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June 24, 2015

The Critical Role of the #Startup Ecosystem - The Startup Revolution Series Part 4: Compass

How do you get your #startup started?



blue chip companies are becoming less and less able to be the primary drivers of the global economy and that the startups rising in their place are the only creators of net new jobs.
So if our entire global economic future rests on our ability to support the growth of startups, how do we help them thrive?

The Startup Revolution Series Part 4: The Critical Role of the Startup Ecosystem

— by Max Marmer and Cheyenne Richards

In our previous posts (The Great Transition: Industrial to Information RevolutionThe Decline of the Blue Chip and The Rise of the Startup), we’ve argued that we’re in the middle of an epochal societal transition from the Industrial Age to the Information Age, that blue chip companies are becoming less and less able to be the primary drivers of the global economy and that the startups rising in their place are the only creators of net new jobs.

So if our entire global economic future rests on our ability to support the growth of startups, how do we help them thrive? With a flourishing local ecosystem.

Wait... what? Aren’t internet businesses inherently global? Haven't tools like Skype and Basecamp made location meaningless? If successful traditional businesses get started every day around the world, why do startups need the special support of an ecosystem?

If you’re an experienced entrepreneur, the challenges described below may seem all too familiar and we invite you to provide your own thoughts in the comments section. For the rest of the world, still trying to understand the complex and unique drivers that either support or suppress startup growth, we hope this provides some additional perspective on the importance of the ecosystem.

High growth technology startups are very different from other businesses.

Different success rates

If you begin a traditional business, your odds of succeeding for the first two years are pretty good, around 75%. On the other hand, if you found a startup, even if your idea, team, product and plan are good enough to gain VC backing, you are 75% likely to fail.

That said, you’ll never find a local auto-body shop that reaches a Fortune 500 market cap or hires 10,000 employees, but there are hundreds of startups quickly pushing into those top echelons. This is such a critical point, it bears repeating. Startups rarely succeed, but when they do, they can succeed brilliantly.

Different financing needs

Banks invest in traditional small businesses. If you want to start a dry cleaners, you can make a good business case to a bank for why their loan to you is a solid investment. The bank can compare your projections to millions of other dry cleaners and plug it all into the time-worn risk/reward ratio for making loans. For a well-run bank, this is like being the house at a casino. You may win some and you may lose some, but at the end of the day, the odds are clear and in your favor, so you will win a lot more than you lose.

Venture Capital firms invest in late-stage, proven startups. If your startup has achieved profitability and can show a hockey-stick growth chart, you’ll have to hire a team of bouncers to keep away VC firms from all over the planet looking to fund the next stage of growth in exchange for a piece of your company. VC firms are, by and large, structured to make multi-million dollar investments in a small number of late-stage startups that they can shepherd from strong to stratospheric results.

If you want to start a SaaS company from ground zero, you are likely to fail before you can even agree on a catchy name. Plus, from the point of view of any standard bank your business model is so new there’s almost nothing to compare it to, which makes you a completely unacceptable risk. From the perspective of a VC firm, you’re also too new to be worth the time of day. So who fills the gap for early-stage startups?

The A team: Angels and Accelerators.

The angel investor spreads their investment over a large number of early-stage startups and takes a larger percentage of equity in return. The vast majority of their investments fail, just as one might lose many hands of poker. But the hope is that eventually that royal flush will come up and they’ll find themselves owning a huge chunk of the next ZenDesk or Salesforce.

Accelerator programs are essentially angel investors on steroids. Their business model centers around ‘hacking’ the early stage funding by preparing companies for their first investment, usually within 3 months from their own cash outlay. They invest at market terms, provide access to mentors and training on a broad set of startup-related subjects, and take 5-10% equity in the company.

How do angels and accelerators decide how to invest their resources when a startup entrepreneur has neither a traditional business plan nor multiple years of strong start-up results to show? Is it that killer idea that grabs their imagination?

