Monthly Archives: May 2012

Secret Judo Guides Start-Up Success

What do you know about martial arts? Here’s a few things I found through a combination of sources:

  • Karate – is a series of punches, blocks and kicks that focuses on strength and offensive techniques; a primary theme is to either put or catch the opponent off guard and then attack.
  • Tae Kwan Do – incorporates many aspects of karate, but with more emphasis on the use of feet and spinning/flying kicks.
  • Jujitsu – uses strikes, kicks, strangles, locks and takedowns to disarm the competition, still aimed at offensive techniques for the most part.
  • Judo – uses throws and its intent is to avoid an opponent’s strength while redirecting its power to one’s benefit.

Tom Tunguz (whom I have quoted before), in his blog Ex Post Facto, encourages entrepreneurs to recognize the highlights of  judo philosophy  in never trying to fight strength with strength, and to find ways to maximize leverage. Tom also references Peter Thiel (from a series of lectures given at Stanford Graduate School of Business) who describes the use of a “secret” to secure a unique niche within your target market. The “secret,” though is not as one would think, but instead “something just not widely believed to be achievable or feasible. In other words, it’s an insight, a thesis that isn’t widely held.” The Secret becomes the “flywheel” of Jim Collins’ strategy – a series of well-executed small decisions that others find it near impossible to duplicate. For many entrepreneurs, the choice of distribution channels is a ripe field for building out one’s “secret.”

Tunguz writes of distribution:

Many companies are now using distribution as their secret – mobile app stores and Facebook Open Graph enable startups to access hundreds of millions of users in ways that incumbents simply aren’t prepared to leverage. Expensify uses mobile app stores to acquire hundreds of thousands of SMBs in ways that their market’s incumbent, Concur (market cap $3B), simply can’t copy. Branchout is building a massive job network on top of Facebook to compete with LinkedIn. If LinkedIn were to copy Branchout, they would marginalize the value of their existing network because LinkedIn would cede their graph to Facebook – an example of the classic “innovator’s dilemma.”

In order to remain relevant, (solve the innovator’s dilemma), entrepreneurs must find a way to continue to grow new ideas within their organizations, less their businesses become to mainstream and lose their uniqueness. This is where/how moving to principles-based strategy trumps reliance on a skilled technician and his or her own suite of strengths and abilities. Continue to recognize what strengths competitors have, then find a way to use those strengths against the competition and towards one’s own competitive advantage!

How Raleigh Can Learn From Chile

In the May issue of Entrepreneur Country, Joe Haslam of Stratemic Capital enlightens readers about the start-up scene in Chile. Most Americans know Chile for its rich produce, not its economic strength in South America, and definitely not for the ecosystem that has been created for entrepreneurship that is paying off handsomely.

Going back to the 1970s, Chile has taken a progressive stance on key economic decisions. Milton Friedman and a number of his associates from the University of Chicago inspired free market systems that have been customized by local conditions. Nicolas Shea and Vivek Wadhwa in the past decade have sought to make Chile a destination for entrepreneurship. Shea attended Stanford University and set about to do a Southern hemisphere version of Silicon Valley. Wadhwa challenged the start-up model of some groups who provide office space near a university and hope for something wonderful to happen. Instead, he advocates a people-centered approach:

To create a tech center like Silicon Valley, you need to first attract smart entrepreneurs from all over the world. Then you have to create entrepreneurial networks; instill a spirit of risk-taking and openness; and build mentoring systems. You also need to provide seed financing to start-ups. The money is easy; everything else requires a change in culture that usually takes decades.

Wadhwa and Shea launched Start-Up Chile at the beginning of 2011. Here’s the concept:

  1. Anyone from anywhere can apply
  2. Winners would be required to move to Santiago, Chile
  3. A one-year visa is provided to facilitate entrepreneurship
  4. $40,000 in seed capital is offered as a prize
  5. The Chilean government would NOT take an equity stake

When Haslam met with the director of Start-Up Chile and a representative from CORFO, the government agency tasked with improving competitiveness in global markets, he asked a lot of questions about how the program was put together. They admitted that bureaucracy had to give way in recognition of results.

  • The website for the contest received more attention than the official national tourism site. 
  • Visitors of the program spent about as much in tourism dollars as the awards themselves.
  • Well-known entrepreneurial icons are “dropping in” on the Chilean scene these days.
  • 1600 applications from 70 countries.
  • 220 foreign start-ups in Chile now, employing 180 locals and 143 abroad.
  • $8 million in VC money has been raised by the first batch of award winners.

