Monthly Archives: August 2011

Steve Blank and Customer Development

Although I had mentioned him in previous posts such as The Art of Selling and his Views on Entrepreneurship, I had never read Steve Blank’s until now. I just finished reading The Four Steps to the Epiphany and I must just say it is a great book.

I will explain into some details his theory but the main reason I love this book is how he explains why founders are critical in all the decisions of the early phases of a start-up. Not the usual “hire business people”, but “learn and become an expert until you reach your limits”. I should immediately add that it is not an easy book to read and certainly mostly useful to people in the process of launching a start-up or developing new products. His web site steveblank.com is also very informative, you will find tons of slides of his teachings on the web and I particularly recommend the list of books he suggests reading.

Steve Blank is famous worldwide (mea culpa for not mentioning him more before) for his theory on the Customer Developement. Whereas we all know that the high-tech world is not about technology (no it’s not; ideas and technologies are far from sufficient to explain this world), we have a tendency to focus on products (much more important than technologies) and markets (business vs. technology). But Steve Blank explains how products can be an illusion (if never sold to customers) and how markets can be extremely dangerous if not well understood; whereas what counts are the users of products, the people which make markets, i.e. the customers. He explains how important it is to interact with potential customers in an iterative manner (bottom-up) even before designing and developing the product, then while developing them and be careful about a top-bottom-only analysis of the markets.

This is one of his famous slides where he explains that Product Development in isolation is deathly and should be done in parallel with Customer Developement only. Start-ups do not need teams in Marketing, Sales or Business Development, but only two teams, in Product Development and Customer Development, each headed by one of the Founder(s)/CEO. Below is another detailed description of this process (also available online). Then when they become large, they can switch to the traditional models.

You should absolutely read this if you are in a start-up mode. This may help you avoid many (possibly deathly) mistakes.

Art and Technology

Before coming back to my favorite topics and as a conclusion to a rainy summer, let me mention two artistic projects where the Internet, new technologies (and the fact they are cheaper, easier and as the same time high quality tools) have a huge impact. But more importantly, these are beautiful projects with a lot of creativity.

I discovered the first one last week. Playing For Change is a magnificent way of revisiting music charts and connecting people. Click on the picture and discover the new versions of famous songs. My favorite is probably #40, Redemption Song, but I did not have enough time to listen to all of them.

With a similar inspiration, David Lynch [in fact his son] has travelled through America for his Interview Project. Short videos describe the USA in as convincing a way as any economic or sociologic analysis.

I hope you will take the time to try and hopefully enjoy as much as I did.

More data on IPO and founders.

Following a recent post on the age of founders, I just did a more systematic analysis on the topic and at the same time analyzed more elements on the cap. table of many companies. I had 47 companies in my previous post. Here I just have 100!

The two tables give the founders’ age, the number of years from foundation to IPO and the founders’ remaining equity at IPO by field and geography.

Now if you want to have a look at the full record, just click on the next picture, you will get a 107-page pdf with all data. But please be aware of some of the following difficulties. All this is best effort! The cap. tables are subject to mistakes and comparisons are tough to make. For example:
– Founders do not always share equally the initial stake.
– There is no real definition of founders but the group of people who recognize themselves as such.
– ESOP reserved for future grants is a quite artificial part of the overall picture.
– When age was not available, a indirect measure was to consider a BS is obtained at age 22.
– Directors include independant directors only, not the investors.
– Finally not all companies went public, some were acquired and some filed but did not go public (yet)

Is there anything worth noticing? Well Biotech/Medtech founders are the oldest whereas SW and Internet entrepreneurs are the youngest. Surprising? Not really, but remember, these are not statistically valid data, this is just a compilation…

Age of founders

As I just mentioned in my previous post on Carbonite, I promised to have a look at the age of founders again. This follows some challenging comments from Pascale on a recent post, Is There A Peak Age for Entrepreneurship?

I have data, the ones I may bore you with when I publish cap. tables of IPOed companies. Well, the companies publish the age of their officers so when the founders are still active, you can get their age at IPO and getting the number of years from foundation to IPO, you have the founders’ age. Usually, the biographies also give the previous companies founded by these people. So I did yesterday the exercise in two broad groups: companies which went public recently (mostly in the last 5-10 years) and companies which had gone public in the 90s or even before. Just remember that in my book, I had compiled the age of the “famous” entrepreneurs and it was 27.

First the group of recent companies (52 founders from 25 companies):

Then the older companies (53 founders from 22 companies) with the average of the group but also of the two groups at the end.

