Chris Maresca

The Untracktable Problem of Hollywood

I was in Los Angeles last week attending the Digital Hollywood conference. The crowd was mostly executives from the entertainment business and it was held at a luxury hotel in Santa Monica.

Aside from the fact that every other session was either about mobile (re. content on iPhones) or about how to monetize content on iPads, there wasn’t all that much new being discussed. However, most of the executives I met were very sanguine about web content and the problems they have with existing and back catalog content.

One clear problem emerged around publishing web content – negotiating reasonable terms with rights holders. I heard several VP-level and above execs express huge amounts of frustration with rights holders and their demands. One had even recently quit because of his inability to get reasonable terms and several others were looking for a way to get out of the business.

At this point, I’d like to explain how TV shows and movies actually work. Basically, you can think of a movie or TV show (a ‘property’ in Hollywood-speak) as a collection of performances by a bunch of ‘artists’, choreographed by a ‘producer’. Each ‘artist’ (it could be a company as well) retains the right to their performance and are referred to as ‘rights holders’. And it’s the ownership of these ‘rights’ in particular ‘properties’ that allow ‘artists’ to be paid every time something is shown (this is know as ‘residuals’ in the industry). In most cases, ‘rights’ for a ‘property’ are negotiated when it is initially made, usually around ‘platform’ rights (e.g. a platform being movie, cable, tv, tape, dvd, airplanes, pay-per-vue, commercial use, etc) and geographic rights. However, when a new ‘platform’ emerges (web, internet streaming, downloads, blueray etc), rights must be negotiated for that new platform for each property.

So, back to our story. The (very) senior executives I was talking to were all facing the same rights problem. They would like to publish existing and back catalog content on the web, but the complicated matrix of people and organizations that owned rights in these properties made it impossible to get everyone to sign-off on web publication.

Apparently, some rights holders are demanding large upfront payments in exchange for signing off on web publishing the content. And, because the revenue models are uncertain, no body is willing to risk large amounts of money upfront….

The irony of this, of course, is that consumers will download the content anyway, further and further reducing it’s value. Even worse, the unwillingness of current rights holders to license content for web publication is undermining the future of the residuals system since it is pushing content producers towards ‘work for hire’ royalty free content.

In the end, the reason why your favorite show is not available online legally is probably because, someone, somewhere is being selfish and greedy. And that is adding up to a problem no one is seemingly able to solve.

Listening to the Numbers

A couple of months ago, I sat down to help a company that was struggling to grow beyond subsistence for a few people. Before actually sitting down with them, I spent time talking to the CEO about the state of his business. It was clear that there was a lack of process and discipline, and this was not doing the business any favors.

In business, it’s critical to have ways of cataloging progress and give a historical perspective of what is going on. Sure, revenue is a useful reference point, but it says nothing about how the money was made – or how it could be made more effectively. Ideally, this would be rolled up into a financial model which used historical numbers to project forward. But even without this level of detail, it is still possible to derive useful information from even the simplest numbers.

After my phone discussions with the CEO, I clearly understood that the business was not doing whatever it took to generate business, and that my emphasis was going to be on more face-to-face networking and pitching to local companies.

So, there I was, standing at the whiteboard, ready to point out that their lack of revenue was due to not enough in person sales. But, as the CEO and VP of Sales went over what metrics they had about conversion rates, I suddenly realized that I was wrong. The numbers told the story – and the story was that there was no way that they could get the revenue numbers they needed without a radical change in the business. It was a relatively simple, but radical solution – to stop going after individual customers and instead focus on channel partner recruitment.

For this company, it was a revelation that their sales strategy was doomed to failure, and, for me, it was yet another lesson in listening to the numbers, even the few you might have.

The Hard Work of Social Media

I was just looking at a discussion about LinkedIn where someone called it useless.   I’ve been a LinkedIn user for years, basically since it was launched, so I’m more than a little biased about it’s utility.   However, I also recognize that quite a few people think it should be a magic bullet to a variety of problems, from lead generation to landing a new job.  Truth is, like most social networking/media sites, it’s hard work to get what you want out of it.

Nothing is a substitute for doing the hard work of face to face networking, but LinkedIn is hugely helpful in keeping up those relationships, particularly as people transition from one job to another.  It’s also extremely helpful in surfacing people in other industries and helping to setup face to face meetings in other regions you may be traveling to.

