Startups Unplugged

Author: Paul Orlando

  • Startup Sacrilege for the Underdog Entrepreneur

    The book is now available here. What do you think of the cover art?

    Chapter outline
    Context:  Fools Rush In; Why Read This; A Glance At the Seedy Underbelly.
    Sacrilege: Your Invisible Tribe; The Irrational Goal; Is There Enough Diversity In Tech?; Little Heroes; Investor Change; What You Can Control and Never Control; The Never Ending Accelerator Glut; Pitch Event Controversies; Idea Thieves.
    Action: Test Prep; Next-Gen Accelerators; Funding; Founder Immigration; Peer Pressure; Go Local.

    Thanks.

  • Rolling Up Hills or Climbing Up Steps

    Sometimes startups think of progress as rolling up a hill. You start off with almost nothing: a first iteration with no users and of maybe questionable value. But you believe that you’re able to roll up that hill to grow.

    Sometimes, depending on what you are building, rolling up a hill cannot work. The hill, metaphorically speaking, is too steep and requires discrete steps to climb instead. Just as in the physical world, after each step you have a little place to rest and build. The steps may lead you to a less direct path but you’re getting closer to the goal and maybe with less exhaustion than if you had plodded ahead.

    To show you what I mean, let’s look at examples from LinkedIn and Airbnb.

    In 2003 LinkedIn’s founders sent the first iteration to 350 of their friends, followed up with anyone who didn’t create a profile and by the time a month passed they had grown to 4,500 users. With additional feature development and investment, things kept going from there until users reached the hundreds of millions. As they grew to scale, they were able to develop business models around premium accounts, advertising and recruiting.

    Airbnb had a harder start but grew past its small 2008 early user base by improving rental conversions with free professionally photographed apartments and also grew users by spamming renters on Craigslist.

    But these two companies are different in what is needed for them to provide value. For example, even if there is only one member of LinkedIn it’s still partially valuable because visitors can still view the user’s profile and learn about their career. In that way, early LinkedIn functioned like a professionally-focused version of About.me. And in the early days you couldn’t really do all that much with people in your LinkedIn network.

    However, Airbnb had a steeper hill to climb. Their service always needed both sides of the network to work. Simply listing your apartment with professional photos is more of a hassle than a benefit if no renters ever book nights. While both LinkedIn and Airbnb achieved massive scale in the beginning, from the way they moved forward, I’d say that LinkedIn was able to “climb up steps” but Airbnb decided to (or had to) “roll up a hill.” If they had not had funding, they might not have lasted long enough — or they would have been forced to do things differently. I want to share how you can use the step climbing concept to survive long enough to make your way forward.

    So instead of Airbnb’s progression of improved conversions (professional photography) and signups (Craigslist spam), what steps could they have used instead?

    Here is a hypothetical example of a step. In the early days when there were few people renting the apartments, Airbnb could have tried to use “single player mode” — a tactic that Joel Gascoigne and Kevin DeWalt have described. Make something that has value even when there is just one person using it. For LinkedIn, this could have been the online career history. For Airbnb this could have been a competition to have the coolest apartment listed. Even if no one is renting yet, there’s value in pride, a contest or perhaps interior decorating awards. Activities like those could have gotten enough people on the network so that later on renting becomes an option.

    I want to go a step further and propose No-Player Mode.

    Can your startup be valuable to people even if no one uses it yet? And how can that help you climb up steps?

    I think I can guess what you’re thinking: “what do you mean, ‘valuable before anyone uses it?’” Here’s what I mean, continuing with the LinkedIn and Airbnb examples.

    If LinkedIn’s founders were not well connected and didn’t have hundreds of friends to spread the service they could have pulled data from existing career sites to compile a report on employment today. What jobs are growing, what are average salaries, what cities have the most opportunities for designers, etc. No one is using “LinkedIn” and yet they are able to provide value. Similarly for an “Airbnb” with no users they could have looked at data from AsiaXpat, Craigslist and other apartment listings and come up with advice on what rental prices will do.

    You may have a sophisticated view of what your startup will do. You may have a grand vision. That’s great. But if your startup is unproven and no one knows you exist you need to consider your tactics.

    For startups that require critical mass, how could you step your way to usefulness and an audience? Ride on top of existing groups to either collect input from them or fit right into their behavior, all without requiring them to actively join your startup or current experiment. Instead of trying to get enough people signed up to gain insight from their actions, can you go today to where people are already doing what you want in some other less elegant way, perhaps on some other network? They are not aware of it, but they may already be educated customers.

