(Full Version) Building an Entrepreneurial Ecosystem: Lessons from Omaha (Draft 4)

Summary
Tom Chapman is working to build a stronger
entrepreneurial ecosystem in Omaha and across
the Silicon Prairie (an area Chapman roughly
defines as covering Minneapolis to Oklahoma
City from north to south and Nebraska to
Building an Chicago east to west, though there is not a
generally agreed upon definition) from his
Entrepreneurial position as director of entrepreneurship and

Ecosystem
innovation at the Greater Omaha Chamber of
Commerce. In this paper Tom lays out the three

Lessons from Omaha major steps of his methodology for supporting
entrepreneurs (knowing and being honest about
[Full Version Draft 4] the area’s strengths; helping players connect;
and building stronger teams) and then dissects
By Tom Chapman five core elements of entrepreneurial ecosystems
Director of Entrepreneurship & Innovation (human capital; financial capital; deal flow and
Greater Omaha Chamber of Commerce other metrics; a knowledgeable community;
tchapman@omahachamber.org and infrastructure) and four things
@tchap623
communities should not do.
© Copyright Tom Chapman, 2011. All rights reserved.
Tom’s people-centric approach to building the
ecosystem is focused on understanding the
ecosystem’s strengths, taking action to support
its health, focusing on building better startup
teams and connecting players appropriately. He
sees the role of economic development
organizations as connectors who can help
develop a clearer understanding of the current
startup landscape, convene conversations
among players, spread information and success
stories, support transparency and lead helpful
Share your thoughts on this paper online at: government policy initiatives. His approach is
http://www.slideshare.net/seedhere/building-an- infused with humility and honesty.
entrepreneurial-ecosystem-lessons-from-omaha-draft-4

An abridged version of this paper is
available. Download and discuss it at:
http://www.slideshare.net/seedhere/building-an-
entrepreneurial-ecosystem-lessons-from-omaha-draft-5

Building an Entrepreneurial Ecosystem: Lessons from Omaha
1

Preface you about my failed attempts. I do
In my work for the Greater Omaha Chamber try to include some learnings, but it
of Commerce, I get asked a lot of questions would be awful if I included all of my
about how to create an innovation and
dumb mistakes. You will have to
entrepreneurial ecosystem. First, I don’t
make some of these on your own.
know that I have the answer, so let me start
by saying that I don’t think we in Omaha ● I do not work alone. In fact, in many
have accomplished this feat…yet. With that ways, I am a smaller part of the
proviso, I will lay out the basics of our
ecosystem machine than some other
strategy for you. A couple of things that
key players – funders, customers,
shape me perspective, approach and this
paper that you should know up front: media folks (like Silicon Prairie
News), entrepreneurs and local
● Omaha and Lincoln are essentially innovators. Most of my job is to not
the same place for my work. I treat get in the way but help facilitate
everything in Nebraska and Iowa better interaction – be a catalyst, not
within 100 miles of Omaha as my an owner.
working canvas. Ecosystems do not
stop at political or artificial ● My perspective is highly biased by
boundaries. If someone comes to what I have worked on in Omaha.
Omaha to see a collaborator, then Numerous parties have had unseen
they are a part of our ecosystem. impacts and untold success. Finding
these stories is oen illuminating for
● I work for a Chamber of Commerce me, and oen this illumination
which happens to be a good location happens well aer I thought I
for my work here, but I do not think “understood.” It has been important
that it is in many locations around the for me to be willing to change my
country. In all honesty, working for a view and adjust my insight. e
Chamber can also be a hindrance to hardest part of my job is to accept
my work. Many do not take me or my that my impact is really only part of
efforts seriously because of who I the effort – many things “cause”
work for. success. My role requires sharing the
● I have a tremendous amount of success with the “many mothers and
freedom to try things and fail in my fathers” and taking the blame by
job – thus, I am not required to myself for all bad things.
produce $100 million in VC by 2012
● We all know about the star cities
or else, so as you read this paper,
when it comes to this work, and I try
recognize that I am not always telling
2

to look at the success stories of Silicon In general, startups tend to happen in places
Valley, Israel, Austin, etc. in context. where there exists human capital capable of
Don’t try to replicate today’s thinking and executing on a strategy to serve
programs – look at what happened a customer that they understand and for
just before and during their which they can iterate solutions. at’s a
emergence. It is not particularly vague way of saying: we need to look for
difficult to find information on these clusters of companies in certain spaces that
times, but it requires a lens to be are growing and innovating.
placed on that period of time
Insurance is one that exists in Omaha – and
specifically.
may ultimately spin out a number of
Step 1. Know Your Strengths, companies due to the changes in multiple
insurance laws over the last decade – but it
Not-Strengths & Weaknesses
Not every place is built to be Austin where a has had stagnant innovation and growth for
large university and seat of government is many decades. Contrast that with payment
located. Not every place is built to be Boston systems where technology continues to
where there are tens of very high quality evolve and new companies continue to spring
universities. With that in mind we try to look up to respond to these various opportunities.
at Omaha for Omaha. Vendorin, LoDo Soware, FTNi,
Transactions Ole, ED3H have all developed
Omaha’s Strengths payment systems innovations in the area in
First, Omaha has many very large companies the last four years.
– more than 20 billion-dollar enterprises -
and a wealthy community with numerous Clusters are one area of strength, but culture,
millionaires and billionaires. people and companies matter also. For
example, Blue Cross/Blue Shield of Nebraska
Strengths come in clusters and Omaha’s is a strength because they have worked with
economy has depth in insurance, financial at least three start-ups in the last 24 months,
services, logistics, defense, operations and have started a couple of companies and have
architecture/engineering/construction/ invested in a venture fund. at’s a company
design. Omaha is home to Offutt Air Force that is starting to plug in and be a real
Base which is the home to USSTRATCOM. strength for the developing ecosystem
ese are some strengths from an economic particularly with regards to Healthcare IT.
development perspective, but what about Moreover, there is a developing cluster
entrepreneurship and innovation? e around Healthcare IT associated with NeHII
apparent strengths for one purpose are not and some new ventures. However, Omaha
always the strengths for others. does not have a Cerner-type company that
3

