This is a presentation given to a group of ESADE business school alumni in Barcelona in March, 2014. It covers the basics of why startups exist and what it takes to found, fund, and grow one.
4. MY STORY
Four startups:!
I/PRO, Kana, Vontu, Pipewise – one IPO,
two acquisitions, one fail!
!
>$1B revenue, > 2000 employees!
!
VP of Engineering, Founder, and/or CEO!
!
Two big companies!
!
EIR at Benchmark Capital!
!
Advising and mentoring!
!
On sabbatical in Barcelona!!
!
!
9. WHY DO THESE COMPANIES EXIST?
WHY DIDN’T BIG COMPANIES BUILD
THESE BUSINESSES INSTEAD?
WHY DO THEY SPEND SO MUCH
BUYING THEM?
10. WHY didn’t existing companies do these?
Unique IP? !
Usually not…!
!
Lack of talent? !
Sometimes…!
!
“Innovator’s dilemma”? !
Only in certain cases….!
!
11. THEY DIDN’t DO THEM BECAUSE:
They didn’t know they were big
opportunities til it was too late!
!
(In most cases the entrepreneurs didn’t
either, but they were willing to take that
risk)!
12. WHY THE FAILURE RATE?
No one wants the product!
!
They won’t pay enough!
!
Market too small!
!
Too expensive to find
customers!
!
Poor execution!
!
Team issues!
!
Competition!
!
!
13. ALL YOU NEED TO KNOW
1 big win"! 50-100 small/
medium wins!
1000 fails
(“experiments” )!
!
14. ONCE YOU REALLY ACCEPT THIS, IT all MAKES SENSE:
“Why don’t big
companies innovate?”!
!
!
“Why do so few
startup ecosystems
exist?”!
!
“Why do VCs invest in
money losing
companies?”!
!
!
They’d need to launch
dozens of
experiments for each
win!
!
Structural and cultural
resistance to failure!
!
!
The winners are so
huge they pay back
the losers!
15. BUT GREAT TEAMS DRAMATICALLY
IMPROVE THEIR ODDS
!
Although there is luck and timing
involved, teams can greatly increase
their chances of success.!
16. SOME READING on the basics
“How to start a startup”!
- Paul Graham Blog!
Class Notes: CS183 at
Stanford!
- Peter Thiel / Blake
Masters!
18. GREAT FOUNDING TEAMS
“Founder/market fit” !
!
Blend of skillsets (technical / design /
business)!
!
Ambition, hard work, focus, persistence!
!
Willing to “quit, suck, and fail”!
!
19. “Many a young person tells me he wants to be
a writer. I always encourage such people, but I
also explain that there’s a big difference
between “being a writer” and writing.!
In most cases these individuals are dreaming
of wealth and fame, not the long hours alone at
the typewriter. “You’ve got to want to write,” I
say to them, “not want to be a writer.”!
" " " " " " " " "!
" " " " " " " " " " " " " "- Alex Haley!
20. VONTU FOUNDING TEAM
Joseph (CEO) - product, sales,
marketing, team building!
!
Mike (VP Products/Services) –
technical, product, team building!
!
Kevin (CTO) – security expert, original
idea, developed algorithms and
patents!
!
Soon added great engineers, VPs of
Sales, HR, Marketing, Services, CFO!
22. QUITTING, SUCKING, FAILING
Quit good jobs, shut
down failed products
or companies!
!
New jobs, new
domains, “making it
up as you go”!
!
Risk failure and near-
death experiences!
!
23. FAILURE CULTURES ARE RARE
The desired path:!
!
• Get good grades!
• Go to a good
school!
• Get a good job!
Most
cultures
have
both
social
and
structural/legal
penal5es
for
failure
24. READING on FOUNDERS
“How to get startup
ideas”!
- Paul Graham Blog!
“Be a learn it all” !
- Bill Gurley blog!
“Founders Dilemmas”!
- Wasserman!
“What is a ‘product
picker’?!
- michaelrwolfe.com!
27. THE SHIFTS CREATE OPPORTUNITES
New problems!
!
New solutions to old
problems!
!
New distribution
models!
