Silicon Valley Frontlines

My Holiday Season Resolution ... Volunteer Business Advisor!

Last Christmas Eve I did a post titled "A Beacon of Hope This Holiday Season ..." about the San Francisco Homeless PreNatal Program. Still there in their 20th year, still doing great work! If you supported them last year as a result of my post, a big thank you. If you can contribute now, please do!

This holiday season I'm personally trying something a bit different. Given my background I'm going to offer my help as a volunteer business advisor through Pacific Community Ventures, a Bay Area initiative that helps small businesses create jobs and opportunities in lower income communities. They have supported many entrepreneurs starting and running bakeries, restaurants, landscaping, bag making and including some higher profile businesses such as Flora Grubb, my favourite San Francisco garden store, or Heath Ceramics, a long-time Bay Area operation.

It's not usually visible to most of us just how hard it is for people to make these businesses work. This recent story about Flora (yes, Flora Grubb is her real name - isn't that perfect for a gardener!) in the San Francisco Chronicle is what piqued my interest in PCV. Without them Flora Grubb (the store) might no longer exist and her 25 employees would be joining the ranks of job seekers. And I'd miss a great place to browse, shop and drink Ritual Coffee Roasters fabulous blends! Here are some pictures I took at a recent visit to Flora's store:

So, not exactly high tech - but important grassroots in our bigger ecosystem (so to speak). Maybe I can help a little bit, and in a longer-term manner than just writing a check.

As always, I hope you and yours have a happy holiday season and prosperous 2011, look out for and take care of the ones you love, and thanks once again for reading my blog!

Cheers!

Philip

Solyndra's IPO - Not a "Going Concern", But Hoping It's a Big Success!

As I've noted before, there are many companies now in the backlog of IPO's filed but not yet completed. One of them, the cleantech company Solyndra, is worth taking a closer look at because of its rather unique characteristics. This high-profile solar panel business has raised a whopping $961 million in venture financing since it began and has been in registration since mid-December last year. It's looking to raise about $300 million from the public offering. Sound like a lot? Well, yes, but they need a lot!

Since introducing it's unique cylindrical components and related panels Solyndra has grown revenues from zero in 2007 to $6 million in 2008 and to $100 million in 2009 - astonishing growth but for the unfortunate fact that it still costs the company a lot more to make the panels than they can sell them for. For that $100m in 2009 revenues it cost them $162m to manufacture the product - and then another $115m to develop, market, sell and cover overheads. So for those at home keeping score they spent $277m to produce that $100m in revenues. It's still better - relatively speaking - than the $228m they spent in 2008 to produce just that $6m in revenues ....

This is not a typical business, even for the sometimes-extreme Valley! Here's a company whose products are clearly state-of-the-art but where, after raising and spending almost a billion dollars, the true economics of producing and selling them are yet to materialize. In fact their auditors PriceWaterhouse Coopers, have just issued what's known as a "going concern" opinion about the company. To backtrack for a second, all companies looking to go public via an IPO have to file an S-1 registration statement with the SEC which has to include three years worth of detailed, audited financial statements along with an additional two years of summary financial information, assuming the company has been around that long. As part of those statements the auditors issue an opinion, basically saying that those statements fairly represent the historical financial position and results of the business.

While this opinion is largely a rear-view mirror look the auditors are required to do some procedures to determine whether it is able to operate as a "going concern" in the future as a viable stand-alone business. The typical approach - and rule of thumb - is that it is is a going concern if it has enough cash on hand to run the business for twelve months from the date of the audit opinion (in essence, the date the auditors sign off on the period they just audited). The auditors won't be able to assume future additional financing (including the IPO) because that may not happen. Nor can they assume some rapid growth or improvement in the business that suddenly makes it cash-flow positive. The most likely thing is that it continues as it just left off in the most recent year. So lets look at some of those numbers. 

In the year ended January 2, 2010 it spent $170m in cash just running its daily operating activities (basically the loss it incurred in selling the $100m of product plus its operating expenses and various other adjustments). It also had to build it's production facilities and make other capital investments - which totaled another $175m. So there's almost $350m - millon! - of cash consumed in one year.

