Why startups shouldn't have to pay to pitch angel investors

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[ disclaimer: written with boiling blood ]

When confronted with an abuse of power, an injustice or a scam I’ve developed a really effective technique: I blog, tweet and whine about it passionately for as long as possible. Basically, I do this until people get sick of me (some of you reading this have at various times told me this–I’m sorry!). I’ve learned over the years that this process is wildly effective in the long-term and has the added bonus of being great therapy. It’s a way for me to relieve the dissonance associated with the injustice, perceived or real, that I see.

So, I fight.

You see, where I grew up, you said what you felt and let the chips fall where they may. If you liked the Giants in a room full of Jet fans, well, tough s@#$t Jets fans (and Jet fans have a horrible existence anyway). My Irish mom and Greek dad are as opinionated as they come, and our dinner table was filled with healthy debate. So were the steps of the Brownstone where my brother and our crew sat all summer long in the 70’s and 80s, battling over the finer points of Star Wars, Yankees, X-Men and Howard Stern.

It probably didn’t help that I grew up in my dad’s bar. I watched him put an end to countless bar fights by clever debate techniques (i.e.
“is this really worth fighting over when we could be all be enjoying this amazing bottle of wine?”). Of course, when that didn’t work he would slam the offender’s heads into the mailbox on the corner of 89th and 3rd avenue. It’s probably still got the dents in it, I should go check. Ahh… the good old times.

I’m from the bottom, so I still feel like I’m from the bottom. In fact, my biggest fear in life is that at some point I’ll stop feeling like that. This is a long way of explaining to you guys where I’m coming from when you see me wound up like I am today.
Father forgive me for the rant I’m about to go on … you see, I’m simply programmed to fight.

My Latest War: Angels charging startups to pitch ================= Recently, I was made aware of a group of angel investors that were charging startups to pitch them.

Yes, you heard that correctly: the rich people (angels) are charging the poor people (startup entrepreneurs desperate for cash to fuel their dreams) to hear their pitch. No, I’m not kidding. This is actually happening — and it’s widespread.

Last week, a number of the TechCrunch50 companies informed me about firms calling them to present at their “Angel forums” — only to discover that they would face fees ranging from $1,000 to $6,000 for a
10-15 minute pitch slot. After additionally investigation by the Jason Nation (the top 10% of the maniacs who follow me on Twitter), I was sent details of one epic bastard that wanted $10-$25,000, plus a couple of percentage points of the value of the deal (you’ll find out who later in this email).

When I heard this, my blood started to boil immediately. So, I did what any maniacal, self-absorbed CEO from Brooklyn would do: I started a jihad against this dispicable form of payola and the people doing it.
It’s on people … it’s on like a Donkey Kong.

Why it’s wrong to charge startups to pitch =========== I’ve been in the startup scene since 1994 and in those 15 years I’ve met, interviewed — and in some cases, pitched — the most powerful investors in technology. None of them have ever charged me a dime for doing so.

It’s low-class, inappropriate and predatory for a rich person to ask an entrepreneur to PAY THEM for 15 minutes of their time. Seriously, what is the cost to the party hearing the pitch? If you answered “nothing” or “the cost of two cups of coffee” you win the prize!
Even if you rent a hotel room and put out breakfast for your fellow angel investors that’s like $20 a person. You mean to tell me that a room full of rich investors can’t afford to pay for their own God-damned $20 in bad coffee, stale pastry and stained ballroom rugs?
To be clear, I am making this a class war because it is one: cash-poor startups are bringing RICH angel investors an opportunity to become EVEN MORE RICH. As such, the rich folks should pick up the non-existent to minimal costs.

Why startups fall for “angel group” payola =========== Now, you ask: why would any self-respecting entrepreneur pay thousands of dollars to rich people just for the opportunity to pitch?
Well, the truth is that the more mature — or flat out better — startups would never pay to present. The best ideas by the best entrepreneurs get socialized instantly. As an new angel investor myself, one who has only done two investments of $25,000 and $50,000, I can tell you that I already get flooded with pitches. I can’t even imagine the volume of pitches real angel investors like Matt Coffin, Sandy Climan, Sky Dayton, Tony Hsieh and Ron Conway get inundated with.

This means that the only people who would pay to present are the entrepreneurs who are either “less good” or less connected. Now, I’m being diplomatic here in saying “less good,” in many cases, these aren’t just folks who lack a track record: they’re simply pursuing a bad idea.

In other words, if this was Hollywood, the folks who pay to present to investors are ugly, unpopular and lack talent. I know, that’s harsh but I’m afraid it is true. If you’re idea is good it will spread–even if you have no track record. If you’re only option is to pay to get in front of these folks you’ve probably got an idea that is weak or bad.
Not always, but probably. Or maybe you’re a little naive or desperate to get things going–I don’t blame you for this startups.

Now, before you go saying “Jason is connected and he has access to angels” remember that I hustled my way into this industry from nothing. I networked at free conferences and figured out a way to get on the radar of uber-angels like Ted Leonsis, Fred Wilson and Mark Cuban. They paid attention to me because I had good ideas. If my ideas had sucked, they would have ignored me. Period.

These pay-for-play scams remind me of the “modeling agencies” that charge people for representation, acting lessons and to have their headshots done. Trust me kids, Brad Pitt and Kate Moss did not pay to get representation–they didn’t have to. If you’re paying to get an agent, it’s because you’re being scammed.

What about ‘presenting fees’ acting as a ‘filter’?
The folks who run these scams are going to feed you some line of B.S.
like “we use these fees to filter out people who aren’t serious.”
They’ll say something like “if we didn’t charge these fees, we wouldn’t be able to filter through all the applications.”

Really? Well, the angels investors I know are really busy and they don’t charge fees. If Mark Cuban and Ted Leonsis — two really busy dudes running a dozen projects each — don’t charge why they hell do you? Oh yeah, right, you’re predatory DBs looking to double dip!


It’s your job as an angel investors to do the filtering and that should come out of YOUR RETURNS on your investments. If you have to charge it’s because either a) you’re a predatory DB or b) you suck at investing so much that your returns can’t pay for the time that you spend evaluating companies.

… or maybe c) you are actually a good person who has just never thought about how smarmy it is to charge a startup for your time?
I’m willing to suspend judgement for a moment and consider all of those options.

What do we want?
At this point I’m calling on all angel groups who are charging to do two things immediately:

1. disclose what fees they *were* charging, displayed prominently on the top-level of their website.
2. immediately state that they will never charge these fees — again, displayed prominently on the top level of their website.

If that is done, well, then this battle is over. We’ve accomplished our goal and everyone can get back to their day jobs.

However, if this is not done immediately, my group of startup CEOs and angel investors will begin targeting specific groups for elimination.
We will launch competing, fee-free events directly opposite your events. We will encourage angels investors, service providers and startups to boycott your events. You may even find our street teams outside your events handing out flyers.

This isn’t a joke and this is a threat: stop charging startup companies to present or we will do everything we can to put you out of business with a competing, free option.

