“What’s in a name?” A famous question that is as relevant today as the day it was penned. There are a few things that are completely in your control when you think about starting a business or kicking off a new project, and the name that you select is one of them. It never ceases to amaze me how few people give the name selection process the attention it deserves when they are commencing.

There once was a time when you could take a product almost all the way to the finish line and come up with your name then. The companies who really understood marketing and brand management would spend considerably more time on this exercise, but some of them are the worst offenders when it comes to coming up with names. More often than not, what they would bring to market is a line extension, utilizing some portion of an existing brand (i.e. Coke Zero, Miller Lite). They successfully bi-furcated the target market, and end up losing cumulative share.

The Internet changed the importance of a name in a few ways that may not be immediately obvious when you are thinking through a name, but are exceedingly obvious when you hear them said out loud. The discovery process that consumers go through today for information about your product or company will most likely (I really want to say “absolutely will”) begin with a search engine. Thus the question, “what’s in a name?” Perhaps a more contemporary version (much to the horror of Shakespeare lovers around the world) is “how Google-able is your product?”

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I don’t know about you, but many times when a supposed flash of brilliance hits me, I believe I have the mental equivalent of gold. I tend to get a bit ahead of myself, and start thinking about all of the money that I am going to make, what the product is going to be, how much customers are going to love it, how I am going to sell it, and who is going to buy it. Somewhere in the middle of that process, I start designing the product; making decisions about the absolutes of what the product will and won’t be.

You will find that your first idea is seldom your best one. This is true along two separate axes. First, if you spend any incremental time on design and storyboarding, you are likely to improve upon the original idea in immeasurable ways. Second, if you start letting your mind wander, you may come up with a completely different product/solution that addresses the same need, either directly or tangentially, and does so in a far better way than your first idea.

Just as the notion of testing your idea with only one person is a guaranteed recipe for fail, using yourself as the sole testing point will likely land you in a situation where you could potentially create something that no one will want. This is especially true if you just start building the first thing is that pops into your head.

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The title here might be a bit sesationalistic, but the deal certainly shows how VCs can act in a way that is counter to the wants and needs of the entrepreneurs and management teams.  The news yesterday that Zappos sold to Amazon has been circulating with many emotions.  CEO Tony Hsieh wrote an amazing letter to his employees, which laid out the deal and what it would mean for the company.  Read it if you haven’t already.

Unfortunately, when the press and journos report on a sale, they focus on the topline number, and it is rare that they report much beyond that.  As most of my readers are in the tech industry workers or entrepreneurs, the topic that is of more importance to them is “what did the shareholders who weren’t VCs get?”  That’s a great question, and one that is usually difficult to answer without access to the funding docs of the various rounds.

In the interview that I did with Andrew Warner of Mixergy, I touch on this topic of trying to create a structure that has the interests of both the entrepreneur and the investors aligned.  This morning I was reading the peHUB account of the Zappos deal, and there are a couple of things which pop out at me:

1. Zappos management didn’t want the deal – the management team wanted to remain independent.  It’s a well reported meme that Zappos has a culture which is very unique, but has generated a booming repeat customer business, and one that has grown quite nicely, even in these tougher economic times.  Being part of Amazon will certainly change that.
2. The sale was forced – it appears from the reporting that the investors were able to force the sale of the business.  That’s their right if they own more than 50% of the business, but it could also be their right if they had what’s called a protection right in the security in which they invested.  These provisions allow for a great many things, including the ability to force a sale at a valuation of X times the value of the round invested.  That takes the decision out of management’s hands, and clearly not always in their best interest.
3. Not all liquidity events are created equal – the total investment in Zappos, according to peHUB, was $49.1 million.  Most casual observers would think that this is all that must get repaid before the employees/entrepreneurs start seeing money.  This is not the case, as it would depend on whether or not the different rounds of investment were made as common stock, convertible preferred stock, or, worse, participating preferred.
4. VCs will screw you – the most interesting line of the whole article is the peHUB quote attributed to a shareholder about Sequoia: “…came in at a high valuation, but he countered that with a very high liquidation preference.”  The high valuation is meant to give the entrepreneur the sense of relief associated with keeping more of their baby, but that liquidation preference (3 or 3.5X!!) is meant to ensure that no matter what, Sequoia actually gets a guaranteed return.  I would love the opportunity to invest is a repeat successful entrepreneur with a 300% return guarantee.

