The Benefits of Direct Competition

A new competitor for Tenuki emerged last night. From totally off the radar. With a service that is very close to ours. And they're ahead of us. Aargh.

You might say "wow, that sucks for you." Well, yes and no.

Yes, it does suck, mainly because they have a lead on us, and if they executed perfectly, they could tie up a significant portion of the market. But no one executes perfectly.

No, it's kinda great. It does the following things:

• it validates our idea to investors.
• it forces us to focus harder
• it makes marketing cheaper

That last point needs a bit of explanation. The first step of marketing is to educate the consumer that they have a need. When you're launching a novel service, it's usually the case that the consumer doesn't realize that they need that service. For example, did millions of Americans realize they "needed" to send text messages? Of course not. No one was rioting in the streets for the ability to text. However, imagine if you took away that ability now. I'm pretty sure the White House would be torched.

Right now, people don't realize they need what Tenuki and our competitors are offering. Which means we need to spend money to educate them about their need. Sounds cynical, right - educating the consumer that they have a need. Probably why marketing has a bad name.

The early entrants to a market have to spend a larger amount of money on consumer education. In fact, this is usually the most expensive phase of marketing plan. These kind souls pave the way for later entrants who can spend all their money advertising the qualities that make them superior to their competitors, knowing that the consumer is already aware of the type of service that they provide.

So to our competitors: thanks for taking one for the team.

And on the PR front, journalists much rather write about two competitors slugging it out in an interesting new space, then about a company dominating its space. By the way, if you ever want some ink, just create a bitter rivalry - it worked great for Tupac and Biggie...oh right...hmm...er, well, um, it worked great for P. Diddy and Suge Knight (the guys who owned the record labels).

I could talk about marketing strategy all day, but unfortunately the homeless guy sitting behind me at Starbucks has decided that somebody has screwed him over and that someone needs to pay. Time for Bret to go.

Lost Post: Who In Their Right Minds Would Start a Startup?

This is the first of a series of lost posts that I wrote but neglected to publish. Enjoy.

Q: Who in their right minds would start a startup?
A: Greedy Bastards.

Which is why so many startups fail. A lot of people start companies because they have a cool idea. Or a marketable idea. Or rich parents.

I can’t judge them too harshly. John and I started a company because we have a cool and marketable idea. Unfortunately, no rich parents. Thus, we beg at the door of Silicon Valley’s surrogate parents, the Sand Hill Sugar Daddies.

Unfortunately, many people who found a startup company during a frothy period (like right now) often lack the most important motivation: passion for their product. I challenge any CEO of a Myspace clone to honestly tell me that he’s passionate about bringing cat owners together with his brilliant new service, PurrfectSpace (made-up name, feel free to take it). C’mon, the guy doesn’t even own a cat. I can’t believe these things are still being launched, or worse, funded. Having said that, Dogster is doing pretty well, and its CEO Howard Rheingold does seem passionate about pets.

How does anyone find the energy to lead a startup from demo to profitability without passion, i.e. if they don’t believe that their product can change how people live?

When John presented the idea for Tenuki to me, the first thing I asked is would I use it? Then, would anyone else I know use it? Then, being a crass capitalist, can we make any money with it?

Answers: 1. Yes, I’d use it. 2. Maybe, better ask my friends. 3. No idea, better research the market space.

Only while I was researching the market space and refining the idea with John did I realize that Tenuki could actually change the way people live. Not in the way that a perpetual energy machine would, or an immortality pill, but in the way they interact with each other. I finally got the Big Idea. And that’s what made me quit my job and move out to San Francisco. I got the passion. The Passion of the John.

Update: A day after I wrote this entry, Fred Wilson wrote a piece on the importance of passion in running a company.

The Suckiness of Stealth Mode

Okay, so I'll admit it's pretty ironic that the founder of a company in stealth-mode blogs everyday about the experience of running the stealth-mode company. It's pretty fun being cryptic about what we do. Example: we're a early-stage non-traditional games company with a focus on socialization. See, it's almost as bad as corporatespeak. From that description, I couldn't even tell you exactly what we're doing.

I'm going the Game Developer's Conference next week, where I'll meet countless interesting people in the games industry who inevitably are going to ask me about Tenuki. And I can't tell them. I'm going to have to fumble through vague explanations. Toss out the phrase "stealth-mode" a couple hundred times. Or flat out lie.

All options that suck. I want to share the Tenuki vision. Seduce database engineers. Get feedback from the braintrust of the industry. Frighten young children.

Honestly, if I meet Will Wright (creator of all things Sim), I'm just going to have to tell him about us. Right after, I beg for a beta copy of Spore.

Further Reading:
Jeremy Liew over at Lightspeed Venture Partners has a good analysis of the pros and cons of being in stealth mode. At the moment, I'm a big believer in the cons.

How Companies Really Get Founded: The Birth of Tenuki

John and I officially founded Tenuki on Dec.1 but I never thought to mention it until today. It's a bit anti-climatic, founding day. The real story is how we got there.

John and I had thrown around the idea of starting a company since hanging out together at a friend's wedding in Mexico. I was at the end of a yearlong trip around the world, so I had about 100 bucks to my name. I was too cheap to get a hotel room at the five-star resort the wedding was at, so John let me sleep on the couch in his room. We really haven't spoken since high school so it was a really nice thing for him to do for me.

We pretty much spent the whole weekend talking about tech stuff, predictions, what sucked, what rocked. And music. And girls. We bonded. By the end, of the weekend, I was positive that I wanted to start a company with him.

At the time, he was happy with engineering gig at a games company, and I was flat broke, so nothing really happened. I went back to DC, and eventually got a job as an IT manager at a startup. About a year later, I had saved about 40 grand and was pounding my brain for a good idea for a company. It was October and I had already told my boss that I was going to leave on Nov. 1 to go start my own company. Then, out of the blue, John calls, we hadn't spoken in a year, and tells me that he's ready to start a company.

Things really do happen like that.

It took about a month to extricate myself from my job. I ended up doing contract work for my old company until the end of November. I flew out to San Francisco the last day of November and we founded the company the next day, December 1.

UPDATE: David Beisel from Masthead Ventures just posted about how he uses the founding story to evaluate entrepreneurs. So for all you curious VCs out there, I'd be happy to provide the sexy details I left out, like the big idea behind Tenuki, for instance. But only if you buy the coffee.

Sacrificing to the Startup Gods

Well, kids, being an entrepreneur isn’t easy. I just made my first sacrifice to the startup gods.

I’ve read a lot of books on entrepreneurship. They all talk about the personal cost of starting your own company. Most of the stuff they talk about, giving up a career, neglecting your kids, losing your life savings, don’t matter much to me. I hated my career. I don’t have kids. And since I don’t like spending money on meaningless objects, I can earn back my savings pretty quickly. I only had one vector for the startup gods to attack: my relationship with my girlfriend.

I moved to San Francisco on Dec.1 to start Tenuki with John. My girlfriend remained in DC to finish school; she has another year and a half, so it wasn’t like she was headed out here any time soon. We have been together over three years and were on the marriage path. We never fight and we’re always happy. It’s an amazing thing.

She broke up with me this morning. She couldn’t handle the long distance thing. I felt it coming. I knew it might happen when I left. But I didn’t think it would.

It did. So if any VC asks me if I have skin in the game, well, I sacrificed the woman I was going to marry on the altar of the startup gods. I hope that’s enough.

Root for me, kids. I really need this.