has a deep knowledge and workforce workforce development strategies rather than
associated with these types of projects, so at leadership, innovation and excellence
best, Omaha may develop some additional training. For example in 2008, I visited the
capacity and grow steadily, but it is unlikely Peter Kiewit Institute (an IT and engineering
to sky-rocket because sky-rocketing would college in Omaha) and talked with their
require almost 100% workforce recruitment. premier students, the Scott Scholars. We met
with approximately 100 students – bought
Omaha’s Not-Strengths
them pizza and soda and did a little talk
ere is a collection of things that appear to
about innovation and entrepreneurship. We
be strengths that are not. Usually these are
started the talk and asked the question – how
strengths in other areas that people naturally
many of you would like to be an
assume are strengths across the board or in
entrepreneur. One person tentatively raised
areas that they do not naturally fit. For
their hand. At PKI, students are
example, if Warren Buffett is a strong
programmed to want safety and comfortable
investor, then he must be a leading voice on
jobs at Union Pacific where they are a cog in a
venture capital in the community. He is not.
machine. eir jobs are not unimportant,
I call these areas of mis-perception ‘not-
but they don’t yield a strong natural
strengths.’ ese are definitely not
inclination to look for entrepreneurial
weaknesses, but don’t be caught in the cul-de-
opportunities. Moreover, within the jobs at
sac of not-strengths.
Union Pacific, the worker is not necessarily
One good example of a not-strength for most prepared in other ways for leadership and
places is their local universities. Oen when management because they are learning job
I discuss entrepreneurship and innovation, tasks rather than teamwork, how to challenge
the first reference to people is the universities themselves, and how to succeed outside of
– these are the places where innovation and clear parameters. us, there is a double
start-ups happen. Much of this thought effect that both the university and our large
process is probably tied to the success of MIT companies don’t start or spin out companies.
in Boston and Stanford in Silicon Valley, but
the reality for us when we look at the data is
that the universities in Nebraska do not drive
the amount and types of innovation that they
could.

I honestly think that the universities
ultimately will drive innovation, but I think
that we are still overcoming years of

4

INDUSTRY
STRENGTHS NOT STRENGTHS WEAKNESSES
Payment Systems Medical Research Nano-Fabrication
Built Landscape Technologies Advanced Materials
Risk Analytics
Logistics

PEOPLE
Not a long list, but not
Bill Fisher Warren Buffett publishable
Mark Hasebroock Malcolm X
Doug Nielsen
Jeff Slobotski
Steve Kiene
INSTITUTIONS
STRENGTHS NOT STRENGHS WEAKNESSES
Offutt AFB University of Nebraska Berkshire Hathaway
ACI OPPD
Blue Cross/Blue Shield NE
Gallup

CULTURE
Accessibility Public Policy Risk Taking
Momentum Institutional Capital
Silicon Prairie News Silos

5

Omaha’s Weaknesses evidence of that shi is not easy to illustrate
More than simply identifying not-strengths, to an audience from a totally diﬀerent set of
it also helps to identify weaknesses. ere are circumstances. In short, doing a serious and
at least three key weaknesses in our honest inventory of your own strengths, not-
ecosystem: strengths and weaknesses is necessary but
may not provide the necessary materials to
● e states are large geographically and
see the end game or even know how the
not particularly diverse or densely
hallmarks of the end game will appear.
populated
● e states’ institutions and Try to see the world as it is and not as you
institutional investors have not would like it to be. Also, focus on the world
invested in early-stage risk capital and of entrepreneurship and innovation.
do not appear to have the expertise or Obviously, Warren Buﬀett is an incredibly
will to do so in the near future important man and has done wonderful
● e region’s leadership has a things in Omaha, but I would not place him
traditional viewpoint that limits as an important or particularly relevant
certain types of activities including person in a conversation regarding
horizontal structures, collaborative entrepreneurship and innovation in this
arrangements with small companies, community. Other billionaires, such as
and the ability to discuss regional and Walter Scott, Howard Hawks and Joe
community issues in an open dialogue Ricketts, are more important regarding this
conversation.
ese are ongoing process and orientation
problems, not shortterm problems. ere are Also, if one of your partners or organizations
obviously other ones that are shorter term, shows up on your list as a weakness or not-
but these problems provide longterm strength, I would recommend an open
challenges that need to change for the dialogue to check your facts and knowledge,
community (or will change because of the but also a willingness to share this
community) to excel. information openly. Why? If for example, I
punted on discussing the University of
Knowing Your Own Strength Nebraska system as a not-strength, then the
One key learning that I have had is that entity does not receive relevant feedback and
seeing transition and watching things evolve pressure to improve. Moreover, they have a
does not necessarily make it very easy to much bigger brand in my community than
explain. For example, clearly there has been a the Chamber – certainly in this conversation
shi in the value placed on entrepreneurship – and yet, with entrepreneurs they have
in Omaha, but why this happened and clear limited credibility right now. at is bad and
6

it’s particularly bad if the university does not ● A commercialization fund that
know it. is does not mean that you should provides matching funds for efforts to
sit down and tell your partners who are part commercialize technologies
of the challenges or who are not-strengths ● A mechanism to receive funds for
that they are in the way., but occasionally, you companies that partner with the
do need to openly discuss the realities of university to do certain types of
situations. commercial research

