My friend Seth has a theory about life called the French Fry Theory. The theory is simple — “you always have room for one more fry.” It’s pretty spot-on, if you think about it. Fries are so tasty, and so relatively small (most of the time), that it’s easy to just keep eating, and eating, and eating them.

I’ve always thought that the French Fry Theory can be applied to many things, usually other food items. However, I came up with a new application today: Marketing.

So why are French Fries like Marketing? You can always do one more thing. One more press release. One more piece of collateral. One more page on the corporate web site. One more newsletter. Trade show. Webinar. Research study. Ad. Search engine placement. Vendor. System. Speech. Take your pick.

The world we operate in is so dynamic that marketing (when done well) is nearly impossible to ever feel like you’re completely on top of. There’s always more to be done, and the trick to doing it well is knowing when to say “no” as much as when to charge into something.

My hat’s off to 21st century online-industry marketers. To bring this analogy back to its starting point…their plates are full!

We live on the 35th floor of our building in Tribeca (downtown Manhattan), facing south, about 7 blocks up from the World Trade Center site. From 1994-2001, our view was grand and corporate. For a short time in September 2001, it was horrific. Since then, it’s just been depressing. Seeing such a large gap in the skyline every morning just made us remember what — and who — used to be there.

It’s not getting a lot of coverage because it’s not the Freedom Tower, but the new World Trade Center 7 building is on its way up.

As far as I’m concerned, it’s the most beautiful construction site I’ve ever seen. It’s definitely morning once again in Tribeca!

Katie Hafner’s article in the New York Times Circuits section today about spam and false positives is right on the mark. Spam filters are still evolving, and spammers are evolving right with them. Although the flood of spam is largely stemmed by a good filtering app, the results for consumers are still spotty: false negatives are irritating, false positives can be very painful (as the article suggests), and the process still consumes a little too much time. While the article nails the consumer problem, it does miss the corresponding business problem around false positives (see below).

But things are getting better. While I wrote generally about how email is here to stay a couple weeks ago, there are a couple other things I’d point out after reading Katie’s article that are making the email landscape a brighter place of late:

First, even better than the Bayesian style filters referenced in the article are community-based filters. The leading one is run by Cloudmark and is called SpamNet. SpamNet relies on a community of 1 million hardcore email users voting on whether email is spam or not. I’ve used SpamNet for over a year now, and while it’s not perfect, it’s pretty good at reducing both false positives and false negatives to a tolerable level, and it’s very easy to use (but only with Outlook for now).

Second, a few companies in the email industry — Ironport (Bonded Sender) and Return Path included — are hard at work on solutions to the false positive problem that won’t leave false negatives behind. Once these solutions reach maturity (still 6-12 months away), I think consumers will notice a quantum leap improvement in managing their inboxes.

Finally, one thing I’m always trying to encourage people to realize is that this problem is not just an annoyance for them personally…but it’s an annoyance to legitimate businesses everywhere. Businesses who uses email to reach their customers — when customers request the email — are consistently finding that anywhere from 5 to 50% of their emails are blocked or filtered (with an average of 19%, according to our research). Talk about an ROI buzz kill and a CRM nightmare!

So hang onto those babies out there, consumers and marketers alike…the bathwater really will go down the drain soon!

I don’t think the news about AOL buying Mailblocks and its challenge response anti-spam product is such a big deal in the grand scheme of things. But it does give me a quick opportunity to rant against challenge/response.

First, I don’t think the world is in danger of mass adoption of challenge/response. Earthlink, which in general has much more sophisticated customers than does AOL, has had a hard time gettings its adoption level of this up to the 7-10% level over a period of at least two years. I think it will be even tougher for AOL. I applaud AOL for trying to do more to help members fight spam, but I don’t think this is the answer.

So onto the rant. Challenge/response is a pretty poor solution to spam. Or, rather, I should say it’s an excellent solution to spam with humongous side effects. Some are documented in Pamela Parker’s article in ClickZ about this, but my top three issues are:

1. Challenge/response effectively eliminates everything other than personal email from people who like you. In other words, no emails from people like Fred who don’t have time to respond or work offline, no newsletters, no Wall Street Journal email alerts, no Amazon shipping confirmations, no eBay bid responses.

2. The flip side of the previous point is that for publishers and marketers, challenge/response is a nightmare. Manually responding to dozens of emails is hard enough — that is, if the marketer/publisher can find them and respond to them before they “expire.” But when the volume gets into the hundreds or thousands, it becomes a nightmare cost of being a non-spammer.

3. My final pet peeve? David Daniels nailed it in his quote in Pamela’s article — it solves the problem of too much email by tripling the volume of email (one email, one challenge, one response)!

Overall, it’s a crude solution to the problem, and one that I think will be obviated over time.

