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Basics on starting, funding and scaling startups at ESADE business school


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This is a presentation given to a group of ESADE business school alumni in Barcelona in March, 2014. It covers the basics of why startups exist and what it takes to found, fund, and grow one.

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Basics on starting, funding and scaling startups at ESADE business school

  1. 1. STARTUPS LESSONS LEARNED! @michaelrwolfe!! !
  2. 2. THIS TALK IS FOR Anyone who is working at a startup! ! Anyone who is considering it! ! Anyone impacted by startups! (i.e., everyone else)!
  3. 3. The Basics Founders Ideas Funding Scaling Exits WE WILL COVER With stories, recommending reading, and tips!
  4. 4. MY STORY Four startups:! I/PRO, Kana, Vontu, Pipewise – one IPO, two acquisitions, one fail! ! >$1B revenue, > 2000 employees! ! VP of Engineering, Founder, and/or CEO! ! Two big companies! ! EIR at Benchmark Capital! ! Advising and mentoring! ! On sabbatical in Barcelona!! ! !
  5. 5. MY BIASES The Silicon Valleymodel! ! Venture-funded, not bootstrapped! ! Scalable, global startups! ! B2B software, not B2C or healthcare!
  6. 6. THE BASICS
  7. 7. NEW BUSINESSES ALWAYS BEING CREaTEd - $10 billion! ! - $3 billion! ! - $3.8 billion! - $3.8 billion! ! - $10 billion! ! - $19 billion! !
  8. 8. BOTH B2B and B2C - $19 billion! ! - $5.7 billion! ! - $12 billion! - $9.5 billion! ! - $9.5 billion! ! - $9 billion! !
  10. 10. WHY didn’t existing companies do these? Unique IP? ! Usually not…! ! Lack of talent? ! Sometimes…! ! “Innovator’s dilemma”? ! Only in certain cases….! !
  11. 11. THEY DIDN’t DO THEM BECAUSE: They didn’t know they were big opportunities til it was too late! ! (In most cases the entrepreneurs didn’t either, but they were willing to take that risk)!
  12. 12. WHY THE FAILURE RATE? No one wants the product! ! They won’t pay enough! ! Market too small! ! Too expensive to find customers! ! Poor execution! ! Team issues! ! Competition! ! !
  13. 13. ALL YOU NEED TO KNOW 1 big win"! 50-100 small/ medium wins! 1000 fails (“experiments” )! !
  14. 14. ONCE YOU REALLY ACCEPT THIS, IT all MAKES SENSE: “Why don’t big companies innovate?”! ! ! “Why do so few startup ecosystems exist?”! ! “Why do VCs invest in money losing companies?”! ! ! They’d need to launch dozens of experiments for each win! ! Structural and cultural resistance to failure! ! ! The winners are so huge they pay back the losers!
  15. 15. BUT GREAT TEAMS DRAMATICALLY IMPROVE THEIR ODDS ! Although there is luck and timing involved, teams can greatly increase their chances of success.!
  16. 16. SOME READING on the basics “How to start a startup”! - Paul Graham Blog! Class Notes: CS183 at Stanford! - Peter Thiel / Blake Masters!
  17. 17. FOUNDERS
  18. 18. GREAT FOUNDING TEAMS “Founder/market fit” ! ! Blend of skillsets (technical / design / business)! ! Ambition, hard work, focus, persistence! ! Willing to “quit, suck, and fail”! !
  19. 19. “Many a young person tells me he wants to be a writer. I always encourage such people, but I also explain that there’s a big difference between “being a writer” and writing.! In most cases these individuals are dreaming of wealth and fame, not the long hours alone at the typewriter. “You’ve got to want to write,” I say to them, “not want to be a writer.”! " " " " " " " " "! " " " " " " " " " " " " " "- Alex Haley!
  20. 20. VONTU FOUNDING TEAM Joseph (CEO) - product, sales, marketing, team building! ! Mike (VP Products/Services) – technical, product, team building! ! Kevin (CTO) – security expert, original idea, developed algorithms and patents! ! Soon added great engineers, VPs of Sales, HR, Marketing, Services, CFO!
  21. 21. The YIN/YANG Visionary! Passionate! Aggressive! Committed! Ambitious! Flexible! Responsive! Humble! Adaptable! Collaborative!
  22. 22. QUITTING, SUCKING, FAILING Quit good jobs, shut down failed products or companies! ! New jobs, new domains, “making it up as you go”! ! Risk failure and near- death experiences! !
  23. 23. FAILURE CULTURES ARE RARE The desired path:! ! •  Get good grades! •  Go to a good school! •  Get a good job! Most  cultures  have  both  social  and   structural/legal  penal5es  for  failure  
  24. 24. READING on FOUNDERS “How to get startup ideas”! - Paul Graham Blog! “Be a learn it all” ! - Bill Gurley blog! “Founders Dilemmas”! - Wasserman! “What is a ‘product picker’?! -!
  25. 25. IDEAS
  26. 26. TECHNOLOGY IS ALWAYS MOVING •  Moore’s Law! •  Cheap storage! •  Cloud computing! •  Smartphones ! •  Tablets! •  Big data! •  Wearables! •  Robotics! •  3D printing ! •  Self driving cars! •  MOOCs! •  Crowdsourcing!
  27. 27. THE SHIFTS CREATE OPPORTUNITES New problems! ! New solutions to old problems! ! New distribution models!
  28. 28. HARD TO KNOW WHAT THEY ARE •  Hard to visualize things that don’t exist! •  Consumer behavior is hard to predict! •  Business models not known! •  Market sizes are not known! •  Customer acquisition models not known!
