Guest post by Ed Kimm:

With the recent outages that affected Bing Travel, Allrecipes, Authorize.net, Redfin and many others that were all hosted at Internap it becomes even more important to know as much as possible about your hosting provider.  Something could also be said for understanding the eed for redundancy.

Here are the top questions for hosting providers.

1. How long have you been in business?
2. How many customers do you support?
3. What size clients do you work with?
4. What are your SLA and network uptime guarantees?
5. How many backbone providers do you support?
6. Is your in-house network a BGP or HSRP setup?
7. Does the service include backup UPS or generator?
8. Can you provide references?
9. How many data centers do you have?
10. What are your response times for customer service (on call 24×7x365, ticketing system, etc)?

Ed Kimm is a partner at Wowrack, a full-service IT Consultancy serving businesses since 2001.

Jason Nazaar, co-founder of DocStoc.com has a post about how he and his family have suffered due to his startup.  His health and his relationships have all had a rough time since he started his company.

A few quick questions:

1. Is it worth it? Based on the odds of hitting it out of the park, is it simply worth the effort and time?
2. Can you successfully balance a family and a startup?  What if you have kids?
3. How do you strike a balance?

From Startup Whisperer

I talked to journalist extraordinaire Renay San Miguel this morning concerning the new Marc Andreessen fund.  They just announced that they closed a $300 million fund.  Renay did a great piece for the Ecommerce Times.

When I talked to Renay, I had just read an interview with Andreessen on PEHub.  Some things that I found interesting about the announcement were:

• No specific investment target - the article mentions that they will be doing investments from angel to as large as $50 million.  One would typically see specific investment targets from traditional venture capitalists.

• CTO as CEO - Marc mentioned that he likes investing in companies with a technical CTO which is not too unusual.  But, he goes on to mention that he likes to see these technical founders growing into a CEO role.  I don’t think you’d here most traditional VCs say this.  They tend to put their own management team in once the company gets into later investment stages and becomes more mature as a business.

• Focus on consumer Internet - the interview mentions that the fund will focus on consumer Internet versus diversifying into other segments like Cleantech.

I mentioned to Renay that this fund announcement really felt like a breath of fresh air. It felt a little like a traditional venture capital approach combined with a strong entrepreneurial sentiment towards their investment thesis.  There has been a bunch of blog posts from local Seattle-based entrepreneurs around the benefits of bootstrapping.  Some good posts are here and here.  While there are businesses that can justify bootstrapping, many of the businesses that are going to be really big ideas do require
substantial upfront capital.  You may not need as much capital upfront as we all used to require to launch our ventures.  But, I argue that having quality investors with the right capital structure is a preferable way to go if you are trying to build a substantial enterprise.

Wired has a great article about Abundance vs Scarcity. Be aware of the following as you look to build your business for abundance:

1. Companies with the lowest costs have the biggest advantage
2. All things being equal, the lowest price will win
3. Free will win every time
4. Simple will rule the day - People don’t have the time or want to be “sold” on something
5. Users will be in control.  You will merely facilitate the product service

From My High Tech Startup

Ah, taxes… few people (if anyone other than my wife, who going to be a PhD in accounting…) like to do their taxes.  It means you have to hunt around for old receipts, try and remember what some expenses were, and even pay in more money than was already withheld.  No doubt that it is a pain.  So why do a post about taxes during the summer months when tax day seems so far away?  Simple: Any efforts you make now to get organized can save you time (and probably money) down the road.

So, how can you minimize the pain?

A bit of filing and organization can go a LONG way to prevent some pain down the road.  (Think about it like flossing… will save some drilling in a future visit to the dentist).  And although it may seem fairly obvious, proper recordkeeping is one of the most important considerations for any startup company, especially in the early stages when you are do not have an established set of policies, an experienced accounting staff, or chief financial officer. Recordkeeping for tax purposes should be integrated into an entire document retention policy for the company. Most of the items discussed below will be key documents for accounting purposes — thanks to the help of my wife Allison for her tips.

Receipts of Income. Retain all documentation that provides evidence of income.

