Whadaya think happens when 15,000 people get behind the entrepreneurs in their own neighborhood? Good things—that’s what happens! Energy. Enthusiasm. Stuff gets done! Lemme tell you about it: Continue reading
“I am sick and tired of the word startup. It seems like everyone and their mother has a startup today, I might even start calling the Vietnamese grocery store next doors a food startup.”
Above is part of a response to a recent article of mine that discussed the ambitions of entrepreneurs in Europe and the fact that too many of them focused on local businesses. It is an example of several comments that addressed a growing phenomenon in our region, let’s call it a startup hype.
Definition of a startup
I don’t know whether or not we are experiencing a startup hype. I wouldn’t even know how to define it, measure it or prove its presence or absence and I am not sure if it is worth anyone’s time to do so. But if I was to side with the claim that our region is experiencing a startup hype, I would argue that there is a paradox: we are experiencing a startup hype despite the fact that there are very few actual startups. And part of the reason for such paradox would be the ambiguity surrounding the definition of what a startup is.
Trying to define a startup is a risky affair that I am not going to undertake. Instead, I am going to steal a definition from Paul Graham’s widely circulated article on growth. It makes excellent points on many topics which are worth separate posts, including why it is beneficial for profitable companies to take outside investment or why so many people hate the word startup for wrong reasons.
Paul Graham defines startup as a “company designed to grow fast”. Not just a company that grows fast, since most startups fail (his article explains why), but a company that makes an explicit commitment to grow fast. Such commitment already makes a huge difference as it accents a mindset rather than a factual description — which is exactly what we believe in at Credo Ventures as well.
Of course, the natural question is to ask how fast is fast. Paul Graham’s Y Combinator companies that he considers good grow between 5-7% a week, the exceptional ones at 10%. Ideally in revenue, although Paul Graham explains why the next best metric is active users. A typical company at Y Combinator makes about a $1,000 per week at the beginning of the program.
The natural follow on question is to ask for what period of time. The length of the exponential growth naturally defines how successful the startup will be. Paul Graham makes an example of a company, which grows from $1,000 by 5% for 4 years (and thus makes $25 MM a month in revenue). A great article by Jules Maltz shows what kind of growth do successful companies experience in more mature stages, four years before their IPO.
So how many startups does our region really have?
The point of this post is not to argue whether 2%, 5% or 10% is the right weekly growth. Nor it is to argue that startups should grow by such rate for 2 years, 4 or 8. The point is that if we look at the number of companies in our region that are at least attempting to generate such growth numbers or even thinking of reaching something like $25 MM in monthly revenue (real company net revenue, not value of processed transactions) in four years or even eight, we could cross out vast majority of companies that call themselves startups. I would call them small to medium sized businesses. The end of the startup hype.
Surely a lot of our entrepreneurs will say that such growth is impossible to achieve in a single European country. And yes, the second point of this post is to say that it is very hard. Actually one could make the case it is harder here than in the United States, China or India. But not impossible. I have seen at Benson Oak how our portfolio company AVG grew from low single digits MM in revenues in 2003 to USD 180 MM in 2009. From Brno. Czech Republic, it was later stage than Y Combinator’s companies with $1,000 of monthly revenue, therefore I suppose a revenue CAGR nearing 100% is still pretty good given the company stage. And the 2009 revenue had doubled by 2012 with current valuation of USD 1.2 Bln.
The case for building startups being harder for us in Europe is based on our small domestic markets: companies in China or India can be startups even with a ‘local’ business idea, because their definition of local is in hundreds of millions of potential users. I bow in front of those entrepreneurs who can achieve startup-like growth for a prolonged period of time by having a single-country focus in Europe. They are truly masters of business execution. But based on Paul Graham’s logic I would argue that if we want to run a startup in our region, and achieve startup-like growth, we would have an easier time starting with the premise that we want to build a global company and thus start businesses that stand the test of global competition.
Some globally celebrated entrepreneurs like Richard Branson made their first successes with local businesses such as “CD shops” or virtual mobile operator. But Branson executed them well in a market much bigger than our region. He might have even experienced the kind of growth Paul Graham expects to see in a startup. And those ‘local’ businesses made him a fortune big enough to finance his own space program. I have serious doubts that a local business in Europe will give us a chance to finance our own space program (most likely not even a chance to go through someone else’s program). Maybe I am wrong. But for all those who want to leave their own mark in the universe, I think you have better odds with sticking to a global startup. And for those who don’t, that’s fine, there is nothing wrong with a small to medium sized business. Heck, even big sized business. Just don’t call your company a startup, you will help avoid the startup hype.
Google today announced that it has acquired Spider.io, a London-based cyber security firm that combats online advertising fraud. Terms of the deal were not disclosed, although Google said it would be using the startup’s detection system to improve its display and video ad services.
