Software Simulation & Start-Ups

I was introduced to a really interesting company the other day. The name of the company is iRise and they have a very interesting product that is bound to have implications in the start-up arena once they penetrate it. In fact, I had the chance to speak to Tom Humbarger, a Senior Strategic Projects Manager at iRise, who is working on a "skunk-works" project to do just that. However, before I get into that I would like to discuss the company and product a bit.

iRise started like many software companies, as a consulting outfit, back in 1996. Their core offering to their clients was website programming. Throughout the years and many websites that the company churned out they realized that there was a missing piece in the development life cycle. No one was focusing on the business analyst. Eureka! The idea of software simulation was born and now the only thing left was to figure out how to fund the new software venture (oh, and figure out how to build the software). The company decided to bootstrap the software into existence by doing consulting work and they gained a strong foothold in the market by obtaining about 70 Fortune 1000 companies as clients. iRise took its' first and only round of funding to date, a $15.8mm round led by Morgan Stanley Venture Partners, in January 2005 to expand the company.

Now, to the software. iRise has developed a solution that allows a user to simulate a website or other program without having to do any programming. All the user has to do is drag and drop items into and iDoc in the iRise studio and away they go. In honor of iRise's "a picture/simulation is worth a thousand lines of code" approach I will be using pictures for the first time in one of my posts. Here it goes...

First, the user can sketch out their page flow:

Second, the user can create scenarios to test the software:

Third, the user can layout the end user interaction and business logic:

Fourth, the user can incorporate sample data:

Last, the user can create master templates which, when updated, will update all templates in the project keeping corporate branding integrity intact:

The latest development with the release of iRise 5 was the introduction of an iRise iDoc reader. iRise took a page from the Adobe book and created a reader than anyone can download (it comes with a sample iDoc to play with). This way, users of the iRise studio can send their documents to people without iRise software. The recipients of the document can view the design, use the simulation and make notes on the iDoc. I believe that this functionality is key to the adoption of the software by start-ups.

Two things start-ups want to do is be able to shop their ideas to funding sources (unless bootstrapping) and get their software developed with the least revisions (change orders) as possible. iRise addresses both of these issues with an easy to learn application.

A start-up, using iRise, can model their entire idea at a substantially lower cost than programming a prototype. After the model is created, they can send it out to VCs and other funding sources via e-mail who can open and use the model in order to get a crystal clear idea of what the start-up is going to do and how they are going to do it. This will give the start-up a better chance at getting a meeting where they can use the model in their presentation to hammer home their key points. However, there is another key thing that has already got VCs buzzing about iRise. A 70% reduction in change orders.

The trend with a lot of software development these days is to send it overseas. There are a lot of pluses to doing things that way. The main one is the significantly lower cost of production. However, you do end up with a lot of communication issues when you send software ideas overseas for development. The developers may not speak English well or at all and they may not be used to certain ideas and terms that we take for granted. This can cause problems in the development of the software, which cause change orders. These change orders can be reduced (by up to 70% iRise states) by providing overseas developers with an iRise model of the software that needs to be built. The iRise model allows the developers to "use" the start-ups' software via the simulation in the iDoc which gives them a much better idea of what they need to build. The iRise model will also act as a visual contract between the start-up and their developers.

The reduction of change orders and, subsequently, cost is not the only thing that is getting the VC community talking about iRise. VCs (I know, but can't mention who) love iRise because they view it as a very cheap insurance policy for their portfolio companies. iRise prevents portfolio companies from missing delivery dates, coming up with software users don't want (iRise can be used in focus groups and in usability testing) and coming back with wrong requirements in their product. All of these are issues VCs face every day and issues that can make or break their portfolio companies. The lowering of risk facilitated by iRise is a welcome relief.

I think that software simulation is going to be standard in start-up situations in the future because of all the benefits it provides. iRise is leading the way now and, with its' move to target start-ups, should solidify itself as the software simulation standard for years to come.

A note to start-ups: Tom told me about a program for start-ups that he is working on. For qualified start-ups (pre-funding), iRise will provide a free license for 60 - 90 days in order to allow the start-up to shop their idea to VCs and find funding. Once the company finds funding they will be asked to purchase the program. The pricing for start-ups has not been determined yet. It will either be subscription based or the "traditional" license model with recurring maintenance fees. The only catch is that you have to purchase a three day training seminar for $3 - $5 thousand off the bat and work with iRise on some joint marketing efforts (mentioning them in press releases, a "powered by iRise" icon somewhere in view, etc.). If you are an interested start-up please e-mail me and I will give you Tom's contact information.

