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Dave Walters

Dave Walters

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KillHB173: How Natural Selection Should Punish Crappy Employers

Wednesday, 08 September 2010 05:33 Published in Startups

After a long Labor Day weekend of pondering more on the Georgia Restrictive Covenant Act, I think I’ve isolated my core problem with the legislation: it enables a vindictive employer to really screw someone’s life up. And let’s be honest, we’ve all worked for someone like that. Whether it was a first job where you had to do whatever was necessary to break-in, or more likely you’ve had to recently backslide in rank, prestige and compensation due to the economic conditions. We’ve all had to take a job we didn’t want to make it to the next level. Imagine now that this decision is even more painful given an overly aggressive non-compete. Will you not do what it takes to break into a new industry, or will you let your family go hungry based on principle? Clearly not.

Those who argue in favor of HB173 are quick to point out that the courts won’t allow predatory employment practices to run wild. My question is: How many of these scenarios will ever see the inside of a courtroom? The answer: very few given the cost of litigation and the chance an individual could ever afford to assert their rights. It’s much more likely – and insidious – that this creates fear, uncertainty and doubt for employees as they calculate whether their employer will come after them legally following a job change. Some will be so risk-averse they will never even attempt to better their employment situation. That sure doesn’t seem to embrace our values as a nation of hard-working immigrants – regardless of which generation and where our families are from.

The answer is employers are 100% responsible for creating an environment that draws the best and brightest talent. And guess what? There aren’t many examples of companies or CEOs who truly understand this principle – and are able to put it into action. Two examples come to mind: Tony Hsieh of Zappos and Ben Chestnut of MailChimp. Both have created companies built on cult brands, and have become that ever-annoying (but absolutely desirable) catch phrase of HR people worldwide: ‘an employer of choice’.

You think these guys stop thinking about how to please their customers or improve their service to consider how to lock their employees down tighter? I’d be willing to bet they take employee recruiting and retention as personal responsibilities. They understand a contractual relationship is nothing more than that – it’s great for dealing with external suppliers, but not much of a way to motivate and empower employees to deliver their best work. For that, it’s all about Poetry Spam.

So in a perfect world, HB173 is irrelevant even if the citizens of Georgia are bamboozled into making in law in November. For the best employers, there will not be a ratcheting-up of contracts. Perhaps the opposite even happens: a new point of differentiation for employers could become a fair non-compete/non-solicit agreement. This has the potential of pairing superstar employees with great companies – a scenario that drives benefit for the entire ecosystem, including increased tax revenues.

Yet there will naturally be an opposite end of the spectrum where the employer is hell-bent on onerous terms of employment. Think of these as the buy-here-pay-here versions of jobs. Ideally, natural selection keeps people away from such employers, but it’s my fear that less-informed folks are more likely to fall for the pitch – yep, it’s the job equivalent of a 28% APR used car loan on a 1999 Ford Probe GT.

Realistically, most employers will fall somewhere between these two outlying points, but the gray area will be just as painful. At a minimum, it causes an employee to consider legal fees when changing jobs. I hope that employers are smart enough to view the world through Zappos or MailChimp eyes, but I fear the almighty question of legal ROI will empower mediocre employers to hang on for dear life.

#KillHB173

Editor’s Note: Anyone wanting to see all HB173 articles can simply type that phrase in the Search box at the top of each page.

Does It Even Matter What Ping 1.0 Is?

Tuesday, 07 September 2010 04:23 Published in Technology

Just when it seemed super-designer Jonathan Ive was fully in control of the happenings in Cupertino, along comes the new iTunes 10 with Ping. There are few companies on a consumer electronics product tear the likes of Apple, but it’s easy to forget the sheer market power they have exerted over the music and application download market with the cloud’s most powerful platform: iTunes. And with their 30% cut on every dollar that runs through the funnel, they are literally printing money.

So does it really matter that Ping 1.0 sucks? No. Does it matter that its promise alone is likely the deathblow to MySpace’s last great hope? No again. Does it matter that iTunes has more than 160 million users in 23 countries? Yes. And does it matter that every one of those accounts has a payment type (a credit card in most cases) associated with it? Hell, yes!