The liquidation preference issue is moot depending on if the security was a convertible preferred and if the valuation of the round at which the money was invested would be low enough such that the shares converted.  Regardless, this serves as a great example point of how investors can create situations where the entrepreneurs are not being looked after, nor are the interests of management and investors aligned.

Tony is a super succesful entrepreneur, with one exit in the late 90s for almost $300 million, as well as successful investments out of his own fund.  If Sequoia took him to the woodshed like this with the liquidation preference, and the forced sale, imagine what they would do to the unseasoned entrepreneur.  As an entrepreneur today, you can do so much more with so much less.  See what you can get done before taking money from the large fund investors who “need liquidity” rather than what’s best for you.  If you take money from a VC, caveat emptor.

UPDATE: I got an email from Dianne at Kel & Partners (presumably Zappos’s PR firm) explaining to me that the story is false and that she cannot say anything else for legal reasons (which is true).  Unfortunately she called me Brian, which is not going to endear me to you.  The email was pretty impersonal (probably a form letter) and leads me to believe that this meme has upset someone and the PR firm is in damage control mode.  Whatever the actual reason for selling, I am happy for the Zappos management team if this is the exit they indeed wanted.

The funny thing about great ideas – they are most often loved by the creator and completely misunderstood by those around him or her. Imagine Evan Williams trying to explain Twitter (www.twitter.com) in 2006 to people right before he went live with it. How many people do you think told him that a) they didn’t get it or, b) it was a terrible idea?

We’ve already established that passion for the project is one of the most important factors in determining whether or not there is going to be a success or fail. People with whom you share your idea are far less likely to have the same passion for the project that you have. After all, you have come up with this idea in what you would describe as nothing less than a flash of brilliance. In fact, you have probably spent many hours thinking about this one thing; how you would create it, how it will work, and, most importantly, why people will love it. Those around you with whom you plan on sharing this idea have not, and therefore won’t care and won’t get it.

The single most dangerous thing you can do when you have a brilliant idea for some new project is to ask just one person. Overcoming the gap of single denial is treacherous and terribly important for any new venture to see the light of day. After all, you are in love with this idea, but, like most new entrepreneurs, you are probably feeling terribly self-conscious about the notion that somehow you are going to have this great idea that no one else has had. Further, you will have doubts about your ability to execute against it. It’s very easy, then, for a would-be entrepreneur to become a wayward one by virtue of the fact that they asked but one person what they thought of their idea.

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Another essay for my community book project.

I carry a little notebook around with me everywhere I go. I keep this notebook so that I can jot down the ideas for random businesses which pop into my mind. I’ve had plenty of them, and some of them I have pursued with mixed results. When you are considering venturing off, there’s a two part question you have to ask yourself when deciding to get up off the couch and start your next thing which will drive whether you are searching for happy face or sad face emoticon in your email to your buddies.

First, “do you have any relevant experience?” If the answer to that question is “no,” that’s fine. It’s more than fine actually, as many a successful business has been started by someone who was in way over their head. You need to understand that your lack of domain knowledge will necessarily create some hurdles for you to clear, and some of the hurdles universal to all new businesses will get a little bit higher. However, there have been plenty of people who learn on the job en route to building a very successful business. How you ask? Well, that’s the second question.

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There could be any number of reasons that I finally decided to write this. I guess the biggest reason is that I keep saying that I will.  The astute reader will note that I have been guilty of breaking the very first rule.  I can’t have that, can I?  Besides, I am not a multi-millionaire, despite having worked for Microsoft through the mid-90s, a dot-com before the bust, and for one of Wall Street’s most hallowed names.  “How could that be?,” you ask.  Great question.  I will attempt to answer that within the confines of the essays herein, but I think the most obvious answer is that I’m just not that good.

