I’m on my flight back from San Francisco, where I spend an amazing week in the Mozilla office; working on the Concept Series Open Innovation program together with the fantastic Mozilla Labs team. One of my fixtures on long flights is a stack of magazines which I read pretty much cover to cover - amongst them one of my all-time favorites: Inc. magazine.

In it’s recent edition Inc. just named their “Entrepreneur of the Year” - this year’s award goes to Alison Schuback, a woman who was involved in a terrible car accident which left her sitting in a wheelchair and fighting with the long-term damage the accident did to her brain and nervous system. Despite these circumstances she started a company, developing and selling products for people with similar conditions.

The sole reason I am telling you this is - if you don’t read anything else this year, go and read the article about Alison. It is hands-down the most moving pieces about entrepreneurship I have ever read. It made me cry. If Alison can do it, we all can do it.

“In life there are probabilities and possibilities,” she says. “Before my accident, it was probable that I would make a difference. Now it’s only possible that I will make a difference. So I have to take every opportunity.”

Huge kudos to the Inc. team for plugging the courage and picking Alison as their “Entrepreneur of the Year” - they couldn’t have chosen someone better.

Nassim Nicolas Taleb wrote a very successful business book a little while ago - The Black Swan: The Impact of the highly Improbable. In this book Nassim explores thoughts based on a central thesis “our blindness with respect to randomness, particularly large deviations.”

Yesterday John Lilly, CEO of Mozilla, twittered the following sentence: “Success at internet scale is pretty much always a black swan. Can’t ever do it exactly the same way again in new context.”

Now this is an interesting thought - and one which I believe is very true. When I analyze the success of most (if not all) tech startups, I always tend to come to the same conclusion: There were so many random factors and externalities at play, that it seems impossible to deduct a success formula from their success. Which in turn means that the all too popular tendency to build a copycat might not be such a great idea after all. By creating a copycat you might have a higher chance of finding a working business model - but you’ll have a hard time copying the external “shocks” which made the company successful in the end.

People pay me to think about problems - and ultimately solve them. They do so in my capacity as an entrepreneur, consultant and even investor. And I bet that you see your job in a similar light - which makes reading books which provide tools to solve problems in a better, more effective way so interesting for me.

For a long time I’ve been pondering about the visual approach to problem solving - I’m a decent mind mapper and in the meantime a respectable Apple Keynote jockey (by the way - thank you Steve J. for rescuing me from PowerPoint hell!). But I wouldn’t consider myself a truly visual person - one of those people you meet in the night at the hotel bar and who give you an explanation of the unified field theory on the back of a napkin. And this is exactly what Dan Roam set out to do - to give you the tools and frameworks to become a better problem solver, finding solutions through the power of visual tools.

I stumbled across Dan’s book “The Back of the Napkin” through some consulting work he did for eBay - and found it a truly enlightening read (at least for non-designers and “business thinkers” like me). Dan creates a couple of easy to remember frameworks (The 4 Steps of Visual Thinking, The 5 Focusing Questions, The 6 Ways we See and Show) and describes them with a couple of real-world case studies. Once you digested the frameworks and start using them, it’s really amazing to see how effective they are - and how you get not only a much better and wholesome understanding of your problem at hand but also a beautiful way to explain them to others.

If you are finding yourself thinking about problems and their solutions a lot - this is definitely a highly recommended read!

This weekend, while enjoying a wonderful mulled wine in wintry Berlin with one of my best friends, I heard a brilliant term for a phenomenon which I think about for quite some time now: Silent Evidence.

Silent evidence describes the fact that those who fail are not heard and thus are not counted - my friend used the following (quite drastic) picture: The people who climb Mount Everest and succeed will tell you that it’s hard but doable. The ones who die trying won’t tell you a thing - they are silent evidence.

The phenomenon I ponder about for quite some time is the fact that so many people follow the dream of an early and large exit with their startup - though strictly statistically speaking it is very, very unlikely that this will happen. How comes? Easy. The ones who made it, will tell you that it was a hard and long way with a lot of sleepless nights. But that it was all worth it as the big paycheck at the end of the day is looming. But those who don’t make it, those who fail, those who spend years chasing the dream and finally gave up - those you won’t hear. They are the silent evidence.

