Outlook Ventures’ Meeting of the Minds on 6/14/05
Posted by direwolff on June 14, 2005
Had a chance to attend the Meeting of the Minds event which is held twice a year. It's hosted by Outlook Ventures, a venture capital firm that actively invests in promising seed and early stage next-generation software companies in the Western United States. You can read more about them at www.outlookventures.com .
The evening's topic was "Getting the Business Model Right" and was a moderated discussion with an intriguing group of founders, CEOs and other industry luminaries sharing their own experiences on – how are changing times and markets changing the models start-ups are following? Which consumer and enterprise software models have worked? Which business models have been abandoned or "morphed" along the way? What are the latest & greatest business models being tested on todays corporate and consumer markets?
The guest speakers addressed these questions and discussed the models that have made their businesses successful.
As part of the introduction, Cindy Padnos (Outlook Venture Partner) had a slide with a quote from Bill Sahlman, Professor of Entrepreneurial Finance at Harvard Business School. The quote read:
"When I think of a business model, I think of the interplay of the strategic and financial decisions that a company has to make."
This set the stage for some interesting comments from the panelists mostly addressing issues of strategy, as it relates to those running early stage companies.
David Alberga, CEO of The Active Network, explained how he moved most of the developers in his company to functional business units so that they could be tied to revenue initiatives rather than simply contributing to cost.
Gunjan Sinha, Chairman of Metricstream (formerly Founder of eGain and WhoWhere), explained that one has to be conscious of the point of inflection in any industry and act on it decisively.
Reid Hoffman, CEO/co-Founder of LinkedIn, touched on Google's innovation not so much being their ad model, but the fact that they required advertisers to get at least a 1% click-through rate or they would remove them from the network regardless of their desire to pay to stay. This meant for publishers, that Google advertisers performed.
Peter Thiel, Chairman of Clarium Capital (formerly Founder/CEO of Paypal), explained that the people you hire are more important than the business plan. Reason being that a business plan can change, but you need to have the type of people who can flow with these changes. He also highlighted the importance of listening to what outside people are telling you.
Reid also elaborated on Peter's thoughts by quoting fm Sun Tzu's "Art of War", "No plan will survive the enemy." Basically, he was explaining that in the early stages of a company and its business plan there's constant change until a plan that works is found.
In the area of how to get feedback on one's business model, Peter responded, "listen to those who will write you a check", as opposed to those who tell you how great the idea is but don't put their money where their mouth is. Gunjan raised the concept of the "3rd opinion", referring to the comments from industry peers of your management team. David preferred to listen to his customers, though he also felt that good advice could be obtained from the board of directors, but that they also needed to be kept abreast of the goings-on regularly so as to add value with reasonable comments.
There was unanimous agreement on the idea of never hiring consultants until the task is extremely well defined.
Peter also suggested that one has to focus on reality of the present and ignore sunk costs when making a strategic business model decision.
Reid also suggested that as part of getting the business model right you wanted to enlist two types of people within the company, writers and editors. Writers are the out-of-the-box thinkers who are prepared to consider all possibilities. Editors are the more critical thinking folks who prefer to criticize. The writers are better for coming up with concepts, the editors better at making these more realistic.
Finally, Reid suggested that when working through a business model, first determine the number of key things that have to go right in order for the idea to succeed. If there are more than a few items then the idea won't be effective. Then determine the likelihood that these things will go right.
There were no definitive comments on where business models were heading nor what the next generation of them would bring.
All in all, it was an interesting evening with good speakers sharing valuable advice from the front lines.