How did they finance that, because the money came from somewhere? Well, they raised $336m in venture financing (part of the $961m I mentioned above) which included converting some existing loans into equity (an ownership stake), and took on an additional $140m in debt. That debt is worth looking at - its money they have borrowed against a $535m loan facility guaranteed by the Department of Energy and is money coming from the Federal government's economic stimulus and recovery commitments. It has to be used for the building of Solyndra's second production plant in the Valley (those of you who regularly travel on Highway 880 in Fremont will see the first plant right by the Eastern side of the road) and which Solyndra itself must finance at least 27% on its own in addition to the DOE guaranteed loans.

At the end of 2009 where did all this leave the company? Well, it had $50m cash in the bank (it also had $151m of further cash on the balance sheet, but that cash is restricted and can't be used for regular operations). And the customers who bought the $100m in products still owed it $34m in remaining payments for them. Against that it owed $105m in current liabilities (payments for product costs, purchases, etc) and $140m in long term debt (the money borrowed above). Not exactly a lot of net cash on hand to pay the existing bills and then run the 2010 operations.

When you look at all the numbers, and you add to that the complexity of the business, the risk factors (their S-1 lists 24 pages of them!) in the technology and the marketplace, then on a pure business analysis you have to agree with the auditors - they are not a going concern. It's also not unusual for a Silicon Valley early stage company (and it is still very early in the development of this technology and it's market) to be in this position. In fact, that's exactly why they need an IPO - to raise the money for growth and to get to cash flow positive from operations. But its pretty unusual for a company to take the step they just did - publishing an open letter to their customers and suppliers to explain why, in their view, this is not a problem.

To take a closer look at their SEC filing, click here.

I'm rooting for this company. It's in the forefront of developing new energy solutions we desperately need. They claim that "by the end of 2012, we will be able to deliver photovoltaic systems that produce electricity on commercial rooftops at rates that are competitive with the retail price of electricity in key markets on a non-subsidized basis". I'd love to see that! They employ 800 people, mostly in the Valley. Many of those people are in manufacturing - a segment hard hit since 2000. That number will increase with their second plant and further production ramp up. This is the kind of business the Valley needs, and needs to be successful. And the country needs the technology.

Still, a lot of people will have to make some pretty big bets to pull this off!

U.S. Immigration Policy Frustrates Startups!

Fred Wilson's post a week or so ago about the problems that one of his portfolio companies has getting a U.S. visa for one of the founders rings a big bell. Here's how he phrased it - "I started my day in a board meeting with one of our companies that was started in Europe. It turns out one of the founders of that company, one that is growing and hiring in the US, cannot get back into the States right now because of a Visa issue."

I've been working with a variety of startups out of the Plug and Play TechCenter for most of this year and I guess that some 40% of the new companies coming there originated outside the U.S.. These are businesses founded by young entrepreneurs who know that they need to relocate here to tap into the Valley ecosystem of funding, talent, prospective customers, partners and access the U.S. market. Despite efforts by many governments in Europe and Asia to develop their own Silicon Valleys there is still no real substitute for being here.

This trend represents an influx of new ideas, perspectives and talents that will be part of the next evolution of the Valley - and its a wonderful thing! And guess what? These entrepreneurs create jobs here. They don't take jobs away from this community - they add to them. Yet our asinine immigration policy makes these people endure constant returns to their home countries for weeks or months on end in order to renew visas, be interviewed at the U.S. embassy, etc etc. What a waste of time, money and opportunity!

The founders of two startups I'm working with - Martin Tantow of 3scale out of Barcelona and Alfonso De La Nuez from UserZoom out of Madrid - are both back in Europe now for extended period dealing with such visa challenges. They will get them of course, but their efforts to hire people, get funding and develop their businesses here stall each time they are gone. Which helps no-one.

There is, fortunately, a grass-roots effort going on to solve this, orchestrated among others by some folks at StartupVisa.com and supported by many with Valley connections. Basically they propose to create a Founder's Visa that will take care of all this. Great idea, definitely overdue. You can contribute to StartupVisa's efforts on their site.

How Not to Get Hired!

One of my companies, UsTrendy, is looking for a technical lead for the team. As always with a startup we want the best person we can possibly find. Someone who can be the focal point for development of our online store, our site and - down the road - our analytics services and more. He/she would also work with the founding team to expand the business strategy, platforms, evaluate in-house vs. outsourced alternatives and so on. And of course our new hire must be passionate about our fashion-related social networking business and a great fit with the team.

