Fabian Schonholz’s Blog

For the nerds like me out there … classic newsgroup post. Very cool.

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A few years ago I started to get more serious about smoking cigars. I always liked cigars but was not too into them. Every so often I would be given one or would buy one. Boo was my once-a-year supplier. Every year at my mother-in-law’s Christmas party he would bring one for me. When my wife and I first started to date and got married, most times we went out we closed the night with a stop at a cigar shop and a walk while we puffed away on our stogies - those were the days!!! But I did not know what I was smoking, if it was good, if it was well preserved and all of the other apparently important elements that define “serious” cigar smoking.

About 5 years ago I was in Argentina for work and I decide to visit my sister at her farms for the weekend. We had dinner with Don Placido, her father-in-law - he passed on couple of years ago. He smoked cigars for 60 years. He smoked all sort of cigars, from most corners of the world that produced them. So … I go to Don Placido all proud of myself and tell him that I am getting into cigar smoking and I am a “great smoker”. He takes a look at me in a very condescending way and tells me I know absolutely nothing about cigar smoking; I was humbled. Instead of getting all personal about it I asked if he would point me to some good cigars. He suggests I visit a cigar shop in Buenos Aires , Hermes, where he gets his smokes. The sticks are cuban tobacco and leaf but hand wrapped in Argentina. When you go to the shop you can see the ladies wrapping them before your eyes. I go to the shop, of course, and tell them that Don Placido recommended the place and I want a few sticks “like Romeo and Julieta”. They immediately set me up.

Needless to say this cigars are great. According to Don Placido these are the best cigars he had ever smoked bar none. But … what did the old man know, he only smoked for 60 years. I brought a few back for friends and for me to have. I gave one of them to a friend of mine, that although not an expert, he knows a lot more than I about cigars. He thought these were AWESOME cigars. Maybe the old man knew something!! Finally, over a company dinner one night, I gave one of the other executives one of the cuban/argentinian sticks. Now … this guy smokes on a regular basis. He has a room in his house he converted to a smoking room/humidor. When I offered him the unassuming cigar he was a little skeptical. He looked upon my extended arm holding the cigar and was not so sure about it. If I remember correctly, I think he sort of growled at the cigar. He took a step back but finally took the cigar.

As he started to puff on the cigar his face changed, and it went from disgust to surprise in a matter of seconds. He could not stop puffing. He puffed and looked at the cigar in disbelief. After a few puffs he turned and looked at me. He paused … he was going to say something … his mouth moved but no sound came out … and he went back to puffing. A good 45 minutes later, when we finished the cigar he finally turned to me again and expressed how pleased he was with the cigar. Do you have more? He asked. I had couple more sticks on my pocket which I gave to him. And the next day, I brought from my cache a few more sticks for him to age. I remember with great pleasure the night and his expressions.

I continued to smoke the same cuban/argentinian cigars almost exclusively. I took over the supply of Christmas’ party smokes from Boo. And I made sure I had a supply of them at hand at every function I attended where smoking may occur. That is dedication my friends. There were only a few times were I smoked other sticks.

Last year I started expanding my horizons and started smoking other brands and trying other types beyond cuban seed and leaf. I discovered a new world of cigars from other parts of Central America beyond Cuba and I started to educate myself on what that meant. Honduras, Nicaragua, Costa Rica and Guatemala started to have new found meaning to me. Padron, Ashton, A. Fuentes, Rocky Patel and Gurka became new words in my vocabulary. As I normally do when I want to become well versed in something and decide that anonymous uneducated enjoyment will not do, I read and research as much as I can. Unfortunately I do not have all the time I want on a daily basis, but I have all the time I need over the course of my life. And part of enjoying these type of things for me is taking the time to learn and savor.

I drunk wine from an early age. I always enjoyed it. About 10 years ago I also started to get serious about it. I read and tried and researched and tasted as much as I could. And only after so many years I finally started to developed a palate worth mentioning. I am still not an expert. For example, my sister’s husband knows a great deal more than I. And a buddy of mine who owns a wine/cigar shop is 100 times more an expert than I will ever be. But I am proud of my developing wine connoisseur abilities and the road that took me here. I am taking the same road with cigar smoking. It will take me years before I can say I know even the slightest bit about cigars. And I will enjoy every single one of those years as I smoke one stick at a time one puff at a time.

