How Companies Really Get Founded: The Birth of Tenuki

John and I officially founded Tenuki on Dec.1 but I never thought to mention it until today. It's a bit anti-climatic, founding day. The real story is how we got there.

John and I had thrown around the idea of starting a company since hanging out together at a friend's wedding in Mexico. I was at the end of a yearlong trip around the world, so I had about 100 bucks to my name. I was too cheap to get a hotel room at the five-star resort the wedding was at, so John let me sleep on the couch in his room. We really haven't spoken since high school so it was a really nice thing for him to do for me.

We pretty much spent the whole weekend talking about tech stuff, predictions, what sucked, what rocked. And music. And girls. We bonded. By the end, of the weekend, I was positive that I wanted to start a company with him.

At the time, he was happy with engineering gig at a games company, and I was flat broke, so nothing really happened. I went back to DC, and eventually got a job as an IT manager at a startup. About a year later, I had saved about 40 grand and was pounding my brain for a good idea for a company. It was October and I had already told my boss that I was going to leave on Nov. 1 to go start my own company. Then, out of the blue, John calls, we hadn't spoken in a year, and tells me that he's ready to start a company.

Things really do happen like that.

It took about a month to extricate myself from my job. I ended up doing contract work for my old company until the end of November. I flew out to San Francisco the last day of November and we founded the company the next day, December 1.

UPDATE: David Beisel from Masthead Ventures just posted about how he uses the founding story to evaluate entrepreneurs. So for all you curious VCs out there, I'd be happy to provide the sexy details I left out, like the big idea behind Tenuki, for instance. But only if you buy the coffee.

Real Networks Earning Report - 86 Million from Shareware

Real Networks just announced their fourth quarter earnings. Gamasutra was kind enough to highlight Real's revenue from downloadable game sales:

The company's downloadable gaming revenue also saw strong growth, with $23.9 million for the quarter, up 53 percent over last year, and posting $86.2 million in total game revenue for the year.

Eighty-six million from downloadable game sales. Pretty impressive, if you recall that downloadable games used to be called shareware. Ten years ago, people would have called you crazy if you told them that you'd be making 80,000 dollars from selling shareware, let alone 80 million.

(via Gigagamez)

The DEMO Conference: Calculating the ROI

Right now, somewhere in the desert a bunch of startups paid 18,000 bucks apiece to demo their products to seven hundred people. We’ll assume INFLUENTIAL PEOPLE, like Michael Arrington, Om Malik, and Matt Marshall. If you break that down into the standard measurement of the internet, CPM, and calculate the ROI, well kids, you’re paying $22,500 per thousand impressions. By contrast, Myspace gets a CPM of 2.5 cents.

Let’s assume, that not everyone is a journalist. Perhaps only a hundred attendees are journalists. If each reaches an audience of 10,000 people then you get 1 million impressions for 18,000. That’s a CPM of $18. That’s pretty good. And cheaper than an ad in the Wall Street Journal.

Let’s just hope they like your product.

Waiting for the Demo/Advice From Paul Graham on Presenting Demo

It’s difficult being the non-technical founder. I don’t program so as far as the demo is concerned, all I can do is sit and wait. It’s agony.

But in preparation to present the demo, I found this very helpful nugget from the patron saint of startup founders, Paul Graham:

“A demo explains what you've made more effectively than any verbal description. The only thing worth talking about first is the problem you're trying to solve and why it's important. But don't spend more than a tenth of your time on that. Then demo.

When you demo, don't run through a catalog of features. Instead start with the problem you're solving, and then show how your product solves it. Show features in an order driven by some kind of purpose, rather than the order in which they happen to appear on the screen.

If you're demoing something web-based, assume that the network connection will mysteriously die 30 seconds into your presentation, and come prepared with a copy of the server software running on your laptop.”

Gaydar: Why You Can't Trust the Japanese Market

I overheard a pitch in Starbucks that was basically a location-based profile/meeting service. And I thought does anyone remember Gaydar? A company that sold beepers that activated whenever another beeper was within forty feet. Obviously, they were marketed to gay men. It failed.

The interesting thing to me is that Gaydar was very successful in Japan, except it was marketed to straight people. Over 100,000 units were sold.

The reason I find this interesting is because a lot of the next-gen mobile apps show up in Japan first. Japan is way ahead of the USA in terms of mobile usage. I suspect a lot of people look to Japan for business ideas that can be adopted for the US market. I mean, if it worked in Japan, then surely it'll work everywhere, right?

Except it doesn't. Japanese culture is REALLY different than American culture. In Japan, you can get your nails manicured by a vending machine. Japan has a popular movie series called Rapeman, it's about a hero who rapes women who have spurned the advances of lonely salarymen. It was shown at the local cineplex.

Japanese have strict social customs. Every interaction is highly ritualized. I suspect the rising mobile culture allows the Japanese to circumvent those customs and that's a big reason for the popularity of social mobile apps. In the US, social interactions are not restricted. I want to talk to a girl in a coffeeshop, I say hello. No one thinks I'm crazy, unless I happen to be homeless.

My point is this: be careful when you look to Japan for the validation of a market, other companies have been burned, it might happen to you, too.

The VC Perspective: What’s Important to VCs When You’re Preparing Your Pitch

1. Demo - Crucial. We only believe what we can see.

2. Pitch - Crucial. It better excite us so much that we forget there's a Blackberry buzzing in our pants.

3. Executive Summary - Very Important. We need this to remind us how excited we got during the pitch.

4. Business Plan - Kinda Important. We probably won't read it if we liked the pitch and demo, but our junior associates will check it for accuracy so you better do it well.

5. Financial Forecast - Not Important. Yeah, we all know it's bulls**t, so don't waste your time on it. But you better project 50 million in revenue by Year 4 or we won't consider you a large enough opportunity to invest in, sorry.