Invited Companies - SW Industry Survey

I've sent the invitations and I've been surprised at the speed and extent of the acceptances. Cutting straight to the list of vendors I've invited to participate in my industry survey:

Aduna

Cambridge Semantics

Franz

Garlik

Intellidimension

Mondeca

Ontoprise

Ontos

Ontotext Lab

OpenLink Software

Primal Fusion

Sandpiper Software

Siderean Software

Talis

Thetus

TopQuadrant

And the "deployers" (trying to think of a better term...suggestions are welcome):

BBN

Dow Jones Client Solutions

ITA Software

The Calais Initiative

Twine/Radar Networks

Yahoo!/SearchMonkey

I've created lists for industry reviews before and I've always found that having a few basic guidelines or criteria for inclusion can be very helpful. Here are the ones I've used:

• The entrant has to be a company or part of a company.
• Professional services firms (consultants) are not included. I want to focus on vendors or makers of products, Web presences, or Web services.
• Defense contractors like Northrup Grumman, Boeing, etc. are not included. Those markets are too specialized and restrictions related to classified information arise far too early and often to allow real exposition of the issues.

I've tried to keep this simple and I don't guarantee perfection. As a matter of fact, I've always found that it takes several iterations to get the criteria, categories, and key issues right. This is a starting point where I hope we can all learn together and build on successfully.

Gotta go - I've got to get back to a bunch of people to schedule conference calls. I still owe a couple of entries on this blog related to the process of building shareholder value and separately, using a simple investment portfolio model as an analogy for corporate IT portfolios.

Systematically Setting Business Priorities

I was chatting with a friend the other day whose business is really starting to take off. It's a great problem to have. As would be expected, juggling priorities and responding to the host of demands on his team's time, attention, and energy is becoming a pretty significant challenge. It's one thing for us to set priorities for our own activities, but as you grow, how do you create a consistent framework that the entire team can use as a guide without having to re-visit each and every new situation? Here are some thoughts for a lightweight, easy-to-use guide:

Prioritizing and Qualifying Business Relationships

There are two paramount factors when setting business priorities:

• Money, in the form of profit or shareholder value.
• Time, because a dollar today is worth more than a dollar tomorrow.

Every business faces demands on its time, personnel, infrastructure, and effort, which I’ll refer to as resources. These resources can be quantified in terms of money. If two businesses face similar demands and provide comparable levels of service, the one that targets the highest value activities and executes on them with the greatest efficiency will win.

In rank order, business relationships follow this pattern (and each category, or set, can have its members prioritized within the set’s boundaries):

Customers – parties that are prepared to pay money (or in rare cases, barter) for goods and services. The money provided by customers is the lifeblood of a business, and the more customers and money, the better.

Fundamental qualifying questions:

• Can the customer convince the vendor that it has the money required to make a purchase? Customers seeking to make the largest purchases take priority, assuming equal decision timeframes. Vendors must ask: Do you have a budget? What size is your budget? Has it been approved? Once a decision has been made, what’s required to release the funds?
• Is the customer presently in the market as a buyer and how long will it take for them to make a buying decision? If two customers will spend the same amount of money, the one that will make a decision first takes priority. Vendors must ask: What’s your decision timeframe? Will there be any additional approvals required and if so, how long will that take?

Partners – parties that provide access to customers, or by providing quantifiable value, allow a vendor to pursue customers it wouldn’t otherwise be able to attract. 

Fundamental qualifying questions:

• If a partnership is formed, what do the parties get that they wouldn’t otherwise? 
• What will ensure that each party gets whatever it is that’s been specified?
• How much time should be allowed for the specified results to be achieved?
• What happens if expectations aren’t met? Will one party be liable to the other on a cash basis?

Employees – people who are paid to enhance the value of a business through their labor.

Fundamental qualifying questions:

• What clearly identifiable skills does the person bring to the business?
• Can the value of these skills be calculated? Are there specific customers or markets that will make buying decisions as a result of what this hire brings to the team? Similarly, will this hire free other personnel to catalyze buying decisions?
• What specific knowledge, relationships, or credibility will this person bring to the business? Can these be quantified in monetary terms?
• Can a durable, highly motivated core or team be built around this person?

Analysts/Media/Consultants – people and organizations in a position to directly influence the behavior of customers.

Fundamental qualifying questions:

• What relevant customers do these people/organizations serve?
• Is their influence needed?
• Aside from consuming the company’s resources, is there a cost for establishing and maintaining a relationship?
• Is the analyst/consultant or media property credible? How credible is it?

Knowledge seekers – people contacting the business to increase their knowledge without any exchange of value.

Fundamental qualifying questions:

• Can this person’s questions be answered through existing and readily available material?
• How much time would be required (or should be allotted) to speak with this person and answer their questions?
• Is it conceivable that this person might add value or influence customer behavior at a later date?

