In the past, I have been a very vocal critic of the previous administration and their liberal assumption of power not explicitly granted to them by the Constitution. Namely, the use of these powers was, in my book, impeachable offenses. That Administration has come and gone, but the PATRIOT Act and FISA still haunt us to this day.

We in the technology community should be alarmed.

The JUSTICE Act, however, brings some sanity to this process. I’ve read a significant portion of the bill (embedded below) and it goes a long way in improving the current situation that allows the government, based on their say so, to direct communications companies (cable, satellite, phone, wireless carriers, ISPs, etc) to hand over data on American citizens without warrant, and in a far-reaching and unfetter fashion. By placing investigations behind a veil of opaquenes that is unable to be questioned even by other courts, the executive branch of government, under the Bush Administration and in the name of National Security, assumed an exclusive lock oninvestigatory powers without constraint.

This bill does what should have been done with the previous bills – considerations for Due Process, First Amendment rights and checks and balances.

Notably, the JUSTICE Act attempts to place the limitation and focus of National Security Letters (directives issued from the Director of the FBI) back on foreign powers and places significant protectionary road blocks between the government and the citizen.

While I do not trust the government to actually be able to do the right thing, the fact that this bill is introduced tells me that there is a recognition that when checks and balances are in effect, as they were intended to be, it’s much harder to do the wrong thing. It’s called accountability and the more we have, the better we’ll be.

EFF is hosting a call to action, allowing folks to automatically send a note to their Senators.

The center of government. The center of politics. The center of policy. Of course, if the warlords have their way, the center of technology.

The concept of government as a platform is a good one on the surface. The idea that making government a series of, for lack of a better words, APIs to help the citizen understand and access their government officials and services better is a noble one. However, it is naive, and this is where the native-understanding of Washington comes into play.

The rest of the country looks at Washington as a city that is always in-fighting. That the entire ecosystem is made of bureaucratic citadels of power that never accomplishes anything. Incompetent politicians who all lie, lie, lie.

For those of us inside the beltway, we recognize that partisanship is a means to an end. That policy takes a long time to change, policy makers remain embedded as established government for years and even decades, and that politicians come and go. This is part of the expectation in our Washington. The agencies exist, made up of rank and file – the foot soldiers, if you will – and the policies in place in those agencies come from decades of precedent in some cases.

Some of it needs to be changed, and to the extent that OpenGov and Gov 2.0 can open up the doors to this change, then it will. However, some of this will never change and it’s not necessary to try to change it. Precedent generally exists for very sound reason.

What will fail, however, is the replacement of the Washington system made up of politics, policy and also data by a fraternity-style, easy-money lifestyle of the west coast. While they talk billion dollar valuations on startups, we talk about billion dollar annual budgets for Level C agencies. Two different worlds. We have a much bigger stake, and therefore, we’re less likely to change how we do things because they suggest we should.

My suggestion is to O’Reilly and Camp: Come back to Washington, D.C. I know you’ll be back for Gov 2.0 Expo in the spring, but come back for a Summit too. Instead of dictating how the event goes, however, open it up. Make sure 50% of tickets are available for free for any verifiable government employee. (General consensus is the attendace was around 70-30, Private-public, a guess since O’Reilly Media declined to comment on attendance figures). Double the price for the private sector tickets to compensate. Here’s a hint: The federal fiscal year doesn’t begin until Oct 1. Budget money isn’t available to pay for the agency employees to attend your event. This isn’t the private sector. Money needs to be accounted for, especially during a recession. If you want this to be about government, ensure that the Feds can go free of charge and charge the Private sector double.

Secondly, allow questions from the audience. There was extremely little interaction with the audience by speakers. This needs to change if it’s going to be a learning environment.

I’d also suggest the need for a competitive event. With everyone who has dipped their feet into the Government 2.0 kool-aid, precious few have kept their noses clean from federating around this very failed event. I said in November that few of anyone has this industry figured out yet, yet the money flowing in from the Valley has caused almost everyone to sacrifice their independence and free-thinking (How many of you on that Gov 2.0 Summit Advisory Board are free to do a competitive event?)

I’d encourage some of the historically free-thinkers who have given up their independence to think about how government can really be assisted (let’s not talk about fixing government – they innovate much better than we do, actually) in different ways. I think there is room for events that will avoid the thumbprint of previous event and will federate around real ideas, not just inspiration speeches.

* Photo Credit: Big Berto

More surprisingly, the acquisition was something like Sixth Sense where you watched the movie trying to figure out what the ending would be just to be totally blindsided as the credits rolled. Yeah, it was that sort of satisfactory “ah, you got me” moment.

I have had a torrid relationship with FriendFeed culminating with a termination of my account, causing much angst and name-calling from the puppets who have pushed FriendFeed as the only way to have legitimate conversations on the web. From my perspective, and others, it was a noisy, troll-filled social platform that, though having good technical features like real time feeds, also provided an almost cliché approach to communication.

Where the web has become increasingly fragmented and dispersed, fans of FriendFeed often touted it’s aggregation platform as the end of disbursement, a concept that I disagree with. Such end of disbursement also marks an end to competition, if allowed, and a navel-gazing mentality that assumes nothing can be better. Competition in the market place is good, and I chose Twitter.

What this means to consumers is unknown yet. Facebook has a historic closed stance and, though opening up certain APIs such as Facebook Connect, and allowing developers to develop applications for Facebook, it still stands as a relatively closed system. In order to really engage with Facebook, you really have to be using Facebook itself or the mobile apps built for Facebook.

FriendFeed has a robust API that developers can access to distribute or repurpose the content within. It has failed in many ways by not providing a really great application ecosystem, but on paper, it is much more robust of an open system than Facebook.

Facebook has certainly taken pages from the FriendFeed book, however, making their newsfeeds real time, and integrating their “Like” feature. However, it still is not as quick or reliable, much less intuitive for the user.

In an ideal world, Facebook takes almost all of the real time, and “Group” functionality of FriendFeed and integrates it into Facebook. Lose the walled garden, and keep the API open for developers. Time will tell, however, as these two companies figure out how to be “In a Relationship” with each other.

More on this acquisition from other sources:

• TechCrunch: Facebook Acquires FriendFeed
• ReadWriteWeb: Facebook Just Bought FriendFeed
• Boomtown/Wall Street Journal: Facebook Acquires Non-Twitter, Oops, Friendfeed (Plus the Full Press Release)

Much is being made of this anniversary today. WeChooseTheMoon.org, a fascinating real time re-enactment of the mission, including the days leading up to the pivotal moment, is a project of the John F. Kennedy Presidential Library.

It was Kennedy, in an address to a joint session of Congress in 1961, that called on Americans, with a specific mandate to NASA, to put a man on the moon by the end of that decade. An excerpt of this speech:

Finally, if we are to win the battle that is now going on around the world between freedom and tyranny, the dramatic achievements in space which occurred in recent weeks should have made clear to us all, as did the Sputnik in 1957, the impact of this adventure on the minds of men everywhere, who are attempting to make a determination of which road they should take. Since early in my term, our efforts in space have been under review. With the advice of the Vice President, who is Chairman of the National Space Council, we have examined where we are strong and where we are not, where we may succeed and where we may not. Now it is time to take longer strides–time for a great new American enterprise–time for this nation to take a clearly leading role in space achievement, which in many ways may hold the key to our future on earth.

I believe we possess all the resources and talents necessary. But the facts of the matter are that we have never made the national decisions or marshalled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time so as to insure their fulfillment.

<snip>

I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to the earth. No single space project in this period will be more impressive to mankind, or more important for the long-range exploration of space; and none will be so difficult or expensive to accomplish. We propose to accelerate the development of the appropriate lunar space craft. We propose to develop alternate liquid and solid fuel boosters, much larger than any now being developed, until certain which is superior. We propose additional funds for other engine development and for unmanned explorations–explorations which are particularly important for one purpose which this nation will never overlook: the survival of the man who first makes this daring flight. But in a very real sense, it will not be one man going to the moon–if we make this judgment affirmatively, it will be an entire nation. For all of us must work to put him there.

Since then, the United States and the world have gone through vast technological breakthroughs, often in greater haste than the 8 years it took to put a man on the moon. For instance, consumer electronics continue to progress at a staggering speed, particularly with the advent of the iPhone.

The internet burgeoned from a 5 hours monthly dial-up plan with AOL to saturation of broadband in many areas of the world.

Companies like Google continue to harness computing power to create vast databases of information.

Currently, NASA has the Lunar Reconnaisance Orbiter (LRO) circling the moon in advance of a new moon mission by the end of 2020. The LRO is trying to map the entire moon surface (including the notoriously unknown “dark side of the moon”) to determine resources and terrain for the construction of a manned lunar outpost.

Many companies, news sources and blogs (including this one), are commemorating the moon landing with special logos, graphics or other site modifications. It’s just our way of saying “Wow”.

Geez. You’d think it was a not new club. Well, to some, it is. Many attendants were prospectors with apps in their back pocket . . . and the prospect of generating hundreds of thousands of dollars in download revenue for an iPhone app is just too exciting to pass up. Forget Facebook and MySpace apps. This is real cheese.

Cheese indeed. Everyone knows the story of iFart, and no doubt many were there Monday night to hear Ken Burge (president of InfoMedia, creator of said gaseous phenom) tell his story. Download revenue to date: $490,000. Yet Burge’s electronic alter-ego (he attended from Colorado via Skype) actually let some, er, wind out of the sails: “œThe days of throwing something into the AppStore and getting traction””if they ever existed””are over.” Even with iFart, he acknowledged, they shilled for Mashable and TechCrunch. “œPlan your costs based on a 50/50 mix of development and marketing.”

Ouch. Them windows of opportunity just seem to get smaller and smaller, don’t they? And what with development costs running a minimum of $10k to $20k per native app (according to panel moderator Viq Hussain, recently of Intridea, now launching his own media marketing effort at Kongruent), mobile launches start to get a little daunting. Panelist Isaac Mosquera of PointAbout, a DC firm that mobilizes sites, said it’s going to be a lot more, “œbecause your first version is probably not going to be successful.” Multiple platforms, too. And don’t forget the server component. As Burge pointed out, you not only going to want to know who downloaded the app, but analyze and capitalize on all that valuable data.

Okay””enough of that negativism . . . let’s put on the pink glasses.

According to another dcMOMO panelist, Jason Siegel of Qorvis Communications (they built WashPost’s popular Going Out Guide for the iPhone””get it, it’s free), revenue from mobile platforms is destined to explode. “œMobile ad revenue will grow 36% to $200M in 2009, and by 2011 it will double to $400M.” Okay, peanuts compared to the billions in TV and online . . . but that’s a helluva ramp. Siegel is psyched because he’s seeing first-hand the movement of traditional advertising to the third screen””Qorvis is currently developing apps for, among others, AAMCO (the transmission folks).

Beep, beep . . . ring a bell? If it doesn’t, then you’re likely among the Millenials, who only register a 10% to 20% recall rate on the brand””vs. 90% for Boomers. Which is why all the panelists admonished “œChoose your platform . . . wisely.” Blackberry, not iPhone, might be the place to start. (To some, the iPhone is still not a business phone.)

Still, it’s hard not to get excited about the potential for mobile apps. First of all, the platform is . . . mobile. You got it with you, right? So geolocation has a lot of buzz. Qorvis has partnered with PointAbout to do the kind of cool stuff you’d expect from a computer that knows where you are. “œStep right into this Mall, son””and I’ll give you half off your second entrée at your favorite restaurant.” (And we know which is your favorite). Personal couponing, Siegel called it. Sweet. (Still, he creeped folks out a bit talking up Bluecasting“”drive by, and your [mandatory] Bluetooth headset chirps “œC’mon in, Ray . . . $10 off on an oil change for your Lexus today!”

Shades of Minority Report. Good afternoon, Mr. Takagawa . . .

Anyway, the future is bright through these glasses. Panelist Samuli Hanninen, the Director and Head of Ovi Product Marketing at Nokia (hey, it was the Finnish embassy, who’d you expect””Motorola?) got the geeks worked up a bit with visions of phones (sorry, mobile devices) supporting web runtime, and yes””Flash. “œWe currently have 300 million phones in the market that support Flash,” he noted, “œand we’re working closely with Adobe to do more.” (Stick that in your pipe, Steve.)

The iPhone AppStore has generated in the range of $100M in revenue, according to InfoMedia’s Ken Burge. (Lightspeed Ventures’Jeremy Liew has an interesting take on Apple’s take here.) Not huge, but then it’s really a driver of hardware sales.

Burge and others expect Android to eventually eclipse the iPhone (Google was to be represented on the panel, but got waylaid in travel).

All in all, a great evening, upbeat discussion””and extremely well moderated by Hussain.

