Domain Experience Gives Entrepreneurs an Unfair Advantage

This is the final part of my series on Entrepreneurial DNA that was originally published on VentureHacks. OK, it’s not really my final part.

I started with a Top 10 list for Nivi (at VentureHacks), but I couldn’t cram it into 10 so it became a Top 11 list. I originally conceived it as the Top 11 things that I believe “all entrepreneurs need to succeed.” If it stuck to this theme then I would stand by my top 11. But Nivi envisioned it being the “Top 10 things I needed to see before I wrote a check.” I think the title sounded better to him ;-)

This became comical as I published my “attention to detail” post because some people noticed that the Top 10 list had 11 items. Made ME laugh, anyways. So sticking to my definition of “attributes for success” it had to be my Top 11 +1 rather than a Top 12.

11. Domain Experience — “Domain experience” means that the founders have worked in the industry before. It isn’t a “must” for me but it’s certainly a huge positive when entrepreneurs have it. When you’re researching a market you can spend a year putting your hypotheses on paper but you somehow never really have a handle on the minute details of the industry until you’ve lived in it. It’s not an absolute requirement for me that you have domain experience but if you do it’s a HUGE plus.

Are you launching a mobile application? If your last company was Apple, Blackberry, AdMob or JAMDAT and you have some experience in the sector then I know that your product will have your experiences baked into it. When Evan Rifkin of Burstly launched a new ad network for iPhone (and soon to be other devices) applications I knew he would have a very strong offering out of the box. He’s built two ad network companies — he knows what he’s doing. I’ve now validated with 3 independent sources that he’s really on to something so if you have an iPhone app that you’re looking to better monetize you should check it out (no, I’m not currently an investor. I’ll always point out when I am.).

I learned the domain lesson myself. My first company launched in 1999 and we were offering a SaaS document management in the cloud (we were called ASPs back then). I didn’t have first-hand experience in document management systems other than as a user and nobody had SaaS experience — the market was too new. We made lots of assertions about what features we thought people would want, how to price them and how to overcome the objections that people have to managing data in the cloud.

When I began to hire product managers, sales reps and implementation staff from existing document management companies like Documentum and OpenText is when I got first-hand input into what lessons they had learned in their companies over the previous decade. I know this stuff cold now. So when I launched my second company which was also a SaaS Document Management company we already had a vision for what would do well in the marketplace.

Domain experience also brings relationships. I have a good friend who spent years building relationships with senior executives at media companies. He’s a star. He wanted to launch his next venture in financial services because it was a bigger industry. Fine. But I pointed out that he would be up against competitors that had spend years building relationships with the big financial services companies (as well as channel partners) and he was going to have to start from scratch. I’m not sure why you’d do that unless you had to.

Examples: There is a company called GreenLink Networks based in San Diego and Philadelphia. Their first company was called Traffic.com, which they sold in March 2007 to Navteq for $180 million (not too shabby). I met the CEO Brian Malewicz several times. He’s a classic entrepreneur and exactly the kind of person I look to work with. Traffic.com sold 10-second in-content advertising spots to local TV broadcasters.

They had built significant relationships with the local broadcasters and a knowledge of how to sell non-standard ad units. So when it came time to start their next company the starting questions was, “OK, what big problem could we solve for local TV broadcasters?” They’re taking on the declining revenue streams of local TV and creating new, measurable ad activities. In no time after they had researched their market they were up with pilots with local TV stations in 3 key DMAs. They had relationships — trust — that couldn’t easily be replicated. I’ll be they’ll build a successful business.

This is exactly the reason I like people who present to me to start with their personal bios. Before they’re presenting I want to know “what unique experiences you bring to the table that are going to give your business a faster time to market, a better designed product, more knowledge of your customers problems — a higher likelihood of success.” It’s what many VC’s call, “An unfair advantage.”

Another example. We recently met the management team of Assistly — CEO Alex Bard and COO Gary Benitt. When I first met the team in San Diego they had only been working on their software for 5 months. I was ASTONISHED (yes, it was worthy of all caps) by how good their V0.9 version of their product was.

Assistly is a customer support product designed to meet the needs of the current era of multi-channel touch points (think Twitter, email, chat, forum in addition to phone calls). The exact same team had worked on 2 previous customer service startups (and 1 non-CS product). So the whole customer development cycle is very streamlined. I absolutely love their product, team and vision. And the progress since my first product review is also great.

I normally don’t talk about specific companies we’re in the process of looking at but I guess when teams Twitter that they met your or check in on FourSquare it’s pretty hard to hide it ;-) Note: every time I use CoTweet to find old Tweets (as I did with Alex’s Tweet that he met with GRP) I feel compelled to plug them. I’m not an investor but the ability to so easily go back and pull up old Tweets is vital.

So summarizing my message to you — I know that not every entrepreneur has deep domain experience when they launch their ventures. That’s OK. Bill Gates, Steve Jobs and Mark Zuckerberg didn’t really either. Some people claim that too much domain experience can actually harm you because you become cynical of all the things that can’t be done — you’ve got the scars to prove it. There IS some truth to this argument.

But if you have it — use it. If you don’t have it — see if you can pick up team members that do. There is no doubt in my mind that on balance it offers you a huge Unfair Advantage.