Comments (97)

By brantcooper, April 8, 2013 2:48 pm

(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.

Comments (0)

By brantcooper, January 26, 2013 12:27 pm

In case you missed it!

(Originally published by PandoDaily on January 19, 2013)

Whether you are a government entity attempting to grow a startup ecosystem, a university trying to commercialize technology, a big business intent on reinvigorating (or saving) your business, or an entrepreneur seeking to change the world, you’re likely using old-school, 20th-century “innovation” methods in a new, unrecognizable, global economy. In other words, you employ investors, consultants, professors, C-level executives, enterprise board members, and other luminaries who have an impressive track record of crushing it.

Good luck with that.

The last century economy was born out of the industrial revolution, which was enabled in no small degree by the concept of “specialization of trade.” Companies were organized around what is known as “batch-mode production,” dividing production into discrete stages or cells. You probably read about this in Adam Smith’s “The Wealth of Nations,” in his example of the pin factory, when he showed how specialization boosts human productivity.

If you did, you learned that it is far more efficient and profitable than assembling an entire product one unit at a time. But it took Henry Ford – and the introduction of the factory assembly line – to take the concept to a higher plane. Here’s how he explained it in his autobiography, “My Life and Work”:

With one workman doing a complete job he could turn out from thirty-five to forty pieces in a nine-hour day, or about twenty minutes to an assembly. What he did alone was then spread into twenty-nine operations; that cut down the assembly time to thirteen minutes, ten seconds.

Ford applied the same philosophy to the entire automobile assembly as well as parts manufacturing. He did it for efficiency’s sake, to trim waste, speed up production time and manufacture cars at lower cost while maintaining quality. He recognized that his advantage over the competition was in continuously improving the manufacturing process, not continuously improving the car itself. Ford’s assembly line, while not “The Toyota Way,” represents the same “flow” ethos as and clearly is the predecessor to “lean manufacturing.”

Critical to this story is that Ford was determined to build one model, the Model T. It took eight models and five years to achieve Ford’s “universal” car.  Defying all industrial best practices, Ford announced in 1909: “In the future we were going to build only one model, that the model was going to be ‘Model T,’ and that the chassis would be exactly the same for all cars, and I remarked: ‘Any customer can have a car painted any color that he wants so long as it is black.’”

While this process is not going away, it is decidedly last century. The world of one car, one model, one color is long gone. Products tend toward increased complexity and a wider range of options and customized designs.  Ford’s car had 5,000 parts, including nuts and bolts. The main manufacturing facility had 500 departments. Today’s cars have more than 30,000 separate components. Car companies have multiple product lines, each having numerous models and each model offering different options.

Fast growth in new markets can hide many business model problems. As Ford the company grew by leaps and bounds, speed of execution was the primary issue to overcome and Henry Ford’s relentless focus on improving his assembly provided that. But in a more mature market with lots of competition, changing consumer expectations, and economic ups and downs, batch mode processing became wasteful.

All those departments very efficiently built up inventory whether needed or not. Materials, labor, space, and energy go into creating parts for which there is no immediate demand, with the assumption of future demand. Office organization followed suit. Where the production of one product requires a simple collection of marketing, selling, fulfillment, order processing and such, multiple lines times multiple models requires a lot of each function. The modern day corporate silos grew out of the natural inclination of grouping like functions in order to maximize resource utilization. Better to have a marketing copy department where resource employment and allocation can be managed based on number of products.

Naturally, someone needs to manage all these departments and manage the managers.  The result is often an innovation-stifling hierarchy. Ford recognized this, too:

If a straw boss wants to say something to the general superintendent, his message has to go through the sub-foreman, the foreman, the department head, and all the assistant superintendents, before, in the course of time, it reaches the general superintendent. Probably by that time what he wanted to talk about is already history.

Departments are measured on output efficiency. When demand is high, output efficiency is a pretty good barometer for company success. But measuring departments output efficiency across a number of products with fluctuating demand is a poor measure of business success. Departmental output, whether that be marketing brochures or flywheels only is indicative of success if cars are flying off the lots. In other words, are they keeping up with demand?

Such organizations are optimized for sustaining innovation. In others, they create new, improved products for existing markets. Managers and executives are adept at forecasting demand for raw materials, output, expenditures and revenues, because the future in these markets is predictable, as long as next year is similar to this year. They can’t create disruptive innovation ­– ie come up with anything completely new – because such markets are unknown, not measurable and not predictable.

Arguing for the flow of the assembly line, Ford demonstrated that more products could be produced at better quality level and reduced cost than the craftsman methods that preceded him.

