Tag Archives: accelerators

Seek the Contrarian: What to Expect of a Good Entrepreneurship Program

Insights / Research, Local, Startup Ecosystems, Startups, , , ,

In a speech in Paris, in 1910, Theodore Roosevelt remarked the often encouraged, “Comparison Is the Thief of Joy.” That, when we compare ourselves to others, we rob ourselves of our own happiness as, through comparison, we either feel a sense of inferiority or superiority.

What we see in entrepreneurship and among founders is this manifest as something referred to as imposter syndrome, the misleading but persistent feeling of self-doubt or inadequacy, despite evident success, which misaligns reality with one’s internal perception, undermining confidence and self-worth. Feeling imposter syndrome nearly reinforces Roosevelt’s mental health related turn of the phrase, encouraging that entrepreneurs too should keep their head down, execute, and seek validation.

There couldn’t be any notion more harmful to entrepreneurs.

Comparison is the Gift of Opportunity

Starting a venture distinct from existing businesses (a startup), entrepreneurs must act to avoid the causes of failure more than hoping they are essentially unique among mortals, themselves likely to be the 1% that greatly succeeds. Entrepreneurs are taking on the different, the broken, the new, and the difficult, hoping to make the world a better place while creating value in the process, doing so without comparison (a competitive analysis) is not only dangerous, but also simply stupid.

Entrepreneurship is in many ways, a world in which good intentions can seem harsh, while positive support is actually harmful.

You need to be told your baby is ugly, it’s harsh, but it helps you avoid wasting your time and money.

That entrepreneur program that encourages that everyone can do it, isn’t inspiring, it’s misleading people who can’t, or shouldn’t, that they should pay to try.

Comparison is a competitive analysis and the only way you can actually determine if an opportunity for a startup is NOT through customers but competitors: Are there any? Can you compete? How do they succeed? Can you achieve that or accomplish other things necessary? Can you overcome their accomplishment?

Most entrepreneurs don’t do this and as a result, most fail.

Common Pitfalls that Entrepreneurship Programs Should Help Startups Avoid

What sparked this consideration of comparison is that I was asked provocatively, since I have a tendency to be critical of incubators and accelerators that aren’t actually helping founders, “what should we demand of programs?”

If you run down the list of what causes failures (overwhelming such that arguably all startups fail because of this) we have three areas of focus:

  1. Team
  2. Marketing
  3. Location (though this is really just a subset of #2)

So, rather, what are some common pitfalls that GOOD entrepreneurship programs MUST help startups avoid?

Notice, the CAUSES of failure is not in fact what most entrepreneurship programs offer (or claim to offer). I did a brief look at a dozen local incubator websites to find these are the benefits typically promoted:

  • Access to capital
  • Coworking space
  • Networking
  • Free credits to HubSpot
  • AWS infrastructure

When a startup space or entrepreneurship program is leading with these benefits, they probably aren’t actually doing what’s meaningful to help. Ask yourself, is there anything there that you actually need?

TEAM

What causes a failure because of team could be any number of things from the wrong skillsets, inexperience, misalignment, life changes, and irreconcilable disagreement.

Meaning an entrepreneurship program should do what with and for you?

  • Personality assessments
  • Developing Mission and Vision
  • Clarifying personal and startup NEEDS and desires, both now and in the future
  • Teaching the makeup of a startup that tends to work
  • Aligning priorities and expectations
  • Providing team agreements that require vesting and address failing to perform

All of this is well researched. We know which personality types tend to perform as entrepreneurs and which personality types work well together. We know the skills and experience required in a startup team likely to succeed.

MARKETING

Marketing is not promoting what you’re doing! If you think it is, you’re already likely to fail. Study the market, know what might work, how, what’s valued, know the competition, know the investors, and know what has failed before. We can tell you’re likely to fail if you’ve already built and MVP or send a pitch deck seeking funding (as it’s clear you didn’t to this first and foremost).

Meaning an entrepreneurship program should do what with and for you?

  • Competitive analysis
  • SWOT analysis
  • Communication development and practice
  • Effective content creation
  • Market research
  • Market (which is inclusive of and more than customer) validation

LOCATION

ARE YOU IN THE RIGHT PLACE?

One of the most repeated sayings in marketing is “location, location, location” because this alone will cause your success or failure…

  • Right city? Or are you trying where you are because you want to be there?
  • Right country? Just because you live there… if it’s better elsewhere?
  • Downtown? Ah, I see, are all best resources for that sector downtown? Isn’t it expensive?
  • Website or Mobile? Sure, you’re a mobile developer so you think so… do you KNOW?
  • iOS or Android? “But Paul, everyone loves iPhone and I’m an iPhone developer”
  • Facebook? “No, our customers aren’t on Facebook.”

The work to determine the ideal location is what we call marketing. When a founder proclaims they aren’t ready to do marketing (or worse, an advisor or investor misleads a founder in the same way), we KNOW they are going to fail.

An entrepreneurship program failing any of this, should see its doors shuttered because in failing this, they are misleading you or misrepresenting what is researched and known to matter. What you might seek from an entrepreneurship program is a program director who in fact says, “you should not be here, we’re not ideal for that.”

