5 Secrets of Winning Start-ups

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What are the key reminders for start-ups and entrepreneurs as they begin to scale? Dr. G gathered a list of interesting reminders from fellow angels and venture capitalists. This presentation was aimed for an audience of start-ups.

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5 Secrets of Winning Start-ups

  1. 1. 5  Secrets  of  Winning  Start-­‐ups     Dr.  Gregg  Li,  Hawaii  May  2014   With  generous  insights  borrowed  from  Douglas   Glen,  Alpesh  Patel,  Tytus  Michalski,  and  Other   Angels  and  Venture  Capitalists  
  2. 2. Background  of  Research  and   Contributors   •  Douglas  Glen,  an  avid  angel  from  the  US  and   working  in  Hong  Kong   •  Tytus  Michalski,  from  Canada   •  Alpesh  Patel  at  UK  Trade  and  Investment   •  Global  Entrepreneur  Programme  (GEP),   basically  InvestHK  or  similar  government   ouSits  whose  aims  is  to  aTract  investment   into  their  country.    
  3. 3. Background  to  Certain  IndicaUve   Numbers  Used  in  this  PresentaUon   •  300  Companies   •  UK   •  Winning  means  growing  at   100  to  300%  per  year   •  Losing  means  growing  less,   say  below  50%   •  GEP  asked  this  simple   quesUon  …  “What’s  the   difference  between  winning   entrepreneurs  and  the  also   ran's?      
  4. 4. First  Ume  entrepreneurs?   •  90%  were  first  Umers.    Not  too  many  serial   entrepreneurs   •  70%  worked  for  someone  else  at  first  to  pick  up  their   skills,  knowledge,  and  $   •  90%  had  max’ed  out  their  credit  cards  and  most  failed   to  make  payroll  at  least  once  in  a  2-­‐year  period.     •  And…they  probably  had  close  to  10,000  hours  of  focus   on  something  that  is  burning  inside  each  of  them.   Doug  Glen…“The  only  sustainable  compeUUve   advantage  is  the  ability  to  learn  faster  than  your   compeUUon.”  
  5. 5. Our  Kind  of  Entrepreneur   •  Natural  risk  takers  who  refuse  to  lose.   •  Able  to  recruit  and  moUvate  people   smarter  than  they  are.  And  have  them   follow  the  founder.   •  Leaders  who  know  how  to  say,  “follow   me.”   •  Consistently  realisUc,  avoid  “denial”   •  Charisma  that  commands  respect  and   trust.   •  Playfulness  that  makes  the  journey  fun.  
  6. 6. REAL  ENTREPRENEURS  UNDERSTAND   WHAT  DRIVES  THEM…EVERYDAY   Lessons  Learnt  #1  
  7. 7. How  much  was  the  worth  of  the   company  at  start  up?   •  What  %  built  their  own  IP?  80%   •  Less  than  15%  were  spin-­‐offs  from   universiUes.   •  Vast  majority  gave  away  less  than  10%  of  their   IP  during  early  stage  money  raising  (reference   Silicon  Valley’s  Rulebook  on  Share  AllocaUon)   •  The  value  of  the  firm  is  not  their  PE   equivalent,  not  their  balance  sheet…but  cash   flow  management.    
  8. 8. DON’T  RUN  OUT  OF  MONEY!   Lessons  Learnt  #2    
  9. 9. •  Being  able  to  aTack  and  hold  on  to  customers   was  typical  of  these  companies   – Learn  fast   – Be  responsive   •  Good  ones  make  mistakes,  get  feedback,  try   again.    
  10. 10. WHAT IS THE PURPOSE OF A BUSINESS?   Seeing  Differently   3  
  11. 11. FOCUS  ON  THE  CUSTOMERS   Lessons  Learnt  #3   “The purpose of a business is to find and keep a customer…” Peter Drucker
