startups, technology and fishing

Don Dodge from Microsoft’s emerging business team summarizes the Patent Reform Act of 2007 that just passed the House Judiciary Committee.

Damages are limited to the value added over existing technology. This bill would require the courts to look at the “free market” value of the patent if it were licensed in an “arms length” transaction. A very small win for the little guy - now instead of paying $600 Million to settle a patent lawsuit, you only pay the value added over existing technology - say $50 Million? Even $2 Million is enough to crush most startups.

A review board will allow parties to challenge issued patents and present prior art to mediate disputes outside of the courts. Another small win. It has the potential to reduce legal costs when challenging an issued patent - assuming you have the stones to step into the ring with someone like Amazon or Microsoft. The reverse may be a bigger win for small business if this forces big companies to mediate with you when challenging your issued patent. I don’t know enough about patent litigation to know if this is a possibility - any lawyers reading this please comment.

A really smart development is peertopatent.org. It’s a bit like Digg.com for patents.

“This process allows anyone to submit “prior art” for consideration by the US Patent Office. Users vote on the most relevant and compelling prior art examples. The top ten submissions get forwarded to the USPTO for consideration before granting the patent. This is a pilot project being tested on 250 patent applications. If successful, the project could be applied to broader patent areas.”

I love the idea, but my first thought is “users vote”? Digg gets gamed all the time and there’s nothing they can do about it. If you’ve got 100 votes from 100 different geographically distributed IP addresses and 100 separate user accounts that were registered with a captcha, it still doesn’t guarantee they’re real. When you consider that Microsoft (according to Dodge) spend over $100 Million on patent litigation every year, the incentive to game this is huge. The registration looks pretty standard. I think it’s a brilliant idea - but they need to use SSN’s or have some way to guarantee every registered user is a real person. If they solve this problem then online political voting becomes a reality.

UPDATE: Changed the title after realizing I’m referring to a niche within startups.

John Cook, one of my favorite Seattleites, has a post on his blog about yet another home office no money startup that got bought out for a few million. There is a growing realization that getting early funding if you’re a developer building a consumer web application is a very bad idea.

• You don’t need the money (hosting is cheap, your time is free, etc…)
• You don’t need the pat on the back (You’re a genius, OK? Now JUST DO IT!)
• You don’t need to be writing reports every month for a bunch of suits around a table
• You don’t need a business plan (Even Guy Kawasaki agrees it’s just a checkbox)
• You don’t need a big team to create a web app (If Markus Frind, Craig Newmark, James Hong and Scott Rafer can do it then so can you!)
• You don’t need to worry about a bigger company getting more funding and stealing your idea because as James Hong says “taking a zero off the budget is the best thing you can do for creativity”.

The more money a startup raises, the more vulnerable they become to little guys like you:

• Their target market sometimes becomes their investors and not their customer
• Every time they raise money they feel like they’ve achieved something and throw a big party - and work stops for a while
• They need to take huge risks to keep their investor happy because the investor wants to see a home run and $10 million in revenue doesn’t mean anything to them.
• Once they have committed to a business plan and sold it to investors, it becomes very difficult to change direction. You don’t need to have a board meeting or convince anyone. If you want to change direction you can do it in 24 hours.
• They hire people as a reflex action after raising money and more people in a dev team can actually slow things down instead of increase productivity.

So stop doubting yourself, stop having coffee with friends and talking about whether you’re going to go the Angel or VC route. Just sit down at your lonely little desk at home, grab some paper from your printer and sketch out your idea with a pencil. Then go visit serverbeach.com and buy a server for $79/month and start writing code.

A giant spinning sequoia caught in a tornado that throws off dollar bills instead of pine needles.

[Apologies if you thought this was going to be a treatise on creating passive income.]

ps: Can someone draw this for me?

Dustin Staiger has a list of 10 signs that you’re shooting down good ideas in your organization. This reminds me of someone I worked with a while back. Here are my personal favorite signs from Dustin’s list of 10:

7. Listing the top 10 ideas from your department this year, half or more are your own.

5. All ideas must be proven.

4. You only want BIG ideas.

2. Your competition is your main source of ideas.

1. No matter how much you’ve talked about ideas, collected them, praised them, in the end you don’t use them. (Like a maimed duck, you let them wander off and die.)