“By including Spider.io’s fraud fighting expertise in our products, we can scale our efforts to weed out bad actors and improve the entire digital ecosystem,” Neal Mohan, Google’s vice president for display advertising said.
Online ad fraud is a huge problem, whereby advertizers pay for exposure and clicks on the Web that are actually powered by bots, networks of hijacked devices and other non-human traffic. Therefore, advertizers are paying large sums of money for impressions that won’t result in new customers.
With Spider.io, Google hopes to improve the accuracy of the information it gives advertizers, resulting in a “a clearer, cleaner picture of what campaigns and media are truly delivering strong results.” We’ll have to wait and see.
Image Credit: PHILIPPE HUGUEN/AFP/Getty Images
Too many entrepreneurs are just out to exploit a new market or emerging trend and have very little passion for their product. With neither first hand experience of the market or empathy for their customers they rely purely third party research and cloning an existing business model. They see other startups flocking to a burgeoning market and try to grab their own piece of the pie. What was initially a “blue ocean” soon turns into a “shark infested waters” consisting of nearly indistinguishable products. Their only differentiators beings slightly different bootstrap themes or an extra useless feature.
However, if you build your startup around your passions and what interests you then you will have a much better chance of finding a niche and owning a market. By scratching your own itch and tackling problems you’ve experienced you have the advantage of using your insight to more quickly develop a winning business strategy. Since you are your own target audience you are more likely to know people with similar issues or at least know how to get it touch with them.
What are the main challenges to building a successful startup?
- Having a genuinely good idea (i.e. building something customers love)
- Being able to execute on that idea (i.e. having the skills and resources to make the idea reality)
- Keeping that idea alive (i.e. developing a sustainable business model)
So how can you overcome these challenges in a shorter amount of time and wasting as little money as possible? Here are my 5 simple steps to get you going:
Step 1 — Shape your vision
Think about things that anger you in the world. Ideally focus on things that affect you; that you’re passionate about; and would love to change. Create a vision in your head of what the world would look like if these things WERE fixed. Articulate this vision as clearly as possible, share it with others and use their feedback to make it even clearer. Then turn it into a story that inspires and excites people. You want to have a vision and story that even your grandmother will understand (as well as the rest of her bridge club).
Step 2 — Define your purpose
Why does your startup exist? How will it help to achieve your vision?What is its mission? Is the purpose of your startup to create joy or remove pain? Is it a vitamin or a painkiller?
Vitamins (joy creators) feed a previously untapped need or create a new behaviour/experience. In my opinion Facebook is a vitamin. It didn’t tackle a specific problem but it did elicit a new type of interaction between people.
A painkiller on the other hand addresses a very specific, existing problem. Its purpose is well defined and it is easier to measure its value. Basecamp is a painkiller. It tackles the problem of managing projects with distributed teams.
I believe painkillers are a lot less risky to build than vitamins. The issues they tackle are more tangible and easier to understand. If speed is of the essence then trying to find painkillers is a safer bet.
Once you’ve decided that you’re a painkiller then you’ll need to create a prioritised list of all the problems to tackle. Pick the top three, making sure that they’re high value problems (i.e. the ones that people would pay to have solved). The purpose of your startup is to tackle these.
Step 3 — Take stock of your resources
What skills do you possess? How could you use these skills to fulfil your startup’s purpose? Do you know people with skills that could help you?
If you have all the skills you need to get started then great. You can move quickly. However, if you have to start employing people; make strategic partnerships; or engage with a supplier, then having defined your vision and purpose will be essential if you want to avoid wasting time and money. Your vision and purpose will help these people understand what you’re trying to achieve much better than any feature list or project brief.
Having taken stock of your resources you can now assess whether the problems you identified in the previous step can be tackled by your team. If they can’t you may have to got back to Step 2 and do some refinement around your purpose.
Step 4 — Build your community
As mentioned above if you’re creating something you’re passionate about, identifying your target market should be easy. They’re essentially people like you and so finding early adopters should be relatively quick. Furthermore, if your vision is inspirational enough you can turn these early adopters into evangelists. For early stage startups it’s hard to know whether you’re on the right track and so you want avoid expensive marketing campaigns at the beginning. Your early evangelists will be do this marketing for you at no cost. They will believe so strongly in your vision that they’ll be willing to spread the word. This is where having an engaging story will help, as it will mean the word will spread even faster.
This is may all sound a bit cult-like, but the principles aren’t far off. Make your mission inspirational enough and you’ll have believers and followers appearing from all directions.
Step 5 — Stay focused
Throughout the early stages of your startup you’ll get conflicting advice from many different sources. While most people will have the best intentions their opinions will be biased by their own experiences and their own perception of what you’re doing. Some advice will be good but a lot will be distracting. Having a clearly defined vision will stop you getting sidetracked and led off in an unproductive tangent. Since you’re working in an area that you’re passionate about you will always be the best person to judge on the relevance of any advice. You won’t be tempted by short term gains as you will be focused on fulfilling your purpose and achieving your vision. Believe in your gut!
