Lara'sMusings

"Very Personal Computing"

2010-05-18T12:36:00.001-07:00

My partner, Jean-Louis Gassee, has written a terrific piece about the cell phone market. More importantly, he does a terrific job of explaining why HP bought Palm (hint: it was more than Frank Quattrone's deal making prowess)

The link is here: http://www.mondaynote.com/2010/05/02/very-personal-computing/

This is definitely worth the read!

Goldman Sachs

2010-04-28T13:20:00.000-07:00

A very smart attorney with whom I spoke yesterday told me she read the Goldman Sachs complaint and that it's very narrow. With all of the digging that the SEC must have done, it's amazing that they came up with something so small (on a relative basis to what people expected or might have expected). So, does that make Goldman Sachs a buy? The biggest downside is potentially a class action law suit filed by wronged investors, or is it? I will be curious to know what you think.

An Economics Joke Serves as a Cautionary Tale

2010-04-26T10:54:00.000-07:00

Recently, I was speaking with a fabulous Chief Investment Officer for a large pool of capital (in excess of $10B). He and I discussed the financial crisis and what might be coming down the pike next: inflation, deflation, Goldilocks (everything comes out just right), strong dollar, weak dollar... and the strategies for investing should any of these scenarios come to pass.

When discussing the crisis itself, he commented that no one had modeled what would happen if housing prices fell. It all seems so obvious now, but the biggest issue with any financial model is (are) the key assumption(s). You can model anything, of course. Just tell me what the assumptions are! It reminds me of a joke I learned when I was an economics student at the University of Chicago. It's the only economics joke I know. Here goes:

A physicist, a chemist and an economist are trapped on a deserted island, and they have a large crate of canned food without an obvious way to open the cans. The physicist suggests, "Let's tie vines together, throw them over the branch of the coconut tree and use coconuts to force open the cans by bouncing the coconuts off the cans at the correct angle."

The chemist responded, "That's absurd. Let's use the sea water, some sea weed and the sun to corrode the tops of the cans off."

The economist averred, "You're both wrong. Assume you have a can opener."

Friends and Family, Angels and VCs

2010-04-20T22:13:00.000-07:00

Today I met with a friend who is starting an e-commerce company, and he needs $100,000 to get his site launched, attain some users and demonstrate metrics and traction. From there, he plans to seek angel or venture capital funding. Well, at the beginning of our conversation, he thought about speaking with some "super angels" now and has in fact done so. His observation was that the "super angels" (Jeff Clavier, Mike Maples, Ron Conway) have moved "up market" just as venture capitalists have of late. Translation: they are doing (relatively) later stage deals and putting more money to work in those deals.

My advice to my friend is the same as it would be for anyone similarly situated. Seeking friends and family for a company in need of $100,000 is the only way to start. To my friend's credit, he has done that and is half way to his goal. For the last $50K, he and I brainstormed about angels who don't necessarily have funds per se but are active and who have an interest in/passion for e-commerce deals. Finding such people can be akin to looking for a needle in a haystack. Frankly, that's where your lawyers, other service providers and friends who are plugged into the angel/venture capital ecosystem can be incredibly helpful. I also suggested that my friend use LinkedIn to find alumni of some successful companies in the e-commerce space i.e., Junglee, Amazon, et al. If you're an active LinkedIn user, it can be an incredibly powerful way to find people whom you want to meet.

Once my friend has some data and has confirmed that his idea has merit i.e., users, a model that is starting to show some color, going to super angels or venture capital firms with a penchant for early-stage e-commerce deals will be the right path forward. Just be sure to conduct diligence on everyone you take money from because you can bet your investors will be doing that on you.