The ‘great idea’ is perhaps one of the most mythical and misunderstood elements to the entire startup process. Ask anyone in Silicon Valley these days and they will tell you there are no more new ideas. The secretive culture of the late 90s that operated on 10-page non-disclosure agreements and NSA-like hierarchies of classified knowledge, has given away to a culture that understands execution trumps ideas. Today, to walk into any coffee shop south of Market Street in San Francisco, is to hear a dozen fully transparent pitches, challenges, value propositions, target customers and funding needs. It’s not that ideas don’t matter, it’s that they’ve learned that the hard work that differentiates winners from losers comes not in dreaming things up but in getting them done.

So the A Team doesn’t invest primarily in plans, results or ideas. What does that leave for companies that don’t yet have traction? People.

For all the modern tools the information revolution has produced, early-stage startup capital investment still relies on an old fashioned network of trust. Video-conferencing may allow people to communicate, but the ‘growth hack’ for building human trust has yet to be discovered. The majority of investment goes to people an investor has met at an in-person event.

Where can founders and early-stage investors find each other? In a thriving local startup ecosystem.

Different talent needs

Rare personalities

Working for a large company requires having the appropriate experience to match a job description. Day in and day out, there are written goals, established processes and predictable routines to help facilitate output. This type of work is analogous to traveling in a first world country where the trains run on time and the hotel can be booked in advance with your credit card.

Working for an early-stage startup requires figuring out what your job should be every day, how to accomplish things that have never been done before and when you should throw out everything that’s already been done and start over. This type of work is analogous to traveling in a third world country where the ferry is suddenly delayed at least two weeks and you don’t even know if the next town will have a hotel. Myers-Briggs typology? Keirsey temperament sorter? Pick your personality classification system and it will tell you that it is a rare sort of person indeed who has just the right combination of vision and execution, risk-taking profile and fear of failure motivation, leadership qualities and listening skills to be successful on a small start-up team.

Rare talent

Many people can read, write and solve math problems. Very few people can design a user experience to make a completely new process feel intuitive, or decide the right way to parse and visualize data to generate useful insights, or write a string of C# code that solves an unprecedented problem in a scalable way. To gain a sense of just how rare some of these necessary talents are, consider the Silicon Valley Competitiveness and Innovation Project 2015 report that demonstrated a stunning 70% of Silicon Valley software developers are foreign born. This finding is even more astounding considering an immigration environment that requires considerable work and investment by companies to get and keep visas for non-US employees.

Single geography

In-person conversations lead to innovation, especially for early-stage startups where the strategy is likely to change three times between 9am and 5pm, and the best work is often done by a core team after midnight over late-night pizza delivery. Success requires moving fast and pivoting even faster, in a race to find product/market fit before the money runs out. Often there is precious little time to send thoughtful updates to far-flung employees or account for multiple time zones. Look at the office layout of early-stage startups and often you won’t even find desks separated. Instead, the whole team sits around one large table so they can all hear every conversation and informally stay on the same — fast moving — page.

Where can an entrepreneur find the doubly rare combination of personality and talent necessary to build a successful start-up team? In a thriving local startup ecosystem.

Different inputs

If you start a pool cleaning service, odds are you don’t need several months worth of research to tell you what customers need. But for startups, the strategy changes and pivots mentioned in the previous section happen because good entrepreneurs get feedback from potential customers. Lots of feedback. This means founders need ready access to potential customers to shape their product as much as they need access to talent to build it. They need to sit down with these customers, ask questions, watch their processes, uncover their needs. They need structured usability sessions as well as tons of informal conversations about a particular space or pain point. Whether the target is a teenager for a mobile game or a CFO for an ERP system, easy access to a wide variety of potential customers is a requirement.

The same holds true for inputs from mentors. In a fast-paced world, no small early-stage startup team can be expected to know everything about growth strategies, financing, taxes, hiring laws, new technologies, marketing and how to set appropriate expectations internally and externally. Enter the mentor to provide crucial perspective, advice, context, contacts and inspiration to the founding team. This role is so critical, a Compass.co study, The Startup Genome Report, found that entrepreneurs with mentors had three and a half times more growth and raised seven times more money than those without.

Again, for all the technology being glamorized behind startup success, the truth is it is the human relationships that nourish it while the technology is playing catch up.