Also do not stand pat and simply punt on
is total package places Nebraska towards
your weaknesses. When I wrote the first
the front of U.S. states regarding written
dra of this paper, I stated that one weakness
legislation, but it remains in the not-strength
was the State of Nebraska did not have
category because it has not yet been
meaningful legislation that incentivized and
implemented. I fully expect that within five
aligned with building an entrepreneurial
years, Nebraska will be able to move public
ecosystem. is was a primary learning in
policy into the strength category, but it’s a
2008 and 2009, and I have talked and written
process. Don’t forget to improve these
about it frequently.1 is spring, the State of
process type things as you work on
Nebraska changed its laws by adding:
immediate programs and events.
● An angel tax credit that is one of the
better ones in the country 2. Get as many people on the
● An SBIR Phase 0 plan similar to bus as you can and leave
Kentucky’s very successful program Don’t try to get everyone and don’t wait - just
● An SBIR Phase I match, a proven go with as many people as you can reasonably
SBIR incentive program that both get to board.
attracts and organicly grows SBIR You don’t have to own or build the bus.
grant companies In fact, I would try to find a couple of busses
● A prototyping fund that offers non- that already have people in them. For
dilutive grants to start-ups example, within your community there are
probably some developing clusters of high-

1
See
Silicon
Prairie
News
for
my
series
of
ar3cles
on
Nebraska
Governor
Dave
Heineman’s
“ Talent
and

Innova3on
Ini3a3ve”
(hCp://www.siliconprairienews.com/2011/02/special-‐series-‐talent-‐and-‐innova3on-‐
ini3a3ve-‐internship-‐bill)

7

growth startups that are already forming or ● Customers: people or companies
have formed. Find them and ask them how that will buy goods or services from
you can help. a new startup
● Collaborators: people or companies
To find ways to help, talk with startups.
that will help a new startup as a
Almost every startup conversation I have
service provider, professional,
begins with funding – I need X millions of
mentor or tester
dollars or a grant to do Y. e key to this
● Funders: people or companies that
conversation is to transition into a discussion
will provide cash
about why they need the funding and what
● Peers: people that will share best
they will do with it. Usually within this
practices and learnings from a peer
transition, your opportunity to help will be
perspective
revealed. Do this one-on-one and in small
groups,2 otherwise, groupthink takes over From 1998-2006, entrepreneurs in Omaha
and the group does not get clear of the desire were thrown into groups with small
for money or the desire for appreciation from businesses. ese groups simply did not
peers. provide the necessary information,
networking or customer exposure necessary
By the way, one key observation is that as the for the entrepreneurs to “stay engaged” as a
people within the entrepreneurial class – not just as individuals. us, one of
community become better networked, the the key things that needed to happen in
conversations about money become much Omaha was to help these entrepreneurs
more sophisticated. is is probably a good emerge from their labs, closets and garages
indicator of evolution in a non-measurable to find others who were struggling with
way. many of the same issues.
Getting the Right People Onboard Convening Conversations
One big thing that we have spent a lot of time We started by breaking down the ecosystem’s
doing is connecting. is is a natural needs and creating separate networking
extension of the Chamber of Commerce in groups:
Omaha, but it is surprising how little we as a
Chamber knew (and still know) about the ● Cornstalks and its ilk for high-growth
startup landscape in our community. ere entrepreneurs only. We intentionally
are a couple of key connectivity groups: try to keep this a word-of-mouth type

2
I
have
not
been
par3cularly
adept
at
transi3oning
a
group
of
more
than
four
or
five
regarding
these
issues
–
so
I

am
not
sure
if
that
is
instruc3onal
or
just
a
failure
on
my
part.

As
a
general
piece
of
advice,
do
what
works
for
you

–
even
if
it
is
not
what
I
recommend
or
what
works
for
me.
8

group. When we have a meeting, we ● Investors Group is made up of five or
typically have about 20 people there six investor groups in the area.
and our Twitter stream typically has Basically, these are quarterly meetings
about 40 mentions for a good night. that are facilitated by the Chamber.
us, followers of entrepreneurs (who e agenda of these meetings is
oen are entrepreneurs or would like usually pretty straight forward: who
to be) tend to find us through are you and what are you working on.
Twitter, word-of-mouth or similar We have identified the ten or so most
means. Out of the blue, monthly I active groups or people in the region,
typically find about five new and we invite them to attend these
interested parties. We also use Silicon meetings. ese are not particularly
Prairie News as our sole means of formal and do not include outside
communicating meeting times, dates invitations or an open dialogue
and locations. e key thing is that regarding their existence.
we could easily fill a room with 75
We established these types of gatherings (and
people by extending the invite, but in
others with similar activities) in the three
doing so, we dilute the value for the
buckets – high-growth entrepreneurs,
20 (and probably more like five)
corporate innovation champions, and
entrepreneurs that choose to attend.
investors – for a reason and with great care.
● Growth Initiative Group (the “GIG”) ere was not a group of high-growth
is a group for people championing entrepreneurs in 2007 that really had the
innovation within established buy-in of other entrepreneurs. ere were
companies. In this group, we have groups that claimed this authority without
CFOs and line employees. In truth, having key constituencies represented, so
we have not found the right mix yet establishing common understandings and
or the right marketing strategy. In expectations amongst the peer groups was
general, the group listens to best item #1 for our thought process. We try to
practices from another company keep in mind a conversation that I’ve heard
about how they work with internal repeatedly (something akin to Adam
projects, new ventures or intellectual Nielsen’s discussion with Sarah Lacy in the
property commercialization. is summer of 2008): “I do business with these
group has a ton of potential within guys because they are my friends. We were
Omaha, but we have not quite put friends first and that makes it easier for me to
our finger on how to organize it. be honest and tell them what I can do to
help.”

