I found a link to a new report from CIBC Word Markets that really made me pause to think. In the June 2008 issue of StrategEcon, Chief Economist, Jeff Rubin raised CIBC’s target for West Texas Intermediate by $20 per barrel to an average price of $150 in 2009 and by $50 per barrel to an average price of $200 per barrel by 2010.

According to Rubin,

“Under prevailing refinery margins that should translate into a near-$7 per gallon pump price within two years, a 70% increase from today’s already record levels.”

Furthermore, Rubin says,

“Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history. By 2012, there should be some 10 million fewer vehicles on American roadways than there are today…”

“By 2012, there should be some 10 million fewer vehicles on American roadways than there are today—a decline that dwarfs all previous adjustments including those during the two OPEC oil crises. Many of those in the exit lane will be low income Americans from households earning less than $25,000 per year. Incredibly, over 10 million of those American households own more than one car. Soon they won’t own any.”

This last statistic might be more shocking to me than $7/gallon gas. For most, cars are indispensable assets — unlike say Starbucks addictions, cable television or clothes shopping.

What happens when people can no longer afford to get to work?

Google seems to be on a tear. The 100 pound gorilla in the technology space. Unstoppable.

But…

Storage space is increasingly a commodity as evidenced by Google’s Gmail.

What happens when a user can download the entire Internet?

Searches could then be conducted instantaneously. Advertisements would be unnecessary.

Thoughts?

I started this blog back in 2006 with the intention of educating young people on technology and finance as well as to highlight the trends and experiences I was witnessing personally as an entrepreneur. Over the last two years, I’ve realized that I’m more interested in focusing on the environment of early-stage companies.

To clarify, an early-stage company may or may not be a startup. Likewise, startups do not only need refer to technology-focused companies. Even the definition of early stage is disputed. What;’s considered early stage in Boston is likely very different from what’s considered early stage in the Valley.

So what’s so interesting about early stage companies?

First, early-stage companies are often — but not always — run and managed by entrepreneurs who tend to be thought leaders and risk takers. An entrepreneur can be of any age, gender, race or creed…there is no Ivy League, SAT or IQ prerequisite.

Next, many early-stage companies have been ‘enabled’ by a number of exciting macro trends. The internet and globalization have enabled entrepreneurs and investors world-wide to collaborate and share knowledge. Also the barriers to entry for starting companies have never been lower. Overall the idea of work is shifting away from 9 to 5 jobs to focus more on entrepreneurial and project-based work. To me this indicates that globally we’ll see the rate of innovation, and hence number of early-stage companies, increase

Specifically among early stage internet businesses, some of the biggest opportunities are not purely utilitarian, or technological: Companies like Etsy and eBay are really sociological breakthroughs, platforms capable of empowering others to do things such as socialize, learn and even make a living. I still believe the web will drive innovation for years to come, partially because more advanced innovations will require the communication and collaboration the web can provide.

Aside from the ideas and innovations behind an early stage company, I also love the process that enables an early stage company to move from idea to sustainable business. For example, the financing of an early stage company typically involves a third-party investor who must be convinced of an idea’s potential and be willing to assume the risk of failure and loosing money in exchange for the dubious possibility of a long-term payoff. However, even with an idea and capital at hand – an early stage company still faces daunting challenges: distribution, market risk and competition. The likelihood of failure is high.

What’s not to love?

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Last February I suggested a possible hybrid-model for venture capital firms: locating pre-VC backed technology plays, buying them on the cheap, then augmenting the companies with a pre-assembled all-star team of managers.

Looks like Austin Ventures was listening:

Today, Austin Ventures announced its second $50 million investment to back a seasoned entrepreneur to head this very model. Austin Ventures entered into a partnership with Sherman Atkinson to form ATCOR Holdings, Inc. The new company will focus on acquiring and operating businesses in high-growth sectors of online advertising, marketing and digital media. AV has committed $50 Million of equity capital to support management’s strategy to build a leading new media franchise through both organic growth and acquisition. Mr. Atkinson will serve as Chief Executive Officer of ATCOR.

This is the second $50M new entity that Austin Ventures has created in the last few months. The idea for both companies appears to be using a series of acquisitions to create a network of proprietary technology assets bolstered by top minds and consultants. Rather than taking a piece-meal approach, the rollup strategy would offer a sort of ‘one-stop solution’ with the potential to provide a prospective client everything from workshops, to software to human customer service.

