Startups Unplugged

Author: Paul Orlando

  • Maxed Out Mentor

    There are a handful of startup world terms that I can’t stand. Sometimes that’s because the terms are confusing. Other times because they’re downright unhelpful. Other times it’s just because I’m preternaturally cantankerous. I’m not sure into which one of those my experience with the word “mentor” falls.

    To rethink these old issues, start with an old example. Remember the original mentor? That’s right. It was a guy named “Mentor” and he was helping Odysseus’ son Telemachus during the Trojan War. Go back and read all about it in paperback. That mentor-mentee interaction was probably very different from the casual way the word is thrown around today.

    In 2012 – 2013 when I was building startup programs in Hong Kong, I actively put myself out there to help young founders. Over that 12 month period, I had first time coffee meetings with 250 people. That’s five new people a week for a year (I didn’t track repeat meetings). The format was usually the same: 1) they contact me somehow (through a mutual connection or cold outreach), 2) we arrange a time to meet, 3) they introduce themselves and an issue they’re having, 4) I offer some suggestions or follow-up in some way. In most cases, this was a one-off conversation. The purpose of the meeting was the help during the meeting itself. In other cases, however, something else happened. From that group of 250, apart from the advice, I estimate that I connected 25 to journalists who then wrote about their startup, I connected a few to investors who put in money, and found jobs or clients for a few others. Overall, this was a very loose type of mentoring. There was no ongoing mentor-mentee relationship intended.

    When I moved to Los Angeles I initially started to do the same thing but time needed for work and family prevented me from meeting as many new people. Instead I preferred to focus on a smaller number of mentees over a longer time. Even so I started to run out of time. Then a strange phenomenon started. The less time I had, the more in demand I became.

    Like a stock character in a commedia dell’arte play I (or other mentors) suddenly become the last hope of the startup. From requests for meetings, coffee, to be interviewed for the (non-funded but very competitive) Incubator program I currently run, founders will bend over backwards to talk, even when I explain that they’ve got the wrong guy.

    Note that this is for solicited, not unsolicited, advice. (Kevin DeWalt wrote a good post on unsolicited advice where he explains why “[u]nless you’re asking for time or money you’re under no obligation to answer anyone who challenges what you’re doing.”)

    You can add lots of value if you only focus on people and situations where you are a fit, only give advice where you know what you’re talking about, don’t think that you’re running your mentee’s company, and reflect on your meetings to improve.

    Don’t Make Your Mentor Mad

    It’s rare, but I do get angry sometimes. It happens when I’ve put a lot into helping a founder and their company and they throw it away. I’ll give you two examples that bothered me in the last few years.

    1. I helped a young team over two semesters. I coached them extensively in raising money (they followed my pitch almost exactly and it paid off in a quick raise). Coached them through the metrics they needed to hit. Repeated again and again how to analyze their data. What happened? When I asked probing questions it was revealed that their CEO was showing me and others fabricated numbers. I tore him to shreds and he never spoke to me again. When there was a well-hidden ethical problem, what was the purpose of all of the other work I did?
    2. Another founder I helped raise money and get connected had the habit of spending much of his time on people problems. That is, he was not making tough people decisions. He kept people who weren’t producing and even hired new ones that didn’t produce. Over a long, painful period when nothing else of value happened in the company, he finally terminated some of them in a bridge-burning way. I reflected that the only way I could have known the extent of the situation was to be with the team as they worked. They were out of state. I should have spent more time on the rest of the team and not just the CEO. The founder’s bridge burning I chalk up to stress and miscommunication rather than malicious intent.

    Today, my regular work-related repeat mentor-mentee relationships involve around 50 startups. Add to that some percentage of students in the four classes of I usually teach per year (maybe 20% of the total class population of 150 people). My goal now is to go deep on a smaller set of companies where I can make a difference.

    More about that later. For now, mentors and mentees, be good to each other and be good to yourselves.

  • What I Learned Running Startup Programs on Three Continents over Five Years

    Five years, multiple program formats, 100+ companies, tens of millions in funding, lots of customers, exits, all across three continents…

    This past July (2017) marked five years I’ve “formally” led various startup programs with hundreds of startups.

    Here’s a synopsis of those five years and an intro to what I learned along the way. Read more here…

  • Should Startups Work on Global Problems? Is the Pope Catholic?

    Pope Francis drives an old Ford Focus. He wears cheap orthopedic shoes. He took the bulletproof glass off the famous popemobile, saying it was better to be close to the people and take his chances. He never moved into the official Papal quarters in the Vatican and instead lives in a small apartment. The pontiff, as the kids would say, is legit.

    Religion and business operate in different worlds. I admit that I really never thought of combining them before.

    And while the words “startup” and “Vatican” don’t often appear together in the same sentence, The Laudato Si’ Challenge is the new startup accelerator just announced at the Pontifical Academy of Sciences at the Vatican.