9

ese conversations are hard to have in a In the last three months, the pools of
forum where only 10-20% of the audience separated individuals have begun clamoring
understands the criticality of the discussion. for joint programming, so we will start
Having a meeting with the entrepreneurs merging some of our efforts to provide
without either a loud small business forums for the two groups to come together
dominate discussion about sales taxes or a and discuss things. One example of this
harem of attorneys, accountants and bankers program is our demonstration night, which
lusting aer a new sale keeps the focus on is basically a chance for regional companies
high-growth needs, such as funding, to demonstrate their latest released
workforce, finding beta customers, or a technologies. At the first event in March of
technical/business founder or person, etc. this year, we had ten companies present.
Since then, three of our companies have
From a purely practical perspective, it was
received direct inquiries from investors that
surprising how many entrepreneurs did not
were in the audience, and at least one of the
know of other entrepreneurs in their space.
companies looks like it will receive risk
Same could be said for angels. Ironically, our
capital from an investor based on this event.
thought was that the industrial silos within
the community were causing a lack of spin- One key thing to remember: don’t make
outs because there was limited cross- these people/companies become members in
fertilization between big companies – your organization or some other pay-to-play
limiting innovation. However, the bigger event. In general, if this is a membership
impact is that angels and entrepreneurs from effort, then you are already on a route to
industries and genealogical trees did not failure. If you do a good job, they will
know (and sometimes did not know of ) each eventually pay to play.
other. us, one of the best impacts of our
various meetings is a significant improvement 3. Study the elements of a
in the depth and range of the networks in sustainable entrepreneurial
Omaha in the entrepreneurial ecosystem. ecosystem
e five basic elements of our ecosystem are
is was our intent, but we did not predict
human capital, financial capital, deal flow and
the impact correctly. However, we try to
other metrics, knowledgeable community
adjust our efforts and programming to better
and infrastructure. In general, there are
facilitate these types of changes in course.

10

numerous articles written about social or dollar business around the
business ecosystems - all of these involve production of media. He is also the
classifications regarding the types of things current CEO of Proxibid, a multi-
that are most relevant. Our understanding of million dollar auction site.
our ecosystem is really premised on both this
• Doug Nielsen, Mark Hasebroock
theoretical learning and on observation.3
and Julie Mahloch started gi-
Ecosystem Elements: Human Capital certificates.com, Netshops (now
With most startups there are a few people “Hayneedle”) and each has started
that literally make “the thing” happen. I other ventures independently and
could write a whole paper on this itself, but with others.
let me start with a couple of premises. First,
• Bill Fisher bought and grew a little
serial entrepreneurs are really important.
soware company called “ACI” into
Second, larege companies can be genealogical
a billion dollar enterprise, he has
trees that breed other interesting businesses.
cofounded other entities including
ird, building better teams should be the
Sojern. Mr. Fisher writes a blog on
number one priority.
Silicon Prairie News and currently is
First, within the human capital world, serial the lead manager of a firm called
entrepreneurs are gold. Find them and love Treetop Ventures where he invests
them. Your community probably does not and builds investment pools for
have very many people who have started a entrepreneurs. ere are probably
business that is worth more than $50 million 20-50 of these people in Omaha
and a second business that is also a that have really built multiple high
commercial success. growth businesses and executed
across industries to accomplish
ree examples from Omaha: significant business growth.
• Bruce Hoberman started a record Serial entrepreneurs are critical because they
store in the 1970s. He realized that typically have the ability to fill many of a
there was an opportunity to make startup teams critical roles - leader, technical
media – rather than just to sell lead, sales lead, finance person, legal person
music - so he built a multi-million and administrative/operations lead. Very few

3
Three
authors
that
we
have
studied
are
–
Michael
Porter
–
par3cularly
his
ar3cle
called
“Clusters
and
the
New

Economies
of
Compe33on”
(and
others
like
it
that
he
has
wriCen)
-‐hCp://www.wellbeingcluster.at/magazin/00/
ar3kel/28775/doc/d/porterstudie.pdf?ok=j
,
Daniel
Isenberg’s
“How
to
Start
an
Entrepreneurial
Revolu3on

(aCached),
and
urban
economists
such
as
Richard
Florida.

11

people can do this and moreover, very few investors. Look for companies that produce
people have documentably and successfully interesting, entrepreneurial people that want
done this. to start things.

Gallup consistently references the 10 trillion It may even be better if you can find a
dollar growth of the US economy from the company that is willing to put money to
late 1970s to 2000 as being caused by work in intrapreneurial or entrepreneurial
approximately 1000 people. Basically this is efforts. A local example is NelNet and Cost
the class of serial entrepreneurs in the Effective Technologies. is example is too
country – 1000 people plus some one hit recent for me to really understand well
superstarts (Bill Gates, as an example), so enough to know its impact and its potential –
understand that this is a select group and more on this in future papers.
treat them like your economic development
Companies in Omaha do not naturally
strategy is built around them.4
collaborate across industries. My premise is
Second, I use the term genealogical trees to that if they did, more spin outs and
describe a company that will plant seeds for opportunities would arise. is is the
new companies. In Omaha, the company premise behind the “GIG”. However, one
that has produced the most seeds recently is thing that ACI clearly documents is that
ACI - not one of our billion dollar companies that lay-off people regularly and
enterprises (although it once was). ACI was shi their strategy to move to new
one of the original companies that worked on opportunities do seem more likely to spin out
ATM and banking soware systems. is startups. is may be a need by the new
company grew to be huge under the entrepreneur to leverage existing expertise,
aforementioned Fisher. However, in the last but it appears that these companies also
five years, roughly five companies – including recruit specific types of people that are more
Sojern, FTNi and Lodo Soware – have likely to start their own thing.
grown from the progeny of the ACI tree. If
In my own experience, Enron was constantly
you look back over the years, ACI has
spinning out new companies either
produced the personnel and talent behind
intrapreneurially, in their accounting
numerous start-up companies. Moreover,
records,5 or through displacing smart people
Omaha’s most dynamic startup space –
that were ambitious. In fact, almost every
payment systems – links back directly to ACI
new technology that has been successfully
through people at other companies or

