Free is not Authentic

At Girih, our products often compete against free. Whether it is because a competitor is offering a free trial or using a Freemium business model, we find potential customers asking us to give away our hard work gratis. Meanwhile, our marketing is based on being authenticate — honest about who we are and really trying to serve our customer’s best interest. So we explain how we have worked hard on our product and expect to get something out of it. That we want some commitment from our customers because we are going to invest many hours making sure that our products solve their problems.

I really like this authentic approach, and our customers find it very refreshing. I know that by not embracing this current trend of “free”, I’m going against what feels like the entire Internet. Every marketing guru is saying you need to give digital goods away for free. That you need some giveaway. To those experts I say…

Free is not authentic.

As soon as I give my product away for free, I am lying to my customer. Free is not sustainable. I need to charge for my work. My kids can’t eat off of free. My employees can’t pay their rent off of free. When a company offers free, they are just sweeping the nasty business of getting paid under the rug. Reasons can range from naive — I hope I can figure out how to make money eventually — to despicable.

The Catch When I was very young, record clubs were popular. These clubs gave you 12 albums for free (well, it was a penny, but even in the 80′s a penny was considered free). The catch? Every month they would send you a new record. If you didn’t return that record immediately, you were obligated to purchase it, often for much more than retail. The service banked on a small percentage of people forgetting to return the disc each month.

Many free offerings have such a catch. At their worst they are designed to take advantage of a small percentage users, like “free” texting apps that route messages through a pay-per-use phone number. More benign are “free” offerings that create artificial limitations. These are products that put a time limit, user limit, picture limit, or some other constraint on their product. The hope is that a few people will go to use the product when they really need it, only to find that they must pay RIGHT NOW to get their job down. Rather than looking for another free alternative, a small percentage will plunk down the cash.

Crippled Features A great product does one job extremely well. One version of “free” severely cripples this killer feature to the point that it is useless. This can be hard drive recovery software that lists the names of lost files, but doesn’t actually recover them. Or video conversion tools limited to 30 seconds. Or online games that are free to play, but require money to “unlock” in-game equipment or turns or gems etc… The idea is to trick the customer into investing time learning the “free” tool, and then after that investment asking the customer to pay up.

A variation on this theme are tools that prominently advertise their differentiating feature on what would be a rather ordinary me-too tool. After registering, downloading, configuring, and so on, the would be customer learns that the key feature is only available in the paid version. This is often the case with “fermium” models that lock the killer features away as “premium” services.

Beta This is very common in the tech world. A product is offered for free during a beta period, ostensibly to test it and gather feedback. At a later date users will be charged full price. The implicit agreement is that the customer gets a free product for a while and in exchange the company gets useful feedback. While it’s not as nefarious as other schemes, it still is, at heart, a way to get people locked into a product before you start charging.

Most people using a free beta product won’t provide much useful feedback. If the tool solves their problem they will use it. If it doesn’t solve their problem, they will quietly leave. Traditionally, beta’s have been extended to a company’s best customers — those most likely to take the time to provide valuable feedback. When made as a general offering, it’s just another “free” marketing ploy.

Resource Piggybacking Many free products are getting you to provide resources for their actual customers. Ad-supported mobile apps drain phone batteries faster, exchanging their service for the bandwidth and juice to deliver their customer’s message. Viral products let you have access in exchange for your email address book. It’s a tit-for-tat relationship, one where the actual cost to the consumer may be greater than the product is worth.

Support This is very common with open source projects. The software is given away for free, but the company charges for product support. Most customers don’t believe they will need the support — until they find themselves stuck and dependent on the “free” solution. At that point “free” can turn into a very expensive solution.

In the end, every business needs to make money, if just so they can keep supporting the products their customers depend on. This is such an important aspect of the customer-vendor relationship that is deserves being addressed up front, rather than swept under the rug with a “free” offering. As a vendor we want to be authentic with our customers, so we discuss price up front and never, ever, give our production away for free.

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What Does a CTO Do?

