3rd party software proviso

As you build out the next killer app, (perhaps we should bring that description up to date. How about "killer service") it is extremely likely that you will use off the shelf (ots) software. It is in fact unthinkable in this day and age of mash ups, social networks, and open source that you would build everything from scratch, any more than Toyota would build all the parts it needs for its cars.

Given the possibility of the sale of your company here are three major things to consider when licensing 3rd party software whether open source or no.

Distribution
If you plan to redistribute your application, i.e. sell it to a customer and have it reside in their place of business you must have the right to distribute the third party software. If the software library you are using is not open source your contract with them must give you the right to distribute their library along with your software. Depending on the nature of the business this may range from an OEM agreement in which you pay royalties to the third party software manufacturer to a royalty free arrangement where you just pay for development licenses. In either case (and those in between) it must be handled in the agreement. If the library is open source then your obligation is dependent upon the particular open source license the software was created under. The most popular open source licenses today are GPL, LPGL, BSD, and MIT. GPL is by far the most prevalent accounting for nearly 68% of the projects listed on Source Forge (according to Wikipedia). In GPL and LPGL you must distribute the source code with your software as well as placing the GPL copyleft notice at the top. GPL is the least permissive of open source licenses and claims that software that uses GPL software is also GPL. The LPGL (lesser GPL) is more permissive and is commonly found in libraries whereas GPL is commonly found in applications. LPGL allows distribution of the library as a linkable (harkening back to the world of linked languages, such as C) component. I believe you still must distribute the library source code with the product, but do not need to distribute the source for your proprietary part of the product. The most permissive of all are the BSD and MIT licenses which allow you free and unrestricted use to the software, although I think they require the author headers be maintained in any distributed source. BSD and MIT are starting to become more prevalent as I see more and more new libraries and tools pop up that were created under these licenses.

If you are running your software as a service with a thin client interface (html or flash, also the newer Yahoo Widgets would fall into this category as well) and the core of your software resides on your own servers you will still need to have some agreement in place with software vendors. They may only charge you for dev licenses but could also charge on a use model (number of users, number of servers, etc.). The open source arena is easier to deal with here because you're not actually distributing your software, instead only using it internally and exposing outward some set of functionality. No mess.

Transferability
If you are a startup and you believe there is a good chance that you might be bought someday then the software that you license as part of your overall product or service must be transferable or assignable to the purchasing entity. Open source transferability follows the same conventions as distribution, so there are no additional considerations here (unless of course, you've open sourced your software as a result of embedding GPL and your buyer wants to make this software proprietary. In this case you will need to swap out the GPL code for your own or more permissive open source code). For non open source libraries and applications you will often see something like the following in a software vendor's license agreement:

Subject to the terms and conditions of this Agreement, Software_Company_X grants to Licensee a personal, nonexclusive, non-transferable, non-assignable and non-sublicenseable, limited license to use the software identified in the product schedules attached to this Agreement

This will not work for you. The provision you will want to carve out will say something like:

Licensee may assign this Agreement in its entirety in the event of a merger, acquisition or sale of all or substantially all of its assets, without Software_Company_X’s prior written consent; provided, however that for any proposed assignment Licensee may not assign or transfer this Agreement to any competitor of Software_Company_X that develops and/or sells similar technology and is listed on Exhibit A.

Companies will want the competitive carve out. Just lock it down to a limited set listed in an exhibit, otherwise the word competitive is open to interpretation.

Intellectual Property Ownership
If the intellectual property you create is built upon 3rd party software this is considered a derivative work. Again, GPL will not work for you. This is somewhat tricky overall depending on how important the role of the 3rd party software is in the creation of the IP. The best you can do here is to carve out a provision in the software license agreement that clearly defines your rights as follows.

Subject to Software_Company_X’s IP Rights in the Product and any derivatives thereto, title and ownership of all proprietary rights, including any copyright, patent, trade secret, trademark or other intellectual property rights, in and to any software created by Licensee will at all times remain the property of Licensee.

