Tag Archives: Entrepreneurship

Global Entrepreneurship 2016 – Part 2: the microeconomic analysis of the Startup Playbook by Sam Altman

After Part1 about the global vision of Entrepreneurship in 2016, here is a “micro” analysis of what entrepreneurship is. I finished reading this report while on a transcontinental flight, where I watched recent movie The Martian with Matt Damon.

Not only is The Martian describing a story very similar to what being a CEO might be – lonely with a life and death situation (at least for the start-up) after each major decision, but that day, I also learnt the death of David Bowie. In that movie, you can listen to Starman… my humble tribute to a great artist.

Again Ycombinator produces an efficient and compelling document about start-ups and entrepreneurship. After Paul Graham’s blog and Sam Altman’s class at Stanford in 2014, here is his Startup Playbook. A short document “for people new to the world of startups. Most of this will not be new to people who have read a lot of what YC partners have written—the goal is to get it into one place.” Altman explains “So all you need is a great idea, a great team, a great product, and great execution. So easy! 😉 A must read which I summarize my way through shorter extracts:

startup_playbook

Friendly advice first
– Make something users love.
– A word of warning about choosing to start a startup: It sucks!
– On the other hand, starting a startup is not in fact very risky to your career.

A great idea (including a great market)
– Something explained clearly and concisely with a fast-growing potential.
– It’s easier to do something new and hard than something derivative and easy.
– The best ideas sound bad but are in fact good.

A great team
– Mediocre teams do not build great companies.
– A great founder characteristics include unstoppability, determination, formidability, and resourcefulness; intelligence and passion.
– Good founders have a number of seemingly contradictory traits such as rigidity and flexibility.

A great product
– A great product is the only way to grow long-term.
– “Do things that don’t scale” has rightfully become a mantra for startups.
– Iterate and adapt as you go.
PS: By the way, “product” includes all interactions a user has with the company. You need to offer great support, great sales interactions, etc.

A great execution
– You have to do it yourself — the fantasy of hiring an “experienced manager” to do all this work is both extremely prevalent and a graveyard for failed companies. You cannot outsource the work to someone else for a long time.
– Growth (as long as it is not “sell dollar bills for 90 cents” growth) solves all problems, and lack of growth is not solvable by anything but growth.
– Extreme internal transparency around metrics (and financials) is a good thing to do.

Focus and intensity
– The best founders are relentlessly focused on their product and growth. They don’t try to do everything—in fact, they say no a lot.
– While great founders don’t do many big projects, they do whatever they do very intensely. Great founders listen to all of the advice and then quickly make their own decisions.

Being a founder & CEO
– The CEO jobs: 1) set the vision and strategy for the company, 2) evangelize the company to everyone, 3) hire and manage the team, especially in areas where you yourself have gaps 4) raise money and make sure the company does not run out of money, and 5) set the execution quality bar.
– As I mentioned at the beginning, it’s an intense job. If you are successful, it will take over your life to a degree you cannot imagine—the company will be on your mind all the time. Extreme focus and extreme intensity means it’s not the best choice for work-life balance. You can have one other big thing—your family, doing lots of triathlons, whatever—but probably not much more than that.
– No first-time founder knows what he or she is doing. To the degree you understand that, and ask for help, you’ll be better off. It’s worth the time investment to learn to become a good leader and manager. The best way to do this is to find a mentor—reading books doesn’t seem to work as well.
Be persistent. A successful startup CEO is not giving up (although you don’t want to be obstinate beyond all reason either—this is another apparent contradiction, and a hard judgment call to make.)
Be optimistic. Although it’s possible that there is a great pessimistic CEO somewhere out in the world, I haven’t met him or her yet.

Additional advice

– Hiring: Don’t do it. Wait!
– Competition: 99% of startups die from suicide, not murder.
– Fundraising: Investors are looking for companies that are going to be really successful. The “really successful” part is important. If an investor believes you have a 100% chance of creating a $10 million company but almost no chance of building a larger company, he/she will still probably not invest. Always explain why you could be a huge success. . Many of the best companies have struggled with this, because the best companies so often look bad at the beginning (and they nearly always look unfashionable.) And remember that anything but “yes” is a “no”.
– Investors: Good investors really do add a lot of value. Bad investors detract a lot. Most investors fall in the middle and neither add nor detract. Great board members are one of the best outside forcing functions for a company.

All this again was extracted from Sam Altman’s Startup Playbook. Thanks to him for a great job! I must also thank one of my students (he will recognize himself) for mentioning that document to me…

Global Entrepreneurship 2016 – Part 1: the Macroeconomics

I just read two great reports about entrepreneurship. The first one is the Global Entrepreneurship Index 2016 (GEI). The second one is the Startup Playbook by Sam Altman (Ycombinator). Whereas the second one is about the micro features of entrepreneurship, the GEI is a worldwide macro-economic analysis. I will cover the Startup Playbook in the part 2 of these series of posts, so let me focus here in the GEI.

