Paul Graham Missed the Mark on This One

Let me start by saying that Paul Graham is the man...the guy is doing a lot for the start-up community in this country and I truly enjoy reading his essays.

Furthermore, I give all the respect in the world to anyone willing to candidly discuss their thoughts, ideas, etc. in public view. They open themselves up for criticism, ridicule, etc. - so I don't want this blog post to be taken in the wrong way...

I'm NOT "Graham bashing" here, but something has to be said about his most recent post on "Cities".

In his latest essay Graham essentially talks about the "messaging of cities" -- in his opinion, the same way a brand or company projects a message to the public, so do cities. It's his contention that these cities project the following messages:

• Silicon Valley: Power is important
• Boston/Cambridge: Knowledge/ideas are important
• New York: Money is important

This is probably one of the first times I've ever read anything from Graham and thought to myself, "Holy fuck, how did this guy reach such generalized conclusions that show such a clear lack of depth in thought!?"

I mean, seriously...money does NOT matter in Silicon Valley!? Are you freaking kidding me? I guess Sand Hill Road is known for its charities and its many not-for-profit initiatives. And entrepreneurs only go there to take in the scenery.

And I love this one:

This suggests an answer to a question people in New York have wondered about since the Bubble: whether New York could grow into a startup hub to rival Silicon Valley. One reason that's unlikely is that someone starting a startup in New York would feel like a second class citizen. [3] There's already something else people in New York admire more.

The "something else" Graham refers to here is, of course, money. Hmm...I wonder why New York has been a hot bed for artists, musicians, actors, actresses, writers and various other occupations that are done more out of passion than for compensation for decades now?

While I do agree that it's probably easier to find more people who are interested in participating in (financing, partnering, working for) start-ups on the West Coast, I certainly don't think the "New York only cares about money" message is valid and it's borderline ignorant. Tech start-ups are far from the only industries out there that require boot strapping, ingenuity and creativity.

Arguably, one of the most influential (on ANY level) movements over the last 20 years was born and bred in the streets of New York: Hip-Hop music!

In fact, another guy I really admire, Gary Vaynerchuk, has even compared the web industry to Hip-Hop, circa 1985. And to tell you the truth, I couldn't agree more!

Granted, certain cities maintain a certain culture, but trying to pick a specific message for a city as large, deep and diverse as New York is like trying to say Moby Dick was just about a guy who went fishing.

Paul, not sure where or for how long you lived in New York but next time you come through, we need to hang out so I can show you around a bit. Might teach you a thing or two about a thing or two ;)

Launching a Start-up is Hard Work...

Sorry I haven't been posting much lately I've been working my a$$ off on my latest venture, TickerHound.com

It's hard work getting a new site off the ground!

I know that may seem obvious to most folks, and being that this is my ump-teenth start-up venture, you'd think I'd be better at it by now. But seriously, each and every time I've ever gotten up to the "2 weeks and counting" phase of a launch, I just get overwhelmed with the "detail work" that needs to get done.

Most people think you spec the app out, get it designed, get it built and then launch...very simple. But the reality of the situation is much, much different. The saying, "the devil's in the details" doesn't even begin to do this process justice. In the last 2 weeks alone I've had to do everything from tightening up the copy on the site's registration page to integrating the weekly newsletter with our e-mail service provider.

Not to mention having our developers try to catch all the last minute bugs, optimize SQL queries and load test the app...I've gotta say, I'm exhausted. I almost need a vacation after all this, which is obviously impossible considering the REAL work starts after the launch.

I'm planning on posting a bit more this weekend.

I really want to write the follow up post to my Wall Street Sales Strategies and I'm dying to weigh in on some of the Facebook Beacon news.

Hope everybody is doing well!

Financial Sector Ravages the Dow

I hate to be the one to say it, but I told you so!

If you take a look at my "Beware the Banks and Brokers" piece I wrote back in September, you'll see just what I'm talking about.

Today we saw massive downgrades across the financial space - starting with Citigroup (NYSE: C) and ending with the Dow dropping over 362 points!

Like I said in my Sept. 19th post - the banks/brokerages (Wall Street) are always several months ahead of the curve. They feel the brunt of an economic downturn first, then it spreads to the rest of the market.

Now, this isn't to say that we'll have an all out crash like 2001 - my feeling is that if anything we'll see a mild dip in economic activity and capital investments.

My main concern for my fellow entrepreneurs is if this will trickle down to private equity financings as well. We've obviously been experiencing a bit of a bubble on the private equity front as of late - pre-money start-up valuations haven't been this high in over 6 years and VC activity is continuing to rise as money gets cheaper and cheaper.

I think we'll come out of this just fine but overall I feel that financing activity could start to see a dip as next Summer approaches. That still leaves time to get some money together but I would definitely be looking to keep my burn low, look for creative marketing strategies and execute my a$$ off! So pretty much what most start-up junkies have been doing, but this time leave "getting funded" out of your business plan :)

Creativity Defined

Been thinking a lot lately on what makes a "great" start-up.

You obviously need a good idea and to solve a real problem for a large amount of people.

