It’s good to be 21 :)

I went to a FOUNDERSclub & Silicon Alley Insider event last night was pleasantly surprised to learn they had selected me as the 21st most influential person in NY 🙂

We’ll see if I have enough influence to make them change the picture they put on my Silicon Alley Insider profile with one more recent (somehow they used my 1999 Aucland press picture – which is great except, I am 25 on that picture 🙂

You can see the entire 2008 Silicon Alley 100 list at:

Talent is overrated!

I blogged a few times that, your level of natural talent notwithstanding, excellence is achieved through deliberate practice (A Star is Made, A Star is Made – Part 2, Gladwell on Genius).

Deliberate practice is when you repeat an activity thousands of times with the specific purpose of improving your performance. You set specific goals, measure your performance, get prompt feedback and use it.

There is a fantastic in depth article on the topic in the latest Fortune. It’s the best article I have come across on deliberate practice and I strongly encourage all of you to read it. It’s an excerpt from Geoff Colvin’s new book: Talent is Overrated: What Really Separates World-Class Performers from Everybody Else.

Read the article at:

Ten tips to ride the economic slowdown

After all the dire warnings given by various VCs, here is a more positive list of recommendations sent from one of my friendly VCs:

  1. Don’t panic! Economic cycles are part of life. Best companies are built in the worst of times. If you panic, your employees will panic.
  2. Conserve cash. Delay spending on non-critical things that do not result in revenue generation. Renegotiate vendor contracts, rental contracts, etc.
  3. Improve productivity. Get more out of your team.
  4. Differentiate between high and low performers. Reward the high performers. Counsel out low performers.
  5. Optimize the organization. Hire critical talent as they may be available at a reasonable cost. Transition or re-deploy non critical resources.
  6. Continue selling and marketing your product or service. Being in front of customers and vendors builds confidence that you are a long term player.
  7. Focus on growth with an eye on profitability. Since the cost of capital is high today, be cautious on how much capital you raise to invest for growth. Avoid over-investing in the business in the hope for exponential growth in the future.
  8. Communicate with your team internally. It Make sure your team understands that you are building a lasting and successful enterprise and that some of the cost cutting measures including layoffs are necessary for the health of the company. Anxiety levels can be high in tough times.
  9. Act swiftly. Try to deliver any bad or tough news at one shot to the company. Continious bad news can affect morale and instil fear.
  10. Have fun! Make sure your team is having fun. A happy environment builds loyalty and performance for the long term.

Psychology of an Entrepreneur

Kevin O’Connor came across a few interesting studies on what makes entrepreneurs tick:

1. Need to control and believe you control
2. Self-confidence
3. Rebellious
4. Need to innovate
5. Urgency, strong drive
6. Conceptual ability
7. Low need for status
8. Objective, non-emotional
9. Attracted to challenges, highly competitive, gut feelings
10. Big goals, long term vision
11. Charisma

John Stuart Mill (1806 – 1873), On Liberty

“The only freedom which deserves the name is that of pursuing our own good in our own way, so long as we do not attempt to deprive others of theirs, or impede their efforts to obtain it. Each is the proper guardian of his own health, whether bodily, or mental or spiritual. Mankind are greater gainers by suffering each other to live as seems good to themselves, than by compelling each to live as seems good to the rest.”

Perez-Reverte’s books are disappointing

Perez-Reverte came highly recommended as an author of well written intelligent thrillers. I also loved the movie The Ninth Gate based on The Club Dumas. I optimistically purchased all his books and had great expectations.

I read The Club Dumas, The Seville Communion and The Queen of the South. Perez-Reverte is certainly erudite and I loved the Dumas and Dante references in The Club Dumas. I also appreciate flawed main characters.

Unfortunately all the Perez-Reverte books have the same flaws: the story moves too slowly and the scale of the characters’ struggles is just too small. For instance, in The Seville Communion, I just did not care about the fate of an inconsequential church. I prefer epic tales when it comes to thrillers.

New MacBook Pro disappointment

I have had a 17” MacBook Pro for nearly 2 years and it’s starting to show its age. Its Nvidia 8600M graphic card is not keeping up with new games. Outlook takes forever to load (I have 20Gb of PST files). The casing is all bruised up after 2 years of traveling with me every day and being dropped more than a few times.

Unfortunately, the MacBook Pro refresh announced on Tuesday was a huge disappointment:

  • Apple did not update the 17” version!
  • The 15” Macbook Pro has an Nvidia 9600M, I was hoping for a 9800M
  • The 128Gb SSD does not seem faster or to increase battery life relative to the hard drive options

Unfortunately there are no other 17” on the market that weigh 6.5 pounds so I am stuck with my notebook for a while.

I hope they update it for MacWorld in January!

What the financial crisis means to entrepreneurs

Last March I explained why startups should raise as much money as possible to prepare for the upcoming crisis (Why the startup market is like the real estate market). Now that the crisis has hit, we can examine what it means for entrepreneurs.