Now - don’t despair and drop your ideas and dreams of starting your own company (not that you would be influenced by my writing anyway). But - and I tend to repeat myself here - don’t focus on the exit. Focus on building a great company. A company with real revenues, sustainable growth and a long-term business model.

Oh - and next time you hear a serial entrepreneur talk about what it takes to succeed, remember that there are lots of people out there who didn’t reach the peak of the mountain. Often they can teach you more than those that made it.

This will be a post on sustainability. On building something which has the potential to outlive you. Or at least something which becomes tangible. Something which becomes real.

I’ve talked about this before - my strong believe is, that when you start your own company, you should focus on building a real business. A business which generates profits and employs people - thus becomes a valuable part of our society. To boil it down to its essence - and quote from one of my favorite magazines for entrepreneurs Inc Magazine: “A business which doesn’t generate profits isn’t a business. A business which isn’t setup and build for long-term growth isn’t a business.” - Simple as that.

Now - why am I repeating this point over and over again? A few days ago I heard a VC tell a group of entrepreneurs/startups that he hopes that a good chunk of them will be able to sell their companies within the next 12 - 18 months for 10 million. Don’t get me wrong on this one - I do understand the VC and his desire to generate exits. It’s his business and he would be a lousy VC if he wouldn’t think and act like this (and he’s an excellent VC; most likely one of the best around - so he really knows what he is talking about).

Though - In my view there is something wrong with this viewpoint: When you build your company with a clear view on a fast exit, you tend to not focus on building a real business. Instead you focus on beautifying the bride - and if the exit doesn’t happen you find yourself in a rather poor position. Exits were always like winning the lottery - they happen, but they are actually far and few between. In the current economic climate (which will last a bit longer - so much is for sure) they will be even more rare. Yet we have a distorted view on them - it’s simply human nature to over-estimate the success and under-estimate the non-successes. So in general it is simply not a good idea to build a company for an exit. Build a company which becomes real instead. Build a company which becomes profitable. Build a company which grows quarter over quarter and year over year. Build a company which employs people - there is nothing more satisfying than being able to pay employees decent wages out of the revenues a company generates. And forget about an exit - it will happen eventually if you focus on building a great company. And if not - who cares? Your company is profitable. You can pay yourself a nice salary, buy the Porsche out of your yearly dividends and enjoy the warm and fuzzy feeling that you created something real. Something tangible. Something sustainable.

Edit: The folks from Harvard Business publishing just posted a great article titled “Should Startups Focus on Growth or Profits?“. Makes a good read in this context.

Let’s add some insult to injury: A bunch of ex-eBayers just launched Tamundo, a marketplace for collectibles, in Germany.

Collectibles were once at the very heart of eBay - though over time eBay figured that it makes more sense for them to push fixed price offers in categories like electronics, computers and fashion. A move which pushed eBay closer to Amazon’s marketplace and gradually left a lot of customers in the former key categories (stuff like stamps, coins, toys, etc) unhappy (to say the least). And eBay’s recent price changes made it very clear which strategic direction eBay is trying to go - more & more fixed price offers of new items. Goodbye flea market - welcome shopping mall.

Now Tamundo is trying to fill this gap - and adds a bunch of community tools (very important for the collectibles area). The site is still a bit rough around the edges and it will be interesting to see if the Tamundo team will get people moving from the eBay site - but they certainly bring the right pedigree to the game to make this a success.

Watch this space.

I guess most of you have at least heard about Malcolms first bestseller “Tipping Point” (heck, there were times, when the book was high on the bestseller lists, that you couldn’t avoid any discussion where not at least one person came up with the notion of “xyz just reached its tipping point”). By all means it was a good book - entertaining read, great examples, good argument. Though you might argue that he used one single argument which we stretched through the use of examples into books length.

Anyway - Malcolm is back. And this time he brings us the story of Outliers. Outliers in this book are people who are successful; thus Outliers is the story of the ingredients of success. And it makes a fascinating read - not necessarily something you can take and put into practice tomorrow (though I would argue that if you are raising children, the book has some really interesting points you definitely should take to heart). Malcom’s core argument which he explores in great detail in the book (again through well selected and presented examples and case studies) is the fact that success and the behaviour which creates success is rather deeply rooted into a individual’s culture. Mix this with a good portion of luck (essentially being in the right place at the right time) and you can understand why certain people were extraordinarily successful. Another argument he makes is the fact that practice (and lots of it) makes the difference of someone who is merely good and someone who is great - which in turn is a very important lesson for every entrepreneur.