This is another in a series of postings that relate to Fred’s and Brad’s various postings about venture capital funding. (Please note I have added an 11th item in response to a comment by Jack Sinclair, Return Path’s VP of Finance and my partner in crime on all transactions for the past five years.)

I think the most important part of the venture financing process is negotiating the term sheet. Although they’re only 2-3 pages long, term sheets contain summaries of all the critical aspects of a financing, and once they’re signed, the remainder of the financing process is significantly more “automatic.” Based on the financings I’ve seen and worked on – both as a VC and as an entrepreneur – my Top 10 (now 11) biggest takeaways for entrepreneurs are as follows (not in any particular order):

1. Get a good lawyer. I mean a really good one. Not just one who you are comfortable with and who is productive and doesn’t charge you too much (as Brad says, your wife’s brother’s friend’s neighbor), but one who knows venture financings like the back of his or her hand. They’re out there, many of them have worked on both sides of these transactions – for VCs and for entrepreneurs, and they can save your ass. No matter how many deals you’ve worked on, your lawyer has worked on more of them. Return Path’s lawyer, David Albin from Finn Dixon & Herling, is great if you need one.

2. Focus on terms that matter, otherwise known as Pick your battles. A typical VC term sheet will have at least 20 terms spelled out in it. There are only a few that really matter in the end, although you should at least make sure your lawyer is comfortable that the others are reasonable and somewhat standard. Spend time on valuation, the type of security, the option pool, Board composition, and your own compensation and rights.

2a (new). Sacrifice valuation for a clean security. Everyone always thinks that price/valuation is the most important thing to maximize in a deal. However, the structure of the security can be much more important in the long run. Whether the VCs buy 33% of your company or 30% of your company is much less important than having a capital structure that’s easy for an outsider to understand and want to join (e.g., investment banker or later-stage VC).

3. Always have a BATNA (Best Alternative to a Negotiated Agreement – a fancy way of saying Plan B). This is probably the most important piece of advice I can offer, and it extends to any negotiation, not just term sheets. If you have two or three VCs who are interested in funding you, I can guarantee you will end up with better terms from the highest quality investor in the group if you play the negotiation well. If you have one term sheet, you have zero leverage in your negotiation. Yes, you will spend 2-3x the amount of time on the process, but it’s well worth it.

4. Be prepared to pay up for high quality investors. There is a world of difference between good VCs and bad VCs (both the individual partners and the firms) that will ultimately have a lot to do with how successful your company can become. The quality of your VC isn’t more important than the quality of your product or your team, but it’s right up there. But – and this is an important but – you should expect to “pay” for quality in the form of slightly weaker terms (whether valuation or type of security). This is where having a BATNA really comes in handy.

5. Ask for references. Don’t be shy – prospective VCs are checking up on you…you have every right to do the same with them. Ask them for references of CEOs they’ve worked with. Ask them for a CEO they’ve had to fire as a reference. The good ones will give you the full roster of everyone they’ve ever funded and tell you to call anyone. The bad ones will give you two names and ask for time to prep them ahead of time.

6. Don’t let the VC get away with negotiating a point by saying “we always do it this way.” That’s just not true. VCs may have a preferred way of doing deals or handling a specific term, but every deal they’ve ever done is different, and they know it. If there’s a compelling reason for them to insist on a particular term, you have the right to hear it (if it’s important to you).

7. If you have multiple investors in the syndicate, insist on a single investor counsel and a lead investor. This is essential to (a) protect your sanity, and (b) prevent you from paying zillions of dollars in legal fees. You have to make the VCs stick to it, though – they can’t come back and re-trade the deal after it’s been negotiated. This is also helpful in getting a syndicate cooperating with each other and aligning the members’ interests, particularly if it has investors who have participated in different rounds of the company’s financing. Do expect to play moderator constantly throughout the process, however, to ensure that it goes smoothly.

8. Try do deal in advance with follow-on financings. When an investor doesn’t participate in a follow-on financing, it creates a total nightmare for you. Other investors will want to punish their wayward colleague and can create massive collateral damage in the process to common shareholders and management. Just as VCs will insist on something called “pre-emptive rights” (the right to invest in future financings if they want), you and your lawyer should insist on some protection in the event that one of your investors abandons you when you are raising more capital.

9. Handle the term sheet negotiation carefully. Whether it’s an initial round or a follow-on round, how you handle yourself in this negotiation sets the tone for the next stage of your relationship with the VC. The financing is the line of demarcation between you and the VC courting each other, and the VC joining your board and effectively becoming your boss.

10. Finally don’t forget to say thank you at the end of the process. Whether you send a formal email, a handwritten note, or a token gift, be sure to thank your VCs after a financing. They’re putting their butt on the line for your company, they’re investing in YOU, and they’re making it possible for you to pursue your dream. That deserves a thoughtful thanks in my book.

