Friday, June 8. 2012
Given the current vogue for "lean startups" I thought it may be useful to point towards a fact based alternative way of looking at the problem. Harvard Business School's Noam Wasserman on what drives success and failure of a startup. He has surveyed nearly 10,000 founders from 3,500 ventures, compiling his results in a huge database that he has mined for patterns, and he has now published a book on it “The Founder’s Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup”.
I haven't started it yet, just a quick flick through - but there is this video and an article in the NYT summarising his research where he mentions 3 main somewhat counter-intuitive learnings:
In other words, it is about The Team - but not the people, more the structure.
Some years ago I wrote about the original "Founders Discount" where it is highly likely that they will operate at a financial dioscount to their potential. That there is another dilemma - losing your job - is another issue not often well understood. There are two main drivers:
Often you begin with a technical founder, a scientific founder, someone with deep knowledge who is the best person to lead the charge during the early development of the product. But as soon as they succeed at hitting that milestone, they have to go and build a company. Often they have the exact wrong set of skills for the next stage of development. And one of the big problems is that their success heightens their belief that they’re the right person to keep running the show.
The anguish is therefore whether to jump out the seat before being pushed, in the hope that you get a smaller share of a greater pie:
The quantitative data shows that, for founders who keep control of their boards and hang onto the C.E.O. position, their own personal equity stake is worth half as much as if they give up control to a brand-new C.E.O. with resources to grow the value of the venture. That’s the “rich-versus-king” tradeoff.
The trick, as anyone who has been here will testify, is not to get shafted once you have relinquished your powers. On this, Mr Wasserman is sadly silent in the article, but does deal with it in the book. Suffice to say Mr Zuckerman was an able student
Incidentally, I read a fascinating lecture by Michael Lewis on a related topic to Princeton undergraduates, pointing out that his career was largely based on luck - and that that luck would not have occurred if he hadn't been to Princeton:
Friday, May 25. 2012
Last Friday I gave a talk at SxSC, a day held at Southampton University to showcase new Web/'Net based technologies. My talk was on the role of hype and bubbles in the creation/destruction nature of technolgy innovation (slides are here), but to me the most interesting thing was watching all the embryo technologies on display and listening to the other talks, as - as is the wont of Universities - they tend to be doing the really new, "isn't this interesting - hmmm, what if I do that next" sort of groundbreaking stuff, which allows you to take a view of where things may go.
In a nutshell, the things demonstrated were:
Distributed Music - Enrique Tomas and Alain Renaud gave talks on using music distributed all over the Web Enrique's application mashed GPS position and movement, so he can spread music across a landscape, mapped to a (potentially shifting) territory. Alain was using high speed internet to drive real time interactive performances in a multiplicity of spaces. (Bah - its easier to watch than explain - think about a variable soundstage that follows you around - I am also certain at one stage Enrique transformed hsi internet signal into a soundscape so that the 'Net was played as an instrument. If I were Dolby et al, I'd be watching with interest.
3D Manipulation and Printing - Paul Walland demonstrated digitised 3D masks from museums collections. These 3D mapping and visualisation techniques will clearly influence where 3D printing will come in. James Miles showed how to use Reflectance Transformation Imaging on existing three dimensional datasets in a virtual environment, which allowd them to show hard-to-discern archaeological features in a landscape.
Use of Social Media: Adam Procter showed research on how we interact with social networks via “streams”, and his thoughts about the emerging "conversation economy", and a joint Tsinghua-Southampton University project that analysed how the young in the 2 countries perceived the world, using their online output and extracting and visualising it.
There was also Peter Bennett's Chronotape (see here) which is a 3D timeline, used in the example shown for family history research - but it is a 3D interface to display and control multiple-thread time sequencing very simply.
In fact I wish I had videos of all the talks because the thing I've found hard here is to describe what was actually going on - and that is probably also a sign of these times and projects - you have to see this stuff to "get" it.
Also fascinating conversations about what you can now do with holography, using 3D imaging and archaeological research to recreate 8th century Caliphate Baghdad, using agent based simulation to deduce social network interactions among others. And 3D printing - there was so much talk about what might be done with 3D printing. Not just the common or garden squirty plastic sort, but imagine much bigger ones working on composiies, sintered metals, resins etc etc...
All in all a very interesting day, its taken me a week to let everything percolate through, and I can see 3 megatrends here:
Oh, and one last thing. Open Source. makes all this possible at fractional costs vs individual "re-inventing wheels" research. Of course, you know that, but here it was tangible
Friday, April 13. 2012
The Berlin TV Tower, centre of old East Berlin, harbinger of the new Metropolis
I was in Berlin to give a talk at the O'Reilly/Web 2.0 2008 Web Seminar on the risks of Freeconomics (see here) and at the time felt that it was a vibrant place for art, culture - and technology startups. So much so I spent the weekend there mooching around.