I often look at this in reverse when qualifying a program:

  1. LOCATION: Is the program pushing that here is best for you? Is the program pushing that HERE in particular is capable of helping everyone? They may not be intentionally lying but if not, they’re ignorant – why would you want to be there? What they would be doing is saying “Not that,” “Not here,” “We can’t…” — helping REMOVE for you the risk of being in the wrong place – helping you remove the known causes of failure.
  2. MARKETING: How they handle an assessment of location effectively already tells me how they handle marketing (as they too should be in the right location for the right reasons). But let’s look more at what they’re doing… Are they creating compelling content? Are they monetizing the right customers as an entrepreneurship program (hint, you the founder aren’t a customer). If they fail marketing on their own behalf, how can they capably help you through the same? And by the way, evidence of successful marketing is NOT “popular” or “growing” — that’s the result of promotion, support, or attention. If the program is huge but charging founders merely to host office hours, they aren’t MARKETING effectively, they’re merely cannibalizing (and beloved for it).
  3. TEAM: The reason assessing a program by going through my list from end to beginning works, is because if we’ve failed location and we’re not sure about marketing, they aren’t going to be helpful in developing your team. What more can we explore of a program in this case? Do they help “all” entrepreneurs? Then how likely are they to know and find the right people for you?? Beyond that, look too at their team – is turnover high? are previous team members happy with them? what is private sentiment, distinct from public sentiment? Keep in mind, revenue is a consequence of having customers — revenue doesn’t necessarily mean the business, the marketing, or the team, is actually any good at what they’re doing.

All entrepreneurship programs MUST EFFECTIVELY ensure founders overcome the causes of failure: wrong place, misunderstanding or failing marketing, and a team set up to fail. If not, they’re just taking advantage of you under a guise of good intentions.

Notice, I’m being contrarian. Most entrepreneur programs promote the access to a community, space in which to work, and encourage office hours with mentors, and yet let’s be blunt, none of that correlates with your success or failure. What I’m saying might seem harsh (to some) but in entrepreneurship, criticism helps while a false sense of opportunity and encouragement harms. What might help us all overcome that sense of imposter syndrome, is rather than internalizing it, putting it out in the world to see if in fact others are merely imposters trying to help; we’re all struggling through our work as entrepreneurs, and only those who are open about their challenges, honest about their capabilities, and questioning everything, succeed.

Why Accelerators Fail Startup Founders

Featured, Industry, Insights / Research, Startup Ecosystems, Startups, , , , ,

Let’s take the two most distributed Startup Development Organizations in the world, and tease  out what’s happening In a point of fact: overwhelming most Accelerators *fail* founders; but why?

With such a bold assertion, let me properly set the stage by pointing out that when 90% or more of all startups fail rather quickly, it’s not a criticism that most continue to fail through Startup Development Organization.  The fact is that the world simply can’t sustain everyone launching so many ventures doing similar things.  What I want to explore with you is why *most* seem to fail to meaningfully improve upon the averages.

Two most distributed Startup Development Organizations: Techstars and Founder Institute.

These two are not the same thing. The only similarity might be the fact that they have grown to operate locally, depending on local directors, mentors, and investors.

People often shine a light on YCombinator but a distinction of YC is that it’s almost entirely run through Silicon Valley. These two programs, which I’ve referred to as distributed, are not because they are operated more locally (which is what I mean by being the most distributed).

Until about 2005, “startups” in the modern sense of the word, were almost entirely based in N. California. I say “modern sense” because it’s critical to appreciate that while a startup is still, as it has always been: a startup, what happened before 2005 is that the internet was born and quite literally changed every industry. Where that largely started was Silicon Valley… meaning the experience, the partners, the investors, and opportunities, were as it pertained to the internet (for the most part) there.

Please don’t misconstrue that as praise of Silicon Valley and admonishment of elsewhere. I’m not saying “Silicon Valley” is better or that the way things operate there is ideal… Rather, in figuring out how anything works well (or doesn’t work well), we have to be pragmatic and realistic about the circumstances of how something is run – and overwhelmingly most internet-oriented talent, money, companies, and experience, then, was there.

A “startup” is still fundamentally a temporary venture in search of a new business model and that hold true everywhere while also explaining why a startup is NOT “tech” or internet specific things – but since the internet CHANGED *everything* about our world; the likelihood of a new business model (a startup) having an impact in any sector quickly became dependent on the internet and experience with it. It would take a decade (or more) for that experience to move from Silicon Valley (as it did to Austin, Texas) or mature elsewhere (as it certainly is now).

But let’s not wade into startups or the history of the internet too much, let’s get back to Accelerators and why/how so many fail to meaningfully support founders.

First, what would it mean to meaningfully support founders?

If the average rate of success of startups is around 10% (90% of startups fail), then we can easily expect that the rate of success through an Accelerator is greater. Yes? Challenging Startup Development Organizations is the fact that a 20% success rate is an astounding 100% improvement on our economy and yet, it also means 80% still fail (and that’s a lot of disappointed founders). Bottom line, anything north of 1 in 10 being successful could well mean that the program had a positive impact.

What is it that we can EXPECT that reinforces that an Accelerator would have a greater rate of success?

  1. Accelerators don’t (shouldn’t) take on every founder. They are curating what can get in; presumably selecting ventures more likely to succeed. Our noble intentions to help everyone who wants to be an entrepreneur aside, the facts are well researched that few are capable, the market only has room for so many ventures, and we know what causes startups to fail – with this in mind, it’s realistic that a good Accelerator will *not* support everyone.
  2. They accelerate – whatever that might mean, we can safely conclude that it means they will provide resources or do things that result in a startup accomplishing more, faster.
  3. They connect by making it easier for entrepreneurs to find anyone who might be meaningful to what they’re doing, saving time and money, while avoiding bad advice or wasted cycles in founders who might otherwise talk to the wrong people.

