I am the CEO of Svpply, Inc., a social shopping S-Corp operating out of New York City. My company has been the recipient of over half-a-million in investor dollars, for the stated purpose of building an unknown, 3,000-member web service into a cultural phenomenon, and I truly have very little understanding of what I am doing.

I went to school for Graphic Design. I was supposed to graduate in 2004, though I didn’t complete the necessary Algebra class until 2009. Put me in front of Illustrator and give me something to design and I’ll execute the hell out of it. I’ve spent years of hard work developing systems in my brain for tackling visual solutions to communication problems. I’ve designed some nice logos and some nice websites. I enjoy naming products and I think I have a talent for it. I have an understanding of design that extends well past the aesthetic. I am proud of all this because I have worked for it.

But I have zero experience or expertise in building a company. I’ve never worked at a web or product startup, I’ve never worked in a healthy team environment. The design studio I co-owned was flawed to its core, and the companies I’ve worked at have had mediocre management.

So I’m learning on the fly.

Things I don’t know how to do that I have to learn soon or Svpply will fail:

- How to find and recruit talent
- Recruiting the appropriate kind of talent
- Managing people and keeping them fulfilled in their work
- How to develop and design a work schedule
- How to communicate a vision

Thankfully I have Mo on my board. Thankfully I have Zach on my team. Thankfully I have investors who believe in my potential and have provided me with the opportunity to educate myself. My situation is blessed and I rarely let a day go by that I don’t say a silent prayer in thanks for the position in which I’ve found myself, but good gracious is this hard.

The most frustrating part is that it is difficult to get into a rhythm in your work when you have no real understanding of the next steps you need to take. There’s no opportunity for flow if both outcome and process are foreign experiences. There’s just a lot of poking around and mystery and inadvertent negligence.

Svpply has been open to the public for six months now. Our progress has been slow for a variety of reasons. We have not launched as many new features as I would expect, or even drastically improved the ones we launched with. I own these problems, they can be traced directly back to my inabilities and inexperience, sometimes directly, other times in the form of my not having anticipated or recognized situations for what they were as soon as I could have.

But my understanding of the product and the market has leapfrogged the vision that I pitched. Our traffic has quadrupled and our product database has quintupled. We’re starting two awesome junior hires on Monday and I’m courting three incredible candidates who do me an honor by considering a position with us. Many of our deep technical problems are in the process of being solved by our only non-founder employee, whose presence on our team is a deep compliment to our product and to me personally.

So my level of personal confidence is appropriate. Skeptically hopeful. The bouts of depression and self-doubt are reasonable and inevitable. The market and its masses will be the judge of the degree to which I am able to build my expertise. A jury of peers so large it gives immediate, impartial feedback on my performance any time I think to ask for it. I couldn’t ask for better. I am thankful for the opportunity. It is an amazing challenge.

One of the amazing things about technology based startups is that we never run out new ways to fail in the same old way.  With each innovative new technology, business model or value chain that delivers a shiny new product or service, we seem to believe that we've discovered how to escape gravity. Yet the same patterns of "flash in the pan", funding, and failure are repeated over and over again. WebApps, mobile apps, SaaS, cloud-based services - the list goes on and on, but failing to reach mainstream markets with compelling value and complete whole products continues to plague startups as their major failure mode.

It's time for us all to revisit Geoffrey Moore's seminal book on the technology adoption lifecycle, Crossing the Chasm, in which he described the startup phenomenon of ebullient initial success followed by dismal failure resulting from failing to "cross the chasm" to mainstream markets. It's just as true today as it was in 1991 when Geoff and I were working together at Regis McKenna Inc, and Chasm was first published - we've just discovered innovative new ways to implement it.

If you don't remember anything else about this post remember this - VISIONARIES AND EARLY ADOPTERS ARE NOT THE MARKET YOU NEED TO OWN! Those wild-eyed, foaming at the mouth customers who just have to have your product or service immediately, even though it's not quite done, even though it needs just a "few more features" to be perfect for them, even though they'll be willing to fund making "just a few changes", ARE NOT THE MAINSTREAM.