Global-Entrepreneurship-Index

What I found really interesting is that compared to the Global Innovation Index (GII) about which I always have doubts – I think it measures more the inputs necessary for innovation than the outputs – I feel much more comfortable with the criteria and results of the GEI. For example, the USA is number one which makes a lot of sense and Switzerland is #8. Switzerland is #1 in the GII which is some kind of a mystery to me. France and Israel are #10 and #21 in the GEI but #20 and #21 in the GII.

Global-Entrepreneurship-Index-USA-Isr-CH-FR

The 3 As of Entrepreneurship

So how is this measured? The authors define 3 framework conditions entrepreneurship: attitudes, abilities and aspirations.[Pages 26-27 of the document or 49-50 of the pdf]. They also define 14 related pillars [Pages 19-22 of the document or 42-45 of the pdf]

Entrepreneurial attitudes are societies’ attitudes toward entrepreneurship, which we define as a population’s general feelings about recognizing opportunities, knowing entrepreneurs personally, endowing entrepreneurs with high status, accepting the risks associated with business startups, and having the skills to launch a business successfully. The benchmark individuals are those who can recognize valuable business opportunities and have the skills to exploit them; who attach high status to entrepreneurs; who can bear and handle startup risks; who know other entrepreneurs personally (i.e., have a network or role models); and who can generate future entrepreneurial activities.

Moreover, these people can provide the cultural support, financial resources, and networking potential to those who are already entrepreneurs or want to start a business. Entrepreneurial attitudes are important because they express the general feeling of the population toward entrepreneurs and entrepreneurship. Countries need people who can recognize valuable business opportunities, and who perceive that they have the required skills to exploit these opportunities. Moreover, if national attitudes toward entrepreneurship are positive, it will generate cultural support, financial support, and networking benefits for those who want to start businesses.

Entrepreneurial abilities refer to the entrepreneurs’ characteristics and those of their businesses. Different types of entrepreneurial abilities can be distinguished within the realm of new business efforts. Creating businesses may vary by industry sector, the legal form of organization, and demographics—age, education, etc. We define entrepreneurial abilities as startups in the medium- or high-technology sectors that are initiated by educated entrepreneurs, and launched because of someone being motivated by an opportunity in an environment that is not overly competitive. In order to calculate the opportunity startup rate, we use the GEM TEA Opportunity Index. TEA captures new startups not only as the creation of new ventures but also as startups within existing businesses, such as a spinoff or other entrepreneurial effort. Differences in the quality of startups are quantified by the entrepreneur’s education level—that is, if they have a postsecondary education—and the uniqueness of the product or service as measured by the level of competition. Moreover, it is generally maintained that opportunity motivation is a sign of better planning, a more sophisticated strategy, and higher growth expectations than “necessity” motivation in startups.

Entrepreneurial aspiration reflects the quality aspects of startups and new businesses. Some people just hate their employer and want to be their own boss, while others want to create the next Microsoft. Entrepreneurial aspiration is defined as the early-stage entrepreneur’s effort to introduce new products and/or services, develop new production processes, penetrate foreign markets, substantially increase their company’s staff, and finance their business with formal and/or informal venture capital. Product and process innovation, internationalization, and high growth are considered the key characteristics of entrepreneurship. Here we added a finance variable to capture the informal and formal venture capital potential that is vital for innovative startups and high-growth firms.

Each of these three building blocks of entrepreneurship influences the other two. For example, entrepreneurial attitudes influence entrepreneurial abilities and entrepreneurial aspirations, while entrepreneurial aspirations and abilities also influence entrepreneurial attitudes.

GEI-Conditions

The 14 Pillars of Entrepreneurship

The pillars of entrepreneurship are many and complex. While a widely accepted definition of
entrepreneurship is lacking, there is general agreement that the concept has numerous dimensions. […] Considering all of these possibilities and limitations, we define entrepreneurship as “the dynamic, institutionally embedded interaction between entrepreneurial attitudes, entrepreneurial abilities, and entrepreneurial aspirations by individuals, which drives the allocation of resources through the creation and operation of new ventures.”

Entrepreneurial Attitudes Pillars

Pillar 1: Opportunity Perception. This pillar captures the potential “opportunity perception” of a population by considering the size of its country’s domestic market and level of urbanization. Within this pillar is the individual variable, Opportunity Recognition, which measures the percentage of the population that can identify good opportunities to start a business in the area where they live. However, the value of these opportunities also depends on the size of the market. The institutional variable Market Agglomeration consists of two smaller variables: the size of the domestic market (Domestic Market) and urbanization (Urbanization). The Urbanization variable is intended to capture which opportunities have better prospects in developed urban areas than they do in poorer rural areas.

