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Today, I came across the Technology Startup Law BLOG.  The author, Sam Wu, describes the blog as “a down-to-earth legal resource for startups, emerging growth companies and venture capital firms”, and from what I saw, I agree.  In addition to discussing the nuts and bolts of forming the entity, the blog discusses other important topics that anybody who is interested in an entrepreneurial venture should be aware of, such as liquidation preferences and dilusion.  If you are interested in starting a new venture, especially a VC-backed startup, knowing this stuff is important.

As expected, Apple’s announcement of the new 3G iPhone, and the new AppStore, has the press aflutter. I have heard predictions of Apple selling 60 million units or more over the next year, and the AppStore becoming a major revenue generator for the company. Its easy to come to this conclusion, as people point to iTunes as a model to follow. There is one important difference though. Music is not the same as software.

Despite the break down of the music industry’s distribution channels, the reality is that most people still consume what gets pumped and promoted through promotional channels. A consumer is less likely to go searching for unknown music, as the means to discover what you might like are not effective. Additionally, music is an artistic endeavour, and in my opinion, quality music is a scarce resource.

Software is an entirely different matter. As we have seen with shareware, open source, and the myriad of social network applications through Facebook, etc, there never seems to be a shortgage of software. In fact, this abundance often drives the price of software to free, as software authors struggle to gain adoption. In almost all cases (except high-end games), I see this happening with iPhone software. First, the discovery process is much more efficient with software than music. If you want a game, you can get an idea whether it fits basically what you are looking for through descriptions and user ratings. So this will help even the playing field among the many applications that are made available through AppStore. Second, the form factor of the phone and how consumers use the device will, by nature, limit the complexity of applications. Second, many people with visions of being the next software millionaire will churn out their own copies of wildly popular applications. This competition put pressure on pricing. Last, software authors will move towards advertising, both because it provides a recurring revenue opportunity, but also as it lowers the adoption barrier.

So I see the AppStore being a success for Apple mostly for games produced mainly by traditional game publishers (EA, etc). Beyond that, I see the AppStore as being a clearinghouse for free software that uses advertising as a means towards monetization.

Edit: This post was in response to this article, where an analyst predicts AppStore producing $1.2B in revenue for Apple by next year.

Over the past year, I have been intrigued about the opportunities in the mobile phone industry, specific to application development. Google and Apple have fueled the excitement among software developers with their activities in this space, with Google developing the Android platform, and Apple’s announcements of the iPhone SDK coming AppStore. These two platforms seem to be diametrically opposed, as Apple takes their traditional “closed system” approach, while Google’s Android celebrates openness. As an entrepreneur with limited resources, I wonder which path would present the most opportunity. You would think that Android would be more successful in the long run, as it enjoys wider distribution, both because of the financial advantage that Android offers manufacturers (Google provides the platform to hardware manufacturers for free), but also because of the massive number of phones from varying manufacturers that are expected to adopt the platform.

However, Apple has captured the imagination of the cell phone consumers, and their history of innovation may make for a formidable competitor. When compared to Apple products, the cell phones produced by other manufacturers seem cold and uninviting. Cell phone manufacturers are trying to answer the iPhone with their own devices that share many of the same characteristics. So, will they be successful?

My take is that the iPhone will not reach the same penetration as the iPod. It will stay a fashionable, niche device, as Apple maximizes revenue opportunity. Apple enjoys being a premium brand, and that requires some level of exclusivity. With so many other manufacturers competing for market share, these manufacturers inevitably compete on price. It doesn’t make sense for Apple to play this game, and so the iPhone will continue to be a premium product, targeted at a fraction of the consumer base.

With that in mind, entrepreneurs should consider whether they want to target the larger audience of price driven consumers, or the smaller iPhone user base who is willing to spend money on highly polished applications that compliment the iPhone experience.

Being in a leadership position means that you are responsible for looking out for the people under your stewardship.  Excelling here is the right thing to do, but can also pay dividends throughout your professional life.  That’s the philosophy behind Chris Michel’s extra equity grant to three key senior managers at his company Affinity Labs, which was later sold to Monster.com.  In this interview, Mr. Michel talks about his reasons for giving away the equity, and why the gesture ends up being well worth the cost.

Its amazing what a role model can do to your perspective. Facebook, founded by Harvard ex-students Mark Zuckerberg and Dustin Moskovitz, have set an example of finding success through dropping out of school. And their success was not lost of fellow students. This WSJ article explores how Facebook has been a motivator to many Harvard students, as well as young people everywhere, to find their own path through entrepreneurship.

A new model is emerging for VC’s. As noted in this Industry Standard article, Benchmark Capital, a prominent VC in the Silicon Valley who funded ebay back in the day, has been hiring “entrepreneurs in residence”. These people are entrepreneurs who reside at the VC while looking for business ideas. Once the entrepreneur finds something that they want to pursue, the VC has first shot at funding the project.

I think the model is interesting, but I wonder if this might narrow the the opportunities, as VC’s look more within its existing network for opportunities, and if the unknown entrepreneur might find it more difficult to gain VC’s attention. Time will tell.

As is often the case in life, open communication is the key for maintaining a constructive relationship.  This also applies with the VC and the management of its portfolio companies.  A good VC should provide regular guidance, as their experience is an important attribute that they bring to the table.   Without open communication between the VC and start-up, the synergistic opportunities between the two parties cannot be fully realized.

This blog article talks about how one VC has taken a formalized approach by instituting annual CEO reviews for his portfolio companies.  Overall, I see this as a valuable tool, as it gives the VC an opportunity to constructively discuss concerns that might exist.  The challenge is for both parties to approach the review with an open mind, and use it as an opportunity to re-align expectations.  Otherwise, the review can add fuel towards souring the relationship, and that is in neither party’s interest.

For people leading start-up companies, its often all about product development, chasing customers, and raising money. Everything else is considered unnecessary, and left for another day. The author of this article from the Colorado Life Science Deal Flow blog suggests that the first-time CEO should spend some time on things that, while not core to the pursuit, can introduce elements to the business that provide legitimacy, and may help sell investors on you and your company. Consider how these might differentiate yourself from other start-ups, as as you compete for attention and financing.

At USC, where I am a graduate student, the entrepreneurship professors repeatedly stress the importance of “customer in-hand” before starting a new venture. In fact, one of the core courses requires the student to talk to 50 or more potential customers to force you to find out if the perceived demand is real. The reasoning is, if you can’t find a customer who is willing to buy your product today (disregard that the product may be imaginary at this point), then you most likely are fooling yourself. This blog article from the gobignetwork.com reinforces this concept. Its great advice, and will help avoid unnecessary costs and frustration by determining in advance if your product or service actually has a market.

French entrepreneur, Loic Le Meur, lists his 10 rules for start-up success on this TechCrunch posting.  I think that Loic is right on the money with all of these.  To expand on the list, often times, people looking for an idea try to come up with world-changing concepts, when in reality, the ideas that provide the best mix of feasibility and opportunity are those that generally target a niche.  When you begin to think in this way, suddenly you discover that the opportunities are virtually unlimited.