Post-Mortem on Dovetail
OK, so Dovetail is technically still in business, so this is more of a personal post-mortem on what I did right and wrong at this startup than one on the company.
If there was one mistake I made in this one, it was hanging on too long. During the summer of 2006, we had already been working on the site for 1.5 years, and we had very little end-user traction relative to the amount of effort we'd put into it. We'd nearly burned through our friends and family money, and there wasn't a lot of hope. However, the market was hot: Grouper was sold, YouTube was about to be sold and traffic to competitive sites was growing. So, we buckled down, raised more money, and kept going. By the time I left, very little had changed from our situation a year earlier, except that I'd spent another year of time and money on it. I should have admitted it was done when it was.
Mistake #2 was going after such a big thing in my second company. I knew this was a classic second time entrepreneur mistake, and I did it anyway. Doh.
Mistake #3 was our selection of technology. We tried to make a Rich Internet Application using very advanced technologies. There is a place for this stuff, but I think we would have been better off just using AJAX or some already known technology. We were able to implement our Facebook app in a matter of weeks, but the GUI for the web site took significantly longer. Not good.
Mistake #4 was not attacking the risk factors soon enough. One of the biggest areas of risk was content. We knew we wanted to be 100% legal (unlike YouTube). We didn't even bother with the studios since we knew their licensing terms would be unacceptable. We all really enjoyed indie films and knew that the films needed better distribution. We spoke to a few indie filmmakers and they seemed interested, so that was enough for us and we set out working on the tech: really nice user interface, and back-end technology which supported reduced bandwidth costs through peer to peer. We knew that these high res films would require a lot of bandwith, and at scale we'd go out of business delivering that bandwidth. Unfortunately, we never really got to scale, and so the back end tech didn't matter: it turned out that the indie filmmakers didn't really want to promote/distribute their films, and people didn't want to watch them, so all the really cool tech that we made ended up being useless. Of course, it's possible that Brett is cooking up something really cool with the tech and this thing could rise like a Phoenix from the ashes, but my point is that we didn't attack the biggest risk factors first.
Things I feel like I did right:
1. Went after an interesting market that I was passionate about. While YouTube is really the only winner in the "online video" market right now, I still believe that a lot of entertainment will be delivered over the internet in the future, and that someone will successfully execute an innovator's dilemma attack on the traditional distribution companies.
2. Outsourced almost everything. Brett, Jason and I tried to outsource as much as we could so that we could focus on the things we thought we of the highest value. While we sometimes had to "take out the trash", I felt we did a good job of spending a big % of our time delivering value to the company.
3. Offshore engineering. During the time we were working on Dovetail, it became possible for small companies to offshore engineering. Brett did an amazing job of identifying great talent in Ukraine, and we worked together to develop processes for working with and managing the team there. Without that team, I don't think we could have gotten done what we did. If you know how to manage an offshore team, it can be a big competitive advantage. If you don't, it can be a big disaster.
4. Efficient capital structure. Because the company was controlled by the founders and owned by the founders and friends, family and a few angel investors, we had tremendous flexibility in our options for what to do with the company. A lot of founders equate fund raising success with business success, and that is a big mistake. If you raise $5M on a $15M valuation, the VC who put that money in is unlikely to let you sell the company for less than $100M. Those types of exits don't really exist, so you're looking at more like $300M+. That's a big deal! There are also exits in the $10-20M area, so if you can raise just a few hundred thousand dollars, then everyone can make money in an exit without having to grow into a relatively big company. I think this is the most efficient capital structure for internet-based software companies these days. If the small company ends up getting huge and you want to "go for it" and raise more money, then that's fine. Slide and Zynga are good examples of this, but they were also founded by people who were previously successful and for whom $20M would be a "failure". If you don't have $10M+ in the bank, then I think your best risk-adjusted return is to maintain maximum control and equity.
If there was one mistake I made in this one, it was hanging on too long. During the summer of 2006, we had already been working on the site for 1.5 years, and we had very little end-user traction relative to the amount of effort we'd put into it. We'd nearly burned through our friends and family money, and there wasn't a lot of hope. However, the market was hot: Grouper was sold, YouTube was about to be sold and traffic to competitive sites was growing. So, we buckled down, raised more money, and kept going. By the time I left, very little had changed from our situation a year earlier, except that I'd spent another year of time and money on it. I should have admitted it was done when it was.
Mistake #2 was going after such a big thing in my second company. I knew this was a classic second time entrepreneur mistake, and I did it anyway. Doh.
Mistake #3 was our selection of technology. We tried to make a Rich Internet Application using very advanced technologies. There is a place for this stuff, but I think we would have been better off just using AJAX or some already known technology. We were able to implement our Facebook app in a matter of weeks, but the GUI for the web site took significantly longer. Not good.
Mistake #4 was not attacking the risk factors soon enough. One of the biggest areas of risk was content. We knew we wanted to be 100% legal (unlike YouTube). We didn't even bother with the studios since we knew their licensing terms would be unacceptable. We all really enjoyed indie films and knew that the films needed better distribution. We spoke to a few indie filmmakers and they seemed interested, so that was enough for us and we set out working on the tech: really nice user interface, and back-end technology which supported reduced bandwidth costs through peer to peer. We knew that these high res films would require a lot of bandwith, and at scale we'd go out of business delivering that bandwidth. Unfortunately, we never really got to scale, and so the back end tech didn't matter: it turned out that the indie filmmakers didn't really want to promote/distribute their films, and people didn't want to watch them, so all the really cool tech that we made ended up being useless. Of course, it's possible that Brett is cooking up something really cool with the tech and this thing could rise like a Phoenix from the ashes, but my point is that we didn't attack the biggest risk factors first.
Things I feel like I did right:
1. Went after an interesting market that I was passionate about. While YouTube is really the only winner in the "online video" market right now, I still believe that a lot of entertainment will be delivered over the internet in the future, and that someone will successfully execute an innovator's dilemma attack on the traditional distribution companies.
2. Outsourced almost everything. Brett, Jason and I tried to outsource as much as we could so that we could focus on the things we thought we of the highest value. While we sometimes had to "take out the trash", I felt we did a good job of spending a big % of our time delivering value to the company.
3. Offshore engineering. During the time we were working on Dovetail, it became possible for small companies to offshore engineering. Brett did an amazing job of identifying great talent in Ukraine, and we worked together to develop processes for working with and managing the team there. Without that team, I don't think we could have gotten done what we did. If you know how to manage an offshore team, it can be a big competitive advantage. If you don't, it can be a big disaster.
4. Efficient capital structure. Because the company was controlled by the founders and owned by the founders and friends, family and a few angel investors, we had tremendous flexibility in our options for what to do with the company. A lot of founders equate fund raising success with business success, and that is a big mistake. If you raise $5M on a $15M valuation, the VC who put that money in is unlikely to let you sell the company for less than $100M. Those types of exits don't really exist, so you're looking at more like $300M+. That's a big deal! There are also exits in the $10-20M area, so if you can raise just a few hundred thousand dollars, then everyone can make money in an exit without having to grow into a relatively big company. I think this is the most efficient capital structure for internet-based software companies these days. If the small company ends up getting huge and you want to "go for it" and raise more money, then that's fine. Slide and Zynga are good examples of this, but they were also founded by people who were previously successful and for whom $20M would be a "failure". If you don't have $10M+ in the bank, then I think your best risk-adjusted return is to maintain maximum control and equity.
posted by Chris at 5:37 AM
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