For the past 5 years I’ve been a startup CTO (Chief Technology Officer). Before that I worked in R&D within large companies directly under the CTO. Even with a decade of technology experience, I still find exactly what the responsibilities of a CTO to be a bit fuzzy. In this post I will describe what I think a CTO should and shouldn’t do. More importantly, I will try to answer why a startup should (or shouldn’t) have a CTO.

Let’s start with what the primary responsibility is. The CTO owns the company’s technology vision. Just like the CEO is responsible for formulating a big, hairy, audacious goal into a compelling business vision, the CTO must create a similar vision but around technological goals. This vision then forms a roadmap for all of the engineering and scientific staff — a goal that guides their day to day decisions.

A technology vision isn’t an architecture, design document, or platform. Those are concrete manifestations of the vision. The vision is at a higher level. Perhaps the most famous technology vision is Moore’s law — that the number of transistors on a chip will double roughly every 18 months. That is a compelling vision and as an engineer helps you decide exactly what chip design and process improvements your should focus on.

At Distil, our business vision was that games should be as easy to make as a powerpoint document. This led to a technology vision of WYSIWY game creation. For example, when playing a game you notice a spelling mistake. This can be corrected right in the game without launching a separate tool. This led to us investigating how tools like powerpoint and word handle document rendering and editing simultaneously, and then the creation of an XML based game “Document” that can be read and edited by a game “viewer”. And all other technical decisions flowed from that vision.

Next, the CTO is an outward facing role. The CTO is NOT the top engineering manager — that is VP of Engineering. The CTO is also NOT the company’s best engineer. The CTO is the best person at communicating complicated technology to people who are not technical, and getting them excited about the possibilities.

As a CTO I spend most of my time talking with customers, understanding their problems from a technical perspective (my co-founder does a similar task from the business perspective), and then help them understand a bit about our technology.

I also spend a good amount of time dealing with IP issues. IP issues come in two forms: protecting our existing IP and finding IP that can solve our problems. As CTO I need to determine what technology we want to be the world’s best at. I work on our IP strategy. I decide which technical problems we should invest in solving (since they will give us a competitive and IP advantage) and which we should look to license or solve using open source software.

Being a startup much of the IP I develop is done in partnership with University groups. This is a very cost effective way to do applied research that results in IP we own. So I spend time getting to know University professors and the technology transfer departments and the Universities. Just as a CEO is expected to have a deep network of commercial and investment partners, a CTO will have a similarly deep network of researchers and IP partners.

So does your start-up need a CTO? As the technical founder should you call yourself CTO or VP Engineering or Lead Developer? Of course it depends. In the early days at a startup I’m doing all 3 jobs. The answer depends on the future vision for the company.

If my company is building a web or mobile app, there is probably no need for a CTO. Almost all customer interaction is occurring through a website or customer support. There is little need to work with customers to understand their technological problems and limitations. Chances are my product is competing based on a feature set or design optimization. There is probably little need for proprietary algorithms running under the hood.

But if I’m building a company that will disrupt an industry — change how Hollywood movies are made and distributed or reinvent email — then a CTO is a necessity. Obviously there is some technical miracle that needs to occur to make the business vision happen, otherwise this disruption would have happened earlier. It is the CTO’s job to find this technical miracle, articulate it as a compelling technology vision, and then develop & protect the essential technology that fulfills it.

It may seem pretentious calling yourself CTO when your are just 4 people hacking together in a room. But doing so helps clarify the overall vision for the business. It also helps remind you that at some point you will stop being involved in the day to day engineering and become almost exclusively outward focused.

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What Rock Climbing Taught Me About Leading

When I was at University I really got into rock climbing.  I loved the sport — being outside, hanging with friends, solving problems on the rock, learning technical sequences.  I didn’t realize that I was also learning a lot about leadership.  Here, in no particular order, are what I learned about leading from rock climbing.

There can only be one leader  While climbing takes a team of two, only of member of that team can lead at any one time.  While the leader forging a safe path, the follower is providing a solid and attentive belay.  Should the leader make a mistake and fall, this belay will keep the leader safe.  If  both team members tried to lead (sometimes called simulclimbing) then a single mistake from either will bring the entire team crashing to the ground.