You need a talented team and access to resources (technology, capital, etc.).

But what else gets a company from a pipe dream to a multi-million dollar enterprise?

Rock solid execution, that's what!

And I guess that's one of the things I've been wrestling with as my product gets closer and closer to launch. There's so much inherent risk in operating in unchartered waters; how is a founder to know what to do every step of the way? How can we mitigate this risk?

Well, there's no formula - if there were then everybody would know it and successful founders would be no different than anybody else.

My feeling is that many successful start-ups and founders all operate within a certain unteachable thought framework - a framework that marries logical reasoning with creative problem solving. Now, the "logical" part of that framework isn't very difficult to grasp....

If we have this much money, then we can buy this many servers and hire this many staffers, etc. etc. No sweat...

But the "creative" aspect of this framework is where one founder shines and another flops.

When a founder, a CEO or any stake holder in a project thinks creatively and critically about a problem they tend to not only find new solutions, but they gain an edge over other players in their space.

For instance, when James Hong, et al. first launched HotorNot.com they got so much traffic that their server was crashing all the time. They had no money and no time to raise capital. So what did they do?

They got creative!

They negotiated a deal with Rack Space where they gave Rack Space free advertising on their site and in turn Rack Space gave them free hosting for a year!

A month or two ago Hong participated in a panel where he quoted somebody else (I forget who) as defining "creativity" as:

"Creativity is what happens when you chop a zero off the end of a budget".

I was reading Shel Israel's blog tonight and he had a great quote from Steve Larsen:

"Constraint spawns creativity"

And I really have to say that both of these quotes are amazingly accurate - and why shouldn't they be, they're both spawned from experience in the trenches.

I think most entrepreneurs would agree -- our best decisions have been made under less than ideal circumstances. We've created the most successful features, we've cut the best deals (sometimes) and we've hired the best people all under circumstances where others might've just folded their cards and went home.

And that's what I think differentiates a successful businessman from a bad one - the ability to creatively construct solutions to problems.

Some may call it luck, but Sam Goldwyn said it best, "The harder I work, the luckier I get."!

Beware the Banks and Brokers!

After reading a post by Fred Wilson yesterday, I started to get a little concerned about an impending economic downturn. While it's always been in the back of my head - considering we've been in a bull market for the last 4 years - I haven't paid it much mind in a while.

Now Fred was talking about a downturn specific to the web - I mean, that's where he makes his bread and butter so it's something that is near and dear to his heart - but my concern is more broad based. I think we can see a major downturn hit the stock market and that will have a reverberating effect throughout the economy, and especially in the fragile tech space.

Here's my take:

After working on Wall Street for a few years you learn a couple of tricks. One of which is, if you want to know which way the market is headed six months in advance, keep an eye on the banks and brokerages.

Once you see the banks and brokerages start to take a dive, you know that the rest of Wall Street isn't too far off - we'll call them a "leading indicator". Every major bear market was preceded by sub-par results in the banks and brokerages.

Now, much of this is going to have to do with the recent mortgage crisis the country has plunged into. A lot of these banks are going to take a monster hit on all of these defaults we're seeing.

In fact, the Wall Street Journal just reported that Morgan Stanley (NYSE: MS) took a 17% hit to Net Income this quarter. Lehman Brothers (NYSE: LEH) showed an increase in profits but took a hit in fixed income due to the mortgage issues.

I also think that many of the banks and brokerages have been reaping the benefits of an unsustainable bull market - the market has been up almost 20% a year for the last 4 years - that means that when this market heads south (or stops rocketing higher) these companies can no longer use their trading and investment banking fees to compensate for losses in other divisions. And that my friends means the brokerages will be headed south for the winter.

When that happens many of the IPO dreams and lofty valuations for many of today's web startups will go into hibernation for the winter as well. But in all fairness this "dot-com renaissance" we've been seeing isn't solely predicated on the public equity markets. But at the very least I think we'll see VC's and other private equity firms tighten the purse strings a bit.

Like I said in my comment to Fred's post, I don't think we're headed for an all out crash in the Internet space, but with the market looking like it might take a bath, investors and entrepreneurs alike need to be cautious now and prepare for a potentially tough winter.

Some steps to take:

1. Batten down the hatches and lower your burn rate: If you're currently supporting high fixed costs figure out ways that you can right-size your Income statement if revenue suddenly takes a hit (i.e. if revenue drops 25%, how can you cut costs by 25%?).

2. Stockpile your supplies: For investors and entrepreneurs this means you need to get capitalized! If you've got enough cash on hand and this downturn isn't "too" bad, you'll be just fine. But for those operating on a shoe string budget already, you might be in for even tougher times if this downturn hits.

3. Focus on the Fundamentals: At the end of the day most of this stuff is beyond any of our control, so there's not much we can do by worrying. So focus on your business - continue to execute on all fronts and proceed with your plan. Don't take your eye off the ball for a single second.

I think James Dean said it best - "Dream as if you'll live forever; live as if you'll die tomorrow."

I prefer, "Act like your company will be around forever; but plan like it could be gone tomorrow."