This trope came back again a few weeka go at the FT conference when the Soundcloud team (Swedes) found Berlin to be the most happening place in Europe, a mix of Silicaon Valley and Punk culture. And now here is another interesting article on the subject - Bloomberg:
Vorsprung durch Technik, as they say...
So, a technology springtime in Berlin. One thing is for sure, it is a hell of a lot prettier than London's Silicon Roundabout. And cheaper.....
Monday, September 12. 2011
From TechCrunch itself - AOL has issued the following statement:
“The TechCrunch acquisition has been a success for AOL and for our shareholders, and we are very excited about its future. Michael Arrington, the founder of TechCrunch has decided to move on from TechCrunch and AOL to his newly formed venture fund. Michael is a world-class entrepreneur and we look forward to supporting his new endeavor through our investment in his venture fund. Erick Schonfeld has been named the editor of TechCrunch. TechCrunch will be expanding its editorial leadership in the coming months.”
But Mr Arrington is still hosting TecgCrunch Disrupt, it seems - interviewing Doug Leone from Sequoia among other activities. But as to the new Arrington vehicle, startup fund Crunchfund, even Seqoia is pointing out its a me too in the Bubbletimes - from PEHub:
Asked by Arrington if Sequoia would squeeze a new fund like his out of a round while it’s working to help shape a young entrepreneurial team, Leone said no, that if an entrepreneur thinks that “CrunchFund has a differentiated set of skills that will help you, then by all means” take its money. (It wasn’t exactly a ringing endorsement.)
Mind you, Seqoia is itself not too pleased about the rise of the dumb money tide:
The role of the incubators, accelerators etc etc is to now manufacture enough startups for all the sloshing money to be thrown at. Maybe the next Arrington business should be a Y-Crunchinator?
Saturday, August 27. 2011
Eric Schmidt laid into British IT education today - BBC:
"The UK is home of so many media-related inventions. You invented photography. You invented TV. You invented computers in both concept and practice.
There are 3 reasons for this - economics,entrepreneurialism,and education
The Economics is simple - the US is a far larger homogenous market, so any company that starts to get momentum there can grow far larger than a comparable British one. The usual plotline is that British companies either Go West (eg MicroMuse) and becomeamerican or get bought by Americans (eg not-so-Autonomy). The Commonwealth - the engine that once allowed British companies to grow larger than the home UK market - is gone and the EU, with its polyglot cultures and (often subsidised) local heroes - is a far tougher prospect to expand into.
The Entrepreneurialism issue is well known too - study after study shows that the barriers are higher for startups in the UK than the US - less money available, ,unVenturous capital, tougher labour laws, more business red tape. The only things on our side are that we speak a reasonably understandable dialect of American and our conditions are still marginally better than most other Western European countries. The US gets a Silicon Valley with universities and an ecosystem, we get a Roundabout as a PR wheeze with a contraflow.
And then there is Education. Schmidt said he had been flabbergasted to learn that computer science was not taught as standard in UK schools, despite what he called the "fabulous initiative" in the 1980s when the BBC not only broadcast programmes for children about coding, but shipped over a million BBC Micro computers into schools and homes.
"Your IT curriculum focuses on teaching how to use software, but gives no insight into how it's made. That is just throwing away your great computing heritage," he said.
Its more than that though. In the UK, Engineering and Science have always been lower class things. In every other country I have worked in or lived in (and that encompasses Europe, US, Asia and Africa), being good at Maths and Science are hugely respected abilities and parents agonise about how to improve kids skills at these subjects. Engineering is a registered profession like Accounting, Law or Medicine.
And then I fly back into the UK and its like being on another planet. The guys that fix my boiler are Engineers. Universities are warning (my) teenage kids that ICT and Computer Science are not seen as a "real" subjects for University entrance - rather do (say) Geography and Chemistry. The way to get ahead is still the Oxbridge PPE (Politics, Philosophy and Economics) rather than the Sciences. The thinking man (and woman's) airwaves are more full of Luvvies than ever, often giving technology a good kicking en passant. The Luddites seem to have have won. PhDs in Physics and maths Tutors in Universities get paid a less than Bar owners, never mind Accountants or Lawyers. Quids (or lack of) Est Demonstratum.
I think Schmidt had it right when he talked about a "back to Renaissance Man" necessity (albeit Victorian ones):
In the US when I go to a magazine stand there are lots of publications on Science and Technology, in the UK there are more on faux metaphysics and (typically very British centred) history. That is the difference.
