The Abstract Truth

Archive for August, 2007

For Want of a Nail

Posted by rbpasker on August 15, 2007

One of my favorite books in the world is David Hackett Fischer’s Historians’ Fallacies : Toward a Logic of Historical Thought because it brings the rigor of logic to the study of history. Today I get to take Fischer for a tour of the computer room and show him the errors of his ways.

Under the heading Reductive Fallacies, Fischer writes:

fischer.png

In the computer room, however, broken nails are responsible for lost battles all the time.

In 1985, I was working at the Bank of New York on their government securities clearance system, which failed when a signed 16-bit index overflowed from +32,767 to -37,768, and started overwriting memory. BoNY had to take out a $32 billion overnight loan from the Federal Reserve, and pledge the bank itself as collateral. (Although I was not involved in the application which had the bug, I spent the night in the computer room with the folks who were because I had responsibility for the underlying TP monitor software.)

A few days ago, Los Angeles International Airport was shut down because of the failure of a failed U.S. Customers computer system. Was it a terrorist? A hacker? Nope, it was a failed LAN card. It took 9 hours to fix, and stranded 17,000 travelers.

On the battlefield, there is a tremendous amount of redundancy: troops, ammo, tanks, etc. One guy falls, and there are 5 more to take his place, and the reductive argument doesn’t work.

In the computer room, however, there are lots of nails, the failure of any of which is sufficient to cause catastrophic failure.

As computer professionals, we have a responsibility to build redundancy into our systems.

Posted in flying, work | 1 Comment »

Advisory Agreements

Posted by rbpasker on August 15, 2007

My intention was to blog next about recruiting an advisor, but how can you recruit an advisor unless you know what you’re offering? So first let’s look at the components of a typical advisory agreement. Remember: IANAL and TINLA. I’m just relating my experience and data I have garnered from others in the industry. Please get proper legal advice and proper wording before embarking on an advisory agreement.

The advisory agreement should have 4 main areas: responsibilities, term, protection, and compensation.

The responsibilities section should describe the role as a consultant to the company, who advises the CEO and executive team on matters within the the advisor’s area of expertise. It is important to make sure that the agreement does not confer employment status on the advisor, so your company does not get caught up dealing with employment law issues, benefits, and tax withholding for the advisor. You also want to ensure the advisor is not an agent of the company, someone who is able to make commitments on behalf of the company.

The advisory agreement should set out the term of the agreement. If the the stock package is fixed at a certain number of shares over some number of years, the term of the advisory agreement to be fixed as well and is coterminous with vesting. In my case, I prefer two-year agreements, but in one case I had had an open-ended agreement, and the comp was based on a certain number of shares per month. Even though my agreements have a fixed term, I feel as though I’m on the hook as a stockholder to promote the company’s interests for as long as the company is in business, and the CEOs have never been shy about asking me for stuff after the two years are up.

Here are the main protections in the advisory agreement:
  1. Intellectual property – just as for an employee, any intellectual contributions — ideas, designs, specs, etc — made by the advisor have to become the property of the company. What good would an advisor’s contribution be if it didn’t come with the rights to implement it?
  2. Confidentiality –The advisor has to be bound by the same confidentiality provisions as anyone else who has access to the company’s secrets
  3. Non-solicitation — the advisor should not be able to hire away the company’s employees
Sometimes a company will want additional protections, such as a non-compete clause, but I have personally never agreed to additional provisions. It would be foolish for me to work with two companies that competed directly with each other for the same reason VCs don’t do it: I don’t want to create a situation where helping one company would hurt the other. Also, the confidentiality agreement should cover any non-public information I might possess which would be of use to a competitor. And as I mentioned previously, the agreement shouldn’t include a laundry list of tasks or a minimum number of days/hours. If you want a consultant, hire one. From an advisor, you’re looking for access and advice.

In terms of compensation, an advisor should get a stock option package that is at least the same order of magnitude as a director-level position, vests monthly with no cliff over two years, and provides for 100% single-trigger accelerated vesting. Since every company has a different capitalization structure and is at a different stage, its better to tie the size of the grant to a director-level position rather to a specific percentage or a specific number of shares. And by “director,” I mean a second-level manager who reports to a VP, rather than someone who sits on the company’s Board. Advisors of start-ups typically don’t get any cash compensation, but they do have their direct expenses reimbursed.