    When I realized that this was an ambitious project in line with my own ideal of entrepreneurship I was intrigued and humbled to be asked to be the Program Director…. READ MORE

  • Five Skills for Feasibility

    I taught the Feasibility Analysis class at USC for a few years. Afterward, a colleague asked me to speak to his graduate class on the topic of feasibility analysis. This gave me the opportunity to do something that I never did over the past semesters – to think about how to express the essentials of feasibility analysis to a new class in one visit with one hour of class time. The following are essential skills as I see them and also the areas where I see many people have trouble. This list is not exhaustive. It’s just the short list of what I recommend for someone starting to judge feasibility of a potential business. I hope that this list and examples help you on your path to evaluating business feasibility.

    Five Skills for Feasibility

    1. It’s personal.

    Business feasibility is subjective. Not just because the process of building a business is a mix of data and art, but because even if a set of people start with the same quantitative and qualitative inputs, they can come to different conclusions. What is judged as feasible for one person may not be for another. We all have different ranges of what we accept as a business that is worth doing. For one person, a “small business” may be fine. For another person, only a highly scalable business is attractive. Both can be good businesses. It’s your decision. Just do not automatically judge scalable businesses as better. These businesses are often also riskier than unscalable businesses, so it’s a balance.

    Problems I typically see. “Go big or go home” mentality is encouraged by investors. After all, that’s how they make money. Just remember, there are more “small business” people who take care of all their monetary needs, who employee teams of people, and who produce work that makes their community vibrant. You probably don’t read about them, but they are common around the country. Building a “small” business in the six, seven or eight figures is a good thing. As another professor told me, he once said to a student in his feasibility class that his project was at best a $10M business. The student got depressed. The professor then said that that also meant the student could take home $1M per year. At that point, it’s you decision whether you’d still be depressed.

    2. It’s about knowing how to ask questions.

    You can spot business opportunities by asking questions. Why is the world the way it is? Why do people do the things they do?

    There are a few ways to ask questions as a way of learning about the feasibility of your business. One way is to learn how to interview potential customers and another is to practice being rejected regularly.

    A skill to gain in this area is in how to do Customer Discovery interviews with potential customers. Customer Discovery is a process developed by Steve Blank and explained in the book Four Steps to the Epiphany. A core of Customer Discovery is to learn about problems worth solving from potential customers rather than first coming up with solutions that may not be of value to anyone. Part of this process is interviewing, in person, people who may have the problem you are interested to solve.

    But how do you interview people? I find again and again that students educated in Customer Discovery and Lean Startup are not comfortable or proficient in the actual interviews themselves. Part of the problem is missing the point of the interviews (to learn about customer problems and what they value). The other problem is in the format of the interviews (leading and hypothetical questions predominate).

    To fix these problems, change the way you interview. First, stop proposing solutions and start asking about problems that your interviewees face (related to your area of interest). Do not start with the solution in mind. Do not demo or try to sell the solution you may have thought up. Be open to your interviewees telling you things that are surprising.

    Second, stop asking hypothetical questions. This will be harder than it sounds. In normal conversation, hypothetical questions are natural. That is, asking questions that start with phrases like “Would you buy…”, “Should we build…” and other hypotheticals will produce responses that are not helpful to you. The reason is twofold. First, people find it difficult to put themselves in a hypothetical future state and answer your question from that point. What will they really do if you were to build the thing you propose? Will they actually buy it? It’s hard to get good data just by asking, the exception being when talking to an expert and decision-maker in that specific field, like you might find by interviewing enterprise customers. But otherwise, to avoid generating misleading interviews, instead of asking about the future, ask about the past. For example, instead of asking “Will you buy this?” ask “What’s the last time you bought something to solve this problem?” Or “Tell me about the last time you dealt with this. What did you do?” Listen to their stories. Their stories will be different (and more accurate and insightful) than what their hypothetical answers tell you.

    The other reason that hypothetical questions are problematic is that people are polite. This is another way of saying that people lie. “Can I really tell her that I’m not interested in what she’s building? She’s clearly worked so hard on it. I’ll just say something encouraging.”

    Making these changes will help fix most of the problems that you face when gathering early-stage customer information.

    Note that many people think that the way to ask lots of questions is to send out a survey. Before you can send out a survey, Cindy Alverez asks “do you know the questions you need to ask, and do you know the probable universe of answers”? If not, don’t send a survey. In the beginning, don’t send a survey regardless.

    If you do these interviews well and have zeroed in on a target early customer group, I expect that you will find convergence in their responses with many fewer interviews than an expected statistically significant sample size. When I got to the point where I could predict what people would say in response to my questions I knew that I had interviewed enough people for now and it was time to move another step forward.