So getting back to the title of this blog post: by creating an inspirational shareable vision you’re more likely to attract fanatical customers (i.e. create a product people love). And by using the skills and resources at your disposal you will be able to build something in a much shorter time with no need for funding (i.e. quicker and for less money).
Startup Edition is a curated gathering of bloggers in the startup community, sharing their wisdom and response to a single question each week.
Hiten Shah recently shared these words with me on MessageMe:
The more you blog, the less you are building.
I’m currently parked at blogging HQ, Philz Coffee, writing. I write frequently, dedicating 1-3 hours every day and publishing up to three posts each week (I have a dozen unpublished essays finished in my “queue”). Many people have asked why I spend so much time writing, sometimes criticizing this daily routine and questioning its value.
To Blog or Not to Blog
Recently there’s been a surge of debate in the startup community on the value of blogging, kicked off by this tweet by Keith Rabois:
I disagree with Keith’s hyperbolic statement — I can name several successful founders that blog regularly — however, there is some truth to his argument. For 95% of us, blogging is very time-consuming. The attention it brings is also distracting, as one’s Twitter stream and email inbox flood with ego-boosting appreciation.
Blogging takes focus away from other things, including your startup. As Nabeel Hyatt points out, many founders ebb and flow in this blogging routine. Take Ev Williams as an example. When his new startup, Medium, first launched, he regularly published on the new platform but in recent months he’s remained largely silent. Why? Probably to focus on Medium.
Why I Write
I write for many reasons. I get tremendous intrinsic and extrinsic value from it. This daily habit helps me hone an important soft skill: communication. My writing abilities have improved, as evident by the embarrassment I feel reading blog posts I wrote six months ago.
Blogging is a joy. I use it as a vehicle to explore product design, deconstructing the psychology and growth tactics used in many of today’s most successful consumer products.
In doing so, I have built an audience of interested startup enthusiasts, providing me a platform of followers for experimentation and distribution of new startup ideas. Most people start marketing after they conceive of a startup idea or release a product. In reality, marketing can begin before a startup’s inception.
But what’s most rewarding is the feedback and appreciation I receive from readers. Not to sound egotistical, but several founders have informed me that something I wrote, provided them with new perspectives, sometimes changing the way they build their startup and even their own life.
I Won’t Always Blog This Much
But like Ev, I won’t always blog this often. I’m currently in-between roles, exploring opportunities for my next full-time, all-in startup adventure. I blog for the reasons above but it’s also strategic.
Blogging has opened several opportunities to meet amazing entrepreneurs, advise startups, and job offers. Blogging is the new resume — amplifying one’s experience, talent, and way of thinking in a more scaleable way than one-on-one communications. Fortunately, I’m in a position to invest in my blog without sacrificing focus in building a startup.
: Many other bloggers have weighed in on this topic:
- Successful Entrepreneurs Do Not Blog? — Mark Birch
- Should entrepreneurs blog? — Chris Yeh
- All Entrepreneurs Should Blog — William Mougayar
: Here are a few founders I respect that actively blog:
This essay was inspired by this week’s Startup Edition, “Why do you write?”. Visit Startup Edition to read more responses from other entrepreneurs.
What’s been going on?
There’s a whole lot of fluff in the entrepreneurial world. More than ever before, people are claiming the self-recognition that comes along with “working on a startup.” Dreams of calling the shots, moving to a fantabulous house in Silicon Valley, and partaking in evenings on the town with other swanky “do-it-yourselfers” really gets a person thinking. Images of driving a freshly-minted Tesla up and down the coast, complete with unbuttoned Ralph Lauren shirt, windblown hair, and giving a noticeable yet deeply casual nod to a few screaming fans—who without a doubt noticed you speed by them in a most rebellious fashion—is what it is all about.
It all seems very real—fundamentally achievable. If so many others can do it, why can’t you? After all, your idea alone is worth a million bucks!
But entrepreneurship is about more than having an idea. No matter which way you approach it, a startup isn’t worth a damn until you take that idea and execute on it, no matter how ugly the first rendition may be.
Startups fail every day because someone tries to “look the part.” You know the story: a team finds some capital to get their business off the ground. Somewhere along the journey, the money gets spent on awesome office space, a plethora of SaaS applications, and perfecting what their product “ought to be,” according to nobody’s opinion but their own.
Successful entrepreneurs are rarely armed to the teeth with expensive software applications. “Awesome office space” is a basement decorated with spider webs and wrinkled punk rock posters. Any product perfection has been accomplished by cornering random people at gas stations and begging for any sort of substance in the answers they give. Desperate times, right?
