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Success and Failure — San Diego Startup Community

San Diego Skyline

(UPDATE BELOW 4/10/13)

With Brad Feld coming to town this week, I think it's a good time to evaluate the state of San Diego's Startup Community. If you don't know Brad, you should take a few minutes to learn more about him. He is an entrepreneur turned investor, a co-founder of the TechStars accelerator program, a prolific author and a community builder. Last year he published Startup Communities: Building an Entrepreneurial Ecosystem in Your City, which explores the ingredients necessary to have a thriving startup scene. The challenges Brad discusses are spot on and I highly recommend the book.

I first met Brad in the Fall of 2010, when he and TechStars co-founder David Cohen came to San Diego as part of their Do More Faster book tour. San Diego didn't represent; it was a pitiful showing. Brad told the audience San Diego was 10 years away from having a solid startup ecosystem and he challenged, "who in the audience is committed to leading the effort for 10 years?" A few hands raised up, some by those merely seeking affirmation and the chance to pitch Brad on their failing startup. (When Andrew Beinbrink and I pressed those after the meeting to join us in building San Diego Tech Founders, they evaporated faster than dollars in a freemium business model.)

Fast forward 2 1/2 years and San Diego has made progress. A lot of positive things are happening. Aside, however, from the entrepreneurs living the San Diego dream, I can't help but wonder: Does San Diego at large even know there is a Startup Ecosystem problem here?

***

In Startup Communities, Brad briefly describes traditional frameworks for evaluating startup ecosystems, including economic concentration, a cultural of openness and information exchange, and a prolific creative class (entrepreneurs, professors, artists, musicians, etc). These are not independent and in my opinion, all relate to geography. In other words, certain geographic conditions must exist before one sees a concentration of economic activity, which leads to a proliferation of the creative class, which leads the way toward openness.

The geographic conditions are necessary, but not sufficient. As Brad says,

There is a serious chicken and egg problem; although it is not difficult to see why innovation havens have an advantage, it is more challenging to explain how to get a startup community up and running. (Feld, Brad (2012-09-06). Startup Communities: Building an Entrepreneurial Ecosystem in Your City (p. 25). John Wiley and Sons.)

Brad introduces an additional framework, based on his experience growing the Boulder, Colorado startup ecosystem:

  • Entrepreneurs must lead
  • The leaders must be committed long-term
  • The community must be inclusive
  • The community must have continual activities

Happily, San Diego has all these components, which I discuss below. (If you want to skip the griping, you can jump there now.)

Brad doesn't stop at describing what is needed, he also lists the challenges and common issues facing burgeoning startup ecosystems. Many of these apply to San Diego in spades.

Specifically, San Diego faces geography issues and what Brad calls the "patriarch problem."

Geography

Successful ecosystems have geography in their favor. San Diego is challenged by the fact that we have startups from Oceanside to Tijuana. We are spread thin. Yes, Silicon Valley has startups from San Francisco to San Jose, but there are concentrations all along the way: SOMA, Palo Alto, Mountain View, etc. Additionally, there are thousands of startups there compared to hundreds here.

As noted above, concentration leads to openness, collaboration and greater economic activity. When startups concentrate in an area, you not only have more planned events, but greater serendipity, too. Ask any founder what they love about SF's SOMA, it's the opportunity for casual conversations in a random coffee shop that leads to ideas, partnerships, investment and other possibilities. In a car culture like San Diego, where Startups are locked up in high-rises in the Golden Triangle and Founders in automobiles, you simply are not exposed to that level of opportunity.

Patriarchy

Brad describes The Patriarch problem:

In moments of frustration, I call this the old-white-guy problem. At its core, it’s one of the key challenges of a hierarchical organizational model, one in which the most powerful people are the ones at the top of the hierarchy.

Of course it isn't really the old-white-guy problem, any one can be old school, but San Diego is dominated by the old-school; by people who were instrumental in diversifying San Diego's economy 20 years ago, by former C-level executives of large, successful companies, and yes, even by some people who actually started and grew new businesses once upon a time. Great people, I'm sure. Many wish to 'give back', want to see San Diego grow economically, and would like to contribute their expertise.