In an era where social networking sites struggle mightily to figure out a monetization strategy, it’s all about audience. If you’re Facebook, you can kill on advertising based on 500M users where 95% login monthly. You’re even big enough to create your own ecosystem that spawns billion-dollar companies like Zynga. Or if you’re Foursquare, you can still be trying to figure it out with *only* 3M users. And many are still building their audience while revving their product during Series A funding cycles.

But if you’re Apple, you just recruited a 160M strong sales force that earns you 30% on every sale. And best of all, the purchase mechanism has proven to be absolutely seamless/addictive. Billions of dollars of revenue 99¢ at a time – and you pay NOTHING for it, not even the paltry 2% affiliate commission available to resellers today.  Layer one of the greatest ecommerce stories in history over the top of something as social (and personal) as music, and you’ve got a winner.

Let’s look at the facts: one-third of new iTunes upgrades have turned on Ping, which added up to more than 1 million users is less than 48 hours.  And Ping is always right there in iTunes, so today’s underwhelmed user can be tomorrow’s rabid fan as soon as Feature X launches. Make no mistake, big brands like Apple and Facebook have much wider latitude with customer value propositions than your average startup.

So what does Apple need to do to sharpen up Ping? The first move is rollout the API love. The story of Apple being spurned by Facebook in the 11th hour over ‘onerous terms’ was quick news, but a Twitter hook would be instant success. Look at the best-of-the-best feature from clients like Brizzly, Twitterific, TweetDeck and the official Twitter client, and then cook ‘em right into the Ping UI. Personally, I'd kill every other Twitter client off all my devices and consolidate instantly. Originating a social media update on Ping that could be pushed out to Twitter, Facebook, Foursquare, Gowalla, etc. would be a powerful place to be.

And if Ev and boys don’t want to play, just take Jason Calacanis’ advice from his latest email newsletter:

Recommendation One: Apple should buy Twitter now for five billion, and Evan and the team should take the money.

Why: First, Evan Williams would be a massive compliment to Jobs in the coming years--perhaps even a succession candidate (at least on the product side). Second, social networking threatens to move Apple’s cheese, and Jobs don’t like anyone threatening his cheddar. Third, Twitter as a unifying brand across Apple’s product line would simply be an organic integration. (It’s been occurring anyway).

Once the Twitter integration is complete by whatever means necessary, Apple can easily set out to productize every music feature us tune geeks can think of – or already have an app for. What about SoundHound’s audio analysis tool that identifies artists and songs? What about Pandora’s or Last.fm’s streaming mixes (although one could argue the Radio feature in iTunes is a poor excuse)? What about music creation apps like Atlanta’s own LaDiDa or the latest darling Seline HD? And if you don’t think Apple’s spanky new billion-dollar data center in North Carolina won’t end up streaming pay-to-play content across devices and across the globe, then you underestimate those crazy California kids again…

It’s not the current state of Ping that should scare anyone in music; it’s the relentless pursuit of greatness from Cupertino. They will rev often and hard, and if Apple TV proves nothing else: they don’t kill off underperforming products – they remake them to be sexy years later (again, think monstrous data center streaming endless paid content). This ain’t gonna parallel the story of the Nexus One or Kin. Ping 1.0 may blow now, but remember when your poor iPhone was only 2G, or when your iPad didn’t have a camera? Oh wait…

Call it my years of technical marketing in the 2D and 3D graphics world, but I’ve always been mesmerized by the invention and rise of the Graphics Processing Unit (GPU) within the walls of Nvidia. I remember carting  Windows NT towers around with dual Pentium processors at SIGGRAPH to demo the latest iteration of our illustration software. And it was an amazing demo when we could show a customer an unsharp mask being processed in under two minutes in our photo editing software (even if those feats were technically due to multithreading not GPU power). Even more of my love for the GPU comes from gaming, and years of Frankenstein-ing PCs before I was drawn to the walled garden of Apple. It’s funny to think about now that I’ve seen Epic Citadel on my iPad, but I recall being blown away by the graphical UI of the first Leisure Suit Larry in 1987 as if it was yesterday.