  29. 29. FOR EXAMPLE Consumer     GPS-enabled, internet-connected smartphones   A replacement for car ownership   Questions asked: “will people use it? Will drivers like it? What about regulations? Is it really a big market?”  
  30. 30. MY EXAMPLES 2003 - Companies suffered leakage of confidential data after connecting to the net! ! 1997 - Customers contacted companies via email and expected a reply! ! 1994 - There will be advertising on the web and the need for tools to measure it!
  31. 31. Old school innovation 1.  Found company! 2.  Hire team! 3.  Spend money! 4.  Build product! 5.  Try to sell it! 6.  Find out a year later that no one wants it!
  32. 32. WE’ve gotten smarter
  33. 33. Hypothesis   Test   Conclusion   Companies  want  to  keep   their  data  from  leaking   Interview  20+  corporate   CIOs     Mostly  a  concern  in   regulated  industries   (financial  services,   retailers).   Companies  want  to   protect  confiden>al   documents  and  data   Show  example  incidents   to  prospects   They  mostly  care  about   customer  data  –  MVP  will   focus  on  customer  data   Companies  need  to  be   able  to  block  the  data   Show  screenshots  of   product  to  customers   It  is  OK  to  just  no>fy   about  incidents,  not  block   It  is  technically  possible  to   solve  the  problem   Implement  prototypes  of   the  most  difficult  parts   Not  easy,  but  it  can  be   done   EXAMPLE FROM VONTU
  34. 34. Reading on validation “Lean Startup”! - Eric Ries! Blog & “Four Steps to the Epiphany”! - Steve Blank! Business model canvas! - Alex Osterwalder! Buzzwords: “Validate! Pivot! Get out of the building!”!
  35. 35. FUNDING
  36. 36. MOST STARTUPS NEED FUNDING Customer acquisition costs lead revenue! ! Faster growth often means faster spending! ! Many markets are “winner take almost all”! Source:  
  37. 37. WHAT INVESTORS WANT ! Great founders and team! ! Large market! ! Ability to build barriers to entry! ! Validation! !
  38. 38. AT VONTU •  TEAM – experienced team, well-known to the investors, I was an Entrepreneur in Residence at Benchmark! •  MARKET – addressing a problem that most large companies would experience! •  VALIDATION – several references from interested customers! BUT  STILL  TONS  OF  RISK…  
  39. 39. BUT THINGS HAVE CHANGED Launching a company is cheaper,! so get some validation before going to investors. (Thus the recent startup explosion)  
  40. 40. INVESTORS WILL INVEST ANYWHERE •  If you are focused on a global or large market! •  Are willing to move or put offices wherever gives the company the best chance of success (usually the U.S.)! •  Hire the best people from everywhere! But the bar is higher, and valuations are lower!
  41. 41. READING on funding “Stitch Fix: reinventing retail” ! - Bill Gurley blog!
  42. 42. SCALE
  43. 43. The Start Product Market Fit Scale SKILLS TO GET HERE   DON’T always translate here  
  44. 44. SCALE: “Maintain excellent execution during rapid growth in customers, revenue, and people” ( And WIN )
  45. 45. A STARTUP has to be great at: Product Understand your customers and design and deliver the product they want Customers Help customers find you, try you, buy from you, and say good things about you People Get the best people, keep them engaged and aligned around a few key priorities
  46. 46. Startup execution is pretty much all about getting and keeping great people!
  47. 47. Also being able to fix situations where people are not working out!
  48. 48. And being completely transparent about everything at the company, including the numbers!
  49. 49. And investing in onboarding, training, and development!
  50. 50. Thus creating a strong, “cultlike” corporate culture!
  51. 51. THIS SEEMS WRONG But every startup I know is dying to hire good people! “Youth unemployment:! putting words into action”! -Europa EU!
  52. 52. ITALY LAW 221/2012 – A good start
  53. 53. READING on scaling “What are some good tips for 1-1’s with your employees?”! “How should we plan at my startup?”! -  Forbes/Quora blog (Michael Wolfe)! “The Hard Thing About Hard Things”! -  Ben Horowitz (and A16Z blog)! !
  54. 54. ExiTS
  55. 55. STARTUPS ARE INHERENTLY UNSTABLE A few become long- term independent companies A handful grow into large public companies The majority fail Others turn into good-sized businesses Some build good tech and team, but do not break out
  56. 56. Factors to consider:! ! •  Growth rate + funding! •  Market size + competition! •  Management capacity! •  Openness of public markets! •  Attractiveness / uniqueness of acquirer! SELL OR NOT?
  57. 57. PARTING THOUGHTS Understand the failure rate, but seek to improve your odds! ! Start a company if you have an idea and team you are passionate about – but joining a startup might be a good place to start! ! Great resources are available – read and learn and reach out to people! !
  58. 58. QUESTIONS?! @michaelrwolfe!! !