Leading is lonely  Between pitches or when on the ground, it is great fun to socialize.  But the actual act of leading is solitary.  There is no banter with other climbers.  The leader has 100% focus on the task at hand — safely scaling the rock wall before her.  At these times it is just you.  No one else can help.  Faced with a scary section of terrain — the only way down is up — I have never felt more alone.

Communication is key  The only times I have been seriously hurt climbing is when I did not communicate properly with my belayer.  My worst fall (35 meters) happened because I didn’t communicate to my belayer that I was going to be coming off the rock.  When I paused, knowing that I was about to fall, she thought I was going to clip into a bolt.  She gave be two big armfuls of slack just as I let go.  Other times, I will finish a pitch out of eyesight and ear shot of my belayer.  We would need to work out rope signals ahead of time for key instructions like “slack” and “I’m safe”.

Lead to your Strengths  When doing a multi-pitch climb, I would often pair up with another person who complemented by strengths.  I really liked thin face climbing and my usual climbing partner excelled and long run-out slab pitches.  We would plan the leading responsibilities ahead so that he got the scary slab pitches and I got the thin face pitches.  Neither of us felt compelled to lead every pitch.  Success rested on knowing when you should lead and when you should follow.

Those have been my big take aways.  I’ve found  that remembering these lessons from rock climbing have helped me more effectively lead in my startups.

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Tag, You’re It

At the beginning we had nothing.  No product.  No prospects.  Winston worked the phones diligently until one day he came to me.  “I need something — anything — to show a prospect.  What can you build?”

Tag, I’m it.  While he kept the prospect warm I took a week and cobbled together a simple product demo.  This demo was just a website and no backend.  I could log in during a demo and play the part of the website, shuffling data, pressing buttons, and given the illusion that something really cool was going on.  This was good enough for Winston.

Tag, you’re it.  Winston worked the phones, gave demos, and figured out what pain points and problems are customers were having.  Then one day he came to me.  “I have a prospect who wants to do a small trial.  Kick the tires.  Can you build this for me?”

Tag, I’m it.  Obviously the approach we took for the demo wouldn’t cut it.  Winston gave me a very specific list of what the prospect was expecting to see and would do with the technology.  This was useful since I could build exactly what was needed without guessing anything more.  A couple of weeks later I had a working prototype that could withstand the tire kicking.  It wasn’t general, but it solved this one prospect’s very specific set of requirements.

Tag, you’re it.  Winston went back to working the phones.  He could run very focused demos with the simple prototype and give access to prospects to kick the tires.  Most importantly, he could now gather information about what prospects liked and disliked.  This kept him busy for a few more weeks.

Then he came to me once again.  “I think what our market really needs is analytics.  This is what they are asking for.”  He rattled off a list of specific features.  “Can you build that?”

Tag, I’m it.  I went back to work.  A few weeks later I had the basic analytics working on top of the prototype.  This was good enough for Winston to go away and learn more about our market.

Tag, you’re it.  Winston spent a few weeks demoing the analytics features.  Then he comes to me.  “I have a potential customer.  They will buy if we can do…” and then he rattled off a list of very specific features.

Tag, I’m it.  With our first customer on the line, I spent a few weeks building these specific features while Winston kept the customer warm.  When the work was done, Winston felt that not only would it meet this customer’s needs, but those of a few other prospects in his pipe.

Tag, you’re it.  While Winston focused on selling I made sure that our existing customer’s tech didn’t fall over.  About a month later Winston came to me and said “I have two more customers signed up, but I’m not comfortable with the efficiency of the process.  I’m going to retool a bit.”

Wow — I’m not it.  I have time to fix up issues with the tech I wasn’t happy with before.  A few weeks to pay down the technical debt incurred as we iterated around customer wants.  Then Winston comes to me. “I’m much more comfortable with the sales process now.  I have a dozen companies ready to do paid pilots.  They will covert to paying customers as long as it does what we say it will do.”