That’s how one of my favorite interviews of all-time came back into my focus this week while perusing cool GTRI projects. About every six months, I go back and watch Charlie Rose’s interview with Nvidia CEO Jen-Hsun Huang. It’s 38 minutes of complete geek glory as Huang talks the history of the GPU, and the applications for the future. It's also just a great lesson on entreprenur vision and how to apporach new markets. We’re all familiar with the high-end video cards created by Nvidia, but these GPUs are turning up in the coolest of places. Huang talks of GPUs helping geologists interpret seismic data to enable oil exploration, or the 2010 Audis that have GPUs powering the navigation and instrumentation electronics.

By releasing a software development kit in 2007 to make the GPU programmable, Nvidia pushed the capabilities of this magical little device to new heights. And given they’re designed to be parallel computers, these $200 chips can be strung together to create massive amounts of computing power for relatively little cash. (The GTRI guys note that modern GPUs process close to two teraflops, and the state-of-the-art supercomputer of 10 years ago processed just over seven teraflops for a price tag of about $110M – or less than four of today's GPUs strung together for a total cost of under $1,000). And therein lies the problem when a hacker gets their brain wrapped around this reality.

Most readers will be familiar with a hacking method known as “brute force attack,” which relies on sequential guessing of all possible combinations of a character set in order to beat a password. That password might be protecting something as innocuous as someone’s email or as important as database-level access to credit card data. The advent of the programmable GPU has created a boon in this arena.

And here’s where two research scientists at GTRI come into play: Richard Boyd and Joshua Davis. Their team is looking into how this freely available processing power represents a threat to the modern implementation of passwords. Their conclusion is any password should be a minimum of 12 characters, including numbers, symbols and uppercase letters. But even that’s no true protection given the ever-increasing computing power.

According to Davis, the safest ‘password of the future’ may well be a full sentence given its long but also easy to remember. The entire case study is a really interesting read – especially for GPU geeks like me…

Supporting My Favorite Cause One Transaction At A Time

Wednesday, 01 September 2010 04:00 Published in Startups

When people think of affiliate marketing, it’s all about links that generate cash for the referrer and ideally save the end consumer money. Or, let’s be honest – many people have never even heard of affiliate marketing. The litmus test has always been around which brands are included, and the size of the discounts. Other than discounts, there hasn’t ever been a killer reason to go through the hassle of visiting a separate site to click through ­– until now. Endorse For A Cause (EFAC) is a new site that allows users to choose a cause, share their experiences via social media, and click through to more than 400 retailers to drive revenue for their cause.

I was pleasantly surprised to see the variety offered by EFAC – both in their causes and in their retailers. They’ve launched supporting the following causes: American Cancer Society; American Red Cross; CARE; Children's Healthcare of Atlanta; Feeding America; HandsOn Network; The Humane Society of the U.S.; Kiva; The Nature Conservancy; and Prevent Child Abuse America. In addition they have 216 more causes members can vote on to include in the supported list. And for retailers, EFAC has offers from more than 425 companies that ballpark range from 2-12%. Every bit of that referring commission goes back to your cause – a sweet deal, especially if you're already going to rent a car from Budget or buy music from iTunes.

Personally, I signed up to support Children’s Healthcare of Atlanta given the amazing work they do – for both our family and our close friends, especially during the last year. (Their lobby is the featured in the photo above.) Our town is absolutely privileged to have such a great facility here. I was hoping to run an Amazon purchase through the site tonight, but wasn’t surprised to see they weren’t included. (Amazon’s big enough to run their own custom affiliate program, and it would be a stroke of pure genius if EFAC can figure out how to integrate Amazon.)

Overall, Endorse For A Cause is well-designed site that makes supporting your favorite cause easier and more social than ever. Everyone should sign up today. See the video below for an overview of EFAC:

Not All Startup Lessons Come From The Internet

Tuesday, 31 August 2010 06:19 Published in Startups

I’ve spent virtually my entire career surrounded by startups – including helping huge brands like Rand McNally and The Discovery Channel figure out the Internet in the early 90s. I’ve also created tech startups from the ground up with Vulcan Ventures money and have bootstrapped 2-3 into decent little opportunities. I’ve seen them soar and I’ve seen them crash. I’ve landed strategic customers hands-on, and had my company vaporize while on a Florida fishing vacation. No matter what happens, you’re in for one hell of ride in startup world. I thought I’d share the story of my first crack at a non-services startup – at least since my Huffy bike parts business circa 1978. It was a great learning experience that might have a lesson or two for other entrepreneurs.

