Anyone who knows me well always points me to new deals that look like Swoopo – I have a weakness for things that are clever. A lot of these new deals aren’t great venture investments, some might be good “lifestyle” businesses, but most of them prove to be neither great nor good. In the end, maybe a bit too clever.

But that doesn’t change the fact that the thesis of “entertainment commerce” is a compelling one – buying on eBay was once a thrilling experience where people ended up buying stuff they didn’t need just for the fun of the chase, or overpaying because they couldn’t stand to lose the bidding war. These days, buying on eBay seems a chore to me, and I suspect it does for most users. But the idea of making shopping fun – a mix of commerce and gaming – still seems a good one.

If we placed sites that incorporate elements of gaming and competition into the shopping experience along a continuum that stretched from Amazon (just shopping) to a casino (just gaming), we’re starting to see some success at the “mostly shopping” end – sites such as Gilt Groupe (a Matrix investment) generate excitement by offering great prices on desirable goods and an exhilarating race to purchase before those goods are gone.

Swoopo and its ilk are at the other end of the spectrum: mostly gaming with a little shopping element thrown in. One might characterize them as a stab at legal Internet gambling under the guise of ecommerce (though they would not define themselves this way). I think this is a clever idea (but note the caveat about clever ideas I mention above …).

Beware the churn out

Swoopo is a very innovative auction game that has generated significant revenue and uptake. While I have long known and respected Frank Han, now CEO of Swoopo, I have no inside information on how they are doing — but I hear that business is struggling a bit to control churn, and it doesn’t surprise me.

Swoopo acquires a lot of customers through adwords: “Buy an iPad for $100.” If you’re searching Google for an iPad, you’ll click through – who doesn’t want one for just $100? And you will see the results from a completed auction, where, sure enough, someone did buy (win?) one for $100. Maybe you’ll decide to join the game, buy some bids, and try to get it yourself.

The problem with this approach is churn. Swoopo can’t possibly afford to sell every customer an iPad for $100. When you play the game and lose, you get annoyed and churn out. Even worse, often you post (erroneously, in my view) on the Internet that Swoopo is a scam.  Swimming upstream through these negative customer reviews, Swoopo has to keep finding new, untainted fish to churn through this model, and at some point, the ocean gets fished out.

Swoopo could fix this through greater truth in advertising: “Join the game, have fun bidding against others, and have a chance to maybe win some great prizes at a big discount.” With this pitch, rather than “Buy an iPad for $100,” customers would presumably be more realistic about the game, less likely to churn, and less likely to flame Swoopo on the way out. The likely conundrum for Swoopo is that far fewer visitors would click through or sign up, perhaps not enough for an interesting business.

Despite this flaw, I think there is still potential for a great business that is on the “mostly gaming” end of the spectrum, and the lesson comes from Las Vegas. Customers come to gamble and are universally aware that it’s a losing proposition. Most people go to Vegas with a gambling budget – “I am willing to lose up to $200” (and then end up losing double that). When they go home a loser, they don’t flame Vegas to their friends and tell them what a scam it is – they blame themselves, or more likely blame no one because they got exactly what they expected.

The key for a great, new entertainment shopping business is to achieve what Vegas has: customers who arrive to the game with the attitude, “I am willing to lose up to $200.” Why do people have that attitude toward Vegas? First, because you might win. But just as important: because it’s fun! The game may be inherently interesting, it can be social, come with perks like free drinks, flashing lights, maybe a free room or meal. You’re buying entertainment.

That’s where this generation of entertainment-shopping sites fails: you might win, but if you don’t it’s really not very fun. By delivering little entertainment, there’s nothing but disappointment left when you lose. Of course, Vegas has huge advantages in delivering entertainment, given your physical presence at the game. But plenty of “virtual experiences” are super entertaining on the Internet.

Catch that fish, and you may just have a clever business that can scale up and retain its customers. And I’d love to hear about it!