This can be worrisome.  I prepare myself for another round of Tag, You’re it.  “And what did you tell them it will do?”  As Winston goes through his list I feel a weight lifting from my shoulders.

“That’s exactly what it will do” I said.

“I know” Winston grinned.

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How We Lost Control of Our Company

Entrepreneurs are very concerned with retaining control of their company. And right they should. Being your own boss — being in charge — is one of the few perks of starting something yourself. No one starts a company so that they can report to a board.

At Distil we still lost control of our company despite having tight control on equity, a majority of voting rights, super-majority clauses (needing more than 2/3 of shareholders to pass a resolution), and 2 founders on a board of 5. Here is the story of how it happened.

In Spring of 2006 we had closed our seed round followed by our Series A that Fall. Things were going well — we were growing as expected, and doing what we had told our investors we would do.

The Summer of 2007 things fell apart. Our sales strategy depended on 2 big partners recognizing Distil’s training solution as a alternate training method for ISO 9001 certification. Being able offer or product as an online way to receive training that could be counted towards certification was our big win. But that summer both of these partners pulled out. It was a set back. We shifted our focus to selling directly to companies (rather than through the big ISO certification bodies). We believed we could rally and persevere even without those partners.

Our board, however, didn’t see things that way.

Our board wanted us to explore other verticals, not just the ISO training world. They suggested we look at other business models, such as creating custom training games (instead of just off-the-shelf offerings). Another suggestion was to offer our in house development tools as an off the shelf product for organizations to make training games.

We politely, respectfully, disagreed. Those were some contentious board meetings. On our side we reiterate our confidence and belief in our initial market and the sales numbers we were going to get. The other board members showed outright disbelief at our projections.

At the end of the day we were in charge. We controlled the company and could do what we believed was best. No one, not our investors, not our other board members, could tell us what to do. We just disregarded their advice and did what we wanted anyways. Man did that feel good!

But the good feeling didn’t last long. Soon we were missing our numbers. Each board meeting we made excuses while showing how next month sales would pick up. We hired a telemarketing firm to call businesses directly. We invested in a new website. None of this worked because, in hindsight, our board was right. Without those 2 partners our business plan was doomed.

Now it was the Fall and we were looking at our next round of funding. 2007 was probably the worst Canadian fundraising environment in the last decade. Absolutely no new deals were done. VCs were only reinvesting in their existing portfolio.

Our existing investor stepped up to the plate and offered to reinvest. They still believed in the team, the product, and the space. There was just one condition. Jonathan, our CEO, must be replaced.

This is every entrepreneur’s nightmare. Why we haggle over cap sheets and voting rights. It’s so that we can’t get fired from the company we started. But that kind of control is an illusion. It really boils down to the golden rule: he who has the gold makes the rules. As long as we needed outside money to stay afloat, our investors were the ones calling the shots.

Still, we founders hunkered down. We ran through different scenarios: reducing to a skeleton crew with commissioned sales; taking on consulting to keep the lights on; dissolving the corporation and reforming again as a different company. The only scenario that really made sense, though, was to accept the funding and start a CEO search.

Jonathan graciously agreed to step down. He asked if he could remain on as Chief Operating Office. Our investor graciously accepted.

After all negotiations, our investor sill did not have majority ownership. Important decisions still required a super majority. The founders still had 2 board seats. Nothing had materially changed — except we understood who was really in control. And it wasn’t us.

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Networking California Style

I grew up in the San Francisco Bay Area, living and working there until 1992.  So the California way of doing things is in my DNA.

One thing I just took for granted was how networking and “taking a meeting” worked.  While I was still in High School I was making an animated film adaption of “Flatland”.  This classic book is about thinking in higher dimensions.  It does this through the story of A Square, a two-dimensional being living in Flatland.  who is taken into the three dimensional world by A Sphere.

I would try to meet and talk with every scientist and mathematician I could about the project. I wanted to get their thoughts on how to visualize and bring to life Flatland.  I wanted to learn more about thinking in higher dimensions and how to make that come through in the film.

