Sunday, November 26, 2006

Going to China

Now this is exciting: in a week's time I will be in Beijing for a week and continue from there to Shanghai for another week...should be very interesting:)

Building OS Businesses

Blueprint to a Billion Dollar Software (Open Source) Business out of Finland

There is a recent book called Blueprint to a Billion concentrating on about something that most Venture Capitalists and Entrepreneurs think about a great deal: how do I beat the 1 in 20,000 odds that my company (or the company I am considering joining or investing in) will scale to $1B in sales in five to seven years?

The book's author, David Thomson, has studied this question through financial analysis of all the US IPO (companies getting listed on a public exchange) companies since 1980, as well as through structured interviews. He has e.g. discovered that if a company did not have ONE of "Seven Essential" traits, it would take 14 years to hit a billion in revenues, versus seven years that a billion dollar company would take on average if it had all seven traits. And if a company failed to have TWO of these seven traits then the likelihood of scaling to a billion in revenues fell to non-existent. In the USA, only five percent of all US IPO companies since 1980 made it to $1B revenue (387 of 7454 companies) and only 29 of those made it to $10B revenue.

What is the ‘secret formula’ then? “The Seven Essentials” by Thomson:

1) Find or create a great value proposition.

2) Find a quickly growing market. Rapidly growing markets (100%+ per year) tend to be much more forgiving of mistakes than slower growing ones.

3) Get some marquee customers. Having big customers help you figure out your business model is a smart move.

4) Leverage a "Big Brother" Partner.

5) Be capital efficient. It's a myth that you need to spend lots and lots of money to build a Billion dollar business. Most companies are self-funding after a certain point (typically around $25M in annual revenues per the author), and they have high margins early on that are sustainable, and they don't consume that much cash to get there.

6) Get paired management teams. You need both an external CEO that focuses on the vision, product, marketing, and sales and an internal CEO/COO that focuses on delivering on that vision profitably.

7) Have at least one board member on your board, outside of your investor or management team that has grown a company to a billion.

My work this fall and winter will focus on exploring whether existing or new Open Source companies have or lack the possibility of becoming billion dollar revenue businesses and further whether it is possible that such a business will emerge from Finland, the birthplace of e.g. Linux operating system. Furthermore, does it make sense to try to build a big business with the open source approach or not.

Despite the success of Linux technology- and usage-wise, and business-wise the mobile-maker Nokia, Finland can claim very few Born Global businesses that have reached a Billion Dollar revenue in a short time; quite frankly, so far we have managed to create none, but I believe we are about to change this.

About OS Businesses

"There is one thing that is stronger than all the armies in the world, and that is an idea whose time has come". –Victor Hugo

I certainly believe that time for businesses embracing the open source based business models have come; and so do some major companies like IBM:

At a recent LinuxWorld, Scott Handy (Vice President of Open Source at IBM) said that:

- IBM will begin to invest more heavily in open source client-side middleware, development tools, Web application servers, data servers, systems management, open hardware architecture, grid computing and technology services businesses. We plan a major expansion beyond Linux into open source. It's poised to be a more disruptive force in the industry in the next three years than Linux has been in the last 15 years. With open source beyond Linux, we'll be as aggressive and leapfrog right to the injection stage.

There is a very good reason for IBM’s bold statement, ever since they decided to invest a Billion Dollars into furthering Linux about six years ago; they have managed to build a very significant service business around it creating billions in revenue annually for them. Arguably one could claim IBM being one of the most successful companies embracing open source (even though Google has not done too bad building their business on top of Linux servers).

IDC has some interesting insights into how open source usage is shaping up, they just conducted a survey in spring 2006 of over 5,000 developers in 116 countries, representing 38 developer networks.

The study declares that open source software represents the most significant all-encompassing and long-term trend that the software industry has seen since the early 1980s. IDC believes that open source will eventually play a role in the lifecycle of every major software category, and will fundamentally change the value proposition of packaged software for customers.

- The use of open source beyond Linux is pervasive, used by almost three-quarters of organizations and spanning hundreds of thousands of projects, said Dr. Anthony Picardi, senior vice president of Global Software Research at IDC.

