I don't watch alot of TV, so I'm usually a late adopter when it comes to great television shows.  Mad Men is no exception.  Although the show is entering its fourth season, I'm just getting around to watching Season 1 and I am falling in love with the show.  It reminds me of the Sopranos – flawed characters that you at times root for, at times despise, interlocked in an entertaining drama that centers on the fundamental search for happiness and respect.

So while I'm in the midst of enjoying Mad Men, it was with great amusement that I hosted a dinner with a dozen or so CEOs of advertising agencies and advertising technology start-ups the other night.  Last year, I blogged about how Madison Avenue was going tech ("Revenge of the Nerds", I called it).  At the time, I thought there was hope that the big ad agencies would evolve to become techno-savvy nerds and help lead the innovation charge.  This year, it's a foregone conclusion in my mind that Madison Ave's Mad Men are doomed.

With the rampant digitization of advertising and the explosive growth of performance-based marketing, the nerds are taking over advertising.  Advertising innovation is coming from technology-driven giants – like Google, Microsoft and now even Apple – as well as start-up companies that are nibbling away at the value-chain, including many of our own portfolio companies (e.g., DataXu, BzzAgent and digital Arbor).

Although many of these technology-driven companies are partnering with the major advertising agencies today, the agency CEOs at my dinner with very bearish on what the future held for the agencies and whether they would survive the New World Order.  In their view, there are four reasons for this:

• Wall Street Pressure.  In talking to advertising agency executives, you can't help but be struck by how much their EPS targets affect their behavior – and hamstrings their ability to invest.  So long as they are slaves to Wall Street, the major advertising holding companies will be unable to undergo the necessary, wholesale transformation required to thrive in the digital age.  It reminded me of James Carville's famous quip that in another life, he hoped to be reincarnated as a bond trader so that he could wield some real power.  Agency CEOs seem to wish they were Wall St analysts or venture-backed CEOs rather than trapped as holding company leaders.
• CFO/Procurement.  Each of the agency CEOs at our dinner bemoaned the fact that "above the line" advertising budgets were now in the hands of the procurement officer and that the power pecking order has become CEO, CFO, CMO.  One of the CEOs at the dinner, Wayne Townsend of Click Squared, noted wryly that below-the-line marketing budgets has always been in the hands of the procurement officer.  Welcome to the club!  The problem for the agencies is that this trend means great creative (the Big Idea) and great relationships (three martini lunch) aren't important to the procurement officer, only hard ROI.
• Lack of Pay for Performance.  One agency CEO pointed out that if you look at the revenue per employee at the major agency holding companies, it's a fraction of what it is for premiere management consulting shops, like BCG and McKinsey.  In the absence of a pay for performance paradigm (akin to performance-based marketers like Google, who get paid per click or per acquisition), the agencies are forced to operate like a glorified body shop, whether their campaigns move the needle on the business or not.  This caps the upside and results in odd incentives, such as worrying more about getting fired than about delivering great work.
• Talent.  The best technology and business development talent is not flocking to advertising agencies.  They are flocking to advertising technology start-ups and Google, Microsoft and Apple.  Over time, the best talent wins in any industry.  By this reckoning, the advertising agencies are doomed.

The advertising agencies are thus in a structural box, a classic case of Innovator's Dilemma.  Meanwhile, venture capitalists and entrepreneurs smell blood.  Young companies are going directly to CMOs to mine their marketing budgets.  And marketers are more aggressive about experimenting with new media, socu has Twitter and Facebook, with the help of niche consultants and technology providers.

The only saving grace for the industry may be that their remains great power in the Big Idea.  Great creative can still move the needle and provides the direction for all that whiz bang, targeted, performance-based execution.  The success of creative boutiques like McGarry and Bowen suggests that niche is still a lucrative one.

As for me, I'll keep enjoying "Mad Men" and continue to invest in nerdy, little technology companies to make them obsolete, historical relics.

I mentioned in my last post that I decided to write a book about venture capital and entrepreneurship, which is coming out next month (see http://bit.ly/mstrVC). In this post, I wanted to answer the question: "Who did you interview?"

Selecting interviewees was a tricky process.  The purpose of the book is to be a helpful guide for entrepreneurs as they navigate the process of building their companies in partnership with VCs, so I wanted to capture the voices and insights of both entrepreneurs and VCs.  In particular, I wanted to capture a diverse group – diversity in terms of geography, industry focus, gender and age.  Here's who I ended up with:

Entrepreneurs:

• Tim Bucher (Zing, WebTV)
• Jack Dorsey (Square, Twitter)
• Gail Goodman (Constant Contact, Open Market)
• Reid Hoffman (LinkedIn, PayPal)
• Robert Langer (> 20 start-ups, including MicroCHIPs, T2, Predictive Bio)
• Marsha Moses (Predictive BioSciences)
• Eric Paley (Brontes)
• Mark Pincus (Zynga, Tribe, SupportSoft)
• Christoph Westphal (Sirtris, Alnylam, Momenta)

Venture Capitalists I interviewed were:

• Tim Draper (DFJ)
• Irena Goldenberg (Highland Europe)
• David Hornik (August)
• Terry McGuire (Polaris)
• Howard Morgan (First Round)
• Patricia Nakache (Trinity Ventures)
• Henry Nguyen (IDG Ventures Vietnam)
• Fred Wilson (Union Squrare)
• Quan Zhou (IDG-Accel China)

Interestingly, three of these entrepreneurs became VCs after I completed the interviews (Hoffman/Greylock, Paley/Founder Collective, Westphal/Longwood).

So what do folks think?  I know I missed tens, if not hundreds, of other great people.  I emphasized people who were currently active in the business rather than historical figures, but tried to include folks with decades of tenure and perspective alongside younger voices.  I do regret not having more international entrepreneurs to compliment the three international VCs.  Perhaps next edition?!

In my next blog post, I'll talk about the outline of the material the book covers and the different approach I am taking (with the support of Penguin) to making the content broadly available.

"I've decided to write a book," I told my wife over a year ago.

She gave me that what-the-bleep-are-you-talking-about look.  You may be familiar with your spouse.

"You've what?"

"I've decided to write a book," I repeated, slightly less confidently.

"On what?"

"Venture capital and entreneurship."

"Why?"

"Well, when I was an entrepreneur, I couldn't find any good books on how this mysterious capital-raising process worked and how to harness the resources and knowledge of the VC industry to help build my start-up. Now that I've seen it from the other side, I want to explain to entrepreneurs how it all works to help them be successful. There are good blogs out there, but no good books that pull it all together."

"When are you going to find the time to write a book?" she challenged.

I didn't have a very good answer for that one.

But somehow I've figured it out over the last year plus and am pleased to report that my book, called Mastering the VC Game, will be coming out this spring from Penguin’s business imprint, Portfolio (see http://bit.ly/5dDkY9).

I've gotten wonderful feedback from dozens of insightful entrepreneurs and VCs, many of whom I interviewed for the material, as well as the support of my partners and my family.

In the next few blogs, I'll talk a bit about who I interviewed, what I learned and what lessons might be useful to entrepreneurs.

Although VC money is not a fit in all cases, the lessons from VCs and the entrepreneurs they work with are useful in a broad range of businesses.

So stay tuned for more information.

But first, here's a question I've been wanting to ask – if you could interview a bunch of VCs and entrepreneurs and get them to disclose how they practice their trade, who would you want to interview?

I'm curious to see if I selected the right ones.

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