Now, if you think this is too hardcore and you don’t like my style, well, I can understand that. If you would rather take this offline and try to work something out, well, that’s not available as an option.
There is not going to be any kind of negotiation and I’m not going to meet you for coffee.

Also, I don’t care what you think of me and I certainly don’t care if you email my investors (like one group has started doing) to tell them I’m out of control. The people who invest in me know exactly who they are investing in. In fact, one reason they back me is because I am a little out of control. Deal with it.

Angel Groups We’re Investigating
1. Keiretsu Forum ($1,000 to $8,000 to present according to sources) The first group that was brought to my attention is something called the Keiretsu Forum. They have chapters all over the world, it seems, and they’ve been doing their program for a long time. I’m told by people that they charge between $1,000 to $8,000 to present and that a lot of good folks are involved. This is not publicly available
information: they hide it! Now, if there are so many ‘good people’
involved, well, that’s great because good people will understand where startup companies are coming from when they demand that Keiretsu Forum drop their fees. If you have information about this group, please email it to me at jason at calacanis.com. We especially want to hear from folks who have been asked to pay or who have paid. Send us the documents please.

2. Maverick Angels ($500 to $1,000 to present).
This group is a splinter group from Keiretsu we’re told. They hide their fees in a “boot camp” to prepare you to pitch (what a joke). If you have details on this group, again, send it to me.

3. PrivateEquityForums.com (stunnning $14,500 to $25,000 plus 3-5% of your raise to present!) We’ve received information that Mike Segal of Joshua Capital Partners runs this forum that is looking for up to $25,000 and/or 3-10% of how much you raise! I’m in shock by this one… could this possibly be true? Do you know anyone who has attended this event or, worse, actually paid these fees? If so, I need you to email me immediately.

4. Tech Super Club ($595 to present).
This seems like a small event, but folks tell me they are charging
$595 to pitch to angels.

5. Angels Den UK (£850 + 5% of raised funds) Across the pond we have another reported payola scam that is looking for big upside in introducing you to angels. Disgusting! Send us the details of this one if you have them!

In Summary
To recap the email quickly:
a) There is no circumstance where an angel investing group should charge a startup to pitch
b) We’ve launched an investigation into these groups and need any information you have
c) If you would spread the word about this issue by discussing it with angel investors and startups we would appreciate it
d) We are demanding that angel groups waive all fees starting today
e) We are going to crush any group that doesn’t comply with our demands
f) There is no negotiation
g) Angel forums upset by this email: Jason doesn’t care what you think of him and could care less if you email his investors, his mother or the Principal of the Internet to complain about his bad behavior (plus these folks get emails all the time and are used to it).

JCAL out

The Future of Startups

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Location: Mahalo HQ, Santa Monica, CA
Monday, November 5th, 6:27PM PST.
Word Count: 3,267
Jason’s List Subscriber Count: 10,282
List management: www.jasonnation.com
Message type: Startups
Forwarding instructions: startups, VCs

The Future of Startups (or “The Opportunity: Experiences over Expenses”)
In the last e-mail, we discussed the “group belt tightening” effect.
I’m not sure if I like that term, but it was the best one I could come
up with to describe the psychological phenomenon that occurs in times
of mass financial panic. The impact is being felt everywhere and the
reaction has been strong across the board. Many of you e-mailed me and
said that you’re tightening your belts even though you don’t have to.
It’s safe to say the 10,000+ folks on this list are way above the
median when it comes to net worth.

In other words, many of you are penny-pinching for no reason other
than it “doesn’t feel right” to spend.

This is totally understandable, and as I mentioned, it’s part of
coming to grips with the fracked up balance sheet of not only the
United States, but the entire world. (Note: about 20% of the
subscribers on Jason’s list are not from the US, from what I can

Two quick proof points:

1. “Dim Days for Luxury Hotels,” New York Times
“Since mid-September, almost in parallel with the stock market
turmoil, demand for fancy hotel rooms has plummeted…[with travelers
becoming] more defensive about conspicuous consumption. Public
indignation over big paydays and the lavish expenses of top executives
has also hurt the luxury hotel business. Companies are now concerned
about perceptions — worried about how it looks to others when
employees stay in hotels whose very names evoke images of opulence. In
part because of those concerns, there has been a sudden rash of
cancellations of corporate meetings.”

2. “Rich tighten purse strings on luxury goods,” Financial Times
Milton Pedraza, chief executive of the Luxury Institute, a research
group that tracks the luxury market, says the financial crisis has had
a “paralysing effect” on the US luxury market [the world’s biggest
single luxury market] during the past few months and sales were likely
to fall more sharply than they did in the past two recessions. “Jets,
jewellery or apparel – everyone has seen declines,” he says.
“Consumers are going back to classics and price is very important.”

Bottom line: The death spiral has made it to the super-rich already.
This is a good sign in some ways. It means that everyone is trying to
correct their bum balance sheets–even if it’s just for show and out
of guilt.

The Future of Startups
As many of you know, I spent the better part of August preparing for,
and co-hosting, the TechCrunch50.com event, which has become known as
“Sundance for the technology industry.” The conference featured 52
presenting companies as well as 130 “demo pit” companies. The 52
companies presented their products for up to eight minutes in front of
an in-person audience of 1,000, as well as 5,000 folks watching the
live video remotely.

In order to select these ~180 companies, our team sifted through
1,000+ applications in July and August. I did 250 phone interviews of
10-15 minutes each personally, followed by 2-3 rehearsals with each of
the 52 companies. These rehearsals were 20-45 minutes on average. As a
result, I’m in the unique position of seeing where our industry is
headed. Being pitched by this many people in this short a period of
time is, frankly, dizzying. My brain has been filled with so many
ideas, inspirations and trends that I’m quite literally overwhelmed by

Beyond the technology trends, we all witnessed some trends for startup
companies. I’d like to use this e-mail to discuss emerging trends for
startups in a recession-to-depression environment.

1. Centimillionaires on JetBlue
Back in 2001 or 2002, when I was bi-coastal (living in New York and
LA), I was rocking out my $199 round trip ticket on JetBlue when I saw
something extremely odd. An extremely wealthy couple I knew were
queuing up to take the same flight. Now, this wouldn’t seem especially
odd, except for the fact that I knew they a) owned a jet and b) were
worth well north of $100m. They were older and they were never going
to spend all the money they had.

There was a wonderfully bizarre moment of discomfort as we exchanged
greetings. Neither of us said anything, but the statement was floating
out there above my head: “What they hell are you guys doing on JetBlue
when you own a plane?!?!” I didn’t have to ask. The women leaned over
and said, in my ear, as if we were both in on something amazing: “$199
round trip… and TVs…  amazing!”

JetBlue became the company it is today because of the down market.
Penny-pinching folks of all stripes were drawn to their deal, which
was, as my friend pointed out, “amazing!”

The Opportunity: What can we learn from this? In down markets, cheap,
stylish products are in, and carrying airs about you is out. Can you
build a product that appeals to the cheapskate in all of us?

