Boston startups should be focusing more on creating strategic partnerships with big companies.

An “if we build it, they will come” mindset appears to dominate the Boston startup scene. Too many startups also rely mostly on a pricing and plans revenue model combined with implementing the latest inside sales and marketing 2.0 tools to “get found” while driving demand. A complementary and proactive approach in targeting big companies for strategic partnerships is needed.

Wake up… Most big companies have realized that their current set of technology providers lack the innovation and speed to deliver new competitive solutions. There are new sets of problems that need to be solved that may not have existed even a few years ago. As a result, new innovation programs and budgets have been established, led by senior executives. Their motivation is to fund pilots with emerging technology providers that most times lead to a much larger transaction and partnership strategy. Interesting areas include mobility, social, analytics, and cloud computing.

Take advantage of these customer-funded opportunities as these dollars may also complement your angel and VC funding efforts. Plus, for those leveraging lean startup principles, incorporating a big company “voice” to validate your product development roadmap may commit them to buy additional products and enhancements in the future.

If big companies are approached correctly, senior executives leading innovation programs will make swift decisions. Unfortunately, there are major challenges I see within the startup community to take advantage of these budgets. These include:

• Little focus on proactively targeting big companies. Also, the startup team and their mentors may not possess the sales skills or experience to effectively connect with and relate to big-company senior executives.

• Boston startups are too focused on the product and technology. Big companies are also evaluating their ability to work and collaborate with the startup team. Chemistry is important to these executives.

• You are not the center of the universe. There may be additional value in extending and leveraging existing ecosystem investments.

What I am describing here is not an outdated sales process where the cost to acquire a customer is high and the sales cycles are very long.

Keep in mind that big companies would rather … Next Page »

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It’s a question as old as human nature. You’ve heard the stories, you know all the famous examples. Steve Jobs, Larry Ellison, Michael Eisner, the list goes on. All difficult characters with strong personalities—and hugely successful companies.

So, in today’s ultra-competitive tech and business world, does a CEO have to be an asshole to be successful?

First of all, let’s get our terminology straight. There’s no hard and fast definition of the term, but you know it when you see it. Bullying or backstabbing behavior towards subordinates or partners? Check. Public humiliation of employees? Sure thing. Tantrums, abrasive language, egomania, and other unprofessional displays? Yep. (See a related Xconomy story about bad bosses.) But more subtly, there’s stuff like not returning messages, passing people off to underlings, talking way too much, and saying different things to different people. And more generally, not caring what other people think. Which, of course, can also be a very good thing.

Some months ago, a group of prominent Boston-area tech CEOs discussed this question of “assholicism”—rhymes with Catholicism—at their regular meet-up. Some may have felt they should be tougher leaders or negotiators. Some wanted to pick up management tips and strategies. Others were reflective about their own styles that have served them well. So…is it necessary to be a jerk? Apparently the discussion took all day (and even came up in multiple meetings).

The upshot: Yes, a CEO has to be somewhat of a jerk to succeed. At least, it can be helpful—but there were plenty of caveats.

“It was concluded on some level that this was the case,” says Dave Balter, the CEO of BzzAgent (owned by Tesco’s Dunnhumby), who was part of the group. “But there was a huge amount of debate and not everyone agreed.”

One of those dissenters would be Brian Halligan, CEO of HubSpot, the fast-growing marketing tech firm. Reached by e-mail, Halligan said that being a jerk “used to work” for leaders, but that “it is not acceptable today.”

His main reasons—neither of which I would call deeply fundamental to human psychology or the nature of leadership—are that “smart GenY-ers don’t put up with that stuff,” and that corporate information flow and reputations have become more transparent, so CEOs can’t get away with bad behavior anymore. It “used to be that information was centralized at the asshole,” he writes.

I also pinged Brad Feld, the tech entrepreneur-investor, while he was in town. He was unequivocal that good leaders don’t have to be jerks. “Some of the sweetest people in the world are super successful CEOs,” he says.

So perhaps there are deeper trends at work here. … Next Page »

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The evolution of Constant Contact continues. The Waltham, MA-based online marketing firm (NASDAQ: CTCT) said today it has acquired Boston-based CardStar, a maker of a mobile app that lets people consolidate their loyalty and rewards cards. Terms of the acquisition weren’t given.

The deal represents Constant Contact’s first foray into mobile rewards technology aimed at helping small businesses stay connected to consumers. CardStar’s app lets people create a digital version of their physical membership cards (for retail stores, gyms, and so on) all in one place, on their smartphone. CardStar started in late 2008 and has four employees joining Constant Contact, including founders Andy Miller and Danny Espinoza. The startup says it has more than 2 million active users.

“I was a user before I was an acquirer,” says Constant Contact CEO Gail Goodman.

And acquiring CardStar makes a lot of sense for Constant Contact, which has been working to transform itself from an e-mail marketing firm into a one-stop shop for small businesses trying to reach customers through social media, online marketing, rewards programs, and other methods.

“This acquisition is at the intersection of everything we do,” Goodman says. “As we look at what small businesses are trying to do, they are trying to use every possible channel to reach customers—e-mail, social, mobile. At the core of that is a loyalty program. Andy and his team will help us weave those pieces into a really simple, really impactful application on the merchant side.”

Goodman declined to give specifics on any upcoming mobile products, but she emphasized that CardStar’s app will continue to run, and that more is on the way. “We are on a pretty aggressive product roadmap,” she says. “Much of what we’ve done has loyalty at its heart. Our customers have always wanted to take that a step further. But without mobile, it’s pretty hard.”

As for why Constant Contact chose CardStar over other companies in the mobile couponing and rewards sector, Goodman pointed to the startup’s traction with consumers and the culture fit with her team.

Constant Contact says it has more than 450,000 customers, mostly small businesses, nonprofits, and associations. Last summer, I spoke with the firm about its plans for innovating as a young public company (IPO in 2007), and about the biggest technology shift in its 13-year history (integrating Web software with existing database systems, among other things).

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From cloudy Seattle to the vast suburbs of Silicon Valley, we covered a lot of ground on MIT Sloan’s recent technology trek, which concluded with a leg in Boston.