Where can an entrepreneur find the right concentration of many different types of customers and engaged mentors? Where the culture runs so deep that even the local gym offers free services in exchange for equity in your startup? In a thriving local startup ecosystem. (And yes, this is a Silicon Valley reality.)

Ecosystem winners and losers

All of these factors have led certain geographic locations to have dramatically higher concentrations of startups for decades. While it hasn’t yet been proven if a thriving ecosystem improves the success rates of each startup individually, it does act as a giant factory, producing massive numbers of startups by lubricating every step of the process. After that, it’s a numbers game. You produce enough startups and many of them are bound to be successful. Several of them even wildly successful.

“If you look at a list of US cities sorted by population, the number of successful startups per capita varies by orders of magnitude. Somehow it’s as if most places were sprayed with startupicide. I wondered about this for years. I could see the average town was like a roach motel for startup ambitions: smart, ambitious people went in, but no startups came out. But I was never able to figure out exactly what happened inside the motel—exactly what was killing all the potential startups. A couple weeks ago I finally figured it out. I was framing the question wrong. The problem is not that most towns kill startups. It’s that death is the default for startups, and most towns don’t save them.” — Paul Graham, founder of the leading startup accelerator YCombinator

To extend Paul’s analogy, startups are like seeds sprinkled onto the earth. Most will die. A few will cling to life. A few will take root and thrive into huge fields that feed entire populations — something needed by the entire world economy. So what is fertilizer for startups?

Paris in the 20’s was a hotspot for art. It wasn’t just the presence of painters alone that created the environment, but their support by a vast network of art dealers who could sell paintings and wealthy people who could buy them, which in turn attracted more painters, who saw what people were buying, who helped inspire the existing painters, who created more interesting work, that better supported the art dealers and so on.

So too is the word ecosystem applied to a successful startup environment for a reason. There is no one item that makes an ecosystem fail or thrive, but a combination of many contributing factors. The Startup Ecosystem Report 2015 from Compass.co and many global partners will delve deep into these factors and provide answers, ecosystem by ecosystem, across the globe. You can look for the report’s release in July 2015.





The untapped potential of #Africa’s #digital dividend - This is Africa


Many countries in Africa have missed the switch to digital. The longer they wait, the larger the cost to the societies, both in foregone revenues, but most importantly, they will continue to fall back in the course of their development.

The untapped potential of Africa’s ‘digital dividend’

Around a third of African countries are set to miss a global deadline for the transition to digital terrestrial broadcasting.
This delay could cause the region to forego over $50bn in estimated dividends from the switch - as well as social and cultural benefits.

By 17 June 2015, most of the world plans to switch off analogue broadcasting signals. This was the plan agreed in 2006 by the member states of the International Communication Union (ITU), the United Nations agency dedicated to information and communication technologies.

The deadline applies to 120 countries - including 24 African states - with a waiver until 2020 for another 34 countries in Africa and the Middle East.

However, as the date approaches, only Malawi, Mauritius, Mozambique, Rwanda and Tanzania have completed the switchover to digital terrestrial television (DTT), according to the ITU.

The main consequence of not meeting the digital migration deadline is that after June, analogue signals will no longer be protected from interference. The ITU forecasts problems may arise particularly in border areas where one state has transitioned to digital broadcasting and the neighbour has not, with the latter being responsible to resolve any harmful interference.

Digital broadcasting offers a number of advantages over analogue, according to the agency. For viewers, it means more programmes, interactivity and improved quality of image and sounds.

For TV operators and content providers, it means lower costs. DTT requires less energy to ensure the same coverage as analogue. One transmitter can broadcast multiple channels, which allows for shared infrastructure.

DTT also occupies less radio-frequency spectrum than analogue TV. Governments can profit from the sale of the frequencies freed by the migration - the so called “digital dividend” - to private operators. Part of the band released are set to be allocated to mobile broadband, according to ITU member agreements signed at summits in 2007 and 2012. This move would allow even more individuals to get online using their mobile phones.

The scale of the opportunity 

By not meeting the deadline African countries are missing out on a significant economic opportunity, according to Mortimer Hope, director for spectrum and public policy Africa at GSMA, a trade association representing the interests of mobile operators worldwide.

