Primary Entrepreneur

North Bridge tried a new thing this spring. We were excited by the number of new seed companies in Boston, NYC and California (the economy has spurred growth everywhere!), so we decided to host a competition to fund a new company that had not raised prior money and only needed a few thousand to get to the first proof points in its business. We offered $50k cash and $25k in development services.

We’re pleased to announce that we selected 2! One from the east coast: Profitably and one from the west coast: Magoosh.

We had many dozens of applicants and narrowed it down to 10. Each of the finalists presented to our selection committee of investors at North Bridge. Then the final two presented to the entire partnership.

This was a great exercise for us, and we are excited to support the number of new, young, repeat or successful entrepreneurs starting ideas at the seed stage and needing very little capital to get a first product to market. As one can imagine, in this category, many applicants landed in the digital media, B2B web applications, and general consumer internet space.

It was a fun challenge to get to know entrepreneurs and turn around funding this quickly (the competition was start-to-finish just over a month). We typically look at seed investments as a way to get entrepreneurs who we know we want to be in business with started quickly on their idea/project/product. This was similar but constrained by the competitions’ time limits–getting to know who you’ll be in business with (on both sides) usually takes the most time, in my opinion.

Also, because this was a competition, we do not expect that the entrepreneur has to keep working with North Bridge in future rounds of funding. There have been comments about the stigma that funding from VCs creates at the seed stage, and if structured and planned correctly, I think that can be avoided. Spray and pray models (where a VC makes many many seed investments and only plans to follow on with 1 or 2) are difficult to manage. This create these stigmas when follow on funding is not granted. Companies are often left out to dry. Of course, the same result can happen when companies have to raise money from a completely new type and set of investors at every stage (angels vs institutional investors, e.g.).  This is one of the reasons we only picked 2 companies rather than award all 10 finalists or even more than that. The biggest limitation on our value add is time not money, so we wanted to be careful to not stretch too thin.

Congrats again to the teams at Magoosh and Profitably!

North Bridge is hosting a $75k Seed Competition!

The competition will take place over the next couple of months and the winner(s) will be announced in early June. This is a national competition. North Bridge has offices in Boston, MA and San Mateo, CA.

All startups are welcome and encouraged to participate.
Pitch decks are due by May 1, 2010. Finalists will be notified by the end of May and the winners will be announced June 7.

Nothing special is required; just send in an overview or investor deck (7-10 slides describing the business) to bplan @ northbridge.com.

Full details can be found here: North Bridge 75k Seed Competition Details

Why are we doing this?
Well, we like all the seed and early early stage activity that is going on. TechStars, First Growth, and several other incubator programs have done a great job of getting ideas to initial product with guidance and mentorship for entrepreneurs. Business plan competitions at Universities like HBS, MIT, and Babson are coming to conclusion over the next couple of months and we’d like to reward participants and founders who have worked hard and want to work harder to get going asap.

This is not a traditional seed investment from North Bridge, but it is very very similar to how we operate. The difference is the overt competitive nature. We will often invest at the seed stage and in fact, over 70% of our investments have started at this stage. We added the competition because of the timing that coincides with the end of the programs I mention above. Beyond that, we will select the winner the same way we select and invest in entrepreneurs today: based on the talent of the founding team, the uniqueness of the idea/approach, and the size of the market.

Please note that while I spend most of my time in consumer internet and digital media, this spans all the sectors that North Bridge invests in: Healthcare IT, Materials, Software/Cloud Computing, Communications/Mobile and Digital Media.

I thought I’d share a presentation I have given three or four times now to seed and incubation groups like TechStars and First Growth Venture Network around Boston and NYC.

I can’t promise it has all of the answers and as always, advice is worth what you paid for it (see #10 on Don’ts). This is meant to be a simplified and common sense guide to raising money and spending it regardless of whether it’s venture or seed capital. The bottom line is think about the alternatives (like bootstrapping) and how you would do things differently. If those alternatives don’t fit what you think is your business opportunity, be aggressive with your capital. Time is of the essence, but be measured and set goals to assess whether it’s working. This is also what your board, co-founders, and advisors should help you with.

