On November 14 T.A. McCann presented at the NWEN breakfast meeting, providing all who attended thoughtful and interesting perspective on starting a company, focusing on a single purpose, raising capital, operations, etc. I particularly enjoyed his “magic quadrant”. T.A. blogged about presenting, so I thought I’d include what he wrote in addition to a link to his blog post and slide deck …

Early this morning, I presented at the Northwest Entrepreneur Network breakfast. NWEN (www.nwen.org) helps people start companies by giving them tools, connecting them with service providers and making connections to other people, advisors… and I love that. This was a chance for me to summarize my thoughts and experiences (to date) and connect with other entrepreneurs. I always learn something when I do these kinds of events, both about what I have done right/wrong in the past and how I can be better in the future. Here is a link to the PPT that I presented, a continual work in progress.

I also met a bunch of really interesting people working on cool ideas. Thanks to Jared and Peter for setting up the event and to everyone who asked me such good questions after the talk. I look forward to the future discussions and coffee meetings.

If you have questions or follow-ups you can connect with me on LinkedIn, Twitter, Facebook or send plain old email (tam@gist.com) and I will do what I can to help.

T.A. McCann serves as founder and CEO of Gist. His past experience includes Vulcan Capital and Polaris Venture Partners, where he was an entrepreneur-in-residence.

“My idea isn’t good enough yet” explained a friend who is thinking of starting his own company. He was waiting for the idea to be completely fleshed our before taking the leap.

Here’s a newsflash: Your idea probably sucks, and it doesn’t matter because your business will probably turn out to be something completely different.

Sounds wrong?  Let’s see.

In 1998, a company received $4.8 million in funding to “beam money between Palm Pilots.”  I’ll code-name this product: MoneyBeamer.

Here’s the pitch. Alice wants to give Bob some money, but Alice doesn’t have cash or her checkbook. There’s no ATM around. Both Alice and Bob do own palm pilots and they both previously installed MoneyBeamer and, despite having forgotten all their normal modes of money transfer, they did remember to bring their palm pilots. MoneyBeamer will allow Alice to send money to Bob. Well actually it won’t, but it will remember that Alice wants to send Bob money, and once Alice gets back home and connects her Palm Pilot with her computer, and after she dials up to the Internet, MoneyBeamer will contact a server and transfer the money, provided of course that Alice has the money and didn’t secretly change her mind in the meantime.

Would you have invested in them? Not with an idea like that. You’d be wrong though — it was PayPal. Their work with encryption was combined with an idea for a consumer-targeted on-line banking system made it the easiest way to send money by email.  They were sold to eBay for $1.3 billion.  Today they process $2,000 in payments every second.

I’m sure you won’t recognize this web-based sensation:

This is Game Neverending: An in-browser multi-player on-line game “with no way to win, nor any definition of success.” (Sounds like a lot of Web 2.0 companies to me.) It never saw the light of day.

What was most interesting (to its alpha testers) was that people could share game objects by dragging them into chat windows.  They saw this as a useful enhancement to chat applications in general, so as plans for the game fizzled out the engineers created a Flash application for real-time chat plus file-sharing with a particular emphasis on image-sharing.

Unfortunately the Flash application was only real-time — your pictures didn’t stick around when you closed it. And this was fatal because it turns out people were interested in the sharing part more than the real-time part. So in yet another upheaval they rewrote the Flash application as a regular website and lo, Flickr was born. Now it’s the largest photo-sharing site in the world with 3 billion photos and 5,000 more uploaded every minute.

Of course a rant like this wouldn’t be complete without self-deprecation, so let’s accompany the Ghost of Christmas Past into the annals of my own company, Smart Bear.  My first idea was a product called Code Historian; it could dig through the history of a file and show you what changed.  Accurate name, but turns out to be almost useless.

Like an adolescent, the company went through many embarrassing stages (forgive the broken images, ’tis the way of the Way Back Machine):

1. Mar 24, 2003: Hideous.  ”Do one thing and do it poorly.”
2. Dec 22, 2003: Fugly.  ”Three products… is that enough for a Suite?”
3. Oct 10, 2004: Lame.  ”Everything above the fold, most expensive first.”
4. Jan 11, 2006: Getting there.  ”You really need a graphic designer.  No, really.”
5. Sep 10, 2007: Ain’t bad.  ”At least you admit ‘code review’ is all that matters.”
6. Present day: Nice.  ”Hey, where did those other products go?”