The book makes a nice, relaxing weekend read - go ahead, buy a copy for yourself and start chatting about the outliers on your next cocktail party.

A discussion I had today with the wonderful Reshma Sohoni, CEO of Seedcamp, brought back a thought/observation I was chewing on for quite some time now: European startups are rubbish at networking.

Let me start with an observation my dear friend and mentor Dr. Ralph Werner and I shared a while ago: When you visit a European trade show (and this is particularly true for events in Germany) people start by talking about the weather, the event itself, the booth design (down to the color of the carpet) and eventually, after 30 minutes of exchanging pleasantries, talk about themselves, what they do and how they could probably do business together. After this is done, both parties agree to exchange business cards. Now take the average trade show in the US: People walk up to each other, start with a breathlessly shouted introduction of themselves and their business, throw their hand with their business card towards the other person with the question: “So. What do you do?”. It’s basically speed dating - after an equally breathless answer both parties exchange business cards and walk on to the next person to talk to.

Now you could lament the fact that the ‘European way of doing things’ is nicer, more personal and adds a much higher level of understanding and trust - but ask yourself: Why do you go to an event? Usually the answer to this question is: To find as many interesting people as possible.

And the very same behavior I see again and again with European startups (mind you - not all, but a good chunk of them behave in the exact same way as described above). They go to networking events such as the excellent OpenCoffee Club and spend the whole morning speaking to one person - most of the times someone they already know.

So please - when you are at a networking event, tradeshow, and actually pretty much anywhere: Meet as many people as possible. Measure your success by the amount of contacts you made (and DON’T forget to follow-up - otherwise the whole exercise is rather pointless).

I was kindly invited by Microsoft to join their UK launch of BizSpark - a worldwide initiative from Microsoft in which they will give participating startups three years of free software licenses, mainly to their development tools, server and database software as well as Microsoft-powered cloud hosting. Further Microsoft provides some level of additional support through their network partners and selected people within the broader Microsoft organization, as well as some sort of visibility on Microsoft’s website and through their communication. After the three years startups are asked to pay a $100 program enrollment fee and (obviously) purchase the necessary licenses for your, then hopefully humming, business. Participation rules are simple: Your company must be less than 3 years old and generate less than $1m in annual revenue.

Sounds good? Even great? Ready to enroll?

Well - not so easy my dear friends. Consider what the program really means for your company on the one and evaluate the real benefits on the other hand.

Let’s start with the benefits: You get development tools, server and database software for free. Well - big deal. My companies (and many, many more) are developing software with free tools since the dawn of the Internet. The magic sauce is called Open Source - Webserver happily hum along using Apache, databases run smoothly under mySQL, applications are served by PHP, coders spend nights happily hacking away using Eclipse. And this is only one set of possibilities. There are nearly endless options for you to have all the best (literally the best) tools in the world for free. So - what I get from Microsoft is something I would get for free anyway.

Ah - I forgot. Cloud hosting. Well - I get really cheap and reliable hosting from a whole stack of companies. And great cloud hosting from companies such as Amazon (with their amazing S3 and EC2 services) or Mosso (which is essentially RackSpace, one of the great hosting companies out there). So - yes, Microsoft is offering me something for free which I would otherwise pay a few dollars per month for. But at which price?

Now this brings me to my second point - the true costs of the program: What Microsoft is obviously trying to do here is lock you in. Just as they locked you in with Windows and Office, they lock you in their .Net framework as well as Microsoft server and database systems. Even the rather long period of three years for the benefits of the program are really cleverly chosen - after three years you are normally at least at version two of your software. Which makes it really unlikely that you will switch the technological backend anymore.

What does vendor lock-in mean for you? Hmm… it might not mean anything for you and your business. It might mean that you will need to pay dearly for licenses at the end of the three year program. It definitely will mean that your options in this evolving world of technology are reduced - you put your bets on a single horse and have to go with it.

In essence I applaud Microsoft for their program - I am all for every support the startup community can get. But you have to weight the advantages and disadvantages of a program like this - and personally I will continue to build companies who’s servers run on Open Source software. Simply because it’s a better business decision for me.