 

It was 1997, and I was just coming off a five-year agency run working with Pam Alexander and about 100 of the smartest, highest-energy people on the face of the Earth at Alexander Communications. We were technically defined as a PR agency, but we were neck-deep inside every corner of our client’s marketing programs – designing lead gen, tradeshow marketing, defining messaging for advertising, speaker-training executives, new product development, corporate positioning, etc.

 

I’d spun off a lucrative little consulting business, and it was the dotcom heyday. If I buckled down hard (ish), I could have most of my work done by noon (and make a hell of a living) so it left me lots of boring afternoons. I had a friend with an equally odd schedule, so one day we decided to go buy Harleys. I scoured the country for about a week, and finally found a very slightly used first-year 1997 Heritage Springer in Greenville, SC (611 miles to be exact). I ended up putting 35,000 miles on that bike over the next 7-8 years, so it clearly saved me from my boring afternoon syndrome – and added lots of other extracurricular activities and adventures. In 1998, a friend and I challenged ourselves to see how many Bike Week events we could hit. The answer was 18 in a calendar year, which gave me an interesting business concept.

 

We rode our bikes everywhere, but there clearly was a set of weekend warriors who would truck into any event late Friday night – sometimes from many states away. Daytona was the best example with tags from virtually anywhere east of the Mississippi. So Bike Week Express was born. Domains were registered, brochureware was created, an online booking engine was coded – and we were off and running. It was a full-on transport business that picked-up your bike locally, hauled it to Bike Week, let you fly in and ride all week, and then dropped it back at your garage. A mechanic friend and I even had plans for a light maintenance offering during the trip back where we’d come back to Atlanta and replace tires or change oil before returning the bikes. I did lots of research into interstate transportation regulations and the exact types of insurance needed to secure a truckload of bikes that could easily be worth a quarter million bucks.

 

After all my research was complete, I proceeded to start buying equipment – the first round was two trucks and a trailer: a Chevy 15’ C3500 box truck; a 26’ Ford medium duty box truck, and a 48’ drop-deck trailer featuring full e-track, which is used to strap the bikes down. I had the equipment and a contract with a major independent trucking company to pull my trailer wherever it needed to go. Now it was all about getting everything licensed appropriately and securing customers. Of course, the first group I hit up was my friends – and their friends. I’ve often heard the old adage: if you don’t have the courage to blast mail your personal address book to ask for their business, you probably should be doing something else.

 

I soon discovered a fatal flaw in my business – and a lesson that remains with me to this day: one person can’t do it all. I was a one-man show, and managing the logistics and business aspects of the business was almost instantly overwhelming with the first 10 orders. (Yeah, Harley guys treat their bikes rather well, and paranoia can be rampant.) I had enough physical capacity to haul more than 30 bikes simultaneously, but the wheels came off after about 5 commits per trip. I did a couple runs, and it was clear I had a decision to make. What to do with all this sunk time and equipment? What I really needed to do was hire a #2 and give them a direct path to revenue sharing and ownership given I couldn’t really pay a salary.

 

But hiring someone that early felt like an even deeper financial commitment, which was right on the back of all the capital investment in equipment. I faced a critical decision: expand it or kill it. I ended up deciding to kill it based on three core factors: 1) I couldn’t find anyone willing to join on my terms who also had the necessary credibility in the Harley world; 2) I was sensing a slow-down in my consulting business (in retrospect, it was the first signs of the bubble) and that felt like the perfect time to add a corporate stint to my resume (enter UPS Interactive Communications in late 1999); and 3) My exposure was limited to time invested given I’d cut very aggressive deals on the first batch of equipment. I could sell everything off, make my investment back, take a spin at working for the Man, and live to fight another day.

 

So I killed it and slid into a pretty cool gig at UPS setting up the entire interactive function. In retrospect, I’d play it exactly the same way the second time around. I didn’t have $100K to gamble, and it didn’t seem doable for less than a full year of loaded costs including insurance, salaries and equipment maintenance. It’s always fun making those critical decisions during the heat of the battle. The good news for me was my decision affected no one but myself, so it was quick and painless. The next time I started a business, I made damn sure I had a couple of highly skilled partners!

