HACT

Huslage's Thoughts

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The VCs have lost their minds.

For the longest time Venture Capital firms have said to their CEOs and partners: “Don’t worry about cash flow or profitability, just get it right.” This is absurd on the face of it from the perspective of an outsider who tends to ask the question “What kind of business do you have if you don’t make anything or make any money?” From the CEO’s perspective it seems like a gift horse which they definitely won’t look in the mouth. From the VC’s perspective it sounds like payday.

The view that the VCs put forth for so long was extremely loaded. On the one hand there was the feel good “We’ve got your back” sentiment that made CEOs and employees of their companies feel like they had the complete support of their investors. On the other hand it allowed VCs to increase their leverage over a very short amount of time. This is no doubt a sinister play on the VC’s part. But to illustrate this, I need to tell the story of what I see as a typical startup that these guys fund.

Say I start up Xcorp to make the next great web application. I have no cash of my own, but I have a super idea and a few folks who will come along on this adventure with me. The “team,” as it were, puts together some powerpoint slides and a “business plan” (sometimes these are one-and-the-same) and takes off for Silicon Valley to hock their wares. At this point our new company has no product, but definitely some slick presentation fu.

After countless meetings, hiring some Silicon Valley lawyers and signing term sheets the VC deposits some ungodly amount of cash in our bank account. And then the fun starts. The VC comes to our newly acquired hipster office space and tells us not to worry about making money, just make something that people want to use. Follow through with your vision. We’ll stay out of the way.

After a few months, Xcorp has a product that is launched to the world. Since we don’t throw lavish parties anymore (that is SO 2001) we just grab some beer and open the doors to whomever walks in to check things out. Everything is going great. We’re about halfway through the cash that the VC gave us and they are “thrilled” at the amazing progress we’ve made. On the first week 100,000 people sign up to use our product that is already starting to revolutionize things. We hack on.

A few months later the VC firm asks us to come to Silicon Valley to catch up and show everyone at the firm our progress. We buy tickets (expensive last-minute ones) and jet on out. We hang out at their posh Palo Alto offices for a couple of days. The VC folks give us warm fuzzies and watch us hack on the stuff for a while. Suggestions are made that we talk to this or that person to get more help and to make things move faster. A recruiter is hired back at home-base to work out deals with some folks. We have 250,000 users now and things are feeling really good. The only problem is that we need more servers to make sure the service stays solid.

8 or 9 months into this adventure we have 400,000 users, 20 servers, 10 employees and zero revenue. The cash will be gone in 4 months or so. Back to Silicon Valley to ask for more money. Another transfer of cash is made, new investors are welcomed to the fold and my own personal stake in the company has gone from an initial 75% to somewhere around 50%.

The new folks come out, sit down with us and ask us when we’re going to start working on revenue. We say we want to make $2m this year, down from initial projections because of external market conditions and slowing adoption. This makes them a bit unhappy, but they go with it because they trust us. After all they invested in the founding team, not just the company.

A year in and we have enough cash to last us for another two…at least on paper. We’re at 30 people, 500,000 users and have made about $20,000. At some point we realized that our usage statistics were wrong and that our user base…those who actually use the product…is somewhere along the lines of 50,000 people. Online advertisements are purchased and it’s time to see what that 5 person marketing team can do to earn their keep.

3 months later and our actual user base is up to 150,000 and we’ve made an additional $20,000. The VCs are frustrated. They send in the clowns to clean up things and get us back on track. Ultimatums are made and we are forced to lay off 15 folks, including one of the founders. Further tranches of money are canceled pending our getting our act together. We secure a bridge loan from one of our sympathetic investors so that we can stay in business.

These actions take their toll on my personal stake in the company. I’m now down to around 40% of the company. Additionally, I’ve bought enough Tums to fill up my house twice over and my family hasn’t seen me in weeks.

One month later and plane trips back to Silicon Valley become routine. Meetings with investors and potential purchasers of the company become de rigeur. We have layed off all but the most important folks…down to 5 people. The office has been closed and people are working from home. The user base growth has plateaued. Life is hard.