Denial

2010-04-13T14:51:00.000-07:00

"Denial: Why Business Leaders Fail to Look Facts in the Face -- and What to Do About It" is the title of Richard Tedlow's new book. Last, night I had the pleasure of hearing Professor Tedlow speak about his book. He divided his book into to parts: those who got it wrong (e.g., Henry Ford continuing to make one model car and only in black) and those who got it right (e.g., James Burke, then CEO of J&J during the Tylenol poisonings - remember that?). He discussed the man who tried to point out the error in Henry Ford's thinking (after 8 pages of groveling). That man was fired. He also discussed how Andy Grove, then #2 at Intel, suggested to Gordon Moore, then CEO and Chairman of Intel, that Intel exit its MAIN business, memory, in the late 1980's. It's no surprise that organizations full of "yes-men" don't thrive, and it's also a rarity to have such organizations.

I had the pleasure of hearing Jamie Dimon speak about the advice he received from a CEO shortly before Jamie assumed the CEO role at BankOne. The other CEO said, "If you have ten guys reporting to you, make sure that one of them will always tell you the truth, no matter what." Jamie's response was, "If I only have one guy who will tell me the truth, I am going to fire the nine other guys and find nine others who will tell me the truth."

This all seems like common sense, but it is so... uncommon.

I am looking forward to devouring "Denial" even though I am sure that parts of it will be disturbing.

Job losses

2010-04-05T21:12:00.000-07:00

If you have never visited www.calculatedriskblog.com , you should check it out. The folks who write this are smart and always provide great data. The graph above is on their site and shows unemployment in percentage terms (vs. number of jobs lost). As you can see, this recession is worse than any other since the Great Depression in percentage terms (that is, percentage of jobs lost). The only good news is that it looks like we have bottomed out in job losses. The speed at which we recover is best left to the professionals. Personally, I think it's a slow recovery for jobs.

The Fish Stinks From the Head

2010-03-29T13:47:00.000-07:00

That's an excellent Chinese saying that is much more elegant than what I used to say (*&^! flows downhill). I now use the Chinese adage when referring to CEOs and the effects, both positive and negative, they have on their organizations. Whatever he/she does will affect the culture, all employees, and ultimately, I believe, shareholder value. By the way, this applies to both start-ups and large companies.

A couple of examples come to mind. One friend of mine was at a company in which the investors wanted to terminate the CEO. Most CEOs (and execs of all types) "want to eat lunch in this town again" and therefore, leave quietly. Not so with this guy. He fought it and stayed. In case you're wondering, that means that the investors caved. Once that happened, it was clear that the CEO only cared about one thing: protecting his job. As a result, every executive in the organization adopted the same philosophy. Engineering didn't meet deadlines and blamed Product Management. Marketing blamed Engineering and Sales, and so on.

A much more positive example was told to me by a friend who was an investment banker at Smith Barney during the time when Jamie Dimon was Sandy Weill's second in-command. On Wall Street, employees get dinner and a free limo ride to wherever they live if they work past 8 pm. Jamie left his office at 7:45 to take the subway and saw an enormous pool of limos waiting for their charges. He walked up to the first limo, knocked on the window and asked, "who are you waiting for?" He walked up to the second limo, knocked on the window and asked, "who are you waiting for?" And so on. All of those who had reserved their limos in advance of the magical 8 pm time received memos about company policy (and probably a bit more). Jamie is a CEO who knows exactly what is going on in his organization, and it is no surprise to me that he has emerged as a hero on the Street post-financial crisis. He has always set the right example for his employees, and everyone benefits.

So, whether you are looking at investing in something/someone or considering going to work at a new company, carefully consider the "head." It will tell you much of what you need to know.

Andrea Goldsmith: Tenured EE Professor at Stanford and much more!

2010-03-25T13:50:00.000-07:00

The San Jose Business Journal profiled my dear friend, Andrea Goldsmith, today. http://tinyurl.com/yzm39sa

Andrea is one of the very female EE professors at Stanford with tenure, and she's an inspiration to all who know her. She's an entrepreneur (founder and CTO of Sequoia-backed Quantenna), professor, terrific mother of two, author and fearless cook. Andrea will be honored as one of the 100 Women of Influence in two weeks.