Many folks around town wax poetic about the good old days when the security cluster was in full boom. It was led by the ISS crew, and spawned lots of companies that otherwise probably wouldn’t have seen the light of day – or had the attention of early stage investors. Among the most vocal proponents of the security cluster is our own Russell Jurney. He’s written on the cluster, and even diagrammed the cluster in his article. The number of people and companies included are a testament to how important this industry segment has been – and continues to be – to Atlanta. Look no further than Purewire or Starpound as examples of companies who are thriving either by acquisition or deep customer traction, respectively.

Well, guess what nasty little Election Day issue would absolutely ‘top kill’ the cluster concept? Yep, the Georgia Restrictive Covenant Act (HB173) seeks to massively tighten the non-compete laws in Georgia. Let's look at a hypothetical exmaple with a real-life guy. (Thanks in advance for the indulgence Paul.)

Imagine being a guy like Dr. Paul Judge (who we interviewed at the ATDC Startup Showcase) in this future world. Having been a C-level executive at CipherTrust, there surely would have been a non-compete in place that could limit him for up to five years based on the merger with Secure Computing. Given that merger happened in 2006, it’s perfectly reasonable to think Purewire wouldn’t have been founded in 2008. And fast forward to Q4 2009 when Barracuda Networks acquired Purewire. Yep, you guessed it: this ugly new HB173 world would have had a brand new non-compete on Paul that could lock him out for another five years.

So there’s one simple example of a brilliant technical guy who’s been an innovator inside the security cluster for at least 10 years. Under the new HB173 world, Paul would have been seriously slowed down – if not stopped – from continuing to create great companies and jobs. Oh, and tax revenue.

The other example that should scare the wiz out of Atlanta is the emerging cluster of video game companies. And the complete irony is this cluster enjoys more State of Georgia support than most industries via the Georgia Entertainment Industry Investment Act. So what the Georgia Legislature giveth, they also taketh away? If you have any doubt about the density of this cluster, check out this map. And can’t you just imagine the IP arguments wrapped around a field as utterly creative as video game designers? The reality is the litigation would be so complex that the average designer or developer could never expect to afford to assert their employment rights without footing huge legal bills.

For what it’s worth, I’m not a fully sold proponent of the cluster mentality given my theory that investors love them because it further drives down risk by leveraging experienced entrepreneurs and – at least to some degree – incremental businesses. But clusters do serve one very critical function: they draw a strong peer group of employees and executives – both from our own educational institutions and transplants from across the country. There are more than enough firms to support a vibrant and thriving gaming industry – even if Rob Kischuk is the only one I ever see around town :-) But imagine how quickly the ability to move between firms would evaporate if HB173 becomes law.

So if my logic holds, then no angel or VC should support HB173 given it puts a huge chill on additional companies in similar industries, correct? I’d love to hear some investor feedback on the topic…

#KillHB173

My post earlier this week on age and entrepreneurship stirred up some great conversations. It wasn’t a 45-comment barnburner, but I found myself deep in debate with the TechDrawl crew and Paul Freet from the ATDC. The discussion picked up right where my post left off: Who builds a better tech startup? Is it a 20-something dreamer who doesn’t yet know they can’t change the world, or is it a late-30s grinder who’s done it all before on someone else’s dime but has the guts to step out solo? Vivek Wadhwa’s data shows most are of the older variety and I believe they can be very successful. This post focuses squarely on the other end of the spectrum. So let’s look at the background and the specific dynamics of both scenarios, and then I’ll make my case for the clear winner.

So Paul stopped in fresh off a meeting with a 20-something entrepreneur, and was commenting on how laser focused he was on his idea. My question went something like: “Laser focused as in good, or laser focused as in augered down so deep they could never pivot even if the skies parted and required it to be so?” (At least I remembered me dropping a witty analogy, although that’s probably optimistic.) We agreed it can be a fine line, but there’s a definite propensity for young folks to stick harder to an idea longer than an older co-founder. So therein lies the question: When is focus your best asset, and at what exact moment does it become your worst enemy? For the sake of this argument (and because I believe it to be mostly true), my position is the younger entrepreneur will see their focus become an enemy more often than an older entrepreneur. By the same token, that last 45 days of stick-to-it-ness could easily be the difference between onboarding that first strategic customer or closing an angel round.