Sorry for the long posting. The next one or ones in this series will be on valuation, preferences, and “Venture Capital deal algebra.”

B2B published a synopsis of an unbelievably pathetic study last week, which I’ll excerpt here in case that flaky-looking link doesn’t work:

More than 50% of global brands fail to answer e-mails, study finds…Fewer than half of the top global brands bother to answer e-mail correspondence sent to their Web sites, according to a study by Common Sense Advisory, a research company…”Our research showed that responding to prospects and customers appears to be a problem for most companies,” said Donald A. DePalma, the lead analyst for the report.

Sixteen percent of those surveyed don’t offer e-mail or Web communication with current and prospective customers, the study found.

Ok, the last paragraph is a little sad, since email and the web aren’t exactly new technologies any more. But the first paragraph — come on, folks! If you’re going to bother having a web/email presence, how could you possibly not respond to inbound email correspondence from customers or prospects? How often do you stop answering your phones? Or lock your front door?

There’s just no excuse for companies to not respond to email. Just because it’s more anonymous doesn’t mean that the person on the sending end is any less valid a customer or prospect than one who calls or stops by. And it’s not even that hard to do. Put a junior person on it, or route the emails to different groups or departments. Have your existing customer service group handle it. Something. Please!

We just spent three days whitewater rafting in Glacier National Park, Montana.  It was great fun for many reasons, but one thing that really struck me is how rare it is to completely unplug these days.  No cell phone, no email, no TiVo, no electricity.  Not even an iPod.  Just a raft, a tent, and an open fire for cooking.  And I’d venture to guess that of the 15 other people on our trip besides the two of us, not a single one even knows what a blog is, let alone writes one.  In many ways, those three days of being unplugged were as refreshing as two weeks on many other vacations.

Fred, Brad, and Jerry have done a bunch of postings recently, and threaten to do more, sharing the VC perspective on many aspects of startups and entrepreneurship. I thought it might be interesting to share the entrepreneur’s perspective on the same subjects. I’ll try to cross-post and keep pace, but I’m already a couple behind, and I can’t crank out postings as fast as these guys can! (For reference, Fred and Brad are on my board, and Jerry as Fred’s partner is an advisor to my company, Return Path.)

Topic 1: Boards of Directors. All three have many good points. Brad says that boards come in three flavors (working, reporting, and lame duck), and that small companies need working boards which include other entrepreneurs in the industry as well as management and investors. He also advises to take good care of directors and not let them get bored. Fred calls the good ones engaged boards (interactive, candid, engaged, passionate, and involved) and says that while you can have a good company without an engaged board and even with a bored bored on occasion, to have a great business you need an engaged board. Finally, Jerry says that you should pick your board carefully and build it with some diversity like you would a management team and to avoid people who will yes you.

I basically agree with all of these points, and would add the following four thoughts for entrepreneurs:

1. Building a board can be one of a CEO’s greatest trump cards. Without being even a little bit disingenuous, you can use the “I’m the CEO and would like to talk to you about a potential board seat with my company” as an entree to meet face to face with some of the most interesting, senior, brand-name people in your industry (turns out, flattery will occasionally get you somewhere). Use this card wisely and sparingly, and always be prepared to follow up on your meetings, but take full advantage of it as a way to network. You never know what opportunities you’ll uncover along the way.

2. Don’t think of managing your Board as a burden. Communicate early and often to your Board members and make sure all big conversations and debates are pre-wired in one-to-one conversations before Board meetings, and that debates are framed and researched properly in advance of meetings. Nail the basics (reporting, financial reviews, well-crafted and easy-to-read materials sent out several days before the meeting), so you can focus the valuable meeting time on strategy, not on the minutiae.

3. Figure out how to work differently with investor directors and outside directors. VCs who sit on your board have very different interests, time availability, and things to contribute than outside directors, especially non-retired industry executives. Not all directors are created equally, and you don’t have to behave as if they are.

4. Sit on a board yourself. There’s nothing like a real-live counterpoint to make you take a step back and think about how to build and run an effective board. Find something — another startup, a nonprofit, your high school or college alumni association — to join as a board member. Watch and learn.

All that said, the most important thing I’ve found in running a board is following Brad, Jerry, and Fred’s collective wisdom about fostering an engaged/working board. Definitely don’t let them get bored on you!

I’d like to think that Mark Twain would wholeheartedly approve of me paraphrasing his famous quote for this purpose, but I’m getting a little tired of all these reports about how email is dead. The latest one comes in the form of an op-ed in Computerworld this week. This will be a longer post than usual — my apologies in advance.

The writer talks about how email will die soon because there are too many issues with viruses, spam, IT management costs, and employment practices. The writer says email is close to having a bigger downside than upside, and that email will go the way of the typewriter or the floppy disk drive.