Pillar 2: Startup Skills
. Launching a successful venture requires the potential entrepreneur to have the necessary startup skills. Skill Perception measures the percentage of the population who believe they have adequate startup skills. Most people in developing countries think they have the skills needed to start a business, but their skills usually were acquired through workplace trial and error in relatively simple business activities. In developed countries, business formation, operation, management, etc., requires skills that are acquired through formal education and training. Hence education, especially postsecondary education, plays a vital role in teaching and developing entrepreneurial skills.

Pillar 3: Risk Acceptance. Of the personal entrepreneurial traits, fear of failure is one of the most important obstacles to a startup.

Pillar 4: Networking. Networking combines an entrepreneur’s personal knowledge with their ability to use the Internet for business purposes. This combination serves as a proxy for networking, which is also an important ingredient of successful venture creation and entrepreneurship.

Pillar 5: Cultural Support. This pillar is a combined measure of how a country’s inhabitants view entrepreneurs in terms of status and career choice, and how the level of corruption in that country affects this view.

Entrepreneurial Abilities Pillars

Pillar 6: Opportunity Startup. This is a measure of startups by people who are motivated by opportunity but face regulatory constraints. An entrepreneur’s motivation for starting a business is an important signal of quality. Opportunity entrepreneurs are believed to be better prepared, to have superior skills, and to earn more than what we call necessity entrepreneurs.

Pillar 7: Technology Absorption. In the modern knowledge economy, information and communication technologies (ICT) play a crucial role in economic development. Not all sectors provide the same chances for businesses to survive and or their potential for growth. The Technology Level variable is a measure of the businesses that are in technology sectors.

Pillar 8: Human Capital. The prevalence of high-quality human capital is vitally important for ventures that are highly innovative and require an educated, experienced, and healthy workforce to continue to grow.

Pillar 9: Competition. Competition is a measure of a business’s product or market uniqueness, combined with the market power of existing businesses and business groups.

Entrepreneurial Aspirations Pillars

Pillar 10: Product Innovation. New products play a crucial role in the economy of all countries. New Product is a measure of a country’s potential to generate new products and to adopt or imitate existing products.

Pillar 11: Process Innovation. Applying and/or creating new technology is another important feature of businesses with high growth potential. New Tech is defined as the percentage of businesses whose principal underlying technology is less than five years old.

Pillar 12: High Growth. This is a combined measure of the percentage of high-growth businesses that intend to employ at least ten people and plan to grow more than 50 percent in five years (Gazelle variable) with business strategy sophistication (Business Strategy variable).

Pillar 13: Internationalization. Internationalization is believed to be a major determinant of growth. A widely applied proxy for internationalization is exporting.

Pillar 14: Risk Capital. The availability of risk finance, particularly equity rather than debt, is an essential precondition for fulfilling entrepreneurial aspirations that are beyond an individual entrepreneur’s personal financial resources.

The reason I really felt synchronized with the authors (congrats to Zoltán J. Ács, László Szerb, Erkko Autio for the great work!) is a final extract from pages 63-64 (86-87 of the pdf): they explain the challenges and related mistakes and describe better approaches.

