Archive for November, 2004

Searching Digital Video

paulballen — Mon, 29 Nov 2004 11:24:28 -0800

I spoke to a group of educators recently and demonstrated a dozen or so powerful web based tools that anyone can use to do research and stay current on virtually any topic. One educator was concerned that only about 15% of students are self-learners, and that the power tools I demonstrated might not help the rest.

I suggested that instant messaging and social networks could help the other 85%. Self-learners could interact with others and provide them with help and guidance that they need.

But a much better answer to this problem may come when Google, Microsoft and Yahoo provide search engines that will index (eventually) millions of hours of video footage. In the future, the self-learners will be able to identify video clips that clearly teach concepts and then share those clips with non-self-learners.

One of the coolest ideas that came during the bubble but never materialized was the vision of Microstrategy founder Michael Saylor who pledged $100 million to create a free internet-based university, where thousands of the best and brightest teachers and experts and world leaders would lecture on every conceivable subject. These video lectures would be offered free to anyone. Imagine how powerful a learning tool this would be if this content were all indexed by Google's video search engine.

Saylor's personal net worth went from about $13 billion to just millions when Microstrategy's stock crashed doubly hard in 2000 from accounting irregularities and the bubble bursting. But today the company's market cap is back to $1 billion. It appears from Yahoo! that Saylor has sold much of his stock, so I don't know what his net worth is today or whether he'll ever resurrect the Internet University idea.

But I hope someone will take advantage of the powerful new video search tools that are just around the corner and amass content that could help billions of people learn about any subject from video. I definitely hope our Infobase Media Corp. will play successfully in this arena.

When I attend computer industry events (like the Consumer Electronics Show) and when I read news about content (paidcontent.org is the single best source online), it seems that 95% of it is centered on entertainment: music, Hollywood, and computer gaming.

I wish more business and government leaders would have Michael Saylor-like ideals about using technology and content to change the world in a positive way, to help hundreds of millions of people improve their lot in life. But alas, the siren song of fantasy and escape enslaves billions of couch potatoes worldwide. The best book I've read about how television destroys our culture is Neil Postman: Amusing Ourselves to Death: Public Discourse in the Age of Show Business. I just ordered two more books by Postman: How to Watch TV News, and Technology: The Surrender of Culture to Television.

I'm actually slightly optimistic that just as the interactivity of the Web has caused many young people to watch less and less television, the interactivity and empowering nature of a Google-like index to video archives will make video a tool of learning rather than the mesmerizing, time-wasting sink that it often is.

Abraham Lincoln, October 3, 1863 Thanksgiving Day Proclamation

paulballen — Fri, 26 Nov 2004 18:32:37 -0800

The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequalled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle, or the ship; the axe had enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years, with large increase of freedom.

No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy.

It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and voice by the whole American people. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquillity and Union.

In testimony whereof, I have hereunto set my hand, and caused the seal of the United States to be affixed.

Done at the city of Washington, this third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the independence of the United States the eighty-eighth.

Abraham Lincoln.

(More on the history of Thanksgiving Day from worldhistory.com)

Omniture Co-Founder Spoke at BYU

paulballen — Thu, 25 Nov 2004 06:11:38 -0800

John Pestana, co-founder of Omniture, the world's leading provider of enterprise-level web analytics, lectured on the importance of web analytics at BYU earlier this month. (View his entire lecture here)

As John said, this is a hot field. Anyone who studies and masters marketing and web analytics can do extremely well as an internet entrepreneur or key player for a larger ecommerce concern.

I have been studying web logs since 1996, designing online reporting tools since 1998, and utilizing commercial web analytics programs to make informed business decisions since 2002. I don't think I exxaggerate when I say that every successful internet entrepreneur and marketer that I know has relied heavily on web analytics to make good decisions.

Everyone has an opinion about everything, most of all web design. But if you live by the numbers and test and measure everything, then over time your web site will perform better and better, you won't make missteps, and before you know it, you'll be generating significant revenue.

Besides the Pestana lecture, I came across an introduction to web analytics from the very smart folks at Future Now Inc a couple years ago. The PDF download is really a marketing brochure to sell a $99 guide to web analytics, which I haven't purchased. But the "brochure" is free and introduces you to some important concepts.

I don't think I've yet purchased a book on web analytics, but I've actually considered writing one.

Inspired by Warren Buffett

paulballen — Thu, 25 Nov 2004 05:11:07 -0800

I'm 150 pages into The Warren Buffett Way: Investment Strategies of the World's Greatest Investor, a book that was published ten years ago that I bought onsale for $5.98. I have been slowly and carefully studying this book, marking it up, and writing each big idea that I find inside the back cover, in good Tim Sander's fashion. I truly want to understand why Warren Buffett has succeeded.