Let’s consider the question of sheer numbers. I think it’s fair to say that more 20-something minds have been opened to the possibility of entrepreneurship as a career, which naturally creates more young-run startups. (While the net number increases, both Paul and I believe the success average is likely lower for younger entrepreneurs.) And then there’s the advent of seed incubators who invest less than $25,000 in 2-3 person teams to stress test a back-of-the-napkin idea in hopes it’s something huge. This also skews clearly toward the younger generation given that a $2,500/month salary is statistically more feasible if you can get a student loan deferment as opposed to having two kids in daycare. This entire ecosystem is the farm team equivalent of the system that’s worked for Major League Baseball for years. Sign a kid early, give them increasing responsibility while paying them proverbial peanuts, move them up to next level when they achieve, and hope you can produce the next Tom Glavine equivalent in the startup world. When the brightest mentors and investors run this process, there’s complete freedom for the entrepreneurs to dream big and know they can execute on their plan. It’s this scenario that I believe will absolutely create the next Google or PayPal.

What the incubator system is not likely to create is a profitable business in much more than four out of ten times according the guy who’s done it more than anyone on this planet: Ron Conway. Much more often, an older entrepreneur will create a business sporting sexier cash flow and nearer-term profitability. This reduced risk view certainly draws a different type of investor, which is probably most well represented by someone like Charlie Paparelli in Atlanta. Some of the reasons for success include: industry-specific customer relationships that convince early buyers to sign on quickly; a better-honed view of budgeting and finance; access to a strong set of advisors as peers; better presentation skills; ability to ‘connect’ with investors; and just good old ‘experience cycles’ running a business.

The reason each of these age groups start tech companies is also a critical differentiator. According to Vivek’s research at Duke University, almost 75% of those surveyed said building wealth was important, very important, or extremely important – all from a study where the average entrepreneur age is 40. So clearly the older co-founder has a strong financial incentive. While cash is always good, I’d contend younger entrepreneurs are just as likely to want personal notoriety. Call it the celebrity culture; call it the new status symbol to be a startup CEO; call TechCrunch the new porn for startups; call it whatever you want. The reality is the movie ‘Social Network’ is coming out next month, and I can just imagine movie theater parking lots and coffee shops being lit-up with kids talking tech startups. It’s the digital equivalent to my analog experience of beating the hell out of my friends every time we saw a Rocky movie in the 80s.

So who do I think makes better startups? I think it’s pretty clear: while an older entrepreneur can often build a solid business, it’s pretty rare for them to take a true crack at changing paradigms. This is the near-exclusive domain of the young gun. And this type of tectonic shift is what powers the technology industry, allows us reprove Moore’s Law, and builds massive wealth for its founders. I’m not talking setting-up a nice retirement at 50, I’m talking you’re worth $50M and have become a super-angel investor. Some would call the smaller versions ‘lifestyle businesses’, but I think that’s an over-simplification. There’s a real difference in your exit multiplier (or valuation) if your company makes a critical business process 17.3% more efficient versus you just invented social gaming. But an exit is an exit by any measure.

It all comes down to your subjective decision on the meaning of the word ‘better’ when applied to startups. For me, ‘better’ means more relevant to the history of the tech industry. ‘Better’ means pushing boundaries, redefining user’s expectations and creating things few ever dreamed of – and virtually no one has executed. For me, ‘better’ doesn’t mean reduced risk for an investor to recoup a 3-5x multiplier. ‘Better’ doesn’t mean starting a lifestyle business that can be passed down to your children. Not to say family businesses are bad, but I believe history has shown – and will continue to show – that the 20-something minds truly change the tech world. The list is indisputable: Jobs, Woz, Gates, Allen, Brin, Page, Zuckerberg, Mason, Fanning, Musk, Omidyar, etc.

And if today’s generation is any example, their stories look to make great movies…

Why Being The Old Guy At The Club Isn’t All Bad

Wednesday, 25 August 2010 07:31 Published in Startups

When we picture what an entrepreneur looks like, many of us (me included) envision a 22-year old developer eating Ramen noodles, drinking Mountain Dew, working from home, and cranking out 20-hour days to bring their dream to life. Kinda like Stammy – only before his now-famous startup diet. But the reality of today’s entrepreneur is radically different. Based on research completed by TechDrawl friend Vivek Wadhwa, the age and life circumstance are significantly different than you’d think. In fact, the average age for company founders was 40, the majority have 1-3 children, the majority have 6-15 years experience in their field and not finding a traditional job had zero impact on founding their startup.

