Berberian's Blog

Sponge Castle

Last week my daughter had to make a scale model of a castle for her history project. She wanted to be different. She didn't want to use cardboard or balsa wood. She wanted to use an unusual material. She asked her teacher if she could use rice krispies – but he said no. She asked me for ideas. I had to be careful. If I suggested the wrong material – I'd be the one making a scale model of a castle. We decided to go to Home Depot and look around for ideas. I found the perfect material – sponges. This was a brilliant idea. Soft, flexible, easy to cut and shape and no need for parental involvement (she's in 7^th grade so she needs to do stuff on her own). I thought it was genius and I convinced my daughter to take my advice. We bought a bunch of those cheap rectangular shaped cellulose sponges and Marlo went to town. I asked her if she wanted to let them dry out first since they typically shrink after they are wet. We talked about it and she and I assumed that if you never wet them – they'd say fresh looking like they are when you first open the package.

After two days working on her project she was done – good thing since it was due the next day. The final step was painting the castle – which she did. She left to go to rehearsal for the play she is in and came home late at night. She finds me and asks me to look at her castle. Well between the wet paint and the drying in the open air for two days – the castle was all shriveled up and deformed – it even buckled the glued on cardboard platform. I started to laugh – I couldn't stop – the whole thing was just hilarious – come on a sponge castle. It was my mistake but Marlo was taking the heat. She got upset and started to cry – she became very articulate on why her castle sucked and how it would bring disgrace to her and her family. On top of that, the teacher made a comment in class that morning, "Well tomorrow should be very exciting, Marlo is bringing in a SPONGE CASTLE!" Which really isn't as bad as it sounds; Marlo has the highest grade in the class – and he is a great teacher – but she wanted to show everyone she wasn't crazy. I simply couldn't stop laughing – Marlo ran up to mom asking her opinion of the shriveled up castle. Mom said it was fine. By 1:00am Marlo finally calmed down and went to bed.

My laughter subsided and I started to feel bad – really bad. I was exhausted but I knew my fatherly duty – I had to fix the castle while she was asleep – ugggh (just what I was trying to avoid). I started work at 1:00am – by 1:10 I had the glue gun, cardboard, scissors, paintbrushes and the castle. I went to work and started to cut and glue and buttress up the curving sponges. I'd get one wall set and then the pressure of the curving sponges would force another to pop out. By 1:45am – I made little progress. I started to laugh again. What was I thinking – it was a sponge castle. I finally gave up.

In business, sometimes you just have a sponge castle – no matter how hard you try to make thing go your way – it's still a sponge.

Here are some pics of the final sponge:

P.S. She got an A – I'm sure for originality – but when she brought it home it went straight in the trash – at least she is laughing with me now.

Zenie Bottle Story

One of the unseen elements of the Zenie Bottle experience is the bottles have a story.  This part of the business is a total blast to work on (well really the entire business is a blast).  In about 2 months the story will be unleashed in full force - but here is an early teaser... Enjoy! Oh yeah - buy a bottle, you'll be glad you did - click here to get an invite code:)

Zenie Bottle is Live

On February 27^th, 2007 we founded Zenie Bottle. Today we are shipping out 1,100 bottles to our seed group – teens between the ages 13 to 18 (plus a handful of friends and family). The initial strategy (cuz every startup has an initial idea then changes when they get some market feedback) is to make the site very exclusive (the only way to get an account is to buy a bottle – the only way to buy a bottle is to know someone who has one and they chose to invite you). We'll see if this works – with a group of pre-launch folks we got some feedback that this might be too exclusive. We'll find out soon enough. In the meantime checkout the site – and if you want a bottle – and you know you do – ask me for an invite or click the big green button on the site.

Wind the Frog, Apollo 13, and Jenga

Well we're finally going live with the Zenie Bottle web site (early version – many things still being worked on).  Whenever we had a major launch of software at Raindance Todd Vernon used to say it's time to "Wind the frog."  Which really refers to the scene in Toy Story where Woody yells, "Wind the frog!" to set off an elaborate chain of events to rescue his friend Buzz Lightyear from the evil kid next-door.  Going live with a web site (especially a complicated one) is really an Apollo 13 experience – a delicate set procedures – never before accomplished in real life – that hopefully doesn't blow up as we execute each step in the sequence.  Once executed you feel as if the whole thing is a Jenga tower – a beautiful yet delicate sculpture that can collapse at any time if the wrong piece is moved.  I love moments like this.

