Tuesday, September 25, 2012

Why Pixable is Worth $26.5 Million vs. Pinterest's $1.5 Billion

It is not often that you get an inside look at the critical moment of a company’s development - and then a chance to see the outcome. Now that Pixable has been sold for 26 million while an arguably similar company, Pinterest, is now valued at around $1.5bn - we have a rare moment to make a comparison.

Back in 2010 we developed a unique program called “Job Generation.” It was a kind of “Shark Tank” in reverse, where we invited senior executives to pitch Start-Ups for the job of running their companies.

Pixable was one of our first participants. Andres Blank, one of the founders, sat in the catbird seat as a former Kodak executive, Harry Falber, pitched him on running the company.

At that point, Pixable was far less evolved and presented itself as a company that helped you gather pictures from Facebook to create albums. Falber did not profess to have great knowledge of the technology but he did make this one point: as a Kodak exec, he knew from research that the customer in this business is overwhelmingly female and so the product should follow their interests.

In theory, Harry was a winner who got a “job” with Pixable. In practice, nothing like that happened. There was some follow up but no relationship actually formed. Pixable went about its own way, as a company run by some really smart guys who kept thinking up newer and cooler features. They raised $6.6 million and then sold out for $26 million. This will enable the founders to pay off their student loans, buy Teslas and enjoy lives as minor millionaires. The investors made some money but not the kind they were looking for – think of scratching off a $2 win on your lottery ticket. It keeps you in the game but that’s not why you bought the ticket.

So what really happened?

These were guys whose board of advisors were other guys and they had no inherent sense of their true marketplace: females. They did find a marketplace, guys who want to stay in touch with the coolest pictures but not the females who live by the images that illuminate their live's interests. That is what Pinterest does.

Whether Pinterest got lucky and stumbled upon that or had it planned, who knows. To quote Bo Peabody of Tripod, lucky is often better than smart. What does matter, is that companies usually take on the groupthink of a few key people and they will tend to follow what they care about rather than what the market wants. Granted, being authentic as a company is good - it is just worth 1/60th less than finding and serving an authentic market. At least, it appears so, in this case. 

As for Job Generation, we learned that one of the reasons young people start companies is because they really don’t want to listen to older guys. Maybe they should. Or maybe the older folks should be their own start-ups. They won’t get any Angel money (another controversy we'll discuss) but at east we know that in theory – and in the right context – their input can be worth as much as 60x.

Monday, September 24, 2012

Apple’s Dilemma – Find the Next Jobs or Rest on his Laurels?

Some thoughts following Apple's lawsuit and questionable iPhone 5 features.

Whenever the Dalai Lama passed on in Tibet, the Lamas went out in search of a reincarnated soul.

Should Apple consider the same thing?

Face it, Apple without Jobs looks a little less magical by the day. Like the Teflon peeling off an old pan, without the talent and charisma of this one man, you see what’s beneath the surface and it looks pretty base.

The iPhone without Google Maps is deficient since it is one of the most used features in smartphones with its turn-by-turn directions. Apple aficionados will work around it just as they accepted 3G when everyone else had 4G. The thing about genius is that it has certain trajectory – as long as people think breakthroughs are still coming, they forgive everything.

So it is with Jobs’ legacy. For now.

When Apple sued its competitor, Samsung, for infringement, the Apple devotees cheered. Closer examination showed these were not utility, but the weaker, design patents, and a hometown jury handed Apple a big victory over such laughable innovations as a “rounded rectangle.” 

With Jobs at the helm, his followers would have seen this as the ultimate validation. Jobs had made clear his willingness to undertake “thermonuclear war.” But we can expect years of appeals and with a phalanx of lawyers and generally anonymous executives in command, Apple is starting to look like any other corporation rattling its proprietary saber.  All this in crowdfriendly, open source world.

To make matters worse, Apple lost Jobs’ creative alter ego, Jonathan Ives, partly one supposes because Jobs treated him as his vessel in the creation of the iPod and the iPhone, and not as his partner. As for being a successor, that never came up. The British, of course, see him differently: he is now Sir Jonathan Ives. But now he designs for the Android world.

The man running Apple, Tim Cook, truly was Jobs’ vessel. He perfected Apple’s supply chain and lives a near-monastic lifestyle keeping this marvelous temple of American ingenuity alive.

Now that we are beginning to see the implications of the post-Jobs world – it is worth asking what really is to become of Apple? Is that a temple to grow innovation or one that will mostly remember it?