Unfortunately, although high-growth entrepreneurship and entrepreneurial ecosystems are high on many policy agendas, there is fairly little understanding of how policy can foster them most effectively. Most entrepreneurship policy playbooks remain stuck with old world policy approaches, which focus on identifying and fixing “market failures” and “structural failures.” Such approaches, while effective in addressing well-specified market and structural failures, are hopelessly inadequate to deal with the complexities of entrepreneurial ecosystems.
A classic example of a market failure is the failure of businesses to invest in R&D. Because R&D is a risky and uncertain activity, many firms are tempted to wait, to let others to take the risk, and then quickly copy successful projects. But if everyone thought this way, no one would invest in R&D, and innovative activities would stagnate. Therefore, governments address this market failure by providing subsidies for R&D—in effect, participating in the downside risk while allowing firms to keep the upside returns.
In contrast to subsidizing specific activities, a structural failure policy would seek to build support services and structures that support new firm creation and growth. Examples of structural failure policies include, for example, the creation of science parks and business incubators to shelter and support startup ventures.
Both of these approaches fail to address the complexities of entrepreneurial ecosystems, which are too complex to allow easy identification of specific clean-cut market failures, such as insufficient investment in R&D. The “product” entrepreneurial ecosystems produce is innovative and high-growth new ventures. Creating high-growth new ventures is a far more complex undertaking than starting an R&D project. If we do not see a sufficient number of high-growth new ventures, where exactly is the market failure supposed to reside? The standard approach by governments, which is consistent with market failure thinking, is that there perhaps is not sufficient support funding available to start new, high-growth firms. However, as much as governments have provided subsidies to support new firm creation, the results have not been very encouraging.
Another major problem with both market failure and structural failure approaches is that they are top-down, where the policy maker analyzes, designs, and implements entrepreneurship policy. Top-down, however, is not a feasible approach in entrepreneurial ecosystems that consist of multiple independent stakeholders. In such situations, a policymaker cannot simply command and control, as you have no formal authority over ecosystem stakeholders. Instead, policymakers need to engage the various stakeholders and co-opt them as active participants and contributors to the policy intervention.
[…]
Entrepreneurial ecosystems are fundamentally interaction systems consisting of multiple, co-specialized, yet hierarchically independent stakeholders, many of which may not even know one another. Here, co-specialization means that different stakeholders play different roles—venture capitalists, research institutions, different supporting institutions, new ventures, established businesses, and so on. They offer complementary skills and services, and normally depend on others to accomplish their goals, which implies that team play is needed.
In the above, hierarchical independence means that there are no formal lines of command, unlike, say, within government agencies or industrial corporations. Everyone makes their own independent decisions and optimizes their own performance. Combined with co-specialization, this creates a mutual dependency dilemma: to accomplish your goals you must depend on others, yet you cannot tell others what to do. Cooperation is therefore required. This limits the usability of traditional top-down policies, which are usually implemented through formal chains of command (e.g., a government department designing a policy, which is then implemented by a government agency overseen by the department).
Also of relevance is the notion of interaction systems, which means that the stakeholders of entrepreneurial ecosystems “co-produce” their outputs, such as innovative high-growth new ventures. These outputs are coproduced through a myriad of usually uncoordinated interactions between hierarchically independent yet interdependent stakeholders. This combination of independence and interdependence makes coordination challenging.
In the GEI model, it is the entrepreneurs who drive the entrepreneurial trial-and-error dynamic. This means that entrepreneurs start new businesses to pursue opportunities that they themselves perceive. An entrepreneurial opportunity is simply a chance to make money through a new venture, such as producing and selling goods and services for profit. However, entrepreneurs can never tell in advance whether a given opportunity is real or not: the only way to validate an opportunity is to pursue it. In other words, entrepreneurs need to take risks: they need to access and mobilize resources (human, financial, physical, technological) before they can verify whether or not a profit can be made. This means, then, that not all entrepreneurial efforts will be successful, as some opportunities turn out to be mere mirages. In such cases, the budding entrepreneur will realize sooner or later that they are never going to make a profit, or that they could make more money doing something else. In such cases, the entrepreneur will abandon the current pursuit and do something else instead.
If, however, an entrepreneurial opportunity turns out to be real, the entrepreneurs will make more money pursuing that opportunity than doing something else, and they will continue to exploit it. The net outcome of this entrepreneurial trial-and-error dynamic, therefore, is the allocation of resources to productive uses. In other words, a healthy entrepreneurial dynamic within a given economy will drive total factor productivity, or the difference between inputs and outputs. The greater the total factor productivity, the greater the economy’s capacity to create new wealth.

Elon Musk and the Secret Sauce of Entrepreneurship (according to Tim Urban)

A student of mine (thanks 🙂 ) just sent me a link to amazingly great blog articles about Elon Musk. I had never of heard of the author, Tim Urban, and his blog Wait But Why but I will certainly follow his work from now on.

Tim Urban has written four articles about “the world’s most remarkable living entrepreneur.”
Part 1: Elon Musk: The World’s Raddest Man.
Part 2: How Tesla Will Change the World.
Part 3: How (and Why) SpaceX Will Colonize Mars.
Part 4: The Chef and the Cook: Musk’s Secret Sauce.
These 4 posts represent hundreds of pages if you print them. No kidding. I’ve read part 4 and it was a real (positive) shock. Tim Urban explains Musk’s entrepreneurial strengths. I just give some extracts but if must read it all (if you find the time).

