The Venture Initiation Process Mazen Araabi

My Background Xdrive – sold to AOL for $50MM ResponseBase – sold to Intermix for $10MM MySpace – sold to News Corp. for $580MM

Xdrive – sold to AOL for $50MM

ResponseBase – sold to Intermix for $10MM

MySpace – sold to News Corp. for $580MM

Elements of Successful Startups A great team Market opportunity Distribution/Sales Financing Timing

A great team

Market opportunity

Distribution/Sales

Financing

Timing

1. TEAM

Team Paradox of great teams (widely accepted, rarely implemented) Tough decisions Balancing act Time vs. speed Depends greatly on timing

Paradox of great teams (widely accepted, rarely implemented)

Tough decisions

Balancing act

Time vs. speed

Depends greatly on timing

Elements of Great Teams Expertise Intelligence (over experience) Decisive, action oriented Agile, flexible, adapt to change Focused Shared goals

Expertise

Intelligence (over experience)

Decisive, action oriented

Agile, flexible, adapt to change

Focused

Shared goals

Elements of Great Teams (Leadership) Lead by example Look up to and respect Original thinking, not clouded by emotion Independent thinking, challenge conventional wisdom Balance: Ruthless evisceration of the facts, while remaining optimistic Confident, while remaining humble Celebrate wins, while looking forward

Lead by example

Look up to and respect

Original thinking, not clouded by emotion

Independent thinking, challenge conventional wisdom

Balance:

Ruthless evisceration of the facts, while remaining optimistic

Confident, while remaining humble

Celebrate wins, while looking forward

Elements of Great Teams Most important… team chemistry : Enthusiasm Authentic Fun Original Friendship Loyalty Respect No ego

Most important… team chemistry :

Enthusiasm

Authentic

Fun

Original

Friendship

Loyalty

Respect

No ego

Elements of Great Teams Ultimately success is about doing what you love with people you want to be around. Warren Buffett: “We intend to continue our practice of working only with people whom we like and admire. This policy not only maximizes our chances for good results, it also ensures us an extraordinarily good time….Charlie and I have never been in a big hurry: We enjoy the process far more than the proceeds – though we have learned to live with those also.”

Ultimately success is about doing what you love with people you want to be around.

Elements of Great Teams (Authenticity) Authenticity of character Be yourself Personal best No ego Authenticity of purpose Why are you starting a company? Shared goals/vision Based on real market insight Startup Success = a(C) + a(P) + t(talent)

Authenticity of character

Be yourself

Personal best

No ego

Authenticity of purpose

Why are you starting a company?

Shared goals/vision

Based on real market insight

Startup Success = a(C) + a(P) + t(talent)

Internal Scorecard Warren Buffett: “ The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard…If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?”

Elements of Great Teams Coach Wooden: “To my way of thinking, losing is not the end of the world, not does victory put me on top of it – not even a national championship. There is something beyond, something even greater than winning the race. We live in a society obsessed with winning and being number 1. Don’t follow the pack. Rather, focus on the process instead of the prize. The score will take care of itself when you take care of the effort that precedes the score.”

Elements of Great Teams Muhammad Ali: “It isn’t the mountains ahead to climb that wear you out; it’s the pebble in your shoe.”

How to get such a team? Lot to do with timing Usually (but not always) already know each other: Work together Went to school together Elements of Great Teams

How to get such a team?

Lot to do with timing

Usually (but not always) already know each other:

Work together

Went to school together

2. MARKET

Market New market disruption Existing market disruption

New market disruption

Existing market disruption

New Market Disruption Create a new market High risk/high reward First mover advantage (network effects) Don’t know: features, business model, distribution Need to move fast, make mistakes, iterate Fast followers attempting to capitalize on mistakes Examples: Twitter, Betfair, eBay, Friendster

Create a new market

High risk/high reward

First mover advantage (network effects)