After numerous disturbing posts in the blogosphere about the dearth of women in technology, it's great to have Andrea's accomplishments recognized.

A "Better Me"

2010-03-24T22:24:00.001-07:00

I met with a great entrepreneur yesterday, Sterling Mace, Founder and CEO of BetterMe. You can check it out at www.betterme.com (it's in beta). BetterMe lets people give and receive anonymous feedback to people in any context (personal or professional). If you're so inclined, you can find out what people really think about your sales pitch, humor or fill in the blank. Think of it as 360 degree feedback from anyone with whom you have interacted. The feedback is anonymous of course and is broken out as "positive", "negative" (perhaps "constructive" in the future and "fyi". Enterprises could certainly benefit from using this. Have you ever been a lower level employee in a large organization and wondered what the heck senior management was thinking because it should have been obvious to anyone with a triple digit IQ that X or Y was utterly broken? That is a rhetorical question... It can be hard for senior management to reach down into an organization and learn the real story. Perhaps by using BetterMe, people across levels and across functions could learn from each other. In my view, the key will be to make sure HR has nothing to do with the purchase of such software - else, I don't think any employee would use it. My hypothesis is that the functions that have matrix reporting/responsibilities are ideal first customers, i.e., Product Management.

Consumer Internet Pitches

2010-03-16T21:29:00.001-07:00

A good friend just sent me a great little company to evaluate. I love what they do - a new take on online dating. And no, this isn't Chat Roulette (thank God). They have really good traction and compelling numbers: time on site, users, growth, number of times users check in, paying customers, etc. What was missing is something that many, many Internet companies often miss. So, I thought I'd write a quick note about it. One of my partners calls this "useronomics." It's a very basic idea. What does a user cost to acquire? What is the lifetime value of that user? You may not have the answer to the second question for awhile, but it's something you should be tracking relentlessly. How do those "useronomics" stack up to comparable companies and situations? Know these numbers. Your investors will want them, and you should want to have them so that you know how good your business really is.

Switch Vision

2010-03-08T20:32:00.000-08:00

Tonight I had the pleasure of having dinner with Dave Chute, CEO of Switch Vision www.switchvision.com . Dave is an old friend of my husband's, and he's a very creative and smart entrepreneur. From an inventor's drawing on a napkin, Dave created a business plan and is building a great company.

As a technology investor, I don't see many businesses like Switch Vision, even though the Company is building its innovative sunglasses with a patented magnetic lens interchange system. The magnets make the lenses snap into the frames, enabling consumers to swap out lenses for various uses (think skiing, cycling, motorcycle riding or reading if you get a prescription lens through Switch Vision). The magnetic lenses "jump" into place in the frames. You choose your lenses based on your preferred activities and use cases. Of course you can choose colors and frames that work best for your face.

One of my favorite parts of what Dave has done is the packaging. The lenses come in plastic cases that are compact enough to fit in your pocket, and the glasses have a pouch that doubles as a lens cleaning material What a great idea and company! It's all so well thought out - from the go to market strategy to the consumer experience... If I could invest today, I would.

Failing Quickly

2010-03-02T21:30:00.000-08:00

I recently met with an entrepreneur friend of mine who has been working on an idea for the past year or so. It's in the consumer internet space, and it has numerous challenges because it requires users to contribute content, needs scale to attract advertisers (it is an ad-based model) and needs mechanisms to generate awareness. That's sort of like what people used to say about George Bush. He has two problems: foreign and domestic.

I try to be gentle with my friends, but anyone who knows me a little would have picked up on the fact that the feedback I was offering (on request) wasn't positive. The sad thing is that this friend is a bit tone deaf. As an entrepreneur, that's probably a good thing at some level and a bad thing at another. It's a good thing because if he/she doesn't believe in the idea, he/she will be derailed and may not build a potentially great company. Moreover, there have been some great entrepreneurs who were never able to raise venture money for their endeavors. Tom Seibel is a great example.

