Lunch Talk: Counterintuitive approach to building startups (Stanford University)

This is Lecture 3 from a Stanford University course "How to start a startup". The speaker is Paul Graham; his transcript is here: http://tech.genius.com/Paul-graham-lecture-3-counterintuitive-parts-of-startups-and-how-to-have-ideas-annotated

tags: startup, stanford, entrepreneurship, innovation, lunchtalk,

Lunch Talk: an interview with Eric Ries of Lean Startup

The interview is a part of the This Week In Startup series (episode 199).

Jason interviewed Eric Ries, entrepreneur and author of The Lean Startup. Eric gave advice for all levels and phases of startups, from idea inception and shortening incubation times to managing the inevitable pivots. Later in the episode, Jason and Eric team up to deliver an 'Old Time Revival,' where audience members bring their business woes to the stage to have them healed by these two experts.




startup, entrepreneurship, lunchtalk

Scalable Innovation and the future of American jobs

Manju Puri and Rebecca Zarutskie, economics researchers from Duke University and Federal Reserve Board, used data over 25 years to understand the difference between VC- and non-VC-financed US firms.* They discovered that VC-financed firms had a disproportionately large positive impact on job creation in the country. For example, in the period between 2001 and 2005 VC-financed firms represented just 0.16% of all firms in existence. At the same time, they employed %7.3 of all workers, which is about 50 times greater than "normal." Also, VC- and non-VC-financed firms differed dramatically in sales (see the chart below).

Source:

On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms. THE JOURNAL OF FINANCE • VOL. LXVII, NO. 6 • DECEMBER 2012 

Another important finding from the paper:

...the key firm characteristic on which VC focuses is scale or potential for scale, rather than short-term profitability.

Although the common wisdom in Silicon Valley is that VCs select for the best team, the data tells us that potential scale of the startup matters the most. This finding strengthens the argument we put forward in Scalable Innovation: scalability of the target innovation space is the fundamental differentiator between successful and unsuccessful innovation attempts.

* Source: Puri, Manju and Zarutskie, Rebecca, On the Lifecycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms (June 13, 2010). EFA 2007 Ljubljana Meetings Paper; US Census Bureau Center for Economic Studies Paper No. CES-WP-08-13. Available at SSRN: http://ssrn.com/abstract=967841 or http://dx.doi.org/10.2139/ssrn.967841

Lunch Talk: Chemistry of Dyes

In most of human history people couldn't afford clothes of bright colors. Moreover, certain colors were reserved for the highest authority. For example, during the times of Roman Emperor Diocletian (245–311) purple silk was to be used only at the direction of the Emperor under penalty of death.

The chemistry revolution of the 19th century changed all of that. Back then, synthetic dyes were the equivalent of silicon-based electronics in the second half of the 20th century and mobile apps of the early 21st century. If you wanted to do a technology startup, you would think "chemistry."



tags: invention, innovation, startup, science, technology, lunchtalk

Quote of the Day: Bad Talent Management.

Here's a 3,000-year-old recipe how NOT to run your company or country:

The man who stays put gets the same share as the man who fights his best. Cowards and brave men are given equal respect. The same death awaits the man who does much, and the man who does nothing.
All I have suffered by constantly risking my life in battle has left me no better off than anyone else.

- Homer. The Iliad.

tags: quote, control, management, startup 

Death by partnership with Google

In 2006, Facebook (FB) decided to partner with Microsoft (MS), rather than Google, to serve ads to its US-based users. One year later, FB and MS extended this partnership worldwide. This choice may have helped FB to become dominant in the social media market. Despite multiple attempts by Google to friend its way into Facebook's business, e.g. through social search services, Zuckerberg treated them as rivals, not partners. And for a good reason.

Two other major companies that chose to partner with Google — Yahoo and Apple — ended up loosing their market share when their partner turned into a dominant competitor. In 2000, Yahoo hired Google to provide search results for its web portal. After a couple of years, most search requests ended up on Google's site, not Yahoo's. According to comScore, Google now has 2/3 of the search market in the US.

