Why does Silicon Valley turn out so many companies and so many entrepreneurs?  It's the network, baby.

I've been spending a lot of time with startup CEOs here in the Mid-Atlantic region recently, and as a group, they continue to amaze me.  DC is not known as a hotbed of entrepreneurs.  Sure, we have companies like AOL, MCI (pre-disaster), Blackboard, and so on.  But the total number of startups is but a small fraction of the startup Mecca, Silicon Valley.  Books have been written about this.  Millions (no, Billions) have been made by those mastering the Silicon Valley startup idea machine.  But in a nutshell, I think the reason it works is the Network. 

As you probably know if you read this blog or have otherwise heard me speak recently, I do not think that the US is heading into a period of long term recession and decline. Having that optimistic viewpoint is surely being challenged right now. I mean, if I hear one more vacant eyed networker commentator ask “if we are in a recession” or read one more too clever pundit talk about the current or coming recession I am going to just scream. Well, OK, I’ve already done that.

But, seriously, let’s all take a deep breath here. There are a lot of reasons why politicians, media types and pundits want to talk about the current economy in the most negative terms. Here are just a few that I have thought about over the last few weeks.

Seeking funding later rather than sooner serves the entrepreneur well.  The simple reason is that investors will value your company based on how many unknowns have been answered; the more you answer the higher the value (and the more of your baby you get to keep!)  Think of it as a poker game, where each card that is exposed determines more clearly the value of the hand in play.  Many VC’s like to refer to the desire to “turn one more card” as they talk about learning more about the company through its success (or failure).  The more cards you turn before you seek funding, the better.

 So what do VCs want to know?  Here is a good starter list of areas that you will want as much traction on as possible before you seek funding...

Managing cash before and after raising funds is one of the most important skills for a successful startup; here are some tips to save a few bucks.

As a veteran of four startups (and working on #5 now), I am frequently asked about fund raising.  But rarely am I asked about how to make funds go further.  In reality, every dollar not spent is more than equal to a dollar raised (you are not giving away any equity).  Most startups don't shoot for the moon and most don't need to spend as fast as they do.  In fact, there is often pressure from investors to spend, spend, spend.  Beware.  Your startup, if it is successful, will most likely take twice as long and cost twice as much money as you think.  Investors are often willing to put in more money, but that's you hard-earned equity that you see going out the door unnecessarily.

Customer service.  It’s as fundamental as apple pie, patriotism and motherhood.  Just about every corporation, not for profit and government office touts it as a core mission. YET, when do we really see it in practice?  In fact, could you say cable service and customer service in the same sentence?  Is this an oxymoron?

Full disclosure. I am a Comcast cable customer. I very much enjoy their high speed Internet and cable service – though not enough to migrate to their phone service. Their products are excellent. 

But their service, well, that’s another story.  In fact, most communications companies, including wireless, are sadly lacking when it comes to quality of customer service and support. Call your wireless service provider and try to talk to a live agent. 

As we enter 2008, I thought it would make sense to break away from the year-end top-10 lists and shift right into the 2008 Presidential election season. As I was watching the Iowa Caucus shape up, I thought it was interesting to think about applying observations from the Iowa Caucus to being an entrepreneur:

One mistake can derail you for a while, but it’s how you deal with it that will guide your recovery. At the debate in Philadelphia, Hillary Clinton was the target of the other Democratic candidates. Many think that it was not her performance during the debate that led to her third place finish in Iowa and slide in the national polls, it was how she handled it afterwards. Instead of using this as an opportunity to attack her opponents from a defensive position, she stayed defensive through the Caucus. This colored her entire Iowa campaign as defensive. For a great strategy on how she could have recovered, see Chris Matthews’ point of view.

There are countless examples of mistakes being made and handled poorly and well in the start-up world. For example, in September 2006 when Facebook automatically added its news feed feature which posted content from facebook applications, such as “The Wall” to everyone in your network’s News Feed, there was an immediate and loud outcry from Facebook users. Facebook responded quickly and listened to its users. More recently, Facebook made another mistake and added its new “Beacon Technology” that analyzes the users’ actions on Facebook and other partner sites and makes these actions public.