Here are some salient bullets, in my view. (For another view, see the Top 10 Tweets)

• Stretch your dev dollars by developing in-house, and incentivize your stars by offering a revenue share.””KB
• Cloud computing will play more and more into the architecture, taking over processing and storage once bandwidth (4G?) is sufficient, rendering mobile devices little more than thin clients.
• Make sure your mobile app has “˜share’functionality””help spread it, duh.
• Try to figure out ways to be paid when your audience makes use of your content, as in couponing. “œBake revenue into your content.”””JS
• Stay focused on the business model.””KB
• Make sure you have the right people on your team. “œGreat thinkers, yes . . . but also flexible, and with a sense of humor.”””KB
• Context is key. “œRemember to keep it personal.”””SH
• Don’t put all your eggs in one basket. “œCreate several apps””if one takes off, your others can feed off its success.”””KB
• Be ever mindful of privacy issues. “œIt has to be good for the consumer.”””SH
• And stick with it. “Stay stubborn.”"”SH

Not motivated enough? Check out Entrepreneur magazine’s roundup of iPhone moneymakers.

The simple answer is . . . missed expectations.

Rushing to the altar (startup/wedding analogies are cliché, but true), partners rarely take the time to share their vision, sort out their roles, and agree to a process. (What, you haven’t discussed your childrens religion? How about whether you even want to have children?)

Here are a few missed expectations I’ve experienced:

I had raised more than $30M over the course of several companies. Co-founder’s expectations: I would make a few calls, and funding would come flooding in.

It never works that way — even entrepreneurs that generate home-run returns to VCs will walk a hard path to funding their next idea. Money-raising takes dozens (if not hundreds) of pitches, six to twelve months at best, and more likely, years. Especially these days. But we never talked about it. I wrongly assumed that the founder understood the game. In fact, I thought we were cruising along just fine.

The co-founder had several successful products under his belt. My expectations: He would deliver the product on time and under budget.

Well, that would be great. Truth is, it hardly ever works that way. (Why am I always surprised by this?) In fairness, fashioning great technology that has never been done before is hard. Often, it depends on invention. Ever try to plan an invention? But even taking into consideration all the Laws of Software Development, things go wrong. They take longer. They need to be redone. Meanwhile, I’m making commitments to customers, or investors, or the media. And, I’m embarrassed.

But it became such a touchy subject, we couldn’t talk about it. (You know, just ignore it and pretend it doesn’t exist — like that Giant Squid in the Kitchen.) The lesson again: communicate. Doesn’t matter if your company is just two people, meet weekly — formally, same time each week — and revisit the schedules and goals. Above all, be honest.

I’ve served in Bus Dev, Marketing, and Corporate Development roles. Co-founder’s expectations: I would do all the things the co-founder didn’t want to do.

This actually wouldn’t be bad — I’m not the coder, or the chip designer, and it’s always better, IMO, when founders are sufficiently complementary that they stay out of each others’sandboxes. But it can easily erode when there’s insufficient trust. In the course of going my about the “˜mundane’business and corporate-development activities, co-founders invariably leapt into my sandbox. And when founders start to second-guess each other is when things can deteriorate.

Which is why I emphasize putting together a Business Plan. It’s not so much about crafting a document, as articulating exactly what we’re going to do. Technical founders are especially good at hand-waving how to make money, because “˜great products always do.’ But working on The Plan forces the conversation, and the drill-down.

Typical issues surround the business/revenue model, IP protection, partnering strategy, and the pyrophoric distribution of equity (Investors are going to get how much? Why are we giving this new hire 10%?). I’m not suggesting that my view was the only view — chances are, the founder knew his/her space well, and had some pre-conceived notions about go-to-market strategy, and what partnerships/alliances to forge. I only point out that it’s imperative to devote time — early on — to these potentially explosive topics, to avoid a breakdown in your relationship.

Much as I’ve sworn to avoid these and other missteps, it still gets down to a question of “˜fit.’ The right roles at the right times, a healthy, collaborative working partnership, shared passion and dedication to the project and the vision. Isn’t that what we all want out of entrepreneurial life?

Which is why I continue the quest — for the partner, gig, and team that needs me as much as I need them.

Pay Yourself First

Over the last 9 years and two startups I have learned many things and screwed up royally in some cases. This series is about providing you best practices of lessons learned and avoiding the mistakes I have already made.

In the past, I have had good years and bad years. When you have employees, they expect to be paid and when you mess with payroll (and payroll taxes, but that is a post for another time) you create such a negative culture that nothing will get done.

With that said, when you are starting your business regardless if it is a service or product company, you will have startup costs and probably forgo paying yourself for 6-12 months to keep growing the business. That is fine and to be expected. What you should not do (and what I did) is keep adding staff and sacrifice your own salary in the name of growth. If you keep going like that and have a bad quarter you will have nothing saved for a rainy day and if the business fails you will probably be in immense debt and got nothing out of the business.

Granted, the balance between growth and cash flow is a tenuous one but it is one thing you should never defer to someone else in beginning. Plus, there is a difference between creating a lifestyle business and an enterprise. A lifestyle business is really making enough money for yourself and having some contractors or 1-2 people that gives you a good salary but is more about freedom. An enterprise is a business that scales and gets big over time but you will be working intense amounts in the beginning but will need to hire those smarter than you with the intention that you are looking for an exit and will have time for freedom when you cash out.

So when you are growing the business you should work the first 6-12 months paying off the initial capital expenses and getting about 6 months of cashflow for yourself before you hire anyone else. Once you have that done, start paying yourself something, even if it is small and will ramp up over six months, pay yourself first. This will get you in the habit of being committed to making the business pay for itself and you so you are not worrying about living month to month and let you find some resources to help you deliver while you continue to sell and grow the business.

Once you are looking at hiring someone use these two rules as a starting basis:

- Have six months of payroll for that person in the bank on top of your salary

- Have 90 days of projects or sales committed for that person to deliver so they not only have something to do but are earning their keep.

You may have to be conservative at first in your growth but in the end you will scale better and create a business that is focused on delivery and customer service without putting you and your employees on a cash flow roller coaster.

Now, I’m not even a developer — most of my work on our social-networking app was wireframing and flowcharting with Adobe CS tools . . . when I wasn’t writing user agreements, business plans, and corporate docs. Still, I remember euphoric moments solving a UX problem, then excitedly assembling dozens of wireframes until 3am. World blocked out, mind starting to numb up, clicking command-O or command-shift-S and forgetting what it was I wanted to do. I can only imagine what it would be like to find oneself having similar brain-farts deep in the weeds of multiply nested subroutines. No wonder coders get cranky!

But my hacker friend gets physical breaks. A lot of his code gets programmed into chips, so he’ll be at the “˜bench’some days, sticking parts into sockets, occasionally breadboarding things up, soldering.

(An EE and inveterate tinkerer, I love the smell of rosin-core solder in the morning. If I weren’t so afraid of the time-sink it would become, I’d so join HacDC. Have you seen the creativity springing forth around Arduino microcontrollers in the pages of Make? Btw, it’s a bit late, but the kits make great stocking-stuffers!)

There’s a lot to be said about mixing it up. Adobe actually instituted a program to get their programmers away from the screen for a few days at a time working on physical projects — soldering, even — to refresh weary neurons and foment new thinking. I love the ‘real photoshop’photo above (hat-tip, Keith Casey). I imagined whoever built it was staring at the interface with bloodshot eyes, got the brilliant idea, and stayed up all night gathering the ingredients, cutting and folding cardboard, and lastly whipping out the camera for the glorious shot. (Turns out, it was actually some agency work — but we’ve all had these moments, when we jump out of our genres, driven by inspiration.

We humans need that variety. Even when we’re doing something we really, really enjoy, it goes stale. Few writers just write. Workout routines become drudgery without variety. Even eating, veritable survival, gets uninteresting when day after day, it’s same-old, same-old.

Which is why I was having the time of my life (well, a good day at work) on a scissors lift, checking out the HVAC in our warehouse space. We build next-generation components . . . but right now I’m supervising the buildout of a clean-room area where some macho processing equipment will be housed. I really enjoyed surfing the web for a used 408V to 380V transformer (50kVA, three-phase, of course). Anyone got one?

My Illustrator skills came in handy, doing electrical, plumbing, and other floorplan drawings. And after unloading boxes of ceiling tiles and HEPA filters arriving from trucks, it’s really comforting to return to the computer. (Even to update my Project file . . . or Sharepoint — I will not let it beat me!) And vice-versa.

One programming friend builds boats. Another does stand-up comedy. Many are great cooks. Tell me: what do you do to mix it up? (Drinking doesn’t count!)

Desperation because the auto industry leaders are out of options, and doing everything they can to avoid the only solution that makes sense: filing for Chapter 11 protection. (I used the word “˜protection,’rather than “˜bankruptcy’because it’s exactly that — a means of legally keeping at bay those who might otherwise come after you for moneys owed.) I’ve been through it with one of my startups, and I’ve written about it here.

Fear tactics because the auto industry leaders would have us believe that the world will end if they file for Ch. 11. In fact, it makes survival possible. It enabled the airline industry to survive. So why would the industry leaders oppose it? It wipes all the existing stakeholders clean — all stockholders, creditors, pension plans, and — most important of all, the unions. And it will wipe out industry leaders’individual stockholdings . . . and probably cost many of them their jobs.

But it’s the only solution. Lending the big automakers money to make payrolls is a short-term fix at best. There’s nothing they can do in the next six or even 12 months to turn their battleships around. I get as sentimental as anyone about GTOs of the past, but the model is broken, and dead. It’s time to clean house, start over. I feel for the folks who will lose jobs, but sorry — your management screwed up . . . and they’ve been doing it for decades. Instead of spending on R&D for new technologies, Big Auto spent on lobbyists to get relaxed efficiency and emissions standards.

It’s not about casting blame, or punishing anyone. It’s about survival. The crushing debt burden, inflated wages, and inefficient manufacturing infrastructure will never enable a US auto maker to return to profitability, even if it had a next-generation car ready to go. Unions are an antiquated and unnecessary burden, a throwback to times when bosses literally beat employees to make them more productive. The tech industry works fine without them (although there were several attempts to unionize them over the decades). More to the point: Foreign automakers have set up shop in the US without them.

I wonder if auto workers were given a choice of losing their jobs or taking a comparable job at two-thirds of their current salary at an electric-vehicle plant, which would they choose?

Ironic. Because there’s already a fully approved $25,000,000,000 in loans available to car makers. That’s right — $25B in direct low-interest loans (the Federal Funds Target Rate, currently at 1.0%). It’s the Department of Energy’s ATVM Loan Program (for Advanced Technology Vehicle Manufacturing), and it’s fully approved by Congress, under Section 136 of the Energy Independence and Security Act of 2007. So why aren’t they taking advantage of it?

Because they’d rather keep operating as they’ve been for the past 50 years, than do what they should be doing. And they’re woefully unprepared to shift manufacturing to projects that meet the ATVM criteria.

So, despite the fact that, it’s all there, fully approved by the House and the Senate, with applications due by the end of this month, and decisions to be rendered by March 31, 2009, there’s that hitch: applicants have to have bona fide projects that meet the criteria of an Advanced Technology Vehicle. That could be anything from new high-efficiency gas-sippers to plug-in electrics. (You can read all about it in the Interim Final Rule.) The funding is not designed to resurrect Oldsmobiles.

For decades, Big Auto chose to avoid the transition to alternatives. Not that they didn’t do some work on them. (If you haven’t already, be sure and rent the documentary, “˜Who Killed the Electric Car?’ GM built one — the EV1 — people loved it, and every last one of them was destroyed . . . by GM.)

The automakers should be forced into bankruptcy. And rebuilt. Federal funding should be provided — but only to fund the new businesses emerging from Ch. 11.

If I seem personally peeved, I am. On behalf of my new company, I attended the DOE public meeting for the ATVM Loan Program in Washington DC last week. See, the loans are also available to makers of components for ATVs, which is what we are. I’m fairly confident we’d qualify for the program (although not in time for the year-end deadline, but no problem — there will be rolling application deadlines — and 90-day decisions — every quarter.)

But there are a couple of gotchas: 1) the bailout that just failed (thank God) was going to “˜steal’$15B from the program (since the money was already approved); and 2) even though it will go forward, a subtle point came up in the DOE public meeting — once a ‘magic number’of $7.5B targeted for bad debt (based on the committee’s analysis of aggregate applicants), after which the loan program is ended. That means, say, GM receives a $4B loan to set up a plug-in hybrid plant, but the committee calculates a 50% probability that GM won’t be able to repay the loan. Then $5.5B is left for the others. You get the picture: the DOE might only end up lending a total of $15B — mostly to the big guys — based on a 50/50 chance that they won’t make good on the loans.