Here are a few of the key points so far (I have highlighted more than 100 key ideas):

Insurance companies make most of their profits from their investments, not from writing policies. The most important role in an insurance company is Chief Investment Officer. Buffett has been really big in insurance for decades--now I know why. Investing the cash flow well creates large fortunes.
Buffett says, "I am a better investor because I am a businessman, and a better businessman because I am an investor." He doesn't play the stock market or focus undue attention on macro economics and government reports to time his purchases. He buys stocks with intrisic value with the long term in mind. He said the nine most important words ever written about investing are from his mentor Benjamin Graham: "Investing is most intelligent when it is most businesslike." When you invest in a company, you own part of a real company, not just paper for trading. Therefore, know everything about the business when you invest in it, as if you were the CEO.
Invest only within your circle of competence. What this means to me is that while Buffett avoids high-tech stocks, that is all that I know. My holdings would be entirely different from Buffett's. But my expertise in internet marketing and online business models will inform my decisions, so I can have a "margin of safety" and know that a company's value is greater than it's current stock price (based on an informed model showing net present value of future earnings) before making any purchase decisions. Last year, I bought Audible.com at $0.58. From my experience in internet marketing and online subscription business models, I knew that they were just about to turn the corner. By avoiding bankruptcy and because of their franchise value as the defining player in the field of digital audio books, their value would skyrocket. The company reported their first profitable quarter in 24-25 quarters and the stock started picking up. At the end of the year, I sold Audible for about $4.00, locking in a nearly 600% return in just a few months. But why did I sell at that time? I made no calculations projecting future earnings potential. I didn't build a financial model as Buffett would to show whether or not the stock was overvalued. Instead I sold just because I could. Today Audible.com is trading north of $27.00. I blew this one, because I didn't do it the Buffett Way.
As an investor, inactivity is good. Sloth and lethargy are literally his strategy. He doesn't believe in trading stocks continually just because you can. He says all of his success can be traced to a small number of investment decisions in his life. He says we should act as if we are each given a punch card in life and we can make 20 trades in our life. That's it. Not hundreds. Not thousands. But twenty investment decisions. If we take this approach, each investment decision we make will be informed by a deep knowledge and understanding of the company's financial statements and economics and the management team.

In all my years of business and limited experience in investing, I've never before taken time to understand Warren Buffett. Now that I'm studying his approach to investing, I want to learn even more. Next April 30, Berkshire Hathaway holds its annual stockholder meeting in Omaha. I understand that 15,000 people flood into Omaha each year for this annual event. I'd love to attend.

Question #1: Does anyone know if this event is only open to Berkshire stockholders? Or is it open to the general public?

Question #2: Besides the book I'm studying, what is the single best source of information on Warren Buffett's approach to investing? (I intend to study some of his recent annual reports, which are available on the Berkshire Hathaway website.)

Trivia Item #1: Warren Buffett's father Howard was a stockbroker-turned-Congressman from Nebraska.

Trivia Item #2: Overstock CEO Patrick Byrne's father was close friends with Warren Buffett and was president of GEICO insurance from 1976-1986 (one of Buffett's major holdings.)

Link #1: If you want to spend an incredible hour, watch the streaming video of Patrick Byrne speaking at BYU earlier this year. He claims that Buffett taught him some of the most valuable lessons of his life.

I look forward to your comments.

P. AllenBlogger

My First Use of Google Answers

paulballen — Wed, 24 Nov 2004 18:42:07 -0800

I was pleased when Google launched its Google Answers service way back in 2003. It is a remarkably simple and powerful tool when you can't find an answer to any question on the world wide web. I've searched the answer database and found some pretty interesting questions and answers, but today I used it for the first time to post a question:

I'm looking for the leading classical music labels in the world.

I'm pretty certain that I could spend a few hours online or in the local university research library and come up with a pretty good list myself. But to save time, I've offered $50 if someone else will do this research for me.

I'll report later on how this test goes. A recent article by Linda Arret in Info Today suggests that Google Answers is declining, not growing, and that other online reference services have not fared well.