The Name Game

Every morning that I go to the gym I usually see a few friends engaged in their morning workouts. This morning I bumped into Mike Moran – a former Raindance colleague who is still employed by the company that acquired Raindance, Intercall. Mike told me that this is the last week the service will be called Raindance - at last the end of an era is near.

Most people don't know this but we went through five names at Raindance in five years – here is the real story:

We founded the company as Intellistat Media Research in April 1997 with $500K. We were going to compete with Nielsen Media Research to provide more accurate television audience ratings. It was a great idea – one that would still work today – but no one would fund us since we weren't an "Internet" business. Since all the startup capital was our own, Jim and I decided it was time to pull the plug. We made a deal, Jim would run the company for two weeks while I took a few folks, including Todd Vernon, into the conference room and tried to figure out a new idea. Sure enough – like selecting a new Pope – we emerged with a new idea. What took over a year planning we undid in a two weeks.

We became Vstream literally overnight. We had the domain name, the 800 number and the idea – stream corporate video content to users' desktops to extend and enhance their communications. Four weeks later, we closed our first round of financing $1M (September, 1997) from Centennial and the yet to be formed US based Softbank (we were Brad Feld's first deal with Softbank).

Times were great but shortly after closing our $10M round in August, 1998 we had a strategic offsite. One investor made the comment, and everyone agreed, that if we didn't have $3M in revenue within the next year we'll shut down or sell the business. That sucked, no way was the company ever going to hit that milestone – streaming media was too new inside corporate environments to see that kind of traction. The problem was no company had a central library of video or audio content – it was all over the place – we had to sell one off events inside each department. We hypothesized that if we could jack into the corporate meeting environment we'd be able to record and warehouse content. So we created an audio conference platform that had streaming capabilities built in. The business took off and by November 1999, we rose a $100M VC round and formed a $20M joint venture with Vivendi in Europe. The problem was we were now in two businesses – streaming and audio conferencing. We liked streaming because of the hype Broadcast.com was getting – but the revenue was in audio conferencing. Our name didn't make sense anymore – we weren't just streaming – the audio sales folks were complaining it confused prospective customers. We struggled with a new name and decided to keep Vstream – changing was just too hard.

We then embarked on a massive ad campaign while at the same time preparing our docs to go public. We filed our S-1 as Vstream. At the same time Voicestream (cell phone company since acquired by T-Mobile) sent us a letter saying we were infringing on their name. We really weren't – but we didn't have a trademark and they had lots of money. Since we didn't like our name anyways we decided to change it. As one board member put it, "There is nothing like a multi-million dollar ad campaign to flush out any trademark issues." (I don't think that was a complement).

We landed on Evoke. Changed our name officially, refilled with the SEC and started fresh with a new multi-million dollar ad campaign. Our campaign really targeted the bay area and we ended up upsetting a small company there called Evoke Software. Neither of us had a trademark on the name Evoke. We owned the domain and were in a very different class of business – we could mutually coexist (like Delta faucets and Delta Airlines). In fact, that is what their CEO said and we agreed that if we added "Communications" to the end of our name there would be no problems. We drafted agreements, sent it to his attorney and away we went. As a sign of good faith, we proceeded to redo pending ads as "Evoke Communications", we refilled with the SEC and we thought everything was fine. Well the CEO never signed the agreement and changed attorneys. Meanwhile we were getting ready for our IPO roadshow so no one was focusing on this – the CEO had promised me it was resolved – just minor attorney issues.

We went public in July,2000 with this issue pending – the bubble was bursting – everyone was scrambling for cash. When the dust settled in August of 2000, the CEO of Evoke Software hired a third set of attorneys and they looked at a newly IPO'ed company as a source of cash. The fact was we were hemorrhaging cash to the tune of $20M a quarter – the IPO raised less than half of what we hoped. We knew we were going to have to cut big time to survive. This name issue was upsetting me – it was a pimple compared to the other issues at hand. I sent an email to a common investor (GE) asking them to put pressure on this little company to drop the issue – it went something like this, "Dear John (not the real name) please tell the CEO of Evoke Software to drop this case. We're the bigger company and have more money. If they don't like our name make them change theirs – we will sue them until we win because it will be cheaper than changing our name especially after our IPO! Love Paul"

We dug our heals in and the attorneys ramped up. Through a process called discovery every email, piece of paper, agreement, etc. was gathered and mutually shared – this became the evidence for the case. Turns out we had a great email back up system at Raindance and this email made its way to the other side. This email was one of maybe 2000 emails internal and external to our company between every possible individual that was affected by this issue. Well we went to court and even though our attorney assured us we had the law on our side – the judge used his emotion and my email was his justification to sock it to the big guy (who wasn't really big and was bleeding profusely). He issued a $5M injunction prohibiting us from using the name Evoke - he was gracious and gave us 90 days before it came into effect.