“I think generally people’s thinking process is too bound by convention or analogy to prior experiences. It’s rare that people try to think of something on a first principles basis. They’ll say, “We’ll do that because it’s always been done that way.” Or they’ll not do it because “Well, nobody’s ever done that, so it must not be good.” But that’s just a ridiculous way to think. You have to build up the reasoning from the ground up —“from the first principles” is the phrase that’s used in physics. You look at the fundamentals and construct your reasoning from that, and then you see if you have a conclusion that works or doesn’t work, and it may or may not be different from what people have done in the past.” […] Musk is an impressive chef for sure, but what makes him such an extreme standout isn’t that he’s impressive — it’s that most of us aren’t chefs at all. […] “When I was a little kid, I was really scared of the dark. But then I came to understand, dark just means the absence of photons in the visible wavelength—400 to 700 nanometers. Then I thought, well it’s really silly to be afraid of a lack of photons. Then I wasn’t afraid of the dark anymore after that.” That’s just a kid chef assessing the actual facts of a situation and deciding that his fear was misplaced. As an adult, Musk said this: “Sometimes people fear starting a company too much. Really, what’s the worst that could go wrong? You’re not gonna starve to death, you’re not gonna die of exposure—what’s the worst that could go wrong?” Same quote, right? […] That’s Elon Musk’s secret sauce. Which is why the real story here isn’t Musk. It’s us. […] People believe thinking outside the box takes intelligence and creativity, but it’s mostly about independence. When you simply ignore the box and build your reasoning from scratch, whether you’re brilliant or not, you end up with a unique conclusion—one that may or may not fall within the box.

sjobs

Then Tim Urban quotes Steve Jobs from his famous speech at Stanford in 2005 (I think): “When you grow up, you tend to get told the world is the way it is and your life is just to live your life inside the world. Try not to bash into the walls too much. Try to have a nice family life, have fun, save a little money. That’s a very limited life. Life can be much broader once you discover one simple fact. And that is: Everything around you that you call life was made up by people that were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use. Once you learn that, you’ll never be the same again.”

Reich_Listen_little_man

And all this reminds me about an essay I mentioned in the conclusion of my book, an essay by Wilhelm Reich, the great psychoanalyst, who he wrote in 1945: “Listen, Little Man”. A small essay by the number of pages, a big one in the impact it creates. “I want to tell you something, Little Man; you lost the meaning of what is best inside yourself. You strangled it. You kill it wherever you find it inside others, inside your children, inside your wife, inside your husband, inside your father and inside your mother. You are little and you want to remain little.” The Little Man, it’s you, it’s me. The Little Man is afraid, he only dreams of normality; it is inside all of us. We hide under the umbrella of authority and do not see our freedom anymore. Nothing comes without effort, without risk, without failure sometimes. “You look for happiness, but you prefer security, even at the cost of your spinal cord, even at the cost of your life”.

Tim Urban is absolutely right and you need to read his piece about dogma and tribes. He made me think again of my readings of the great French philosopher Cynthia Fleury and how we need to balance the individuals and the groups and why democracy is a fragile jewel of societies…

PS: I totally forgot to mention a video that a colleague of mine (thanks to her now 🙂 ) mentioned a few days ago. BY one of these nice coincidences of life, it is precisely one of the arguments of Tim Urban about why some people are “cooks” (followers or incremental innovators) and others “chefs” (disruptive innovators). Enjoy!

Ten Ideas to Innovate in Uncertain Times

Following my post yesterday about Invention, Entrepreneurship and Innovation, here is a short presentation I made yesterday about the culture of innovation. I had already mentioned it in a previous post (without the slides) entitled Can the next google come from Europe? An answer by Fathi Derder. Derder, a Swiss politician, has written a book explaining what Switzerland needs to change in the general framework conditions. It is an important book. When I talk to students and young entrepreneurs, I focus more on the importance of culture. Which is what you can read in the slide below. Enjoy!

Invention, Entrepreneurship and Innovation

“Anything that won’t sell, I don’t want to invent.” – Thomas Edison

This article arouse from a discussion with colleagues about what innovation really is. I have to admit the conversation helped me in clarifying and correcting a few misconceptions I had. So let me try to explain how the three concepts of Invention, Entrepreneurship and Innovation differ and how they are related. At least these are my views.

Invention - Entrepreneurship - Innovation

So let me begin with definitions:

Invention: something new, that did not exist previously and that is recognized as the product of some unique intuition or genius. A product of the imagination. Something that has never been made before. “Something new under the sun”. A discovery pre-exists the discoverer, by opposition to the inventor and her/his invention.

Innovation: the successful implementation and adoption by society of something new. So an innovation is the succesful commercialization or use (if non-profit) of an invention.

Entrepreneurship: it is the process of designing a new business (wikipedia). The entrepreneur perceives a (new) business opportunity and gathers the resources to implement it, ideally successfully. When the entrepreneur succeeds in implementing something new, (s)he is an innovator. But (s)he does not need to be an innovator, (s)he can also be an imitator.

So this makes a clear difference between an invention and an innovation. There is always an invention before an innovation, but an innovator does not have to be an inventor. It also shows that an entrepreneur does not have to invent, neither to innovate.

My biggest mistake was to say “big companies do not innovate anymore”. I was wrong, Though most established companies imitate, many do innovate. They rarely invent and not many are entrepreneurial. But in order to innovate, it is better to be established. Let me clarify.