Begging now the question, why might said program NOT be impactful?

  1. They do try to help everyone OR (more likely) the program directors have an agenda or little startup experience – in either case, onboarding founders who are not likely to succeed. The danger in this is not that it would keep the rate of success lower; the issue being that startups and founders who shouldn’t be accelerated, take time, talent, and resources, AWAY from the ventures that might.
  2. Are they actually accelerating or are they just using that word? What would be required to “accelerate”? Probably, things like PR, marketing, capital, or even some development resources (be those software developers or business developers helping close partnerships). Let’s be blunt, if an “Accelerator” isn’t “Accelerating” then they are a drain on your startup community and they’re misleading founders and investors – likely contributing to a higher-than-average rate of failure.
  3. Most so-called Accelerators, I find, operate locally, and with the greatest respect to the good intention, a network of the ideal mentors, investors, or other resources for a startup are NOT within your neighborhood. Is the Accelerator actually connecting founders with EVERYONE most relevant to the startups or is it limited to the network of people preferred (or worse, who are paying to be involved… perhaps under the guise of “investing”). I can speak from experience to the fact that it very frequently happens that a Startup Development Organization makes mentors or Angels pay to make themselves available within and it’s a severe detriment to founders… constraining who the founders can meet and allocating capital not to the entrepreneurs but to an intermediary.

Take for example our MediaTech ecosystem as an example of how those circumstances are detrimental to founders.  We’re a fairly close knit sector of the economy wherein the other programs, notable mentors, and meaningful investors, tend to know and support one another; so, when I see an “Accelerator” in Austin (where I live) that isn’t connecting something they helping in media, with our world, we know they’re full of s*** — they’re failing to meaningfully help startups in media (and likely getting paid in the process).

I want to consider a 4th factor that I didn’t mention as a contributing factor to success (because, frankly, we know from research about startups that having this doesn’t actually cause success): Capital.

While capital available to founders won’t result in a greater rate of success, since we’re talking about Accelerators, we can’t overlook the fact that Accelerating would mean they have capital available and/or reduce costs as exceptionally as possible (by having things funded for founders).

How do Accelerators operate in your experience? Are they charging founders for desks? (that’s coworking)  Are they charging founders to connect with mentors?  (that’s predatory)  Are investors freely available or do startups have to Pay to Pitch? (that’s disgusting)

Is Capital readily available in the form of reduced (near zero) costs to founders, or actual investment? OR is the Accelerator neglecting that Acceleration costs startups money?

You can’t accelerate ventures if you’re not actually making that possible.

By the way founders, providing AWS credits and HubSpot for free for a year, is NOT investment from an Accelerator and you should NOT be giving up anything (such as equity) to get that. Such things are readily available through any Startup Development Organization, so an Accelerator claiming $50,000 of investment, warranting equity from you, which is really just in the form of technology or other services, is taking advantage of you.

How We Got Here

Now that we have a sense for why some Accelerators succeed while others fail, why do so many fail?

Let’s revisit my point about the internet and the fact that “Accelerators” exploded on the scene from 2005 until about 2015 (with them now essentially in every city).

Startups then, and now, are dependent on experience with the internet.

How exceptional is that experience in your city? Did the Accelerator owners start their careers at Salesforce, Amazon, or Yahoo? Have the mentors who are involved worked in SaaS, mobile apps, or cybersecurity? Are the investors available in the ecosystem experienced with THIS context or are they wealthy people who have been successful in Real Estate, Oil, Ranching, Construction, or some other still fairly traditional field?

What happened around 2010 (after the 2000 dot com bust and when the economy was recovering… and then again after the mortgage crisis in the United States resulting in another recovery period) is that cities throughout the world wanted to lean in on helping entrepreneurs in this new economy. And yet, the EXPERIENCE with the internet was not yet there.

Techstars and Founder Institute had not yet scaled throughout the world and so “Accelerators” were emerging in cities, locally run, locally funded, and locally mentored.

Around the same time we saw books emerge (books such as Lean Startup or Zero to One) heavily embraced by the Startup ecosystem; yes, because they are good books, but also, to an extent they emerged because of the growing demand from people throughout the world to have a guide to Accelerate startups and give founders direction.

“Don’t know how to do a startup? Read Lean Startup” We’d often hear, as though a playbook puts a founder on the right path.

Don’t get me wrong, these are EXCEPTIONAL books… IF you have experience with startups and you fully appreciate what they’re guiding and why.

Why do most Accelerators fail founders? A confluence of circumstances:

  1. Little experience with the internet
  2. Reliance on books
  3. Local dependence
  4. Insufficient startup experience
  5. Failing to “accelerate”

Before I move on I want to reinforce my point about the internet because I don’t want anyone to misconstrue that I’m saying a startup has to be on the internet or that if your venture isn’t, it isn’t a startup. What happened around 2005 was that the entire world finally started shifting to the impact of the internet: how we shop, how we pay, how we communicate, how we research and learn, and so on. A Realtor (someone selling real estate) would no longer be effective if they didn’t know how to use the internet in support of their job.  That example translates to every sector and thus, every startup. That, perhaps your startup is a new BioTech device or electric vehicle… maybe you have invented a new beverage you want to bring to market, or you are working in Space technology — if you (or your team members, mentors, investors, or this Accelerator) don’t know how to use the internet effectively and efficiently, you will suffer and struggle. You can’t do marketing and promotions well, you can’t find resources as well, and you will fail to effectively connect tools, platforms, and infrastructure that you need, as well as others can.