The first stop was Seattle where it was predictably raining. Visiting Amazon, Microsoft, and Adobe, we came away with an appreciation for how much tech activity is actually going on in that city.

At Microsoft, we got to talk to alumni about what it’s like to work there. Yes, it’s a large company and therefore bureaucratic, they confessed. But, the huge plus is that they have the resources to work on some very innovative projects. Amazon also was big, but the theme there was its quirkiness. In addition to all of the desks being made out of doors, they also have whiteboards everywhere, even in the elevators. I made sure to leave an “MIT Sloan was here” tag in one of the elevators!

Adobe seemed like a more typical office where they provide a pleasant work environment with lots of exposed brick and wood. Overall, I could really see myself enjoying working in Seattle.

Moving on to Silicon Valley, it was noticeably sunnier and warmer. It was also a lot bigger. In Seattle, you could probably get by with just a bike and public transit, but good luck to anyone who tries that in Silicon Valley. Here, you definitely need a car. Being settled with a family might help too, as the area is comprised of endless suburbs punctuated by large office parks where the tech companies are located.

If you want to live where the action is, you’d need to get a job in San Francisco or do the 40-minute commute each way and hope for no traffic. I guess I should point out that Palo Alto does have a downtown, but it’s just two or three streets and most people would still have to drive there.

As for the tech companies, most of the ones we visited were in Silicon Valley and all offered quite a lot of amenities compared to what we saw in Seattle. Free food, gyms, yoga classes, dry cleaners, and acupuncture were just some of the perks you get at most of these companies. I guess they need these things to entice people not only to live away from the city, but also to work some pretty long hours.

For example, the employees at Facebook—who all seemed to be in their 20s—joked that working at some firms in the Valley is like working in a sweatshop. Employees are expected to work extremely hard, but they also provide an endless amount of food that includes a rotating candy of the week. Facebook keeps its employees well fed, caffeinated, and hydrated with the largest cafeteria of all the tech companies we visited.

Google had a similar environment with lots of … Next Page »

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The world is only going to become more technological and more global in the next decade. Students should be getting a solid enough grounding in mathematics, probabilistic thinking, physics, chemistry, biology, and engineering that they understand these ways of thinking and the values of these fields. They also need a liberal arts grounding and, particularly, well developed verbal and writing skills.

Finally, they need enough experience with the rest of the world that they are comfortable interacting with people who come from different cultures and in foreign venues. A foreign language is often a very valuable asset and for people who have backgrounds in multiple cultures—learning the languages of their parents can be an extremely effective preparation for a global career.

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A decade ago, scooters and mopeds made up the bulk of motorized transport in India. Today, motorcycles and cars of all makes are a common sight, from Harley Davidson and French carmaker Renault to Suzukis. India is undergoing important socio-economic shifts that are resulting in the segmentation of existing markets and the opening of previously nonexistent ones.

Even though India seems full of opportunities and market potential for almost any foreign product, it requires a lot of sensitivity and awareness because the complexities arising from its heterogeneity make it a challenge for companies looking to copy-paste business models from abroad. In addition to experiencing growth in the consumer market, India is also the stage for an emerging entrepreneurship sector.

Big retail is a prime example of how the diversification of India’s class structure is creating new market opportunities. As little as five years ago, the viability of giant retail stores operating in India would have been seriously questioned. In her book Winning in the Indian Market, published in 2006, India’s leading market strategist and consumer analyst, Rama Bijapurkar, explains that large discount retail outlets in Indian cities have failed for multiple reasons. The principal one being that supermarkets cannot cater to India’s lower income groups because they live day by day and do not have the discretionary income for volume purchases, even at a discounted price. The model adopted by manufacturers of fast moving consumer goods (FMCG) is small quantity at an even smaller price. An example of such would be hotel-like sachets of shampoo for two rupees (0.04 USD); these small packaged goods accounted for 40 percent of the sales of FMCG. Nonetheless, India’s rapid growth has given rise to a new socio-economic group that is filling the demand void, allowing hypermarkets to set up shop in India.

India’s middle class has grown tremendously over the years, due in part to substantial investment in education, and a booming job market fueled by foreign investment. India is outputting almost half a million engineers a year, amongst others skilled employees. Salaries are on the rise with 11.7 percent hikes in 2010 and a projected growth of 12.9 percent in 2012, according to consulting firm Aon Huwitt. Devinder Mahna, general marketing manager at Mechelonic Engineers, explained that it is no longer infrequent for engineers graduating from top schools to find jobs with salaries closely matching those they would find in the U.S. Even though this is not the norm and many will only earn between 400 and 700 dollars a month, it is still preferable for them to buy their groceries at a one stop-shop location rather than waste time purchasing their goods in the various specialty stores.

Even though many of these young wage earners shop at big retail outlets and drive a Chevrolet, it does not translate into a general infatuation with western goods, for the simple reason that Indian and western consumers have diverging tastes. Satya Bonala, head of Delhi-based market research firm Vox Populi, argues that many multinational companies have often made this mistake. India, having 20 officially recognized languages, with dozens more regional tongues, each with its own culture, is an extremely heterogeneous market requiring products tailored to each segment’s needs. Bonala went on to explain that The Coca Cola Company learned this lesson when it attempted to re-introduce its product in India after almost a 20-year absence, by … Next Page »

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Into the lair of beasts strode Adam Goldstein. Armed only with his wits and a mean set of slides, he descended on the Boston area on a warm, early winter day. He was no stranger to the premises. Goldstein had been an MIT undergrad before moving to San Francisco to participate in the Y Combinator startup program with his online travel company, Hipmunk.

Goldstein, the startup’s CEO and co-founder, spoke at Xconomy’s “6×6: Six Cities, Six Big Tech Ideas” conference earlier this month, representing the Bay Area. I say he was among beasts because Boston is the land of heavyweight travel firms such as ITA Software (now part of Google), Kayak, and TripAdvisor, and upstarts like Hopper, WaySavvy, and SilverRail (now based mostly in the U.K.). And Goldstein has been on record saying other travel sites “have really dropped the ball on flight search.” (On the other hand, Hipmunk formed a licensing partnership with ITA about a year ago.)