Let me come back to my favorite topic: “A start-up is an organization formed to search for a repeatable and scalable business model.” This is the best definition I have found so far and it comes from Steve Blank. This beautifully explains that all companies are not start-ups (for example when they have a clear business model from day one and/or if they do not try to scale). It also explains when a company is not a start-up anymore. Then it can innovate.

Another misconception is to confuse Research and Development (R&D) with innovation. Research deals with inventing or discovering. Development follows. Innovation comes afterwards. Patenting belong more to the invention side than to the innovation side of the equation. All this explains also why I have so many doubts about innovation metrics. They measure inputs (such as inventions or R&D) more than what innovation really is, an output.

Invention - Innovation

So how are these three concepts related? Read again, Edison’s quote above. In the past, large innovative firms such as IBM or Bell Labs were inventing. They had big R&D labs. Xerox was famous for its inventive capability and low innovation output. So Apple “stole” many of its inventions and innovated instead. Today, many established companies go to universities to find inventions they license. Or they collaborate with partners (i.e. “open innovation”). However, the risk and uncertainty linked to inventing as well as finding a market for new things makes innovation difficult without entrepreneurship…

Entrepreneurship - Innovation

Entrepreneurship is a great way to enable innovation. Entrepreneurs see an opportunity and accept the uncertainty and risk taking. When it is done in-house. It is called intrapreneurship. Nespresso is one example (even if Nestle did not initially encourage its intrapreneur – who by the way was also the inventor). (Indeed because of the definition given above) corporations stop being start-ups when they innovate! Indeed they are often acquired (M&A) by big, established companies who know better how to commercialize – innovate.

Invention - Entrepreneurship

I had to add the intersection between invention and entrepreneurship. But does this make sense? I am not sure. There is however one industry which has combined both without a real need for innovation: the biotechnology industry is mostly an entrepreneurial activity which develops invention thanks to clinical trials. Biotechnology firms seldom innovate (Genentech and Amgen were exceptions – with a few other firms which managed to commercialize their molecules) because they are often acquired by large pharmaceutical firms or at best license their products to the bigger players. In fact many start-ups are in the same situation. But the truth is companies very seldom invent. Inventions occur before firms are established, at least in the high-tech field.

The following extract from Science Lessons: What the Business of Biotech Taught Me About Management, by Gorden Binder, former CEO of Amgen is interesting:
Biotech Model

Inventors, Entrepreneurs and Innovators

Inventor - Entrepreneur - Innovator

For the same reasons as explained above, individuals have seldom the three attributes. At Apple, Wozniak was an inventor. Jobs was an entrepreneur and an innovator. But Bill Gates or Larry Page and Sergey Brin, the Google founders, were rare cases of inventors, entrepreneurs and innovators combined. However Brin and Page invented at Stanford and then created Google to implement succesfully their invention.

So let me finish with a great definition of innovation given in How Google Works [page 206]: “To us, innovation entails both the production and implementation of novel and useful ideas. Since “novel” is often just a fancy synonym for “new”, we should also clarify that for something to be innovative, it needs to offer new functionality, but it also has to be surprising. If your customers are asking for it, you aren’t being innovative when you give them what they want; you are just being responsive. That’s a good thing, but it’s not innovative. Finally “useful” is a rather underwhelming adjective to describe that innovation hottie, so let’s add an adverb and make it radically useful, Voilà: For something to be innovative, it needs to be new, surprising, and radically useful.” […] “But Google also releases over five hundred improvements to its search every year. Is that innovative? Or incremental? They are new and surprising, for sure, but while each one of them, by itself is useful, it may be a stretch to call it radically useful. Put them all together, though, and they are. […] This more inclusive definition – innovation isn’t just about the really new, really big things – matters because it affords everyone the opportunity to innovate, rather than keeping it to the exclusive realm of these few people in that off-campus building [Google[x]] whose job is to innovate.”

Innovation is complex. Do I need to remind you of the challenges that Clayton Christensen – The Innovator’s Dilemma – Geoffrey Moore – Crossing the Chasm – or Steve Blank – The Four Steps to the Epiphany – have brilliantly described to explain why innovation remains somewhat magical…

Innovation Challenges

PS: can you be an entrepreneur without inventing and innovating? Sure! Not just small companies and craftmen who use their know-how for a decent living. You just need to imitate. Telecom operators such as Vodafone or Bouygues Telecom compete without a need to invent or innovate. They copy other telecom operators. (OK sometimes, they innovate, too). In the start-up world, the Samwer brothers have been famous for copy/paste American success stories and adapt them to the European market. You can find many references about this online and the clones they created include Alando (eBay), Zalando (Zappos, EasyTaxi (Uber), Pinspire (Pinterest), StudiVZ (Facebook), CityDeal (acquired by Groupon), Plinga (Zynga), and Wimdu (Airbnb). See also When Samwer was not Samwer yet but was writing a book – way before Rocket Internet and its clones.