2. The Zero Cost Startup
The major cost of a startup company today is very different today than
it was five short years ago. Five to ten years ago, the major costs
associated with a startup were servers, marketing, software,
infrastructure (i.e. office space, phones, etc) and, of course,
staffing. Today, many startups have little to no costs associated with
their servers because they are either hosting on cloud computing
platforms like EC2 and Google Apps or they are running commodity
hardware (i.e. $1,500 servers) at co-location locations (i.e. they buy
a rack for $2-5k a month). Previously, companies would fork over
$2,500 per server per month rental fees at “managed hosting” services.
That era of a $20-30k a year server is ending as folks realize they
are not getting full value from managed hosting services and that they
have cloud computing and co-location options.

Additionally, today’s startups don’t seem obsessed with office space
and associated infrastructure. This means the marginal cost of a
startup company is now, essentially, the time of the people involved.
Five folks can co-locate/co-work at a Starbucks or their homes, build
a full application on a cloud computing platform and market their
service on StumbleUpon or AdBrite and be done with it.

3. The Age of the Microstartup
The zero cost startup has led to the age of the “microstartup.” It’s
no longer two folks in a garage hoping to build a prototype in order
to land a huge VC round, then getting millions of dollars to build out
an office. Microstartups are sustainable from prototype to launch and
on to a core user base, all for around $5-10,000 in costs.

We first witnessed the microstartup in blogging: My second company,
Weblogs, Inc., was a great example of this. We had a couple of
full-time team members working from home, a couple of servers and a
lot of freelancers. We monetized with a virtual sales force for most
of our life. The result was a large business being built in 18 months,
and when we sold the business to AOL/TW, there were no long-term
contracts to unwind. There were no leases for office space, computer
equipment or servers. Today’s startups are even lighter!

Microstartups are amazing because they can try ten different things
over a year with very little pressure to “break out.” This leads to a
lot of people taking a lot more risk, stating a lot more crazy ideas.
Which leads me to my next trend.

4. The “Try Everything” Era
If the marginal cost of a business is people’s time, a lot more ideas
are going to be tested. There are a lot of technical people out there
who either have some free time after their day job, or who live on
Ramen noodles, having already quit their day job. The result of
everything being tried will be that every startup with any level of
traction will be copied. I’ve seen dozens of folks “riff off”–as
opposed to “rip off”–ideas from Twitter, digg, Mahalo and FriendFeed.

I’ve personally seen at least 20 folks trying to solve the noise
problem in FriendFeed, including TC50 presenting company Popego. Now,
the fact is, there is no guarantee that FriendFeed will work.
Startups “riffing off” FriendFeed could end u following FriendFeed
right off the waterfall–just like the Spanish mercenaries followed
the Guarani over the waterfall in “The Mission.”

Everyone is “riffing off” Twitter today, including the winner of TC50,
Yammer. Yammer is, truth be told, a much more monetizable version of
Twitter, and that is the reason why we Michael and I selected them as
the winner of TC50. Yammer might be derivative of Twitter, but anyone
who has ten people from their company in Yammer right now can tell
you, it’s a MASSIVE game changer. Is it the most innovative of the
TC50? Of course not, but we give the award for the winner of TC50 to
the company we think will be the most successful. Last year, we
selected Mint, and they are clearly one of the two most successful
companies from the TC40 event (along with Powerset, which was bought
by Microsoft).

Bottom line: Everything will be tried, everything will be “riffed
off.” In this environment, your job as a startup founder is to monitor
as many products and feature sets in the marketplace as possible, in
order to figure out what is working–or could work.

5. Longevity is Innovative
Since everything will be tried, and everything tried will be riffed
off, then how will the market select a winner? The main factors in the
success of companies riffing on a common goal will be longevity and
innovation. Yammer will only win the “enterprise Twitter” race if they
exist for five years, innovating all the way.

If launching a microstartup is a sprint, building a business around a
brand is a marathon.

You’re going to see most of the “riff offs” get off to a big, splashy
start–typically with a Robert Scoble and TechCrunch post–then fizzle
out as they run out of steam. Steam in this metaphor is the passion
and interest of their founders–not just capital.

Bottom line: Longevity will be, perhaps, the biggest innovation a
startup can have over the next five years.

6. The Rising Feature Bar
Another undeniable trend at TechCrunch50 was the quality level of the
websites being produced. BirdPost.com is one of the most beautiful and
complete websites I’ve ever seen. It’s got maps, photo sharing, custom
printouts and the obligatory iPhone application. All of this from a
tiny little startup.

Me-Trics.com also had an amazing website, complete with SMS, fancy
charts, imported feeds and iPhone integration–and they build it 100%
on Google App Engine! That’s another trend we’ll talk about below.

The rising feature bar is based on one thing and one thing only: open
source. Almost everything you could want to do with your startup has
not only been done, it’s available as a service or with free code. You
want weather, maps, message boards or social software integrated into
your product? No problem, it’s all available to you in the form of
open source products or software as a service.

Microstartups are not creating code bases, they’re connecting them.
This is why Devunity.com and FairSoftware.com were such an important
part of TechCrunch50. Devunity.com is building a system for folks to
collaboratively code across APIs and FairSoftware.com is creating the
business infrastructure for microstartups.

7. Features Over Brands & Businesses
Microstartups and the “riff off” culture have created a new category
of startup based not on a brand or a revenue stream, but rather a
feature. Many of the startups at TC40 were features–kick-ass
features, but still features. I suspect that many of them will turn
into product over the next year, and at some point a brand.

Until you have 10,000 folks a day coming directly to your domain name,
you’re not a brand.

iCharts.com has amazing charting features, but until 100,000 charts
are created with one million chart views a day, they are not a
brand–they’re a feature. StockMood.com has an amazing set of features
to track the sentiment around a stock, but until they have 10,000
return visitors a day, they’re just a feature waiting to be added to
Yahoo Finance. The same holds true of EmergInvest.com, which is
helping people understand international markets.

It’s going to be an amazing year for these companies as they take the
credibility, userbase and PR generated by their launches and translate
them into either brands or business–in some cases, hopefully, both! I
wish them all the best, and I know they all have a great chance of
doing so.

Bottom line: The difference between good entrepreneurs and great ones
is the ability to build a brand. Brands can’t be commoditized, and
features inevitably are.

8. Focus on Revenue or Rating?
There is a long-standing debate in the internet industry about where
you should focus your time: building traffic or building revenues.
This, of course, depends on many factors, including the amount of
funding you have, the competitive landscape and how the entrepreneur
likes to live his or her life.

If you’ve got a lot of runway (i.e. funds) and lots of competition,
you should probably focus on user adoption (think YouTube and
Facebook). If you have less funding and less competition, it’s clearly
virtuous–if not essential–to focus on revenues early.

Mark Cuban was focused on revenues during his talk at TechCrunch50,
while Roelof Botha of Sequoia Capital (and the Mahalo board) seemed to
focus on first building something that delighted users. They are both
right–it’s two different approaches. Broadcast.com become a huge
business with $25m in quarterly revenue when they were bought, and
Roelof is on point about making a product that delights folks–he
helped build out YouTube.

