Are Startups Are the New Black?

It wasn’t that long ago that start-ups were having a tough time raising money. Given the volatile nature of the economy, why would anyone want to put money into a high-risk venture like a start-up.

Today, start-ups are sexy. This may have to do with how the Internet is becoming more integrated into how we play and work. It be the lower barriers to entry given the “lean startup” can take advantage of reduced development, software and hardware costs. It may be that investing in a start-up allows people to be entrepreneurs without doing any of the grunt work.

So is it a surprising to a see a 16-year-old pop star decide to jump on the start-up bandwagon? Yup, it seems Justin Bieber is pumping some of his pop dollars into startups, possibly through a venture fund called Consigliere Brand Capital, which also involves fellow Canadian and NBA superstar Steve Nash.

If you’re looking for a positive spin, it makes sense for Bieber to put some money into start-ups as a way to diversify the mega-millions he’s making from selling music and putting on concerts for a growing army of teenage girls. For all we know, Bieber is also investing in GICs, stocks, bond, time-share condos and chocolate chip cookie futures.

If anything, Bieber’s interest make it clear that startups are the new black. They’re cool, sexy, fun and there’s the potential to hit the jackpot if Google, eBay, Microsoft, Yahoo, AOL, et al comes along with their M&A warchests.

For high net-worth investors, startups are the equivalent to buying lottery tickets for the rest of us. When you invest in a start-up, you’re buying a dream as opposed to a reality given the failure rate for start-ups is so high. And just as spending a $1 or $5 on lottery ticket is not a big deal when you don’t win, the same goes for a start-up that fails if you’re wealthy.

The difference with a start-up is it’s public entity that has cache for entrepreneurs and investors. Investing in a start-up lets you hang out with the entrepreneurs and fellow investors, rub shoulders with other start-up investors, and promote your investments on social media.  It’s all good.

The question is whether there is a downside to start-ups being the new black? Does it mean a flood of unsophisticated money into the marketplace? Could it mean too much money looking for opportunities? Or could it see some start-ups attract money even though their idea isn’t so hot?

The upside is more financing for start-ups. Who knows, maybe Bieber, a native of Stratford, Ont., will jump-start investments in Canadian start-ups.

The Rise and Fall of TechCrunch?

TechCrunch As We Know It May Be Over.

It’s a dramatic headline to describe the ongoing machinations about the world’s most popular technology blog in the wake of Michael Arrington’s decision to start a new start-up focused VC fund called CrunchFund…and the decision by AOL, which owns TechCrunch, to let him because TechCrunch is a “different property and they have different standards”.

While Arrington is no stranger to investing in start-ups, the recent creation of a $20-million fund is fascinating given TechCrunch covers the start-up scene so extensively and plays an influential role in their success. For TechCrunch and Arrington to blatantly play both sides of the fence – investing and editorial coverage – sets off the alarm bells.

In a blog post that accompanied the headline above, TechCrunch blogger MG Siegler made a passionate argument about how people and the New York Times (which published a strident story about Arrington and TechCrunch) don’t understand how TechCrunch works, and how its coverage of start-ups would never be influenced by Arrington or his personal investments.

This is completely normal argument by reporters/bloggers who thrive on editorial independence and objectivity. But the difference in this case is TechCrunch (which is now part of the AOL empire) is not your “normal” news operation given the role played Arrington, who has become not only the major source of start-up coverage but an investor, advisor, conference organizer, influencer and now a VC.

While Siegler can jump up and down about objectivity and independence, he’s battling a key issue: perception and reality. The perception is TechCrunch could be biased by CrunchFund’s investment activity. As a result, it changes how start-ups, readers and investors look at TechCrunch, Arrington and CrunchFund. From the outside looking in, it’s no longer an influential tech blog but a multi-pronged kingmaker with editorial and investment ambitions.

The biggest issue is Arrington wants to eat his cake and have it too. He wants to invest in start-ups and write about them, albeit for free after AOL caved into pressure about Arrington still being on the TechCrunch payrole after the launch of CrunchFund.

The trouble is he can’t it both ways any more. When Arrington sold TechCrunch to AOL, it meant a huge change in direction for TechCrunch. And now that Arrington wants to become a VC, there is even more changes.

As hard as it might be for Arrington to walk away from TechCrunch, it’s become a necessity if Arrington, TechCrunch and its army of bloggers want to head in a new, exciting direction.