And us little guys — the entrepreneurs who should be getting the money for new technology — will be squeezed out. We were all there (at two separate meetings) at the DOE meeting last week — lots of technology companies developing radical new engine designs, patent-pending alloys with greater strength at a fraction of the weight, energy-efficient components, electric alternatives (including Tesla Motors). Oh, and a few representatives of Ford, GM, and Daimler, and the Japanese car contingent.

And although the Interim Final Rule makes no provision for ensuring that small companies get a piece of the pie, there is still hope: Section 136 also provides for grants, but the lawmakers haven’t gotten around to defining that part. Let’s hope the new Administration sees the wisdom in targeting that money for those who will put it to best use — the entrepreneurs. (They’re ahead of us in the UK on this one.)

Still, the (sitting) President is pushing the rescue, this time from the bank bailout fund. I reiterate: ‘Oh, Thank Heaven . . . for Chapter 11!’

Sustaining yourself with a small business doesn’t make headlines. Money-raising has been the mainstay of startup news since venture capital exploded on the scene in the ’80s. ‘Huffington Post Nabs $25M.’ And why not? It was validation that the company ‘has arrived.’ It was the Big Show. But ask any CEO what changes when investors step in. Everything.

No, they’re not (necessarily) evil. They’re just bound and determined to turn your company into a successful exit. It’s their job, in fact. It’s not about you, or even your technology.

Chances are, your primary mission is not to achieve successful exit. (If it is, you’re probably going to fail.) For most of you, it is about you — your passion for your technology, or your customers, or what you do.

If it sounds like that’s at odds with investors, well it often is.

So when Bunchball (the Silicon Valley company that applies gaming mechanics to making sites stickier) announces its new ex-Yahoo CEO, I hear a founder’s gut wrenching. When crafts-aggregator Etsy announces former NPR Digital head Maria Thomas taking the helm, I hear a gut wrenching.

Often from the outside, the decisions seem right. Geeky founders often don’t make the transition to leadership — ubergeek Bill Gates is an exception — and Heidrick & Struggles and CTPartners (formerly Christian & Timbers) and the like make a lot of money plucking SVPs out of big companies and placing them in VC-funded startups. (The genealogy of silly titles can actually be traced back to CEOs being made to step down — where do you think Chief Product Officer, Chief Strategy Officer, Chief of Insights, and other staff titles came from?) But then, investors aren’t all-wise. Gross blunders are made at the highest levels. (Remember when Pepsi head Sculley was brought in to run Apple? Not to mention Gil Amelio . . .)

There’s really only one way to avoid decisions in your company being made for you: captain your own destiny.

That usually means going slow, growing customer by customer, often staying small. If you want to go ‘big’— and not everyone does — you’re most likely to find yourself at the investment/management crossroads. As an ambitious technologist/hard-core developer, you might decide to bring in someone to run the business. (Hey, it happens — sometimes founders themselves honestly recognize the need for new leadership.) That bespeaks true wisdom on the part of tech founders. Eric Schmidt’s install at Google was a coup — not a coup d’etat.

In his blog post, ‘10 Tips for Building a Profitable Business,’ Dogster CEO Ted Rheingold’s entreated:

So constantly ask yourself, are we spending 50% of our time selling? I bet you’ll always realize you’re focusing too much on the product and not enough on finding customers that want it.

Any of us who’ve consulted know that hard truth: love doing the work, hate hustling to get it. If that’s you, and you find yourself running a company, you either need to embrace being the CEO (read: chief salesman) and quit coding, or find someone who’s a good complement to you to do that job and leave you to program (or design, or write, or do whatever it is that you really do best.)

Once you’ve piloted your ship (to belabor the metaphor) past the shoals into the smooth waters of profitability and solvency, and feel the need to raise cash, get big, and pull away from your competition, the dynamics of a deal with a VC changes radically — you get the money on your terms. Still el capitan!

I’ve observed a lot of folks in charge of their destiny lately. (In the month of November, 533,000 who were not, had their ships sunk for them — so much for job security.) Software, the Interwebs, automatic ads, SEO, and (yes) social networking have made it a greater possibility than ever — unlike the previous waves of semiconductors, PCs, and computer networking. It’s akin to the artisans of the Renaissance — with skills, there’s always work. Entrepreneurs today can be captains of their destiny.

And I truly admire you folks. The ones scrapping it out, making a living, while they build their business, serve their customers, and develop a following. Those of you who eat, drink, and sleep (not much) your startups.

Remind yourself this at the end of your crappiest days: You’re the one making the decisions. Go make some really tough ones.

I have read Brad Feld’s blog “Feld Thoughts” for some time now.

Although I haven’t met him in person, I have exchanged e-mails a number of times and will say that he is a very insightful guy. I hope to move to Denver or buy a place there soon, so I owe him a beer for all his good advice.

Plus he is a huge 24 fan like me, so that gives him the extra gold star.

About a year ago, he started a series on “Term Sheets”. It is located here and it is what I will mirror in its structure. Why mess with a good thing, right?

I will link to it in my entries as reference and will probably quote it.

What I am looking to do is expand upon it and comment on each of these things from the Entrepreneur’s point of view.

I know Brad was an Entrepreneur, and a darn good one, but he wrote it from the VC’s perspective and is an awesome foundation to work with.

Each week I will take a topic as part of the “VC Speak” area of this blog. This is in addition to any other “VC Speak” stuff that comes along. In any regards think of this like a mini-course in Venture Funding with getting the MBA.

Please share this with all your fellow entrepreneurs in the hope they might learn something new, laugh in agreement or lament at our shared experiences. I really look forward to you comments as a form of group therapy.

Editors Note: Steven and I have a mutual respect for Brad Feld. Feld is a principal investor with the Foundry Group, based in Boulder, CO. In full disclosure, Brad is also an investor at Lijit where I (Aaron) work as a consultant. This article was written long before there was any other relationship.

Being a serial entrepreneur I have been through many business cycles, but the Internet boom of the late 1990′s was an extremely heady time. People were so enamored with what the Internet could do, every one really believed that the old rules didn’t apply.

The reality was that those rules applied more than ever and with the crash in the early part of the century we have tried to learn our lesson.

With these new companies deemed Web 2.0, everyone is expecting another bubble. So many of the same types of companies have been funded so there are bound to be consolidation and just plain failure.

According to Michael Arrington, his entry “Bubble, Bubble, Bubble“, the despite the fact that some companies are failing, the sky is not falling.

In fact I would call this time around the ol’startup track “saner, saner, saner”.

Despite many of these companies basing their success on being an aftermarket for Google, the smart ones I think many people know that you have to be in this to create a real enterprise and one that makes money. It is not so much about the VC’s but about the ability to use the low cost and barrier of entry to innovate.

But the Dead Pool is not cool

I think that the blog A VC gets it right his counter points on “Building It Up and Then Knocking It Down” are right. He says “over hyping young companies where people are working their butts off and then throwing them overboard quickly into a “dead pool” when they fail is not healthy.

I believe it is dead wrong to put this up there. It just feeds the fire for the chicken little’s of the world. Mike Arrington has known successes when he co-founded helped flip Achex and sold it to First data. I don’t know if he has experienced building a company from scratch and having it fail, many times from circumstances out of your control.

But there is a bubble developing and not where you think…..

The bubble is not with companies it is in the private equity market itself. The model of funding and the way people are evaluating companies is changing. The way investors look at companies is not based on a fast IPO but aligning it to be a sweet acquisition target.

This is helped in no small part since most VC’s invest like they are teenage girls. “Oooo, you invested in a video sharing site, I want one too! You put $5 million into social networking for eco-friendly baby boomers? Find me one so I can get one too!!

Here is how I got there:

1. The amount of money chasing deals have lightening strike twice to find that repeat of unrepeatable past returns is growing rapidly
2. The number of opportunities are declining and there are too many copycats plus the cheap money is pouring out to fund them.
3. Not enough VC’s to serve on boards effectively and make the existing investments get to a proper exit
4. IPO market is still not there and there is and there are only so many acquisition partners
5. Higher prices of entry and lower returns

What I don’t know:

1. When the IPO market might be friendly to tech stocks
2. If investors will broaden their portfolio choices to get their money working in unique ways
3. If funds might start giving their money back

Only time will tell if this comes to pass. If you have a good idea, the money is out there but might not be for very much longer.

Crystal Ball? 2-3 years or mid-2008 this is gonna come to a head. Only time will prove me right or wrong.

Editors Note: At the end of 2008, we do now know that the economy has imploded, not simply from web valuations. In fact, web valuations hardly played any part like they did in 1999-2000.

In fact, the web sector has seen much less damage, than the rest of the economy. In fact, there are still investments taking place, if devalued. A series investments for web companies typically range in the $1-2M range which in the larger picture is fairly small. Biotech companies, for instance, typically pull in around $20M for a Series A round.

That does not make the web sector immune, and in fact, Steve is correct in recognizing that there would be a bubble coming, and that it has arrived.

I’m working in semiconductors again (you may recall I cut my teeth there)– and very next-generation. And managing programs for a company working (for now) on government contracts may not sound sexy. . . but the work we’re doing is awesome in every sense. Eons away from the silicon chips found in laptops and phones, what we build is for big power switching. We’re talking big.

And did I mention that it’s well funded? Primarily through SBIR grants, a thought-provoking (read: nondilutive) alternative to VC funding — even in good times — if you’ve got some unique IP.

In times like these, it seems like a godsend.

But my reorientation was (still is, in fact) intense. It’s the main reason for my blogging hiatus. Coming up to speed on nearly a dozen programs. Managing them using MSFT Project . . . which threw me back onto Windows XP . . . on a Lenovo laptop . . . and got my introduction to (drum roll): Sharepoint! We social-network app developers spend most of our time trying to make our interfaces intuitive and user friendly — it’s about love, not money — and a company with more money than Croesus creates the most convoluted, nonintuitive and just plane murky interface. Did they put a sadist in charge of navigation?

Still, I believe it will all be worthwhile. Why? Because we’re working on something that will be a game changer. In a non-technical word, we’re building — inventing — devices that will be the key enablers of alternative energy systems. Large scale adaptation of wind, solar, and energy storage systems — and their efficient connection to the grid — will absolutely require the kind of super semiconductor devices we’re producing.

That makes me feel good.

Okay, a paycheck makes me feel good, too. But I’m really trying to be deeper here. It goes back to when I saw Tim O’Reilly’s keynote. Not the one at Web 2.0 Expo in San Francisco in April. That was all good times. But Tim’s tune changed after that. By Web 2.0 Expo New York in September, O’Reilly was downright somber (and news hadn’t even broken about the financial meltdown). Global warming. The U.S. losing its edge in science and technology. A growing income gap. “And what are the best and the brightest working on?” he asked, displaying slides of SuperPoke on Facebook, and the iPhone application iBeer. “Do you see a problem here?”

I did. In fact, it been brewing (sorry) in me for a while.

I consoled myself saying sure, the best and the brightest should be working on world-changing things . . . good thing I’m not one of them.

Then, eerily, I was sitting in church, and heard it again. (A calling?) Not to get all ‘religious’here . . . but for someone who doesn’t, ahem, make it every week, last Sunday I was there to hear the Parable of the Talents. (I learned, too, that talent originally referred to a unit of weight of silver — value, as in money, like fractions of shekels). But the message was clear: it’s a sin not to use your God-given gifts.

I’ll be doing that. But I’ll still be applying some other skills to make the world a better (funner?) place with CHALLENJ. Just in my off hours.

Have you gone through the check list of capital sources? Here are several (offroad from the traditional angel and VC route) that popped up in our discussions, plus a few others.

1. Sales! Duh. Number one will always be revenue. It was just February when Wired magazine chief editor Chris Anderson dubbed this the era of ‘Free.’(Yeah. A lot of good that’s doing us now.) But don’t blame him — he’s just the messenger. Consumer expectations have been set at $0.00 by big dogs like Google, Craigslist, and Yahoo, leaving everyone to figure out creative ways of making money in the new ecosystem. Wired elaborated with a wiki for Making Money Around Free Content that provides some novel notions for doing so. It’s even been suggested (heaven forfend!) that Facebook start charging — something, anyway, for a premium services (the freemium model) of some sort. Careful thought needs to be given to just what it is that paying customers get, above the non-paying. Look into currently working models (Flickr vs. FlickrPro, Mozy free online backups vs. MozyUnlimited and MozyPro, etc.)

2. Corporate Investment Corporate customers and prospective partners can be turned into investors. In pre-Web 2.0 era, it happened all the time — usually to ensure that the product or service would prevail, the corporation made an investment. The terms were often good, with one twist: if the startup were to fail, the corporate investor got rights to IP. So it was interesting to see Martha Stewart Omnimedia lead a $2.85M investment in Evite-clone Pingg. We’ll probably see many more of these in the coming months.

