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October 01, 2010

Starting Up from 20,000 Feet

From startups to Yahoo and back again, Jeff Bonforte talks to InfoTech Spotlight about the opportunities for new ventures in an uncertain economy, the plusses and minuses of venture capital, skydiving and wanting to be a tech entrepreneur since the sixth grade.

For IT executives like Jeff Bonforte, adrenaline is an undeniable addiction. Put aside the 400 skydives the former Yahoo vice president has under his belt, as well as his several million-dollar ventures. These days, Bonforte is behind the wheel of another fast-moving startup as CEO of Xobni, a company whose next-generation products help millions of people quickly search and manage their contacts in Microsoft (News - Alert) Outlook and on mobile devices.

Having raised over $35 million as an entrepreneur, Bonforte has been actively involved in the future of communications for years, dating back to his involvement in what became the Gizmo Project, and to his executive roles with Yahoo’s Real-time Communications Group.

Kicking off the three-day ITEXPO (News - Alert) West event, Bonforte will be the keynote speaker at Startup Camp which will take place Monday evening, Oct. 4 at the Los Angeles Convention Center. Last January at  ITEXPO East in Miami, four early stage companies took the stage with raw ideas and enthusiasm that engaged the crowd.

InfoTech Spotlight recently caught up with Bonforte, who shared his insights into starting up a company during uncertain economic times and what he says to those who criticized his 2008 departure from Yahoo.

InfoTech: You served in several critical functions during your tenure at Yahoo – from senior director to vice president. What were some of your greatest accomplishments and which role did you find the most fulfilling?

JB: My most fulfilling role at Yahoo was as the vice president of Real Time Communications (Messenger, Voice, Chat and Avatars).

When I arrived, Messenger was a bit of a mess. It was in second place in the U.S. to AIM by a fair margin. It was one of the few unprofitable services within Yahoo, and was not considered a core asset to the company. Releases had become cumbersome and the team had some significant holes. Two years later, revenue was up 10 times (indirect revenue, which was much more substantial, was up three times). Voice was launched and had some moderate success. The product had been morphed into a strong platform for the company supporting six different services, including IM integration into Y Mail, and the service had completed a historic interop with MSN. Most importantly, Y Messenger passed AOL as the No. 1 IM product in the U.S., a substantial achievement, given no IM service had gained significant market share against AIM ever.

Showing you how far things have come, this year Yahoo Messenger was listed by Yahoo executives as one of the core six assets of the company (along with homepage, Mail, Search, Finance and others). Plus we added a lot of talent to the company via the Messenger team in that period, including some great product people like Matthew Skyrm (now working for Sony in Tokyo), Joshua Jacobson (now working with me at Xobni), John Dunning who had left Yahoo to go to Pixar but returned to our team, and Chris Szeto, who now runs product for Meebo. So I am very proud of a lot of the things the team accomplished while I was there, including a few very good products that were never launched, unfortunately.

My role as vice president of social search (Answers, Delicious, others) was also fulfilling, but in a different way. In this role, I learned a lot about corporate culture, challenging team dynamics, and more about myself.

Social search was a much different challenge than Messenger. I knew much less about the Web search business than I did real time communications. Institutionally, there was much more resistance to change on the Search side of the world (both for good and bad reasons). In the end, I think some good things happened with Answers, but certainly below my expectations, and I was fairly disappointed, despite a very good team, in what we accomplished with Delicious during my tenure.

I was surprised how unsuccessful I was in getting the Search team interested in the assets we had with Delicious (which were pretty amazing). Perhaps my biggest accomplishments in this role was helping to identify very talented people within the organization and trying hard to make them successful, specifically Vik Singh who was behind BOSS and Edward Ho, who we were not able to keep from Google (News - Alert). Ed went on to build Buzz for Google, a service somewhat similar to what Ed and I were designing for Yahoo, actually. There were many other really smart product people I had a chance to work with in Social Search, including Joshua Schachter (Delicious founder), Michael Albers (joined me at Xobni), Stephen Hood (now founder of BlockChalk) and Nick Nguyen (running Add-ins for Mozilla). Unfortunately, there was resistance among engineering leadership to work closely with the product team, and it was a shame I wasn‘t more successful in breaking some of those barriers. I underestimated the problems, and learned some lessons there.

InfoTech: As an entrepreneur, you are often forced to be a jack of all trades. As a demonstrated technology and Web product innovator and entrepreneur, what advice would you give to other entrepreneurs who are more product-focused in nature?

JB: Find one to three amazing engineers with whom you can really mind-meld. Engineers and product people need each other. The most important things for this relationship to work are personality fit and mutual respect. There is nothing more annoying than a really smart product person that can‘t get their product built; or a really talented engineer who can’t get the product direction they need. And find a great product person. Many people underestimate the tools and skills needed to be a successful product person. I am not talking about getting an MBA (in fact, that might be counterproductive). In general, most of the best product people I know are either former engineers (or interaction designers) or are extremely technical. I don‘t look to my product person to have the best ideas in the room, simply the best ears and the highest bar in terms of quality.

