Massachusetts Sales Tax “Fairness”

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In case you missed it, H.1731 and S.1554 are winding their way through the Massachusetts legislature.  These bills attempt to make large vendors like Amazon subject to state tax, by arguing that MA-based affiliates create an in-state presence.

I’ll concede that the US Constitution has made our in-state/out-of-state sales tax system a bit quirky.   But I object to these bills because they put Massachusetts at a competitive disadvantage in the emerging Internet economy, at a time when more entrepreneurs are eyeing NY and CA for new companies, instead of MA.

It’s also not clear there’s any material revenue benefit:  in other states, Amazon (and other vendors) have responded by canceling their affiliate programs in those states.

These bills are being pushed by Wal-Mart, other multi-national retailers, and the Retailers Association of Massachusetts (RAM), who argues:

Our local small businesses operate at a significant 6.25% price disadvantage to out-of-state, online businesses, leading to fewer sales at brick-and-mortar establishments who contribute so much to our community.

This highlights my real objection:  these bills are about protecting the status quo, without taking a rational and realistic view of the future.  Any MA-based retailer facing out-of-state mail-order competition should be considering the future of commerce.   There are 49 other states where that retailer can sell tax free!  That’s hardly a “disadvantage”.

Like many issues, it’s always helpful to understand the deeper issue.  This is really about Wal-Mart pushing around Amazon.  I can only hope that the MA legislature doesn’t rise to the bait.

Which Way is Your Idea Pointed?

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Occasionally, I meet an entrepreneur that’s got an interesting idea, but is oriented in the totally wrong direction for the market.

For example, consider ideas around DVDs:  they’re still very popular, but their future seems clear.  With bandwidth and storage advances, movies will be like music is today:  downloaded on demand. Music is a language of emotions it represents our feelings, here you get Music related info. Here you get the anything related to history of the music, do visit.

These kinds of ideas aren’t necessarily bad, but they require a shrewd assessment of how big the window of opportunity really is.  Trying to build a company is hard enough; doing it while the market is moving in the other direction is virtually impossible.

But at least you should know going in:  is your idea oriented in the “right” direction?  Do you have enough time?

The CEO Job Sucks, Mostly

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How can you tell if someone’s never been CEO?  They say something like, “I really want to be CEO”  I never seem to see former CEOs saying that.

A few days ago, Ben Horowitz wrote one of the best blog posts I’ve ever read, all about CEO psychology:

By far the most difficult skill for me to learn as CEO was the ability to manage my own psychology.  …  Over the years, I’ve spoken to hundreds of CEOs all with the same experience. Nonetheless, very few people talk about it, and I have never read anything on the topic. It’s like the fight club of management: The first rule of the CEO psychological meltdown is don’t talk about the psychological meltdown.

This blog post is a must-read for all CEOs and boards; it’s very good stuff.

Being CEO was the toughest job I’ve ever had, no question.  It was an intense and extreme range of emotions:  I never laughed so hard, or cried so hard.  I went between periods of pure optimism, to periods of deep anxiety with many, many sleepless nights (in both cases).  I formed some new, lifelong friendships, all while feeling I let down all of my friends when things didn’t go as planned.  CEOs attract more blame than credit; it is the most demanding job in the world.

I’m glad so Ben wrote this, because the “leader” personality type tends to avoid signs of personal weakness.  CEOs talk about “managing to the metrics” or “rallying the troops”, but you never hear “I’m depressed”, “I’m tired”, “I need help”, or “the team is pulling me in three different directions and I can’t choose”.

There’s a reason my friend calls the job “CPO” — Chief Psychological Officer.  That “other stuff” is usually the Real Stuff.

Offense, Defense, and NDAs

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A surprising number of entrepreneurs contacting me for investment (or advice) want an NDA before sharing any details.  I politely tell them that I don’t do NDAs, and refer them to Brad Feld’s write ups, which explain why most investors take this position.

But I’m finding there’s something deeper going on.  Entrepreneurs that insist on non-disclosures from prospective investors usually have the wrong mindset for building a successful software/Internet company.

It’s the difference between playing entrepreneurial offense and defense.  The “defense” mindset is focused on secrecy, protecting access to information, and limiting things.  The “offense” mindset is focused on speed, execution, and iteration.

There are times when patent filings and NDAs are appropriate, but I’ve seen far more ideas fail from under-sharing and for over-sharing.  By the time you launch, everyone can see what you’re doing anyway.  If the idea is good, they’ll quickly copy it.

The only defense is a good offense:  share widely, get feedback, attract a great team, and go fast.

How Are You Acquiring Customers?

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I know that “how are you acquiring customers?” is now part of a VC joke, but the question is no joke.

