A New VC in Town…Sort of

My friend and Board member Fred Wilson just announced last week the formation of his new VC firm, Union Square Ventures, along with his partner Brad Burnham.  Brad Feld beat me to the “way to go” posting, so while I chime in with my congratulations to Fred and Brad and assert to the rest of the VC/tech blogging world that this firm will succeed famously, I thought I’d comment on two other aspects of Union Square Ventures’ formation.

First, NYC has long been a haven for later stage private equity and buy-outs, and there’s a big need in the NYC area (even the DC-Boston corridor more broadly) for top tier early stage venture capital players.  While there are fewer core techonlogy companies in the area, there are an increasing number of application and service companies that are building great businesses in this part of the country, and there are not enough great VCs to keep up.  West coast VCs are often (but not always, as I’ve seen in my investors Brad from Mobius and Greg Sands from Sutter Hill) allergic to east coast deals, and sometimes it’s just good to have one of your main investors walking distance away.  Fred and Brad have the reputations, track records, and networks to at least partially fill this void.

Second, as Fred noted in a subsequent posting on Flatiron and its remaining portfolio companies (including Return Path), Fred and his former partners from JP Morgan are not abandoning their prior investments.  This speaks volumes about the kind of people they are and the commitment they have to their entrepreneurs.

I’m sure Union Square Ventures will be successful, and I’m glad I have the opportunity to see it up close.

Everyone’s a Direct Marketer, Part II

(If you missed the first post in this series, it’s here.)

So, all companies are now direct marketers — their web sites and email lists make it so, they can’t effectively reach their fragmented audience without it, and consumer permission demands it.  Why is this new to some companies and not others, and what lessons can companies who are new at it learn from traditional direct marketers?

First, the quick answer — it’s new because it’s being driven by the new technologies the Internet has brought us in the past 10 years.  Those technologies have opened up the possibility for 1:1 communication between any company and its customers that was previously unaffordable to many industries with low price point products.  You never received a telemarketing call for a movie, because making the call costs $3, and all you’ll spend on the movie is $10.  P&G never sent you a glossy direct mail piece for toothpaste, because they’d spend $1 at a small chance you’ll buy their $2.25 product.  But the cost of a banner ad or a given keyword or an incremental email is so low (virtually zero in some cases), that everyone can afford a direct presence today.

What lessons can companies who are new at it learn from traditional direct marketers?  There are many, but four things stand out to me that good DMers do well that are different from the skills inherent in traditional marketing/advertising:

1. Take the creative process seriously.  Just because you can dash off an important email to your staff in 30 seconds doesn’t mean your marketing people should do the same to your customers.  Put your email campaigns or templates through a rigorous development and approval process, just as you would a newspaper ad or radio spot.  There’s just no excuse for typos, bad grammar, or sloppy graphics in email or on a web site.

2.  Use live testing and feedback loops.  It’s hard to test two versions of a TV commecial without incurrent significant extra cost.  It’s impossible to test 20.  But with today’s software, you can test 10 versions of your home page, or 100 versions of your email campaign, almost instantly, and refine your message on the fly to maximize response.

3. Make transparency part of your corporate culture.  Just as you can have a 1:1 relationship with your customers, your customers expect a 1:1 relationship back.  If they want to know what data you store on them, tell them.  If they want you to stop emailing/calling/mailing them, stop.  If they want to know more about your products or policies, let them in.  Think about marketing more as a dialog with your customers, and less as you messaging them.

4. Merge content with advertising.  Old-school advertisers didn’t have to worry about this one, because their ads were always surrounded by other people’s content (TV, newspaper, radio, magazines).  But in direct marketing, your message is sometimes the only message around.  Make it interesting.  Make it entertaining.  I always think the prototypical example of this as the old J. Peterman catalog, which was trying to sell clothing and accessories by creating stories and mystique around each product.  But there are tons of other examples as well, especially around email newsletters.

Next up in the series:  What does this mean for the way companies will be structured or operate in the future?

Doing its Part

Fred had a good posting on spam today, riffing on a New York Times article that  is very “doom and gloom” on spam and how it’s taking over the world.  I’ll buy the Times’ argument that there’s an increasing amount of spam out there these days, but as with Fred, I still maintain, as I did in this earlier posting, that we’re out of crisis mode and are on the path to resolution as improved filtering technology and false-positive identification services trickle down to broader usage.