How can we foster student entrepreneurship?

I was in Eindhoven today for the great EVP program (20 young entrepreneurs from 4 European technical universities spent two weeks on four campuses developing their projects). I had two inspiring moments: 1st the mayor of Eindhoven had a great speech about the importance of innovation and entrepreneurship. 2nd we had a meeting of 20+ people debating about how to foster entrepreneurship in universities.

Eindhoven’s efforts for entrepreneurship and innovation

The mayor of Eindhoven, Rob van Gijzel, explained that Philips had been nearly everything for Eindhoven for decades (jobs of course, schools, hospitals, PSV…) but a lot of the jobs have been delocalized, and Philips has struggled. He mentioned that the life expectancy of Fortune 1000 companies has gone from 70 years to 12 years (these are notes so I may be wrong with my recollection of facts, but the spirit was it) and the life expectancy of a product is 2 years.

So as a mayor, it is his mission to think about the future, not the present only. Eindhoven still strives because it has NXP and ASML (Spin-off from Philips), because they have the largest Samsung R&D center outside of Korea, and an antenna of the Singularity University. Rob van Gijzel unusually knows a lot about technology for a politician! Maybe it’s because it is Eindhoven… and Eindhoven is putting a lot of energy and money in universities, accelerators, start-ups and the unique high-tech campus Eindhoven (www.hightechcampus.com) which hopefully will create a lot of high value jobs. Big established companies, SMES, start-ups and universities seem to work together in the same direction. I am sure it is not perfect, but the effort is impressive!

Eurotech about Entrepreneurship

My second moment of inspiration was during a meeting of Eurotech about entrepreneurship. For once, it was not about the usual start-ups vs. SMEs, fast growth vs. controlled growth, but we had a great discussion about how to really help students interested in start-ups, about what is important, exposure to or teaching of entrepreneurship,

Just a few notes:

“early on you find inspiration, you are interested and you go where the crazy people are” … “it was the thing to do” …“I was an entrepreneur because my mother pushed me to be responsible and independent, then I tried, and failed twice, and then succeeded once”.

It is a long term effort, you teach, you expose, you inspire, and “you infect them with the virus” with possibly a long incubation. But should we do it early or late, compulsory or elective, filter the good entrepreneurs or expose/teach everyone…

“You need to teach entrepreneurship outside of the class…”

So you need a friendly ecosystem, where the university has its role (unclear which exactly, but it has one!) “Young entrepreneurs should know they do not need to pay for lawyers, they need to find friends who are lawyers, or who have a legal expertise.” You need to break the barriers, help people meet and find the people they need, also break the regional barriers because regional support focuses on local development, which is not necessarily the best friend of an entrepreneur who needs to think globally. Ecosystems have to be open, people need to travel, where the talent and money are

So we agreed there was not a general agreement on the strategic way of fostering entrepreneurship…though it is very important…

When Samwer was not Samwer yet but was writing a book – way before Rocket Internet and its clones

I did not know much of the background of the Samwer brothers beyond the names associated with them: Alando, Jamba, the European Founders Fund, Zalando and Rocket Internet. So I was surprised to be mentioned (thanks Kevin!) a book by Oliver, one of three brothers, America’s Most Successful Startups.

America's Most Successful Startups: a thesis by Oliver Samwer and Max Finger (1998)

Even if now more than 15 years old, it is a good book at least from the first 30 pages I have read so far. It reminds me the advice from Steve Blank. Just one example about founders: “The first thing you have to make sure when you put tagether a team of founders is that all founders share the same vision and the same values. The group can be heterogeneous, but the founders cannot have a different vision or a different set of values, because they will probably be partners for many, many years. You absolutely need to make sure that the goals of the founders are all aligned. Each of the founder has to be very sensitive what each of the other founders’ objectives are. You have to recognize these and try to incorporate them, because otherwise you will have people from day one heading in fundamentally different directions. Only if you get a team of really great people together, who share the same vision, and work together well as a team, you will create a very strong foundation for the company. Because everything in the company originates from the founding team and will grow out of that”. [Page 30]

Additionnally, concerning their roles: “Fourthly, depending on the business model, a high-tech company should typically have at least three key people: It should have a market visionary, someone who understands the market, the customer and the problem the customer has. It also has to have a product or technology visionary, who understands the product and technology and how it might be applied, but does not necessarily understand all the problems that the market has. And it needs a business execution person, because the idea itself if worth zero. It is the execution of the idea.” [Page 31]

