Startup Whisperer

Startup Whisperer 2009 Prediction Results

Its that time to reflect on the past year and to think about the future.  Last year I posted some predictions.  I'll run through them and give my own personal view of how well I did.  Please comment if you disagree with my self-grade.  I'll be grading myself with a bucolic rating system of: "nailed it", "borderline"", and "whiffed it.".  Here we go:

Video Finally Takes Off

Prediction:  Overall consumption of video increases significantly on Web.  I think they'll grow from their current market share of videos watched from 37% to 45%.

Result:  Comscore reported that there are over 14.4 billion videos played meaning that nearly 75% of all online video users watched a video.  Google kept is dominant online video share at ~41%.

Grade: "Nailed It"

More ad networks versus less
Prediction:  Contrary to a number of predictions, there will be more ad networks versus less.  With 80% of the ad supply being sold thru indirect channels there will be more than less ad 
networks.  There will be better control over supply by publishers and everyone on this Comscore list (View this photo ) will be there by the end of 2009.  Anyone who is building 
unique IP will have a chance at an acquisition.  Yield technology in advertising is going to be a big theme in 2009 since all other forms of targeting are basically commodities.

Result:  Yep, no one dropped off the list.  The death of the ad network has not happened.  In fact, one of the smaller ad networks actually went public.  Interclick (ICLK) went public in November 2009.

Grade: "Nailed it"

Everything is simpler and smaller
Prediction:  We don't have the IT budgets that we once did.  Smaller and simpler devices will take off.  For example, industry sources say more than 11 million netbooks worldwide were sold  in 2008, up from just around a million in 2007.  Netbook sales will easily double in the new year.  Also, the majority of all phones next year will be smart phones (over 50%).

Result:  Netbook shipments have grown by 103 percent year-on-year in 2009 according to a latest DisplaySearch report. Netbooks were 19.6 percent of total portable PC shipments and sales were 10.4 percent of the total.

Grade: "Nailed it

The giant sucking sound

Prediction:  There are going to be tons and tons of consolidations in the technology space.  Big guys will buy big guys.  Small guys will merge with small guys.   Small guys will get bought 
by big guys.  There will be a lot of great deals out there for companies with capital.

Result:  As much as I was optimistic about 2009 and with the recent flurry of M&A activity (e.g, EA buys Playfish for $400M, Google buying AdMob for $750M, HP acquiring 3com for $2.7B, etc) the M&A market was relatively weak versus 2008.  VentureSource's last report had 71 venture-backed M&A deals for a total value of $2.25 billion. That compares to 84 deals at 5.2 billion for the same period last year. It is taking longer for an exit, too (a median of 6.1 years).

Grade: "Whiffed It"

It’s cooler to start a business than a rock band
Prediction:  There are massive layoffs and the economy is bad.  Per the above, when consolidation happens, unemployment increases.  People are only an hour away from registering online for a new business.  That combined with free SaaS (Software As A Service) software and easily registering for a domain name -- you've got the makings of a business.  There is an estimated 27.2 million small businesses in the United States and they employ 40% of high tech workers.  New small business registrations will grow by one or two points in 2009.

Result:  We are in the midst of one of the worst recessions in our lifetimes.  There was a lot of government packages and assistance starting to be passed by Congress towards the back half of the year.  Too little and too late in my opinion.  We didn't see 2 points of growth.  In fact, unemployment is not getting much better -- we need jobs for the economy to recover.

Grade:  "Whiffed It"

The future is cloudy
Prediciton:  2009 will be the year of cloud computing.  The companies that benefit are:  Amazon, Hewlett-Packard,  Sun Microsystems, IBM, and Microsoft. In addition, SaaS takes off even more.  With the worldwide economy in trouble, lots of layoffs, and pockets that are bare, SaaS  will take off more than ever as measured by overall consumer adoption of the Internet business population.

Result:  Although Larry Ellison was famous for his cloud computing rant this year, Larry can't deny that every major player in the space from Amazon to Google is betting in cloud computing in a big way.  I personally saw the advantages of using services like Amazon's EC2 at Mpire -- we basically wired an ad optimization into our infrastructure over night.  A startup could not have afforded the horsepower (not to mention the fast mover immediacy of the cloud) several years ago.  Powerful stuff.

Grade:  "Nailed It"

Windows gets its mojo back
Prediction:  Windows 7 will ship on-time (not in 2009 for an SP1 but it will be solid enough to get their mojo back).   Vista will feel like a bad hangover.  Windows 7 will be faster, more usable, and introduce some cool virtualization features.  Google will start to OEM an OS to PC manufacturers but Windows 7 and Microsoft's business juggernaut will successfully relegate it to a minor initiative.

Result: A lot of my friends chided my on this predictions. Windows 7 hit a July release-to-manufacturing date of July 2009 and a full release to retail on October 2009.  Microsoft did a bunch in 2009 to revive its mojo.

Grade: "Nailed It"

Microsoft buys Facebook
Prediction:  Facebook realizes that it needs a revenue stream.  Microsoft needs a platform to grow search share.  Facebook and Microsoft do a deal to change the search marketplace by integrating better social search.  The valuation gets a major haircut from their $15 billion valuation (crazy 100x sales valuation).  The deal gets done at big (crazy?) multiple at 20-25x or around $10 billion.  Microsoft can buy 100 more little companies to try to grow search share or do a big deal.  Plus, Microsoft shouldn’t let Google hook their FriendConnect initiative around such a large social hub like Facebook.  They ditch buying the Yahoo search business and look to change the search game on the social side.

Result:  A big "Whiffed It".

