Seeking Growth

Book Review: “The Master Algorithm,“ by Pedro Domingos

 

I am returning from a break in my blog writing to address a book that profiles a game changing technology wave that will be more profound than any that came before it – including the PC, mobile or the internet.  

The technology is AI algorithms, or “algos”.  They build on all preceding platforms but are the only type of technology developed that have their own learning curve.  Algorithms are rapidly replacing human labor in most areas and are accomplishing in many fields what humans can’t – learning, reprogramming themselves, and teaching us about patterns they are recognizing in the universe to solve specific problems.

The catalyst for this explosion of successful algos is the ever increasing amount of data becoming available to process.  FMRI scans, sensor devices, DNA testing as well as mobile internet and social data are all generating a tremendous amount of digital information that can feed algos.  This data helps them find patterns in the real world we could never see before.

After a wrong turn in the 1980s, AI technology now returns with an ever increasing number of success stories – including Amazon book suggestions, Google text search, self-driving cars, Netflix movie suggestions, etc.  As futuristic as it seems, biotech robotic scientists today are able to create hypotheses, design tests, carry them out, and analyze the results at a pace never before possible.  The output creates even more data for future algos!  

The Master Algorithm explains why the pace of algo use is accelerating (and will continue to do so) while also demystifying the technology behind this transformation. The book describes the five major tribes of AI algos and shows examples of how they have been used with impressive results.  The author goes far beyond that however – forecasting that these tribes will converge and ultimately form a Master Algorithm that will (with enough data) be able to derive all knowledge, past, present and future.  He believes this algo exists, but remains undiscovered. 

In the spirit of Ray Kurzweil’s, “The Singularity is Near”, Pedro Domingo proposes a future vision that is so transformed from today by algos that it is at first hard to believe, but convincing by the time you are finished.  The book joins a growing chorus of futurists that see a future where humans will be challenged to compete with algos, and suggests we should instead relax and let them do the work. In this future, work may no longer be the primary way to secure resources for food, shelter, and a living for the majority of the population.  Time to start finger painting!  To show his commitment to this cause, Pedro finishes by providing open source access to his algorithm, – as close as he has been able to get to the Master Algorithm – for others to achieve the final model itself.

Why Listen to the Author?

Pedro Domingos has been tracking the evolution of this market since the 80s. He received his M.S. in Electrical Engineering and Computer Science (1992) from IST, in Lisbon and an M.S. (1994) and Ph.D. (1997) in Information and Computer Science from the University of California at Irvine and joined the faculty of the University of Washington in 1999.  His is a prolific writer on AI and has online courses and several TedTalks.

He has seen the rise of the five AI tribes over time, diagnoses their strengths, where they work best, and stumble. He does a masterful job of explaining the benefits of each and how they can be stitched together to address problems in ways not possible before.

Next week

We will review the five AI tribes and discuss some use cases where they are applicable.

As a heads up, here is how he classifies them:

Symbolists, Connectionists (Neural),Evolution (Natural selection/ Genetic programming), Naïve Bayes and Analogizers

 

 

Some Cool AI Applications From this Week

I was blown away by this Google Voice Assistant Demo - Things to Come. At this point the tech will get better faster than people will be able to get used to using it.

 

I also saw this amazing use case of robots for small Dairy Farms. Note that rather than replace workers, it changes jobs that can't be filled, It also enables an expansion of the farm, more free time and the opportunity to vertically integrate into end products.

 

 

 

Please let me know when you see cool applications!

 

 

 

Back to the Future

Hello Seeking Growth Readers!

I have taken a long hiatus from blog writing to fundraise, work with our portfolio companies, enjoy my kids before they leave for college, and sail with friends.

I have decided to blog again because I am very excited about this moment in time, our front row seats in Silicon Valley and the technology changes rapidly coming our way as a result of AI/Predictive Analytics.

I have been fascinated with AI/Analytics since the 1980s.   Knowing what will happen before it actually happens has always seemed like magic to me.  My Statistics and Computer Science courses were fun and a natural marriage but, AI was nascent then and my HBS course on Lisp programming was underwhelming.

Nevertheless, I loved squinting and leaning forward to see what was coming next (Back to the Future was my favorite movie growing up).  And analytics allowed one to get there: to predict what would happen and make better decisions. I wrote a review on Supercrunchers in 2009 to discuss this trend.

Now we are at an inflection point.  We are witnessing a massive transfer of human “white and blue collar” work from manual processes to AI/Analytic supported decision algorithms.

I think everyone with an interest in this should think about what is their “secret sauce” in work or life.  You should ask yourself, “What do I do well, and what would I consider automating or improving with AI or analytics?”.  Most processes we practice today will be automated or will change dramatically due to automation or automation networks (think of all the algos in the Amazon value chain).  I have come to the conclusion that the only way to stay on top of this is to be part of it.

As a result, we have developed a new product called SaleSavant to help high growth companies accelerate sales growth with the benefit of algorithms applying best practices. We are are using it to help our portfolio companies and share our best practices with investment prospects.  It is based on 7 years of coding, work, and process improvements we did to help find “needle-in-a-haystack” investment opportunities.  It also benefits from almost 30 years of experience in advising/investing in high growth companies to accelerate sales and achieve high value outcomes.

As part of this effort, I am refocusing my blog to talk about the following relevant related topics:

- Best books on AI to understand what is actually happening

- Spotlighting success stories in AI to show how it’s working today

- Discussing growth areas that will be transformed by AI in the near future

This is an exciting time to be alive.  Just as it is hard today to imagine how we lived without the Internet, Google, and the smartphone, we are not going to recognize life before these algorithms.

In 2040, we will have the benefit of hindsight and will look back at the “2010 decade” with the feeling that what was coming was obvious, but that the changes came so fast that it was hard to adapt unless one was leaning in.   I want to lean in and help those interested to lean in with me.  

I also welcome your input and feedback. If you have a relevant story to share or contribute I would be happy to share with my readers.

Thanks for your time! 

 

 

Next review? The Master Algorithm by Pedro Domingos.  This is the best book I have read on AI.  It explains the five tribes of AI, now how we got here and where we are going.

2013, Year of Growth Premium, and Four Actions for Founders’ Competitive Game in 2014

Looking back at 2013, it is clear that one of the big stories in the tech sector was the value premium now being paid for high-growth companies.  This was the year of the growth premium — with high multiples being paid in the public and private markets for high-growth companies.  While this is good news for entrepreneurs, only a lucky few are able to benefit from this.  Not only do companies need to deliver high growth to command such a premium, but they also need to be in the right markets with a proven combination of team and business model that can sustain the growth.  The valuations have been out of sight for founders who have been able to bring these three elements together as they seek funding.         

How high are values? 

First let’s consider these questions: What revenue multiple would you guess that a 100 percent revenue growth software company that recently went public trades for in today’s market?  Think of a number before proceeding.  Ok now, what multiple would you guess for the same business with 20 percent revenue growth?  When you think you have the answer, continue reading. 

Most software executives that do not closely track today’s values might say 10x revenue for the 100 percent growth company and 2x revenue for the low-growth company.  Today’s reality is closer to 30x for high-growth companies and 3x for the 20 percent growth companies (adjusted for 75 percent software gross margins).  These represent significantly higher multiples, particularly for the fastest growing companies. 

The most visible rise in valuation for high-growth companies has been in the public markets.  IPOs for companies growing at 50 to 100 percent are trading as much as 20x to 50x revenues. 