GSMA estimates that, under a best case scenario in which digital licensing could be rolled out across sub-Saharan Africa by June 2015, governments in the region could benefit from a total GDP increase of $49bn over the next five years, with a further $15bn increase in tax revenues by 2020.

Up to 200,000 new businesses could be created, as well as half a million jobs. This would mostly result from increased economic activity related to high speed internet, but also in sectors like broadcasting, digital content creation, and related technology solution provision, according to Mr Hope.

Existing companies could also start selling value-added services in the digital space, allowing them to move up value chain.

Mr Hope claims that given the delays in the transition, it is unlikely the region will benefit from the full potential of the digital migration by the end of the decade. However he notes that “if the transition is completed in the next couple of years, it could still bring about some $26bn in GDP boost by 2020”.

The main driver of the transition, however, should not be economic gains, points out François Rancy, director of the ITU’s Radiocommunication Bureau.

“The most important aspect of making the band available for broadband mobile is that all citizens in all the countries can have access to the internet,” he says. “[The digital migration allows] more extensive internet coverage, therefore reducing the digital divide” between those who have access, and those who do not.

“It would give a chance to all the population to be connected,” he claims.

According to the latest ITU data, Africa has experienced the strongest growth in mobile broadband subscriptions since 2010, with an over 800 percent increase in the past five years. However, it still has the lowest penetration rate in the world at 17.4 people out of every 100,000 people. This compares to 40.6 in the Middle East, 42.3 in Asia-Pacific, 49.7 in the Russian Commonwealth, 77.6 in the Americas and 78.2 in Europe.

Alongside increasing internet connectivity, the digital migration will also expand the opportunities for locally produced programming on broadcast television.

DTT can host more channels than analogue, which will in turn require more content to populate them. The decreased costs of making TV will also remove some of the barriers to entry of new players into the market, according to Meredith Beal, technology adviser for the Africa Media Initiative, a pan-African organisation that seeks to strengthen the continent’s private and independent media sector.

“[More companies will start] delivering content to a greater variety of people on a broader range of subjects,” he says. “I see opportunities in vernacular languages programmes, more thematic channels on hobbies, fashion and food, for example.”

A long process

Given these potential advantages, why has digital migration been delayed?

Some countries have experienced difficulties raising the money needed for the digital switchover. Funds are needed not only to upgrade the infrastructure but also to subsidise the purchase of set top boxes for households. The digital migration has also not been a political priority in many countries, while also facing resistance from analogue broadcasters who do not want more competition in the sector, according to the ITU’s Mr Rancy.

At least 19 African countries that agreed to the 2015 timeframe for transition are very unlikely to meet the June deadline. These include some large economies such as South Africa and Kenya. Nigeria is working towards a 2020 deadline.

But this does not mean nothing has been done. According to Sylvain Béletre, associate editor and senior research analyst at Balancing-Act, a consultancy that has been tracking the progress of the digital migration in Africa, DTT has been deployed in at least 23 African countries in parallel to analogue TV. Pre-deployment pilots have also been running in another 12 countries.

Meanwhile, the ITU acknowledges that the process of switching to DTT is long and complex – and while incomplete in many jurisdictions, efforts are being made. “We can certainly say that almost all African countries are seriously working on this issue,” Mr Rancy asserts.



June 14, 2015

Peacetime CEO/Wartime CEO

A classic from Ben Horowitz. The money phrase:  

Mastering both wartime and peacetime skill sets means understanding the many rules of management and knowing when to follow them and when to violate them.

Peacetime CEO/Wartime CEO

Ben's Blog
You’re lucky that I ain't the president
Cause I'll push the f*#king button and get it over with
F&$k all that waiting and procrastinating
And all that goddamn negotiating
—Bushwick Bill, Fuck a War
TOM HAGEN Mike, why am I out?
MICHAEL CORLEONE You're not a wartime consigliere. Things may get tough with the move we're trying.
—Scene from The Godfather
Recently, Eric Schmidt stepped down as CEO of Google and founder Larry Page took over. Much of the news coverage focused on Page’s ability to be the “face of Google” as Page is far more shy and introverted than the gregarious and articulate Schmidt. While an interesting issue, this analysis misses the main point. Eric Schmidt was much more than Google’s front man; as Google’s peacetime Chief Executive, he led the greatest technology business expansion in the last ten years. Larry Page, in contrast, seems to have determined that Google is moving into war and he clearly intends to be a wartime CEO. This will be a profound change for Google and the entire high-tech industry.