    For example, here’s the Single-Player Mode play using a Q&A network (a difficult service to pull off well). In the beginning when no one has heard of the new Q&A service, go on existing large public networks, like Twitter, and search for questions being asked. You will find thousands of people asking their followers questions about all sorts of things. This is where your Q&A service starts to selectively answer the questions with good quality responses. You’re providing value for people who are not yet your (official) users. You can even provide VIP service to people once they join your service.

    For the No-Player Mode twist on this, instead of actively answering existing questions, make the collection of data a first step to climb. What are the most asked types of questions about coffee? About dim sum? About investing? I bet that for any niche you think you’ll build for, there are already a ton of people already doing things together. This is a way to start to provide that value to them. That data can form the first part of your product.

    I hope that these tools help you out as you build your startups. Let me know how it goes. If you like this, check out Startup Sacrilege for the Underdog Entrepreneur, a book written for startups outside of tech hubs. 

  • Accelerators and their discontents

    Breaking my own rule

    I wrote about a related issue a few weeks ago, but now find myself pulled back to this topic sooner than I thought. Yesterday, in a TechCrunch article called “The Startup Accelerator Trend Is Finally Slowing Down,” the author says that the overcrowded market for early-stage funding destines most accelerators to fail. Those of you who know me well will note that I was breaking my own rule to not read TechCrunch, but the article was in my Twitter feed and I had a moment of weakness.

    I ran one of the 170 accelerators that the article’s author Mark Lennon says there are. Actually, that 170 number is really low. There are probably several times that number when you look beyond the CrunchBase data cited — and that’s why you can’t just rely on one single data source. CrunchBase is good, but certainly incomplete, as I found last year when I was scrambling to use their data at the TechCunch Disrupt Hackathon. But increasing the number from 170 accelerators to something like 500 would only make the situation in the article seem even worse.

    The way accelerators are viewed is bizarre

    The accelerator I ran with Steve Forte, AcceleratorHK, was never thought of as an unchanging program that would last forever or one that would instantly turn Hong Kong into a tech mecca. Instead, we proved that we could attract talent from around the world and get the startups a lot further along their own paths than if they had continued to work independently, while showing that an accelerator can work in Hong Kong (we were the first program there). Some of the startups went on to raise money, generate revenue and get awarded grants, while team members changed, company direction changed and I’m sure lots of other changes are to come. For a program, you need build something that works in your market, which can mean not being too influenced by what comes out of the Valley and what is published in the mainstream tech press. I expect that there will be other accelerator programs in Hong Kong (and other non-tech hubs) in the future and that they will do things their own way based on what is needed.

    But this search for the appropriate number of accelerators or for all-inclusive ways to judge all of them based on public data snippets is part of the problem. For example typically,

    • Accelerators are all viewed the same way. One in the middle of nowhere (in the startup world) is judged the same way as one in the Valley,
    • Accelerators are judged as though they are there to serve investors. And when it comes to serving the startups, they are only judged based on what is directly related to the investors, such as percentage of startups that raise money after the program or number of exits, when most programs haven’t been around long enough to have many, or any. Programs are not judged on factors individual to their markets or qualities more difficult to measure like progress the startups made during and after the programs,
    • Accelerators are judged by other things that are easier to see with minimal research or digging in to see what matters, such as their mentor lists (regardless of mentor involvement), where the startup founders went to school, or acceptance rates,
    • Because qualities that are not listed publicly on things like CrunchBase are harder to measure, they are ignored.

    There is also just a lack of willingness to think of ways that this world can change. How many other things could happen that change “the number”? For example will crowd-funding change the situation for early-stage startups significantly? Will corporate accelerators become more commonplace? Will programs first validate ideas themselves and then find teams to execute on them? If you take a static view of the world, then it’s hard to think about anything new while reading that article.

    The startup world is big — bigger than you probably think. Even at hundreds of accelerators, with the numbers of startups that they “graduate” a year, there is no way that these programs have significant impact to sway the entire startup world. They might get a disproportionate amount of attention, but they are not drastically changing the environment by either creating startups that otherwise wouldn’t exist or disappointing the startups that don’t raise money — accelerators only touch a tiny fraction of all the startups out there. Now, to the question of whether there just aren’t enough good startups out there to invest in and therefore there can only be a certain number of accelerators (and the number is 170 or 500 or whatever), I think that this is a lack of imagination.