We posted the job on Craigslist to start with because a number of folks said they had great success through that site. The job requirements are pretty broad yet there are specific things we must have - hit the link to see the posting and I've also copied it below in case the CL listing expires before you read this.

So, what happened? We received perhaps forty responses so far, universally disappointing. Here are the high ... er, lowlights:

• Most obviously, it was very clear that many people couldn't even be bothered to write a cover note. Why would you not make at least some effort to say how you're interested in the company and why you think you're a fit. I'm going to give maybe 15 seconds to my first look at each response, so you'd better have something there to get my attention.

• Of those who wrote a cover note, only a few - perhaps three of the forty - even acknowledged who we are and what we do. I'm betting that many people didn't even go look at the site. How feeble is that?

• OK, we're basically looking for an engineer. So I expect some geeky stuff in the resume. But a whole page of programming languages as your starting point? Please! We're non-geeks looking for a tech lead. I have no idea whether your knowledge of BEA Tuxedo can help us (I suspect not) but please tell us which skills you have that can actually help a business like ours. By all means give us the full list in the resume if your cover note says which of those things will the key for u and why.

• Why do you think being illiterate - or presenting yourself as if you are - is a good idea? If you can't string together some basic communication in writing then why would I think you can sit in a room and articulate your thoughts clearly to the team?

• If I ask for prior startup experience it's because it's likely to be a core ingredient of a successful match between us and the right candidate. I'm probably not asking for it because it's irrelevant, so if you don't have it you should at least say why, despite your wasted years at Sun/IBM/Computer Associates/YouNameIt, you nevetheless are convinced you are right for a startup. If you can't convince yourself you certainly can't convince me!

• If you are a recruiter, why are you sending me resumes when I say "If you are a recruiter, sorry but please don’t send us unsolicited candidates!"? Not only will I not hire your candidate but if I have their resume already I might not talk to them anymore because I don't want you claiming a fee which I don't owe you. As a candidate you should never work with recruiters you don't know well and who don't discuss any approaches to potential employers with you first - and never contact the company on your own if you are working with a recruiter who has already established contact, even if unsolicited. 

• Show me you have some passion for something, anything. Please!!

Here's our listing for the opportunity as we posted it. If you know someone that is a GOOD FIT please let me know!!

UsTrendy is a new site allowing emerging and independent fashion designers to upload their creations, have consumers, fashionistas and others decide what’s hot and what’s not, and then market and sell their products. In less than a year we have more than 7,000 designers and 300,000 designs loaded, making us one of the largest sites in the space. We’re ramping up the consumer side of the business rapidly through initiatives to increase awareness, attract and retain visitors and keep people coming back.

Longer term we’re looking to create a fashion destination site, develop retail analytics services, targeted advertising and other revenue-generating opportunities directly through the site and through partnerships.

We have a ground floor, hands-on opportunity for someone to join us in a senior software engineering capacity. We are flexible on the right title – more important are the key things you would bring to the table. 

You will have a proven track record in software development in a rapidly growing start-up environment – with all the opportunities and challenges that brings. You will participate actively with the team to develop the vision and strategy for the business and translate that into the site, services, databases etc we need to make it happen.

You will be our technical lead and the primary interface with our small development team in Argentina (Spanish language is a plus but not mandatory).

You may be determining our architecture and platform approach one day – and programming the next! Key technical abilities include web development, ecommerce, database development and analytics. If you can tapdance while balancing a spoon on your nose, that’d be great!

At this stage of our development it’s important that we bring on people who are self-starters, highly motivated and a good fit with the team. We truly believe that the sum is greater than the parts and that a great, passionate team with complementary skills can achieve far more than we can even imagine. We are currently based in the South Bay and it’s important that you be located with us to achieve the chemistry and teamwork we seek. 

If this sounds interesting to you – and you meet most, if not all, of our criteria – then please contact us! We look forward to hearing from you. (If you are a recruiter, sorry but please don’t send us unsolicited candidates!)

Startup Staffing - How to get it Right!

