How the first Dotcom Bubble began

Eugenia | Blog Posts | January 25, 2011

The first Dotcom bubble started out more than 15 years ago, in 1995. The period was marked by the overnight surge of countless Internet-based companies, the so-called “dotcoms”, and by the increasing market valuation of such companies.

First dotcom bubble: The beginnings

The beginning of the 90s brought an explosive growth in the personal computer industry, as well as in the Internet adoption, made available to the public in 1991. Up until that time, computers were heavy pieces of equipment with prohibitive prices for the regular user. But the launch of affordable PCs with graphical interface managed to turn computers into a market-wide product.

Here are some highlights from that time:
1983 – Apple introduces Lisa, the first personal computer with a graphical user interface, priced at $10,000 – Wow!
1984 – Apple launches Macintosh, the first mouse-driven computer with a graphic user interface, with a much more affordable price: $2,500. The first version failed to become a hit due to its high pricing, but the following releases became much more affordable, making computer sales skyrocket.
1989 - Apple launches the first Macintosh portable computer.
1990 - Price of a PC 286 with printer: $1,699.00.
1991 - World Wide Web becomes available for the public. Internet users multiply at a rate of 3500 times a year, reaching the number of 295 million users by the year 2000.
1992 - launch of Windows 3.1
1993 - price of a PC 486/33 with 250 MB HDD, 1MB memory and floppy disk: $1,260.00
1995 - launch of Windows 95

The technological advances led to an increasing interest, from both mass media and investors, in anything tech-related. Major US magazines were raving about the “information highway“, “digital era“, “interactive television“, “intelligent refrigerators” etc. and everyone wanted a piece of the action: big companies, investors, regular people, they all began putting their money into anything that had a “.com” to its name.

Internet companies exploded almost overnight, and their main goal became developing a user base, the so called “network effect“. Traditional metrics such as P&L, revenue, P/E were overlooked, with everyone bowing to the all-mighty “growth over profits” mantra. Companies began spending like crazy hundreds of millions of dollars just to get more users, without putting too much thought into how to make money. Does any of this sound familiar?

All this growth was reflected in a 500% increase in the NASDAQ index, considered an indicator of the performance of technology companies.

How the Dotcom bubble burst

No bubble grows forever. Neither did this one. Based on a business model not very different from that of a Ponzi scheme, most dotcoms were meant to fail sooner or later. If more and more companies raise more and more money to compete over the same number of users (the network effect), then it’s unlikely that all players can win the race. I know, it’s so much easier to see it coming after it has already happened.

The bubble began to burst in March 2000, when NASDAQ index dropped 4 percentage points over a single weekend. By the beginning of 2001, the bubble reached its lowest point, causing companies and investors the loss of $5 trillion in market value (which amounts to a 70% value drop).

Dotcom companies began dropping like flies. Interested solely in their user base and lacking a viable business model, most dotcoms were unable to survive in the real world without external financing. When the money hose was pulled out, they resorted to mass layoffs in order keep costs under control. This may have bought them more time, but it didn’t solve the real issue. By 2004, almost 50% of the dotcoms were closed.

The Dotcom bubble returns

Where are we at now? Well, I see startup valuations going through the roof, I see a lot of hype around anything social (social networks, social games, social shopping, social q&a), I see a lot of interest in user traction and not so much in revenues or profits.

And the list goes on.

Are we heading into a second dotcom bubble? No one can say for sure, but the signs are there: skyrocketing valuations, increased focus on user traction, weak revenue streams. But I think there is one thing worth remembering: the first bubble grew for 5 years before bursting, but not everyone lost: a smart (or lucky) few which pulled their money out in time won. Unfortunatelly, since it’s a zero sum game, everyone else lost.

Sources:
• Timeline of Computer History
• The History of Apple
• Computer Changes In The 1990′S
• History of the Internet – the Dotcom bubble
• Dot-com bubble

Interview with Martin Zwilling, VC and advisor: “Partner with someone who has done it before”

Eugenia | Blog Posts, Startups Tips & Tricks, Success Stories | March 17, 2010

If you are an entrepreneur trying to make it in the business world, you are probably already following Martin Zwilling‘s blog posts on Startup Professional Musings.

And so you should, because Martin has been around tech startups for the last 30 years. He is a Board Member at Callaman Ventures, a member of the Arizona Angels Venture Group, mentor in the Arizona State University Technopolis program and advisor for several startups.

You write on you blog, you are advisor and investor, how much time do you spend on each activity?

I probably spend about 80% of my time as an advisor, and only about 20% these days as an investor. The recent recession has dramatically reduced my investment capabilities, but I am still active in the local angels investment group, and review investment opportunities on almost a daily basis.

As an advisor and investor, you probably receive tons of emails from entrepreneurs, how do you select the startups you offer advice to?