They have a place, they help fund your initial development by being first customers, they help wring out the initial bugs, but they buy for different reasons and require different things than the mainstream market you need to own. The biggest danger of early adopter customers is that they lull you into a false sense of security while laying the foundation for your undoing.

How do you get undone?

Product - Early Adopters'  "special requests" become one-off implementations that you'll have to support for the rest of your corporate life. Worse yet, all that development and (later) support effort rarely helps you with your mainstream product (though at the time it always seems that it will). You're left with a product that serves a select few early adopters and nobody else, and by the way, expected to keep pulling new rabbits out of the hat ad infinitum.

Market - Early adopters do not a market make. Statistically (forgive me Geoff) the early adopter segment comprises no more than 10-15% of the total available market, and since they buy for competitive advantage you'll never even get that much. Once others have your product you're no longer interesting to the rest. BUT, while they're buying, the feeding frenzy makes you feel like you've reached the promised land. THEN, the bottom drops out and unless you've got a plan to cross the chasm, you're left trapped serving the incremental needs of early adopters who will drop you like a hot potato for the next shiny thing.

Business Model - Early Adopters will accept and/or demand just about any business model that seems to provide them with competitive advantage as well. Once again, it's highly unlikely that this will reflect the business model you'll need for the mainstream,  and even more likely to result in difficulty at some point in getting paid. Bear in mind here that a customer who doesn't pay isn't a customer,they're a beta tester.

After all that doom and gloom, it might seem like the Early Adopter market can destroy your startup, but as I said above they have a very important role to play - my next post will detail how they have to be handled to accomplish it.

The Lean Startup movement, like so many things, has suddenly surfaced as an overnight success that's been gestating for years. Erice Ries, Steve Blank, Sean Ellis, and Dave McClure have all contributed parts of the whole, and the result is simple - We're beginning to stop wasting people's time.

Friday's article about the success of MInt.com makes some excellent points about the excesses of Web 1.0 and 2.0 and how much more enabling today's environment is for building lean, low burn rate start-ups.

Mint grew to over 1.5 million users in just two years by utilizing a handful of social media tools, readily available, free tools like Wordpress for their website and Google Analytics for analysis, and spent a pittance in marketing. What they had was a great new product, served up in the cloud, that created compelling new value for their users.

If you read through the article you'll see that they literally optimized every element of their infrastructure for thrift and flexibility.

• Web Site & Blog - Wordpress
• Marketing - Social Media (Facebook &Twitter), Search engine terms
• Market Analysis - Google Analytics, ClickTale, Crazy Egg and Compete
• Surveys - Zoomerang

There's been more than enough doom said about venture funding these days. And to be sure, venture funding ain't what it used to be. But, a little deeper look at the numbers shows that the changes are neither quite as dramatic overall, or quite as arbitrary and many have implied.

Multiple articles quoting various aspects of the Q1 Money Tree report in April painted a doom and gloom picture of how Q1 VC investment plummeted. However, some more rational heads took a look at the numbers and came up with a bit less Doomsday-esque interpretation in blogs such as this one - "VC Investment in Internet Deals DId NOT Fall Aff a Cliff" - which points out that "VC Investment in internet Starups is up 100% from the last downturn".

It's all in the headlines. Basic truth be told, in Q1 2009, 34 internet specific seed and early-stage companies got funding to the tune of an aggregate $138 million invested. That's not as good as the 55 deals and $196 million invested in Q4 2008, but it's a far cry from falling off a cliff (at least any of the cliffs I'm familiar with.) In short, there's still money being invested, and yes the bar may be higher, but the money's there and early stage deals got done in what was probably the most dismal quarter of this recessionary experience that we're all sharing.

My point in all this is that many of the entrepreneurs that I've talked to over the last several months have just thrown up their hands and yielded to the headlines.  "Nobody's Investing", "VC is off a Cliff" and "Nobody can get money" are all too commonly heard refrains of unfunded companies today. The numbers above tell a different story. The key is to have a compelling, investable proposition and to get it in front of the right VC's in the right way.

