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The Worst Enemy of Student Entrepreneurship

6 Comments Posted by on December 13, 2011

I advocate a lot for student entrepreneurship because I think it is a unique way to have a real world impact and learn some really valuable skills before you are in full on career mode.  I have explored in other posts some of the strategies for being a student and entrepreneur (Tips for Student Entrepreneurs; Reasons for Entrepreneurs to Stay in School ; MBA or PhD; Essential Courses; Working and Studying), but I think it’s time for me to address the challenge that is most likely to derail your entrepreneurial career as a student. 

The worst enemy of student entrepreneurship is not the fact that you need to study.  It’s not that you are young.  It’s not that you have to be on campus or go to class.   These factors often make it a little bit more difficult to be an entrepreneur while you’re a student, but they do not make it impossible by any means. 

The worst enemy of student entrepreneurship is the mental attitude of being a student. 

The number of times that I’ve seen abject failure to deliver results being excused with “I’m a student,” is mind boggling.  When people say “But I’m a student,” what they really mean is “I am exempt from normal professional behavior and it is therefore acceptable if I don’t get work done… because I am a student.” When I get involved with a student organization to encourage them to pursue entrepreneurship, by giving talks or workshops, or by mentoring students, I meet some students who are really good at getting things done.  But many others just supply weak deliverables, and excuse their lack of delivery by the fact that they are students. 

The problem with that attitude is that it completely misses the mark.  Entrepreneurship is not an add-on activity to have fun or be cool.  You are taking somebody’s money and time, which is money. Your objective is to deliver value in return.  To do that, you need to execute professionally and competently.  Being a student just means that you happen to take some university courses while being an entrepreneur.  Just like any other entrepreneur, you will need to consider your resources and make sure you can deliver on the commitments you make. 

Variants of “I have an exam tomorrow,” don’t cut it when you are late on a deliverable (including those of your own startup).

Similarly, variants of “We are just a student organization and we just couldn’t get this organized,” make you sound incompetent (which, if true, means that you will fail as an entrepreneur. Or, if just an unfortunate impression, will cause you to fail to convince investors, customers and collaborators – leading again to failure as an entrepreneur).

Unfortunately, there seems to be a culture around university life that fundamentally excuses unprofessional behavior.  This cultural attitude that excuses unprofessional behavior ultimately kills more student ventures I see than any other reason. 

As an entrepreneur, don’t expect forgiveness for sloppy work simply because you are a student. Your customers, in most cases, don’t really care whether your organization is run by students, adults, seniors, or children.  They want to buy your product, and they want to be treated professionally, because they are paying money for it.  In fact, if the only reason that you are getting traction is because you are a student, and people think that it is nice that ‘a kid like you’ is doing something entrepreneurial, then you are in dire straits.  Eventually you will stop being a student.  If you haven’t been able to build a sustainable business without student good will, then your business will crater the second you graduate. 

Yes, you are going to make mistakes while you are in the process of learning.  No, this is not an excuse to do a poor job.

Entrepreneurship , , ,

Entrepreneurship is a Profession, Not a Cool Pastime

15 Comments Posted by on October 18, 2011

While traveling in the Valley I had a chance to catch up with a few local entrepreneurs and accelerators. Many of them are doing interesting work, but I noticed a disturbing trend: entrepreneurship has become “cool” for a whole generation.

As a an entrepreneur who had gone through several popular accelerators told me, “It used to be that if you didn’t know what to do at the end of college you would go to grad school. Now the same people go to accelerators instead.” And they bring with them their culture: beer games, lawn chairs, geek gadgets, and “bro culture” galore. Everybody is a ‘rebel,’ but in exactly the same way.

As much as I applaud entrepreneurial energy, I believe that this trend is a bad news for society in general. Entrepreneurship is risky business, requiring highly skilled, disciplined and motivated people.  Encouraging entrepreneurship among individuals who lack any of these three characteristics is setting them up for failure, and setting society up for a big bill in the future.

The parallels to graduate school are strong. While I am a strong advocate of graduate studies, I also spent much of grad school surrounded by people without clear goals or motivation. Putting the same crowd into startups achieves nothing. If you lack the drive, self-control and people skills to finish a PhD in 3-4 years, then you likely won’t be building strong businesses either. These “Peter Pan” grad students won’t drive the economy even if they become trendy entrepreneurs (or whatever the next cool thing might be).