Take a look at FireEye, which is trading at $4.7 billion or 30x, enterprise value/revenue multiple (based on trailing 12 month). The company grew by almost 147 percent in 2012, slowing to 107 percent in the first half 2013. Moreover the company is spending massively, with sizable losses to achieve this growth. It incurred a $67 million loss, of which $40 million was in Q2 2013 alone.  Clearly the market is valuing growth at virtually all costs (costs at 2x revenue).  

Lest you think this is just one deal, consider Veeva, which just went public. The company is led by great entrepreneurs, backed by one of the best SaaS software investors and it has built an amazing business in a short time by leveraging the Salesforce platform. Veeva went public with trailing subscription revenues of $106 million ($168 million with professional services) and has a current market capitalization of $4.2 billion, or over 30x subscription revenues.  Driving this is a rapid 54 percent year-over-year growth and a 20 percent profit margin. 

If we look at the top 30 tech IPOs of 2013 to date, we see a similar pattern: Trailing revenue multiples of 10x to 50x+ for revenue growth of 70+ percent (adjusted for growth margin variations). Meanwhile companies with less than 20 percent growth command revenue multiples of 0.9x to 4.8x  (higher still after adjusting for the low gross margins of several of these companies, including Chegg and Covisint). That’s a broad distribution and higher values in general than we have historically seen for most of the last decade, and it’s driven in part by today’s low-yield environment.  

As the Fed has driven long-term rates to all time low levels — 10-year U.S. Treasuries yield 2.90 percent — investors discount future earnings from investment by a lower amount. The faster the growth rate of the investment, the bigger the impact the low yield has on the revenue multiple.  The investment environment also matters since investors will discount future expectations more if they are more pessimistic. Today’s values do not reflect much pessimism.      

This results in a big increase in valuations in both the public markets as well as the private market for growth equity capital, where high-growth private companies are raising money at values rarely seen before.  Furthermore, the closer to a potential IPO that a private company raises money in the private market, the closer the multiple to the public market. 

As an example, companies 12 months from an IPO typically raise money at a 50 – 65 percent discount to the anticipated value at IPO pricing. The IPO pricing is often expected to land between 60 and 50 percent of the post-IPO value if everything goes on plan.  So an IPO expected to trade at $2 billion might price at $1 to $1.3 billion and investors might be willing to invest one year prior or less at $300 – $500 million valuations. The further the company is from an IPO and the more additional investment is required to build a scalable business, the lower the expected multiple/value. Nevertheless, given the return potential for a successful exit, private high-growth company valuations are at an all-time, post-2000 high.  

Growth alone is not sufficient. Companies also need three other essential ingredients to command high values:

1. Large markets:  Large-market opportunities command large multiples. Small markets indicate that the growth will stop or, best case, slow as the company reinvents itself. 
2. Predictability:  A track record of consistent growth is necessary to inspire investors to pay up for future performance.
3. Scalability:  Founders need to make the necessary investments to ensure the company scales as the revenue grow. This means seasoned management, IP or other entry barriers to defend margins and operational investments to grow predictably.  While these items can be expensive, cheap capital is available for such investments.  

Four actions founders need to take 

What does this trend mean for entrepreneurs? Good news potentially. Here are four actions founders should consider taking to be better positioned in today’s high-growth market.

1. Capital is cheaper now if you qualify. At today’s values many companies can raise money with little dilution, invest in growth and get a bigger reward for doing so than ever before. Founder action: Identify investments in your business that can accelerate revenue growth. 
2. Competitors also will have access to cheaper capital, which can put you at a disadvantage if they access capital and use it well and you don’t. Founder action: Be vigilant for competitors using capital to increase market share at your expense.
3. Acquisitions can be an attractive growth vehicle for private companies. Small, low-growth companies/products with less experienced teams often can be acquired at low multiples. There is little liquidity for these companies since public companies and private investors are all chasing large, high-growth businesses. As a result, high-growth private companies can pick up low-growth products/companies for relatively little dilution. With a strong sales channel, the buyer can accelerate sales growth, leading to higher value and possibly a broader market opportunity.  Founder action: Look for synergistic product additions to expand your market potential and accelerate growth. 
4. IPO exit values are primarily available for companies with current or near-term expected revenue approaching $100 million or more. If your market opportunity is large enough — $1 billion or more — raising capital to help achieve this scale commands high rewards today. Founder action: Develop your team, operations and business model to capture a significant (10+ percent) share of your available market. 

The net result is that the rewards have never been better for developing a scalable, high-growth business — that’s the growth premium.  If your company has high-growth potential, this might be the perfect time to raise capital or realize liquidity. 

Javier Rojas is a managing director at Kennet Partners, a growth equity fund, and leads its U.S. investment activities. He is currently on the boards of Prolexic, Revolution Prep, AcademixDirect and Intelepeer. Prior to becoming an investor, he advised founders on high value M&A exits at Broadview and Morgan Stanley.  Previously, Javier founded a software company that developed products for capital markets interest rate and currency swap traders.

Link to original article: http://sandhill.com/article/2013-year-of-growth-premium-and-four-actions-for-founders-competitive-game-in-2014/

Return Leaders: Heidi Messer, Founder, LinkShare

It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I spoke with Heidi Messer, a founder and president and COO of LinkShare Corporation, to discuss how the company was able to achieve an exit value 47x the capital used since inception through its sale to Rakuten Inc. in 2005.

Founded in 1996 and headquartered in New York City, LinkShare Corporation provided e-commerce businesses with a wide range of online marketing services including search marketing (SEM), lead generation and affiliate marketing.

Venture Capital Raised/Used: $17 million raised/ $9 million used (Est.)
Exit: Purchased by Rakuten Inc. for $425 million
Exit Value to Capital Used: 47.2x

The year was 1996. The location, a small studio apartment in New York City,  the East Coast version of the storied Amazon.com garage. That’s where Heidi Messer and her brother Stephen founded their first company, LinkShare Corporation. Sensing the opportunity to capitalize on the impending growth of the Internet, Heidi and Stephen, with two part-time employees, invented and patented a way to show the value of advertising on the Web and created an affiliate network for advertisers.

The venture, which was ” self-funded for two years through frugal living and reinvestment of every dollar earned,” was wildly successful and is widely considered a pioneer in online affiliate marketing. LinkShare became the largest pay-for-performance affiliate network on the Internet with over 10 million partnerships and was the first affiliate network provider to achieve sustained profitability. At its peak, roughly five percent of U.S. e-commerce traffic went through LinkShare’s network, and the company estimated that it tracked more aggregate transactions daily than the NASDAQ, NYSE and Nikkei.

The company was launched with seed funding from the founders and reached $10 million in revenues having only raised a $4 million growth equity round. After a final financing of $13 million, the company became a profitable, thriving business. Four years later Heidi and Stephen were considering taking LinkShare public when they received an offer from a top Japanese shopping portal, Rakuten Inc, in 2005. They reached agreement to sell the company to Rakuten for $425 million in cash.

In this interview, Heidi discusses the company”s humble beginnings, its investment strategy and how she and Stephen grew such a successful business.

Javier Rojas: How did you and Stephen initially fund the business?

Heidi Messer: We founded the company using personal savings. For the first six months, only my brother and I were full-time. We had two part-time employees, one tech person and another who did marketing. Every dollar we had went straight into the business. This was very good training for us, and set a cultural foundation for the company. Every dollar we took in, we invested back in the business.

JR: What made LinkShare unique?

HM: We were the first in the ad network space to invest in analytics. A lot of the reason advertisers used us is because we helped them be more efficient in advertising. We also offered analytics to content sites, which helped them determine the value of their real estate.

JR: When did you take the first round of venture financing?