Jeff Atwood’s (@codinghorror) blog about the movie “Groundhog Day” got me thinking much more deeply about A/B testing, a powerful tool in a set of tools that enable a new generation of nimble startups to compete effectively against the big Internet players.

For example, Match.com is stuck on a decade-old architecture and would be hard-pressed to create dozens of unique traffic funnels and ruthlessly tune them to extract optimal performance from each acquisition channel. Hence, the window is open for new competitors who can use these tools to develop products from the get-go.

But what are the limits of iterative optimization?

Split testing is, in my view, no substitute for product vision.

Human beings are probably the ultimate result of great product development through split testing – evolution is one giant iterative experiment. Unfortunately for Internet startups it took millions of years for life as we know it to develop, and even if we reduce the test cycle time a few orders of magnitude, the “development cycle” is beyond our comprehension.

A/B testing has demonstrated its advantage most clearly in efforts to optimize customer acquisition. Google made this approach table stakes by designing AdWords as a meritocracy of ad performance, and by offering all its AdWords customers easy split testing as a free feature. Write as much different ad copy as you like – Google will automatically test all the variants and promote the winners. This kind of metrics, instant feedback, and optimization has proven highly addictive to marketers – obvious now, innovative when it was implemented.

Trying to A/B test your way to a magical product is like waiting for 100 monkeys to type Shakespeare’s “Hamlet” – theoretically they will eventually put the letters in the right order, but by that time we’ll all be dead.

A less obvious reason for success is that all the iteration does not take place on your website but rather on the AdWords site. Writing 10 unique versions of the homepage and showing each to a slice of visitors would be a very big deal for a lot of people at your company. But an effective CEO is happy to let the marketing team run whatever ad copy converts customers best – after all, the customer experience doesn’t really start until the visitor gets to your website.

The best companies, however, go beyond customer acquisition: they can now evolve their products and user experiences iteratively and scientifically, right on their sites, practically on the fly. No more debate as to whether the button should be blue or red, whether it’s worth it to put the TRUSTe logo on the checkout page – we’ll ask the users and find the answer, definitively.

Does such a thing as a product visionary exist anymore? Or is it just a false idol from an age before reason? In my view, the question for 2010 is whether GREAT products can be created through A/B testing.

The case for the prosecution would seem to be Zynga. If ever there was a sector that would value product vision and creative expression, it would be online social gaming. Yet Zynga seems to be replacing the majority of the old-school creative innovation in product development with scientific process, and in the process growing revenue and profit at a mind-bending rate. I can only imagine the panic that must exist at EA today, as its execs stare at the gulf in the rate of product innovation and iteration between their team and Zynga’s crew. And every minute they stare at the chasm, it gets a little wider.

If Zynga can create games that retain and engage players over months and years, it becomes a lot harder to justify any other type of product development. The jury is out, but we’ll learn a lot more over the next year, and Facebook is helping us keep the experiment pure by fighting Zynga’s (smart) attempts to leverage its scale to build a platform that can win through market dominance rather than solely relying on the great execution that put Zynga in front.

Despite my overly rational and scientific bent, I’m secretly hoping that the product visionary still has a big role in the future. The Zynga process feels a bit like fast food: just as the McDonald’s engineers can find the chemical combination that strikes my taste buds in such a way that a corn byproduct tastes like chicken, the Zynga team can find the perfect psychological stimulus to keep me coming back to the game.

But like the Chicken McNugget, FarmVille, while tasty, offers very little in the way of sustenance.

For CEOs, especially first timers, one of your most difficult tasks will be hiring truly great executives. There is no substitute for experience in hiring. I learned this the hard way as a first time entrepreneur with absolutely no hiring expertise. And yet, after hiring more than 100 people – and making a lot of mistakes – by far my best executive hire was my last one: David Yu, now CEO of Betfair.

The key lesson? If you are a young entrepreneur you need to surround yourself with investors, advisers and executives who are experienced and talented, especially when it comes to hiring other top executives.

