GC: Yes. And consulting led to product sales, and product sales led to consulting work. It was a nice cycle, one used by many vendors today. A lot of IT sales is actually consultative sales, where the solution you provide is a combination of products and consulting. In middleware (which is what we built), that's very true.
SA: What do you think of the market now for existing or would-be entrepreneurs?
GC: Tough, challenging, but full of opportunities. It's tough because funding is scarce and good people are very reluctant to move and take risks. So two of your most important assets are tough to acquire. It's also tough because IT budgets are tight. So if your business venture wants to sell to Fortune 500 types of companies, you're going to have a hard time closing the deal. But this means that the landscape is wide open for people with a strong team, a solid business plan, and perhaps an ability to survive for the next year or so to really take a leadership position in the marketplace.
SA: In other words, those that succeed will have staying power? (I agree completely, by the way)
GC: Yes, exactly. It's almost all or nothing. If your business and idea are compelling and real enough, you will have no trouble attracting funding and people, because they're out there! But the threshold for success is higher than before.
SA: Back to the funding... how do you recommend finding a good VC?
GC: I guess if you're a new entrepreneur and it's your first time around the VC circuit.....
(1) Know yourself and know what you're selling.
(2) Know the VCs, their portfolio companies, investment strategies, and what they're likely to be interested in.
(3) Do research (ask people) and find out which VCs have a "good" reputation. Which ones are good to work with, etc., and
(4) Network like crazy so you can meet them.
We met M/C at a conference in Boston serendipitously, did some research later, and found out that we were either a great fit, or a very bad fit. Turned out to be the former.
SA: Sage advice! Where do you see innovation happening in the future?
GC: Most likely in places I did not expect! But I'm intrigued by what's going on in developing countries. For example, I read that the government of Argentina has decided to standardize on open source software rather than off-the-shelf software because it made more sense to them economically. And other countries such as Bangladesh and India are doing similar things, if not at the government level, then at the grass-roots or even corporate level. With all these nations building software to solve real-world problems using open source tools and technologies, I expect that there will be a deluge of new innovation in that space in the next decade or so.
SA: I happen to agree. Any given software market segment commoditizes over time, and as it matures, bundling from the larger vendors and open source alternatives tend to squeeze the middle. I think there's a very short window of opportunity (2-3 years in current market conditions) for an innovative company to make a profit. If they don't almost completely dominate that segment within that time frame, they're destined for either an unfavorable acquisition or failure. Or they have to reinvent themselves.
GC: I think that's an astute observation. You have a lot of factors that affect that window...
(1) Value proposition must remain current. If you don't solve it in that timeframe, others will, and you'll be squeezed out
(2) As you point out, larger vendors and open source alternatives will come up with solutions, especially if your idea is a good one.
(3) If you don't turn a profit in that timeframe, you'll most certainly run out of cash and will have a tough time raising additional capital, which will doom you to the fates you mentioned.
Keep reading at Part 4: Volunteering