Update: US VC in China Post

Less than 24 hours after publishing my latest piece on China I open up NewsGator and see a link to a Washington Post article stating that China just imposed new rules on internet news. The new regulations will affects portals like Sina and Sohu the most. However, I believe they will have an impact on other start-ups as well. This isn't looking good for investors so far. Free speech has already been severely compromised.

U.S. Venture Capital in China

I just got back from a great bike ride. Today I was an on-bike marshall for the inaugural 2005 Hub On Wheels event held here in Boston. The idea of the event was to increase bicycle awareness by allowing people to ride an arrowed route with support through all parts of the city to get a different feel for the city and bikes. The event was a huge success. I would estimate that there were about 400 riders (Since writing this piece I have received word from the Hub On Wheels Director that there were about 700 riders in total!) and even more people who attended the festival at Franklin Park. I also rode a lot of miles and now think I could give Brad Feld a run for his money in the fitness area. Probably not... Anyhow, you are probably thinking "What does this have to do with VCs in China?" Well, not too much to tell you the truth. However, after I lead my ride group this morning, I helped direct traffic at a tricky intersection (while simultaneously fixing a flat I got from a huge drywall screw) for about 2 hours so I had a lot of time to think and think I did.

My thoughts drifted to China because of the great bicycle culture there. Then that lead me to think about the amount of VCs starting programs in China. This has become a large trend in the Valley in particular. SiliconBeat has been publishing story after story about VC firms announcing funds in China. In the past couple of weeks Accel (partnership with IDG who has been in China since the 80s), Sequoia, New Enterprise Associates and Burrill have announced China funds. VCs who have not announced funds are furiously trying to figure out what to do in China. SiliconBeat reported that DFJ lost their guy in China to Sequoia but they also said they could not confirm that so we'll have to wait and see what surfaces there. Either way, there appears to be a massive turf war playing out and there is a reason why competition for locals with large rolodexes are in demand.

Relationships are taken to a much higher degree in China than they are here in the U.S.. The culture demands either locals or a long tenure (10+ years) of doing business in China to get things done. A lot of the top venture firms realize this and have taken steps to recruit locals to obtain better deal flow. Others, however, have just decided to go there and break into the market, a strategy that will probably end in disaster. There are other problems with investing in China that also need to be addressed.

1. The regulatory climate is not favorable.
2. The investing landscape looks like the U.S. during the internet bubble in the late 90s.
3. Very little has been contributed by China in the form of advanced R&D break throughs.

New regulations being levied in China are beginning to make U.S. VC firms chances look pretty bleak. To start, there was a recent regulation passed that deals with the ownership of offshore assets by China's residents. This regulation will significantly impact venture capital investment, M&A activity and stock exchange listings. To make things worse, this regulation and others essentially force foreign venture capitalists to rely on overseas stock market IPOs for their exits. Intellectual property law is also of concern.

The investing landscape of China today eerily resembles the beginning of the U.S. internet bubble. The companies getting funded are even quite similar. There is Yahoo's $1 billion dollar investment into Alibaba, a six year old e-commerce company, for example. Seems like quite a hefty price tag. However, if there is one deal that seems to have caused venture capital investment in China to hit the tipping point, it would have to be the Baidu IPO which has rocketed up and up in price and been one of the NASDAQ's most successful IPOs since 2001. It seems like there is a lot of greed and a multitude of e-commerce companies being formed and funded in spaces with low barriers to entry which makes me a bit leery.

The last thing that I think investors forget about China is that it has not contributed many R&D break throughs to the world. China's core competency to date has been cost cutting and mass production, creating economies of scale if you will, that lead to lower prices for consumers. This has undoubtedly helped many innovations get to the mass market. However, this is not paradigm shifting innovation. This is manufacturing efficiency.