An engineer will have a body of work that can be evaluated and tests that can be given. Technical talent can be evaluated for the first 90 days and replaced if they disappoint. However, if you are hiring a CFO, CTO, VP of Business Development or top marketing and sales executives, it’s not so easy. These executives are sophisticated at selling their experience in a compelling way, and once hired it takes time to evaluate their effectiveness. The mis-hires often do parts of the job well, making it more complicated to remove them. And, once the decision is made to remove them, there is a much greater risk of damage to the organization.

But the good news is that top executives’ experience is also more suitable for extreme referencing, as they tend to have had extended professional interaction with a much greater number of people.

Base 80 percent of your hiring decision on thorough reference checking

In my experience the leading cause of executive hiring mistakes can be traced to waiting to make (perfunctory) reference checks until the final step in the hiring process, perhaps even after the decision has been made.

It’s a tough pitfall to avoid. You invest great effort to get your executives and investors to interview a number of candidates. You laboriously negotiate to pick your favorite and only then do you ask the candidate for a few references to call. After all this time and effort, which you feel is a distraction from your true job of running the company, you call those references with a confirmatory bias, practically begging them to tell you that the interviewee is a great marketer, so you can get her on board and get back to work.

Your real work as CEO is to infuse top talent into the organization. You need to block time on your schedule to hire. If you don’t have the time, it is doubly important to build the team so you can hand off other work to focus on making the best hires.

Why references are so important

Resumes, CVs and interviews are all sales pitches. The candidates have carefully crafted the attributes they show you in order to seem perfectly suited to the job.

Some typical pitfalls in a cleverly crafted executive resume:

• Omits or minimizes negative experiences and cherry-picks the most compelling successes;
• Blurs a candidate’s role or responsibilities to make it tough to evaluate true contributions to an initiative, campaign or idea;
• Takes credit when they are just part of a rising tide, i.e. everyone who worked at Google from 2000-2005 delivered unbelievable numbers. Not all of them were studs.

By all means build your interviewing skills so you become adept at smoking out pretenders through great questioning, but know that as the candidate’s level of sophistication increases at the executive level, so too will your difficulty in spotting the posers.

Why rely on a two-hour chat with a candidate to try and divine their strengths, personality, ambition and drive when you can get a firsthand account of how they performed in the real world? Why not speak to the people who watched them perform and get their evaluation?

When you think about the most critical attributes you are trying to evaluate for a startup, they can be especially hard to divine from a resume or interview. Skills, experience and intelligence are well suited to interviews. But the things that cause someone to thrive at a startup – drive, teamwork, leadership and cultural fit – are much harder to divine.

Why do many smart founders reference check so poorly?

• They know people given by the candidate as references will have a vested interest in helping the person who referred them;
• They believe many references are reluctant to say anything negative due to policy or liability concerns;
• Checking references is very time consuming.

These concerns are real. The first two can be mitigated with good technique. On the third, I’m sorry but I’m going to make it worse – I need you to spend even more time on references than you do today.

Begin with the right expectations

• Be mentally prepared to eliminate a candidate. Go back to the drawing board if the references are less than stellar. Expect at least a 50 percent chance of eliminating the candidate based on references. If you are not in this mindset, you will only hear what you want to – that you’ve found the perfect person.

• Allocate 10-15 hours of total time to spend checking each candidate’s references. This includes research such as question preparation and tracking down additional references as well as about 30 mins per call for 5-10 calls. You need to block this time on your calendar. To repeat: if you spend less than 10 hours on extreme referencing a top hire, you need to come up with better questions and find more people to call.

• Look for negative information and largely devalue the positive information you hear about the candidate. Because of a natural positive bias in reviews, you have to assume that a lot of the positive feedback may be overstated. Hence, if someone with no clear axe to grind with the candidate gives you relevant negative information, you need to take this very seriously.

• Notice what is NOT being said. Narrowly defined praise can often be used to show you the weaknesses of a candidate. Sometimes when a candidate is “smart”, it may mean he lacks drive or interpersonal skills.