- Although open source will significantly reduce the industry opportunity over the next ten years, the real impact of open source is to sustain innovations in mature software markets, thus extending the useful life of software assets and saving customers money.

The study finds that of the 5,000 survey respondents, open source software is being used by 71% of the developers in the world and is in production at 54% of their organizations. In addition, half of the global developers claim that the use of open source is increasing in their organizations.

So, the use of open source is there, and so is money for some big businesses like IBM, but what about start-ups? Is it possible that we will have independent open source companies with Billion Dollar revenues in the coming years? Good discussion has taken place online; see e.g. Stephen Walli’s blog.

Basically I believe my initial analysis will focus on the possibility of MySQL growing to a billion dollar revenue as well as things related around ROI (Return Of Investment), and whether the bets around Open Source model actually make sense. If you have any thoughts on this or guesses e.g. on whether the first Billion Dollar OS business will be MySQL (full disclosure, I have a vested interest in MySQL) or someone else, please email me at . In the Open Source fashion, all findings will be available online.

Mikko Puhakka

Friday, November 24, 2006

Back Online

I will start updating this blog once again...the past year has kept me superbusy, but now there is more time to write once again...

Monday, January 30, 2006

Open Tuesday

No posts in a few weeks as I have been busy writing up few academic articles, as well as setting up a new venture. From now on you can find my business related writings at and I will start writing more personal observations here.

Monday, January 02, 2006

MySQL & Open Source Success

As an investor to MySQL, I feel a bit biased to rave about their success, so here is a link to one of my favorite blogger's post...still the big questions in my mind are when to go open and how!?

AC/OS: "A very happy new year for MySQL

In my in-box this morning was an update from Marten Mickos detailing the company's progress over the past year."

The Pitch

Good post by Guy, with nice additions by Ronny

Ronny Max: "Guy Kawasaki 10/20/30 Rule (And my 100/10/1)

As a venture capitalist, Guy Kawasaki had seen a fair share of PowerPoint presentations, hence his 10/20/30 rule: PowerPoint presentation should have ten slides, last no more than twenty minutes, and contain no font smaller than thirty points. The ten topics that a venture capitalist cares about are: 1. Problem 2. Your solution 3. Business model 4. Underlying magic/technology 5. Marketing and sales 6. Competition 7. Team 8. Projections and milestones 9. Status and timeline10. Summary and call to actionPoint is people have short attention span. They want information quickly, without the hassles of noise (too much data) or errors (not enough knowledge).I have my 100/10/1 rule: 100 pages detailed plan (in writing), 10 minutes talk (PowerPoint), and 1 sentence elevators pitch (the gist of the idea). The detailed plan forces understanding. The presentation presents the highlights. And the Elevators Pitch generates interest. I found that I failed when I didnt use the 100/10/1 rule, and I succeeded when I did. Try it out. It works."

Friday, December 30, 2005

Predicting future is tough

This is both funny and good perspective on how difficult predicting future is

Matthew Thomas Humor: "Bill Gates predictions about speech recognition: a historical review

Speech recognition software will become mainstream by 2007. Or by 2002. Or by 2007, or 2008, or 2006, or 2003, or 2001, or Windows XP, or 2006, or 2004, or 2005, or 2004, or 2009, or 2010, or 2007, or 2010, or 2015, or 2008. You can count on it."

Weather 2.0

This is brilliant, very creative thinking by the 'Silent Penguin' what could be the businessmodel?

The Silent Penguin: "Social Weather 2.0

Here's an idea for a Weather site built around Web 2.0 goodness. There is probably something like this out there already - please let me know if so.

Basically the idea hinges around something I read once, that stated the highest chance of forecasting the correct weather for the next day was to say that it would be the same as today. I can't remember where I read that - but anyway.

The Weather 2.0 site is built on the Google Maps API and a user-base. Each user logs on to the site and can enter the current weather where they happen to be. The form allows things like general observations such as 'sun is shining', 'snowing' or just 'cloudy'. You can also enter things like current temperature, wind direction etc. if you happen to have the necessary gadgets available. Free text annotations are also possible 'freaking cold' or 'raining cats and dogs'. The information is then shown as a layer on top of the Google Map and pinned at your current position.