    Learn from ideal customers. Who are ideal customers? Steve Blank defines ideal customers as having five qualities. The more of this list (and higher the number) the better.

    Ideal customers

    1. They have a problem
    2. Are aware of having a problem
    3. Have been actively searching for a solution
    4. Have hacked together a solution
    5. Have or can acquire a budget

    Related to this is getting past the fear of talking to strangers, which you will have to do repeatedly. For this, on the first day of feasibility class I have students start what I call the “Inoculation Assignment.” This is 30 days of going out and getting rejected for a request from another person. Variations of this are sometimes called “rejection therapy.” Do it and cure your fear of talking to people.

    Problems I typically see. Believing that you already have all the answers up front. Not wanting to spend the time talking to customers, claiming that other companies don’t do this (insert common ones such as Apple, Facebook or Twitter here), and that it’s all about vision. Understanding that the above style of interviewing may not work in every culture. For places where it is unheard of to talk about problems, you will need to gather insights in other ways, including through stories and testing actions.

    3. Learn to build an MVP.

    OK, as a first step, learn what an MVP is. MVP stands for “Minimum Viable Product” and is a term popularized by Eric Ries, author of The Lean Startup. The point of building an MVP is to maximize learning per unit of effort. You will determine the type of MVP to do based on what you are working on, what your skill set is (what you can actually build) and how high your threshold is for testing your ideas.

    Of course, you do need to figure out what you are trying to test and what counts as a “success.” Otherwise, you’ll keep moving ahead no matter what. Here are seven examples of ways you could build an MVP:

    MVP Techniques

    And here are the pros and cons of each:
    MVP Problems

    Most of the people I meet who talk about MVPs do not know what they are. Partly it’s because it’s hard to wrap your head around the MVP’s purpose. The official definition is a little dense. Never has one sentence so confused people.

    MVP definition

    Here’s my new definition.

    My MVP definition

    When it comes to MVPs, I see people have problems with knowing what they are trying to learn. That is, if you start without preset guidelines for what you are trying to test and what qualifies as a go / no-go decision, you can easily fool yourself. Everything will look like success. Five people clicked on the smoke test? Success! I guess… A conversion rate of 10%? Success! I guess… Now, those numbers could have truly been marks of success if you thought in advance about why. But if you never think about what determines success at this stage for you, you will likely fool yourself into moving ahead no matter what.

    Later on, it will be more helpful for you to gather on actual usage.

    What metrics matter for your business? Depending on your business type, different metrics will matter for you. A sample of metrics that you might track (some of these are related): customer acquisition cost, lifetime value, retention, aspects of growth such as referral rate and upgrade rate…

    Problems I typically see. No thought about this or go/no-go qualifier in advance of “testing.” Not understanding what drives the business and therefore what should be tracked.

    4. Understand basic accounting, including cash flow.

    Understand what startup costs are for your potential business. If you need significant capital just to get started (not necessarily a bad thing) do have access to that capital at your current stage? Is it worth trying to raise it or use your own savings for this business? What is the likely payback period? What needs to happen for you to have an exit or build a sustainable business?

    Understand what timing of payments you will experience. For example, if you do the work to sell to a customer, how long does it take you to get paid? For some businesses, like a cash-only concierge health care service, the service provided and the payment are close together. For other businesses, for example, an apparel business, the production of inventory happens months before the clothes reach and are paid for by customers. In tech, it is this timing of payments that often impacts hardware companies, which need to buy or produce components, assemble and the ship before being paid. Of course, there are ways around this, such as pre-orders or crowdfunding.

    Problems I typically see. Thinking that accounting is boring and therefore something to avoid. Not seeing how basic accounting knowledge can help you understand what’s happening (or going to happen) in your business.

    5. Think hard about the channels through which you reach your customers.

    I see many early-stage companies that have most of a team together, who can build, who have unit economics figured out, but who do not know how to reach their customer base. Lots of companies die not from producing bad products, but from not understanding how to reach their customers.

    Problems I typically see. Being fooled into thinking that good products don’t need to market themselves.

    Bonus. Know that things change. Sometimes you can see the direction in which things will change.

    As I told my feasibility classes, back in the 1930s when the change in recording technology (microphones that were starting to finally record the human voice accurately) led to the recording industry, you could predict that years later, something big was going to happen with music as a business. You couldn’t know which specific company would win, but you could know that there would be growth.

    If back in the early 1980s you looked at likely trends in component size and battery life, you might have also predicted that mobile telephony would be popular. Instead, in the early 1980s, when AT&T hired McKinsey to advise them on the future of the cell phone industry, the consultancy advised exiting the market. While AT&T had innovated the cell phone handsets and created wireless networks, the devices were still large, expensive and with short battery life. McKinsey estimated that the market for handsets was only 900,000 units. AT&T exited the market but realized its mistake. In the 1990s AT&T bought back the cellular networks it had sold off (paying $12.6 Billion).

