'Take Your Fouls,' says Josh Kopelman, Founder of Half.com

Wharton Alumnus Josh Kopelman says Risk-Taking Requires Risk-Rewarding
Began Entrepreneurial Activities as Wharton Undergrad
Before Going All the Way with Half.com, then to VC World

(from the Wharton Entrepreneurial Club website, A lot of folks assume that Josh Kopelman's career started with Infonautics, the Internet information company that he launched in 1992 while still an undergraduate at the Wharton School.

The truth is it began more than a decade earlier, beside a tennis court on Long Island.
There, Kopelman opened a lemonade-and-juice stand with his little brother. As befits a future serial entrepreneur—he also started Half.com, an online marketplace—he took the venture more seriously than most kids would have. He kept a ledger of his expenses and sales and even had business cards made.

"I can only imagine the conversation that my dad went through when he walked into the print shop to get 50 business cards for a lemonade stand," Kopelman says. "But he did it. He really encouraged me to be creative." A Wharton grad like his son, Richard Kopelman teaches management at the City University of New York.

Back then, the cards didn't end up being as useful as the ledger. Josh Kopelman's careful bookkeeping revealed a hard truth: His brother was sucking down all of his profits. "He'd just sit there all day opening up the juices and drinking them. So I had to fire my little brother." Even then, he was learning what he believes is an essential skill for any entrepreneur—how to "de-risk" a business. His brother's bottomless thirst was killing the lemonade stand. They were just a burp away from bankruptcy.

Kopelman, who now runs a venture-capital firm in West Conshohocken, PA, called First Round Capital, believes that many aspiring entrepreneurs misunderstand the role of risk-taking in startups. Entrepreneurs have to be selective risk-takers, not rash gunslingers, he says. They have to look for chances to reduce risk, where they can. But when big enough opportunities pop up, they shouldn't fear taking a calculated plunge.

"When you start a company, you have execution risk. You have technology risk. You have personnel risk—are you hiring the right people? You have financial risk—will you be able to raise money? You have market-acceptance risk—will the dogs eat the dog food? An entrepreneur's goal should be to minimize those risks."

At Half.com, which Kopelman sold to eBay in 2000, his biggest worry was what he calls the ghost-town scenario. A potential customer might log onto the site, wanting to buy a used book or CD, and find nothing on the shelves. "If that happened, they were never coming back," Kopelman explains. "So from Day One, we set up a team whose focus was to go to used-book and record store owners and persuade them to list their inventory on our site."

At the same time, while striving to reduce risks, he tried to strike a balance, encouraging employees to think creatively, share unusual ideas and try offbeat tactics. "The analogy that I use on my blog is if [Philadelphia 76er] Allen Iverson fouled out of a game in the first five minutes, you'd expect his coach to say, 'You're being too aggressive.' But if Iverson went three or four games without any fouls, you'd expect the coach to say, 'You're not being aggressive enough.'

"In business, most people try to get through their careers getting no fouls. In the companies I've run, I've said, 'Basketball players get five fouls. And in this company, you get five fouls. Use them, take chances.'"

Half.com took some of its biggest chances with buzz-generating marketing moves; the company did viral marketing before The Tipping Point made the concept vogue. It got national media coverage when its vice president of marketing, Mark Hughes, persuaded Halfway, Ore., a tiny town near the Idaho border, to temporarily change its name to Half.com, Ore. Hughes also dreamed up the notion of buying plastic urinal screens imprinted with the slogan, "Don't Piss Away Your Money. Head to Half.com." He then hired students to drop them in men's rooms in train stations, airports and conference sites in major cities. That, too, got lots of attention, not all of it welcome. "When I had [eBay boss] Meg Whitman asking me, 'What's a urinal screen?' I realized that maybe that was a foul," Kopelman says.

Even so, he didn't penalize Hughes. Doing so would've undermined more than just his V.P. of marketing. "If someone takes a prudent, measured risk, the single biggest statement you can make is how you handle that. If there's a slam down, word of that will travel through the entire company, and it will create a play-it-safe culture."

Starting Half.com, Infonautics and an anti-spam company called Turntide has led Kopelman to rethink other tenets of business orthodoxy, too. Foremost among them is the notion that entrepreneurs have to find radically new niches. "If I see a white space in the market, my belief is that you have to wonder why it's there. Have there been 20 other people who've tried to solve it and weren't able to?

"I don't like to solve new needs. I like to solve urgent and pervasive needs but do it in a different way."

When he started Half.com, Amazon already had shown that folks would buy books and CDs online. And Kopelman knew that many of his friends and family members had shelves groaning with old books and CDs that they would be happy to unload. But no site had emerged to dominate sales of used materials. (Unlike larger, more expensive items, these didn't seem sensible candidates for online auctions.)

Likewise, when he helped with Turntide's launch, other companies were trying to stem email spam. "Hundreds of companies were offering solutions," he recalls. "What Turntide did was solve the problem with a twist—we solved it at the router level rather than the software level."

One of his current venture investments, Jingle Networks, also puts a new spin on an old frustration. Jingle operates a service called 1-800-Free-411, which provides directory assistance at no charge. A caller just has to be willing to listen to an ad. If, for example, you call and ask for the number for Domino's Pizza, the operator might tell you about a special at Pizza Hut while searching for your number.

"Six billion phone calls a year are made to directory assistance," Kopelman points out. "It costs an average of $1.25 a call, so that's an $8 billion market. Wireless carriers make less on all of their data transfer and text messaging than on directory assistance and, by the way, it's almost 90 percent profit."

Kopelman believes that living and working in the Philadelphia suburbs helps him when it comes to spotting these sorts of needs. That's one of the reasons he stays in the area, though many of the startups in which he invests in are on the West Coast. It enables him to escape Silicon Valley's geeky groupthink.

"I can come back here and breathe normal air. People out there just assume that everyone has an RSS reader and is using Flickr and blog rolls. Out west, if you compliment someone's Caboodle, you're complimenting a way they've built a technical collection. In Philly, if you compliment a woman's caboodle, she might slap you.

"When you're looking to solve an urgent and pervasive need, there are advantages to understanding Main Street's needs, not just the needs of Silicon Valley."

To view the discussion with him, please go to this website:
http://www.wep.wharton.upenn.edu/newsletter/summer06/takeyourfouls.html . . .