Many early-stage investors now pay little attention to financial models and just try to form their own conclusions about “use cases.” Will anyone find a reason to use the proposed product, and will there be a way to collect money for that use?

In the slide rule, calculator, and ledger paper era one had to spend enormous time just trying to develop a financial model where everything foots properly. The advent of modern spreadsheets gave everybody access to the “hockey stick” in a matter of minutes. Even 25 years ago I heard investors say that alone caused them to spend less time on the numbers and more time on the fundamentals.

Then there’s always been the practice of working top-down from a market with 1 Billion users and assuming the venture will attract 2% of those at $X per month and therefore be worth $$$$$. That method of ignores all the basic questions of how you get that first customer and add them one at a time until you reach the threshold of mass adoption. It’s much more convincing to see a plan that has been thought through from the bottom-up with the mechanics of each step along the way clearly defined and quantified.

Enter now the era of “disruptive” products whose business models fall outside of any norms. They present such novel use cases that one can develop a warm feeling of possible success but have no way to really lay out the path to that happy outcome. Twitter might be the prime example of that. It’s become as much a part of our Internet infrastructure as to be almost indispensible, yet who knows how it will eventually be monetized? On the other hand, Color might be the prime example of the warm feeling that turned cold quickly when the product was exposed to its intended audience.

There’s also the question of faddishness to consider. Although I have long been departed from any role at Peachtree Software, it’s still are real company with a large user base, very profitable, and well known more than 30 years after its founding. Companies depend on it every day to keep the debits and credits balanced. However, which of the high-profile Consumer Internet plays are likely to achieve such longevity? Look at how the explosive rise of the mobile smart phone and tablet platforms has changed the landscape in just 3 years or so. Think about the time and energy applied to each new concept like Google+; those have got to subtract from patronage of other applications – there’s a finite amount of user time for all things social. What was on the main home screen of your iPhone yesterday may soon shift about 10 screens over and be forgotten tomorrow.

I’m working with three startups now that in the context of the aforementioned are tying to develop their business plans for a major round of financing. There’s no well trodden path for any of them to emulate. Each has multiple potential use cases and revenue sources, and modeling those is a matter of selecting among multiple good choices. The direction chosen can dictate such matters as company location, how much money needs to be raised, and the composition of the founding team. It’s like trying to solve an equation with all variable and no constants. And, any discussion of the art of forecasting must be tempered by the art of the possible. What strategy will in fact lure the right amount of funding, for example? Not all concepts are optimized by the “lean startup” and the “minimally viable app,” two common phrases these days. Some are just bigger ideas that won’t work under such constraints. Others perhaps should be resized to fit in these categories if investors won’t take the risk.

There will be more to follow on this topic, as for me this is a real-time ongoing experiment with 3 teams of skilled entrepreneurs.

<photo above of Jesse Dyer working on the forecast for NightRaft, Inc.>

There is a heartwarming story in today’s WSJ about myYearbook.com, which was started in 2005 by 15- and 16-year-old siblings and was just sold in a cash and stock deal for $100M.  Their “older” brother, now 33, provided the seed capital from an online resume business he started and sold while a student at Harvard.   (It’s no wonder that there is a venture fund dedicated solely to founders 19 and younger.)

These founders had a simple mission – to displace print yearbooks.  They had plenty of competition over the years, but together with their acquirer they have managed to attract and retain 70M users while others fell by the wayside.  I’m just guessing here, but there’s probably no IP in this business; they achieved success based on a number of other factors.

I am seeing many businesses like this that fall in the general category of “land grab” models.  I remember an early mobile banking play in Atlanta that was a wonderful success, and its goal in the flip-phone era was to be one of the 10 buttons available on the home screen.   In today’s world that goal might be landing a spot on page one of the apps selection and not getting relegated to page 12.

The “grab” is also a time grab and certainly a real estate grab on users’ home screens on mobile phones and tablets and on their browser menu bars.  I have a few thoughts here if you are embarking on such a strategy:

Master your chosen domain.  The myYearbook founders were immersed in the high school scene and were developing features that were natural in their social lives and suitable for their peer group.   They obviously had the creativity and intelligence to recognize those opportunities and to continually iterate their offering accordingly.  They picked up 100,000 users in their first full month as a national website, so “traction” was a milestone quickly achieved.  And, they continued to gain even while both the younger siblings attended and completed college.