Don’t know: features, business model, distribution

Need to move fast, make mistakes, iterate

Fast followers attempting to capitalize on mistakes

Examples: Twitter, Betfair, eBay, Friendster

Existing Market Disruption Already know a market exists Need to be disruptively better, faster, cheaper Can’t be too similar to market leaders Really need to understand user/customer, competitive landscape Examples: MySpace, Facebook, Dell, Skype

Already know a market exists

Need to be disruptively better, faster, cheaper

Can’t be too similar to market leaders

Really need to understand user/customer, competitive landscape

Examples: MySpace, Facebook, Dell, Skype

Identifying Market Opportunity Usually insights from working in market Primary data from actual users/customers Allows you to make correct strategic decisions Goes back to timing - opportunity for an existing team to come together What are you an expert in? What do you know or understand better than anyone?

Usually insights from working in market

Primary data from actual users/customers

Allows you to make correct strategic decisions

Goes back to timing - opportunity for an existing team to come together

What are you an expert in?

What do you know or understand better than anyone?

Market Opportunity (Strategic Decisions)

Note on Market Size Depends on goals More important to identify a real market opportunity Market, competitive landscape requirements Align goals with investors Remember why you’re starting a company

Depends on goals

More important to identify a real market opportunity

Market, competitive landscape requirements

Align goals with investors

Remember why you’re starting a company

Market Opportunity Correctly identifying and executing against a real market opportunity is the most important element of successful startups Average team in great market can still succeed, while great team with no market has no chance of success Great markets provide a lot of room for mistakes

Correctly identifying and executing against a real market opportunity is the most important element of successful startups

Average team in great market can still succeed, while great team with no market has no chance of success

Great markets provide a lot of room for mistakes

Market Opportunity Warren Buffett: “ A good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

3. DISTRIBUTION/SALES

Distribution/Sales Often the difference between success and failure More often than not, winners in market had best distribution, not best product (ideally want both) Opportunity for network effects Competitive advantage/barrier to entry

Often the difference between success and failure

More often than not, winners in market had best distribution, not best product (ideally want both)

Opportunity for network effects

Competitive advantage/barrier to entry

Distribution/Sales Trends: LAMP stack Features instantly replicable Storage/bandwidth costs Barriers to entry effectively zero Distribution becomes only sustainable competitive advantage

Trends:

LAMP stack

Features instantly replicable

Storage/bandwidth costs

Barriers to entry effectively zero

Distribution becomes only sustainable competitive advantage

Distribution/Sales Understand how you will get users/customers signed up in a scalable way Depends on business model

Understand how you will get users/customers signed up in a scalable way

Depends on business model

4. FINANCING

Financing How much need to raise? Based on goals, market size, product, competitive landscape Don’t under or over-capitalize Where will get access to capital? If have team + market right, should be able to raise money

How much need to raise?

Based on goals, market size, product, competitive landscape

Don’t under or over-capitalize

Where will get access to capital?

If have team + market right, should be able to raise money

Financing Business model Understand how will make money How does business model relate to goals, market size, ability to get distribution, and competition In general, best business model will emerge over time More important to identify market opportunity, and get users/customers

Business model

Understand how will make money

How does business model relate to goals, market size, ability to get distribution, and competition

In general, best business model will emerge over time

More important to identify market opportunity, and get users/customers

5. TIMING

Timing Critically important, yet often overlooked Not talking about when to start a company (although may be easier in recession) Timing in terms of market and team Impossible to predict accurately, but important to have sense of timing.

Critically important, yet often overlooked

Not talking about when to start a company (although may be easier in recession)

Timing in terms of market and team

Impossible to predict accurately, but important to have sense of timing.

Timing ResponseBase: Company formation Online advertising market MySpace: ResponseBase acquisition Friendster YouTube: Paypal acquisition Broadband adoption Flash standard Embeddable video/clip culture

ResponseBase:

Company formation

Online advertising market

MySpace:

ResponseBase acquisition

Friendster

YouTube:

Paypal acquisition

Broadband adoption

Flash standard

Embeddable video/clip culture

Digging into the Lessons A great team Market opportunity Distribution/Sales Financing Timing

A great team

Market opportunity

Distribution/Sales

Financing

Timing