This framework can serve as a consistent guide, but the exercise of business judgment will always be a necessary ingredient. With experience, different qualifying questions may emerge to suit a specific industry, relationship, or opportunity. Adapting to these changing circumstances will be key. 

Launching a SemWeb Market Research Project

I’ve been involved with the business of the Semantic Web (SW) since 2004 and I think this is an excellent time to launch a review of the “industry players.” The SW industry now has a number of participants and there’s an opportunity to clarify who they are, what they do, and why anyone, particular buyers, should care.

Over the next few weeks I’ll be contacting companies like (and no, this is not a complete list):

• Aduna
• BBN
• Cambridge Semantics
• Franz
• Garlik
• ITA Software
• Open Calais/Reuters
• Siderean
• Thetus
• TopQuadrant
• Twine/Radar Networks
• Yahoo!

My conversations will follow a consistent format and I’ll have at least two classes of players – the first will be conventional vendors like Siderean, Thetus, and TopQuadrant and the second will be “deployers” of the technology like Open Calais/Reuters and Yahoo!. As I go along I’ll post observations on my blog, Semantic Business, and when I’m done I’ll write up the findings in a final report which I’ll make available for free.

It’ll be free because:

• There’s a growing trend among analyst firms (at least the startups) to give their reports away for free. Where they make their money is in retained relationships, corporate sponsored presentations, and custom client projects.
• I want to maximize industry (corporate, vendor, research & scientific) engagement, conversations, and involvement, so I want to minimize the barriers to interaction. Sounds a lot like open source, doesn’t it?
• I’m willing to take the risk that this approach will work. It might not.

The level of activity in the industry is higher now than it’s ever been. That means it’ll be hard for me to find all the vendors, deployers, projects, etc. If you think I’ve missed something, please write to me and let me know.

I’m looking forward to this and I hope you are too!

When I Started a SemWeb Company, Part Three

Things were moving along pretty well - I knew the problem I wanted to solve, I'd confirmed customer interest in my approach, the open source technology already existed and I had the the support of the community leaders, and I had some pretty clear ideas about money. Now to start building a team, starting with the right partner... 

If you've read the previous entries, you can imagine that I was starting to get pretty jazzed about my prospects. But I'm not a technical guy and in 2004, there were literally only a handful of people available to fill the role of CTO. I felt I needed someone with unquestionable technical skills, a significant profile within the SW community, and the ability to articulate the value Human Element was trying to deliver in clear, understandable terms that potential customers and investors would find appealing. I'd been in the mix long enough to know exactly who I needed to reach out to. (All names changed to protect the innocent, the guilty, the shrubbery in my back yard, and whatever else.)

• Candidate 1: I'd interviewed Bill in the course of researching my thesis. He'd been really helpful and at the time, his own venture seemed poised to do well. In the interim, it actually folded, which made me think he might be interested, even though he was on the West coast. The reality: I've never been able to track the guy down. I don't know anyone that's heard from him since, and I've never seen any record (at all) of his activities, even to this date. It was easy to move on from this one, but it still seems strange. Maybe he works for the government in a secret bunker a half-mile underground...
• Candidate 2: James is one of those other-worldly smart Ph.D. types, but I knew who he was and his qualifications were unquestionable. I pitched him on the idea and he was lukewarm at best. I persisted, and he asked, "...what's the end game?" Recognizing that cutting to the essence of the matter was crucial, I answered simply "Money." I'm talking about a business after all, and that's what businesses are supposed to do - make money. James responded "figures, coming from a business guy..." I tried pointing out that in a business, people count on people like me who think about money because they need to get paid, pay their rent, kids' tuition, eat, etc. I've been in touch with him since then and I'm convinced that one day he's going to turn the world on its head, but I guess not with me. Moving on...
• Candidate 3: Harry had been in an SW venture before and actually had some business experience. He'd left his company and had some time on his hands, so we talked about the idea and he seemed interested. I continued to ask and he continued to not say no, round and round we went until one day he basically said "Listen, I'm going to finish my Ph.D. and I really want to focus on that." OK, I understand that, particularly since I just graduated from a mid-career masters program myself. Time and possibilities were running out at this point...
• Candidate 4: There were a few other candidates that I haven't mentioned, partly because I ruled them out quickly or because they never responded. Carl was different. He'd been advising me for some time and he knew what I was trying to do. I also think he was genuinely hoping I'd succeed. Naturally, I pitched him. Carl had never been in a business venture before. He'd always been in academia, but he made it clear that he was losing enthusiasm for that lifestyle. As my sales conversations were moving along, he assured me he'd deliver a demo. I persisted in asking him to join me and he reported back that what I was saying synced up well with what his lawyer was telling him. This conversation took place over six to eight (valuable) weeks...radio silence ensued.

