entrepreneurship at the intersection of sports media and the social graph

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are.” – Steve Jobs, Apple

Everyone talks about the ‘talent drought’ with engineers and designers but I would argue that talented product visionaries are very rare to come across these days. A recent article about Facebook highlighted, “while it has no problem hiring brilliant engineers out of top schools like Harvard and Standford, it’s found it difficult to find product people who can be “mini-CEOs” and get things done.”

I agree 110%. A good product person will be one of the biggest value adds to any company. What would Apple be without Steve Jobs? Or Facebook without Chris Cox? Or Foursquare without Alex Rainert? Or Kickstarter without Charles Adler? Or Airbnb without Joe Gebbia? The list can go on forever.

Much like Fred Wilson’s post on “what a CEO does“, the Head of Product for any company is responsible for three major things:

1) Setting the overall product strategy and vision.
2) Coming up with simple and creative solutions to the most complex problems.
3) Getting things done and shipping product by saying no to 99% of feature ideas.

Each team is setup differently, so your head of product can have a great design, technology, or product management background, but at the end of the day, his/her main focus is to make sure the ship is steering in the right direction. (Keep in mind that your Head of Product is NOT your Product Manager. Product management is one small snippet of the overall responsibility.)

For our team at Skillshare, I lead the product on the design side, and Malcolm (our CTO) leads the product on the technology side. We meet in the middle when it comes to higher level product strategy and vision. I can’t stress how much time & money we’ve saved by laying down a solid foundation for our product. You can have the best developers/engineers/designers/marketers/biz dev gurus/operations folks in the world but if your product sucks, none of that matters.

The biggest cost to a startup is time, not money.  Most start-ups fail not because the technology doesn’t work, but because they are creating the wrong product for the wrong market.

Like Frank Lucas says, “I sell a product that’s better than the competition at a price that’s less than the competition.” The same holds true for startups. Who can argue with a good product? A good product will always sell regardless of the environment. And for that reason, I will always take a valuable product person that can act as a mini-CEO and gets things done over 5 engineers any day of the week.

couldn't agree more

For its first few decades Silicon Valley was content flying under the radar of Washington politics. It wasn’t until Fairchild and Intel were almost bankrupted by Japanese semiconductor manufacturers in the early 1980’s that they formed Silicon Valley’s first lobbying group. Microsoft did not open a Washington office until 1995.

Fast forward to today. The words “startup,” “entrepreneur,” and “innovation” are used fast, loose and furious by both parties in Washington. Last week the White House announced Startup America, a public/private initiative to accelerate accelerate high-growth entrepreneurship in the U.S.  by expanding startups access to capital (with two $1 billion programs); creating a national network of entrepreneurship education, commercializing federally-funded research and development programs and getting rid of tax and paperwork barriers for startups.

What’s not to like?

My observation. Startup America is a mashup of very smart programs by very smart people but not a strategy. It made for a great photo op, press announcement and impassioned speeches. (Heck, who wouldn’t go to the White House if the President called.) It engaged the best and the brightest who all bring enormous energy and talent to offer the country. The technorati were effusive in their praise.

I hope it succeeds. But I predict despite all of Washingtons’ good intentions, it’s dead on arrival.

Dead On Arrival
I got a call from a recruiter looking for a CEO for the Startup America Partnership. Looking at the job spec reminded me what it would be like to lead the official rules committee for the Union of Anarchists.

There are three problems. First, an entrepreneurship initiative needs to be an integral part of both a coherent economic policy and a national innovation policy – one that creates jobs for Main Street versus Wall Street. It should address not only the creation of new jobs, but also the continued hemorrhaging of jobs and entire strategic industries offshore.

Second, trying to create Startup America without understanding and articulating the distinctions among the four types of entrepreneurship (described later) means we have no roadmap of where to place the bets on job growth, innovation, legislation and incentives.

Third, the notion of a public/private partnership without giving entrepreneurs a seat at the policy table inside the White House is like telling the passengers they can fly the plane from their seats. It has zero authority, budget or influence. It’s the national cheerleader for startups.