Definitions and Examples

Peacetime in business means those times when a company has a large advantage vs. the competition in its core market, and its market is growing. In times of peace, the company can focus on expanding the market and reinforcing the company's strengths.

In wartime, a company is fending off an imminent existential threat. Such a threat can come from a wide range of sources including competition, dramatic macro economic change, market change, supply chain change, and so forth. The great wartime CEO Andy Grove marvelously describes the forces that can take a company from peacetime to wartime in his book Only The Paranoid Survive.

A classic peacetime mission is Google’s effort to make the Internet faster. Google’s position in the search market is so dominant that they determined that anything that makes the Internet faster accrues to their benefit as it enables users to do more searches. As the clear market leader, they focus more on expanding the market than dealing with their search competitors. In contrast, a classic wartime mission was Andy Grove’s drive to get out of the memory business in the mid 1980s due to an irrepressible threat from the Japanese semiconductor companies. In this mission, the competitive threat—which could have bankrupted the company—was so great that Intel had to exit its core business, which employed 80% of its staff.

In my personal experience, I was a peacetime CEO for about 9 months, then a wartime CEO for the next 7 years. My greatest management discovery through that transition was that peacetime and wartime require radically different management styles. Interestingly, most management books describe peacetime CEO techniques while very few describe wartime. For example, a basic principle in most management books is that you should never embarrass an employee in a public setting. On the other hand, in a room filled with people, Andy Grove once said to an employee who entered the meeting late: “All I have in this world is time, and you are wasting my time.” Why such different approaches to management?

In peacetime, leaders must maximize and broaden the current opportunity. As a result, peacetime leaders employ techniques to encourage broad-based creativity and contribution across a diverse set of possible objectives. In wartime, by contrast, the company typically has a single bullet in the chamber and must, at all costs, hit the target. The company’s survival in wartime depends upon strict adherence and alignment to the mission.

When Steve Jobs returned to Apple, the company was weeks away from bankruptcy—a classic wartime scenario. He needed everyone to move with precision and follow his exact plan; there was no room for individual creativity outside of the core mission. In stark contrast, as Google achieved dominance in the search market, Google's management fostered peacetime innovation by enabling and even requiring every employee to spend 20% of their time on their own new projects.

Peacetime and Wartime management techniques can both be highly effective when employed in the right situations, but they are very different.  The Peacetime CEO does not resemble the Wartime CEO.

Peacetime CEO/Wartime CEO

Peacetime CEO knows that proper protocol leads to winning. Wartime CEO violates protocol in order to win.

Peacetime CEO focuses on the big picture and empowers her people to make detailed decisions. Wartime CEO cares about a speck of dust on a gnat’s ass if it interferes with the prime directive.

Peacetime CEO builds scalable, high volume recruiting machines. Wartime CEO does that, but also builds HR organizations that can execute layoffs.

Peacetime CEO spends time defining the culture. Wartime CEO lets the war define the culture.

Peacetime CEO always has a contingency plan. Wartime CEO knows that sometimes you gotta roll a hard six.

Peacetime CEO knows what to do with a big advantage. Wartime CEO is paranoid.

Peacetime CEO strives not to use profanity. Wartime CEO sometimes uses profanity purposefully.

Peacetime CEO thinks of the competition as other ships in a big ocean that may never engage. Wartime CEO thinks the competition is sneaking into her house and trying to kidnap her children.

Peacetime CEO aims to expand the market. Wartime CEO aims to win the market.

Peacetime CEO strives to tolerate deviations from the plan when coupled with effort and creativity.  Wartime CEO is completely intolerant.

Peacetime CEO does not raise her voice. Wartime CEO rarely speaks in a normal tone.

Peacetime CEO works to minimize conflict. Wartime CEO heightens the contradictions.

