Semantic Business

When I Started a SemWeb Company, Part Three

Things were moving along pretty well - I knew the problem I wanted to solve, I'd confirmed customer interest in my approach, the open source technology already existed and I had the the support of the community leaders, and I had some pretty clear ideas about money. Now to start building a team, starting with the right partner... 

If you've read the previous entries, you can imagine that I was starting to get pretty jazzed about my prospects. But I'm not a technical guy and in 2004, there were literally only a handful of people available to fill the role of CTO. I felt I needed someone with unquestionable technical skills, a significant profile within the SW community, and the ability to articulate the value Human Element was trying to deliver in clear, understandable terms that potential customers and investors would find appealing. I'd been in the mix long enough to know exactly who I needed to reach out to. (All names changed to protect the innocent, the guilty, the shrubbery in my back yard, and whatever else.)

• Candidate 1: I'd interviewed Bill in the course of researching my thesis. He'd been really helpful and at the time, his own venture seemed poised to do well. In the interim, it actually folded, which made me think he might be interested, even though he was on the West coast. The reality: I've never been able to track the guy down. I don't know anyone that's heard from him since, and I've never seen any record (at all) of his activities, even to this date. It was easy to move on from this one, but it still seems strange. Maybe he works for the government in a secret bunker a half-mile underground...
• Candidate 2: James is one of those other-worldly smart Ph.D. types, but I knew who he was and his qualifications were unquestionable. I pitched him on the idea and he was lukewarm at best. I persisted, and he asked, "...what's the end game?" Recognizing that cutting to the essence of the matter was crucial, I answered simply "Money." I'm talking about a business after all, and that's what businesses are supposed to do - make money. James responded "figures, coming from a business guy..." I tried pointing out that in a business, people count on people like me who think about money because they need to get paid, pay their rent, kids' tuition, eat, etc. I've been in touch with him since then and I'm convinced that one day he's going to turn the world on its head, but I guess not with me. Moving on...
• Candidate 3: Harry had been in an SW venture before and actually had some business experience. He'd left his company and had some time on his hands, so we talked about the idea and he seemed interested. I continued to ask and he continued to not say no, round and round we went until one day he basically said "Listen, I'm going to finish my Ph.D. and I really want to focus on that." OK, I understand that, particularly since I just graduated from a mid-career masters program myself. Time and possibilities were running out at this point...
• Candidate 4: There were a few other candidates that I haven't mentioned, partly because I ruled them out quickly or because they never responded. Carl was different. He'd been advising me for some time and he knew what I was trying to do. I also think he was genuinely hoping I'd succeed. Naturally, I pitched him. Carl had never been in a business venture before. He'd always been in academia, but he made it clear that he was losing enthusiasm for that lifestyle. As my sales conversations were moving along, he assured me he'd deliver a demo. I persisted in asking him to join me and he reported back that what I was saying synced up well with what his lawyer was telling him. This conversation took place over six to eight (valuable) weeks...radio silence ensued.

During this period when the reality of not finding a partner was sinking in, I was on the phone with a close advisor one day. I was telling him that I was uneasy about my search for a technical partner and we were talking about how this was a make-or-break issue. Our conversation moved along until I mentioned that I had to leave - I was on my way to a meeting with Polaris. He knew the person I was meeting with and advised me based on his experience. Then he asked "How are you going to deal with the technical questions and what are you going to say about your search for a partner?"

Instantly, my stomach sank and my heart was in my throat. I don't remember what I said but I ended the call shortly thereafter and left for my appointment. By the time I arrived at Polaris I knew what I was going to say and frankly, the meeting went well. I'd set expectations for an informal "this is what I'm working on what do you think" kind of visit and it ended up being very productive. I've been back since then, but only to discuss a different venture.

By this time I was out of candidates and I'd exceeded my timeframe for attracting a technical partner. There weren't any other candidates and financially, I couldn't afford to pursue this venture any longer. I'd met my roadblock.

Milestone #5, attracting a qualified technical partner within the required time period, failed. This was the most important task I had to complete and it was a deal killer.

The following week pretty much sucked. I'd extended my deadlines because I wanted to believe I'd landed a technical partner. Now it was time to kill my idea and move on. Fortunately, I bounced back quickly and I have to admit, my experience as an athlete helped - being conditioned to move on from a single defeat, a loss of a point, a rally, a heat, whatever, made a big difference.

I learned a lot from each one of the tasks I set for myself and obviously, I lived to tell my tale and fight again another day. I'm still looking for the right venture and the right team, and if you've read this far who knows, maybe we'll find ourselves on the same team some day. 

When I Started a SemWeb Company, Part Two

In Part One, I talked about identifying the problem I wanted to solve, expressing it in plain English (or plain language, for all non-English speakers), using open source as a head start, and getting the support of the open source community's leaders. Things were percolating nicely, but how was I paying the bills and who was going to join me? Read on...

Money is a many-faceted topic, so I'll take some care in how I cover this one. 