The Four Types of Entrepreneurship
“Startup,” “entrepreneur,” and “innovation” now means everything to everyone. Which means in the end they mean nothing. There doesn’t seem to be a coherent policy distinction between small business startups, scalable startups, corporations dealing with disruptive innovation and social entrepreneurs. The words “startup,” “entrepreneur,” and “innovation” mean different things in Silicon Valley, Main Street, Corporate America and Non Profits. Unless the people who actually make policy (rather than the great people who advise them) understand the difference, and can communicate them clearly, the chance of any of the Startup America policies having a substantive effect on innovation, jobs or the gross domestic product is low.

1. Small Business Entrepreneurship
Today, the overwhelming number of entrepreneurs and startups in the United States are still small businesses. There are 5.7 million small businesses in the U.S. They make up 99.7% of all companies and employ 50% of all non-governmental workers.

Small businesses are grocery stores, hairdressers, consultants, travel agents, internet commerce storefronts, carpenters, plumbers, electricians, etc. They are anyone who runs his/her own business. They hire local employees or family. Most are barely profitable. Their definition of success is to feed the family and make a profit, not to take over an industry or build a $100 million business. As they can’t provide the scale to attract venture capital, they fund their businesses via friends/family or small business loans.

2. Scalable Startup Entrepreneurship
Unlike small businesses, scalable startups are what Silicon Valley entrepreneurs and their venture investors do. These entrepreneurs start a company knowing from day one that their vision could change the world. They attract investment from equally crazy financial investors – venture capitalists. They hire the best and the brightest. Their job is to search for a repeatable and scalable business model.  When they find it, their focus on scale requires even more venture capital to fuel rapid expansion.

Scalable startups in innovation clusters (Silicon Valley, Shanghai, New York, Bangalore, Israel, etc.) make up a small percentage of entrepreneurs and startups but because of the outsize returns, attract almost all the risk capital (and press.) Startup America was focussed on this segment of startups.

3. Large Company Entrepreneurship
Large companies have finite life cycles. Most grow through sustaining innovation, offering new products that are variants around their core products. Changes in customer tastes, new technologies, legislation, new competitors, etc. can create pressure for more disruptive innovation – requiring large companies to create entirely new products sold into new customers in new markets. Existing companies do this by either acquiring innovative companies or attempting to build a disruptive product inside. Ironically, large company size and culture make disruptive innovation extremely difficult to execute.

4. Social Entrepreneurship
Social entrepreneurs are innovators focus on creating products and services that solve social needs and problems. But unlike scalable startups their goal is to make the world a better place, not to take market share or to create to wealth for the founders. They may be nonprofit, for-profit, or hybrid.

So What?
Each of these four very different business segments require very different educational tools, economic incentives (tax breaks, paperwork/regulation reduction, incentives), etc.  Yet as different as they are, understanding them together is what makes the difference between a jobs and innovation strategy and a disconnected set of tactics.

Go take a look at any of the government organizations talking about entrepreneurship and see how many of its leaders or staff actually started a company or a venture firm. Or had to make a payroll with no money in the bank. We’re trying to kick-start a national initiative on startups, entrepreneurs and innovation with academics, economists and large company executives. Great for policy papers, but probably not optimal for making change.

Rather than having our best and the brightest visit for a day, what we need sitting in the White House (and on both sides of the aisle in Congress) are people who actually have started, built and grown companies and/or venture firms. (If we’re serious about this stuff we should have some headcount equivalence to the influence bankers have.)

Next time the talent shows up for a Startup America initiative, they ought to be getting offices not sound bites.

Lessons Learned

• Lots of credit in trying to “talk-the-talk” of startups
• No evidence that Washington yet understands the types of entrepreneurs and startups; how they differ, and how they can form a cohesive and integrated jobs and innovation strategy
• Not much will happen until entrepreneurs and VC’s have a seat at the table

When It’s Darkest Men See the Stars
Ralph Waldo Emerson

This Thanksgiving it might seem that there’s a lot less to be thankful for. One out of ten of Americans is out of work. The common wisdom says that the chickens have all come home to roost from a disastrous series of economic decisions including outsourcing the manufacture of America’s physical goods. The United States is now a debtor nation to China and that the bill is about to come due. The pundits say the American dream is dead and this next decade will see the further decline and fall of the West and in particular of the United States.

It may be that all the doomsayers are right.