    Problems I typically see: Using the way the world is now to project how the world will be. Using market size for a comparable to project market size for a new service. In other words, using the size of the taxi market to predict how big companies like Uber or Lyft could be.

    This is not an exhaustive list. You can’t do everything in a feasibility analysis. I don’t focus much on competition or market size at the early stage, for example. There will be enough gaps in knowledge or predictability there to lead you astray before you have real data. I’d rather that my students just get moving on learning.

    If you liked this post, you might like this book on unit economics.

  • A college level class in growth hacking?

    In a few days I’m teaching the first class in Growth Hacking at USC. I created this class because no matter what you feel about the “Growth Hacker” term, I find the role to be sought after by graduating students and the skill set to be appreciated by businesses. As far as I know, this is the first college class focused totally on Growth Hacking, so I thought I’d share the experience along the way. This is the first post.

    Framework

    I take Growth Hacking as understanding business fundamentals and then being able to make informed decisions using data, centered around orders-of-magnitude growth.

    Growth Hackers love data, are creative, and curious. Some are developers, some are designers, some are business oriented. Let’s dive into a way of looking at the world as a giant opportunity for growth.

    I call the framework I use to guide my thoughts CCARR: Collect, Clean, Analyze, Run, Repeat. That is, as a starting point, Collect data that is helpful, Clean up the data, Analyze the data to pull out insights, Run new experiments based on what you have learned, and Repeat the whole process as long as it makes sense.

    Tools

    Expanding on this framework, I use the following tools.

    Collect data that is helpful. This could be internal data you control, even using something as universal as Google Analytics. Data collection could also come from external sources, perhaps by web scraping other sites to save effort. I use Outwit Hub and SEOTools for Excel for basic off-the-shelf web scrapers, and Tamper Monkey’s Chrome extension for making and finding user scripts to save time.

    Clean up the data. The data you want, especially if it is from external sources, may not be in a format that you can easily use. I use Google Refine if there is a significant amount of work to do. Otherwise, I might just live with it and open up Excel.

    Analyze the data to pull out insights. This is business plus creativity. For this I use an expert level of Excel, which is just easier for me than using a database. This step is guided by knowing what business fundamental we want to impact. Eventually it all comes back to fundamentals like Life Time Value, Customer Acquisition Cost and cycle time (see next section). However, you may want to focus on one specific element of those.

    Run new experiments based on what you have learned. Here you might use ads on Facebook or Google, experiment with referrals, go to social platforms like Reddit, Product Hunt, or Twitter, or try something more guerilla. Just make sure you track what you are doing and your predictions for what will happen.

    Repeat the process as long as it makes sense.

    There are many tools that do these things. These above just happen to be the ones I’m using now.

    Fundamentals

    Adding more customers if you lose money on each one doesn’t make sense, at least not in the long-run. Eventually, your work has to come back to the fundamentals. That means if you’re trying to growth hack a business, you work on increasing Life Time Value (LTV), decreasing Customer Acquisition Cost (CAC), and speeding up cycle time. Let’s take those one by one. Simple to remember, but figuring out how to do it is the hard part.

    Ad hoc, I use a simple LTV formula: LTV = (Price per Unit – per Unit Costs) * Repeat Purchases. Those are the three triggers you have to increase monetary value to the business. As a growth hacker, the factors you can usually impact the most are Repeat Purchases and to a lesser degree, Price. It’s usually more interesting to also look at inputs to LTV over time. To do that, you can do a time series of what a customer generates in revenue and costs per time period.

    CAC is another area of focus for growth hackers. If you can figure out how to decrease your CAC, then you have more budget available to acquire more customers. The difficult thing about CAC is that different channels for customer acquisition constantly change in their efficacy. What worked yesterday may not work today, or may be too expensive to be worthwhile. That’s why many of the historical growth hacks you hear about are good for ideas, but may not be repeatable. The also means that another difficult thing is realizing that what’s working for you right now may stop working. To keep yourself honest, remember that there is no single CAC – every business has multiple channels to reach customers, each of them with their own associated cost and LTV. To make it easier to focus on growth, think of what will happen to each channel when you try to increase your numbers by 10 times. Some of the channels will not scale at all, some will scale, and some will only scale at a much higher cost.

    Rule of thumb: keep a healthy distance between your LTV and CAC, perhaps 3X or 4X, unless you are trying to take market share and have the reserves to play that game for a while.

    Cycle time is the delay between when you acquire customers and when you see the impact in the form of initial purchases. If this cycle is too long, even if you can decrease CAC and increase LTV, you’ll be out of business before you can benefit.

    The best tip is also the hardest: build a great product that your customers love. If you can do that, then growth hacking becomes a lot easier. Growth usually does not just happen all by itself or in a sustainable way. Keep the above CCARR framework in mind when you growth hack.