Have you been thinking about PR lately? Maybe some cool, viral guerilla campaign? Eager to get on TechCrunch? Or at least your local TechCrunch equivalent?

Well… Think again. And this time - think about your target audience!

It baffles me that nearly everybody in our eco-system seems to be so eager to get the word out - within our eco-system (the web economy that is). But what good does an article on TechCrunch do you, if your business is aimed squarely towards dog owners? Or fitness enthusiasts? Or even travel buffs?

I’m pondering about this phenomen for a while now - it somehow feels like the same mania we fell for when we were in Bubble 1.0: We believed that the Internet in itself is this massive value generating thing. Turned out - we were wrong (a mistake which cost me my company).

So here’s the deal - to make your company successful you need to have your target audience buy your products (hey, that was obvious!). To reach your target audience you need to be where your target audience is - and if you don’t happen to provide products or services for startups, your target audience is most likely not on TechCrunch (sorry TechCrunch folks - this is not against you, you are simply the best known example). If you’ve build a social network for dog lovers - that’s where you need to be: Animal magazines, other animal related websites, etc.

And while we are talking about it - there is an excellent book out there which talks about this complicated transition from early adopters to the wider audience: Crossing the Chasm. Go, get it, read it - it’s a true classic which every entrepreneur should have read.

P.S.: One last word about TechCrunch - if your target audience for the moment is the VC and angel community, it certainly helps to have a nice write-up on there. It just won’t bring you a lot of dog owners to your site…

This is officially my 100th blog post (with my first post being published a mere 6 months ago on May 21st). There has been a lot of change since then - personally I moved from focusing full-time on FoundersLink to a terrific new role at Mozilla; on the macro-economic side of things we moved into the biggest recession in recent times.

Now - time to crank up the dial a bit and make this blog a tad more interactive: Let’s create more of a dialog on this blog - thus I ask you to send me any questions or thoughts you have around the topics of entrepreneurship, funding, management and any other area you find of interest and I will try to give you my perspective on this blog.

Put your questions into an email, post them in the comments or ping me on twitter - I am very much looking forward discussing topics with you, which are truly close to your heart.

This post is dedicated to all startups pre-money - the ones which didn’t receive their first round of real capital yet (grandma’s donation doesn’t count). If you already received either a round of professional angel/seed capital or are even through a VC round - stop reading! You’ll be bored to death! If you are in the situation that you are trying to raise your first round - read on…

So - you thought long and hard about your business plan, your presentation and feel ready for the pitch (and to do so you’ve read Guy Kawasaki’s “The Art of the Start” cover to cover - and back). You’ve got all the pieces together and you know how much money you ideally want to raise. But wait - have you also thought about the valuation of your company? I mean - thought about it deep and long? Really deep and long?

A lot of early stage startups haven’t (at least the ones I tend to see - which might be a problem originating from me) - and run into trouble the moment they pitch. At the very least they show that they haven’t understood the fund raising process. At the worst they make fools out of themselves and won’t get any funding.

But before we go into details, here’s a super short primer on valuations: The valuation describes the monetary value of your company. With an established company the value of the company is often calculated on something like x-times yearly revenue or some other more or less crude formula. As you have a startup which often doesn’t have real revenues, customers or even a finished product, your valuation is more like a fantasy. There is no right or wrong - the value of your company lies in the eye of the beholder. Which is the exact reason why valuations are tricky - you think your company is the next Google and thus already worth at least half-a-gazillion. An angel investor might see this slightly different - he sees a single guy without a product or team - and certainly no customers or revenues. For him your company might be worth anything from nothing to “a little bit”.

Now comes the really tricky bit - time and time again I see entrepreneurs with barely anything else but a business plan and (if lucky) a half-way working prototype asking for anything from 250,000 to one million in funding. They did the maths - and their plan clearly shows, that this is the amount of money they need. Only - they never really thought about valuation.

Let me explain: If you are asking for let’s say half a million and are willing to give away 20% of your company for this money, your pre-money valuation is a whopping 2.5 million. Not bad for a company which doesn’t have any revenues. A sane angel investor will value your company probably with something like 750,000 - which means that for half a million he would need to get 2/3 of your company. Not very realistically - is it? This is the moment when you demonstrate that you haven’t understood the rules of the game.