Microsoft buys Yahoo search
...And then they buy Yahoo's search business.  Deal is done in May of 2009.

Result:  We all know the news on this one.  MSFT and Yahoo cut a huge search deal during the middle of this year.  They didn't close on a full acquisition...so my grade is "Borderline"

Seattle company acquisitions

Prediction:  The following Seattle-based companies will be acquired in 2009:  BuddyTV, Visible Technologies, EvoLanding,  and Urban Spoon.  M&A in 2009?  Heck, it can happen and these companies have gotten scale and have relatively low invested capital.

Result:  Hey, one out of four ain't bad.  Urban Spoon was bought by IAC in April of 2009. 

Grade:   Borderline

So, I nailed 5, whiffed 3, and 1 was borderline on 2.  2010 predictions coming soon.

Tips For A Successful M&A Transaction

One of my favorite TV shows growing up was the A-Team.  I loved it when Hannibal Smith (played by George Peppard) would exclaim after a successful mission, "I love it when a plan comes together."  If you are a startup CEO or a larger company leader, you should take the same approach to planning merger and acquisition activities.  It is always  shocking to discover how many companies actually do not properly plan for integrating companies.
 

Define what success looks like - draft a 3-5 page deal document that provides an executive summary level of detail on the deal.  This is important since you'll need to convince your Board that once you buy the company, that you have a plan to integrate discrete functions of the business as well as when and where you plan on getting synergy from the deal.  This document should cover a high-level operating roadmap timeline, roles and responsibilities on your team for integration, and a section on success metrics for the deal.

Check your list and check it twice - you need to have a dedicated project/integration manager from your team that is responsible for ensuring that every function has specific activities and dates for completion.  I personally have a mega spreadsheet that has something like 20 tabs with 100 rows of activity detail to integrate as part of an acquisition.  Some examples of areas that you need to track and think-thru are:  accounting, accounts payable, credit collections, FP&A, human resources, legal, IT, order fulfillment, payroll, purchasing, real estate, revenue, risk management, sales & marketing, tax, and treasury.

Executive reviews - its always a good idea to keep your Board and/or executive updated regularly on the progress on the integration.  Walk everyone thru your 30/60/90 day plan and high-level milestones.

You and your company are spending millions of dollars buying a company.  Make sure to do the hard work upfront and the proper planning throughout the integration of the new company.  Otherwise, you'll never get the value out of the company and then no one wins (accept your competitors).

Mpire Signs Two Large Ad Agencies

Congrats to the Mpire team.  They announced two large ad agency deals today: WPP and GroupM's Mediacom.  You can read a brief interview from Kirby Winfield here.  The Mpire team is building some extremely important technology around campaign optimization and verification.  I know what's going on behind the scenes in terms of large brands adopting the new AdXpose technology in order to provide great transparency in the display ad marketplace.  The amount of real-time optimization data that they are getting is extremely helpful for brands and agencies.  Think about a world where every ad is automatically optimized before you spend a bunch of money on underperforming or inappropriate impressions.  The guys at Mpire conducted an interesting research paper on this topic that can be read here.

10 Tips For Startup Operating Planning

Its New Years’ resolution time.  For those of us building businesses, its also time to build your budget and operating plan for next year.  I personally think that it is a major mistake if you and your company have not gone through this exercise. 

The components of your operating plan can vary greatly based on the overall sophistication of your business.  Obviously, if you are a startup, you are not going to have reams and reams of operating data in order to base your plan.  But, this is not an excuse for not having a thoughtful operating plan.Here are some high-level tips:

1) Documents versus slides - I am really a big fan of writing down your operating plan versus being constrained to slides.  I believe that its too easy to hide key operating areas in your plan if you are constrained to slides.

What should you cover? There are several areas that you should cover (whether its in slide or document format), including:

2) Performance review - a breakdown of the first half and the second half of your years performance.

3) Executive summary - provide an overview of momentum opportunities, your strategy for growth, organic initiatives (aka things that you do yourself), operating initiatives, diversification, inorganic, and key risks. 

4) Market opportunity assessment - you should be able to show empirically show your growth in three ways:  comparing your overall category growth, your addressable category growth (more on identifying your TAM here), as well as your individual company's performance in relation to your category. Net is that you should be able to answer the question whether your company is growing faster than the competition.

5) Competitive landscape - it is always ideal to explain in a summary manner what is the relative performance of the competition from a reach, revenue, and EBTIDA perspective.  In addition, it is important to flag how your business is advantaged (and disadvantaged against each competitor).

6) Consumer value proposition - you should be able to quantitatively and qualitatively be able to explain why consumers will be buying your service or product versus the competition. 

7) Supplier value proposition - one of the key misses that I see in operating plans is that lack of clear thinking around the supply chain math of your service.  Especially, if you are an intermediary, you need to be able to clearly and distinctly identify areas in the stack between your service (between the consumer and the core supplier) where you add value or shrink margin.  Otherwise, you will inevitably be driven out of the market by your supplier or a better advantaged competitor.

8) Key initiatives for achieving your plan  - detail them out in terms of operating initiative that are filtered thru financial, strategic trade-off, option value, and strategic posture.  An example is here.  Its great to have lots of ideas but its hard to pick big initiatives to focus on that extract the most enterprise value for your company.  Most companies absolutely fail at this step.

9) Long-term P&L - show your next year's plan with specific key critical success factors that need to happen in order for you to achieve your plans.

10) Address the need to get big - it may not apply to all startups but you may also want to head off discussion with your investors around how you should be making yourself attractive to potential acquirers and partnership roll-up opportunities.

Tis the season for operating planning.  Please take this time to think the big thoughts about your business.  It will payoff for you and your company.