    (This post originally appeared in Jumpstart Magazine.)

  • The Disposable Startup

    I wrote this post a while ago, but am posting it here for the first time.

    The Disposable Startup.

  • Hey Hong Kong Startups — You Know That List? It Doesn’t Matter

    Two years ago today I said goodbye to friends and colleagues, got on a plane and left Hong Kong. I had spent just a year in Hong Kong focused on working with the growing number of startups there by running AcceleratorHK and an earlier program called Startup Bootcamp. When I gave a farewell talk at Good Lab, I tried to sum up the year in front of what felt like the entire Hong Kong startup community.

    (You haven’t heard much from me because in the two years since I left, I got married, had two kids, wrote a book on the emerging startup community experience, became a professor of entrepreneurship at USC and now run the USC Incubator.)

    There are a lot of amazing things happening in the startup world — around the globe, around Asia and also specifically in Hong Kong. One thing that’s true the world over is how much groups like recognition. So when I saw today’s Global Startup Ecosystem Report I had to look it over. My new home of Los Angeles is doing well apparently, but what about Hong Kong? It was nowhere to be found on the list.

    I don’t care about things like this. For a few years now and certainly the year I was in Hong Kong I tried to strip away the unnecessary things that didn’t contribute. Strip away the lists, many social events, reports and you’re left with what’s actually happening and what actually matters. I’d say that my new home of Los Angeles and several other up-and-coming startup locations suffer from a different extreme. The community gets buzz, it becomes cool to do a startup and all of a sudden I start to meet new founders who tell me they “caught the startup bug.” That is one of my least favorite phrases to hear a would-be founder say. If you become interested in something entrepreneurial just because everyone else is doing it, you’re less likely to be serious and follow through. In fact, one of the advantages I believe Hong Kong had when I was there was that when I met people working on a startup I could assume that they were more serious than the global norm. To work on something as uncertain as a startup in a place with only partial support means that you’re probably serious about it. I even remember one of the early Startup Bootcamp members tell me back in 2012 that if he ever went out and met a girl he would never say he was working on a startup because what would be heard was that he has no job, no money and no prospects. Quite different from what you’d hear in a top 20 hub on the list.

    Still, there has been a lot of growth in Hong Kong in the last two years. There were several recent exits, including Taxiwise, Divide and AliveNotDead. There’s a new startup visa program, government and corporate funding from Google and Alibaba. The community, which when I left I had estimated to be several hundred startups strong on my old Hong Kong startup list now probably numbers several times that.

    So don’t worry, Hong Kong startups. It doesn’t matter if you’re not on this list. It doesn’t matter if Dave McClure didn’t mention you in his comments either.

    Just keep working.

  • Investment Thesis for a University Incubator

    Recently I was hired by USC, specifically USC’s Lloyd Greif Center for Entrepreneurial Studies at the Marshall School of Business, to build a USC Incubator program, open to any USC student or alum. As I started to survey needs of potential participants, I wrote an investment thesis.

    You might ask why have an investment thesis for a university program that does not take equity positions in its portfolio. Actually, I believe that wherever there is selectivity and time and resources are spent, an investment thesis helps guide selection, granting of resources, setting expectations and measures of success, along with describing how the rest of the market appears in relation. Here are my thoughts, formed after spending about a month speaking to students and groups on campus. This is a work in progress and I welcome comments.

    Abstract: There is growing awareness of the importance of entrepreneurship and entrepreneurial thinking, on and off the university campus. There is also massive growth in entrepreneurship programs, from weekend events to bootcamps to longer format accelerators and incubators providing education, mentorship and funding. When I co-founded an accelerator in 2012, there were only an estimated couple hundred of those programs around the world; now there are probably thousands. More universities are also launching accelerators and incubators. But in this market for entrepreneurship, much of the focus is on scalable tech startups, where high-value outliers drive portfolios. In some cases there is misalignment between the program’s business model and the long-term benefit of the participants. A look around shows both good programs and some that produce more PR than results. It is my belief, after the experiences of running an accelerator (where we invested seed capital in exchange for equity), running a for-profit (and expensive) bootcamp and now starting on a university program, that there are activities that we should bring to entrepreneurs and activities from which we should shield entrepreneurs. These activities focus on what serves the entrepreneur regardless of the market they find themselves in, bringing in structure, education and connecting people to talent, domain experts, sources of investment and other resources. Those of you who know me or who have read my blog and book over the years might not be surprised at the direction I describe below. 

    Observations.