I think there are things the Government can do to help all of the 3 areas, but the key is to do them holistically. No point in making a big deal of maths and science and computing in Education if the job outcomes are crap, or if companies starting in the space can't get money/cant take on subsidised rivals/strangle under the red tape.
But Eric's right too. A start is making damn sure that the top Universities can't get away with the attitude that ICT and Computing are not "real" subjects, whereas say Georaphy and Chemistry are. It'll need some reforming of the syllabuses I'm sure, but it also needs some knocking old attitudes out of heads.
Thursday, July 28. 2011
Spotify is being sued for alleged patent infringement already - Techdirt:
just a couple weeks after entering the US market (finally), Spotify is being sued by PacketVideo for patent infringement. I knew the name PacketVideo sounded familiar... and then I remembered. A decade ago it was considered one of the hottest startups on the planet for trying to figure out ways to do streaming video on mobile phones
Now its not that their patents are probably any use, you understand, that is not the game - but by threatening a lawsuit it delays Spotify, costs them a lot of money and hassle....and thus creates an opportunity for PacketVideo to be paid to go away:
Once again, we see patents being used as a tool to shakedown companies who were actually innovative in how they executed, with a ridiculously broad patent that contributed zippo to the actual state of the art.
This is big business in the US now, in fact ex Microsoft CTO Natan Myrhvold's company Intellectual Ventures is dedicated to buying and enforcing such patents (and more - it tries to create patents around emerging areas, not for use but for the purpose of suing others). There was a rather good program on This American Life in the US last week on this issue:
The irony is software patents have emerged despite the US Patent system supposedly not being allowed to patent algorithms! The US is trying to reform this now, but the proposed changes are deemed to be inadeqate and would come too late for Spotify anyway.
They'e just waitin' for the Shakedown....
Wednesday, July 27. 2011
EarlyBird Report saying that European VCs have better results than US ones (see above presentation), but I think it is misleading - as GigaOm points out,the reasons are not necessarily great for European entrepreneurialism:
I recall looking at this issue for McKinsey in the mid 1990's, and I don't see that - big picture* - much has changed. Its still the same cottage industry propelled by the laws of niche markets, but not maximising the total entrepreneurial potential value in Europe, just the returns to VC investors. The truth is that a startup is still more likely to get funded in the US, and get a higher valuation and more money.
What I have never understood is why the market hasn't become more competitive, and its still not even economically efficient as it is not maximising the total potential surplus from European entrepreneurialism - if it were a real "Free" VC market in Europe then nearly everything with a positive possible return would be funded - and some real turkeys of course.
The outcome is usually that European companies eventually go Stateswards or get bought by larger, faster growing US ones, and there is a dearth of European champions. For the European VCs its great, for Europe's own wealth creation, less so.
A more efficient market - definitely (within the narrow definition used). A more effective one - probably not.
*By this I mean that even though it has changed structurally, from an outside point of view - as an overall industry sector - it still quacks like much the same duck.
Thursday, June 2. 2011
Rather interesting talk by Marc Andreessen at D9 (as reported by Liz Gannes) - some nuggets:
If you look at the history of VC, the best firms were generally formed by operators. Over the years, there have been many different kinds of VCs, but we thought it would be kind of fun to go back and do what they did at the beginning.
Interesting observation - but I'm not sure they are quite a Back-to-Basics VC, as so far - if you follow the money - they have been investing big money in dead certs quite late in the pre-IPO game. More like Private Equity investment in (soon to be) Public Enterprises.
If everybody’s euphoric, then I’m concerned. “If we’re back here in three years and nothing’s changed and nobody’s worried, I’ll be horrified. I’ll wet my pants on stage.” There’s no history of an equity bubble that has not affected the public markets in a major way. Read “The Go-Go Years.” Fast-forward to today, in 2011: Apple’s PE is 12, projected to be 10. Microsoft’s is 7.2, next year 6.8. Google 13.7, next year 11.3. Cisco 7, next year 5.5. “PEs in single digits are what steel mills trade at before they’re going out of business.”
Maybe, but those are not the BubbleCo's - Google, Linked In and other Social media operators are where the bubble is, most with stratospheric P/Es (or virtual P/Es from secondary markets). Marc is quoted as saying "there is no bubble because everyone thinks there is one" elsewhere, but that is not how I read the above. I read it as saying there is risk of a bubble. I think Henry Blodgett is calling this more correctly now, and he should know....
....in 1999, there was actually lots of talk and concern that it was a bubble. But having lived through that one, I'd say there was actually less then there is right now. And the real challenge for decision-makers in that era, by the way, wasn't in determining whether or not it was a bubble--many smart folks thought it was. The challenge was in figuring out when the party was going to end. Because if the bubble lasted longer than you thought it would--which, by 1999, it already had--it didn't really matter whether it would eventually prove to be a bubble or not: You'd have been "wrong" and fired long before you got to do your victory dance.