Yesterday Sidney and I went to the Los Angeles County Museum Of Art and The La Brea Tar Pit on a photo shoot. Initially she was just going to help me by carrying my second camera but later she decided to get into the action. I am so proud of her. We traded cameras all through the day and we had a blast. We had a fantastic time.

These picturs are a collection of the best pictures we both took.

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Once a month, on the second Friday of most months, a CTO networking group that I belong to meets. Each meeting starts with a speaker - speaker in the loose term because it is not a fixed format - and then leads to questions and answers by the members and to discussions. This Friday the speaker was an individual that transitioned from being a CTO to being part of a VC. The attendance was not very abundant. However, since it is the path my career is taking and/or wants to take, I was not about to miss the meeting. The presenter brought up some good points and topics of arguments. And, of course, we all engaged readily. One in particular that developed into a full conversation once the speaker left was the initial cost of starting a company.

What Sangam Pant mentioned in terms of cost is that today it is VERY easy to start a company. It only takes $1M. Now … everybody jumped at that except another member and I. First of all, Sangam was using $1M as a figurate amount. Or at least I think he meant it does not take millions upon millions to start a company. Second of all, it is true, it does not take much money. You can use any of many OpenSource projects that are more than adequate for an initial buildout without compromising too much the quality of the architecture and application. You can successfully build on them. Or, you can use a small local team complemented with an outsource team at a fourth of the cost. I prefer the second option. It allows me to add more value to the company by providing a proprietary  code base and create opportunities for the future. Besides, I am more on the side of build than buy for core elements of the business.

The argument from the members was that if you are trying to build a $100M+ company , you need to start with adequate funding. $1M will just not do. My position is that you do not need to start with $10M or $20M. Or even $5M. What you need is to start. The initial problem of a start-up is two fold:

1. You need a product that works. Not juts technically - which is exceedingly important - but also from a business concept point of view. Is there a need in the market? Can a need be developed? Is the market ready for a product like “this”? Can the market mood help a product like “this”? There are a series of market factors that can be put into the conceptual analysis of a product. And many of those factors will help define the product, its marketing strategy and how the market is approached.
2. You need a business model. Now … this is the hard part. You need to devise a way to make money. It does not mean that you have revenues right away and it does not mean that you are profitable right away - although in a previous post I focused on the March To Profitability. Business models do not come by easily. Let’s restate this: An effective fully developed business model that matches the market mood and not only prevails, but gains traction, does not come by easily. A model like that takes time to develop and can only be developed by generating friction against the market.

How much does it take to start addressing these two questions? It changes from project to project, but does not need to be much. If the company is to get to $100M+ you will need growth investment; I absolutely agree that you will need more investment along the way. ALONG THE WAY. But first prove the “model”. Prove that there is a need in the market, or that the market will be somewhat receptive. And first begin to develop your business model and put it through some friction to see how it fairs. For the “first begin to” part of the project a “$1M” ought to be enough. Once you see a small light at the end of the tunnel and it is not an incoming train, the  you can go ask for $5M, $10 or more.

There is also a financial argument to not “taking” in big rounds at first: Valuation and dilution. The more the above questions are answered, and they do get answered over time, the higher the valuation. The higher the valuation the less the dilution. To the cost of a startup you need to add the cost of getting funding. Often enough there are situations where the founders of a company loose control of the helm because they get too diluted to retain a majority; in many of those cases you get there by either poorly negotiating or by asking too much too early and since there was no tangible value but value of an idea, the percentage sold is too large. Either case can be mitigated by having a more robust offering. Even if you negotiated poorly, the odds are in your favor if you have a more developed project well beyond an idea. Thus, the cost of funding is less. And the upside at the end is much larger for all involved.

Going back to the meeting … I have to say that I did not agree with everything the speaker said, his positions and the reasons for them. I have to say that I did not agree with the speaker in every idea or vision that he has on the market and how the market will develop. But the balance of what I got from him is positive. He was not only well spoken, but eloquent in the way he presented his ideas. And whether I agree with him or not, it does not matter. It is whether I could derive value from his experiences, concepts and intelligence.

Sangam, thank you for your time on Friday.