Instead, society pays for their leisure. This is obvious for grad students, because educational subsidies are fairly visible in our economy. For trendy entrepreneurs, government new business grants can play the same role, but the real economic cost is less visible. My parents produced economic value from the age of 17, contributing to social security and their own retirement savings. Whether unfocused grad school or unfocused entrepreneurship, we are creating a generation that delays this kind of societal contribution for years, decades or even forever – burdening the rest of society with their bills.

I am a strong believer in progressive taxation. The wealthy should pay more than their fair share because society has a moral obligation to fight poverty and support those unable to improve their lives for reasons of intellectual, social or physical hardship. But this kind of system is weakened when capable individuals delay their social contribution indefinitely. “Lifestyle poor” students and entrepreneurs are not in the same camp as those with true hardship. Their lack of economic productivity is due to personal choice, a lack of discipline, or unrealistic expectations. They are potential net contributors to society who decide to become net beneficiaries instead – robbing the truly disadvantaged twice, by first reducing the available resources, and then competing for the smaller resource pool [1]. This hurts our collective future.

Both entrepreneurship and graduate studies should be goal oriented, execution focused, and make a net contribution to the world. Entrepreneurship, like graduate studies, isn’t about wearing a hoodie, speaking at conferences, following people on Twitter, or reading the latest buzzword ebook. It’s not even about building a great website or product. Entrepreneurship is about building a scalable business with people, products and meaningful financials.

That requires pretty specific skills and beyond average discipline that not a lot of people possess[2]. Given that you either succeed as an entrepreneur or you don’t, it is irresponsible to perpetuate the myth that everybody can be an entrepreneur (or should be). It is as amoral as encouraging lottery participation in poorer neighbourhoods, or home ownership for those without sufficient income. Somebody will make money, but it won’t be the ill-suited entrepreneurs, and it won’t be society as a whole.

[1] This is not an issue of personal financial balance. It doesn’t matter whether you have a lifestyle that “works” with $10k a year or not. Unless you live on the moon, society *does* subsidize your lifestyle whenever you earn less than the average income level for your age group (government debt and the degree of progressive taxation in your country modify that bar a bit but it is a good first-order approximation). You don’t get the subsidy cheque but it flows into everything from the streets that you walk on, the food that you consume, the energy that you consume and so forth.

[2] The tough part is finding out whether you are one of the few people who can build businesses instead of working in one. There are no ultimate rules for this but a good indicator is whether you have the discipline to consistently succeed in non-entrepreneurial activities that your peers have difficulty with (e.g. making your marriage work when 50% of them fail, getting through college without debt when 80%+ of students have debt, etc.).

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Five Essential Courses for Technology Entrepreneurs

8 Comments Posted by on September 27, 2011

Five Essential Courses for Technology Entrepreneurs

Students who are interested in technology entrepreneurship are likely taking plenty of engineering, physical sciences, or computer science courses. But there are a few non-technical courses that I would strongly recommend to anybody aspiring to be an entrepreneur.  Even as a technical founder, these five topics will be some of the most useful lessons in academia: 

1. Accounting

I strongly recommend that you take at least an introductory accounting course.  Usually that means you have to take an extra non-credit course in your curriculum, but a basic understanding of corporate accounting will be well worth the extra time.  Any entrepreneur needs to understand balance sheets, income statements, cash flow, working capital (and how to manage it), forecasting, and other aspects of the Generally Accepted Accounting Principles (GAAP). As an investor, I shy away from entrepreneurs who can’t tell me what their capital requirements, burn rate, and drop dead date are. Ultimately, you need to understand the fundamental cash principles of your business or you won’t have a business.

Equally, or even more, important is the fact that any early start-up is not really about building a product or a business; it’s about finding a scalable business model.  That implies financial modelling of the core economics that turn one dollar into multiple dollars.  You can’t do this if you don’t understand the basics of tax, tax credits, payroll, benefits, and all those other items that have a meaningful impact on your venture’s core economics. Don’t build one of those “perfect businesses” that only work without paying tax, overhead and salary. Do yourself a favour and take an accounting class instead. 

2. Intellectual Property Law

Intellectual Property (IP) law deals with patents, copyright, trademarks, and trade secrets.  For a lot of tech entrepreneurs, patents will be the foundation of their business (more on University IP in my November 4th blog post). It is going to be a bit tricky to get into a course on IP at the undergraduate level, so you may have to go to a professor at your Law School and wiggle your way into a class like I did. 