That must be the reason, right?  I’m just not that good.  I’m not as smart as I think I am.  All of the talent, schooling, and work experience have failed me in my quest to hit it big.  Of course, I could put forth some of the statistics as they relate to the percentages of people who have actually accumulated a multi-million dollar net worth, but that wouldn’t matter.  Rest assured, it’s a very, very small percentage of the population.

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Robert Cringely has an article up at the NY Times about Chrome vs Bing.  It’s a fine piece, but there’s a bit in the middle that makes me shake my head:

Microsoft makes most of its money from two products, Microsoft Windows and Microsoft Office. Nearly everything else it makes loses money, sometimes deliberately.

This is not an uncommon refrain, though most times people call MSFT a one trick pony.  This continues to confuse me.  I sat down with Scoble a couple of weeks ago at the Structure09 conference and we talked about MSFT.  He’s a former employee, and he too made this quip when the topic of Bing came up.

I read through the most recent 10-Q for Microsoft to see if I could pull out proof of what I am about to state, but the content wasn’t there.  There’s more detail in the 10-K filing from last year, so here goes.  If we start from the premise that Microsoft did $60B in revenues in 2008, and Office and Windows are the only products we have, where does that leave us?

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Mini-MSFT is back, with a post about Microsoft turning The Corner.  It’s interesting to contrast his point of view with that of MG Siegler over at ParisLemon.  Given my own perception of  Valley bias on the part of Siegler (he is one of the new voices of Techcrunch after all), it’s great to see that we’re making progress which is being met with receptivity and not suspicion.  Further, everyone is focused on the most important beneficiaries – customers.

I have to admit, since returning to the company a little over a year ago, I have had this sense that things are looking up.  Don’t get me wrong, there’s no shortage of frustrations for me, but that’s to be expected when you come from a tiny company where you were the founder and CEO to a large company where you a cog in a wheel.

With the new fiscal year, I have a new role and a new team, and I plan on making liberal use of my training and experiences in constrained resource environments to do some things that will harken back to the mojo days of the late 90s and IE/Netscape goodness. Read the rest of this entry »

Last week was a big traffic week for me.  I had a trifecta of posts that happened to pull in a bunch of traffic, which turned me into a stats addict.  In looking at the log files, I wanted to see where the search traffic was coming from and the associated search terms.  There was one that caught my eye, and I would love to know who this person is.  The query was:

declined because of sat score pe firm

“pe firm” means Private Equity firm.  So this person thinks they got declined from a PE firm because of their SAT score?  I am going to go out on a limb and say the SAT score had nothing to do with it.  Generally, to get an interview at a PE firm, you have to have cleared a series of hurdles that act as pre-qualifiers.  Did you go to a top 10 University?  Did you work at one of the large and well regarded investment banks who generally only pull top talent out of the Ivy League?  Did you attend a top 5 MBA program?  If you manage to clear all of those hurdles, I am not sure your SAT score will figure into things.  I could be wrong, but I never once looked at the SAT scores in the two years I ran associate recruiting at the PE firm where I worked.

Stranger still was my inability to find my site in any of the search results for Bing or Google.  Maybe I am missing a big SEO opp? =)

It’s Friday, and it’s sunny out here in Seattle, which means that no work will get getting done.  In lieu of work, I did some digging with my contacts on the interwebs, and it turns out there is are a couple of screen grabs of the new Chrome OS floating around out there.  I like how Google is taking their minimalist design philosophies for their search engine and applying it to their OS.

At the very least, you can expect that the UI for the OS won’t change for 10 years, that the OS will work only about 80% of the time (the other 20% it’s will be working on some personal projects), and it will spawn hundreds and hundreds of processes which don’t really do anything, never really appropriately allocate a heap, and just kind of sit there completely unused until the master process removes them from the system without telling anyone.