It could be that I just "didn't get it." However, I was sad that my friend seemed so deliberately deaf to feedback. In the months that have passed since we last gotten together, not much had changed. Eric Ries, speaker extraordinaire on "The Lean Start-Up" www.startuplessonslearned.com is far more eloquent on this topic than I. He goes into terrific detail on how to think about developing a minimum value proposition (read: how to fail quickly). It is key for an entrepreneur to figure out if he/she has a great idea or if he/she is simply having a conversation with him/herself.

The thing that always surprises me about seeking feedback and not listening to it is this: the most valuable asset one possesses is one's time. The opportunity cost of not pursuing a different potentially great idea is huge. So, at the appropriate times in a new venture, measure success, come to terms with its success or failure and take appropriate action quickly. You will be happy you did.

The Internet of Things

2010-03-01T15:19:00.000-08:00

The technorati have been talking about the "Internet of Things" for some time, but this week I seem to be reading about it in a few places. First, I received an invitation from the MIT/Stanford VLAB http://www.vlab.org/ to their panel on "The Internet of Things: Sensors Everywhere." Then I read McKinsey Quarterly's piece on the same topic: http://tinyurl.com/y9228ep

What is the Internet of Things? Sensors are being deployed for all kinds of reasons. RFID is meant to help manage the supply chain. Oil companies are deploying sensors for tank farm monitoring. Small cameras that are approximately the size of a pill can travel one's digestive tract and pinpoint abnormalities (I saw this in Japan almost five years ago - that is, I saw the camera at rest!). The Internet of Things is going to enable some amazing opportunities i.e., remote health care and some scary ones i.e., insurance companies could monitor how fast you drive daily vs. how many miles you drive per year.

This is an exciting area that will spawn exciting start-up companies. I invested in Apprion www.apprion.com a few years ago because I believed (and still do) that enabling the last part of the organization to become networked (the plant) was a great and potentially very profitable area for investment. The McKinsey article points to this new internet as what enabled Zipcar to lease cars optimally and do away with rental centers. It's an area worth understanding.

Entrepreneur's Bill of Rights

2010-02-24T20:59:00.000-08:00

I was recently on a panel for SVASE in which I was asked what advice I had for entrepreneurs raising money. This question arises pretty regularly. So, I thought I would take a stab at memorializing some of these thoughts.

Raising money, especially in the current environment, is hard. However, entrepreneurs have power in the process. Hopefully, you have a choice from whom you raise money. Sometimes that isn't the case, and you take money from whomever is willing to invest. If you do have a choice, or even if you don't, you should know from whom you are taking money. This sounds obvious, but many entrepreneurs don't know much about either the firm (if a venture fund is involved) or the partner at that firm (often more important than the firm itself).

Entrepreneurs, you have a right to know the person and firm to which you will be wedded in your endeavor, and make no mistake, you will be getting married. You know, for better... for worse... In other words, do as much diligence on your investors as we do on you. To help you with this, I suggest the following:

1) Ask for CEO and Founder references. Call people on the list and not on the list. LinkedIn is a great resource to enable this activity.

2) Be critical about the process the investors are going through when evaluating your company. Are they asking for customer references as a "way to get started" in diligence? Or are they offering their own customer introductions as a form of diligence? Note: asking for your customer references should come late in the process - not at the beginning.

3) Do your homework about the firm. Do they typically make seed investments? Later stage? If you're raising a seed round, think carefully about pursuing a $400M fund's money.

4) Find out how many boards your prospective investor is on. Hint: more than ten means that the investor is not going to spend much, if any, time with you.

5) Figure out what matters to you in an investor. Are you seeking leads, advice, recruiting help? Assess the fit between your needs and what your investor offers (as told by references).

Remember, even if it doesn't feel like it, you do have power in the financing process.

