Scott Rafer's Blog : Deprogramming VC & Reprogramming SWOT

Deprogramming VC & Reprogramming SWOT

Much is written about both whether or not the VC model is broken and how to evolve startup business plans in the face of market changes. Today, it hit me just how inextricably linked the two issues are and how my own tactical process needs to catch up to market realities.

I spent from 1992 to 2006 presuming VC-backed startups were the business I was in, and I worked towards understanding that system. After all that time, two things happened to radically change my outlook.

I finally figured out that one should only raise VC if one is already rich,
I also figured out that being boring and late has better risk|reward characteristics than being sexy and early, and
Cloud computing arrived, making VC deal terms economic only as growth capital for Internet startups, leaving the early-stage field clear to angels (and bootstrapping).

Taking any number of lessons from Mashery’s good work, Lookery is a cloud-hosted SaaS vendor that uses an API to provide deep benefits to its customers and suppliers. Like Mashery in early 2007, we’re actively sorting our which customers and which decision makers love us and which look at us crosseyed (or don’t look our way at all). We have numerous data points in each category and the right kinds of patterns are emerging.

The problem is 15 years of old work vs. 3 years of new work. I haven’t finished retraining myself not to presume VC. I find myself mentally parcelling out multimillion dollar budgets that don’t exist. More importantly, calculating low-capital SWOT is not truly intuitive, particularly when analyzing VC-backed companies in Lookery’s market sector.

The VC-backed companies in our sector (principally Blue Kai and Exelate) are doing a great job getting and giving data distribution via cookie exchange without the benefit or overhead of a centralized profile hosting system. Cookie exchange works well for many user-targeting applications, but there are a few key tasks that aren’t covered including:

Efficient combination of data from multiple sources;
Forcing and enforcing the anonymization of targeting data without depending on good behavior by publishers and/or ad networks; and
…

Lookery exactly runs that exact scaled profile hosting system, and it changes the equation — but how in a SWOT context? We’re angel-funded and intend to remain that way until we’ve completely nailed the revenue model (see #3 above). Relative to the other sector participants, our near-term enterprise value calculations and related tactics are different. My erroneous, knee-jerk reaction is to compete directly with them but that makes no financial sense. They have an order of magnitude more resources (from their VCs) and a lot more pressure to scale revenues quickly without much regard for expense (also from their VCs). We certainly grow revenues every month but breakeven in Q4 is a much higher priority than absolute scale right now.

The punchline on SWOT for Lookery in 2009 is to build on the unique strengths of our system putting priority on relationship depth and interconnectedness. We want to be our customers’ profile hosting and delivery system — and the one they want their partners to use. That means of our customers require a little more care and feeding, plus we have to be careful to disclaim all rights to their profile data. It’s business that the heavily funded startups can’t quite slow down enough to satisfy, gives them a good reason to do business with us, but is healthy enough to drive us to scale next year.