As if I needed any excuses to take coffee meetings (I don’t), Mark Suster has provided some great ammunition for those not inclined to partake:

I know I’m getting repetitive. It is with great intent. Whatever amount you’re getting out and talking with prospects, customers, employees, recruits, competitors, press, investors, potential investors … it’s never enough. [...]

For almost everybody else I work with I know that a little more dedication to coffee meetings would have a positive impact. Your biz dev discussion that goes nowhere today will plants seeds in somebody’s mind 18 months from now.

Yet most of us resist the coffee meetings seeing them as a distraction from: shipping our release, refining our business plan, working on our new website, etc. You have to do both. Wake up early. Turn coffee into late-night drinks. Never eat lunch alone.

I couldn’t agree more.  Early in my career I didn’t understand the value of eating lunch with colleagues and friends other than as entertainment.  I didn’t understand the value of meeting with people outside my firm.  But I learned. I learned that these incidental, accidental contacts can be very valuable.  So I started behaving in a way that increases the odds of these happy coincidences.  Meeting people for coffee, organizing lunch meetings, meeting with people in various cities when I travel, and making sure I meet with people outside my own business and my own industry. Also, being open to take meetings from people when I don’t see a direct relevance to my business.

On the whole, it has paid off handsomely.  At a minimum, I’ve become much better informed about Austin, about my industry, and about other people’s businesses.  At best, I’ve formed connections that will help BP3 and my own career for years to come.  I’ve certainly managed to hire some fantastic people on the basis of personal and professional connections made over coffee (and lunch).

So get out there and buy some coffee.

(disclosure: the author owns a few coffee-related stocks, and he is definitely talking up his own book! )

If there weren’t already lots of reasons to like Mark Suster’s Blog, I have to admit, this article (“What Should You Do With Your Crappy Little Services Business?”) gives me another great one:

There’s a line of thinking in Silicon Valley that you should build product businesses rather than services businesses. This thinking is largely driven by the venture capital industry (and subsequently Wall Street) who are in search of high margin, highly scalable businesses.

It’s nearly impossible to get a services company financed by VCs. You’re a small fish.

So pervasive has this thinking become that on several occasions startup companies with profitable & fast growing tech services businesses have come to me wanting to change their companies to product businesses or to create “spin outs.”

I’ve seen that happen a few times as well.  In fact, Giff Constable had a great article about it.  We’ve even written a few ourselves.  Mark hits on pretty much all the points I would have made about a services business.  It isn’t just that services businesses are small fish – it is also that they generally can be self-financed.  The result is that the services business owners aren’t willing to part with equity cheaply, and at the same time, the VCs would likely want *more* equity in exchange for their cash because they’re not expecting the expansion to be as rapid if the service is a hit. And as Mark points out – at that point you have to swing for the fences, no more singles and doubles.

The biggest challenge in building a services business (truly growing it, versus just being an independent contractor) is financing.  His #4 financing option is bank financing – specifically he mentions Silicon Valley Bank (SVB) and Square1 Bank.  These are both fine institutions and if you can get financing from them, so much the better.  But if you need a line of credit or loan of less than $500k to $1M, you’re unlikely to get their attention.  That means you need to have a certain scale before you even try to work with those banks.  Surprisingly, we found large multinational banks to be more willing to finance our activities than these alleged startup-friendly banks.

Mark also has good advice for what to do with the product business within your services company:

• Use the products as a service sales machine – essentially a loss- or break-even instrument to get more services sold in or support contracts.
• Use the products as a key differentiator to win new business over other service providers.  The products could make you more efficient (allowing for lower bids for the same work), or allow you to more clearly tackle intractable problems.
• Use the products as a margin bump – allowing you to stay above “commodity” in the long run.

I’d add another:

• Use product as a badge of credibility in your market niche.  Much like writing a book or whitepaper or blog enhances your credibility (assuming they’re well-received).

Kudos to Mark for writing on this subject.

I was pretty surprised at how impressed Mark Suster was with SXSW-interactive.  I mean, I understand why it was such a great experience for me and many others in my shoes, but I admit to feeling that, surely for VCs and folks like Mark, SXSW is a little annoyingly out of the way or annoying in that it is such a throng of people.  Or something like that.  But no:

SXSW was magic. I can’t imagine having been at a better event. I was listening to NPR on my drive in yesterday morning. They were talking about the music portion of the show. A band was saying, “I can’t believe that at one event you could get access to the band managers of Lady Gaga, FooFighters, etc. Every night you are just hanging out with big name bands and the teams around them that brought them to their peak.”

