How often do we approach Startups like the seat of the pants entrepreneur.
If entrepreneurs have enough money, they eventually get it right… don’t they?Pareto principle named after Italian economist in 1906 Vilfredo Pareto, 80/20
Why it is acceptable in our industry to have an 80% failure rate? In which other industry in the world is this acceptable? Most VC’s aren’t increasing the odds of success
Most new ventures die before they even reach the chasm.Book Crossing the Chasm addresses how to cross the chasm.Paul asked Geoffrey Moore, author of Crossing the Chasm, how to companies can get to the Chasm. His answer? – “I don’t know.”
What drives entrepreneurs? There is an deep need to create, but once we build something, we will defend that creation… whether it is the Mona Lisa or Frankenstein.. It is still our baby.
All are working hard to innovate, but few can give me the definition of innovation.Innovation means connecting your invention with the customer (putting it in context)
Most people don’t know what their core competency is. If you don’t know what your core competency is, then go work for someone else until you have identified your inner genius. Not everyone should be an entrepreneur, that is OK.
Clark Gilbert & Matt Eyring.Why do entrepreneurs misprioritize their activities? That is how they have been taught… human nature… investors also contribute to the problem.Too much money, too early encourages premature scaling.
This is where Nathan and I connected. His PHD research and my street level observationsDoing good things, but doing them out of order. What is the right order and process we should follow to have consistent success?
The difference is the companies are leveraging and building off of their core competency.Known problems, known core competencies
Entrepreneurs are working on “unknown problems” and this model was developed for “known problems”, unknown customers, business models and no established distribution channels.What’s the difference? Unknown problems, unknown core competencies, unknown customers, unknown business models, ???Entrepreneurs are following in the footsteps of established companies, without understanding they are playing a different game. Unknown customers, no validated pain, no existing channels, unproven business models,
Once you have your idea, set it aside for a minute and start listening to the voice of the customer. (Does your product or idea address a monetizablepain? Validate your hypothesis of customer pain, solution and business model before building.
New model + less expensive resources makes it exponentially easier to iterate on Startup hypothesis until you get it right.
Year 2000 number: European Commission, Enterprise Directorate General, Benchmarking of Business Incubators, 20002, http://www.cses.co.uk/upl/File/Benchmarking-Business-Incubators-main-report-Part-1.pdfYear 2005 number: http://www.nbia.org/resource_library/review_archive/0807_02a.php
Quality first world problem
Early-stage investors are not afraid to do later stage deals, place greater amounts of money and syndicate with more investors. As with any classic disruption, the low-end of the market is moving upstream.
81 years earlier in 1877 – Thomas Edison learned the same lesson 1877 (it was year he invented the phonograph, his first “useful invention”
The phonograph wasn’t his first invention. That was a vote counter in 1869 (at the age of 22) Took him 8 years after his big failure to come up with his first success.The chairman of the committee, unimpressed with the speed with which the instrument could record votes, told him that "if there is any invention on earth that we don't want down here, that is it." The slow pace of roll call voting in Congress and other legislatures enabled members to filibuster legislation or convince others to change their votes. Edison's vote recorder was never used.
Ten years later he invented the lightbulb. Pictured around 1879, The year he patented the light bulb – 32 years old
The Edison versus Tesla productivity scorecard:Innovation output. Edison had received 1093 lifetime U.S. patents while Tesla had received 112. Although some of Edison’s patents (perhaps many of them) were bought or stolen, this is a huge number. Since Tesla wasn’t taking much money from Edison and only worked for him a short time, there is no way Edison could have stolen many from him.Innovation success rate. Almost 100% of Edison’s patents were tied to commercial successes while Tesla’s number was similarly high in the early years while working for Westinghouse then plummeted to about 20% after he went out on his own.Capital productivity. Edison built up sophisticated laboratory operations, employing some of the best and brightest people in the world, with Tesla among them for a while. Tesla built up similar labs while involved with Westinghouse and when on his own. The difference is that Edison did not hesitate to scale down or close operations from time to time as his organizational needs changed to remain solvent. Tesla had his creditors closing them for him.Labour productivity. This is one of the greatest differences between Edison and Tesla. Edison always had several people involved with his projects while Tesla generally worked alone. Tesla might have had extremely high levels of personal productivity at times, but Edison had the advantage of having a virtual army at his disposal. For example, Edison was able to accumulate over 5 million pages of organized records while Tesla had relatively few and they were not as well organized as Edison’s. Edison and Tesla both had legendary work ethics, but only Edison had it instilled at an organizational level.Media output (the Google Test). A quick Google image search of “Thomas Edison” generated 123,000 returns while the same search of “Nikola Tesla” generated 35,000 returns. Edison and Tesla each had the ability to engage the media in their day although Edison had the upper hand in this regard too.Network productivity. This is the Who’s Who test. Edison developed close relations with some of the most powerful and influential people around in his day, including Henry Ford, while Tesla also knew such people but tended to alienate most of them over time.
