Tag Archives: Red Herring

Red Herring: the End!

This is my final post on the old Red Herring magazines I had collected from a friend. It has been fun to read what people thought 10-15 years ago. You can have a look at them through my Red Herring tag.

The most striking “mistake” was clearly linked to the difficutly in predicting the future. Just have a look at the cover page of July 2001.

I am not sure nanotechnologies have changed the world and 10 years is eternity. At least by start-up metrics. Medicine, optics and materials science as mentioned by Jason Pontin below may not have experienced breaktroughs from nanotechnologies.

But honestly, what I liked the most was Anthony Perkins’ contribution in December 2001. “Its back to the good old days”.

So let just me expand why I liked it (by putting in bold fonts what I liked). Here is the text again:

Just before halloween, Red Herring held NDA, its annual CEO conference on the future of technology. Like the holiday it preceded, NDA started as a spooky affair. More than 400 industry insiders showed up at the spanking new St. Regis Hotel in Dana Point, California, with no idea what to expect. After all, the technology industries have suffered a relentless series of blows to the midsection, and the attendees’ first order of business was to look around and see who was left standing. By the time coffee had been served, however, such fears started to subside. Folks like Qualcomm president Paul Jacobs; Allegro Networks president, CEO, and chairman Dave House; chair of Edventures Esther Dyson; and cofounder of Integral Capital Partners Roger McNamee, were all happily strolling the hotel hallways.

By late afternoon the first day, an enthusiastic, even optimistic, attitude started to take hold. During the “Eggheads Unplugged” panel, which featured Steve Jurvetson, managing director of Draper Fisher Jurvetson; Eric Schmidt, the new CEO of Google; Bruce Schneier, founder and chief technology officer of Counterpane Internet Security; Tim Harris, president and CEO of Structural Genomix; and John Gage, chief researcher of Sun Microsystems, it was encouraging to hear these supergeeks riff on topics like nanotechnology, quantum computing, and other far-out innovations. [1] Almost suddenly, all was well again: our industry was still full of smart people talking about cool things.

At this point, Michael Schrage, codirector of the Massachusetts Institute of Technology’s Media Lab eMarkets Initiative, was edging up to me and observing that technology industries were far from becoming “sunset” industries. “Everyone at this conference is speaking in terms of exponential growth,” Mr. Schrage said. “The only debate that is going on is whether we are going to grow at a rate of ten squared or ten to the eighth.” [2]

On the morning of the second day, I gave a presentation on the “Always-On Generation”. After explaining why I thought the economic growth curve associated with the Internet was still well in front of us, I ended with a slide titled, “What Great Entrepreneurs Are.” [3] First and foremost, I noted that the great entrepreneurs I know are focused. I talked about how Bill Gates had sensed, back in 1995, that he had to turn around the Microsoft battleship and begin focusing on the Internet. He knew that it was going to be such a Herculean task that he had to kick himself upstairs and take on the role of chief software architect to get the job done. I also recounted that when Steve Jobs took back the reins of Apple Computer, he consolidated the company’s product line from 85 different models to two clearly defined families of computers–one for professionals and another, colorful one for consumers.

The second virtue of great entrepreneurship, I explained, was cheapness. This is probably the skill we abandoned most dramatically during the Internet bubble era, when the idea of making a profit seemed the last thing on our agendas. “Michael Dell has built a multibillion dollar business based upon being cheap,” I observed. I also spoke about the virtues of competitiveness and imagination. Throughout my professional career, I have observed the world trying to compete with vigor against Bill Gates. In fact, as far as I am concerned, I noted, Scott McNealy, Larry Ellison, and Steve Case have made careers of trying to topple the king.

Finally, I talked about the fact that great entrepreneurs have a high tolerance for taking risks. To illustrate this point, I noted that the six blue-chip technology companies that had successfully made the transition to the Internet era–Apple, Cisco Systems, Dell Computer, Intel, Microsoft, and Oracle–are still run by their original entrepreneurs. In essence, I believe that it takes the same aptitude for risk to point a large corporation in an entirely new direction as it does to start a company.