The Downside of LBS

2010-02-22T10:34:00.000-08:00

This is an interesting perspective on using FourSquare and/or Gowalla. If you're out and about, you Tweet that you're out (or alert people via Gowalla or FourSquare), and a would be thief tracks this, you're asking to be robbed. Will your home insurance go up? Probably... http://bit.ly/dxYmaq

2009-01-09T21:09:00.000-08:00

Greetings from the Consumer Electronics Show in Las Vegas. It has been a year since I was here last, and much has changed here as everywhere.

Las Vegas looks the same in many aspects. The hotels are still of a scale that defies description. They're so big that even though a particular hotel seems close, in reality, it's a good half mile away. The lights still burn brightly, and CES still creates a very long cab line at the airport.

However, the cab line didn't take an hour this year as it has in years past. It took half that long. The casinos have many, many empty tables and not just at 3 pm. There are few lines at the restaurants. When I asked a doorman at the Venetian where a restaurant was, he told me he needed a break and would walk me there. While we walked, I asked him if the Venetian was feeling the recession. He told me they had laid off 250 people! The place you really see the difference is in the Casinos' malls.

If you really want to go to Ground Zero of what's going on in our economy, check out retail. Steve Wynn figured out that people enjoy shopping and being entertained when on vacation, and he aimed to please. These ideas took hold, and every casino built enormous malls. The high-end properties have high-end malls, and each property shares many of the same stores. It's not quite like having a Starbucks on every street corner, but how many Chanel stores, Jimmy Choo stores or similar does two square miles need?

In previous years, the stores were busy. This year? I bought a tee shirt at Banana Republic and could have gone bowling in the enormous store; it was that empty. As I paid for my shirt, the cashier asked, "Did anyone help you today?" I asked, "Is there anyone here other than you?" Many stores display sale signs, and when I asked what "sale" meant, most people told me "70%". The NYT and others have reported that large chains, notably Saks, started this trend of 70-75% off before Christmas. The small, luxury boutiques are following.

Why does this matter? If consumers, who make up 2/3 of GDP, aren't spending, then every business and everyone suffers. Apple sells fewer iPods, chip manufacturers sell few chips to Apple, IT suppliers sell less gear and software to the chip manufacturers and to Apple, everyone does less advertising and on and on. I'm not biased about tech here. The same value chain can be put together for any product that consumers buy. The net-net is that I think we will be here, skating along the bottom, for awhile.

The Price of Delaying Pain

2009-01-04T20:15:00.000-08:00

Sorry to allow a month to elapse between postings!

Most articles tell people that this is no ordinary recession. In early December, the National Bureau of Economic Research announced something that should have startled no one: we have been in a recession since last December. The longest recession in the last 50 years was 16 months long. As a result of hearing this, the CEO of a prominently backed start-up asked me if that meant things would be turning around in early-mid 2009. My answer was, "absolutely not." Just because this recession is vying for the record of longest is by no means any guarantee that we must somehow get out of it!

On the contrary, I believe this recession has another year of life left in it.

It's odd to me that as much as I have read about the crisis that no one (whom I have read) has written about the relationship between the 2001-2 downturn and the current mess. In my opinion, these two events are somewhat linked.

In the run up to the "tech wreck," "the bubble bursting," or whatever you want to call it, the US (and much of the world) benefited from an enormous stock market bubble. Ordinary Americans became day traders, as people saw the value of their equity investments go up, up and up further still. Those equity riches enabled people to buy all kinds of things ranging from expensive cars, pied-a-terres in New York City, big, fancy houses in expensive cities such as San Francisco and Boston. Real estate values went through the roof all over the country, especially in and surrounding San Francisco, Boston, New York, Chicago and Seattle. Now there are people who disagree with this assessment; there are people who aver that only a small segment (tech) of our economy was truly affected by the tech bubble collapse. I disagree because that tech bubble fueled an incredible amount of individual investing, an enormous influx into institutional investing (hedge funds, mutual funds), investment banking fees, etc. That largess led to the run up in real estate values in many places.