Let’s face it, Jobs was like no other exec in America. I have met him personally and you can be sure he was different from a CEO – any CEO – as a dictator is from an elected president. Running for office – of any kind – was not part of his agenda. In fact, by inventing the future, Jobs was free to act like a mid-eastern potentate from the Sheherezade or a kind of Howard Hughes of tech. His style was abrasive, his utterances unedited, punishment could be drastic and the next result was debilitating to most underlings. He never had to deal with labor unions and he found a way to set his own pricing standards with margins that astounded competitors. If this were anyone else, we would be talking about a price gouger. But somehow, he was a saint.

The Jobs we know, was an icon in the religious sense of the word. Thanks to Walter Isaacson’s biography, we know he considered himself special and that normal rules did not apply to him.

He fit the mold of a Biblical prophet - founding an industry that changed the world as profoundly as any religions while still in his twenties, only to be sent out to the wilderness by the man he hired, John Sculley. Then you had the amazing second act where he was invited back 10 years later to save the company as it was faltering.

This might as well have been the second coming as far as his followers were concerned and they stuck to him just as if they had joined a cult, which indeed they had. Like any cultist, they accepted sacrifice in the name of their leader and they forgave him when he overcharged early adopters on the iPhone – only to suddenly drop the price on them. They overlooked the flawed the antenna of the iPhone 4, the unchangeable batteries, the bad MobileMe and so on. They camped out for days just to buy these products and they would probably have walked on hot coals if he'd asked.

Clearly, the fanaticism lingers. But without Jobs you have to wonder if there isn't a certain deja vu - a revisiting of the era when Apple was run by a bunch of sue-happy, no-name executives who knew their stuff but had no magic?

Back in the 80’s when Jobs was first put to the sword, the former Pepsi exec he hired, John Sculley, took over at Apple. He was a quick study who realized that he needed to show his creative chops while also being a true corporate exec. He was polished and mature where Jobs was the irascable child. Sculley sued Microsoft for stealing the Mac interface. He won some victories but you have only to look at any computer to see how that played out.

Sculley also created a concept product called the Knowledge Navigator which became the Newton – arguably the futuristic prototype of the iPhone. However, he did so at the expense of Apple’s real business – usable computers, lightweight laptops and customer growth - and eventually he lost his job.

Apple without Jobs has a history of faltering – not at first – but inevitably because the kind of creative spirit it required is not a product of any Business School or Technology Institute. However, you could not work for Apple at that level unless you had qualifications from institutions like that. So let’s not wait for the next Jobs to show up at Apple’s Human Resources department anytime soon. His or her resume may be in the mail but it won't be read.

So there’s the dilemma, should Apple look for an innovator who is willing to risk being a bad exec but a charismatic technology leader, or pick a qualified CEO who will sacrifice good governance in pursuit of innovation?

Or should Apple find a reincarnation of Jobs?

Hint: he or she, is out there - but probably starting their own company.

Question: if Apple discovered them, would they try to hire them or put them out of business?

Tuesday, September 11, 2012

9/11 - The Day Silicon Alley Looked Helpless - Except for One DotCom'er

When Tech Seemed Irrelevant: iBreakfast Looks Back to 9/11

Despite everything – we had a hero. But not who or what you expected….

9/11 was a double whammy for Silicon Alley. The dotcom bubble had burst in April 2000 and by September 2001, whatever was left of the first wave of dotcom'ers was barely hanging on. We had even scheduled an iBreakfast about coming back from the crash with BusinessWeek editor and author, Michael Mandel.

And then this!

We remember the personal tragedies: the crowds gathered at open air spaces all over Manhattan holding up pictures of loved ones and asking if anyone had seen them. These were the saddest gatherings I have ever witnessed…..especially because we all knew the answer.

As for Silicon Alley, it seemed irrelevant.

The pictures they held up were not digital. Social Media had not arrived to make to connecting with loved ones easy. My neighbor, one of the few survivors from Canter Fitzgerald, was only recognized in the hospital because of his dentist’s business card in his jacket.

Digital was just not around. Cell phones were the primary means for people to connect. One colleague, who was in the concourse beneath the towers, was warned to get out by a phone call from a relative in London!

The only contribution made by a member of the Silicon Alley community that I am aware of, was by Andrew Furber, who happened to be a volunteer on a retired NYFD Fireboat. Andrew went down to Battery City with the fireboat, doused the fires with their powerful hoses and then cut away rebar to help trapped survivors. All pre-war technologies and the Fireboat was a survivor of that depression too. 

Later, when Andrew got home, he took time to update his website. 

The rest of us were just helpless bystanders or worse, victims.

The iBreakfast held a Silicon Alley Town Hall meeting called the Technology Response Council and followed up with several events that introduced us to facial recognition (Visionics), document verification and various security-related technologies.

In our Town Hall Meeting we drew some of the following conclusions:

  1. More sophisticated warning and information system using web technologies. (Probably done – thanks to smart phones and numerous other emergency systems.)
  2. An "EZ Pass" System for verified travelers. (Somewhat done.)
  3. More web driven surveillance and Artificial intelligence technology (We shudder to think…….)