Unfortunately, the legacy institutions that serve as the vehicles for their contributions are anachronistic, decidedly old-school, and arguably more harmful to San Diego than beneficial. Included in this list are the very institutions held up as being proof by some that San Diego startup ecosystem is thriving, including CONNECT, EvoNexus, Tech Coast Angels, SDVG, SDSIC and others. Painting with a broad brush, they don't get fundamental aspects of today's startup world, many of which Brad discusses:

  • Pay it forward
  • Openness and inclusiveness
  • Mentoring
  • Modern business models
  • Today's Investment practices

CONNECT has an incredible number of programs and has been serving the community since the 1980s. Their CONNECT w/ CONNECT is arguably the region's largest and most successful networking event and I always hear great things about it. Additionally, the Life Science mentors I've met are second to none and the Sports Innovation sector has the potential of being the country's leading support organization for that vertical. Their support for tech startups, however, leaves much to be desired.

The downtown EvoNexus 'incubator', is for the most part, a miserable failure. Featuring a great location generously donated by the Irvine Company, the space lacks any sense of startup companies moving with purpose. Their "Nations only No-Strings-Attached Incubator" tag line reflects not only profound ignorance of what's actually happening in the startup world, but also it's profound arrogance. (Ever heard of MassChallenge, for one?) Incredibly, despite what one can only believe are best intentions, the 'no strings' incubator offers no benefits other than free rent. It's motto is, essentially, 'figure it out one your own.'

Like most San Diego's legacy support institutions, CONNECT's Springboard program and EvoNexus rely on vanity metrics (here's how many startups have 'graduated' and here's the total amount of $ raised), but lacks transparency. (Here's what real transparency looks like.) This is not a trivial matter. Organizations that rely on vanity metrics tend to optimize for the wrong thing and lose their way.

While EvoNexus offers no mentoring to their early stage companies (exactly backwards thinking), Springboard struggles to find and keep relevant mentors. While, again, the mentors are mostly well-intentioned, many are looking for C-level gigs, board seats and consulting work. Many have never worked at startups, let alone founded one. CONNECT Springboard seemingly does not understand that as Steve Blank loves to say, "Startups are not small versions of big companies." Concepts such as viral coefficient, gamification, mobile monetization strategies, crowdsourcing/funding, and lean startup, to name a few, are foreign to most of those involved in San Diego's legacy institutions.

A recent conversation with a local entrepreneur stuck in the wrong ecosystem web, illustrates a repeated scenario.

  • He liked very much his Springboard mentor.
  • He's been in the program for a year.
  • His product has been in development for over 1 year.
  • He hasn't launched anything so has no customers.
  • He has talked to potential customers, but not shown them any product.
  • He's 'hoping to launch soon.'
  • He has no access to other entrepreneurs.
  • He will soon (hopefully) graduate from Springboard and so is finalizing his pitch deck.
  • If he successfully graduates, he'll pitch to investors.
  • He's been to CONNECT events (Frameworks, CONNECT w/ CONNECT), but no others.
  • He's struggling with paying for patent protection.

What's wrong with this picture? Plenty. A well-meaning mentor to be sure, but a program designed to get a first time tech entrepreneur with no customers in front of investors is a profound waste of time and energy on all fronts. This particular entrepreneur has been stuck inside a closed system for a year. He has not benefited from collaborating with other founders wrestling with similar issues. He has not been exposed to founders who have already figures out some of the issues he currently faces. He's getting bad advice on investing. His IP strategy is likely irrelevant for his particular product and he admits that he's mostly doing it to appease local investors. ("What's your IP strategy?") He has received no mentoring on how to go about (and the necessity of) validating his business model, but rather on how to put together a pitch deck. Wrong, wrong, wrong.

Harmfully, these organizations compete for a limited supply of the sponsorship dollars that keep their doors open. The sponsors have become the customers, not the entrepreneurs. Go to any of their events and you're more likely to see glad-handing and plenty of backslapping for each other -- organizations and sponsors -- and very little attention paid to the entrepreneurs. They even give each other awards.

I must say, I don't get the economics. They charge sponsors a lot of money, they also charge members, and finally, they charge attendees to their events! Where does the money go? Their internal bureaucracies require increased external funding, resulting in less support for the very constituents they're meant to serve. Their very structure ensures the primary attendees of their events are service providers. The entrepreneurs are chased underground, running from endless attempts to monetize them by both the organizations and event sponsors and attendees!

The legacy organizations favor exclusivity. Their demo nights are closed events or are expensive in order to dissuade attendance by the community. Likely they do this in order to attract sponsorship dollars and old-school investors who need to be treated special. The irony is that the most active investors don't attend the events and have little to do with the legacy institutions. The organizations disrespect each other and actively block new organizations from seeking sponsorship dollars. Ironically, all these groups must go outside their own networks to find startups worthy of showcasing.