There are a lot of reasons not to invest in China but there are also the usual suspects urging investors to take the plunge. The sheer size of the population, income per capital is on the rise, phone use has dramatically increased, and a number of U.S. educated Chinese entrepreneurs are beginning to move back to China (interestingly enough, the Wall Street Journal recently reported on how many VCs are investing in local Chinese entrepreneurs and not U.S. educated Chinese returnees). However, all of these good signs are not proof that the market is currently there for VCs. It seems to me that this could be a lot of hype. This is not to say that there isn't a lot of money to be made from the hype so I can see why some VCs are going for it. It is just a matter of who will win and who will lose. My bet is on Patrick McGovern and his IDG/Accel China Fund since he has been investing in China since the 80s.

In closing I would like to leave you with a piece of a SiliconBeat article written about a year ago describing Don Valentine's feelings on investing in China:

...Valentine did go on the SV Bank trip to China, but the experience only confirmed his view that Sequoia should stay away from direct investments there, he said. Indeed, Valentine ragged on China all evening long. Summing up his views about the rush by others to invest China, he quoted the title of a song from 1950's jazz singer, Billy Eckstine: "Fools rush in where angels fear to tread." He continued: "China has no laws, no accounting system, bankruptcy banks, and according to Fortune, a stock market that is made up of a den of thieves no different from the ones on Wall Street."

Valentine said Sequoia hasn't invested abroad in its 30-plus year history, and it's unlikely to begin doing so. Even investing in a Boston company is a big deal for Sequoia, he said, and most of our investments are not only west of the Mississippi, they're west of the California border, he said. Concluding with a bang, Valentine prophesied about China: "You're about to see a bubble burst in the next five years, or sooner, that will make our bubble look meaningless."

Definitely some harsh words but, according to SiliconBeat, the statement above is similar to what Valentine told his colleagues about the U.S. market in 1999 when they raised a fund to invest in pre-IPO companies at the top of the bubble. In the end, Sequoia ended up with a loser of a fund to say the least. VC investing in China is going to be very interesting to watch especially considering that we are now armed with fresh insight from the U.S. e-commerce bubble. Ladies and gentlemen, buckle your seatbelts, we are in for one heck of a ride!

Off topic: I just read in PC World that Massachusetts, my home state, will be the first U.S. state in which executive branch agencies will adopt the OpenDocument standard. Pretty neat stuff.

Nanotech & Cancer

I have been hesitant to evangelize nanotech on my blog because I know VCs are still a little timid about investing in the area. Quite frankly, they should be. Nanotech hasn't made sense for VCs until recently because the bubble isn't expected to hit until around 2010 putting nano far outside many VCs acceptable time-to-exit area (for those who don't know, generally VC funds are set up as 10 year limited partnerships with investing being done within the first 3 - 5 years and exits coming before the 10 years are up). Also, nano isn't the traditional model many VCs are used to. Nano is an enabling technology. Essentially, nano is a way to make things better than they already are or enable things that were impossible without it. This means that you would invest in, let's say, a materials company like Nano-Tex or a pharma company like QuantumDot rather than a "nanotech company." In English, Nano needs to be used in convergence with other scientific disciplines.

How did a business guy get into nano you may ask. Well, for one, I am a tech/science geek and proud of it. However, the real answer is that in my senior year of college I did a lot of work with a professor of mine, Dr. John McIntosh, on nanotech with the intent of forming an advisory company (finding funding, strategy, etc.) to small nano upstarts called Nano-Oracle. In fact, if you click on the link you'll see our web shell my friend Rick built that was never populated with real data. Anyhow, John ended up moving to Boise to teach at Boise State while I stayed in Boston which put a halt on things and some big connections didn't pan out so the venture died. However, it left me with a love for all that is nano. With that said, I was recently inspired to continue my nanotech evangelization by Steve Jurvetson's blog where he is always talking nano and the latest edition of Small Times Magazine.

The new Small Times cover story was about nanotech's role in the fight against cancer. Now, I absolutely love the materials end of nano which is already being used (textiles, carbon nanotubes, etc.) and is making things like the space elevator a real possibility (self promotion alert: I wrote a piece in LiftPort's SE book about the SE finances so stay tuned for that). I even have an artists conception of the space elevator hanging on my wall. However, the part about nano that always got me going was the fight against disease.

