February 24, 2005

"Making no decision is worse than making a wrong decision"

VC Fred Wilson writes on his blog:

I believe that Teddy Roosevelt (one of my favorite Presidents) had it right when he said:
In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.
The CEO (of one of Wilson's portfolio companies) did something. Some of what he did was wrong. But he realized it, changed course, and he's still a lot better off than if he did nothing.

Had he analyzed the situation for another 3 months, he wouldn't be better off. He'd be no better than where he is today and possibly a lot worse.

I think action and risk taking is what separates great entrepreneurs from the pack. I am not advocating blind risk taking, but I am advocating making a decision based on less than perfect information and going for it. More often than not, you will be rewarded for doing that.


Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

February 15, 2005

Advantages of Flat Rate pricing

Tom Evslin writes on the attractiveness of "flat-rate" or "all you can eat" pricing to both consumers and service providers:

If you can find a way to price a service at a flat monthly rate, you can make a better profit per customer and attract more customers than if your pricing is based on reading a meter. You also save a fortune in detailed billing, dispute resolution, and issuing credits...

...When we started AT&T WorldNet Service, we borrowed that idea and popularized it with the still hugely powerful AT&T brand behind it. Some said we’d go broke; others that we would ruin the Internet.

To hedge our bets, we also offered a metered access plan. We didn’t want to lose out on people who planned to spend less that $19.95 per month. To our surprise, people typically converted themselves from metered access to subscription when their monthly bill was around eleven or twelve dollars. And their usage didn’t spike after conversion. People were paying a premium for predictability and simplicity. With a subscription plan, they didn’t feel they had to keep track of minutes to make sure they weren’t being overcharged and they weren’t worried about surprises...

...There are two good arguments against subscription pricing:

1. If the subscription rate is high enough to return a profit for customers with typical use, it will be too high for customers with low usage so you will lose them.

2. Some customers will “abuse” the fixed price and overuse the service; perhaps even resell it.


Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

"Real startup entrepreneurs don’t raise VC"

Jason Calacanis, who created and sold VentureReporter.net to Dow Jones:

Why are my friends who are VCs telling me not to raise venture capital all the time?!?!? Very simple, it is the most expensive and explosive money you can raise...

...Venture capital money is highly combustible, and it can either propel you to heights of unimaginable fame and glory (Google, EBAY, etc.)—or it can blow up in your face and destroy you (Kozmo, WebVan, etc.).

..(VCs) believe in preferred shares and liquidation preferences. What these terms mean is that the VCs get their investment out of the company before anyone else, and in some cases they get 2-4x their money out before anyone else. If they invest $5M in your company and you sell for $10M some day that means they are getting their $5M—or a multiple of that in many cases—out before you even start to split the money. Now, VCs are taking risk, but aren’t the entrepreneurs taking risk as well (at least the ones who don’t pay themselves $300k a year in VC money)? I’m a fan of everyone have the same stock, and everyone getting out at the same time—call me a communist if you will, but I like everyone aligned. How does your money get in front of my money/giving up my life?

...Most entrepreneurs get three or four chances to swing the bat. Each company takes 3 to 5 years to play out, so you’re looking 20-30 years of your life if you start a couple of companies. An average VC might do a half-dozen or dozen deals in each fund, and do three to five funds in their life (funds take 5-7 years to play out, and they overlap). So, a VC has a bunch of swings they can warm up with, as an entrepreneur you have to make every swing count—but you’re swing at the same pitches! A VC might let your first or second business go by waiting for the right pitch (i.e. they shut your company down).

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.

February 05, 2005

Difference between a founder and a CEO

Michael Simmons quoting a speech by Paul Orfalea, founder and chairman Emeritus of Kinkos:

He made a great distinction between people managing their career (CEO) and managing their business (Owner). I never made this distinction, but these are two very different paths in many respects. A CEO must think a lot more about politics, pleasing people, and looking good to move up the ladder. The founder and owner, is more interested in the results of the businesses he or she is a part of.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.