Indeed, the whole culture of Hipmunk is about coming “into an established industry with a focus on usability,” says Goldstein, in a polite-but-firm jab at the big players who don’t seem to care as much about being user-friendly. (As for the company’s name, let’s just say the cute-animal logo is its main justification.)

I must confess, I was skeptical at first. Since part of me still lives in the ’90s (the early to mid-‘90s, mind you), any bluster from new travel sites tends to fall on numb ears. Most travel sites seem pretty much the same, and even the worst ones are still more convenient than what people like me used to do, which is call up travel agents and individual airlines, get some options, and repeat until settling on a purchase. Hipmunk is about making the whole search process simpler, more intuitive, and more visually interactive.

But there’s only so far that can take you as a business, as my colleague Wade probed a few months ago. What stood out to me most about Hipmunk is its strategy of building a business by focusing first on getting lots of loyal customers—not trying to cash in on every eyeball.

“The entire world, especially in the world of travel, has become sort of addicted to the idea of making as much money as possible from each time someone visits their website,” Goldstein said. “What that’s led them to do over time is bombard their customers with advertisements and pop-up windows and all sorts of other things that just distract them.” Conclusion: Hipmunk won’t make money from ads, just referral fees when people book trips. But it does need to gain users—lots of users.

Here’s a short video interview with Goldstein, conducted by my colleague Lilly O’Flaherty. I like the part at the end where he references a talk by Northrop Grumman’s Bill Walker, also at 6×6, on high-altitude UAVs (unmanned aerial vehicles). Heck, maybe someday an entrepreneur will pitch an idea for a company that’s a “Hipmunk for UAVs.”

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What happens when a biotech company disappears? We think that the Web remembers everything. Do a search on Wikipedia for Immunex and you get Amgen, with little mention of Immunex at all. The results of over 500 publications and several thousand employees over 20 years are pretty much invisible on the largest collection of facts on the Internet.

One of the most successful stories in Seattle history and it is mostly gone from view. Ten years ago, Amgen announced it was buying Immunex. Xconomy will be commemorating this historic event in December.

Immunex may be gone from the Web but the lessons it taught still have impacts today. Before Immunex completely disappears from view, I wanted to discuss Five Lessons Immunex Taught Me.

• Get to decision points rapidly.

• Live in the gray.

• Size matters.

• Leverage insurrection.

• Vet in the open. And then vet again.

I was a researcher at Immunex for 16 years as it grew from a small community where everyone knew each other to a large, global undertaking with people spread out in multiple locations. While some of these lessons may be part of any good MBA program, there is nothing like dealing with the day-to-day reality to drive the lessons home.

I’ve used these lessons over the 10 years since leaving Immunex – as a Vice President in charge of research at a biotech startup, as a founder of my own organizations, as well as in collaborations with other organizations such as the Sustainable Path Foundation, the WBBA, Global Health Nexus and the Washington Global Health Alliance.

Caveat lector: These are my recollections about events – some of which are over 25 years old—so forgive me if I do not get the events exactly right. After all, these are the lessons Immunex taught me. Others may have learned something different.

1) Get to decision points rapidly. Immunex always worked towards a decision point, an action that would permit us to either kill the project, move forward or change direction. Simply delaying a decision was almost never a consideration.

Shortly after joining Immunex, I was a member of a presentation we gave to one of our collaborators – a company with lots of proprietary chemicals looking to find pharmacologically important ones. Steve Gillis was there along with several other Immunex scientists.

In contrast to the Immunex crew, the people we met seemed more interested in finding reasons to delay a decision for six months or so than in what we had to present. They kept nitpicking rather than moving forward. Any excuse to delay a decision was good enough.

For example, we produced a standard operating procedure for performing a biological assay we had developed to use with their chemicals. It described how to grow the particular cells at several specific temperatures such as 35°C, 37°C and 42°C.

The response from our collaborators? “What about 40°C or 39°C? Or 22°C? We want those in the SOP also. The entire thing needs to be redone to include these.”

Gillis exemplified the Immunex response to this – he simply told them not to run the procedure at those other temperatures. Decision made and we just moved on.

The large company seemed to be afraid to accept our protocol at all, perhaps because they might make a wrong choice. Being wrong was a greater transgression than delaying a decision.

Saying “yes” could be a mistake and so could saying “no.” Delay meant “maybe.” Who could make a mistake with “maybe?”

But delay itself is a decision and usually a poor one in a rapidly moving field, making it very hard to adapt as circumstances change.

That may be why our collaborator never became a big leader in the biotechnology arena. We created billion dollar therapies.

Get to those decision points as efficiently and as effectively as possible, then actually make a decision. This is critical for an innovative company.

Move forward, kill it or change directions. Delay actually can be the same as moving backwards.

2) Live in the gray. While seemingly contradicting the previous point, this actually follows from a key aspect of decision points – the need for as complete a set of data as possible.

Good data is critical for making a decision. Incomplete data can destroy any decision.

Like the Fog of War, the gray of the Fog of Science that often surrounds biomedical research can punish decisions made without proper supporting data. Do we have enough data to let us move forward, kill it or change directions? If not, can getting more … Next Page »

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“You will have meltdowns on a regular basis. You will have those moments. Make sure you have people you can talk to when you have those moments.”

That was Brad Feld, the tech entrepreneur-turned-venture-capitalist, on Friday afternoon, speaking to a room of Boston and New York entrepreneurs and angel investors, at an event organized by Silicon Valley Bank. The setting was the Microsoft NERD center in Kendall Square, Cambridge, MA. Feld was talking about the experiences that all founders (especially CEOs) go through with their companies.

Feld is the co-founder of Boulder, CO-based Foundry Group and TechStars, the seed-stage startup accelerator with programs in Boulder, Boston, Seattle, and New York. He relates very well to early-stage tech entrepreneurs, because he’s been there and done that himself. In his typical style, Feld spoke casually (and candidly) about the challenges of building a company. None of it was particularly earth-shattering, but it’s interesting to revisit these sorts of tips every once in a while, because different things jump out at you at different times.

Feld’s advice boiled down to two things: products and people.

1. “Be obsessed about your product.”

“The most important thing to focus on, early in the life of your company, is your product. In year two, it’s your product. In year 20, it’s your product,” he said. “If you focus on your product, most of your other problems will go away.”