The first thing that got me excited was work on gold nanoshells being done at Rice by Naomi Halas, PhD and Jennifer West, PhD who have since spun out their innovation into a company called Nanospectra Biosciences. Their patented Nanoshell particles allow for non-invasive medical therapies. The interesting thing about nanoshells is that they can be tuned to absorb or scatter light at desired wavelengths, including where human tissue is relatively transparent. This allows specific cells, cancerous tumors for example, to be targeted. Once the nanoshells reach the tumor they can be heated through infrared light, which isn't harmful to surrounding tissue, eventually killing the cancer cells. Here are the benefits of "nanoshell-based tumor ablation" found on Nanospectra's website.

• Targeting to specific cells and tissues to avoid damage to surrounding tissue;
• Superior side effect profile than targeted chemotherapeutic agents or photodynamic therapy;
• Repeatability because of:
• no "tissue memory" as in radiation therapy, and
• biocompatibility and superior side effect profile; and
• Ability to treat non-spherical tumors, such as glioblastomas, metastases, and inoperable tumors.
  

Nanospectra is just one of the amazing companies using nanotechnology to do great things. However, VC funding hasn't been easy to come by. As with other nanotech companies, Nanospectra is solely funded by grants as VCs investment horizons haven't meshed with nano. However, this is beginning to change. There are about 700 nano companies in the US with about 75 of them receiving some type of venture capital investment. VC investing in the sector in 2002 and 2003 was robust with about $700mm invested. This investment pace slowed in 2004 due to VCs exit opportunities being called into question by the Nanosys IPO pull out. However, more big names are getting back into the game.

Kleiner Perkins, Draper Fisher Jurvetson and Venrock Associates are leading the way with smaller firms like Global Catalyst Partners and Israeli firm MMT Funds investing in nano. MMT Funds, or Millennium Materials Technologies, is dedicating a lot of their fund to nano investing. They can do this because they are focusing on materials which get to an exit much quicker than bio-nano companies. MMT has actually invested in a company called Power Paper which produces batteries that integrate into paper products. The company is initially targeting the electronic greeting card market, games and other consumer products. Clearly a simplified path to revenue compared to Nanospectra.

Before I close out my initial nanotech column I just want to touch on another hot space for nano innovation, cleantech. Cleantech has been thrown into the spotlight again though the tragedy of Hurricane Katrina and the well known aging of the grid in the US. Small Times did a whole issue on the energy crisis and innovation. It was a great issue and I suggest giving it a read. The major thing that nanotech is enabling today in the space is fuel cell creation. There is one company in particular that is worth a look, Integrated Fuel Cell Technologies (IFCT).

IFCT is currently funded by a small venture capital group out of Massachusetts, not too far from where I write this blog, called Echelon Ventures. I had the pleasure of speaking to some of the GPs at Echelon a while back and I heard great things from them about this company. I am not sure what is public so I will just include the company description from Echelon's website.

Integrated Fuel Cell Technologies, Inc. (IFCT) has created, patented, and successfully tested in prototype, a breakthrough design for a fuel cell. With this design, IFCT will make not only the world's smallest fuel cell but also the first fuel cell design to be mass manufactured at an economically viable price. Potential markets for economically viable fuels cells, which are extraordinarily broad and deep, include the market for portable power, stationary power, and, potentially, automotive.

Small doesn't even begin to describe it. These fuel cells are incredible! They will revolutionize portable power and many other spaces.

Well, that is all for my initial nanotech sermon but I will have more coming in the future so be sure stay tuned (i.e. please subscribe to my feed)! As always, feedback is encouraged and appreciated.

Blooks, Lulu & the Publishing Industry

Today I read the first chapter of Hackoff.com and enjoyed the experience. Hackoff.com is a blook, or book published via the blog paradigm. This particular blook is being written by Tom Evslin. For those of you who are not aware of Tom here is a little background I found on him at A VC. Tom was one of the first successful Macintosh software developers, sold his company to Microsoft, oversaw the development of the first versions of Back Office, Outlook and Exchange. He then went to AT&T where he got them into the Internet and invented flat rate pricing for dial-up internet access, and then finally to ITXC where he invented commercial grade VOIP. As you can see, Tom is an innovator and he is continuing to innovate in his new career, writing books.

I am sure what you are thinking now is that we've seen this before. John Battelle has been writing his blog for a while now which was a window into the book he was writing called "The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture" that is now available in hardcover. There have been others too (Jason Chervokis and Seth Godin) but hackoff.com is different. Tom is making the blog part of an overall reading experience, an essential part of reading the book.