At one point we were selling six different tools; the only one that mattered in the end was Code Reviewer.  Perhaps a screenshot will make this clear:

The point of all this isn’t to berate anyone for their crappy ideas. In fact, just the opposite — the point is that it doesn’t matter what your first idea is. First, it’s probably wrong. Second, the only way to find the right one is to try the wrong one and see what happens. You won’t find it by fiddling around with PowerPoint slides and Photoshop mock-ups.

So get out there and make some mistakes!  As Neil Davidson said recently:

You don’t need stratospheric growth and a billion-dollar addressable market to bootstrap a software company. A $50,000 market opportunity is enough to get you off the ground — once you get started you’ll figure out the rest.

(Neil is the co-founder of Red Gate.  It started as yet-another-online-bug-tracking-system that no one cared about but is now a popular purveyor of fine SQL database tools with 95,000 customers to their credit.)

Jason Cohen wrote this post and allowed us to syndicate it. He is the founder of Smart Bear Software, maker of Code Collaborator, the world’s most popular tool for peer code review and recent winner of the Jolt Award.

The nature of entrepreneurship is to change the paradigm through which we view the status quo, and to improve or change things as necessary to create a successful new model.  For young entrepreneurs especially, having a mentor is important in navigating the territory between the inception of an entrepreneurial idea and making it an actuality.  What follows is a brief list of the benefits of having a mentor to guide young entrepreneurs through this process.

Share Knowledge and Experiences
Mentors can help entrepreneurs by sharing their knowledge and experiences relative to what they are currently working on.  By sharing these experiences, it helps to alleviate some of the frustrations that can be experienced when things don’t seem to be going in the right direction.  Experience in dealing with the entrepreneurial process helps to get past these obstacles and keep working on fleshing the ideas out.

Networking
Chances are the mentor will have far more colleagues and associates than the young entrepreneur.  Meeting the right people in your field of interest is essential to ultimately achieving success and will help the entrepreneur to branch out and learn about the networking process.  Building relationships with potential clients, investors and colleagues can be a determining factor in the success of an entrepreneur’s career.

Credibility
Just as a mentor can help with knowledge and experience, as well as introducing the entrepreneur to the right people, his or her reputation can also help to lend much-needed credibility to the unknown entrepreneur.  Many times, potential investors and clients want to know who you are working with and what kind of relationships you have with others.  Having someone there to vouch for you can certainly help alleviate any potential misgivings in this regard.

Success
Strangely enough, success seems to be one of those contagious things.  Surrounding yourself with successful people as an entrepreneur can help mold you into the success story you would like to be.  Mentors have a way of taking people under their wing and guiding their protégés through the process, ultimately giving them their “secret” to success in the process.

Confidence
A great mentor will be someone that gives much-needed confidence to the entrepreneur, and is also going to be the person that the entrepreneur bounces all of their ideas off of.  Learning to develop this confidence and the ability to take calculated risks will be essential in a successful entrepreneurial career.  Take advantage of the new ways your mentor will help shape you and keep the new perspectives and ideas coming.

This post was contributed by Kelly Kilpatrick, who writes on the subject of top business schools. She invites your feedback at kellykilpatrick24 at gmail dot com.

In my opinion, this video provides a very accurate picture of what it’s like to be an entrepreneur.

When you’re an entrepreneur, the #1 goal of every day, week and month is to NOT DIE.  You’re continually dodging bullets, and must continually look out for and focus on every risk — running out of money, losing a key customer, pissing off an investor, losing a critical member of the team, etc. When you have no momentum (and even if you do have momentum), there are hundreds of ways to screw everything up — then it’s “game over” for you and your company.

Jordan Mitchell, the author of this post, is the CEO and Founder of Others Online, his 4th Internet startup. Others Online helps Web site publishers and networks better understand, target and monetize their audience through the use of proprietary affinity profiling software. Jordan blogs regularly and tweets even more!

For those of you interested in the Seattle technology startup scene, be sure to check out Marcello Calbucci’s labor of love — the Seattle Startup Index. Published monthly, the index is basically a popularity ranking of the 317 tech startups in Seattle based on their average ranking in Alexa and Compete.

As with all popularity rankings, it’s more for entertainment than anything else — there are no truly accurate indicators of a Web site’s popularity. Also, since Web site popularity isn’t always an accurate or comparable measurement, he’s introduced the following categories:

• WBB — Web / B2B
• WBC — Web / B2C
• WMO — Web / Mobile
• MOB — mobile only
• SW — software

As you can see at his report, there are 201 WBC, 58 WBB, 39 SW, 13 WMO and 6 MOB companies.The Web B2C space is obviously a bit crazy with startups right now. I would imagine the failure rate will be higher in this category than the others. Am I smoking crack?