I had a great chat with Tony Wright yesterday evening over a few drinks. Tony has a degree in psychology and is a fellow entrepreneur and we got chatting about the Milgram Experiment and its applicability to branding. Here’s a video summary:

The experiment found that few people have the resources needed to resist authority, even when the authority figure is telling them to do something in violent opposition to their moral judgment.

Brands carry a level of authority. Take a startup for example:

• It’s founded by two Stanford postgrad students. +2 authority
• It’s published on Techcrunch as the hot new thing. +1 authority.
• It gets Angel funded by Larry Page, one of the Google founders. +7 authority
• It gets a first round of VC funding from Sequoia. +5 authority
• It gets published in the NY Times also as the hot new thing. +5 authority

You don’t yet know what this brand does, but you’re already dying to become a user - simply because the brand has a ton of authority and because your Milgram susceptible brain is telling you you to obey. [Or perhaps you fall within the 35% of Milgram participants who didn’t kill the learner]

This is the reason I signed up for Joost very early on - because it’s founded by Niklas Zennstrom, one of the Skype founders.

I’ve seen startups do an excellent job of creating this authority using big marketing budgets and great PR firms without any product to speak of. Users wind up (to use a British expression) gagging for it and they don’t even know what the value proposition is.

On the flip side, many great products lack the brand authority to get the user adoption they need. For companies on a tight budget run by first-time entrepreneurs, this is a challenging hurdle. I don’t think it’s insurmountable though - it simply takes more time and careful growth.

Simply realizing that your brand has authority that needs to be grown is a great start.

Jobster’s CEO Jason Goldberg sent me this vid this morning of their marketing team brainstorming the launch of their new Facebook application.

I’m curious what your thoughts are on the brainstorming process and the ideas they’re throwing around.

Full disclosure: I worked for Jobster and left about 1 year ago. I also sold a previous business, WorkZoo.com to Jobster.

Dave Lu, CEO of FanPop.com was part of a panel at the Churchill club recently - a previous entry has the video. I loved an analogy he made: That the leap of faith you take as an entrepreneur is a lot like a scene from Indiana Jones. Here’s the scene:

I love what he does at the end of the clip - I’m sure there’s a metaphor there somewhere.

I found this awesome vid on Guy Kawasaki’s blog. It’s a panel session with Markus Frind, Founder, PlentyofFish.com
and James Hong, Co-Founder, HotorNot.com and a few others. Markus Frind is my personal hero and much of the reason I have an aversion to VC money.

This is more than an hour long, so when you’re done working tonight at 2am, crack a beer and enjoy this:

I’m at open coffee this morning at Lousa’s Coffee shop in Seattle - here early to get some reading in. Come down if you’re free this morning. There’s going to be an awesome group of entrepreneurs and innovators here from 8:30 until everyone leaves (usually after 10:30).

I’ll often find myself chatting about choice of technology with fellow entrepreneurs and invariably it’s assumed the new web app is going to be developed in Rails.

I don’t know enough about Rails to judge it’s worth. I do know that you can develop applications in Rails very quickly and that it scales complexity better than Perl. Rails may have problems scaling performance. I also know that you can’t hire a Rails developer in Seattle for love or money.

So here are some things to think about when choosing a programming language and platform for your next consumer web business. They are in chronological order - the order you’re going to encounter each issue:

1. Are you going to be able to hire great talent in languageX for a reasonable price?
2. Can you code it quickly in languageX?
3. Is languageX going to scale to handle your traffic?
4. Is languageX going to scale to handle your complexity?
5. Is languageX going to be around tomorrow?

If you answered yes to all 5 of these, then you’ve made the right choice.

I use Perl for my projects, and it does fairly well on most criteria. It’s weakest is scaling to handle complexity. Perl lets you invent your own style of coding, so it can become very hard to read someone else’s code. Usually that’s solved through coding by convention. Damian Conway’s Object Oriented Perl is the bible of Perl convention in case you’re considering going that route.