Learning from Failure

An Insider’s View of What NOT to do orHow to Create a Successful Start-up

Roger EhrenbergIA Venture Strategies

NYU Stern School of BusinessApril 7th, 2010

History of Success/Failure

Wall Street

executiv

e

•17-year Wall Street veteran

•M&A, derivatives, quantitative trading at Citibank, Deutsche Bank

•Successful

Angel

Investor

•5-year seed-stage angel investor / incubator

•TheLadders.com, Wallstrip, Clickable, Buddy Media, Invite Media, Tweetdeck, bit.ly, Stocktwits and 32 others

•Looking good – early returns encouraging

Entrepreneur

•Investor, Co-founder, President and Chairman - Monitor110

•Failed on first try -- A painful yet informative failure early in my start-up career that has shaped my thinking about entrepreneurship and investing

Venture Capital

•Trying again after taking some lumps -- Smarter, better investor and entrepreneur

•Big Data fund

•IA Venture Strategies, financed by top strategic LPs

I hope this isn’t my destiny…

Is it possible to “fail successfully?”

YES

But How?

Case Study

Monitor110

Why Did We Fail?C

ase

Stu

dy:

Mon

itor1

10

LeadershipLack of a “buck stops here” leader

Product DevelopmentDevelopment running Product organization

PRToo much, too early

MoneyToo much

FeedbackToo far from the customer

SpeedToo slow to adapt to market reality

• No single vision

• Inability to efficiently manage through crisis

• Difficult to avoid factions behind each leader

• Source of conflict with Board

Case

Stu

dy:

Mon

itor1

10

LeadershipLack of a “buck stops here” leader

• Results in a backwards product development process

• Creates conflict and ill-will with sales and account management

• Expands the distance between customer requirements and what is built

• Enables a “science project” to be perpetuated

Case

Stu

dy:

Mon

itor1

10

Product DevelopmentDevelopment running the Product organization

• Creates unrealistic market expectations

• Creates unrealistic internal expectations

• Raises anxiety around customer interaction

• Facilitates raising too much money

Case

Stu

dy:

Mon

itor1

10

PRToo much, too early

• Defers the need to generate revenues

• Delays the need to face into severe product problems

• Provides the resources to pursue non-customer driven science projects

• Works against creating a scrappy, hard-edged, “us against the world” culture

Case

Stu

dy:

Mon

itor1

10

MoneyToo much

• Results in a product not geared towards customer requirements

• Enables product management to stay off course

• Results in a team not accustomed to interacting with and servicing customers

• Creates an isolated, insular, tech-focused culture

Case

Stu

dy:

Mon

itor1

10

FeedbackToo far from the customer

• Wastes money and development cycles

• Creates fractures between technology and business organizations

• Seeds conflicts between Management and the Board

• Often results in key departures

Case

Stu

dy:

Mon

itor1

10

SpeedToo slow to adapt to market reality

• Built huge, costly infrastructure prior to generating revenues

• Engineered every part of the business – harvesting, data cleansing, semantic analysis, display and reporting

• Didn’t have a single core competency – IP was dispersed throughout the Firm

Case

Stu

dy:

Mon

itor1

10

Other mistakesAs if that wasn’t enough…

• Possessing the ability to acknowledge and learn from failure

Humility

• Having the perspective to extract the lessons learned from failure

Insight

• Embodying the toughness to take lessons learned and move forward

Persistence

Paraphrased from blogger Dave Friedman, commenting on Information Arbitrage

Attributes of failing successfully

“It's not that they're brilliant or well-educated…They work all the time. They don't let failure demoralize or destroy them. They pick themselves up and keep going and eventually, every once in a while, one of your ideas actually breaks through and works, and it makes all that stuff seem worthwhile.”

Dean Kamen, Founder of Segway, as told to Thom Patterson of CNN

One man’s view of the successful entrepreneur

Being a first-time entrepreneur is hard

• True entrepreneurs – those who believe “You can’t fail – you can only stop trying” – are few and far between

• A related study* has shown that: – The timing of a start-up may be more

important than the quality of the idea – Entrepreneurs who are successful the first

time are more likely to succeed in subsequent ventures because of available resources

* Performance Persistence in Entrepreneurship, Gompers, Kovner, Lerner and Scharfstein, Harvard Business School, published December 3rd, 2008

Some other deep thoughts

“We all have a philosophy that ideas and vision are important. But execution is the thing that distinguishes companies.”

Mike Maples

Don’t be so humble … You’re not that great.”

Golda Meir

Man has an infinite capacity for self-rationalization.”

Sigmund Freud

Case Study

Stocktwits

• Single leader – Howard Lindzon

• Separation between Development and Product – Chris Corriveau and Soren Macbeth

• PR only after functioning product in market

• Initially built for less than $50k, has raised $4.8 million in three rounds as product/revenue milestones were achieved (Monitor110 raised $20 million before $1 of revenue)

• The product is aggressively used by and shaped by our customers

• Product/market fit has been insured

Case

Stu

dy:

Sto

cktw

its

The Good StuffCorrecting Monitor110’s mistakes

• Focused on building core IP – leveraging open source software, APIs for data and the cloud for storage and processing

• Ruthlessly focused on our customers – working to segment our audience and to provide the stuff they value

• Paranoid about data quality – built reputation algorithms and community self-policing mechanisms to kill spam before it spreads

Case

Stu

dy:

Sto

cktw

its

The Good StuffCreating barriers

• Pretty successful seed stage investor with significant deal flow– Viewed as value-added because of deep experience in

both investment and operations

• Co-founded/incubated two businesses and doing more through my fund– Stocktwits, Kinetic Trading, stealth IDS company,

stealth database company (hopefully…)

• Have a grip on my core competencies and focusing ruthlessly on the intersection of those skills and market megatrends– IA Ventures, a seed-stage venture fund

Where am I today?Learning from failure

• Big Data is pervasive– Advertising, Finance, Commerce, …

• Extracting value is hard– Large– Unstructured– Real-time

• The best organizations use Big Data effectively … The rest fall behind

• Big Data revolution is underway driven by– Pervasiveness of actionable data– Powerful commodity hardware– Cloud computing– Advanced algorithms, analytics, and visualizations

IA VenturesThe Big Data opportunity

IA Ventures invests in early-stage companies developing tools and technologies for managing and extracting value from Big Data

Starting a companySome Things I Want To See

• Product visionary / Domain Expert• Technically strong founding team• Cash disciplined• Milestone based execution

• “Illegitimi non carborundum”– Translation: Don’t let the bastards grind you down

• Failure isn’t life-threatening; it’s part of life• Understand your core IP; keep costs down and

leverage open source wherever possible• Bond with the early-stage ecosystem; thousands

have gone through what you are going through – leverage this collective wisdom

• Winning is hard, but victory is very, very sweet • It you don’t think the pain is worth it, don’t be an

entrepreneur

Key Take-aways