Category Archives: Company behavior

Jet.com – Not ready for Prime time

I really wanted Jet.Com to work. When they announced the service as an alternative to Amazon, I thought that a new kind of competition would be good for the industry. Unfortunately, my experience shows that great ideas and intentions that are not ready for prime time = just a terrible customer experience that appears doomed.

Jet.com offers a membership service with what they believe to be prices 10-15% below the competition. As Costco has proven, a membership purchasing concept can be great for both customers and business. With free shipping on purchases over $35, the offer seems attractive.

I was pleasantly surprised to find a wide array of products on Jet.Com. Their UI is simple and straightforward – well suited to the task. Graphics are good and their purple theme interesting.

Given that I am a photographer, as well as techie, I first went to cameras. I was astonished to see a Nikon pro camera (D4S) in their listings. I immediately added it to my cart and the savings were indeed substantial enough to convince me to upgrade from my three-year-old D4.

Then the fun started. I clicked check out, entered my shipping and credit card info, and clicked purchase. They seems to process my order. Then a message popped up that they had a problem and please retry or call a “Jet Head.” I tried again. And again. No luck.

I called and Auli’i was really pleasant. Saw the item in my cart, confirmed that they had it, confirmed the price, confirmed that it was indeed a US sourced item, but got the same error. She put me on hold (with my permission) and talked with support who acknowledged that they were having problems. I was asked to try a different browser – I tried two more. Same result. She said that she would work with support to get my order through the system, process it and I would receive an email acknowledgement.

Two days later – not received. So, I called again. Brandon acknowledged that they were have some problems. (Can you say “not ready for prime time?” Yes.. pun intended) When he looked at my account, there were no items on order, nothing in my shopping cart, even though my account still showed the Nikon camera. He asked me to re-purchase. I did and there was no such product.

He told me that they had some issues with items that they priced too low and then removed from the system and that was probably what happened. They would not honor the price for an item that had already been ordered. And then, repeated the part line about service and price.

After I hung up, I got even angrier. Clearly this is amateur hour! They post items and prices to attract you to the site, don’t have them at that price, let you add them to your cart, and then have the “cart fail” so that they don’t have to honor their commitments.

And then, two days later, got an email response, again apologizing and asking for patience while they worked through technical issues. So, I checked and the same item was reposted, with the same price. Added to my cart, clicked purchase and got exactly the same error. And was informed, that the customer service staff had no ability to do a work around.

Intolerable policy and service. Chalk this up as another startup that doesn’t get it.

 

Apple: You’ve Got to be Kidding

I hope that you all have been following the tiff that has developed between Apple and its app vendors and publishers (see e.g. http://www.informationweek.com/news/personal-tech/smart-phones/showArticle.jhtml?articleID=229200215). Nothing like taking wonderful successes like the iPhone and iPad and then let unbridled greed kill an ecosystem. This is exactly the kind of corporate behavior that has killed so many nascent new markets and deserves to be punished.

As those that have read my previous blogs know, I am a big iPad fan. Among my favorite apps on the iPad are Kindle and Netflix. I was proud of Amazon for sticking up to the publishers to try to get better pricing for their customers, even though they ultimately failed. (Can anyone explain to me why a printed book should be cheaper than an eBook?)

The only logic behind Apple’s decision that ALL content offered through their platform should have to pay them 30% of the gross is that they think they can get away with it. The end result will be one of the following:

1) The content providers will have to charge 30% more on Apple platforms; or

2) There will be less content available on those platforms, because all content will only be available on the iTunes store.

Neither of these alternatives is good strategy for Apple. While exceedingly profitable in the short term, ultimately, it will lead to their ecosystem being stifled of innovation and being surpassed by others that are friendlier to partners and user economics.

I believe that Apple is still thinking like the underdog in its markets and not like the market leader it has become.  Being the market leader brings obligations as well as exceptional rewards.  If Microsoft were to decide to charge a 10% charge for all e-commerce done on Windows, the furor would be loud and never end.  But Apple, with its innovative products seems to believe that it is still the underdog and not the market leader with iPad and iPhone.  It is exactly this sort of bad corporate greed that forces governments to become involved in our industry (see http://online.wsj.com/article/SB10001424052748704657704576150350669475800.html?mod=WSJ_Tech_LEADTop). I hope that Apple senior management and their board wake up soon.

I would urge all iTunes customers to immediately find alternative way to buy content. A good example of this is one of my portfolio companies – Single-Click Checkout (http://www.singleclickcheckout.com/) which is available to merchants on most mobile platforms and allows a user a safe and secure way to purchase things directly from the vendor on their mobile devices without using the platform store.

