I frequently have people come up to me and tell me that I am a great networker.  Especially in this economy people want pointers on how to build a high value network.  As I have gotten older I have come to realize two profound truths: 1. who you know is as important as what you know and 2. it is better to be lucky than good.  Like many things, networking is part art and part science.  Some people (like myself) derive great pleasure from meeting new people and building new relationships.  I estimate that I spend 10 – 20% of my time every week developing my network.  Because I enjoy meeting interesting people I have no problem developing my network after hours and on weekend.  Frankly it is one part of venture capital that I like the most.  While personality traits do make a big difference in one’s ability to create a network, anyone who has basic social skills can build a network.  Here are some general pointers: 

• Decide why you want a network.  I find people who just want to network with no purpose in mind to be annoying. Think about what common interest can link you together.  Obviously networks can be for business, a hobby, social, non-profit, etc.  The best networkers learn to develop overlapping networks – this way you can leverage your relationships for multiple purposes.
• Target your energy to people who fit your profile.  If you are a serial entrepreneur who frequently needs angel investors then you may want to set your filters for people who do angel investing in the areas that you are likely to pursue.  This is not suggest that you be rude to folks that don’t fit your filters but graciously move on as you may find a future need to connect to that person.
• Develop networks proactively.  Networks take time and need to be nurtured.  When you find someone who fits your target profile be sure to pursue them.  Be persistent but not pushy.  Follow up but don’t be presumptuous (i.e. don’t invite someone to a long fancy dinner as a follow up to a short conversation – try a phone call or a coffee instead).  You will want to look for mutual benefit in the relationship in order to engage the other party in maintaining a two way relationship.
• Make networking fun.  Though networking is a serious business tool, don’t make it drudgery.  If you are not having fun then no one will want to hang with you. Think of it as a game – set goals for yourself (i.e. meet 1 new high value contact a week).
• Categorize your contacts.  You can flag contacts in Outlook.  I use such flags as CEO candidate, entrepreneur, angel investor, industry leader, etc. so I can search my contacts when I am trying to accomplish something.
• Cull your network.  As you get more experienced in networking you will be able to upgrade your network so don’t be afraid to prune your network over time.  Unfortunately we have limited time and mental capacity so even working smart there will be limits to how many relationships one can cultivate at a single time.
• Other tools.  Beyond your own personal networks, I find leveraging shared backgrounds works well in connecting with people. In particular school affiliations (HBS alum) or previous employers (Bain & Co) are good basis for connections.  I find LinkedIn to be a great way to find relevant contacts.  I think Facebook, or possibly Twitter, can be valuable as well but I have yet to masдиваниter them.

I guarantee it will deliver highly valuable dividends if you define your purpose and commit to building your network. So go out there and have some fun meeting some interesting and relevant people.

I was reading Fred Wilson’s “The Power of Passed Links” this morning and it got me thinking about website traffic acquisition.  Not in terms of quantity but of intent and purpose.

Let’s think about this from two perspectives: the website owner (webmaster) and visitor.

When the visitor types a search into google for a specific product, he may only want to learn more about that product and have no intent to buy.  Maybe he’s doing research for a friend.  Maybe it’s a present for someone.

When that visitor clicks on either organic search results or paid search links, does the user know the difference between the two?  That one costs the webmaster money and the other one doesn’t?

Either way, the visitor has some frame of mind in his stream of activity (search terms, clicked links, site interaction).  All of this is translated to the webmaster through a website analytics package (i.e. Google Analytics).

The webmaster knows how many people came from google, what terms they used to search, how many people typed the URL in directly into their browser, etc.

But the webmaster doesn’t know their intent:

• Maybe the URL was a typo?
• Maybe the visitor misjudged his hand-mouse control and clicked on the wrong link in a google search results page?
• Maybe the user added a bunch of products to a shopping cart just to see how much the subtotal would be, but had no intent of purchasing?
• Maybe the user’s friend was asking for an opinion on a certain product and IM’d his friend a URL to share the information?
• Or maybe the user did exactly what the webmaster interpreted his actions to be.

While analytics packages are useful, there is a need for a tool to dive deeper into the psychology of website visitors.  To understand why they’re on the site and what their goals (if any) are.  Just like you can’t walk around a Nordstrom without being asked if you want to try something on (so the salesperson can figure out if you’re serious about shopping or just looking) eventually websites will need be able to fully understand user intent.

Maybe some already are, and I’d love to hear (in the comments) about any technologies/services that do this.  Or any manual processes that do a decent job at this.

