Thursday, January 1, 2009

It's the numbers

One of the Companies that I have invested in, Reimage, has been experiencing torrid growth (off a relatively small base). The goal of the Company is to ensure, via a remote automated service, that your Windows based PC works like new; everyday.

It's a great vision, but the execution of the business is something that I would like to share with you. The CEO has deep technical talent and strong product opinions, yet the product decisions are made via live A/B testing with near instant results. With daily traffic in the low/mid tens of thousands, new features, site designs and promotions are being constantly tested and adopted or discarded within days, or even hours, based on quantified customer or channel partner results. Product debates rage for minutes, not days.

Much has been justifiably written about the capital efficiency brought to the development process for software and internet companies. A great deal of attention is being placed on the virality of internet distribution too. All are important, but having the right product is the foundation of all great technology companies. Mitch Kapor once said it well when he was asked to comment about a potential competitor with a great demo 'you're not worth spit without a great working product'. With relatively low barriers to competition, he's even more right now than when he was running Lotus.

The integration of rapid development, testing, and distribution, taken together are the foundations of the capital efficiency touted by entrepreneurs and investors. Rapid is the key word here and, counter-intuitively, adding capital often mitigates 'rapid' as a company's culture is quick to ossify when more people are added and financial plans are solidified. Today, independent of the market's 'mischief', many of us in the venture community are seeing a reduced demand for capital from entrepreneurs embracing 'rapid'. This bottom-up trend, affects the structure of the venture community where fund success often predates raising larger funds.

I expect the foreseeable future will bring us less well as smaller funds. Could be good news for entrepreneurs and LP's alike.

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