Ultimately, however, it’s like everything else, you get out of it what you put into it. Social media (e.g. Twitter, Facebook and LinkedIn) is particularly weird in the sense that it might take quite some effort (and time) to get out of what it promises.

It’s also important to remember that in some geographies like Silicon Valley, it’s pretty much a requirement to be on LinkedIn – in other places or verticals other than tech, it’s not as common or it may be another social media network.  In Europe, Bebo and Xing are much more used that LinkedIn – and Facebook is increasingly what people use to connect for business purposes.

As far as generating business from LinkedIn, it’s pretty clear that no single medium ‘generates business’, you have to work a broad front and each little bit increases your ability to ‘generate business’.

In the end, there is no magic bullet, it just comes down to hard, consistent work over a period of time, much like every other aspect of business.   In that sense, social media is no different.

Client Success – Wavemaker

It’s always good to see a past client become successful.   In this case, it’s WaveMaker, a company for which I did business model, licensing and community strategy several years ago.   Looks like that work has finally paid off, thanks to good execution on the part of Chris Keene and the rest of the exec team.    They just announced profitability and that their community had grown to 15,000 participants.

Congratulations all around.

Link: http://dev.wavemaker.com/blog/2010/01/06/wavemaker-rides-the-cloud-computing-tsunami/

VC Math – Or why you’ll never get funding…

Yet another cleaned up post from a startup thread on LinkedIn.  This one is about VC math and TAM’s.

One thing that’s very much missing in most entrepreneur’s understanding of the fundraising process is the notion of total addressable market (TAM) and it’s relationship to fund size. Basically, it’s the understanding that fund size vs number of partners drives the available investment size.

An overview of how this works

Since partners can only typically manage at most 10 companies simultaneously, 2 partners at a $100million fund will invest in a maximum of 20 companies. Usually, the first five years of a fund are devoted to new investment, and the last five to supporting existing portfolio companies. Money is usually allocated 50/50 to new vs support, so this hypothetical fund would have about $50m to invest in 20 companies. $50m divided by 20 gives you roughly what the investment amount would be about $2.5m.

The flip side of this are rough calculations about TAM and exits. If the TAM of a company is $100 million and you assume they can capture 10% of the market in 10 years, then their revenue will be around $10m, with a valuation of somewhere between 3x to 15x revenue depending on the vertical. At the lower end of that, it would be a company worth $30m if everything works out.

Going back to fund size, if the fund is targeting a 10x return, then investing $2.5m in a company that might be worth $30m at exit is just about right, assuming no other dilution. Of course, this leaves out a lot of details and is uber-simplistic, but I can guarantee that every VC you talk to is doing these sorts of rough calculations in their head.

However, what’s really important about all of this is understand your company’s TAM and doing your homework about size and lifecycle of funds investing in your vertical. If your TAM is $100m and you approach NEA ($2b raised for their latest fund), then you will likely never get funding. A lot of entrepreneurs don’t seem to be willing to do the legwork in researching investors/funds/etc, but that’s one of the keys to success. I would add that the VC tool of choice for doing research is VentureSource – yes, it’s not cheap, but if you are looking for funding, it’s a goldmine of information on valuation and fund status

This is a very common mistake made by a lot of entrepreneurs, even experienced ones. I’ve given a presentation at a bunch of conferences about this very topic and it’s always shocking how many people don’t understand these dynamics.

Startup growth metrics for Silicon Valley

Last December, I was in an interesting meeting where the Bureau of Labor Statistics (BLS) presented a bunch of interesting stats several days before they were due to be released.

The most interesting statistic, however, was one that was generated specifically for this particular meeting and is not part of the regular dataset.  It was statistics about company growth in Silicon Valley, and it revealed the lack of companies growing to significant size.   For me, it just reinforced my gut feeling that the VC model was broken and that the real target should be lower exits, not monster hits.

First some definitions, in BLS terms:

• Small company – less than 50 employees
• Medium company – 50 to 250 employees
• Large company – 250+ employees

I would note that the BLS looks at payroll to determine employees, so contractors don’t count.