A deal is struck that brings us to the end of this adventure. We are purchased for an amazingly paltry sum by a third-tier search engine. This may pay off my back taxes and the back payments on my car. We work for this company for a year and then it’s off to do it all over again.

Unfortunately this is an all-too-common story in the tech world. I see it as completely broken, dehumanizing and plain wrong in a lot of ways. Venture Capitalists have gone off their rockers. They leave little room for allowing companies to truly innovate. They “guide” companies to do things that make no long-term business sense. They take more equity away from the founders every time something goes funny. There is no reason for this nonsense. They force good people to do bad things in the name of profits that have very low probabilities of appearing because of their expectations set in the beginning. They treat PEOPLE as objects to be “dealt with”.

Up until recently, VCs have been going about their business as normal: raising capital and dispersing it to a decreasingly successful or interesting portfolio of companies. Things have profoundly changed over the past months. They are still happy to give the axe to some folks. They are still happy to take more equity from the founders based on short term budgetary constraints.

Sequoia Capital recently gave a presentation named “RIP: Good Times” that tore down many of their own widely held beliefs. This is really very interesting in many ways. It exposed them for the cronies that they are. They are cynical bastards hell bent on making money without any regard for their companies or, more importantly, the folks that work for them.

On slide 47 entitled “OPS Review” there is a bullet point that says “Decrease headcount for next version” and later on “What payments can be deferred.” These points illustrate how disconnected these people are from the realities of life. In an economy where BANKS don’t trust each other, how can one be expected to entrust their money to a firm that so obviously wants to defraud their accounts and devalue their human resources. All of this in the false hope that somehow a rabbit will appear and make their portfolios profitable.

This was supposed to be a piece about how Sequoia “gets it” and finally has decided to turn to profitability in its portfolio companies. As I thought about it more I saw the cracks in the system for what they were. I see this presentation as illustrative of a larger problem in this global economy we have created. The example of the VCs further illustrates to me that our economy is a house of cards.

We have created a monster that we can’t control and the VCs are but a small part of this. If we can’t trust those that fund our most innovative technology companies, then who can we trust? Credit runs both ways. Further confirmation of the ideas that the VCs espouse in this presentation just tells me how crazy we have gotten in this world. A few questions to these VCs are in order as a result of this revelation:

  • How much money does it take to make you feel valuable?
  • What is the ceiling for greed?
  • How much do you NEED to have and how many people’s lives do you have to destroy to get it?
  • What are the moral boundaries that must be crossed to make you feel like whatever you are doing is OK?

Honestly I have no clue as to the answers to these largely rhetorical questions. They are probably asked any time there is some economic crisis. We must remember that these crises happen as corrective actions to a market that has lost its way. I don’t think this is some Marxian devolution of capitalism, but I’m sure that the VCs are going to hurt for their excesses.

iPhone 3G Activation Nightmares, Courtesy of AT&T

Since Apple announced the 3G upgrade for its (now) venerable iPhone, I’ve been chomping at the bit to get one. I’m not a line waiter, so I ordered one through AT&T’s National Business Ordering department at the uncommitted price ($399 for the 8GB). I received the phone yesterday and was ready to activate it by the evening.

Since my employer, who pays my phone bill, and I have decided to part ways things have changed with regard to my mobile needs. I decided to activate the phone on my family’s account instead. With any other phone this would not be an issue at all. With iPhone things are different.

I called up what AT&T calls “Customer Care” at about 7pm last night to begin what I thought would be an easy process, after all I had the phone in my hand and it wasn’t configured for any account as of yet. Then things went wonky.

The first thing the agent said was “How did you get this phone?” I told her that I had ordered it via phone on my business account, but that I now needed to add a line and activate it on my family’s consumer account. She said that no one could order a phone and that they all had to be purchased at an AT&T Core store or from Apple. I retorted that I did exactly that and had the phone in my hands. She then asked for the SIM card number, did some things, and the iPhone magically came to life. Then my father looked at his phone and saw “SIM Card not Provisioned. Error: A05″. Not good.

It turns out that the representative had turned the iPhone into my father’s phone. This had the knock-on effect of deactivating my father’s SIM making it useless and leaving him without a phone until he could go to AT&T to get a new one. This would not do, as one could imagine. After making a brick out of both my iPhone and my father’s phone, the representative told us that she couldn’t add a line or activate iPhones. Nice of her to think of this before causing pain to the customer.