Yes it is a zero-sum game.  All the time being spent on Google+ as we learn how to use it and build up our networks is coming from somewhere.  If you’re part of the test group, chances are you’re spending less time and attention on other social media sites that were part of your routine.  Land grabs aren’t permanent; there’s always going to be a threat from above or below, and protecting hard-won turf is no easy task.

You don’t have to be first.  But, you do have to get in the game as fast as you can and concentrate your forces for maximum impact.  I’ve seen some categories pioneered by products that quickly get 100-miles wide but are only an inch deep, and they can be plucked off by for more focused competitors who deliver much more thorough value.  In some cases, however, particularly those with recurring revenue models that are based on contracts, being first does give you the ability to stiff-arm your competitors for the duration of those contracts.

You don’t have to have the best product.  As discussed in another recent post, the winner in a land grab is the one that is best at the nitty gritty of basic sales and distribution, picking the right strategic customers, and figuring out a cost-effective customer acquisition model.  If you aren’t in the field selling, learning, and reacting, you can’t grab or solidify a position.

Think like the Duke of Wellington.   You may remember his famous quote from 1852: “All the business of war, and indeed all the business of life, is to endeavor to find out what you don't know by what you do; that's what I called ‘guessing what was at the other side of the hill.’”  Being able to look over that hill enabled him to outwit Napoleon on the field of battle.  Today, and particularly today, what you see on this side of the hill in your market may look very different tomorrow.  It’s more important than ever to anticipate what is just out of sight.

<Sir Thomas Lawrence painting (1818) of the Duke of Wellington from Wikipedia>

Many of us are spending time trying out Google+, and I’ve seen some interesting conversations along the lines of “Oh no, yet another network to build up and manage.”  Personally I like Google+, and I’ve barely scratched the surface.  It’s been my main news feed for Georgia Tech’s football troubles.  Sigh!

All these new services beg the question of general workflow during the day, so I’ve decided to share mine.

Hardware components:

Mac laptop, iPad, Android phone, iPhone, digital camera, slide rules, hp all-in-one wifi printer that only does 3 of 4 and even the hp employees on the help sites can’t explain, cable modem, wifi router, plus chargers and cables for all the above (except slide rules)

Primary software components:

Microsoft Office for Mac, excluding Outlook, since I’ve now standardized on the Mac Mail client and the Mac Address Book, except for the Android where I have a separate Google contact database manually synchronized as needed, Evernote (used in nearly every meeting and one of my favorites because it syncs across all devices), and Google Calendar, also automatically synchronized across all devices, Safari, Firefox

Social networks:

Twitter, Facebook, Google+, Namesake, Quora, LinkedIn

Here then is the typical daily workflow:

Turn on iPad to read Wall St Journal, then computer to read email and dispose of about 250 overnight spam messages that have been conveniently filtered out for me.

But wait, this morning I had no Internet at home, all lights blinking OK, had to reboot cable modem and then router, modem must have burped overnight, problem solved.  I’ve come to expect some routine maintenance like this every day.

Look at iPhone and Droid for any notifications and messages.

But wait, a bunch of apps need updating, so I have to start those rolling.

Computer also finds “critical updates,” so work halts while I restart and install those, which often takes a while.

Decide to sync iPad with computer to pick up some Address Book changes.

But wait again, OS update for iPad.   Have to download, after first insuring all iTunes purchases properly transferred, and then install.

Oh, and then there are some app updates for the iPad as well.

Deal with and answer the real emails intended for me. 

Notice in emails that I have a couple of bills coming due, decide to pay online, have to crank up Firefox because legacy systems will often get about halfway through a process on Safari then lock up when it’s time to push the “submit” button.

Now time for a quick look into social networks.  Check Sparks on G+ and add people to Circles, bounce over to Twitter to follow golfers and Formula One drivers, jump into a couple of quick conversations on Namesake, check on latest on Quora questions I am following, but not enough interest there to write essay-length answers that are preferred, respond to some Facebook comments, defer request on Linkedin for an introduction to someone who is in my network but I have no recollection of meeting, and respond to a few new followers on all sites.