HM: We self-funded for about two years and didn’t technically have an angel round, as we were investing sweat equity in the business. We took our first round of $4 million in 1998, from Internet Capital Group (ICG) and Comcast. At that time we had about $1 million in revenue, with a modest burn rate and less than 10 full-time employees. We weren’t profitable yet because we were constantly investing in the company in anticipation of the growth we knew was to come.

The first round was spent on sales and technology, because we needed the first-mover advantage, since the winner typically takes all. At this point, Stephen and I also started taking modest salaries, because we thought it was unrealistic that a company would not pay the CEO and president.

JR: Your second round was about two years later. It seems you were able to get a lot of mileage out of that first round?

HM: Yes, the $4 million lasted us a long time. We were very frugal, much like when we first started the company. In our second round, in 2000, we raised $13 million from ICG, Comcast, and new investors Mitsui and an individual, who ultimately became a board member. At that time, our revenue was about $20 million, with an 85+ percent gross margin. About six months after this round we reached profitability.

Again, we invested that round in sales and technology. We walked a tight line on both because we believed we needed to be doing two things: generating revenue by growing a customer base and continuing to establish our technology leadership.

That was the last round we did. We were slated to go public soon after that, but the public markets dried up.

JR: LinkShare amassed an interesting line-up of venture capital partners. Why did you feel it necessary to work with such a diverse group?

HM: As I mentioned earlier, ICG and Comcast invested in our first and second rounds, and we added Mitsui and a former corporate executive in the second round. We felt like each investor brought us a unique group of contacts and experience that could benefit the business. For instance, ICG connected us with Comcast, which offered us contacts that had experience building a network. The individual investor was incredibly insightful in dealing with general business matters, and his experience was valuable because he had weathered economic ups and downs. And, we had done a phenomenally successful joint venture with Mitsui in Japan, which is a great market, but challenging to break into if you don”t have the experience.

JR: I”m sure you could have raised more venture capital. Why didn’t you?

HM: We were always fiscally disciplined. There is a problem with taking in too much money. As we were getting the second round of funding, we looked back at our original business plan, and realized it had never changed from the beginning. We knew then what capital we needed and how we were going to spend it. By not taking in too much money, we knew we wouldn’t spend it on things we didn’t need. For a lot of companies in 2000, the amount of money they could raise was a badge of honor. But we believe you need a plan for how you”re going to spend it. Raising money can”t be the measure of how successful you are.

JR: Did you eventually reconsider an IPO?

HM: Yes. In 2004, we began the process to take the company public. But at the same time, a number of companies made offers to purchase LinkShare. So we ended up going down a dual path  “working on an IPO filing and considering offers. Finally, we decided that the offer from Rakuten was the best for the company. Not only was it good for investors, it would enable the business to grow as we had envisioned.”

JR: What advice would you give to founders of other bootstrapped companies?

HM: There are two things I would say: 1) make sure you have good discipline in how you spend your capital; and 2) choose partners wisely. We were lucky to have the mix of partners we had, because they had faith in our management styles.

I’m wary of investors who want to bring in professional management. If an investor isn’t willing to invest in you and your vision, it’s something that should give you pause. The companies “like Apple, Microsoft and Oracle” that have been so successful all have been run by their founders.

JR: Now that you have left LinkShare, what are your plans?

HM: I tried retirement for about three months, but that didn’t work out. Right now I’m working with my brother on starting another business.

Javier Rojas is a Managing Director of Kennet Partners in Silicon Valley. Kennet provides growth equity capital to bootstrapped companies in the US and in Europe. Kennet focuses on capital efficient businesses with annual revenues of $5M to $50M. Kennet works with founders to build high value outcomes and preserve equity value through capital efficient growth strategies.

Link to original article:
http://sandhill.com/article/conversation-with-heidi-messer-founder-linkshare/

 

Return Leaders: Greg Gianforte, Founder, RightNow Technologies

It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Greg Gianforte, CEO and founder of RightNow Technologies, to learn how he created a $200M IPO from a bootstrapped venture.

Headquartered in Bozeman, Mont., and founded in 1997, RightNow delivers the high-impact technology solutions and services organizations need to cost-efficiently deliver a consistently superior customer experience across their front-line service, sales and marketing touch-points. Approximately 1,800 corporations and government agencies worldwide depend on RightNow to achieve their strategic objectives and better meet the needs of those they serve.

Venture Capital Raised/Used: $32 million in two rounds (1999 and 2000)
IPO: 2004
Market Capitalization: Approximately $200M at IPO
Exit Value to Capital Used: 6.25x

For Greg Gianforte, talking to potential customers – market research – was the foundation for an entrepreneurial business venture that was cash-flow positive from day one. In 1997, Greg noticed that the Internet was effectively changing the way that companies and their customers communicate. Companies were being inundated with e-mails from Internet users who needed help or wanted to find information online, and they had no good way to respond to all inquiries quickly and effectively. He thought there had to be a better way to use the internet for customer support.

After spending a few months calling on 400 potential customers to better understand their challenges, Greg – a programmer by trade – focused on developing a self-service web application that businesses could integrate with their web sites to better respond to customers. In just two months, Greg had the first product, which sorted FAQs by user ratings on their effectiveness – that’s it! It was simple, but ahead of other market offerings, and enough to start working with customers.

In January 1998, Greg focused on selling his application and brought in more than $10,000 in revenues by himself. “That was my proof point,” said Greg, who was the only employee at the time and was not drawing a salary. He then only hired 100-percent-commission-based sales people and the business was on its way. “Many entrepreneurs think they need to raise a lot of money because that is how they will develop a great business plan. But that’s usually an excuse for not having thought through their business plan well enough.”

Greg, who also is the author of the book, “ Bootstrapping Your Business: Start and Grow a Successful Company with Almost No Money” – explains how he built RightNow Technologies, Inc. into a company worth approximately $500M and shares his views on raising capital to grow entrepreneurial ventures.

Javier Rojas: Why was your business model successful?

Greg Gianforte: The beauty is that I didn’t build something at first, I only did market research. In 1997 vendors in the market only focused on helping companies answer their e-mails faster. I didn’t think that was the best solution because customers don’t want to have to send an email request and wait for a response. They want immediate access to information 24 hours a day, seven days a week.

My idea was a “self-learning knowledge foundation ” – or smart FAQ – that initially was nothing more than a question at the bottom of an FAQ page that asked if the answer was helpful. It solved the problem – letting customers help themselves and reducing e-mail. By working with my customers I was able to evolve the RightNow offerings into the most sophisticated Software as a Service Customer Relationship Management application.

JR: What was the key to being cash-flow positive from day one?

GG: I needed to sell the product to bring in cash. I hadn’t taken a salary, so the revenue just accumulated. After about three months of selling the product myself, I had 40 customers and decided to hire three sales people, who worked exclusively on commission. From that point, the business took off, and we were doubling revenue and employees every 90 days.

JR: When did you raise venture money?

GG: We didn’t raise money until we were over 150 people, so we were already successful as an independent business. In 1999, we decided to raise money because the valuation was very attractive. We did our second round in 2000, and in total raised $32 million.

JR: What challenges did you face with regard to raising outside funds?

GG: When we got our second round of venture capital, there was a lot of pressure to spend the money. At that point we went cash-flow negative, which I believe we may have been better off not doing. When you go cash-flow negative, you lose the discipline of running a cash-flow positive business and then it is much more difficult to get back into the right mindset.

When you’re boot-strapping a business, all investments tend to be incremental. But when you raise the money, you tend to make bigger bets that have higher risks. We’ve now gone back to our roots and are approaching our investments incrementally. That doesn’t imply that we’re growing slower, it is just that we are making wiser decisions about our investments.

