What it takes to be a Successful Entrepreneur: DukeGEN sits down with Josh Felser, General Partner of Freestyle Capital

By: Karthik Meda; Published March 7, 2010
Josh Felser is an experienced media executive and is the founding partner of Freestyle Capital, an early stage venture fund focused on the Internet and technology sectors. Previously, Josh was the CEO and co-founder of Crackle (formerly Grouper), a leading Internet video community, recently acquired by Sony Pictures Entertainment for $65 million. Josh started his media career at News Corp., where he worked with Fox Inc. in Los Angeles and BSkyB in London. In October 1997 he became the co-founder and President of Spinner.com, a leading Internet music destination until its May 1999 purchase by America Online for $320 million. Until February of 2001 he was General Manager of AOL's music brands’ - Spinner, Winamp and Shoutcast. Before becoming an entrepreneur, Josh was the Head of Business and Product Development at Qwest's Multimedia Group. Josh obtained a B.A. in Political Science and Economics from Duke University in 1986 and an M.B.A. from Duke's Fuqua School of Business in 1990. Josh currently serves on the Advisory Board of the Center for Entrepreneurship & Innovation at Duke University.

What were the circumstances that led you to build two successful startups?

While at business school, I interned with CBS Records during my summer and did market analysis for the company; this job was my first introduction into the media business and I was hooked by what I saw.  So, after graduating from business school, I went to work for News Corp for four years; I spent the first two years doing business development at Fox and then got transferred to London to work for Sky Television, where I continued to do business development.

After the Sky Television role, I moved back to the US to lead business and product development at U.S West’s multimedia group and this was where I got bitten by the Internet bug. At this point in my career I had spent enough time in big companies to know that working in large companies was not really a great fit for me. So I moved to San Francisco and got a job as an Entrepreneur-In-Residence at Organic Online, which was one of the first online interactive agencies. While at Organic, I began thinking about how to deliver radio on the Internet. I met my future partner, Dave Samuel at an industry conference, where he was demonstrating a product that looked very much like the idea I had. Luckily for me, there were not too many people around Dave’s exhibit and I thought Dave’s product would serve as a great platform for the idea I was thinking about as well. So, Dave and I joined forces to create Spinner.com in 1996, which became the first internet radio/music service that let users see the artist and album details while listening to a song – this sounds pretty trivial today, but we were the first to do it back then. Spinner was also the first service to allow users to buy a song on Amazon, while listening to the song.  Spinner became the dominant player in  its space and we sold the company to AOL for $320 million in 1999, which seems pretty surreal in this environment! 

After the acquisition I stayed on at AOL as a VP for two years and then left AOL to join the Boards of a couple non-profits. During this time, I went to the Burning Man festival, where I shot a lot of videos and wanted to upload them when I got back. This was in 2003, when you had no service to share videos with friends and so I started Grouper.com with Dave Samuel again. Grouper allowed users to do peer-to-peer video sharing; the service grew in popularity but really took off when we moved to a more public web-based service. When we reached 10 million unique users, we sold the company to Sony Pictures in 2006.

A lot of entrepreneurs say that they knew that working in large companies was not for them, but what specific attributes do you think a person should have before he/she decides to quit a large company and go become an entrepreneur?

I think you need to have a problem with authority and really have a desire to be your own boss! Personally, even while I was at Duke, I always did well in classes that I chose, rather than the classes that were chosen for me – so I think I always did want to do things on my own rather than be told what to do. Secondly, you should like unstructured environments and be ok with facing a different challenge every day.  Finally, I think you should also be very flexible and be completely at-ease in doing things like taking out the trash or other really mundane tasks that you would never do at a large company. Also, remember that you should be ok with doing these things for a long period of time and be ready to lose a lot of sleep for several years!

That said, I didn’t know that I wanted to be an entrepreneur when I was 18, but I realized it a little later in my career, when I felt that I really liked to challenge the status quo and was willing to work in unstructured environments.

Since you worked at a large company and then decided to do a startup, should aspiring entrepreneurs get training at a large company and then start a company?

I think this really depends on the person and how mature you are as a person. Personally, I think I made the right choice of working for a large company before doing a startup, because I don’t think I was ready to do a startup in my early 20s. That said, the training I got at News Corp really sharpened my customer acquisition skills and today this is a unique skill I bring to the table. However, my partner Dave was very young when we built Spinner, but it worked for him, because I think he was more mature then I was at that age and was able to handle challenging decision making. So, it really depends on who you are as a person.

What do you think are the key attributes of a good entrepreneur?