• When you start hearing the same weaknesses and strengths repeated about a candidate, it’s a good sign you’ve completed your extreme referencing.

• You should not outsource reference checking, especially to executive recruiters. The incentives are all wrong. Despite the fact that someone else may be skilled at it, you cannot outsource this critical bit of judgment in shaping your team.

Would you let a recruiter conduct all the interviews, and pick your new CTO by reading the recruiter’s notes? Obviously not, and you need to be doubly reluctant to rely on your recruiter to conduct your reference checks, a task requiring far more nuance and judgment.

There are three basic mistakes people make when checking executive references: they call too few people, they don’t talk to the right people, and they don’t ask the right questions.

Your goal of extreme referencing is to discover new people to talk to until you find someone who has nothing to lose by telling you the truth about the candidate. You may sometimes get an unbiased view from the list of people the candidate gives you to call. This can happen due to skilled questioning, or just be in the nature of the individual. However, one of the main goals of calling the candidate’s references directly is to find out who else the candidate worked with, and in what capacity, so you can track down those people and talk to them.

You should begin by setting the candidate’s expectation that you will be referencing them extensively from the list they give you and also referencing anyone else you find who is relevant. This is the point when you need to clarify with the candidate if there is anyone you should not call. Be sure to take a hard look at the reasons for any exclusions.

Make a list of people you are going to call. Start with the names the candidate gives you. If there are any clear omissions given your knowledge of their work history, be sure to ask for those names. Then, as you call candidates on the list, names of other people will surface. Add them to the list. Prioritize the list from most to least recent and most to least relevant. Work down the list until all your questions about the candidate are answered and you have clarity about the hire.

LinkedIn is a fantastic option for finding extreme referencing sources; this is the primary reason I have built out my full network on the site. When I want to reference a candidate my first step is to punch in their name and see who I know that is connected to them. This is your best chance to get reference gold: someone who knows the candidate well but knows you better.

You should plan to talk to all their direct supervisors, some peers, and at least a few people who reported to them. And remember that it is important to qualify the reference, especially to get a sense of how they rank employees or what “great” means to the reference. Are they used to working with really high caliber people? One tactic is to quickly cross-reference the reference when speaking to other references from the same company. Another is to ask yourself – would you hire the reference person?

If there are people on your reference list you want to call that the candidate did not give you, there are a number of good sources for finding their contact information. Do not hesitate to cold call them. In addition to LinkedIn other top sources: Facebook, Google, PeopleSearchPro.

If you’ve done all this, you now have a long list of people to call.

Ask the right questions

You can and should ask all the standard questions of a reference call. I want to pay special attention to two categories: key questions you might not think to ask, and a list of typical questions that are phrased in a way that’s different and more effective.

Here are some key questions that you might not think to ask explicitly, often because you assume you already know the answer:

• Did Joe report directly to you? For what portion of his tenure at the company? Who else did Joe report to?
• To the best of your knowledge, did Joe resign, or was he asked to leave?
• Ask the recruit, bluntly, “What was the biggest mistake you made in the role” – then reference check against his answer.
• (To build your list of references) Everyone I speak with says such great things about Joe. Is there anyone Joe didn’t see eye-to-eye with? Why do you think?
• Why wasn’t Joe further promoted at your company? An interesting answer sometimes is that there wasn’t a spot (i.e. they would have to replace their boss). If that’s the case, what skills/ability does the boss possess that Joe lacks? How do you think Joe would perform in the boss’s role? (This one might be pretty hard to ask if you are talking to their boss).

It’s really important to ask hard questions. You can elicit useful information by asking questions that have no easy way out, even in cases where the reference has a close connection to the candidate.

Most people find it tough to ask hard questions for fear of seeming rude. If this is the case, it’s better to mitigate the rudeness by a preface to the question, rather than by softening the question itself. I’ll throw some examples into the hard questions below.