JR: What were the positive outcomes of spending the venture money?

GG: We were able to establish a strong presence in Europe, the Middle East and Asia. Doing that early has served us well. If we hadn’t had the venture money, we would not have made those investments as early, or as significantly. Entering each country is like starting a new business, and it takes time and investment.

I believe you raise the money when you need to grow the business – that is, if there is a very specific business opportunity that can’t be executed without the capital. Also, investment in sales and marketing can make sense if the sales team is cost-effective – say they are delivering at least 3x return on their costs.

However, you must be careful that you’re are not just throwing money at sales and marketing challenges that could be resolved by working smarter. For example, some CEOs complain that it takes time to ramp up their sales force, requiring investment. While true, some of these challenges might be resolved by targeting smaller transactions, using telesales and/or leveraging partner relationships.

JR: What new projects are you working on?

GG: On the bootstrapping front, I recently set up a fund called Bootstrap Montana to support rural Montana businesses. We offer zero-interest microloans for projects that will provide a fast ROI. Our goal is to increase the level of employment in the state, bring in new sales revenue and increase the competitiveness of companies in Montana.

JR: Any last words of advice for founders starting a business?

GG: Yes, if you are starting a business, don’t spend your time calling VCs; spend your time calling customers, figure out how to solve their problem and get them to pay for it.

Javier Rojas is a Managing Director of Kennet Partners in Silicon Valley. Kennet provides growth equity capital to bootstrapped companies in the US and in Europe. Kennet focuses on capital efficient businesses with annual revenues of $5M to $50M. Kennet works with founders to build high value outcomes and preserve equity value through capital efficient growth strategies.

Link to original article:  http://sandhill.com/article/conversation-with-greg-gianforte-founder-rightnow-technologies/

 

Return Leaders: Jon Craton, Founder, Cramer Systems Ltd.

It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Jon Craton, founder of Cramer Systems, to discuss how the company was able to achieve an exit value to capital used ratio of 47x upon its sale to Amdocs in 2006.

Headquartered in London and founded in 1996, Cramer Systems was a leading operations support systems (OSS) provider to the telecommunications industry before it was acquired by Amdocs.

Venture Capital Raised/Used: $9 million
Exit: Purchased by Amdocs for $425 million
Exit Value to Capital Used: 47x

When Jon Craton was working at a software developer in the late 1980s and early 1990s, his main focus was on creating custom-developed applications for the telecommunications industry. As deregulation of the telecom market was beginning to gain steam, Jon and Don Gibson, a co-worker at the Bath, U.K. software house, recognized that all telcos were facing a similar problem: no centralized platform that would enable them to manage their network assets as they expanded and optimized operations.

In this problem, they saw opportunity. In 1996, Jon and Don took a GBP £200,000 [$150,000 U.S.] angel investment from two of their former colleagues to establish a new business aimed at developing a solution to simplify and automate provisioning of services for telcos. For the first year, the business focused primarily on securing consulting revenue to establish a strong cash flow and turn the company cash-flow positive as quickly as possible.

Strong demand for consulting services gave the company the confidence it needed to begin pursuing its bigger goal: developing the telco platform and transitioning to a product-based business. They hired an engineering team and spent less than $150,000 developing a prototype in Visual Basic. Within six months of its completion, Cramer secured its first three customers: one in Italy, one in Switzerland and one in the U.K.

Fast forward about 10 years – and growing to a $100 million company serving dozens of major carriers around the world – Cramer pursued its ultimate exit strategy. The company was purchased in 2006 by Amdocs for $425 million in cash and other consideration. Jon accomplished this by spending only $9 million in capital resulting in a ratio of 47x.

Javier Rojas: Why was consulting an important first step in building Cramer Systems?

Jon Craton: We were fortunate that we were able to engage with a number of consulting customers that shared our vision of the problem our proposed product offering was intended to address. Consulting enabled us to develop the product in large part through their engagements. Our early customers bought into our vision and had confidence in us as an experienced team that understood the problem and could deliver on the promise of the product.

JR: When did you take your first venture funding?

JC: In mid-1998 – about two years after founding the company – we achieved close to a $4 million run rate and decided to raise $1.5 million. We believed that the venture capital path would bring vigor and discipline to the business and introduce a culture early on that would prepare us well for an IPO. We believed this was a sound decision – for example, we rapidly developed a culture of quarterly-focused behavior across the whole company. We selected Kennet and they did a great job in helping us grow the business.

It was unusual for VCs to get into a company with such a small investment and we were encouraged to take more at this stage. But we kept it at that level because we thought that with another nine to 12 months of research and development, we’d have secured further customer validation and would be in a much better position to raise more money.

JR: Did your second round come within that timeframe?

JC: Yes. In 1999, we got a second round, a $25 million investment from a second investment firm. We wanted to raise this money for international expansion because we saw that our product would play well in the Americas, as well.

This second round also was to establish financial credibility with some of our big customers. Increasingly, customers were placing our application at the heart of major business transformation programs, taking advantage of its capabilities to re-engineer and optimize processes and organizational structures. We believe they would not have committed to purchasing our product if we didn’t have the big bank balance and financial staying power to support them for many years to come.

We put together a business plan based on deploying this capital, and within a number of months our head count grew to 260 people. Then we hit the Internet bust. Within one quarter, we sale our sales funnel shrank significantly.

JR: How did you weather that crisis?

JC: We were faced with a dilemma – we had hired a lot of people, had strong R&D and sales momentum, but demand was not the same. We didn’t want to bleed the company through a series of multiple redundancy rounds. Knowing we needed to get the headcount down, we did one redundancy round and went about 10 percent deeper than we initially considered. We had 260 employees at the time and cut 20 percent – or 60 people – and then ran flat for about one year, in terms of revenue with breakeven performance.

Maybe it’s because I have a founder/owner mentality, but I couldn’t see us burning through cash to keep headcount. To knock out 20 percent of business creates a difficult environment – particularly since we had just raised money and everyone could see we had plenty of cash. In hindsight this was the right decision. The downturn lasted longer than most people anticipated, and the company that was left after the downsizing was appropriate for market conditions.

JR: What other actions did the company take to position itself for a successful exit strategy?

JC: After about seven years, we decided to bring in a professional CEO, who changed the organizational structure and brought in stronger sales management. During that time the company had a significant uptick in growth, but the CEO resigned after about 1 ½ years. I took over the CEO role for a year while we searched for a new one, and during that time I focused on managing cash flow. We then brought in our second professional CEO, who spent 18 months enhancing revenue, creating a regional structure and led the company through the Amdocs acquisition.

One of the other things I did throughout the history of the company was to lead by example with regard to cost control. Because we were an international company, it would have been easy to fall into traveling first class and taking limos. I wouldn’t ask any of our employees to do anything I wouldn’t do, including flying in the back of the plane.

On the other hand, I believed that we should never scrimp on the hiring we did. We were fortunate to find an effective headhunter, and that money was well spent. When we found our star talent, we would hire them at any cost because lesser people would end up costing more in the long run.

JR: What advice would you have for founders of bootstrapped businesses who are debating whether to take capital?

JC: The biggest piece of advice would be to make sure your timing is right and that you have a plan on how to deploy that capital. Also it is important to ensure you have a value proposition that is validated by customers. The most effective sales tool we had were delighted customers who were strong advocates for what we were doing. Finally, don’t be afraid to reduce headcount in a downturn to get the company to breakeven, even if you have plenty of cash.

Javier Rojas is a Managing Director of Kennet Partners in Silicon Valley. Kennet provides growth equity capital to bootstrapped companies in the US and in Europe. Kennet focuses on capital efficient businesses with annual revenues of $5M to $50M. Kennet works with founders to build high value outcomes and preserve equity value through capital efficient growth strategies.