In fact, Mark and Roelof both built similar businesses in video that
both had billion-dollar exits. So, it can be done both ways–you just
better be sure you know which one you’ve adopted and that everyone on
your team is on the same sheet of music.

9. The End of Servers?
Folks are building on cloud computing platforms despite these
platforms being only a couple of years–or months–old at this point.
It’s only a matter of time before someone builds a Twitter or
Facebook-level service on EC2 or Google App Engine. I just can’t tell
if it’s one or three years out.

Bottom line: Cloud computing might be unproven, but it’s proving to be

10. The Oversourcing of Crowds
Everyone wants something for nothing–that’s the bad part of American
ethos–and every business plan seems to revolve around recreating the
success of Wikipedia and digg. Truth be told, Wikipedia and digg
might, in fact, be one-time events. Truth be told, they are only
partially crowdsourced.

It’s been proven over and over again that Wikipedia is run by a small,
secretive cabal of administrators. Additionally, folks have busted the
top digg users over and over for selling their influence to marketers.

Bottom line: My guess is that 50% of the “crowdsourcing” on these
sites is really just an underground economy being masked as community

The age of crowdsourcing your way to success is over, and we’re
heading back to the age of expertise and curation. Startups like
GoodGuide.com are not crowdsourcing–they’re paying experts. When
faced with two options–a professionally produced version of a product
and an anonymously gamed version of the same product–it’s fairly
obvious which one users will select. Wikipedia has operated without a
competitor for a very long time, and there is no guarantee that they
will be number one forever. ;-)

11. Social Network fatigue & data portability
After building out their social network five or ten times in the same
year, users are starting to give up. Services going forward are not
going to have an easy time convincing folks to build their networks
out again. As such, using Google, Yahoo and Facebook’s shared social
services are going to be the future.

Bottom line: Data portability is going to move from a conversation on
the Gillmor Gang in 2005 to a consumer reality in 2010. I suggest you
get your act together now before users put you in the “evil” category.

12. Meetups & Professional Accounts
In a down market, people want to socialize. Sites like Meetup.com are
going to boom during this recession. How do I know? Well, I watched
the company explode in 2003 when thousands of disenfranchised young
people leveraged the service in Howard Dean. Additionally, Meetup.com
is on right side of the revenue conflict: users value their product so
much, they are willing to pay for it.

Prediction: Twitter will launch a $20 a year professional version this
year and have 50,000 sign-ups in under a year.

Bottom line: Meetup.com is the model for Web 2.0 service-based
businesses. If you’ve built a web 2.0 company that has some user
traction but has no advertising revenue, stop everything you’re doing
and beg Scott Heiferman to join your board (or buy your company).

13. Make Media Time
In a down market, people with free time get creative. The blogging
boom was not born out of a technological innovation–far from it. In
fact, blogging-style software existed for almost 10 years before the
boom. Blogging broke out because so many folks were laid off–and
pissed off–that they took the time to write down their thoughts.

Flickr didn’t boom because it was the first photo-sharing site. It
boomed because in the 2003-2005 period, a lot of underemployed folks
were traveling and wanted to share their photos.

Bottom line: In a down market, folks get fidgety and look for
something creative to do. What startup can you create that will
inspire the recently unemployeed? Perhaps collaborative filmmaking
software? Maybe a screenplay-writing community? Maybe fotonauts.com
will take off in this recession and become Flickr 2.0?

14. Game time
As I mentioned above, folks are going to have a LOT of free time. In a
down market, folks level up their World of Warcraft characters and
build out a website for their clan. Some of them might even want to
participate in the games being run by TechCrunch50 startups Akoha and

15. Hookups
When people are stressed out about work, and tired of trying to get
rich, they put relationships, and potential relationships, on the
front burner. My guess is that services like eHarmony and Match.com,
as well as startups like Mixtt, will boom in the down market. Again,
when folks don’t think they can get rich starting a company, they look
for other things to fill their time–like a significant other.

See Meetup.com above for the related example.

Bottom line: when people are feeling blue they like to socialize.

Wrapping up
If you’ve made it this far, I’m impressed. Hit the reply key and tell
me what products and services you think will take off in a down

Even with the down market, a looming recession and global instability,
there’s never been a better time to be an entrepreneur. Fortunes are
made off companies that are built–or that build marketshare–in the
down market. Be brave, be bold and go for it!

That’s what I’m doing right now: I’m head down, creating new features
and services for Mahalo. Traveling around the world, I’ve seen the
innovation in Seoul, London, Paris and Athens. I’m sure, next week,
I’ll be blown away by the startups in Japan. (Any tips for Tokyo?).

Get excited about this opportunity… or give up and leave the
marketshare for the rest of us! :-)

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Note: I’ve been getting crushed this afternoon with folks asking for a copy of this email that I sent to my subscribers. I’m going to post this one since I can’t possibly get back to all of you out there. However, this is not going to be a regular thing. Don’t expect to see the next 10 emails on Calacanis.com. I’m retired from blogging and have moved to the comfort of my email newsletter, where 9,400 of my close friends and I have a nice intimate discussion.

No comments here please.  :-)

If you want to get future email please sign up now: http://tinyurl.com/jasonslist

best, Jason

Location: Mahalo HQ, Santa Monica, CA
Monday, October 27th, 12:00PM PST.
Word Count: 2,585
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List management: http://tinyurl.com/jasonslist
Message type: Startups
Forwarding instructions: startups, VCs
Republishing: PLEASE DO NOT REPRINT (This includes Mike Arrington and
A month ago today, I wrote an email to you guys about about “(The)
Startup Depression.” When I wrote it, I obviously knew there were
rough waters ahead, but frankly I didn’t think a financial tsunami was
coming. Since I wrote that post on September 27th, we’ve seen the Dow
Jones drop from 11,143 to less than 8,000. One year ago, the Dow was
over 14,000. Think about the sheer destruction of wealth that has
occurred based on that fact alone.


The severity of what has happened can’t be underestimated. There will
be no white knight. Even the massive coordinated government
action–including the first global rate cuts and bail outs–has done
nothing to stop the panic or create a bottom (at least from where I

Bottom line: there is zero chance of a short or medium term-rebound.


As a startup, you are now, officially, on your own. You can’t count on
your VCs saving you or some magical offer from Yahoo or Google showing
up to bail you out. Chances are Yahoo and Google are going to be
shutting down and/or selling off companies they’ve already
bought–like EBAY and AOL have started doing. Parents don’t adopt
while they’re putting their kids up for adoption.

What you do in the next 30 days will probably make or break your company.

The storm is upon us and the death spiral has started. Once that
happens, you can’t stop it–you can only ride it out. Let’s take a
moment to see how this movie will play out. Since I’ve seen it two
times, so I think I know what the second and third acts will be.

What is “The Death Spiral”?
The death spiral for startups is like the condition that occurs to
pilots when they fly into “weather.” The “weather” right now is the
massive confusion and uncertainty of the financial and consumer

In other words, it’s so choppy and dark out there that none of us can
simply look out the windshield and know exactly where we are. The
greatest pilot in the world is a blind man in these conditions.