The delta of time from 2000 until about 2015 (when experience with the internet really finally started to permeate throughout the world beyond Silicon Valley) meant that EVERY venture was at a severe disadvantage without that experience. This is a massive contributing factor to why Accelerators rarely failed to change the 10% success rate and while even today (due to legacy models or the people still running them lacking this experience), Accelerators too often fail.

So What Of Techstars and Founder Institute?

(Why did I mention them?)

Around this same time is when Techstars and Founder Institute emerged from Silicon Valley – exceptional programs. These two were rather distinct from the other major brands in this regard because what they did was expand to other markets, making their work accessible to far more throughout the world.

This was (and should be) in high demand because after all, if you want an Accelerator in your city, why would you try to reinvent the wheel within a local ecosystem of inexperience, when you can take on what is established, proven, and more far reaching?

The rub was… for these programs to operate throughout the world, they irionically had to depend on that very local community. With all the trappings of doing so, a very effective program wherein everyone is experienced and aligned to how it works, will stumble and struggle as they have to sift through (i.e. sift out) consultants, investors, and mentors within a new community.

Challenging.  But that’s not why I mentioned Techstars and Founder Institute in particular (though hopefully now we’ve unpacked some thought provoking insight to explore about why Accelerators often fail). 

The reason I mention these two things is that Incubators and Accelerators are NOT the same.

Accelerators are NOT Incubators; Incubators are not accelerators.

In cities throughout the world where stakeholders are just desperately trying to make something work, gain support and resources, and have an impact, people mince words.   People will call it an Accelerator because you’re asking for an Accelerator; and failing to deliver what we should expect an accelerator actually does for founders, we have the failed impact to which I’ve been referring but is *that* REALLY even an Accelerator if it is helpful or is it an Incubator?

Incubators TEACH, work with, or research and develop.  

This is an incubator.   That into which a mere egg is placed in hopes that it becomes a healthy chicken.  An incubator isn’t the antibiotics, shelter, or feed provided to existing chickens to help accelerate their growth!  If your city lacks incubators and hopes that Accelerating founders will make your ecosystem successful, you’re neglecting all of the education, R&D, and collaboration that must precede accelerating anything.  Accelerators fail founders because they’re failing to expect incubators to exist to get everyone off on the right start.

We see the implication of the lack of these distinctions and the failure of startup communities to support Startup Development Organizations in the right way at the right time, in how “Accelerators” take on anyone, in how Accelerators aren’t accelerating because they’re giving lectures on marketing fundamentals or how to find a co-founder (clearly EARLY stage requirements), or in how they take on pre-seed founders ? Image that, that’s trying to make a chicken hatch before the egg is even *ahem* seeded. 

Your ecosystem must start with and support Incubators if you hope to have mentors, investors, and entrepreneurs who know what they’re doing and can provide meaningful opportunities to Accelerators.

Let’s revisit our three considerations in this, the context of Incubators instead of Accelerators.  What is it that we can EXPECT that reinforces that an Incubator would have a greater rate of success?

  1. Incubators don’t (shouldn’t) take on every founder. The might welcome everyone who wants to learn, research, or collaborate but they are doing so within a sector of the economy where they can most benefit those entrepreneurs and investors.  Our noble intentions to help everyone are accomplished by helping everyone WITHIN a distinction rather than everyone who says “founder” “tech” or “startup.”   Thise coalesces not just startup stage experience but also industry expertise, partners, investors, and opportunities. 
  2. They incubate, developing an idea, or would-be founder, by teaching what we very well know about how startups succeed and why they fail, by working with founders from an experienced point of view, and by participating in the research necessary for an innovation or entrepreneur to avoid mistakes and uncover opportunities. Preceding the acceleration stage, they drastically reduce the rate of failure throughout… enabling Accelerators to be more successful.
  3. They connect by making it easier for entrepreneurs to find anyone who might be meaningful to what they’re doing, saving time and money, while avoiding bad advice or wasted cycles in founders who might otherwise talk to the wrong people.  (Point #3 is exactly the same, which is why Incubators and Accelerators should be sector specific)

Why might an Incubator NOT be impactful?

  1. They do try to help everyone OR (more likely) the program directors have an agenda or little startup experience – in either case, failing to meaningfully help founders. The danger in this is not that it it misinforms and misleads founders and investors.
  2. Are they actually incubating? What would be required to “incubate”? Probably, things like experience, curriculum, tools, community, and marketing. Let’s be blunt, if an “Incubator” isn’t helping turn eggs into chickens then they are a drain on your startup community – likely contributing to a higher-than-average rate of failure.
  3. Incubators can and should operate locally with the support of the network, companies, and investors from industry.  The network of the ideal mentors, investors, or other resources for a startup are NOT within your neighborhood but they are within your sector and when an Incubator is effective for entrepreneurs, they are ensuring entrepreneurs learn from and work with the people who know best. .Evidence of this?  Your City, local companies, investors, and even Accelerators would be underwriting such Startup Development Organizations because if they genuinely wanted to help startups (as they claim), they’d put the expertise in place to start them on a better foot.

Accelerators too often fail founders.  Frustratingly, the research, experience, and resources are well established and validated such that we can expect Accelerators *don’t* fail founders (as much).  If you’re struggling with your ecosystem, questioning programs, or trying to figure out what could be done better, ask first, “who’s teaching everyone, and do they know what they’re doing?”