    Today all students and alumni, at USC or elsewhere, have to learn about and practice entrepreneurship, whether they realize it or not. Entrepreneurship or entrepreneurial thinking is no longer an option. This is unlike my experience when I was in school. Back then, there were still abundant and stable (so we thought) corporate careers that offered long-term growth. The burst dotcom and telecom bubbles were also still fresh in the collective memory. The association of “entrepreneurship” with “dotcom” or “startup” was a dangerous one that neither reflected reality nor helped those that made the association, as young graduates took career steps that reflected the past more than the future or what would serve them better in the following decades.

    Over the last ten years, an at first quiet and then deafening rework of thought about how to build new companies took place both within and outside the university. These movements gained popularity in the tech community but were also partly based on work done earlier in manufacturing and scientific exploration.

    There are more good resources and content available on entrepreneurship than ever before and yet we still question the results of this output and tools and processes. That’s fine. I question pieces of it myself.

    Some programs are built around inexpensively churning through large portfolios of companies with the expectation that the true survivors will identify themselves over time. As long as equity is taken in a large enough portfolio then the long game provides enough upside to run the program. (As long as the program is beneficial and can last long enough.)

    Some programs are built around education, trying to give founders the tools to become more successful, faster. The growth in programs like these shows that there is demand for knowledge beyond what many universities currently provide.

    There are business models based on selling hope and fun to entrepreneurs. There is a lot of talk and little follow through.

    There are many opportunities to learn and practice entrepreneurship at and around USC, from courses to clubs to other programs. There are many students and alumni to serve, many of which are not yet being served.

    Entrepreneurship is broader than tech startups.

    Sometimes, a great way to thrive is to avoid what everyone else does, as long as there is a reason.

    Investment Thesis.

    1. Invest in good teams, before they prove their businesses and see how they maintain the pace of learning.

    • Invest in teams that are coachable (who don’t know everything yet), that have the capability to build (this will be different depending on the business), that demonstrate commitment and drive, and that will be engaged members of the Incubator community.
    • Be open to different business types. This Incubator supports entrepreneurs, whether they run scalable tech startups, product companies or even boutique businesses. There is plenty to learn while operating each type of business. The program supports selected entrepreneurial teams regardless of their interest or attractiveness to typical investors.
    • Set milestones to track progress, based on learning objectives (data from running experiments etc) rather than milestones better suited to a stable business (increase sales by 20% etc). Based on achieving learning milestones, bring in more resources to help the teams.

    2. Teach skills that will serve the entrepreneurs well in any economic climate or business stage they may find themselves.

    • If you are a current student building a business that depends on raising a large amount of financing but the market tanks by the time you graduate, that’s beyond your control but also a risk that you could have defended yourself against.
    • Teach skills and give repeated practice in bootstrapping, how to do customer interviews (and get good at them), develop and test business models, understand customer segments, get distribution, generate revenue and present the opportunity. The word “teach” is probably misleading given that the founders apply these skills directly to their work. We really look for change in behavior. This is workshopping plus time plus business application, coming together to equal experiential learning.

    3. Do not judge potential Incubatees by perceived market size, at least not too soon.

    • There is a lack of awareness of how markets could develop. Often founders are told both to have niche focus and to also build massive companies. When you look at the historical assessments of Facebook or Uber, the two companies originally seemed like small opportunities because by looking at original market sizes we ignore growing past university students and changing passenger behavior, resulting in markets larger than anticipated.
    • The explanation that there is a baseline market size ($100M or $1B) below which a business is too constricted is an investor-centric worldview and one in which companies are only either highly scalable with good ROI or “lifestyle businesses” (profitable for the entrepreneur, not for the investor). I once heard a judge tell a student founder that his $8M business was too small to be interesting. If I were 20 years old, like the founder, I’d really like to run an $8M business.

    4. Shorten cycle time, especially in these key areas.

    • Shorten the discovery cycle. Connect entrepreneurs to potential customers and train them (see point 2) in how to interview and learn from these potential customers, use metrics to learn from data and learn to assess what they need to build. Make connections to alumni and others in the community who may guide this process.
    • Shorten the development cycle. Connect entrepreneurs to developers, designers and business talent for specific project work or to team members who can deliver on these functions full-time. Connect throughout the university.
    • Shorten the operational cycle. Provide legal, corporate structuring, tax and other resources. Help entrepreneurs do the things that they don’t need to be good at personally, but which if ignored lead to problems later on.

    5. Bring in mentors selectively.

    • Where there is specific domain expertise needed, bring mentors in to meet teams one-on-one. I find that the level of communication that takes place when mentors dive deeply into business issues outweighs the benefits that the group gets from shared general advice.
    • Where there is common needed business knowledge, bring people in, but sparingly.
    • Avoid building a long list of mentors unless they are actively involved with the program. There are long published mentor lists at many programs, yet these lists are often there more to attract entrepreneurs rather than to show the activity of (often rarely engaged) mentors.

    6. Avoid activities that are quick, easy and which attract a lot of attention if they do not produce stronger founders and businesses.