I generally answer all emails and notes from Twitter, Facebook and LinkedIn. Sometimes I spend as much as a couple of hours a day answering mail. I offer more extended advice only under a contract, and I usually limit these to local clients that I can meet and interact with on a regular basis.

Do you only pick local startups?

Yes, I pick local startups for a formal advisory role (join Advisory Board), because I can “touch and feel” the company and management. I sometimes do advisory consulting on an hourly retainer basis for remote startups. I also often do Business Plan development or Financial Models for startups, either local or remote.

How about the startups in which you invest, are there different criteria?

Like most investors, I invest primarily in domains that I have experience, such as software development. I can advise clients on any business issue, since those are similar across domains, but I try to reduce my investment risk by limiting my focus to companies where I have in-depth technical knowledge.

Are there startups where you are both investor and advisor or are there ethical issues in doing this?

I think all investors feel they are advisors to that company as well. I don’t see any ethical conflict in doing this; in fact, I think it an obligation of all investors to be advisors.

How much equity does a startup normally give away to an advisor?

That varies depending on the level of involvement, but I recommend to startups that adding a member to their Advisory Board will likely cost at least 1% of equity. Some advisors will ask for half equity and half cash, or a cash retainer of maybe $500 per month.

What does an advisor do: are there weekly/monthly meetings, do you only give advice when entrepreneurs ask for your help, do you introduce them to people who might help them?

As a member of your Advisory Board, I’m available for email and phone consultation, with a 24-hour response commitment, and I will attend monthly board meetings, if local. I also commit to introduce them to people who might be able to provide funding, or specialized services such as legal or financial.

Can you give us some examples of how you, as an advisor, have influenced a startup’s life?

Generally there are many factors influencing a startup’s life, so no one can take single credit for an event. But I have been a strong influence in certain cases to get a patent filed to protect IP, to get a business plan written to plan the business, to get funding by introduction to key people or angel groups.

What mistakes are the most frequent ones?

Some entrepreneurs like to talk, but never get a business plan written down. Others start talking to investors before they have done their homework, leaving a bad first impression. Others focus on building a product, and don’t have a plan to make money with it.

For entrepreneurs wanting to start a business, what’s the best way to learn, except for their own (painful) experience: blogs, books, success stories, mentors?

The best way to learn is to partner the first time with someone who has done it before. Another alternative is to find one or more Advisory Board members that you trust. Of course, all the sources you mention are valuable also. Don’t try to re-invent every wheel.

—-
You can follow Martin Zwilling on Twitter at @StartupPro

What Can You Learn From Startup Failures

Eugenia | Blog Posts, Startups Tips & Tricks | November 25, 2009

When it comes to failure, American entrepreneurs are more relaxed; they’ve been exposed to it, they know it happens and they try to learn from it. On the other hand, Europeans tend to look at failure like it’s something dishonorable and shameful, which you should hide. I’m happy to see more and more articles advocating the importance of failure for entrepreneurs.

Why on Earth would you want to fail? you might ask. There are a few reasons for this:

- you save a lot of time and money by closing a business that doesn’t work. You’ve probably heard of the the “fail fast” mantra; even Google lives by it. Remember Google’s virtual world “Lively” or its social network “Orkut”? Exactly!

- you gain valuable insight into the market: you know what customers want (or don’t want), how much they are willing to pay for it, how your competition manages to grow… And all this hard to get information is yours. OK, you paid for it with your business, but maybe next time you’ll do it better.

- you become more experienced. The more problems you encounter, the easier will be for you to address them. Deadlines not being met? Development process getting out of hand? Sales going down? Unproductive employees? Been there, done that. You’ve already tried every solution in the book and already know the effects.

- with every new failure, your chances increase. It’s all about the numbers: the more you fail, the more chances you have to do it right next time. As Jason Calacanis once said, even a blind man can hit the target if he just shoots randomly in that direction.

- you meet people. No, I’m not talking about failing in order to improve your social life, that would be a little exaggerated. I’m talking about meeting the people that can help you, recommend you, advise you, introduce you or partner with you on your next venture.

- you become a better person. People who have had this experience themselves tend to be more understanding, supportive, sympathetic, wise, accepting than others.

Still not convinced failure is not bad?

Here is a list of famous failures:

- Bill Gates: before Microsoft, he founded Traf-O-Data, an app to analyze automobile traffic flow.
- Albert Einstein: when he was young, his parents thought he was retarded.
- Henry Ford: his first two automobile companies failed
- Michael Jordan: was cut from his highschool’s basketball team because of “lack of skill”
- Marilyn Monroe was dropped by 20th Century-Fox because her producer thought she was unattractive
- Richard Branson: because of his dyslexia, he couldn’t read until he was 8 and he had many businesses that didn’t work.
- JK Rowling: she was a jobless, divorced, single-parent struggling with poverty.