Peacetime CEO strives for broad based buy in. Wartime CEO neither indulges consensus-building nor tolerates disagreements.

Peacetime CEO sets big, hairy audacious goals. Wartime CEO is too busy fighting the enemy to read management books written by consultants who have never managed a fruit stand.

Peacetime CEO trains her employees to ensure satisfaction and career development. Wartime CEO trains her employees so they don’t get their ass shot off in the battle.

Peacetime CEO has rules like “we’re going to exit all businesses where we’re not number 1 or 2."  Wartime CEO often has no businesses that are number 1 or 2 and therefore does not have the luxury of following that rule.

Can a CEO Be Both?

Can a CEO build the skill sets to lead in both peacetime and wartime?

One could easily argue that I failed as a peacetime CEO, but succeeded as a wartime one. John Chambers had a great run as peacetime CEO of Cisco, but has struggled as Cisco has moved into war with Juniper, HP, and a range of new competitors. Steve Jobs, who employs a classical wartime management style, removed himself as CEO of Apple in the 1980s during their longest period of peace before coming back to Apple for a spectacular run more than a decade later during their most intense war period.

I believe that the answer is yes, but it’s hard. Mastering both wartime and peacetime skill sets means understanding the many rules of management and knowing when to follow them and when to violate them.

Be aware that management books tend to be written by management consultants who study successful companies during their times of peace. As a result, the resulting books describe the methods of peacetime CEOs. In fact, other than the books written by Andy Grove, I don’t know of any management books that teach you how to manage in wartime like Steve Jobs or Andy Grove.

Back to the Beginning

In the Search Market, Google remains dominant, but in social networking Google must come from behind. Will Google soar or struggle under Page? That depends on how effective a wartime CEO he turns out to be. It may depend even more on whether the most characteristically peacetime company in the industry can make the cultural transition into war.



Read the article online here: Peacetime CEO/Wartime CEO - Ben's Blog


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June 10, 2015

Wall St. Courts #StartUps It Once May Have Ignored #FinTech @NYTimes


Wall St. Courts Start-Ups It Once May Have Ignored

On the first day of a hackathon at the Manhattan headquarters of Goldman Sachs, participants from the Wall Street bank showed up in suits. The programmers from Kensho, a start-up that had recently gotten money from Goldman, were there in jeans and ripped shirts.

The next day, many of the Goldman employees took off their jackets and ties. And the day after that, many of the Goldman employees were wearing the gray hoodies and Beats headphones that had been made especially for the event. (This being Goldman Sachs, the headphones were custom engraved — “GS Kensho Hackathon 2015” — to commemorate the occasion.)

The evolution of the dress code during the hackathon was one indication of the changing relationship between Wall Street banks like Goldman and start-ups like Kensho, a data analytics company, which received a $15 million investment late last year in a financing round led by Goldman.

In the past, Goldman and its big competitors kept their distance from start-ups like Kensho that were trying to disrupt the Wall Street business model — especially start-ups as young as Kensho, which was founded in 2013. Goldman and many other Wall Street banks have historically done most of their significant technological developments in-house, viewing their business as the product of decades of experience.




Wall St. Courts Start-Ups It Once May Have Ignored - NYTimes.com






June 03, 2015

What @Twitter Can Be. #LOWERCASE capital

Chris @Sacca's 8500 word piece on Twitter.  Here is an excerpt:

First, I want to apologize to those of you working in the sensationalist clickbait mines, but this post is not a hit piece. I never said it would be. I am not here to slam the company nor the team. I am not an activist investor. I am a proud Twitter shareholder and Twitter user. I want this company to succeed. I want the people who work at Twitter to win. I want this stock to be worth more. I own more of it than virtually anyone working at the company. So with that kind of skin in the game, I wrote:

“I am going to post a few things that I personally hope the Twitter team will accomplish.”
If at any point I do sound critical or impatient, it is because I believe Twitter can be so much more than it is today. I assume each one of you who owns Twitter shares, and every single one of you who works at the company would agree. Candidly, I have no doubt that Twitter users have 302 million monthly active opinions as to how the product could be
better.


Read the whole piece here: What Twitter Can Be. | LOWERCASE capital

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