"Few companies on the Web have more exposure or marketing clout than Google. Yet with over 200,000,000 searches per day, it never has attracted more than a couple of hundred questions per day to Google Answers and, in recent months, the average has dropped down to around 60-70. Granted, you do have to pay for the service, but at an average fee of $15- $20 hardly seems much of a barrier. However, the most compelling evidence that marketing can only help so much is the untimely demise of live reference services such as WebHelp and of the commercial reference market in general. Many of these services spent millions of dollars of venture capital money on marketing. WebHelp even put up a giant, two-story-high neon revolving sign on the busiest street in Toronto, as well as banner ads all over the Web. While those antics may have bought some traffic for awhile, it was not enough to make for a sustainable business model and today all are gone--along with the millions spent trying to market their services. The limited traffic at Google Answers and the demise of well-funded commercial reference services on the Web raise some serious questions about just how much people really need or want reference services online--no matter how well marketed--at least in the ways we have offered up until now."

So I'm not extremely confident that I'll get my question answered, but I still think it is worth a shot.

I think Google Answers has significant potential.

They could figure out a way turn some of the 200,000,000 daily queries into questions (like Ask Jeeves) with a text link that says, "Have your query answered by an expert". Then Google users could be post their questions on Google Answers (after setting up an account, of course). But this is many steps and may just get in the way of the super-efficient paid click revenue model.

Perhaps a better suggestion is that Google Answers launch an affiliate program that incentivizes (some people use the word "incents" but I looked it up and "incentivize" is the proper word according to dictionary.com) other web reference web sites to tell their users to submit questions to Google Answers. The referring web sites would then share in the revenue from Google Answers. (I don't know how much Google pays to the researchers, though, so this would lead to a three-way split and may not be very profitable.)

Agilix Seeks Interactive Marketing Manager

paulballen — Tue, 23 Nov 2004 01:11:34 -0800

Agilix, a profitable Utah company that received $4.35 million in VC funding earlier this year, has posted this job opening:

INTERACTIVE MARKETING DIRECTOR

Growing software company seeks to fill critical Interactive Marketing role to accelerate growth through email and web-based marketing activities. Requirements: 2 - 5 years experience with email campaign management, copy writing, web site analytics & reporting, ecommerce promo systems, HTML and Photoshop knowledge a plus. Send cover letter, writing samples, and resume to resumes@agilix.com. No phone calls.

Benefits of Blogging

paulballen — Mon, 22 Nov 2004 15:21:30 -0800

Yesterday my blog turned one.

On November 21, 2003 I blogged a suggestion to Google's founders that they should launch a desktop search engine before Microsoft could incorporate their planned desktop and web search engine in Longhorn. (I'm very happy to say they have done this, and would have, with or without my blog!)

I've had a lot of fun over the last year blogging about technology and business. In fact, writing is now the funnest thing I do. It forces me to concentrate on one topic and at least try to say something that will be intelligible and meaningful to others. It leads me to pay far more attention when I'm reading. I'm continually looking for new information and for opinions that I either agree with and want to endorse or disagree with and explain why. I think it has helped me think and communicate more clearly.

In October, my blog had more than 25,000 visits. Several times a week I receive comments or emails from people who have read my blog and appreciate my efforts. That is gratifying.

As I think back on the past year of blogging and the new people I have met as a result, I think back to America's original blogger, Benjamin Franklin.

Franklin is one of my heroes. His success in life began as an printer and then author, daily churning out his thoughts and ideas, sometimes under his own name, and sometimes in disguise.

Franklin spent the first 40 years of his life in printing and business. He made a great deal of money. Then, he spent the last 40+ years of his life in public service.

He was postmaster general, member of the Continential Congress, and ambassador/minister to France. But all his life (according to a recent biography I listened to from Audible.com on my iPod) he signed his name

B. Franklin, Printer.

I think I know why.

Words are powerful. According to scripture, they are more powerful than the sword.

Through the power of the press, Benjamin Franklin helped rally a nation to fight for independence from the British crown. He had helped Thomas Paine emigrate from England in October 1774. With some assistance from Franklin, Thomas Paine went on to publish the pamphlet Common Sense, which more than any other tract rallied Americans (including George Washington) to fight for independence. It is reported that more than 500,000 copies of Common Sense were printed in a nation of just a few million people.

A great nation was formed by the power of words and the freedom of the press which gave expression to those words.

Now I know what you are thinking..."I knew Benjamin Franklin, and you are no Benjamin Franklin."

But like Benjamin Franklin, I have begun to taste the benefits of writing and printing, albeit my printing is electronic and global, not paper-based and local.

Because of my blog, I have been asked to write a column for Connect Magazine, circulation 9,500. This monthly magazine reaches many of Utah's high tech business leaders. I have a feeling, too, that I will be writing books soon.

Because of blogging, I have gotten acquainted with dozens of talented business people, internet marketers, and even angel and venture investors. Recently I got an email from an EIR (Entrepreneur in Residence) from a very prestigious Silicon Valley venture firm. He said he had read nearly all of my posts and wanted to meet next time I'm in the Bay Area.

