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Olson’s Observations

Technology. Innovation. Science. VC. Media. :: by Eric Olson

Archive for April, 2008

Doing Well by Doing Good

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Paul Graham has released another great essay today titled simply “Be Good.” The main point of Graham’s essay can be summed up with this excerpt:

If you start from successful startups, you find they often behaved like nonprofits. And if you start from ideas for nonprofits, you find they’d often make good startups.

That statement doesn’t seem too interesting off hand but it truly is. Basically, Graham suggests that if you simply work on an idea that legitimately helps people you could find yourself with a very interesting business over time even if the current encarnation of the “business” looks more like a nonprofit (i.e. helping a lot of people without making any money).

Graham lays out some interesting examples of this type of thinking (Google and Craigslist among them) and he also covers the reasons why he believes being good can help you do well. His reasons are:

Power -Being good helps you gain power in the marketplace since you legitimately care about your customers and stakeholders and they, in turn, want to help you (I saw this first hand at FeedBurner). This is related to the concept of Karma.

Morale - Morale remains high even during the inevitable tough times during the life of a start-up.

Help - Other people want to help you and you’ll be able to recruit the best of the best.

Compass - Having a solid mission oriented around doing good acts as a compass for the company.

I think Graham is right on with this essay. I firmly believe that doing good will help you do well in life (and business) and have seen it to be true in my own life.

That said, you have to genuinely do good. You can’t pretend to do good because people will figure you out and then you’ll be in trouble.

Following this topic a bit further I would like to point out that running what may be a traditional nonprofit business as a for-profit from day one may actually help more people and create sustainable change rather than simply providing a bandaid.

Case and point for that line of thinking is microfinance. What does microfinance do? It helps the poor pull themselves out of poverty by giving them loans to start small businesses. Off hand you could say that microfinance institutions should be not-for-profit but in fact most of them (if not all) are for-profit banks.

Being that these entities are for-profits they continually find efficiencies to improve their businesses which in turn allow them to help more people. It seems to me that more “nonprofit” ideas should run themselves as for-profit ventures to increase their sustainability.

Graham has this to say about the topic:

The idea of starting a company with benevolent aims is currently undervalued, because the kind of people who currently make that their explicit goal don’t usually do a very good job.

I think he has a point there but Graham links the issue to what he calls the trustafarians (trust fund folks) who simply want to attempt to do something good but never follow through. I think there is more to it than that.

I believe these folks in nonprofits may not be doing a good job because the organizations, being not-for-profit businesses, have no incentive to lower burn rates, be more efficient, etc. They also can’t afford to pay their employees as well as their for-profit counterparts which means that the top minds don’t go work at non-profits (not true in all cases of course).

Imagine if the nonprofits ran themselves as a for-profit businesses. Then they could afford to hire better people and would be more concerned with conserving cash and helping more and more people through their own growth and increased efficiency (assuming they ran the business well of course).

The bottom line is that you can do very well by doing good so follow your idea through even though it may not seem like a business right now. If you are truly solving a pain the business part of the business will most likely follow.

Written by Eric Olson

April 23rd, 2008 at 4:56 pm

Posted in Business

Starting Up: Two Great Posts from the 37signals Folks

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Are you sure you want to be in San Francisco?

David makes some great points in this article. He discusses what the Bay Area is good at in terms of startups and what it isn’t so good at. He also urges us to think outside the Valley in terms of starting a company. Good stuff and I couldn’t have said it better myself (which is why I didn’t and am just linking to his post).

Quit your job!

Easier said than done right? Sure, but Sarah has penned an inspirational article with some great entrepreneurial examples that will get anyone off their butts and starting up a business. She also notes that you don’t have to try to be the next Google. She suggests that if you do what you love you will be happier and more successful and that success could translate into millions even if you never thought it would (and if it doesn’t but you have a nice business and are happy - so what?). I know I have always stuck to doing what I love to do and everything else has seemed to follow.

Written by Eric Olson

April 23rd, 2008 at 3:06 pm

Posted in Business

Localizing Our Food Supply

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I figured Earth Day was as good a day as any to write abut a project my friend Chuck Templeton has been working on down at IIT. Chuck is a big fan of all things green and has been focusing a lot of his efforts (outside the day job) on localizing the food supplies of local restaurants.

After consulting a number of restaurants Chuck then started working with the IIT Institute of Design’s Social Entrepreneurship program on a project designed to come up with ideas on how restaurants can localize their food supply and green themselves.