When a pilot flies into a mess like this, the only thing they can do
is look at–and trust–their instruments. Nothing else matters,
because what you see out the windshield is pure black and gray. What
you feel in your gut is just the choppiness and uncertainty.

Your instruments will tell you what is true and what is false, and if
you listen to them you will not do what ill-fated pilots do: turn into
the death spiral. When this happens you accelerate the process of the
plane going down because you’ve made a turn that eventually leads you
right into the ground. By turning into it you’ve increased your
acceleration and decent–at the same time. (At least that’s my
understanding of the death spiral in flying).

The paradox of the death spiral is that many pilots actually believe
they are stabilizing their plane when they are actually tilting it.

Enough of the metaphor for now. You should understand the basic point:
you must trust your metrics (revenue, burn rate, page views and
earning), not your senses. Your senses and emotions are FUBARed right
now, but your metrics are not.

The Death Spiral of the American Economy
Startups and established companies have started their layoffs already.
The list of layoffs on TechCrunch’s tracker is growing, and sadly it
now includes Mahalo. EBAY and Yahoo will shed thousands, and most
savvy folks I’ve spoken to expect to see Microsoft and Google cut some

Yes, there is chance that even the mighty Google might lay folks off.
Not because they have to–they’ve got a ton of cash–but because they
must show earning growth or risk a stock collapse. The best way to
show earning growth in a down market is by cutting costs. Google’s big
cost? People.

These layoffs are turning us deep into the death spiral.

The poor folks being laid off are going have a hard time finding jobs,
and as such they are going to curtail their spending. They are not
getting that new car or laptop any time soon because, well, anyone can
get an extra year or two out of a car or laptop.

Even the “not poor” and the rich are going into penny-pinching mode.


Well, the pull back in consumer spending is half-emotional and
half-necessity. In times like this, emotion becomes a major driver.
That new iPhone or crazy weekend in Vegas probably won’t make or break
most folks financially, but they just won’t “feel right” doing it.

Ask yourself: Have you put off a purchase because it just “didn’t feel
right spending that kind of money” in the past month? Exactly.
Everyone is feeling it, even if it’s opt-in and guilt-based.

The days of $2,000 bottle service in the clubs of London, New York,
and Los Angeles are coming to a close–even for those who can afford
it. Simply put, you look and feel like a jerkoff if you spend like
this when people are suffering.

… and so the belts tighten.

The Group Belt Tightening Effect
In anxious times, folks like to take action, and the easiest actions
to take are the little ones.

This creates a massive ripple effect. Folks from dotcom companies and
investment banks stop coming into the Apple Store, so the Apple Store
lays off five people. Those Apple employees stop going to the
Starbucks on the corner, so Starbucks lays off a couple of folks.

Starbucks senses the lower same-store sales trend and shuts down their
lowest performing stores, letting go of their redundant managers. The
landlords renting to Starbucks are left without the money to take that
expensive summer vacation and buy new cars, which puts pressure on the
vacation destination and the car salesperson.

You understand the trickle down effect? This is the reverse: the group
belt tightening effect.

These little emotional reactions have not only started–they’re
building into a storm. That storm is going to hit in the fourth
quarter, when a lot of merchants see their order size drop and their
inventories climb. Some merchants will go out of business and flood
the market with tons of cheap merchandise, which will make the
profitable merchants suffer from competition.

Inventory will pile up, cash will dry up.

The fourth quarter is going to be a huge disaster: unemployment will
skyrocket, retail will crash and consumer confidence will flatline.
Some think it will be the bottom, some think it will half-way mark to
the bottom. No one really knows, and that’s really the scary part.

Emotional situations like these are impossible to stop–they have to
play out. The “cut spending now!” train has left the station and
there’s nothing that can be done about it.

How does “The Group Belt Tightening” stop?
At a certain point, folks feel more optimistic than pessimistic about
the future, and that’s when they start spending and taking risks
again. For entrepreneurs like us (I assume if you’re reading this you
are one), you’re wired to be optimistic, so you’re probably fighting
through this due to your internal fortitude.

That does not mean that you’re spending like a drunk sailor. It just
means that you’re wired to invest when you see an opportunity. That
makes you unique in relation to gen-pop (the general population).

The gen-pop doesn’t look inside their guts for guidance. Gen-pop
watches CNBC, the Dow, layoffs, and their friends’ consumption
patterns. They look out the windshield. The forecast for the next two
or three years is going to be dark, and as such, most folks will keep
their belts tight for at least two years.

At Thanksgiving and Christmas this year, your friends and relatives
will talk about cutting trips and not making major purchases. They’ll
recount stories of companies going under and kids moving back with in
their parents after college. It’s part of the morning process. Folks
have to vent, but on a psychological level, the venting causes
everyone to become more conservative than they actually need to be.

The conservative mindset leads to people paying down their debt and
otherwise cleaning up their personal balance sheets. This is the
virtuous part of the process: folks get their affairs in order.

At some point, the lack of competition in the marketplace results in
risk takers making impressive returns. Someone hears about a friend
who is “making a killing on Taser stock” or of a “startup making $250k
a month with five employees.” Then, folks think “hey, I’ve got a
little extra cash… maybe I should get in on that?”

Dentists start investing in startup companies again… We’re back,
baby! (Note: Too many dentists start investing and we’re in a bubble
again–careful what you wish for.)

The belt tightens out of fear and uncertainty.

The belt loosens out of greed and positive data points.

The way to leverage this, obviously, is to get greedy before everyone
else so you can take marketshare. Let’s look at all the good news,
shall we?

Good News Part One: Experiences Over Expenses
The good news in all of this is that folks are going to be spending a
lot of time online, playing video games and consuming things that are
not expensive. They’re going to be looking for “experiences over

If your service provides fun, social interaction and joy to the user,
you’re going to see it spike. Folks will start playing Mark Pincus’
Texas HoldEm on Facebook and the iPhone a lot more. Kevin Rose will
ride DIGG straight to 50m monthly uniques and five foreign language
versions in 2009. Garrett Camp will pry StumbleUpon from EBAY and
break the service out to the mainstream. If only Yahoo would give
Joshua Schechter del.icio.us back so he could finish the mission.

Why will there be a boom in traffic, engagement and participation?
Well, people will have time on their hands and the desire to
socialize. Group behavior makes people feel better. One of the best
cures for the blues is sharing a meal with friends.

Blogging became a phenomenon not because of some technological
advance, but because between 2002 and 2005 there were a lot of
unemployed–and underemployed–individuals with a lot to say and a lot
of freetime. Bloggers like Peter Rojas, Michael Arrington, Nick
Denton, Rafat Ali, Xeni Jardin and Om Malik broke out in the down
market–not the upmarket.

Social networking and podcasting were born and boomed during the last
internet winter.

Bottom line: Folks with time on their hands–and anxiety in their
hearts–will be drawn to communications, content, and community

Free time is good news for modern man.