These are not stats, just anecdotes and you should also see that when I did not have the age, I looked at academic background with the idea that you have a BS when you are 21… So the average is 34, increasing from 33 to 35. Definitely not the 27 I had, not the 40 either claimed by recent analysis. Is the glass half empty or half full, I will let you decide! I still wonder why the big successes seem to induce a lower average (if true!).

A final (and not related comment): “years from foundation to IPO” has increased from 3.7 to 6.8, being 5 overall. Still very far from what I had in Europe, which was closer to 9 or even 10 years.

IPO again: Carbonite is the new star

I just discovered about Carbonite, one of the companies in The 17 Most Important IPOs To Watch For In 2011. Storage and backup are clearly hot fields in 2011 (just have a look at Fusion-io for example). In the 1st link I just mentioned above, Carbonite is described this way:

Carbonite, the online storage backup for consumers and businesses, has raised roughly $67 million in various venture rounds, while its sales have doubled each year since its launch in 2006. The company claims to have backed up some 80 billion files, with more than 150 million new files backed up daily. It also claims to have restored more than 7.2 billion files that would have been otherwise lost forever. Inc. Magazine placed it as #9 on its Inc. 500 list for 2010 of the 500 fastest growing private companies. With “the cloud” remaining a hot topic and with its annual basic plan starting at less than $55.00 a year, Carbonite should have a solid reception when it comes to market.

So I digged the IPO S-1 document and looked at the company with my usual interest. Cap. table. founders, investors, ESOP. The 2 foudners has 7-8% each pre-IPO, investors 60% and employess the remaining 25%. What might be a little scary though is the lack of profitability. Here it is.

The S-1 also gives the list of selling shareholders.

But following a few exchanges of comments on a recent post, Is There A Peak Age for Entrepreneurship?, I looked at something else, the founders and their age. Here is what the prospectus gives:

David Friend (63) has served as our chief executive officer and as a member of our board of directors since he co-founded our company with Mr. Flowers in February 2005. Mr. Friend also served as our president from February 2005 to September 2007 and again since August 2010. Prior to starting our company, Mr. Friend co-founded with Mr. Flowers and served as chief executive officer and president of Sonexis, Inc., a software company providing audio-conferencing services, from March 1999 through March 2002 and served as a director of Sonexis from March 1999 through August 2004. From June 1995 through December 1999, Mr. Friend co-founded with Mr. Flowers and served as chief executive officer and as a director of FaxNet Corporation, a supplier of messaging services to the telecommunications industry. Prior to that time, Mr. Friend co-founded Pilot Software, Inc., a software company, with Mr. Flowers. Previously, Mr. Friend founded Computer Pictures Corporation, a software company whose products applied computer graphics to business data, and served as president of ARP Instruments, Inc., an audio hardware manufacturer. Mr. Friend served as a director of GEAC Computer Corporation Ltd., a publicly-traded enterprise software company, from October 2001 to October 2006, and currently serves as a director of CyraCom International, Inc., Marketplace Technologies, Inc. and DealDash Oy. Mr. Friend holds a B.S. in Engineering from Yale University. We believe that Mr. Friend is qualified to serve on our board of directors based on his historic knowledge of our company as one of its founders, the continuity he provides on our board of directors, his strategic vision for our company and his background in internet and software companies.

Jeffry Flowers (57) has served as our chief architect since April 2011, as a member of our board of directors since he co-founded our company with Mr. Friend in February 2005, and as our chief technology officer from February 2005 to March 2011. Mr. Flowers co-founded with Mr. Friend and served as chief technical officer of Sonexis, Inc., a software company providing audio-conferencing services, from March 1999 through March 2002 and served as a director of Sonexis from March 1999 through August 2004. Prior to that time, Mr. Flowers co-founded with Mr. Friend and served as chief technology officer and as a director of FaxNet Corporation, a supplier of messaging services to the telecommunications industry, and co-founded Pilot Software, Inc., a software company, with Mr. Friend. Mr. Flowers served as VP of Development at ON Technology Corporation, a publicly-traded software vendor, from June 1994 through February 1996. Mr. Flowers holds an M.S. and a B.S. in Information and Computer Science from Georgia Institute of Technology. We believe that Mr. Flowers is qualified to serve on our board of directors based on his historic knowledge of our company as one of its founders, the continuity he provides on our board of directors, his strategic vision for our technology, and his background in internet and software companies.

Doing simple math (so maybe not very accurate, this would give the following table)

Founder Friend Flowers
Born in 1948 1954
Company Founded at age Founded at age
Sonexis in 1998 50 44
Faxnet in 1994 46 40
Computer Pict. in 1982 34

So it shows that the founders are not young, not even middle-age. They are serial entrepreneurs and probably close friends given the facts they have co-founded 3 companies together and were definitely not in their twenties when they did it. In my next post today, I will come back on the topic.