We then were transferred to the “Add a Line” department where they informed us that they couldn’t activate an iPhone either. This happed at about 9pm. I gave up.

This morning, I went to the AT&T store here in Redmond to get a new SIM card, which they happily provided. The man at the counter told me he couldn’t activate the iPhone or do anything else on the family’s account, which is based in North Carolina, because it was out of his market. He said I could call customer care and that they could activate the phone instead. This did not bode well for the day’s activation activities.

I came home and got on the phone to customer care once more. I got a person in their Austin call center who was convinced that I had picked up the phone at a retail location. No matter what she was told. This made me laugh with disgust. She transferred me to another person who talked to his supervisor and tried to make good, but he was told that he had to find the source of the order first. He couldn’t figure it out and transferred me yet again to Small Business Care to see if they could sort it out. This is when I met Don Blackmon. After 44 minutes on the phone I had finally found who I thought was my savior.

Don was a fabulous fellow who really did want to treat me with respect and believe what I had to say. He pulled up my order quickly (as quickly as the always slow AT&T systems would allow at least) and listened to my story. He tried to pull up the family’s account, but was hit by the barrier that exists between different disparate systems within AT&T.

He dug and dug through documents and procedures that are on the company’s Intranet to find a way to make it happen. Apparently there are certain things (which were not named) that could have gotten him fired, but actually helping a customer was apparently not one of them. After the digging he finally found a nugget of gold buried in an iPhone 3G provisioning document under a section entitled “Consumer Customer Requesting to Add a Line” that gave another phone number to call. We called.

Don stayed with me as we went through the standard voice prompts of AT&T’s customer care obfuscation mechanism (aka menu system) and were finally connected to a representative. She gave the same spiel as the other consumer representatives I had talked to and told us that I would have to talk to sales to add a line, but that she wasn’t sure that they could activate the iPhone since that had to be done in-store. I told her that I was in Washington and that the account owner, my mother, was in North Carolina and it would be nigh-on impossible for us to be in the same place at the same time to get this done. She went off to talk to someone and Don had to leave to handle other issues.

She came back and told me that sales could add a line, but they weren’t sure that they could activate the iPhone even if I gave them the SIM number. I had to go, since I had been on the phone for 1 hour and 45 minutes and I have an actual life with things to do and blog posts to write about my experiences. She gave me the sales department’s number and wished me luck.

There will be more to this story, I am sure, as I continute to try to activate a phone. Thanks Don Blackmon of AT&T’s Small Business Care department in Joplin, Missouri for doing what you felt was right and taking the time to make the customer happy. He is doing his job very well where others in his company are falling over left and right. Let’s hope his example propagates. More in a bit.

iPhone Ridiculousness 2.0

Well well well. It seems that AT&T hasn’t learned anything from the sham that was iPhone 1.0 activation for corporate users. Instead of allowing anyone to switch to the new iPhone 3G, they have decided to impose the über ridiculous 2 year upgrade cycle on everyone. At least they’re equally distributing the pain.

I inquired of friends at the company about how to switch my current Blackberry Curve to the new iPhone. They informed me that since the line I am using was opened just over a month ago, I am not eligible for an upgrade at this time. I’m on a corporate plan with 20 or so lines all sharing the same pool of minutes and every device has unlimited text and data, so we aren’t a tiny customer for them — not huge either, but good solid monthly revenue.

Not only am I ineligible for an upgrade, but they insist that they cannot simply add the iPhone 3G to our existing pool of minutes. Every iPhone must use the iPhone plans. Period. If a small company has an account like ours, that apparently means nothing to AT&T. My friend then suggested that I either open a new line or purchase the iPhone at the noncommitted price of $699 (!). Ridiculous. Again.

Of course the guy blamed Apple for all of this nonsense. Published reports say that AT&T and Apple no longer have a revenue sharing deal and that AT&T just buys the devices outright from Apple. Therefore Apple no longer has a say in the plans or deals that AT&T makes with its customers. Not to mention, Apple has completely ceded the customer’s initial experience with their device.