A better approach is to ignore the doomsayers, take stock of what's really happening beneath the headlines and not trip over the doom and gloom. Rather, do the homework and make a conscious, strategic decision to either get funded and how, or operate in bootstrap mode and get on with it.

A few tips for funding strategies in today's environment:

• Know your funding options and choose them wisely and judiciously, i.e.  - Don't use a shotgun, use a rifle and aim at the right VC's or angels.
• Aim at the funders who know the market space you're aiming at, who make investements in companies at your stage of development, and who are indeed actively investing
• Make your Investment Proposition truly compelling - Don't make the mistake of thinking you're buidling a "VC Pitch"  to show off your whizzy new shiny thing -- you're building an investment proposal that you want a VC or angel to buy.
• Make your proposal appropriate for the times - this is the day of the lean start-up, be lean and mean from the get-go and show it.

Sorry for the delay in a new post, but I've been a little tied up in a tripping point of my own that points out one of the legal "curbs" that start-ups and start-up employees should avoid tripping over at all costs - Arbitration!

Allbusiness has a very objective entry on arbitration that points out the pros and cons of arbitration in legal disputes, and that the purpose of arbitration was to speed up decisions on contract disputes while minimizing the time and expense of dispute resolution. However, the intent and the reality of arbitration, in my experience have diverged significantly.

Perhaps the most important single element of agreeing to arbitration is that one gives up the right to the recourse built into the legal system, and instead agrees to be bound by the decision of a panel of arbitrators without recourse to the normal appeal process and the right to a trial by jury. Although at first, this may seem to be expedient, the reality is that it can be just as lengthy, as much or more costly, and has far less checks and balances than the legal system. And, just to show where the power lies, enforcement of an arbitration decision is still dependent on the following premise. "An arbitration award can be entered as a judgment [only] after being confirmed by a court of competent jurisdiction."

In short, arbitration as a solution to dispute resolution seems to combine the worst of the court system with the disadvantages of a "private dispute resolution" process that's less rigorous, more convoluted and less built on checks and balances than litigation. Whenever you encounter an arbitration clause in a contract, bear in mind that the purported "ease of resolution" can in fact become a quagmire of "informal discovery", extended process, and no recourse that results in a much less desirable outcome than normal litigation.

Like the decisions about counsel that I mentioned in my previous post, the decision about when to agree to arbitration needs to be weighed against the potential losses to be incurred, and measured not only in dollars and cents, but in the impact of waiving the normal protections of our legal system. My advice - just DON'T do it.

How To Run Your Business on the Cheap

Last night I had the opportunity to attend Edith Yeung's SF Entrepreneur MeetUp Group Session on "How to Run Your Business On the Cheap" with some great panelists -  Gary Swart of oDesk, Mark Friedler of GameDaily and Hazel Grace Dirksen of Socialbees. The discussion surfaced a plethora of tripping points that cause companies to run out of cash. One of the thorniest, and most easily overlooked tripping points discussed there was that of using only as much of a precious (read "cash consuming") resource as you need to get the job done.

Use the Right Resource for the Right Job
We're all tempted to settle on a general approach to staffing and using outside resources - we hire to get a specific job function done and we contract with an outside firm for that expertise the we don't have in house and can't justify on a full time basis. For new start-ups for example, accounting and legal services jump to top of mind. The panel at last night's presentation, however, brought up a few subtleties that we'd all do well to keep in mind.

(1) Not all resources are created equal - Using a bazooka to hunt squirrels is both overkill and way too expensive - The top-tier Silicon Valley law firm costs double or more than the mid-tier solo practitioner or small firm. And hiring an employee to accomplish a specific project is much more costly than using a freelance contractor with equivalent skills. We need to evaluate carefully to decide which approach is really needed and what armament is appropriate.