It always takes twice as long and costs twice as much as you originally thought. I have been in the venture business less than 5 years and I’ve been involved with three ventures. You could call it a small sample size, but I’ve never seen (or heard of) this principal be disproven. Even if your business takes off faster than you ever thought it would, you may find more doors to open to be even bigger than you imagined.

Whether you are a first time entrepreneur or a repeat, successful entrepreneurs, I welcome your comments, questions and suggestions.

This was a question I got last weekend when I was talking about how I thought there are lessons—whether they be planning, timing, or market foresight—to be taken from any successful consumer venture. Luck, while we like to think it is, is rarely an explanation. Afterall, there are 15 different Farmville-like games but only one Farmville; there are many different blankets with sleeves but only one Snuggie. So, answering this question about the The Jersey Shore is my challenge. I suffered through several reruns on Sunday, including the reunion, which kind of ruined the whole Sammi/Ronnie build up for me because I missed a couple of key episodes in between. But, here’s my take on why The Jersey Shore took off as an “intrapreneurial” venture produced by MTV: MTV simply stuck to what they do best. They innovated within a model that they invented and excel at. It turns out that MTV’s original format for their invention, the reality show (remember the original The Real World?), works best and all they had to do was dust it off. When they finally returned to it, it worked. . . again.

MTV put the reality back into the reality show. Their revolutionary model was to simply recruit strangers with unique personalities, put them in the same living space for several weeks, and wait for something entertaining to happen. In The Real World, MTV found young 20-somethings from different backgrounds, hometowns, races, genders and sexual preferences. It is still on today (and booked through its 26^th season), but it fizzled when they altered the model to make Road Rules—a competition between The Real World participants. Road Rules lacked reality. 15 years later and with more than 70 some MTV reality shows in between (My Super Sweet Sixteen along with The Southpark Hell On Earth spoof being my next favorite), they returned to what works. I’m not sure what it says about our society that 15 years later we don’t want to see diverse people but rather people that are very similar in background and interests living together, but I digress.

The fact that this was an intrapreneurial venture rather than a brand new company speaks to how companies grow by concentrating on what they do best. However, repeat entrepreneurs use the same tactic. They often reassemble successful teams to start anew, and the same lesson applies. The venture may be new but the unique perspective on an industry and the same team talents are often the same. A company’s secret talents are the things that you can only appreciate when you walk into the office, meet the founders, and hear why they choose to do certain things. From the outside, some of the best new ideas for growth may seem like hard right turns but in reality, they leverage exactly what a company does best. On the other hand, companies with a little bit of success can be tempted to push the envelope and try completely new things. If you are part of the team and you think “but we’re not good at that,” this is a warning sign that you may at least need more of the right people on board to tackle it.

So, The Jersey Shore will return in a coupe of months with the same cast of characters. I’ll point out that this is a deviation from MTV’s formula. They have never reassembled the same original crew for season 2 of a reality show. We’ll see if they are onto something or if they’ve broken from what works.

I found an interesting commentary on entrepreneurship in a surprising place a few weeks ago: The New Yorker.  Malcolm Gladwell wrote a commentary on entrepreneurs that, like Blink, The Tipping Point, and Outliers, draws conclusions between  perplexing commonalities. This article dubbed what I routinely think of as a disruptive approach to a market as risk aversion. He states that moves which “catapult entrepreneurs into prominence” usually result not from risky bets but from aggressive yet measured assessments.  The latter sounds like a reasonable way for  most successful entrepreneurs to describe their plans, but the phrase risk aversion is probably not at the top of their list given the hard work and sacrifices involved.

I thought the most apt portrayal Gladwell made was of John Paulson who also is not an entrepreneur most web startup founders would think to associate themselves with. Paulson bet against the housing market with a slew of credit default swaps at a time when they were mysteriously underpriced . . . It paid off big time. Paulson and his team ran historical analysis that led them to believe that the credit default swaps were undervalued.  It may have seemed risky to make a series of contrarian investments and others may claim it’s now 20/20 hindsight. However, with the data Paulson had, he felt his insight was so unique that not only did no one else have it but also it gave him the confidence to put a huge, ultimately very profitable plan into motion. This is where tech entrepreneurs can relate, I think. Most successful entrepreneurs would say they arrived at a hole in the market that they were uniquely able to address through insight, skills or resources that were unavailable to others. However, unlike Paulson who had years of financial data and trends to analyze, entrepreneurs in the tech space often have little to no hard data whatsoever.