I hope Amazon and other content owners don’t bow to Apple’s mafia-like tactics. Even if Apple doesn’t realize it, forcing their hand on this and getting them to back down is in everyone’s interest.

I had waited to upgrade my iPhone 3G to an iPhone 4 on Verizon, and was just about to do so.  I no longer intend to go to the iPhone 4 with this Apple policy on content.

Angel Investing is Vibrant and Getting More So

Not much surprises me these days, particularly during this mud-slinging political campaign season.

However, Marcelo Calbucci’s Tech Flash post (http://www.techflash.com/seattle/2010/10/have_we_killed_the_angel_investor.html) did. How my posts could be so misunderstood by someone I respect baffles me, especially when that misunderstanding is posted to a widely read blog.

My previous post on Angels forming LLCs for their investments IS entrepreneur friendly, and based on national best practices. Any entrepreneur who has a successful venture with 50 angel investors knows the pain (including excessive legal fees) for getting signatures on every shareholder issue. If a large number of these angel investors are in an LLC, you only need one signature – much more efficient and much less costly. This is the practice in many places, including some of the largest angel groups in the Bay Area and East Coast. It is not widely done in Seattle. And it is not a way to get better terms in seed and A round investments; there really is no relationship between the two.

It is a way for Angels to preserve their rights in the face of a VC round that follows. VC’s typically don’t like to have to get 50 signatures, so they reserve certain rights to “major investors” in their term sheets. This typically either washes away or severely limits the investor rights of Angels, once VCs have entered the deal. It is definitely in the interest of the entrepreneurs, Angels, and the company to make sure that a broader base of investors has a say in the future of the company; the trust from shareholders (the owners of the company) that they will be treated in an open and democratic way is the basis of our entire equity system.

Angels who work together to learn best practices make for a much stronger ecosystem. That is why I spend so much of my personal time trying to learn from other angel groups, both locally and nationally, about what works and doesn’t work. My colleague Angels do likewise. We run a bunch of educational events locally to share our knowledge and insights and encourage other Angels to strike deals that are balanced between return and being entrepreneur friendly. It is why I spent so much time crafting a “Series A Angel Term Sheet,” (http://drosenassoc.com/Draft%20Term%20Sheet%20for%20Alliance%20of%20Angels.pdf) that is now being widely used, not just in Seattle, but around the world. It simplifies the process of bringing in early money for startups, while lowering the costs. All of these activities lower the barrier for entrepreneurs raising money, not as you assert, making it more difficult.

Angel groups are a fabulous way for an entrepreneur to raise money. It is much more efficient to present once to 60 active angels than to set up 60 individual meetings. I don’t know one entrepreneur who would argue with that proposition. And, through the Angel Capital Association (a Kauffman Foundation spinout), we are now sharing best practices, participating in educational events, making sure that public policy encourages early-stage investment (e.g. http://blog.drosenassoc.com/?p=41), making sure that as many Angels as possible enter the ecosystem, and encouraging each other in bleak economic times.

As part of this socialization, it is evident that Seattle IS progressive. We have funded as many or more early stage deals at a slightly higher price than our peers in the Bay Area and Boston. Your assertion that entrepreneurs in the Bay Area are getting their deals funded without a financial projection or a solid plan is an urban myth that is not supported by fact; it encourages behavior that neither helps entrepreneurs or investors. We do help the “the next great idea from two guys who are just finishing their computer science degree at The University of Washington” in part by helping them understand what it means to create a great business. In my 25 years of experience, I have not seen a success where throwing money at people without a great business concept created a great business. It is the marriage of great technology, great people, and a great plan that makes the breakout companies. Yes, this takes some discipline and hard work. Saying that the best model is angels willing to throw money at entrepreneurs who are not committed to a disciplined approach is not only wrong, it does a great disservice to the entrepreneurs willing to quit a high-paying job to risk everything to build a great company.

And during the last year, I’ve spoken at events throughout North America without reimbursement. Like you, Marcello, for me this is a passion, not a business. But most Angels need a return on their investment, if they are going to continue to invest. We need more maturity in the process, not less.

We all want to see more intelligent, high-net-worth individuals in Seattle become Angel investors. They way to do this is NOT by telling them that they should “invest and pray”. It is by showing them how to be successful angel investors, how to lead deals without as much pain as in the current process, and by making it easy to pull the trigger on their first few investments. One way that other communities (e.g. Bellingham) have used is the deal-specific LLC that started this conversation.

Success will come by finding more ways for entrepreneurs and Angels to communicate and understand common goals and then achieve extraordinary results. And success will build more success.

Investor Relations for Private Companies

One of the questions I am asked by first-time startup CEOs: what is an appropriate level of communication with my investors?