  12. 12. How  important  is  the  team?   •  Angels  and  VCs  will  take  an  “A”  team  with  a   “C”  or  “B”  business  plan  over  a  “B”  team  with   an  “A”  business  plan.    Because  nothing  starts   out  as  they  are.     •  Get  the  best  people  you  can  and  don’t  seTle   for  whose  available.    May  work  for  large   corporates,  but  not  for  start-­‐ups.     •  Acqui-­‐hire  these  days.      
  13. 13. GET  THE  BEST  PEOPLE  YOU  CAN… AND  WORK  ON  THE  TEAM   Lessons  Learnt  #4    
  14. 14. How  did  they  exit?   •  90%  of  the  exits  were  acquisiUons.  Contrary  to   popular  opinions,  they  were  not  IPOs.   •  90%  of  all  start-­‐ups  failed  during  the  first  3   years,  but  typically  only  10%  of  the  winning   entrepreneurs  would  fail  amer  3  years   •  “The  best  startups  go  through  four  or  five   near  death  experiences  and  succeed  ten  years   later.”…Douglas  Glen.    
  15. 15. CONTINUE  TO  SEEK  OPPORTUNITY   FOR  EXIT   Lessons  Learnt  #5  
  16. 16. When’s  the  best  Ume  to  invest   •  Best  Ume  to  invest  in  these  companies  are   post  revenue  (making  sales)  but  pre  profit.   •  The  ability  and  momentum  to  scale  was  a   Upping  point  that  separated  winners  and   losers   •  For  the  angels  and  VCs,  that  means  looking  for   business  models  that  can  scale  is  the  top  deal   breaker.    
  17. 17. Our  Kind  of  Deal   •  Seasoned  leadership.   •  DisrupUve  of  a  big,  complacent  market.   •  Vulnerable  compeUUon.   •  High  margins,  low  capital  requirements.   •  At  least  one  big  fat  unfair  advantage.   •  I’m  able  to  add  value  (in  addiUon  to   money).   •  Good  fit  for  the  local  market  at  first.   Source:  Douglas  Glen,  2013  
  18. 18. Instant  Deal  Killers   •  No  disrupUon.   •  No  unfair  advantage.   •  No  low  cost  way  to  prove  the  concept.   •  No  margin  for  error.   •  Naïve  belief  that  their  idea  is  invincible.   •  UnrealisUc  about  the  Ume,  sweat  and   blood  it  takes  to  succeed.   •  No  realisUc  100X  outcome  for  seed   investors.     Source:  Douglas  Glen,  2013  
  19. 19. Scaling  a  Hong  Kong  Startup  –   Challenges     •  Labor  pool  lacks  criUcal  mass   and  key  talent  in  many  sectors.   •  Local  market  too  small  to  scale   meaningfully.   •  OperaUng  costs  relaUvely  high.   •  Western  markets  omen  pivotal   and  difficult  to  service  from  HK.     Source:  Douglas  Glen,  2013  
  20. 20. Scaling  an  Hawaii  Startup  –   OpportuniUes   •  Do  in  Hawaii  what  Hawaii  does   best  –  tourism,  ???   •  Bring  in  the  best  team.   •  Locate  most  engineering  in   places  with  deep  labor  pools.   •   Locate  manufacturing  to  best   serve  consumpUon  markets.  
  21. 21. LESSONS  LEARNT  SUMMARY    
  22. 22. 1.  Real  entrepreneurs  are  passionate  and  each   believe  he/she  has  a  calling     2.  Don’t  run  out  of  money   3.  The  customers  and  their  saUsfacUon  is  the   only  true  measurement  of  success.    Don’t   forget  them     4.  ConUnue  to  seek  $  and  exit   5.  Get  the  best  team  you  can  buy  
  23. 23. Conclusion   •  Almost  nothing  works  out  as   planned.   •  Three  out  of  four  won’t  make  it,   but  the  one  out  of  four  is  well   worth  waiUng  for.   •  The  pivotal  success  factor   usually  comes  as  a  total   surprise.  

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