Tomorrow is 2017’s University of Texas at Austin’s Longhorn Startup Demo Day and given the incredible and increasing impact Texas is having on entrepreneurship and innovation, I thought we should talk about cattle.
Let me first be clear that though I’ll be making some incredibly obvious references to the University of Texas and the great Longhorn Startup program, this is not about the University of Texas nor the Longhorn Startup program.
I didn’t go to UT, I think I’m just barely reaching the time spent in Austin required to start calling myself an Austinite, and Hook ‘Em is what I say to my kids when we go fishing.
All that said, I have started and moderate the Texas Startups group, as the uniqueness of the Texan economy, the distinction of our collective schools, the opportunity presented by the industries herein, and substantial migration of people from the coasts in to Texas, are all driving our new economy; an economy of innovation driven by Texas.
That economy, our new economy, looks vastly different from that which we’re, perhaps, familiar in California or New York. Today’s economy is substantially more freelance for one, but as it pertains to technology and innovative entrepreneurship, we find ourselves in an era that is bringing tech to traditional industries that have yet to have fully embraced what the internet has caused: data, connectivity, globalization, scalability, and efficiency. Texas is embracing that as we see the impact of the internet being increasingly applied in Texas’ substantial industries of old: education, health, agriculture, real estate, energy, media, and more.
The Unicorn Startup
The Unicorn is a mythical beast. Truly, a beast, according to Newt Scamander in Fantastic Beasts and Where to Find Them (come on… have fun with me for a moment), the Unicorn is a white, equine creature with a single horn on its forehead. Revered by Muggles and wizards alike, it is one of nature’s purest and most beautiful magical creatures. As such, the slaying of one is considered a terrible crime and doing so carries terrible consequences. (read: don’t you dare mess with my Uber)
Bottom line, it’s unrealistic.
Granted, a Unicorn Startup is indeed magical and having been a part of a couple, the magic is notably and appropriately infectious. What we have is a company changing the world.
A startup valued at over $1 billion (who wouldn’t want that?) is considered a Unicorn. The term was coined in 2013 by Cowboy Ventures’ Partner Aileen Lee and let’s be honest, at least in my head cowboys go together with Silicon Valley about as well as oil and water so I’m betting Palo Alto based Cowboy Ventures had a little of Texas on their minds.
The largest unicorns include companies such as Uber, Xiaomi, Airbnb, Palantir, Dropbox, Pinterest, and Snap, and if we think back in time a bit to the name coined, Google, Twitter, Microsoft, Apple, and so forth also come to mind.
Conventional wisdom about Unicorn Startups is that there are 4 characteristics that drive their potential:
- Get big fast – The internet, smartphone, and commoditization of technology has enabled the economy in which Unicorns are even possible: expand quickly through digitally oriented market experience, large funding rounds, and price cutting to gain an advantage on market share and push away rival threats or existing competitors.
- Buyout companies – In a low interest rate and the slow-growth environments of recent years, companies like Apple, Facebook, and Google focus on acquisitions instead of focusing on capital expenditures and development of internal investment projects. Some large companies can bolster their position by buying out established technology and business models rather than creating them anew.
- Staying private – The average age of a technology company before it goes public is 11 years, as opposed to an average life of four years back in 1999. Imagine that. Through the series of funding rounds, companies do not need to go through an IPO to obtain capital or a higher valuation. They can just go back to their investors for more capital. BUT IPOs run a risk of devaluation of a company if the public market thinks a company is worth less than its investors. A familiar example of this was Square, best known for its mobile payments, priced below their initial offer by the market. Put simply, why bother?
- Technological advancements – Startups are taking advantage of the flood of new technology of the last decade to obtain Unicorn status and let’s be honest, this is the most logical of the factors of which you need to be taking advantage of (or they will). With the explosion of social media and access to millions utilizing this technology to gain massive economies of scale, startups have the ability to expand their business faster than ever.
All those tangible lessons aside, Benchmark’s Bill Gurley predicted in 2015 that the rapid increase in the number of unicorns were leading to what he called a “risk bubble” that will eventually burst, leaving in its wake what he terms dead unicorns.
I think a lot of people agree, given the extensive emigration of tech professionals from N. California.
While Unicorn Startups are single ventures themselves changing the world, one venture at a time, what’s exciting about Texas is that the entirety of Texas is changing the nature of innovation. And let’s be realistic, where one horn is mythological, two horns are natural.
The Longhorn Startup
Texas Longhorn are a breed of cattle known for their two characteristic horns which can extend to around 6 feet. Descendants of the first cattle in the New World, you might say they reflect the average American, with roots diverse and foreign. Longhorn were found to flourish in the Texas climate because of their high drought-stress tolerance, much like the high [capital] drought and stress tolerance of a Texas bred founder, and they’re known for their diverse coloring; familiar to many in their burnt orange but actually found in any color or mix of colors.
Genetic analyses show the Longhorn originated from an Iberian hybrid of two ancient cattle lineages: “taurine” descending from the domestication of the wild aurochs in the Middle East (a region of the world renown for their early impact on STEM), and “indicine”, descending from the domestication of the aurochs of India (a region of the world well known for their engineering and technical skillsets).