This is what I believe is really going on in these funds' calculations, and Andreessen is in a roundabout way corroborating that.
And on dotcoms being a predictor of great Web 2.0 startups:
I just had this out-of-body experience where I saw someone reading on an iPad in the lobby and I had a flashback to the Newton. I’m quite confident that there are things we’re funding now that will be great 10 years from now.
Probably true, for any pre-2000 company anyway. A lot of the dotcom ideas before the "end of days" lunacy were sound ideas but failed from a combo of too few customers, too thin bandwidth, not enough functionality in the infrastructure and too high a running cost. Much of this has changed hugely for the positive now.
Wednesday, June 1. 2011
Long time readers of this blog will know we have been covering research on the underlying system dynamics of what really drives successful startups in a quantitative way. We have always thought this was a good idea, and today we look at the output from the Startup Genome project (WE covered a similar idea, YouNoodle, in 2008). They have just released a report (more details over here), herewith a summary of their initial findings (with Broadstuff comments in italics):
1. Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
As Darwin noted, survival is not the “fittest” but those that are most adaptable
2. Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.
Must say I found this initially counterintuitive, then I realized it represents a startup going up the learning curve of “playing the game”and giving investors what they want to hear
3. Many investors invest 2-3x more capital than necessary in startups that haven't reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
See comment to 2 above – also adds credence to what I have long suspected, ie that investors by and large don’t know what they are investing in, and that “the great team” of VC lore is just so much bollocks.
4. Investors who provide hands-on help have little or no effect on the company's operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)
In other words having respected backers begets other respected backers, but the “we provide added value” story is overplayed
5. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.
Many brains are better than one, and there is probably also just a pure work cycles thing – but what is missing here is the founder payout, ie does the slow-to-build solo founder do better financially?
6. Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.
i.e if your product is techie, you need techies at the top……
7. Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
……and similarly techies by and large don’t get the sales techniques necessary for selling network effect services
8. Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
This really rings true with my experience in startups and large company initiatives, techies tend to gold plate the thing and thus miss a market, sales guys tend to forget that you can’t gold plate a turd. There are only 2 key things a business must do – produce something and sell it. Clearly in the early days getting that balance is key, we tend to forget that Bill and Steve would not be where they are today without Paul and Woz.
9. Most successful founders are driven by impact rather than experience or money.
I think this is another way of saying materiality – if you are going after a big thing, even a small success (which is far more likely than a big success, unless you genuinely find a seam of gold no others can see) equals big numbers
10. Founders overestimate the value of IP before product market fit by 255%.
Perhaps, but the history books are full of entrepreneurs being ripped off by all sorts of weasels, from IBM and NCR 100 years ago onwards. Paranoid is probably good for survival
11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
I recall the first book on starting a business I ever read, decades ago. .It said work out your “realistic” worst case costs and timescales, and double them, then add 50% contingency. Plus ca change……
12. Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
See points 2 and 9 above – having done market research and market entry strategies for many startup businesses, I think it is absolutely true to say you don’t know who is swimming in your pool until you get in. Also no plan survives contact with the enemy (the market), so see 1 above.
13. Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.
It is a very old truism that it is as easy to kill a business by growing too fast as by decline - it can rapidly outstrip its meare resources (cash, human cycles, ability to grow).
14. B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.
An interesting assertion - our experience is that B2B Enterprise 2.0 problems are by and large the same as Enterprise 1.0, ie it is about basic business dynamics. Comms is a part of this, but it is not the biggest part except for specific cases. In our view B2C has so far been far more impacted by the internet.
Wednesday, April 13. 2011
...to fund startups, are going upmarket - Dealbook:
Angel investors were increasingly active in 2010, with total angel investments going up 14 percent to $20.1 billion from $17.6 billion in 2009. But angels were more risk averse than they were in the past, investing in fewer seed stage companies.
Given the huge increase in "startup kickstarting" (dare we call it all a bubble? - see point 4 here) one wonders who will fund all the startup seeds being sown. Anyway, the data suggests that VC maths is still a 33% game at this level (for every 10 funded 1/3rd work, of those 1/3rd, about 1/3rd make a great return, and the overall ROI is 1/3rd):
Mergers and acquisitions were about 66 percent of angel exits, while bankruptcies were 27 percent of exits in 2010. About half of the exits were at a profit and annual returns were 24 to 36 percent.
i.e about 1/3rd of startups will be profitable (and traditionally 1/3rd of those will do really well)
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