Jordan Mitchell, the author of this post, is the CEO and Founder of Others Online, his 4th Internet startup. Others Online helps Web site publishers and networks better understand, target and monetize their audience through the use of proprietary affinity profiling software. Jordan blogs regularly and tweets even more!

There are a large number of Web startups relying on an advertising revenue model, many of whom may not understand the landscape. For them, I think I have a fairly sound and business-oriented way to describe the online ad space, which consists of Web sites and advertisers, and of course the myriad ad networks and companies connecting the two. This isn’t a “how the online ad industry works” primer, but rather a simple analysis of how your Web site fits into the online advertising ecosystem. Let’s think in terms of the following two axes and follow with an explanation.

All Advertisers (horizontal line) are  interested in reaching the right people. Simply speaking, there are big $ advertisers – the folks that have huge online ad budgets — and many many more long-tail advertisers who might only spend $50/month. For all advertisers, the more targeted their campaigns the better their ROI (regardless to how you define “targeting”). Advertisers often use online agencies to buy on their behalf, but for this post let’s assume “advertisers” and “agencies” are interchangeable.

Web sites (vertical line) are the proxy by which advertisers reach people. Advertisers evaluate Web sites (among other ways) on the basis of their content, since it’s the easiest way for advertisers to understand the audience/people.  Vertically-oriented sites are those with narrowly focused content, which offers advertisers more straightforward targeting. Advertisers in the auto market, for example, buy campaigns on sites about cars.  Edmunds.com is an example. Horizontally-oriented sites are those with widely diverse content/focus. It’s much more difficult (and often inefficient) for these sites to sell advertising on a targeted basis, because they have content about anything/everything.  MySpace.com is an example.

For big $ advertisers, volume/scale is the 2nd most important consideration. If you don’t have a sufficient audience size, it doesn’t matter how good your targeting is as a Web site — it’s more efficient for them to allocate each $100K they spend across 1-5 sites instead of 50-100. And of course, Web users visit all kinds of different sites so it’s hard for any one site to offer a ton of volume.  Ad networks therefore serve the necessary purpose of aggregating many sites together, organizing them by content type, and offering advertisers scale at some level of targeting.

While some advertisers certainly buy direct from Web sites, the majority of advertisers buy through ad networks of some sort (roughly defining an ad network as any company connecting the buyers and sellers of ad inventory). Let’s mark them as red below, and explain further from the perspective of the Web site publisher.

Vertical Content Sites Make More Money

If you have a vertically-focused Web site then you’ll have a much easier time selling your online ad inventory AND earn the best eCPM rates (defined: the value per thousand impressions, regardless of rate type — CPC, CPM, CPA, etc.).  Medium/large Web sites (more than 1M unique users per month) fit in the lower left quadrant. Since they offer both targeting and scale, they’re able to sell direct to advertisers (making the most money), and they have their pick of ad networks to monetize whatever they can’t sell directly (which is called remnant inventory). This quadrant is where most traditional ad networks hang out — since they primarily consist of a direct ad sales force, they make the most money as a business by focusing on big $ advertisers and vertically-focused sites that can deliver volume.

If you have a vertically-focused Web site with a small audience then you most likely won’t gain any traction with big $ advertisers or traditional ad networks; you are in the lower right quadrant.  Google AdSense is your best option, and you may even earn better eCPM rates than medium/large publishers. Google and a variety of others created this market by inventing a self-service advertising model which provides you as a Web site with a ready supply of advertisers and revenue. By eliminating the need for a direct ad sales force and automating campaign targeting, sales and delivery, they’re aggregating and matching long-tail advertisers with long-tail publishers.

Horizontal Content Sites Make Less Money

If you have a horizontally-focused site (content about “anything/everything”), as is often the case with social media and user-generated content, then you’ll have a tough time monetizing your ad inventory. Average eCPM rates on social media sites are low and decreasing.

If you offer a massive audience — as in many millions — then you’re in the upper left quadrant and will have some luck selling directly to advertisers, but only if you can segment your audience in some way. Advertisers require some understanding of WHO their campaign reaches. Even traditional ad networks with experienced sales teams and solid advertiser relationships shy away from horizontally-focused content sites, especially social media and user-generated content.