3. Consulting/Contracting Doing work for hire can be extremely morale-robbing for a startup that had its heart set on making a living with a new web application — but many startups have turned pragmatic. The duality approach is simply more conservative . . . but when external funding is in a state of flux (like now), it may be key to survival. What makes it hard is the emotional and cultural schizophrenia (maintaining a solid reputation in contracting, vs. the live-or-die passion for a product and the customers who count on it are two different head sets), but some organizations appear to be making it work (Intridea, SetConsulting), while other have made the full-scale transition from services to products (37 Signals).

4. CIT GAP Fund Not to be overlooked, Virginia’s Center for Innovative Technology (CIT) provides (through its GAP program) loans of up to $100k in the form of an interest-bearing promissory note that converts to preferred stock in a forthcoming round of fundraising. It’s a great, low-pain process that helped mobile-gaming platform Mpowerplayer and a dozen other Virginia-based startups. (Disclosure: I’m a shareholder in Mpowerplayer.)

5. Venture Loans Used to be, firms abounded that provided venture lending — growth capital and equipment financing to startups that had already secured equity investment from top-tier VCs. It was still a But these firms — which were a notch less risk-averse than banks, and usually in solid association with VCs (they only made loans to startups that already boasted top-tier VC investors). But a few entrepreneurs have recently mentioned offers of ‘loans from VCs’as a recent funding alternative. The exact nature of these isn’t clear — did they mean convertibles, which pop up whenever valuations get shaken up (like now)? But one thing to keep in mind: promissory notes and loans of any kind need to be repaid, even if the business fails. Moreover, they often have covenants that allow them to be called ahead of schedule. And finally, you may be asked to personally guarantee them. (Did you really want to lose your house?). I say, steer clear of them.

6. Bank Financing Banks, wha? Not often on entrepreneurs’radar, but if you’ve got any stream of revenue underway, financing receivables can be a relatively straightforward process for smoothing cash flow. In fact, whether you have receivables or not, or venture-capital funding or not, banking relationships should be struck up sooner rather than later. Credit lines can buffer slow-paying customers — this economy is certain to increase receivables aging — but everything you’ve heard about credit lines tightening is true. Even established businesses are seeing them dry up.

7. Factoring At one of my service companies, we relied on factoring to keep cash flowing. (Truth be told, we would have missed several payrolls without it.) Factoring firms — which purchase your invoices and collect on them, advance you some portion (up to 90%) of the invoice, depending on the caliber of the customer, and charge a fee (usually 1% – 3%) — can pull revenue that might normally arrive in 30 to 60 days ARO into a week or less. And, unlike banks, the only due diligence is verification of product acceptance; I bet they’re seeing a pick up in activity lately. Of course, you have to be comfortable with you customers knowing that you’re resorting to factoring (not exactly a sign of stability) . . . so better pick only those you have a close relationship with.

8. SBIRs Not too likely a candidate for social-networking startups, but a wide range of technology companies have taken advantage of Small Business Innovation Research (SBIR)and other grants. The Small Business Administration (SBA) Office of Technology administers the SBIR program, as well as the Small Business Technology Transfer (STTR) program. All told, 11 federal departments participate in the SBIR program and five departments participate in the STTR program, together awarding more than $2B annually to small high-tech businesses. Unfortunately, these things take time . . . sometimes more than a year.

Last bits of advice:

- Hoard cash — but don’t tie it up; in other words, even if you’ve raised capital, acquire PCs on credit (don’t lease them, if the lease lines need to be secured). And never secure borrowings with cash.

- Barter when you can — services of any sort.

- Co-habitate — during the last downturn, we opened up our oversized space to another company. If you’re looking for space, post on Craigslist and message boards to co-habitate — you may be surprised at the response.

- Crowdsource design work (logos, literature) you may need. Consider GeniusRocket, or Crowdspring, which Frank Gruber recently used to update his logo. Or do the logo your own damn self, until you can afford a professional.

- Pay with stock/stock options, rather than cash. Or a mix of the two. Worth a shot.

- Negotiate everything.

Optimism still reigns — rains, even. Everyone in the group echoed anti-parallels to the dot.com crash (“Back then, ‘Internet’was a bad word and investors ran from technology; today, it’s the financial markets,” and ““negligible costs of getting started”) — even attending VC Jonathan Aberman waxed enthusiastic: “People will invest in things they understand,” he noted, referring to the backlash from Wall Street’s love affair with exotic but obtuse instruments, “and for many, high tech equates to high growth.” (I took comfort in the notion that there’s something out there more obtuse than technology.)

Still, Aberman had a strongly worded caution for the near term: “Don’t look for money now.”

Gakk!

Not that the entrepreneurs were oblivious to the issues and challenges ahead. Nobody disagreed with LaunchBox Digital co-founder Sean Greene’s assessment that “Most angels have watched 40% of their net worth disappear” along with the Market. Money remains the biggest issue.

And many times during the discussions, the word ‘runway‘ came up — a term I guarantee few people uttered outside of airports a month or two ago.

(btw, a runway analysis is a good exercise for every startup. As is acclimating to the idea that whatever your relevant variables were two months ago — demand, market adoption, advertising CPMs, time to raise capital, valuation, etc. — everything’s changed. There may be a few pluses — cheaper rent, cheaper talent — but for the most part, things have gone in the wrong direction.)

Back to happy thoughts.

I was genuinely pleased to see the diverse mix of companies and stages around the table. We even had a non-software start-up (!) — The Dupont Collection bed & breakfasts. (Heck, I didn’t even know there were bed & breakfasts in DC. They look inviting . . . and reasonable!) I couldn’t have mixed it up any better if I planned it. Here’s a sampling of companies and their outlooks:

DubMeNow — (Beta.) As told by Director of Business Development Chris Hopkinson, DubMeNow, which aims to rid the world of business cards through enabling mobile devices, was sitting comfortably with over a million angel dollars raised . . . though it will continue to pursue VC funding to accelerate expansion to additional mobile platforms.

Funds sought: $1M. Runway: 12 months

YourMusicOn.fm — (Pre-launch.) Daniele Calabrese is in the formative stages with a one-stop-shop for digital delivery of music and content.

Funds sought: $500k. Runway: Self-funded, working towards a target of August 2009 beta.

SocialMinder — (Alpha.) John Adler founded and funded this ‘keep-in-touch’minder (currently works with LinkedIn) that analyzes the ‘health’of your relationships and flags those that need strengthening.

Funds sought: $1M. Runway: Through the end of ’09.

The great thing about OpenCoffees and similar meetups is the collaborative atmosphere. As an entrepreneur who’s weathered startups through several recessions — (“No, son — I don’t recall the Crash of ’29″), I can say I’ve never seen anything quite like it. Even the dot.com days were far more competitive and snarkier. (I think it’s because it was all about ‘eyeballs,’and you never wanted the other guy to get any of yours.)

Maybe it’s just human nature to huddle together during tough times. Well, there are lots of ways to do it. Join Amplifier Networks’DC Tech Corridor social network, for one.

And for Pete’s sake, get out of the house now and then (like going to OpenCoffees). Rounding out our group was Chloe Feinberg, a supporter of Jelly in DC. For those not aware, Jelly is a ‘floating crap game’workspace for technical/social media types looking to do casual co-working, usually in corners of various wi-fi connected coffee shops and eateries. Anyone interested, the next assemblage is at Busboys & Poets Monday 11/3, from 10am to 4pm.

Sign up — networking with warm bodies can be a nice alternative to Facebook for braving a nuclear winter.

Things change along the way, some in our control, some not. But the best way to ensure that things won’t go well is to start off unfairly. And it starts at the top –Venture Hacks contributors noted in their Quick and Dirty Guide to Starting Up, ‘Co-founders are the biggest failure mode for startups.’ Presuming you’ve gotten past that, have a good, complementary founding team, what’s the right ‘comp plan’for the first few people you add?

It depends.

Paying them, as it turns out, is really the only true mode of control. If their only compensation is stock (or stock options), you might as well resign yourself to the fact that whoever is paying them — their day job, or contracting work — is their master. (If they’re married, I’m pretty sure that’s what their spouse would say.)

So how do you get them to do your bidding?

That’s the problem. The startup is your dream, not theirs. (If it were, they’d be founders, too.) Do you find that talk about how rich everyone will become just doesn’t seem to resonate? Uh-huh.

Here are some observations and suggestions:

1. Start off fair. At least then, you’ve got a fighting chance. To me, this means, err on the generous side with stock. (Since it will vest, if things don’t work out exactly as planned, the downside isn’t horrible.) Discussions go on all day long at Hacker News about the topic, but until cash compensation comes into the picture, the first few team members (after founders) are ‘near-founders,’and need to receive upwards of 10% ownership. (If there are two founders, consider 33% each for the two founders, then 33% for the ‘near-founders’as a group. For some of you — especially first-time founders — this will be blasphemy. “My idea, my company, my 100% commitment, blah, blah, blah.” Remember these words, wee hopper:

Optimize for success, not ownership.

2. Strive for transparency. At the CEO [gripe] session at BarCamp, one of the conversations that transpired surrounded the amount of money that some startup CEOs are able to walk away with as part of an acquisition. Resentment for founders being enriched is not uncommon — and often unpreventable. But I’ve found that employees are far less upset if relative ownership is explained early on — the earlier the better. Exact numbers aren’t needed. But the relative stakes of founders, officers, and everyone down to the admins (I believe all employees should be stockholders) should be something that’s talked about (unless you really haven’t been equitable). I have always taken the time to sit down with each new employee and walk through a reasonable scenario, which goes something like: “If we execute, then in three to five years we could be acquired for $100M (hey, dream big!), at which time your 50,000 shares would be worth around $250,000 . . . and that’s just for this first grant; you should expect to get additional grants.” (Now see #3.)

3. Remember what the motivators are. Among the things I found when I moved to the area from the West Coast, equity was often nowhere to be found (except with the founders). Most notable to me was Mario Morino himself, advocate of entrepreneurship, founder of the Potomac Knowledgeway, and great giver-back to the community. Don’t get me wrong, his philanthropy has been exceptional, and he’s been a role model for many in the area. I was just surprised to learn that employees of Legent Corporation, which he created in the late ’80s by merging his firm with another then sold to Computer Associates (now CA) in 1995 for nearly $2B, never received options. I remember hearing from former employees, “It wasn’t unusual for the area. It’s fine. Mario paid really well, and had great benefits.”

M’kay. Again, money talks. Especially these days. Still, I was surprised to learn from the CEO of a local startup that’s able to pay all his employees that he doesn’t give stock either. “They don’t seem interested in it.” (I think they might regret that, if the company were acquired.)

To me, although the main thing is that people feel they’re treated fairly, ownership in the company is still important. If you’re successful, the day will come when they’ll realize the value of their stock . . . and what you did for them. (Still, see #4.)

4. DC ain’t Silicon Valley. Unfortunately, the cultural differences are working against us. Folks here are just more conservative. As Scott Rothrock, CTO at The HealthCentral Network pointed out to me in the course of trying (vainly) to recruit a programmer from a big company: “People here seem desperately afraid of joining a startup that might fail; in SF, they wear their failures as a badge of honor.” And the irony is, THCN is probably the most solidly-backed ‘startup’in the area.

5. Programmers and Engineers have a particular motivation. Never underestimate the attraction of working on cool things with cool people. I found out a long time ago that no amount of options will get technical people as excited as working on the bleeding edge. The fact is, the kind of people you want in your startup would never work at Initech in a 9-5 job (unless it was to support their off-hours startup dream). Any programmer worth his/her salt knows that you can lose your ‘chops’— get stale — quickly if you’re not pushing yourself to learn and grow. Location-aware mobile applications? 3D gaming? Where do I sign up? And, they want to work alongside people who are smarter than them. If your venture doesn’t have some kind of sizzle, some real technical challenges, maybe offshore is a better way to get it built.

6. Hold regular meetings and reviews. In any event, never forget that things need to be monitored — regularly. You’ve gotten your team, they’re pretty pumped up, and off and running. Initial progress looks great. But over time, enthusiasm wanes, knotty problems come up, and all you need are a few demotivators — changing features, which means re-work, is a killer — and pretty soon productivity is way down. While you can’t avoid all the pitfalls, regular meetings (as in, every other Monday, if not weekly) can help keep things on track . . . and will also provide insight into who’s still emotionally engaged. That guy who’s missed the last two meetings — not engaged.

7. Hold 1:1s with your team. Distinctly different from group meetings. You need to know each person’s perspective and situation — especially if you’re not paying them. There may be personal issues that they wouldn’t bring up in a group. The point is, if you start holding regular 1:1 meetings, you find out about things before they implode. If you haven’t done it yet, start now. Maybe employee #3 and #5 just can’t work together. Chemistry, or something. You’re the CEO, and you’ll have to do something about it. But first, you need to find out about it, and find out early. Otherwise, you’ll find yourself changing jockeys two weeks before launch.