Why go to the trouble? Because nobody else in your start-up will! You will be able to hire people who can write code or design circuit boards – IP management, not so much.  Even if you can afford an in-house patent leader, they won’t understand the content the same way you do.  IP is a very complex topic with plenty of room to screw up. As a hard-tech CTO you need to own this domain, so get as much as you can out of your university.

3. Excel (or equivalent spreadsheet software)

This is probably a class you will have to hunt down in a community college or other adult education program.  It will also probably add more value to your efficiency and effectiveness than most university courses.  Most people know a bit about excel, but you will want to understand the hidden shortcuts, modeling options, and mathematical formulas available.  In particular, try to understand conditional formulas, indexing and look up functions, and pivot tables.

Why does a course on an MSOffice component make the top five?  When I think about the activities I have done in my start-ups, I think about modeling business concepts, modelling and forecasting budgets, modelling and forecasting resources, making project plans, capital table management, incentive plans, compensation, and the list goes on.  A lot of contract elements boil down to who gets what money at what time and in what sequence.  And all this boils down to spreadsheets. Using them efficiently will gain you precious time, but using them effectively is even more powerful – especially for data-centric ventures.  Very often you have to define something on day one that has to approximate day two hundred.  Your incentive plan and financial forecasts, for example, have to be laid out fairly early, and still have to work two years into the start-up.  The better you understand modelling tools like Excel, the easier this will be. 

4. Writing

If your university offers a course on technical writing, take it.  If you can’t find something on technical writing, just take a regular course on creative writing. 

Writing is important because communication is the essence of an early stage venture when your idea is all that you have. This includes writing business plans, fund raising, contracts and agreements, correspondence, or even blog posts.  Often times the impact of bad writing on your business can be quite profound.  I have rejected financing intros because I couldn’t (easily) read the initial pitch email or identify the salient points of the business plan quickly enough. I probably shouldn’t have, but I did and do.  And I am not alone. 

5. Communication Skills

It is not just your written communication that matters.  Pick a course from a range available on verbal or interpersonal communication skills.  These will include critical communication skills like listening, relating to different communication styles, and public speaking.  You can also join Toastmasters or similar groups that help you improve your presentation skills. 

You are going to need these skills while you fund raise, recruit, and communicate with your team and customers. That’s pretty much all you do as a tech entrepreneur.  Over the last decade, I probably made 500-1000 pitches to investors and customers alone (and I have never actually been in an actual “sales” role).  As a founder you are the communication hub for your company. Great communication doesn’t always lead to a great business, but bad communication will kill any business.

Entrepreneurship, Technology Transfer , , ,

Setting a meeting on fire

3 Comments Posted by on September 14, 2011

A few years ago, during my first start-up adventures at Sunnybrook Technologies, a prototype fire taught me two important tech entrepreneur lessons: 

 1. Good entrepreneurs don’t panic.

2. Adversity is an opportunity, not a problem.

We had just finished the first prototype of what would become the world’s first commercial high dynamic range LED display: the venerable Zeetzen-5.

Today’s LED TV bring power to the very efficient backlight at fairly high voltage. That wasn’t possible for us in those early days. Lacking dedicated LED drivers, we brought 1400W up from two huge power supplies at 4 volts through a thick cables (the picture shows the base unit on the top right, main chassis with power bus in the middle and backlight unit on the right edge). 

The prototype was just finished, when we got a major strategic meeting with top executives at Kodak.  At the time Kodak was in the process of shifting from analogue film to digital, and they saw us as a potential major opportunity.  Dynamic range is a key issue for film, and we had created a digital high dynamic range which would be a great companion piece for them.  After some soul-searching about the state of the prototype, we flew to Rochester, excited for our first major commercial demo. 

After arriving in Rochester and meeting the executives, we set up the unit, started the demo, flipped the power switch and BOOM!  The whole room turned black.  There was the kind of nasty black smoke that you get when you burn tires and a flame shooting out of the unit.  Everybody got up in a panic, people were in the hallway and there was a fire alarm warning.  It was just a humiliating disaster.  We just managed to avoid a full scale evacuation of the whole Kodak research facility and got everybody back into the room. 

So what do we do now?  The instinctive response would be to slink away, cry a little, and write off the meeting.  Instead, we did what good entrepreneurs should do.  My partner just calmly took over the PowerPoint and said, ‘We’re just having some minor technical issues here,’ and gave the presentation.  Meanwhile, I opened the box and found that a strand of the metal cables had come out from the connection point and shorted against the unit’s case.  At 100 amps, the short instantly evaporated the insulation around the wire, and that’s where the thick rubber smoke had come from.  I thought, ‘I can fix this.’

