Before everyone left work for the new years I gave them a pre-signed expense receipt approval with two lines on it labeled TAXI.

(Yes, we use paper expense reports - it looks more like real money to write $$ on paper. Which is why people use Excel to model revenue.

I told my folks that if they were going out they should take a taxi to/from. And please to wear a seat belt in the taxi.

We have also relaxed the absolute receipt policy for taxi’s this evening. If they can’t get a receipt they have been instructed to just drool some booze on the paper or something.

I hope everyone is careful this evening.

Happy new year.

I think we’ve all experienced some post or story going to the front page of Digg. Until the digg-Nazi’s bury it because (gasp) we stink of SEO. Whatever. But today we had several pieces of content on one of our sites stumbled. Apparently God’s second cousin told all his friends. And they had the day off and nothing particular to do. So they all showed up in a rush and viewed 2.7 pages/person/average.

And we actually hit the bandwidth limit on that particular server/package and I got a phone call from some guy in Chennai asking if I had an Amex to authorize a grand’s worth of bandwidth. Sure, ho-ho-ho and all that.

It was certainly an amusing conversation (do you remember the phone call in Transformers?) and it was fun to watch the site stats climb up and up and up.

But we didn’t make any marginal sales.

Wait, wait, wait for the funny part.

About an hour after the traffic calmed down I got an email from a person at Stumble trying to sell me their advertising package. A nickel a visit or something.

So, let’s see, 50K people wandered over to our commerce site in a few hours and bought exactly … notadarnthing. So “Susan” is trying to sell me a LOT more people just like that?

Gee, thanks. I think analytics is probably my best friend right now.

I told you we were going to get our real employees and outsourcing folx (accounting, legal, design, etc) together today. So we did. Not because I told you so, but because today is the most useless day in American business. Who actually works? Well, we worked (a bit) and had fun (a lot) and learned (some interesting stuff).

At one point our accountant, who may have the smallest actual sense of humor in North America, looked up and said: “Well, if you don’t enjoy that and it it doesn’t make you any money, why do you do it?”

Good darn question, ain’t it? And we’ve been doing it for two years.

What is it? Oh, simple, chasing ex-customers to find out why they left. Why is is useless? Well, like Iowa caucus goers they just lie to you. When you can get them.

So one useful thing from today was: ex customers are like your hot cheerleader girlfriend from high school after you’re married. “What?”

Exactly.

I’m still digesting the meeting notes (thanks, Sue!) but I think we talked through a lot of things (and ate a lot of Greek salad!) and got some good value from the HUGE bill I expect from our outside vendors for being here for 7 hours today.

It’ll be interesting to see who bills me for lunch time.

If nothing else, not stalking ex-customers to find out why they don’t love us anymore is a good outcome.

[This is part two - read part one first]

Now, you have to know that, while they were doing well top-line-wise with our revenue (we were close to revenue neutral with a negative burn rate of only a few grand a month), they were definitely pumping red ink ($100K+/month) and on a growth hiring curve. And they’d just moved into bright shiny new offices - we were in a B Space dump that was priced as C Space.

So there were new-hires going to these parties and seeing these great spaces (great example, eh?).

On the morning of the 22nd the CFO got a fax from the term-sheet VC saying that they’d decided to pass. After an emergency board meeting via con-call the current VC said that they’d hold on the last tranche until another term sheet was on the table.

It is now noon on the 22, the company has half of January’s payroll in the bank, and is slated for $100K of parties in the next week.

I spent an hour leading the (younger than me) Canadian management through some contingency planning to get us through Feb so we’d have at least a run at another term sheet. Look, nothing happens on Sand Hill during early January. But in Feb you can actually kick some butt because people have finished playing with their new Ferrari’s and are back to work with credit card bills on their mind. And those boys get paid by putting money to work.

I realized, about 3pm, that I didn’t have the room with me. Someone gently told me that I had a bad premise: we could not cancel the parties.

I was dumbfounded. But I quickly rallied and assumed that we’d already paid 100% so our cash-on-hand as of 1/Jan was much better.

Gently, again, someone told me that no, we’d paid a PO for 50% up front, but that we’d pay the estimated other 50% with an Amex card at the end of each party with a final settlement in mid-January.

I argued, and I can argue pretty forcefully, that this was, well, I started with “injudicious” and moved to “crazy” and finished up with “criminal.”