——————

Photo credits: Will Lion

How Young and Restless Entrepreneurs Really Are

Eugenia | Blog Posts, Startups Tips & Tricks | November 20, 2009

When we say entrepreneur, we automatically think of a 20 year old computer geek, working out of his parents’ garage, having nothing to lose except his allowance. Surprisingly, statistics disagree with us. On Dharmesh Shah’s blog, I found some amazing facts about entrepreneurs:

- Most founders started their first business when they were 40.

- 70% of them were married and 60% had at least one child when they launched their first business

- 95% had a bachelor’s degree (There goes the myth about dropouts’ success.) Many students are seeking advanced education online, such as an online MBA degree, which provides information on how to be a leader and a self-starter.

- 75% worked as employees for more than 6 years prior to starting their own company.

———–

Source: Kauffman foundation for entrepreneurship report

Screw It, Let’s Do It

Eugenia | Blog Posts, Book Reviews | November 19, 2009

A brutally honest book on entrepreneurship by Richard Branson, the eccentric British millionaire. Branson doesn’t seem to care much about protecting his image, since he tells even the most embarrassing stories about himself, including the episode with the tax evasion that led to his arrest.

The book looks very much like a collection of random thoughts and stories, with no storyline. It would have certainly benefited from some editing but, on the other hand, the lack of concern for style or narrative techniques is what makes it authentic.

If you expect to find tips and tricks on how to make your business work or the secret to becoming a millionaire, you’ll be disappointed. You will find though the story of a dyslexic child and his numerous challenges, from his first business idea he puts into practice when he was 9 (which fails because of rabbits), to the magazine he founded when he was a teenager where he sold advertising from a public phone, the Virgin Empire.

How come some failures turn into successes, while others remain just that, failures. What makes the difference between them? The answer lies in how we perceive failure and how we have been taught to deal with it. His mother was a strong willed woman, which inspired Richard to believe he can achieve anything he sets his mind on.

If you are being told too often you are a failure, you have every change on becoming one. If you are told you can do anything, you have every chance of doing it.

My recommendation: read the book. It uses an unpretentious, careless even, language, but it’s honest and motivational.

Lifestyle business vs. equity business

Eugenia | Blog Posts, Startups Tips & Tricks | November 10, 2009

Just a month ago, I was at an event were this dilemma arose: lifestyle business or equity business? The discussions soon became heated, each founder defending their business style. Although I consider this to be just as much a dilemma as “potatoes vs. tomatoes” is, let’s dissect the issue a little further.

Lifestyle business refers to a self-sustainable business, one which usually doesn’t require investors’ money. At the opposite pole, we have equity businesses or VC backed businesses, which are run on investors’ money and, as a consequence, are focused on rapid growth and multi-million dollars exits.

Since each of these business styles influence strategies and planning, it’s not a bad idea to know right from the start where you stand. But let’s first see some pros and cons.

Equity businesses have constraints, that’s a fact. You have to:
- grow fast, which usually means operating with high costs
- focus on getting new rounds of investment rather then reaching break-even
- expect (and hope for) an exit within 5 years, and not a business to leave to your children.

On the other hand, a lifestyle business means:
- the only investment your company gets is your own money. If you’re lucky, you might also get the 3F’s money: family, friends and fools.
- there will be a lot of bootstrapping involved
- you will probably grow slower and your revenues will not sky rocket right from the beginning. Well, they will if you are 37signals.

So which business style is the one for you?

Unfortunately, you are the only who can answer this question.

If you hate being told what to do, if you like taking things slowly and not answering to anyone, perhaps you should consider a lifestyle business.

If you’re more into milestones, rapid growth, frantic pace, multi-million dollars, team doubling every few months, user booms crashing your servers, basically, if you want it all, and you want it yesterday, go VC style.

If you want to dig depend into the subject, you can check Andrew Chen’s blog post on Building lifestyle companies versus VC-backable startups as well as some inside info from a successful lifestyle businesses: 37 signals and The lifestyle business bullshit.

Mission Impossible: Launching a Startup in 48 Hours

Eugenia | Blog Posts, Success Stories | October 23, 2009

Although is seems impossible to get a web project up and running in just two days, this happened last week in London, at the Launch48 event. After presentations on PR for web apps, legal issues, business models, building what customers want, covered by Steve Parks’ live blogging, participants started pitching their ideas.

The six lucky winners got to see their dream app become real, with a team of over 15 people working all weekend to make it happen. I wanted to know more about what goes on there, so I talked to one of the winners: Andrew Dancy, founder of protected.cc.

Everything Starts with an Idea

Eugenia Cosinschi: Why did you go to Launch48?
Andrew Dancy: I’d heard about Launch48 from a colleague who mentored at the first Launch48 event. He suggested that it was a good way to get to meet people and network, as well as being fun. I then saw that in addition to the weekend they were doing a conference (on the Friday) and I liked the look of some of the topics; I felt they would provide helpful advice and information.

