Changes at Provo Labs: Returning to the Original Vision

A month or so ago I held a difficult meeting with all the employees at Provo Labs. I started the meeting by admitting that I had made some mistakes in the past six months. Specifically, our burn rate got too high as we hired too many people, particularly developers. Our sales and marketing investments weren’t sufficient enough to cover our overhead. And more importantly, we weren’t creating dedicated teams for each new company idea, and giving the team members equity and letting them take risks along with the investor (Provo Labs), risks such as lower-than market salary. Instead, we were paying full salaries, and not giving options out, and shifting people from project to project. We should always be in bootstrap mode and we should not try to do so many things at once.

In fact, I now believe that rapid serial entrepreneurship is superior to parallel entrepreneurship, at least for me. I’d like to do one company at a time until it gets on its feet, before shifting attention to the next one. Maybe I’ll try that in the future.

So at the company meeting I announced that Provo Labs would return to its roots as an investment company in seed stage startups (usually from ideas that I generate) and that all the existing staff would be assigned to one of the existing portfolio companies (some of them were already dedicated to a single company already) or be let go.

Our remaining funds were not going to be used to incubate new startup companies, but to support the 11 companies in our current portfolio. Specifically, I am choosing to fully fund 10Speed Media, a promising company that runs a video affiliate network mainly for direct response video, and WorldVitalRecords.com, which aims to be the #2 genealogy company in the world.

I was blunt in saying that our other companies would have to sink or swim, or as one developer put it, eat what they kill. This of course causes everyone in each company to focus on generating revenue. That is a good thing.

I also said that options would (finally) be available for employees in each company. (It was always the intention to do this, but we didn’t always get around to it). If sacrifices have to be made by team members, then of course they are taking risks and deserve the reward of more ownership.

The meeting went better than I expected, but it still made it very difficult to let go of 6 talented employees who don’t fit with the current needs of any of our portfolio companies, or where funding just isn’t adequate to keep them.

Hardest hit was the development team, led by Phil Burns, an extremely creative and well connected technology, and someone who has become a good friend over the past year. My proposal there, since Phil had been working for a few weeks to find contract work from outside clients, was to spin out the technology team into a new company that does Web 2.0 development work. One of my close friends helped form Erudite, a development outsourcing and training company in the 1990s that was the fastest growing company in Utah for 2 years in a row. Doing contract development work is not necessarily a high margin business, but with a focus on Web 2.0, and with a large network of developers and a nice reach into the blogosphere, I was hopeful that Phil and his team could land some large contracts and keep things going.

Provo Labs original vision was to fund 12 companies over a 3 year period with up to $250,000 in funding, and to use that seed capital to get to cash flow positive or to be positioned to raise capital from angel investors (thus, the importance of FundingUniverse.com) or VCs.

I think we hired too fast and spent too much money, so in the end, we’ll probably only end up with 8-10 portfolio companies that got as much capital and as much as my time as I would have liked.

But in the seed stage investment game, if just one small investment goes well, the entire fund gets repaid and the investors do well. In our case, we hope that more than half of them will succeed. And to me that means at least a million in annual revenue within 3-5 years. We have several companies that should achieve that. And we have a couple that are very promising — big ideas and a great team.

What we don’t have is a large payroll now (we’re down to 3 people on the Provo Labs payroll) or a lot of talented developers working on new technology.

What we do have is the peace of mind that comes from a low burn rate and a focus on the top priorities.

I believe that I have maintained a good relationship with most of the people affected by the layoffs, and I am of course still involved in the active portfolio companies, helping where I can with strategy and marketing.

I have read some of the blog posts about the changes at Provo Labs. When every employee in a company is asked to blog regularly, and then when a change like this happens, of course lots of people will have lots of things to say.

I know this was a difficult change for many people. But we couldn’t have gone on indefinitely without running out of money. Our fund is a small one and it has a definite strategy. For me, this reorganization was a painful but necessary return to the original vision of Provo Labs being an investment fund, not an operating company.

I made the changes openly at a company meeting, admitting my mistakes, and I hoped for and actively worked for a good outcome for those who were affected. I can’t guarantee that everyone will end up with a positive outcome, but as one former employee said in a recent email, he is a better person and employee for the time he spent at Provo Labs and what he learned from our successes and failures. I hope everyone feels that way. If not, I’m sorry. I’d be happy to have a private conversation with anyone who hasn’t yet given me a piece of their mind. 🙂

I’ve been very gratified by the amount of goodwill that exists among the former Provo Labs team and the current portfolio companies. If there is any animosity or back-stabbing, I haven’t seen it (or felt it yet!). Well, I saw a little, but it seemed resolved with an anonymous poster bravely stepped forward to apologize about what she had written.

I welcome any comments to this post and any questions that you want me to address in future posts.

18 Comments

  1. Paul,
    Thanks for your thoughtful post. There has been, as you said, a lot of lively discussion. It’s great to get your insight. I hope the projects you held on to will be successful.
    We have a lot of talent in Utah Valley. But for those striking it out on there own – don’t limit yourselves to the Utah market.
    See you at U|Tech.
    Janet

  2. Rick Smith

    Paul: as an outside observer, I read your Provo Labs post with interest and found your choice of words and “oh well” attitude very revealing of your character.