But he has a broader definition of product—it’s not just the software you release, or your technology, or even your interface with customers. “The whole of the company becomes the product,” he said. “The whole lifecycle of what you do.”

That means entrepreneurs should be totally passionate about what they are building—not just starting a company to be their own boss, say—and they should be true to themselves. Feld admitted that with his first company, he got bored after four years. “I didn’t love the thing I was doing,” he said. (He sold it after seven years.)

2. “You cannot motivate someone.”

“The idea that a CEO can motivate people is a fallacy. All you can do is create an environment where people are motivated or not,” he said. Companies will make bad hires—talented people who aren’t a good cultural fit with the rest of the team—and they should get rid of those employees quickly, according to Feld. “You can’t change them,” he said, and you can’t “try to motivate people to work harder” through things like performance reviews. That simply doesn’t work, at least not for small startups.

Instead, founders need to continually make sure they are bringing on the right people for their team, communicating openly, “building the language of the company,” and tying that formative context and culture very closely to their product, he said. This will mean very different things for different companies, and it’s certainly not an exact science.

Feld said he sees a common mistake in young startups. “The CEO ends up doing a lot of the work,” he said, and “the non-CEOs don’t do the right work.” The CEO’s chief responsibility, over time, is to make sure “everyone is doing the right thing.”

Oh, and one more responsibility: “Don’t run out of money,” he said.

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John Lechleiter has spent his entire 32-year career at Eli Lilly, and now he’s the CEO just as the company faces one of the bigger challenges in its history. Over a three-year stretch, Lilly will lose patent protection on five blockbuster drugs that generated $12.7 billion in sales last year—more than half of its revenues.

The pharma industry’s inability to produce a crop of innovative new medicines to replace the aging blockbusters is a well-worn narrative. But Lilly has taken heat for bucking a couple of popular coping strategies. One, it has resisted the urge to get tied up in a mega-merger like Pfizer/Wyeth, Merck/Schering-Plough, Roche/Genentech that often creates some kind of illusion of improved performance in the short term. Two, it has continued to ratchet up R&D spending to $4.9 billion last year even as other companies have turned to cost-cutting.

I met with Lechleiter to talk about the state of Lilly (NYSE: LLY) and the pharma business for about a half hour on Friday while he was in Seattle doing community outreach at the Washington Biotechnology & Biomedical Association’s annual meeting. We talked mostly about how pharma can get out of its current rut, and he was also willing to field a few questions that readers sent to me via Twitter.

It was a long conversation, so I’m breaking this into a special two-part edition of BioBeat. The second half of the chat will run tomorrow, featuring Lechleiter’s responses to the questions that readers relayed to me via Twitter.

Xconomy: You’ve made a decision to continue to invest in R&D at Lilly when a lot of other pharma companies are cutting back. Some on the Street are wondering why pharma companies are doing research at all, why not get out of that line of business? Give up, and in-license everything from biotech companies. Why continue doing research within Big Pharma?

Eli Lilly CEO John Lechleiter

John Lechleiter: I’ve been employed here 32 years, and we’ve been around 135 years as a company. Success has come, in general, from taking a long-term view. We invest in a steady and a patient way. We have a pipeline today of about 65 or so molecules, and most are coming from internal research. We work with partners, but it’s mainly driven by what I call our internal research engine. It’s the most exciting pipeline we’ve ever had. Many, but not all, of those pipeline molecules will mature into products. We’ve got to have the discipline and the courage to stay with that.

We can look back over the last 10 years and make a critique, whether it’s a Lilly critique or an industry-wide critique, which says we haven’t been as productive as we had hoped. But that doesn’t mean we should abandon ship. Industry always moves in cycles. Sometimes they are long cycles. Sometimes they are 10-year cycles. My own personal belief is that we are in a new era of higher research productivity. And that will be reflected in medicines that come out of our pipeline and other people’s pipelines.

The other thing is, new medicines just don’t grow on trees. There’s no universe of exciting molecules from “biotech” companies out there that are ready for the picking. If there was, you’d see even more deal activity than you currently see. Do we work with biotechs and academic institutions? Are we surveying that landscape? We are. But if I have to place a bet—and as a CEO you always have to place a bet—the bet I’m placing is that research efforts largely driven through our internal investment strategy, and working with partners around the world, is the best strategy for Lilly.

There’s no question we are focused on research productivity. I think we’ve achieved some pretty big gains. We are placing more than a dozen molecules a year, some years as high as 15-17 molecules, into clinical development. This is a huge step up from the kind of output we saw from our discovery efforts 10 years ago, and it augers well for the future.

X: But how many new FDA approved products have you introduced in the last, say, five years? Two?

JL: In the last five years, we haven’t had a lot. But in a period from 2002-2005, we … Next Page »

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His last name means “forest” in Norwegian. Which is appropriate, because this guy sees the forest for the trees.

David Skok of Matrix Partners is one of the most talked-about venture capitalists in town, among young entrepreneurs and experienced ones alike. He is best known for his investments in JBoss, the open source middleware company (acquired by Red Hat for $420 million in 2006); AppIQ, the network and storage management firm (bought by HP in 2005); Diligent Technologies, a data protection company (bought by IBM in 2008); and CloudSwitch, a cloud infrastructure startup (acquired by Verizon this year). He currently serves on the boards of tech companies such as HubSpot, CloudBees, Digium, Enservio, and Solidworks.

Critics say he hasn’t had a big exit in a while. Supporters say he has a real knack for building companies and getting them acquired for good prices—and that what he touches often turns to gold.

Whatever you think of him, Skok has carved out a reputation as a hard-working investor with both technical expertise in business software and a deep understanding of sales and marketing from a customer’s perspective. For the past decade, he has been a general partner with Matrix. But when I sat down with him recently, I was more interested to hear about his previous life as an entrepreneur and five-time CEO, and how that shaped who he is today—both the decisions he makes as a VC, and the kind of mentorship he provides to startups.

It’s not quite Batman Begins or Casino Royale, but here is the David Skok origin story—and its lessons—in three parts.