How valuable are these new connections? They are priceless. In some ways, because it helps me form connections with like-minded people all over the world, blogging may be the most important thing I do.

But like some other good habits I have developed over the years which are hard to teach and harder yet to convince others to do (like taking notes at every meeting you attend, and storing all your personal knowledge in a searchable database), I have a very hard time convincing anyone to start their own blog. Most think it would be a waste of time.

But for me, as I said before, in many ways, this is the most important thing I do. That is why I will sign off, respectfully yours,

P. Allen, Blogger

Wrap Up For This Week

paulballen — Fri, 19 Nov 2004 22:37:45 -0800

Today I spoke about Raising Capital From Angel Investors at the Miller Innovation Center in Sandy, Utah. If you are starting a company in Utah, you should consider getting office space and other services from this group. The companies I know there are very happy with the business accelerator services there.

Other Infobase Ventures updates from this week include:

Infobase Media Corp. finished the gold master for the new 2005 LDS Collectors Library CD ROM (done in partnership with Deseret Book) and duplicated 20,000 copies, which arrived this week and should be in retail stores shortly.
Infobase Media Corp is researching an audio recording project for several hours of audio each month in each of 10 languages. (If you know of a good recording studio or audio engineer, please let me know)
Last Friday Directory.net closed on an additional $150,000 in funding.
This week Directory.net launched its Searchability (TM) search engine optimization service with its first partner
10x Marketing held a board meeting. The company has been profitable for 12 consecutive months and is considering raising capital for expansion into other markets, including international.
iCount.com is close to launching its initial social networking features for political activists; the company has also determined which initial revenue stream it will pursue.
Utah Angel Network will be changing its name, most likely to FundingUtah.com, and will be launching its initial web site in December. This will be a free matching service for Utah entrepreneurs and investors.

All in all--a very eventful week.

Customized Feeds on My Yahoo!

paulballen — Tue, 16 Nov 2004 11:01:26 -0800

My sister told me that she recently customized her Yahoo desktop so that all of my latest blogs would show up. So I did the same thing. It's amazing to see my posts show up on My Yahoo right next to CBS Marketwatch news and Reuters Internet news. (I wish I knew how to post images to my blog--I'd show you a screenshot.) I'll be adding my other favorite bloggers (besides me!) to My Yahoo soon.

Angel Investing and Venture Capital

paulballen — Fri, 12 Nov 2004 12:17:00 -0800

A new report from the Center for Venture Research (New Hampshire) reveals the amount of angel investing and venture capital investing in the U.S. last year. The San Francisco Business Times article says:

Last year, angels invested an estimated $18.1 billion in 42,000 deals, down from the historical average over the last decade of $30 billion invested per year in 50,000 ventures, according to figures compiled by the Center for Venture Research at the University of New Hampshire. By comparison, last year venture capitalists invested $18.2 billion, according to the National Venture Capital Association. But only 2 percent of that money went into seed or early-stage investments.

This is the key problem for most entrepreneurs. Most are not ready for venture capital. They need angels to back them early on and help them grow to the point of being ready for venture capital.

Yesterday I attended the NASVF (National Association of Seed and Venture Funds) conference in Salt Lake City at the Grand America hotel. This is an organization that focuses on early stage investing, whether it be from angels or early stage VCs. The conference was outstanding.

Keynote

Guy Kawasaki was the keynote speaker at lunch. As always he was outstanding. (He signed a copy of the Art of the Start for me. If you are an entrepreneur, you must read this book.)

How to Raise Your First Venture Fund

I attended a session on how to raise your first venture fund--a very difficult task. Greg Warnock of vSpring explained in detail how vSpring raised its first $120 million fund, from three main groups--private entrepreneurs they knew ($20 million), then SBIC funds ($70 million), then institutional investors such as Zions Bank, Wells Fargo, and Merrill Lynch (the remaining $30 million).

Angel Investor Groups

Bill Payne discussed Tech Coast Angels, a network of three angel groups based in Southern California that has 220- members who have invested $51 million in 80 companies. In this angel investment group model, each member pays $1,500 in annual dues; each venture associate pays $3,000 and sponsors pay $4,000.

Scott Frazier from Utah Angels described how this group of friends meets for social as well as financial purposes, and they have invested $13 million in 32 companies since 1997.

John May spoke about a managed angel investment fund called New Vantage Group which he runs. As fund manager, he does much of the screening work on potential investments. Members meet often and get to vote on which deals get funded. This is more like a venture fund -- it charges a management fee of 2.5% and a carry interest similar to a venture fund.