• Paying the bills. There were two things in my favor - I had just finished up a well-paying contract with Digitas and I had some money in the bank. My wife also has a thriving recruiting practice, so combined, I had some reasonable (but not unlimited) runway to pursue this venture.
• Funding the serious development that would eventually be required. I didn't want investors, I wanted customers. Essentially, I wanted my customers to fund my idea through their willingness to purchase the product. When bringing early stage technologies to market, there are customers that recognize there's a certain give and take in the sales and product development process and that's the kind of customer(s) I was looking for. My attitude was "If customers don't think my idea is good enough to fund, then my idea simply isn't good enough." Some people might think this is a harsh standard to meet, but the reality is that if customers don't believe in your product then investors won't (or shouldn't) either. I'm certain I could've persuaded investors to fund my idea. But imagine developing and marketing a product for six to twelve months and then having no customers, running out of money, and facing the prospect of either closing up shop or asking the investors for more money - neither of these is an attractive prospect. It was really unclear if my idea would succeed and if I took investment capital and never got a single customer, or if Human Element became an endless money pit, my credibility in the entrepreneurial and investment community would be badly damaged. Consequently, my ability to return to the community with a future venture idea would also be damaged. That's bad karma.
• Even so, since I was planning to succeed, I was still actively speaking with angels and VCs. Come on, this is a business we're talking about and if investors come along and propose to add value in the form of funding, that's a conversation you need to have. In my opinion, anything less would be remiss and perhaps even management malpractice (unless you know with absolute certainty you won't need the money or you have a maniacal disregard for reality.) So it's a fact that I was working my networks and reaching out to people known for making investments, angel groups in the Boston area, and I was having informal talks with VCs in an effort establish awareness in that community, if I ever needed to go there.
• I had (and have) a very structured view on how to build shareholder value. Every business person is an advocate for what their company offers (or at least they're supposed to be.) That means you're an advocate to customers, employees, partners, the media, and of course, investors. Investors are a tricky audience because dollars (sorry - Euros, Yuan, cigarettes...) define the value of a transaction (investment), and since we're trying to predict the future when starting a new venture, it can be difficult to identify reference points for this value. My approach is to break the process down into steps, or phases that might exist in a project management approach. Each discrete phase (which presumably uses up some cash) should add value to the venture. By using other ventures as analogs, it's possible to start building a framework that can anchor a discussion related to value. I'm planning a future post on this topic, so look for more on this later.
• What's the exit plan? To this day, it kills me when people say they plan to go public (and this has happened within the past twelve months.) Even during the dot com boom, most successful companies were acquired - they didn't IPO. I think the ratio was around 4:1 (acquired:IPO). For those of us in the real world, acquisition vs. IPO isn't the question - the question is, from the outset, what potential acquirers can be identified, what specific gap in their portfolio will your venture fill, what markets will your company open for the acquirer, and what's that likely to be worth? Obviously "I don't know" won't cut it, but at least knowing the questions will help your credibility.

Milestone #4, being able to pay the bills and having some clear cut ideas about the role of money, accomplished.

Coming soon: Recruiting a CTO, and making some painful realizations.

When I Started a SemWeb Company, Part One

In 2004 I started a Semantic Web company that I named Human Element. The company's technology was based on open source from Simile & DSpace. It didn't work out, but when I folded it after six months, I didn't personally fold because of some very clear cut objectives and timeframes I set for myself. If you've ever thought about starting a venture, or pitching a new line of business within an existing venture (I've done that too, and more successfully), my experience may be helpful.

I knew the problem well enough to get started, and I knew how the technology could solve it. Earlier in my career I spent a number of years as a salesman (and it's unbelievable how helpful that experience is to this day). It may seem corny, but I'm the sort that has to actually write out a cold-call script until I memorize it. Here's a verbatim copy the problem description I used:

• A community of users with an intense (or high) reliance on data, analysis, and synthesis, combined with an equally strong need and motivation to collaborate between people and/or teams.

And here's a paraphrased version of the solution:

• DSpace allows end users to publish and share data in any electronic format, such as text, spreadsheets, raw data files, images, etc. The Simile project allows end users to create integrated views of disparate data types. These views allow end users to identify relationships in the data and their behavior that might not otherwise be apparent. 

I pitched my idea into the life sciences industry and dug up all my leads from W3C discussion lists, conference speaker lists, and networking through my friends. The industry was easy to pick because I knew it had the problem I was describing, there was already activity in adopting SW technology, and since a lot of the companies were posting big profits, I thought (mistakenly) it'd be relatively easy to get some cash out of these players. Note that everyone I spoke with was relieved to hear and appreciated my plain English approach.

Milestone #1, speaking in plain English, accomplished.

The technology had already been built. It wasn't plug 'n play ready, but that level of stability & usability wasn't difficult to envision. As a business person, every day I thank my lucky stars for open source and here's why:

• It's free, which means I don't have to raise investment capital and get locked into commitments to investors. That flexibility is a huge plus. (By the way, my basic approach was BSD=good, GPL=bad, in case you were wondering.)
• I'll accept the social contract intrinsic to open source any day of the week. Returning improvements to the code in return for the huge head start provided by an existing, free body of code is an incredibly easy decision to make. Any point decisions related to proprietary connectors, implementation tools, interacting with the open source community, etc. were going to be my CTO's job.
• I'm not technical, so having a body of code already developed eliminates sales objections like "does your product exist anywhere but your own mind?" This factor contributed directly to my 100% track record in getting agreements to demo meetings (when the time came that I actually had a demo.)

Milestone #2, technology that's actually up & running, with a group of people actively maintaining it, accomplished.

I got to know the open source community leaders and enlisted their support. This was pretty important me - I remember when even a hint of commercialism on the Web resulted in flames, excoriation, and eternal damnation, so I felt I had to be able to state unequivocally that I made my intentions known and that I was committed to working with the community. Since the origins of these projects were academic, I spoke to the Principal Investigators, who at the time were David Karger, Eric Miller, and MacKenzie Smith. I got the clear impression they'd have been delighted if I hit a home run with my idea. 

Milestone #3, support and input of the open source leaders, accomplished.

Part Two coming soon, when I'll discuss the money thing and later, recruiting a technical partner, and realizing I had to fold my venture. Stay tuned.