You get what you pay for, you might say. But the effects are more pernicious. The rest of the world looks to San Diego and sees the shining examples of our legacy institutions without knowing their severe shortcomings. CONNECT is actively out exporting their Springboard program to other communities, some of whom have more interesting ecosystem experiments that show promise. When Kauffman Foundation hires a consultant to evaluate regional ecosystems, where do they go? CONNECT, of course. That's not the real scene.

I hate to break it to you, but the real San Diego tech scene does not go through CONNECT. The entrepreneurs, the active investors, the mentors do not belong to CONNECT, EvoNexus or most of the other legacy support institutions.

The Good News

Geography

With The Irvine Company's Rachael Brown leading the charge in support of local startups, a concentration is emerging in downtown San Diego. Though, we're not yet at the level of 'serendipity' described above, we have co-working facilities like Co-Merge, a number of startups, EvoNexus itself, all downtown. This has led to a surge in downtown events, startup happy hours, and a cluster of founders actively seeking to improve the local ecosystem.

It's likely San Diego will require several such locations to bridge various locations in our large geographic region, including North County coastal and somewhere inland. Solana Beach's Design district is a great model, Ansir Innovation Center has embraced the community in Kearny Mesa, and Jim Butz is working tirelessly to open a wireless accelerator program in San Marcos. Further meetup events and local co-working venues are opening up throughout the county.

If the rumors are true and Howard Lindzon moves Stocktwits to downtown from Coronado, that will be another welcome boost.

Entrepreneurs Must Lead

The most heartening recent development in my mind is the emergence of entrepreneurs as community leaders. Make no mistake, San Diego has always had great entrepreneurs. Entrepreneurs who are also willing to lead and help shape the tech community, however, is more difficult. They are often compelled to head to Silicon Valley or are so dismayed with the local scene that they keep to themselves. Specifically, Melani Gordon of TapHunter, Austin Neudecker of Yealthy, Sean Callahan of SlimSurveys and Matt Wickstrand of Kareer.me have stepped up as local leaders.

Critical to the picture is entrepreneur turned investor and mentor, Jon Belmonte and several others, including Brian Mesic, and the shining example of service provider as entrepreneur advocate, Eric Otterson.

The leaders must be committed long-term

This, of course, remains to be seen. San Diego has had its ecosystem in the past, see Qualcomm and its startup satellites circa late 90s and early 2000s. The question is can it be built in a sustainable fashion.

I am optimistic when I see the successful startups continue to participate in the ecosystem. Jon Carder of MOGL as well as Steven Cox and Chris Waldron of TakeLessons are prime examples. Committed to growing their businesses in San Diego, they represent us well. They are hustling to scale their startups, are growing real, profitable organizations, yet also find time to give back to local founders and participate in the ecosystem. We need more like them.

While Qualcomm has been quiet for years, Liz Gasser's Qualcomm Labs organization is the lone true shining light on EvoNexus and represents San Diego's only true accelerator program. Additionally, Qualcomm Ventures recently made a local investment, which I find amazing given the open disdain for the local ecosystem held by some of their employees. It is worth asking, however, where are the Qualcomm millionaires when it comes to the nearly non-existent, local, angel-investing scene?

The community must be inclusive

Creating artificial 'velvet-ropes' at events is a desperate attempt to evoke relevance. The 'real' startup community welcomes all -- including the old school and service providers -- provided that all members participate respectfully, openly and with a spirit of providing value from the heart, expecting nothing in return. Neither wannabe nor self-described 'ballers' need apply.

While San Diego's "real" tech scene remains a bit skeptical and wary of the strategy consultants, marketing and PR agencies, life-coaches, and self-hype, trademark-happy entrepreneur gurus attempting to monetize them, there are many more who in it for the right reasons, yet still stand to benefit from the rising tide.

Inclusive means supporting diversity as well. The San Diego startup scene benefits from a strong presence of women founders and leadership organizations, including Felena Hanson's HeraHub and Leslie Fishlock's Geek Girl Camp. It's also represented by Olin Hyde, Merrick and Mario Lozano, Kelly Abbott, Alline Watkin's support of the startup scene in Tijuana.

The real question is can the old be bridged with the new? And can those who have been turned off by the local scene -- who invest and mentor in Canada and Silicon Valley -- be persuaded to participate here?