    Two sides of the story

    When I speak to tech investors in tech hubs, they usually tell me there are too many accelerators. Too many programs chasing too few good investments, which after all is how they view the world.

    When I speak to startups, the feeling is much more positive. With the exception of those that are too far along to go to an accelerator, they usually express interest in the programs. I even had one funded startup in LA tell me that given the option, you should always go to an accelerator because there’s almost no way you could end up worse for it. As Paul Graham said about that in terms of getting value for the equity you give up: “If we take 6 percent, we have to improve a startup’s outcome by 6.4 percent for them to end up net ahead. That’s a ridiculously low bar.” In visiting and talking to lots of people involved with accelerators, while I have seen situations where programs do damage, I think they mostly they do good.

    Mismeasurements

    But only a tiny fraction of startups ever go to accelerators. Acceptance rates are on average in the single digits and less than one percent for the most popular programs. Given that only a fraction of startups apply leaves only a tiny fraction of one percent ever going to an accelerator. Again, as Paul Graham wrote:

    “[T]he one thing you can measure is dangerously misleading. The one thing we can track precisely is how well the startups in each batch do at fundraising after Demo Day. But we know that’s the wrong metric… [F]undraising is not merely a useless metric, but positively misleading. We’re in a business where we need to pick unpromising-looking outliers, and the huge scale of the successes means we can afford to spread our net very widely. The big winners could generate 10,000x returns. That means for each big winner we could pick a thousand companies that returned nothing and still end up 10x ahead… I can now look at a group we’re interviewing through Demo Day investors’ eyes. But those are the wrong eyes to look through! We can afford to take at least 10x as much risk as Demo Day investors… [E]ven if we’re generous to ourselves and assume that YC can on average triple a startup’s expected value, we’d be taking the right amount of risk if only 30% of the startups were able to raise significant funding after Demo Day. I don’t know what fraction of them currently raise more after Demo Day. I deliberately avoid calculating that number, because if you start measuring something you start optimizing it, and I know it’s the wrong thing to optimize.” (excerpt from Black Swan farming)

    How else could we measure accelerators?

    The vast majority of accelerators out there are generalist programs. An application, review of applicants, some seed capital in exchange for a little equity, three months in a group location, mentorship and maybe workshops, ending with a demo day. And then often nothing at all afterward.

    Here are some other ways to measure accelerators. But these are difficult to measure without doing a lengthy round of interviews and visits and so I expect there will not be a good global view of this written by someone on the outside of this world. Some ideas of what else to look at:

    • How much progress did the startups make? Did they avoid wasting a year working on something that won’t work? (Tough to measure)
    • How many people did they save from less productive work? (Tough to measure)
    • What does the program do to follow up with its startups afterward? (Easy to measure if you put the time in, but not listed publicly online)
    • Is there an alumni network? Is there really an alumni network? (Easy to measure)
    • How involved are the mentors? Is there real domain expertise in the areas that the startups are focused on? (Tough to measure)
    • Can the program or its mentors get their startups in doors of places they couldn’t by themselves, giving their companies a huge advantage? (Tougher to measure)
    • Are the programs doing something entirely different that works better in their markets? (Easy to measure if you can get to know the people running the program)

    Until then, these articles on accelerator metrics are often more distraction than they are discernment.

    Update. Since I wrote this article I’ve one on to build a university incubator program at USC in Los Angeles with over 70 portfolio companies and a startup accelerator in Rome/Vatican focused on environmental technology for the rest of the world. I’m currently working on a HBR case study about accelerators and incubators. Stay tuned.

     

  • How Lean Startup Optimizes For Annoyance

    I’ve taught lean startup tools at a bootcamp, spoken about lean case studies in workshops, judged on application of lean techniques at competitions, and guided people to think through it all while I ran an accelerator. It’s not a perfect methodology. There’s lots of confusion about it. It doesn’t explain everything. And that’s just fine.