Chile has realized some important economic development principles. Notably:

  1. Start-ups are a strong job creation tool.
  2. Large companies are more costly to attract and retain.
  3. Diverse populations experience economic growth.

Earlier this past week, we blogged about Pittsburgh’s Experienced Dreamer contest to attract entrepreneurs to town.  Whether the locale is Santiago, Pittsburgh, or Raleigh, the principles work. We need to do all that we can to foster entrepreneurship–it just may be the key to a healthier world economy!

On a purely local note, Innovate Raleigh has followed some of the steps in the blueprint. We need help from Raleigh Wake Economic Development, mentoring organizations like EntreDot, and fresh sources of seed capital. Additionally, more collaborative workspaces like some of the incubators in our area (Cary Innovation Center being an example) will help foster the natural network nurture necessary. We can do this–but it requires “all hands on deck!”

 

 

Too Young to Merge?

The folks over at Under30Ceo provide a great service to young entrepreneurs in discussion after discussion about the top issues faced. In one of today’s articles, The Daunting Task of Merging Companies as a Young Entrepreneur,” Jordan Guernsey (founder of Molding Box) discusses how youth can be both an asset and a liability in merger negotiations and assimilations. He also speaks candidly about how valuable a merger can be under the right circumstances. His point/counterpoint:

 

Why Age Can Be an Entrepreneur’s Problem

Obviously, with experience comes expertise. I’d pick a dentist with 30 years of experience to do my root canal over a recent college grad still clutching his diploma. The same philosophy applies to young entrepreneurs. They commonly lack the knowledge and experience necessary to developing a successful startup.

Another common age issue stems from what I like to call “The Good Old Boys Club.” This club is comprised of traditionally minded career entrepreneurs who have been in the business for years. It’s intimidating to think of discussing mergers with these types of individuals. This is because established entrepreneurs view upcoming young professionals as needing to prove themselves. It’s a rite of passage. Basically, young entrepreneurs are forced to break down this wall and build a sort of trust in the entrepreneurial community by showing what they can achieve.

Why Age Should Be an Entrepreneur’s Advantage

It can be frightening for young guns to approach an established company with merger opportunities. However, my experience has shown that young entrepreneurs can actually have the upper hand in these situations. For example, young professionals are still willing to take on huge risks for huge rewards! Their spirits have not yet been broken by failed ventures, and they are willing to take a gamble with mergers. Great ideas generally don’t come from cynical entrepreneurs.

Furthermore, those just entering the entrepreneurial world can offer fresh perspectives, and are not held down by The Good Old Boys’ way of thinking. This acts as their competitive advantage over entrepreneurs who have already been around the block. Utilize this fresh viewpoint to see potential merger opportunities that others may have skipped over. If a business strategy doesn’t work out, young entrepreneurs still have the energy and tenacity to bounce back quickly.

In order for a merger to work for you, you must have polished skills in forging alliances and making good decisions quickly. The pressure to grow and expand makes a merger look appealing. The “gut check” is whether you are willing to give up some control in order to meet your growth objectives.

Molding Box acquired another company in order to offer additional services desired by customers. With a legacy of 10 years of operations, the acquired company brought instant credibility.  Other young ‘treps should not underestimate the value of perception.

Make sure that your cultures and values are well-aligned, however, or you may end up worse off than pre-merger as the transaction has to be reversed.  A target with a strong leadership team and solid brand equity can be a tremendous asset in your own search to establish “street presence.”

“Let no man despise your youth.” It’s an old saying, but very relevant to the young entrepreneur.  You prove you belong when you make good strategic decisions-regardless the age!

 

Start-Up Key: Sell to Educated Customers

Tom Tunguz of Redpoint Ventures has a WordPress blog I follow, Ex Post Facto. While many of the posts are over my head in terms of technology terms, his posts on carving out a market advantage always catch my attention. Today’s post, “How to Pick Your Start-Up’s Market,” makes the point that the Goldilocks Principle is key–picking a market that is right-sized; neither too big nor too small.

Tunguz credits the Blake Masters blogs, and Peter Thiel’s summary classes in particular, with illustrating what others have learned through expensive market plays. In “The Last Mover Advantage” class, Thiel argues that:

Too small a market means no customers, which is a problem. This was the problem with PayPal’s original idea of beaming money on palm pilots. No one else was doing it, which was good. But no one really needed it done, which was bad.