    • Getting (and measuring) results requires time but parading Hollywood versions of a new business is relatively easy. That means that the market often defaults to doing the things that get attention — events that may attract big crowds, but which do not do that much for the entrepreneurs they are there to serve.
    • As an entrepreneur with a limited number of hours in the day, I believe that you should spend your time with customers and working on your business, rather than attending many gatherings (unless the events are packed with your customers).
    • Avoid feel-good celebrity visits that produce no lasting effects. If you need inspiration, I suggest you get it from looking at how delighted your customers become when you deliver and make their lives better. Or, find local heroes that will still be around and invested in your success.

    7. Build around the strengths and needs of USC and Los Angeles.

    • Develop a program that benefits from the strengths of the area, eventually tying in with local industry and problems / opportunities.
    • Build for what will strengthen USC and Los Angeles even more.
    • In the future, add a “looking for people building solutions to —” component of the application to fast track certain types of businesses.

    If you don’t know Paul yet, here’s a bio.

  • USC Incubator Description

    Working with early-stage founders has been my focus for the past three years. After running a startup in New York, I started holding a roundtable series that grew into a bootcamp and then a funded accelerator program in Hong Kong. I’ve advised or had as clients that are startups from early-stage revenue to millions of users. I’ve learned what helps entrepreneurs as they work to figure things out and build successful businesses. It’s been challenging and fun.

    Recently I was hired by USC’s Lloyd Greif Center for Entrepreneurial Studies at the Marshall School of Business to build a new university-wide USC Incubator program. Running a program like this at such a large institution — USC has 41,000 current students and 360,000 alumni — provides a way to have impact on a large scale.

    The Marshall-Greif Incubator is an experiential program that gives USC’s top student and alumni entrepreneurs the resources and guidance to do more faster. 

    Here is how we think about this Incubator program in terms of vision and what Incubatees should expect. (This is a work in progress.)

    The program has few restrictions on founders.

    As long as the team or company includes at least one USC student or alumnus/a, they are eligible to apply. We look forward to seeing teams from all across the university participating in the Incubator. Apart from the USC student or alumni requirement, there is no other requirement for belonging to a specific school within USC. We expect to see companies with founders and employees across different USC schools and also outside the university.

    We know how to work with early-stage entrepreneurs.

    We’ve done this before and have experimented with several different models and formats in the programs I ran earlier. Since there are diverse needs at USC, we believe that there is value in selective workshops, based not on a standard curriculum for the group, but instead based on participant needs. We believe that there is incredible value from continuity rather than one-off events. We currently bring in continuity in the form of office hours with each team and tracking what they learn, rather than focusing on one-off generalist events. We also believe that challenging, encouraging and pushing have their place as we get the Incubator companies to do more faster.

    We build strong connections to alumni.

    This is an area to build out more as we grow. USC has a large alumni base of successful entrepreneurs and we’d like to expand our current mentor, advisor and Incubatee customer lists with more alumni. When it comes to alumni involvement, we favor selective connections to exchange specific domain expertise, rather than generalist group presentations and meetings.

    We add support structure.

    To work with teams at different stages in their businesses, we operate a small intense group which meets weekly (in addition to office hours and mentor visits in between) and a less intense part-time group.

    We work with any university department and external group where there is benefit to our Incubatees. This includes connecting talent with opportunities at Incubator companies, collaborating with existing courses taught at USC and connecting founders with first customers, advisors, legal and other support, potential investors and people in industry.

    We believe in providing enough time.

    The Incubator program lasts up to a full year (for those who are making progress and qualify), which provides the time to go out meet customers, learn, build and make progress. Earlier programs I ran and the industry standard tend to be only three months long, which may be good for intensity but is too brief to allow for true experiential learning and changes in direction. At this time we are accepting people on a rolling basis.

    We’re non-profit.

    We take no fees and do not take equity in Incubator businesses. On a case-by-case basis we do set teams up with grants, stipends, access to free resources and bring in investors.

    We provide workspace.

    Those who need it can qualify for workspace at the Incubator.

    You should expect to develop these skills in the Incubator.

    • Bootstrapping. The skills of getting people to pay you and building a sustainable business will carry you through any economic climate or investment fashions. Bootstrapping also allows you to get started immediately, rather than waiting to raise capital (often before it is a good use of your time).
    • How to run experiments that help validate your business. This includes variations on tools like the Minimum Viable Product as a way to test hypotheses, collect primary data, draw conclusions and learn what to build.
    • Customer interviews and observation. A common problem I see with early-stage entrepreneurs is that they miss opportunities to learn from their target customers when they interview them, often actually missing the point by asking leading questions or otherwise skewing results. I workshop these customer interaction skills and also occasionally employ what I call “gonzo interviewing,” which is when I go out into the field with the company (pretending I belong to the team itself) and then give feedback afterward on how they can improve their skills.
    • Presenting and pitching. These skills are essential but take time to acquire, alongside someone who can give actionable feedback. Rather than just comment on what was good or bad (the reaction you see in many time-strapped pitch events), I believe in giving feedback and then practicing again and again with the presenters. It takes months (at least) to become good. As a comparison, I occasionally do my version of how I’d present their business. We focus on what it’s like to present to customers and investors.