So why is this worth noting? Because perception often diverges from reality in startup land. If you read TechCrunch or Mashable regularly, you’d swear every CEO is 26 and working on their third funded startup. Sure there are guys like Shawn Fanning of Napster and Mark Zuckerberg of Facebook, but you can almost single-handedly thank Ron Conway of SV Angel for betting on the youngest-of-the-young idea guys. If you look at the commonality of these young guns, they tend to build products that define a category. Before Shawn, nobody even thought of trading MP3s in real-time (to the great dismay of another archaic industry). Before Mark, it didn’t occur to anyone to update a status to hundreds or thousands of your friends at once. And the advent of seed-investment tech incubators like Austin’s Capital Factory, Atlanta’s Shotput Ventures, TechStars or YCombinator is doing everything possible to isolate and cultivate the next generation of these ninjas (and probably lowering Vivek’s average age on a quarterly basis).

But for most startup towns (and especially those across the South), there’s a strong value placed on an experienced management team. I think of the recent move by JouleX that added the CEO title to investor Tom Noonan – yep, the big-exit ISS veteran tapped to lead a high-flying greentech startup. When there’s a defined market to chase, most non-Silicon Valley investors will insist on deep experience in the industry. The simple reality is business experience and personal networks built over a 15-year career matter when you’re taking a run at starting a company from scratch – either with your money or especially with someone else’s.

So who’s right? If you’re under 25, I’d contend it’s the idea first and the team second – and you’d better have the ‘I can change the world’ mentality. (By the way, I fully subscribe to the notion that not all startups are fundable, but let’s not ignore a dynamic like Atlanta where ‘what gets funded’ has a direct effect on what entrepreneurs conceive.) The young guns like Fanning and Zuckerberg prove this theory out, and show that even if you don’t know how to scale a business to 500M users it can be accomplished (usually not without big, ugly growing pains, but accomplished nonetheless). But these are the few and far between. That’s why Ron Conway works so hard to find youngest ones, and then hopes to fund the most successful ones in whatever ventures they come up with over a startup career. Think about that dynamic from an entrepreneur’s perspective: hit the first one right, and you’re teed-up to have multiple cracks at whatever you can dream up. That’s a sweet place to be.

For the other 90% of startup founders, they’ll have a max of one or two cracks at building the company of their dreams – and in this case, it’s more about the team than the idea. This is the group I believe is most represented in Vivek’s research – and an average founder age of 40 is absolutely believable. These are often companies that build into existing markets, and skew more toward B2B solutions. They also are over-represented in segments like biotech, greentech and medical devices given the huge start costs in these areas. Look at a company like Suniva as a great example; big dollars raised, university-level technology transfer and global markets. Not exactly a business you’re going to hand to a 24-year old. While there are literally thousands of stories of B2B exits in the triple-digit millions, few have changed the lives of the average American computer user like Facebook. At the same time, I’d bet these companies have a slightly better batting average given the founder’s experience level and already-defined markets.

The reality is the tech startup world needs a healthy balance of both types of founders and companies. I’ve written at-length about the Golden Age of consumer Internet startups, but I don’t think this comes at the price of big greentech plays like Suniva. Each of these segments has their own universe of investors and startups, so coexistence isn’t an issue. And I think it’s fair to say any startup has a better chance of success as the experience level of the founder(s) increases.

So where do you fit on the continuum? If you’re in your late 30s and considering your first startup, then go ahead and jump in. It shouldn’t be hard to find a peer group, and your experience will absolutely give you a leg-up.

KillHB173: Are You In The Crosshairs?

Monday, 23 August 2010 07:42 Published in Startups

So let’s start the week off looking at who is specifically targeted by the Georgia Restrictive Covenant Act (HB173) – and the answer is virtually anyone who works in the tech field. It focuses most clearly on salespeople – who, in theory, should be most effective at convincing friends and colleagues to vote NO. In fact, this sentence actually exists in the bill: “In addition, non-solicitation covenants could permissibly restrict a former employee from merely accepting business from customers.” Wow!