Link to original article: http://sandhill.com/article/conversation-with-jon-craton-founder-cramer-systems-ltd/

Return Leaders: Kent Plunkett, Founder, Salary.com

It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Kent Plunkett, founder and CEO of Salary.com to learn how he created a company that achieved an almost 22x ratio of exit value to capital used.

Headquartered in Needham, Mass., and founded in April 1999, Salary.com s a leading provider of on-demand compensation and talent management solutions for helping businesses and individuals manage pay and performance. Salary.com’s highly configurable software applications, proprietary data and consulting services help HR and compensation professionals automate, streamline and optimize critical talent management processes including: market pricing, compensation planning, performance management, competency management and succession planning. Built with compensation and competency data at the core, Salary.com solutions provide businesses of all sizes with the most productive and cost-effective way to manage and inspire their most important asset – their people.

Return Leaders: Ratmir Timashev, Founder, Aelita Software

It is a well kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Ratmir Timashev, founder and CEO of Aelita Software Corporation, to learn how he created a company that achieved an almost 100x ratio of exit value to capital used.

Founded in 1997 and headquartered in Columbus, Ohio, Aelita Software was acquired by Quest Software.  Aelita Software provided systems management solutions to organizations that relied on Microsoft Windows technologies. Aelita’s proven expertise with Active Directory and Exchange helped customers improve productivity, system availability and security. IT professionals chose Aelita solutions to administer, migrate, recover and audit these critical systems. The company’s customers and partners included Bristol-Myers Squibb, HMS Host (formerly known as Host Marriott Services), Kmart Corporation, Pitney Bowes, Textron, Inc., Hewlett-Packard and Microsoft. Aelita was acquired by Quest Software Inc. in 2004.

Return Leaders: Jassi Chadha, Founder, marketRx Inc.

It is a well-kept secret that some of the leading companies arrived at the top without taking early venture capital funding. I sat down with Jaswinder “Jassi” Chadha, co-founder, president and CEO of marketRx, to learn how he created a company that achieved a remarkable 52x ratio of exit value to capital used.

Headquartered in Bridgewater, NJ, and founded in April 2000, marketRX Inc. has over 430 employees in the United States, India and Europe. It enables customers at global pharmaceutical and biotechnology companies to improve the effectiveness of their sales and marketing operations. Sequoia-backed marketRx has received many notable industry recognitions since its inception in 2000, including Deloitte’s fastest growing technology companies in North America for two consecutive years (2005 and 2006), PwC & Entrepreneur Magazine’s “Hot 100″ fastest growing companies in the U.S. (2005), Inc. 500′s “Fastest Growing 500 companies” (2005) and SiliconIndia Magazine’s “si100 list of Top 100 technology companies formed in the U.S. by people of Indian origin.”

Book Review: “Wired for War,” by P.W. Singer

Book Review: “Wired for War,” by P.W. Singer

There have been a number of interesting articles spotlighting two growing/related trends that I have been following: robotics and drones.

Most recent was Paul Rand’s filibuster calling attention to the risk of US drone strikes on US soil.

As a result, I thought it would be timely to repost my book review on Wired for War, first posted on Venturebeat.

Making Marketing Pay

I wanted to blog about a recent webinar we hosted on online marketing. By background, we often run across Founders/CEOs with two related concerns or complaints: 

1) “I need more revenue from my sales people to grow more quickly” and,

2) “I am frustrated that my marketing investments are unproductive or hard to measure.”

We recently found an effective solution in the analytics based marketing program deployed by one of our most successful companies, Prolexic, having achieved annual revenue per rep exceeding $2M.

To discuss how the program works, Kennet hosted a webinar to discuss how the CMO, Michael Donner was able to drive such rapid revenue growth, currently 100%, with a relatively modest marketing budget.

Below is the link to the webinar where he walks through the magic.  I will summarize some of my observations in a few key bullets.

• Expertise/Executer- Hire a seasoned professional to head your marketing group.  Many CEOs try to save money here by hiring a junior person and the result is inexperience leading to poor results. However, experience is not enough and you also need to hustle. Check out the webinar to hear what a seasoned, performance-oriented marketing executive should commit to in order to launch an effective program.
• Strategic Message - Start with a key strategic message: what is the pain point in the market that you address that is topical in the media and will secure attention for your content campaign. For Prolexic it is denial of service attacks but every one of our companies has a hot button topic around which they can use to build their campaigns.
• Thought Leadership - Capture the intellectual high ground in the market. The internet is really optimized for companies to create a “virtual pulpit” from which to frame the market and explain where it is going.  Look for proprietary data to help create thought leadership. Prolexic was able to use data of attack activities across its customer base to become a bellwether for the industry through its quarterly industry attack report.  What data do you have that would allow you to influence the global discussion about your market?  This webinar is an excellent example of the merits of this approach.
• Measure/Analyze/Correct - Build a suite of SaaS offerings (amazingly inexpensive!) to manage the output, collect and measure inbound interest, and track leads by source to quantify and amplify successful programs.

The program outlined here was launched with about $1M of annual investment though the project had a 6-month success hurdle before more funding was allocated.  For companies with a $15M revenue run rate, a similar program represents 7% of revenue, scaling down with growth after a $100M revenue, and should deliver a sizable return on investment. While simply hiring more sales people often sounds appealing, increasing the revenue per rep is critical to scaling a high growth company and this requires successful marketing.

Famous Quote…..

“Unless your campaign has a big idea, it will pass like a ship in the night”

David Ogilvy in Confessions of an Advertising man

___________________________________________________________________________________

Best Practice Executive Briefing - Driving Revenue Growth Through Analytical Marketing

I want to share the following recording with you. Click the link below to play it:

https://www.youtube.com/watch?v=HkUr5pZEXKU&feature=youtu.be

 

The Speed of Trust

Trust is so basic to business that it is rarely discussed in an analytical and accessible way. The book “The Speed of Trust” offers critical advice for entrepreneurs on how to actively manage trust in order to accelerate growth and reduce costs, while avoiding missteps. The more trust within a company, the faster it can move with lower costs. Think of the adverse impact 9/11 had on the time and cost of air travel — longer lines and more security — because of the damage it did to trust.

The speed at which you can assess and extend trust determines how fast your business can grow because it affects every relationship. That is, relationships with employees, new hires, business partners, investors, and customers. I expect discussion of trust – it’s meaning, development and measurement – will rise as social networking begins to dictate who consumers are influenced by. For instance, Ebay was built entirely on community trust through its rating systems. As Seth Godin notes, today Yelp is drives companies to make better products based on customer reviews.

Mark Leslie Talk "How I made 44 quarters"

Kennet recently had the benefit of hearing Mark Leslie speak at a private dinner to approximately 20 CEOs of bootstrapped technology companies in Silicon Valley. (See Return Leader: Mark Leslie for his story)

The talk “How I made 44 quarters" is on the surface a discussion of the merits of consistently hitting your numbers, but HOW Mark achieved his success was insightful, thought provoking and quite motivational. Attached is the presentation and a few key takeaways.

Getting Help – Board, Advisors, YPO, Consultants

Key Takeaways from Kennet Partners’ Dinner Panel on High Growth Companies Part 2

The following story is part 2 of a 2 part series on a panel Kennet Partners held for high growth companies.  Click here to see part 1 of the panel.

Team Development

Key Takeaways from Kennet Partners’ Dinner Panel on High Growth companies

The following story is part 1 of a 2 part series on a panel Kennet Partners held for high growth companies. 