EC: And you already had a project in mind. What was your idea about?
AD: I’ve had an idea in my head for a few months now for a system that would allow users to prove that a document existed at a certain point in time. An example usage could be if you’re a web designer and you’ve just spent ages working on a pitch for a potential client. Normally you’d just send your pitch off to the client and hope that they don’t rip off your idea. With a time stamping service you’d be able to prove that you had that pitch or idea at a certain point in time – evidence that would help in the event of a dispute over copyright or ownership.

When I came to Launch48 I didn’t have any firm intention to suggest an idea on the Friday evening. However, after the conference (before the weekend itself started) I went out for drinks with a couple of the organisers and they persuaded me to pitch the idea!

EC: Oh, so it was all spontaneous. But weren’t there other companies already providing this type of service?
AD: Yes, there are a number of other companies doing this sort of thing. However what I’ve noticed in the past (and we subsequently confirmed when doing competitor analysis over the weekend) is that they are mostly aimed at larger companies, or their services aren’t very web friendly. I wanted to create something that anyone could use.

EC: So your competitors’ services are either too expensive or too difficult to use.
AD: Correct – that was my perception. Some also appeared to be too geographically specific. For example there are a number of US companies that do this sort of thing that are set up far more as copyright registries, which is a concept that doesn’t work well in the UK due to the difference in copyright / patent law.

EC: What about your background? Did you have any experience building web apps prior to this?
AD: I started my career as a web developer for the Granada television company here in the UK about 10 years ago. That role meant I worked on a number of high profile websites for about three years. I then spent 4 years working as a .NET applications developer and more recently have been working as an IT Manager. Alongside all of this for the last 18 months I’ve been doing consulting for a number of web startups, mainly providing development support. So I do have a certain amount of web application experience, although primarily using Microsoft platforms and technologies.

… And a Team of 15 Experts is Trying to Make It Happen

EC: Getting back to Launch48, after the conference on Friday, participants started pitching their ideas, then 6 ideas were selected. What happened afterwards?
AD: After the six ideas were selected, we obviously had to form teams. I ended up with quite a few business oriented people, but fortunately also a couple of developers and several user interface designers. Then, after a quick coffee it was off to work!

Our first challenge was to find a space to work in. The areas of the PayPal offices we had access to were quite open plan, so we ended up using several desks and tables in the cafeteria area. There wasn’t really time for much more on the Friday, so after ensuring we’d all swapped contact details it was off to the pub.

EC: How were these teams formed? Strangers from the audience just came to you and said they wanted to be a part of your team and list their qualifications?
AD: Basically yes. After the voting finished, each team name was called out, and people that wanted to join that team then came forward. The Launch48 organisers reserved the right to alter the teams if they felt there was any imbalance, but I don’t think they needed to do that in the end. Most of the people who joined my team told me that it was the idea that attracted them most.

EC: How many people did you end up with in your team?
AD: Including myself there were 15 in total.

EC: You had a team, you had a space. How did you start working? Who did what?
AD: On the Saturday the first thing was to draw up some basic teams. The technical was obvious – we had two people who had programming skills who were able to go off and start setting up the backend. The other main teams were User Interface (i.e how would the service look) and Marketing & PR .

The User Interface team started to think about how the service would look and feel to the end user, whilst the marketing and PR people started by researching who already had similar services, what features they offered and what their pricing models were.

EC: So there were 2 people on the technical team. How many people on the UI and Marketing&PR teams?
AD: We had three or four people working on UI, another four or five doing marketing, PR and research, and the others covered the rest (such as finance, legal and project management).

Mentors Help the Teams Get Back on Track

EC: Any significant problems along the way?
AD: During the Saturday we found that we’d drifted from our original core idea and were struggling to identify a clear and specific market sector to focus the service on. It culminated in the entire team having a discussion on the Saturday afternoon during which one of the mentors (individuals that Launch48 provide on the Saturday to give advice and assistance) suggested we step back and take stock.

This helped us to realise that we ought to return to the core idea, and focus specifically on the creative sector as our initial target market.

EC: What was the mentors’ part in all this? Was there a mentor permanently assigned to your team or they only intervened when asked?
AD: Mentors were available throughout the Saturday (some in the morning, some in the afternoon and some in the evening). They would generally go round the teams, although due to time pressures (they only had two hours) not all mentors saw every team. They were generally specialists in a particular field (for example PR or user interface design). We didn’t have mentors permanently assigned to each team, although we did have an appointed liaison from the Launch48 organisers who we were able to call on for practical issues (such as getting hold of flipcharts or suchlike).