Warning: Do not attempt this at home. I wish I could say that I was a training professional but at the time I was just an undergrad student with just too much hacker hustling energy. Electricity at this current *will* do very unpleasant things to you.

Step 1: The fuse on the power supply was blown, and we didn’t have spare parts other than little pocket screwdriver.  I took a metal bit from the screwdriver and popped it in the fuse holder.  Any good engineer will tell you that this is not something you should do (listen to them!). 

Step 2: I then tried to figure out how to insulate the wire.  The only thing I had available to me was a stack of napkins from the muffins on the table.  I took the napkins, made a little carrying hammock out of them, and put the wire inside.  I was able to hold the hammock with my hand and pull up the wires to keep them from touching the ground. 

So we went back to the demo.  I was giving the demo pitch, pointing with my right hand to the screen and illustrating all the different issues, while my left hand was behind the unit, hidden by the open box, holding this little napkin hammock.  I was praying hard that the wires wouldn’t short out again turning the napkin, and by extension myself, into another flaming contraption. It worked.  Kodak was duly impressed.

After the meeting, we drove from Rochester to southern Ontario, invaded the home of an old acquaintance of my colleagues, and used his tools for a slightly more robust repair of the unit – and then spent another few days doing fundraising demos with prayers on our lips. The show must go on!

Lesson 1: Don’t panic.  Things will go wrong in demos.  The best and only thing you can do is to take parts with you (more than a screwdriver – these days I travel with entire carrying cases full of nothing but spare parts).  Most importantly, when something bad happens don’t lose your cool, don’t freak out, don’t start crying, and don’t give up.  The reality is that you will only make it worse by panicking or giving up.  You have done your homework, traveled a long distance, and these people have booked time for a meeting with you.  You might as well salvage the meeting.

Lesson 2: I am pretty positive that Kodak’s take-away from the meeting was not, ‘These guys can’t build displays.’ They knew that the technology we were developing was complex and a world’s first with a lot of technical risk in the system.  I think what they took away was, ‘These guys know this stuff so well, they can field repair with a napkin and a screwdriver.’  When a big company looks at a start-up, that knowledge is much more valuable than your ability to make polished little systems.  Companies are not going to buy you for your polishing skills; they have plenty of those.  They are looking for deeply ingrained technical expertise. Technical problems actually give you an opportunity to demonstrate that expertise.  I still would not deliberately break demos during a meeting, but don’t be scared if it happens. For entrepreneurs, adversity is an opportunity, not something to be feared.

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5 Guidelines to Evaluate Accelerator Programs

4 Comments Posted by on September 6, 2011

For the last month I had three people independently ask me for advice on selecting (Web2.0) Accelerators. Two of them were student entrepreneurs contemplating their first venture. All where attracted by the Accelerators promise to kick-start their business but a bit confused by the choices between different Accelerator programs. Students, inventors or entrepreneurs in similar circumstances might find the following guidelines useful:

1. Mandate

The first and foremost checkpoint is the mandate of the accelerator. You want a structure and culture that is exclusively devoted to profit. Ethical, moral and legal – but focused on turning some money into more money. That’s going to be the mandate of your own venture and promise to your shareholders. An accelerator with a different mandate will have misaligned interest to you right from the start.

Common accelerator mandates to avoid, in my opinion, are

  • VC deal flow (limits your future and biases your decision making into the wrong direction – focus on building a great business, not convenience for VCs)
  • Media attention (an accelerator looking for ego PR will turn you into a PR monkey – this is what happens if you spend all your time being a conference darling without building a viable business)
  • Job creation (government funded accelerators often have this political mandate but jobs are really an incidental result of start-ups – focus on building value, not employment)
  • Community involvement (conference hopping is only good for your ego, building a successful company is the best way to help your community)

Avoid all of these and find somebody who wants to build strong companies for monetary gain. That’s the only reason to run a venture-funded start-up in the first place.

2. Economics

Explore the core economics of the accelerator. Consider where the financial payout for the operators and mentors will come from. For example, consider the basic Web2.0 accelerator clone: A paid operator, less than 10 companies per cohort and a 5-10% stake per company. Let’s say that the operators cumulatively receive a 1% stake per company (personally – check those numbers before joining). At an expected next phase valuation of $2-4M per company (if all goes well), their upside potential is less than $500k (around $200k mid-point).