Good News Part Two: Measurable Advertising Boom
The fact is that most advertising spending is in media without real
measurability–like outdoor, TV, radio, newspapers and magazines.
These sample-based solutions have a lot of inefficiency and lack the
real-time measurability of the internet.

Advertisers will start cutting print, outdoor, TV, and radio (probably
in that order) in favor of the internet’s action-based offerings such
as CPA (cost per acquisition), CPL (cost per lead), and CPC (cost per

Three weeks ago, I attended and spoke at WPP Group’s very understated
agency retreat at a–gasp!–Club Med outside of Athens. It was the
cheapest location you could imagine, but the people and discussions
were amazing. Sir Martin Sorrell gave a big overview of the coming
world and told his troops to focus on measurable solutions. He wants
WPP’s advertising spending to be mostly measurable (if I heard him

Measurable advertising means internet advertising. The internet will
take a hit in the short term, but gain massive marketshare in the long

Good News Part Three: No Competition
There are no longer going to be 10 companies pursuing one vision.
Twitter, Pownce and FriendFeed are going to fight over short blogging
and almost everyone else will go away or stop investing in their “me
too!” solution.

MySpace and Facebook will not have another major competitor for some
time to come. Del.icio.us and DIGG will not face many more clones, and
many of the existing ones will go away (or stop innovating). If you’re
launching a product, you won’t have 5-10 folks copy you in the first
year. There just won’t be the funding for the fourth or fifth person
in a space.

That jerk off who stole our code and content to make his vertical
Mahalo knock off? He’s not getting his next round of funding, I can
tell you that.

Bottom line: Less fighting, more marketshare. Less competition for
great developers.

[Sidenote: I’ve already heard some CEOs talking about the overpaid
developers they have on staff and that they wouldn’t hire many of them
for the prices they paid just six months ago. That’s a really hard
position to be in, huh? Overpaying for developers and being faced with
better options just six or 12 months later? What do you do? Cut the
existing staffer’s salary or replace them with a new person? Really
don’t envy either party in that situation.]

Good News Part Four: The Zero Cost Startup
When we interviewed folks for the TechCrunch50 show this year, we
asked them how much was invested in their companies. Many reported
nothing. Zero. They had no office space, no server farms and no Oracle
license. No marketing budget, PR firm or headhunters to feed.

The cost of a pure, boot-strapped, startups today is really the time
the founders put into it. Don’t pay for software, don’t sign an office
lease, and don’t hire a PR firm. Stay slim, build something great and
wait. If it doesn’t grow make the product better and wait some more.
Keep that process up until you find something that makes people
absolutely rabid for your product. If you can’t find something that
delights folks, well, then you suck. Give up. No really, you suck….
give up.*

* Note: That’s just a test to see if you’re a real entrepreneur. When
you read that, did you think of giving up? If you did, than you really
suck and shouldn’t be an entrepreneur. If you read that and said
“frack you, Calacanis…WTF do you know anyway?!?,” then you’re a
gangster entrepreneur and keep up the good work.

Your best investment right now?
The best investment you can make in any market–up or down–is in yourself.

Take this down market as a time to focus on yourself, professionally
and personally. If you’re level eight PHP programmer, make it your
personal challenge to become a 10 of 10. If you’re 20 pounds
overweight, get a trainer and if you can’t focus, start taking Tae
Kwon Do lessons.

If you’ve got a great idea, find three friends and build it during
your lunch break and weekends, while your boss is too distracted to

Rafat Ali started PaidContent while working for me during the down
market. He asked me if it was OK and I said “yeah, sure… that
blogging thing will never go anywhere.” He sold it for $30m earlier
this year after six or seven years of hard, hard work.

Fortunes are built during the down market and collected in the up
market. Now’s the time to build, so turn off CNBC and forget the Dow.
It’s meaningless to you now. All that matters is your work and your
personal progress.

Eyes on your instruments please.

Sidenote: I was on the best podcast in the world, This Week in Tech,
yesterday talking about the economy and technology with Leo Laporte.
You can tune in here: http://twit.tv/166

Press: In WIRED magazine Paul Boutin says you should shut down your
blog. His evidence? Our success with the email newsletter:

Question: Do you think I should post these emails to my blog, or
should I just keep them between you and I? I’m having a hard time
keeping these quiet, as folks like TechCrunch insist they are so
newsworthy that they can break my copyright and republish them based
on the alleged importance. Ugh. Is what I say really that newsworthy
that you can just take my work wholesale? I don’t think so.

Plug: We’re experimenting with a new feature called the “Mahalo Live
Blog.” Essentially if you go to http://www.Mahalo.com you’ll see a
running list of breaking news stories that we maintain 24 hours a day
seven days a week. It’s sort of like the DrudgeReport but faster.
10-15k folks seem addicted to it. Your thoughts on the live blog?

Question: I was thinking about starting a group email discussion list
for Jason’s list. What do you think of an email discussion list based
on Jason’s list? I was thinking of maybe starting it, but limiting it
to folks who send me $1 in cash in an envelope with their business
card. This would keep the trolls out right?

(The) Startup Depression

I wrote this to my email list on Saturday the 27th of 2008. Two days before the single largest drop in the history of the stock market. 

Now, I promised myself I was retired from blogging to focus on my email newsletter, but I’m getting pounded with so many requests for this essay that I’m giving up and posting it here. This does not mean my retirement from blogging is off, this means I’m posting this so I don’t have to respond to hundreds of emails asking for a copy. If you want future missives like this signup for Jason’s List: Jason’s List signup.

For background, the goal of this post was not to spread fear, but rather inspire folks at startup companies to get focused and to save as many as possible from hitting the wall. Myself? We’ll I funded Mahalo for the long-term and while the market down turn isn’t good for anyone, we’re largely immune from it because we are building on a five year plan that we’re only 18 months into.  

Doesn’t mean I’m not hyper focused, I am…. I’m just not panicking. Great entrepreneurs build value and market-share in down markets. They go to work seven days a week and the breakout when other folks check out. 

Location: CalaCompound, Brentwood, CA
Monday, September 27th, 5:15PM PST.
Word Count: 3,283
Jason’s List Subscriber Count: 6,992
List management: http://tinyurl.com/jasonslist
Message type: startups
Forwarding instructions: startups, VCs
Republishing rights: Please do not reprint

(The) Startup Depression
Since stock market gyrations and the elections seem to be making
everyone rightfully nauseous and depressed, I thought I would take
this email to discuss the biggest ramifications of these challenging
times: depression.

It’s my believe that the economic downturn will be much worse than it
is today, and that 50-80% of the venture-backed startups currently
operating will shut down or go on life-support (i.e. 3-4 folks working
on them) within the next 18 months.

Make a list of every Web 2.0 startup to raise an A or B round and
cross 80% of them off the list, because they will not make it to their
next round of funding or profitability.

Now, I could be totally wrong. No one can guess or time the markets
perfectly. However, planning for the worst is a virtuous idea, so I
encourage you to read on.