A Prototype Was Born

EC: By the end of the weekend, what had your team produced?
AD: On the Sunday afternoon all the teams had to do a short (10 minute) presentation. By that time we had a working prototype of our system, a simple website with video explaining how the service works, and the basic outline of a business plan. We didn’t demo the service during the presentation (due to lack of time) but one of the organisers had previously demoed the service himself.

EC: Yes, I saw that. What would you say was the best thing about Launch48?
AD: I’d say the best thing was the people. It was the sort of event where you were constantly surprised by the variety of the people you kept on bumping into. Everyone seemed highly motivated and enthusiastic about the whole idea. And that made it great fun.

EC: And what’s the status of the project now? How many of the team members will be a part of your new startup?
AD: Pretty much everyone on the team has expressed a desire to continue with the project. At the moment we’re sorting out some infrastructure issues so we can get the prototype back up and running (hopefully within a day or two) and then we’re intending to map out the future direction of the project. There’s a launch48 follow-up meeting in early December where we’re hoping to show further progress.

EC: So for now, there aren’t any co-founders on board.
AD: Apart from team members, no.

EC: What are your plans for the near future?
AD: One of the things I’m doing at the moment is looking to see if there are individuals with particular skills in this field that would want to come on board.

EC: So no financing needed at the moment.
AD: At the moment we’re intending to bootstrap, so no financing needed in the short term. The immediate priority is to develop what we created over the weekend into a viable proof of concept, which can also attract early adopters. Then we’ll need to work on building that into a sustainable business. Once the early stages are in place we may need financing to take things to the next level, but that’s some time off at the moment.

EC: Thanks a lot for the interview, Andrew. And good luck with your project.
AD: Thanks very much.

Interview with Scott Wheeler, founder of a Y Combinator Backed Startup

Eugenia | Blog Posts, Success Stories | October 5, 2009

Scott Wheeler is 29 years old, he was born in Texas and is a German resident since 2001. After working for 6 years on open-source projects, he quit his job and founded, together with a friend, a startup called Directed Edge. Their project is a recommendations engine that can be plugged into any website and start delivering Amazon-like recommendations in real time.

Scott and his partner, Valentin, applied to Y Combinator as soon as the company was launched but, although they were certain they’d get accepted, they didn’t. After this rejection, the two partners started coding furiously and were soon invited to mini Seedcamp Berlin. A year and 1000 pitches later, they applied again to Y Combinator, and this time, they got in. Scott tells the whole story on their blog, but I wanted to know more about what goes on inside Y Combinator, so I contacted Scott and asked him a few questions.

Eugenia Cosinschi: You were born and raised in the US but you’ve been a German resident since 2001. Why was that?
Scott Wheeler: Mostly just personal reasons, but I was also very involved in open source at that time, and Germany is one of the strongest countries for open source (and doubly so for the KDE project, which I was a part of), so there was also some of a pull there.

E.C.: You’ve started your business in March 2008. What motivated you to take this step, after 4 years of thinking about it?
S.W.: I’d just gotten permanent residence in Germany; previously my work permit was tied to a specific job.

E.C.: Your first step after launch was to apply for Y Combinator, without much luck though. A month later, you were selected for mini Seedcamp Berlin. How useful was Seedcamp to you?
S.W.:The mini-Seedcamp in Berlin helped quite a bit — it got us connected to a group of other startups working in Berlin and to some mentors that we’re still in contact with.

E.C.: You’ve applied again for YC and this time you got in. What did you do there?
S.W.:Mostly what we were doing in Berlin — dealing with customers, building the product. YC isn’t a typical incubator — you don’t spend time working at their offices or anything. There are weekly dinners on Tuesday which usually have a pretty good speaker and you can talk to the YC folks (Paul, Jessica, Trevor) when you get stuck with something. Things change quite a bit towards the end of YC — when demo day is approaching, since there the focus shifts towards thinking about investors as well.

E.C.: How did YC help you?
S.W.:It helped push us back towards the larger vision that we’d started with — of recommendations transforming the web. European startups tend to be generally more risk averse and we’d been infected with some of that. Also with so many startups having gone through Y Combinator, it intrinsically has a really good network of entrepreneurs, investors and potential partners.

E.C.: You’ve been through both an European startup program, as well as an American one. What’s the difference between european and american startups and their mentality?
S.W.:Mini-Seedcamp in Berlin is one day — YC is 3 months, so they’re not really comparable. So most of what we’ve learned about the European startup world came from just … well, being a European startup for a year. A lot of European startups focus on regional markets and are less risk averse. That’s a big difference. Engineers also play a more prominent role in Silicon Valley startups; it’d be very difficult for a founding team to do well there without some engineers on board. In Europe it’s more common to see founding teams that are mostly business folks.

E.C.: What’s the most important benefit such programs provide? Is it the money they invest, the networking, the advice they give…
S.W.:It’s a toss up between the networking and advice. The money wasn’t really a major component of the equation.

