MochaTalk

It is amazing how quickly the word gets out these days despite trying to operate in “stealth mode”. Barely 2 weeks after we had put up our web site, we were covered on Mashable (albeit briefly). Yesterday, we got a call from John Cook from Seattle PI wanting to know more about our venture. John Cook is an intrepid reporter who is very plugged into the Seattle startup scene. I would highly recommend his blog if you want to get the inside scoop on local startups and recent VC investments in the Seattle area.

John’s article about LiveMocha (Venture Capital: Creator of social startup LiveMocha a bit mum) is on the front page of the business section of the Seattle PI today. While I didn’t go into specifics of our venture, the article accurately describes our strategy – which is to dramatically transform a large market niche we have identified by applying the latest Web 2.0/social networking concepts. John correctly identifies that “Social networking may be one of the most overused buzzwords of the new Internet era. But the concept — using the Internet to share information and connect people of like-minded interests — is rapidly catching hold as millions of people set up profiles on MySpace, Facebook, LinkedIn, Flickr and other sites.” While there is certainly a “gold rush” mentality these days around social networking, there is no doubt that it is transforming the way users (especially the younger demographic) are interacting with each other over the internet. As I had mentioned in one of my previous blogs, I view this phenomena as creating a “platform shift” and if you are first in your market to leverage the platform shift, you have the opportunity to disrupt markets, create significant value and displace incumbents.

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Starting TeamOn was a great lesson in the school of entrepreneurship. While I had some great “entrepreneurial” learning experiences during my early days at Microsoft, there is no substitute to starting a new venture on your own. Especially, if there is no corporate parent to back you up if you make a mistake. Here are some key learnings that hopefully many of you will find helpful.

Be persistent but know when its time to change
This is a tough one pull off. Most entrepreneurs are successful because of their single minded focus and passion. For sure, you will hit many tough obstacles on the way so having the confidence and belief in your ideas is essential. At the same time, you need to have the discipline to step back every so often to evaluate whether your idea is working or not. And you need to get others involved (your co-founders, board, key employees) so you can truly get unbiased feedback.

It is very hard to acknowledge that the time just isn’t right for your original idea. But you have to be flexible and take what you have built and search for an alternative market. In our case, after a year and half of pursuing the small business market without significant success, we switched strategies and ended up ultimately making the right call in pursuing the wireless market.

Spend Money Wisely
Seems obvious – right? Especially after all the dot com excesses. But I still see many companies, after raising their VC round, hire hundreds of employees without having a firm handle on their business model. Not to mention hiring a bunch of expensive executives who are typically are not willing to get their hands dirty.

At TeamOn, we were lucky to have raised $15 million. But unlike many of our competitors, one of whom burned through over $20 million in a year and half, we were very careful in spending our money. We kept our burn rate low and whatever money we spent on marketing was focused on measurable customer acquisition programs. This gave us the time and flexibility to reshape our business plan and target a much better market opportunity.

Focus on building your value proposition before scaling it
BlackBerry is a perfect example here. RIM first focused on perfecting their offering on a single device, a single network and a single market. Their initial growth rate was relatively slow – it took RIM several years to get to the first half a million users. Once they had perfected their offering and model, however, the wireless carriers came knocking on their doors. The BlackBerry became the only proven wireless data solution that could deliver over $40 of ARPU (Average Revenue Per User) while consuming precious little data bandwidth. Once the model had been proven, it took RIM only 3 more years to go from 500K users to over 5 million users.