Lean manufacturing changed that with the concept of “pull,” which dictates that a department only produces output when the downstream process demands it, all the way through to the customer order. In many cases, pull plus flow improves products, increases efficiency and reduces cost, by aligning activities with demand.

Fast-forward to emerging digital fabrication technology and you have a manufacturing process combines the uniqueness and customizable nature of the craftsman with the speed and efficiency of lean manufacturing. What does the auto industry look like with crowdsourced car designs, 3D printers that print physical goods exactly when the product is demanded, and open source, interchangeable auto parts?

Organizational structures must adapt. Businesses that can only muster sustaining innovation are in a race to the bottom, their products destined for the commodity bin.

Economies that prop up old-school practices will not succeed long term. Supporting startups is the right way to create job growth, but if we treat startups like small versions of big companies, they are doomed as well.

Top-down, hierarchical thinking that describes big business management practices is not suitable for a startup’s ecosystem: The highest-paid person doesn’t predict the future any better than anyone else. The one with the money doesn’t know best. Venture capitalists can’t pick winners out of a crowd. Startup founders are not visionaries.

Businesses must become fast and agile with decentralized control, able to make decisions on value creation on the fly. They must be close to customers, not in order to do what they say, but to understand them deeply. They must be experimental, continuously improving the processes of product creation. They must measure business functions in a way that reflects actual company performance and provides information that can be acted upon.

Above all, they should look back at Henry Ford so they can see the road ahead.

Comments (22)

By brantcooper, March 15, 2012 5:06 pm

Those who run in #LeanStartup circles know too well the problems encountered with language.  Eric Ries, Steve Blank and others are criticized for choosing terms and phrases — lean, customer development, MVP, fail fast, etc. — which unintentionally lure would be startup entrepreneurs into thinking about things Wrong and then doing them Wrong.  Lean means don’t take money, “don’t you really mean market development, not customer development,” minimum viable product should be minimum desirable product, one doesn’t really want to fail fast, that causes entrepreneurs to screw their investors or not persevere.

While the critics make cogent arguments, there’s an implicit assumption that different words would not be subject to similar critique from a different angle. It’s generally not helpful to remove phrases from their context and critique them standing on their own.  Doesn’t “viable” contain “desirable?”

I tell you all this, however, because I’m about to do the same thing.

Don’t Think Big

“Thinking Big” is used as panacea to the menace of “feature” startups, who are merely “copycat” companies that often embrace the leanstartup “formula” that forces them to have “small ideas” and seek to “flip,” thereby leaving their investors in the lurch.  Thing is, markets determine the size potential of the business and many startup entrepreneurs mistakenly believe “think big” means go for a big market.  Tragically, a small idea attracts a small market no matter how big the market is you go after.  Thinking big doesn’t change a small idea into a big market.

Do you see what I did right there?

Truthfully, people who exclaim “Think Big” mean go for big ideas.  But do you know why the “startup curve” leads with the TechCrunch bump?  Because the founders were “thinking big” regardless of the size of their idea.  Do you know why a few startups survive the bump? The sage Fred Wilson says:

It turns out, like most success stories, the answer [for success] was simplifying the service. Taking features out. Reducing the value proposition to a clear and simple use case. This was not done in a vacuum. This was done by releasing a less than perfect product to the market, finding a few customers who wanted a less than perfect product, and then listening carefully to those customers to get to the ideal product.

That’s right, they succeed by thinking small. Product-market fit happens first in sub-segments. Understanding the core value proposition for hyper-sub-segmented markets is where you’ll find strong market signals.  You can’t go big without winning small first.  It’s impossible.  The top of the funnel is not filled in as quickly as the bottom no matter how fast you pour the water.

Sean Ellis writes: “[S]tart by focusing the majority of your energy trying to create at least one must have use case.”

To understand a “use case” you must properly and even obsessively segment your market.

Think Disruptive

What critics of me-too startups (criticism that I think is unwarranted, btw) really mean is: Think Disruptive.  Don’t be sustaining innovation.  Change the world.  I’m all for that, though all startups have their place in the ecosystem.  (If we grow the bottom of the startup pyramid, we’ll get more disruption at the top.) When you have thousands of new startups, the fact that most founders focus on problems they experience shouldn’t be surprising. What would be surprising is if it were true that if they simply thought a little harder, they’d be able to come up with ideas that are truly disruptive.

Most truly disruptive innovations come out of scientific or engineering disciplines and though they’re not very visible to the startup community, tens of thousands of people are working on them.  If Universities had better lab to market programs (e.g., where they’re taught doing rather than merely writing business plans, or licensing technology to dinosaurs), we would see more disruptive activity.  Investors focusing on hugely promising technology is a good thing, too.