Through Decline to Revival
As a relative newcomer to Austin, TX, I’m particularly attuned to some of Texas’ past innovation, with Texas Instruments, Freescale, Dell, Compaq, and Broadcast.com coming to mind. And it’s important that we don’t disregard the fact that through the nineties and early ’00s, Texas’ role in innovation slipped a bit as Silicon Valley discovered some magic and gave rise to the Unicorn. Today, we find substantial innovation shifting again, back to Texas, with the hearty, diverse, realistic approach of the Texan entrepreneur forging new territory in technology.
As Texas became more heavily settled following annexation by the US, the frontier in which the Spanish had brought and bred longhorn gave way to established farms and ranch lands and the lean longhorn beef (ahem, Lean Startup?) was not as attractive. Other breeds demonstrated traits more highly valued by the modern rancher and the Texas Longhorn stock slowly dwindled, until in 1927 the breed was saved from near extinction by enthusiasts from the United States Forest Service, who collected a small herd of stock to breed. The University of Texas adopted the animal as it’s mascot in 1917 and the rest is history.
Don Worcester’s The Texas Longhorn: Relic of the Past, Asset for the Future, published by Texas A&M University Press in 1987, was prescient and might in fact be a startup book worth a look.
Characteristics of a Longhorn Startup
Tom Foster wrote in Inc. today, Tech Companies Are Thriving in Austin–the Hard Way and when I saw that headline and thought to my learned history of Texas wildcatters, the Alamo, and the battles fought to make Texas what it is today, I thought, “how else would we do it?”
Foster notes of Taylor’s experience, “the benefits of bootstrapping come down to what Taylor calls ‘optionality.’ VC investors, he fears, might prioritize their return on investment over what’s good for the company and consequently limit his options.” Sounds like Texan resilience and who in Texas doesn’t know the etymology of “bootstrapping”??
(photo featuring the guitar because I’m in Austin)
Two Horns, Not One
I wrote only days ago, with Hubspot, about a different approach to reaching angel investors and VCs. The spirit behind that thesis is the struggle Texas still seems to have with venture fund raising for innovation; I put forth the notion that the 10 slide perfect pitch, the problem solution statement approach, is in fact failing us.
A problem with a solution is as mythical as a unicorn. Anyone who has taken a turn at entrepreneurship knows that your assumptions are wrong, you will pivot, and as long as you don’t give up, you won’t fail – though the solution at which you ultimately arrive will look differently than the solution with which you set out. The single horn doesn’t exist. Pitching a solution to a problem isn’t working and Texas’ history with venture capital is showing us that though Texan tenacity is getting us there, a little pivot in our pitching might be all we need – recognizing that there are actually two horns.
Innovation and marketing. That’s the not-so-secret secret that eludes too many: A successful venture is dependent on the TWO. That idea isn’t my discovery but a point of view that has stood the test of time, having been envisioned by economic minds far more brilliant than most.
“Because the purpose of business is to create a customer, the business enterprise has two–and only two–basic functions: marketing and innovation,” noted author of Innovation and Entrepreneurship Peter Drucker. “Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”
Build. Execute. Validate. Optimize.
That’s A Longhorn Startup and that’s the approach that a hearty, self-reliant, confident, lean, bootstrapped, dual-horned entrepreneur will take.
Don’t get bogged down in pre-mature customer validation, misleading direction, and bad advice. Start building with a B. The knowledge base, resources, and opportunities are readily apparent and approaching a startup is not unlike braving the frontier. Just go. Start. You’re more likely right than you are wrong (if you are guided well) and more importantly, you can’t get solid feedback until you start.
Building alone though won’t get us anywhere will it? Execute the elements of your business as you would were you already ready to go. Will you compete and succeed by selling directly to customers what you’re doing? Go. Sell the vision. Sell the intention. Sell what you have, as you have it, by any means necessary. BUT if your venture won’t thrive on Sales but rather as a web based SaaS, start driving leads via the web! Build your online influence or email list even before you’re actually ready to go to market. Execute what you need to be in order to be that business. E.
Are you headed down the right path? Validate what you’re doing as though V stands for Victory! (which I suppose, it does). Validation is NOT merely that some potential customers want what you might bring to market. Validate your messaging. Validate your pricing. Validate the reception to your idea by way of industry bloggers and the press. Validate that potential partners are indeed potential partners. Validate that your website works. Validate that where you are testing lead gen is in fact from where leads might come. Validation is one aspect of the Marketing to which we referred above and you can envision, I hope, how the value of your business is in BOTH the innovation from where we started and the marketing we’re doing now.
Optimize, optimize, optimize again. This part of the process of entrepreneurship NEVER ends but it is where we separate the wildcatters from the wannabes. Entrepreneurship is HARD. Investing in startups is even riskier and those famous wildcatters of Texas’ oil are renown for their risk taking approach for a reason – never giving up, learning from what they’ve attempted, and trying again until striking oil. That’s O for oil by the way.
If you’re in Austin, the Longhorn (UT’s “Longhorn” and, perhaps, this one) Startup Demo Day that sparked my topic, the UT Austin student startup community, is getting together getting together on May 4th. Bob Metcalfe will be interviewing Luz-Cristal Glangchai (VentureLab and Blackstone Launchpad at UT) and YCombinator graduate Pamela Valdés will be sharing her perspective from her success with Beek!