8. Celebrate — even little successes. Finally, more than one attendee at the BarCamp session made the point: even minor motivators (pizza and beer, a movie premiere, shirts/hats) can make a difference. They work a heck of a lot better than punitive measures (“Your stock option will be decreased by 100 shares for every day past the deadline”).

And for God’s sake, throw a party at launch!

Editorial Update: Specifics regarding a conversation at BarCamp DC were removed as potentially inaccurate and detrimental.

What I said was, “The revenue is, of course, dependent on my ability to acquire millions of users.” And what they heard was “I don’t really care about revenue.” Like the classic cartoon, listening, understanding — and in the case of investors, believing — are often completely different things.

I had built a financial model — I love building models — that suggested revenue somewhere between $10M and $20M was achievable in Year 3. (Maybe I should have given them an interactive model or web toolkit, that would let them dial in their own scenario.)

But truth be told, my focus was primarily on getting users. I was willing to bet on our ability to do so, and that’s fine for founders . . . but for CIT (and others), the risk was too high — certainly to place a $100,000 bet.

(Incidentally, I still recommend applying for GAP funding — it’s a relatively easy application, and structured as a convertible note, avoids issues surrounding valuation, which can be very touchy these days.)

The conclusion I soon reached — months before the economy flip-flopped — was to build and launch before resuming the quest for investment. (Now pretty much a fait accompli for any web start-up.)

Launchbox Digital co-founder (and most recently, Thummit co-founder) Sean Greene suggested an alternative at BarCampDC2 last week: sustainability with small numbers: “VCs need things to be big — you don’t. You might be perfectly happy with 10,000 paying customers. And if so, you don’t need a VC.”

Point well taken. For that matter, maybe you don’t even need angel financing.

In a recent BusinessWeek story, New York Angels chairman David Rose — and several others — remarked they’d like to see self-sufficiency on the initial investment. Jeez Louise, how many businesses can get to self-sufficiency on a couple hundred thousand bucks?

Maybe it’s my upbringing. My first venture-funded company was in the computer-chip business. Talk about a leap-of-faith investment — money comes in, and a year or two later, you hope to have a working product, a receptive customer base, and good market conditions. In that world, there are only two qualifications for investment: 1) the pedigree of the team; and 2) the gut of the VC.

Google was a gut investment; the founders were super-smart, but still in school. Twitter had a mix of both — the founders had proven their smarts and ability to execute with Blogger, which was acquired by Google in 2003; but well before the meme had proven itself with the masses (some say it has yet a ways to go) a few VCs — notably Union Square Ventures‘ Fred Wilson and Spark Capital‘s Bijan Sabet, were also trusting their instincts that Twitter was not destined to be another PointCast. They believed instead they were on the very brink of a phenomenon . . . even without a revenue model.

Recently, a bit of tempest in a teapot brewed around a comment USV’s Wilson made about Twitter, as reported in a Wired blog:

“œIt’s like the stupidest question in the world: How’s Twitter going to make money?,” said Union Square Ventures’Fred Wilson, another investor. “It’s like ‘How was Google going to make money?’

Wilson subsequently apologized for being snippy, but I knew what he meant. Throughout my startup career, I rarely worried about revenue models — the hardware companies of course made products to be sold, so the only concern there was could we sell thingies for more than it cost us to build them. But even in the software and Internet companies, there was a general belief in the notion that if we produce something people use, we’ll figure out a way to make money.

It may all be moot, because most of you are probably thinking more about sustainable revenue models than ever before.

Call me crazy . . . but I’m still a fan of go big, or go home.

In any case, we believe in our ideas, exuberant (if not irrational) as ever. And we remind ourselves that, as David Hornik, of August Capital has said: “One VC’s next Google is another’s wasted hour.”

Which is why I continue talking to VCs. And in fulfilling my personal mission to improve the VC-entrepreneur dialog, I’ve organized my first OpenCoffee, where we’ll have two local VCs in attendance. Join us, if you can, for some stimulating discussion!

Cutting expenses is one thing — delaying purchases, ditching the PR agency (God, they hate being the first to go), abolishing free soft drinks (really?). But cutting people is, well, personal. Leader truly get their mettle tested in the process. But since it’s not something managers do that often, I guess it shouldn’t be surprising how badly most of them handle it. Email? Over the weekend? Like the pink-slips of old, big-company cowardly. Bad form.

Notes for the ‘choppers’

All you managers under pressure –though I don’t expect arrogant CEOs to read this, much less heed the points — it’s time to act, or be acted upon. Look on the bright side: a headcount reduction gives you the opportunity to reshape the organization. Let’s face it, not everyone you hired ended up exceeding expectations. Even if the hiring process included a probationary period (it always should) to admit a mistake was made, during a RIF you get to lop off anyone close to the line.

Encourage yourselves with the conviction that the organization will be better, leaner, and more dedicated than ever before. Just remember that the folks you want to stick around will judge very carefully how you handle the process.

Some observations and considerations (nothing comprehensive) for you unenviable leaders:

1. Once the decision is made, move swiftly.

Bring all your appropriate managers into the process — they’ll surely have something to contribute. Then meet with them 1:1, provide them a directive (e.g., 20% cut), and let them own the decision for their people. Complete this process all on one night, off site — no closed doors, which only feed the rumor mill.

2. HR (if you have one) may or may not know best, but should be completely involved.
The HR managers that I hired for recruiting skills turned out not always to be the best HR administrators; nonetheless, they are employee advocates, and should be your sounding board. If you’re big enough to have hired an experienced HR person, they will have the forms and know the laws. On the other hand, if you’re a startup taking 20 people going down to 15, you probably won’t (shouldn’t) have an HR person. I’ve used PEOs (Professional Employer Organizations) such as TriNet (which make business sense up to a couple dozen employees, beyond which the fees dictate you wean yourself of them), and when we went through our Bubble 1.0 layoff (40%), they knew their stuff — had done quite a few, in fact. Helped us think of everything.

3. All the packages and details for outgoing employees should be complete before the button is pushed.
Prewire everything. Most of all, your IT guy/gal (if they’re on the hit list, you’d better solve that problem first). All the letters (I’ve found that including recommendation letters in the package buys a lot with people), instructions (such as the consequences of their stock options), copies of the Confidentiality Agreement that they signed at hiring, etc., should be bundled together. I’ve learned to lean towards trusting people to behave (although it hasn’t worked out 100% of the time), so I wouldn’t immediately cut off email, or block access to their computer. Big companies will always do this; if you’ve managed your startup well, with full transparency, there shouldn’t be a need. Sales and marketing people will often want to send out an email blast to customers and contacts; let them. Blocking them will only result in them doing it from their personal email. But passwords to Salesforce.com, VPNs, etc. need to be covered. Provide your managers with a comprehensive checklist for each employee.

4. Execute as simultaneously as possible — and with military precision.
This was impossible during my first big layoff, when we went from 175 to 125 (not to mention things were so out of hand, my finance director — who obviously did not expect to be terminated — ran around the building, screaming epithets, while I chased after him . . . swear to God), but for most situations it can be done, late afternoon, at most in two or three passes per manager. Have two people in the room, if you can. Everyone’s rehearsed, the package is delivered, and the whole thing takes two minutes. Remote workers will have to be done by phone (not email). Don’t expect anyone to sign anything on the spot — just collect keys, passes, etc., and don’t shame them by making them clean out their desks in front of others. Let them come back. Treat them with dignity.

5. Don’t drop another shoe
Make your cut deep enough to last. And when it’s done, gather everyone together and have a state-of-the-company address. Tell everyone what the runway looks like from here. Make them comfortable that you won’t be nicking away at things over the next few months, which only leaves everyone paranoid.

I expect there are more and more of you out there coming up on a crappy experience like this. (For more good reading on the topic, go here.) But there’s a happy ending. When it’s over, you’ve done your job (as described by Sequoia, at right), and you’ve done the very best you can for the outgoing — and bonded with the keepers — you not only attain a pride of passage, but things get better very quickly.

Notes for the ‘choppees’

Now, let’s take the other perspective. Some of you are going to be on the receiving end. And most of you — who thought everything was cool a couple of weeks ago — will be stunned to hear it. (Things probably were cool.) But the pressure from investors, coupled with genuine fear about the marketplace, has instilled a new mindset in your leaders: survival.

Some observations and considerations (nothing comprehensive . . . and this is not to be construed as legal or even professional advice) for you who are about to find the axe befall you:

1. Don’t flip out
Yeah, never thought you’d be on the list. Neither did I. But the highly charged moment of termination, when your stomach is knotted and blood is rushing to your head, is not the time to seek answers (much less revenge). Cooperate. No, I wouldn’t sign anything — there’s no reason why you shouldn’t have a day or two to read everything. Just know that, in the end, the company has the leverage — in your paycheck, severance, stock, and references/recommendations. If you really feel you’ve been wronged, get a lawyer.

2. Don’t expect much
Leaving the corporate world for the startup world, you said goodbye to lots of resources and perks. When I was fired from my corporate job (by a back-stabbing son-of-a-bitch bastard who needed my P&L because his was dying and oh, yeah, I didn’t see that one coming), I got nine months’severance, outplacement services, and a glowing recommendation letter. When the VCs pulled the plug on a startup I joined as Senior Vice President of Marketing, I got two week’s pay. (I appealed to the CEO — who was obviously on the way out himself — and they upped it to three weeks.) In startups, you hope for two-weeks pay. (It’s all about conserving cash, remember?)

3. Center yourself
Go for a run, or take it out in the gym. There’s anger that needs to be processed, and you need to move past that to get to the next stage: excitement about what you’re going to do next. What make things especially hard for people in startups is that your world is pretty much tied up in your work. Sure, you have loved ones, but on an hours-per-day basis, when the company you worked for — the thing you were so passionate about being part of and helping build — suddenly goes away, that’s a big hole in your life. Take advantage of it. Indulge your family or loved one with some time. Plot your next moves. Maybe, start something yourself.

4. Move on quickly
You know what they say about a broken heart — nothing cures it like something sweet and new coming along. The sooner you get on with your life, the better. Spend as little time looking back as your mind will allow. The remarkable thing is, nine out of 10 times, people say (maybe not Stuart Sutcliffe) that life got better after leaving the organization. Whether or not you subscribe to the ‘everything happens for a reason’theory, everyone I’ve crossed paths with who’s been through the shock of getting fired — even at my hand — ended up with no regrets.

There’s a lot of nuances I’m skipping over, some are location-specific, some company-specific.
Whereas California has nixed non-competes, they’re alive and well on the East Coast . . . and they suck. Companies may hold stock grants and severances (by law, they can’t withhold back pay owed) hostage to get non-competes signed, and they’re usually at least a year, sometimes longer. Ridiculous.

Then there’s your vested stock options. These conditions can be all over the map — now might be a good time to reread your Stock Plan and Stock Option Agreement. Is the company entitled to repurchase your vested shares? (I hope not). At what price? If not, you may have only 30 days to purchase them yourself. But again, at what price? The recent Fair Market Value may not reflect the economic crash . . . and you might find yourself having to write a check for several hundred (or thousand) dollars, or forfeit the ownership.

Just a heads up. But hey, things could be fine. Just because a half-dozen startups have already had major layoffs, doesn’t mean yours is about to . . .

Forewarned is forearmed.

There comes a point in every CEO’s life when they realize that things have turned for the worse. Accompanying that realization — along with a gnawing knot in the stomach — is the stark reality that something needs to be done about it. These are the times that try . . . you know the speech.

CEOs worth their salt — or if they’re rosey-glassed types who prefer to ignore bad news, then the COO realists who watch their backs — keep an eye on the numbers, and know exactly when breakeven’s coming . . . or when the money’s going to run out. What changes things — and probably what changed for Le Meur — is the wellspring drying up. And at that burn rate, in this climate, he would have to start raising another round in six months (it always takes longer than you’d think).

Oh — there’s one other thing. Seesmic’s Series C would probably be at a lower valuation than Series B. You want to see things get complicated (ugly, even), go through a down round. New money makes out all right (it’s called the Alternative Golden Rule), but previous investors get squeezed. (Angels often get squished.) Employee options go underwater, plagues and locusts descend, and there’s a lot of wailing and gnashing of teeth.

So Le Meur did what he had to do.

Letting people go is a miserable experience. And no matter how carefully you plan it, how humanely you handle it, it sucks. Everyone knows startups are risky, but startup hires are the most passionate, dedicated folks around. (Yours aren’t? Sorry — you hired the wrong ones!) Meanwhile, company founders think only of success. They radiate it. And they make promises, explicit or implied, to every employee ‘join us, work hard, and you’ll be rewarded.’ I’ve said those words dozens (really, maybe hundreds) of times. So when it comes down to having to let people go, a promise is broken. To them. And to their families.