So in summary, our company gives AT&T a decent amount of recurring revenue and are, in most ways, their ideal customer that delivers very high ARPU month over month…for years. They aren’t willing or able to provide us with a device that we want because of politics and flawed marketing. If I were to open a new line under their new iPhone plans, they would actually be making LESS money from us than if they just added it to the pool. Go figure.

AT&T continues to not value its existing customers in any way. They force us to use devices for two years, regardless of whether the device was purchased on contract or not (mine was brought in and not purchased from AT&T). They are willing to lose money in the name of strange policies and contractual “obligations”. When will they learn that the customer just wants what they want and they should give it to them so that they can preserve their market and improve their reputation?

Netflix Confounds and Confuses

Read this recent email from Netflix:

Netflix Profile Queues Email

This makes exactly zero sense. How could removing a somewhat useful feature, that some portion of their user base must use, “improve the Netflix website for all our customers”?

When they launched this feature a while back I thought it was great and showed very forward thinking on the company’s part. Customization of queues based on different family members or users within a household is a great idea, and removing this feature without apparent replacement is quizzical at best.

Finally, when you are getting rid of something maybe you should actually copy edit the email that goes out to insure that it makes sense. Amazing. Enjoy your new, improved Netflix!

Can you fix it? Everyone else can!

I’m getting sick and tired of everyone knowing how to “fix” Twitter. There is little use for this speculation. They don’t need help, but they do need time and space to do what they need to do. The general health of a service has little, if anything, to do with input from users. The fact is that no one knows what the problems are outside of the company and no one will know them unless they get a job there. The site goes down and the world blogs about it, tweets about it, screams about it in podcasts and no one cares. Even Techmeme put a one-word post from the intrepid Michael Arrington that said “Twitter!” on their front page.

The latest of these “thought leaders” happens to be someone named Nick Halsted. On his blog, he outlines an overly complex, ill advised strategy to fix Twitter. Please note that if your “system” involves a graph that looks like this, you are probably doing something wrong:

tweetshards.jpg

People who live in glass houses…

Stop talking about it and go do some work, for heaven’s sake.

The "Data Portability" Hoohah

I wrote this as a comment to Nick O’Neill’s excellent post on the ridiculousness of the recent Gillmor Gang podcast on “Data Portability” between some of the Internet’s most vocal folks:

This is a discussion about protocols. The only difference between talking about “data portability” and email is that SMTP was designed by some geeks in a back room and this one is being designed by some geeks with loud mouths.

The truth of the matter is that they want this “ecosystem” to thrive outside of just Facebook, et al. They want social networking features everywhere because they think that it will make money. But it is truly only an echo chamber thusfar and the users just don’t care.

The fact still remains that no one has yet made a dime on any of this except the founders of these companies and they aren’t likely to any time soon. Protocols are all nice, but until there is a true financial incentive for companies to implement them they are only specifications.

Moreover this discussion is as much about egos as anything. The “Gillmor Gang” is only the tip of the iceberg of folks that think their opinion actually matters. It mostly doesn’t. The “rank and file” users of these services plain don’t care if they can sync Facebook, Myspace and Bebo or even use their profiles off-site. So this is, in my opinion, a bunch of self-important folks talking about nonsense in their ever-expanding fight to remain (become?) relevant.

The Internet is so much more than the sum of its parts or the protocols that it is based on. It is itself a community tool and has been since its inception. This seems to have been forgotten by these folks.

California's Gay Marriage Ruling

This is a great day for homosexual couples in California. The rule of law has prevailed and freedom for homosexuals is now guaranteed in that state as the Supreme Court overturned laws against Gay Marriage. But this is not why I want to write tonight.

The argument against the ruling by groups like the Family Research Council and others mindlessly twist the facts and take advantage of people who only partially pay attention to this issue. They assume that if you are prone to disagree with Gay Marriage that you will agree with them and don’t really give people all of the right information, or even allow them to intelligently consider the issue. In their press release, the FRC’s President Tony Perkins said the following:

“The California Supreme Court has taken a jackhammer to the democratic process, and the right of the people to affect change in public policy. Four judges discarded the votes of 4,618,673 Californians who approved the state’s ‘Defense of Marriage Act.’ Voters understand that children should not be deprived of a mother or a father.”