Couldn’t move them. But I did make them very uncomfortable with me. As you might imagine.

I went to the first party around 6pm, but couldn’t even bring myself to have a drink or a snack. Almost a hundred people, only a dozen knowing that we were partying away half a month of much needed payroll. New hires who were excited to come on board a company that would probably fold before their first paycheck got through the process.

And there I was, sitting the corner nursing a diet Coke, no longer an officer of the company and bound by confidentiality rules. So I decided I didn’t need to be there. I got up, checked out of my hotel, went to the airport and made my way home - three flights instead of a direct, but I was home.

I heard that the New Years party was even nicer than the Xmass party, with more people attending.

We never got a new term sheet, never got the tranche. I did convince them to freeze development and let me put our tech guys on the street as consultants so we got through another three months. But I couldn’t get them to leave their fancy office, fire unproductive sales guys, nor drop back office staff, so we never got revenue neutral.

There are a lot of take home lessons here, but, really, it should be obvious you do not party with your VC money. Especially not before it is in the bank!

I am reminded of the most egregious use of VC money since boo.com burned 20 quid notes to keep warm in the winter. Worse than anything Webvan did. Probably more stupid than the dog commercials from pets.com. Yes, it is my infamous Xmass party story.

It was near the ugly end of the first tech boom and we’d just sold our company (for stock!) to a Canadian competitor who was buying some plug in revenue on their way to a C Round of $15M or so.

Let me back up and explain some terms.

C Round is the third round of venture or sometimes the fourth if there was a “Friends and Family” or “Angel” round preceding the “professional” A Round.

Plugin revenue is when a funded company buys a less VC sexy company for their revenue. In our case we had a working product (they didn’t) with the right tech (we were on Sun, they were on Windows Server) and a *tight* operations procedure (their back office was chaotic).

Last term: tranche. This is when the VC’s promise you, say, $5M but they give it to you in blocks. You get $1M on signing, another $2M on go-live with four parters, and another $1M when you get a quotable Fortune 500 client.

The tranche is just another way for the VC to totally control your life. It also lets them get bored with you and kill your company during a temporary lull in your essential sexiness. I’ve seen the requirements for the tranche totally change when they swap a supercilious Stanford MBA for a know-it-all Entrepreneur In Residence. There is no way to enforce the contract terms from underneath the saddle.

I don’t like them. I think once you’ve paid the price for VC you should at least get a ride all the way back to Times Square.

Back to the story: The guys who bought were in the beauty contest round for $15M and needed the $1M from the last tranche to carry them through the negotiations.

Sorry, another term: beauty contest. Once you go through all the rigmarole and the VC’s have decided, in a partners meeting, to swap you money for your last remaining equity, they make a pretense of looking at your books and IP. It is really just a way to drag out the process and see if they can get you to your actual last dime before they release the money. If you are a VC this is an excellent way to squeeze the last micron of equity out of a company.

Now, REALLY back to the story.

We’d closed the deal on 20/December and I was up in Toronto with my operations director to complete the new procedures, re-organize the reporting structure, etc. (We’d been bought: guess who reported to who?) There was a BIG bash party planned for the 23 to celebrate the release of the tranche on the 22, plus a HUGE new years party planned for the signing of the new contract on the 29th.

Basically these guys were going to spend well north of $100K Canadian on parties. Xmass Party VC Money.

[more tomorrow ]

It was a good year here at what one employee called “The House That Dilbert Built.”

We had a good financial year, got some excellent new clients, wrote some neat stuff, etc.

We even got some cool new work/friends/colleagues. The people who left went happily, to better jobs or to more advanced schooling.

We made some really interesting mistakes and learned enough from a few of ‘em so that we shouldn’t be seeing them again.

Finally, we are really looking forward to launching the product side of Promote-My-Site this January(ish).

All in all, I’d put this year in a plus category.

Thus ends the obligatory year-in-review blog post.

Stupid question, take the $1M, right? Well, I’m not talking about salary, I’m talking about capital to use in your business. And time is capital too.

Let’s say you’re doing a startup with 6 guys. Your burn rate is gonna be around $100K/month, give or take, depending on where you live, who you’ve hired, and if you were stupid enough to rent a copier or something. So figure $1M buys you another year of burn before you have to do something unexpected and amazing like earning money.

Thus, for our purposes, $1M is equal to a year without revenue pressure?