Source: comScore, August 14 Press Release.

In 2006, Steve Jobs partnered with Google to provide email, map, and youtube video services to launch the iPhone. Several years later he found himself staring in disbelief at the growing market share of Google's Android smartphones, which now account for a staggering 81% of the total.

Source: CNet, Oct 31, 2013. Android Snags Record 81 Percent of Smartphone Market.

With Yahoo's help, Google got themselves a ticket into the web-world, including maps and email; taking ideas from Apple propelled the company into dominance in the world of mobile media services. In both cases, Google outsmarted their business partners. Just like that was the case with Microsoft partnerships in the 1980-90s, Google's highly intelligent technologists took advantage of their close proximity to huge new markets discovered by others.

Since its early days, Google has been eager to acquire ideas and startups. The original adoption of the search-relevant ad model has brought them the bulk of today's revenues. Acquisitions of startups that developed interent-based maps, docs, videos (Youtube), social navigation (Wase) etc., provide for the bulk of the company's most popular services. Due to its dominance in search, Google is in a great position to detect early user trends and buy growth before most people recognize it. Having learned from their own industry experience, Googlers would rather acquire a potential "disruptor," than give it an opportunity to become a powerful competitor. Nobody can pull off a google-style partnership on Google itself!

It's all fair (Steve Jobs famously disagreed calling Google Android "a highway robbery") and we should probably "like" the company for being a relentless innovator. What bothers me is Google's increasing emphasis on lobbying its case in Washington. This year, Google was ranked #8 lobbyist in the US, a position that no Silicon Valley company has ever tried to attain before. The Steve Jobs' generation of innovators grew out of California counterculture. They considered it to be wrong to rely on the government to advance your business case. Obviously, the times have changed. As Bloomberg reports,

Google passed two Washington power tests when it escaped an FCC probe in 2012 of improper data collection with a $25,000 fine, and the FTC dropped an antitrust probe in January. Now lobbyists for the company are working on protecting its reputation amid revelations about U.S. spying.

When the next Google antitrust probe comes up for consideration who is going to resist the high-power lobbyists? As the ancient question goes, "Who is watching the watchman?"

P.S. The lack of checks on Google should work well for their stock price.

tags: technology, innovation, business, google, facebook, system, growth, startup

Why Silicon Valley would be impossible in Europe.

Startup workaholic lifestyle is incompatible with European cultural values that emphasize the balance between work and personal time. Societies in Europe fought long and hard for an 8-hour workday, 40-hour workweek, overtime pay, 4-week paid vacations, and other labor benefits. In many developed European countries laws tax not only high incomes, but also high-intensity effort. For example, in sharp contrast with the US, overtime pay laws apply to engineers, not only "regular" workers. For a startup strapped for cash, paying its developers overtime premium, as required by law, would be a financial disaster.

The modern factory was invented in England in the 18th century. This method of production dominated the Industrial age. Laws and culture tied to this model helped create European and American economic successes. As it always happens, the recipe for success eventually turned into a recipe for disaster. Unfortunately for Europe, many developed countries did not adjust in time for the new type innovation: startup-based, hightech, 24/7 effort. As a result, in the foreseeable future we'll not see a big change in Europe, despite their governments' programs for stimulating Silicon Valley-style innovation.

P.S. Michel Foucault , a French social theorist, understood this issue the best. He called it Biopower. His books are very difficult to read, but they are worth your intellectual effort.

Why New York is not Silicon Valley.

Airbnb.com is having trouble with NY authorities.

New York State Attorney General Eric Schneiderman has issued a wide-ranging subpoena to Airbnb, demanding information on the fifteen thousand or so city residents who have put their residences up for rent on the Web site.