Layoffs suck. But they beat the hell out of running out of money.

When all financing options disappear, your world comes crashing down, believe me. Once you’ve been there, you take a far more pragmatic view of letting people go.

I expect in the current climate to see a number of RIF announcements. I hope they’re done right. (There is a way to do it right.) Because on those occasions when they’re not, things are going to be interesting. Unlike the first bubble, today everyone’s voice can be heard — blogging, twittering, commenting, we can expect to read (and hear, if people comment using Seesmic) about some remarkably uncivil behavior, especially on the part of first-time CEOs.

Next post: Layoffs done decent.

All the warnings about the forthcoming next nuclear winter for startups drive home the need for a management system. Tough times call for tough measures, but that doesn’t mean CEOs should get carte blanche for discretionary cuts — a sure way to undermine morale.

Among other things, having a management process in place sets the stage for making cuts when they need to be made. Why? Because even without resorting to old-school ranking-and-rating, in a good management system, performances (and non-performances) are visible company-wide.

I’m still stunned at how many companies operate without a management process of some kind. Not just a plan . . . but a regularly recurring process, with weekly monitoring, that ensures critical company milestones are met — and leads to consequences if it’s not.

So if you haven’t got one, now is a helluva good time to get started on a planning/management process. If your company has one in place, dramatic events may call for a mid-cycle re-plan.

The argument for doing quarterly planning is its horizon — it’s hard to see much beyond 13 weeks. Who can really say they know what conditions will be like come January 1, 2009? Much less for a 3- or 5-year plan.

(Which is not to say your company doesn’t need long-term goals. VCs usually only want to see 3- to 5-year plans as a reality check (or sanity check). They know better than anyone that even the startups that succeed rarely do so by adhering to the plan they funded. But it’s a good test for founders, to articulate whether they have their sites set on a profitable $15M business two years out . . . or are going for global domination of mobile advertising by Year 5.)

Back to quarterly planning — and in particular the elements of Quarterly Objectives and Key Results that I brought up in the last post. Although the process needs to evolve within any company, the basic premises are three:

1. Top-management expectations come first. Could be just a one-sheet with simple but clear expectations for, say, sales, shipments, user registrations, feature releases — whatever the major performance metrics for the quarter are. Whether or not there’s a board of directors asking for it, it’s the CEO’s job.

2. Every exempt employee prepares a set of Objectives & Key Results. If the company is big enough to have departments, employees work with their managers to develop them — four to six Objectives with four to six Key Results (more on these below).

3. After each quarter, Objectives are reviewed and self-graded, and next quarter’s are proposed, in a peer setting. Key here is that each employee acknowledges what happened last quarter — and what they’ll do next quarter — in the presence of their peers.

Now, some are you are sitting there saying, “Sounds like big-company bullshit.” To which I say, “Bullshit.” (Touché!) Do you really think everyone working hard, with a good attitude is a way to ensure milestones are met? To ensure that roles, much less departments, are coordinated? No. Not only is there too much to keep in any one’s head, but things change. All the time. If you have your eye on the goal — pin it to the wall in front of you — and you monitor weekly, big surprises are far less likely.

“Inch by inch is a cinch — yard by yard is hard”

Corny, but it makes a point: monitor progress every week.

I won’t suggest that even this ‘simple’process I’m recommending isn’t pain-free. There are usually several iterations, especially when multiple departments (engineering, marketing, sales) dependencies are getting sorted out (“I can’t launch Week 44 unless Tom agrees to freeze code by Week 40″)

But at the end of the exercise, every employee — the CEO is not exempt — has a roadmap of the most important things for them to focus on over the next 13 weeks.

I can’t emphasize how effective this process (or one like it) is in not only getting things done, but in maintaining employee morale. There’s no hiding, no slacking — everyone’s work is visible. No more “What the hell does Chris do?” Everyone’s Objectives are on the server (or intranet, or Basecamp, or whatever you’re using). And every week at your staff meeting (what — you still don’t believe in meetings?), all the Objectives (sorted by week) are checked off . . . again, in front of peers. (Peer performance is a great motivator — no one wants to show up for Monday morning’s meeting and get marked ‘Not Done’in front of others.)

What the Docs Look Like

Though few words, drafting of Objectives and Key Results takes some time to get the hang of. In general, I would describe each employee’s four- to six-page document as:

‘A guide which, if 75% to 85% achieved, would signify successful execution for the quarter.’

Why only 75% to 85%? Because everyone should have stretch goals . . . and therefore should not be expected to hit 100% of them.

So how is each Objective expressed? It should be broad, categorical, and have no dates. Examples might be ‘RELEASE v1.5,’or ‘SECURE MANUFACTURING PARTNERSHIP,’or ‘GROW SALES AT LEAST 10% Y/Y,’or ‘COMMENCE PATENT PROCESS,’or ‘EXPAND DEVELOPMENT TEAM.’ They’re allowed to sound vague — they’re the Big Efforts, and each individual should have at most six. Any more, and people are being set up to fail. Put each one at the top of a separate page.

The steps — specific milestones — to achieving each Objective — are quantified by Key Results, which are measurable, and include dates (in our work-week format). Again, try to have four to six of them. So your CTO’s Objective ‘RELEASE v1.5′ might have the following Key Results: ‘FREEZE CODE W40,’‘COMPLETE QA W43,’‘COMPLETE USER TESTING W47,’‘FINAL REVISION W49,’‘BLOG RELEASE NOTES W50, and ‘UPLOAD v1.5 W51′ (although a Christmas release may be unduly harsh on your development team).

The idea is to give focus your very busy people on the few items — Objectives — that really matter. An while Objectives are mostly vague, Key Results use specific action verbs — ‘COMPLETE,’‘HIRE,’‘ANNOUNCE,’not ‘Continue,’Investigate,’‘Study,’etc. — so that there’s no ambiguity as to what ‘Done’means.

There’s much more than can be spelled out here. And many ways to skin this cat. (Apologies to cat lovers.) Finally, while this is an example of a process to help keep the company’s execution on track, there’s another dimension (which I’ll address in a subsequent post): people management. They’re not the same.

Especially in these dark days, this is intended to get you thinking about taking real steps to get your team to pull together and sharpen execution — even if there are only two of you. Exercises like this force you to articulate your thinking, and you’ll be surprised how often your partners, whom you talk to every day, are surprised.

If you’d like to receive a more detailed description and examples of Quarterly Objectives and Key Results, email me at rcapece at technosailor dot com.

Disciplined startups recognized that management systems were important — for setting and hitting milestones, and for giving employees adequate frameworks to perform and feel good about themselves and their company. But more often there was extreme swinging of the pendulum that led to free-wheeling, hair-on-fire mismanagement, wildly missed targets . . . and lots of disgruntled campers.

Driven by the mantra of ‘first to market wins,’ dot-com startups were hiring way too fast, pushing employees way too hard (I remember one of our VCs saying he expected all employees to keep a sleeping bag at the office), and eschewing management systems entirely. In the end, a lot of folks went back to their big companies, happy for a return to structure, sanity, and their 401k . . . even with a pay cut.

The fact is, every organization needs a management system. It just needs to be appropriate for the company’s stage.

Much has been written about motivating employees. The admirable folks at web-app developer 37 Signals (makers of Basecamp and other popular utilities) espouse a four-day week and flexible hours, and for the most part, I ascribe to their philosophy. But I also have seen lots of companies provide increasing perqs to increasingly dissatisfied lots of employees.

What it gets down to is that providing the right amount of structure, goal-setting, and feedback — and communicating clearly — does more for esteem and spirit than all the free food and Friday afternoon keggers ever will.

After a six-month stint consulting for a startup to help it transition from a service to a product business, I joined the company full time as COO. It had about 20 employees. The CEO had good transparency — employees got monthly updates on progress and direction — but individuals had tasks, rather than goals, and no way of seeing how their roles fit into the bigger picture.

This is one of the key tenets of management: people want to know how their contribution fits in — how their efforts (along with their counterparts’) ‘roll up’in support of the company’s overarching goal.

One of my charges was to institute a planning and management system. And it’s honestly one of the most satisfying aspects of management — especially when you see people responding . . . when they come by at the end of the day to tell you ‘I really appreciate what you’re doing here,’or ‘we really needed this.’
Startups’management systems (and culture) are usually brought by the founders from their antecedents. Most of my management experience came from a manufacturing startup. My co-founder came from chip-leader Intel Corp. — along with a fairly high percentage of our initial hires — we essentially followed Intel’s management disciplines, policies, and procedures. In hindsight, it was one of the smart things we did. Intel was an extremely well run company. (I subsequently became a huge fanboy of then-CEO Andy Grove and his management books.)

I adopted Intel’s Quarterly Objectives and Key Results methodology, and have used it (with a few of my own variations) ever since.

To be sure, shipping a manufactured product requires a different discipline than the ‘just get it out there and revise it later’ strategy of web apps. But certain management principles are universal, and over the course of working both in hardware and software companies, I came to understand which ones they were.

One of the principles that always took a while to convince people of was the work-week calendar. Lots of them are available, but in particular, many manufacturing companies split the year up into four 13-week periods . . . usually with ‘4-4-5‘ months. (Mainly to ensure a ‘linear shipping’schedule, making it easier to hit quarterly shipment targets and to compare quarter-to-quarter performance.) But it’s something I found to work well in hardware, software, and Internet businesses.

Why? Because over time — it usually takes three quarters or so — the numbered weeks start to stick, and people in the company realize that it’s a lot easier to reckon you have 11 weeks till year end (we’re in Week 41 right now) than calculating the number of days between October 8 and December 31. More importantly, employees and managers get into a recurring 13-week rhythm, which has certain psychological advantages.

And why is it so important to think in terms of quarterly performance? Whether you’ve just got plans to make money, hit revenue and profit targets, and grow — or serious ambitions to become a public company (IPOs will return someday!) — ‘making the numbers’each quarter is a discipline that should begin early.

Next post: The Basics of the Quarterly Objectives process.

Convinced that we could get all our creditors’cooperation without formally filing for protection under Chapter 11, we proceeded nonetheless to get experienced professionals on board. The workout team was assembled — insiders including myself and my CFO, our chairman, a bankruptcy attorney from our law firm, and a workout specialist, Ralph. Except for the two pros, we were all new to this . . . and school was now in session.

Lesson No. 1: Make sure you have the right workout team.

Ralph was not what you’d expect. Rumpled, belly-over-the-belt, pinky ring. (We later concluded his approach was effective because the creditors would never confuse him with being a ‘slick suit’out to take advantage.) But we were awed by his work. Like Harvey Keitel’s character in Pulp Fiction who masterfully wipes away every trace of a grisly crime, then goes out for breakfast — Ralph was more artisan than artist. With speed and precision he wended through our 97 creditors, triaging them into three buckets, getting cooperation to his plan — in writing — from nearly all of them in a matter of weeks. The guy knew what he was doing.

He also knew well the brick wall that lay ahead: the largest, secured creditors. When it came down to it, it took just three of the 97 creditors — the owner of our million-dollar testers, the bank holding the lease on our 100,000-square-foot facility, and our primary equipment lessor — to nix the deal.

Lesson No. 2: Large secured creditors know that their chances of recovering debts depend on a company’s survival — and chances of that are much better behind bankruptcy law’s skirts.

By law, the big guys had the power to force us to file . . . and they did. Lord knows I wanted to avoid it, from a personal standpoint. See, the secured creditors had also sealed the fate of my founder’s shares, roughly 15% of the company. Why? Because in a Ch. 11 reorganization, all bets are off — the capitalization chart is wiped out, and a new one gets put in its place. If not handled properly, this could be a big problem for your stock-incentivized employees. (Remember the importance of those neurons.)

Lesson No. 3: Take good care of the workforce.

Without any cajoling, the Board agreed to reconstitute employee stock options — a design engineer with options for 1% of the old company would end up with 1% of the new company. Simple, straightforward. As for me, I was at the mercy of the Board, who couldn’t see their way clear to reconstituting my ownership entirely since, despite all good intentions, I was a member of the management team that presided over the meltdown. (Unlike today, people once believed in management accountability.) But as the saying goes, 2% of something is better than 100% of bupkus.

What followed was nothing short of a casebook classic on Chapter 11 — if not a Guinness record. The company went in and out of bankruptcy in 88 days. We had done everything right, and it was a beautiful thing.

Lesson No. 4: Provide a sufficiently creditor-approved plan to the bankruptcy judge on the day you file.

More often than not, companies in trouble file for Ch. 11, then take three months or more to develop the plan, only to have it stall somewhere between the bankruptcy judge and disgruntled creditors. We had nary a complaint from any of our creditors, and here’s why.