Hard questions to ask

• Joe is by far the best candidate I’ve seen. Still, everyone has their short suits. What are Joe’s?
• We’re inclined to make Joe an offer, and I hope he will take the position. If he does, how would you suggest I manage Joe to get the best performance out of him?
• (If the candidate had peers in the role) You say, “Joe was good.” Compared to Tom and Mary was he clearly the best at the job? Or did they each have their strengths and weaknesses? What was Mary better at than Joe?
• Did Joe have setbacks? How did he handle them?
• Would you hire him again? If so, would you rehire him without hesitation? Create a role for him if you didn’t have one? Only hire him in the right role?
• How would you change the role we’re considering him for to best suit his abilities?
• If I were to hire Joe and six months from now you heard he was fired without other context, what would be your best guess as to why he was fired?
• What are Joe’s passions in and out of work?
• How hungry is Joe for results, for example, what is the craziest thing you’ve ever seen him do to achieve a goal?
• Joe mentioned the launch of the new website was one of his big achievements. What was his actual role in the launch? Was he solely responsible, or was it a team effort?

How to evaluate the answers

The rest of this reference guide is brute force: if you work hard at it, I am confident you will be successful. But evaluating what you hear is an exercise in nuance and judgment, which you will develop over time as you do more hiring (and extreme referencing). If you’re still developing your judgment, lean on experienced and talented advisers who can help you piece through the information you collect.

Startups have a lot of setbacks along the way. I think that digging into times of adversity or failure of the candidate can be enlightening. If they haven’t worked in roles with real setbacks, it is something to consider.

One consequence of extreme referencing is that you will hear more bad news than you did previously. You need to have tolerance for some faults in the candidate as there is no perfect person. If he or she didn’t scale sufficiently at a company that grew past 300 employees, but you have just eight employees in your startup, it’s a risk you might be willing to take.

When hiring into a young startup be especially vigilant on cultural issues. If you’re evaluating someone coming from a more established company, or if you are young founders hiring some “adult supervision,” you should work hard to get a good sense of the candidate’s drive and work ethic. Consider the impact of them leaving at 6 p.m. while the rest of the team codes until midnight.

As CEO of a startup, your top job is to infuse as much talent into the organization as possible. Make it a priority and devote energy to extreme referencing, and you will be doing your job to give your business the best chance to succeed.

Thanks to Ben Elowitz, Jack Herrick, Alastair Mitchell, Mark Peters, Antonio Rodriguez and David Skok for their help on this post.  Special thanks to Irv Grousbeck, mentor to a whole generation of great entrepreneurs.

More thanks:  Thomas

Other bloggers, most notably my partner David Skok, have written extensively about building a sales and marketing machine for a SaaS business.  This, in our Matrix view, is the true revolution enabled by SaaS — the ability to unseat the traditional enterprise sales process and its multi-year sales cycles, multi-year implementations, and direct enterprise sales forces for a more efficient sales and marketing machine, and an environment where the best ideas and products (and not necessarily the best salesman) wins.

I recently invested in a great fast-growing SaaS startup called Huddle.    Here I will lay out an element of their model that I think is working especially well, and one area of challenge for the business.

Scalable Pricing

SaaS enterprises have the blessing and the curse of thousands of niche opportunities.  These can be a blessing, because a focused audience combined with a willingness to pay (at some level) for the service creates lots of opportunities to build profitable, small-to-medium sized businesses.  The curse is whether or not that niche audience can grow into one large enough to allow the company to be a really significant standalone enterprise.

As a venture investor, it’s critical for me to determine the likelihood a company has of addressing a large enough market.  This is certainly for my benefit, but also for the entrepreneur: raising venture capital into your great small SaaS company that could profitably dominate it’s niche has a high likelihood of killing it.  (A hosted platform to run scheduling and billing for a dog walking business may in fact be a profitable enterprise, but not create a substantial return to outside investors.) As an entrepreneur I’ve built big venture-backed enterprises that couldn’t possibly have succeeded without capital and medium-sized successes that required just $100K in financing.  Both can be great, but it’s important to figure out which train you’re driving.