This is patently absurd on the face of it. The Supreme Courts of this country exist not to forward the will of the people. They are meant to be independent of the opinions of the populace. In this instance the court in California decided to overturn laws voted on by the people as unconstitutional. They did not say “the people were wrong”, but they said “the people are not lawyers”. This does not constitute a “change in public policy” as Mr Perkins says, but is an enforcement of existing public policy. The courts rarely, if ever, take an activist stance for the sole purpose of activism.

Law is difficult and nuanced. There is a reason that people go to school for many years and study as much as doctors to get Law degrees. These judges are some of the most seasoned lawyers in our country. To dismiss them out of hand demeans their status and their knowledge of the law in the favor of cynicism and sound-bites. This is irresponsible at best and reprehensible at worst.

I’m in no way saying that the opponents of this ruling don’t have a right to complain. They do. They should, however, take into account the institutions of this country and the intelligence of those that would hear them. Groups like the FRC claim to support families, but this sort of action only teaches children to blindly absorb what they hear and not think for themselves. Instead they should form an argument based on the facts as they see them instead of mindlessly attacking the court.

Pangea Day at Microsoft

I’m here at the Pangea Day screening at MSStudios’ Studio C. We’re awaiting the start of the event. The folks in LA just recorded the intro for the one-hour summary show and the set looks AMAZING. I’ll be updating this post periodically with my thoughts about the event.

If you aren’t at a screening, I hope that you will check out the streaming feeds on pangeaday.org and get around the “global campfire”

[11:06AM PDT]

It amazes me that this whole thing came out of a TED talk. The cynicism of the world, especially my little geek world, forgets the power of people so often. This event will no doubt be panned by skeptics and cynics alike, but the importance of things like this should not be questioned.

[12:00PM PDT]

The first hour of the show was absolutely stunning. The organizers of this event have done an amazing job finding films that really do get to the heart of the human spirit. From Carl Sagan’s wonderful story “Pale Blue Dot” to a film about soccer balls made from condoms. They have focused on “human universals” — emotions that we all share the world around like Love, Hope and Sorrow. Helping regain perspective and see the world as it is.

[1:00PM PDT]

This hour was much more intense. It started with a montage of people all over the world talking about their dreams and was followed by Gilberto Gil singing. After that, things were about identification of differences and why we might open our minds to ignoring differences.

Then we saw an amazing film from a soldier who simply told a story about a car accident in Iraq. It was simply a sequence of renactment photos with his voice, but the power of his words was unquestionable. We are all capable of feeling for those that we imagine are our enemies. We are all the same and there are no “accidents” in war.

O'Reilly Trademark Scuffle – Again

Every few months there are bloggers out there who seem to completely miss the point and see something of a power grab by our friends at O’Reilly Media. Daya Baran of Bay Area WebGuild penned the latest piece of incendiary nonsense. His post is a rant about how O’Reilly strongarmed WebGuild’s apparent sugardaddy Google into dropping their support for their upcoming event entitled “Web 2.0 Conference & Expo”.

He quotes an email from Google that explains the situation and why they cancelled their sponsorship, notably this sentence: “I asked you three times to change the name of this weeks event in order to maintain the relationship and since you did not budge we will no longer support Webguild.” This says it all to me. Google made a decision not to piss off a strong ally in O’Reilly. That’s it. Baran’s claims to the contrary are patently ridiculous.

Baran says “O’Reilly contacted these old-timers and asked them to demand that WebGuild change the name of our event and conference and to cease supporting WebGuild.” This is probably not the case. Even if it were, it was more than likely in deference to the work of WebGuild that it would have happened. Keeping things under the radar and avoiding the PR flack it got the last time they tried to enforce their intellectual property rights would be in their best interest, after all. Instead of suing WebGuild for using their trademark, they may have just decided to take control of things from the back-end and get the event cancelled. This course of action would not be ideal, but certainly more gentle than previously.