E.C.: Most of Seedcamp winners or YC winners permanently move to London/Silicon Valley. Do you think this is necessary for a startup?
S.W.:It certainly helps. I think it gets progressively harder to start a startup the further away you get from the infrastructure for startups.

E.C.: To those not going to Seedcamp, YC or any other similar program, what advice would you give? Can they still make it in the online business?
S.W.:Sure, I mean, most startups don’t go through those sorts of programs, and the set of successful startups is much larger than the set of YC / Seedcamp alumni. In a nutshell, what those sorts of programs provide is a good set of mentors and a good network, but it’s possible to find mentors and to build your own network outside of YC.

The E-Myth Revisited: Why Most Small Businesses Don’t Work

Eugenia | Blog Posts, Book Reviews, Startups Tips & Tricks | September 28, 2009

A new startup is born. You have finally made the big step you’ve been dreaming about for years: becoming an entrepreneur. You work day and night, trying to create the best product out there. However, focusing on your product alone is hardly enough, so you’ll end up neglecting every other aspect of your business.

Soon enough, you’ll find yourself overwhelmed with orders, clients, invoices, bank statements, bug reports, complaints, suppliers, delivery dates, employees problems… You will feel that things are getting out of hand and you are standing on the verge of a breakdown. You have two choices: go bankrupt or go back to being small, when you were alone and things were getting done. Up until this point, the story told by Michael Gerber in “The E-Myth Revisited” sounded frighteningly like my own story. Moreover, according to the statistics cited in the book, it was the story of most startups.

Why is this happening? According cu Michael Gerber, because you are not owning a business, you own a job. Because the only thing you know how to do well is building your product and you think this is enough for running a successful business. If YOU are your business, if your business cannot work well unless you are around, you don’t own it, IT owns you. You are not even an employee in your company, because employees get time off, you are a prisoner of your own creation.

What can you do about it? Luckily, Michael Gerber has a solution for this: the franchise model. Don’t think your business is about building a good product, but about building a system that works without you. Define your system, define its mechanism and procedures, than place people for every position the system need. Don’t create tasks around the people that are already there, but rather hire people around a set of tasks.

The book explains in detail how to identify your problem, find the solution and apply it to your particular case, so I hope it will be as useful to you as it was to me.

On Entrepreneurship with Radu Georgescu

Eugenia | Blog Posts, Success Stories | September 17, 2009

Radu Georgescu has founded GeCAD Software in 1992. The company provided an antivirus and security solution named RAV (Romanian AntiVirus), which was acquired by Microsoft in 2003 for an undisclosed sum, estimated between 10 – 20 million dollars.

Here is some of his advice to young entrepreneurs:

Exit
Start your company out of passion, but don’t neglect long-term strategy. Developing a family business you plan of passing on to your children and developing a company for an exit entail two different development strategies.

Entrepreneur or CEO
Don’t try do be both a manager, and a founder. Accept the idea you can’t be the best at everything. You’ll waste time trying to learn sales, marketing, book keeping, PR, development and many others, and you won’t make it. Choose the best people for every field and let them do their job (also you might want to set some targets and expectations they are supposed to meet).

You Get What You Give
Don’t be greedy. An investor getting a 1% share will give you a 1% involvement, so you gain nothing.

Learn From Failures
For all the projects launched, Radu Georgescu had a success rate of 25%. Failures are important lessons of what doing business is all about (which is different than what writing good code is all about). Accept them as part of the road to success, as they come as a bitter/sweet package.

Negotiate
Don’t reject investors right from the start. Even if you don’t plan on doing an exit soon, see what they want, how much they are willing to pay. Talking to experienced investors can help you see what your business’ weak points are and find a solution to grow stronger. Don’t jump on the first offer you get. After negotiation, you might be surprised to see that the final offer is tens to hundreds of times the initial offer.

To Focus or Not to Focus
Focusing on a single project is a good thing, but it doesn’t hurt to have several possible options to chose from. This way, when one of your projects fails, you’ll have at least one that works.

Do You Really Need Funding?
Not everyone needs investors to start a business, you may want to try and make it self-sustainable first. Before launching on the market “The Big Product”, see what you could sell to support your startup. Sell a piece of your product, sell a “Smaller Product”, don’t wait seven years to develop to develop a mind blowing technology, just to discover that no one is willing to pay for it.

Networking
You can’t grow by yourself. You need to be connected to the business environment around you. Meet as many people as you can and, if you are lucky, 0.5% of them will help you grow.

Flipmove – interactive online 3D presentations

Eugenia | Startup Launches | September 14, 2009

Website: flipmove.com
Founder: DreamProduction

Flipmove is a premium services for displaying online interactive 3D models. Although there are many software programs out there for 3D modeling, there aren’t many solutions for displaying online an interactive 3D presentation. Basically, what Flipmove does is prepare your 3D model for website embedding.

