Howard Lindzon at Startup Empire: Why Now is a Good Time to Start Your Startup

Later on in the afternoon at yesterday’s Startup Empire conference, Howard Lindzon took the stage. Howard manages a hedge fund and is the creator of the finance news humour site Wallstrip, which he sold to CBS in May 2007. He also has a very popular financial blog at HowardLindzon.com.

I shot some video asking Howard about his idea of “social leverage”; I’ll post it a litter later on. In the meantime, here are my notes from his presentation, Why Now is a Great Time to Start Your Startup.

The Current Situation

• Capital, which was so plentiful, is now gone
• Reminiscent of the real estate bubble in Phoenix (where I live half the time)
• Really important right now to shut out the noise
• From 2002 – 2006, it was fun to read Valleywag, TechCrunch and make "me too" products. You can’t do that anymore
• It’s also a bad time to base products on:
  • Freemium
  • Eyeballs
  • Advertising
• Sometimes you have to shelf your ideas for when the times are more suitable for them
• The headlines are all doom and gloom these days:
  • "Financial Ice Age" – BusinessWeek
  • Startup Depression – Calacanis (I’m not a fan)
• You must remember that even during good times, 80 to 90% of businesses fail
• The VC model isn’t broken

Social Leverage

• Financial leverage has come home to roost
• We’re in a period of deleveraging: there is no bottom, because we don’t know what everyone owns
• P/E ratios — it’s all about expectation, people expect less
• You can’t get what you got six months ago
• Expectations are in "this ratchet-down mode"
• I also think that "we’re going into a depression" is crazy talk
• I’m anti-financial leverage
• Social leverage is all-powerful
  • Nothing you do in social leverage will haunt you
  • It’s a gift from the likes of Facebook, LinkedIn, Twitter
  • Perhaps you shouldn’t start building social leverage with a blog unless your passion is for writing
  • Start small: work with people
  • Be mindful of the etiquette of social networking tools
  • The time to ask people for something is when they’re least expecting it

Too Small to Fail

• Wall Street was all about "too big to fail"
• I’m not seeing signs from the presidents about being small – they seem too concerned with conglomerations and unwilling to bust up things
• Bailouts just prolong the process
• This is not a headline, it’s a state of being
• It’s a great time to start a web-based business
• If you’ve ever played the board game “Risk”, you know:
  • If you’re starting all your armies in Europe, you’re screwed
  • Start off in New Guinea
• Consider one of my projects, Stocktwits.com
  • I like to stay in businesses I know
  • Started in Twitter — thought it was dumb in the beginning
  • Guys, this should be about ideas
  • Wrote post about how there should be a message board for stocks using the reputation model in Twitter
  • Twitter allows you some sort of reputation — everything you say is there for people to see
  • Stocktwits — one employee, $30K to start
  • Twitter offers possibilities: dating, betting — supports an ecosytem
• Be careful in whom you trust
• Embrace social leverage
• Be too small to fail: do the one thing you do very well
• Take as little money as you need; things will get better
• Ignore the people saying that this is “a new Ice Age” – they’re idiots

Fear

• Zig while others zag
• Take a look at this graph, in which the pink line is the Vicks index and the blue is RRSPs: 

  

• From 2003 – 2005:
  • Fear level low
  • Calacanis’s company, TechCrunch and other stupid tech businesses wree founded when fear was low
• It’s always a good time to start a web business
  • The truth is that it’s never a good time to start any business
  • Successful business can be started anytime
  • 80 – 90% of businesses fail anytime

Why businesses fail

• It’s important to have structure right from the beginning
• Mistakes made at start can come back to haunt you
• Sometimes partners fight, so rules and agreements at made at the the start are valuable
• The keys: Structure, funding and realistic valuation
• When it comes to spreadsheets and plans, keep in mind that it’s important to do one thing, do it well and get that customer – this is far more important than the spreadsheets
• Make sure you’re fishing where the fish are
  • “Swim near the shark”
  • Be around certain ecosystems

My Advice

• Social leverage: good
• Financial leverage: bad
• Be an expert at something
  • For good or bad: mine is finance
  • "I don’t really like the people in my industry"
  • Applications of my expertise:
    • Wallstrip: Its purpose was to lay humour on Wall Street
    • MyTrade: sold to Investools
    • and, as mentioned earlier, StockTwits

Investing: more art than science

Q & A

How do you balance your day?

• StockTwits is the only thing I run
• Knightsbridge pays me to be on the road
• I’m usually up at 5am
• Private equity: long hours, long weekends

How do you make use of social leverage?

• One example: Fred Wilson
• Two months invested in reading his blog
• I found out that Fred was a basketball fan and took him to a Phoenix Suns game
• We talked business
• Fred just happened to be friends with Jim Cramer
• Through Fred, I  met everybody else — I counts it as my “real day 1 “
• “You make your own luck”

What are you looking for with companies?

• I’m more of an angel and a scrapper
• I want to to be early
• I want to see a finished product

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