It’s now time for lunch, but I have taken full advantage of all of my productivity tools and am ready to charge ahead with the day.  I don’t know how we managed to get anything done before we had all this convenience!

<photo: my teaching slide rule on the mantle>

The Austin Technology Council’s Top Ten Findings from its Spring CEO Survey were released Friday, and on Saturday there was a thoughtful post by Jon Bischke on TechCrunch about the Growing Divide between Silicon Valley and Unemployed America.  The latter could as easily apply to the nation’s broader technology community as much as it does to the Valley.  The juxtaposition of the two merits some reflection.

Talent issues headlined the ATC’s report.  The first five of the Top Ten deal with current and projected shortages of technically skilled talent in Austin, the resulting limits on growth, and associated recruiting challenges.  That issue is the buzz at local tech events and in many one-on-one meetings I have had with leaders of early stage companies, particularly in the mobile arena.  I keep hearing about hiring, accelerating, exhausting the local talent pool, expanding to other cities to build capacity, buying other companies for that purpose, and similar markers of fast-paced growth.   Yes, raising capital is on the list, but it too seems to be most often associated with funding new business and new hiring.  You could certainly make the argument that these are all nice problems to have.

As a backdrop, Austin generally is healthier than most cities.  Texas dodged the bullet on the housing meltdown and benefits from large numbers of newcomers (myself included).  Austin in particular enjoys a booming tech sector and anchor employers like the state government and the University of Texas.  That’s not to say that there aren’t homeless people begging at many major intersection here, and by no means is the city at what could be statistically called full employment.  It’s not impervious to the national economic scenario.

Pair the tech optimism here and in the Valley with rather discouraging news this past week on US unemployment and you have the motivation for Bischke’s article in TechCrunch.  His themes are “do we care?” and “should we?”  He shows some compassion for the plight of the 14 Million unemployed, but if you read through the long trail of comments the general tenor is that the answer to both questions is No.  The forward march of technology is taken as a given, with the consequences being somebody else’s concern.

However, if you spend time in middle America, the burbs, small towns, or bigger towns far from the tech mainstream, you have to set your watch (if you even have one these days) back a couple of decades and hope all the folks who need jobs will eventually find them and have the money to buy all the cool gadgets and digital products we are creating.  All our monetization models depend on finding someone who actually has money.

Running any startup and growing it rapidly is an all-consuming task.  I don’t expect anyone in that position to spend a lot of time worried about social issues when there are development deadlines, payrolls, customer demands, and other priorities at every turn.  I don’t think, as some have said, that the relative youth of the tech industry means it will be more idealistic and therefore more socially aware.   Quite the opposite is likely when this rising generation becomes preoccupied with careers, household formation, kids, schools, soccer practice, etc. 

So where I am headed with this train of thought?  I believe we all have to pay attention to the current debt ceiling debate in Washington and be preparing ourselves to participate in a significant election cycle in 2012.  The “new normal” in the economy, whatever that turns out to be, is changing the rules for the majority of our population, and those of us privileged to be in the hot spots of the tech sector won’t be immune to those changes. 

<photo from Kalamazoo Valley Community College site>

On July 13 Salesforce.com sponsored a seminar on Sales & Business Development at the ATI.  ATI’s Aruni Gunasegaram moderated a panel consisting of Adam Berman of TVA Medical, Shelia Burns of Luminex, Jason Mathias of HomeAway, and Randy Potts, recently of Convio.

Much of the discussion focused on the issue of finding the right sales talent for a startup.   Here are some of the points raised:

Some salespeople are good at the evangelistic stage, don’t require much guidance, and can develop their own processes and support materials.  Others may have great quota-busting resumes but be totally dependent on being in structured environments where all they have to do is sell a known product.  In my opinion, the former are a rarity.  (I’ve always said it’s easy to sell something that has already been developed; a real salesperson is one who can sell something that is still being invented.)

So how do you differentiate between a startup salesperson versus a structured salesperson in an interview?   Beyond industry knowledge and basic sales skills, you try to assess “mindset.” Will that person understand personal accountability and not claim to be the victim if goals are missed?  Will he or she tolerate disorder? Will there be any sense of being “owed something” by the company?  Is there a commitment to be in the top third and not just to be comfortable?   Does the person understand how his or her actions and results will affect others in the company, or is it “all about me”?  (You’ll have to be a darn good interviewer to discern all this.)