Compare this to their base compensation package. If both are in the same ballpark then they will have a fundamental alignment problem. If the base is paid by a VC or government then their actions will be biased towards those parties (and thus occasionally out of alignment with their cohort companies). It’s unavoidable unless they don’t understand economics (in which case you definitely shouldn’t join).

3. Operators

The operator(s) of the accelerator will effectively be a very active Chairman of the Board and possibly your CEO. You are paying the bulk of your equity premium for their guidance, so you should evaluate them just as carefully as any other co-founder or senior leader. Ask for background and lots of references in past companies or investments. Focus on operational skill and integrity. Consultancy you can get for a lot cheaper than a 5-10% equity stake.

As a rule of thumb, look for somebody to whom you would gladly entrust your business for a year if you had to take a long vacation. If possible, somebody to whom you would give your business tomorrow if only they were available. This is a high bar but for a highly influential early stake in your venture it should be pretty high.

Avoid the entrepreneurial title trap. Unlike corporate careers, entrepreneurs can basically manufacture any title they want. At a conference earlier this year I saw a speaker line-up that promised all varieties of “successful entrepreneurs”. Even superficial digging on Google quickly confirmed that the “successful acquisition” of the first was a $10k purchase of their software; the “exit to a Fortune 500” of the next was a fire-sale acquisition of assets/team for ~$1M after having burned through ~$10M in investment; and the “expert in entrepreneurship” had become so via social media self-declaration without ever building any kind of company in the first place. Run.Like.Hell!

The sole measure of successful entrepreneurship is the past creation of either profitable stable businesses or high-return exits. Even that doesn’t by any means translate into automatic success in the next venture – but it’s the least you should expect from an accelerator operator.

4. Mentors

Use a similar benchmark to evaluate mentors. Mentors cover a broader range of functions so there is a lot of value in having non-operators as well. You are looking for a mix of successful entrepreneurs, market experts and secondary skills relevant to your particular business model (e.g. connections to possible acquirers, media expertise if you need PR in your business core, etc.).

Beyond qualification, make sure that you understand mentor motivation and time commitment for the accelerator. They should have a direct financial stake in your venture (via the accelerator stake). That stake should be meaningful enough so that they in effect become *your* advisors and not just guys who are doing the operator a favour. It would never occur to any entrepreneur to have their advisory board members paid by their VC, so make sure that you aren’t doing exactly that in your accelerator.

It’s ok to establish contact with potential future investors, fellow CEOs in the sponsor’s portfolio and so forth. But keep in mind that these people have inherently misaligned goals relative to your own. Ask your future accelerator to explain the difference, categorise mentors by their motivation and then interaction with them at a level consistent with these categories.

5. Valuation

Bluntly put, the financial commitment of most accelerator programs is trivial. Any decent valuation estimate needs to first assess the non-financial investment. Try to reduce the components to comparable independent contributions: office space (comparable rent), consultant-like mentors (hourly market rate), board-like mentors (comparable equity stake for full BoD members), and so forth. The comparison in the intangible areas will be harder (e.g. media exposure). Ask the accelerator for past example and try to correlate it to a meaningful metric in your field (e.g. what was the average number of TechCrunch articles per cohort company in your last 3 batches? – how much would it cost to get that from a PR firm).

It’s worth breaking these items down on a sheet of paper and asking the accelerator about their own perspective on their valuation per item. Remember that bundling is a tool invented by companies to mask effective price increases, not to make things cheaper for consumers.

Once you have your effective valuation, compare it to alternative scenarios. Angel valuations for early stage companies in your city are often fairly well bracketed. Also compare to other accelerators (e.g. Y-Combinator and Techstars take 3-10% for ~$20k plus significant intangible value). Compare your accelerator of choice to those deals and decide if their offer is worth it (most regional accelerators will have much smaller value-adds than these two power-houses, so their stake should be proportionally smaller unless your business/team is also comparably lower in value).

All of this sounds like a lot of work, right? In both of my discussions the first response was: “Hey, it’s only 5% so isn’t it always worth it?”. That’s the wrong perspective. Like a co-founder, early executive or lead investor, the impact of joining an accelerator goes way beyond the (small) equity stake. Earlier influencers decide or strongly bias the direction of your company. That gives accelerators the power to truly accelerate your business. It also, implicitly, creates the risk of destroying it. So take your time for careful due diligence and make your choice wisely.