1. Aspiring Entrepreneurs:

There is no better time to start a company!!

The opportunity cost has decreased as many high paying jobs have disappeared and employment opportunities in general have lessened. If you have a job, companies will have less room to give generous bonuses and/or raises.

It’s going to be harder for entrepreneurs to raise money, but competitive pressures decrease dramatically in downturns giving you more chances to establish yourself as the leader in your field and more time to do so. When I created Aucland, a copy of eBay for southern Europe in 1998, we faced dozens of VC backed competitors in every major country. We wasted millions of dollars in advertising to establish ourselves as the leader.

When I launched Zingy in September 2001, we essentially had no competition. The online advertising market had completely dried up allowing us to buy billions of advertising impressions for $10,000! The lack of competition proved critical to our success given that it took two years for the company to start establishing itself in the marketplace.

If you have been thinking of creating a company, now is the time to make the plunge!

2. Poorly Capitalized Startups:

My definition of a poorly capitalized startup is a startup with less than 1 year’s worth of cash on hand. A company may have $100 million in the bank, but if it’s burning $20 million per month, it’s poorly capitalized. If this is the predicament you find yourself in, I will reiterate the recommendations that most VCs have been giving to their portfolio companies during the past week: cut your burn as much as possible as fast as possible:

  • Stop marketing unless it has a proven positive return on investment
  • Lay off anyone non essential
  • Focus development on the most important features
  • Consider salary cuts for the top management and anyone highly paid
  • See what payments you can defer

Only profitability will put you in control of your destiny!

If you have not seen it, check out the Sequoia “RIP: Good Times” presentation.

3. Well Capitalized Startups:

If you have more 3 years worth of cash on hand, you are well capitalized. Given the current environment, you may very well need it and I would advise you to heed many of the recommendations I mention for poorly capitalized startup in terms of keeping lowering your burn and aiming for profitability. However, I would recommend being selectively aggressive.

It’s when everyone else is cowering and sitting by the sidelines that the best opportunities arise. For Internet startups, they usually come in the form of inexpensive acquisitions and marketing. That time has not yet come.

In terms of potential acquisitions, many entrepreneurs have not adjusted to the new reality and many startups have not run out of cash yet. This opportunity will come in 2009 and/or 2010. In terms of marketing, the time has not yet come either. Many media buys are committed to ahead of time and will probably run until December. In 2009, the opportunity may appear to buy a lot of traffic cheaply. You will notice it when if your average cost per click decreases significantly in your Google AdWords campaigns.

In the meantime, cut costs and be patient knowing that your time will come!


The economic environment has been radically altered fundamentally changing conditions for startups. Valuations will decrease. M&A activity and IPOs will decrease. The average life cycle of a startup from inception to exit will be much longer – over 5 years. In this environment, only the truly committed should venture. Your mettle will be tested and you will need all your grit, tenacity and passion, but if you stand the test of time and take advantage of the opportunities the crisis offers you, you will be richly rewarded!


As a society and as individuals we are loth to take responsibility for our actions. We much prefer finding scapegoats or blaming circumstances. I was recently asked who was to blame for this crisis.

Like in Agatha Christie’s Murder on the Orient Express, we all did it!

The culprits include:

  • The American Dream: Guilty of having changed from being the opportunity of becoming successful through arduous effort, perseverance and determination regardless of your starting circumstances to the pursuit of home ownership.
  • Politicians: Guilty of pushing home ownership as an end in itself and of distorting the tax code accordingly thus encouraging individuals to pile on debt.
  • Fannie Mae and Freddie Mac: Guilty of using the fact that no politician felt he could publicly oppose home ownership to lobby for and succeed in expanding the number of mortgages they cover. Doubly guilty for piling so much risk given its structure that “privatized the profits, but socialized the losses”.
  • The Fed: Guilty of keeping interest rates too low for too long, inflating both the credit and real estate bubbles. Guilty of deciding that its role is not to deal with asset bubbles arguing it cannot tell whether there is a bubble even though many experts and most indicators were showing that real estate ownership and prices had increased unsustainably.
  • Alan Greenspan: Guilty of publicly advocating variable rate mortgages even though rates where at an all time low – a suggestion made even worse by that fact that he then promptly increased rates.
  • George Bush: Guilty of cutting taxes while massively increasing spending on frivolous projects like agricultural subsidies and similar pork-laden projects during a boom period leaving the US in a precarious financial position entering the downturn.
  • Banks: Guilty of relaxing lending standards to expand origination profits.
  • Investment Banks: Guilty of creating complex derivative products whose riskiness they did not understand.
  • Investment Bank CEOs: Guilty of not looking at the riskiness of the derivative products their banks were creating because of the profits coming from those operations.
  • Investors (all of us though our 401ks): Guilty of expecting 10% annual returns and ignoring risk in order to chase yield.
  • Home Buyers: Guilty of buying homes they could not afford believing they had nothing to lose because house prices would always rise.
  • Consumers: Guilty of spending everything we earn and more by borrowing through home equity loans and credit cards to buy things we don’t really need, instead of saving a reasonable percentage of what we earn.

