested some good ones.

Fourth, understand and acknowledge that social media and the community-at-large will continue to play a very important role in the evolution of TAG/GRA and that this is an opportunity to embrace it.

Fifth, it might be worth spending time thinking about how to fund more companies instead of less. Maybe in the future we can get $100k to 3-4 companies instead of one. The cost of “launching” a startup is much lower than in previous years. It might be worth it to investigate the merits of doing a scaled model. 1st gets $50k, 2nd gets $30k and 3rd gets $20k. 4th place can have the services.

I think what we want to avoid is the image that these awards are really a waste of time.

P.S. Drop the silly pitch videos which were goofy and a waste of money/time in my opinion. Or at least get someone to really do a better job in the production. I would suggest Grayson Daughters.