You can actually go check out the results of this project on May 7th from 6:30pm - 9:3pm at 350 N LaSalle Street, room 202.

Just make sure to register so that Chuck can get a head count.  I’ll be there and am looking forward to it.

I’ll leave you with a little blurb on the event from Chuck:

Join some of tomorrow’s leading designers as they present their recommendations in strengthening the local economy between farmers, restaurants, jobs and the community. Food is obviously important to our well being, but food production has some of the biggest impacts on the environment.

The world renowned IIT Institute of Design launched a Social Entrepreneurship program and graduate students will be presenting the results of their research to increase the vitality of the local farming community (increasing the diversity in our food supply system), helping local restaurants localize their supplier base (less food miles and more money staying in the community), increase the number of local jobs and helping the community become more sustainable. The project includes carbon off-sets, renewable energy, composting and recycling, bio-fuels, energy conservation and many other aspects that are important in building a sustainable future.

The recommendations are an important step at creating a local food system that is sustainable and environmentally friendly. The project uses one of Chicago’s leading restaurant groups is the test case.

Written by Eric Olson

April 22nd, 2008 at 10:17 am

New VC Blog: Texas Venture Capitalist

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I had the pleasure of meeting up with Aziz Gilani the other day at Peet’s Coffee in Evanston. Aziz and I ended up meeting each other through DFJ and our friends at IllinoisVENTURES. Aziz is currently a student at Kellogg who will be joining DFJ Mercury, our Houston, Texas based fund, as a summer associate in a couple months (although he is already spending a lot of time with the Mercury guys looking at deals and helping portfolio companies).

Aziz is a very smart guy especially when it comes to enterprise software. What I loved about our conversation was that we were able to teach each other a lot due to our complimentary skill sets (my main competency being consumer web and his being enterprise software). I hope to continue learning from Aziz over time and I hope I can help him learn a bit more about the consumer web as well.

Anyhow, I wanted to make sure all of you were aware of Aziz’ new blog titled simply Texas Venture Capitalist. I am sure he will have some great insights into new technologies, especially enterprise tech, so you should go ahead and subscribe now to ensure you don’t miss anything (no pressure Aziz!).

I am looking forward to working with Aziz and hopefully we’ll be able to put on a TECH cocktail down in the lone star state this summer.

Written by Eric Olson

April 19th, 2008 at 12:37 pm

Posted in VC

Liquidity for VCs: A New Exchange?

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Update: Check out the comment from Dave McClure to hear his thoughts and read his clarification on the VC side of things (i.e. he does think that VCs are needed and helpful in the market but things more competition is a good thing - agreed!). He also links up his startup metrics which are getting better every day.

Liquidity for VCs and entrepreneurs is a topic that continually comes up. It has resurfaced in the last week due to the fact that public markets have pretty much been closed to startups for a while now leaving M&A as the primary liquidity event for entrepreneurs and VCs. This time Fred Wilson is the one kicking off the conversation about VC/entrepreneur liquidity.

Fred is worried about liquidity for obvious reasons but he also adds a new thought into the mix. He claims that web services that are exited via M&A to larger companies can languish inside their new corporate homes. This worries him as a user of the services and has pushed him to think about newpaths to liquidity even more.

The discussion over liquidity ramped up over the past week due in part to the interesting nature of the idea but also spurred along by the TechMeme effect (Fred event spoke about the topic on Yahoo’s Tech Ticker show). It has been interesting to see everyone’s opinion on the issue all the way from VCs should stop whining to agreement with Fred that a new form a liquidity needs to emerge. After absorbing all of the opinions across the web I decided I should chime in.

In fact, I actually wrote about a related topic back in October 2007 in response to my friend Dave McClure’s post. Dave argued that a market should be developed that would allow transparency and would disintermediate the VCs by allowing lenders and other investors to invest directly in startups while allowing startups to keep most, if not all, of their equity. As a student of finance and VC I found that idea very intriguing.

A large impediment to this type of market is solid data (and metrics). With good data debt and equity markets for startups could look like mortgage markets (ouch - bad example!) or the public markets. If you can look at historical startup data and understand the numbers enough to make a solid bet and know your chances of success an interesting market emerges. (Side effect - more actuarial jobs open up.)

Let’s say we can get the data and can figure out the right metrics, then what happens? Well, here is where things get a little tough. The SEC (or a new org like them) would probably want to step in and protect the individual investor from themselves. That’ll be a big brick wall in the way of innovation and it makes this idea a little more long term (man, I hate regulation). What can we do in the meantime then? This is where Fred’s post comes into play.