As you might notice, the vesting schedule for an advisor is different from a typical employee plan, which is usually 4 years, 1 year cliff, no accelerated vesting. Accelerated vesting means that, under certain conditions, instead of having to wait until the vesting period is over to exercise their options, the options stock vest immediately. Single-trigger means that the acceleration takes places when the company is acquired (or has some other “change of control”-type event, such as an asset sale or merger). Double-trigger vesting means that there has to be a change of control AND the employee is terminated or has their responsibility/pay/status reduced. Since the advisory agreement is always terminated in an acquisition, double-trigger vesting doesn’t make any sense. The reason eliminating the vesting cliff is that, unlike an employee, an advisor doesn’t get any cash compensation. So if the company gets acquired before the cliff is up the advisor should get compensated.

The last thing I like to have in any advisory agreement is a get-out-of-jail-free card: a bilateral no-questions-asked termination clause. If things aren’t working out, either side should have the opportunity to bail. This correlates with at-will employment, which I believe should be the norm.

So now you have the outlines of what an advisory agreement should contain. I have had agreements that were just a letter from the CEO with room for my signature, and others which were actual contracts. Discuss these provisions with your Board of Directors, put together a draft with your legal counsel, and negotiate with your advisor in good faith.

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Peerflix CTO Jumps Ship For Pre-launch TravelMuse

Posted by rbpasker on August 14, 2007

Congrats to Azure-funded TravelMuse! It was a pleasure interviewing such an outstanding candidate!

Peerflix CTO Jumps Ship For Pre-launch TravelMuse

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Bad VC JuJu. Or Why we need TheFunded.com

Posted by rbpasker on August 14, 2007

A friend of mine, let’s call him “Bill,” whose company I have been advising informally, is building a new website which has not yet launched. He and I and a bunch of friends went to the recent NY Tech Meetup. A guy approached us, introduced himself as a VC, and asked what we were working on. It was a good opportunity for me to listen to my friend pitch, so I listened as he explained what they’re doing. The VC listened intently, and asked a bunch of smart questions.

Bill’s company is also thinking about raising some cash, but he didn’t follow the “ABC rule”: always be closing, and try to get the VC’s contact info or a meeting. Bill and I talked about it afterwards, and I told him I would try to hook him up. When I ran into the VC again, I approached him about meeting Bill and company, but he said he wanted something in writing first so he could go over it with his partners, and then would contact us if there was any interest.

The next day, a company that competes directly will Bill’s company announced a multi-million dollar investment with the very same VC we met .

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New Challenges for the Flying Car

Posted by rbpasker on August 13, 2007

We’ve seen a resurgence in interest over the past few years of the “flying car,” one which can operate seamlessly in both land and air traffic environments. The idea is that highways would become obsolete for most trips of up to a few hundreds miles, reducing congestion and being able to fly over geological obstacles such as mountains, rivers, and lakes. Some day we will all have these flying cars and go point-to-point by air, as easily as driving down the freeway.

Flying cars can be broken down into two broad categories: car-o-planes (“cars that can be flown” or “planes that can be driven”) and the VTOL (“vertical take-off and landing”) . A car-o-plane is a car you can drive to the airport, take off on a runway, land at another airport, and drive away down the street. There have been a few of these vehicles made, such as the Taylor AeroCar. One brilliant individual even designed a flying car based on the Ford Pinto. I guess the hazard of having the gas tank behind the axle wasn’t dangerous enough. The VTOL flying car takes off and lands vertically, like a helicopter, and doesn’t need a runway, just a parking lot or a field. The Moeller Skycar is the current favorite in this category.


The Taylor AeroCar


The Mitzcar Flying Pinto


The Moeller SkyCar

Much of the work on flying cars has been on mechanics and aerodynamics: how do you make something that fits in both environments, and how does it fly?

Certainly the mechanics and practicalities of a flying car are important, but there are three three big non-mechanical challenges that must be overcome before we can see one of these in every garage: weather, obstacles and terrain, and in-flight emergencies.