4
Maybe
it
should
be.

5
Ha,
ha!

12

deployed into the electricity space in the last ● Founding entrepreneurs struggle to
decade has a direct tie back to Enron in some give up control to gain wealth.
form. I am not suggesting that you want to Giving up control may be giving up
push for an Enron in your community, but equity for the ability to scale, but
the key is to develop a dynamic idea- usually it is about design,
generating place with ambitious people development, implement, etc. Instead
willing to take some risk to execute a hard the founder wants to stay micro-
idea. is describes ACI and a couple of engaged in less important aspects of
other Omaha companies, but frankly not the business when finding customers
very many of our largest enterprises. and building a better strategy for
market entry are the needs of the day.
ird, the building better core teams is
critically important. If you read around, you
us, most companies do not fail due to a
will see many articles and publications about
lack of capital – they under-perform
the entrepreneurship efforts of communities,
possibility or they move - but they rarely fail
cities, countries or towns and their failures.
for that reason. Most companies do not fail
My general take is that most communities
because their technology was “too early” –
think that the failure of the entrepreneur is
they fail because customers did not want
the failure to write a good business plan or
what they were selling. Most companies
understand business. I heartily disagree.
don’t fail because they don’t have an
From my experience, most companies fail for
incubator in which to grow – they fail
one of three reasons (which are all human
because they can’t build a team that has the
capital related):
capability to build, sell and grow with just a
● e founding individual cannot build few people. And thus, most efforts at
a team that can execute on the building an ecosystem that focus on these
construction of their technology and things also fail. I believe that to succeed an
sell it. ecosystem needs better entrepreneurial and
● e core team does not listen to founding teams, not just help writing
customers well – thus they cannot business plans or learning more skills, but
adjust to their market and to their with key people inserted in key roles and
best customers to provide truly useful focusing on those roles. e six key roles are:
products or services – preferring to
1. Leader – someone who makes the
build what they want and expecting
hard call and is the de facto “person in
others to show up to buy “it” aer “it”
charge”
is built.

13

2. Technical lead – someone who can the most difficult part of the equation and
build the “it” or manage the team the most important to get right.
building the “it”
We have worked with Gallup for about three
3. Business development lead – someone years to help make our startup teams more
who can listen and understand effective by understanding their strengths
customers as well as listen and and weaknesses as groups. In working with
understand the abilities of the many companies that have not succeeded to
company – both current and future their possibility, we have found that the
customers and company. weakness is almost always a team weakness.
Oen it is not even a lack of skill within the
4. Good6 finance person – this might be team, but an understanding of how best to
a CFO or a hired gun (on contract) deploy their talent within their company. For
5. A good legal/regulatory person – this example, many companies cannot pivot to
person’s job is really to keep the serve customers because they do not listen to
company out of trouble and to them effectively in their sales or marketing
establish strong contractual and efforts. Push marketing does not oen work
documentation (IP protection) sustainably – adjustment and adaptability is
expectations within the company key.
(sually this is a hired law firm (with a e Gallup program is premised on a couple
lead advisor) that can provide of key ideas:
formation, contract and IP legal
advice) ● Establishing mission, vision and
values – many startups don’t know
6. An administrative/operations person what their purpose is and what they
– this person’s job is to keep the are intending to accomplish (and
company on track, paying bills, how).
managing HR issues, etc. (two key ● Understand the strengths of the team
things for this person are to get billing – a high percentage of startups that I
and customer service right) work with actually have all technical
So, if you focus on teams and people, then it or all business people without any of
is easy to see why I say that human capital is the other mixed in. Moreover, even
within technical people there are

6
The
defini3on
of
good
is
someone
that
has
worked
with
a
start-‐up
in
your
space
before
and
has
the
necessary

past
experience
to
provide
insight
and
protec3on
before
they
are
“needed”.

A
company
can
stretch
with
industry

but
not
with
experience
from
my
point
of
view.
14

architects, programmers and ● Orient the team toward goals –
visionaries. We look to position those having clear metrics with measurable
people differently and give them the outcomes for startups is really critical.
roles and responsibilities where they
can succeed.

Two important and really hard exercises we use are to layout a milestone map (i.e. over the next
three months, we will roll XYZ out and here’s how we will do it) and build a basic P&L/Income
Statement. Both require the ability to take known data today and project the ability to execute
into the future. For example, entrepreneurs are oen overly-ambitious on product development
timelines that cause their income projections to massively fail. Here is an example:

S i m p l e M i l e s t o n e Week
Map to Prototype 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
Basic Architecture of
Site
Find Two Developers
Hire Two Developers
Begin Marketing
Efforts to Beta
Customer
Prototype Launch 1.0
Sell First Product

Cost Model
Revenue (ea unit costs
$400) $400.00 $400.00
Expenses
Developer Salaries $1,346.15 $1,346.15 $1,346.15 $1,346.15 $1,346.15 $1,346.15 $1,346.15 $9,423.08

-
Net $9,023.08

Where are the weaknesses in this plan? ● ird, what if you don’t sell
your first product for $400,
● First, what if development is
but $200.
slow and it takes 10 weeks
● Fourth…
instead of 6?
● Second, what if you cannot
In other words, the central issue is that you
find a good beta customer?
can overplan your startup and under deliver
simply by focusing too much and too little on

15

the plan. Companies that focus too much on certain industry, this person will be able to
the plan spend their time worrying about best set up a model for sales into the future
cost models with no sales and development and should be considered a strategic advisor
cycles in the minutiae. Companies that focus and asset by the team. In most instances,
too little do not see the connections between chambers of commerce and similar
development, customers and revenue. Oen companies simply cannot offer this type of
businesses can fake their way through it by tangible help – that’s why we are connectors
looking at peer-level information and simply in most instances in Omaha.
replicating their pricing model, sales
Ecosystem Elements: Mentors & Models
expectations, etc. In the high growth space,
One critical aspect of the human capital
this ability is limited. us, helping
component of an ecosystem is the need to
companies find mentors, models, peers,
fully engage mentors and models into the
collaborators, etc. that provide the needed
efforts.
information to keep this balance is critical.
From a programmatic basis, SCORE7 does a ere are four forms of mentoring:
good job in certain industries, (so do
technical advisors at universities) but what is ● One on one
critical for a Chamber or a community ● One on many
organization, is to understand these strengths ● Many on one
and weaknesses and connect appropriately. ● Many on many
Frankly, when there is not really good help
available, we tell the company that they may Most efforts of mentoring focus on the first
not be able to find really good help locally - type of model. ere are really good
we do not recommend bad help simply examples from around the country of this
because it is easy or what you can find. working successfully. Frankly, most of these
examples are better than our success in
Lastly, if teams do a good job of getting the Omaha, so I’ll let you find that information
right people on the boat and find a good elsewhere.
advisory board, many of these service
provider issues simply go away because the e Gallup efforts - and most of those
necessary advice is already built into the executed by investors - tend to be the second
system. If, for example, a company hires a type, which border between coaching and
really good startup sales person who has mentoring. For example, Gallup has 25
marketed and sold a lot of products in a mentors working with 130 companies. us,