Overall, impatience is seen as a critical virtue for entrepreneurs. For me, I think it is instead a unique combination of impatience with patience. Great products often take a lot of time and detailed attention. If you don‘t have the patience to work through these details, your product is going to suck, no matter how clever the idea. I see a lot of this justified in the startup world under the guise of “release early and iterate.” This is used as an excuse to ship crap too often. The result is the earliest, most likely to evangelize customers see a completely undone or poorly implemented product. It is hard to get their attention a second time. This contributes to the 95 percent attrition rate many new services see after their first visit. The ticket is acting quickly ( r e q u i r e s impatience) without sacrificing quality (requires patience). How’s that for mixed messages?

InfoTech: Tell us about your latest venture, Xobni, and what led you to this start-up? Given the economic climate, are you running into any particular obstacles? If so, what are they and how will you plan to overcome them?

JB: I met the two founders, Matt and Adam, in 2007 while I was working at Yahoo running Social Search. Xobni really struck a nerve with me. I had recently left the comms side (e-mail, messenger, etc.) and I was focused on social search. A primary asset, if not “the” asset, for dramatic improvements in social search is the inbox. And so with my background in comms and social search, my first recommendation to Yahoo is to buy Xobni (there were substantive rumors that MSFT was trying to do the same thing). I believed that Xobni’s toolbar would make a great addition to Y Mail, and the economics of the toolbar business, particularly for people like Yahoo and Google are very attractive.

Mostly due to the attempted acquisition of Yahoo by MSFT, we were unable to pursue an acquisition of Xobni (nor were the founders terribly motivated to sell). We made a lot of smart structural changes at Yahoo around that time to help focus the company. As part of those changes I recommended that Social Search integrate more directly into the core search team. This was the right thing to do, but it left me without a position. I looked across Yahoo but nothing else particularly appealed to me. About that same time, the investors and founders approached me about taking a position with the company. So away I went – back to the startup land that I knew and loved.

Xobni had a lot of magic from its earliest days. The core technology built by Adam Smith while he was at MIT was very strong. The accomplishment of successfully and meaningfully integrating into Outlook was non-trivial, even for companies with significant resources like Yahoo (even MSFT, amazingly, I would argue). So I liked the founders a lot. I liked the problem they were trying to solve and I loved the technology they were building. I could see how this company could get to $1B market cap.

Luck also plays a big part of a startup’s success. Xobni has always been extraordinary lucky. The current economic climate has not really been a factor for us, perhaps even a benefit as it has made recruiting for successful startups a bit easier and more affordable. In comparison to the risk of a big tech player that are frequently doing layoffs, a small startup with deep funding is actually comparatively stable, particularly for top-performing employees.

As the market recovers, IT spending will increase as will the potential avenues and size of exits. That is something that benefits healthy startups for certain, allowing the company to raise capital at better valuations.

InfoTech: You had a phenomenal career with Yahoo, growing both the company’s user base and revenues – at what point was the decision made to do a re-org and what do you say to those who criticized your departure?

JB: I love Yahoo. The company was good to me, and I gave them the best work I could. The re-org I believe was the right thing for the company, but it left me without an operations-level role at Yahoo. I     am not an individual contributor type guy (I am actually quite annoying in these types of roles). I left proud of the work I did there, and with lifelong contacts and friends in my managers and colleagues. As for the critics, I guess I’m not surprised there were some. I’m not a “yes” person and sometimes like to go against the grain and ask the tough questions. This isn’t always popular, and I’m ok with that. The people that matter, I believe, supported my decisions.

InfoTech: We are nearing the fourth quarter of 2010 – and possibly headed for a “double-dip recession.” Is the IT market “start-up friendly” Why or why not? What drives successful commercialization in this fast-changing environment?

JB: Definitely. Great innovation solves a problem. Problems that need to be solved have an ROI. In tight times, companies and consumers tend to be more open to changes that drive down costs or improve productivity. So, very often economic slow-downs open the door for startups, as it motivates your customer to listen to new ideas, particularly those that directly address a current problem. If the disruption a startup is offering is around creating a new market, economic slowdowns can be a problem, as customers aren’t asking “what’s next?” as much as “what now?” So in my mind, it is often a great time to start during a recession, get the business going and then ride the overall wave of recovery to help fuel the business as it matures. By the time the market recovers, startups usually flood the market and actually make a startup harder. That is my experience from both 2000 and 2008.

InfoTech: What advice can you give to viable start-ups that are currently struggling with funding?