After this, pricing negotiation is easy ;)

Blue Ocean Strategy Maps

I recently read the book Blue Ocean Strategy and while the book is more focused on figuring out how to change an existing business to explore new opportunities (blue oceans, instead of red oceans where there is already much competition bloodying one another) I really liked the strategy maps concept.

Here is a blurb about Strategy Maps that I copied from the Tech Talk blog whom I think copied it from elsewhere:

Blue Ocean Strategy offers both a process and a set of supporting tools that practitioners can use to navigate. It begins with a �strategy canvas� that visually maps the current industry environment in two dimensions. The horizontal dimension includes the range of factors on which an industry currently competes and those factors in which it invests. The vertical dimension shows levels of performance against each factor, measured qualitatively. A strategy canvas is a conceptual tool remarkable in both its simplicity and its usefulness. It can be used to understand the current strategy of a company and its competitors, to communicate the strategy, and to imagine business directions. To do the latter, Professors Kim and Mauborgne recommend that a company create several alternative, radically different strategies, each aimed at delivering superior value to potential � not existing � customers by:

• Reducing cost by eliminating some factors that the industry takes for granted and reducing other factors below the industry standard
• Enhancing differentiation by raising some factors well above the industry standard and creating additional factors that the industry has never offered.
  

I think the strategy map concept might be even clearer as a spider diagram, especially if you only map yourself to a single competitor. The strength however is in the ability to quickly discern where the key opportunities lay and how you might change the playing field to your strategic advantage.

I used the strategy map with fairly powerful results recently in a board level strategy meeting.

The Deadest Guys in the Room

In the movie, "Enron, The Smartest Guys in the Room", Ken Lay is depicted as the disconnected fatherly figure who doesn't quite know, or want to know, what his son (Jeff Skilling) is up to when the son arrives with keys to a new Caddie (see scene where he is picking out the color of drapes for his private jet).

Lay was as culpable and probably more so than anyone at Enron for fostering the culture which ultimately resulted in bilking Enron investors and employees of billions of dollars. I think there is a danger in trusting one system (in this case the free market) to cure all ills. It reminds me of evangelicals who come up with crazier and crazier rationals as to why dogma is correct in the face of incontravertible evidence as the spool begins to unravel behind them.

Bottom line is that these guys believed what they were doing was good and their own hubris prevented them from admitting mistakes and adjusting their view of the world and their own business.

I believe the US and especially the US markets needed someone to go to jail and these guys were perhaps scapegoats to that end. But sometimes the goats are guilty, and for a brief shining moment, justice is served.

Ken, I hope you like the curtains for where ever the afterlife takes you :)

the holy wiki

I wrote a post a long while back about the use of Groove as an intra-company bulletin board. Well, we started having some problems with Groove back in late 2005, especially with synchronizing (auto copying of updated files up to people's computers when they login). It would pretty much lock up the computer and was overall a pretty big resource hog. Now I still like the features and think it's a pretty cool overall product, the performance characteristics became a barrier for us.

Early this year, we moved to using Jotspot. It is a fairly simple Wiki product that is easy to get started on and easy enough to use by the entire organization. JotSpot is Joe Krause's (of Excite and Long Tail fame) company and I believe they were bought by Yahoo just a couple of months ago, so their longevity is fairly assured. You can edit docs as wysiwyg or use the simple wiki markup for editing, easily create pages, and even create mini-apps by importing spreadsheets. There is a fairly low startup cost as well. I believe it's $99/year for a small group (<=10 users) and 100 pages.


We've used it a lot for asynchronous brainstorming and keeping large grained tabs on projects.

So far it's the best/easiest tool I've found for an intracompany interactive bulletin board. If you haven't used wiki's before I would highly recommend giving them a try and this is a great place to start.

The flys around the tail

or virtual communities, smart gatherings, etc.