Entrepreneurship , , , , ,

MBA or PhD – Picking the right degree as a University Entrepreneur

13 Comments Posted by on August 1, 2011

A lot of undergraduate students ask me whether they should pursue an MBA or a technical PhD as a foundation of their entrepreneurial career. I have pursued both at some point, and frequently meet (and invest in) entrepreneurs with both degrees. Each has advantages but overall I’d recommend a PhD for most tech entrepreneurs. Here is why:

Education: Both degrees will teach you something. The MBA focuses on case studies and financial concepts (e.g. accounting). A PhD emphasises independent systematic research and domain knowledge (e.g. electronics). The latter is simply more valuable for a tech entrepreneur. Steve Blank is right that most of the great entrepreneurs were Scientists and Engineers, not MBAs.

Moreover, a well-trained technical PhD will have no problem at all picking up financial concepts on the side if needed. The reverse doesn’t work at all. I came into my MBA program (Drexel, Technology Management) with an Science Bachelor (UBC H.B.Sc. Physics). There was *nothing* in any of my courses that wasn’t trivial with good skills in math, excel and Wikipedia. I have since then found this to be true for *all* aspects of “business” other than the informal aspects like Sales which cannot be taught in school anyhow. Building a business is hard, but the fundamentals, literally, aren’t rocket science.

Certification: Much of the value of an MBA is condensed in the piece of paper. Don’t laugh – this is a very real effect in a lot of domains. My wife (B.Eng., MBA) has a very successful corporate management career (Proctor & Gamble, Nortel, McKinsey & Co). Her MBA definitely contributed to that career progression. But the MBA certificate is a lot less relevant for entrepreneurs. It doesn’t matter at all for proven operators (i.e. those with successful exists in the past). Newcomers will be technical co-founders with a PhD or business co-founders with an MBA. A dozen of the latter will fight over one of the former at any networking event. That should be a hint about the relative value.

Relationships: This is where MBAs shine. You will meet lots of other bright people who can become your support network in your future career. A PhD is just too isolationist in nature to be useful in this area. Ironically, the best way to overcome this shortcoming of a PhD program is to become a student entrepreneur. Very few career options require more interaction with diverse stakeholders. So being a good entrepreneur while studying will effectively force you into more relationships than an MBA ever would. That said, in a fair comparison, the MBA will still be much more valuable in this category.

Financial Impact: Unlike a corporate career, the earning power of an entrepreneur is defined entirely by the quality of your work and not your pedigree. Neither degree has an advantage in this regard. But the PhD dominates on the other side of the financial equation: cost. PhD tuition fees are generally much lower than in the MBA program of the same university. In fact, many universities offer scholarships to anybody who makes it into their graduate program. MBA schools are profit businesses so this difference isn’t going away. A PhD can also have a long term impact on the financials of your start-up. It gives you access to several types of academic grants, allows you to co-supervise graduate students (a great way to get smart engineers into your team while they are still at school), and makes it massively either to get technical tax credits for your business.

Alignment with Entrepreneurship: This is the ultimate argument in my mind. You can do your PhD while building a tech start-up. It’s incredibly hard to do the same with an MBA. A technical founder should be able to leverage at least half of her start-up work for the PhD (and vice versa). The MBA program offers no such leverage at all. That’s the difference between success and failure for your start-up.

I am seeing this playing out at TandemLaunch right now (and saw it over and over before). We have a PhD student interested in a technical leadership role for a new portfolio company. This will combine nicely with her PhD work; any paper or patent that she writes at the company will be directly “credited” to her PhD; there are scholarships designed specifically to fund her work on the boundary of academia and entrepreneurship; and the overall alignment will be strong enough that her PhD won’t take any longer despite contributing to a company “on the side” (mine got shorter). Universities *want* her to have impact in the real world.

Her comparison was just accepted into an “elite” business school. No scholarships for him, just 5 times more tuition. No encouragement for his entrepreneurial career either; no way to get any consideration for the fact that he has already build a successful marketing business and might not need “Introduction to Marketing”. He won’t even be able to use his company work as a case study or homework assignment. Zero alignment or leverage. Encouraging real world impact? Not so much…

Spin-Off vs Start-Up, Technology Transfer , , , , ,

5 Strategies for a Successful Entrepreneurial Life

8 Comments Posted by on July 27, 2011

There are many ways to define success. I didn’t start in a mud hut and I am not Bill Gates. Still, the first decade of my entrepreneurial career can, I think, be described as going from a fairly basic start* to success as a technology entrepreneur**. The following five strategies got me there:

 1.       Understand the “Average”

Average work hours, average commitment, average education and average financial management leads to an average lifestyle ($45k family income with no savings, going towards the ~$10k global average income for the next few generations). If you are hoping for something better then you need to do something above average. Survey the hours that people in your chosen career field work on average, add 50% and make that your baseline. Do the same with all other averages (e.g. years of education).