Have you ever taken a car trip where the day starts off reasonably nice, and somewhere down the road, the weather starts to look threatening. First the sky starts to get cloudy. Nothing mean, like a big thunderhead, just some overcast or maybe some fair-weather puffy “Simpson’s clouds.” Fifteen minutes later, the wind picks up, not too strong, maybe 15 miles per hour, and a little gusty. Then there’s the smell of rain. Have you ever smelled an approaching rain storm? It happens a lot in the summer, when the air is moist. Here come a few drops. The wipers go on intermittent, to match the speed of the drops, and soon you realize they have to go on full time, first slow, then fast. Before you know it, you’re in the middle of a rainstorm. At this point, you have a few options: pull over, turn around, or keep driving. How many times have you actually pulled over or (less likely) turned around because the storm was too strong? How many times have you driven on, thinking to yourself, “I should have pulled over when it started, but I’m almost through it now”? Such a storm, which thousands of drivers survive every day somewhere in the world, would be disastrous in a flying car, but certainly no more
disastrous than for a week-end pilot in his Cessna. Forecasts and live weather information in the cockpit help, but they don’t prevent people from flying into bad weather. Even experienced pilots licensed to fly in bad weather are caught off guard and get killed. As the saying goes, “its better to be on the ground wishing you were in the air, rather than in the air, wishing you were on the ground.” Amen.

The second issue with which pilots have to contend is hitting something, either an obstacle like a tower or a bridge, or terrain, like a mountain. In the flying community, this is called “controlled flight into terrain” (CFIT). With cars, we know that if we stay on the road, we won’t hit a tree or a mountain. (What amazes me is how many 50 mph roads there are with no center divider, and how few head-on collisions there are.) With flying vehicles, we can fly anywhere, even right into something. The latest technology, which is now required equipment in almost all jets and turboprops, is called the Enhanced Ground Proximity Warning Systems (EGPWS). EGPWS, however, doesn’t prevent the pilot from flying into things, its just alerts him to the danger. Experienced pilots still fly into things.

Imagine yourself driving along and your car fails. Probably 99% of the time, you can just throw on the flashers and pull over (or coast) to the side of the road. Sure, the engine isn’t running, but you know what to do: turn the wheel and head for the side of the road. Now think about a failure at 5,000ft. What do you do? You either fix the problem and continue on your merry way or land. Most pilot training (initial and advanced) is spent learning to deal with in-flight emergencies because how one reacts in an emergency has a lot to do with getting on the ground safely. Some airplane manufacturers have installed the “get out of jail free card”: a ballistic parachute that can be activated in flight and will lower the plane to the ground even if a wing falls off. They claim on their website to have save 203 lives, but what they don’t say is that may lives have been lost in planes equipped with this system, even when the parachute was deployed. Even Cory Lidle’s plane had such a parachute.

Some people will see this post as pessimistic, thinking that I believe flying cars will never happen. What this post really about is identifying the challenges that a flying car would face if it ever became possible to put one in every garage. I am hoping to spur debate and research on solving these problems so that when the flying car becomes a reality, it will be for a much wider audience than just the trained pilot.

Posted in flying | 1 Comment »

Choosing Advisors

Posted by rbpasker on August 10, 2007

In a previous post, I covered the advisor role, so lets take a look at finding advisors for your own startup.

As I mentioned, advisors often act as mentors, so the first thing to do is make a list of people you already know who would make good professional mentors. For most people, former bosses and professors seem to make the top of the list, since they already know you, both the good parts and the bad. My friend and colleague, Bill Donner, has played this role for me for 25 years, and a couple of years ago I was honored to become an advisor to his startup. The benefit to having a former boss or professor as an advisor is that they know you well, and will usually give you candid advice, even when others are more circumspect. Mentors are among the easiest advisors to recruit, since you already have a relationship with them.

The second step is to go through your contacts and list the people you know who have been successful entrepreneurs or work in a leadership capacity in a larger company. These people know your industry, have been through many of the same things you are about to go through, have lots of contacts, and carry some weight in the industry. Recruiting advisors from this group is more difficult, as these people are either too busy or possibly retired.

The last category are industry experts in your field. Think about the (technical or business) problems that you are trying to solve in your startup, then figure out who the thought leaders are. Add them to your list. You’ll often find industry expert advisory boards at companies that require very specialized knowledge, such as medical device companies and security companies. You’ll also find industry advisory boards in companies that are building technology for highly regulated or bureaucratic industries, such as military, finance, government, power and health care. In these fields, having advisors who are well connected is crucial. Industry experts are notoriously difficult to recruit because they are always in demand, and if you don’t already know them, you’ll first have to establish a relationship with them.

Now that you have your list, go around to all the rest of the people who are involved with your company: board members, angels, investors, and employees, and even friends and colleagues. Go through the same discovery process with them, adding their mentors, entrepreneurs and experts they know to your list.