The Insecurity of Costs – Accelerating New Business Development

Industry, Insights / Research, Startups, , ,

GENERAL STARTUP STATISTICS

  • 69 percent of U.S. entrepreneurs start their businesses at home.
  • According to the National Association of Small Business’s 2017 Economic Report, the majority of small businesses surveyed are LLCs (35 percent) followed by S-corporations (33 percent), corporations (19 percent), sole proprietorships (12 percent), and partnerships (2 percent).
  • 51 percent of people asked, “What’s the best way to learn more about entrepreneurship?” responded with “Start a company.”

“Start a company.” Easy, right?

Small Business Trends aggregated a series of such data points and in their March 2019 release of the data, shared that and more… it’s the more the struck me….

Who’s starting businesses today?

  • Gender:
    • 73 percent identify as male; and
    • 25 percent identify as female.
  • Age Range:
    • 50-59 years old: 35 percent;
    • 40-49 years old: 25 percent;
    • 60-69 years old: 18 percent;
    • 30-39 years old: 14 percent;
    • 18-29 years old: 4 percent; and
    • 70+ years old: 4 percent.
  • Education:
    • High School / GED: 33 percent;
    • Associates Degree: 18 percent;
    • Bachelor’s Degree: 29 percent;
    • Master’s Degree: 16 percent; and
    • Doctorate: 4 percent.
  • Ethnicity:
    • White/Caucasian – 71 percent;
    • Hispanic/Latino – 6 percent;
    • Black/African American – 7 percent;
    • Asian/Pacific Islander – 11 percent;
    • Other – 5 percent.
  • 82 percent of successful business owners did not doubt they had the right qualifications and proper experience to run a company.

As if you couldn’t from there tease out some already troubling observations, let me throw one more your way:

The most popular funding methods, in 2018, were according to Lendio…

  • Personal funds 77 percent;
  • Bank loan 34 percent;
  • Borrowing from family/friends 16 percent;
  • Other funding 11 percent;
  • Donations from family/friends 9 percent;
  • Online lender 4 percent;
  • Angel investor 3 percent;
  • Venture capital 3 percent;
  • Crowdfunding 2 percent.

What does it cost to start a business?

It’s a straightforward enough question. We can refine it of course, to ensure we’re asking, “in the United States.”

What does it cost to start a business in the United States?

What is the fundamental risk that one must take simply to TRY working for themselves, potentially creating jobs?

Before we go on, let’s be clear about what we’re asking… there isn’t just a fixed cost of starting a business, they’re a period to overcome so that the business you start might find success. That is, there are a number of months/years you have to plan to operate before finally finding enough success, no?

STARTUP FAILURE RATE

  • Of all businesses started in 2014:
    • 80 percent made it to the second year (2015);
    • 70 percent made it to the third year (2016);
    • 62 percent made it to the fourth year (2017);
    • 56 percent made it to the fifth year (2018).

“Startup founders are in high-pressure environments, and we ask them to build these disruptive companies that will change the world, and yet we are not really providing support on this front. We’re putting all of it in a box for founders to deal with alone. And that didn’t make sense to us.”

Felicis Venture’s founder Aydin Senkut

Tying these varied statistics and thoughts together, one simple question struck me. One simple way of supporting the risk we’re all taking and the work we’re doing.

What does it actually cost?

Can you give us an accurate, ballpark answer?

What does it cost to start a business?

$30,000.

Sound right? I don’t really have an accurate answer and I’d agree, reading your mind a bit, that we’d all agree there really isn’t an accurate number.

Yet, $30,000 is the magic number the Kauffman Foundation found in 2018.

With that in mind though, here’s a list Fundera put together:

  1. Equipment: $10,000 to $125,000
  2. Incorporation fees: Under $300
  3. Office space: $100-$1,000 per employee per month
  4. Inventory: 17-25% of total budget
  5. Marketing: 0-10% of total budget
  6. Website: About $40 per month
  7. Office furniture and supplies: 10% of total budget
  8. Utilities: About $2 per square foot of office space
  9. Payroll: 25-50% of total budget
  10. Professional consultants: $1,000 to $5,000 per year
  11. Insurance: An average of $1,200 per year
  12. Taxes: Variable, but 21% corporate tax rate
  13. Travel: Variable
  14. Shipping: Variable

So… somewhere between $500 and $150,000

Uncertainty.

What does Business News Daily advise? SBA data which suggests as little as a few thousand dollars.

Uncertainty now manifesting as insecurity.

If we don’t know, if we can’t plan, we can’t conceive of starting.

Forget for a moment the actual cost.

Take a look at the statistics and let’s reach a more tangible conclusion.

HALF of all businesses fail in about 4 years meaning it reasonably takes you a good few years to figure out if you have a 50/50 shot. Overwhelmingly businesses are started thanks to personal funds and the 40 y/o plus, GED / Bachelor’s degree in most cases, means that starting new businesses is a direct result of people having the means with which to start them.

And even if BANKS were still there to close the gap for those who don’t have that personal wealth, Kauffman Foundation went on in their study to note that, “Large banks have become larger, and small- and medium-sized banks are disappearing. As one example, the number of small community banks totaling under $50 million in assets has declined 41 percent since the Great Recession of 2008, either through consolidation or closing. According to industry experts, the $30,000 in average funds needed to start a firm does not hit the vast majority of banks’ radars. Loans of around $100,000 or less are hard for banks to make profitably.“

$30,000 a year, if that’s the number.