    What we look for in Incubator companies.

    • Coachability. This is good for the company as it shows that the founders will be engaged, will do the work required and will be flexible when it’s required to change direction.
    • Have the capability to build. This capacity is determined by the type of business being built. There are some businesses that have high technical requirements and others that are marketing-driven. Entering Incubatees should have the ability to build what their business requires, with small exceptions that fall outside the core of the business.
    • Commitment and Drive. Founders that are committed and driven — especially about a problem or target customer — will stick with and be more creative and resourceful than others. Note that falling in love with an idea rather than a problem or target customer is not the same and is actually a negative factor.
    • Those who will be engaged members of the Incubator. They will share with and help out Incubator companies. They will also engage with the opportunities offered by the Incubator.

    If you don’t know Paul yet, here’s a bio.

  • Judging the Judges

    In the startup world, there are many occasions in which startups are judged and few (if any) occasions when the judges themselves are judged.

    I want to quote my friend and startup advisor Kevin Dewalt, who in a blog post wrote “We don’t need to be judges – the customers are the only judge that matters.” Kevin’s post references startup events in Asia but now that I’ve been back in the US for a while, I see many similarities in the way we can improve judging of startups. Here are some things I’ve done to try to be a better “judge.”

    • Before I judged at a Startup Weekend for the first time, I ran my own one-person Startup Weekend to try to understand what the teams went through. While I had mentored there before, I had never been a participant in the event. I find that if the judges have never been in the position of the people on stage presenting, they lack the ability to quickly understand what the presenters have achieved. That being said, I think that Startup Weekend (if followed correctly) has one of the best opportunities to produce good judge and judgment experiences.
    • Since then, I’ve judged at different events. I see that presentation skills can trump anything else even when we’re on guard and looking at the businesses behind the presentations. Again, to quote Kevin’s post: “As an Angel investor I really don’t care much about “pitch” quality – I care whether you’re solving a real problem for customers and can make money doing it.” But being a good presenter almost always gives you an advantage over the others. As a judge, I stay alert when I encounter this this skill.
    • I memorize the judging criteria. This is something that I have not yet seen many others do, which causes confusion during deliberation. There are two reasons behind this: laziness of judges and organizers who don’t provide judging criteria until right before the event. Excuse me if I sound upset, but I figure if people are going to work hard on their projects for two days straight (or in other situations for months or years), expecting to be judged by pre-set criteria, the least we should do is to know the rules and judge them according to expectations. Lack of clarity and familiarity leads to confusion during deliberations.
    • Knowing how to give feedback after a brief few minutes. Something I often see experienced people struggle with is giving feedback while judging. This is tricky because there’s usually only minimal information to go by and our individual biases run strong. I often see experienced people judging say why the team is on the wrong track, because they’re doing something contrary to the judge’s experience. Here are my favorite useless comments I’ve heard while sitting on judging panels:
      • “Look, I know this industry very well, because [famous name] pitched me [years ago] and this is not the way this works…”
      • “I’ve worked in this market for years and you don’t understand that [insert random specific factoid]. You ignored this, so I am penalizing you.”
      • “My employees could build this in a weekend.” This was at a more developed startup pitch (not a hackathon or Startup Weekend) so the comment was even more insulting. The entrepreneur was polite and handled it well.
      • “I would never invest in this.” Truth is it’s outside of the judge’s industry and he’s not an investor anyway.
    • When I interact with the teams, my hack to keep myself open-minded and available to learn is to try to only ask questions rather than make declarations. As in, “You didn’t mention talking to any potential customers when you built [your hack / project / prototype]. Can you tell us about what you did to validate that you have a real problem and a validated solution?” “What are the per user metrics?” “Why did you build this as a mobile app instead of a web service?”
    • Don’t try to look smart or to be the Simon Crowell of the panel. One of the oddest judging experiences I had was when I was on a panel of three — me and two others competing with each other to be the mean judge.
    • I never am tough on the teams with the explanation that “that’s the only way they will learn,” as I hear judges say. Too often, the toughness does not accompany real feedback that is actionable. Judges should preface (even tacitly) any feedback with the phrase “what I would do if I were you…”

    I would love to see a reverse judging event, where the judges are scored on following the judging criteria, giving actionable feedback and their relevancy. And revisiting the startups after a year to see which judges were right would be interesting also.

    If you like this post, you might like my book Startup Sacrilege.

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