TiE VC Outlook Dinner 2012

TiE Boston kicked-off 2012 programming with the TiE Annual VC Outlook Dinner on Wednesday, January 25, 2012 at the Newton Marriott. With over 200 attendees, the audience listened and engaged with what the “All-star panel” had to say about Lean Start-Ups, Lean VCs, and the Dearth of B2C in Boston.

This year’s panelists included Ash Ashutosh, CEO, Actifio; Paul English, CTO & Co-Founder, KAYAK; Eric Paley, Managing Partner, Founder Collective; David Skok, General Partner, Matrix Partners and Prakash Khot, VP of Engineering, Salesforce.com. The panel was moderated by Jeff Bussgang of Flybridge Capital Partners, who kept the discussion lively.

Following short and entertaining introductions of the panelists, Jeff laid out an overview of the lean start-up methodology and its major components. Aided by the current economic condition, it is easy to understand the popularity of businesses adopting this methodology.

He pointed out that the Lean methodology has brought many changes to the business eco-system including turning entrepreneurship into a science. By having entrepreneurs test their ideas with minimal capital and focusing on a handful of issues to resolve, entrepreneurs are able to base decisions to scale and grow with validated data rather than just hypotheses. David pointed out that no matter how much testing is done upfront to validate a hypothesis, data alone cannot determine the success of an entrepreneur and his venture; the core values for an entrepreneur are still the same and just as important even within the lean worldview.

The first core value that the panel constantly emphasized was a vision. Jeff described entrepreneurship as creating disruptive products and giving people things they don’t even know they want. For that, vision is central but does a top-down vision or bottoms up feedback drive the direction? Jeff and Paul summed it up by explaining that it is a little of both. “You need to have some back-bone and principles, but at the same time you need to get engineers to talk to customers to understand what are their problems.” Paul went on to talk about the red phone at KAYAK that gets their programmers to talk to customers and fix their problems.

The debate about having the right vision went further after they mentioned Steve Jobs. They described him as a “blink guy” which brought up a point about how does a visionary make decisions. Are the best entrepreneurs blink guys like Jobs who follow their gut or are they like Billy Beane in Moneyball, using data to create a foolproof system? Eric said that “CEOs’ job is to make bets and be right. You can’t make successful companies without bets and you can’t analyze everything before making bets.” Ultimately it is finding the right balance of guts versus analytics.
However, Paul said he would choose a leader who is compelling and has direction; there are a lot of decisions that cannot be data driven or quantified with machines or algorithms making people much more adept at making the right decisions. Paul made the point that, “VCs don’t invest in specific ideas – in fact its 70% team, 20% market, and 10% idea.” The entrepreneur comes first and therefore needs to be optimistic.

This brings us to the second core value: optimism. Every entrepreneur needs to be optimistic to make it in the business world. There are so many ups and downs throughout the journey that without optimism, there is just no way to survive.

Paul described pivoting as having a core identity that will not change no matter what. Once the idea is quickly validated through customers, one should pivot on all the other details such as price, look, etc. Entrepreneurship is the same way. Although pivoting is a healthy part of the lean process, there is such a thing as too much pivoting. Every idea or change needs time to take root or else it will not work. The third core value, trust, is how one prevents too much pivoting. 

Honesty and integrity are a part of pivoting, Prakash added. VCs must be able to trust their entrepreneurs especially when they are betting on him over the idea. Jeff said that the right trust relationship between a VC and entrepreneur is data driven. Problems arise when an entrepreneur sells the progress before the data and then trust breaks down when he pivots after saying everything is great. With honesty, integrity, and total transparency comes trust and the ability to pivot without reprisal. When that happens, scaling and growth are much easier to do.

Scaling and sales growth were covered by Ash and David very well. Ash delved into sales growth referring to “The Sales Learning Curve” and how the growth line is not in the shape of a hockey stick as so many believe. David went on to discuss how repeatable and scalable sales models are the most financially viable options for businesses. However, even then entrepreneurs have the problem of not knowing when to “hit the gas”; some hit the gas too early while others do not hit the gas hard enough when they are ready.

With all this talk about lean start-ups and VCs, the panel briefly discussed the dearth of B2C in Boston. The consensus was that Boston is the best place when compared to New York and California to recruit loyal and talented applicants who will stay with companies for the long haul. There is also a lot of great B2C and start-up energy in the Boston area. Previous biases by VCs and the fact that companies don’t celebrate successes openly have created this perception that B2C does not succeed on the East Coast. But there is no reason to not start a B2C business in Boston.

Jeff summed up the discussion on lean entrepreneurship by saying, “It is a science. There’s a lot of progress that’s been made on this science. You need to study the science of start-ups, and there is zero bias in the Boston VC; we love B2C and B2B equally!” And Eric recalled a quote that inspired the audiences, “Great entrepreneurs have their eyes to the sky and their feet planted firmly on the ground.”