Now it gets worse: More often than not I see entrepreneurs asking for half a million in exchange for 5%. Their reasoning: It’s an angel round - and everybody knows that angels only get small stakes. Now - 5% for half a million values your company at a totally insane 10 million pre-money. In a word - you just proved that you are a clueless fool. And nobody invests into a clueless fool.

So - think about your valuation. As a rule of thumb: If you have an idea, a business plan, a half-way working prototype and the foundations of a team your company might be worth somewhere in the range of a million. If you have less - your company will be worth less (and yes - there are obviously exceptions to the rule; but believe me - they are rare).

Here’s a thought (partially based on observation): We all talk about starting your company on a shoestring, boot-strapping yourself, your fellow co-founders and your company to the max, starting ‘ultra-lean’ companies. This all sounds great and makes a ton of sense - on paper at least.

But here’s the question - does this actually work? And I am not talking about the exceptions but the norm. Certainly it has become much cheaper to start your company - pretty much everything is cheaper these days (server, hosting/housing, bandwidth, software, blah). But you still have some hard costs - at the bare minimum you need to feed yourself and possibly your family and there are some business costs which you simply have to shoulder (tax accountants and lawyers anyone?). And then you have costs beyond the sheer costs of running your business - marketing, PR, things you want to do in terms of business development.

Now - all the proponents of the ‘lead’ fraction (and most likely I am one of them) will tell you: You can do this yourself; build a great product and customers will come; PR now is “blogosphere only” anyway and so on. But - does that really work? I have a hard time coming up with many examples where this really worked (and with really I mean: a company which crossed the chasm, is financially stable and managed to grow to a decent size). But I know tons of examples of startups who made it (or are on their way to making it), who certainly were frugal with their cash - but they had some to start with.

As mentioned in the beginning - this is more a thought than a well-formed opinion. What do you think? How much better are my chances if my company has a decent runway in terms of financing versus the anorexic ones? I would love to discuss this with you…

This - for once - will be a rather personal posting…

Those of you who have known me for a while, know that I strive to work in areas which tend to be real challenges and where I aim to somehow make a dent (if not in the universe than at least in the area I work in). A dear friend of mine once described this as “choosing the stony path”. It is just so much more satisfying and fun.

Now - after a rather long search - I found a new calling: Since a few days I work with Mozilla (home of the Firefox browser) on creating their Open Innovation program (to get a glimpse of the things to come check out Mozilla Labs’ Concept Series). This is a tremendously exciting opportunity - working with some of the smartest people around (Chris Beard, Mozilla’s Chief Innovation Officer or Aza Raskin, Mozilla’s Head of User Experience to name just a few) on a topic which hasn’t been done before and which has the potential to change the way innovation is done on the Open Web.

This is - hands down - one of the most exciting jobs in my life (it actually reminds me a lot to those nights we worked through, while being part of the Transaction Services Group at eBay - oh, good times!). And for those in the know: Yes, I will once again work with Jane. Something I am really looking forward to.

Great times…

Recently I shared a couple of discussions with founders whom I follow for quite some time and who, for numerous reasons, didn’t manage to close a financing round so far. What struck me in all these discussions was the persistence these founders showed - although they were drip-feeding their startups for months and months and spend considerable time and energy with their companies, they were still enormously upbeat and going. And although we all say that this is one of the core features an entrepreneur needs to bring to the table I have seen more founders who throw the towel much earlier than these guys.

Now here’s a personal story - when I had my first startup we managed to hit the dot-com bust head on (yupp, timing is everything); our customers shut their doors or simply refused to pay their bills, our investors were a pain in the neck, morale was low and I was very happy that I managed to sell the company in the end. Funny enough - if I would have stayed persistent, if I would have fought longer, if I would have had more of this energy these founders have, I am rather sure (with hindsight - which is always a nice thing to have!) that I would have managed to turn the company and command a significantly better exit. Well, well - you live and learn.

So - if you are out there, struggeling and wondering if it is all worth it… As long as you have a working business model (yeah, I am not saying that you should throw good money after bad money!): Hang in there! Be persistent! The companies which will come out of the current downturn are the ones which will reap the huge benefits in the end.