You now have to remove a few groups of people from the list: potential customers, acquirers, and angel investors.

You have to remove potential customers because their being on your advisory board could call into question their objectivity when you are ready to sell to that company. Say you are trying to sell to a bank, and your colleague happens to lead a team which could make good use of your product. You recruit your colleague as an advisor to your company. When the time comes to sell to that bank, your friend would probably have to sit out the negotiations, because he has a conflict of interest. Its better to keep your customer friends on the other side of the table, if you think you might be selling to them. After they become a customer, you can always add them to your advisory board.

You probably also have to remove from the list those who work at potential acquiring companies because their company might already be working on something competitive, or they are talking to your competitors. Having a potential acquirer as an advisor could also create a conflict of interest, or worse, hurt your company’s prospects by leaking confidential information. Whether they stay on your list is a judgment call based the level of trust you have with them.

Lastly, you need to remove potential investors, but not completely! I once said to Marc Hedlund “investors were the only people in a company who would give you money and then work for you, instead of the other way around.” So move your angel investors from the advisor list to your investor list. No reason to have them as an advisor if they will pay you instead of the other way around!

Now categorize your list into groups, such as: sales/marketing experts, operations experts, technology experts, etc., based on your company’s needs and goals. Then prioritize your list in two ways: those who are easy to reach and recruit, and those who will be the most help, keeping in mind the list of things you might need done, as I described in my previous post. This grouped, prioritized list should give you a pretty good idea of how to compose your advisory board.

Next up: recruiting advisors.

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Smoke City

Posted by rbpasker on August 9, 2007

In Fog gets in your eyes, Roger Shuy writes:

Fog, 83 degrees, winds west at 13 mph, humidity 16%.

Fog? When I looked outside, for the life of me I couldn’t see any fog. That black stuff in the air is smoke from the huge forest fires about 30 miles from here, dangerously close to Language Logger Sally Thomason’s summer cabin home… The reporter’s choice of “fog” to report “smoke” made me wonder about the inventor of weather reporting terms.

The reporting terms for weather are highly stylized and transmitted in a cryptic meteorological report called a METAR
These are METAR visibility definitions

b. Fog. A visible aggregate of minute water particles (droplets) which are based at the Earth’s surface and reduces horizontal visibility to less than 5/8 statute mile and, unlike drizzle, it does not fall to the ground.

c. Smoke. A suspension in the air of small particles produced by combustion. A transition to haze may occur when smoke particles have traveled great distances (25 to 100 miles or more) and when the larger particles have settled out and the remaining particles have become widely scattered through the atmosphere.

If the weather observation was made by an unmanned station, then the station may not have had the ability to differentiate between smoke and fog. Or the observation was made by a person, who was trying to communicate to the reader that the visibility was “less than 5/8 of a mile,” a condition is particularly important to pilots. Smoke , on the other hand, doesn’t specifically imply any loss of visibility. 

In either, case, the repertoire of terms available to the meteorologist is quite broad, but they are also meteorology terms of art, and not English.

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The Limits of Efficiency

Posted by rbpasker on August 9, 2007

In The Limits of Efficiency, Jimmy Guterman hits on the key mechanism I use to “get things done”:

take every incoming demand and immediately determine whether you need to do it, defer it, delegate it, or delete it

Over the years, I’ve tried to-do lists, sticky notes, “todo” email folders, etc. But it turned out that the list just got too long, and many things would just never get done. They’d languish for days, weeks, even months.

So now, I just decide immediately which things I am actually doing to do, and do them now, like today or tomorrow. If I decide I have going to do it but I can’t do it immediately, then I’ll put it my iCal to-do list. Otherwise I will politely decline.

I’ve also limited my to-do list a handful of items, and beyond that, I start deleting things I’ll never get to.

The one side benefit to this method is that I think it makes me more responsive to people who ask me to do stuff, as I can usually report success within a day or two. It also means I rarely say “oh, sorry, I’ve been to busy to get to it,” which is a sure way to piss people off.

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The Role of Advisor

Posted by rbpasker on August 8, 2007

As an advisor, I take on a consultative role to provide advice in my areas of expertise, make introductions into my network of contacts, and act as a reference for potential investors, customers, and candidates. This is not universally true, however. Advisors who are very well known sometimes act as “window dressing,” to burnish the company’s image, but they don’t often participate deeply in the company. I try to avoid these kinds of gigs simply because I like to actually be involved. Otherwise, why bother?