But I don’t think so.

Let me offer my prediction. There’s a chance that the common wisdom is very, very wrong. That the second decade of the 21st century may turn out to be the West’s and in particular the United States’ finest hour.

I believe that we will look back at this decade as the beginning of an economic revolution as important as the scientific revolution in the 16th century and the industrial revolution in the 18th century. We’re standing at the beginning of the entrepreneurial revolution. This doesn’t mean just more technology stuff, though we’ll get that. This is a revolution that will permanently reshape business as we know it and more importantly, change the quality of life across the entire planet for all who come after us.

There’s Something Happening Here, What It Is Ain’t Exactly Clear
The story to date is a familiar one. Over the last half a century, Silicon Valley has grown into the leading technology and innovation cluster for the United States and the world. Silicon Valley has amused us, connected (and separated us) as never before, made businesses more efficient and led to the wholesale transformation of entire industries (bookstores, video rentals, newspapers, etc.)

Wave after wave of hardware, software, biotech and cleantech products have emerged from what has become “ground zero” of entrepreneurial and startup culture. Silicon Valley emerged by the serendipitous intersection of:

• Cold war research in microwaves and electronics at Stanford University,
• a Stanford Dean of Engineering who encouraged startup culture over pure academic research,
• Cold war military and intelligence funding driving microwave and military products for the defense industry in the 1950’s,
• a single Bell Labs researcher deciding to start his semiconductor company next to Stanford in the 1950’s which led to
• the wave of semiconductor startups in the 1960’s/70’s,
• the emergence of venture capital as a professional industry,
• the personal computer revolution in 1980’s,
• the rise of the Internet in the 1990’s and finally
• the wave of internet commerce applications in the first decade of the 21st century.

The pattern for the valley seemed to be clear. Each new wave of innovation was like punctuated equilibrium – just when you thought the wave had run its course into stasis, a sudden shift and radical change into a new family of technology emerged.

The Barriers to Entrepreneurship
While startups continued to innovate in each new wave of technology, the rate of innovation was constrained by limitations we only now can understand. Only in the last few years do we appreciate that startups in the past were constrained by:

1. long technology development cycles (how long it takes from idea to product),
2. the high cost of getting to first customers (how many dollars to build the product),
3. the structure of the venture capital industry (a limited number of VC firms each needing to invest millions per startups),
4. the expertise about how to build startups  (clustered in specific regions like Silicon Valley, Boston, New York, etc.),
5. the failure rate of new ventures (startups had no formal rules and were a hit or miss proposition),
6. the slow adoption rate of new technologies by the government and large companies.

 

The Democratization of Entrepreneurship
What’s happening is something more profound than a change in technology. What’s happening is that all the things that have been limits to startups and innovation are being removed.  At once.  Starting now.

Compressing the Product Development Cycle
In the past, the time to build a first product release was measured in months or even years as startups executed the founder’s vision of what customers wanted. This meant building every possible feature the founding team envisioned into a monolithic “release” of the product. Yet time after time, after the product shipped, startups would find that customers didn’t use or want most of the features.  The founders were simply wrong about their assumptions about customer needs. The effort that went into making all those unused features was wasted.

Today startups have begun to build products differently.  Instead of building the maximum number of features, they look to deliver a minimum feature set in the shortest period of time.  This lets them deliver a first version of the product to customers in a fraction on the time.

For products that are simply “bits” delivered over the web, a first product can be shipped in weeks rather than years.

Startups Built For Thousands Rather than Millions of Dollars
Startups traditionally required millions of dollars of funding just to get their first product to customers. A company developing software would have to buy computers and license software from other companies and hire the staff to run and maintain it. A hardware startup had to spend money building prototypes and equipping a factory to manufacture the product.

Today open source software has slashed the cost of software development from millions of dollars to thousands. For consumer hardware, no startup has to build their own factory as the costs are absorbed by offshore manufacturers.

The cost of getting the first product out the door for an Internet commerce startup has dropped by a factor of a ten or more in the last decade.