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The early life-cycle of a startup is all about validation. Especially for first-time founders, the struggle is often to figure out what’s missing or what can be done to convince an investor to take a chance and invest. Whether looking for funding, or convincing a prospect to become a customer, startups must provide outsiders with ‘reasons to believe’. Unfortunately there are only a handful of ways this can be achieved.

In this case I have made an attempt to highlight a hierarchy of validation points for startups during the fundraising process based on my own personal experience. It’s my belief that this is roughly the rank order by which people (particularly investors) will evaluate the worth and/or potential of an early stage company.

Note that as you move up the pyramid, the degree of validation increases. Also note that the product itself is not really ever the focus. I think in today’s world, a quality product is really second to eyeballs, revenues and relationships. A weak product can always be made better – Twitter is proving this right now as it actually has contracted out to redesign its entire product.

Are these validation points the only things that matter to an investor? No. However, they should serve as a good reality-check for the milestones a startup should focus on in order to get that investor(s) to emphatically say “yes.”

Update: Good post on getting validation on the localglo.be blog. Hopefully this becomes a meme because it’s a critical discussion for first time entrepreneurs

Last weekend I had my ten year high school reunion. Over the weekend I heard an amazing story about a well known faculty member. I want to share the story because to me it is the absolute definition of leadership.

[Note: I have purposely decided against publishing this professor’s name for privacy reasons]

I attended a boarding school in Connecticut. While I was there — and for years before and after my own graduation – one professor stood out among the rest. Over his tenure of 49 years, he served as an inspiration in the classroom, on the playing field and in life as an adventurer.

An economics professor by trade, this teacher is cited several times in the famous book, Barbarians at the Gate. The great financier Henry Kravis has repeatedly attributed his massive success in business to the teachings of this professor.

As a lacrosse coach, his leadership resulted in the school being considered a premier national team, winning championships and producing numerous collegiate division one players. An avid promoter of elite physical fitness, he also taught an advanced off-season training class that would be considered nothing short of torture to most.

An adventurer, this professor was one of the leaders of the world’s record-breaking 1982 British-American expedition to Mt. Muztagh Ata in Western China.

More importantly his entire tenure – even into his 70’s — was spent living in the dormitories. He continued staying engaged 24/7 with students well past an age where faculty commonly move off-campus, or look to retirement. Remaining in the dorms is unheard of.

So from what I hear, suddenly, after 49 years of service this professor walked in and handed over his resignation. Acknowledging that the school had been his life, and even despite pleas that he remain for a 50^th year, this professor stated with absolute conviction that HE is so inspired by Barack Obama that he is joining Obama’s campaign as a full-time volunteer.

I thought that was incredible and needed to be shared. It certainly touched me.

PaidContent has released its second installment of the Social Media Deals Report.  The team analyzed deal flow a 15-month period starting in January 2007.

Some highlights…

Venture Investment in Social Media:

• Total number of investments: 400
• Total number of disclosed investments: 341 valued at $2,763,715,000
• Average investment size: $8,104,736
• Best estimated value of overall investment in the space (disclosed and undisclosed): $3,074,215,000 total invested

Acquisitions in the Social Media Space:

• Total number of acquisitions: 131
• Total number of disclosed acquisitions: 41 disclosed valued at $13,422,310,000
• Average acquisition size: $327,313,415

The old adage for raising money is that investors invest in the team first and the product or service second.

Therefore, if investors primarily invest in people, then what they are really investing in are relationships built on trust. This is why entrepreneurs tend to raise money from friends and family first –  they know you best and trust you most. Though it’s not easy, trust can be created from scratch. That said, if you’ve quickly burned through all your immediate prospects with whom you have significant pre-existing trust and relationships, you need to must be prepared for the consequences: fundraising will take a long time.

So where does investor-investee trust come from? The deepest levels of trust exist among people who have shared experiences: a former boss, teacher or colleague. You’ve been in the trenches together. Trust can also come from reputation or achievement; for example, the previous successes of an entrepreneur. To a lesser extent, trust comes from ‘connections’ — say the school one attended, or from ‘endorsements’ — banking on the judgment of someone else or even from something more esoteric. The point is building trust from the ground-up or from a softer connection is not easy.

As an entrepreneur looking to raise capital, the approach cannot be to simply sit back and email executive summaries blindly. An email, even a pitch, is not a trust building event. It’s really a foot-in-the-door. The best entrepreneurs understand this difference and figure out ways to use it as a launching pad for relationship development.