After finishing my talk, I felt strangely satisfied that my thoughts had been somewhat original. That was until I sauntered to the back of the room and sat next to Paul Deninger, Broadview International’s CEO and a Red Herring board member. “You know, Tony,” he said in his typical bottom-line style, “its amazing, but what you were just talking about is Entrepreneurship 101. And ironically it seems like we were all listening to these things for the first time!” This is when it occurred to me that somehow–magically–we were back to the good old days. Back to the basics. Back to the days when, as Steve Jobs used to observe, “overnight successes sure take a helluva long time.” When we have to work hard, we earn our glory. And, you know what? It sure feels great!

So here are my comments:

[1]: you need to be imaginative, nanotechnologies, quantum computing, and elsewhere in the 2001 issues, I read about Nanotechnologies again (including fullerene, gallium nitride) and nanotech start-ups (Nitronex, Zyvex, not to forget Nanosys; I am not sure where they are), Europe irising (in biotech. Really?), Robotics, including artificial intelligence, face analysis and recognition. Coming! We need to dream, do not get me wrong. But RH missed Google (just as I did) and probably the Web2.0.

[2] The only debate that is going on is whether we are going to grow at a rate of ten squared or ten to the eighth.” Well, aren’t we in a recession?. Too easy now that we know.

[3] But the piece I like the most is the back to basics, entrepreneurship 101: focus, competitiveness and imagination, cheapness, high tolerance for taking risks. This is what great entrepreneurs are about. Jobs, Gates, Ellison back then. Brin and Page today.


The Monk and the Riddle: a great book

Do not ask me why this book is entitled The Monk and the Riddle as I will let you discover it if you decide to read this “old” book (a more than 10 year-old great piece of Silicon Valley description). Its subtitle is clear though: The Education of a Silicon Valley Entrepreneur.

Not all agree on the fact it is a great book as you may find at the end of this post, from the comment by the Red Herring in 2000. Still, I loved reading this book and let me explain why. Randy Komisar, today a partner at Kleiner Perkins and former enrtepreneur, has written a book about passion and inspiration. He does not tell you how to do your start-up (but he tells you how not to do it). He also explains also very well what Silicon Valley is, the locus of risk taking, where failure is tolerated, where a start-up is more a romantic act than a financial endeavour. “Business isn’t primarily a financial institution. It’s a creative institution. Like painting and sculpting.” [page 55] Here are a more few extracts I scanned from Google Books.

First Mr. Komisar explains that an entrepreneur is a flexible visionary and why the business plan does not have to be strictly followed (or should not always be) [page 37]:

Of course, venture capitalists look for such people [page 38]:

But there is a danger with VCs: the down round which is the consequence of failed momentum [page 52]:

Mr. Komisar gives much more than basic advice. Even if he admits he may not have followed these when he was younger, he understands now how important they are. His book his about the meaning of life where he defines the Deferred Life Plan (that should not be followed) [page 65]:

He therefore considers that personal risks are more important than business risks [page 154]:
Personal risks include:
– the risk of working with people you don’t respect,
– the risk of working for a company whose values are inconsistent with your own;
– the risk of compromising what’s important;
– the risk of doing something you don’t care about; and
– the risk of doing something that fails to express – or even contradicts –who you are.
And there is the most dangerous risk of all – the risk of spending your life not doing what you want on the bet you can buy yourself the freedom to do it later.

[… page 156…]
If your life were to end suddenly and unexpectedly tomorrow, would you be able to say you’ve been doing what you truly care about today?

He also explains why Hard Work is a critical and necessary value of Silicon Valley [page 125]:

But People and Culture remain the most important elements [page 128]:

Another interesting concept is the fact that start-ups need 3 CEOS [page 128]:

But nothing replaces Vision [page 144]:

When I wrote above that Silicon Valley is about tolerance to failure [page 150]:

Obviously it means even success should be mitigated [page 151]:

I really advise you to read this great book, not only for the Riddle but also for the nice, funny and sad story of Lenny and Allison. Enjoy!