7
From
the
SCORE
website
(hCp://www.score.org/):
SCORE
is
a
nonprofit
associa3on
dedicated
to

educa3ng
entrpreneurs
and
helping
small
businesses
start,
grow
and
succeed
na3onwide.
16

each mentor has approximately five value here, particularly with ad hoc sessions
companies to which they are providing and the ability to push multiple advisors on
leadership coaching and strategic advice the same difficult problems. Omaha is
regarding certain concepts. strongly considering a program of this nature,
but we have not really deployed it yet. If I
We have begun looking for a way to provide
were starting an incubator, this is the type of
venture mentoring. MIT started a program
program that I would try to facilitate –
about fieen years ago called the MIT
minimizing the focus on buildings and
Venture Mentoring Service. is program
accomodations and focusing on peer-to-peer
has a great reputation and has been
and many-to-many mentoring opportunities.
successfully deployed in St. Louis. I strongly
believe in this program but have not found a Ecosystem Elements: Financial Capital
good way to deploy it in Omaha, yet. e core concepts to building financial
markets are transparency, liquidity and
In my experience, eight companies are the
governance – not sheer size of funds.
capacity of most individual investors whether
as part of a fund or as individuals. For Does Size Matter? Most cities get caught up
example, a fund with $100 million to invest in “bigger is better” when it comes to capital.
or $1 billion with three partners will typically In some ways, this is probably true for an area
have no more than 24 investments and like Silicon Valley or Austin. In those cities,
usually a lot fewer, like 15. is is why many capacity for activity is very high and talent
funds end up having to invest so much populations will move to the area for
money in individual investments because opportunity. In most other cities, the key is
they have limited “coaching” capacity and to sustainably build the capacity for capital
thus need their coaches to be taking bigger up to a certain level that can be continued
investments. indefinitely. In Omaha, that area in the near-
term (the next ten years) is probably between
Finally, many-on-many mentoring really takes
$50-100 million of investment in local deals
place in forums like TechStars or Y-
per year. In some years, you’ll have really big
Combinator where the real value is the
fundings and lots of outside investment and
ability to be coached individually by many
in others there will be none or less. For
different mentors/coaches who are also
example, Nebraska has had anywhere from 0-
providing advice to many other companies.
$150+ million invested per year over the last
is sort of program creates lots of network
decade. However, the median is around $4
opportunities and allows the best strategic
million. e really big years were tied to
advisor to advise multiple companies without
individual events – not a host of companies
being tied to any longterm. ere is clear
receiving moderate money. In the investment
17

market, you want to have these home run questions like the following are generally
investments, but you need to create a pipeline known among ecosystem players:
of $1-10 million dollar investments. Our
● How much is an investor willing to
goal is to build a system that creates 20-30
value and pay for a company?
investible deals per year for the next five years
● What are the terms and conditions
with the idea that this is sustainable and can
associated with this payment?
increase as capacity (people, in our case)
● How quickly can an investor exit a
expands to fill the opportunities created.
position?
Transparency is the ability to clearly see the
Going deeper, here is an incomplete list of
companies, terms and agreements that are
critical things that should be roughly
being executed in a market. is does not
understood for some percentage of deals in
mean that every angel investment needs to be
the ecosystem:
public or worse - publicly regulated. Instead,
the key is that the involved community ● Key parties: Who is part of the
should be able to generally piece together a funded team? Who are the funders?
set of common expectations for deals in the Who were the key agents or advisors?
ecosystm at any given time. For example, if ● Key terms: What was the valuation?
one law firm provides 90% of the legal advice How much money was raised?
to startup teams in the area that have had ● Intellectual Property Rights: Were
successful deals, the market at some level they transferred, retained or split?
should reflect this information. ● Key marketing terms: Is this a new
joint venture, partnership or business
Working with Enron, I saw in the energy
contract?
sector that most engineers want to provide
● Key contractual terms: Who is paying
lots of useless information to investors, while
for what
most investors want to keep key transaction
● Expectations of parties: is is always
terms secret (length and term of contracts for
somewhat opaque, but an example
example). However, an energy market – like
would be exit timeline and plan (3
a startup ecosystem - needs some
yrs, IPO)
understanding of what is happening in the
“spot” market to be sustainable. In the case of Everyone knowing each of these things for
entrepreneurial deals, the spot market is the every deal should not be expected or even
current market for deals in a region. At encouraged. e goal is to provide
surface level, you know your market is transparency over time to others operating in
relatively transparent if the answers to the market regarding each of these things so

18

that they can plug-in reasonable expectations and so, they can adequately help share
when the time arises for their own deals. information. However, it is critical
that entrepreneurs find service
Are there exceptions? Absolutely. Most
professionals with these experiences
venture deals in Omaha today are probably
to leverage that information, whether
and should be exceptions to having lots of
formally or in opportunities via many-
these terms understood, but Omaha is big
to-many mentoring sessions.
enough that angels and angel-ready deals
should be relatively close on many of these 2. Second, media outlets should report
items with only partial knowledge from information in this space. ere are
aggregating information across numerous organizations that regularly publish
deals. venture capital fundings, and entities
like Silicon Prairie News locally
Transparency is important because it
publish funding information from the
provides angels with protection from bad
Silicon Prairie region.
deals and sets expectations regarding their
participation and contract terms. On the 3. ird, chambers of commerce can
startup side, transparency helps first-time color this information via networks of
entrepreneurs know when they are “eligible” all parties involved. For example, I
to talk to investors about a term sheet. A might know non-public terms and
napkin plan is not enough for most people to conditions from multiple deals and be
get funding. However, in a community able to highlight to someone
without transparency, entrepreneurs may preparing for a deal some things that
think that this is all it takes because they they should expect. One example is
heard a story about this happening to that in Omaha the startup usually
someone somewhere else. pays for the deal’s legal fees. Another
example may be that Investor X is
Transparency builds context so everyone
really hard to work with aer the deal
knows the common rules.8 Certain parties is done because they are very focused
help share this information: on hitting accounting and revenue
1. First, service professionals work on milestones. Neither of these are
both sides of alternating deals. us, impediments to a good deal because
an accountant or lawyer may advise everyone wants to have success and
the selling client or the buying client, expectations can be shared effectively