What do great high growth private companies have in common?  My partners and I hosted a conference for high growth companies and executives last month around the INC 500 event in National Harbor, Maryland to discuss this topic in detail.   Our motivation for the panel topic came from a book called “The Breakthrough Company” by Keith McFarland (review here) that explores this topic in detail – think “Good to Great” for companies going from $5M to $250M.  McFarland’s book covers several themes relating to growth: shifting goals from the founder’s success to that of the company; investing in new markets and approaches (including how and when to do that); and making the transition from being nimble to competing with scalable advantages.  In the spirit of the book, we invited a great group of capital-efficient founders to discuss some of the books major themes and their personal experiences.  The panel speakers, listed below, all led fast growth capital-efficient companies that achieved high value outcomes.  

Moneyball by Michael Lewis

I submitted the following story on Moneyball to Venturebeat back in June - it is quite relevant given the recent release of the movie.

Moneyball is hardly a new book. Written in 2003, it’s back in the spotlight these days as anticipation builds for the Brad Pitt-starring movie adaptation in September. But while sports and Hollywood might be the big focus these days, there are several lessons startup owners can take away from the story.

Author Michael Lewis explains how a baseball team applied analytics to compete with wealthier competitors and, in the process, changed baseball. It’s a rare case study for entrepreneurs showing how analytics can enable them to identify and execute a disruptive strategy in virtually any market.

Crossroads: Should I Sell or Should I Grow?

Deciding when to sell shares, raise capital or sell your company

Entrepreneurs regularly ask me when the right time is to raise capital or sell shares. Having worked on hundreds of high-growth M&A deals and portfolio investments, I developed a model to help bootstrapped entrepreneurs think through the question of timing with regard to their own situation. I recently gave a talk for UBS’s wealth management group and put these thoughts into a presentation. I will share a few highlights in this blog post along with several key slides. If after reviewing this you are interested in seeing the full presentation, please click here.

The Breakthrough Company

Author: Keith R. McFarland

Who should read it: Entrepreneurs, Managers

“The Breakthrough Company” helps entrepreneurs navigate the hyper-growth that companies pass through on the way to becoming market leaders.

In the spirit of Jim Collins’ Good to Great, author Keith R. McFarland undertook an extensive study of small growth companies that grew from $5 million to $250 million in revenue, comparing them with peer companies that didn’t fare as well. In this study, he covers several themes relating to growth: shifting goals from the founder’s success to that of the company; investing in new markets and approaches (including how and when to do that); and making the transition from being nimble to competing with scalable advantages.

Switch

Authors: Chip and Dan Heath

Who should read it: Entrepreneurs, Marketers, Managers, Educators, Parents

The following review also appeared on Venturebeat's Entrepreneur Corner. 

One of the biggest challenges entrepreneurs have is managing change – for prospects, customers and employees.    Using research studies and integrating ideas from top authors with related insights, the Heath  brothers, authors of the best-selling “Made to Stick,” have woven a concise, actionable formula for managing change and illustrated it with real life stories to drive the message home. It’s simple and powerful.

“Switch” addresses two parts of the decision-making process: analytical and emotional (the Rider and the Elephant).  It’s a good way to understand why people behave as they do, address both parts of the process and achieve change

Return Leaders: Ajay Shah, Smart Modular Technologies Inc.

I have known Ajay Shah for more than 15 years. His success runs counter to the approach of most technology companies in Silicon Valley, and provides valuable insights in today's technology market. Rather than rely on a technology breakthrough to create a large market, he created an innovative business model in a rapidly growing existing market: device memory systems.  Another recent example of a company that had success following a similar market approach is Motricity. The company had an IPO last year and built its business by solving a customer problem for market leaders in a fast growth market - consumer portals for mobile carriers.

Below is an interview I had with Ajay Shah on how he built Smart Modular -the interview was published on SandHill.com last year.

Some leading companies arrived at the top without taking early venture capital funding. Today's market may call on companies to be more prudent in how they apply capital to generate returns. In this continuing series of discussions with founders whose capital-efficient businesses are recognized "Return Leaders," Kennet Partners Managing Director Javier Rojas sat down with Ajay Shah, co-founder of Smart Modular Technologies, to learn how he bootstrapped his startup to create a billion dollar revenues business with only $80,000 of initial capital in just 11 years.

Made to Stick : Why Some Ideas Survive and Others Die

Authors: Chip and Dan Heath

Who should read it: Entrepreneurs, Marketers, Managers, Educators, Parents

Note: An abridged version of this review originally appeared on Venturebeat's Entrepreneur Corner.

One of the most important roles we can play as entrepreneurs is to inspire and motivate, evangelizing our ideas to recruit partners, employees, customers and capital.  It’s a 24/7 job and mastering the skill is vital.  Yet I, like most entrepreneurs, have a healthy skepticism for much that passes as lessons in marketing communications or ‘Marcom’.  Advice is often based on 'spin management' and lacks concrete, actionable recommendations.  This is why this book is so wonderful: it provides a concrete formula for making your messages stick and spread.  There is a formula for being a master at evangelizing great ideas and the Heath brothers have captured it.   If you remember nothing else remember this – the reason you are not doing as well as you could in your communication is that you know too much.  Amazing but true - read on. 

The authors have developed a formula to rate any message or presentation on exactly how memorable and effective you are likely to be in your call to action. Even better, the formula can be tested and also shows you how to improve.  The model was developed based on analysis of a broad range of proven and effective messages ranging from famous speeches like Aesop’s fables, to sports quotes, successful lesson plans and advertising messages. It also combines a splash of neuroscience to support why the brain needs these elements to hold on to an idea.  The resulting formula can be used to significantly improve your ability to define the core message. Use it to get people's attention, get them to believe you, get them to care and then finally – get them to take action.  And the best part is that the Heath brothers practice what they preach so there are lots of interesting stories with surprising turns, that demonstrate the power of their advice.

Delivering Happiness, A Path to Profits, Passion, and Purpose

Author: Tony Hsieh

Who should read it: Founders, Entrepreneurs, Managers, Coaches, Teachers

This review was first posted at VentureBeat's Entrepreneur Corner

««««

Entrepreneurs are always trying to break new ground, so it is inspiring to look at how others have succeeded.   Tony tells the story here of how he started his two very successful companies, the lessons he learned along the way and a model he has developed for creating intensely passionate corporate cultures.  Unlike business books by researchers that observe trends, this book is about what Tony has learned personally and how he thinks other companies can benefit from his experience.  Interestingly it pulls together many themes for my last few book reviews - Switch, Drive and Made to Stick.    

 Tony also likes reading and applying the latest learning from the emerging field of positive psychology (a.k.a. how to be happy).  He is the first entrepreneur that I have seen to take many of the tenets from the positive psychology field and apply them to make his customers, partners and employees work together for a great, shared outcome: very forward-looking and clearly successful.  His insights are helpful for anyone building an organization looking to deliver amazing results.

Javier Rojas' Blog

Anyone who knows me, also knows that I love reading: the value that you get from an insightful book always amazes me. I’ve been reviewing the best business books for some time now, posting summaries of the authors’ big ideas on this blog also with a monthly post on Entrepreneur Corner at VentureBeat. If the book suggestions and reviews are of interest, please enter your email on my blog page to subscribe. You can read my recommendation for the 7 ‘must reads’ for entrepreneurs at VentureBeat http://bit.ly/bygWbO .
 
One of the best sources I have found for good business books, other than my own research, is the recommendations of successful entrepreneurs and business leaders. I would like to include yours. If you are happy to participate, will you send the names of the titles and authors of the three business books that you rate most highly to me (fill out form here), and let me know whether you are happy to have your name referenced in my blog post on the topic? It would be great to have some narrative on what you found most useful/notable about the book(s), particularly if (and how) you applied any lessons from them.
 
