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Original author: 
Megan Rose Dickey

summly marketing video

Two very young startups called Mailbox and Summly recently sold for millions of dollars.

Storage company Dropbox acquired Orchestra, the company behind Mailbox, earlier this month for a rumored $100 million in cash and stock — merely a few weeks after the email app launched

Just yesterday, Yahoo acquired two-year-old mobile news startup Summly for a little under $30 million, according to AllThingsD's Kara Swisher, even though the app had generated no revenue.  

But what did these early stage startups have in common that made them so attractive to the big players in the industry?

Neither had very many users. Mailbox had maybe 1.5 million. Summly had fewer than a million.

Neither made any money.

What both had was an awesome video with high-production values to show off their products.

If you're a startup and you don't make a video like these, you are dumb. Check that box!

Here are the videos:

Meet Mailbox from Mailbox on Vimeo.

Summly Launch from Summly on Vimeo.

SEE ALSO: This Is How It Feels When Your Startup Fails

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Cloud storage and file-syncing service SugarSync today announced the launch of SugarSync 2.0 in public beta, a big step forward in its battle against Dropbox, SkyDrive, and Google Drive. SugarSync has always been a feature-rich app, but 2.0 is a leap forward in a key area where it’s always been lacking: accessible design. "We got feedback that SugarSync was the most powerful [syncing solution], but not that it was the easiest to use," CEO Laura Yecies told The Verge, so the company focused largely on designing a simple desktop app for the last year and a half. SugarSync 2.0 also adds a powerful search feature on the desktop and web, as well as an expanded set of sharing options — two of its most request features.

With version 2.0,...

Continue reading…

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A pervasive myth exists among tech founders: If they build a product that consumers will love, it will magically trickle into Fortune 500 companies.

The logic works something like this: Devote the bulk of your funding to designing the product. CIO’s will fork over a piece of their sizable budget if enough employees get hooked and use it at work. Founders often tell me that just like cloud storage company Dropbox or enterprise social network Yammer, their product will be a hit with large organizations if it’s well-designed and easy to deploy.

Do a search for “Dropbox problem” or “Dropbox effect” and you’ll find thousands of articles. I agree that Dropbox has inspired more enterprise founders to experiment with freemium models or to build intuitive products, but it is not proof that a consumer-focused company can simply change focus to the enterprise without having to reengineer its technology from the ground up.

You can’t just ‘pivot’ to the enterprise

“Dropbox’s message is that business users want products that are simple and sexy,” said Ray Wang, the principal analyst and CEO of Constellation Research. That may be true, but according to Wang, to meet the needs of IT, you have to “do a lot more.”

For example, an enterprise startup needs a sales and support infrastructure to handle requests, and the product must be significantly more scalable and secure than a consumer product.

The “consumerization of the enterprise” trend is very real; it means that employees are embracing the latest mobile and social technology and applications, and they are bringing their own devices to work.

But this trend has not replaced traditional enterprise sales cycles. Even new-age startups like Yammer (recently acquired by Microsoft for $1.2 billion), which once spread the notion that big companies will embrace new technologies the same way that people do with consumer products, later hired a full enterprise sales and customer support team.

“It’s a beautiful story that has been spread by investors and founders,” said Mike Driscoll, the CEO of Metamarkets, a “big data startup” in San Francisco. Driscoll said that he is already on the hunt for a new sales executive, preferably with experience working for a legacy vendor like IBM or EMC.

Likewise Box, a Dropbox competitor, had to make sweeping changes before approaching the enterprise. It brought on adult supervision in the form of Whitney Tidmarsh Bouck, a former chief marketing officer at enterprise technology company EMC. To land big-name customers like The Gap and Volkswagen, Bouck said the startup needed “dedicated product marketers and resources.”

“It is our central point of focus,” she added. The product team had to incorporate scalability, integration and security controls, mobile technology, Active Directory support, and so on. Most importantly, she said, “it’s a long-term consultative sales approach that is a world apart from a consumer or SMB [small to medium-sized business] play.”

Ben Horowitz, the cofounder and general partner of Andreessen Horowitz, was one of the first venture capitalists to dispel the myth. As he put it in a blog post:

Encouraged by the new trend, innovative entrepreneurs imagine a world where consumers find great solutions to help their employers in the same way that they find great products to help themselves. In the imaginary enterprise, these individuals will then take the initiative to convince their collegues to buy the solution. Through this method, if the product is truly great, there will be little or no need to actually sell it.

The actual enterprise works a bit differently. Meet the new enterprise customer. He’s a lot like the old enterprise customer.

Indeed, when employees set up accounts for consumer-focused services without permission, the IT department is at risk of losing control over corporate data, whether it’s emails, reports, or instant-messaging chatter. However, this does not mean that the IT executives will strike deals with these tech providers to preserve security and governance.

Sand Hill is part of the problem

Greg Piesco Putnam, cofounder of Aktana, an enterprise sales startup, told me that most venture capital firms accepted the Dropbox myth without question when he was raising funds.