What I think is interesting, though is the amount of criticism that the CAN-SPAM legislation is getting, including in this article from the Times.  It’s not a perfect law — what law, exactly, is perfect? — but it’s starting to do its part.  People in the industry joke that CAN-SPAM means “you can spam,” meaning that the law makes it easier for people to spam legally.

But the reality is that you can’t regulate something until you’ve legalized it, and CAN-SPAM is a good first step in the process.  In the Times article is yet another example of how the legislation is starting to work — Microsoft’s latest law suit (one of many filed by Microsoft and others in the past 12 months) against a known spammer.

No one ever said solving the spam problem was going to be easy.  And no one ever thought there would be any silver bullet — certainly not a legislative one!  But I argue that CAN-SPAM is doing its part through the enforcement mechanism if nothing else.  And while I certainly hope the next step in the legislation around spam IS NOT a do-not email list, I do hope that there is a successor piece of legislation after another 6-12 months of observing the spam situation and the impact, strengths, and weaknesses of CAN-SPAM.

In the meantime, let’s use the tools at our disposal and keep suing spammers…as well as working on industry-based solutions to spam that bring the problem further under control, from filters to authentication to reputation to accreditation.

The Rumors of Email’s Demise Have Been Greatly Exaggerated, Part III

Now it’s Groove Chairman Ray Ozzie saying that email is toast, since his kids use IM as their preferred channel, relegating email to something to be avoided since it’s only from parents or teachers.

Um, ok.  What about bosses and clients and colleagues?  You may not want to hear from them, either (especially that pesky boss), but I’m still struggling with the argument that because kids aren’t addicted to the medium, it will surely die.  Kids eventually grow up and do things differently than they did when they were kids.  Perhaps email is one of those things you have to grow into when life isn’t (regretfully) just about chatting with your friends?

VC Wisdom du Jour

Two good ones today:

1. Brad on what makes a great Board meeting (hint: it’s not going through the materials you send out ahead of time).

2. Jeff Nolan/Dispatches on 10 questions to ask a VC.  Remember, when you’re raising money, you must do active due diligence on your prospective investors, not just the other way around.  These questions are a good guide.

Everyone’s a Direct Marketer, Part I

I had breakfast a few weeks back with John Greco, the new CEO of the Direct Marketing Assocation, and was telling him why I felt it was essential that interactive marketing be included in the DMA’s mainstream mission and not regarded as separate.  The substance of my argument was that the Internet has turned every company into a direct marketer, whether they know it or not, whether they like it or not, and whether they care to act like one or not.  I was happy that John agreed with me!

I’m going to write a three-part posting on this topic.  First topic:  Why is this happening?

1. The mechanics are now ubiquitous.  Every company’s web site, every keyword to drive a customer to the site, every link to a customer service rep, every email that goes out to a customer list — they’re all direct marketing mechanics that pre-Internet, only specific categories of companies like catalogers or fundraisers employed to drive business.  Now, every company has or does these things as a cost of being in business.

2. Mass marketing is no longer quite so mass.  Audiences are becoming fragmented across hundreds of TV channels and millions of web sites.  I heard a great speech the other day by Strauss Zelnick, one of Return Path’s investors and the consummate media executive, which crystallized this point for me with the following example:  20 years ago, a mass marketer could reach 80% of American women by running a commercial on ABC, NBC, and CBS at the same time at certain times of the day.  In order to achieve that same reach today, a marketer would have to advertise on 120 channels (and I’d add, thousands of web sites).  This fragmentation means that marketers have to get increasingly microtargeted and innovative in order to reach customers and prospects.

3. The balance of power has shifted to consumers.  Don’t like that ad?  Use TiVo to skip it.  Hate popups?  Install Google’s toolbar to block them.  A company you’ve never heard of is emailing you?  Report them as a spammer to your ISP.  Hate phone calls from telemarketers?  Sign up for the Do Not Call List.  Permission is here to stay, and companies that “get it” will win the day with massive databases of customers who have requested to be marketed to via email or other channels.  But all of that’s direct and not very reliant on the mass advertising machinery that propelled companies and products to greatness in the past.

Next up in the series:  Why is this new to some companies, and what lessons can companies who are new at it learn from traditional direct marketers?

