• Running a startup outside of the Valley
• Can Startups Save the World? Startups vs. GDP/Capita 
• When someone amazing leaves the company 
• Why most VCs don’t sign NDAs  
• Curse Of The New HQ 

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Investors work hard to diligence investment candidates for two reasons 1) to understand the opportunity and 2) to uncover potential challenges. The latter consideration can be a challenging one for investors to do successfully if management elects to misrepresent the opportunity or is not forthcoming about aspects of their business.

Leaving surprises for investors to discover after they have invested is generally a bad decision for several reasons:

1. These surprises breed ill-will between the investors and management, damaging board dynamics.
2. These dynamics can leave management with less support for both their initiatives and on-going participation in the company.

To avoid these situations, you should be sure to share any aspect of your business that you think will surprise investors. Whether you make these disclosures over the course of your meetings with investors or all at once, be sure to do so before you take an investor’s money.

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• Network Effects And Scale Economies (aka Spolsky vs. Heinemeier)  
• Who’s Your Who’s Who? Getting the right people involved in your startup 
• It's not even 80/20 - 8% of Internet users account for 85% of clicks 
• 20 of the Best Resources to Get Your Startup Off the Ground 

There is an interesting dynamic that I wanted to highlight – the value of social media sites plateaus for individual users once the individual reaches a critical mass of content.

Have a lot of friends? Good luck trying to follow all of their twitter streams or their postings on Facebook. The overflow of content produced by the masses has diminishing marginal returns. The next tweet a friend makes will either be lost or push another tweet off of the first page of the queue. There is no way to consume all of the content presented to us, leaving the value of these services to plateau in their current form. Scouring the postings on Craigslist is a pain and so is trying to find a contact in LinkedIn whose name I can’t remember.

Consumer driven websites often need to rapidly scale their businesses to create network effects and grab market share. Getting big quickly was key for old-timers like eBay and Craigslist, and has been critical for new comers like Facebook, LinkedIn and Twitter. Network effects play an important role for all of these companies, as they scaled it became increasingly difficult for other players to challenge them.

While the amount of nodes (users) in the network gives the company the benefit of barriers, the amount of content that these users create can give the company the burden of clutter. Internet users are creating an astounding amount of content and for some of these Internet darlings this can create a big problem.

To be clear, this isn’t a knock on these services. They generally create a huge amount of value for an individual before they plateau. They do plateau, however, and that’s unfortunate.

This begs the question – what can these companies do to ensure that their services don’t plateau (or at least plateau less)? Ultimately it comes down to sorting data as granularly as possible (e.g., by person, by topic or by group).

Interestingly, ecommerce platforms do not appear as affected by the clutter issue as they can easily use directories and other sorting mechanisms to help users navigate the excessive amounts of data. Ecommerce sites can leverage the objective nature of the product characteristics or descriptions ot create these hierarchies. Social media sites, however, often have more difficulty structuring the data as categorizing user generated content is often based upon subjective characteristics.

So, what should these companies do to solve the clutter problem? For now, they’ll use sorting features to Band-Aid the problem. In the future, I suspect that more intelligent engines will help prioritize content in these streams for the users. The problem is growing and as always, I suspect hundreds of tech wiz-kids will emerge with new ways to solve the problem.

• 10 Years Ago Today: When Online Groceries Were All The Rage
• If - You can lead by example 
• Lean startups aren’t cheap startups 
• Exit Strategy 
• Admob data – Android making great progress 

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I have often discussed the impact of revenue models on the customer experience. Some revenue models make the customer experience better; some make it worse. Revenue models have one of three impacts on the customer experience (and subsequently customer loyalty): they can hinder the experience, not impact it, or enhance it. In a tribute to our agrarian roots, I will refer to these impacts at Slash & Burn, Harvest and Fertilize, respectively.

Slash & Burn refers to monetization strategies that cause customers to defect. Customers are essentially cut-down and sold off. They are monetized, but lost in the process.

Harvest refers to monetization strategies that don’t impact the customer experience and ultimately do not affect usage levels. These strategies monetize customers but like agriculture they leave the customer’s roots in fertile ground to be monetized again in the future.

Fertilize refers to monetization strategies that enhance the customer experience, increasing the rate at which customers grow in value or in number.

A given revenue model may have a different impact on the customer experience in different contexts. Take advertising for example. Pop-ups drive consumers away from websites, banner ads have little impact as they are ignored and Google’s paid search results enhance the experience – they are the preferred search result roughly 10% of the time.

Furthermore, the impact a revenue model has on the customer experience may sit on a spectrum. For example, eBay’s listing fees may fall in the harvest category at their current levels, but if raised significantly may become characterized as slash & burn.

Since a company may have multiple revenue models, they may have some strategies that fertilize and others that harvest or slash & burn. You may be wondering why a company would ever want to employ a slash & burn strategy, but in some cases this makes a lot of sense. As my friend Kartik Kumaramangalam pointed out, as a customer segment becomes unprofitable, a company may want to drive them away (and make some money in the process).