Here is what the Red Herring published. The analysis is not wrong, but even 10 years later, I am not sure Silicon Valley is so well understood as the RH thought…

When Wavecom was surfing

I just published a post on the French version of my blog about Wavecom, one of the European success stories. This is coming again from my reading of old Red Herring articles. You can at least check there the RH scan as well as my typical cap. tables. I do there something unusual, I also give the cap. table at the secondary which followed the IPO one year later. The secondary is an important event (even if lesser known than an IPO) where shareholders can find some liquidity. Just check here.

Why companies fail

Again, I found an interesting article in an old Red Herring, dated October 1999. It is entitled the Anatomy of Failure and more importantly, it was written by Geoffrey Moore.

There is not much to say about Moore (if you know him) but he is an absolute much read. In the innovation landscape, he can be placed between Bill Davidow’s concept of Whole Product (pdf) (Moore worked at MDV as a venture partner) and Steve Blank’s concept of Customer Developement. (I will come back soon on Blank and his book The Four Steps to the Epiphany).

In 1999, Moore used his concepts of Chasm and Tornado to explain why companies failed and here are his four main reasons:

1- The Slow Fail: Traditional management (accountability to the plan) does not work. Early markets are unpredictable and require a lot of flexibility.

2- The Chasm Trap: If early enthusiats may buy your initial product, you will need a much more complete product (The Whole Product) to satisfy the early majority. If not, you will be trapped in the chasm.

3- The Tornado Dive: if you are lucky enough to have created the “Killer App”, you may not face the chasm, but an antichasm: the inability to deliver a huge demand and manage your hypergrowth. A dream becoming a nightmare.

4- The Dead Zone: The previous grid shows an area which you may find moving from emerging market to crossing the chasm and finding the tornado. The pain and gain are decent but experience shows you will never reach mature markets, the place for the living deads.

In conclusion, Moore shows optimism and mentions the Full Circle: if you find soon that you are failing (“Fail Fast”), you can react (not follow the plan) and avoid the dead zone to either cross the chasm and/or enter the tornado. Then you may succeed. I scanned the full article, in case some of you would like it. Just email me.

Prepare for dramatic Internet company wreckage.

Another fo my recent reading from old Red gerring magazines. The analysis and predictions are great and provide good lessons for our days… In the same feature, October 98, I found small articles about companies we backed at Index. These three companies went public later on… so a small additional piece for nostalgia.

Prepare for dramatic Internet company wreckage.
By Anthony B. Perkins
ONE 0F THE surest reality checks in the technology business is a visit with Don Valentine of Sequoia Capital. Mr. Valentine’s seed money and sound advice have been instrumental in many of Silicon Valley’s greatest success stories, including Apple, 3Com, Cisco, and Yahoo. He, along with Netscape founder Jim Clark, was the first to proclaim in our pages, back in 1994, that Internet was indeed the information highway, and not just a “TV with a pizza box sitting on top” (see “Don Valentine’s Next Big Bet Is on C-Cube Microsystems,” May 1994 page 58). We recently prodded the curmudgeonly Mr. Valentine to tell us how he thinks the Internet market will play out. His insights are instructive.

First he notes that, like the microchip and PC markets, the Internet market grew organically rather than because it solved any obvious problem that was important to a large group of people who had a lot of money. Mr. Valentine recounts being at Fairchild Semiconductor when he and future Intel founder Bob Noyce marveled at the invention of the microchip but at the same time wondered what it was good for. The early days at Apple were much the same. “I remember wondering what people were going to do with the Apple II. There was no answer!” Mr. Valentine declares. In contrast, the networking boom was about solving big, important problems for corporations. “When Cisco came along, it was addressing an environment desperately in need of a solution,” he explains.