8
Amanda
Styron
wrote
this
in
her
notes
on
the
first
drad
of
this
paper.

I
unabashedly
took
it
directly
from
those

notes.
19

by third parties. Moreover, was interested. at angel sat on the
reasonable post-deal expectations and company and eventually was forced to accept
awareness of other deal terms usually a less than perfect corporate exit. He made
make the terms and conditions seem money but he had to wait for 18 months to
less onerous during the contract clear his position. at means that the region
discussion. lost out because that person did not invest
that money for an additional 18 months and
Liquidity is the ability for an investor to exit
he became disillusioned with his ability to
a position quickly. In this context, quickly
execute a positive exit quickly, so now that
may mean a couple of months or a couple of
person invests in a smaller variety of things
weeks, but most investors invest to eventually
and in other regions. is is a rational
sell their stake to someone else – the founder,
decision by the investor, but not necessarily
another investor, a roll up or a large
good for the region.
corporation.
Two key ways that the Chamber helps
e ability to get clear of a deal allows
liquidity are to:
investors to invest in multiple deals and to
leverage their cash more effectively against 1. Host quarterly meetings of investors
debt or other financial vehicles. For example, By hosting regular investor meetings,
if investor A knows that he can make five the Chamber has seen that
investments and exit each within a year collaboration has increased.
regardless of position – then that person can Surprisingly, many of the key
use the same five million dollars multiple investors in Omaha had never met
times if better deals arise. However, in the each other until the Chamber put
situation where the person fears the ability to them in the same room together and
become liquid, they may wait much longer to put a context around the ecosystem
invest and stay in positions beyond their and the individual group’s activities.
comfort zone because they know they are
2. Provide regular connections for
losing access to act on other opportunities.
entrepreneurs to investors
A good example of this problem is a local e Chamber regularly introduces
investor bought stakes in a company, helped entrepreneurs to investors. By helping
it grow about 50% year on year for three investors build a better pipeline of
years and then could not sell his position to deals, many are more willing to take
another investor. e company was still a on an increased number of deals
good investment and was much stronger for because they are confident that the
the angel’s three-year investment, but nobody best deals will find them. is means

20

that they can and do deploy more federal law. For example, the SEC requires
capital into the market. certain deals to file Reg. 504, Form D for
certain types of filings. is is a federal
Unfortunately, one weakness in the Omaha
governance structure for deals, and it
market is the exit liquidity. ree private
provides a public information vehicle for
equity funds raised approximately $450
other later deals as well.10
million in Q2 2011 with the purpose of
helping businesses grow and expand aer In general, a couple of critical federal things
they have good EBITDA’s9 and have $10-100 for any community to take into account are
million in revenue. is may ultimately help accreditation of investors, filing guidelines at
exit liquidity, but it is too early to predict the the federal level and research information
actual outcomes. publicly available via federal grants. Each of
these have components of governance and
One thing that is certainly happening is more
information that manifest important types of
private equity money is being put into
data for a community to both formally
smaller companies from the region than five
acknowledge and to informally digest and
years ago. Associations, like the Association
discern. For example, recent regulatory
for Corporate Growth (ACG: Nebraska),
changes regarding the SBIR program may
have helped these groups network and
have positive or negative impacts on your
possibly increase liquidity, but good data on
community, but either way, they need to be
this is still limited. My simple answer is ad
communicated to your entrepreneurs.
hoc examples of success are apparent in
Omaha, but good factual data to provide an Regarding micro-governance of the deal, the
action plan to another community is still not ultimate goal for the United States should be
there regarding improving exit velocity. to provide a relatively similar playing field to
all parties whether they are in Silicon Valley
Finally, governance is critical. We look at
or Moncks Corner, South Carolina. Silicon
formal and informal governance as important
Valley has a very robust environment that has
ways to guide consistent deal structures and
sorted through the balancing issues
maintain transparency for the ecosystem.
associated with good contracts for
Formal governance requires the corporate entrepreneurs and investors in a much more
structure, terms of agreements and other complicated and robust way than most other
components be compliant with local and areas, so migrating Omaha’s contractual rules