A lot of people say you can’t be afraid of failure, but I was terrified of failure and that really pushed me to succeed.  So, a good entrepreneur is not afraid to challenge the status quo, but at the same time is willing to channel all of his/her energies to overcome the challenge, or fear, of starting something new.  

Second, a good entrepreneur should also be transparent and open with his/her team. This is something that I learned during my second venture. I think it is very important to be honest about your vision and direction for the company, because things constantly change in a startup and so it becomes all the more important to have the entire team on your side at all times; being transparent allows you to discuss, debate and filter the best ideas.
Investors place a lot of emphasis on the team, what advice would you give entrepreneurs on building great teams? 

You should think about the culture you want to create and then hire people who fit that culture. For instance, we have always had a culture that is very open and direct, so we try to hire people who are comfortable being in such a culture. That said, I’m not saying that you should hire people who are all the same, but that your team should have a certain common traits. Once you’ve identified the right kind of person and you know the person has the capability to do the job, you should hire the person even if it means you have to part with more equity or salary.

Some startups operate in areas that don’t necessarily have high barriers to entry, but are novel business ideas. The firms you co-founded were similar and didn’t necessarily have patented technology.  So what advice would you give entrepreneurs who want to pursue ideas which are “execution” or “operational” plays?

The most important thing to remember in such startups is to be focused on a specific market and specific set of features that serve that market. At Spinner, we could have done a lot of different things, but our goal was to be the best internet music radio destination. A lot of companies like NPR, CNN reached out to us to do internet-based radio news, but we decided not to pursue those opportunities and instead stayed focused on music. So, winning by out-executing comes down to focus.  It seems simple enough, but is extremely difficult to do. For instance, at Grouper we tried to build a great video destination site AND also tried to white-label our product. This strategy did not work, because there was another company which only did white-labeling and they beat us every single time. Eventually, we shifted our focus back to building a great video destination site and it worked. So focus is everything in execution plays.

You mentioned that it is important to “out-execute” by being focused, but are there any specific operational areas that entrepreneurs should focus on in order to “out-execute”?

In order to out-execute the competition, it is important for the founders to be very clear about their priorities and the company’s focus. So, being focused starts at the top, but it should not stop there. Every member of the startup should know what the goals are and they should consider those goals every time a new feature or service is introduced. This can only happen when the top management has convinced the team about WHY a specific set of goals matters. So, you can’t just hire great people and order them around, but you have to convince them why the company's goals matter.

What advice would you give first-time entrepreneurs who are trying to raise capital?

One of the common mistakes I see first-time entrepreneurs commit is that they don’t raise enough capital in the first round; Overly optimistic projections or fears of dilution are the main factors. Raising capital is always challenging and time-consuming, so management should raise sufficient capital and focus on building the company in the initial years instead of constantly trying to raise new capital.

In terms of sources of capital, entrepreneurs can approach friends & family, angels and VCs, but there is also a new class of investors like Freestyle Capital or “super-angels”, who invest larger amounts and take a more structured approach compared to angels and are willing to get involved in everyday details. Super-angels differ from VCs in that we don’t need to have all the answers, but you do need to show us that you have a plan to answer those questions. That said, we typically like to see a prototype, an executive summary (instead of a full business plan), a forecast and a sub-20 slide presentation. Finally, we also place a lot of emphasis on the founder and we like to see someone who is passionate, smart and confident, but who also knows what he/she does not know. This last attribute is something that turns off a lot of investors, because we all have blind spots and it’s important to acknowledge this, be upfront about it and let investors/advisors/new mgmt provide input in those areas.

Finally, what are the big unsolved problems in the new media space that could serve as opportunities for aspiring entrepreneurs in this area?

No one has really figured out how to monetize user generated content. YouTube will probably do about $100 million in revenue this year, but that is small compared to YouTube’s scale.

Also no one has really figured out how to distribute independently produced video/music and match that content with users who are interested in that niche. For instance, I recently saw a documentary movie on people who stare at the sun for their nutrition! While it’s a pretty niche subject matter, I’m sure that there are atleast 50,000 people interested in this, but how do you find those people and get them to pay for it? So, it’s a matching and distribution problem that needs to be solved.

On the local or geo-targeting front, there is an interesting opportunity to integrate couponing and suggestions from friends and companies based on where I am currently. Companies like foursquare.com have approached this from a social network standpoint, but I think it will also be interesting for companies/brands to get involved in this area. For instance, it would be great if my friends and Starbucks knew that I was currently at Starbucks and they or starbucks could send me a message/coupon for that specific store based on my previous purchases.