From a venture capital perspective, Mr. Valentine believes that it is better to invest in markets clamoring for new products than in creating new markets. “In the two previous eras—microchips and PCs—lots of companies went over a cliff,” he says. “Uniquely in the networking world, there are almost no busts.” Extending his logic, Mr. Valentine foresees what we have been predicting for a couple of years now that the Internet space will suffer dramatic company wreckage as well. Another veteran VC, Jim Breyer of Accel Partners, concurs with this analysis: “Ninety percent of the Internet companies that exist today will eventually go out of business.” And Mary Meeker of Morgan Stanley Dean Witter says that roughly 75 percent of the Internet companies that went public in the past four years are now trading below their initial public offering prices.

According to Mr. Valentine, part of the overfunding of these markets-in-creation can be attributed to the infamous herd mentality within the VC community. “We financed 6o disk drive companies because each venture firm wanted to have a disk drive investment in its portfolio,” he tells us. “The reason we have so many search engines is that Yahoo got visible. Lots of VCs didn’t have one of those. So they created an Infoseek or an Excite or whatever, and jumped on the back of the train. We are making the same mistake in the Internet era that we made in the PC era. Just think about the environment. There is no application in which the Internet solves a problem. What does the Interne do so far? It sort of reminds me of the Apple computer in 1978. It doesn’t do anything.”

Mr. Valentine feels certain about one aspect of the Internet: that it represents the most efficient marketplace for goods and services on the planet. “Never before has the consumer had all the cards dealt face up where he can make choices and decisions knowing all the facts,” he says. “In traditional marketplaces, consumers have always had to deal with confusion, arcane language, and obfuscation. Buying something is often a hassle. Insurance is a great example of this; dealing with car salesmen is another. Now consumers are being put in a position in which they have phenomenal access to whatever they want.” This may seem of obvious value to businesses—especially when you look at the revenue trajectory of an Amazon.com or contemplate the 10 million’s worth of computer equipment that Michael Dell is selling online every day— but the only thing that is really obvious is the value to the consumer. We ask the same question that the salty Mr. Valentine does: “How do you make money in this perfect marketplace?” Our problem with Arnazon.com has never been its sales potential; rather, we wonder whether it will make technology-industry-level margins.

I threw Mr. Valentine’s comments out for discussion at dinner last night with Broadview CEO Paul Deninger and Red Herring editor Jason Pontin, inciting a lively debate. From Mr. Deninger’s perspective, Amazon.com may well be the exception, not the rule. “Look, Jeff Bezos at the right place at the right time with the right product,” he said. “But for every Amazon.com, there will be 20 flameouts.” His main point was that “e-commerce is a new way of conducting commerce electronically, but not necessarily a new industry.” Jason piped in with his theory that the disaggregation effect of the Internet “creates room for re-aggregation.” (By this time we had gone through our fourth bottle of wine.) And I believe Jason is quite right. Now that portals have better organized the Web, and Amazon.com has shown everyone how to conduct Internet commerce successfully, it’s time for the rest of the world to jump into the game. Instead of relying on Yahoo and the major portals to organize your experience, you will build your home page with links into the “miniportals” representing your specific interests. Eventually, all major product and service distributors will go online and fend off startups like Arnazon.com that are eyeing their lunch.

One defender of the miniportal revolution is Jim Moloshok, senior vice president of Warner Brothers Online. At our recent Herring on Hollywood conference in Santa Monica, California, Mr. Moloshok au but declared war on Sillcon Valley’s search-engine geeks. He warned Hollywood’s studio producers and new-media types that they are in danger of losing control of their online destinies if they don’t stop giving away their valuable television-, film-, and music-related content to Internet companies starved for programming, and that they should start demanding better licensing terms. “Entertainment companies are mortgaging their online future,” said Mr. Moloshok. “They’re giving away their content in exchange for exposure. But the entertainment companies are basically underwriting these Internet companies by throwing away their intellectual currency.” All this debate left me agreeing with Mr. Valentine’s basic premise: the Internet is still a market-in-creation. Although we have our arms around the idea that it represents a vast and efficient distribution channel and will provide a stream for investment news and entertainment content, its real value has yet to come into focus. And as we grope along this trail, we will continue to see fledgling companies like Broadcast.com and GeoCities go public. But we’ll have to wait a while to sec which cars stay on the road and which ones fly off the cliff.
[For Tony Perkins’s free weekly newsletter, send an email with subscribe in the suhject line to tonynet@redherring.com.]