9
Earnings
Before
Interest,
Taxes,
Deprecia3on
and
Amor3za3on
(EBITDA)

10
Also,
I’d
recommend
looking
at
hCp://www.formds.org

to
get
a
handle
on
how
many
and
what
type
of

companies
are
filing
SEC
documents
from
your
community.
21

towards Silicon Valley’s existing rules is SBIR should be part of our portfolio. Align
ultimately probably going to be both your policy to these types of needs.
necessary and good.
ere is also informal governance. Informal
An example from Omaha is that currently governance is making sure that everyone can
most entrepreneurs pay for the legal fees see bad actors and bad actions. ese
when they receive an investment. In Silicon participants are punished. For example, in
Valley, the investor pays. ink about that Omaha there is an investment group that has
for a minute and why it is important. Most a very bad reputation. If this group is
equity Series A investments have legal fees of involved, much of the smart money simply
$10-50k, so if you are to receive a $1 million will not participate in the round regardless of
round, the up front cost is 1-5% of the total the company, team or technology. us, this
equity infusion, and your cost is not tranched informal governance has a direct impact on
in the way that some capital infusions are.11 both of the above criteria – transparency and
is can be a burden to entrepreneurs raising liquidity.
capital at appropriate times and levels.
Regarding the role of the Chamber, our role
One of the best examples of a place that has is to be as aware of deals as we can be. We act
grown an entrepreneurial community quickly to create transparency in the market by
is Israel. As a country, they have encouraged letting other companies know of information
people to be creative and innovative, and as a that is relevant to their terms. is is tricky
government, they have strongly facilitated because I and others on staff sometimes sign
that through policy and programs. How does non-disclosure agreements12. It is also tricky
your state and community do? Align your because we need to build trust within all of
policy efforts to key hurdles and assets within the participants that we will not try to inflate
your community. SBIR is important to our power or the terms of transactions. Two
Omaha because - as I will explain in the next things that I am consistently thinking about
section on deal flow and metrics - for the type are:
of city that we are, we are actually really good
1. Is this knowledge that is only being
at SBIR grant production. We have a major
shared with me or does the “market”
US military installation in the area and thus,

11
Simplis3cally,
the
untranched
cost
is
a
problem
because
it
means
that
an
entrepreneur
may
receive
four
tranches

of
$250,000
at
certain
milestones
–
but
the
$50,000
legal
fee
will
come
due
immediately.

Thus,
the
first
tranche
is

almost
20%
legal
fees
–
not
useable
cash
for
the
startup.
12
When
signed,
we
abide
strictly
by
these.

However,
usually
I
am
able
to
convince
companies
that
a
connec3ng

en3ty
is
preCy
limited
if
they
can’t
share
key
things
about
a
company.

22

already know this information that I (or most Chamber executives that I
through another channel? know) have the ability to execute the
2. Have I heard this same information necessary diligence and process-building to
about someone or a specific type of do an excellent job of running an angel
deal before? group.

If either of them suggests that the Ecosystem Elements: Deal Flow & Other
information is not exclusive or proprietary, I Metrics
may share the information in general ways In our current state, Omaha does not have
such as, “word on the street is that enough deal flow for it to be a relevant
entrepreneurs are paying for the legal part of metric, but, we strongly believe that you need
these types of deals – is that what you are to identify some key measurements that if
hearing?”. Also, when possible, I try to get moved positively will help you determine if
express permission from parties to share this you are making progress. In Omaha, we
type of information with other deals. One measure a lot of things including SBIR
investor that I know said that it was fine as grants, SBIR monetary awards, university
long as it was not a deal that he was in active research, Inc 5000 companies, Form D
negotiation with at the time. filings, dollars invested on Form Ds, new
technology companies mentioned on Silicon
e Chamber’s other role, as mentioned
Prairie News, SBA loans, etc.
earlier, is to help funders find each other and
to build transparency and informal In general, this is one of the hardest areas for
governance through familiarity and trust. me to predict what would be good
You can’t force this. You have to wait until measurements for a region. We have taken
the various key parties start reaching out to the approach that we will measure lots of
you. I have found that four years in, funders little things and aggregate that data into an
are starting to want to talk to me. In years “algorithm” that measures them. We tested
one and two, I had to wait months to get on this algorithm to see if it worked. Basically
key people’s calendars. we took 24 cities and said Boston and Silicon
Valley should be high and some others
Other Chambers have asked me if they
should be low. What we found looked about
should help organize an angel group. My
right. Omaha was about 16th out of 24
simple answer is that we have not, but we
communities when we started measuring the
have discussed it at a high level and have not
relevant data. Omaha has moved into the
acted…yet. I am not sure if a Chamber-
second tier at around 11th or 12th since we
organized angel group would work well. I
started measuring.
have heard of it happening, but I am skeptical

23

People have asked if I will share this cities from the Midwest that are smaller.
information. I will not. is is not because it Regarding SBIR, Omaha does not have a
is particularly secretive, secure or major research university, so it probably
confidential. e biggest issue is that the should not produce as many SBIR companies
process of constructing the information is as some other cities that do – like Madison,
almost as valuable for developing the way you Wisconsin. Interestingly, Omaha crushes
should be thinking and the companies that comparable cities without a research
you should be noticing as the actual outcome university on SBIR grants and dollars. For
of the data. For example, when I started, I example, Omaha had 10 times more than Des
really thought that our Fortune 1000 Moines. Even though Omaha is bigger than
companies produced a significant number of Des Moines, this is still relevant information.
the new startups in the area. is is factually e state of Iowa and both Ames and Iowa
wrong for Omaha. is may not be factually City do well on a per capita basis against
wrong for where you live. You need to see Omaha and Nebraska, but the point is the
the data and work through identifying the process to discover this information revealed
right metrics for your area to understand more than the simple data could.
your comparative strength/weakness.
Figure out what you think that you should
Here are some other things that I have count. Be creative and conventional. Use
noticed from our data collection about things that everyone uses and some stuff that
Omaha and other places that I could never no one else uses. [One thing that I would not
have seen by just looking at numbers without personally do again (but did do) is count
thinking about what to collect. Omaha was patents. Many publications will list this
comparatively weak on SBA 7(a) loans and information as a means to show how
comparatively strong on SBIR loans. If you innovative a place is. I found the data to be
look at media for these things, this is not only loosely correlated to outcomes.
what you read. You read the opposite. Here’s Basically, if you could separate out the
why that press is wrong: Omaha, itself, gets ridiculous patents and the shelving patents,
far fewer loans than cities like Madison, then it might be useful, but I was unable to
Wisconsin. In fact, in a peer group in 2007 do this in a time efficient or effective
(the last time I counted and analyzed all of manner.] It is not particularly difficult to
the 7(a) data for this particular group of count stuff and then build a weighting
peers) Omaha was 12th out of 13 on a per method. I would be happy to help you build
capita basis for SBA loans, but Omaha’s SBA these things but I won’t just give you ours –
comparison group in national terms is not even as a template. I believe that if I give it
measured per capita as is generally many away, it both undervalues the tool and

24

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