If you want to be a successful entrepreneur, you have to hold these five indispensable traits—traits that go far beyond just “looking the part.”
The first time you start a company, it’s going to be rough. There are going to be days, weeks, or entire months where it just seems like the world is against you. Maybe you lose a big lead or fail to impress the investor that was promising to “take you to the next level.” Sometimes it’s more personal—you lose a loved one, call it quits with your significant other, or break your arm twerking in a subway station. There are a number of things that could be potentially hostile to your startup’s health.
Remember: these setbacks are temporary. In some instances they’re a normal part of starting a company. There are always going to be “weeding out” procedures that the entrepreneurial realm will throw at you regardless of the precautions you take. Accept them with a smile. If you can find your way over the obstacles, you’re in a much better position than 90% of your cohorts. “It’s all about perspiration” is a mantra that has long been worn out, but it’s still as true as ever. Being smart is one thing; learning how to cope with setbacks is a different (more rewarding) attribute altogether.
Know your metrics
It’s difficult for me to kindly express the importance of knowing your metrics. Whether you have 1 customer or 100,000 customers, keeping a close eye on the engine of your company’s growth is the most important thing you can do. I can’t reiterate that enough.
Metrics go far beyond profit margins, though. What is your monthly burn rate? How much are you spending on customer acquisition (CPA), and what can you do to lower that cost? Do you know the Lifetime Value (LTV) of your average patron? Monthly churn rate? K-factor? All of these metrics carry their own importance. Learn to read them, measure them, and love them—they are any successful entrepreneur’s best friend.
Cater to others
These days, it doesn’t mean much to be CEO. Sure, you get to carry around a business card that declares your perceived superiority. And yes, technically your opinion is the ultimate “trump card” when it comes to decision-making. But that’s where the coolness ends. You’re not going to accomplish jack-diddly without that handful of people standing behind your every decision. You know: the people who come in to work smiling each day, ready and willing to work a 14-hour shift and receive compensation far below their fair market value. The ones who abandon their families for abnormally long periods of time, only because they believe in your company’s vision as much as you do. The same people who—at one time or another—you’ve regarded as “my employees.”
But startups don’t have “employees.” They have team members. If a large corporation discourages someone to the point of termination, they contact a department supervisor and tell them to fill the gap. If a startup makes the same mistake it can be fatal.
Imagine for a second: you distress your PR director during a product launch to the point where she can’t stand working for your company any longer. No problem—you’ll just assign her duties to your marketing lead. Within a day or two, your marketing image starts taking a nose dive. “Hey, sales team! Help out with marketing, eh?” Pretty soon, you have your customer service representatives handling sales, your girlfriend handling support tickets, and your dog handling employee satisfaction, bookkeeping, and lunch orders. All because you couldn’t ensure the happiness of your teammate. Shame on you!
Bottom line: do everything you can to keep your team smiling throughout the day. Your success depends on it.
Don’t expect short-term success
“Dude, it’s not a Ponzi scheme. The website told me so.”
I hate to say it, but I think a ton of people are joining the entrepreneurial realm for a chance at getting a quick win. In many cases, it seems more worthwhile to pursue a future like the guys you see on any given MLM site then to worry about developing your own business idea. “Make guaranteed money” sounds like a good deal to me!
99% of businesses don’t achieve overnight success, contrary to what the Internet says. Some may get lucky with a viral marketing campaign or squeezing underneath Google’s radar for a more spam-tastic approach, but you can’t expect to have similar results. Launching a startup takes sweat, brains, and (figurative) balls. Anyone who promises you otherwise is a thieving jackal. Promise me you’ll never go that route. Promise? Ok, good!
Leave a (good) footprint
Back in the day, companies cared about squeezing out the highest possible profit margins, even if it detracted from their employees or customers. It was all about the numbers—finite and objective. Your investors expected certain results. Screw it up, and you’re in hot water.
Gen Y is reshaping how we conduct global business. Team member happiness is a major priority. Customer retention measures are more pressing than ever before. Sustainability, moral practices, and strict social responsibilities are written in to the ethos of the majority of new startups. These metrics aren’t objective—they can’t be measured as easily as traditional data points. But we’re finding that, in many cases, they’re just as important as any typical business practice. Your customers care about the footprint you’re leaving. Make sure it’s a good one.
At the end of the day, real entrepreneurs will rise above those who are in it for the glory. Sometimes it takes years to occur; sometimes it takes weeks. Entrepreneurship is about more than trophies. It’s about more than fancy cars, star-studded parties, and a fan base. Starting a business isn’t easy, and most people will never sweat enough to see their vision through. It’s a rough journey, and there are many, many obstacles standing in your way. If creating a better future were easy, we’d have already done it all. Adopt these five traits, and you’ll be impossible to stop.
The world is waiting for you. Get to work!