Hackoff.com is a murder mystery set during the internet bubble. Murder mysteries such as this inevitably get people talking: Whodunnit? Publishing a book of this genre in blook format is a great idea because the links, comments and discussions will be an essential part of the reading experience. The blog format has also allowed Tom to leverage the power of the audience through an RSS feed and e-mail list that will deliver the newest chapters directly to your aggregator/reader or inbox as soon as they are published. However, the interactivity doesn't stop there.

Tom has numerous blogrolls for people who link to the blook in their posts, maintain a constant link via services like Word of Blog, write reviews of Hackoff.com, and post about blooks in general. He has also set up a fake company website for Hackoff.com which will hold company press releases and other data to enhance the reading experience. All of this makes Hackoff.com a unique reading experience and I recommend everyone go ahead and read the first chapter.

After reading Chapter 1 of Hackoff.com this morning I got to thinking about the paradigm shift taking place in the publishing industry. Many of the comments I have seen on blooks so far have said that blooks are the new wave that will bring down the traditional publishing industry. Isn't this what was originally said about digital music? What has digital music done to the traditional music labels? It appears to me that it has actually increased sales. I personally love that I am no longer forced to buy a whole CD for one or two songs. Having been burned before in the pre-digital music age I would sometimes be deterred from buying a CD if I wasn't sure of a new band. Now I can sample the tunes and buy the whole CD or single tracks. My music spending has definitely increased and I have heard the same story from many of my peers. Also, with the advent of Pandora, I can now find artists that I otherwise would not have.

It doesn't appear that Tom is looking to publish his book solely in blook form. In fact, he mentions that a traditional hardcover version of Hackoff.com will be available in early 2006. I am not sure if Tom is publishing via a traditional publisher or a self-publisher like Lulu.com. For those who don't know, Lulu is a self-publisher (or as they say: a technology company that allows people to retain control of their work) not to be confused with your standard run-of-the-mill vanity press. Lulu allows an author to upload their piece to Lulu's site and then Lulu operates in a similar fashion to CafePress. Lulu will publish an author's book on demand as books are ordered managing the logistics as well. Lulu also allows the author to keep much more of the profit than traditional publishers. Leave it to Bob Young, co-founder of open source giant Red Hat, to come up with this business model.

So, it looks like blooks in and of themselves are probably not going to undermine the publishing industry. At least, not yet. However, blooks in combination with companies like Lulu could. Allowing the public to sample books along with additional content that adds to the overall reading experience through the blook format would allow the author to build a strong and evangelistic audience. This audience would no doubt buy the author's book through Lulu if it were offered leaving the author with complete creative rule over his/her creation and a larger royalty check in hand.

This combination combats the detractors of a shift in the publishing paradigm who say that author's need the publishing house's advertising resources and network of book stores to get a book sold in large numbers. The blook is a democratic advertising campaign that allows the customers to decide who and what gets published. When customers decide who will get published Lulu takes over. Lulu eliminates a lot of the costs that dog traditional publishers including the large number of books that do not get sold. These books are shipped back to the publisher at the publishers expense. After returning to the publisher these books are shipped back out, with a publishers mark, to discount booksellers and sometimes even to the store who sent them back in first place. If they are still not sold the publisher pays to have the shipped back again and they are recycled. Talk about inefficiency. Lulu eliminates this with on demand publishing.

It appears as if the tipping point would come with a big author, someone like Dan Brown for instance, publishing via the blook/Lulu system. However, if enough good content gets published via the new paradigm the tipping point could still be reached through the buzz that early adopters would create and the stickiness that would follow once authors learned how the system was better for them. This paradigm shift would allow information to be freely distributed with no gatekeepers involved besides the reading public itself. After all, who says that the best way of deciding what gets published is a small number of high powered publishing executives sitting around with market surveys in their hands as their guides?

The Digital Identity Trifecta & Skype-eBay

Acquisition day. A day that entrepreneurs and VCs love (not as much as an IPO) because it usually means a big payoff, especially when the company doing the acquiring is of the caliber of eBay. I know that a lot has already been written about the Skype - eBay deal in the past 48 hours but it was too big of a topic to ignore. After reading much of what is out there about the deal I still think I can add some value to the conversation. However, before I get to my revelations I will discuss the best of what has already been said.