A friend of mine asked me to given him some advice last week about responding to a job offer from a startup which he felt was too low. I was happy to do it and he just wrote to me saying he was able to get the cash side of the offer increased by 13% using my advice. One of my better returns-on-investment after an hour's work! Which got me thinking yet again about startup staffing, some of the challenges and how to get it right. In my friend's case the start-up was getting a good software QA manager but for a while really looked like they might blow it.

I've written many times about how this is a great time to start and staff a new tech business. Here are a few tips about how to get it right, culled from my own experience and talking with many entrepreneurs and investors. In no particular order:

• The right skills at the right time are important. But above all make sure who you hire is a great cultural and personality fit. In a startup there is no question that the whole is greater than the sum of the parts. Someone who is not a good fit can be toxic to the team dynamics and I can't think of anything that makes that worthwhile. The tone of the business and it's culture will be set by the initial team, so make sure that dynamic works well from the get-go.
• Even if you attract a founding team working for equity only to start with, you'll eventually have to start paying cash. These days, yes, you can get people for less cash than before. Whatever you're offering, make it equitable with other team members and pay people what they're worth (to the company - if there's a mismatch there then you're not right for each other anyway). Even if you think they will never find out, in a small company its not worth the risk of losing a good person who is inequitably compensated. Of course, thinking someone will never find out is the wrong philosophy anyway. Some (very few) companies post the compensation of every person in the company for all to see. Even if you're in the majority that don't, think about how people would react if they knew this information. Would they thing so-and-so was worth it or someone else was underpaid?
• A top notch software developer is worth 10 average developers. Unless they're not a good fit. On the other hand the really good developers will cost you - because among their many alternatives is the choice of working for themselves on the Next Big Thing, rather than for you. Of course you don't pay them 10x an average developer - but you do want to recognize your stars and, frankly, get rid of the average or below-average people. No, this is not contrary to my advice above. Done properly, recognizing stars can still be done in an equitable manner with the rest of the team. Don't confuse equitable with equal!
• Make everyone part of the team and incent everyone with equity via stock options. In one of my prior startups I found that the office admin in Prague was the only person in the company without stock options - so I got her some options as soon as I discovered this. Another executive said to me "she's just an admin, so why bother?" Well, I tell you, everyone plays a part in success. They cash compensation reflects the level of value but (in the long run) you would never dream of not paying them cash. Why wouldn't options work the same way? By the way, that executive I mentioned - prime example of the toxic employee ...
• If you have multiple locations, particularly outside your home country, then work hard to make everyone feel like members of the same team. At that same prior startup above I would insure that I made regular visits to Prague and each time I would do a presentation to the entire team (about 40 people) about the company's development, how their work was helping, etc. And we'd usually have a teambuilding event as well. That same toxic executive I mentioned wouldn't even join those meetings when he was there at the same time. What kind of message is that?
• Share information with everyone. The goals of the business. The key metrics and how you're doing. The issues. The more people know, the more they can take the initiative to fix things.
• Sales. If you don't get customer traction eventually you're dead in the water - you won't raise money or attract good people. Marketing is creating awareness and sales opportunities. Selling means closing deals. Getting the transaction over the goal line. In a startup everyone has to be selling and know how to sell. But be sure you have closers on the team. That could be the CEO or anyone else ...
• Outsource the stuff that is not core to your value proposition. Check my prior posts but, again, don't bring things like accounting, HR, etc. in-house unless you've exhausted the the capabilities of good outsourced services.
• Don't think that because you don't have cash you can't hire anyone. You'd be amazed at what a few founders and equity-based employees can achieve over a very short space of time if they truly believe.
• Finally, address problem situations quickly. That could be anything from compensation to work environment to a toxic employee. Yes, if I'd been CEO I'd have fired that executive I mentioned above - even if I was to lose the experience and other contributions I'd be gaining immeasurably in many other ways.

Economic Outlook in the Valley Improving ... But Where Will There Be Jobs?

The large accounting and consulting firm KPMG just announced the results of it's latest survey of key executives in various industries and I'm glad to see the technology sector optimism, which bodes well for the near future in the Valley. I also note that "only a very small percentage of the respondents say they are considering or planning further headcount reductions". Given that 65% of the surveyed execs (not just tech) implemented headcount reductions as their major reaction to the recent economic turmoil, this is particularly good news. An extract from the survey is below the chart.