I couldn’t have said it any better replacing music with tech.

His post has a lot of name-dropping – but you know, some of those names are friends of mine and local Austinites (more prominent in startup circles, for sure, than I am).  So there’s a certain “reality” to what he’s saying that I can relate to.  It was nice to see some Austinites make his list of people he enjoyed meeting with.  Of course, who wouldn’t enjoy the conversations he had?  Steve Blank? Dave McClure? Gary V? I was just happy to get to see some of these folks present and hold court at SXSW.

Given that Launch is going on right now in San Francisco, it just seems appropriate to take up this topic that Mark Suster raised on his blog.  Maybe you think you can launch anywhere, or maybe you think you need to launch in the Valley.  But can you build a great tech firm outside the Valley?

Mark Suster‘s “Both Sides of the Table” blog has great content for any entrepreneur or investor.  Recently he asked the question: “Can You Really Build a Great Tech Firm Outside Silicon Valley?”

And of course the short answer is yes, but the interesting part of the question isn’t the yes or no, the interesting part is answering how you overcome the challenges of being outside the Valley (and conversely, how you overcome the challenges of being inside the valley).

Mark does a pretty good job of doing both.  Focusing on the challenges outside the valley:

The VC partner, somebody I greatly respect said, “Yeah, we like Gil and what they’re doing. I’m just not sure you can build a great technology firm outside of Bay Area.”

That bias is the first challenge. Mark focuses on the challenges in LA in particular, using that as a well-researched example.  I’ll take each of his points, and look at how well they apply to another “outside the Valley” origination of startups: Austin.

1.  Funding is different outside of Silicon Valley.  No argument here. Austin gets a disproportionate share of Texas VC funding, but still Texas gets about 2.74% of funding while the Valley gets nearly 40%.  There may be less competition for funding in Austin, but there is definitely less competition among the investor class.  That makes it more challenging for good ideas to get funding.  On the other hand, Austin Ventures has reasonably deep pockets to get some ideas to quite a good scale (they aren’t afraid to commit  $50M on an investment).  But like LA, Austin struggles with swing-for-the-fences funding, locally.  Having said that, there are outliers.  HomeAway is Austin-born and -based and has raised something like $500 million. Dachis Group is a well-funded startup.  And Demand Media isn’t based here but has purchased a couple of Austin-based companies which continue to operate in consolidated offices here.  In fact, if you just cruise the headlines in Austin from February Austin Business Journal articles, you’ll see quite a bit of funding going on:  CyberKnife ($850k), Movero Tech acquired, Vermillion ($21.8M), CacheIQ ($6M),  Cinsay ($40M debt financing), Firefly LED ($3M from ETF), Lion Street ($220K), Boundless Networks ($4M), SocialWare ($3M), TechSkills ($5M), uShip ($2M), LibreDigital ($4M), ReachForce ($4.6M).  Nothing compared to the Bay Area, but for Austin, this is the most I can recall since before the dot-com bust.

2.  Necessity is the Mother of Invention. Definitely we see signs of this in Austin – very few models that depend on growing without making money.  And as Mike Maples, Jr. has pointed out, there seems to be a real critical mass around the intersection of enterprise software and social software here.  Let’s not count our chickens before they hatch, however.

3. Recruiting and Retention will be different outside the Valley. Very true.  Easier to retain talent in Austin once you have it.  Mark says:  “But we do have great technology developers.  You can build a team of 100+ people in LA without needing to hire outside of LA.  If you want to scale to become a ‘huge’ company you will find it difficult to scale to the level of the Valley sized companies.  But if you grow to be that big it would be a very nice problem to deal with.”  In Austin, there are a few companies with 100+ teams.  And one reason the talent pool is so deep is the University of Texas Computer Science department (not to mention EE, and other technical majors).  But the other reason worth mentioning is that back in the 90′s, a company called Trilogy bulked up to nearly 1500 people, probably two-thirds or more with technical backgrounds.  Referring back to #2- Trilogy couldn’t possibly find enough talent locally and keep up with growth goals, so it looked outside of Austin and brought talent in – perfecting the sales pitch for Austin in the process.  It helps to be minting money in such a situation – you can afford to ramp up a huge college recruiting operation and fan out to not only the top engineering schools.  Trilogy was the top recruiter from CS programs at several top schools for a few years.  This is the kind of long bet you can make if you’re making real money.  But it is harder to make this kind of bet if you’re making it with Other People’s Money.  They’re not investing in you to reinvent college recruiting, training, and onboarding – they’re investing in your business.  But the point is, if you’re outside Silicon Valley, you have to be more creative to grow beyond the natural limits of your city.  You can argue whether Trilogy should have imported all that college talent or not, but it is hard to argue that it can’t be done.  As a result of all the imported talent in Austin, you’ll find Trilogy alumni at virtually every software company in Austin these days.