What I also find is that some companies are looking for something more fleeting: they are looking for a mentor and a sounding board, someone who they can talk to about the many challenges they face and can help them solve problems. Being a technology person (rather than, say, a financier, or a sales/marketing/bizdev guy), I bond well with founders/CxOs who are also technology people, and I can provide advice on engineering recruiting and team organization, on development processes, technologies, tools, and methodologies, and product strategy, competition, and implementation plans, in a way that investor board members typically can’t.

One of the benefits of having a well-connected advisor is getting access to the advisor’s network. Startups need access to finance (VCs, angels, debt), candidates, services and consultants (PR, legal, accounting, strategy, M&A), customers (F500/enterprise), partners (hundreds of important technology companies), technology providers, outsourcers, etc. I find myself making at least a dozen intros a week, across all these different categories, and I often join the conversations myself to kick things off since I know what each side wants and needs.

One myth about advisors is that they are somehow part of the corporate structure. But advisers differ from Directors – who serve on the company’s Board of Directors – in that Directors are regulatory positions elected by the shareholders to govern and run the company.

Another myth is that advisors have a predefined set of operational responsibilities. I’ve had some CEOs send me a list of tasks as an appendix to the advisory contract, saying “you will introduce us to such-and-such people, go to this-and-that meeting, etc.” Although I’m always thrilled when CEOs have a good idea of what they want me to participate in, I have never agreed to these kinds of task lists as part of the contract (more on contracts in another post) because I don’t think they capture the consultative nature of the role. If you want someone to do specific things, pay a consultant.

Similarly, I have had CEOs who want me to commit to a certain number of hours or days or per month because they’re concerned that I might be spread too thin and won’t spend enough time with them. But companies go through different phases, and sometimes they require much more time than others, such as during product planning, product launch, a financing round, etc. Other times, they may not need me at all for a month or two or more. What benefit is it to have me spend a day at a company when there’s nothing going on that I can help with? Or to leave an offsite on one day of a two-day event, because I’m only on the hook for one day a month? A good advisor will be there when you need him, and not need a specific time commitment.

There’s a good solution to both task list and the time commitment issues, but I’m going to save that for the post on contracts.

Lets look concretely as some of the advisory work I’ve done recently:

Engineering

  1. help hire 3 VPs of engineering. worked on the reqs, made intros to and interviewed candidates
  2. introduced 2 companies to development processes expert so they could do more agile development

Sales

  1. advised on segmenting business model into web sales, inside sales, and outside sales
  2. intros to sales candidates in various regions around the country

Marketing

  1. intros to PR firms
  2. lots of strategy meetings on product launch, positioning, competition, etc

Finance

  1. intros to various VCs, all of which resulted in meetings
  2. advised on deal structure and term sheets
  3. provided recommendations on the companies to VC
  4. made confidential background checks on various VCs
  5. got expert funding help from finance colleagues

Corporate

  1. helped identify and recruit CEOs, outside board members, and other advisors
  2. intros to ibanks to assist with M&A activity
  3. intros to potential acquirers
  4. participated in corporate strategy meetings

Biz Dev

  1. intros to OEMs and partners
  2. intros to technology providers
  3. intros and interviewed outsourcers

As you can see, the list is mostly networking and providing advice, and no operations, save an interview here and there. It also covers a much broader area of the business than just technology, which, for a guy who still thinks of himself as a programmer, surprises even me.

In the next segment, I’m going to talk about finding, recruiting, and hiring advisors.

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Google’s Unintegrated Blogging Tools

Posted by rbpasker on August 8, 2007

So, I’m trying to use Google Reader, Google Docs, and Blogger to read, write, and publish blogs. Unfortunately, these three systems are not well integrated.

When I’m reading an article in Reader that I want to comment on, I would like to be able to go directly into Docs with the referred article blockquoted, and have my completed post go right into my own blog.

What is currently stopping my from doing this is that Reader doesn’t have a blogging interface. It allows me to share and email a blog entry, but not blog about it.

I have the Blog This! scriptlet installed, but in order to use it from Reader, I first have to click on the article’s title to open the entry in a new window, and even then Blog This! only takes me into a pop-up, not into Docs. Also, when I’m in the Blogger post manager screen, clicking “edit” on a draft blog takes me into the crappy little Blogger editor, not into Docs.

What the Google folks need to do is pay attention to the blogger’s workflow in order to construct a seamless experience for their blogging platform.

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