Adjust that from first year costs including more equipment of legal investments required just to START, to later year costs being taxes, some staff, and more, it’s safe to say it costs a hundred thousand dollars to capably start a business with the few years it takes to get going… and banks aren’t an option for most, personal wealth is unavailable to too many, and investors, investors apply to the precious few applicable to funding.

Now, start.

Get started.

Trepidation, no?

Might we not ask and address if rather than it being a matter of access to the capital (which is of course ultimately paramount), if an issue we could first tackle is the tremendous disparity in KNOWING what it will cost.

Overcoming insecurity.

How can anyone capably assess taking the risk, saving the money, or seeking it from others, when the range varies from $3000 to $150,000 JUST TO START without being secure in the costs (risk) and potential reward.

And that doesn’t even explore the cost of doing business in place like Des Moines, Iowa vs. Austin, Texas, vs. San Francisco, California.

  • We know we have a tremendous challenge in addressing how the economic challenges (wealth gaps) with which most struggle prevents people from starting businesses from which they might create wealth and enable others.
  • We know the exploding cost of a college education, for those who can managing to get themselves to/through University, saddles potential entrepreneurs with debt.
  • And we know Angel and Venture Capital isn’t the answer for the great majority.

Begging this simple question for which I don’t have much of an answer… how can we alleviate the insecurity of costs so that we might enable the majority to assess what it takes to start a business of their own, without the risk of unknowns putting them further in debt?

So That Incubator Turned You Down… Now What?

Startups, , ,

Get back to work.

I was asked recently, If a startup is turned down by an accelerator program, should the founders take it as a sign to move onto something else?

Taken back a bit, the popularity of the question astounded me.  Is the acceptance of a startup program really that influential to some entrepreneurs?

What too many seem to fail to appreciate about incubators and accelerators is that they are businesses like any other. Like yours. They aren’t philanthropies. They aren’t panaceas for startups. They aren’t the great deciders of right and wrong. Most suck, as everything has an average; and half are below.

Though we look to them as important, and they are, and can be, half are worse than all the others, 70% are eh… And they’re all just trying to figure things out. Just like you.

As a business, they have a product/service, a market, and a customer.

Here’s the thing, though not necessarily obvious, the customer isn’t you.

You’re the product.

Incubators and accelerators serve sources of capital: sponsors, investors, grants, etc.

They do that within their market. That market is some distinction of location, industry, and stage.

As with any business, they must provide value to that market. They do so by being innovative and creating value for their stakeholders and customers therein – by developing and monetizing you.

Not with ill intent mind you!  They’re in the business of developing entrepreneurs and startups so that they might be better valued.   That’s what you want.  That’s what our economy at large wants.  And that’s what investors want.  Simply, appreciate that while working with and for you, you aren’t the customer, you’re the product.

And you, the product, might not align with expectations of their customer.  That hardly means that what you’re doing is a bad idea or that you aren’t worthy of that program.

Just as a grocery store would choose not to carry a product because it isn’t what their market buys, such programs aren’t judging you, they’re aligning WHAT you’re doing and WHY to the expectations of their market.

Why might they turn you down without it meaning anything about your potential?

  • You don’t fit their market
  • They don’t understand what you’re doing
  • They don’t have time or resources

As a startup, you are going to be told no 90% of the time; by partners, potential advisors, customers, investors, potential employees, and more.

Frankly, if you are thinking you might throw in the towel because an accelerator tells you no, perhaps you should; not because they know better, they probably don’t know s***, but because being an entrepreneur is the hardest job in the world and it requires perseverance to deal with the overwhelming majority of NOs.

Should you take their rejection as a sign and move on from what you’re doing? No (see, there’s another no you can take to heart)

What to Expect: The Week by Week Activities of a Top Tier Startup Incubator

Startups, , , , ,

This question stumbled across my Quora and I was struck by the notion that too many incubators fail to incubate viable companies.

I found myself wondering, what does it really mean to be a startup incubator?   Are such programs actually doing something, week after week, so that the founders therein develop something?  Why was the question asked if not for at least someone, one person, having an experience in which they’re not sure they’re getting what they should from an incubator?

Full disclosure, I’m a regional Director in the Founder Institute program (Founder Institute Austin) so I am exploring this from a matter of perspective.

That program, our work in Founder Institute, is a voluntary commitment on our part (read: we’re not paid) and we only see a benefit if/when founders successfully graduate AND exit.

Incubators are NOT social clubs, office space, nor mentor networks. If that’s all you’re getting from (or paying for) of one, please, write a review of it online so others don’t fall into an “Incubator” that isn’t.

Social clubs are networking groups

Office space is coworking

Mentor networks are freely available via LinkedIn

I’m not going to share the intricacies of the FI model, that’s a different thread and discussion, but I’ll allude to it as it explains why I’m investing in my time to bring that program to Texas.

An Incubator is a Idea/Seed stage curriculum that develops from founder to company.

Later stage with a focus on growth, sales, substantial funding, etc. is acceleration of a business. That’s an Accelerator.

An incubator is, in every sense of the word, the investment of energy that turns an egg into something viable.

Begging the question of that curriculum; the question I was asked:

What should the week by week activities look like for a top startup incubator?

Call it 10–15 weeks. I think that’s the sweet spot at this stage as the right set of mentors, tools, and time can get a founder through all of this that quickly.