Everyone I talk to is feeling confused, paralyzed and anxious–many
are in full-blown depression. People are scared, and they should be.
This could be the start of a very difficult time for our country and
the rest of the world.

In this email, we’ll focus on the entrepreneurial and startup
depression and economic downturns/depressions–and how you can deal
with them.

Some background to get us started
Few things in the world are as exhilarating as starting a new company.
Metaphors abound, and we’ve all heard them: starting a company is like
having a baby, falling in love, and running a marathon. Few folks,
however, want to continue the metaphor when things go bad at a
startup. If they did, we would be having discussions about running a
startup being like divorcing your spouse, collapsing from exhaustion
in the 20th mile of the marathon, or–God forbid–losing a child.

Metaphors swing both ways.

Anxiety and depression from a failed, or failing, startup can be
intense–even debilitating. When outside factors such as markets or
buildings collapsing are added to the mix, I’ve seen great
entrepreneurs just fold.

Now, I’ve never folded, and I don’t say that as some badge of courage.
No, sometimes it’s really, really stupid to keep fighting. Most
consider it especially stupid to fight when you know you’re going to
lose. I don’t.

The result of never folding is that I’ve had my ass kicked pretty bad.
Multiple times.

Depending on your DNA, getting your ass kicked is either complete
torture or deviantly rewarding. Truth be told, I like getting my ass
kicked because it makes me angry, motivated and focused. If I look
back on the couple of moments of success I’ve been lucky enough to
have in my life, they all seem to come after a good ass-kicking.

The darkest hour is–in fact–right before the dawn.

Brief Disclaimer
I’d be lying if I said I understood the complexities of depression or
depressions. I’m not a psychologist nor am I an economist. I’ve never
suffered from clinical depression and I didn’t live through the last
depression. However, I do have a BA in Psychology, have read many
books about the psychology of happiness, and I’ve felt the sting of
the last huge correction (2000-2002).

Consider these one (hu)man’s notes on “entrepreneurial depression and
anxiety.” They are worth the price you’ve paid for them, but I hope
they are helpful to you–especially if you’re suffering right now. If
you are suffering from depression or anxiety, go see a professional.

Really, it’s the best thing to do. Feel free to print this out and
bring it with you and ask your newfound therapist what they think of
my observations and advice. Then email me back what they said… I’m
curious where my thoughts rank.

Kurnit’s Three Reasons Why Companies Fail
Scott Kurnit of the Mining Company (aka About.com) told me there are
three reasons why a business will fail: it’s a bad idea, bad execution
or outside factors. If you examine your business with these three
filters right now, you can baseline where you’re at: one, two or three

His theory correlates well with the attribution theory in psychology.
The theory concerns itself with how an individual attributes the
things that happen to them (or others). For example, if you were
pulled over by a cop for speeding, you can attribute that to number of
factors, both internal and external.

Some folks might internalize the event and curse themselves for being
reckless: “I should have known better!” Others might blame an external
source, such as the cop or the bankrupt city they work for: “Gosh darn
Los Angeles cops! They’re just trying to balance the budget by
harassing us!”

Kurnit’s theory, as told to me, mentions two internal factors (bad
idea and execution) and one external (outside factors). When faced
with massive market uncertainty, like we are today, it’s a virtuous
idea to assess each of these factors.

Right now, every single one of us has HUGE outside factors we must
consider. The market collapse is going to make the next couple of
years impossible and frustrating for many entrepreneurs. Even the
great companies – like Google, Microsoft and Apple – are going to hit
hard times.

One of the most important philosophical minds of our time summed it up
best: “I never blame myself when I’m not hitting. I just blame the
bat, and if it keeps up, I change bats. After all, if I know it isn’t
my fault that I’m not hitting, how can I get mad at myself?” — Yogi

Viktor Frankl’s Search for Meaning
John Brockman, my dear friend and agent (if I ever get around to
writing a book), handed me one of the most important books of my life:
“Authentic Happiness” by Marty Seligman. That book led me to the most
important book of my life: “Man’s Search for Meaning” by Viktor

Frankl was a psychologist and Holocaust survivor.

He studied how people react to horrible circumstances that are beyond
their control. He studied why some people give up and others carry on.
While few of us can understand the level of suffering of people during
the Holocaust, Nanking or the Killing Fields, Frankl put his theories
forward so that we could carry them into our daily lives.

Logotherapy was what Frankl called his theories, and their major
tenants are that we choose how to find meaning in our circumstances
and that our experiences all have meaning.

My interpretation of Frankl is that you actually get to choose how you
feel about your circumstances.

The Worst Year of my life
It’s still hard for me to talk about it seven years later–and I’m not
going to talk about it in too much detail right now. In the early
months of 2001, I watched my first business, Silicon Alley Reporter,
crash from 70 employees to 12. The $20m offer I’d received to buy the
business was a distant memory, as was the $11.6m in revenue we had in

Money was evaporating from the bank account, dotcoms were going bust
and we–the dotcom kids–went from visionaries to charlatans
overnight. I went from hosting multi-million dollar conferences, doing
Charlie Rose guest spots and being featured in a 6,000 word article in
the “New Yorker” to not being able to meet payroll.

Many folks said I was lucky with Silicon Alley Reporter, while others
said I was fraud who had finally been found out. I was broke, no one
cared about my work, and my life really sucked.

… and that was just the start.

Then, the stock market crashed and the accounting scandals set in.
Enron, Adelpia, Worldcom, and Arthur Andersen made the fallout from
the dotcom bust look like nothing.

… and that was still just the start.

While lying in bed listening to the radio, I heard that a private
pilot in a small plane had accidentally crashed into the World Trade
Center. Then, I watched the second one hit. Then, I watched them come

To say things went from bad to worse would be a gross understatement.
As I started in disbelief with my fellow New Yorkers, I wondered where
my brother, a NYC Firefighter, was. Then it hit me: he was probably

Due to a simple twist of fate, he wasn’t dead–but many of his friends
were. It was at that time I really took a deep look inside and found
meaning in what happened that day and what happened to me when my
first business collapsed.

In my mind, I was being tested. Horrible things happen in life and I
was faced with several at the same time. From that point forward, my
goal was to not only get back to the level I was at when I was at the
top of my game, but to exceed it.

My goal was to be truly happy every day doing what I loved: running a
startup company. A year later, we started Weblogs, Inc., and 18 months
after that, we sold it. The darkest hour became the dawn, and it was

If you’re failing right now, and if you’re suffering, you need to take
Kurnit’s test. You need to access where you’re at and you need to
fight on. You can give up, sure, but the truth is that when you give
up, you have to live with that fact for the rest of your life. For me,
living with having given up in tough times is a much worse fate than
certain failure.

If you fail, then by definition you have tried. But if you give up,
you didn’t.

Step One: How are you executing
It’s fairly easy to tell how well you’re executing, so let’s tackle
that up front. First, take a look at your plan and see where you are
in executing against it. Are you ahead, behind or on schedule? Second,
you can have everyone in your organization rank your product and its
various features on a scale of one to ten. Third, you have an outsider
rank your product and features.