Andy Wilson quoted in Perfect Business’s segment on Entrepreneurship

Scroll ahead to 2 minutes and 20 seconds in

Perfect Business on Entrepreneurship. Andy Wilson from Momentum Venture Management quoted.

Always a great event, the 2009 UCLA Entrepreneurs’ Conference will feature many interesting panels and speakers relevant to entrepreneurship in southern California.

Particularly, MVM’s Matt Ridenour will be on the Cleantech panel just before lunch. Be sure to check it out.

You can register for the event here

2009 UCLA Entrepreneurs' Conference

I can’t believe I’m going to do this, but, I’m actually going to write a blog about accounting issues for early stage companies!!  It won’t blend well with all the sexy technology stuff that Scott has been writing about lately.   However, as early stage managers we run into accounting issues in EVERY company regardless of what product or service the company provides, so I hope some advice will be helpful for entrepreneurs!  Following are some quick thoughts:

• Most important:  you, the founder, need to understand basic accounting or you will have pain and suffering throughout your career.   You don’t have to “go deep” but you need to know how the key financial statements flow into one another and the basics of bookkeeping.  This is true even if you are starting with professional accounting help- accounting is the most fundamental scorecard for your business and you don’t want management, investors and partners “talking over your head” as you grow.   You can learn the basics in a long weekend of cramming.  There are hundreds of resources available in bookstores, local community colleges or online.   Suck it up and learn the basics.
• 95% of the time, Quickbooks is enough.   Buy the product and begin using it day one .   You can have an accountant walk you through initial set up or you can follow various templates.  The product scales for quite some time.  If you ever need a more comprehensive solution it is easy to transition from Quickbooks.
• If you can afford an accountant to help you do initial Quickbooks setup it is worth spending a few hours and a few dollars on.  The reason this is important is that he or she will give you all the proper ways to think about categorizing the different things that you normally do.   You can clean up almost any mess later but it sure is easier to make appropriate entries the first time rather than cleaning them up later.   Also, if you work with the same accountant for taxes, you will already be on the same page when it is time to provide information.
• Start with accrual accounting!  Many entrepreneurs launch their companies with “cash accounting” because it is easier to understand.  This method of accounting basically treats the checking account as a measure of profit and loss.   “Hey, some people paid me… I paid some expenses… I have money left for beer!   I must be profitable”.   I’m in favor of beer.   However, cash accounting is frought with “gotchas”:  too many to cover in this note.   So, learn to think about your business on an accrual basis and manage your cash flow with the cash flow statement!   It will take some time to get used to but you’ll avoid a lot of mistakes and run your business better with this mindset.

If there is interest in this topic I’m happy to publish some more detailed notes to help folks learn about the financial statements themselves.   Let me know!

Having been in entrepreneurial world for almost two decades, I frequently think about what it means to be an entrepreneur. The critical role of fundraising seems to be a persistent theme. I personally have been directly involved in raising capital as a CEO or interim CEO for a Momentum portfolio company more than a dozen times. Fundraising is clearly the bane of an entrepreneur’s existence (especially in today’s market).

I find myself frequently complaining about the frustration, rejection and time sink associated with the fundraising effort. It is not uncommon for us to spend 50% of our time as interim CEOs associated with a portfolio company in some aspect of fundraising. I know from talking to others that their experiences are very similar.

Fortunately at Momentum we have >90% success rate in securing institutional backing for our companies. That being said, as folks who do this as a living we must acknowledge the fundraising is grueling. While I may frequently feel frustrated I realize that fundraising is in integral part of the Darwinian process of building a successful venture. Obviously accessing capital is (typically) critical to achieving rapid growth (though not every company should access venture capital which has been covered in previous blog posts). The number one job of an early stage CEO is evangelizing the company to key constituents; capital sources are probably the most critical in this group.

So if you want to be an entrepreneur, either prepare yourself to jump on the hamster wheel of on-going fundraising or pull in a business partner who is good at fundraising and enjoys it. I challenge entrepreneurs to rethink their attitudes about fundraising; I often hear that fundraising is a distraction to building a business. Unfortunately it is foundational to building a high growth business. It is critical that entrepreneurs acknowledge this reality and adequately tool themselves to be successful on this front.

At the beginning of 2009, I began helping one of our product-oriented portfolio companies evaluate and implement a project management system.  Their product roadmap was scattered, and we needed to bring a level of transparency and collaboration to product development.