Thoughts About Work on Labour Day

I spend a lot of time thinking about work – not just running my consulting business but how work gets done and the ways to make things more efficient and productive.

Inspired by Jay Baer’s post on six takeaways from 23 years of consulting, here are some thoughts from nearly three years of consulting:

1. The pedal is always to the metal: When you eat what you kill, the pursuit of business never stops. While working on projects, the hunt for next project is happening in parallel.

2. There is a constant battle between doing and selling. When I’m doing work, I’m anxious about not selling. And when I’m selling, I’m anxious about not doing work. It’s the reality of being a sole proprietor in which you’re the cook, waiter and chief bottle washer but a constant balancing act.

3. Listen to your gut: You can analyze an opportunity from a variety of different angles but at the end day, my gut usually leads me in the right direction.

4. Don’t take work that isn’t in your wheelhouse. As a consultant, there is a temptation to take on any and everything, even if it’s on the fringe of your skill-set. I learned the hard way that accepting work that isn’t your thing is a recipe for disappointment and failure. It’s the reason that I’m clear with potential clients about what I do (content, communications, social media) and what I don’t (SEO and PR)

5. There is power in referring business to other people who are better suited to do a job that comes your way. We work within an ecosystem/community so the more bonds you can build through referrals, providing advice and introductions and networking, the better. In the long-run, it will generate plenty of dividends.

6. In working with clients, it’s “we” instead of “you”. It’s a healthier relationship you talk about the project “we” are working on, the decisions “we” have to make, etc. because it means you’ve embedded yourself as opposed to simply being a gun for hire. If you really want clients to succeed, you need to be completely on their side.

7. Focus matters: With only so many hours of day – some of which have to be spent on sleeping, eating, family, exercise, etc. – focus is a huge issue and challenge. This is particularly relevant for anyone who is digitally engaged or who make a living in a Web-related way because being connected is part of the game. That said, it is important to focus on the task at hand, which means turning off or ignoring other things such as social media.

The Two Big Reasons Why Start-Ups Fail

FailureAccording to a study by the Startup Genome Report, most start-ups fail due to premature scaling. In simple terms, they try to grow too fast, spend money on the wrong things, hire too many people, etc.

This may have some truth but from personal experience in working for and with start-ups, there are two bigger and more fundamental reasons why most start-ups fail:

1. Their idea or vision isn’t compelling, interesting or fills a void or need.

2. Their usability of their Web sites is terrible, making it difficult, if not impossible, for time-strapped consumers to understand the service, let alone embrace it.

It’s a devastating one-two punch that leaves many start-ups doomed from the beginning, regardless of how well they scale or manage their money.

Much like it takes little time to tell whether you’re going to click with someone on a date, you can tell fairly quickly whether a start-up has any chance of success based on their idea and usability.

Let’s take a look at these two key ingredients:

The idea: At the end of the day, a great idea is going to make or break a start-up. You can layer on whatever you want such as excellent public relations and social media programs or a beautiful design but if the underlying service doesn’t meet a need, void or delight a user, the chances of it winning over enough consumers to create a business are bleak. It’s the old adage that “You can put lipstick on a pig, but it’s still a pig”.

Too many start-ups get excited about creating a feature rather than a service. What they’re offering is interesting but not interesting enough to get enough people on board. That siad, you would be surprised to see how many entrepreneurs fall so deeply in love with their idea that they forget about whether it has enough substance to be compelling to other people.

Usability: Assuming the core idea has some potential, too many start-ups doom themselves with bad messaging, navigation and design. It means that even if someone found the service to have some appeal, their ability to try it out is under-mined by confusing language, un-intuitive navigation and weak calls to action.

The truth is most Web users are lazy. They want things to be easy, user-friendly and not involve a lot of work. As a result, an online service has to be totally accessible and a snap to grasp, otherwise users will quickly move on to the next service or thing that catches their eye. Some good examples of companies that pass the “get” test with flying colours are MailChimp, Freshbooks and DropBox. In takes seconds to know what they offer, and what people should do next after visiting their sites.

From where I sit, the idea and usability set the stage for failure or success before premature scaling. Many start-ups don’t even get the chance to prematurely scale because they’ve already failed.

For entrepreneurs, it means they should test and re-test their idea. Does it resonate with people enough to seriously explore it? Does it fill a need or void? Is a service or a feature? Then, the focus has to be on making the service accessible enough so enough people will take it for a test-drive and, hopefully, become users.