One of the most thoughtful blogs that I found on the subject is Nivi's entry entitled "eBay Buys Six Apart." Intriguing title, isn't it? There is an interesting discussion there as well. Nivi states that most of the reasons eBay gave for buying Skype work for other communications media like blogs as well. That fact prompted Nivi to ask, "Why not Six Apart? Or ICQ and Hotmail years ago?" Answer: A blogging platform does not need to be acquired because blogs are not a viral product running on a closed network with network effects. As for ICQ and Hotmail, they were merely missed opportunities for eBay which the Skype acquisition is supposed remedy. With that question answered we can move on to the main reasons Nivi gives for eBay's purchase of Skype. Drumroll please...

1. eBay can't accept the risk of having a powerful supplier that essentially has a monopoly on VoIP because Skype has a viral product that runs on a closed network with network effects. PayPal runs on the same type of model.

2. eBay wants to deprive their competitors from buying Skype or using Skype as a supplier.

I agree with the reasons Nivi gives for the purchase because eBay could have achieved the same synergies as a customer of Skype cheaper and with far less risk. Jeff Clavier also notes in his entry on the deal that Manageability.org had an interesting thought that I feel backs up Nivi's idea that eBay did not do the Skype deal for synergies. The thought is as follows:

"... Trying to gleam any sense of synergy between [eBay's] current business and Skype's business is a waste. Enhancing eBay's auctions with the convenience of voice interactivity isn't worth the billions eBay shelled out... Interestingly enough, it is eBay that has the enviable position of providing digital
identities [as opposed to Google] with true value. eBay's reputation system is without competition..."

So, it appears that eBay bought Skype to continue their leadership role in digital identities. eBay is one of very few who can provide digital identities with true value because of their fantastic rating/feedback system combined with PayPal's verified service that attaches a bank account (and/or a credit card) to an identity. Google has a lot of catching up to do if they want to surpass eBay in the digital identity space.

The talk of digital identities is what really got me thinking. Clearly the formation of digital identities plays toward eBay's core competencies and eBay has the "free money" from investors to make some big moves. The question in my mind is: If this is the path eBay is moving down what else can/will they do to stay ahead of other internet conglomerates like Google that have a ton of "free cash."

To answer this question I first took a look at the sectors that eBay already plays in according to my newly developed three sector digital identity model or, as I like to call it, The Digital Identity Trifecta. The Trifecta consists of the following three sectors that cover our daily lives: play, life, and work where play consists of things like hobbies and extra curricular clubs, life consists of things like money management and paying bills and work consists of things like finding a job and making connections.

eBay has the play category cornered with great companies such as Half.com, Craigslist and of course eBay itself. All three sites allow people to find items that are hard to obtain and items they need everyday cheaper that stores. eBay employs a bidding platform, Half.com employs a "set price" method and Craigslist employs a simple message board style interface targeting local transactions. Craigslist also allows the formation of community through such categories as personals, jobs and stories.

Craigslist, as well as eBay and Half.com to a lesser extent, also overlap into the life category. Craigslist is a good example of a life company because of the community it creates. However, I was thinking of PayPal when this category came to mind. PayPal allows people to get verified online spending accounts linked to credit cards and bank accounts of their choice which, in turn, creates a strong digital identity for each user.

The last piece of my Trifecta is the work sector. While Craigslist does provide job listings I do not think that it creates strong digital work identities since there is no effective rating system in place. There are two early stage companies out there now that have a great digital work identity platform and could become acquisition targets of eBay or eBay's competitors. These companies are SimplyHired.com and LinkedIn.com.

SimplyHired was discussed in my previous post as was LinkedIn to a lesser extent. SimplyHired and LinkedIn have a partnership in place which allows both companies to benefit from the other's technology. Essentially, SimplyHired has created a job rating system (like NetFlix' movie rating system) and a job finding community through their message boards. This system works very well with LinkedIn. LinkedIn has created a phenomenal "connection management" product that allows users to rate, or endorse, other users prior work experience while also allowing them to view the connections of their connections for purposes such as job finding, reconnecting, references and recruiting. All of the features above provide an outstanding digital work identity platform, something that eBay truly needs to complete their mission.

We can all look for eBay to make more "work" acquisitions in the future to complete the Trifecta and make eBay the dominant force in digital identities. The first companies to be acquired, either by eBay or a competitor, could just be SimplyHired and LinkedIn. You heard it here first.