First, the 74 smallest ones — those owed less than $10,000 — were paid 100% on the dollar. (Ralph knew the little guys would make the most noise, and it’s never worth the trouble to pay them anything less.) Total paid to this group: $294,000. The next class of creditors (the 19 owed between $10,000 and $100,000) would receive 75 cents on the dollar. This group too had no issues. Total paid out: $343,000. Lastly, the four secured creditors — owed a whopping $4.2M — were paid 10 cents on the dollar, plus given low-priced warrants to purchase shares of common stock. Everyone took the deal (technically, they had to — once the judge’s gavel comes down, it’s the law), with the exception of the bank, which had a policy against owning shares in customers’companies, and forewent the warrants.

New money was of course equally crucial to the plan. Most — but not all — new funding came from existing investors. The proposition was: “œYou’ve already put $4M into this fine company, which bought you 15%. You could write it all off “¦ but why not put an additional $400,000 in, and reclaim your 15% in the newco?” It worked with every investor except a few of the European ones (Europe still hasn’t fully grasped the Ch. 11 concept). In all, $2.5M of new money came in — enough to get the company through to solid profitability and positive cash flow. (Don’t forget, we were growing our business of building and selling chips all through the process. Customers have less of a problem with it than you might think — after all, who of us didn’t fly Delta or United through their bankruptcies?)

Lesson No. 5: Do your best to maintain morale, but remember — the employees that stick around through tough times are the only ones you should have hired in the first place.

The final elements to consider were the intangibles — company culture and morale were big ones. (Don’t underestimate the importance of changing the logo!) We knew at this point that it was really just about the employees, now down to 75 die-hards. True, despite every effort to retain them — the ‘Oh, Thank Heaven . . .’ t-shirts (playing off the popular convenience-store jingle at the time) were a touch I’m especially proud of — you’re bound to lose a few. But as the manager of the team that remained, I still get misty thinking about the quality, perseverance, and attitude of the group.

Filing for protection under Chapter 11 is a grave decision — and not the right prescription for every ailing business. Our company was a superb candidate because it had the right fundamentals — strong demand for its products, a solid asset base in intellectual property, willing investors, and leadership capable of boosting morale while managing the day-to-day business.

So here is the tale — of a company that ran up expenses too far ahead of revenue, hit the wall, then succeeded with a ‘do-over’by putting one of America’s great pieces of legislation — the 11th Chapter (Reorganization) under Title 11 (Bankruptcy) of the United States Code — to work.

________

The old regime ousted, my new CFO and I (promoted to COO) — several months into a salary moratorium, since the company was down to the very last of its cash — were on a mission to raise fresh capital. First on our list of VCs was NEA, and we were hiking up Knob Hill (ridiculous, but we were trying to save cab fare) to the exclusive San Francisco club where the Sand Hill Road VCs had deigned to meet us. We hurried through the massive portico, past — was that a cellist? — down a triple-wide marble staircase to an enormous room with nothing but an easel and elegantly set table.

But we weren’t to dine that day.

The VCs motioned to us just as lunch was being served, and we earnestly began the pitch for our hot computer-chip company. But by the time we realized we weren’t getting fed, it was pretty clear they weren’t going to invest either.

What we did give us that day was a lesson — etched forever in my memory of pristine crystal and gilt-edged china on crisp linen. (Was it because it served as so perfect a metaphor for the venture capitalist ideal . . . or were we just hungry?)

“œWe VCs like to pull ourselves up to a fresh table,” the lead partner said, stroking the linen and aligning his silverware for emphasis. “œYou’re going to have to clean house.”

We knew what he meant — or thought we knew. Though we had sales exceeding $1M a quarter and referenceable customers like Compaq, we had problems. A burn rate that would snap your neck, for one — $750k a month, anchored by a 10-year building lease and a crushing debt load. Then there was that undigestible shareholding of my megalomaniacal co-founder, whom we had forced out only weeks before: an eye-popping 35% ownership in the company.

These were problems we naïvely believed a fresh round of financing could fix. But the VCs had dosed us with reality that day. Despite how hard we’d worked to get where we were — endured three months without pay . . . gritted through laying off a third of our 175 employees . . . pulled off the board coup and CEO ouster — the barons of Sand Hill Road had declared us unfundable. To pound the table-setting metaphor one last time: we were the morning after a bacchanalian orgy.

The Unutterable

Back at our offices, none dared utter ‘Chapter 11′ outside the board room. It wasn’t shame we feared, but the booming voice of conventional wisdom: as a chip company, you’re dependent not just on intellectual property, but on know-how — an asset buried deep in the neurons of key engineers. Spook them, and you’re liable to ‘lose the recipe.’ (The semiconductor business is legendary for nuances wildly affecting yield, also known as KGD or known good die per wafer — the all-important metric that dictates profit and loss.) The thinking was, if you so much as mention Chapter 11, key employees flee, production goes to hell, and you’re left with . . . nothing.

Management and investors gnashed and thrashed over whether to file. While the Code was drafted with us in mind — keeping the creditors at bay and allowing you to conduct business as usual as you work out a plan to repay them — we couldn’t get over our fears. So, like others before (and many to follow), we came to an ill-informed conclusion: We’ll work everything out without filing for Chapter 11. Surely everyone will go along with it, since it will have a much better chance of success! Who wouldn’t prefer it to being crammed down by a curmudgeonly bankruptcy judge? It will be so much more . . . civil!

Only, it doesn’t work that way. Next in Part 2: Hard Lessons in the Chapter.

But then, the sky began to darken.

With each successive speaker and panel, the mood turned increasingly somber, until by the end of the afternoon — terrabanged by the announcement of the failed bailout and a Dow plummeting 777 points — somber turned to sober . . . and the ad/marketing audience lit out to quench the condition at Happy Hour.

Actually, Leonsis foreshadowed the day’s drama with his own sobering statement: “Today, a marketing person needs to be a mathematician,” and not the English major that he was. Everyone knew exactly what he meant, of course. It’s about metrics, and testing, and deliverables that can be measured — a theme echoed several times during the day. Google VP of Search Product and UX Marissa Mayer talked about nuanced A/B testing, where reducing spacing a single pixel-width — or bathing paid search in a field of yellow rather than blue — resulted in 20% to 40% more click-throughs. Launchbox Digital‘s Sean Greene had asked the panel he was moderating on ‘The Evolution of Advertising Models’ what the near-term effects of the dismal economy would be on ad spending, and the unanimous response was “a shift to what’s measureable” (hopefully, social ads in search of the elusive ‘engage’metric won’t be left twisting in the wind).

You could almost feel the room heave a collective sigh: “We know, we know — we need to bone up on this technical widgified social media stuff.”

But there was little letup. Avenue A/Razorfish‘s Joe Crump was nearly morose, acknowledging (in a talk aptly titled ‘Digital Darwinism’) that not only is the rate of change of technology overwhelming, but current org charts are woefully ill equipped to deal with it in creative organizations. By early afternoon, Adobe evangelist Duane Nickull and Clearspring CEO Hooman Radfar had applied a thick coat of glaze discussing SOA (tell the truth: did you know that it stands for Service Oriented Architecture?) and widget distribution strategies. Finally, the afternoon wrapped with a panel presenting a glass-half-empty outlook for interactive media employment that could be summed up as a grey-hair lament something like: “We need to hire more whiz kids that understand this stuff . . . but they’re a dickens to manage.”

Good thing we entrepreneurs are optimists. Why, there must be a pony in this pile!

The great words of someone famous come to mind: Out of adversity comes opportunity (or is it creativity?). Either way, there’s a dislocation, a discontinuity, a gap that begs for a solution. Here, the gap is agencies’and marketing departments’inability to keep up with technology of social media. So might be the solution?

Maybe training.

Maybe analytics tools or services.

Maybe app-building for hire.

Now, Crump shouldn’t actually be complaining — of Avenue A/Razorfish’s 500 employees, 200 are technical. But I’m not sure any of the best and the brightest (you know who you are) want to bury themselves in an agency with a salary and long hours.

So what’s the entrepreneurial play here?

Although VCs have historically shied away from service businesses — the multiples were usually far greater in product businesses — that scenario has changed. And in fact, it could solve several problems at once. If you’re dismayed that VCs want you to recite your revenue model (even though, like me, you expect you’ll figure it out once users have embraced you), there could be an alternative to raising money altogether: How about getting paid for what you love to do (and do well)? If in the course of providing your service, you’re also building a product, or developing some intellectual property (IP), then you’re in fact building equity in a service business.

I wrote about BuddyMedia creating ‘branded’Facebook apps (They actually received funding from Bay Partners and others), and they’re a good example of ‘filling the gap’for big agencies. But a better example may be Set Consulting. President/founder Jared Goralnick is passionate about productivity, and Set gets paid to improve clients’productivity. But in the course of doing his work, Goralnick also built a product — AwayFind — aimed at avoiding ‘email bankruptcy.’Voila! . . . a cashflow business, with an equity kicker.

And no VC. Ironically, when you get that combination working for you — and you really don’t need the money — is when the VCs come a-knockin.’

I singled out Union Square Ventures‘s Fred Wilson in my last post as the archetype of the new early stage VC. Others are blazing the trails as well.

The old-school meetings with VCs were just that (actually, more like going to the principal’s office.) I remember heading weak-kneed into the Sand Hill Road offices of Institutional Venture Partners, Mohr Davidow Ventures, and others, ushered into a gorgeously appointed conference room (usually by a gorgeously appointed receptionist), setting up, waiting. Neatening up our stacks of business cards. Waiting. Sometimes treated with dignity, other times . . . not so kindly. Sometimes assaulted with questions . . . sometimes no questions. Then, getting neither a yes nor a no, following up with interminable emails to determine interest.

I mean, what was that all about?

Not all meetings went that way. There was an occasional quick ‘no’which was always appreciated, especially with a reasonable explanation. (Although the old saw goes: “Whatever reason you were given for a ‘pass’is never the real reason.”)

But the trailblazers are taking a different tack: “Heading to ShakeShack for lunch . . . Line is short,” Wilson twitters. “Going to OpenCoffee Cambridge this morning. Everyone welcome. Join if you can,” tweets a Boston VC. “Talking about database issues.” Could it be we’re headed towards a brave, new world, where lions really do lie down with lambs?

Well, OpenCoffee Cambridge was launched by a VC and an entrepreneur.

It bespeaks a wholly different process. Instead of ‘buzz’around a hot new startup with VCs positioning to get in on the deal, there’s a gestation. Foundry Group‘s, Brad Feld, part of the new breed, blogged about the three-year courtship (okay, maybe it’s an elephant’s gestation) that led to his investment in Gnip, a ‘glue’application that notifies data consumers (plaxo, lijit, etc.) as new data spews from data producers (digg, flickr, etc.), so as to decrease latency. Disclosure: Technosailor Lead Editor Aaron Brazell consults full time with Lijit, an investment company of Foundry Group.

The point is, Foundry forged (sorry) a relationship that eventually found its way to an investment. This is the new process. And it begins with a dialog, rather than a pitch.

Along those lines, I had two-hour discussion (over beers, no less) with a local VC after he gave me a ‘no.’ Will it remain a ‘no’? I believe there’s a chance to convert it . . . but it would only be once I’ve demonstrated sufficient progress with my app and he’s gotten to know me – or more to the point, my capabilities: overcoming obstacles, building my team, winning customers. In other words, once I’ve sufficiently reduced risk (that VC characteristic will never change).

The trend is towards openness and accessibility, and we need it to happen in DC. Like any of these things, OpenCoffee needs a critical mass, starting with a healthy dose of entrepreneurs. Paul Worsham, who (along with Kady) generously organizes the DC Social Media Meetups, was working on pulling together OpenCoffee, as well . . . but our last one was in May, with few attendees. Last night he graciously invited me to take a stab at it.

I’d be happy to do it – but only if I can anchor it with a VC or two in attendance. I’m serious about this. (Lionhearted VCs, consider this an open invitation) shoot me an email at rcapece at technosailor dot com). I will also do a targeted outreach to local VCs, and will report my progress in a subsequent post.

Let’s get the dialog going.

We don’t need a celebrity here in DC. But it would be great to have a venture capitalist with a fraction of Wilson’s passion, commitment, and drive. It’s not so much that he’s an investing legend. . . what’s amazing is his sheer devotion to his companies, his followers, and everything Web 2.0.

By his own admission, Wilson’s had his share of bad calls. But most of that goes back to The Bubble, when he was at Flatiron Partners. I was at a startup (liveprint.com) pitching Flatiron in 1998. I met Wilson briefly back then, as well as the firm’s the most vocal partner, Jerry Colonna; the partner who ended up leading our investment was Bob Greene.