The user can also take a picture of the weather situation, upload that to say Flickr and link to the picture from their current weather observation. Of course you can subscribe to RSS feeds of weather observations from places you may be interested in."

Big OS news in 2005

Good article on Businessweek recapping many big OS news for 2005

A Watershed for Open Source: "A Watershed for Open Source

Building & realizing value

Great post about selling your company & about building value

The Post Money Value: "Build to Flip = Build to Fail

There are a bunch of blog posts flying around on the subject of flipping companies. Yes, weve been here before, 5 years or so ago, and yeah all the same issues remain. The interesting difference this time around is, thanks to the world wide everybody talking to/about/for everybody/everything, there is a ton of material for you, the start up, to absorb in your quest for world domination or just a bigger house. Some notable blog postings out there are Don Dodges notes on selling your start up. Smart guy, worth reading and listening to. He makes the point about talent and does it in a way that shows his experience and professionalism.

One superstar engineer/visionary like Ray Ozzie is worth 100 really great engineers. And, one really great engineer is worth another 100 good engineers. This is the normal order of things, yet few CEOs understand this. The truth is you need all levels of talent to build out a team, but without the superstar it will be tough to win.

Thursday, December 22, 2005

What is Real?

I love this kind of challenges to our perception of reality!

Fractals of Change: Evolutions Not Religion and Vice Versa: "You also cant prove that the whole universe wasnt created the minute you started to read this sentence completely populated with your memories and evidence of a much longer history."

Apple Moving Away From Mac, Building On iPod

Great example how large companies can reinvent themselves...btw did any startups benefit/take advantage of this?

Apple will continue to move away from its Mac core in 2006. In a new research note, Goldman Sachs research analyst David Bailey maintained an "in-line" rating on Apple, but raised earnings estimates for the company, expecting holiday iPod demand and anticipation of upcoming product announcements to continue to drive earnings growth into 2006.

read more | digg story

Tuesday, December 20, 2005

There is a Billion of Us!

One Billion Internet Users (Jakob Nielsen's Alertbox): "One Billion Internet Users


The Internet is growing at an annualized rate of 18% and now has one billion users. A second billion users will follow in the next ten years, bringing a dramatic change in worldwide usability needs.

Some time in 2005, we quietly passed a dramatic milestone in Internet history: the one-billionth user went online. Because we have no central register of Internet users, we don't know who that user was, or when he or she first logged on. Statistically, we're likely talking about a 24-year-old woman in Shanghai.

According to Morgan Stanley estimates, 36% of Internet users are now in Asia and 24% are in Europe. Only 23% of users are in North America, where it all started in 1969 when two computers -- one in Los Angeles, the other in Palo Alto -- were networked together."

Nokia 770: Okay, Silicon Valley Time To Get To Work :: AO

Not just valley, rest of the world as well...or what are you waiting for?

Nokia 770: Okay, Silicon Valley Time To Get To Work :: AO: "Nokia 770: Okay, Silicon Valley Time To Get To Work"

Great Time to be an Entrepreneur

I am REALLY waiting for another post by Joe Kraus, read the full post, as well as the comments, pure gold!

Bnoopy: "Its a great time to be an entrepreneur

Thers never been a better time to be an entrepreneur because its never been cheaper to be one. Heres one example. took $3,000,000 to get from idea to launch. JotSpot took $100,000.

Why on earth is there a 30X difference? Theres probably a lot of reasons, but here are my top four. Im interested in hearing about what other people think are factors as well."

Digital Future

What does this mean for my or yours business in the future?

Digital Rules By Rich Karlgaard: "Terrifying Internet Facts"

How much should you give away?

This got me much should you just give away...and expect to get a ROI somewhere else?

Jonathan Schwartz's Weblog: "FREE SERVER! Just in time for the Holidays.
We ran an interesting experiment not too long ago, when we were rolling out our first Opteron servers. We distributed a bunch of free servers to new customers, just to get them exposed to Sun. It had the desired impact - on average, the 'return' on the investment of a free server was an average purchase order of ~15 systems. So we gradually ramped up the number of free systems - like a free software download, it's easier to close a sale with a self-qualified customer than an unqualified marketplace."

Why Blog?

Enough said;)

gapingvoid: gapingvoid highlights 2005: "gapingvoid highlights 2005"