Fred argues that there should be another way for VCs to liquidate their positions and it could take the form of an exchange. This exchange would not be open to the general public and it would not disintermediate VCs like the one Dave wrote about back in October. What it would do is allow qualified/accredited investors (i.e. anyone except the average joe individual investor - this exclusion eliminates the need for SEC oversight) to trade positions in private companies. This way VCs could trade their positions to others (like PE firms) rather than trying to bring a company public or sell their companies to larger companies.

It is an interesting idea and one that already happens informally as Fred mentions in his post. He simply thinks that a formal market may help. It turns out that this type of market is already springing up in various forms surprisingly enough.

Goldman Sachs launched an exhange for private companies called GS TRuE - short fo Goldman Sachs Tradeable Unregistered Equity - about a year ago (this market is open only to Institutional Investors with $100mm or more in assets). Other networks like this are also popping up (like OPUS-5) and, according to this May 2007 WSJ story, the Nasdaq is planning on launching a smaller market for unregistered equities.

These markets will probably consolidate over time and then we’ll have our main market for unregistered equities which could be game changing. This isn’t quite what Dave was arguing for but it is a step towards it in many ways.

Even without the need for VC liquidity I think this would have come to bear. The increasing regulation of public companies is becoming unbearable for many managers and directors while also adding a lot of expenses into businesses. This is why so many large companies are choosing to be bought by PE firms and brought private (CDW is a great example).

This is a very exciting time for finance/business geeks like myself. Finance can be very innovative and we’re seeing the proof of that right now. I can’t wait to see how these new markets work out.

Written by Eric Olson

April 18th, 2008 at 9:46 am

Posted in Business, VC

Update: TECH cocktail Conference

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TECH cocktail ConferenceJust wanted to post a quick update on the TECH cocktail conference that is coming up on Thursday, May 29th. Frank and I recently finalized the schedule and posted it on the site. We really have a fantastic speaker line up if I do say so myself. We’re really psyched and appreciative that so many top notch folks were willing to give up time in their day to come and talk.

If you have been thinking about buying a ticket but haven’t yet here is your chance to get $25 off the already low introductory rate of $225. Just use the promotional code olsonsobservations when you register and you’ll be $25 richer (or I guess you could say $200 poorer but I really think the content we put together is worth much more than $200 - the glass is half full people!).

I look forward to seeing everyone at the conference. (Oh, and I really do have some more “real” posts coming up soon. I swear… Stay tuned!)

Side note: We even have “Attending” and “Speaking @” TECH cocktail Conference badges for your site. Snag one and add it to your site when you have a chance. Attending & Speaking

Written by Eric Olson

April 14th, 2008 at 10:39 am

Posted in Chicago, TECH cocktail

TECH cocktail takes home the 2008 ITA CityLIGHTS Award

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ITA CityLIGHTS AwardWow. Twelve hours later I still don’t really know what to say. For people who know me well they know that says something (yeah, I talk a lot).

Frank and and I were nominated for the Illinois I.T. Association CityLIGHTS award along with some truly incredible people last night (my friend Brad Spirrison and super angel Bob Geras among them) who all deserved the award as much if not more than we did. Winning this award is a huge honor and incredibly humbling. I can’t stress that enough. I was simply stunned we took it home.

As I said in my short speech last night TECH cocktail has really been a story of community. Frank and I look at ourselves as facilitators but the tech community here in Chicago is where the magic is and always was. We just brought it into the light.

Another key point to note is that the tech community here will grow much faster if we all work together. Every chance we get we help other events, startups and people because we need an ecosystem. Other organizations, the ITA being one of them, feel the same way and always try to help others. Bottom line: we need to work together. TECH cocktail certainly can’t do it alone (nor has it - we’ve had a lot of help in the last two years) and it will be much more powerful as part of a larger whole.

I am excited for the future of Illinois technology and for the Midwest overall. I think we’re heading into a new age where we can become the technology center we deserve to be. Do we want to be Silicon Valley? No, I don’t think we do. We want to solve real problems with solid technologies in order to create real revenues and long term sustainable value. This isn’t to say that Silicon Valley doesn’t do that as well but I do think that we tend to escape some of the irrational exuberance that is prevalent in the Valley and that should be looked at as a strength not a weakness.

Here’s to the future. Onward!

Written by Eric Olson

April 4th, 2008 at 10:16 am