Flatiron’s highest-profile investment was probably deliver-to-your-door service Kozmo.com. I remember getting a Kozmo.com hat. Kozmo raised $100M, before its legendary implosion. I left liveprint.com after the first Flatiron (~$3M) round, before an additional ~$40M bought all those Aeron chairs, and the chairs were acquired (along with the rest of the company) by Kinko’s in a transaction so complicated that no one knew what they had until a check arrived in the mail.

According the NYT profile, Flatiron wrote off a third of its investments.

But Wilson returned, humbler and smarter. To me, he’s the quintessential early-stage VC. Why? Because he’s so focused on his space, and passionate about his companies. True, he’s been accused of shilling for them . . . but from an entrepreneur’s standpoint, the benefits of having such a high-leverage, high-profile investor on your team is literally worth millions (not to mention what you’ll save on not needing a PR firm.)

Just watch Wilson work. He uses nearly every one of his portfolio company’s products — twitter (6,571 follow him @fredwilson), disqus, tumblr. Add these to his blog (A VC), and he’s one of the most prolific posters on the planet.

DC needs a Fred.

Or maybe a Josh. Josh Kopelman, though less vocal than Wilson, has put his money where his mouth is, on behalf of the venture fund he founded just outside Philadelphia, First Round Capital. In fact, First Round has made no fewer than 57 early-stage investments, nearly triple USV’s portfolio.

Or maybe a Bijan. Or a Brad.

And this isn’t just about attitude. There are clear metrics here. Several mid-Atlantic firms talk about their ‘seed’programs. But the litmus test is: name the ones routinely doing investments in the $250k – $1M range. For most firms, the funds are just too large for the math to work — invest a $250M fund $500k at a time, and you end up with 500 startups in your portfolio. That’s a helluva lot of board meetings.

Which is why First Round usually doesn’t take a board seat. (Most VC firms have a six-seats-per partner limit.) This is about volume (or more accurately, statistics). Quicken the cycle of investment, trim the due diligence, invest more with the gut . . . and let the odds work in your favor over a larger statistical sample. Though time will tell, based on initial exits, it seems these guys are doing pretty well.

So while it’s good to see them on the East Coast (Silicon Valley has sufficient players that none is noteworthy) — and Baltimore, DC, and Northern Virginia are certainly within their flying radius — it’s just not the same as having our own local VC hero. I mean, how sad is it that a local meetup was organized for DC Fans of Fred? (Full disclosure: I was there, and met some great, like-minded entrepreneurs.)

And perhaps more than anything else, these guys get Web 2.0. Unlike most VC firms, USV is not only not afraid to invest in pre-revenue companies, they will invest before a revenue model is even figured out (twitter, tumblr, disqus). So who out there will claim this mantle? Anyone? Anyone?

For most, not good. First of all, BuddyMedia, Context Optional, and a few others are blazing this trail because traditional ads — display and links — don’t work, which is why (as we all know) there’s beaucoup excess inventory and CPMs are in the crapper. Second, consider this: branded apps are all about engaging users, and those 250,000 active users playing Rundezvous (the game BuddyMedia built on behalf of New Balance) are, uh, not on your app.

Third, what they’re doing contributes more to the overall signal-to-noise problem than you might expect. Not so much that they’re adding to the 32,000+ Facebook apps anywhere near what 400,000+ registered developers are piling on each day, but because each branded app media program includes buying engagement — Lazerow averages $1/user to get them to show up. (Oh, you hadn’t planned on spending $100k to seed your app?)

Finally, it stands to reason that these guys will get better at what they do. Since Rundezvous players earn ‘AceBucks’redeemable for actual (not virtual) running shoes, a whopping 57% of users came back at least nine times. BuddyMedia developed a Facebook version of InStyle magazine’s Hollywood Hair Makeover — an app that lets you swap your face with a celebrity’s, so you can see how you’d look in their hairstyle — which had negligible traffic on InStyle’s website.

At O’Reilly’s Web 2.0 Expo in New York this week, Lazerow provided Makeover’s latest Facebook stats:

➢ 185,000 installs in 6 weeks

➢ average time on app: almost 7 minutes

➢ 47% of total user base has returned to the app more than 25 times

➢ the average user tried 3 hairstyles

Some pretty decent numbers. And, unlike traditional ad campaigns, this one hints at something that just could be perennial. (Women were even printing out the results and taking them to their hairdressers.) Dang, if there were a second-order viral component to it (more than than just telling your friends), it could kill.

So what’s a social app developer to do?

Well, it still starts with building a great app with true viral attributes, getting it up, testing, tweaking — nothing’s changed there. But if it’s revenue you’re after (duh), time for some new creative thinking. We’re working several angles for our startup, CHALLENJ, a social gaming utility (under construction). Here are two — maybe one fits what you’ve got.

1. Can’t beat ‘em, join ‘em. If you’ve got a themed game, why not pull a BuddyMedia? Get your own advertiser, and turn it into a branded app. (Try to think of it as a sponsorship . . . rather than selling out.) This, of course, would be easier if you’ve already launched and are putting up some respectable numbers.

2. Market your engine. Less applicable to most maybe, but what we’re working on is something has some underlying functionality that’s not only useful for us, but would be useful to BuddyMedia and their ilk. Without going into detail, it’s analogous to, say, a polling app, or better yet, the functionality of social-debate platform CreateDebate.

Where there’s a will, there’s a way. At the Social Gaming Summit in San Francisco this past June, Acclaim Games‘ Chief Creative Officer Dave Perry cited 29 business models for games.

There is still success to be had — and money to be made — if you’re creative. Time is not on our side, however. With apps that enable non-programmers to build apps now emerging — lolapps recently raised $4.5M to do just that — it’s only going to get noisier out there.

A session today of great interest was Joshua Schachter’s ‘Lessons Learned in Scaing and Building Social Systems.’ For many of us, Schachter lived the great American Web 2.0 dream:

Step 1. Build an app (del.icio.us) in your spare time, and operate it from your apartment (server ‘farm’below);

Step 2. Sell it to Yahoo! (rumored to be in the neighborhood of $20M . . . nice neighborhood);

Step 3. Retire (he now devotes his time to playing XBox).

I can certainly relate to that!

Schachter’s talk on scaling wasn’t technical — he was referring to scaling the features, the very functionality of his social bookmarking site del.icio.us (now delicious.com).

Interestingly, Schachter built the application to solve a problem he had — he had a Word file with thousands of lines of links for all the web pages he bookmarked. Thus, the application’s initial value was utility. And that’s what Schachter would provide the world — a useful site for keeping track of favorite sites . . . and making your friends aware of them.

And for a couple of years, that’s what it did. But when the number of users got substantial, features surrounding the network effect eclipsed the site’s original value. Achieving a critical mass of users (file this under ‘high-class problem’) suddenly transformed the site’s functionality from a utility to a social application, giving Schachter a whole new set of issues to deal with — customer service, spam, kiddie porn. (“You see it all, when you get to scale.”)

Ultimately (for all of us), the focus of scaling shifts to revenue. Being ad-driven, for del.icio.us, that meant getting to more and more users and pageviews. Subtleties start to really matter, such as encouraging sharing among del.icio.us users (he saw, for example, that a disproportionate number were checking the ‘keep private’box; it dropped dramatically when the label was changed to ‘do not share’— as in, ‘what, you don’t want to share your toys, Johnny?’). Bingo.

“The problem, however, is that these features impact one another. Optimizing revenue often comes at the expense of user satisfaction — think of ad-splattered sites, or Evites that force you to visit the site, rather than providing details of the invitation in the email.”

Here are a few other nuggets:

Make your product self-marketing Provide as much functionality as you possibly can before asking people to register.

Want harmony on your site? Avoid conversations Schachter really disliked the flame wars that comments generate, so unlike digg, delicious.com to this day has none.

Listen to your users We’ve heard it a hundred times, but the best founders (Flickr, 37 Signals, WineLibraryTV) all really do it — Schachter read and answered every customer email up until a year ago, when the volume got so great, five people at a Yahoo! customer-support center had to be dedicated to it.

Learn your ‘drivers of infection’ The two most dramatic traffic-builders for del.icio.us were the Firefox plug-in and the RSS feed.

Great lessons for all of us.

If you’re a coder, there are solid technical workshops. But even though I’ve started up several companies, today I made a beeline for the startup and financing workshops. Why? Mainly because the scene/climate is constantly changing. But also because, just as with a pitch meeting, you always come away with some useful nuggets.

At the Web 2.0 Expo in San Francisco in April, it was ‘Starting Up: Strategies for Financing & Growing Your Web 2.0 Startup,’put on by Rob Hayes of First Round Capital and Jeff Clavier of Softtech VC. Today, it was ‘Casing the Startup Joint: Real Life Examples of Startup Opportunities, Issues, and Strategic Decision Making,’presented by Albert Wenger of Union Square Ventures, along with Charlie O’Donnell of Path 101 (Charlie was formerly an analyst with USV).

[Fellow East Coast startups take note: Both USV (New York) and First Round (just outside Philadelphia) are early-early stage VCs. Both are on my radar for CHALLENJ -- but despite what First Round says about investing on Powerpoints, I don't plan to approach either until our app is built; USV makes it clear they want something working.]

Here are a few random nuggets from today:

- Shift from hard-coded documents to live ones Although crafting a clear (if not pretty) business plan is still advised (if for nothing else, it gets everyone in the company on the same page, so to speak), VCs would rather see your competitive analysis in a wiki. “It also tells us that you have an ongoing process for tracking competitors,” according to USV’s Wenger. And if your .ppt deck doesn’t change nearly every time you deliver it, by definition it’s stale.

- Reduce your risks before applying Be mindful of the four buckets of risk before you approach any investor: 1) Team, 2) Technology; 3) Market; and 4) Capital Requirements. Says Wenger: “We can handle one — maybe two — but that’s it. (I’m working on my team — any killer PHP coders out there?)

- Rejection by one VC firm has no reflection on your business Suck it up. Firms like USV do fewer than 20 investments a year (and some of them are later stage). If they pass — presuming you’ve been sufficiently persistent — move on. (The corollary to this of course is, if 40 firms pass on your deal . . . it’s time to retool.)

- State of angel investment The thin g to remember — and it’s good news — is that the number of angel investors is 10x the number of VCs. But you have to work a lot of venues to find them, since most don’t hang out a shingle with wings on it — uncles, friends of the family, doctors, they all count. The bad news? When Wall Street flails (as it’s doing right now), even the wealthy get skittish. As O’Donnell puts it, “The rich tend to write fewer checks when they feel less rich.”

Lastly, it’s always interesting to hear the war stories from other startup CEOs. To be honest, I’ve made enough mistakes that I don’t learn all that much in these ‘true-confession’sessions . . . but there’s something comforting in knowing that really smart people also did some dumb things.

But from the workshop sessions on the first day — the serious, four-hour kind (I chose ‘Strategies for Financing,’which included startup CEOs telling their war stories) — to the evening ‘Launchpad’startup pitch competitions, to the interviews with the likes of Max Levchin (ex PayPal, now Slide) and Marc Andreessen (him you should know) — to the Booth Crawl (a sort of ‘Weed & Feed’where you walk around the exhibit floor sipping beers and margaritas) — it was positively giddy.

Now just so I don’t sound too much like a starry-eyed fanboy, the real stuff of O’Reilly is in the main sessions.

Pay attention. You will learn about viral acquisition (it’s about nuance, and testing — did you know that RockYou! (creators of Facebook’s SuperWall), with 100M monthly uniques across all its apps, sometimes does as many as 30 releases a day? That they A/B test samples for as few as five minutes? (Guess that makes sense, when you have 100M users.)

And you’ll learn about retention, cohort analysis, monetization. Those were just a few factoids, from a couple of sessions. Multiply that by four days, five sessions a day, and nine parallel tracks! (The worst part of it all: your inability to be in multiple places at once.) Sure, you can get the Cliff notes — a lot of the presentations are available — but seeing it, tasting it, discussing it at the parties (oh, yeah) . . . is indispensible.

There was much more than I can go into here. All I can say is, figure out which one makes the most sense, and find a way to get there.

And if you still can’t seem to justify it, maybe this will convince you . . .

End of the Booth Crawl, my last day at the conference, getting ready to board BART for the red-eye. Beers and blenders at every booth . . . but no one seemed to have any food. Until a nice young lady offered me an extra sandwich she had (I promise never again to refer to them as Booth Bunnies!). I sit down to eat it, and there’s all this commotion around a booth. Turns out, the Make people were doing free laser-etching of phones and laptops. (I’ve seen places charge upwards of $100 for it.) Two minutes before the show closed, thanks to a nice gentleman who offered me his place in line, I had annotated a little piece of history.

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On BART, I drunk-twittered the world that I had marked my virgin O’Reilly experience with a ‘tattoo.’And it’s just as permanent — which means, for my startup, failure is not an option. I’m reminded of that every time I take out my MacBook Pro.