The state found airbnb in violation of the local law regulating hotels, which the NY law enforcement officials are eager to apply to the new business model. As The New Yorker notices,

Airbnb is challenging entrenched economic interests (the hotel industry) and a system of regulation that’s designed to deal with corporate hoteliers, not individual landlords. Ride-sharing companies like Lyft and Uber have been wrestling with a similar problem, since they represent a serious economic challenge to taxi companies; I wrote about this in September. Regulators tend to be somewhat wed to the status quo, and, even if unconsciously, they often adopt the perspective of those they regulate.

One of the biggest advantages of Silicon Valley is that local authorities do not interfere with innovation, and established companies do not use their political muscle to maintain the status quo. As Acemoglu and Robinson showed in Why Nations Fail, a close alignment between political and business elites can harm innovation because it creates barriers to startups that try to disrupt old business models. The entrepreneurial culture of Silicon Valley abhors backward-looking business regulations; and for a good reason!

Source: Startup Ecosystem Report. 2012.

Silicon Valley majors back Angellist, a marketplace for startups.

According to Bloomberg (Sept 23, 2013),

[Angellist] raised $24 million from 116 investors, including Google Ventures, Kleiner Perkins Caufield & Byers and Draper Fisher Jurvetson, as well as prominent angels such as Yuri Milner, Mitch Kapor and Max Levchin.

There's a good chance that after over 50 years of evolution, the VC industry will go through a consolidation. Angellist can help streamline startup-related services, from hiring to financing,  reference checking,  etc. If they are successful, they'll have in their possession a business graph of Silicon Valley entrepreneurial community - an invaluable tool for investors, recruiters, corporate technology buyers, and social scientists. Theoretically, one could determine emerging innovation patterns based the flow of money and people into certain technology directions.

Entrepreneurship: Singapore vs Silicon Valley

Singapore startups are relatively good on talent and funding, but their output it disproportionately low (data from the Startup Genome Report, Part I. 2012).

Entrepreneurs are much better educated than their Silicon Valley counterparts and they work harder. But I would argue that these advantages fail them because of the wrong market choice: niche vs new.

Singapore entrepreneurs and VCs seem to be suffering from the "Better Mouse Trap" syndrome, i.e. they focus too much on improving existing products/services instead of creating new markets.

tags: mousetrap, startup, entrepreneurship, source, control

Forming startup teams: an Israeli version of Silicon Valley

MIT Tech Review (7/11/2013).
Israel’s Military-Entrepreneurial Complex Owns Big Data.

MIT Tech Review: Each year, Israel’s military puts thousands of teenagers through technical courses, melds them into ready-made teams, and then graduates them into a country that attracts more venture capital investment per person than any in the world.

By contrast, in the US, tightly knit entrepreneurial teams form in college dorms, labs, and high-tech workplaces. Working at the edge of technology is another critical ingredient for success. As a result, the startup team has the following essential characteristcs:

1. - tech frontier proximity
2. - alertness to opportunity
3. - motivation (competitive drive)
4. - focus on getting things done
5. - high skills
6. - high challenge (facing difficult open-ended problems)
7. - connections necessary to recruit talent and obtain financing (network)
8. - low costs
9. - reputation for getting things done (see esp. p.4)

In the system model (see Scalable Innovation, Fig 2.2), the team is the Packaged Payload delivered by the Israeli Army (the Source) to innovation-making companies (Tool). The marketplace for high-tech products acts as a the Control; internal and external connections as the Distribution.

Scalable Innovation. Fig 2.2. System Diagram.

 Reputation (p. 9 on the list above) relates to the Aboutness (see chapters 4 and 5) that allows the marketplace to judge the teams efficiently.

Failure rates in startups with funding above $1M

According to the Wall Street Journal (Sept 20, 2012):

...findings are based on data from more than 2,000 companies that received venture funding, generally at least $1 million, from 2004 through 2010.

About three-quarters of venture-backed firms in the U.S. don't return investors' capital, according to recent research by Shikhar Ghosh, a senior lecturer at Harvard Business School.

There are also different definitions of failure. If failure means liquidating all assets, with investors losing all their money, an estimated 30% to 40% of high potential U.S. start-ups fail, he says. If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow—then more than 95% of start-ups fail, based on Mr. Ghosh's research.