Obviously the best predictor is previous sales success in an actual startup, but you may have to wait in line for candidates with that credential.

It was acknowledged that some companies hire a sales person too early, even before the product, target market, and the value proposition are figured out.  That’s a recipe for failure.  If you hire at that stage, you have to hire someone who can create a sales process from scratch and not expect to use anything already in place.

How do you compensate for sales – pure cash commissions or options? The latter will appeal to someone who has made a good living on commissions and is ready to have a voice in building something and wants to create net worth.  An audience member asked a good question about vesting that equity – temporal or sales performance based?  A panelist responded that pure performance ties may not work; there needs to some correlation with how key someone is to the future of the company.  Some sales people may deliver on quota but never rise to the level of being a key player in the business.  They make their numbers and move on, and options aren’t the best answer for them.

A good observation was made that as a salesperson’s career evolves, it’s more about listening than talking and more about trust than technique, not just vacuuming money from the customer’s pocket.  People don’t always buy the best product; they buy from the salesperson that earns their belief.

Most startups are on what I’ve always called the SNAKE program – Sell Now And Keep Eating.  Maintaining a proper perspective on sales hiring under that pressure is never easy.

<photo of Texas Garter Snake from Proctor Museum of Natural Science>

Austin’s Mobile Monday on July 11 focused on developing for the BlackBerry PlayBook.  I came away from this event with the impression that the PlayBook has its place in enterprise, government and other applications where security is a paramount concern, whether or not it’s a best seller in the consumer space.

David Gill, Director of Client Services at Neilson Mobile, made some introductory comments on the three areas to watch in the tablet market:

Media Shifting Behavior

Nielson is building the ability to track tablet views.  They view the tablet as more like a TV than a phone or PC.  In particular, a tablet is much more likely to be shared around the household than a phone, and Nielson measures household viewing.

Application Ecosystem

Gill cited statistics that 57% of the time spent on a tablet is on an app, as opposed to less than 15% on smart phones.  That may dictate different marketing approaches and development strategies.  (Just be careful using the term “App Store” unless you are prepared to send Apple a royalty check.)

The Blurred Line in Advertising

The distinction between personal and enterprise devices is blurring as employees procure their own devices and want access to corporate data.  This suggests new ad formats and new ways to monetize applications.

Next on the agenda, CEO Larry Ketchersid of Austin-based Media Sourcery showed a tablet application that is a HIPPA compliant and doctor friendly patient referral form, built in html5, and with the ability to queue up its transmissions if data is entered offline.  This company focuses on solutions requiring secure data, encryption, and nonrepudiation capabilities, reinforcing my aforementioned observation that the PlayBook is a good complement for these criteria.

Jeff Bentley, an Enterprise Mobility Architect at RIM, was then the principal speaker of the evening.  His presentation was pretty technical, but I’ll translate as best I can.  I left with an urge to relearn programming, since my last experience was with Microsoft BASIC on the Altair. 

Bentley emphasized that the PlayBook is not a large BlackBerry – it has no phone or email capability.  To create this product, RIM acquired  (1) a new OS known as QNX, a microkernel with wide usage in exotic large-scale secure systems, (2) a new UI via The Astonishing Tribe, and (3) a web kit via Torch Mobile.

The mission of the development platform now branded as Webworks is to be a cross-platform sdk for web developers, using standard web technologies like html5, CSS, and JavaScript.  The platform is moving toward Chrome based web development.  It provides for easy porting of Adobe Air applications, but its browser does not support ActiveX components.

Bentley demonstrated some interesting animated apps and talked about lots of work to mobile SAP software in the enterprise space.  That alone could provide plenty of staying power for the PlayBook in the tablet wars.

Would you bet a start-up on the PlayBook?  Perhaps, if you are solving a problem where its security strengths come into play.  And, with its usage of relatively transportable web-based development tools, you probably have some hedge there if you wish to move to Android or other platforms.

Bentley concluded with a discussion about the PlayBook in the new Renault Frendzy.  Evidently it can be plugged into the dash in case you get bored with just texting while driving, and it also can be plugged into the headrests to entertain your youngsters.  See the video below.