It is never too early to focus on your business model
A lot of people will tell you to focus only building on your user base and worry about making money later. That’s probably true for instant hits like YouTube or MySpace who achieved the scale to make an ad model work. But for the rest of us, just focusing on building a user base is a luxury one can’t afford. Giving away services for free is easy – it is much harder to figure out how to make money. It is going to take a lot of experimentation to get it right, so might as well start early. Figuring how to successfully charge for your services has many benefits – 1. You can figure out what you can afford in terms of cost of customer acquisition 2. You have greater ability to grow organically vs having to raise money from VCs 3. Even raising money or selling to another company becomes easier because you can point to a working business model

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The early 2000 years saw the emergence of the BlackBerry as the next generation connected PDA. Virtually every VC was carrying one. Even though the BlackBerry’s installed base was only in the hundreds of thousands, it was clear that e-mail would become the killer application on the new wireless platform (as it had on every other platform). While BlackBerry was the emerging leader in the enterprise space, the consumer market was wide open. The wireless carriers had also deployed GPRS – while it was slow, it provided the data network needed to enable wireless data applications like e-mail.

At TeamOn, we had developed a unique e-mail technology where we could access virtually every proprietary e-mail system out there – from AOL, Hotmail, Compuserve to even corporate e-mail systems such as Microsoft Exchange and Lotus Notes. Through a lot of hard work and some luck, our team had reverse engineered all of these e-mail systems – feat which was unique among all the wireless e-mail providers. We had also invested a considerable effort in making the provisioning of the user’s e-mail application incredibly easy. Most users only had to enter their e-mail address and password to provision their e-mail account. No more asking users for their POP mail server settings – something most users had no clue about. No user would have the patience to enter all this information on their handset so ease of provisioning was imperative to our success.

Our unique capabilities soon caught the eye of T-Mobile who we signed up to deploy our wireless e-mail solution across all their handsets. At around the same time, RIM was also looking to extend their reach into the “prosumer” (mobile professional) space. We began discussions with RIM initially to license our technology to enable RIM to provide a solution to the mobile professional user. However, as we started gaining traction, RIM soon approached us to acquire the company. The prosumer market was too strategic for RIM and without our technology RIM would not have a compelling solution. They could also take out a potential competitor and better yet make sure none of the other handset vendors gained access to our technology.

Being acquired by RIM was a good exit for TeamOn. BlackBerry was a clear leader in the emerging wireless e-mail market. Through RIM we had the opportunity to get our technology deployed with the largest wireless carriers throughout the world. In the end, the sale turned out to be a good decision for both TeamOn and RIM. The TeamOn e-mail technology, now offered by RIM as BlackBerry Internet E-mail has over 2 million users validating the technology we had built. And RIM was able to extend its market leadership position from the enterprise space to the prosumer market despite fierce competition from Windows Mobile and Palm.

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The original idea behind TeamOn was simple. Ever since the Hotmail acquisition, I had been enamored with the Hotmail value proposition and the tremendous success that it had achieved in the consumer space. So I asked myself why the same concept couldn’t be applied to the small business market. Essentially, add the group collaboration features offered by Microsoft Exchange but without the expense or hassles of managing your own Exchange server (this was before hosted Exchange became viable). Given the large size of the small business market, it seemed like a great business opportunity.

We raised a total of $15 million from Internet Capital Group and Madrona ventures and a number of prominent angels such as Sabeer Bhatia (Hotmail founder) and Pete Higgins (former Group VP at Microsoft). Fortunately for us, we were able to do so at the height of internet boom. Unfortunately, the internet economy collapsed soon, thereafter. Our strategy was to partner with leading broadband providers, ISPs and portals to deliver our service offering to the small business market. However, all of our potential partners were in a world of pain making it difficult to strike the partnerships we needed to build our user base. Despite the challenges we did manage to strike partnerships with leading companies such Earthlink and OfficeMax.com and build a reasonable user base.

It became clear, however, that our original idea was not going to be a viable business proposition – at least not in the business environment that we faced. Fortunately, we were very careful with how we spent our money. We didn’t go crazy hiring hundreds of employees or advertise in Superbowl (which one of our competitors actually did). We had built some great e-mail technology so we started looking at other markets where we could profitably apply our technology. The market that we identified was wireless – this is where we ultimately gained traction leading to a successful exit through an acquisition by Research in Motion.

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