Flipmove targets customers from real-estate, architecture studios, hospitality businesses, and the automotive industry. Although the niche for user generated 3D content seems rather narrow, Flipmove’s founders argue that the same thing had been said about video content before Vimeo or YouTube made it popular.

Dreamstime’s Founder: A Top Photographer Makes $10,000 a month

Eugenia | Blog Posts, Success Stories | August 31, 2009

Dreamstime.com is one of the largest stock photography websites, ranking number two in Alexa’s top 10 stock agencies, ahead of industry leader Getty Images.

Dreamstime.com numbers:
- 1,5 million users
- 6 million images
- 70,000 photographers
- 300,000 unique visitors/day

The Student – Entrepreneur

Eugenia Cosinschi: You have graduated from the Faculty of Architecture in 2000, than from the Faculty of Landscape Architecture in 2001. How did you switch to online, and straight to owning a web agency?
Serban Enache: Studying Landscape Architecture was a personal decision, it had nothing to do with the company I had founded. It was related to creation rather than business. The following year I had taught CAD workshops at the same faculty, a personal experience as well.

In 1997,while I was still a student, I founded, together with my friend and colleague Dragos Iancu, a web agency called Archiweb Design. Our graduation paper was on a rather “fashionable” topic at the time, startup incubators. A lot of them came to life then, even more exist now – some successful, others not so much .

Archiweb Design was one of the top web agencies of that time, with a portfolio which included clients like Xerox, Unilever and hundreds of other companies, mostly from the US. The most successful project we had was Dreamstime. The website was launched in 2000 and then redesigned in 2004. Soon after, it took over the whole company, Archiweb servicing exclusively this project.

“When you don’t feel any satisfaction from what you are doing, it’s time to look for a change.”

E.C.:How was life as a student-entrepreneur and what would you advice others who are taking the same path?
S.E.: The most important thing is to enjoy what you are doing, whether it’s your own business, or you are an employee. To be motivated to get up every day and go to work. Don’t just go with the flow, it doesn’t help if you don’t feel the passion.

People who are truly happy have their hobby as a job. When you don’t feel any satisfaction from what you are doing, it’s time to look for a change.

It’s very important to learn something new every day and to better yourself. Short-term targets are much more important than the long-term one, to us at least. You can track them more easily and you can adjust faster to anything that comes along.

It’s wrong to think your business can’t succeed without initial funding. All our projects started with an idea and 0 capital. They didn’t all make it, although we worked just as hard for all of them. But failures teach you even more than successes do.

E.C.: How did you come up with the idea behind Dreamstime?
S.E.: Archiweb needed images for its web projects. Since we couldn’t afford to use stock photos at the time, we bought a digital camera and start shooting our own photos. We then realised our competition had the same problems, so we decided to publish online all the photos taken.

E.C.:How was the market then, was there any competition?
S.E.: We had a lot of competitors, bust most of them had a different business model, the traditional one. The only business model similar to our was that of Istockphoto, who were the pioneers in stock photography. Although we didn’t come up with the concept of community in stock photography, we were among the first that implemented.

A lot of features you find today at most stock agencies, including the traditional ones, were first launched by us. But we still have the most relevant search engine for photos.

Traditional agencies kept prices up for a long time and were a little conservative when it came to accepting photographers. Dreamstime allows any photographer to contribute, no matter his experience. Of course, results depend a lot by their performance, but the website is accessible to anyone.

We started out with very low prices, since technology was as advanced as it is today, which was reflected in a poor quality of the photos. Our first digital camera was a 2MP Kodak, considered a joke by professional photographers. Luckily, although ignored by professionals, digital photography was embraced by new-comers. Soon after, prices started to grow and images became of better quality. But we still have the smallest prices in the industry, charging $1-2/image.

“Strong Competition Keeps You Motivated”

E.C.: What were the hardest challenges?
S.E.: A strong competition is probably the hardest challenge for stock agencies, but it’s also a plus, because it keeps you alert, motivated. We have permanently improved our services and launched almost weekly new features.

E.C.:You are very active in web2.0: you have members’ blogs, twitter account, facebook group and a facebook app. What were results did social media produce?
S.E.: You know a lot about us, congratulations.
E.C.: Thank you
S.E.: Dreamstime is a stock agency 2.0, the community being one of our most important engines for development, long before social networking websites had the popularity they have know. It would be a big mistake to ignore this medium. Exactly how much we get out of social media I couldn’t say, but it is an important channel.

If you offer very good services, you will get good viral marketing and word of mouth. Users are less and less attracted by classic ads, but if you offer something of value, they will come.