Disruption is often stumbled upon.  Experimentation is a good way to lead to lucrative stumbles.

Like other startup people who hear a lot of pitches, I do tire of hearing similar pitches and the mobile app equivalent of a bridge to nowhere. But hey, if any of them happen to succeed, it will likely be because they nailed the value prop for a market segment that eventually proved big enough.

Comments (5)

By brantcooper, December 21, 2011 3:40 pm

When you hear concepts over and over, you often wonder is it because it’s swarming or because your ear is newly attuned to it?  Did you know there’s a lot of people who believe that the #11 has super powers and that’s why when they look at the clock, it’s always 11 after?  Seriously.

UX is hip.  And rightly so.  I thought I’d share a theory why this is so and what impact it might have on your startup.  This despite the fact that I’m relatively new to UX concepts.

The 90s

Painting with a super broad brush, the 90s technology revolution which saw the introduction of PCs and networks into businesses was driven primarily by increases in productivity measured at the business level.  Reduction in support staff, increased internal and inter-business communication had a measurable impact on the business.  While the technology was expensive and the immediate net benefit small, it grew enough in the late 90s to, at the very least, portend benefits to come.

It was far from smooth-sailing.  The effective lifecycle of a PCs was only 2-3 years.  If you had a network of 100 nodes, you were easily paying 100K/year to hardware and software to keep things running at a pretty basic level.  Some medium sized businesses were seriously thinking of packing it in until costs would come down or larger benefits could be realized.

If there’s one thing that seems to be true in technology, it’s that future benefits are easy to imagine and don’t come quickly enough. In other words, the industry pretty consistently over-promises and under delivers.  Technology in the 90s was mired with buggy (Microsoft) software that bogged down trailing hardware and arguably was maliciously incompatible with (buggy) legacy network software (Netware).

An emphasis on UX was nowhere to be seen.  Of course, that’s not exactly true, Apple had it in spades.  But the extra dollars required for an improved user experience had little impact for the average business user on business productivity. A reasonable argument could be made that this was a short-sighted view, but the view was rational. If you triple the price tag, you must triple the productivity. The Macintosh made headway in businesses at the departmental level, where the impact on productivity was significant; in other words, where specialized graphic-intensive applications were put to use.

The UX experience on the PC was crap and no one wanted to pay to improve it, since you could still reduce the administrative support to principal ratio even with crappy systems.  That it took a IT guy several weeks to implement buggy MS Mail to SMTP gateways and the end-user process to send such an email sucked didn’t matter relative to the time and money savings of sending proposals at the last minute vs sending hard copies via Fed Ex.

The 2000s

As the Internet emerged as a business productivity tool, the primary beneficiary was the department.  The browser as a standardized UI for internal applications reduced IT supports costs and offered some freedom for departments and business units from their dependency on IT.  As SaaS emerged, this independence accelerated.

The early user experience on the browser was horrible and often worse than that of desktop or client/server applications.  But the benefits from a lightweight interface and reduced dependency on IT outweighed the superior UX experience.  Further, technical limitations on the browser thwarted efforts to improve the experience.

Today

While I’m sure there will be a whole new revolution in business and departmental productivity, likely brought on by human-computer interaction technology (think Kinnect), today’s story is about personal productivity.  Applications built for the desktop stand-alone, mobile, browser-based SaaS are all about improving user productivity.  The two primary ways to achieve this are 1) work within existing flows; 2) mimic the offline world.

I chuckle when I see marketing slogans “We’re going to change the way you work!”  Really?  See ya!  Why do dating sites fail? They don’t replicate how human beings meet.

The tricky thing is that you need to improve productivity enough to justify the costs without changing behavior so much as to make the product undesirable.  How do we do this?  With superior UX, of course.  How do you nail such a thing?  It should come as not surprise that my recommendation is deploying Lean UX design principles.  You must understand the it is a delicate, learning process.

“But people are so different!” you rightfully lament. Yep, the one size fits all is dead. While investors and industry pundits hand-wringing about copycats, features-not-products, thinking-too-small, etc., the entrepreneurship world is producing 1000s of startups to figure out how to solve common problems across a wide-diversity of people.

I don’t know what the landscape ends up looking like.  If big businesses swoop up  lean startups who have successfully unlocked one or more beachhead market segments, they can’t kill the innovation or roll it up into bloatware without creating a new startup opportunity.  Similarly, is it possible for one SaaS or mobile product to solve similar productivity problems for a mass of varied segments?

I welcome your thoughts in comments!