Let’s break it down:

  1. Idea Validation – 500 interviews on the street!
  2. Market Development – NOT promotion! Do the market research; size, competition, funding sources, exit possibilities, history
  3. Customer Development – WHO might buy, why, at what price, how?
  4. Revenue Model – How to build it, what it might forecast out, how to budget against, how to test and pivot it?
  5. Branding and Design – Only after all the above. This doesn’t matter without the former
  6. Legal – Entity structure, formation, agreements
  7. Go To Market – How to Launch
  8. Product Development – Planning what to build, when, where, with whom, and how
  9. Patents, IP, Copyright, and NDAs – No NDAs! The rest might matter
  10. Hiring and Onboarding – Equity based team, HR / employees, partners
  11. Growth Plan – Investments, promotion, advertising, optimization, etc.
  12. Equity and Cap Table – Valuations, vesting, typical conventions
  13. Exit Strategies – Developing the right targets, network, partners, and IP / Assets to achieve this
  14. Funding Strategy and Plan – Angels or VC viable? Financing instead of funding. SAFE Notes, Convertible Debt, etc.

The program you join is likely locally run so your mileage may vary, even within the samely branded program (Techstars is run by cities or regions, for example).  Whether or not you should consider one is another question recently explored, here.

Bottom line, there should be a structured program, expectations, and resources that align with that stage in the program. Mentors aren’t there for office hours, they’re there to help make sure you exit that week, and the program, with a viable business.

So How do I Decide if I Should Join an Accelerator?

Startups, , , ,

Let me cut to the chase:

MOST are businesses selling you services, using you as their product, to promote their brand while leveraging the word “accelerator.”

As you consider such programs, head into them first being clear about what Accelerator means and validate that they actually do that.

Then look to what the founders and Directors of the Accelerator are doing on a day-to-day basis. How much are they working for you or for themselves? That’s a difficult question to discern through, as their work on the Accelerator can (should) be work on your behalf…

Is the work they are doing actually resulting in the impact an Accelerator should have on founders and startups?

And that question is a bit of a trick question. *oof, this isn’t easy, is it?* Keep in mind, startups FAIL. It’s kind of their thing. Startups fail so that established companies don’t have to take such risks, and in doing so destroy jobs and shareholder value. So, that being a role of startups, that means that in Accelerators, startups WILL fail. Measuring the effectiveness of an Accelerator on their rate of successful startups isn’t really fair; and yet it is….

What then do you look for in making sure Accelerators are actually working for you???

Just so my thoughts are explicitly clear: Accelerators are incredibly valuable resources in our economy. The challenge we have is that many (way too many) are just selling you services (monetizing YOU) – office space, developer resources, a private network of mentors (for which you pay in equity), paid classes – or even selling you the “service” of developing you as a Product… which they then leverage to attract more sponsors, underwriting, etc.

So, are they actually working for you or are you working for them?

To answer that question you might tease out what’s valuable about Accelerators from what’s not valuable (or even detracting from your experience). Here’s the list I’ve experienced worth some merit; I’d love comments/feedback about whether or not you think I’m missing anything.

Most Valuable in a Startup Accelerator

  • Dedicated team space in an environment with industry peers. Access to the other pertinent resources: conference room, teleconferencing, places for calls
  • Directly booked meetings with VCs and Angels with a brief provided by the accelerator so that the meetings aren’t cold starts
  • Advisors more than mentors – People who are executives in companies that are pertinent; former founders and CEOs of related companies. Mentors teach; ideal for incubators. It’s time to go, need that advice and connections.
  • Set up of industry or regionally relevant stories with the press wherein the startup or team is pertinent
  • Meaningful corporate connections and partnerships – less so the typical startup resources many companies make available through every program
  • Low/No cost access to the other Human Resources the startup might not yet need full time: Legal, Accounting, CFO
  • Valid and experienced criticism with advice and direction
  • Unlimited scope networks. Advisors, investors, and partners ideal for my venture are almost certainly NOT within the close circle of the Accelerator. Google and LinkedIn are our friends – you CAN find and meet them on your own – the Accelerator should be making the right connections where ever they might be.

Least Valuable in a Startup Accelerator

  • Cattle call mentor or “investor” office hours
  • Pitch events that are just showcases for the accelerator brand
  • Only shared workspace coworking; particularly if it’s a generic program and we’re all sharing space together and aren’t even doing similar things
  • Misleading intentions or lack of clarity –
    • Is this really an Accelerator or is it more like an Incubator?
    • Are the people running it actually involved and working with us out there promoting their thing?
    • Be completely transparent about the business model. Is the Accelerator really working on behalf or selling us office space?
  • Classes from agencies and service providers… eh.  Startup dedicated and experienced consultants are great, executives who have and do specifically what we’re covering are helpful.
  • Negative and unproductive feedback, a mere “no” or “focus on customers” platitudes aren’t helpful
  • Limited scope networks. Is this a member club where the only advisors and investors who we’ll get access to with the Accelerator’s help are close confidants, friends of the family, and worse: anyone paying for the privilege

I want to invite you to join me in such discussions live and together.

Join me online here

How to Decide on a Startup Incubator

Startups, , ,

I think I’m asked twice a day.  Ponder that a moment.  Countless are trying to grasp IF, WHY, HOW, and WHICH startup program to join.  Which incubator.  Just today I was pinged to answer the question on Quora, of which of a few popular local programs should a founder join.  It’s a good question, a critical question, but the fact that so many are asking suggests that we’re failing to deliver such programs in a way that it’s clear to entrepreneurs what the programs offer.

Can we instead better evaluate our need of startup programs?