    It appears that you have fooled yourself (and apparently many others) into believing that just because you are open about your “mistakes” as you call them, they are somehow less deplorable. Have you ever considered that the reason other bottom-feeders are congratulating you on your “courage” is that they are trying not to disrupt the delicate interdependent ecosystem that they share with you?

    How fun it must be to conduct sans-conscience business venture experiments with no regard for the impact upon the lives of others.

    Just what the world needs is another Wade Cook.

  3. Paul, it is big of you to tell your side of the story. The sad part of the story, however, is the many people were affected. Several employees were brought on and promised big things only to get downsized a few months later. These people have spouses and children to provide for. Due to mismanagement and out-of-control spending, Provo Labs has failed. Yes, I use the word failed because Provo Labs has failed many people.

  4. Paul,

    Many people have criticized you for exactly what just happened. In fact, the recent Provo Labs failing is a criticism made about you by “Anonymous”

    (http://www.paulallen.net/2006/03/24/anonymous-is-a-coward/)

    several months ago about work you’ve done previous to Provo Labs, indicating that you are scatter-brained and that you have big visions and dreams, but can’t manage or lead well. Is this a case of a self-fulfilling prophecy or cumbaya management or both?

    We don’t know each other, so I can’t judge. Anonymous’ comments resonate loudly in Provo Labs’ failure. This is a criticism that may have to continually defend now.

  5. Thank you, Paul for taking time and careful thought in how you wrote this post. I’m sure you’ve been on your knees a great deal over this. I can’t imagine what its been like for you and everyone involved. I look forward to seeing you at U Tech conference and following your companies. Don’t forget the women entpreneurs out there…:)

    Best to you, Kelly

  6. Lester D'silva

    Paul you seem to be a brave person, to blog about this issue. Hats off to you and best of Luck!

  7. […] Paul Allen wrote a post about how Provo Labs has made some changes to return to its original vision and trim back on some over-extensions it has made in the last few months. He was very open about admitting some mistakes he’s made and about how what Provo Labs can achieve in the immediate future is more limited than the original scope of his vision. However, he didn’t use the words fail or failure in his post. Provo Labs still exists, and can still do amazing things. […]

  8. I believe I said this at the meeting in more or less words, but I think it bears a formal response here. I’m not sure the whole picture of what happened can be painted by one writer or one perspective since there were a large handful of people involved and each has a point of view. But to the point.

    I don’t think the problem was that parallel entrepreneurship failed. It was simply the scale at which we attempted it. We had perhaps six or seven or more projects or companies on which to focus and for which we developed software (web and otherwise). Had we remained focused on two or even three, I think we would have had more success with the number of people we had.

    Having said that, I don’t think we could have succeeded at all without seeing more hands-on management of the day-to-day efforts with clear planning, short-term (1, 2 or 5 day) goal setting, and accountability–all things that from my perspective were missing.

    In my own experience as an entreprenuer and in my own observations and readings, the vast majority of failures or setbacks are due squarely on failure to properly manage or failure to engage at the opportune moment to make course corrections. I think that is what really happened.

    We hired a lot of people right up front. Their priorities and foci were constant changed as new ideas came to the fore pushing unfinished efforts to the back burner resulting in little if anything getting completed. This was not a result of hiring too many people. This was a result of the failure to properly manage them and focus them to produce a completed product or service that could be marketed.

    That’s my perspective. But I don’t see failure as the doom that some would have you believe it to be. It’s an opportunity to learn. Yes, many people were affected. Probably more than we realized. But they will learn too. Jumping in with a startup has its risks. I was lucky and found a job before I got to far behind on house payments. Others have not enjoyed that fortune.

    The bitter pill for some here is that a small part of Provo Labs lives on leaving those left behind feeling like mommy has dropped them off at the curb without a whisper of a promise to come back for them.

    Paul, I wish you the success you seek, but I think it would be wise to focus some of your energy on learning how to be a manager as well as an entrepreneur. But who am I to say. I’m good at neither one. I am pretty good at technology and coding, so that’s what I’ll focus on. And let the managing be done by someone who is good at it.

  9. Rick Smith,

    I don’t like being called a “bottom-feeder”… I would prefer to be called an employee. One that is grateful for any employment where I can feed, house, and clothe my family. Everything else is a bonus!!

    It doesn’t matter if I was employed for a week or a 30 years, by one company or person. What matters is that God will provide a way for me to work, so I can provide. No matter who is giving me a paycheck.

    Paul Allen,

    I was and still am grateful to be a part of a wonderful team, thank you for the money I was able to earn.

    I also made a lot of friends and created some great social networking contacts. Thank You!

  10. Paul,

    Do you know if any of those employees are still looking for work? We are hiring for a wide array of positions and would love for any of them to contact us if they are serious about Internet marketing, entrepreneurship, or e-commerce.

    Please let me know if there is anything we can do to help.

    Best regards,

    James Green
    801.377.6411

  11. […] Lindsey Snow posted a comment on Paul’s blog post that stated “I use the word failed because Provo Labs has failed many people.” In one sense, she’s right, Provo Labs didn’t live up to many people’s expectations, least of all founder Paul Allen’s. However, I would disagree in other senses. Provo Labs is a startup incubator. To work for a startup is to take a risk

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