 2.       Time Value of Money

Act as if every minute of your life costs at least $1. You might not be making that much, but acting like it will instill the right behaviour patterns for your future. Two of the biggest time sinks are non-leisure home duties and work commuting. Automate the former and minimize the latter (e.g. my weekly groceries are ordered via a script and delivered into the kitchen; we select/move homes to be close to work; we have no TV at home; I take cabs instead of owning a car as I can work in the back, etc.).

 3.       Invest in Yourself

Money makes more money if you put it to work. The best use of your initial wealth is to invest in yourself. Outsource *every* non-leisure activity below your scalable compensation level to free up your time (housekeeping, transportation, maintenance, etc.). More subtly, try to outsource everything below your forecasted future earning power (up to your cash flow limit). Doing so *today* will give you the extra time to get to *tomorrow* faster.

4.       Make Your Luck

There is no luck, only low probability events. Every time that you meet a person, there is a low probability that she could be a co-founder, investors, partner or customer. Maximize the ensemble outcome by a) meeting lots of people and b) trying to select the type of people that you meet (if that’s possible). The same is true for developing technology, trying out new business models and any other such activity. The more you do and the more people you engage, the higher your likelihood of getting a successful outcome.

5.       Surround Yourself with Better People

We all want to be part of the crowd and adjust our behaviour accordingly. You cannot fight biology, so use this instinct to your advantage instead. Surround yourself with people who are smarter, more successful or further ahead in their career than you. Doing so requires a conscious effort to step outside of your “peer group” (e.g. fellow students, fellow junior employees, etc.).

* I grew up in a little village in Germany. My dad worked as a government clerk and my mom was a homemaker. Nobody in my family tree had amassed great riches or completed high school (much less gone to university). I arrived in Canada without an international perspective and with very limited financial resources (the first cheque of my life was the painful $5k founding investment for my first start-up – something I promptly screwed up by writing my name onto the line where the amount is supposed to go…).

** Built great teams, sold technolgy at high return to shareholders, reached financial independence, earned an award-winning PhD and the recognition of my industry peers.

Entrepreneurship

Tell me what you are going to do tomorrow!

1 Comment Posted by on June 29, 2011

Entrepreneurship has never been easier: Buy Steve Blank’s book on Customer Development; read all of Eric Ries’ posts; reduce your fundraising presentation to the Business Model Canvas; wear a hoodie and pivot like a lean ninja. Success is guaranteed.

Not…

Creating value from nothing is just as hard as it has always been. You wouldn’t get that from many of the investment pitches that I see though. Instead, I hear about “viral” marketing plans without budget (but massive predicted revenue), “lean” business models without unfair advantages (but massive predicted profit) and “Ramen” operating plans without paid employees (but cheerful ever increasing productivity). Don’t fall into this trap. Focus on real actions, not fluffy jargon. Instead of “viral marketing”, tell me that you are going to put short in-progress videos of our product on YouTube every week. That sounds less sexy but at least it gives investors something factual to evaluate and you an actual task.

Similarly, don’t spend your day doodling on the Business Model Canvas in a quest for the ultimate business strategy. Strategy is important, but it won’t come from using a(ny) tool. Recognize that these tools will at best help you to organise your thoughts. Don’t mistake them for answers to the unique questions in your venture. For that you need to go out into the world and get things done.

Entrepreneurship, General , , , ,

Why we do what we do

5 Comments Posted by on June 21, 2011

For the last few months I have shared stories and opinions about university entrepreneurship. I figure it’s time to talk about the “why” rather than the “how”. Specifically, why do we try so hard to bring university technology into the world?

First same background: I spent my career commercialising university innovation as an inventor, entrepreneur and operator across technical, strategy and business functions. I love building technology organisations. That’s the basic motivation. You need to love what you to in order to be good at it.

But why universities? Why not websites or apps – a market that is about as frothy as it has ever been? I am successful serial entrepreneur with dozens of software patents and a PhD in computer science, EE and physics. Until recently I had an office right smack in Silicon Valley. I raised eight rounds of financing from over 50 investors. With that background, why am I not on Sand Hill Road where cheques are currently falling from the sky for teenagers with a landing page? Why focus on universities, an environment shunned by almost all investors today?