One element that separates the niche businesses from the ones with potential to be big standalone enterprises is the ability to scale the ASP across customer segments.  Many SaaS startups have pricing plans that mean they can rarely extract more than a few thousand dollars from a customer in a year.  These can be nice businesses, but it’s challenge to build a really big business, if you have to acquire millions of paying enterprises.

Of course, if you want to be able to earn six figures a year from your biggest customers, in the SaaS world you have to EARN it — there’s much less lock in, and commitment before trial, than in classic enterprise software.  I’ve seen a couple of ways people have done this successfully:

Scalable Pricing Attributes

A product that can be used on a workgroup scale initially, but expand to meet enterprise demands, and have a natural price escalation with it.  Huddle does this well.  You need broad enough appeal and value, as it will be hard to decouple your pricing entirely from the number of people using it.   Make sure that the attribute that triggers steps up the price ladder is (a) a rational thing to charge more for, and (b) something that has a very high upper bound.  Don’t charge per GB if big companies won’t use a 1000x the storage of small ones.

Your pricing is, in part, a function of your increasing costs, but also a function of your increasing value, and segmenting the customers who can afford to pay a lot from those who can’t.  JBoss was able to transform their business when they focused on putting the right scalable pricing model in place.  They ended up creating  a multi-dimensional scaling model that included things like number of servers, response time for support calls, number of named support people at their end, number of support locations, and which set of JBoss products they were using, in order to successfully get some customers to pay $1M while others were paying just $10K.

Money Flows

Get in the flow of money.  It is flat out easier to get paid a lot if you are sitting next to a big flow of money.  Investment banks do this in spades — just a few basis points adds up when millions of dollars are moving daily.  But some SaaS startups do this too:  Marin Software and Kenshoo build enterprise grade SEM platforms that substantially improve the performance of their customers campaigns.  And because these customers are spending $100K-$1MM a month on SEM, charging 2-3% seems reasonable, and can quickly scale to $100K+ ASPs.

It’s helpful to get this right in the beginning.  Day One, you feel lucky to have a customer, and are not worried about how you’ll get $100K+ out of WalMart someday.  But the prices you set and the dimensions on which you charge can prove sticky, and customers can be very resistant to price changes.  Try to implement a pricing structure that drives customers up a spending ladder as their usage/dependence on the product increases, rather than having to issue explicit price hikes.

Faster Adoption/Engagement

Huddle (like many SaaS startups) relies on filling customer funnel with customers using a free trial or paying a small monthly fee, and then utilizes inside sales to grow penetration and spend with these customers.

A key risk going forward is the ability to continue to stock the top of the funnel cost effectively to fuel the sales and marketing machine.  This is risky if you expect to grow your business quickly.  I think of these marketing channels to fill the funnel as veins of gold in the rock: you find one and mine it until it’s gone, and then go looking for another.  Some will be rich and lasting, others quickly exhausted.  Huddle had success in ways you do early, with the founders out evangelizing and touching customers directly.  Channels such as PR, partners/channel, affiliates, AdWords, SEO, podcasts, social media, inbound marketing can all be used and will have varying success depending on your product.  Most of these have been adopted to the business market from consumer web companies with great success.

One of the most compelling transplants from consumer marketing is viral marketing.  It’s a compelling goal for your business, both for its price (free!) and the great depth of the vein.  It could be valuable for spreading within an organization (growing penetration/spend), but even more so to bring new customers into the funnel.  However, few SaaS startups have driven significant adoption to date through viral means, and success has been much more common at the lower ticket, user-level adoption (almost consumer) SaaS business.  DropBox has spoken eloquently about getting viral religion, and is a great success story, but is largely a consumer product.  My partner David Skok has written a must-read reference piece on viral marketing.