I say that this is a writer who has a bad IT department or a bad email service, a stunning lack of faith in technology’s ability to overcome adversity, and perhaps a misunderstanding of basic economic productivity.

Email is alive and well, as far as I can tell:

– Consumer email adoption is huge and rising. Every time I see one of those market research surveys from Pew or NFO, email activity and adoption is on the rise. It’s the number one Internet-based activity, with nearly 100% of people using it and a huge percentage of those people addicted to it.

– Email business usage is now mission critical for most employees. Enough said, for this audience, anyway. Economic productivity gains from email usage are outpacing the costs of having email system administrators and spam filters by orders of magnitude. For a quick flashback, compare the time spent firing off an email to 5 members of your staff, cc’ing your boss, and bcc’ing two of your other colleagues to the analog analog of making phone calls, holding meetings, or dictating/longhanding a memo, typing it with carbon paper or even using a photocopier, then physically distributing it.

– Spam filters are getting better by the day. While there is still a cat-and-mouse game going on between spammers and spam filters that will always result in a certain amount of false positives (good email that gets filtered) or false negatives (spam that sneaks into your inbox anyway), how many heavy email users can honestly say that their actual inbox spam problem is worse now than it was a year ago? The false positive and false negative problems will be largely solved in one way or another within 24 months. They won’t be completely solved despite Bill Gates’ optimistic prognostications, but they’ll be well under control to the point of being inconsequential.

– People are signing up for email newsletters and marketing at astonishing rates. If email was on the way out, this is the single metric you’d expect to be falling as a precursor to the crash. Well, guess what? This metric is on the rise! My company alone is getting almost 80,000 people each day to sign up for our various email-related services. Many companies who sell direct to consumers online are generating upwards of 25% of their revenue via email. Those are not exactly the signs of a sick medium.

– The email industry will not allow itself go the way of the typewriter (by the way, you will note, there was never really a “typewriter industry” the way that email has turned into its own sector). There are simply too many companies, with too much at stake, with too much capital to invest and too much reward to be gained, to permit obsolesence.

For those of you who know that my company Return Path is in the email business, you may say that my comments are self-serving, and I suppose that’s true. I’m always open to a disruptive technology, but changing human behavior is much more difficult than replacing floppy disks with DVDs or hard drives, and at this point, email as a viable communication medium is much less about the technology than about human behavior. It takes a “super disruptive” technology to make that fundamental a change.

Perhaps the writer of that op-ed should think about another technology with much grizzlier characteristics that would be sure to put it on the verge of extinction. The technology is dirty. It’s smelly. It’s terrible for the environment. Some say it’s imperling the future of the planet. All it tries to do is a simple thing, but it can cost people who live at the U.S. median income level as much as 15% of their net income every year (all headier issues than those created by email). We all generally refer to that technology as the automobile. Does anyone think that the cars is going away soon?

As for the comparison of the typewriter to email, I’ll quote Twain again: “History doesn’t repeat itself – at best it sometimes rhymes.”

When a group of us had dinner back in May, Brad posted that it was remarkable that 4 of the 6 people had blogs. Then Amy started a blog, making it 5 of 6. Today, Mariquita and her friend Sharon launched their blog about wine, making it a clean sweep.

There is almost a complete dearth of blog information and commentary about wine. You can tell — the URL she was able to get on Typepad was wine.blogs.com! When Mariquita and I went looking into other wine blogs a couple months ago, all we found were one or two somewhat lame ones, one not updated since February, one not updated since April, none with interesting information that helps average people learn more about how to buy, pair, and enjoy wine.

I think this will be a fun single-topic blog. Enjoy the first posting, and welcome to the blog world, Mariquita and Sharon!

I’ve always thought my grandmother was a remarkable person. At age 92 (sorry to publish it, Gma), she is pretty hip — drives a Lexus, plays a mean game of bridge, carries a cell phone, and until recently, used WebTV.

She was getting tired of the slow connection via dial-up, so Mariquita and I gave her an old laptop we had and installed a cable modem (I have to commend Cablevision of Westchester/Optimum Online on a very smooth and easy installation process), so now she’s the world’s newest computer user. Those of us who work with computers every day take some of the basics for granted, but if you’ve never used Windows or a mouse before, this stuff is not easy to learn.

But I’m proud to say that Grandma Hazel, after three short days, is using Outlook, used Return Path to announce her change of email address to her address book, set up 1-click on Amazon and bought a couple books, read my blog, and even subscribed to receive email alerts when I post.

After 5 years of WebTV, I think she’s in for a real treat with how fast the web can be and how much there is to explore out there. And if anyone can figure out how to use this stuff, it’s her. Welcome to the web and to blogs, Gma!