For more thoughts on the Startup Genome Report, check out John Cook on GeekWire.

As well, a good read is Rob Walling’s blog post on the importance of start-ups being able to find a way to convince consumers to give you more money than what it costs to acquire them.

Time for Arrington to Leave TechCrunch Behind

ArringtonThe tech world is all aflutter today because Michael Arrington has created new a $20-million venture capital fund to invest in start-ups.

Given Arrington and the growing army of TechCrunch bloggers cover start-ups, there is clearly ethical and journalistic issues given TechCrunch could easily write about companies within CrunchFund’s investment portfolio.

A few things: One, the objections over Arrington’s involvement with start-ups as a blogger and an investor are nothing new. Arrington has been happily fishing in both ponds for years, and been pretty clear about his activity. Why would anyone would be surprised by the formalization of something he’s been openly engaged in?

Arrington is a different and unique beast because blogging is a new world with different rules of engagement than journalism, and, let’s face it, the vast majority of journalists don’t make enough money to invest in start-ups even if they wanted to. At best, journalists jump into the start-ups for the remote chance to make some money – and I’m talking from personal experience.

What I admire about Arrington is he seems unrepentant and unaffected by the kerfuffle he has instigated. Call it arrogance, hubris or being king of the world (or, at least, Silicon Valley) but Arrington is completely comfortable in his own skin.

“I don’t claim to be a journalist,” Arrington told the New York Times. “I hold myself to higher standards of transparency and disclosure.”

This holier-than-thou attitude rankles journalists and hard-core bloggers who play by the old style “rules” but AOL seems fine with Arrington’s new venture, although I suspect it will bend over backwards to keep him in the AOL fold as long as possible.

That said, I think it’s time for Arrington to leave TechCrunch. It’s the classic case of not being able to eat your cake and have it too. TechCrunch has been a spectacular success, and Arrington has achieved fame, glory and riches from selling the business to AOL for $20-million.

But if Arrington really wants to take his career into a different direction, he needs to leave TechCrunch behind. It will be difficult because it’s his baby that he built from scratch but TechCrunch is all grown up now, it has a new mega-size owner, and Arrington would be better off completely focused on new projects instead of still hanging on.

The reality is the Arrington brand is as big as TechCrunch so he doesn’t need TechCrunch, even though they are still stuck at the hip. If Arrington wants to be a venture capitalist, it means making difficult decisions, including parting ways with TechCrunch.

More: Kara Swisher has some interesting insight (surprise, surprise!) about Arrington and CrunchFund.

Sorry GroupOn But Group-Buying is Doomed

Group buying  1I’ve never been a fan of group-buying or, for that matter, understood the group-buying phenomenon. In simple terms, it’s e-mail marketing on steroids, playing to the consumerism and hunger for deals that afflict too many people.

The problem with group-buying is there doesn’t seem to be a long-term win-win proposition. For consumers, the novelty of group-buying has to wear off after a certain period of time. At first, getting a massive discount seem like a pretty good idea. But, over time, the daily e-mails must get annoying, while many people never take advantage of the deals they actually buy.

For businesses, group-buying seems like a good idea as a loss-leader marketing tool but what’s the ROI as opposed to doing something that appears to do more for GroupOn, et al’s pockets?

In many respects, I believe group-buying is a digital version of the “Emperor Has No Clothes” in which people and businesses are getting sold a bill of goods. And as further scrutiny of GroupOn’s pre-IPO balance sheet increasingly seems to indicate, group-buying may not be the best economic proposition based on the idea that it takes huge amounts of marketing to motivate buyers.

It is fascinating that people forget that online group-buying is not a new concept. It popped up during the original dot-com boom but failed. The leading player was Accompany, which was co-founded by Toronto native Jonathan Ehrlich, raised $50-million before it disappeared. It would be interesting to see what he thinks about the latest wave of group-buying players.

My take is that group-buying as it stands right now is going to radically evolve into new and different models that are more consumer and business-friendly, while still giving some group-buying players the ability to make money, although the profit margins may be smaller. As much as GroupOn currently dominates the market, I would suggest its future prospects are, at best, uncertain.

In that vain, The Next Web has an interesting story on Munch Me, which is a new group-buying venture aimed at the restaurant industry.

What do you think? Is group-buying here to stay?

More: Business Insider has a post suggesting that group-buying isn’t dying, it’s just getting started. It talks about mobile being a big factor

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