All three angel groups seem to be generating good returns (I would say the average IRR sounds like about 19-20%) for investors, despite a few failures in each portfolio.

Civic Entrepreneurship

Will West and Ken Wooley, two Utah entrepreneurial luminaries, sat on a panel which discussed how to get entrepreneurs to give back to society (answer: "ask them"), and how to create civic entrepreneurs.

Will has raised about $200 million, or about 12% of the total private equity ever raised in the state of Utah. He said almost 98.5% of it came from outside the state. Two of his successful companies are STSN and Control4. Will sits on the Utah Fund of Funds committee which will appoint a manager to disperse about $100 million in state funds to venture capital firms who can give the state a good return and will be likely to invest some of these funds in Utah.

I've not met Ken before, but I blogged a few months ago about the IPO of Extra Space Storage, which I believe raised more money than any IPO in Utah history. He said yesterday that he started that company 25 years ago and is the chairman. Ken was also involved in Megahertz and started Mountain West College (a for-profit school) and he currently has 6-8 angel investments.

Every community needs successful entrepreneurs who are civic minded and try to make the world a better place. Utah is lucky to have Will West, Ken Wooley and others who are so desirous to give back.

Skype Introduces API

paulballen — Wed, 10 Nov 2004 21:11:47 -0800

Skype strikes again. They have introduced an API for developers that will allow software and web sites to offer integrated Skype functionality (free long distance calling to other Skype users). It's free for non-commercial applications; there will be some licensing fees for commercial uses.

Skype has had 33 million downloads and has served 2.4 billion minutes of free voice calls so far. Momentum is gaining. Allowing other developers to integrate this tool into games, web sites, call centers, etc, will greatly increase the Skype footprint.

Microsoft to Launch New Search Engine Thursday

paulballen — Wed, 10 Nov 2004 21:11:18 -0800

Microsoft Search Engine

Before Meeting with a Venture Capitalist . . .

paulballen — Wed, 10 Nov 2004 08:53:22 -0800

. . . I recommend reading two books that reveal the inner workings of venture funds:

Confessions of a Venture Capitalist, by Ruthann Quindlen
eBoys by Randall Stross

Another one I purchased but haven't read yet is Breakfast at Buck's, a book by Jamis Macniven, owner of Buck's Pancake House in Woodside, California. This restaurant is perhaps the #1 lunch/meeting spot in the world for venture capitalists.

I think it is important to understand the mindset of venture capitalists and the intense pressure that they operate under to perform for their limited investors. I think it's also instructive to understand their selection criteria for even looking at a deal in the first place, and a bit about how competitive they are with other VCs, and sometimes how they do admittedly have a herd mentality.

Perpetual Philanthropists

paulballen — Fri, 05 Nov 2004 09:39:55 -0800

Yesterday I lectured at a Brigham Young University course titled "Spiritual Issues in Management". This course is taught by the incredibly talented Yvette Arts and provides 2 religion class credits and 1 business credit. I wonder if any other university offers a course such as this.

I was asked to address the topic of ethics and wealth. I discussed my own experiences in entrepreneurship and raising venture capital and the challenge of overcoming negative feelings against others when the company I founded ended up being controlled by others.

The key for me was reading in the New Testament one morning where the Apostle Paul said (speaking of his very successful missionary labors), "I planted, Apollos watered, but God gave the increase; therefore, he that planted is not anything and he that watered is not anything, but God that gave the increase." (This is my paraphrase)

When it struck me everything we do that prospers is only as a result of God's gifts to us, and that we should take no credit, I was humbled and immediately freed of my negative emotions about people whom I earlier thought were taking away from me the company that "I had founded." (Whenever those negative feelings creep back I force myself to think of the powerful spiritual experience I had when God said to me, through his Word, that I am not anything.)

Since then, I have carefully watched how some entrepreneurs and inventors and innovators do give God all the credit. Being freed from the "I built this company and I deserve the most money for doing so" attitude is a wonderful thing. If we give God the credit, and the glory, then whatever we end up with (in terms of material things) is satisfying and full of gratitude. If we end up with nothing, then we can say as Job did, "The Lord giveth and the Lord taketh away: blessed be the name of the Lord."

I intended to spend most of my lecture talking about my philanthropic heroes, but I had to rush through them in just a few minutes.

