Archive for April, 2011

Startup America: The Good, The Bad, and The Missing-Part 3

April 29th, 2011

After a small dramatic pause we’ll conclude the Startup America: The Good, The Bad, and The Missing saga. Many people jump to the lack of a Startup Visa when asked what is missing from the Startup America initiative or simply point to this as a another government bailout for the VC firms (both which are interesting ideas that I’ll have to explore in another post). However, I think what is missing is that we’re fooling ourselves that we have the answer.

The Missing

When it comes to changing something I tend to view it through a framework I encountered in grad school and found in a book by one of my professors, Influence: The Power To Change Anything (amazon affiliate link).  A fundamental assumption in this line of reasoning is that changing results is largely driven by a few vital behaviors (also known as tricks, secrets, or hacks).

In order to get those vital behaviors you have to model them in a credible and powerful way (think Everett Rogers’ Diffusion of Innovation and the Heath Brothers’ Made To Stick). It is based off of Bandura’s Theory of Social Cognition which basically says people won’t change unless they can see that their chances of succeeding are pretty good and that it is worth it. Do they have the ability and the motivation to make the change?

The book or framework in the book indicates that for lasting change to occur these two questions have to be answered on multiple levels (Individual, Social, Environment / Structural). Most change initiatives fail because they either don’t know the right behaviors or only attempt to influence or answer this question on one or two levels. The Startup America initiative is no exception.

Do we know the vital behaviors that can be repeated in order to produce the results Startup America is trying to achieve (more jobs via more companies)? How do we know they’re the right ones? Well you identify the right ones by looking for positive deviance or circumstances where others are having success.

So everyone looks at Silicon Valley saying, “We’ll take one of those please.” They even try to give themselves a similar nickname like Silicon Forest, Silicon Slopes, Silicon Alley, Silicon Prairie, etc. While there are some behaviors and things we can learn from Silicon Valley but they may not be repeatable (a key criterion). So where else can we look? One that came to my attention recently was The Ciputra Quantum Leap: Making Indonesia an Entrepreneurial Nation while I was skimming Kauffman Thought Book 2011.

They started with education and then moved to partnerships and capital. So let’s pretend these are the vital behaviors: people that have an entrepreneurial education, supportive community, and investors. Okay, so how do we now get those vital behaviors?

The following list of questions is paraphrased from a worksheet used to assess change initiatives. I believe this can help us to understand what is missing from the Startup America initiative. For the sake of demonstration we’ll use learning how to create and start a business but the same could be done for the other vital behaviors.

When trying to convince yourself or others to change minds, do you create ways to experience the need to change (For example: field trips, pilots, trial runs, or other hands-on experiences) rather than simply trying to talk yourself or others into changing through presentations, lectures, pep talks, or other verbal means?

Do you use powerful and credible stories as a way of touching people’s hearts and minds with the need to change?

Personal Motivation

Do individual entrepreneurs take satisfaction from learning how to create startups or dislike failing?

When the going gets tough, does learning help with long-term goals and align with individual values?

Personal Ability

Do individual entrepreneurs have all the skills or knowledge to perform what is required?

Social Motivation

Are the people around entrepreneurs actively encouraging learning how to create a company or discouraging failure?

Are current entrepreneurs modeling how to learn or succeed in creating a startup in an effective way?

Social Ability

Does the entrepreneurial community or Startup America Partnership provide the help, information, and resources required, particularly at critical times?

Does the community hold entrepreneurs accountable for learning or successfully creating a startup?

Structural Motivation

Are there clear and meaningful rewards (such as with pay, bonuses, or financing) when entrepreneurs learn to create a successful startup?

Are short-term rewards in alignment with the desired long-term results and behaviors wanted?

Structural Ability

Are there aspects in the environment that make learning to start a successful startup convenient, easy, and safe?

Are there enough cues and reminders to help entrepreneurs stay on course?

 Startup America is trying to address mostly the ability side of things on the structural and social level though it is also having an impact on the social motivation. The structural motivation, however, is unclear and largely in the hands of other players in the world of capital. It requires its own diagnosis to determine how to change things in that eco-system.  Personal Ability is trying to be addressed through the use of mentor networks and programs like NFTE.  But where is the university level education (not to mention tech transfer reform)? Steve Blank at Stanford is experimenting with a Lean Launch Pad Class to provide an experiential classroom about how to build real companies. Other than a few other smattering of pilot programs university education is focused on writing a business plan.

Unfortunately, I think entrepreneurial education is lacking and doesn’t yet really know what or how to teach how to be a successful entrepreneur—especially a bootstrapping entrepreneur which makes up most of the businesses that are started each year. That is what I think is primarily missing—good education around how to create a startup without investors. These businesses are not just lifestyle or small businesses but are also high growth companies. In fact, the more successful you are as a bootstrapping entrepreneur the easier it is to get funding.

The Startup America Partnership is a step in the right direction but like most startups needs to pivot to better solve the customers’ problem. So like most sagas there is still room for some prequels.

Startup America: The Good, The Bad, and The Missing-Part 2

April 26th, 2011

In the continuing saga of Startup America: The Good, The Bad, The Missing– I bring you Part 2-this time it’s personal (not really, it just sounded fun to say).

The Bad

 Startup America has no concrete goals only intentions. How do we know what we’re aiming for or when we’ve achieved what we set out to do? “Get a man on the moon” gives us a unifying and actionable goal. Instead we have a fuzzy mission statement: “Startup America is the White House initiative to celebrate, inspire, and accelerate high-growth entrepreneurship throughout the nation.” The intentions found on the White House website are:

  1. Unlocking Access to Capital
  2. Connecting Mentors
  3. Reducing Barriers
  4. Accelerating Innovation
  5. Unleashing Market Opportunities

Good intentions right? It seems to make sense- If entrepreneurs have more access to money, more people to coach them, fewer barriers, and even access to new technology then people are more likely to start companies. The government then hopes that leads to more jobs and in turn a healthier economy (GDP, Price Stability/CPI, High Employment).