Markets that are too big are bad for all the reasons discussed above; it’s hard to get a handle on them and they are usually too competitive to make money.

Tunguz attempts to explain major internet successes by combining Goldilocks with Last Mover:

  • Google – last mover in search and search ads. The search market was roughly half of the $8B market– not too big, not too small.
  • Facebook – last mover (at least for now) in social media. Social media ad market was less than $1B when the company started.
  • Dropbox – near last mover in consumer storage. The industry was considered unprofitable by investors given Mozy and Carbonite’s trajectories and was at most $2B at the time the company started.
  • Apple – near last mover in portable music players and computers. What a turnaround we’ve seen.

Common across all these examples is significant market growth driven by one company who brought much better product design, strategic management and effective sales processes. It’s easy to point to the product differentiation – later founders used previous product generations and built something significantly better. But it’s also easy to overlook the importance that sales had on most of these companies.

  • Google had a team which mechanized closing and on-boarding large search partners growing the revenue base dramatically.
  • Dropbox focused significant fractions of their engineering team on optimizing conversion-to-paid funnels. And they maxed out the refer-a-friend program.
  • Apple built the best retail experiences which today drive a huge, but undisclosed fraction of sales.

Significantly, Tunguz goes on to say that each of the example successes were selling to a market that someone else had educated. It is important that the target customers already knew both the Problem and the Solution the product(s) were created to address. In each case, others had been first-to-market, but were not offering premium products. With a premium product and an educated consumer, the start-up enjoys favorable pricing and better selling scenarios. Who wouldn’t want those factors in their favor, right?

Raleigh Needs Experienced Dreamers

This week, I became aware of a very unique contest held in Pittsburgh that recently concluded. The Experienced Dreamers contest was born out of a survey taken by residents in 2009 that indicated that the city must rely on young residents to drive growth. The recommendation of the survey team was that, if the city could attract 1250 entrepreneurs who are 45 and over to move to the area and start a business, the economic impact over the next two decades would be $2.5 BILLION!

Here were the rules:

  1. The applicant must be 45 or older as of the date of application,
  2. The applicant may not have lived with 100 miles of the city for the past 10 years, and
  3. The applicant must be a U.S. citizen or permanent legal resident as of the application date.

The applicants were charged with locating a new business, philanthropy, or artistic endeavor in Pittsburgh upon award of $50,000 in cash and an additional $50,000 in charitable trust in the recipient’s name. This year’s winner is Tess Almendarez Lojacono, a 55-year-old artist who has been living in East Aurora, NY. Her proposal was to move and enlarge Fine Art Miracles, a five-year-old company she started that teaches fine art classes to residents of assisted living facilities and nursing homes. Lojacono has  a stated objective to provide intellectual stimulation for older people and to help them tap their creativity.

In her own words, “I like to show people that they’re still able to create.” “We’re offering something a little more intellectually challenging for them than painting between the lines, and a lot of them really like that. We have older gentlemen who sign up for our classes who wouldn’t do crafts.”

An article at http://www.SecondAct.com told a little more of her story:

She incorporates art history and a lot of visual aids into her classes. After showing participants reproductions of Georgia O’Keefe’s floral portraits, for example, she invites them to create their own versions on black art paper. She’ll provide as little or as much assistance as her students need.

“We find that even people in their eighties and nineties are interested in learning something new,” Lojacono says. “I’ve developed a lot of respect for their intellects.”

Part of her job is helping people who haven’t previously tried making art to get over their perception that it’s an activity only for a creative elite. “They’ll say, I can’t draw a line with a ruler,” she says. “I’ll say, ‘that’s great. I don’t want any straight lines in here.’ We start with a blank sheet of paper. What I find, though, is that when I help them to draw, pretty soon they’re sitting up straight and smiling.”

The amazing thing that occurs to me is “why aren’t more cities doing this?” Raleigh, North Carolina, where I live, is a top-rated city and part of the Research Triangle Park region, known to be a hotbed of entrepreneurship, but with little emphasis on attracting “boomerpreneurs.” Clearly, experience counts in running a business. Older start-up founders are seemingly more likely to have more capital than their younger counterparts. Since under-capitalization is the bane of many new businesses, an effort to attract entrepreneurs with greater net worth would make good sense as part of an economic development strategy.

Innovate Raleigh has identified a number of initiatives to foster greater cross-institutional cooperation for the betterment of the local economy. While we need to continue to foster business start-ups coming out of the education of our young students, we should also have a strategy for the bigger demographic of “Experienced Dreamers!”