The BLS had put together data about companies growing from small to medium to large over the 8 year period from 2000-2008, it was summarized in the following table:

	2008
2000		S	M	L
	S	4400	214	8
	M	219	292	50
	L	34	45	119

What’s surprising about this is that only 8 companies became ‘large companies’ in 8 years. That’s one a year, and if you think of company size as a proxy for revenue, then it’s pretty stunning.

P.S. Sorry for the crappy table, turns out tables in WP are a huge pain in the ass….  The vertical numbers represent the state of affairs in 2000, whereas the horizontal numbers represent the state in 2008, so reading from left to right gives you the changes from 2000 to 2008…

What I look for in a pitch

Over the years, I’ve gotten many requests from people wanting help raising funds.   Most of the time, I find that they have failed to do their homework and that even the most basic elements are missing from their pitch.   I recently posted in a forum describing what I would look for in a pitch, so I thought I’d re-post it here, a bit cleaned up and expanded.

What I look for in a pitch

A pitch is several stories.  It’s the story about how you will successfully run your company if you get money and it’s much like a sales pitch.   But it’s not just your company’s story, it is also the story of you and the people on your team, the industry you are targeting, the story of your customers and finally, the ending chapter of your company.   Like every good story, these should have arcs that meet at some logic point.   And, like most good stories, it needs to be cogent, logical and progress along path.   All that said, what are the tangibles that I would look for in a pitch?  Well, here are some:

• Entrepreneurs should know everything about their business/market and I consider it a bad sign if I know even just a little more
• Know who I am, why you are talking to me and what your expectations are from me
• Have done their homework about investors, funds and criteria.
• Polished presentations & financials
• Business plans in the traditional sense are a waste of everyone’s time – I don’t really care if you have one
• A good, clear slide deck that lays out the future of the company (the story, see above)
• Detailed financials that are in sync with the deck
• Polished, articulate delivery of both the deck and financials (you need to know this stuff cold)
• A clear understanding of real and potential competitors, with a view of competitive differentiators
• A clear and complete executive summary that someone can grok in less than 10 min.
• A good website
• Finally, there should be some sort of working prototype or demo, esp. if it’s software.

There are tons of online and offline resources for learning how to do all of this and there really is no excuse for not doing it.  I would also point out that I don’t expect everything to be in the deck, just a good, compelling story about the future of your business, industry and customers.  That said, I expect you or your team to be able to answer every question I ask, in detail if appropriate.  And if you don’t know, don’t make it up.

So there it is, a basic outline of what should be in the pitch.   I would point out that there is a lot of other detail about what should be in there and that you should understand what your target investors are looking for when putting together your pitch.

Choosing a VPS hosting provider

As part of my ongoing effort to reduce technology administration, I’ve also been looking at fully managed hosting.   Right now, I have a dedicated server at SoftLayer, which has been a fantastic hosting provider.   But, I have to manage the server, which means keeping up with all the updates, handling backups, etc.  It’s not a lot of work, but it’s something I’d rather not do.   Also, a dedicated server is way overkill for what I need, I think CPU utilization is at 0.01% or something.  And virtualized hosting technologies have come a long way in the last 3 years, making fully-managed dedicated-like machines widely available.

So, I set out to find a fully managed server, preferably provisioned as a virtual server since that would probably give me better backup.  There are a lot of routes to this, including cloud services.   It turns out that cloud services are actually substantially more expensive that what I pay for a dedicated box and few offer fully managed systems even at that high cost.   So I was basically left with traditional virtual private server (VPS) offerings.   In this space, there are basically two models – Xen or Virtuozzo, aka. OpenVZ (at least on Linux…).  Xen has the advantage of providing dedicated resources (memory/CPU) to the VPS, where as Virtuozzo has guarantees and bursting, sort of like cooperative multi-tasking.  Generally what this means is that Xen has fewer VPSs on a single server than Virtuozzo as there is no possibility to share resources between VPSs.  In practice, it also means that Xen VPS hosting is also quite a bit more expensive than Virtuozzo.