Process based innovationAligned vision and methodShared vocabulary and process Environment to improve and collaborate
Paul Ahlstrom 3 Startup Industry Disruptions
Capital EmprendadorBorn April 21, 2010 in Mexico 2
GROUP AMERICASAlta Group Americas•Headquartered inLehi, Utah Alta Ventures Mexico Fund I • Headquartered in Monterrey • Regional Office Mexico City Alta Growth Capital •Headquartered in Mexico City MEXICO •Regional Office in Monterrey Kickstart Seed Program •Support for Alta Ventures Mexico • Headquartered in Monterrey • Guadalajara 3
Most Startups Fail?Why is this acceptable? Source: Small Business Trends Published 2008. Data from Bureau of Census 7
$400,000,000 - Direct Investment 7 Funds$850,000,000+ - Co-investors X$1,250,000,000+ - Total Invested X X X X X X X XA ER pr ise O X 8
“Most successful entrepreneurs I’ve met have no idea about the reasons for their success. My success was a mystery to me then, and only a little less so now.” - Bob Metcalfe, 3Com -Inventor of Ethernet 9
Doing good things… Building alpha & beta versions of their products Writing marketing materials Hiring sale teams Business development deals Talking with analysts Talking with customers Building prototypes Etc… 11
Scale It Nail It The Big Scary ChasmInnovators Early Adopters Early Majority Late Majority Laggards Confidential Copyrighted Training Materials: Do Not Distribute November 4, 2011 12 12
Most new products and businesses don’t fail in the market scaling exercise, but in pre-chasm stages in the… The Early Phase Black Hole 13 13
19 Entrepreneurs are doing good things, but * not doing them in the right order. More than 80% of the time entrepreneurs are ignoring customer demand the right product mix until after they have started to scale their business. * Harvard Business Review: Beating the Odds When you Launch a New Venture by Clark G. Gilbert and Matthew J. Eyring 19
Premature Scaling Building products before you nail the pain Writing marketing materials before you nail the solution Hires sales teams before you know how to sell Spending money before you understand the business model 20
Based on the Waterfall Product Development Model Test Sell Identify Create Build product, product product product alpha build toopportuni specs product beta customer ty product s 21
Build Now, Sell Later How NOT to build a business 1.0 Reinforced in most universities & VCs by the business plan class Discuss with Perfect the / raise Find a productEntrepreneu money from location, and add Sell ther has a idea friends, develop the features for product family and product broad fools appeal 22
Product Development Model Based on execution not research “Midnight “Feature Lock- “Sales Pipeline Genius” Stage in” Stage Problem” Stage Discuss with / Perfect the Find aEntrepreneur raise money location, product and Sell the Russian from friends, add features has a idea develop the product Roulette family and for broad product fools appeal “Escalation of “American Idol” Commitment” Stage Stage 23
Entrepreneur Begin with the Identify has a idea Identify Customer! Minimum Nail the (based on Monetizeable (customer Feature Set (of Product… core Customer Pain centric the customer)competency) approach)Deliver breakthrough customer centricinnovation. 24
More efficient launch process… Efficiencies have driven down the cost of a startup. $3-5 Million in late 90s = $50-300k today Greater access to Seed Capital EC2 - Amazon Web Services Open source 20X number of consumers on the internet since 1997 Distribution through large social platforms 30
"...most often the very skillsthat propel an organization to succeed in sustainingcircumstances systematically bungle the best ideas for disruptive growth. An organizations capabilities become its disabilities when disruption is afoot."Clayton Christensen,The Innovators Solution 33
Incubators 1.0 (Dot Com) 1980:12 Networked Incubators: Hothouses of the New Economy Published: October 2, 2000 Authors: Morten T. Hansen, Henry W. Chesbrough, Nitin Nohria, and Donald N. Sull 2000: A successful company like Yahoo! is inundated with business proposals from hopeful start-ups. When there is a wealth of opportunities, there is a poverty of access because so many entrepreneurs are chasing so few potential1000 partners, all of whom are extremely busy. January 25, 1998 8 New Start-Up Incubators for Business Proposed 40
Less than $20K investment2-10% equityTalent identification – Hacker NewsNo office space but office hoursGuaranteed follow onNetworking but not mentoringAlumni Value = $7.78 billion*Avg. worth of Ycomb company $45.2M * Forbes April 2012 51
“For some reason more things than usual broke whenwe jumped from 66 to 84.” – Paul GrahamY Combinator Winter 2012 class shrank from 84 to 50.Lowered follow on investment from $150,000 to $80,000 52
63 2. Systematic Innovation 3. IP process Documentati on, Creation Environments & Access 1. Entrepreneur Observation - of Market Pain Inventor 4. Community Building/Net working 5. Capital 63
1. Get into the Field2. Change or Fail Fast3. Brutal Intellectual Honesty4. Keep it Simple5. Start Small 64
Paul Ahlstrom Married, six kids, a golden retriever Live in Utah & Mexico Co-Author “Nail It Then Scale It” Innovator, Entrepreneur, Investor Founder Alta Ventures Mexico & Alta Growth Capital – Mexico Founder KickStart Seed Fund & vSpring Capital – Utah 100+ investments over the last 12 years. Ancestry.com, Rhomobile.com, Senforce, Aeroprise, Altiris, Juxta Labs, Convert.com, Mural.ly BYU - BYU Grad, BYU Rollins Entrepreneur Center University of Utah & Ohio State- Board and executive committee of the Technology Commercialization Office Endeavor Mentor & ENLACE E+E Mentor - Mexico 65