TechDrawl normally focuses on matters of immediate relevance to entrepreneurs, but occasionally I like to visit some of the problem solving that is being conducted at levels far above the two-person-and-a-dog startup world.  The Austin Forum provides a great monthly venue for that.

On July 6, Dr. Dan Stanzione (a computational expert) and Dr. Matthew Vaughn (a biologist), both affiliated with the Texas Advanced Computing Center at the University of Texas at Austin, described the iPlant Collaborative, a large-scale National Science Foundation project applying high-end computing, data, and software resources to the “grand challenges” of plant biology.  As you will see, these challenges directly affect our lives.

Dr. Stanzione talked about why plants are important, and, yes it’s food.  Since 1975, food consumption in the US has almost doubled to 3800 calories from 2000.  We’re eating 4 1/2 meals per day, and our children's generation will reverse the trend of ever increasing life expectancy.  We would need 3-4 earth-sized planets of arable land to feed the population if everyone in the world starting eating like we do. 

In the pre-agricultural era 1 person could live off 6000 acres.  Now that number is 1/2 acre, and by 2050 there will only be 1/3 acre available per capita.

In the US diet, corn is the most important plant.  We’ve been able to increase production first with hybrids, then with biotechnology.  The Moore’s Law equivalent is that production has doubled about every 25 years since 1935, but as with Moore’s Law, we are reaching limits.

Corn cannot reproduce without human help.  The domestic corn we know bears no resemblance to corn found in the wild.  Yet domestication decreases genetic diversity and increases the risk of disease.  One virus can run amuck if all the corn comes from the same gene pool.

There are some societal trade-offs with respect to corn production.  Productivity has been flattening the last 15 years or so after the easiest yield gains have been taken.  Now there’s the question of renewable energy – the grain allocated annually for ethanol could feed 350 Million people!  And, commodity food price increases foster political instability and had much to do with the turmoil in the Arab world this spring.  The Fed’s QE2 program had a direct impact on corn price rises; it is being said that the Fed is proving more effective than all previous political and military efforts in toppling dictatorships.

Dr. Stanzione emphasized that the biology of corn crops is not all that well understood.  Cross breeding must be repeated periodically lest the gains be lost.  Enter then the world of genetic engineering, and even there the definition of a gene is not well defined.  There is a very simple plant, the Arabidopsis, that was described as the “white mice” of biology.  Even for that species, we understand only about 15% of its genes, and for rice or maize that number drops to about 1%.

Not that scientists aren’t working on this -- there are about 2300 new academic papers per day in this area.  There are more than 70 Million gene sequences that have been identified, and thus there is the need for computing power to derive practical insight from all this data.  IPlant is building the cyberinfrastructure for this purpose.

To describe the genetics of the plants on our planet would require building massive “phylogenetic trees,” yet 228 species would require more trees than there are atoms in the universe.  The state of the art that iPlant is trying to advance is a mixed combination of computational tools: labor intensive, fragile, hard to share, and hard to reproduce results.  Dr. Stanzione described one recent program that was estimated to require 1634 years to run (a very long time to watch that spinning pinwheel on your Mac), but that a few weeks of optimization using antique Fortran saved a millennium of computation!

Dr. Vaughn then talked about 3 basic topics that are examined in biological research:

• Genotype – the genetic structure of an organism, the double helix with its GCTA markers
• Environment – the effects of normal versus stressful environments
• Phenotype - the trait we care about - yield, nutrition, color, etc. When you buy the reddest tomatoes in the basket, you are making your choice based on the phenotype.  (Ask your grocer.)

He noted that there was a major advance in gene sequencing in 2005 and that biologists now need to command a computer cluster more so than spending time at a bench.  The massive new data means that theories can be tested without having to extrapolate from the lowly Arabidopsis.  Untangling gene networks leads to practical issues like reengineering rice to be water efficient like corn and avert the affects of water supply instability due to predicted climate changes.

Even robotics is coming into play. Phenotype measurement is still labor intensive, but robots are being built to collect and identify plant materials.

In summation, bioinformatics is changing rapidly, particularly with the boost from iPlant, and at the very least should keep us all fed with corn for the remainder of our lives. 

Now that I’m living in bike-obsessed Austin, I’ve taken up mountain biking to further acculturate myself in this town.  There are 42 bike stores here, I suppose many more per capita than other cities, and there is enough demand to keep them all busy.  Lance Armstrong’s presence probably has a lot to do with this.