It is worth asking how we would cope if a terrible disaster were to happen today?

One thing is certain, the dotcom revolution not only survived but moved to center stage.

So will America.


A Special thanks to Michael Drapkin for Remembering

From October 2001

How many of us have felt remarkably useless in the aftermath of the Sep. 11 attack?

You wouldn't if you were Andrew Furber, an e-business integration project manager who has worked with the iBreakfast organization on several projects in the past. Furber had been a volunteer member of the John J. Harvey, a retired 1931 New York City fireboat that group of enthusiasts had revived. His work on board, and on her pier] as a welder and engineer led him to a fill-in job after he was laid off from his company, dmind.

On the day of the bombing he was cycling to work on Pier 63 in the Chelsea area when he saw the flames appear on the Towers. As he headed toward the fireboat he saw dazed people stumbling up the West Side Highway.

When he arrived, he learned that NYFD dispatchers had called the mighty fireboat back into service under her last designation as Marine 2. As a working fireboat with powerful water pumps, she was critical to the rescue effort because the water supply downtown had been incapacitated.

When they arrived at Ground Zero the fireboat crew set about reconfiguring the hoses to supply water to the firefighters. Furber, whose background is in telecommunications, satellites and the web was pressed into service as an oxyacetylene steel cutter. Wielding his fiery torch, he followed the rescue crews to cut apart steel beams so that trapped people could be retrieved.

Furber returned to the site every day working long hours until Friday when he was shut out of the site because of heightened security during President Bush's visit.

When asked how he dealt with the horrific scene, Furber, who has nothing more than a lapsed CPR and 1st Aid instructor certification, said "I am really lucky that I was able to help." Being able to do something made him quickly get over the horror. And weeks later he has adjusted well, knowing that he had an effective part to play in the Tragedy.

We are very proud of Andrew at the iBreakfast and we would like to honor the spirit of volunteerism and simple, matter-of fact heroism he exemplified. For those of you who wish to share your good thoughts, contact him at SAiBC@andrewfurber.com. For those fascinated with the little fireboat that could, visit www.fireboat.org.


Report on the Sep 25th iBreakfast Meeting

After a moment of silence, the September 25 iBreakfast considered the terrible events we have encountered. No one really asks to be a prophet but it was hard to ignore the sadly prophetic tone of the event: it had been specially scheduled later than the typical 3rd Wed. to avoid the High Holy Days, and the topic - recovering from the depression was, in the words used to describe the speaker, Michael Mandel's book, "eerily prescient."

Mandel, the economics editor of BusinessWeek, who also wrote this week's cover story, predicted the drastic depression, in his 2000 book, "The Coming Internet Depression" because of the underlying business model of innovation that he had discerned: technology R&D had essentially been outsourced to VC-funded start-ups. Since the whole industry had grown on the expectations of VC returns from IPOs and colossal buyouts more than the start-ups collapsed: big companies had been feeding off the start-ups and the telecom expansion which in turn had been paying for the massive underlying infrastructure. Once the market collapsed, it would do a great deal more harm than damage a few VC portfolios -it would undermine the entire technology, new media and telecom chain.

The reason he predicted that the depression would be even worse than expected is because the major corporations may have survived, having outsourced their R&D, now had very little new product in their the pipeline.

Nevertheless, Mandel felt there was enough of an infrastructure in place that the outlook was fundamentally optimistic for the long term. The shakedown, in that scenario was probably healthy.

But that was before September 11th.

The future is much more difficult now: government support will never be enough to recover losses, the human and business confidence losses will continue for months to come, there is no equivalent of turning technology factories into war production factories and it is clear that the government will take over what had once been the free market and VCs for funding and business support.

That means a slower moving, substantially less entrepreneurial environment. But the industry will have to get used to it in order to get along.

In a panel following Mr. Mandel's speech with Larry Chase from Chase Online Marketing, Michael Drapkin from XB5 and Mark Oster from Grant Thornton, it was clear that companies need to think long and hard about back up procedures and much business will surround the retooling of business for security. If there is a bright spot - it is that spending for civilian security will increase dramatically and that may present opportunity for entrepreneurs.

Michael Mandel welcomes further discussion at michael.mandel@businessweek.com


"Startupalooza" Sells Out

Nothing seems to be growing quite as fast as the Startupalooza Community.

The combination of a open showcase and meetings with a dozen VCs seems to keep the drive for entrepreneurship alive. 

The winner was Robert Hertzog's eCaring

The Runners up were:


eCaring will be at the Private Equity Forum at the Yale Club on Sep 20.

Look out for the Next wave of Startupaloozas in NY, DC, CT and Boston.