For those not paying attention, the Valley unemployment rate (San Jose metro area in the chart below) has soared to almost 12% in the last month, and is now well above the 9% or so rate we experienced in the aftermath of the dotcom implosion. History - and "jobless recovery" prognostications - suggest it will stay up there for a while. That 12% has hit people pretty hard. Here's a headline from The Daily Telegraph in the U.K:

"In California's Santa Clara county, the local food bank served 17pc more people in the year to May than it did in the previous 12 months. That month (May) alone, Second Harvest Food Bank's food connection hotline experienced a 71pc surge in first-time callers."

Silver lining: I'd suggest that, as cash starts to flow again into startups, new job creation will occur there all the way up through Facebook and Google, while the dinosaurs - the HP's of the Valley - continue to shave away the layers. And for start-ups the people can be had for less base cash (though you'd better offer performance incentives in the way of bonuses and equity in exchange).

Here's an extract from the KPMG press release:

Technology: Leading the Recovery

Two-thirds of technology executives in the survey believe their industry will recover more quickly than the national economy. Silicon Valley-based executives were even more bullish, with 77 percent of them saying their recovery would outpace the U.S. one.

Eight out of ten executives in technology expect business conditions in technology to improve next year, with 78 percent expecting stronger revenue and 72 percent expecting improved profitability.

"These results are in line with recent earnings reports in the technology sector," said Gary Matuszak, partner, global chair and U.S. leader for KPMG's Information, Communications and Entertainment practice. "While it's far from blue skies in the industry, the worst seems to be behind us."

via news.prnewswire.com

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• Silicon Valley gets a taste of the grapes of wrath (telegraph.co.uk)

Jobs and No Jobs ...

The Mercury News reports that Silicon Valley's jobless rate just hit 11% - which of course includes not only the direct tech jobs lost but the collateral damage to all the other jobs dependent on the Valley's tech health. 

Despite that, one has to remind oneself its still not as bad as the period after the dot.com implosion when over 100,000 jobs were lost in 12 months (vs. apparently some 36,000 in the last 12 months) and the doomsayers were once again predicting the end of the world as we know it. 

There are some glimmers, some signs that we're nearing a bottom. Could be wrong of course. But when Wells Fargo reports record profits, Intel says inventories are down and orders are picking up, Rosetta Stone IPO's and very successfully (up 40% in first day trading and one of three April IPO's to date), lots of new startups are getting formed and the influx of startups from Europe and elsewhere heading for the Valley just seems to accelerate every day, I'm hopeful that this is more than grasping at straws. 

OK, I know Rosetta Stone is not a Valley company, nor was Changyou.com Ltd., a game developer out of China. But the Valley's underlying investment thesis for startups still requires a liquidity event at some point and IPO's, along with M&A, are a necessary option to keep the strength and hope of the Valley going. Any real signs of life are good!

In the meantime, what should both an employed Valley worker and newly liberated job-seeker do? No magic wand, but here's how I think everyone needs to look at things, employed or not.

1. There in no such thing as job security that somehow gets handed to you, by length or service or whatever - get used to it. 
2. Security is ... skills, expertise, ability to do things other people can't do, flexibility, energy etc. In other words, marketability. 
3. Don't stay in one job - or even one company - for more than a few years. Indeed, only as long as you are still learning and growing. Yes, you want to contribute - but make sure your job contributes to the growth and development of YOU as well.
4. Don't job hop either - you need to show a track record of being somewhere long enough to make a difference.  
5. While experience is good, don't lead with "I'm a 20-year IBM veteran". However great you are - and IBM is - it paints you as a career company person who just got dumped. Focus instead on skills, achievements and contributions.
6. The job market and work environment continually evolves. Be prepared to see your career become one with no traditional employer, but a series of overlapping gigs developed from networking and marketing yourself. 
7. You're in charge - no-one else can do this for you or sell or market yourself as well as you can. 
8. You are never too old. Experience and the right, positive attitude go a long way and are still highly valued in the right circumstances
9. Network, network, network ... and use the tools of the new internet, the social media of Web 2.0. Twitter, LinkedIn, Facebook etc. Write a blog (yes, it does work!). Become KNOWN!
10. Consider your own startup. Really! There has never been a better time!