Because it’s the right thing to do and nobody else does it!

Technology has to improve lives. I believe that down to my very core. It doesn’t have to solve world hunger but in some form it should make lives easier, better or less environmentally impactful. Some websites and apps do this quite nicely, but creating the 17th Groupon clone to cash in on the bubble seems hardly the right choice. University technology almost always addresses meaningful human issues. It might be misguided in terms of market, implementation and economics but the goal is worthy.

Over 90% of our Nobel Laureates did their work at universities. The vast majority of technical revolutions came out of university labs. University research funding in the US alone accounted for $39B in 2008. That’s 3.5 times more than the entire basic research budget of the US economy at $12B. And almost all of it will have been devoted to solving fundamental life-improving issues.

Yet, less than 5% of all US products and services contain university intellectual property. That’s the other side of the coin. Our universities are exceptional at creating high value knowledge but truly pathetic at getting it into our hands. Unfortunately, technology without users is useless.

This tech transfer inefficiency is the result of cultural, political and economic gaps between university and industry. That leads me to the second half of my statement above: Nobody else is trying to fix this. Venture investors are moving up stream. We have gone from VC partners placing $5M per year on average in 1997 to $35M in 2007. The new Super Angels and Accelerators have re-introduced smaller early stage amounts but virtually all with an exclusive focus on websites. That leaves preciously few resources for university technology transfer.

At TandemLaunch we are committed to bridging this gap. We recognise that traditional investors are moving up stream for sound economic reasons. Giving money to a multi-disciplinary team of business-savvy founders in a frothy market yields better results than giving it to a lone university researcher. So we give more than money. We provide co-founders, team members, facilities, back-office services, industry connections and just about everything else needed to bring the risk profile of a university project in line with that of a traditional start-up (and yes, that includes money as well).

And it seems to be working. My first wave of commercialising inventions from just under a dozen universities yielded a steady 40-60% IRR from 2002 to 2007. Early results from the second wave at TandemLaunch look promising as well. Ultimately time will tell. We might succeed wildly; fine-tune the model; or even tackle the problem with a different approach altogether. But we will keep trying. It’s the right thing to do!

Spin-Off vs Start-Up, Technology Transfer , , , ,

Confidentiality and Investors

1 Comment Posted by on June 14, 2011

“I have a world-changing, disruptive idea in the multi-media space! Can you sign an NDA so that I can tell you more?”

I get variants of this every week. And it never works.

Non-disclosure agreements (NDA) are legal documents that require effort to review and create long term liability. The vast majority of traditional venture investors will categorically refuse to sign any kind of NDA for the latter reason. It’s just not healthy for their business model to carry around years of liability for every business plan that they read.

So when should an aspiring entrepreneur ask for an NDA?

First and foremost, you need to understand that there are two different reasons from confidentiality: protection of information and protection of legal rights. The vast majority of start-up secrets are in the first category: business models, marketing strategy, product plans, software architectures, etc. You don’t want your competitors to have this information but you could hand your entire confidential business plan to a random guy at a cafe and absolutely nothing would happen (unless you are Apple).

Disclosing this information to investors without an NDA generally won’t cause any harm either. At least as long as they don’t put your slides on TechCrunch or hand your business plan to a competitor in their portfolio. The only protection against unethical behaviour like this is to validate the relationship. Work with reputable people; understand the constraints of their business (e.g. what competitors have they invested in); and remind them that your information is confidential. You want to get married to them, so you should be doing this kind of due diligence before the meeting anyhow.

Non-disclosure agreements are usually only needed to protect legal rights such as unfiled patentable inventions. Any kind of disclosure, even a quick story at a café, will severely limit your patenting options. It doesn’t matter if the receiving party cares about the information or even understands what you are doing. The act of disclosure itself is enough to cause commercial damage. It is therefore in the interest of your future investors to cover these concepts with solid paperwork.

Most investors never reach the depth where they need access to this kind of information. At TandemLaunch, the nature of our business model is such that we almost always have an NDA in the late stages of any project. Other “deep digging” investors will likely also have no concerns with an NDA at that stage. But there is no reason whatsoever to go to this level at the first meeting. At your first meeting you should describe who you are, what problem you are solving and how you are going to make money by doing so. None of this has anything to do with patentable inventions and thus shouldn’t need an NDA.

Technology Transfer , , , ,

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