MS Project was definitely not an option. I looked at a dozen or so and signed up for free trials of a few. It came down to two finalists: 5pm and liquidplanner. Both are excellent products. If you’re looking into project management software, I’d strongly encourage you to evaluate both and pick one depending on your requirements.

In doing my evaluations, I tweeted the following:

need to transition an project mgmt system from google spreadsheets… narrowed it down to @liquidplanner and @5pmweb but can’t decide!

I honestly thought I wouldn’t hear anything back.  I was shocked when not one, but both of those companies contacted me.

Liquidplanner: @scottshapiro - want to discuss the pros and cons? DM me and we can chat

5PM: @scottshapiro You could flip a coin :-).

It wasn’t so much that they offered me any information, but that they reached out and made themselves available to me. I was a prospective customer and still in the decisionmaking process. I ultimately tested both apps and came to my conclusion:

virtual members, multiple tasks with CSV and all the drag and dropping is putting @liquidplanner in the lead, though @5pmweb is still great

We’re now in an era where the walls that separate customers from marketers have been broken. There’s no reason why prospects who are looking at your product, using your product, or even using another product and could perhaps switch should not be contacted. Twitter and other outlets make this all possible. After all, you’re building a product for your customers- shouldn’t you want to know what they’re looking for? Shouldn’t you engage them in a dialogue to make sure they understand your features and benefits? You don’t have to incorporate everything customers say (a la one popular CEO), but it doesn’t hurt to listen.

Bottom line: if you don’t engage your customers and prospects through new mediums, your competitor(s) will.

Is your business’s success going to be based on execution or technology?  Or is it something in between?

Back in the dot-com days, competitive advantage was largely based on technology development.  For example, if you wanted to build an e-commerce site in 1996, it was really hard!  Any efficiencies that could be created in software engineering went a long way because hardware and bandwidth were costly.  LAMP was barely usable and it took many man-years to launch a web-application.

Fast forward to today and the same web applications are built with off-the-shelf open-source components.  And they’re fully fully functional in a few man-weeks!  In fact, thanks to Amazon Web Services, products can be launched without the developers ever having to purchase, lease, or touch servers.  Databases, computing, storage are done in the cloud.  Just ask the founder of TWPLY (a Twitter app) who built and sold his company in 24 hours!

So now, what’s so hard about launching a web application?  It’s probably not the technology.

Technology remains a competitive advantage in many areas: life science, nanotech, renewable energy.  Many of the successes in these arenas are due to the fact that one team in the whole world was able to solve a problem.  That team developed an algorithm that nobody else has come close to.

On the other side is execution.  Many web applications that we know and love today are successful because they executed well.

• They rapidly iterated their product and design
• They knew the right verticals to attack first and what the best guerilla marketing strategy was
• They ultimately acquired customers cheaper, retained them longer and milked more dollars out of them

They didn’t win because their technology was necessarily superior, but because they out-executed the competition.

Why does facebook have 175 million users now?  Not because they “cracked the code”, but because they executed a better product and grew it in a structured way with a higher-quality user base. Friendster had a major headstart, but failed because of downtime and poor user acquisition.

Not every startup is simply execution or technology.  Many are a combination of the two.  But the question you have to ask yourself is the following: will my business become successful because my technology is one-of-a-kind, or because I’ll do a better job executing?

Agree?  Disagree?  Post a comment below!

I think there’s a big opportunity out there to normalize, aggregate and structure all the conversation around specific digital media.

For example, say you post a video on Youtube.  People comment on it on Youtube and an interesting conversation develops.  Say that video gets digg’d, facebook’d, friendfeed’d, tumblr’d, posterous’d, myspace’d, blog’d and the cycle never ends.  Each property that this video ultimately survives on will carry it’s own, unique conversation.  In addition, those comments will be twitter’d, ping.fm’d and broadcasted through many other channels.

Great tools like facebook connect, openID and Disqus have allowed us to carry an identity with us across different sites, so we’re not siloed to each.  Friendfeed has done a fantastic job of unifying these person-centric dialogues.

However, there’s definitely a need for the unification of digital media-centric dialogues.  That youtube video which made it’s way to hundreds of sites should carry it’s dialogue with it.  This example is just one of many - what happens when I take a photo with my iPhone.  Do I post it to twitpic, posterous, facebook mobile, tumblr, flickr or all of the above?  How do I make sure it reaches the audience I’m looking for and that everyone can participate in that dialogue?

I don’t know what the answer is (and maybe FriendFeed will be the ones who solve this), but I suspect that 2009 will bring us the answer.  If you have any ideas/reactions toward this, feel free to post a comment below!