In fact, I think this is a fact of entrepreneurship that is often overlooked: the biggest disruptive bets are made with almost no data and rarely any real analysis, and it is the entrepreneur’s ability to make decisions in the face of this that gives him or her an advantage. This is also why many venture firms don’t rely on industry reports or blogs for early stage investing. Once a trend is popular enough to research or write about, the window to start a competitive offering may be over. [Disclaimer: this is not always the case with some blogs that publish very very current startup information, and there’s always time to out execute your competitor with the right resources.] Still, Paulson couldn’t have done the analysis he did without the expertise and focus he had in his staff.

Not all of the entrepreneurs Gladwell wrote about had data like Paulson. Ted Turner had only an opportunity and the confidence that his perspective was so unique that it was worth more to him. Thus, the price he paid was a steal. We all have to decide what bets we make with our time, our money and our expertise, and it may help for us all to think of making ourselves risk averse. There have been more than a few times when entrepreneurs have built a case to me that they see the hole in the market and have the expertise to attack it better than anyone else. I didn’t invest in all of these entrepreneurs, and while they may not all be successful, in hindsight these are the people I am rooting for.

I thought I’d share what I am most passionate about when it comes to the development of new startups. It’s pretty simple: talking to and listening to your consumers (or customers). This is not revolutionary but that is the point. When is the last time you talked directly to a customer of your product? Today? Talking to consumers is the cleanest, easiest thing we can always count on regardless of the stage of a company to get an honest assessment of where you are. When we get busy, confused, or strapped for time, it’s easy to overlook and Steve Blank, who I’ve been pointed to multiple times as the popular product management guru, has said that it can actually be difficult to bring yourself to get outside and talk, especially, if you’re busy building product. There is really nothing else—cash, co-founders, developers, board members, bloggers—to reliably always give you instant clarity like customers can at any point during your company’s lifetime.

I value customer conversations not only because they are easy to access, but also because they expose nuances of a problem. It’s easy to say ‘if something is broken, fix it,’ but it’s not easy to assess how broken something is or how badly it really needs to be fixed. It’s also easy to convince ourselves that something is broken. It’s even easy to build a product quickly. What happens next is that we realize how much we need to build. We may bubble up to talk to customers again when we have time but too often, conversations cease to drive product development, product positioning, revenue models, and refinements. In talking to entrepreneurs who have failed (which is not a horrible thing), they didn’t fail because there wasn’t a problem to solve. They failed because they didn’t understand the depth (or lack thereof) or severity (or lack thereof) of the problem. And, the answer to this only lies in the market: in customer conversations.

Several years ago when I was a product designer, we had completed the design of a new version when the company decided they would defer development of the product to a new offshore team. The only problem was that the team had not been hired and so would take at least 6 additional months (ugh). I went on to work on another project but realized that the new calendar gave me some time to go back and reaffirm that the design was the best it could be.  I spent that time talking to customers, asking them open-ended questions about what they like/dislike about the product and what they would like to have in their wildest dreams for a new product. I didn’t talk about design. I talked about their problems. The changes I made from there were subtle in terms of design but revolutionary in terms of customer acceptance.

How to communicate with customers is the often the gating factor. Steve Blank is right that it is uncomfortable at first if you’re not a natural born sales person. ‘I don’t have time’ or ‘I would rather assess behavior through metrics‘ reasons will only push the answer out further. Within 10 minutes, I think you can instantly tell whether you’re hitting the market opportunity. If a customer can’t tell you what is inconvenient in their current process, there isn’t a problem. Or, if you ask a customer if they will use the 4^th feature on the third tab of your website, you aren’t asking your customer anything other than if they like the site design. It has nothing to do with whether they will use your product.

I think this is all we can hope for and all we should look for in customer interviews: affirmations that we’re going in the right direction or hesitation when something is not clear or clearly not valuable. This is our salvation when we hit a rough point, but why do we often wait until then? So, even if you talked to a customer today, when is the last time you asked a customer what would really disappoint him about your product?