There are several startup ad networks attacking this upper left quadrant however, given the massive eyeballs/volume and extremely low eCPM rates. These networks, such as Media6° and Lotame, aggregate and package social media behaviors for the benefit of large advertisers. Unless you have a massive audience, they won’t work with you. There’s nothing long-tail about them. Like all other  ad networks,  they can only support their direct sales efforts by focusing on big $ advertisers and large-volume sites.

So what do you do if your horizontal Web site attracts an audience of <5-10M unique users per month. You have two options: Google AdSense and ad exchanges. The problem with Google Adsense is that it often doesn’t work on these pages — the ads are targeted only to page content/context, and many social media pages (pictures, videos, social networks, etc.) are contextually poor.  You’re better off targeting each visitor based on THEIR MySpace profile, instead of the MySpace profile they’re looking at!

As a result, I believe the vast majority of this ad inventory is being monetized by arbitrageurs via ad exchanges. Ad exchanges such as Right Media differ from ad networks primarily in their pricing model, which works like a stock exchange. This facilitates an arbitrage model where those who know something about your audience will buy your ad inventory at very low rates and resell at higher rates. Of course, this doesn’t always work well for you the publisher — they don’t share what they know about your audience with anyone, because the lower their price the more money they make.

In my opinion, this upper-right quadrant represents the biggest opportunity in online advertising today, given the massive volume and extremely low eCPM rates being earned by publishers today. Just as Google AdSense grew the entire online ad market by matching long-tail advertisers with long-tail vertical content, there exists the opportunity to match long-tail advertisers with people instead of pages.

Jordan Mitchell, the author of this post, is the CEO and Founder of Others Online, his 4th Internet startup. Others Online helps Web site publishers and networks better understand, target and monetize their audience through the use of proprietary affinity profiling software. Jordan blogs regularly and tweets even more!

I’ve been Executive Director of NWEN for 9 months now, taking experience gained in the bootstrapping and high growth company worlds (not at the same time, sadly) and seeing what it’s like to “Help Entrepreneurs Succeed”. It’s been a blast. One strange thing; I can’t stop thinking about the story of the Little Red Hen.

To paraphrase:

The Little Red Hen wanted to bake some bread. She really started from scratch (bootstrapped) by growing, harvesting, grinding the grain and finally, baking some bread. All along the way she asked for help. All along the way no one did. Until the bread was baked. The rest is, as they say, folk lore.

The lesson from this children’s story keeps tugging at my ear. The parallels are amazing and obvious. To me at least.

1) The Little Red Hen (we shall call her TLRH henceforth), had the seed of an idea. The other animals (TOA’s from now on) listened politely. Probably over a beer or glass of wine.

2) TLRH then planted her seeds and announced they would be bread when she was done. TLRH was a visionary leader. TOA’s listened politely. They didn’t want to annoy her (she might be right) but they sure didn’t want to waste their time on some dumb little seeds that would need watering, weeding and protecting for months.

3) TLRH did ALL the work. TOA’s did nothing other than watch and pretend to be her friend ‘just in case’.

4) TLRH harvested, ground, kneaded and baked those little seeds into something truly edible and delicious. TOA’s swarmed around her and reminded her they were her friends, ready to feast with her. A little bread with all those beers sounded good.

NWEN is a TOA. No doubt about it. We meet TLRH’s when they are only talking about planting seeds and envisioning the bread they will bake (make). We attract other TOA’s as well. Service providers in our parlance.

Unfortunately, the story of TLRH rings so strongly in our ears from the times of our childhood we think all TOA’s are just moochers. We forget that many of them are TLRH’s themselves, running small companies in entrepreneurial ways of their own.

NWEN falls into that category, often running on a knife’s edge of existence for the last 23 years in order to be of use to entrepreneurs and the TOA’s that can be of use to them.

Entrepreneurs are TOA’s seeds. The good ones will water, weed and protect you from bad things while you take root and grow. And the good ones will be around through the first harvest. Others, if you are lucky enough to plant again.

The truth is that TLRH needed help. All she got was one loaf of bread. If her TOA’s were the good kind, they would have had enough grain to make lots of bread and they all would have eaten well.

This is the lesson of The Little Red Hen.

1) Always make the distinction between a business partner and a beer buddy. They are seldom one in the same.

2) Ask for help. You need it.

3) Take it if offered and given as promised.

4) Reward it when it comes time to make some bread.

Now, wanna hear about the Big Bad Wolf (BBW)!?