I look forward to hearing from you.
 
Best regards,

Javier

Drive

Author: Daniel Pink

Who should read it: Entrepreneurs, Managers, Parents,

This review was first posted at VentureBeat's Entrepreneur Corner

««««

Successful entrepreneurs know that bringing their ideas to the most powerful reality is a function of building a team of the right caliber and with the right motivation.  

Drive proposes a new model to develop that motivation and deliver far more than you can with purely monetary rewards.   Daniel Pink argues that business is in the midst of a transformation, from a monetary-focused compensation model (Motivation 2.0) to one that relies on more intrinsic motivation (Motivation 3.0).  Success unlocks exponentially improved performance – and organizations whose leaders and employees have tremendous drive are capable of amazing results.

If you doubt that we are in a non-monetary business revolution (and you should be skeptical – it’s different from what we learned), stop and consider which of the following two business plans you would have bet on succeeding in 1995:

The Innovator’s Dilemma

Author: Clayton Christiansen

Who should read this book: Entrepreneurs, Company Owners, CEOs, Product Marketers

«««««

An abridged version of this review first appeared on Vitesse Media's Growth Business

  This is a ground-breaking business strategy book for entrepreneurs. It provides counter-intuitive insights into how and where massive markets are created by new entrants.  First published in 1997 (republished in 2003), it’s the closest thing I have found to a “treasure map” for new business leaders.

Disruptive innovations are ideal for entrepreneurs because they are typically developed with off-the-shelf technologies by small, capital-efficient businesses and, best of all, have a lower failure rate than those that compete directly with incumbents.

Clayton Christiansen offers three key lessons on disruptive innovations:  why market leaders typically don’t/won’t pursue the disruptive innovations which create new market leaders; where to look for those opportunities; and how to pursue them effectively.  

It is an entertaining read:  told through interesting case studies that describe challenges faced by market leaders in multiple industries.  This is masterful storytelling, with example after example of bright, well intentioned CEOs losing their company’s market leadership position to entrepreneurial companies because they followed sound business practices.  That’s right – following good business practices and sound management decisions will eventually lead to your demise as a market leader when competitive and disruptive technologies emerge.  In this situation, if you listen to your customers, investors and employees you are doomed.   Now that’s counter-intuitive.  

Gurbaksh Chahal of BlueLithium - Return Leaders Series

I was very impressed with the success of G (Gurbaksh’s nickname).  He is a serial entrepreneur that came from humble beginnings but has conquered his obstacles through drive, passion and dedication.  He has honed a great model for bootstrapping companies and is now on his third startup.  This story tells you how he started Blue Lithium and his model for success.

 

I hope his story inspires you as much as it inspires me.

 

http://www.sandhill.com/opinion/daily_blog.php?id=62&post=578

The New Strategic Selling

Authors : Robert B. Miller and Stephen E. Heiman

Who should read it: CEOs, Company Founders, Entrepreneurs, VP Sales, Sales Execs

«««««

The single best book on sales I have ever read, it lays out a process that for sales management is intelligent, customer solution focused, and analytical. I have employed these principals personally and have had one of my companies standardize on the methodology.  It is highly effective in developing a common language for prospects, resource allocation, marketing investments and growth expectations.

If you are sales oriented and know Miller/Heiman you may find some of my applications below of interest.  The real benefit is not sales process but sales management improvement and the ability to get to key decision makers effectively.  If you have a non-sales background, this book is critical since it will give you a punch list of questions to ask your sales managers to gauge the quality of a pipeline. It will also help you understand the resources you need to provide to help get to the economic buyers in your customer base.  Just like you innovated your product, you need to innovate how to get people to listen and provide solid feedback on their needs, be it through purchases or by vocalizing unaddressed pain points.

Mark Leslie of Veritas & Return Leaders Series

 

Mark Leslie: Veritas

In my years of working with entrepreneurs, I think one of the best bootstrapping stories I have ever seen is Mark Leslie’s founding and growth of Veritas:  he and his team created a $1.5 Billion software company with a $4M investment.  His experience repeats many themes we see in capital efficient, entrepreneur successes: the role of corporate partners; a cost effective sales model; and keeping a low burn to get to profits early.  He also shows the importance of reinventing your company when things are going well.   Mark show us that bootstrapping offers many benefits that can build market leading, franchise companies. I have known Mark for a long time and have always been impressed with him and his insights.

I hope you enjoy this story as much as I have!

http://sandhill.com/article/conversation-with-mark-leslie-founder-veritas-software-corp/

 

Return Leaders Series

About this Series

Founders:  I meet a lot of entrepreneurs and a common issue that arises is that they need money to get going. Obviously all businesses need some level of investment but it is amazing how little capital was required by some of the biggest exits.  Even those businesses that were capital intensive, essentially bootstrapped their market entry/development ( Intel with microprocessors: See Innovators Dilemma).  My goal is to interview Founders of bootstrapped high value exits to find out how they were able to build such high value exits for so little capital.  To gauge how capital efficient return leaders are we look at their exit value and divide it by total capital invested in operations.  We ignore secondary share purchases and “hospitality money” – money raised but not invested.  In the interviews I ask the question of how they did it, what they learned and what advice they would give.   I hope you find their lessons as insightful as I have.

The Global Achievement Gap

Author: Tony Wagner

Who should read it: educators, parents and commercial/social entrepreneurs

 This is an excellent book on the challenges and potential solutions in today’s education system. Tony Wagner sees a major gap between what students are being taught, and the skills they need to master to succeed in the 21st century economy. 

Unlike many that complain about the No Child Left Behind (NCLB) law, he favors testing, but believes that it should be about ability to acquire critical skills needed by the market place, not just recalling content.   His diagnosis is that the primary challenge facing education is in the way educators manage themselves: where, unlike other professions there is little peer review.  Without a way for teachers to assess themselves, they will be challenged to improve their practice and student outcomes. 

He also recognizes that to motivate students in today’s digital media environment we need to change how we teach them – with more media, interactivity, peer interaction, rapid metric-based feedback, real world projects and success coaching.   There is massive technology-based innovation disrupting the Education sector, and that will create significant opportunities for social and commercial entrepreneurs offering solutions that cost-effectively improve results.  This book highlights several social entrepreneurs doing exactly that: improving results while also teaching success skills most schools don’t address. His insights are enlightening for educators, parents and commercial/social entrepreneurs seeking opportunities to improve education. 

Free

 Author: Chris Anderson

Who should read it: CEOs, Company Founders, Entrepreneurs

««««    

  

A very interesting book on the subject of things that are available ‘Free’, and the implication of that for entrepreneurs – particularly digital entrepreneurs.   Free as a component of business models is not a new concept, but its use is becoming increasingly important.  In his view, if it’s digital, it will eventually be free.  It’s a subject I am spending a fair amount of time on as I think we are going to see an explosion of Free enabled models in the enterprise applications/services market – more on that later.

First a bit about Chris.  He is probably one of the best trend-spotting reporters of our time.  He is the Editor-in-Chief of Wired magazine, wrote The Long Tail (another great book) and is a highly sought after public speaker.   His strength is in identifying emerging (mainstream?) trends, why they happen, where they happen, and commenting accurately on what is going to happen as a result.  I appreciate his insights and expect to profit from them – even in a world of Free.   

I will say that the book targets a broad range of readers so depending on your age and what business you are in, you will probably need a twitchy thumb for the next page button on your Kindle in a few sections.