28. HARD TO KNOW WHAT THEY ARE
• Hard to visualize things that don’t exist!
• Consumer behavior is hard to predict!
• Business models not known!
• Market sizes are not known!
• Customer acquisition models not known!
29. FOR EXAMPLE
Consumer
GPS-enabled,
internet-connected
smartphones
A replacement for
car ownership
Questions asked: “will people use it? Will drivers like
it? What about regulations? Is it really a big market?”
30. MY EXAMPLES
2003 - Companies suffered
leakage of confidential data
after connecting to the net!
!
1997 - Customers contacted
companies via email and
expected a reply!
!
1994 - There will be
advertising on the web and
the need for tools to measure
it!
31. Old school innovation
1. Found company!
2. Hire team!
3. Spend money!
4. Build product!
5. Try to sell it!
6. Find out a year later that no one
wants it!
33. Hypothesis
Test
Conclusion
Companies
want
to
keep
their
data
from
leaking
Interview
20+
corporate
CIOs
Mostly
a
concern
in
regulated
industries
(financial
services,
retailers).
Companies
want
to
protect
confiden>al
documents
and
data
Show
example
incidents
to
prospects
They
mostly
care
about
customer
data
–
MVP
will
focus
on
customer
data
Companies
need
to
be
able
to
block
the
data
Show
screenshots
of
product
to
customers
It
is
OK
to
just
no>fy
about
incidents,
not
block
It
is
technically
possible
to
solve
the
problem
Implement
prototypes
of
the
most
difficult
parts
Not
easy,
but
it
can
be
done
EXAMPLE FROM VONTU
34. Reading on validation
“Lean Startup”!
- Eric Ries!
Blog & “Four Steps
to the Epiphany”!
- Steve Blank!
Business model
canvas!
- Alex
Osterwalder!
Buzzwords: “Validate! Pivot! Get out of the
building!”!
36. MOST STARTUPS NEED FUNDING
Customer
acquisition costs
lead revenue!
!
Faster growth often
means faster
spending!
!
Many markets are
“winner take almost
all”!
Source:
www.forentrepreneurs.com
37. WHAT INVESTORS WANT
!
Great founders and team!
!
Large market!
!
Ability to build barriers to entry!
!
Validation!
!
38. AT VONTU
• TEAM – experienced team, well-known to
the investors, I was an Entrepreneur in
Residence at Benchmark!
• MARKET – addressing a problem that most
large companies would experience!
• VALIDATION – several references from
interested customers!
BUT
STILL
TONS
OF
RISK…
39. BUT THINGS HAVE CHANGED
Launching a company is cheaper,!
so get some validation before going to
investors. (Thus the recent startup explosion)
40. INVESTORS WILL INVEST ANYWHERE
• If you are focused on a global
or large market!
• Are willing to move or put
offices wherever gives the
company the best chance of
success (usually the U.S.)!
• Hire the best people from
everywhere!
But the bar is higher, and valuations are lower!
45. A STARTUP has to be great at:
Product
Understand your customers
and design and deliver the
product they want
Customers
Help customers find you, try
you, buy from you, and say
good things about you
People
Get the best people, keep
them engaged and aligned
around a few key priorities
53. READING on scaling
“What are some good tips for 1-1’s with your
employees?”!
“How should we plan at my startup?”!
- Forbes/Quora blog (Michael Wolfe)!
“The Hard Thing About Hard Things”!
- Ben Horowitz (and A16Z blog)!
!
55. STARTUPS ARE INHERENTLY UNSTABLE
A few become long-
term independent
companies
A handful grow into large public
companies
The majority fail
Others turn into good-sized
businesses
Some build good tech and team,
but do not break out
56. Factors to consider:!
!
• Growth rate + funding!
• Market size + competition!
• Management capacity!
• Openness of public markets!
• Attractiveness / uniqueness of acquirer!
SELL
OR NOT?
57. PARTING THOUGHTS
Understand the failure rate, but seek to
improve your odds!
!
Start a company if you have an idea and
team you are passionate about – but
joining a startup might be a good place to
start!
!
Great resources are available – read and
learn and reach out to people!
!