This is both a difficult and profound question. It is simple to say that more is better than less. It is also simple to say that any good investor would rather have you spend your time executing your plan than spend your time chatting with investors.

So.. my simple rule of thumb is that you should treat your investors (and the money that they have invested in your company) with respect. And you should recognize that their support, encouragement, and trust that came with that money are incredibly valuable commodities that will continue to pay dividends over time. Let me give rules of thumb for great investor relations by private companies and some issues that need to be considered.

Ten Simple rules for great IR for private companies:

  1. Get the bad news out fast and first. Even if the news in embarrassing (like we are running out of cash sooner than we anticipated, or our customers found a flaw in our product), share it first and fast. Be very candid about the failings as well as the successes.
  2. Don’t bury bad news at the end of a report.
  3. Don’t wait to issue the report until you have good news to share.
  4. Don’t forget to share your passion for your business – that’s generally what made your investors invest!
  5. But don’t allow your passion to obscure the operational facts, like the numbers are not what we anticipated.
  6. Communicate frequently, but not too frequently. These communications should never be less than once a quarter. But remember that your investors are not your employees, so you don’t need to send daily/weekly updates with operational trivia. This just defeats the purpose of making sure that your investors know the state of the business by burying them in the minutia.
  7. Communications can written or in person or a combination. Face-to-face quarterly meetings are a great idea for a company that is growing and needs support and help from its investors. They are especially good for a company that needs to show its product. But they take some time to prepare.
  8. Communications can be short, but never skipped. For example, a simple note to all of your investors that “we have had to revamp our product plans and details will follow within 30 days” is an OK message. As is, “we have received an acquisition offer, but the terms require us to keep the details confidential, so we will let you know as soon as the deal is consummated.” Don’t surprise them!
  9. Your investors are smart, so treat them accordingly. Be very realistic and forthright about the impact of any misses/changes. Early stage investors know the risks. Tell them if the board insisted you take a salary cut or that you have had to lay off key people. These things happen. Sometimes the impact will be that their investment will never realize the potential you had hoped for, but that you will work for the best possible outcome.
  10. And, lastly, NEVER have the communication of the change of your company status come via a package of documents from your lawyers! Even in the case of good news (which is rare), you owe it to your investors to be the one who communicates FIRST. Even if it’s an email (or cover letter in the legal package) that says, “we have had to do X, because of Y, and the result is that your shares have to be changed in the following way. You will be receiving a package by FedEx to implement that change. I will be holding an emergency investor meeting tomorrow at 9am to explain these changes. Those who can’t be there can phone in.”

Even with these simple rules in hand, there are a number of issues that you need to consider.

  • Can I share proprietary information with my investors? This is a tough question. Seek counsel from your lawyer. In general, most startups do share proprietary information, but make sure your investors know it is proprietary. Make sure that they know they can’t redistribute or share it further. Only give info in writing that is less sensitive.
  • Know your investors. Ask them if they have investments in competitive companies. If they do, it doesn’t disqualify them from investing in your company, but make sure that they know they can’t share the info you give them.

Simply put.. if you treat your investors well, they will be there to support you when you need them. Not just in this company but in future ones.

Setting Goals – metrics can drive behavior

A number of years, I joined the board of the Humane Society for Seattle and King County (www.seattlehumane.org), a local non-profit that runs an animal shelter, adoption facility, and does veterinary services for the animals in our care. For those that believe in animal welfare as I do, you will easily understand how an organization of this type can attract experience and well meaning board members.

Shortly after joining the board, I began to try to study and make sense of our metrics – especially euthanasia numbers. I well understood that not every animal was “adoptable,” some were too sick to be saved or had behavioral problems that made them unsafe to be in a house with either other pets or small children. But the numbers just didn’t make sense to me. So, along with the support of other board members, I began to ask for more details on the metrics, drilling to the next level of numbers. What emerged was a picture of management controls and lack of consistent strategy that meshed with the desires of the board. As a result, the board changed management first on an interim and then permanent basis. And, we established a goal that “no adoptable animal in our care would ever run out of time or space.”

Over the course of a few months, we focused on a metric that matched that goal (it’s called the Asilomar Live Save Rate) and have been successful in maintaining that metric at a level that qualifies us as a so-called “no kill” shelter for several years since. And then we were able to go to important, but secondary, metrics (e.g length of stay until adoption) that improved our operations and the care we gave our animal guests. I am proud of these accomplishments, but it has caused me to reflect on the importance of goals, strategy, and leadership in a more general sense.

In both the non-profit and start-up worlds (some claim many of my startups are non-profits! J), understanding your goals is a critical element in success. Goals must be meaningful to the organization and actionable. And have corresponding metrics that match those goals.