Gross receipts are the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts. Documents that show gross receipts should include the following:

• Receipts of Sales
• Customer Invoices
• Shipping Records
• Bank Deposit Records
• Credit Card payment records (particularly in the event you are primarily selling goods or services via the Internet)

Payroll and Employee Information. Early on, startup companies should create and utilize standard documents for all new employees that join the company. These records should be kept for a number of purposes, including for tax purposes. In addition, as you begin to provide compensation to your employees and make withholdings from the employee’s compensation, you should be carefully tracking and recording these amounts. Documents that show payroll and employee information should include the following:

• Records evidencing hiring
• Records evidencing changes in title, job status or salary
• Termination documentation
• Cancelled Checks
• Paystubs or payroll run reports
• Withholding calculations

Records of Purchases. The purchases described in this section reference items purchased and resold to customers, or goods purchased for manufacturing into finished products to be sold to customers. Since these purchases will likely represent an important portion of your costs of goods and your inventory, the company should keep records that identify the costs of purchase and payment information. Documents that show purchases should include the following:

• Cancelled Checks
• Credit Card Records
• Invoices
• Shipping and Receiving Documentation and Reports

Business Expenses. These business expenses are those expenses that are used for aspects of the business other than those directly related to items to be sold to customers. These include research and development costs, meals and entertainment, electricity bills, and similar costs. These expenses may be in the form of expenses that are submitted by your sales people for reimbursement or could involve more traditional purchases of office supplies. Documents that show purchases should include the following:

• Cancelled Checks
• Credit Card Records
• Receipts
• Invoices

Records of Company Assets. Assets for your company may range from machinery, vehicles or technical research equipment to buildings, software, or furniture. The key with company assets is to retain documentation on the purchase, ongoing improvements and maintenance, and disposal of the assets. Documents that show purchases should include the following:

• Acquisition Records (Invoices, Shipping/Receiving Information; Payment Information)
• Maintenance Records & Costs
• Depreciation Reporting
• Disposal Records
• Real Estate Records
• Leases and Rental Records

I had a great conversation with a serial entrepreneur this afternoon about how to price online services.  We were talking about the different price points that companies can set for their products.

High Price Points:
Priced too high and you may simply price your product out of the market.

Low Price Points:
Is there an issue with too low of a price point?  From a consumer perspective is there a hassle barrier to purchasing?  Is it worth it to a consumer to spend their time going through the process of paying $0.01?  Is this true for $1.00 or even $10.00?  Especially if the purchase process is involved.  I am not talking about itunes one-click action.

At this price point, shouldn’t it just be free?

From Futuristic Play by @Andrew_Chen

The multiplicative nature of retention

Retention metrics, like viral marketing, have a powerful multiplicative approach that makes them important to optimize. This is an often-overlooked metric that is easily sacrificed to the Great God of Viral Traffic I wanted to dig into this issue a bit more, and give my thoughts on how your retention numbers can be an incredibly powerful method of driving up total traffic numbers to your site, not just the user acquisition piece.

Matt Humphrey from Bumba Labs on user retention curves

A frequent collaborator of mine, Matt Humphrey, has often referenced some of these ideas in a public posting below, which I’ll excerpt. I’ve worked with Matt closely for over a year and a half now, and know a lot about his skillsets, background, and interests. His background is influenced by his time as a Carnegie Mellon alum, YCombinator entrepreneur, and working on quantitative marketing projects with me.

In my conversations with Matt, we often discussed the metric of “user retention rate” which tells you what % of users are revisiting after some period of time. So you might define 50% user retention as, 50% of the users on your site come back after a month, or what % come back after an initial signup, or whatever suits your particular business.

What’s amazing is the multiplicative aspect of this number:

[...] Having month-to-month user retention of 92%, 96%, and 97.3% will get you on average 1, 2, and 3 user-years respectively per user that ever signs up on the site.

Okay, in English? If each month you lose 8% of your existing users (92% retention) from the previous month, the average use will stay for 12 months. If you can hold just 4% more of your users (96% retention), then they will stick around for 2 years. If you can hold only 1.3% more than that (97.3% retention), they will be in for 3 years.

It’s easy to think of retention percentages in the 90’s as good. It just feels good. But over the course of time, products in the low-to-mid 90’s will fade super-fast, and ones only slightly more sticky will do much, much better. Single percentage points here are mission critical, that’s why attention to detail and rigorous analytics become so important on the web. [...]

To restate this, as you approach high levels of user retention, you begin to see powerful multiplicative effects.

Let me state, for reality-checking purposes, that retention rates over 90% are unrealistic, but are useful for discussion purposes because they bring out the extreme cases. More realistically, the numbers I’ve seen are generally much closer to 30-60% revisit rates after the initial registration. Similarly, the typically retention rates are not linear – you see the most churn initially, but then the cohort usually settles and becomes much more loyal.

But the core issues still hold, and the reason, of course, is simple – it’s simple arithmetic, which we’ll examine below.

An example of two subscriber cohorts

Let’s say you’re running a subscription site, and you compare two sets of subscribers, both starting in the same month, both numbering 1000. Let’s say that one cohort has 80% monthly retention, and the other is 90%.

In the short run, the numbers are close to the same:

• 80% monthly retention, after 1 month = 800
• 90% monthly retention, after 1 month = 900

Although obviously you’d want to have the 90% retention, the differences are not huge – you end up with 12.5% more users, after one period.