Why most economists’ predictions are wrong

In the continuation of my reading of old Red Herring magazines, here is a very interesting article from June 1998. It is even funny in its wise comments and surprising mistakes. But first read what he says about the difficulty in predicting. It reminds me an old post on Peter Thiel, Technology = Salvation.

Yes sometimes, “The truth is that we live in an age not of extraordinary progress but of technological disappointment. And that’s why the future is not what it used to be.”

But then what about his predictions and in particular the ones I marked in red…

Super angels: recycling of old stuff?

In my current reading of old Red Herring and Upside magazines (see for example Google in 2000 and Funny Data in the Internet Bubble), I just discovered an interesting ar4ticle about how angels may replace venture capitalists (Upside 1999).

They take a one example sendmail which did not go with Kleiner Perkins, Accel or IVP but closed a $6M round with business angels at a $20M valuation. The article also mentions the Band of Angels, agroup of then 120 investors having invested a total of $44M with an average investment of $600k and the Angel’s Forum with 20 investors putting up to $500k per start-up.

Sendmail raised $35M in 2000 (series D), $14M in 2002, as well as debt financing (at least $7M) as recently as 2009. Sendmail is still private so difficult to say if it is/will be a success or not.

I had doubts in a recent post on Super Angels being new stuff, this shows it is clearly not that new…

Bubble? You said bubble. Just read about it….

As I mentioned recently, a friend of mine gave me a collection of old Red Herring magazines. A funny byproduct of this gift is that I noticed that the number of pages of the Red Herring seemed to follow closely the Internet bubble. A decent number of pages before 1999, a peak in early 2000 and then a crash. I quickly did the exercise of comparing and here is the result!

When Google wasn’t (yet) Google…

A friend of mine just gave me a bunch of old Upside and Red Herring magazines. For those who are too young, these were the references in high-tech and entrepreneurship in the late 90’s and early 00’s! I plan to go through them and when something will attract me, I might mention it here. So here is the first example:

In May 2000, search engines were still nice internet tools that did not make that much money. Google was a hot start-up with two brilliant Stanford PhD students, and no real CEO. SO here is what Upside was saying:

Searching for profits. By John F. Ince, Upside Magazine, May 2000.

The pioneers had to expand to make money. Will the next wave fare any better?

During meetings, they bounce on huge rubber exercise balls. “It helps us to think better,» explains one employee. Between meetings, they blow off steam in the air hockey room, rollerblade; and ride bikes at the bay-front park, or go downstairs for a massage. At lunch and dinner, they dine on gourmet meals prepared by Charles le Chef, previously employed by members of the Grateful Dead and diverse upscale restaurants. Classical music from a baby grand piano will soon waft through the lobby. Welcome to Googleplex, home of a hot, new search engine that two Stanford Ph.D. candidates are riding like a cresting wave on an ocean off avorable publicity into a Never Never Land, where money is as plentiful as 3D-foot waves at Maverick’s, and nobody seems too concerned about wipeouts or ever having to turn a profit.

In November 1999, Fortune wrote, “Google seems to exhibit inscrutable magic.” But the biggest mystery is that the company seems to give such short shrift to the more mundane aspects of developing corporate strategy, penetrating new markets, and creating revenue. Nor does anyone in Googleplex have a clear timetable for when Google will turn search technology into profit. “Our number one priority,” says co-founder Larry Page, “is improving our technology and the user experience. We are insanely focused on that.”