Not everyone would take my meetings — I was a scrawny 16 year old.  But some did.  After introducing our selves and working our way through pleasant smalltalk, the other person would invariably ask “what can I do to help?”  This is before even hearing the first thing about the project.  Here I was a 16 year kid and these important people took my meeting pre-disposed to help.  That just blew my mind.

I’m a lot older now and understand why people do this.  One its nice to help people.  Two you never know how the other person might return the favor.  This experience taught me that when some one approaches me for a meeting, and I accept, I treat it by default as an opportunity to help someone.  Doesn’t matter who you are.

Once I left California I was exposed to the real world.  I would network and ask people for meetings.  I expected that we would sit down for a pleasant coffee, discuss my projects,  I would ask for their help and, if they could, they would give it to me.  This was very naive.

I was at one of my first “executive” networking events in Ottawa.  I was working at Bookham at the time and involved with a potential deal to purchase some chips from a local company.  At this event I met a entrepreneur starting a company making a similar chip.  I was listening to him describe the technology and was almost at the point where I was going to suggest he meet with our purchasing team, when he abruptly walked away.

This was not just rude, it betrayed a mindset opposite what I’m used to — “what’s in this conversation for me”.  In less then 5 minutes this person had decided there was nothing I could do to help him.  So there was obviously nothing in it for him to even continue talking with me.

In an ironic twist, months later a VC looking to make an investment in this person’s company asked me what I thought.  I was happy to give a glowing review of the technology, grateful that I as given an opportunity to help him in some small way.  After that I would continue to this entrepreneur at networking events.  I would ask him how the startup was going.  He had absolutely no time for me, probably because I still felt there was nothing in it for him.

This “what’s in it for me” mentality hurts everyone, our ecosystems, our clusters, our communities.  It holds us all back.  California — specifically the SF Bay Area — seems to have it right, with people helping each other.  Perhaps this is one reason the region has been so successful.

I still network California style.  Looking for ways I can help others.  But I’m losing patience for the “what’s in it for me” group of people.  Please, next time you are networking or taking a meeting, stop thinking about how the other person can help you and try to find a way you can help them first.  You’ll be surprised where this approach can lead.

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Meetings Kill Startups

The first day on my first job at Nortel, a senior designer told me “the hardest part of the job is avoiding meetings.” I didn’t understand what he meant. Meetings are where important decisions are made. The important people go from important meeting to important meeting making these important decisions. I hoped to one day me one of these important people going to important meetings making important decisions.

Meetings have their place. Your startup is not one of those places. In fact, meetings can kill your startup.

Meetings are a great way to feel like you are doing something, making progress, without actually doing anything. In the early days of Distil, when we were building our first product, we had a distributed team. Once a week we met at a pub to go over what we needed to do the next week.

These meetings were great fun — we hung out, we got some food, we drank some beer. But they were not very useful. Most of the time we made excuses why things didn’t get done in the previous week. Or we came up with items that needed to be completed before we could start the real work. Sometimes we agreed that we needed to “research” a problem a bit more before work could begin. At their worst, we pointed fingers at each other because this piece of work couldn’t start until that piece of work was finished. These meetings almost doomed Distil from the beginning.

It wasn’t until we stopped getting together for meetings and started getting together to work that we made progress.

Meetings are also a great way to hide other problems, like a dysfunctional team. At one point in Distil, we had large churn within our development team. About half of our members were new and we had tight deadlines. Communication with in the team was breaking down. New team members didn’t feel comfortable holding veteran members accountable for their work. Veteran team members felt that newer team members didn’t “get” how the team worked.

So we started holding weekly team meetings. These meetings felt like air traffic control sessions. Lining up work to be done, who would do the work, facilitating. The hand off of work. And they were absolutely useless. At their best we would reach agreement on what had to be done, only to have the team fall back to their old ways afterwards. At their worst they turned into finger pointing sessions, with team members tossing blame around like a game of hot potato.

There’s one kind of meeting I find works great in startups. After all the work is done, the customer is signed, the VC check is cashed, get the team together and celebrate getting it done!

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