Act I: A New Hope (Software)

The story opens in Johannesburg, South Africa, where Skok was born to an English mother and Norwegian father. His parents didn’t want him to grow up with apartheid, so they sent him to school in England, where he lived from age 8 to 20, in London. From there he went to college at University of Sussex, where he was part of the first class of graduates in England to be awarded computer science degrees. That was 1976.

His father made him come back and join the blue-collar family business, which involved machining equipment. He went to apprentice training school and survived his first week when all the tough guys tried to haze him. By the end of the course, he knew how to use a new tool for machining parts that followed a program stored on punched paper tape. The problem was, if there was a tiny error in the tape, the part would be ruined and “you’d have a huge wreck on your hands,” he says.

So Skok wrote a piece of software to get around this. “If you designed the part on the computer, you’d be able to do the machining without worrying about the geometry,” he says. That led him to start his first company, Skok Systems, which became a computer-aided design (CAD) firm.

“I’m accidentally an entrepreneur,” Skok says. “I didn’t plan to be an entrepreneur, I didn’t have any training in it, I didn’t have any mentors to turn to to teach me how to be an entrepreneur. I’m trying to figure out all the sales and marketing stuff that’s going on.”

The company went through a few shifts, but the pivotal moment happened in … Next Page »

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Get a bunch of prominent Boston-area founders and CEOs in a room together, and ask them provocative questions. It’s a tried and true recipe for a good discussion, and that’s exactly what we got at the end of the day on Friday at MassTLC’s 2011 unConference at Hynes Convention Center in Boston. The topic was “the secrets of scaling,” and it was a fitting end to a fun and productive day.

This was the Mass Technology Leadership Council’s fourth annual innovation conference, and the event has really solidified in its “unconference” format, in which hundreds of tech entrepreneurs, investors, execs, and other business leaders meet and create organic sessions to discuss whatever is on people’s minds. Most people are there for the networking and private meetings, but that didn’t stop a few lively sessions from breaking out.

The secrets of scaling session—focused on how startups get big—was organized by journalist Scott Kirsner and was more conference-y than unconference-y, as it was planned ahead of time and had the feel of a big panel. Here are some takeaways from that (before I get to some broader highlights later).

Each of the companies on the panel could be considered a Boston success story: Constant Contact, Gemvara, iRobot, Kayak, LogMeIn, Wayfair (fka CSN Stores), Zipcar. (See photo above by Jeff Bussgang, who noted that you can distinguish the pre-IPO companies from the public companies by who’s wearing jeans.) The idea was to tap into this collective braintrust and draw out some key lessons.

Paul English of travel site Kayak said he routinely asks people, who’s the smartest person you ever met? And then he goes out and tries to hire them. He relayed the story of recruiting Giorgos Zacharia, Kayak’s chief scientist, a process that took several years but was well worth it. “It was transformational,” English said. He also talked about Kayak’s expensive acquisition of rival SideStep back in 2007. Kayak fired all of SideStep’s engineers and created a duplicate version of its site. Lesson: hire and fire ruthlessly.

Niraj Shah from Wayfair talked about his e-retail company’s bootstrapped growth, starting in 2002. Once his team figured out how to make money from niche online stores, it faced lots of competitors and had to decide whether to raise money or stay the course. It chose the latter (until this year, when it did raise a big round). “We just launched new categories as fast as we could, built out selection in each category as fast as we could,” Shah said. “We let the growth compound on itself.” The key was “not letting early successes keep us from letting that compound,” he says. Lesson: stick to your knitting.

Michael Simon from LogMeIn, the remote access and IT management firm, started with the idea of being a lifestyle business, not a public company (it now has 450 employees, about 200 in Massachusetts). The key moment in LogMeIn’s growth was when it “started giving away stuff,” he said. This was before “freemium” was a popular model. The company’s revenues started very small but grew exponentially. “If you have an exponential growth curve, the absolute number doesn’t matter,” Simon says. “You’ll get there.” Lesson: start small and get traction.

Matt Lauzon from Gemvara, the online custom jeweler, represented the younger generation of entrepreneurs on the panel. Although it’s still fairly early for Gemvara (which started as Paragon Lake in 2006), the company seems to be on an impressive growth trajectory. “We didn’t want to … Next Page »

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The early-stage tech accelerator business just got even more competitive.

Boulder, CO-based TechStars, which runs seed-stage mentorship programs for startups in Boulder, Boston, Seattle, and New York, announced today it has raised a new $24 million fund from a long list of investors that includes Foundry Group, IA Ventures, Avalon Ventures, DFJ Mercury, SoftBank Capital, SVB Financial Group, RRE Ventures, and Right Side Capital Management. The new money brings TechStars’ total funding to roughly $34 million (from over 75 venture capital firms and angel investors).

Here’s what’s more interesting. The new money will be used to offer each new company accepted into TechStars an additional $100,000 in the form of a convertible note. That will be effective for all 2012 programs, and is on top of the $6,000 per founder that TechStars provides in its 12-week boot camps in exchange for a 6 percent equity stake in each startup.

The $100K will help teams worry less about early fundraising and should “entice a broader spectrum of would-be entrepreneurs to consider” the program, says TechStars founder and CEO David Cohen.

I asked Cohen via e-mail about how the extra money would help TechStars compete against other incubator programs—most notably, Silicon Valley-based Y Combinator, which started offering $150K to each of its startups earlier this year.

“I don’t think the best companies really pick an accelerator based on a small amount of funding like this,” Cohen says. “I think they pick on results and reputation. Results matter. The average TechStars company raises over $1M. Seven of the first 20 have been acquired. We have some great historical data which we are transparent about and I think this matters.”

Cohen went on to stress some of his program’s merits for entrepreneurs—the focus on a small number of teams, and the wide backing from investors. “Hopefully they pick TechStars also because of our focus on quality over quantity, and based on the quality of our mentorship,” he says. “I also hope they pick TechStars because we are so widely supported, and are backed by more than 75 VCs and angels. This makes a real difference for our companies, and I don’t think anybody else offers such breadth of mentorship and investment backing. This $100k per startup offer comes from a wide variety of venture funds nationally, and we think that’s different too. Imagine having the support of so many, right out of the gate.”

So will TechStars be expanding its programs or moving into new cities anytime soon? Cohen didn’t give any specifics, but he said much of the new funding would be used “for future operations and financings.”