We needed this issue to go away. Since we were about to cut the company in half and we needed to cap our expenses I decided it was time to settle (even though our attorneys thought we could win on appeal). We got in a room with the attorneys and I negotiated as best I could considering the circumstances. It cost us $960K – of which insurance covered about 80%. We also spent probably $500K in attorney fees to get us to this spot. We also spent another $50K hiring a naming expert and getting a name that was very clean from a trademark perspective. We spent the first half of 2001 changing our name again and by July, we were Raindance Communications.

My advice – don't do what I did.

Stress – Home and Work

I think I'm under stress right now. I'm in the middle of moving into our new home and I'm in the middle of launching our business.

The home is great and after 21 months of being homeless, it's great that it's all coming together. The only problem is we're downsizing – by about 65%. So we have WAY too much stuff and no place to put it. Something comes off the truck and we tell the movers to take it back to the happy place where we don't have to look at it. We have so much stuff that it's going to take a month to just to look at what we have – the movers show up every other day with a load we can digest (not the most economical move in techniques). We also have a rental house that I'm grabbing carloads of more stuff to dump into our new house. The good news is Renee is a purger – the bad news is she micro purges – every item must be inspected and evaluated for it potential to increase our happiness. I like to purge en masse – that box/truck of crap, don't open it – just take it away. To make matters worse there is still a lot of construction going on –right now there is a 20 foot scaffold in the middle of our entry way.

The business is/was scheduled to begin its initial launch sequence tomorrow. We are probably two weeks behind schedule. The hold up – getting the web site squared away – getting the bottles into the warehouse – getting the 3^rd party vendors happy and working with our systems - and testing testing testing. We will fix it all but if we delay too long we'll hit Christmas break and that's what we don't want. We want to launch when kids are in school. If we delay much longer, we might push our launch to January – which eats up more cash. Like all startups, we only have so much cash, so time delays are costly and stressful. The one part that isn't behind schedule is our grass roots launch effort. We have young adults waiting for us to launch. We wait too long and they'll lose interest.

Home and work are both stressful. My solution: I escape to work every morning to avoid the stress at home (thank God for my wife's organizational and management skills) and in the evening, I hurry home to escape the stress of work and the prospects of having to delay launch. How do I sleep? On an $89 air mattress from Costco – our bed situation is currently in flux.

China visit – nothing is as it seems

About 18 months ago, I was in China on an extended vacation with my family. I remember thinking, "I'm sure glad I'm just a tourist. I can't imagine doing business here – seems really hard everything is so different."

Monday I came back from an 8-day trip to China. This time I was there on business. You know it wasn't so hard – just different. Sometimes the difference disappoints you; sometimes you can't believe your luck. In most situations, what I expected and what I got were different – here are a few of my observations:

Situation	Expectation	What I got	How I viewed it
Flying Air China	No maintenance, wrenches in the engine, plane exploding, death	I lived – flight left on time, no scares	Positive
Driving to the hotel from the airport	One and a half hours of sheer terror	Three hours of sheer terror	Neutral – our driver was really conservative it's just that no one else is in China
Hotel appearance	Big block of communist concrete but near some hot springs because the name of the hotel in English is "Hot Springs Grand Hotel"	Big block of communist concrete – no hot springs but we had puke on the floor by the elevator	Just slightly negative
Room cleanliness	None – the web site was only in Chinese which concerned me – the pictures looked clean but it was only a 4 star joint	Filth – the sheets were washed but the carpets, walls, sofa, bed, bathroom – nothing was cleaned or updated in at least 20 years	Negative
Hotel gym	Filled with sub standard equipment but workable	Filled with a ping pong table, ashtray, 1974 Sears & Roebucks partial weight set	Neutral
Hotel restaurant	Terrible food	Edible food and a western menu (took us two days to figure they had one)	Extremely positive – after two days of eggplant a club sandwich lifted my spirits
Hotel extra services	None – I needed no extra services	Prostitutes sent to every male guest room for some late night action	Weird and mostly negative – but positive because I'll be able to tell the story for years to come; very funny
Meeting our first translator and factory inspector	Nice but not much substance	Nice plus a lot of substance – really offered some good recommendations and did a great job building a rapport with us and the factory owner	Very positive
Factory	Five year old girls chained to tables, slave labor, toxic chemicals, lots of coal, pollution, filth	Clean facility, workers wearing lab coats, professional manufacturing process, adults working the line, solid management	Unbelievably positive
Factory owner	Old Chinese man	Younger Chinese man – very nice and willing to help	Positive – he is very willing to please his customers and went out of his way to accommodate our requests
Beer	Available as a primary dietary component	Available in mass quantity for so cheap I have to talk about it. A case of 12 Tsing tao bombers for less than $5	Generally positive
Buying toothpaste when I ran out	Green leaves on the Crest label mean mint	Green leaves on the Crest label mean green tea	Nasty – but so fascinating I brought it home to give to my daughter
Buying peanut butter and jelly at the market	Impossible to find	We found it and ate it!	Miracle
Going out to our first meal with our host	Lots of Chinese food but generally stuff I can muck down – must show respect and play nice	Dog – yep dog. When asked what type – they said "Big" and fish so fishy I gagged before it even went in my mouth	Generally negative on the food experience but positive on the environment – we ate inside a giant green house –trippy. BTW dog sucks – it is chewy and tastes like dog!
Breathing the air	Pollution, sulfuric acid, burning eyes, grime, asthma, shortness of breath, fatigue	Pollution, sulfuric acid, burning eyes, grime, asthma, shortness of breath, fatigue	Just what I thought – except the last day we had blue skies in Qingdao
Getting a massage	Relaxing and cheap – good quality (may have to say I don't want funny business at the end)	2.5 hours of torture. At one point the masseuse (if you can call her that) was leaning against the wall while standing on me – one foot on my butt the other jamming her heel into my neck. The next she was laying down with her head by my feet kicking her foot up my inner thigh – a few times she missed and her foot found a new painful home	Very negative – I had bruises on my body for two days and I would wince every time I had to change body positions
Drinking tea with our host	Cup of joe – cup of tea – same thing	Elaborate ritual. Visited his friend's tea shop and sat in a private tea room. We got the good stuff. First water was poured all over the cups and tea pot to warm them up – then the water was put in the pot, then transferred to another pot, then served in mini tea cups – all the while spilling stuff over the special table designed to catch the spillage – and the tea was amazing	Very memorable and cool – would not have had this experience as a tourist.
Ability to impact the manufacturing process	Very little influence over how they run their factory – they were going to do what they planned and we had communicated enough in advance to get the quality we needed	We had a huge impact. We made design changes on the fly to improve the manufacturing and reduce breakage, we defined quality inspection checkpoints, we help setup the processes of manufacturing and packing and we established a rapport with the owner of the factory so he will pay attention to our concerns.	Thank God we made the trip. Had we trusted in our email and IM dialogs we would have received 27,000 pieces all flawed. Now I'm confident we'll see few if any flaws in our product.

Overall it is a fun learning experience. The Chinese are so eager to please and when directed properly they can produce some amazing products. This trip was well worth the time and money. Ok here are some pictures of our trip:

The filling and capping process        Inspecting the finished goods            

Our angel deal

Well we're done raising money (for now). We started pitching in late May, ramped the meetings up from mid June to late July, closed $700K Aug 15^th and allowed 30 days for others to get their money in – which means Thursday it's done – total raise $1M. So I'd say 4 months – 5 if you figure all the prep work. I figure we had a 65% hit ratio from pitch to invest, but we raised money in small chunks of $25K so I imagine the decision was easy for some. We had plenty of money to work through the process so we didn't feel the pressure of running out of cash; I bet that actually works against you in closing a round since you become so focused on day "zero dollar". This was my first pure angel deal and surprisingly it was a lot harder than I expected. Angels, for the most part, don't do this for a living so getting back to you in a timely manner with a "yes" or a "no" is not on the top of their list. A VC – it's their business to make investment decisions so you can predict their behavior. VCs typically come in for what they promise, angels sometimes don't. We probably gave 50 pitches – we gave less to raise $100M at Raindance. The timing was about the same – 4 months. The one great thing about this round is we did most of it without leaving downtown Boulder or driving in a car! Where else can you do that? Boulder has an awesome network of angel investors and many of them are my friends – nothing like pitching your idea to a friend and getting a thumbs up to make your day – and after a few thumbs down you learn to not take it personally. In a VC deal you pitch and pitch until you get a term sheet, then you use that term sheet to coral other firms into the mix. In an angel deal there typically is no lead – so you create your own term sheet and say why you think it's fair. The term sheet in an angel deal is simply a way to describe the economics; in a VC deal it becomes a rallying point to drive momentum. Angel deals do not have a built in mechanism to drive to a close; so as a pitch artist you have to just pick a date and say, "We close on Aug 15^th." If you slip the date or make it soft I imagine you can lose momentum – we were prepared as founders to make up any shortfall on that date to make the close happen (fortunately we didn't have to come up with any extra cash). Once we closed the $700K the wind was at our back – the last $300K was much easier than the first $700K; people knew of the deal, talked about it and so we just followed up with a handful investors and it came together. We debated allowing a longer period from first close to last dollar but I liked the forced momentum; it allows management to be done with financing. And that we are – now we just need to spend it and make more of it.