The impact of your revenue model on the customer experience is of critical importance not only to investors, but also to the viability of your business, as it impacts your company’s ability to both build and monetize its customer base.

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• 6 More Troublemakers you meet in a start up 

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When I was in business school at Columbia I took a class taught by Bruce Greenwald. Bruce may be to strategy what Einstein was to Physics. Ever since Michael Porter unleashed his Five Forces on the world, that model has been the de-facto framework for thinking about a company’s strategic position. That is, until people hear or read Bruce Greenwald’s take on the world of competition.  Unfortunately, Greenwald and his framework are far less well known.

In his class and in his book, Competition Demystified: A Radically Simplified Approach to Business Strategy, Greenwald rationalizes Porter’s 5-part framework for strategic competition down to one consideration: barriers. Porter’s model included threat of substitutes, degree of competition, buying power and selling power. To give you the Cliff’s Notes version of Greenwald’s book:

1)  The threat of substitutes and competition are in no small part determined by the extent to which the company has barriers.

2)  Selling and buying power are largely driven by the company’s market share which is ultimately determined by barriers.

Greenwald goes on to argue that if a company’s barriers are limited, management becomes the only medium-term differentiator, a differentiator that fades in relevance as the period of evaluation is extended. Greenwald calls companies that don’t have barriers “efficiency plays,” as the determinant of the company’s success is the efficiency of the management team. In this model, the way to determine who is going to win in a marketplace is either by picking the business with the most viable barriers or, if no barriers exist, the best management team.

Few things in life can be described by just one framework. For example, in this case, VCs would not invest in a company that has great barriers but a product that nobody wants to buy - patenting something useless is not an equation for making money. While Greenwald’s framework doesn’t indicate the viability of a product or service, I have found it to provide a useful perspective for trying to assess the extent to which a company is poised to scale.

Using barriers as the means for determining a company’s ability to scale, I have created a simple framework for evaluating which information technology companies have the chops to become big players in their respective markets.

In the IT space there are two key categories of barriers – those related to information and those related to technology.

Key information technology barriers generally include:

1)  Data scale: building a repository of data that enhances the underlying service and is difficult to replicate (e.g., Yelps' user review data or LinkedIn's connection data).

2)  Network effects: aggregating nodes in a network to increase the value of the service (a la LinkedIn and Facebook).

Key technology barriers include:

1)  Cost-side economies of scale: Leveraging scale to reduce the average cost of delivering the service – typically an advantage when technologies are expensive to develop.  For example, while Tesla's technology and infrastructure may have been expensive to develop, the average cost per unit declines as they sell more cars making it difficult for new entrants with low volumes to compete with their prices).

2)  Intellectual property protection: Patents and trade secrets that can actually provide meaningful business protection (Imagine if Google's proprietary algorithm wasn't defended by a patent).

I dryly refer to companies that can exploit information barriers as information businesses and companies that can exploit technology barriers as technology businesses. While some companies are poised to exploit one category of barriers or the other, other companies are uniquely positioned to leverage both types of barriers. For example, Microsoft Office has both cost-side economies of scale (a technology barrier) and network effects (an information barrier) working in its favor; it's expensive to replicate and the files are useful when everyone is using the same software to create, view and edit.  I call these hybrid companies.

This framework should be useful for entrepreneurs who are trying to understand the scalability of a given opportunity. At the end of the day, whether we invest capital as VCs or time as entrepreneurs we’re all investors – and to investors scalability is an important consideration.

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Our team at DFJ Gotham has been pretty busy making new investments. We followed our investment in Medialets with a number of new deals. The one that was most recently announced is Solvate – a company that provides a platform to enable businesspeople to delegate busywork to skilled administrative professionals on-demand.

The company was founded over a year ago by Mike Paolucci, Julie Ruvolo and Rick Lamb. After DFJ Gotham made a seed investment in the company in 2008, Mike became “customer number one at Solvate.” He related his experience with the service: “I started with just two assistants who supported my other business operations while I was crossing the Atlantic and Mediterranean over 80 days on a small sailboat with a 56k sat phone. No one knew I was even out of the office and I was sure we were on to something that every business operator could use." Today the service makes it easy for nearly anybody (professional and individual alike) to offload the development of business collateral, bookkeeping, expense reports, research, travel planning, data clean-up and a host of other administrative services.

After the team baked out their plan and built a prototype, we led the company’s Series A financing round. We syndicated the investment with RRE, another great NY-based venture firm. We’re excited to work with the Solvate team and RRE to help build this company. We believe that there are millions of businesspeople who have more administrative work than they can handle themselves but for whom a full-time assistant is impractical for one reason or another.

I’m sure that there will be more news to come. In the meantime, before you embark on your next journey through the piles of busywork on your desk, or hire someone to do so, try Solvate.