A top Photographer Makes $10,000/month

E.C.: How much can a photographer make on Dreamstime
S.E.: An average photographer makes from tens to hundreds of dollars a month. Top photographers make more than $10,000/month.

EC: Thank you for this interview.

Business Valuation: How Much is My Business Worth?

Eugenia | Blog Posts, Startups Tips & Tricks | June 15, 2009

I’ve asked myself this question for the first time about 2 years ago, when a Private Equity Fund emailed me and my associate and asked for a meeting. They were interested in buying our business and wanted to know our price. My first reaction: panic!
“How much should we ask?”
“What if it’s too much and they laugh at us?”
“What if it’s too little and they still laugh at us? ”
“How much is our business really worth?”

Since none of my friends or family members knew anything about M&A or Business Valuation, I turned to my next best friend in need, Google.

I searched all night keyword phrases like “business value”, “measure business value”, “business valuation” etc. and read tons of articles on the subject. At the end of the day, I still hadn’t found what I was looking for: the magic math formula which would reveal my business value. I had found several formulas though, and they all gave me results ranging from $35,000 to $350,000.

Ok, that’s a progress (I guess), but which value is the right one? Should I ask for $35,000 or $350,000?

Well, time passed by and, if someone asks me now how they can measure their business value, I can say with great wisdom: “it depends!” . I know, I too hated that answer but unfortunately, it’s the right one. Measuring how much a business is worth cannot be done with a simple formula, it takes into account many criteria:

- the team behind the business. Without a great team and a great management, net profit, profit margin or yearly revenue are just number, with no real value.

- profit and revenue evolution. If you had revenues of $100,000 the first year, $300,000 the second year and $700,000 the third year, you might be more appealing than a business with $800,000 in revenues the first year, than sudden drop to half the second year.

- market size and market share. If we have 2 companies with the same financial indicators, but one on a $1 million market and the second one on a $10 million market, the second company has a higher growth potential because it’s operating on a larger market. The number of competitors on each market and the market share they hold is also important though; too many competitors might mean lower profit margins and larger marketing costs.

Because I talk about online businesses, I haven’t said anything about a company’s assets; I’ve just assumed they didn’t have any .

However, for Math formulas lovers (much like myself), here is a business value calculator:
Later update: it seems like bizak.com no longer works.

Other online calculators you may find on CNN Money and FastBusinessValuations.com

Funky Business – Talent Makes Capital Dance

Eugenia | Book Reviews | March 17, 2009

I should say right from the start, I’m not too keen on books claiming they hold the secret behind something, whether it’s life, successful business, losing weight or growing hair. Basically, I think they’re full of crap.

Nonetheless, I started reading Funky Business, a greatly praised business book. If I were to resume this book in one word, that word would be: adapt! If I were to rephrase it using more sophisticated words to make me look interesting, I would say: be funky!

The authors develop the idea using loads of business truisms:
- the business environment is becoming international
- target narrow niches
- focus on key competences
- be fast
- innovate

If you want to have these ideas explained to you in 300 pages, you definitely have to read this book. And if you still didn’t get them, read Karaoke Capitalism as well. All in all, a mercantile mixture of economic theories, proverbs, jokes, all sorts of quotes and references, from rock lyrics to Lenin’s mummy, and an excellent research job. Oh, and a slightly soppy subtitle: Talent Makes Capital Dance.

Many people liked it. I didn’t.

Founders at Work: Stories of Startups’ Early Days

Eugenia | Book Reviews | March 17, 2009

When I first got my hands on it, I thought “Oh well, another book on how to have a successful business in x steps.” Instead, I found a pleasant reading, free from common business books stereotypes.

The book, written by Jessica Livingstone, one of Y Combinator’s founders, is a collection of interviews with some of the most famous startups’ founders (Steve Wozniak – Apple, Max Levchin – PayPal, Sabber Bhatia – Hotmail, Craig – Craigslist etc).

What I liked most about it was its unpretentious style: famous business owners talk honestly about their hard times, failures, doubts and setbacks. Although it doesn’t teach you how to succeed in business, it does have a motivational side-effect; it shows you what every entrepreneur goes through in order to succeed.

PayPal’s founder, Max Levchin, started 4 different companies and worked on several business ideas (all ended in failure) before coming up with the idea of micropayments. One of Apple’s founders, Steve Wozniak, had his most innovative breakthroughs because (and not despite the fact) he had no money. Throughout the book, all founders talk about their failures as an important part of their success. Passion and the will to go on is what makes the difference between them and the rest of the world.

What I didn’t like about it: some of the interviews could have been shorter. For instance, there are pages and pages on how Steve Wozniak built his first computer parts, how he got the chips and microprocessors and how he installed them…. I know, computer geeks speak their own language, but the author could have edited the interview a little so the book doesn’t lose focus of the story behind each founder and becomes a computer user guide.

Other than that, great book, a must-read for every entrepreneur.