Across the companies I work with, there’s a very strong correlation between those that found a new twist on acquiring customers early on, with success in the business.  In contrast, those companies that ended up acquiring customers in more traditional ways (e.g. Google AdWords, display ads, etc.) have struggled much more and grown more slowly.

Taking this even further, I think differentiation for many companies resides not with the product idea itself, but with customer acquisition methods.  For the Web and mobile, ideas are plentiful, often easily copyable, and increasingly narrow (because it’s gotten so crowded).  With the ever-growing app/Web-site/messaging bombardment, it’s impossible to get new user attention.

This viewpoint is heresy for many product-oriented entrepreneurs, but I think it’s more right than wrong.  I frequently meet entrepreneurs that have 10 slides on product/service, but only 1 on customer acquisition.  That ratio of attention is completely backwards.

And taking this to the extreme, I’ll share advice I recently gave a friend.  He’s a very creative product guy, working on a bunch of new product ideas.   I suggested he invert things:  stop working on products, and start working on customer acquisition opportunities.  Then, figure out the apps that will engage those customers.

Twitter’s Ecosystem Woes

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In case you missed it, Twitter recently updated their Terms of Service, asking developers (effectively) not to build any more Twitter clients.  Now that they have their own apps, they don’t want developers to compete with them.  This announcement was followed, of course, by the expected uproar.

The whole situation highlights several interesting issues.

First, platform companies are always looking at emerging compliments for growth.  Ecosystems are great experimental “test tubes” for the platforms, and ecosystem developers always run the risk of being subsumed.

But this highlights a much deeper issue, unique to Twitter.  In spite of phenomenal usage growth, Twitter’s still struggling with monetization.  The real problem is that they’re stuck in utility-level value. They’re much like AOL’s Instant Messenger:  widely used, but beyond display ads embedded in the Windows client, a very very tough app to make any money from.

Given this, I’m not surprised to see them attempting to take more control — they don’t have any choice.

Meta-Investing

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On Yuri Milner making a blanket investment (loan) offer to every Y Combinator startup:  very interesting and good headline fodder, but in many ways, not surprising.

The return distributions for Internet-flavored technology startups have gotten very, very skewed.  For example, instead of a bunch of big exits ($500m or more) per year, we’re going to have one gigantic $50b Facebook exit.  The expected value for investors and entrepreneurs may not have changed much, but the chances of any single project generating a return is much lower.  It’s becoming more like a lottery.

If you wanted to play in this market, what would you do?  Buying a little bit of a lot of lottery tickets is not a bad idea, especially if:

  • You have a huge fund.
  • You believe that Y Combinator is a reasonable filtering function for startup quality.
  • You get visibility and an option (explicit or implicit) to invest more later in the winners.

Word of the Day: Yellitocracy

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I can now cross “invent a word” off my bucket list.  According to Google, “yellitocracy” is a brand new word.

What does it mean?  A yellitocracy is an organization where “he who yells the loudest, wins“.   These can sometimes occur when you gather a group of smart, hardworking, passionate, opinionated and competitive people.

Passion is a good thing, especially in startups, but sometimes the culture can become less than constructive.  I’ve seen groups that devolved into “debate club”, where ideas are judged on how well (and loudly) they’re argued, not on the merits of the ideas themselves.

Often, the best ideas aren’t screamed — they’re mal-formed (initially) & stated very quietly.  If you’re not listening carefully, you’ll miss them.  Worse, you may lose some smart & competent people because they don’t feel they fit in to the culture.

Do you have a yellitocracy?

MacOS App Store, Finally!

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So the Mac app store is finally here!  (After I wrote about this two years ago).  This is a huge step, that will fundamentally change the way desktop software is sold.

I’ve been buying small indie/utility apps on-line for years (e.g. photography tools, text editors, PDF tools, etc.), but it’s a pain:  entering payments, dealing with registration codes, doing updates, etc.  Many large software vendors are offering on-line purchase and download options, and Valve’s Steam platform has been around for a while, but it’s only for games.

This is great for consumers:   great (and growing) selection with a seamless purchase, download and install experience.  Physical media is quickly becoming obsolete.

But things may be less-great for developers.  First, like the iOS platforms, Apple will only allow approved apps.  Also, in exchange for Apple handling payment, distribution, and install, developers have to give up 30% of the sale price.  (Think of this as Apple starting to control and tax the desktop software business).  But most importantly, the ecosystem is becoming so efficient, it will be very competitive, with prices dropping over time (just like they did for the iPhone app store).

But what boggles me the most is Microsoft — are they completely asleep?!?  They still have ~90% market share, and Microsoft could have easily drafted Apple’s early app store experience into an app store for Windows.   They’d be years ahead by now.

It’s a great time to be a consumer.