(2) Not all problems are created equal - Sometimes you need a bazooka, other times a trap will do. Legal problems that require a high level of expertise - Incorporation, Employment Contracts and legal matters that can cost you a lot of money if done incorrectly deserve the attention (and cost) of your top tier firm. However, routine partnering agreements, simple purchase agreements, even simple NDA's and the like can just as well be handled by a solo practitioner or small firm at a fraction of the cost. Projects with defined time horizons, specific skill requirements and clear outcomes may not require hiring a new employee, but rather fit very nicely into a project for a contractor.

(3) There's a wealth of resources to choose from today - Part time resources from companies like oDEsk, eLance and even LegalZoom can suffice to accomplish a lot of tasks and projects. There are a plethora of part-time resources available today to get specific job functions done, so it's no longer necessary to hire an employee, or use a top tier service provider to accomplish a project that has a clearly defined time horizon and clearly defined result.

There are literally thousands of ways to trip over advice on how to get your start-up funded, but one in particular seems to account for quite a few "NO"s from the VC Community, and that is how to ask for what you need. The popular advice these days seems to be "ask for more than you need because you don't know if raising more will even be possible". In the past there have been other arguments like "ask for less than you need" and "show that you can run lean", or "give away as little equity as possible because equity's dear", or "give away as much equity as it takes, because a little part of a big pie is more valuabe than a big part of a little pie".

Hundreds of discussions with start-up clients, VCs and some of my great mentors and friends indicate that the concept of a "Rolling Exit Strategy"  (for which I thank Kyle Mashima) is, if not the best way to present your funding requirements, at the least on of the most understandable and compelling.

The Rolling Exit strategy is a simply elegant concept that advocates "ask for just exactly what you need" to create the next milestone of value in your company. The best way to demonstrate that you understand both how you create value, and that you plan to minimize investor's risk by creating a potentially saleable/monetizable entity at each stage of funding is to tie your funding requirements to clear "value milestones". These value milestones essentially say to the investor, give me $XX dollars and I will create YY monetizable amount of value in my company. For example, $500,000 to get to a demonstable alpha product, $2.0 million to get to market beta with 1000 customers, and so on. Be sure that you're asking for just what you need, no more no less, and that the "Value Milestones" will actually deliver something valuable enough to have the potential for exit and you'll be making a "hard to refuse" investment proposal.

The Strategy Paradox, as defined by Michael Raynor, in his book of the same name, illustrates a major tripping point that we all face over and over again whether we're a start-up or an established enterprise. Raynor's book points out that in order to "win big" we have to make major strategic commitments in the face of an uncertain future. For those with the good fortune to make the "correct" strategic commitments for the future that unfolds, the result is generally stratospheric success, while for those whose strategic commitments do not jive with the future scenario that evolves, the result is abject failure. As Raynor very powerfully points out, the strategic similarities between success and failure are much stronger than those between the former two and companies that just survive. In his words "the opposite of success [then] is not failure, but mediocrity.

In short, those companies that strive to be great by making major strategic commitments must also accept the risk of abject failure. And those companies that are content to merely survive and choose the "safe" path of not making the major strategic commitments required to truly succeed are in effect dooming themselves to average survival at best and mediocrity at the worst.

The examples in Raynor's book - the success of Toyota during the oil crisis of the mid-70's and the failure of Sony's betamax in the early 70's to name just a few - point out both the challenges and the vagaries of managing strategic uncertainty, Neither Sony, nor the US automakers at the time did anything other than what one might expect of strategically driven and committed companies - yet both met with failure as a result of exogenous forces that simply made their strategic bets the wrong ones to have made.

Raynor's prescription for the stategy paradox consists of two key concepts:

• Requisite Uncertainty - managing strategic uncertainty with respect to strategic commitment at each appropriate level of the organization.
• Strategic Flexibility - anticipating potential scenarios that account for all the relevant uncertainties, formulating optimal strategies for these scenarios, accumulating real options, and exercising or abandoning them as needed to address unfolding realities.