The community must have continual activities

The last couple of years have seen a surge in activities relevant to the startup ecosystem. A search on meetup.com reveals a wide range of free or low cost events designed to benefit tech entrepreneurs. Some have been meeting for years others are brand new, which demonstrates a healthy demand. Yes, there are still business card swapping events, magical, internet marketing ninja sessions, and huckster, self-promoters, but also numerous, open, collaborative, nurturing events designed to help and grow local entrepreneurs. A couple of my favorites are RefreshSD and (of course) San Diego Tech Founders.

Of all the legacy institutions, San Diego's chapter of the MIT Entreprise Forum has shown the most promise. Pamela Stambaugh, Susan Cornelius, and Audrey Veitas, among others, have reached out entrepreneurs to better serve them. They've experimented with pricing for their main monthly event, but also have institute a Lunch and Learn program and a breakfast series in the hope of benefiting their under-served entrepreneur constituency.

San Diego has their fair share of Startup Weekends and Lean Startup Machines. Tech Cocktail makes a regular and welcome stop here. San Diego Tech Scene and Phelan Riessen hosts both the best local tech calendar and best shindig of the year. And we're covered with our local edition of Startup Digest, we well. (I am the acting local curator.)

What's Next?

I've seen a steady increase in participation at these events, with a wider diversity of people. Which, I think, means we're doing something right, San Diego. One of the great things about San Diego is that it's big enough to home real innovation and yet small enough, that you really are only 1 connection away from just about everyone in the startup scene.

In the last year in particular, we've witnessed an increase in leadership from entrepreneurs, as well as the emergence of a group of people who have the willingness and ability to make change happen. This group is currently running an "MVP" of a mentoring program, which, if successful, may evolve into something more. They are planning additional mentoring programs; support for existing events, as well as new flavors; a "new to San Diego first stop" web site; and much more.

While I would welcome the legacy institutions opening up, becoming more relevant and inclusive, I'm not holding my breath. The best idea might be for them to do some serious soul-searching, decide who their core customer is and their primary mission for them, simplify their operations and reduce activities in order to focus on that mission.

My aim here is to improve the San Diego startup ecosystem. That requires an honest look. The ability to criticize is necessary to improve. This is the real trap of ecosystem vanity metrics, they lull you into thinking there's nothing of substance that needs improvement. My observations are not made from a distance, but from the inside. As long as the outside thinks things are fine, that San Diego is a top 10 startup ecosystem, how will we get better?

Comments, disagreements, etc., welcome in comments.

UPDATE (4/10/13)

I am not serving my intended purpose if my acerbic tongue and virulent tone distract from outing the truth. Alas, it's what makes me a crappy employee, too. Further, what good am I, if upon criticism, I can't reflect and admit errors, while offering up a heap of my own criticism?

So here goes:

1st) Calling downtown EvoNexus a 'miserable failure' is unnecessary hyperbole and inaccurate. I apologize for that. Not only is it soon to tell whether it's successful or not, some have pointed out specific successes in the comments. Clearly, that doesn't equal failure, let alone miserable failure. I stand by the belief that it is not in practice what it claims to be. I encourage the powers-that-be to speak with the resident entrepreneurs, past and present, in an open, no-repercussions, listen-first manner. Let it be entrepreneur-led, as much as possible.

2nd) The term "old-white-guy" is not mine, but rather a quote taken from Feld's book. It is a pejorative, however, unnecessary, and I would have been better off not using that part of the quote. I stand by my thoughts on the "patriarch" problem.

3rd) Also as pointed out in comments, I was remiss in not pointing to the San Diego chapter of Founder's Institute and the work of Jeanine Jacobson as a great benefit to San Diego entrepreneurs.

4th) TCA has picked up the pace of their tech investments, which is welcome. TCA has a long way to go to rehabilitate their reputation among entrepreneurs. I'm sorry if that's hurtful, and take it or leave it, but that's what I've heard from TCA members (as well as entrepreneurs). Step 1 might be not charging entrepreneurs money to teach them how to pitch to TCA. Step 2 might be increasing the transparency and decreasing the length of the process.

Speaking of transparency. In case you missed it, here once again is the link to the TechStars accelerator results. This is how you measure program effectiveness.

Brad Feld made an interesting point today about addressing the institutions, rather than the people in the institutions. That is my intent, though hard to do and even harder to hear.

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