Before we get too deep into the implications, take a quick read on this excerpt from the legislation itself:

The Act expressly authorizes non-compete covenants in employment agreements, if reasonable in terms of time, geographic area, and scope of activity.  However, such covenants may only be enforced against employees who meet one or more of the following tests:

(a) customarily and regularly solicit customers or prospects;

(b) customarily and regularly engage in making sales;

(c) have a primary duty of managing the enterprise (or a department or subdivision), direct the work of two or more other employees, and have the authority to hire or fire other employees (or have particular weight given to recommendations as to the change of status of other employees); or

(d) perform the duties of a “key employee” or of a “professional.”

A “key employee” is broadly defined as an employee who, by reason of the employer’s investment of time, training, money, or other factors, has gained a high level of notoriety or reputation as the employer’s representative, or has gained a “high level of influence or credibility” with customers, vendors, or other business relationships.  The definition also includes employees “intimately involved in the planning for or direction of the business” and those with “selective or specialized skills, learning, or abilities or customer contacts or customer information” acquired as a result of working for the employer.

A “professional” is an employee whose primary duty involves performing work requiring advanced knowledge “customarily acquired by a prolonged course of specialized intellectual instruction” or requiring talent “in a recognized field of artistic or creative endeavor.”  The term specifically excludes technicians performing work using knowledge acquired through on-the-job or classroom training, such as a mechanic.

Now there’s a big blanket to throw over your employee base. It’s pretty clear this enables onerous contracts on any sales resource, any developer (‘creative endeavor’), any manager, any marketing person, etc. Honestly, if you don’t fit one of the criteria included in the statute, you’re probably not working at a tech startup – at least one with less than 50 employees. And even in a mature business like Turner or Home Depot, these covenants likely apply to greater than 80% of management employees.

And here’s perhaps the most important question: Does the statute apply to you and your peers? If so, then prepare to have your employment agreement amended very quickly if this aberration should pass on November 2. Like it or not, you will face an unfortunate decision: Remain in your current position with stronger handcuffs, or enter the job market and likely end up being presented with a similar agreement. How’s that any kind of choice for an employee? The point is there is no choice, which makes this a crappy deal if you work for someone else.

And then there’s the scenario of being a business owner. If you’re lucky enough to work like a dog, sweat funding rounds and create a killer product that all culminate with an exit, you better make sure you get a huge multiplier. Good old HB173 outlines AT LEAST a five-year non-compete clause – or even longer if part of the exit involves extended purchase-related payments. So kiss your ‘cluster’ theory goodbye – but more on that next time.

#killHB173

If there’s one guy who epitomizes the startup life, it’s Scott Burkett. He carves enough hours to kill his day job (COO of StarPound), mentor entrepreneurs and connect them with investors via StartupLounge, and take on the occasional social injustice in the case of the Roberts Family from Lithonia, GA. And he pulls it off with insane energy and a wicked sense of humor. But guess what? He’s human (gasp!), and has found his own personal maximum. As a result, Scott is passing his StartupLounge torch to Josh Watts. He’ll be missed sorely, but our entire town is better for the effort he’s given over the last five years.

The great news is StartupLounge will continue unabated under the watchful eye of the other half of the original dream team: Mike Blake. Together, these two guys have filled a huge gap over in connecting investors to entrepreneurs, and providing hands-on startup instruction through PitchCamp and Startup Seminars. And the 40-something episodes of the StartupLounge podcast should be required listening for both new and seasoned entrepreneurs.

You can read Scott’s entire Passing the Torch blog post for all the gory details, but suffice to say he’s stepping aside for the perfect two reasons: StarPound is rocketship, and he likes eating dinner with his family. It’s great to see someone discover his or her own boundaries and have the courage to jettison things that create too much diversion – no matter how fun it is, or how good you are at it. There’s a clear lesson for every entrepreneur right there in Scott’s actions.

So thanks to Scott for all his efforts, and know we’ll be rooting for StarPound. He is truly The Man, and we should all ask ourselves how our contributions to the startup ecosystem stack up against Scott’s. We’re not all going to start an organization like StartupLounge, but what are you doing to make things better?

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