JB: Well, that depends. For Startup Camp, most entrepreneurs are raising their angel or Series A round. The first question you need to answer is should you be raising venture money at all. Plenty of great businesses start without venture money. There are good examples of great startups like 37signals (Basecamp, Backpack, Highrise, Ruby on Rails, etc.) who grew their startups without the help of venture money. A company I am advising just sold to AOL for millions without having ever raised a dollar. In both cases, the companies sustained themselves on consulting business while they developed their products.

If you do want to go the VC route, there are tons of choices today for the first round. You can go with a new slew of great super-angels (Chris Sacca, Dave McClure, Mitch Kapor, Ron Conway), excellent incubators (TechStars, BetaWorks, Y Combinator, AngelPad, DogPatch Labs, VenRock, etc.) or you can go with a more traditional VC that specializes in early A round investments, a list that grows every day. A few of my favorite include Xobni-investor First Round Capital, O’Reily Alpha Tech, Union Square Ventures, but there are many, many more great ones.

The VCs are going to be asking this question from you, too. But the basis of their question is different. They want to know how big you can become as a company. If the biggest you will ever be is $100 million in market value, you aren’t really a good target for venture money. That is why VCs tell you they are looking for billion dollar opportunities.

That way if you miss hitting a home run, you still have tens if not hundreds of millions of dollars of opportunity for the company.

And most VCs admit in the early stages they are betting on the team, not the exact idea. Most know the idea will undergo dramatic changes over the coming 12 to 18 months, so instead they are betting on the experience, intelligence, craftiness, character, attitude and completeness of their team. So if you are having big trouble raising money, it is more likely an indication that you need to keep strengthening your team than changing your idea. For the most part, VCs have a lot of choices when it comes to ideas. The scarcity comes in the teams to execute on these ideas.

As far as timing, entrepreneurs routinely think of the time to raise money in two to three months. My experience, no matter what the round, is that start to finish, raising money takes six to 12 months. Entrepreneurs take on a huge amount of early, unnecessary risk by misunderstanding this process.

No matter how desperate you are to raise money, raising money from the wrong investor is worse than raising nothing at all. The wrong investor/entrepreneur match simply pushes big problems later in the process, when they are both more painful and more expensive to deal with. If you can’t raise money keep adjusting your pitch, your strategy and strengthening your team.

InfoTech: What IT trends are you seeing this year and how can companies capitalize on those trends?

JB: Well, there are a few ways to answer this question. There is the “consumerization” of IT, where employees in big companies are becoming so powerful that IT is being forced into adopting consumer-grade technology for their employees (think iPhone (News - Alert), iPad, Xobni, SalesForce, etc). Consumer grade isn’t a bad word. It means, scales to millions of users instead of just thousands. It means the service is likely to be run on servers outside the enterprise data center. And it means the company has a hyperfocus on the user experience versus the traditional IT elements of control and support. Typically these products point to the cumulative consumer values as their value to the enterprise.

There is the local phenomenon, which includes geo, maps, reviews, mobile, search, news and listings. So the players in this space are Web search, Facebook (News - Alert), Google, ShopKick, Yelp, Gowalla, Patch (Aol), FourSquare, the entire yellow pages industry, the newspapers, Craigslist, etc. This is a space dying to be reinvented, but has shown immense resistance on the monetization side to date. I think we will see that break soon.

There is the “social” phenomenon. Facebook is the early Goliath, but tons of elements are still waiting to be invented or reinvented. Lots of room for startups here, still. There is the related “real-time” phenomenon, which includes Twitter but overlaps a number of other areas. For me, I am very interested in the rise of “big data,” with access to great data systems and big back-ends (AWS, Rackspace, Google, etc). With more brute force computing resources, new areas open up.

InfoTech: Tell us something we don’t know about you – favorite sports team? Ice cream? Vacation spot? Place you’d love to visit?

JB: I love being in the air (400 skydives) and sea (logged 24 hours underwater and rafted in Zambeza, Africa). A also love traveling and  living abroad (visited over 40 countries and counting). I learned a lot about product management from my father who was a real estate developer and taught me how to bring a critical eye to opportunities in the physical world. I still look to journals and ideas I jotted down in high school for startup ideas today. I have wanted to be a tech entrepreneur since I was in sixth grade, so I am living my dream.

InfoTech: What are you hoping to impart as the keynote speaker at Start-Up Camp at ITEXPO in L.A. this October?

JB: Being an entrepreneur is like death by paper cuts. Maybe I can help avoid a few for some of your attendees. IT


Erin Harrison is Executive Editor, Strategic Initiatives, for TMC, where she oversees the company's strategic editorial initiatives, including the launch of several new print and online initiatives. She plays an active role in the print publications and TMCnet, covering IP communications, information technology and other related topics. To read more of Erin's articles, please visit her columnist page.