4.  There are strategic assets outside of the Valley. So true.  Austin has an interesting mix of enterprise software heritage, hardware and chip design heritage (especially analog), and music.  You’d hope to see startups leverage what “keeps Austin weird” to build differentiated businesses.

5.  Communities outside the Valley have matured. So true.  Austin has a more active and interesting entrepreneurial scene than ever, thanks to that generational development.

At BP3, we should be so lucky to worry about what happens when we need to cross the 100+ employee barrier in Austin.  But our model is already set up to be more distributed – Austin is our HQ, but more than 2/3 of our employees live outside of Austin.  We’ll have a different set of challenges as we grow.  But for startups swinging for the fences in Austin (Bazaarvoice, and HomeAway, to name two), we Austinites know it can be done right here in Austin.

The tempest in a teapot last week in the twitter-verse was all about how Twitter cut UberTwitter clients off from its API, which looked like a platform-vs-app battle between Twitter and UberMedia (Bill Gross’ company).

But as Mark Suster says in the linked article, when Twitter cut off UberTwitter clients – it wasn’t really hurting UberTwitter as much as it was hurting its own users.  Users with literally millions of followers use UberTwitter.  But many of the followers do not.  So by cutting off these clients, Twitter was implicitly (explicitly?) cutting the social connections from the glitterati to the following.  To me, Twitter ends up looking like the bad guy in these scuffles, even when it might seem that they’re right.

What does this have to do with Apple? It banned Flash preemptively  from iOS devices- putting up with the beating it took in the press – so that it wouldn’t look like even more of a bad guy later by severing users from Flash apps that it deemed either unstable or security risks (or simply, not “Apple” enough).

Because when your users depend on a particular UI candy that you don’t control, and there are enough of them, the purveyors of that UI start to get leverage on your platform – if you do things to disable that UI, or punish the vendors of the UI, you are also punishing your own users.

Of course, UberMedia could have had an alternate plumbing set up to keep users’ messages flowing during this outage – outside of Twitter.  But Adobe is in a tougher spot because developing a tablet or phone just to prove you can run Flash on it is a much more expensive end-around.  They’re still waiting on their hardware and software partners to come out with the killer combination that proves Adobe Flash will run just as well on mobile devices as HTML5 / iOS.

I can’t say I’m happy that I can’t run Flash on my phone.  But I’m not sad either.  Not as sad as I’d be if my favorite, Twitter client, say, ran on Flash and then was abruptly disabled because Apple decided to enforce rules against Flash.  (Oh wait, that’s exactly what Apple appears to be doing with its new subscription rules… )

I’m always on the lookout for the intersection of startups and process.  And recently Mark Suster put together yet another great post, this one about how to put your technical team together for your startup.  And specifically, the difference between your CTO and VP of Engineering.  He also has this fantastic graphic:

Engineering Team

To quote Mark:

“…In my view it is important to distinguish the difference between the CTO and the “VP Engineering.”  Because these titles are so often used I’m sure that some people will have hardened views about what they mean that are different than mine.  But for non-technical founders let me offer you a definition that you can use when you build a team.  The VP of Engineering is the person who still has great technical chops but prefers not to be a coding monkey (that term is meant in the most endearing of ways).

The VP Engineering aspires to manage teams.  They feel comfortable with C++ but also have a black-belt in Excel.  They are sticklers about managing unit tests, system tests and regression tests. In fact, they are passionate about automating testing overall.  They know how to estimate work units, how to manage the agile development process and how to get the most out of their teams.  VP’s of Engineering are essential to making sure the trains run on time.  The VP of Engineering is also your primary interface to your head of product management and often the VP of Engineering is somebody you would drag in front of clients to win big deals.

And first and foremost a VP of Engineering is a people manager….”

As Mark puts it, the CTO is your purist, a hardcore technical visionary and perfectionist.  Your VP of Engineering is about process, and values scaling the organization and having repeatable systems and processes.