If anyone has any research or knowledge to corroborate this post please add a reply. Also, please post a reply if you think I am completely off base.

3 Keys to Vertical Search

Vertical search is one of the hot ideas to come out of Silicon Valley lately although it has presumably been tossed around since the beginning of the search engine. While google and other major search engines search everything, vertical search engines look to specialize their searches in a specific market vertical adding significant value to the consumer who may be overwhelmed by the macro search engines. To learn more about the business side of vertical search please see a powerpoint presentation given at the VerticalLeap conference this summer by Dave McClure of SimplyHired.com entitled "Top 10 Rules For Vertical Revolutionaries."

There are many vertical search engines being developed today but one stands out as the most interesting and promising in my mind. The company I am speaking of is SimplyHired.com. As the name implies, the company is going after the segmented job search vertical by creating a search that aggregates all the jobs on the planet but also adds much more value than that. Among the additional features that SimplyHired.com offers is a rating system (a la Netflix) for jobs and a partnership with LinkedIn.com that allows users to find out how they are connected to a certain job opening. The features highlighted above are obvious differentiators from sites like Monster.com but there is another angle that SimplyHired.com is utilizing which will undoubtedly gain them market share, the formation of a community.

SimplyHired.com has set up a company blog where users can see what the team is up to and new developments that are coming down the pipeline. The company has also created a forum where users can post anything from interview tips to their blog urls to funny (and not so funny) stories on how they were once fired. The "fired stories" were so good the company set up a contest and sister site called SimplyFired.com to showcase the best fired stories and pick the best of the best to win certain prizes. They just crowned a winner of the first SimplyFired contest this past Friday and you can read his fired story here. Trust me, it's a good one! You'll never look at left over pizza in the company cafe the same way again.

The formation of a community seems to be working well for SimplyHired because it brings all job seekers together and allows them to have fun while searching for jobs. Fun is one of the keys to creating evangelistic customers who will not only continue to return to your site or to utilize your service but will also enthusiastically spread the word about your site to others. Enthusiasm is contagious (and a lot cheaper than an ad campaign!) so if a start-up can create great users it will really help them on their way to creating a great business. However, one can have a fun site that provides great value-add to the end users but if the site is hard to use and gives the user a headache every time they view it you still have a problem. This is where SimplyHired excels again.

If you look at SimplyHired.com you will notice how clean their site looks (a la Google) and that their colors are few and pleasing to the eye. Let's compare Yahoo and Google to make my point clearer. I recently heard that Yahoo's search gives really great results, possibly even better than those of Google, but Yahoo is used less. Why is this? What helped Google rise to where it is today? I believe a lot of it had to do with them concentrating on their search: i.e. keeping their page simple, easy to use and not busy. Now, compare this to Yahoo. Yahoo went the portal route and did that well but it's search component doesn't get used as much as it should because the portal information chokes it.

In conclusion, SimplyHired is doing a great job at three major things that, in my opinion, help grow a vertical search company. The three keys are:

1. Creating a site that has great search content and great meta data (i.e. job ratings, LinkedIn partnership, etc.).

2. Creating a community of evangelistic users by having fun.

3. Keeping things simple.

Obviously there is much more that goes into a company like SimplyHired.com than what I have listed (i.e. financial modeling, finding a long tail, etc.) but those three keys are a big help in getting a vertical search company off the ground. I have a feeling that SimplyHired will be used as a model for vertical search companies that form in the months and years to come. Now, to do my part as an evangelistic user.

Tired of your current job? Need a change? Recently fired? Then get hired! Check out the SimplyHired search on the right side of my blog. Enjoy!

Funding FYI: SimplyHired.com has received over $4mm to date through two rounds of financing from some very notable angels that include: Rajeev Motwani (Stanford computer science professor and early investor/technical advisor to Google), Ron Conway (founder of Angel Investors, L.P., early investor in both Google and Ask Jeeves), Kanwal Rekhi (successful serial entrepreneur and former CTO of Novell) and Guy Kawasaki through Garage Technology Ventures. Guy was also named to SimplyHired's Board of Directors.

Katrina

Katrina is one of the worst natural disasters this country has ever seen. Our brothers and sisters in the affected areas need our help. You can do your part by giving what you can to the Red Cross Disaster Relief Fund. I urge everyone to give because there are fellow human beings out there who need our help to rebuild their lives which were destroyed so suddenly.