    But now lean startup is starting to become a religion. Or, what’s worse, a meal ticket for enough people selling lean shovels rather than panning for gold themselves. So, to avoid alienating people, I suggest that lean startup advocates stop caring about criticism (often well thought out and respectful) that they receive about lean startup. Otherwise, lean startup will be optimizing for annoyance. Here’s how it’s happening today:

    • As a new religion. Lean startup advocates (who are advocates for rationality) get irrationally upset when people say it doesn’t work. I say, apply lean in your life and stop caring about these blog posts. (Or just stop sending them to me.) If lean weren’t a religion (or a meal ticket), you could read about it and not have to get worked up when someone threatens it.
    • It is unrealistic for everyone’s mindset to dramatically change over the course of a weekend workshop. Personally, I think we should move beyond these weekend workshop things. Yes, they are great for distribution (lots of people can commit to a weekend, few can commit to months and years of work). So, as long as you run weekend workshops, I say you don’t have the authority to complain when people don’t “get it” before they walk out the door at the end, because after all, that was your responsibility. There’s too much content and mind-shifting to do in a short time. Actually, why haven’t lean startup programs substantially iterated away from the weekend? Or is the weekend a local maximum?
    • Lean startup at conferences. If you know me, you know I almost never go to conferences. But I get why it can be annoying to hear the talks. Hearing lots of talks about what didn’t work, or cherry-picked case studies on what did work sometimes coming from people who haven’t done that much yet, can be bewildering. At the same time, the exact same tactics that worked in one case (to gain users, convert to paid, etc) can’t be expected to keep working forever.

    When I was about to judge at a weekend event for the first time I thought about how to really add value. My conclusion was that I needed to participate in the weekend myself to really understand it, but there were no other events going on nearby before I was judging. So, I ran my own one-person Startup Weekend. It was rough. I don’t think it would be easy for me to walk out of a Startup Weekend or Lean Startup Machine and think: “I totally get this.”

    Time to do something harder than a conference or a weekend, or talk about a case study. And as is typical, the best examples of this work are hidden from view at first.

  • Please stop trying to build another Y Combinator

    There are lots of startup accelerators out there. I believe that most of them add value to the startups they work with, as measured against the equity and time they take. In spite of that, most accelerators will not last long-term and could be adding much more value. Here I want to support development of alternative models, including non-profit and corporate-backed startup accelerator models, which I believe is where some interesting growth will be.

    Blindly copying a model can be a bad idea

    Most startup accelerators follow a similar model: a centralized program, taking somewhere between 2% – 10% equity for around US$100k+ (earlier only $20k) of seed capital, working with a portfolio across multiple domains, and ending after three months with a demo day. The best I can gather after talking to different programs around the world is that they go with this model because that’s what everyone else does. That really mean that what originally worked for Y Combinator (who originated the model in 2005) led to everyone else copying that model instead of innovating from there as a starting point.

    Running Startups Unplugged (as a bootcamp) and then AcceleratorHK as the first accelerator in Hong Kong meant that the door was open to experiment with different formats. And by taking the time to understand what was needed in Hong Kong and what would help the entrepreneurs who traveled in from other countries, we built something that fit those needs. We were more hands-on than we would have been in the US, worked out of a co-working space to allow visitors to come and go easily and focused more on building sustainable companies with limited local investors than we might have elsewhere.

    Of the many accelerators out there, lack of funding, lack of direction, lack of engaged mentors, or lack of people to run it can all shorten the lifespan of any program. They will close, limiting the strength of an alumni network, but their brief existence is still better than having no program at all.

    Of the thousands of startups that go through accelerators, most will not survive past a couple of years after the program. Even for the most elite accelerators, success rates are far from certain, once you dig into the numbers instead of taking them at face value.

    There are many paths to entrepreneurship and discovery. You don’t need to run a startup to qualify as an entrepreneur or to learn. While a lot is written about what I’ll call “traditional startups,” there is a much larger group of people already doing innovative work in areas that get much less attention. These are people for whom the de facto models don’t work. Research-driven startups that have longer times to market, startups where the team doesn’t fit the mold (being older, lacking educational credentials, working in unsexy markets) — they mostly ignored by accelerator programs.

    Accelerators are usually just a first step

    Often when I meet investors based in tech hubs, they say that there are too many accelerators — too many to choose from a limited pool of strong, investable companies. Often when I meet startups, at least early-stage ones, they are interested to apply to an accelerator — while also facing acceptance rates of low single digits. When I talk to people outside of the tech hubs, they sometimes bring up developing an accelerator as a way for their city to distinguish itself. When I talk to the people who run these programs, they often believe that they’re doing work that is good for their communities.