If you’re executing at an seven or eight or above, then you know
you’re doing well, but could be doing a little bit better. If you’re
executing under a seven, your problems could be execution-based. You
just may not be delivering the goods. If you were a restaurant, the
analogy would be that you’ve got the right ingredients and product,
but you’re just not preparing them well. This means you need to focus
on making the product better.

Another way to get a handle on how you’re executing is to take your
product and put it up against your two top competitors and do the
one-to-ten rating process. Rate yourself and your competitors on the
top 10 features of all three offerings. How many are you winning? If
you’re winning more than three, you’re ahead of the game. If you’re
three or behind, then you’re average or losing.

Execution is the easiest thing to fix, and you can do it one of two
ways: get the people in your organization to perform at a higher
level, or get higher-level folks into your organization.

It really is that simple: folks can either step up or step out.

Step Two: How good is your idea
Determining if you have the right idea is a little more complicated
since most great businesses do not finish where they start. Google
started as a search engine but bought Applied Semantics in order to
create their real business: text-based advertising.

Microsoft started by building programming software (Altair Basic), but
went on to make it’s business in operating systems, Microsoft Office
and servers.

If you’re idea is wrong, it really doesn’t matter. What matters is if
the original ideas allows you to evolve into your big idea.

In order to evolve, you must think like Darwin. Ask yourself: have you
adapted to your market? Have your customers asked you for something
different than you’re currently providing? Have you given it to them?
After you give them what they want, can you anticipate what they’ll
ask for next? Are those items following a theme?

At Silicon Alley Reporter, we started with a magazine and people loved
it. However, they wanted to get more frequent updates and asked us to
make it weekly. We reflected on this “ask” and came back with
something they didn’t even know they wanted: “the Silicon Alley Daily”
email newsletter. 40,000 folks subscribed to it in the first year and
it was a much more usable product than the magazine or the requested
weekly print newsletter that we passed on doing.

The market will tell you what it wants.  You just have to really
listen. Clearly, there was a market for the DEMO conference since it’s
being going on for years. However, they never listened to the “ask” of
the market: let the companies be selected based on merit, not their
ability to pay almost $20,000. Yes, I know it’s a self-serving
example, but those are the best ones. :-)

When Mike Arrington and I founded the TechCrunch50 event, we didn’t
think it would grow to be 2-3x as large as DEMO after only one
year–but it did. The market had MASSIVE pent up demand for a
merit-based show and we tapped it. We evolved DEMO’s business model,
not our own.

Now, I’m left asking myself, “if I was trying to evolve TechCrunch50,
what would I do?”

Another example from personal experience with start up evolution has
been with Mahalo. When we started, we were just doing hand-curated
links. The pages had very little actual content on them. In our user
lab, folks told us they loved the links, but they kept asking for more

We studied the situation and realized that we could evolve and help
our customers more by writing more content on each page. To do this,
we studied what were the 10-15 things people wanted to know when they
did a search–then we put them on the page. Doing this drove our
traffic from 300k monthly users last year to 4.6m uniques in August (a
record month).

Bottom line: Your first idea is rarely your best.

The first step in a journey is never the best either! Most folks hit
their stride two hours into the marathon. Don’t be afraid to nuke your
first idea and run with your second–or third, forth or fifth.

Evolution is the revolution.

Step Three: Outside Factors
Outside factors are the toughest to deal with because, by definition,
they are outside of your control. Despite our deepest wishes, we can’t
reverse the housing bubble, put the Towers back up or reverse the
accounting scandals.

All we can do is deal with outside factors, and knowing how to deal
with them is critical.

When the market is in the middle of correcting, as I believe it is
currently doing, people tend to underestimate everything including:

a) how bad it will be
b) how quickly it will get worse
c) how long it will take to recover

Chances are the market will get worse and that will happen sooner
rather than later. Watching folks on CNBC last month talking about a
two or three quarters of down market was just sad. It takes just as
long to clean up a mess as it does to make it–typically longer.

The housing mess took two or three years to develop (2004-2006). It
will take three years to unravel (2008-2010) from what I can see.
We’re gonna be dealing with a bad market for at least two years.

10 Specific things you can do
Since the outside market is out of your control, the best you can do
is focus your energy inward. Here are some things you can do after
you’ve assessed where you company is at.

1. Execute better: This is fairly simple, as I describe above. Rank
yourself and your performance and improve it.

2. Grow the talent you have: When the market is down, it’s a great
time to get your team educated and to the next level. Invest in
training and education of your top people, because they are the ones
who will lead your company through this mess.

3. Firing the average people: Again, it’s totally politically
incorrect, but I highly recommend firing anyone who is good or
average. Startups are an Olympic sport and every slot on your team is
critical. You wouldn’t put a “good” swimmer in a relay, would you?
Don’t have one in your startup. Fire the good and replace them with
the great.

4. Cut spending every where you can: Recurring costs like
connectivity, phones, rent and insurance are things that you can
easily cut. Go to each of your providers and ask for 20% relief
immediately or you’re leaving. Most, not all, will give it to you.

5. Find a revenue stream and ride it: If you don’t have a revenue
stream right now, you’d better find one on Monday. Seriously, by the
end of the day. Once you find this revenue stream, ride it. Put at
least 25% of your effort into bringing in revenue.

6. Focus on your profitable clients: If you have revenue, start
focusing on which clients are most profitable. Take them to lunch and
figure out how you can over-service them and sell them another product
(or more of your current product). You’re gonna want to protect these
accounts because the folks reading Point Five are going to be calling

7. Make your top ten 10% better: Look at the top ten aspects of your
business and come up with a plan to make each 10% better in the next
30 days. Ask everyone in your company to make suggestions for the 10%
better program and execute on the ones that will provide the most bang
for the buck. Sometimes, there are things you can do today that will
make something 10% better for free–you just haven’t brainstormed

8. Hold an optional off-site breakfast meeting on a Sunday and see who
shows up: If folks don’t show up for you to grow/save the company on a
Sunday for a two hour breakfast, they probably aren’t going to step up
when the sh#$%t really hits the fan. You need to know who the real
killers on your team are and you need to get close with them now.
Again, it’s fine to have 9-5ers on your team–if you’re the Post
Office. You can’t have them at a startup company. Note: if you reading
this and saying I’m anti-family, save it. Folks don’t have to work at
startups and some of the hardest working folks I’ve met have families
and figure out how to balance things.

9. Build marketshare: One of the best things to do in the down market
is build marketshare. Look for competitors that are going out of
business and buy them or just “steal” their clients and talent (i.e.
pick them up).

10. Raise money: I know I said above most folks won’t be able to raise
money in the down market, but that’s not because the money isn’t out
there–clearly it is. The issue is that the big money out there
doesn’t want to fund small ideas that are in the death spiral. Build a
plan based on revenue and taking market share and folks will consider
funding you.

What ideas do you have for winning in a down market?

How do you stay inspired in bad times?

Send me your response and if you would like it quoted in a follow up
email, attributed or not.

all the best