During this period when the reality of not finding a partner was sinking in, I was on the phone with a close advisor one day. I was telling him that I was uneasy about my search for a technical partner and we were talking about how this was a make-or-break issue. Our conversation moved along until I mentioned that I had to leave - I was on my way to a meeting with Polaris. He knew the person I was meeting with and advised me based on his experience. Then he asked "How are you going to deal with the technical questions and what are you going to say about your search for a partner?"

Instantly, my stomach sank and my heart was in my throat. I don't remember what I said but I ended the call shortly thereafter and left for my appointment. By the time I arrived at Polaris I knew what I was going to say and frankly, the meeting went well. I'd set expectations for an informal "this is what I'm working on what do you think" kind of visit and it ended up being very productive. I've been back since then, but only to discuss a different venture.

By this time I was out of candidates and I'd exceeded my timeframe for attracting a technical partner. There weren't any other candidates and financially, I couldn't afford to pursue this venture any longer. I'd met my roadblock.

Milestone #5, attracting a qualified technical partner within the required time period, failed. This was the most important task I had to complete and it was a deal killer.

The following week pretty much sucked. I'd extended my deadlines because I wanted to believe I'd landed a technical partner. Now it was time to kill my idea and move on. Fortunately, I bounced back quickly and I have to admit, my experience as an athlete helped - being conditioned to move on from a single defeat, a loss of a point, a rally, a heat, whatever, made a big difference.

I learned a lot from each one of the tasks I set for myself and obviously, I lived to tell my tale and fight again another day. I'm still looking for the right venture and the right team, and if you've read this far who knows, maybe we'll find ourselves on the same team some day. 

When I Started a SemWeb Company, Part Two

In Part One, I talked about identifying the problem I wanted to solve, expressing it in plain English (or plain language, for all non-English speakers), using open source as a head start, and getting the support of the open source community's leaders. Things were percolating nicely, but how was I paying the bills and who was going to join me? Read on...

Money is a many-faceted topic, so I'll take some care in how I cover this one. 

• Paying the bills. There were two things in my favor - I had just finished up a well-paying contract with Digitas and I had some money in the bank. My wife also has a thriving recruiting practice, so combined, I had some reasonable (but not unlimited) runway to pursue this venture.
• Funding the serious development that would eventually be required. I didn't want investors, I wanted customers. Essentially, I wanted my customers to fund my idea through their willingness to purchase the product. When bringing early stage technologies to market, there are customers that recognize there's a certain give and take in the sales and product development process and that's the kind of customer(s) I was looking for. My attitude was "If customers don't think my idea is good enough to fund, then my idea simply isn't good enough." Some people might think this is a harsh standard to meet, but the reality is that if customers don't believe in your product then investors won't (or shouldn't) either. I'm certain I could've persuaded investors to fund my idea. But imagine developing and marketing a product for six to twelve months and then having no customers, running out of money, and facing the prospect of either closing up shop or asking the investors for more money - neither of these is an attractive prospect. It was really unclear if my idea would succeed and if I took investment capital and never got a single customer, or if Human Element became an endless money pit, my credibility in the entrepreneurial and investment community would be badly damaged. Consequently, my ability to return to the community with a future venture idea would also be damaged. That's bad karma.
• Even so, since I was planning to succeed, I was still actively speaking with angels and VCs. Come on, this is a business we're talking about and if investors come along and propose to add value in the form of funding, that's a conversation you need to have. In my opinion, anything less would be remiss and perhaps even management malpractice (unless you know with absolute certainty you won't need the money or you have a maniacal disregard for reality.) So it's a fact that I was working my networks and reaching out to people known for making investments, angel groups in the Boston area, and I was having informal talks with VCs in an effort establish awareness in that community, if I ever needed to go there.
• I had (and have) a very structured view on how to build shareholder value. Every business person is an advocate for what their company offers (or at least they're supposed to be.) That means you're an advocate to customers, employees, partners, the media, and of course, investors. Investors are a tricky audience because dollars (sorry - Euros, Yuan, cigarettes...) define the value of a transaction (investment), and since we're trying to predict the future when starting a new venture, it can be difficult to identify reference points for this value. My approach is to break the process down into steps, or phases that might exist in a project management approach. Each discrete phase (which presumably uses up some cash) should add value to the venture. By using other ventures as analogs, it's possible to start building a framework that can anchor a discussion related to value. I'm planning a future post on this topic, so look for more on this later.
• What's the exit plan? To this day, it kills me when people say they plan to go public (and this has happened within the past twelve months.) Even during the dot com boom, most successful companies were acquired - they didn't IPO. I think the ratio was around 4:1 (acquired:IPO). For those of us in the real world, acquisition vs. IPO isn't the question - the question is, from the outset, what potential acquirers can be identified, what specific gap in their portfolio will your venture fill, what markets will your company open for the acquirer, and what's that likely to be worth? Obviously "I don't know" won't cut it, but at least knowing the questions will help your credibility.

Milestone #4, being able to pay the bills and having some clear cut ideas about the role of money, accomplished.

Coming soon: Recruiting a CTO, and making some painful realizations.