Lastly, I asked him about the challenge of maintaining the TechStars culture and quality of mentorship as the program continues to grow—and as the noise and redundancy among early-stage tech companies, ideas, and incubators seems to keeps growing too.

“We fund about ten companies at once, and put the full focus of our organization on them,” Cohen says. “We bring the best mentors available to the table and get them to deeply engage with these companies. We want every company we fund to be successful. We haven’t changed our focus on quality over quantity as we’ve carefully and slowly expanded. We’re the same TechStars as we’ve always been, and we just keep piling on the unfair advantages that we give the startups we fund.”

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It was a little over a year ago that Xconomy broke the news that a movement was underway to bring an Entrepreneur Walk of Fame to Kendall Square in Cambridge, MA, modeled after its Hollywood namesake.

The idea makes a lot of sense: If we celebrate movie stars and athletes, why not the top innovators and business leaders of all time? The goal is to inspire young people to make a big impact on the world. As for a location for the Walk of Fame, why not historic Kendall Square, which arguably sits in the densest cluster of technology and life sciences organizations and companies in the world?

Lo and behold, it’s really happening. Today the Entrepreneur Walk of Fame will be unveiled at a 1 pm ceremony in the newly paved plaza in front of the Marriott Hotel in Kendall Square. To get to this point took the collaborative efforts of a lot of people from MIT, the City of Cambridge, the Kauffman Foundation, and several community and private organizations.

Here is the inaugural class of seven inductees (and who will present the awards at the ceremony, which is almost as interesting):

—Thomas Edison (1847-1931), founder of General Electric. Probably America’s most famous inventor, he is credited with pioneering the phonograph, the motion picture camera, and the commercial light bulb. But it’s his contributions to industry that got him in here. (Presented by David Edison Sloane, Edison’s great-grandson.)

—Bill Hewlett (1913-2001), co-founder and CEO of Hewlett-Packard. He was a Stanford and MIT grad. (Presented by Howard Anderson of MIT Sloan School of Management, formerly of Yankee Group and Battery Ventures, and an Xconomist.)

—David Packard (1912-1996), co-founder, CEO, and chairman of Hewlett-Packard. A Stanford grad and General Electric veteran who supplied the garage that housed the early HP. Rumor has it they called it “HP,” rather than “PH,” based on a coin flip. (Also presented by Howard Anderson.)

—Bob Swanson (1947-1999), co-founder, CEO, and chairman of Genentech. He was an MIT undergrad and MIT Sloan grad, as well as a founding board member of the MIT Entrepreneurship Center. (Presented by Tyler Jacks of MIT’s Koch Institute for Integrative Cancer Research.)

—Bill Gates (1955- ), co-founder, chairman, and former CEO of Microsoft; co-founder of the Bill & Melinda Gates Foundation. He is probably Harvard’s most famous dropout, and one of the world’s richest men. (Presented by Dan Bricklin, co-creator of VisiCalc, the PC spreadsheet.)

—Steve Jobs (1955- ), co-founder, chairman, and former CEO of Apple. On his resume: the Apple II, Mac, Pixar, iPod, iTunes, iPhone, iPad…need we say more? (Presented by Dan Lyons, better known as Fake Steve Jobs.)

—Mitch Kapor (1950- ), founder of Lotus Development, creator of Lotus 1-2-3, co-founder of the Electronic Frontier Foundation. Kapor is the one inductee who will be present at today’s ceremony and will speak for himself. Rumor has it there will also be lots of ex-Lotus employees on hand wearing vintage Lotus 1-2-3 shirts.

“This is a hall of fame” for entrepreneurs, says Bill Aulet of the MIT Entrepreneurship Center, who spearheaded the overall effort. “The event itself is kind of like The Breakfast Club. These people are coming together who fought at different times.” (He was talking about Gates, Jobs, and Kapor in particular.)

Each inductee gets a granite star on a 4-foot by 1.5-foot tile that has the entrepreneur’s name, title, and one of his inspirational quotes inscribed. (See photo, left, of the Steve Jobs tile, next to an MIT beaver mascot.) The tiles sit in the plaza next to the Kendall T stop, close to the sidewalk, on either side of the new grassy knoll. As of yesterday morning, about a dozen workmen were sweating to put the finishing touches on the construction in the plaza.

Of course, with any list like this, it’s easy to nitpick or ask why someone is or isn’t on the list. The whole selection process was probably subject to all the usual politics that plague any … Next Page »

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The best way to get to know Dave Balter is over a beer. The founder and CEO of Boston-based marketing firm BzzAgent (now part of U.K.-based Dunnhumby/Tesco) is known for speaking his mind, but over a beer it’s even better. I’m not sure what he was drinking when he replied to my e-mail yesterday as he flew across the pond at 39,000 feet, but it appears to have loosened him up nicely.

I saw Balter speak at Angel Bootcamp in June, and his straight shooting impressed me then. Basically, he said that many entrepreneurs and execs have an inflated sense of themselves and their companies just because they’ve raised money and have had some success. Savvy investors should look for humble founders who are always learning, work harder than others, and have a fearless, grind-it-out mentality, he said. The following week, Balter came out with an article in Inc. Magazine in which he admitted his ego nearly destroyed BzzAgent; he implored entrepreneurs to stay humble, a process that he calls “the humility imperative.”

In addition to his CEO and angel investor duties, Balter is the author of two books on word-of-mouth marketing and the creator of numerous blogs, so he’s a bit of a polymath. He recently became a co-founder and executive chairman of Smarterer, another Boston tech startup. He’s also a newly minted Xconomist.

But his latest project (back to the beer now) is “DB Tech Prom,” a blow-out gala for the Boston tech community, to be held on October 20. There has been a lot of talk about creating a culture that celebrates entrepreneurship here in Boston, and this event seems to address that. At the same time, there’s no shortage of tech parties and gatherings these days, so I wondered what the real point was. Balter answered that, and much more, below.

Here are some highlights from our e-mail exchange:

Xconomy: Why is Tech Prom important for the Boston startup community, and what are its goals? If it’s about fostering a culture of celebrating entrepreneurship, how do we balance that with the humility imperative?