Ratcheting Up Is Hard To Do (or Boiling the Frog, Part II)

I’ve had to ratchet down business several times over the years at Return Path.  Times were tough, revenues weren’t coming as fast as promised, my investors and I were growing weary, the dot com crash, etc. etc.  We had layoffs, consolidated jobs, cut salaries multiple times, made people wear 8 hats to get the job done.  It’s an awful process to go through.

In the last year or so, business has finally started going much better.  We’ve been fortunate in many ways that we’re still around, with products that work really well, with a good customer base, and with good and patient investors and employees, as the business climate has improved.  We’ve grown from 22 people (at our low point) up to almost 75.  But what that has meant for our organization is that we’ve had to quickly "ratchet back up," adding people, adding new functions that were previously one of many hats worn by a single person, operating at a different level.  While ratcheting down is a nightmare, it turns out that quickly ratcheting back up is in many ways just as hard on the organization.

Some examples:

– IT (internal email and servers) has been run by a part-time resource and "off the side of the desk" of our product development engineering department.  Now it is almost completely broken, and it turned out we hired a very talented IT manager, probably about three months too late.

– Staffing up is particularly tough without a dedicated HR function and with a legacy of missed budgets.  HR has been done off the side of the desk of me and my executive assistant, and we can’t keep pace any more with all the recruiting, hiring, training, and development planning.  Now that we feel like we need and can afford more staff, we need to hire an HR manager to handle it all, but we need someone in place and trained today, not three months from now.

– A 22 person company can function brilliantly as a network of Individual Contributors who loosely coordinate with each other.  But now what we need at 75 is a a few hardcore Managers that can build systems and processes so that the whole machine runs smoothly.  We don’t necessarily have those people in-house, and if we bring them in from the outside, I’m left wondering if the Individual Contributors will feel like their years of hard work aren’t appreciated if there’s a new layer of management surrounding them.

I hope we never have to ratchet down again…but part of the reason why now is that I never want to have to ratchet back up, either!

Thanks to my COO and business partner Jack Sinclair for his help with this posting.

For Whom the Bell Tolls, Part III

My original posting singing the praises of VOIP and Vonage in particular (for those of you who haven’t tried Voice-Over-IP, it’s still working great and unbeliebaly cheaper than traditional phone service) was met with a criticism by my colleague Tom Bartel, who said Vonage in particular didn’t allow him to keep his particular phone number.  This is something that varies carrier by carrier, area code by area code.

So Tom tried an alternative service in Colorado called Lingo.  So far, he seems to be having the same positive experience that we are in NYC.

Email Marketing 101

We just published a book!  Sign me Up! A marketer’s guide to creating email newsletters that build relationships and boost sales is now available on Amazon.com.  The book is authored by me and my Return Path colleagues Mike Mayor, Tami Forman, and Stephanie Miller.  What’s it about?

– At its core, the book is a very practical how-to guide.  Any company — large or small — can have a great email newsletter program.  They’re easy, they’re cheap, and when done well, they’re incredibly effective.

– This book helps you navigate the basics of how to get there, covering everything from building a great list, to content and design, to making sure the emails reach your customers’ inboxes and don’t get blocked or filtered.

– Our central philosophy about email marketing, which permeates the advice in the book, is covered in my earlier New Media Deal posting (which is reproduced in part in the book’s Preface) — that customers will sign up for your email marketing in droves if you provide them a proper value exchange for the ability to mail them.

– I’d encourage you to buy the book anyway, but in case you need an extra incentive, we are also donating 10% of book sales to Accelerated Cure, a research organization dedicated to finding a cure for Multiple Sclerosis, in honor of our friend and colleague Sophie Miller.

More postings to come about the process of writing, publishing, and marketing a book in 2005 — boy was the experience we had different than it would have been 10 years ago.

Everyone’s a Marketer, Part III

Along the lines of my "Everyone’s a Marketer" series of postings, Seth Godin put a finer point on it today.  If Everyone’s a Marketer, then you can easily make the case that the CEO is the CMO.

Who Wants to Get Hit by a Bus, Anyway?

Fred had an accurate if somewhat morbid posting today about succession planning, one of the many higher-order HR tasks that small entrepreneurial companies are particularly bad at.  He’s completely right — for one example in our industry, you only have to look back about 9 months or so to Phil Goldman’s shocking death to see the impact it had on Mailblocks.  I’ll have to post on succession planning in a startup in more detail sometime soon.