This seems simple, but in several of my companies, this has proved exceeding difficult. Many metrics follow results by too wide a gap to be actionable. In many cases, revenue is such a metric. But in almost every case, there are a handful of “value drivers,” those metrics that truly derive the value and health of the business. For example, in a telecoms consumer services business (like one a ran earlier in my career), the key value drivers were, (1) cost of customer acquisition; (2) average revenue per customer; and (3) churn. For each business type, these will be different.

The power of setting a good goal, understanding your value drivers/metrics, and having a strategy to maximize those value drivers and fulfill the goal is the path to success.

Microsoft – Great Customer Service

Since I blogged about my poor experience with Netgear, today I had a much better experience with technology. Well, sort of anyway. I was finally able to locate Windows 7 drivers for a couple of arcane devices on my desktop server, so decided to upgrade from Vista to Win 7. After cloning my drive, I put in the Windows 7 installation disk and ran it. After about 30 min, it returned an obscure error about missing files. So.. I tried it a second time telling it not to go online and get the latest update. Again it failed. That was the bad news.

It took me quite a while to find the number I could call, but eventually did. With that number in hand, I called Microsoft customer service. The first person I spoke with just took my info, gave me a case number, said that I qualified for free support, and transferred me to tech support. My call immediately dropped and I had to call back. With my case number in hand, I got right through to Jeff, who spent the next hour on the phone with me to fix the problem. First, he took the error code I had received and did some research. Within a couple of minutes, he knew exactly what caused the problem – it was my optical drive which (while working for files) would occasionally fail and not find a file. He then suggested that I copy the installation files, which my drive wouldn’t do. So, he recommended going to another computer on my network, copying the disk there and then using the network to install it. That worked! And then it installed perfectly.

Through all of this, Jeff from Microsoft in the Philippines, could not have been more knowledgeable, friendly, or helpful. Not happy that the install didn’t work on the first try, but very happy to have such a good level of support.

Netgear Router Hell

I’ve always liked Netgear. They seem to be a company that stays ahead of the technology curve, makes reliable products and understand the balance between easy to use and advanced features. I no longer like Netgear.

My old Netgear router, which had been the paradigm of reliability, died suddenly last week. It was over two years old, so I didn’t complain too much. Instead, I made an emergency run to Fry’s and purchased the top-of-the-line WNDR3700 Range-Max dual band wireless N gigabit router. The two main features I really liked were: (1) very high speed processor that should give better performance, and (2) ability to configure 2 SSID’s, so that a visitor could gain access to the internet without getting access to either my security phrase or my local data. Very cool I thought.

Setup took me a typical time – about an hour. And after the usual of downloading the latest firmware, having to reboot all of the other switches and my modem, I was on the internet, transferring files, etc. The wifi worked with my iPad and iPhone. And for those regular readers, it also worked with my home theatre control system. All was good in the world again.

Given that it was past midnight when I finished, I waited to add the cool new features till the next day. It was then that my router stopped working. I enabled the guest SSIDs, and suddenly the wifi was dead. I went into the configuration menu, and noticed the radios were turned off, so turned them back on – only they didn’t go back on. So, I looked at the router, and the lights for the wifi were off. I manually turned them on. But they turned off on their own again as soon as I downloaded the config. Thinking I had inadvertently misconfigured the router, I reset it to factory configuration and started again. Then the problem repeated itself as soon as I turned on the guest network. I played with the various settings, but it happened every time. So.. I concluded I had a defective unit.

The next morning, I hopped in the car and drove the 15 miles to Fry’s, who were gracious about the exchange. Got the new unit home and it was exactly the same. By this point, I had invested well over 8 hours on this, not to mention the previous 4 I spent figuring out that my old modem had failed.

So, I began investigating on the web, only to learn that this has been a known problem with this unit since March. (See: http://forum1.netgear.com/showthread.php?t=49720&highlight=guest+ssid). The original bacth of routers sold prior to January, apparently do not have this problem. But the ones sold in 2010, all suffer from this issue. There has been a beta firmware upgrade available for two months that fixes the problem, but seems to have other issues. Netgear will release it, but only under NDA! So the message is, you have to suffer, call our customer service, be put on hold, sign and NDA, and then we will give you a less buggy upgrade, for a product that didn’t work to begin with. In other words, Netgear has known that they are selling a defective unit for over three months, continue to sell this unit, have not notified their retailers, and let customers know that this was a problem.

This is intolerable and unacceptable behavior, the kind that should be punished by fines, and big ones at that. My time is valuable to me, but apparently not to companies like Netgear that feel it is acceptable to have their customers to their testing, spend countless hours making a defective product work, and then have to beg for a solution that exists. They should just recall this defective product and either replace it with one that works, or refund 100% of their customers money, and also give a credit for future products.