“They were looking for stories of the consumerization of IT, and the entrepreneurs who told those stories raised big rounds,” he recalled. ”The question that was not asked was whether IT departments would actually respond to these user demands.” He explained that in the enterprise, startups need to convince at least three key decision-makers: IT, business, and operations.

Wang told me he often hears about high-performing, early-stage consumer startups that shift gears once their investors demand to see a solid business plan. Entrepreneurs are aware that their investors are angling for a piece of the trillion-dollar market for enterprise software.

“You get folks saying, I’m going to enterprise now to cover my butt, but the product might not have been designed for that,” said Wang, who draws a useful comparison to the adoption of email programs Lotus and Outlook. The latter was widely used in the enterprise despite its design flaws. “In the enterprise, the best sales and marketing wins, not the best product,” he said.

At the Disrupt conference in San Francisco, young enterprise founders from startups like Asana contested this point, clearly demonstrating that the myth is still pervasive.

“The distribution model has changed,” Asana‘s CEO Justin Rosenstein said, and he argued that the CIO is the end-user for enterprise software. “You don’t have to be sales-driven or marketing-driven; you have to be product-driven,” Rosenstein said. “It will be the best product that wins,” he added. Asana is a task management software started by former Facebook founder Dustin Moskovitz and Rosenstein, an former Google employee.

“Nothing is relatively different, it’s just evolved,” hit back Cloudera COO Kirk Dunn. Dunn is right to advise caution: a young company will not succeed without a full customer support and sales team. In the enterprise, product simply isn’t enough. “You can have a great product and great sales-focused company,” Todd McKinnon, the CEO of cloud startup Okta, offered as a conciliatory response.

At startup demo days and hackathons, young founders are slowly waking up to the importance of traditional enterprise sales. ”At the enterprise level, a great product doesn’t sell itself; it takes a great sales and marketing organization to engage buyers, procurement organizations, and IT departments to close a large enterprise deal,” said Mark Trang, the cofounder of SocialPandas, a CRM startup that recently debuted at Founders Den.

The roots of the ‘Dropbox myth’

Dropbox is a consumer startup and wasn’t build to store and share terabytes of sensitive data for a Fortune 500 company. As VentureBeat reported earlier, with its third major security breach this year, the fast-growing private company has become a problem child for chief information officers.

“We’re consistently replacing Dropbox in the enterprise,” Vineet Jain, the CEO of enterprise cloud storage startup Egnyte, told VentureBeat. “It’s incessantly used in enterprise until IT shuts it down.”

If you are selling to consumers or small companies that behave like consumers, moving away from the old enterprise sales and channel models may make perfect sense. However, if you plan to strike multimillion-dollar deals with enterprise companies, the chief information officer is still the chief decision-maker.

In short, the Dropbox model didn’t even work for Dropbox.

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The startups that presented at Y Combinator’s Demo Day last week were remarkable in their own right, but perhaps the most striking thing was the sheer number of them.

With 66 companies and 180 founders in this season’s batch, the auditorium at Mountain View’s Computer History Museum was practically bursting with angel investors and reps from every notable venture firm last week. And that was just the latest class. Since 2005, Y Combinator has since spawned more than a dozen batches of startups including Dropbox and Airbnb. The last two classes alone have created more than 120 companies.

So it raises the question of how Y Combinator has been able to grow in size while sustaining both the quality of startups it churns out and the value it provides for founders.

Essentially, how do you scale a company that creates companies?

The Strategy and Vision

“Our whole approach to scaling Y Combinator is the standard approach to scaling software,” said Paul Graham, Y Combinator’s co-founder.

There are a couple rules, he said. 1) You can’t predict in advance where the bottlenecks will be so you just keep going until you hit the next one and 2) You can always scale a lot more than you originally predicted. ”When you scale things, they often turn into other stuff that you would have never imagined,” he said.

Graham doesn’t have an exact size in mind when accepting companies for a new class. The early-stage venture firm accepts as many companies as the team thinks are worthy. Nor does Graham know how large Y Combinator should ultimately be.

“Imagine if you had asked Mark Zuckerberg that question when Facebook had just two universities,” Graham said. “A lot of what drives us is curiosity about what happens when something like this gets bigger.”

Indeed, some of the other partners liken working at Y Combinator to building a university or a new type of institution that’s never been seen before.

“If you think of YC as a corporation or a company, it has these characteristics that every big company would love to have,” said Harj Taggar, an alum who later became a YC venture partner. “It’s a bunch of smart people working on projects that they love and have upside in. But they are all linked together and get the benefits of being a part of a larger group. YC is effectively inventing a new form of organization.”

Given the scale of Graham’s ambition (which shouldn’t be surprising since he tells founders to have “frighteningly ambitious” startup ideas), we walked through some of the many bottlenecks YC has faced through the years:

Applications:

Y Combinator’s increasing cachet has brought a ballooning number of applications. Last October, Graham said that the firm was seeing about one submission per minute on deadline day for the most recent class.

Every one of the firm’s venture partners used to read every application. Now they don’t. They might read one-third of the applications. It’s the alumni who make the first pass, depending on how much time they have. Some do none while others read as many as 100 applications or more.