So, here your are, working on your project like MIT Beavers on Ritalin, and a djinn comes to you and offers you $1M extra or an extra year to get ready. (Yes, I know, this is a bit contrived, stick with me.)

Do you take the money and launch NOW or take the extra year?

I say the decision is easy. You take the money and launch now.

Look, if you’ve picked such a big topic that you discover that you need an extra year, you’ve probably made some horrid fundamental mistake and are gonna fail anyway. Best to get out while you’ve still got hair and a firm midsection.

I think every product worth doing should be pushed out the door as quickly as possible these days. And you can buy a lot of extended revision time with $1M since your revenue certainly won’t roll in as quickly and easily as you think it will.

I have one word for you to ponder: Valdocs.

One of our clients is a web retailer. Their model is that they pick up products in their niche that aren’t widely available outside of their local geographic market and sell them on the web. Most of the manufacturers they deal with are “old style” businesses — they have manufacturing plants and their idea of marketing is to offer the grocery stores a coupon to give to their customers. If the manufacturer has a web page, it hasn’t been optimized at all.

So here’s the interesting phenomenon. Our client carries about 400 different products, and works very hard to optimize for the long tail. They may not do very well for the generic terms in their niche, but if you enter a particular product name they’ve got the first three entries — a storefront, a reference page, and a blog will generally come up in the top three. The rest of the first page is usually social media stuff about the product that eventually points back to their web site. The manufacturer is often not even on the first page. That’s the best traffic of all — people that are looking for a specific product generally convert. This client claims a 10% conversion rate from the search engine traffic.

Another result is that our client gets about 20 phone calls a day from people that would like to complain to the manufacturer about something they bought in a grocery store. I didn’t believe it until I heard a few calls myself. People automatically assume that since Google ranks you #1 for a product name, it’s your product. I even heard a caller accuse our client of being evasive because the caller “knew” that our client was really the manufacturer and was trying to dodge their call. Google told them that this was the right place to call.

The other common phone call is “Yes, I’d like to buy such and such. Can you tell me what grocery stores in my area carry this?”. Again, since they’re #1 in the SERP they obviously must be the manufacturer.

It’s a good problem to have. Taking those customer service calls is often an opportunity to sell the customer something else or convince them to buy it over the web instead of a grocery store. But it points to a problem of perception that is quite common.

People think Google magically knows more than it does.

Being #1 in the SERPs just means that the page has met the requirements of a mystical algorithm. It says nothing about the real world. And being #10 doesn’t mean that rightfully you shouldn’t be #1. After all, if you type in the name of a product, shouldn’t you logically be shown the manufacturer first?

I think this just shows how much search engine technology remains in its infancy. Some day we’ll look back in wonder at how anyone was ever able to find anything without a computer that could read and understand the entire internet and answer our questions correctly the first time.

Kind of like how I wonder how anyone was ever able to program using punch cards. Oh wait, that was me!

I was reading a very good post by Krigman on How Twitter is Dangerous and realized how far from my previous mega-corp personality I’ve drifted.

I should clarify that I am NOT a twitter user - I have a wife, kids, a company, and a history/biography book jones - I am not suffering from a lack of attention, information, or things to do. (I don’t have a facebook or myspace page either.) It’s not that I don’t get it, it’s just that I don’t want it.

But, like a visible tattoo or a tongue piercing, I don’t care if other people want it and get it. But Krigman was describing someone casually using twitter during a meeting and revealing confidential information.

W. T. F?

I guess if someone was using twitter (or AIM, for that matter) during a meeting at our company on a non-emergency basis I’d make a mental note to drop them from the next meeting because they’re not participating. And by participate I do not mean: talk.

My business partner doesn’t talk as much as I do (who does?) but he listens very well and what he has to say is worthwhile. If he’s not talking at a meeting I know he’s participating.

But, man, can I cast my mind back to the numbing meetings I used to sit through about blah, and blah, and blah, with 50% of the people in the room there to cover their fundaments or to score points, and the other half there to make sure that some politically appropriate decision gets made. I can see twitting during that meeting.

Hey, we’re not the Spanish Inquisition - if we have a client or production issue during a meeting (ex: it’s our monthly open books meeting and we have a flaky server) I could care less if the guys in the back of the boom are doing whatever and listening with half an ear. I’m just glad they’re there.

But our solution to a bunch of bored people sitting around in a meeting doing AIM/twitter/blackberry was to have fewer meetings. With fewer people in them.