In part, startup incubators allow companies fail fast without getting a lot of VC money.

tags: business, technology, market, entrepreneurship, startup

Most VC funds are no better than Russell 2000 index

The Kaufmann Foundation published an analysis of its VC investments. 65% of VC funds performed worse than their closest Public Market Equivalent (PME) - the Russell 2000 index (stock ticker - IWM)

 

(Source: GeekWire, May 7, 2012)

The blind belief in the Risk vs Reward trade-off doesn't work. By taking more risks, foundations don't generate higher long-term returns.

tags: innovation, tradeoff, problem, startup, VC, economics

Lunch Talk: (@GoogleTalks) The Lean Startup

Google hosts Eric Ries author of, "The Lean Startup"

The Lean Startup movement is taking hold in companies both new and established to help entrepreneurs and managers do one important thing: make better, faster business decisions. Vastly better, faster business decisions. Bringing principles from lean manufacturing and agile development to the process of innovation, the Lean Startup helps companies succeed in a business landscape riddled with risk. This book shows you how.

tags: lunchtalk, startup, business, strategy, control

Lunch Talk: (@Google) Chris Guillebeau "The $100 Startup"

In The $100 Startup, Chris Guillebeau shows you how to lead of life of adventure, meaning and purpose -- and earn a good living. Still in his early thirties, he's already visited more than 175 nations -- and yet he's never held a "real job" or earned a regular paycheck. Rather, he has a special genius for turning ideas into income, and he uses what he earns both to support his life of adventure and to give back. Chris talks about how you can start small with your venture, committing little time or money, and wait to take the real plunge when you're sure it's successful. And the best part is, if we change our own life, we can help others change theirs. This remarkable talk will start you on your way.

It's all about finding the intersection between your "expertise" -- even if you don't consider it such -- and what other people will pay for. You don't need an MBA, a business plan or even employees. All you need is a product or service that springs from what you love to do anyway, people willing to pay, and a way to get paid.

link

tags: lunchtalk, business, model, startup

Lunch Talk: (TED) Pitching to VCs.

Thinking startup? David S. Rose's rapid-fire TED U talk on pitching to a venture capitalist tells you the 10 things you need to know about yourself -- and prove to a VC -- before you fire up your slideshow.

"The Pitch Coach" David S. Rose is an expert on the business pitch. As an entrepreneur, he has raised millions for his own companies. As an investor, he has funded millions more.

link

tags: lunchtalk, startup

Lunchtalk: (@Stanford) Evaluating a business idea.

CES Alumni Entrepreneurship Bootcamp.

This lecture covers the general areas that an entrepreneur should evaluate when considering a new business idea.

link

Startup incubator instead of business school.

MIT Tech Review runs an interview with Naval Ravikant, an investor who set up a social network for fundrasing. The interview covers various topics, including the value of early entrepreneurial experience:

What about business school?
I think incubators are just replacing it wholesale. The theory was you go to business school to learn entrepreneurship. But the reality is they're going to spend two years and $200,000 learning from some guy who's never started a company in his life. Things move very, very quickly today. At an incubator, you're going to learn fast in a community of your peers in an environment where there's pressure on deliverables and shipping schedules.

tags: startup, innovation, social, network

Quote of the Day: Investing in Globalization.

There’s no way to invest in a world where globalization fails.

The question then becomes what are the best investments that are geared towards good globalization. Facebook is perhaps the purest expression of that I can think of.”

- Peter Thiel.  (quoted from The Facebook Effect, by David Kirkpatrick.)

tags: investment, model, business, trend, constraint, startup

Lunch Talk: (Stanford) Startup as a Learning Experience

InDinero Founder Jessica Mah discusses the realities of the startup experience, in conversation with STVP faculty member and entrepreneur Steve Blank. Sharing the early successes and missteps for her company, Mah honestly reveals the lessons she continues to learn while directing inDinero's path to success through its commitment to customers.

link

tags: startup, lunchtalk, investment