If you are serious about raising money, you need to be serious about developing relationships. Instead of emailing, attend events to meet people personally. After a pitch, follow-up religiously with contacts  – why not invite them to coffee? When cold calling, really do your homework to try and make/find a personal connection with someone. Yes, it takes time and dedication, but it’s the only way.

In my last post I alluded to something I called tipping point marketing. This is a phenomenon that is hugely relevant to web 2.0 and well worth considering in early stages, in particular around a launch strategy. It’s something I am currently thinking through with Workstreamer.

There are a number of key industry events that have become literal ‘launch pads’ for new products and companies to debut. The best known is probably Techcrunch50, but others include DEMO, Web 2.0, and even South by Southwest.

The idea behind tipping point marketing is straightforward. A startup *could* spend $50,000 over five months attempting to organically drive traffic to its website: using Google and Facebook advertising, writing a blog, appealing to influential bloggers, etc.

However, a startup could instead choose to focus its efforts on exploiting key events, time periods and news that result in short massive bursts of new users and have the added benefit of momentum. Affiliation with certain events where influencers are guaranteed to show up could easily result in $50,000 of marketing/PR over just a few days — and often at significant discount (for example, Techcrunch50 is free for exhibiting companies).

I’m a big proponent of exploiting metrics and focusing on the 20% of tactics that provide 80% of your traffic. For example, this post will likely be my highest trafficked this week simply because I’m posting on Tuesday. Tipping point events are also great at producing momentum. Momentum is an often overlooked, but crucial component to helping something turn viral. Keep in mind that in the world of web 2.0 where attention spans are short, figuring out a plan for sustainable publicity is key.

While launching or demoing at major events is the principle area of focus for tipping point marketing, there are others. For example, creating a viral video that will get passed around, or driving a meme that gets picked up by TechCrunch, Mashable or even a big influencer on Twitter can drive more traffic to a site in 20 minutes than you might be able to get over two months of paying four interns to blog and implement a direct email campaign. The idea might be best summed up by the following: go to where the audience is, don’t try to build from scratch.

The tactics to tipping point marketing are similar to what bloggers refer to as creating linkbait. As an example of a company who’s had great success check out this post on Mint.com or consider the resounding success of GoDaddy who became big by focusing on the biggest event of the year – the Super Bowl. Here are some great tipping point strategies.

Of course there are downsides. First focusing efforts on big paydays can appear risky – and sometimes it is. By focusing on creating ‘publicity events’ rather than enacting a more traditional slow-and-steady approach results seem to lack consistency. Likewise it may be that the people you get from given tipping point events are not the right audience. It may be (just an example) that the people attending South by Southwest get excited at the event and register for services, but then never convert to paying customers. Also a focus on metrics needs to be balanced with a focus on building relationships. Finally, the ability to rapidly scale is necessary to handle the traffic a tipping point event can produce.

Startup marketers must do their homework and see what pieces of tipping point strategy — if any — make sense to test out.

So you want to make your product or company go viral. The first thing to know is you don’t choose viral; viral chooses you. The best you can do as a marketer is position something to have viral potential. This is accomplished by positioning your product in three ways:

1. Psychological Undercurrent
2. Social Value Proposition
3. Maneuverability

Psychological Undercurrent.

Sounds almost military, doesn’t it? That’s because it is. Psyops and captology relate to the art of influence. If you want something to become viral you need to appeal to that which is cool, unique, novel, sexy, exclusive or shocking. These are the things that make an impression. Things that people will rally behind and ultimately share.

Social Value Proposition.

No matter what you are offering, it must have some value. Without value you cannot reach a sustainable viral loop. Therefore, whatever you are offering (whether a product, a meme, music, etc) needs to provide value. People need to be able to understand what it is you are pitching them and they need a compelling personal reason to try it – that’s called a value proposition.

However, viral is more than value proposition – it’s social value proposition. Someone has tried it, found value personally, and now they want to share it with others. The best viral things get better the more they are shared: network economics. In the case of web social networks like Ning, it’s straightforward. The more people in your network, the more people you have to interact with. However, other virality is more elusive. Why do people share music? Maybe they seek to justify their own sense of good taste? Maybe they wish to be perceived as a trendsetter.

Maneuverability.

You can only share what is inherently sharable. In order for someone to share something they must be able to take it and send it to someone else. In the case of an MP3, it can be shared any number of ways: a link to a website, sent as a file over IM, burned onto a CD or uploaded to Muxtape. Youtube took off when they allowed people to take their video player and add it to someone’s myspace profile. In the case of something more abstract, like a political meme, one must use appeal outside of technology and physical dimensions.