My philanthropic heroes are those who give gifts that are perpetual--gifts that bless the world forever. Namely,

Sir Thomas Bodley, who donated money for the original library at Oxford, now the world-renowned Bodleian Library. King James I quipped once that his name should have been Godly and not Bodley.
James Smithson, who never set foot in the U.S. but donated the 100,000 pounds to endow what became the Smithsonian Institution
Leland and Jane Stanford, who built and endowed Stanford University
Pierre Omidyar, founder of eBay, who in 2002 publicly said he would give away 99% of his wealth over the next 20 years, much of it to the Omidyar Foundation.
The LDS Church recently instituted the Perpetual Education Fund, patterned after the 19th century Perpetual Emigrating Fund which helped tens of thousands of impoverished immigrants come from England and Scandinavia to Utah, to start a new life. (One of the immigrants was 14-year old David Eccles, whose family borrowed 70 pounds, and settled in Utah. Within a few decades, David became Utah's first multi-millionaire. At the time of his death, David Eccles owned 27 businesses and was worth between $10-20 million. There are now a half dozen foundations named after Eccles family members whose total assets exceed, I believe, $1 billion.)The Perpetual Education Fund has already provided loans to about 15,000 students, who on average raise their income levels by 4 times. After repaying their loans, the funds are available to more students. Since education is the key to opportunity in life, this program is centered directly on the thing that has the greatest potential to change and bless the world--increasing human capital.

I can't fail to mention the Gates Foundation, which I believe has $17 billion in funds and will perpetually bless humankind; or Mohammed Yunus, founder of the Grameen Bank and micro-credit lending pioneer which has lifted millions of people from poverty since the 1970s.

There are many, many others, including the Academy for Creating Enterprise (founded by Steve Gibson) which operates presently in the Philippines and has helped more than 600 people learn how to start their own business.

In our own way, small or large, each person has the opportunity to endow a fund or donate to a program (such as PEF) or give a gift to bless our future posterity or the world at large. It might be writing a book containing life lessons and experiences that generations to come will treasure. It might be volunteering or teaching and changing but one life. Everyone can choose to leave a legacy that will be perpetual and thus be immortalized.

Help Earn Money to Buy a Horse

paulballen — Tue, 02 Nov 2004 17:58:25 -0800

A great email from one of my readers:

Since you are such an proponent of Internet entreprenuerism, I thought you might enjoy seeing what my 8 year daughter has pulled off for about $50. Take a look at

http://horseshues.com

And no, she isn't looking for investment capital ;) She is raising�money to buy a horse. She sold enough in the first week to pay back all the start up capital we fronted her, and show a profit. I'm now fairly certain she will have the money for a horse several years before I was really planning on owning one.

No other point to this email. I read you regularly and thought you might want to say something about the micro end of the Internet scene. For every Google there are probably a thousand people like my daughter�finding creative ways to use the Internet for goals a little short of world domination!

Everyone please visit www.horseshues.com and help an 8-year old girl earn enough money to buy a horse. I love it--the spirit of entrepreneurship is alive and well, even among the very young.

Reading List for Internet Execs

paulballen — Mon, 01 Nov 2004 22:11:09 -0800

I'm halfway done re-reading Permission Marketing by Seth Godin, the classic text (written in 1999) for internet marketers. This time, in good Tim Sanders fashion, I'm marking the book up like crazy and making it mine. Permission Marketing was very influential at MyFamily.com/Ancestry.com. Problem was, whenever I read a key book, I'd give my copy away and never see it again. When you haven't pick up a book for 5 years, you forget all the details and just have some general notions about what you should be doing. I love getting back into the details of how internet-based permission marketing is revolutionizing advertising and will eventually overthrow the Interruption Marketing that was used to build all the great brands of the past. Godin spent millions of dollars on wasteful television advertising back when that was the only way to reach mass markets. But he has spent much of the last decade pioneering the use of the internet in marketing, and he shares his learning freely.

I have a recommending reading list for entrepreneurs, but I need to update it.

Books are so underrated. As Tim Sanders says in Love is the Killer App, 80% of your reading time should be spent with books.

I'm thinking of creating a curriculum for employees of Infobase Ventures companies, a reading list, as it were, for every major position in the company. There are a handful of books that I hope all our CEOs read, including The Art of the Start, Good to Great, First Break All the Rules, and Game of Work. I can think of a dozen critical readings (including MarketingSherpa summit transcripts) for all marketing employees.

Phil Windley (BYU CS Professor) told me the other day that when he mentors a graduate student in the lab, he provides him/her with all kinds of reading materials as part of the learning process. But once someone has a job, how much is invested in their ongoing training? Steve Jurvetson (my favorite VC) says we should embrace lifelong learning--how many companies help employees do this?

I think most companies neglect the development of intellectual capital among their employees.