I’ve been in Austin, Texas a bit (Silicon Valley before now), work with lots of startups, and let’s be honest, there is no definitive answer to the question of which startup incubator one should join.

So, which you should join and why? Let’s first establish a few foregone conclusions about doing business today:

  1. Everything is online. Two ways to look at that:
    1. We’re in the information age meaning you can get/find the answer to / advice about anything. Note what we’re doing here.
    2. Everyone is accessible online. While true that information is there, perhaps more important is the notion that so too is everyone.
  2. A number of the traditional distinctions about the work we do – B2B, B2C, and B2E and Technology being an Industry, in particular – don’t apply as they once did.  If you aren’t grasping why, see #1
  3. “But I don’t work in technology, I work in [replace with your non-tech industry such as CPG]” – See #1
  4. Data is the new oil. A wonderful concept given the fact that I live in Austin… hours away from Houston. Why is data the new oil? See #1

To figure out WHERE you might get help as a startup we have to figure out what you really need, given these realities of the new economy. What can’t you accomplish that you need from such services? There’s no right/wrong answer, it’s an exploratory question, not definitive.

An interesting way to approach such a question is not to ask based on what you’re doing, nor even what you need, but what you intend to accomplish. Work backward from your personal objective as a founder.

  1. Make a difference
  2. Build a solid business
  3. Get acquired
  4. Have a massive exit
  5. Disrupt an industry
  6. Get some experience
  7. Solve a problem
  8. Try it

Simon Sinek’s book Start with Why is a favorite and something I talk about all the time as startups generally fail for one of two reasons: 1) Issues withing the Team 2) [Because] Why isn’t clearly aligned from market opportunity throughout the organization.

Why are you doing what you are doing? That stressing is important.

It’s not Why are you doing what you are doing? but Why are YOU doing it?

These are drastically different professional objectives and no matter whether you are inventing an AI for hardware manufacturing or the next tasty beverage, your personal objectives best define where and how you should spend your time.

Why? There is a cost/benefit to any program with which you get involved. The question you have to ask is how it’s a cost (of dollars, time, ownership, and focus) and benefit that helps you achieve your goal. Does it align with your why?

Startup programs are businesses and the product is actually you.

Think about that. Startup work spaces, incubators, and accelerators, absorbing the same rate of failure as investors (greater perhaps), have to accommodate the fact that you likely won’t last. Turnover is high and the opportunity to monetize you, directly, is low.

While the product such programs offer seems to be space, advice, and a framework for your success, that’s actually the development of their product, you, which is then monetized by sponsors, investors, events, and more.

Not so sure? Think about it this way

Commercial property (office space) is a long established business model and in spite of what you perceive through the explosion of coworking, commercial property terms aren’t changing that much.  There is zero reason for property owners to put their very successful business model at risk by fractionalizing liability, disrupting property values, and averting predictable income, by making their property available to startups. You need an office? You sign a 2 year lease and the property owner sleeps at night. Ergo, who is leasing that dirt in which you find an incubator and thus what is your role? WeWork, Betahaus, Galvanize, Impact Hub, and other such sizeable coworking brands are the consumers of the property, developing what you’re doing, to monetize the use of the space.

Granted that is a bold way of thinking about such programs so don’t necessarily take me literally, use a grain of salt, but consider the idea.

With all that in mind, with what must you start to succeed as a founder?

Let me ask that a different way as I tend to work with VCs (not Angels, VC firms) so my perspective tends toward entrepreneurship that yields $200MM+ companies – what is it that an investor will expect you are capable of doing on your own? What are the core fundamentals of a new venture?

Some ideas of what you must already have or quickly find:

  1. Solid team – CEO, CMO, CTO. Resources, Market, Product. Fundamentals of entrepreneurship established decades ago by economists such as Peter Drucker.
  2. Network – remember, see #1 above. Can you get the advice, talent, customers, and partners you need? You can reach everyone; the extent to which you already have some of the right folks matters but importantly, your ability to connect with others matters more.
  3. Know how – remember, see #1 above (tell me when we’re beating that horse dead). How to pitch, where to find money, which tech stack to use, what salaries will run you, an appropriate cap table, what corp structure to use… pick a question, you have the answer. You know how

Whether or not you can is the question.

Forget the startup advice, books, blogs, and guidance that you need customers, revenue, product/market fit and all that jazz. Go right to the core fundamentals of what you need before anything else: team, network, and know how. Right?

That drives us to the answer to the question at hand: in which startup oriented resource should you be?

Ask yourself what you really need to accomplish your personal goal, keeping in mind what’s actually readily available.

Once you’ve done that, your decisions as a founder become a clearer cost/benefit analysis.

What can’t you?

Therein is the answer. Which resource best addresses that which you can’t, at a cost that yields greater benefit?

Bottom line is that there is no right answer. You could tell me that you got into YCombinator and I’d still ask you why.  You decision should reinforce a reason that makes sense – that which you can’t personally accomplish, fulfill by way of your team, or achieve by way of the realities of the new economy.

Impact Hub, Galvanize, Techspace, ATX Factory, Tech Ranch, Techstars, Founder Institute, Mass Challenge, Concordia… I’m not even sure there is an exhaustive list of startup programs in Austin and if there is, I’m sure it’s inaccurate tomorrow. To figure out where best to be work backward from your thoughts herein:

  • I don’t know how to… and I intend to IPO… I can’t get get that online…
  • I can’t reach… and I am disrupting…. I need a better connection to them
  • I lack a technical founder… to fix… where might I find such a person?

The best ROI on what you need is your answer.