In terms of pure technology, Google is getting the best reviews. According to a competitive survey conducted by NPD Online Research, Google came out at the top of the list in overall user satisfaction and loyalty. The survey included the top 13 search and portal sites and was commissioned by 13 major Internet companies, including America Online, Ask Jeeves, HotBot, LookSmart, Lycos, Excite, Go Network, GoTo.com, Netscape, WebCrawler, and Yahoo. What makes Google’s technology so cool? “It is a sophisticated next-generation search engine that uses complex mathematical algorithms to determine the importance and relevancy of Web pages,” says CEO Larry Page. Whereas most search engines use a keyword or metasearch technology, Google emphasizes making sure that the most important result comes up first. To do this, Google takes advantage of the expertise of millions of the “highly qualified editors,” out there who are creating, formatting and linking their Web sites. Google is hypertext-based and takes a gestalt view of information, analyzing all the content on each Web page. It considers such factors as fonts, subdivisions, and the positioning of all the terms on the page. It also factors in what’s happening in the site’s neighborhood. It looks at links and comes up with results that more often than not are superior to other searches in the critical category of relevancy. Google also provides searchers with an excerpt from the Web page with search terms highlighted in boldface type.

“I was very impressed, especially with their commitment to technological excellence,” says John Doerr of Kleiner, Perkins, Caulfield, and Byers. Kleiner eventually invested and : Doerr took a position on Google’s board, as did Sequoia Capital’s Moritz.”People thought we were crazy, both investing and both going on the board of yet another search engine,” says Doerr. “But their search numbers kept going through the roof, and still do.” In a little over two years since the release of its beta site, Google’s capability has gone from 50,000 searches a day to more than 10 million. Half of those searches emanate from Google’s Web site, google.com, and half from co-branded Web sites that contract with Google to provide search.

“Google is a shining example of superior technology actually drawing traffic on the Internet rather than marketing,” says Danny Sullivan of Search Engine Watch. Can Page and Sergei Brinn, Google’s other 20-something founder, translate their technology into a profitable business even though they have no business experience? Will they eventually hand over the reins to a seasoned veteran, as Yahoo’s founders did with Tim Koogle? “We have had discussions,” says Brinn, “and when the right candidate appears we will hire that person.” Moritz isn’t sure the process will be so smooth. “When will we know when we have found the right candidate?” he asks. “We won’t. Jerry [Yang] and David [Filo] weren’t sure that Tim Koogle was the right guy at Yahoo. They asked, ‘How do we know that TK is the one for the job?’ We didn’t. You only find that out after.” Will Moritz and Doerr force the issue? “We are investors, not managers,” says Moritz. “We can argue our position, proffer advice, make suggestions, twist arms gently, but we can’t force them to do anything. This is their company.”

Is Google positioning itself for acquisition, like Direct Hit, or does it intend to go it alone? “We are constantly talking with the other portals and search engines about possible partnerships,” says Brinn cryptically. “It is a very small community,” he adds. According to IDC’s Parr, “If you’ve got the money to [remain independent], it’s a reasonable strategy,” He continues, “Build word of mouth, build a team, get product ready.” Google’s strategy is to make money via co-branded WebSearch, SiteSearch, and advertising. WebSearch offers commercial Web sites such as Netscape’s Netcentral portal and The Washington Post search capability for the Internet at large. Google has licensed its SiteSearch technology to other Web sites, such as Linux vendor, Redhat.com, enabling users to search for information contained only on RedHat’s site. But these contracts only provide compensation in the vicinity of S5 to $10 per thousand searches- not much of a revenue source. Google expects its new banner advertising program, highly targeted to specific users, to account for 60 percent of its revenues within two years. “When your customers are doing search, you know a lot about them,” says Page. “That knowledge base can be monetized in higher advertising rates.”

There are many lessons, but for me the most striking is that VCs do not seem to dictate what the founders will do. Of course, Google was and is an excpetion in many dimensions, but it shows that entrepreneurs are the real center of Silicon Valley. The second striking point is the fact that technology was Google’s main asset. There was a bet that their technology leadership would convert at some point into a profitable business.