Google may come closest. By requiring all employees to spend 20% of their time on a pet project (while Larry and Sergey keep a list of the top 100 most promising projects in the company) I think Google will unlock the creativity and promote the ongoing learning (we learn more when we're applying what we learn, rather than just talking about it) of thousands of bright employees. This culture of learning and experimenting at Google will go far towards making the company one of the most valuable companies in the world.

In addition to a reading list of core books and documents, each position in a company should have its own set of keywords for Google News Alerts as well, so that key employees can stay up with the latest news on competitors, new technologies, marketing trends, etc.

MyFamily.com Hiring International Managers

paulballen — Mon, 01 Nov 2004 20:11:02 -0800

Google Alerts notified me over the weekend that MyFamily.com has 20 job openings right now including a few international positions. A VP International with 12-15 years international experience is sought to help the company expand into Europe, Asia, and Latin America. The company currently has 1200 employees.

Finders Keepers, Founders Weepers

paulballen — Mon, 01 Nov 2004 15:36:11 -0800

I have heard that Ray Noorda (Novell fame) used to say, "Finders Keepers, Founders Weepers" to indicate that most of the time inventors and entrepreneurs don't end up with much. Business savvy investors and later stage business managers can often clean up for themselves, leaving entrepreneurs with nothing but the pride of knowing what they started.

It appears that this has happened yet again, in a fairly high profile case. Gary Rivlin, NY Times writer, discusses how 4 of the 5 founders of Epinions made nothing in the recent IPO of Shopping.com. (Shopping.com was formed last year with the merger of Epinions and DealTime.com).

Rivlin's article says:

Before the offering, Epinions had two classes of shares: common stock, which was granted to the founders and employees, and preferred shares, which were given to investors. Their preferred shares in Epinions entitled the financiers to be reimbursed the $45 million they had invested before anyone else was compensated.

Today, the Epinions portion of Shopping.com is worth hundreds of millions, but at the time of the DealTime merger, Epinions was valued at roughly $30 million, which rendered all common shares worthless.

"The question we're asking," said one former Epinions employee who asked not to be identified and who plans to be part of the lawsuit, "is how this company supposedly worth only $30 million was suddenly worth $300 million only 18 months later."

When entrepreneurs and employees and early angel investors get common shares, and venture capital firms get preferred shares, there are many scenarios under which the VCs take all--even in the case of a successful outcome like Shopping.com.

The problem is that VCs typically end up controlling the board of directors. This gives them control over the timing of a liquidity event, and whether the company will choose to pursue an initial public offering (IPO) or be acquired.

If preferred shareholders control the board, they therefore have the power to crush the common shareholders by triggering a liquidation event at any time. If the valuation at that point is not higher than the Liquidation Preference, then the common shareholders get nothing.

For any number of reasons, a board of directors may decide to take an action (such as deciding to sell or merge the company) which is considered a liquidation. The valuation of the company at that moment determines whether common shareholders end up with anything at all.

For me, the trouble begins with the word "liquidation."

Venture capital documents define what qualifies as a liquidation event. According to Term Sheets and Valuations, a typical liquidation clause looks like this:

"a merger, acquisition, or sale of substantially all of the assets of the Company in which the shareholders of the Company do not own a majority of the outstanding shares of the surviving corporation shall be deemed to be a liquidation."

Because Epinions was valued at only $30 million when the DealTime merger occured, and the preferreds held $45 million in preferences, the Epinions preferred shareholders ended up with 100% of the value of Epinions. The common shareholders got nothing.

I bet the preferred shareholders controlled the board of directors when this merger occured.

This terrible outcome for Epinions founders brings back a lot of memories for me. A similar scenario almost occured at MyFamily.com. Fortunately, we barely escaped this fate. Our common shareholders experienced a serious but not a complete devaluation.

Here's how our story played out.

From 1998 to 2000, MyFamily.com raised funding rounds of $12 million, $30 million, $33 million from venture capital firms at increasing valuations. So we had liquidation preferences equalling $75 million.

Back in the day when our valuations were in the hundreds of millions of dollars, no one seemed too worried about "liquidation preferences."

I moved to Silicon Valley to open our west coast office and help us move towards an IPO.

The cost of living in the Valley was (and is still) outrageous, and I was running up a serious personal debt. But I had no fear of that debt because of my stake in MyFamily.com. I could always ease my mind about the debt by doing some simple math: "I own X percent of MyFamily.com which will eventually translate into X million dollars--even if the company is only valued at say $100 million."

Little did I know how wrong that mental math was.

For us, the problem began after the stock market decline of April 2000. By late fall, we were in need of additional cash, but our management didn't want to do a "down round." To avoid raising money at a lower valuation than before, our CEO worked out an acquisition of ThirdAge Media, a San Francisco-based company that had some cash and was looking for a business model that worked. (Advertising models were really being hammered back then.)