    So there are four motivations here

    1. Investors need to show returns and therefore are interested in accelerators insofar as they provide potential investments, which they do less often. While volume goes up, attractiveness of investment may not keep pace. Demo days crowded with other investors are not the best place to find early-stage startups to invest in. However, these investors will often support programs by mentoring and often support the work that is being done.
    2. There is plenty of demand from entrepreneurs for accelerator programs. Judging from application numbers and acceptance rates (often in the low single digits), there is excessive demand on the part of entrepreneurs. Investors tell me that most of the startups applying are not good investments and therefore these low numbers are appropriate. But a better question is, what is the purpose of the accelerator? Who is it there to serve?
    3. There is more than one reality in the world of startups. The Valley may be the major contributor but life outside of the tech hubs is very different. Starting an accelerator can distinguish an off-the-beaten-path location, attract talent and potentially keep talent local. I saw that while running AcceleratorHK in Hong Kong. I’ve heard it from people in other cities too.
    4. People who run accelerators want to help the startups. They care less about the money and more about the impact. This might be long-term impact on their startup communities or it might be short-term impact by helping individual entrepreneurs build their businesses. There are much easier ways to make a living than running an accelerator, just like there are easier ways to make a living than running a startup.

    Most programs lack industry focus, mentors with specific domain knowledge, and follow the typical three-months to demo day format.

    There are cultural and stylistic differences between every accelerator but apart from that, few construct a program based on a theme, an industry or technology.

    I’ve seen the same celebrity mentors listed on many programs. How involved are they? It’s not that they don’t want to help, but how much time can they really devote when they’re listed on multiple programs and have other work to do?

    Is the typical three-month program length appropriate for what you want to do? If other programs didn’t do it first, would you have chosen that length of time yourself? Why? Three months goes by in the blink of an eye. If you allow your startups to change course in month three — which you absolutely should do — then what happens when the program ends a few weeks later?

    What support do you offer your “graduates” after the program ends?

    Do you really need to do a demo day? Or is it a distraction? What’s the goal for your demo day, beyond keeping people focused on an end point?

    Do your startups have a fighting chance to raise money after the program? Or should you focus them on surviving by building a sustainable business in a market without investors? That’s what most of the world looks like, by the way.

    When you think there’s only one way, you miss opportunities.

    Stop trying to build another Y Combinator and build something that works for you. Markets are different, people are different and there are many ways to run an accelerator. The traditional model should not be duplicated everywhere. But we act like it does apply everywhere. Actually, we act like the Hollywood version of the traditional model applies everywhere. That’s what happens when you read TechCrunch too often.

    So I want to support a different model: the External Innovation Model.

    This is how it works for institutions (since this is not limited to for-profit companies).

    The institution sponsoring the accelerator issues a set of challenges to which they need solutions. They collect applications, but judge the applicants on their ability to build, not on their ability to market or present themselves. Over the year (there is no need for the entire cohort to start and stop at the same fixed dates), a program lead manages the entire process and institutional mentors guide the startups. There are in-person group meetings every six months to show progress and to make go/no go decisions on continued involvement or granting extra resources.

    For a modest budget, this institutional sponsor could fuel a program with ten individual startups working on issues related to its success, travel for the periodic meetings and someone to run the program.

    Purpose and Execution.

    • Lower investment risk. Early on, ten small bets can be better than one large one. There are reasons why institutions can’t quickly do many small projects themselves, but having ten external teams devote their own time is not problematic for the sponsoring institution. Let the startup develop their solutions with guidance from the sponsor rather than develop solutions individually and then pursuing a sales relationship.
    • Difference in opportunity cost. The ten startups gain even if their ventures are not successful. They learn, get access to some financing and make connections with the sponsoring institution. It would be prohibitively costly for the sponsor to support ten projects internally.
    • No Demo Day. There are good and bad things to demo days, but this type of a program doesn’t benefit from a demo day in the ways that general startup accelerators do. First, there is not necessarily an outside investor that has either the interest or the ability to invest in these projects or companies. Second, there’s no need to include a large public audience for the purposes of outreach or brand building. Actually, some of these demos might bore people in the startup world to tears. And that is a good thing.
    • Resources. Like accelerators, the company needs to invest a bit of capital into each startup. Unlike most accelerators, I don’t believe the corporate sponsor needs to provide workspace for or relocate the admitted companies to a central location. The exceptions to that may be hardware or biotech based programs where equipment access is a key differentiator.

    Phase I: Define the problems to solve for this program. Admit startups into the program, have one central person work with them while bringing in mentors from the institutional sponsor. Define an end-point at which the different startups present back to the sponsor.
    Phase II: The sponsor determines which startups to continue to invest in. The program continues, possibly in-house.
    End game: Acquire technology, acquire team, or end involvement with the startups. The end game is different in this model because the entrepreneurs themselves probably want different things than those that apply to the traditional accelerators. Not everyone wants to build their startup the traditional way.