But let’s look at these numbers once you get to 12 months:

• 80% monthly retention, after 12 months = 1000*(0.8)^12 = 68
• 90% monthly retention, after 12 months = 1000*(0.9)^12 = 282

Of course, this ends up being a staggering 3X difference. Wow! And when you compare aggregate lifetime value, the numbers are even bigger.

Retention-focused features are very powerful

The point of all of the above is that retention-focused features are very powerful because they let you create dramatic improvements in all the important metrics, across the board – be it pageviews, total time usage, revenue, etc.

This means that you can, just as people do with addressbook importers and the like, put a tremendous amount of time into a whole host of retention-driven features like:

• A great product and value proposition
• Targeted notifications
• Fresh news and content on every return
• Desktop app-integration (which has a much lower rate of uninstall)
• The number of friends on the site (the more that are there, the more notifications can be generated)

All of the above contribute meaningfully to this user retention number.

As weird as it is to imagine that something as pedestrian as how you deliver your notifications can cause success or failure to your web business, in fact it can. The reason is that how you deliver notifications can have a huge impact on whether or not your users come to your site, and every percentage point of improvement may lead to many times the revenue, pageviews, and content. This is certainly an area worth focusing on, as much as Bay Area companies have focused on just the viral metrics.

Want more?
If you liked this post, please subscribe or follow me on Twitter. You can also find more essays here.

UPDATE: Thanks for Bhanu Sharma for correcting some dumb typos on the post – I changed the numbers halfway through and forgot to update all of it.

From The Pursuit Of A Life

You’ve made your best pitch to the customer(s) that you think are right in your sweet spot, and have failed to close the sale. What to do?

1. You could just chalk it up to numbers/random chance, and walk away without making any significant changes.
2. You could also double down, and try to get back in good graces with these potential customers, on the theory that your qualification efforts were good, and you just missed something at the end.

Both 1 and 2 have problems. The problem is that these are both responses to (supposed) external problems, rather than internal. When you get down to it, the problem is most likely with your product/service rather than your sales cycle. Drill down and ask yourself the tough questions. What do you have to offer? Why would anyone want it? How could you reposition or recraft your product or service to make it more appealing? Engage in the tough conversations with just-missed customers and ask them the “why not?” questions. Ask them what would have turned the sale. Analyze. Adjust your product or service. Try it out with different customers. Wash, rinse, repeat.

From Inspired Startup

I can appreciate books like “Think and Grow Rich” and “The Secret” and the other books that highlight the power of positive thinking. However, I know people that take it just a little too far and focus a little bit too much on positive thinking that they forget that the world does not and has never revolved around them. I just don’t buy that believing and building a mental picture of a red bike will lead to a red bike appearing. Honestly, I don’t even think it’s the right mental picture to strive for. Life in this world does not revolve around me and it does not revolve around you. After coming back from Central America and getting to know an impoverished community over seven years and committing to working with the community for the past four, I’m even more convinced that success in this lifetime comes from our ability to think positively about others or growing a bigger vision about others. Again, it’s not intuitive, but it’s true. If all you and I think about is how we make a fast buck and nothing bigger than that, we will ultimately fail. However, if our dreams are about others and our success becomes a means to an end to doing that - we will be successful.

The problem with positive thinking - rather positive thinking just about yourself is that even the most positive thinkers during this economic downturn suffered some tremendous losses. There was just too much irrational exuberance by the talking heads and authors that wrote that their success was all due to their ability to think big and positively. Sure, some of it was due to that, but a variety of external factors also played a large role including a huge bull market. Failure these days is in large part also due to external factors. Why put so much stock in “positive thinking” when so much of success/failure is due to external factors? Put it another way, is positive thinking self-delusional? I posit that success truly comes from a vision beyond yourself and execution - the ability to actually go out and do it rather than just thinking about it. You do have a choice between positive and negative thinking, it should always be positive thinking, but it should never be the sole motivation for success.

That ends my rant for books and speakers that justify their existence by saying it just takes positive thinking for success, I think it’s just plain dangerous - what do you think?

Robert Shane has an interesting piece on the per-capita rate of entrepreneurship in the US.  The data shows a declining rate of entrepreneurship based upon a number of factors.  His conclusion is that companies like Wal-Mart simply out-compete early stage entrepreneurs.

Assuming that this data is accurate, his conclusion is false.  Key questions to ask:

1. If Wal-Mart out-competed startups, wouldn’t this affect the survival rates of startups?
2. What is the impact of taxes on startups.  The more you tax people, the less money they have to reinvest in their business.  This would include all tax rates and associated fees.
3. How is the increase in regulations affecting the ability of startups to get off the ground and execute to their business model?
4. What about our educational system?  Are they as active promoting entrepreneurship as they have in the past?

What do you think?