For every subject of interest there exists a community of people connected to the value chain around the topic. These consist of the evangelists, the experts, the producers, the consumers , and the nearest neighbors and their communities. These communities are often distributed, with the various participants not knowing, perhaps never knowing, and thus, never being able to interact with the breadth of the community.

What is required is the ability to carve out dynamic communities around an ad-hoc topic and track this for the life of the topic. Search and even persistent search go part of the way there, but the extra bits are the interactivity or crowd sourcing that raise relevant information to the top ala Digg.

The long tail is a great concept and there are many companies that service the constituents in a variety of ways but they are mostly disconnected. Thus the flies buzz around the tail, sometimes running into each other but often times never even knowing the other exists.

The Perfect Moment

Ever since watching Spalding Grey's monologue, "Swimming to Cambodia" I've always kept a look out for those perfect moments in life. They exist on some ill defined emotional plane (perhaps a wikipedia entry is warranted), outside of logic or some conventional notion of happiness. Spalding's perfect moment was on a beach in Thailand up to his thighs in the surf and the sun touching down on the turquoise meridian of the earth.

One of mine came recently on a trip to New York City. Earlier in the day I had downloaded "Best of the Doors" into iTunes. I have been a fan of the Doors and Morrison's hedonistic transcendental rants since the early 80's but had not listed to them in a while.

I did some work on my flight then queued up my new purchase. As we flew toward the big apple I closed my eyes and let the music wash over me, letting pleasant memories associated with those songs resurface in a sort of auditory delicious tagging sense.

The last song in the collection is "The End." As we descended through the clouds on approach to LaGuardia this song began, "... this is the end, beautiful friend, the end...", we were circling low over Manhattan, near sunset, reflecting brightly off of the skyline and streaming through the airplane windows, almost blinding. For those ten minutes, the tumblers of life all fell into place and everything didn't have to make sense or have purpose. It just was.

Prediction Markets

I just attended a one day seminar in Chicago covering the topic of prediction markets. So what are they? PM's are securities based on the possible outcomes of an event or question. The wisdom of crowds, or crowdsourcing is used to try and discover the probability that the event in question will occur. This has been used in sports betting for as long as anyone can remember, but is now being used to predict all sorts of things. The popularity of this phenomena has risen exponentially since the publication of James Surowiecki's book, The Wisdom of Crowds. Another good, although unstructured, source of information is Chris Masse's site.

I've logged a few of the notes here that came out of the meeting:

• Market participants can bet on future outcome of question or event, question is packaged as a stock in a market, betting is buying and selling the stock.
• Learns by weight updating like a neural net: those who are right get rewarded (wealth), and those who are wrong get punished, so on the next round, those with good info have a higher weight (more wealth to put in “stock”)
• Reasonably good predictors when majority have better than even chance of getting it right. Even if this is not the case, those with low chance get weeded out and weighed down in early runs, and those with good chance get wealthy, until good players control the wealth-weighted majority of the vote
• Important to provide enough incentive for participants to try their best to predict outcome
• There has been limited success with some internal trials by companies (Corning, HP). Other examples are the Iowa Electronic Markets, InTrade (run by TradeSports), and the Hollywood Stock Exchange.
  
• The market requires enough traders to provide liquidity in order to work. How many is enough. Someone's study showed that it didn't have to be a large number, just an active and informed group, perhaps as small as a dozen?
• Don't charge participants to play. If you do it will be subject to gambling laws.
• Rewards + Recognition + Relevance = Participation
  

Given the current momentum and people working in this area I believe there is enormous potential. I'm just not betting on it :)

hedging the pump

Feeling the pain of rising fuel costs? Oil is around $70 a barrel and with instability in the vast majority of large oil producing regions (Iraq, Iran, Saudi, Nigeria, Venezuala, Russia) causing supply shortfalls I think we're all painfully aware that oil is very unlikely to decline to the $15 - $20 per barrel with equivalently low gas prices we've seen over the last few years.