    If you liked this post and want to discuss it or tell me why it would or wouldn’t work for you, you can reach me here. 

  • Eradicate the startup pitch event

    I posted this recently on Medium. Reposting the link here to share the reasons why I think startup pitch events are awful. Hope you like it.

    Eradicate the startup pitch event.

  • What’s the best way for a startup to measure its progress?

    Across public talks and internally in the accelerator I co-founded, I’ve taught and advised on metrics that matter for startups. I could add to the lengthy body of knowledge of startup metrics but there’s a qualitative metric that people don’t mention because it’s hard to measure and few see it in person. Startups in their first 18 months of operation will know what I’m talking about. I call this metric the beach day ratio.

    This is how it works. A particular startup is at a tough point: they’re late on a release, users are churning too quickly and recent investor introductions have gone quiet. Morale is low and people are exhausted. There are job offers in a couple team members’ back pockets. They might even be calling someone like me up to help take a look at their direction. In the midst of all of this, the team decides to take a day at the beach (or depending on where you live, a hike, a trip to the museum etc) to take a break and refresh themselves.

    The question is, now that they experienced that day of freedom — that space to think about what they want to do — what happens the next day?

    The teams that tough it out and go right back to work instead of continuing to escape to the beach (or take the new job, or give up etc) are the ones with the best chance of succeeding. If investors could watch their investments in this way, they could see that startups with high propensity to keep escaping (a high beach day ratio) are in bad shape and need more help than lean startup metrics could ever offer.

  • You’re So Vain

    While we talk about lean startup and vanity metrics we also often send conflicting signals. Here are some examples that startup ecosystems create or enable. From what I’ve seen, vanity is the major culprit.

    The Events Problem

    Speaker Events. You don’t get any closer to your goal by going to hear a speaker, famous or not. Is this a good use of your time? Will there be other benefits to going that make it worth not working for a couple hours? Or do you feel good about being in the crowd and getting a beer afterward. (Yes, I’ve spoken at lots of events.)

    Demo Days. I’ve heard from a few startups that are pressured to demo something they’ve already determined has no future, but which looks good in front of an audience. This is the vanity demo day. Why? It’s there to make the program look good by making the audience feel that things have gone according to plan instead of owning up to the fact that many (most?) startups change direction. Presenting something that you know you’re not going to continue building is a waste of everyone’s time. I’ve worked with startups who have changed course right before their demo days and I’m fine with that… (I’ve run a bunch of demo days and have stayed away from the above problems but have heard it elsewhere.)

    Pitch Events. This is where a group of selected startups pitch to a panel of judges, after which one is declared the “winner.” There may or may not be a prize. That’s the format that I’ve seen time and again. The problem is, the judges are not given any opportunity to really evaluate the companies and perhaps are not the best ways of evaluating startups at all. (Would you want to be evaluated based solely on five minutes talking onstage?) The image that I like to show potential startups applying to these events: the performing seal. Does a startup really “win” an event or is the real winner the organizer of the pitch event? (I’ve judged at a bunch of pitch events.)

    The Celebrity Mentor Problem

    A very small number of famous mentors get a lot of attention, but realistically do not have the time or interest to advise every startup out there. Instead of looking to famous startup mentors for everything (a vanity metric in itself), what about those unheard of mentors who have deep industry knowledge in your field? Those who have worked with the same customers and markets that you are building for today? They might speak a different language than the startup people, but they also might know more about the problems you’re facing. Seek them out instead of going down the popular path.

    The Too Much Uneeded Information Problem

    Take the number of articles startup people read about their target market and customers and divide that by the number of “startup” themed posts they read in tech publications. Cry when the ratio is lower than three.

    The Sexiness Problem

    Yes, there is a problem with sexiness in startups. This happens when people feel better about repeating the phrase “I’m in a startup,” than they do about building something people want. This is a hard one to call out because sometimes the good feeling that comes from being in a startup is all people have to hold on to.

    Startups can be sexy — geek sexy. By geek sexy I mean that there is no actual sex, but we still feel really good about ourselves.

    Since you’re going to be serving your target customers and market for years, make sure that you love it. Following trends that show up in the popular press or investment community will leave you looking bored geek sexy.

    Worrying About Your City’s Place On A “Top Startup Location” List

    I spent a year in Hong Kong running AcceleratorHK and Startups Unplugged and saw the city get listed as the number one tech hub to watch. People celebrated. I also saw the city not get mentioned on a bunch of other top startup locations. People complained. Neither of these things matter much. Build helpful, supportive communities and you’ll get the recognition you deserve.