The New Structure of the Venture Capital industry
The plummeting cost of getting a first product to market (particularly for Internet startups) has shaken up the venture capital industry. Venture capital used to be a tight club clustered around formal firms located in Silicon Valley, Boston, and New York. While those firms are still there (and getting larger), the pool of money that invests risk capital in startups has expanded, and a new class of investors has emerged. New groups of VC’s, super angels, smaller than the traditional multi-hundred million dollar VC fund, can make small investments necessary to get a consumer internet startup launched. These angels make lots of early bets and double-down when early results appear. (And the results do appear years earlier then in a traditional startup.)

In addition to super angels, incubators like Y Combinator, TechStars and the 100+ plus others worldwide like them have begun to formalize seed-investing. They pay expenses in a formal 3-month program while a startup builds something impressive enough to raise money on a larger scale.

Finally, venture capital and angel investing is no longer a U.S. or Euro-centric phenomenon. Risk capital has emerged in China, India and other countries where risk taking, innovation and liquidity is encouraged, on a scale previously only seen in the U.S.

The emergence of incubators and super angels have dramatically expanded the sources of seed capital. The globalization of entrepreneurship means the worldwide pool of potential startups has increased at least ten fold since the turn of this century.

Entrepreneurship as Its Own Management Science
Over the last ten years, entrepreneurs began to understand that startups were not simply smaller versions of large companies. While companies execute business models, startups search for a business model. (Or more accurately, startups are a temporary organization designed to search for a scalable and repeatable business model.)

Instead of adopting the management techniques of large companies, which too often stifle innovation in a young start up, entrepreneurs began to develop their own management tools. Using the business model / customer development / agile development solution stack, entrepreneurs first map their assumptions (their business model) and then test these hypotheses with customers outside in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product. When founders discover their assumptions are wrong, as they inevitably will, the result isn’t a crisis, it’s a learning event called a pivot — and an opportunity to change the business model.

The result, startups now have tools that speed up the search for customers, reduce time to market and slash the cost of development.

Consumer Internet Driving Innovation
In the 1950’s and ‘60’s U.S. Defense and Intelligence organizations drove the pace of innovation in Silicon Valley by providing research and development dollars to universities, and purchased weapons systems that used the valley’s first microwave and semiconductor components. In the 1970’s, 80’s and 90’s, momentum shifted to the enterprise as large businesses supported innovation in PC’s, communications hardware and enterprise software. Government and the enterprise are now followers rather than leaders. Today, it’s the consumer – specifically consumer Internet companies – that are the drivers of innovation. When the product and channel are bits, adoption by 10’s and 100’s of millions users can happen in years versus decades.

The Entrepreneurial Singularity
The barriers to entrepreneurship are not just being removed. In each case they’re being replaced by innovations that are speeding up each step, some by a factor of ten. For example, Internet commerce startups the time needed to get the first product to market has been cut by a factor of ten, the dollars needed to get the first product to market cut by a factor of ten, the number of sources of initial capital for entrepreneurs has increased by a factor of ten, etc.

And while innovation is moving at Internet speed, this won’t be limited to just internet commerce startups. It will spread to the enterprise and ultimately every other business segment.

When It’s Darkest Men See the Stars
The economic downturn in the United States has had an unexpected consequence for startups – it has created more of them. Young and old, innovators who are unemployed or underemployed now face less risk in starting a company.  They have a lot less to lose and a lot more to gain.

If we are at the cusp of a revolution as important as the scientific and industrial revolutions what does it mean? Revolutions are not obvious when they happen. When James Watt started the industrial revolution with the steam engine in 1775 no one said, “This is the day everything changes.”  When Karl Benz drove around Mannheim in 1885, no one said, “There will be 500 million of these driving around in a century.” And certainly in 1958 when Noyce and Kilby invented the integrated circuit, the idea of a quintillion (10 to the 18th) transistors being produced each year seemed ludicrous.

Yet it’s possible that we’ll look back to this decade as the beginning of our own revolution. We may remember this as the time when scientific discoveries and technological breakthroughs were integrated into the fabric of society faster than they had ever been before. When the speed of how businesses operated changed forever. As the time when we reinvented the American economy and our Gross Domestic Product began to take off and the U.S. and the world reached a level of wealth never seen before.  It may be the dawn of a new era for a new American economy built on entrepreneurship and innovation.

One that our children will look back on and marvel that when it was the darkest, we saw the stars.

Happy Thanksgiving!