The big deal behind all of this is not O’Reilly’s “model which is based on withholding knowledge and gouging attendees, companies, and sponsors,” as Baran puts it. They are obligated by trademark law to enforce their trademarks. Trademarks become null and void as soon as they are ignored and try as they might, opponents of the “Web 2.0″ trademark will never stop O’Reilly from doing this. The company is a business and as such is required to do what’s in the best interest of its shareholders, not what’s in the best interest of the community at large. If O’Reilly’s intellectual property becomes worthless, that would be one of the worst things possible for the company and its shareholders.

One final note. Baran chose to get personal with my friend Tim O’Reilly. He said, “Presently, O’Reilly is promoting keynote speaker Saul Griffith calling him a “genius” and “a scientist and engineering polymath” without disclosing the fact that he is his son-in-law. When I met him, I cordially introduced myself, however, O’Reilly was a despicable individual. He is a dinosaur whose time has past.” This is completely useless and poor behavior. I wish that Baran would retract this statement and issue an apology. I understand that he is angry over the situation, but this action by Google, and possibly O’Reilly at some low-level, was most certainly not personally targeted against Daya Baran or any of the folks at WebGuild. O’Reilly is nothing if not a professionally run organization with very smart people who don’t deserve that kind of treatment.

“O’Reilly Hate” is nothing new to the company. Any company with a measure of success is bound to have similar issues, but this is getting ridiculous. They are a company and do what’s best for them. Sometimes that means being completely open and sometimes that means they have to make hard decisions. O’Reilly has been great at building community and they will continue to, but people shouldn’t take that as owning a piece of the company or even having a say in what they do.

[Updated] Clearwire Makes Me Sad – Part 2

You may have read my earlier piece on Clearwire’s strange bandwidth management practices. Shortly after I wrote it, a representative from the company called me to see what they could do to make my life better. I informed him that I needed better data regarding what they saw as my overuse of bandwidth such as usage figures, time of day, etc. I also told this gentleman that I would have preferred a phone call or email prior to their intervention. He agreed to “look into it with engineering.”The following day, he called me back and basically told me the same thing that the Level-2 technician had said earlier that week: Clearwire couldn’t give out “proprietary usage information” to me – even though it was my account I wanted usage for. He also said that he noted my account so that prior to intervention I would be notified and given a chance to more closely monitor traffic.As a carrot to them, I offered to closely monitor my traffic for the following month and send them the data for comparison with what their systems saw. He didn’t really seem to understand this, but said he’d call me back in a month for an update.I received a second email from Clearwire today:

A message from Clearwire – Immediate Response Required: Second Email 555335

Mr. Aaron Huslage, We have recently notified you regarding an issue with your account.  An excessive amount of Internet traffic on your Clearwire connection is negatively impacting other Clearwire customers in your area.  These issues can be caused by a virus or spyware on your computer, by having a wireless router with no password set or by using peer to peer/file-sharing and FTP programs.

Until the issue is resolved, we have modified your connection to the network.  Please contact us at 888-657-1456 as soon as possible so we can assist you in resolving the issue.

I haven’t gotten a phone call or email from the gentleman who called me, level-2 support or engineering at Clearwire, but my account has once again been throttled. This isn’t unusual in this day and age, since good customer service is more often than not just placating the customer and moving on with business as usual, but my situation is particularly interesting.

You see, shortly after my second phone conversation I unplugged my router from the Clearwire modem and switched back to Comcast until my DSL line is installed tomorrow. I left the modem on, but disconnected all ethernet from it. There is simply no way that I can be sending any traffic on this link. No bandwidth should be being used at all!

I was mistaken. Apparently at some point during all of these fits of changing things around, I switched back to the Clearwire modem. My opinion of the company has still not changed, but in all fairness I am using the bandwidth.

Indeed this is a conundrum and I hope that someone from Clearwire will see fit to refund the money I’ve spent over the past two months and cancel my account. I’m not particularly angry or surprised over this, but my bandwidth needs are such that I cannot handle incompetence from my provider or inconsistency such as Clearwire has shown over the past 9 months I’ve been a customer of theirs.

Wireless technology is great, but the wireless ISPs out there need to step up and play the same game as others in their industry or they will continue to fall like flies.