So what can you do? How about locking in the price of gas at something reasonable? This is essentially what energy companies do today. They will buy gasoline in the futures market as a hedge to lock in a particular price point. I'm not familiar with the details of how the big guys do it but have at least the beginnings of an idea about how you and I can do it.

Let's say oil producing regions stabilize and production goes back up, enough to make gas fall to $2.00/gallon. Also, in our sample scenario assume our hedger (H) has a car that gets 20mpg and drives 15,000 miles per year. With a little 3rd grade math that comes to 750 gallons of fuel and at the current price would be a spend of $1500/year. Let's also assume our protaganist can find a stock in the equities market that moves in a highly correlated fashion to either oil or gasoline (company A). H purchases $1500 in company A's stock. Now if gas prices rise by 10 or 20 or 50 percent, H's stock will also rise in lockstep. The critical point now lies in profit taking and averaging down. I haven't got all of this worked out yet, but am thinking that if H were to take profits around 5% intervals over the initial purchase price and average down by buying more stock when the stock falls on 5% increments from the purchase price, discounting transaction fees and taxes, H's total fuel costs - stock profits + stock losses would end up with an average cost per gallon near the locked in price.

Anyone out there have more ideas on this?

No Quarter

It's Saturday afternoon. My son is sleeping upstairs, my daughter is at a birthday party, my wife's working out. What do I do? I work. I feel compelled, almost relieved to work. There is a huge tension that comes with the exhiliration of the startup. That is a certain implied willingness to get the job done, at any cost. Long hours, travel, your friends become your friends at work. Your family lives with your obsession of pursuit of a dream.

We just had our second child a few weeks ago. I feel guilty for not putting in the requisite 80-100 hours per week. Not from my co-workers however. They've been more than supportive and I've been proud of the way the entire team has stepped up over these last several weeks to deliver an initial version of our html product to market.

In a startup, there is no quarter, no place to hide. You are always on and the company depends upon every individual contributor to deliver their best every day, night, and weekend. I wouldn't have it any other way most of the time. My wife knows that I go absolutely nuts if I'm not running 100mph (kinda like I drive). But it would be nice to pause and recharge once in a while.

Maybe in the fall, after we've got the next product pushed out, sales starting to ramp, strategic relationships firmly in place, and next round of funding nearly secure. LOL. Maybe in the fall. ;)


"Walking side by side with death
The devil mocks their every step
The snow drives back the foot that’s slow
The dogs of doom are howling more
They carry news that must get through
To build a dream for me and you
They choose the path where no-one goes.
They hold no quarter, they ask no quarter."
-- Led Zeppelin

Landing Venture Capital

There was a recent article posted on TheStreet.com entitled Landing Venture Capital. This is a fairly good article outlining the state of Venture Capital funding. 2005 was the first year in three years that venture capital funding has increased, yet the odds of getting funding remain bleak for early stage companies. It goes on to describe how the VC's essentially moved into triage mode after the dot com crash in 2000 and even though the money has started flowing it is still primarily focused on either later stage companies or early revenue companies, i.e. you won't get funding for a couple guys in a garage with a business idea. It does outline the re-emergence of angel investing. Because VC's are not focused on as many early stage deals, there are more of these deals available to angels. A great example of a new sort of VC firm taking advantage of this trend is Paul Graham's Y-Combinator.

While I agree with the state of VC funding, the article contains an underlying assumption that your primary goal is to achieve funding. Your primary goal is to deliver a product to an identified market that will find value and pay you more for it than it costs to produce. There are a number of companies today, especially in the Software as a Service space (Web 2.0) that are growing their business organically and bypassing VC funding altogether. One of the poster children in this area is 37 Signals, the creators of Ruby on Rails and authors of several popular web hosted products such as Basecamp, Backpack, etc.

So while the article isn't exactly bullish on venture funding prospects, don't lose heart. Focus on the primary goals of driving value and getting paid for it, network heavily in the funding communities (both angel and VC) and the rest will take care of itself.