The merger was quickly approved by our board. Only afterwards did one of our largest common shareholders give me a real education.

He explained to me that ThirdAge carried into the deal another $70 million in liquidation preferences--bringing our total to $145 million.

He explained to me that if the company were sold tomorrow for anything less than $145 million, that the preferreds would take all and the common stock would be worthless.

All of a sudden my mental math ("I own X percent of a company worth at least $100 million") was meaningless.

For the first time I understood that all the common shares might be worth zero.

As I naive entrepreneur in my first venture-backed company I had always assumed that the term liquidation meant "fire-sale."

The only time I had seen that term used was in connection to a "going out of business sale" by local mattress and furniture companies. I actually thought liquidation preferences meant that if we went out of business, the VCs would end up with whatever assets the company had to help pay back their investment. That was only fair.

This had never bothered me at all. We were not going to fail. Our core subscription business was always strong, so a liquidation would never occur. I thought we would either be acquired for a huge sum of money or have an IPO, in which case preferred shares would convert to common shares.

A liquidity event, yes; a liquidation event, no way.

I didn't understand the meaning of the word.

I did not realize then that a merger or sale of the company, even at a decent valuation, could trigger a liquidation event, give the preferred shareholders their investment back, and render common shares completely worthless.

Within six weeks of learning this tough lesson, I moved back to Utah, dramatically cut my cost of living, and did everything I could to help the company raise a final round of funding and get to profitability.

Fortunately, in conjunction with our Series E round of funding, our CEO persuaded the preferred shareholders that to keep the company alive (to retain management and employees and to attract new investment) all preferred shares from earlier rounds needed to convert to common shares. A ratio was negotiated and the conversion occured.

Now, the only preferred shares in the company are from the Series E round.

I relate this story for one reason only: to educate other entrepreneurs about a key clause in venture capital term sheets--liquidation preferences. Never do a deal unless you understand all the terms.

I strongly recommend the excellent book Term Sheets and Valuations, written by a VC to help educate entrepreneurs about clauses in venture deals. You should also talk with legal and financial advisors with recent experience.

I wish VC deals could be more balanced and not so investor favorable. I have only one reason to hope that they will: I recently heard of a venture deal where the venture fund took common shares in a company that is profitable and very promising.

Now that, in my book, is fair. I wish all venture fundings were this fair and balanced.

Now I don't want to be misunderstood. I am not against venture capital.

I am against entrepreneurs seeking venture capital without understanding the terms and risks--which I think few do.

I also think few entrepreneurs and inventors realize that most of them won't end up with nearly the payoff that some of the more business savvy investors and late stage business managers achieve.

If you want to mentally prepare yourself for the potential disappointment of building something great and seeing most (if not all) of the financial rewards being taken by others, I suggest you read the concluding chapter of Crossing the Chasm, the classic high-tech marketing book by Geoffrey Moore.

Moore talks about the difference between pioneers and settlers.

Pioneers are entrepreneurs, technologists and salespeople who create a business out of nothing and in a state of early stage chaos build a promising venture. Companies cannot be created and built without pioneers.

But at a certain stage, when high tech companies are trying to "cross the chasm" from an early adopter to a mass market, with all the standardization of processes and all the pragmatism that this entails, the pioneers are no longer needed. In fact, they can become a liability.

What is needed in the "post-chasm" stage are settlers who are willing to systematize the business processes and build a stable and predictably profitable company.

I re-read Moore's book a couple of years ago after the common share devaluation experience. I felt much better after realizing how critical the settlers are in building a sustainable enterprise (like how Dell CEO Kevin Rollins put so many systems in place at Dell, taking it from a $2 billion to a $50 billion company along the way). I almost felt that Moore was claiming that settlers roles are in fact more valuable than pioneers and that if everyone went into a business understanding this fact, that much disappointment would be avoided down the road.

Perhaps all entrepreneurs should entertain this humbling thought, that you are not the most important person in your company, even if you created it.

You need settlers to take you to the next level. And they should be generously rewarded for doing so.

If you think you've been ripped off by investors or settlers, my advice is to get over it, move on with your life. Do you want to end up like the Wright brothers, involved in lawsuit after lawsuit while others are taking your ideas to the next level? Just start over, do it again. After all, you're a pioneer.

(Note: The Wright brothers won their patent lawsuit in 1914, but it was a hollow victory since Wilbur had died of typhoid fever 2 years earlier and Orville had spent so much time in court that others had leapfroged his invention and taken aeronautics to entirely new heights...pun intended.)

(Thanks to John Richards for sending me the NY Times story.)