Typically, when the stock market falls, the value of real estate also falls, but it lags. Real estate is much less liquid than equities, so it takes 18-24 months for residential real estate to fall. At the end of 2001, I turned to friends in the Bay Area and suggested that we were in for a housing market correction and that it should be occurring sometime in the next year. People looked at me as if I had two heads. I responded, "We were in a stock market bubble, what makes you think we weren't in a real estate bubble?"

I waited for the correction. It didn't come, and I didn't understand why. I didn't foresee that interest rates on many mortgages would essentially become zero as the real estate industry created exotic, never seen before mortgages that enabled people to pay nothing upfront for the privilege of buying a house. There were also mortgages offering incredibly low teaser rates that would disappear in a set amount of time, but that was in the future... So, people bought big, expensive houses they couldn't afford. Of course we now know how that is playing out.

Finally, the previous recession was not deep enough. I was stunned at how shallow and short it was. Real estate's buoyancy was the enabler of that short recession. People continued to buy many, many things ,ranging from cars to heaven knows what, using their home equity lines. Consumer spending is the key to what kept the economy afloat and prevented the recession from running deep. That's not the basis of a healthy economy in my opinion.

I am a big believer in taking pain early. If you don't face whatever pain is nagging at you, it hurts ten times as much later. This is why I believe the downturn in 01 is linked to what's going on now. Alan Greenspan overplayed his hand, the mortgage industry took advantage, Americans overspent, and here we are today. Is it ten times or a hundred times worse than it would have been if 01 -02 had been as bad as it should have been? We will never know.

Agency Costs and the Financial Crisis

2008-10-30T22:07:00.001-07:00

A number of my friends here in Silicon Valley have asked me about my thoughts on the financial crisis because they figured that a former investment banker might have an opinion. Some asked if marking to market was a culprit and others asked me why saving AIG made sense. The answers to these questions were: no, while marking to market is a problem, the only worse thing is not marking to market, and if AIG hadn't been bailed out, the entire financial system (worldwide) would have collapsed. AIG had so many credit default swaps and other exotic insurance products that the cost of capital would have sky rocketed, making the moves to LIBOR we have seen look positively mild.

I said I would write about agency costs and the financial crisis. Wikipedia does a nice job defining agency cost, "An agency cost is an economic concept on the cost incurred by an organization that is associated with problems such as divergent management-shareholder objectives and information asymmetry." If this is still abstract, perhaps an example will help. Let's take an employee, Mr. Hustle, a VP of Marketing at Company X. Mr. Hustle has a budget of $1M. Although it's December and he has only spent $650K of his budget, and he doesn't need to really spend the last $350K, his incentive is to spend every last dollar of his $1M budget. Why? Because if he doesn't spend it, he might have a smaller budget allotted to him next year, and a smaller budget means fewer resources, less power, etc. to Mr. Hustle. This is a classic agency problem. The agent here, Mr. Hustle, is using organizational resources for his own benefit. The classic means of addressing agency problems is to turn agents into principals by giving them stock options, thereby aligning executive interests with shareholder interests.

What happened on Wall Street is a classic agency problem. Well, it didn't just happen on Wall Street. It started with the mortgage broker. The broker didn't care if a lender could make payments or not because he/she got paid fees whether or not the lender was a good credit risk. Then the banks who owned the mortgages decided to offload the risk in questionable loans by securitizing them with some help from the investment banks. So, one could aver that the bank didn't care that it was a poor loan because the bank would minimize its risk. The investment bankers made money by structuring/originating the instruments and then made more money by selling them. They didn't care whether or not the lender made the payments because they got paid on the origination and on the sale of the product. Moreover, the banks then placed bets on whether or not people who took out the mortgages could pay them. Some of these loans had leverage of 40:1 because of these bets. That's agency cost, on top of agency cost on top of agency cost. Unfortunately, these agency costs will be incurred by us all, not just by the poor shareholders in Mr. Hustle's company.