    Tech Ecosystem, Heal Thyself

    Different parts of the tech ecosystem can unwittingly be like doctors who advise low sugar intake and then are seen ripping open a bag of Cadbury Creme Eggs on the walk to the car. We preach lean startup but then make sure that startups are fed a high sugar diet of tech news, demo days, events and lists of celebrity mentors…

    Should this matter? Candy producers don’t set aside part of their profits to treat diabetes. So why should startup communities care about the misinformation of early-stage startups?

    I think it’s because these same communities’ reasons for being is to help. They exist because at heart, startup culture in most parts of the world is collaborative. People want successes. They want examples that go on to become bigger supporters of the rest of the community.

    So focus on the important. Are you learning? Are you growing? When you determine you need to change your business model, do you do it or stay attached to the original idea you dreamed up in the shower? How much time do you spend working on your startup and how much attending / reading / worrying about these other things?

    If you liked this post, you’ll love my book Startup Sacrilege.

  • When Would You Give Up?

    If you’re a startup founder and you feel good about yourself, you just might justified. But you’re much more likely to be delirious, experiencing that temporary elation that comes from something that makes no difference to your actual business.

    For example, you’ll meet a lot of startups feeling good about themselves on the way home from another tech event (what I usually call startup entertainment). Or, on the other hand, you might possibly feel good because you have actual customer interest as demonstrated by engagement, referrals and purchases. If you’re going between these extremes and rarely experience justified elation, how do you know how long to keep working? The question of when do you give up on your startup is always a tough one.

    I was thinking about this because over time I’ve received this question from startups in tough places.

    The following quote is from a startup founder who recently contacted me. This founder is talented, but has tried two different startups in the past year and as you can see, is thinking about giving up. (Quotes used with permission):

    “One of the hard parts in a startup is after launching a beta product, nobody seems to care. I keep working on it but still nobody cares. In the beginning, I was highly motivated and kept pushing through. But at a certain point, I start to doubt, in my mind asking myself, ‘Am I heading to the right direction, or am I totally off? Should I persist in this domain, or do something else? What is the next right thing I should do?’ I don’t know the answer to any of the questions. To make things worse, I look at my own bank account and see the number there is constantly decreasing. I can’t bring anything to my family, and sometimes feel ashamed when facing my family members. Let me do some soul-searching about myself, what I really want to do with the startup. Hopefully I can give you a more solid answer in our next correspondence. Meanwhile, I am freelancing to get some side-income.”

    Many of the hallmarks of a founder in a tough spot. Because we’re often so passionate about our work, we think that others should be just as passionate about being customers. The encounter with the reality that isn’t so rosy leads to doubt, family pressures and turning to freelancing instead of working on the startup full-time. I can’t blame him for any of these feelings.

    Then this, from another founder.

    “I think I am just tired of coding. There are still times I try to brainstorm ideas, but then I quickly see myself being too emotional. Looking back, I sucked at approaching potential customer/discovery/validation, cause I don’t know much outside the technical world. Kinda sounds silly, but I have a feeling that if I can teach & observe better, I can tackle the customer process much easier.”

    The talented coder (he’s self-taught and for years supports himself by passive income from products he’s built) who gets tired of coding is a sad thing to see but I understand why. I’ve spent so much time getting coders to look up from their laptops and encounter meatspace that I’m surprised when one of them wants to dive right in. I just didn’t think that he’d want to set the code aside.

    And then this from a founder building for the industry he comes from:

    “Some things can’t be taught with precision, like when to quit working on a problem. There’ve been countless presentations on startup development (especially with respect to the Lean Startup movement), I feel, especially after having tried to build one myself, that many first-time founders still waste too much time in advancing concepts when… pursuing a pivot/concept any further won’t be productive (arriving at product/market fit, in other words commercial success)… It’s better to let go of an otherwise beautiful idea than waste another 3 months or more, this way we can work on other ideas that might prove to be more worthwhile.”

    The beautiful ideas are the most dangerous for entrepreneurs because they are the hardest ones to kill. You’ll have rooms full of people telling you that you must go ahead and build the thing, it’s such a great idea.

    Then this.

    “I think I just want to go and work at Facebook. They made me an offer and [colleague] is going to work at Google…”

    I can’t blame anyone for taking a job with a large organization. Those are the easy transitions to make, at least publicly. As above, the outside world will judge your decision as a smart one.