Dave Balter: After some very non-scientific poll-taking and survey-manipulating, we found that most individuals in Boston’s tech scene didn’t have the perfect prom experience. Some of this is of course due to intense, paralyzing high-school-nerdiness and less-than-impressive early-development social skills (see Sixteen Candles for widely referenced examples), but oh how things have changed. Now the techies have inherited celebrity status, and nerdiness…well, it’s in baby, it’s in.

This event should be a watershed moment that allows Boston to strut its stuff. And we’re not talking about flail-dancing during some Def Leppard song, but rather the celebration of how current … Next Page »

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Lean startup, schmean startup. There’s more than one way to build a Web company.

Just ask Coach Wei, the founder and CEO of Yottaa, a two-year-old tech startup in Cambridge, MA. Yottaa (pronounced sort of like the green Jedi master) makes software tools to help business websites run faster, monitor their performance, and generate sales more efficiently—a field known as Web performance optimization. In a previous life, Wei worked at data storage giant EMC (NYSE: EMC) and founded business software firm Nexaweb Technologies. He is a graduate of MIT and Tsinghua University in Beijing, China, which foreshadows the approach he is taking with his current startup.

Over lunch recently, Wei talked in depth about what he’s doing with Yottaa. You might call it the “anti-lean startup” (my description, not his). In some ways, it is the opposite of the lean startup model, coined by Silicon Valley entrepreneur Eric Ries, which involves having a small team, creating software prototypes quickly, and using customer feedback to rapidly iterate code. The process is much faster than traditional software engineering and uses methods such as “agile” software development and “customer development.”

As Wei explains, that approach works well for some social media and Web startups, but not all. In particular, he says, if you’re trying to build a company that will be able to grow from, say, $1-5 million in revenue to $50 million, you could run into difficulties with the lean startup model. If you start small and local, ramping up to hire a team of 100 people in Boston or San Francisco will be almost impossible because of the current talent crunch and skyrocketing cost of good developers. “There’s a huge scalability gap,” Wei says.

So he’s trying something different at Yottaa—and he’d probably be the first to acknowledge that it might not necessarily work. The idea, he says, is to be “global from day one and have scalability built in.”

Translation: hire most of the team in Beijing and the rest in the Boston area, from the start. “We try to integrate the best of here, and the best of China, to build a company,” he says.

This is different from offshoring, he says, because it’s not about cost, and the Beijing employees are not seen as second-class citizens. “You don’t do it for the sake of cost saving,” Wei says. “You have to think of building a scalable growth engine into your company. You have to build it into your DNA.” More specifically, he says, it’s about “how to leverage the global workforce.”

Here’s how I see it. Plenty of U.S. tech startups—and big companies—make use of developer talent in other parts of the world like Brazil, China, and Eastern Europe. But few are building their … Next Page »

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A local tech startup that has been toiling away for four years saw its first partnership with a big company come to fruition last week—and it could be a sign of bigger things to come.

Back in February, Cambridge, MA-based OfficeDrop, a digital filing software company, inked a deal with Nuance Communications (NASDAQ: NUAN), the speech and imaging tech firm in Burlington, MA. OfficeDrop provided the software and expertise for Nuance’s new cloud-based scanning and document-managing service, called PaperPort Anywhere, which rolled out last week.

It’s a big deal for OfficeDrop, which stands to get about $1 million in revenue from Nuance in the first year of the partnership, says Prasad Thammineni, the co-founder and CEO of OfficeDrop. Nuance’s scale could help the startup reach millions of new users—so it’s a distribution model that Thammineni is looking to replicate with other big companies in the next year or so.

OfficeDrop lets people (primarily in small businesses) organize, index, and share their digital data, and look at their documents instead of a list of files, for example. “We take visual elements of paper and replicate it,” Thammineni says. “And we bring search to the table.”

The startup sits somewhere in the middle of a swirling ecosystem of companies, many with Boston roots, offering cloud-based services like data storage (EMC), online backup (Carbonite, Backupify), paper digitizing and document management (Iron Mountain), personal file management and search (Evernote), and file hosting and sharing (Microsoft SharePoint, Box.net, and Dropbox, the astronomically-valued startup du jour).

OfficeDrop (formerly called Pixily) started in 2007 as a service to help people scan in and digitally organize their paper documents. It has evolved to include collaborative features and mobile apps, so people can scan documents and access their files from their iPhone, iPad, or Android device. The company has 20 employees, split about equally between the Boston area and Brazil, where most of its software developers are.

Interestingly, although the three founders are Indian, OfficeDrop has no employees in India. Thammineni says that’s because most software developers in India have a big-company mentality that doesn’t mesh well with a startup. Brazil, on the other hand, has a lot of “out of the box” talent that fits with the OfficeDrop culture. “They challenge you at every turn,” he says.

Thammineni’s company, his fifth so far, was self-funded in its early days. It raised a small financing round in 2009, followed by a $1 million angel round this spring—and it will be looking to raise more money this fall, he says. But for now, OfficeDrop’s main focus is on “making the product better and better,” Thammineni says. And on squaring away its next big-company deal.

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Benjamin Nye has an eye for the Benjamins. That’s not quite a palindrome, but it does sum up Nye’s track record as a tech investor.

Nye, a managing director with Bain Capital Ventures (see photo, right), has had a string of strong exits—including Network Intelligence (bought by EMC in 2006), SolarWinds (IPO in 2009), and LinkedIn (IPO this year). The latest deal came in the past week, when Waltham, MA-based DynaTrace was snapped up by Compuware (NASDAQ: CPWR), the Detroit software firm.

The technical details of what DynaTrace developed (see below) might not be as important as these numbers: $256 million in cash for the acquisition (on about $22 million total invested by BCV and Bay Partners), translating into a 7.2X return on BCV’s investment, Nye says.

Here’s how it all went down. First, let’s rewind to 2006. Nye had heard from a former CEO of a company he was looking to buy that DynaTrace, an interesting year-old startup, was being run by the “smartest guy” he knew. The only problem was the startup was in Austria, so Nye took the entrepreneur call with what he calls “high skepticism.” By the end of the call, however, he was intrigued: DynaTrace had solved a problem that Nye had run up against at his old company, Precise Software. Namely it had a way to help businesses’ IT departments figure out why their software applications (consumer-facing websites, for example) were running slowly, and what to do about it.