So, with that in mind, I set off to find some hosting providers.    There are a LOT of hosting providers, and the real difficulty is identifying those which have relatively good performance, service quality, price and features.  Here are the ones I seriously considered:

• ServInt
• WiredTree
• KnownHost
• JaguarPC
• VPS.net
• NetSonic
• LiquidWeb
• SliceHost – Xen hosting, unmanaged
• MediaTemple

Most of these were extensively researched by reading forum posts (in WebHostingTalk and quite a few various other forums) about various providers.   These providers consistently come up as recommended and, in the case of ServInt, WiredTree, KnownHosts, JaguarPC and LiquidWeb, actively participate in the discussions.  It was also particularly instructive to see how hosting providers worked to resolve client problems.   I also looked at how long a company had been around and what their finances might be like, and did some network tests to check connectivity.   All this research was done over a span of about two months, with the final decision to be done before Xmas 2009. There are plenty of cheaper providers (these are about $50/mo for their cheapest offerings), but you get what you pay for and it’s hard to make decent margins at the cheapest prices.

Finally, I also considered EC2 using this image http://developer.amazonwebservices.com/connect/entry.jspa?externalID=2975&categoryID=204 but it’s unmanaged, so it was a non-starter.

I would note that if you are a business with any sort of traffic, while a VPS is fine (and should be considered a minimum), you really should have your own dedicated system, particularly if it contains sensitive client information.   My recommendations are either Voxel.net – which I have used for 3 companies over the last 10 years (and I never once has a failure); and SoftLayer – which I have used for the last 3 years for my personal system. The absolute cheapest dedicated hosting I have seen is VolumeDrive, but I have never used them, so can’t really speak about it.

In the end, I would up on a VPS from ServInt (which is where you are reading this from…).  They had the best ROI and features combination.   The very close runner up was WiredTree.   Really, you can’t go wrong with either, and I choose ServInt only because they offered Plesk’s Power Panel as a management UI, which, although I dislike most of these GUI tools, I like better than C-panel.

I’m almost done migrating sites from SoftLayer to ServInt and it’s been pretty easy.   After that, I’ll have to deal with email migration (ugh).

Tags: dedicated, hosting, migration, openvz, virtuozzo, vps, xen

Hosted Email – Update #1

Well, after 24 hours of trying out 01.com, I’m left frustrated by their jumble of different systems with no attempts to aggregate them into a single ‘portal’, particularly the diversity of different admin systems.   OTOH, the mail service is quite fast, although I have not tested inbound mail much.    They called me this morning to see how things were going (I bitched about their lack of a unified UI), which was a nice touch.    I also asked about BES pricing, and it seems that this might turn out more expensive than I had hoped and with quite a bit of risk in migrating from BIS to BES at the carrier level.  It’s too complicated to explain, suffice it to say that I have a legacy cell plan that is generous with data and any changes might make that go away…    There is also the risk of paying lots of $$$ for BES, which I might not actually use for very long if an Android phone comes out with a keyboard, CDMA and GSM….

Sooo, I’m left re-considering my options.   Suddenly, Google’s offerings seem quite attractive, esp. since they have a Blackberry OTA sync client that’s free.  Hmmm.   I might also have to have a second look at The Message Center as they offer a BES-independent BB sync of some sort.

What a pain.  Really and truly.   I need to make decision soon so I can migrate and stabilize all this before I go on extended travels…

Things that live on forever….

There have been quite a few memes in the past decade about the stupid things you do online living forever. Well, it’s not just the stupid things, you see. Just for kicks, I went back and looked at the website of the very first organization I built a complete, commercial web-presence for, back in 1995.

The organization in question was the US Travel and Tourism Administration (USTTA), a division of the US Dept. of Commerce that keeps track of statistics about tourism and generally tries to support the industry (which, BTW is either the first or second largest US export, depending on how it’s counted). I was working for a government contractor, Ellsworth Associates (which has since been sold several times over) and was the head webmaster, a huge deal in 1995.

My very first job was to build a web presence for USTTA, which we would up calling TInet (in the fashion of the day…). So I set about designing a look and feel that would work well.

Fast forward to 2010, almost 15 years, and, guess what, TInet looks almost exactly the same…. Check it out: http://tinet.ita.doc.gov/research/index.html

Fantastic, how retro.  I guess my 15 year old design was hugely advanced for it’s time.   Wonder if they are still using the e-commerce (shopping cart back then) code I wrote in Perl all those years ago…..  Hopefully it still runs on Linux.

P.S. Apparently there is no more shopping cart and it’s now running on IIS.  So much for progress.