    Ultimately, whether or not to kill your startup, to let it stumble along or to keep charging ahead is a personal decision. Sometimes when I read posts on why you shouldn’t ever give up, or why you shouldn’t freelance, or why you need to learn early (fail fast) I feel like it’s just too easy to say.

    No one can give you a blanket answer to question of how long to work on something. It comes down to the stage you’re at in your life, whether you’re learning and how you feel when you get up in the morning. Founders at heart are not motivated by money. Steve Blank once told a roomful of 500 startup people that in five years two of them would earn $100M (crowd cheers) and the other 498 would earn less than if they worked at Walmart (crowd laughs). But of course, everyone thinks that they’re among the two fortunate ones.

    “We decided to sell to [acquirer]. I’ll tell you how much we’re getting. It’s [next to nothing]. But it’s an exit and who knows, maybe next time…”

    Years ago I was surprised to learn just how common it was for founders to agree to small exits. That is, small to the point that you might as well have worked at Walmart (see above). It saves face for the founders and maybe gives them an edge the next time around.

    What would it take for you to give up?

  • When Does a Startup Accelerator Succeed?

    There’s a lot written about startup accelerators. At least, there’s a lot written by outside casual observers; very little is written about them from the inside. There are reasons for that. In my experience running an accelerator, I wouldn’t share much about the startups until after demo day (more about why in a later post).

    Before we go any further, let’s define “startup accelerator” as a program designed to speed up the development of a new business (usually tech), accepting applicants usually of early-stage companies for a defined length of time and granting a seed investment in exchange for equity. Accelerators usually also include mentorship from an internal team and external subject matter experts and concludes with a demo day where the companies show what they have built and discuss their future plans. If the startups want, additional funding is often planned to be raised at or after demo day.

    Major themes for the last couple years are that there are too many accelerators and that they don’t produce results.

    This begs the question “What makes a successful accelerator?”

    Success factors usually mentioned for accelerators.

    There are many different types of accelerator programs. They are usually measured the same way, but in reality many of them have different goals and have different factors of success. But the two most common ways accelerators are measured are:

    1. Funding raised by, or shortly after, demo day. This is a problematic measurement, especially for programs that operate where there are small local investment communities or where they focus on very early stage startups. I’ve also seen startups who are not even looking for funding post demo day. When did amount of money raised become a measurement of success for a startup?
    2. Survival rate after demo day. The question is who reports these numbers and where do they get the data. It is very easy for a startup to appear live when the founders have given up even if it hasn’t closed down. Plus, almost no one does the work to check on the numbers. For example, my old review of TechStars’ original published success rates (which seemed amazingly high when they first published them in late 2011) led me to lots of “zombie startups”. And those were just the ones I found. The great thing is that TechStars periodically updates their data. Now that I revisited that old post and compared it to TechStar’s results page, most of the startups that I listed as possible zombies on my old blog post are now marked as failed. At a minimum, the results from the most recent one year of their startups should be removed from the statistics. Those startups haven’t yet had time to fail or succeed. From the 25 startups I had in my first year running an accelerator and bootcamp, only one shut down, so that means my “success” rate is 96% if I measure myself the same way. That’s not a helpful way to think about a success metric.

    These factors have something in common — they are seemingly easy to measure so they become the standard of measurement. But they don’t really tell us what’s most meaningful.

    Instead, the focus should be some other qualities that are harder to measure

    Time and money saved not building something no one wants, but which would have kept the would-be entrepreneurs busy for months or years. I’ve seen a lot of startups that are really just a couple of guys with a hobby and a devotion to writing code to serve that hobby. How much do the companies at start point develop and where are they by end point? How far did people get over the program?

    Strength and involvement of the mentors. Are the mentors celebrity mentors, too busy to take time with the startups or are they perhaps not famous but dedicated to the success of the startups?

    Involvement of the accelerator with the startups after the program ends. Are there follow-ups? What’s the activity of the alumni network? What do the entrepreneurs go on to do five or ten years later?

    The accelerator’s success exiting from portfolio companies years later. Again, hard to measure because of the time lag and since the exit numbers are typically private.

    So, leave all that aside and decide what accelerator, if any, works best for you.

    Update to the above post…

    Rereading this post after years, I notice the following:
    – I have given up on using “accelerator” and “incubator” as distinct descriptors. The reasons are there has been extensive change in the way these programs work, at least at the edges (the mainstream is often still similar) and in general few people ever knew the difference between the two terms.

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