As a former road rider accustomed to thousands of annual miles in Atlanta and occasional cross-state trips, I’ve found mountain biking to be a very different sport.   I never once actually used my helmet on the road bike, but it serves its purpose often in minor crashes on the trails.  On the other hand, I have yet to see a carpooler driving a Suburban in the wild while texting, so my overall safety odds seem to be better.

While riding in the normal 100+ degree weather, I came up with this list of analogies between mountain biking and the startup process.  I’m working with several startups that are setting forth on the “trail” in the latter half of this year, and I believe these thoughts are relevant.

The photo see at the top is a trail map in the Steiner Ranch development where I live.  It looks like a handy guide as to where to ride, but the picture below shows this sign in context (look closely at base of tower):

Basically, if you’ve found this sign in the middle of nowhere, you probably already know what’s on it.  Point 1:  Don’t expect any clear roadmap as you head down the path of developing your product, getting it funded, and landing those first customers.  There are multiple ways to get from point A to point B and one may be as good as another.

Sometimes you make seek direction and get no useful information.  Here’s another Steiner sign at a trail head but well below grade, not really visible from the road, and now even taped off by construction.  Unless you ride with binoculars, you won’t get much information there.  Point 2:  You may have some guide you’d like to follow, but be prepared to be still pretty much on your own.

There’s a nice park in North Austin called Walnut Creek with many miles of MTB trails.  There’s a map in the parking area, but the trails are a spaghetti-like maze and have no markings.  You can ride for days and never get back to the starting point.  Here’s an aerial view from Austinbike.com:

Another rider gave me the secret to Walnut Creek. It is bounded on one side by Lamar, which for you Atlantans is similar to Roswell Road, and the traffic noise is very evident.  If you get lost, keep riding in a direction where the noise gets louder, and you’ll eventually find your way out.  Point 3:  Use all your senses to help you choose the right path.  Pay attention to customer feedback in particular, and absorb and react to all that you hear.

Enough pictures for now.  I’ll insert at the end a YouTube video of a rider at Steiner Ranch on the trail I normally follow.  What you saw in the picture above was not indicative of the many ledges, rocky ascents and descents, and very slippery narrow trails; this sport is not for cruisers.  The video, for those of you interested, gives a better perspective.

Point 4:  Neither mountain biking nor the start-up is for the timid.   You have less control of your bike when you go too slowly; dragging the brakes takes away your traction; and you lose the gyroscopic stabilizing factor of those rotating 29” wheels.  Sure sometimes you have to pick your way carefully through rocky outcroppings, but generally keeping up your pace keeps you in control, even though it seems a heckuva lot more frightening.  Similarly, there’s no time to dally with your startup.  You have to boldly move forward every day.

Don’t watch your front wheel. Point 5:  You have to look down the trail and prepare.  Your balance will be better, and you’ll be ready for a gear change or a set-up maneuver if you see that ascent coming.  If you’re focus is on that front wheel, or only on some immediate business issue, you’re headed for a crash.

Point 6:  You have to be agile and creative, and yes, willing to make guesses from time to time.  Many times the trails unexpectedly diverge or cross fire roads, and with no markers you are given no clue as to which way to go.  You just have to guess, and hope you make the right guess.  Often times the trails come back together anyway, but it does no good to stop and ponder, just keep riding ahead.

Starting a business and mountain biking both require energy.  You may not be outside in the heat, but you’re in the pressure cooker of limited time and resources.   Point 5:  Simply this, you have to have an abundance of stamina to make it all the way down the trail.

There will be mishaps along the way.  You’ll get flat tires in the boonies, and you’ll give a little blood when you scrape the rocks and trees, but you can’t let those bother you.  Point 6:  Adversity and pain are part of the process, but they won’t stop you.

If you’re doing a startup or working with others who are, I hope you found a bit of inspiration in this.  You don’t need your own bicycle; you can probably draw similar analogies from whatever sport you engage in.

Now for the gratuitous MTB video at Steiner Ranch.  This young man rides much faster than I do and jumps ledges that I find myself walking.  I have to attribute that to the fact that he has much better gear – front and rear shocks among other things – not to mention much better skill.