The judgment is in: we are all guilty!

The penalty: Increased taxes and slower economic growth for many years as we return to a sustainable economic environment.

The Economy: The case for (relative) optimism

During the past few years, I often felt I was the sole economic pessimist. I urged my friends and whoever would listen to rent and not buy their apartments (Rent … unless you want to buy, I professed that the current economic imbalances would lead to disaster (Macro Perspectives on Global Liquidity) and that the downside risk to the economy was much greater than people expected (A Different Perspective on the Global Economy).

How times have changed. There is palpable fear in the air and many seem to think we are headed for another Great Depression. Shockingly, by sheer relativism I now find myself among the optimists. I am not saying things are about to get better, quite the contrary, but I am reiterating my analysis that we will have a rather prolonged downturn, but no Great Depression (The US Economy: How bad will it get?).

In the short run things will undoubtedly get worse. Despite their recent fall, real estate prices remain well above historical norms and will have to fall in real terms either through further falls in nominal prices or through many years of stable prices given the current inflation rate. Financial firms still have a lot to worry about. Hundreds of billions of dollars of variable rate mortgages will reset in 2009 causing further foreclosures. Credit card loan books are headed for trouble as consumers have seemingly tapped out their credit cards (the most expensive form of credit available) instead of decreasing spending to maintain their standards of living. Economic headwinds will lead to higher unemployment and cause delinquencies to rise on both credit card and car loans. Given the economic uncertainty, companies will undoubtedly be more careful, which makes sense on a micro level, but slows down economic activity. The unemployment rate will rise and way well exceed 10% at some point in the next few years. The personal savings rate will rise to a more sustainable rate both as households repair their balance sheets and baby boomers prepare for retirement. Again, this makes sense on a micro level, but will lead to further macroeconomic slowdown. Exports which had been the saving grace of the US economy for the past few months are unlikely to be able to hold up given that the crisis has spread to Europe where Italy and Spain are already in recession with Germany on the brink of one. Japan’s export led economy may have already faltered and may be heading back into deflation.

In other words the crisis will spread from Wall Street to Main Street and the US economy and that of the world will slow down significantly for the next few years. However, this is not a Great Depression. Between 1929 and 1933, the US economy shrank by a quarter. Real estate prices fell by 50% in 2 years. Retail banks failed. Unemployment reached 25%. Many queued around the block for soup and bread. In New York many who lost their residence found refuge in Central Park.

The unemployment rate is currently 6.1% and the banks that have mostly been affected by the crisis are the commercial banks rather than the retail banks. Most importantly, the Fed has learned from past mistakes. Overly tight monetary policy turned the downturn into the Great Depression during the 1930s. Ben Bernanke is a scholar of the period and will not let it happen again. The global rate cute that was orchestrated by the major global central banks yesterday shows they understand the gravity of the situation and are trying to provide appropriate liquidity. I am confident the combined might of all the world’s central banks will prevent the crisis from becoming catastrophic.

After a few lean years, having avoided a Depression, I am sure we will bounce back and a new boom will start in green technologies with support from the continued growth for Internet and biotechnology companies.

Drink heavily and recycle :)

If you had purchased $1,000 of Delta Air Lines stock one year ago, you would have $49 left.
With Fannie Mae, you would have $2.50 left of the original $1,000.
With AIG, you would have less than $15 left.

But, if you had purchased $1,000 worth of beer one year ago, drunk all of the beer, then turned in the cans for the aluminum recycling REFUND, you would have $214 cash.

Based on the above, the best current investment advice is to drink heavily and recycle.

Why active entrepreneurs mostly invest in consumer Internet companies

My good friend Auren Hoffman just wrote an interesting article on why entrepreneurs end up investing mostly in consumer focused companies. As he points out, we have day jobs running our own companies and spend less than 2% of our time as angel investors. As such we don’t have time to do a lot of due diligence and consumer Internet companies are just a lot easier to evaluate.

It costs so little money to build a B2C company (in the early stages at least), that when they approach us, direct to consumer sites already have a product up and running. We meet the team once, play with the product, check a few references, evaluate the deal and that’s it. With one meeting, we can make a call on whether we want to invest or not.

B2B companies are much more capital intensive to build. When they seek angel money, they are looking to build the product. As a result both validating the market need and evaluating their execution potential is much harder and requires much more work.

There are many professional angels and early stage investors whose job is essentially to make investments and who will take the time to do the due diligence, but as a full time entrepreneur and part time angel, I completely agree with Auren. It’s reflected in my most important investments: Lab Pixies, Sonico, 24h00, Phanfare, Allmydata, Bandongo, FamilyBuilder, RateItAll and even Dineromail are all mostly consumer facing.