Whatever it Takes: The Geoffrey Canada Story

Author: Paul Tough 

Who should read it: Company Founders, Entrepreneurs, Managers, Educators, Parents  

«««««

I am excited to recommend this book because there are so many great take lessons and, best of all: it’s a ‘feel good’ book.  This should be on the 'Parents’ recommended reading' list for our kids’ schools because of the important lessons about parenting and education.  For entrepreneurs it’s highly inspirational for making the impossible possible with commitment and focus, and by applying sustained innovation and analytical discipline.  Finally, it’s a great example of the power of social entrepreneurism: a growing movement that I think will make transformative changes in our society.

The book is about an experiment, called the Harlem Children’s Zone, funded largely (2/3) through private donations. The project delivers an array of interventions and educational services to parents and students within a 10 square block area of Harlem. The aim is to eradicate the education/achievement gap between the poorest and the richest social economic groups in the community.  Canada insisted on taking a random allocation of students, to prove that his model would work for everyone. His goal is to build a replicable model so, once developed, it can be implemented everywhere. It’s hard to imagine a more ambitious or transformative goal for our society.   He is looking to wipe out poverty in one generation by giving every one of the kids the preparation, desire and opportunity to go to college.

«««««

Guns Germs, and Steel: The Fates of Human Societies

Author: Jared Diamond

Who should read it: CEOs, Founders, Managers and Entrepreneurs

  This is a ‘must read’ for entrepreneurs - one of the best reads in the last few decades. It is all about innovation; not just in technology but in other major areas that impacted the development of societies: farming, writing, and politics.  The book explains why it is that the Spaniards conquered the Incas instead of vice versa.  Sure, the Spaniards had the ships and the guns but how is it that they got them first? The question is historic but still relevant; what is it that determines which society wins when they come into conflict? In answering that, the author helps us understand the current distribution of wealth, power and influence among states. It also sheds light on the connection between the pace of innovation and the scale and level of interactions between societies. Not bad for 400 pages!

Jared Diamond is worth listening to. His background is unique: he has training in evolutionary biology, and biogeography, and is a linguist.  He has studied hundreds of societies in South America, Africa, Indonesia, Australia and New Guinea and has developed a model for how those societies evolved as well as the geographic forces that supported them.  He makes his historical detective work interesting: not unlike a CSI episode, explaining why the conclusions are the only logical answer.   The book won a Pulitizer Prize and is recommended widely:  McKinsey Global Research, for example, bought copies for all their partners (smart guys!) because of its valuable insights.

The 7 Habits of Highly Effective People

Author: Stephen R. Covey

Who should read it: CEOs, Company Founders, Entrepreneurs, Managers  

«««««

  This is a ‘classic’ for entrepreneurs and executives.  First published 1989, it has become a cornerstone book on how to achieve success and make your visions reality.  In it, Steven Covey discusses how to set your goals, how to manage your time and resources against them, and how to align with others so that you achieve success.   If you are new to the book, it is a ‘must read’. To the many of you who have already read it, I trust that my experience on how to apply it will be useful.

I regard this as one of the top three reads (the other two to be reviewed soon – stay tuned). Of the three, this is THE book to read on developing a game plan for accomplishing what you want in life.  If there is one book you should recommend to that graduating student (MBA, college, high school) who looks to you for advice, and to your executive team – this is it. 

 The biggest challenge with this book is that there is so much in it that readers often have to put it down before it is finished, so they can ‘process’ what it says. When I first read it, I had to stop half way through. I have now read it three times and strongly recommend that you persevere too, since every chapter is rich with powerful advice.

About the blog and my book reviews

I have received a lot of questions on my blog, and the purpose of the book reviews, so I thought I would answer them in a post.

I like to read – a lot.  For me it’s like snowboarding; you get so intensely focused on what you are doing (in the case of snowboarding it’s so you don’t break your neck) that it puts the rest of the world on hold for a while.  Reading has the added benefit that you are also learning while you read so you have the benefit of distracting yourself form one productive task while doing another.    You also have that fun “aha!” feeling when you learn something and somehow your mental map of this incredibly complex world sharpens.  With a better map, your pattern recognition improves as does your ability to reduce stress.

 I think it is amazing the learning you get from a book for such a modest investment.  Think about it for a minute:  a professional spends his or her entire career mastering a subject and then spends 6 to 12 months or more distilling those ideas into a few hundred pages.  Three thousand books are published a day, and of these only the very few/best get recommended.  So when I read a book I am often getting the very best of the available knowledge on a subject.  I get the benefit of an expert’s life work for a trivial amount of money and an investment of a handful of hours, during which I am being entertained by the author. 

The Palo Solo Project (and that affiliate button)

I have always wanted to tie this blog in with another passion of mine – social entrepreneurship.  

The Palo Solo Project is a registered 501-C that I launched with a friend of mine, Francesco Mantica. We use Facebook and social networking to connect families in developing countries – specifically Nicaragua – with families/donors here in the US.   The money is used primarily for education so that we can,  over time, move the village one rung up the economic ladder and get the residents engaged in the global economy. My goal is to learn how to market and sell charity as a product like other goods and services are sold in our society.  If properly priced and packaged, I think a lot can be done here.  I am on a number of non profit boards and am amazed by the need for and lack of business skills in the sector.  With the affiliate button, 4% of every purchase you make (10% for Kindle downloads) goes to families in Palo Solo.  If you made all your Amazon purchases though our links, we would get 4% of everything you spend, and it would cost you nothing.  All of the proceeds go to help the families. If we make enough, we plan to spend some on buying keywords profitably which would multiply a portion of your gift (let’s see – we will keep you posted). 

A little bit about Palo Solo: This is a typical rural village in a developing country.  The literal translation is “the lonely stick”.  and it has 50 families with about 250 people.  It is about 1 hour from Managua and borders a ranch/farm I purchased down there about 7 years ago which has become a decidedly not-for-profit (profitless?) enterprise, though that wasn’t the goal.   Nicaragua is one of the poor countries in the Americas alongside Cuba and Haiti.

Super Crunchers

Author: Ian Ayres

Who should read it: CEOs, CMOs, Company Founders, Entrepreneurs

«««««

Supercrunchers is a great primer for entrepreneurs on mining value from data.  It is a fun read and the money-making opportunities it spotlights, makes it worth its weight in gold. 

Data mining and selling the discovered insights presents one of the most lucrative opportunities of our decade. Think Google and Netflix : this book is a roadmap for founders to capitalize on a megatrend. The format is entertaining, comprising dozens of real stories of startups, businesses, doctors, artists and government groups using analytics to change how decisions are made.

Supercrunchers highlights  a number of ‘big ideas’ and gives clear suggestions on how to implement them. 

   First the big ideas:

1. The use of predictive analytics is becoming endemic in consumer and professional life. It is changing how we work, buy things, meet people, recreate and deliver/receive expert advice.   This presents one of the biggest money-making opportunities for founder entrepreneurs in the next decade. I am doing a lot of work in this category.

Talent is Overrated

 Author: Geoff Colvin

Who should read it: CEOs, Company Founders, Entrepreneurs

«««««

I recently read this great book and am amazed by how many of the lessons in it tie in with my experience as a founder entrepreneur.

I highly recommend reading it and I have outlined here some of the key points [in conjunction with the author] and their relevance for founders/entrepreneurs.

 

Here are my top 5 take aways:

1) Shatter any illusion that your team is limited by what they know and do today

Founders know this – they succeed because they know ANYTHING is possible so long as you are committed to success and willing to work at the problem.  Don’t question success or your own pre-existing limitations: channel that energy into becoming the best at what you do.