“We went back over the years and saw that we had never accepted a company for an interview where the alumni were majority ‘No,’” Taggar said. “This weeds out really bad applications so we can focus on the borderline ones, which take more time.”

But just in case they miss a potentially good company, Y Combinator is starting to use data mining software. They’ve fed a program all of the old Y Combinator applications to find predictors of success and apply them to new submissions, creating a backstop in case they miss something.

“There are two kinds of mistakes: funding a bad startup or missing a good one. Our biggest fear is missing a good startup,” Graham said, adding that Dropbox’s co-founder Drew Houston was actually rejected the first time around. They’ve used the program to generate a top 10 list of factors predicting the probability of acceptance. ”I don’t want to share it, but it was fascinating,” Graham said.

After they pick a cohort of companies to interview, they fly them in. They used to do a single track interview process where every single partner had to be present in the room. Last time, they did two interview tracks with half the partners in one of two rooms that went through half the finalists each. This time, they might do three tracks simultaneously.

Following the interview, the partners decide immediately within the next five minutes about whether they should accept the company or not.

“We have to be very disciplined,” Taggar said. “By the end of the day, when you’ve done twenty-something interviews, you can barely remember what happened in the first one.”

Advising:

Y Combinator’s big initial bottleneck was that there was one Paul Graham, and he only had 24 hours in a day. So the company brought on additional venture partners like Gmail creator Paul Buchheit and alumni like Taggar, Posterous co-founder Garry Tan and Aaron Iba, who successfully sold AppJet to Google. Geoff Ralston, who was chief executive of Lala, the music startup that exited to Apple in 2009, is joining as a partner for this round. Plus there are part-time partners like Loopt co-founder Sam Altman and Justin.tv founders Emmett Shear and Justin Kan. They joined YC’s original partners Jessica Livingston, Trevor Blackwell and Robert Morris.

“It turns out that this is almost perfectly parallelizable,” Graham said. “I know from experience that one partner can deal with 20 startups and if we have 66 startups, we’re at more than 2X over capacity.”

All of the partners are available for office hours and there’s an internal scheduling tool that Y Combinator uses to gauge demand and urgency from founders. Ash Rust, who co-founded SendHub, had an HR issue once. He was able to get office hours within 30 minutes and the right documentation almost immediately after that.

“I know how hard it can be to get help as a founder if you’re not the belle of the ball,” Rust said. “But I’ve never experienced that here.”

If that still sounds a little impersonal for something as unpredictable and idiosyncratic as founding a startup, Buchheit points out that YC’s alumni network is now so large that the firm is starting to have world-class experts on running companies in many areas.

“As YC gets larger, it actually gets better,” Buchheit said, pointing to the firm’s 800 alumni. ”Half the time, I’m sending founders to talk to different alumni. If you’re doing a video startup, then I know the person you really ought to talk to is Justin Kan.”

The firm taps this alumni network when it holds mini-conferences around issues like user acquisition or iOS development.

“There’s this real feeling of appreciation,” Buchheit says. “The founders are very grateful for the experience, so they have a real loyalty and want to help out other companies. There’s a little bit of a pay-it-forward model built into the network.”

Tan even built a private social networking tool for YC founders. Taggar says it’s useful for putting faces to names and that they’ll probably add a section for skills like the ability to code in Python and so on.

Y Combinator’s emerging network effects:

Not only are alumni helping with admissions and advising, they can serve as market-makers for new startups. Many of mobile payment startup Stripe’s customers are part of Y Combinator while Exec is now offering special corporate accounts to run errands for other startups.

“Y Combinator has a built-in economy,” Buchheit says. “We have this tremendous network and another YC company can be your first reference customer when others won’t take the risk.”

Then if one company isn’t quite a home run, its founders and employees will likely be able to find work at another Y Combinator startup. When Jeff and Dan Morin were considering next steps after working on event startup Anyvite for a few years, Graham paired them with another founder, Olga Vidisheva, from the most recent batch. Now they’ve rounded up funding from Greylock Capital, Andreessen Horowitz, SV Angel and Benchmark Capital to bring independent fashion boutiques online at Shoptiques.

The alumni also come back to Demo Day to angel invest in startups from later batches and companies like Parse, Carwoo and Dropbox have raised angel funding from other alums.

Demo Day and Investors:

Maybe the next big bottleneck is the most obvious one: helping investors wade through the dozens of startups it launches every half-year. The firm had to move Demo Day to The Computer History Museum because its offices no longer had space to fit the hundreds of investors. Y Combinator is also reaching the upper limit of how many startups can pitch in a single day.

Getting through 66 pitches is a slog. ”I don’t think we could handle a Demo Week,” Buchheit joked.

Taggar says he’s thinking about how to make it more efficient for investors to set up meetings with the right startups following Demo Day. Right now, the partners just have a mental map of the investor landscape and try to route the right companies to the right investors.

The week after Demo Day is an especially intense one as entrepreneurs and investors try to lock down deals. It’s kind of a weird biannual version of mating season.

With all the investor interest, the founders clearly don’t see Demo Day as the issue.

In fact, Rust had something else on his mind — how to efficiently get food on speaker nights. ”Seriously, the only scaling problem is the enormous dinner line,” he said.

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