May 26, 2010 by dan.

John Cook from Tech Flash asked me to comment on the following question:What should Microsoft do to reposition itself as the most dominant and valuable tech company on the planet?

This is not a problem that has appeared over night; it has been decades in the making and can’t be cured with a single act.  The industry has matured, and Microsoft is still run like the company it was 20 years ago.  It lacks the visionary who can anticipate what its customers will desire and the ability to delight and surprise (in a positive way) those customers with a clean and crisp innovation.

Microsoft has become the IBM of the last generation – it is a de facto enterprise solution and “no one will get fired for selecting Microsoft.”  Microsoft had the ability to lead the way in the Internet, but it instead focused on the competition inside and didn’t dream the big dream.  Worse – it became boring!

Look at Windows Vista and Office 2007.  Neither were improvements on previous versions, nor were they more stable or easier to use.  And, of course, Microsoft had the clear shot at the Smartphone operating system.  Instead, it tried to bring us Windows on our phones.

Customers wanted new thinking, sleek products, and ones that were much easier to use.  The iPhone was really a breakthrough – a browser-based phone that was truly useful and enabled 1000’s of cheap, easy, and imaginative apps.  Apple unleashed the imagination and creativity of an entire generation.  And then they extended it to the iPad.  They took leadership of the entire industry.  They earned the mantle.

The fact that a large company loses its ability to innovate is not a surprise.  I call this the  ”$0B Business Problem.”    As an illustration, I was the first GM of the Microsoft Search team.  We had a great plan to lead the search business that would grow to a new $250M business in 3 years. (Any VC would have funded this business; it returned over 50x ROI.)  But we competed for resources with Excel, which needed the same 25 headcount, and had an net present value of $4B.  In that context, my $250M rounded to $0B, and we didn’t get the people.

Microsoft needs to find a way to unleash it’s innovation.  It needs to behave more like  a startup.  When I was there, I suggested Microsoft form a group called “The Idea Factory,” where innovative and entrepreneurial employees could “spin in” (rather than spin out) a new idea, and create a startup around that idea.  The notion was that an internal VC group would vet and fund a portfolio of ideas, in exchange for ownership in the new company(newco)  and a right to acquire the entire company at a later date at a market price.  The employees who transferred to newco would exchange their options/restricted shares for newco stock.   And the newco would hire a great startup CEO to build the company.  These newcos shouldn’t be constrained to “work within the existing system,” or you will get another Windows Mobile instead of an iPhone.

Changing leadership at Microsoft, but keeping the system, won’t change the company’s trajectory.  Acquiring a large and already successful company won’t solve the problem.  Nor will decreeing that it is going to “kill Google,” or “kill iPhone.”  Microsoft still has the most formidable research and intellectual ability in the industry.  Microsoft needs a better vision, one that is tied to delighting customers.  Technology that is easier to use and just works.  And technology that surprises it customers.  If Microsoft can’t make this transition, it risks becoming irrelevant in the industry. That would be sad.

Posted in Apple, Strategy, Microsoft | 1 Comment »

March 17, 2010 by dan.

Setting a strategic course and vision for a startup is one of the most potent weapons to get your company on the right path, become capital efficient (because you will spend your resources wisely to reach your goal), and then get to a premium exit valuation. Yet, many startups don’t spend sufficient time early on setting their strategic course. This post offers some simple tips in doing this.

Since I am a professional angel investor, many people now see me through that lens – a finance guy. People who have known me for some time would think that laughable. “Dan is a techie or a strategist,” would be a much more common refrain. Good angels must help their startups with more than just money – startups need the benefit of the experience their professional angels can bring to bear.

The first step in setting a vision for you company is simple – sit back in a quiet room and think about what you define as success. Write down all of the statements that come to mind. If there are several co-founders involved, do this as a team activity (or maybe do it individually and then come together and merge your visions). While anything is acceptable, specific statements are most helpful. Examples might be:

• Newco achieves $100M in revenue.
• Newco is recognized as the market leader in the emerging XXX category.
• Newco is acquired by XXX for $300M.
• Newco revolutionizes solar energy production with its latest generation of solar cells.
• Newco’s proprietary algae system creates the first commercially viable alternative to petroleum for gasoline.
• Newco buys Microsoft.
• Etc.

Several statements are probably better than one.

With these in hand, think about the date at which you hope to achieve those goals. Then comes the fun part.

Write the front page Wall St. Journal article that appears about your company on that day. Remember several things.

1. The headline is important; it must reflect the story.
2. Newspaper stories are written as an inverted pyramid structure. The most important information goes at the top of the story and the details follow.
3. The total article must set out why the achievement is important in both a business and strategic sense. Why it is a milestone?

This will be fun, but it is often more challenging than it appears to be at the surface. Try it and post your feedback.

For extra credit, put together the time line of headlines/articles that get you there.

If done well, it will point out with a degree of precision where you are heading, what it will take to get there and if there are differences among the founders, or other key stakeholders.

Posted in Strategy, Startups, Angel Investing | No Comments »

January 17, 2010 by dan.

I am often asked, as I was today, what are the biggest mistakes that startups make that cause failure. Among them is a lack of focus that can be characterized by the phrase: “more startups die of indigestion than starvation.” It is hard to raise money. Therefore common wisdom would indicate that “starvation” is the biggest risk. However, years of experience show that this is only a part of the truth. Very often when a startup runs out of cash, the root cause is a lack of execution against its plan that was brought on by trying to do more things than their plan or funding allowed.

Usually this is done for the best of reasons. For example, a large customer will ask for more features than were originally planned. Or, as the product develops, it becomes clear that the product can do lots of things that customers really do want. Or it will be harder to develop the product, so the company will try to do something different. Or the original marketing plan is harder to execute that originally contemplated, so the company will try to build a different products. Or …

Bottom line: the company will try to do more than it possibly can, given the funding it raised.

And, understand, these words are easy to say, but hard to live. They always have been. In certain economic cycles, lots of VC funding has helped keep companies alive, but not necessarily better outcomes for investors or entrepreneurs. In the current economic cycle, markets are unforgiving. So, I have the following recommendations:

1. Be realistic on you initial plan. See counsel from experienced entrepreneurs or business people.
2. Be a great cheerleader externally, but keep a strong sense of realism about what is really happening with the business. A good, strong independent board and advisors help. But you must be willing to listen.
3. Stick to the plan. Not blindly, but be careful not to churn plans.
4. Don’t stop thinking about new ways your business can meet new customer needs, or ship new innovative products or technologies. But.. rather than trying to alter your plans, keep a notebook with each of the ideas. Review those ideas with your board and advisors and have a process that you agree to before going off plan.

While all of this may seem a little to regimented for a startup, the alternative leads to “indigestion” that can be fatal.

Comments?

Posted in Strategy, Startups, Angel Investing | No Comments »