“The way he’s doing it versus the industry standard is the difference between causation and correlation,” Nye says. While other companies could make educated guesses based on time stamps and which parts of the code were calling other parts, DynaTrace could pinpoint exactly “which part in the chain was causing an app to run slowly,” he says—which is tough to do in the midst of Internet-scale traffic and disparate pieces of code running in different programming languages.

Nye led Bain Capital Ventures’ $5 million Series A investment in DynaTrace and helped move the company to the Boston area in early 2007, hiring a U.S. team. The company started signing up big customers in banking, e-commerce, and retail, and its revenues more than doubled each year, reaching $26 million (and being cash-flow positive) over the past 12 months.

So why sell to Compuware now? DynaTrace didn’t need to, Nye says, adding that there was … Next Page »

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These are two startups that aren’t household names in the Boston-area tech scene, but probably should be. One started in 2009, raised venture capital when it was tough to get in the downturn, and is currently adding new features and generating some buzz. The other started five years earlier, in 2004, bootstrapped itself to profitability, and counts among its customers the world’s largest retailer and the world’s largest bank.

One has a geeky, conceptual name that sounds like a small, green Jedi master. The other’s name is more literal and sounds like a Sith lord, if I had to pick a side. (You tell me which is more badass.)

Yottaa and SiteSpect are united by at least one common thread: the desire to make websites run faster. Though the companies are at different stages and have different challenges, they are competitive in the realm of Web performance optimization—software that recodes webpage content to streamline it for browsers. “It’s like scraping barnacles off a boat,” says Eric Hansen, founder and CEO of Boston-based SiteSpect, the elder company.

It’s also a relatively recent product direction for SiteSpect, which has built much of its core business on marketing technologies like A/B testing of website features, behavioral targeting, and mobile content optimization (e.g., iPhone vs. iPad). According to Hansen, who previously founded and ran Worldmachine Technologies, his current company is the only provider of this kind of software that doesn’t require page tags or changes to customers’ existing sites. Its customers include Walmart, Expedia, MTV, MSNBC, Staples, and CSN Stores.

Meanwhile, Cambridge, MA-based Yottaa started just two years ago with the idea of making “every website faster and better,” says founder and CEO Coach Wei, who previously founded Nexaweb Technologies and worked at Hopkinton, MA-based EMC (NYSE: EMC). Yottaa’s customers include mid-sized e-commerce and retail sites (e.g., CSN Stores again), sandwich shops, and Web marketing agencies. All want to monitor and improve the speed of their sites—and track the resulting impact on sales, conversions, and other business metrics.

My first thought was, hasn’t this problem been solved (like in 1999, or 2005)? Apparently the answer is no, if there are at least two companies going after it in Boston. Oh yeah, and last fall, Google’s team in Cambridge also released a free tool for webpage optimization, called mod_pagespeed. So it’s clearly a competitive and somewhat commoditized sector. (In case you’re wondering, companies like Cambridge, MA-based Akamai Technologies (NASDAQ: AKAM) tackle Web performance at the network level, whereas the newer companies focus on the browser level.)

SiteSpect sees its primary competition coming from Adobe (NASDAQ: ADBE) … Next Page »

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It’s not every day I get to dine with the CEO of a public company worth $5 billion. Last month I sat down with Andy Ory, founder and chief exec at Bedford, MA-based Acme Packet (NASDAQ: APKT), for an in-depth chat about his company’s strategy and outlook in the area of networking technology.

The setting was The Friendly Toast in Cambridge, MA. Ory has a soft spot in his heart for the Kendall Square area—back in the late ‘80s, he worked at Boston Technology, the voice-mail pioneer whose office was next to where Friendly Toast sits today. (If you ever get a chance, ask him about the story of using the local pay phone for product testing.)

Over a BLT and huevos rancheros (if I recall correctly), we talked about everything from Ory’s startup lessons to big-company concerns and business regulations, from Microsoft’s acquisition of Skype to how Acme Packet is like Cisco back in 1993. (Ory is speaking tonight at a Boston-area event with Founder Collective’s Eric Paley; he will talk about Acme Packet’s story and his broader experiences in building companies.)

Ory is a leading light in the tech entrepreneurship scene. Before founding Acme Packet in 2000, he cut his teeth at Boston Technology and then founded Priority Call Management, which sold to LHS Group for over $160 million in 1999. Over the past decade, he and his team have built Acme Packet into a leader in session border control—technology that helps telecom network operators and big companies manage voice-over-IP (VoIP) and other communications and services over the Internet in an efficient and secure manner.

Yet things have not always been rosy for Acme Packet, which went public in 2006 and now has roughly 700 employees (about 450 in Bedford). The company’s stock fell below $4 in late 2008, before rebounding and rising strongly in the past year and a half, to around $70 in recent months. I wanted to hear about that dramatic comeback too.

Ory didn’t disappoint as either a lunch companion or an interview subject. It helps that he is a charmer and a natural-born storyteller. Consider how he explains where Acme Packet sits today:

“Imagine you were visiting a company back in 1993 called Cisco Network Systems. ‘What do you guys do?’ We make a router. You might say, ‘what’s a router?’ It’s a piece of hardware and software. The reason is enterprises are converting their infrastructure to IP [Internet protocol] because of e-mail. If enterprise A wants to send e-mail to enterprise B, they need a router between them. Well, you might say, ‘what percentage of enterprises are going to do e-mail?’ And they’d say, every single one on the planet. ‘And how many e-mail messages fill up a router?’ To figure out how many routers you’re going to sell. What was really interesting is, when you connect all these networks together, a network effect ensues. Of course I couldn’t say to you, Amazon, Yahoo, Google, Napster—I wish I could have,” Ory says.

“Now let’s fast forward 18 years and you’re visiting my company,” he says. “We make a session border controller. Enterprises and service providers are converting their service infrastructure to IP so they can do voice over IP. When they want to make a VoIP call from one enterprise to another, they need a session border controller to connect those two enterprises. So you’d say, ‘what percentage of enterprises and service providers are going to do VoIP?’ And of course my answer is, every single one. … Next Page »

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