However, there are a few hang ups with those assumptions. The money in the hands of VC’s and Angels are focused on higher returns; which means only high-growth companies receive funding which are a very small percentage of new businesses. David Rose, creator of Angel soft, threw out some numbers in a talk within the past year or so saying that of the 600,000 US companies created in a year only about 1000 received VC funding. Though the National Venture Capital Association said VC’s did 3,277 deals in 2010 though the 600,000 new businesses get started each year is pretty close.  Almost every entrepreneur thinks they should be funded but the reality is they won’t for two main reasons. One, there are only so many deals that will get funded and two; their business isn’t built to get 10 times the return in productivity or investment that is required for a high-growth company. Yet they will probably produce the majority of the jobs. The point is the other 596,000ish new businesses had to get money from somewhere else.

The other money such as SBIR or small business loans (collateral?) are run with requirements that large business struggle to meet and with delayed timelines (at times there is a 6 month delay between SBIR Phases and you’re not allowed to save any of the money). I don’t really see that the Startup America initiative has really unlocked access to the capital. Bottom line: Creating more jobs isn’t really a criterion used in the money world.

I’m not blaming the VC’s or Angels, they’ve got their own problems to worry about-of the 10 companies they’ve got in their portfolio probably only 1 is going to result in a big success from their perspective. They’re constantly on the lookout for better deal flow.  One of the ways they’ve found to improve their chances is to take graduates from mentor-driven accelerators like Tech Stars (check out Tech Stars success stats).

 This is where the Startup America Partnership has helped the VC’s and Angels by extending the TechStars model by supporting the creation of the Tech Stars Network. This can further the high-growth enterprise creation assuming that mentors know what to do and are the right fit for the personalities of the entrepreneur. Many times mentors either come from a corporate world or have a certain domain expertise that may not fit a startups current situation nor needed expertise.

 However, even if the mentors do know how to advise this select group the system doesn’t necessarily drive more deals or investment flow but just a higher quality resulting in a better return for the investors and founders. The founders’ success is what the economic growth hinges on because they are more likely to start another company in the future.

Reducing barriers is probably the best approach that government policy should take but again goes back to the problem of knowing which barriers are the right ones to remove. For example, whether or not I have to pay capital tax is not going to determine whether or not I start a company but a faster and less expensive patent process may speed up the idea to market.

 I do have to applaud the government’s efforts to understand the problem and utilize crowdsourcing to problem solve. If you want your voice to be heard and want to share your view about how to reduce barriers go to one of the round table meetings they’re conducting across the country or visit the reducing barriers website and let them know your thoughts. Don’t whine when you’ve got a platform for generating and nominating solutions to a problem.

However, there is quite a bit of angst that when it comes time for a decision about what to do that is still being made without entrepreneurs in the room. So even though there is The Bad or flaws with the current product it is encouraging that they know it and are asking for feedback to identify The Missing things that will drive real change. After all, isn’t that what startups do too?

Startup America: The Good, The Bad, and The Missing-Part 1

April 25th, 2011

So in my last post about the Entrepreneur’s Pledge I mentioned Startup America and found myself exploring their site and wondering what they could really do to accelerate entrepreneurship in the US besides being a cheerleader organization.  I thought I’d ramble about the good, the bad, the missing of Startup America over the next several posts.

The Good

First off, I like that the organization has been created and separated from the federal government’s processes. It shows commitment and contributes to the public awareness (culture seeds) that entrepreneurship is a legitimate and needed career option for Americans. I wasn’t really exposed to the world of entrepreneurship until graduate school having been raised on the belief that a career was created by getting a degree and going to work for somebody. I didn’t know anyone who had started their own business unlike many of my entrepreneurial friends who had entrepreneurial families.

I also like the enlistment of partner organizations and especially the offers and discounts that have been touted. They range from training (Cisco Workshop or IBM’s PartnerWorld) to tools (Intuit) and credit (Google AdWords)  to discounts (HP Products). I’m excited to see the commitment to Startup America  evolve.

The final thing I want to explore is the creation of a common vocabulary. Startup America’s homepage asks what stage you’re in and then directs you to an appropriate resource. The stages are part of the vocabulary to help differentiate progress and in some ways types of entrepreneurs. The 4 different stages Startup America chooses to address are Idea, Startup, Rampup, and Speedup. The following are description found on Startup America’s website.

Idea: You’ve got an idea that you can’t seem to get out of your head. After first scribbling it down on the back of a napkin during a brainstorming session with friends, you are excited to take the next steps to make your dream become a reality.

Startup: Whether an LLC, an LP, a B-Corp or other, you’re officially a business.  You’re working out of your home office, perhaps with your business partner, launching your website and acquiring your first few customers.  You’re starting to think about your longer term plans and the next stage of your company’s growth.

Rampup: You’ve started to hire talent and are no longer the CEO, legal, accounting and marketing departments.  Since your kitchen table has no more chairs, you’ve found great office space and just got the news that you’ve been selected to participate in an accelerator.  Your Startup is now a Rampup!

Speedup: Your revenue is growing at an exponential rate, and your new hires are sitting in the hallway and breakroom.  You’re hiring at a rapid pace – multiple new employees per day.  You’ve been through at least one round of VC funding and are thinking about how to manage your growth effectively.  Your Rampup has become a Speedup!

There are some assumptions and problems with these “definition” but we’ll explore those in another post. The important thing, like in most new ventures, is they’ve started something.

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