Expert my ass

Sometimes we fall into the trap of relying on an expert for a critical business issue. This can often cripple a business, or slow down its momentum while folks are waiting for the expert to make their proclamation. The fact is that if you are running a business YOU are the expert, YOU need to be the one to understand the issue and make the decision. The expert is simply an advisor – and advisors need guidance that comes from knowledgeable sources. Simple case with my new project – the ZenieBottle – we have a formula inside our bottle that is exhibiting undesirable characteristics. We hired a chemist to provide us with his expert advice. We paid the money, got the advice and still had unanswered questions – "Why does the bottle display this effect?" The chemist didn't know the answer and didn't have a game plan to get the answer. So I had to draw upon my very limited chemical knowledge and start surfing the web – I became enough of an expert to ask the question differently and specifically guide his efforts, "This effect is really common in these other applications – to counter it they are using these agents – can we find a solution similar to those other applications?" Now the expert has a task to attack. Sometimes you need to educate yourself so that you can make the expert business decision. The hired guns are just advisors – simply taking their advice can be dangerous. You have to understand all critical elements of your business – you have to know what sounds reasonable and what is BS. You have to know enough about an issue and the expected or desired resolution to assess the quality of advice from your hired guns. There are no better experts on your business than you – take ownership and get the outcome you want.

The carrot “^”

I've made my share of financial models for lots of business ideas but I never found myself having to use a "^" to forecast revenue growth. It's not that I don't like the ^ it's just that for my past businesses the math for revenue never really seemed to call for its use. Moreover, I think you have to be pretty confident to use it and hope to be taken seriously. Well my current business the math called for its use – and I cautiously applied it to the model. If you look at the growth rates of social web sites and fads they both have exponential-like growth rates (early on) when viewed in the read view mirror; predicting these growth rates before launch is impossible and makes any modeler look insanely optimistic. The problem with financial models for startups is they are only good at estimating expenses – revenue never matches what you plan. I looked back at our model for Link-VTC (1993) and within the first 12 months we exceeded our 5-year plan for revenue (we weren't that ambitious apparently). For Raindance we always seemed to be shy of our forecast but did well anyways. This new gig I can't deny the math behind our sales model so the ^ is in. While I'm trying to appear safe and sane with our forecast I'm more aware of how fragile these types of businesses are to certain market factors.

In simplistic terms, a function for viral growth is similar for product fads and social sites: you have X users at the start, each user on average tells at least Y friends about the product, you hope that r% of people (Y) convert to a user/buyer so that rY <= Y (if rY < 0 you got problems), and then the cycle repeats every n days. The faster the cycle the lower number you can model for r. Every new user then is added to your X to start the process over. And then if you want to get sophisticated you model the decay in r and eventually the decay in X. In a model, you need to make assumptions for every number: X at start, Y how many friends they tell, r for the rate friends convert to users/buyers, n how fast the cycle repeats, and how all these numbers change over time. A slight change in one direction or the other for any number and it can send your model to moon or plummeting to the ground in a nasty fireball. It's hard to manage such sensitivity in a business model and that is probably why most people find it difficult to believe until examining it after the fact. Nevertheless, a revenue/growth model, while maybe not perfect upfront, helps identify the key factors that drive a viral growth engine. It is also a useful exercise to understand how all the elements of your business interact - even though you're probably wrong about something. Here is an interesting analysis of MySpace. The exponential growth is only for a short period then it changes – which is true for most successful "viral growth" companies.