Thoughts on being a Startup Guy

I started this post over 2 years ago.

I spent July 13-15 2011 in Montreal participating in the first International Startup Festival, and found myself dreaming big. I love that I have chosen Startups as my industry. The energy of entrepreneurs building businesses is infectious, something only a tiny few of established businesses have. That said, the post (Darkside) that I had started before going to Montreal aligns with the narrative of the early presenters at StartupFest, Dave MacClure and Chris Shipley. Both took different routes to emphasize being an entrepreneur and specifically a tech startup entrepreneur is intensely hard and not for most people (Presentations here & here).

What I love most about startups

The challenge, the knowledge in the back of your head that success is so unlikely, and the fact that you will be fully tested by the process. The experience validated my working assumption that Startup success is about a great many things, but it is firstly and most principally about heart, and the power of perseverance.  As Chris Shipley postulated, the best entrepreneurs over time are typically proven to be a lot more talented/hardworking versus lucky. This fed my theory that luck is an outcome of being good and persevering. A successful entrepreneur needs to be successful at creating the conditions for their luck to happen. So many Startups are dependent on the confluence of market timing, market conditions, and having the right people working together to recognize the opportunity (even if it isn’t obvious to them) that success cannot simply be chalked up to luck. I am not going to take your time with case studies, there are plenty out there.

Let me plant this theory…

You need to be good to be lucky; to stack the odds of luck happening in your favor you need to be persistently good. I will leave my thoughts on the core essence of entrepreneurship being perseverance for my previous post. I want to turn back to Startup Fest.

The Canadian Ecosystem

Canada’s innovation centers, Montreal, Toronto, Waterloo, and Vancouver are doing the right things to build community and the ecosystem required to foster interesting-successful ventures.   None of these places will ever be the Valley. They are, however, doing a good job of learning from the DNA of the Valley and transplanting the key attributes into our environments in Canada. The key next step for them is to begin working on a culture shift within the Canadian ecosystem.

The Startup industry is fundamentally about innovation; success in innovation is about experimentation and being rigorous about the process of failure. FAILURE is the magic sauce of innovation. The core difference between the Valley and the rest of the business world is its cultural attitude towards failure, being good at failing is a desirable attribute for an entrepreneur in the Valley. See this interview with Steve Blank for more.

The Valley ecosystem trains the ability to fail in a way that drives innovation. So long as you ‘fail well’ the ecosystem has the ability to support you in that failure and keep you moving forward in the industry. Failure in other business ecosystems is a scarlet letter, few entrepreneurs outside the Valley have the chance to pick themselves back up after a being proven wrong by the market. It usually becomes time to put your tie back on and get a ‘real job’. So much innovation is lost in this leakage, the odds dictate that a lot of at-bats are required to hit a home run and experienced hitters have much better averages than rookies, I will link up a presentation from Startup Fest made by Jeff Clavier on this.

We need to figure out how to develop more veteran hitters. The take-away, more like validation, I took from the festival is that a strong community, an ecosystem, is critical to creating a sustainable startup/innovation industry, we need to give talented people room to fail.

An ecosystem is an evolutionary process.

The Valley was not a big bang event, the emergence of New York in the Startup industry did not happen overnight. The emergence of anchor companies like 37Signals and Groupon in Chicago is not luck. Austin is not a hub in the startup industry because of SXSWi. These communities were built and fostered over long periods of time. PEOPLE stepped up and led the creation of these communities, which then evolved into ecosystems.

Charlie O’Donnell of First Round Capital closed the Festival with this talk (link when available) about the long term view and personal engagement required to build an ecosystem that will sustain your career path in startups over time. He worked all three of the core components of a healthy startup ecosystem: he founded and worked for solid startup teams that produced economic value (Path 101), he put personal effort into supporting the community launchingnextNY, and he has provided capital (Union Square & First Round) to amplify break through teams and provide the economic fuel that sustains the cycle.

This ties to the evolutionary nature of the startup ecosystems. Too often I hear Canadians bemoan the lack of risk capital in our startup industry. The ‘Catch22’ paradox is what it is to be an entrepreneur, solving this problem is a big component of what it is to be successful.

I see a six phase process to developing a robust startup ecosystem:

1. Community, people & teams rally around one another to support the creation of new companies
2. Solid Companies emerge
3. Companies generate exits
4. Anchor companies emerge
5. Risk Capital becomes local & more available
6. People & Capital begin to cycle through the phases consistently.

A couple basic rules I have discovered to frame this, Investors invest in what they know, and Risk Capital flows to Innovation & and proven operators. These two rules beget a conclusion that I believe important to the successful development of an ecosystem; it is up to entrepreneurs to own all six phases of the process.

We need to…

• Build our community, not the government (etc.).
• Create solid teams by any means necessary (overcome the catch22!).
• Produce shareholder value.
• Build disruptive companies.
• Bring back exited entrepreneurs & successful VC’s to re-invest returns back into the process.
• Find people to choose Startups as a career and continually add value in the ecosystem over 10 – 20 years.

Final Thoughts

I will address Toronto, where I live and spend my time. We are generally in phase 2 of this process, we have some exceptions like Workbrain in phase 3, but for the most part, Toronto is still searching for startups to exit in 9 figures or build anchor companies like RIM in Waterloo (current issues set aside). Workbrain has driven the creation of several phase 2 companies like Dayforce, I Love Rewards and Rypple that are re-investing money, knowledge, and most importantly people from that successful exit back into the startup ecosystem. Companies like Freshbooks seem on a trajectory to build a Toronto Anchor company that will provide the critical mass of highly skilled entrepreneurs to fuel the growth of earlier phase startups.  Montreal is providing an excellent example on the capital side with Year One Labs, Real Ventures and iNova who are driving capital into their local ecosystem.  In short, we still have a long way to go, and key work still is needed to solidify the foundation of phase 1 our community.

I think we need to put community effort into slowly shifting the Toronto attitude towards failure, to one that is productive and encourages innovation. I think the strength and growth of the Lean Startup Movement through groups like LeanCoffeeTO is a key starting point for this shift. Lean is a great way to learn how to ‘fail well’ and the meetup group provides a supportive environment to share experience both good and bad. So many businesses fail at failing, let’s get better at it.

I invite you to share your thoughts.