Huddle has built a great online collaboration product that enables project management, document sharing, calendaring and a full suite of collaboration services to occur between enterprises (as opposed to Sharepoint, which is strictly behind the firewall).  The fact that the tool is for collaboration between enterprises presents an unusual opportunity to spread virally to new customers.  A PR agency managed their client interaction with Kia Motors using Huddle, who liked the product and mandated the tool globally for all their PR agency relationships.  If some of those agencies like the product, they will hopefully spread it on to other customers.  The same behavior happens internally within big customers such as Proctor & Gamble, where one workgroup will use it to coordinate a project, and others will adopt.  It will never be viral in the Zynga sense of the word — k factor >1 — but it will generate customers and qualified leads through the normal course of product use.

The challenge for Huddle is what David Skok refers to as “Viral Cycle Time”.  The software generates real productivity gains for workgroups upon adoption, as users abandon inefficient email exchanges for true collaboration.  But it can take months for the more recalcitrant team members to adopt the system, and until the whole team is on board the value of the product is diminished or undermined entirely.  The resistance would seem to be caused by the general inertia and ubiquity of using email, and resistance to learning something new.

A breakthrough in reducing the viral cycle time (implicitly linked to the rate of adoption by workgroups, which I think is gated by the rate of adoption of the slowest members of those groups) is essential for the company to realize its growth ambitions.  There are a number of steps recently taken or in the works to address this:

• Integrate more seamlessly into current workflows.  Extensions are available so you can save files directly from Excel or Word into your Huddle workgroup, for example.
• Reduce barriers to sharing by streamlining the process of inviting new people to a workgroup

However, for the company to grow revenue to the tens of millions, the product needs to spread more quickly within the customer (to turn team sized customers into enterprise customers) and bring new customers into the funnel.

Anybody have good lessons learned on how to do this?

Limeys

The Huddle team might ask you for “lessons learnt” instead, since the company was founded in London and a majority of the customers are still in the UK.  The business has a high profile in the London startup scene, but is just getting introduced here in the US.  One of the founders, Andy McLoughlin, has just taken up permanent residence in San Francisco, and with the new investment, the company is building out their US operations here.  Collaboration is a big market (Sharepoint sales >$1B) with a lot of competitors in various guises.  Huddle distinguished themselves from their competitors across a number of dimensions, including:

• Capability and passion of the founders and team rank as highly as the best teams we see coming out of silicon valley
• Focused on building collaboration suite from day one, not a temporary pivot from a filesharing or project planning business, which may be abandoned as quickly as the last idea
• True enterprise focus.  Working with and listening to the corporate and government CIOs to deliver the enterprise reliability and security they require for their sensitive data
• Metrics-driven marketing approach
• Focus on paying customers, not gaudy numbers of non-paying users.  They were reluctant to give me a free account because I didn’t put it in the term sheet.

The bar is definitely higher for me to do an investment in a foreign startup.  It certainly helps that I travel to London regularly for Betfair board meetings, but in this case, we found a company that cleared that high bar and are thrilled to be a part of building it.

In my journey to transform myself from an entrepreneur into a Venture Capitalist, I’ve been surprised how many new things I’ve had to learn how to do.  Often asked how the transition is going, I know I should just answer “Great!” but find myself giving the $10 answer to a ten cent question instead, and the punchline always seems to be “this job is a lot harder than it looks!”

One of the main changes in mindset is that I really need to get out and spend time with a lot of people.  Being an entrepreneur fit well with my private nature — I could work in peace on my own business, and measure my success through the standard metrics of results.  In venture, on the other hand, it’s really hard to invest in the best entrepreneurs if you don’t have a preexisting relationship with them, or failing that, they have no way to evaluate you and what you might bring to their business very quickly.  All of which means, I can’t just keep to myself.

Thus, I had a groundbreaking idea:  start a blog, whereby I could share all my great insights with a captivated base of readers.  I predict, within months, lots of VCs will be doing it!

In the best case, we can explore some interesting ideas about what is working and what is not, and share some lessons about how to build a great business.  Comments and feedback are encouraged.