Another interesting comment about Equity sharing: “Last but not least, the founders should hold equal stakes in the company so that they are in every respect equal partners. No matter who the idea bad and who contributed what in the founding process, the founders should split the company equally among them. Otherwise some founders will feellike second-rate founders, which produces a flaw from the very beginning and which might have a strong negative effect on the way.” [Page 31]

Samwer
Marc, Oliver and Alexander Samwer

Finally, I also liked their point of view on what you should do when at school: “Also, you need to try actively to get an educational background and experience that supports the venture. This really has to be an active approach. You have to put yourself in a position where you get involved in startups, you have to go to the places where entrepreneurs are, you have to go to places where you can get inspired, you have to meet people of similar spirits and build a network. In school you might participate in the business plan competition, take the classes where you will write a business plan, and take the entrepreneurial track at business school. That is where the people who want to do it are. […] Through such activities you will be meeting partners and ideas incidentally.”

How do you measure your entrepreneurial ecosystem?

The title of this post is the first sentence of the report published by the Kauffman foundation entitled Measuring an Entrepreneurial Ecosystem. And it is a critical question. For years, universities, cities, regions, countries try to assess if they are innovative and entrepreneurial enough. And unfortunately, this is often measured through inputs and not outputs. Sometimes for good reasons, because stakeholders can offer favorable conditions but in the end entrepreneurs perform and stakeholders help but do not act…

measuring_an_entrepreneurial_ecosystem

The Kauffman foundation is proposing a set of metrics to help in assessing your ecosystem. It is an ambitious proposal as these are not easy to obtain, but they look very interesting and I thought it would be worth describing them here. They are classified in 4 topics:

DENSITY

1- Number of new and young companies per 1,000 people,
where “young” can mean less than five or ten years old. This will tell you, in the most basic way, how the level of entrepreneurship changes over time relative to population.

2- Share of employment accounted for by new and young companies.
Entrepreneurial vibrancy should not just be measured by the number of companies — it also should include all the people involved in those companies. This will capture founders and employees.

3- Density of new and young companies in terms of specific sectors.
Some places already may have a particular economic sector that has been identified as the centerpiece of an ecosystem, such as “creative” industries or manufacturing. Again using population as a denominator.

FLUIDITY

4- Population flux, or individuals moving between cities or regions.
Entrepreneurial vibrancy means people both coming and going. From an ecosystem perspective, this means that the entrepreneurial environment must be fluid to enable entrepreneurs to engage. The obverse, of course, is that limits on fluidity will suppress entrepreneurial vibrancy.

5- Population flux within a given region.
Individuals also need to be able to find the right match with different jobs within a region. The pace at which they are able to move from job to job and between organizations should be an important indicator of vibrancy.

6- The number (and density) of high-growth firms,
which are responsible for a disproportionate share of job creation and innovation. A concentration of high-growth firms will indicate whether or not entrepreneurs are able to allocate resources to more productive uses. Importantly, high growth is not necessarily synonymous with high tech.

CONNECTIVITY

7- Connectivity with respect to programs, or resources, for entrepreneurs.
A vibrant entrepreneurial ecosystem is not simply a collection of isolated elements — the connections between the elements matter just as much as the elements themselves. The diversity of your entrepreneurial population is likely to be high, and a one-stop shop for serving entrepreneurs is unlikely to do much good in serving all of them. Entrepreneurs move through an ecosystem, piecing together knowledge and assistance from different sources, and the connectivity of supporting organizations should help underpin the development of a strong entrepreneurial network.

8- Spinoff rate.
The entrepreneurial “genealogy” of a given region, as measured by links between entrepreneurs and existing companies, is an important indicator of sustained vibrancy.

9- “Dealmaker” network
Individuals with valuable social capital, who have deep fiduciary ties within regional economies and act in the role of mediating relationships, making connections and facilitating new firm formation play a critical role in a vibrant entrepreneurial ecosystem.

DIVERSITY

10-Economic diversification,
an important concept because no city or region should be overly reliant on one particular industry. At a country level, research has shown that economic complexity is correlated with growth and innovation.

11- Attraction and assimilation of immigrants.
Historically, immigrants have a very high entrepreneurial propensity.

12- Economic mobility,
i.e. the probability of moving up or down the economic ladder between different income quintiles. The purpose is to improve the quality of life for your citizens, to expand opportunity, and to create a virtuous circle of opportunity, growth, and prosperity.

Ten key recommendations to support youth entrepreneurship

I just recieved a very interesting analysis by E&Y and the G20 Young Entrepreneurs’ Alliance (G20 YEA), entitled Avoiding a lost generation: Ten key recommendations to support youth entrepreneurship across the G20. Both their recommendations and what young entrepreneurs look for deserve some attention.

E&Y-youth-entrepreneurship

Here are the 10 recommendations:

Access to funding
1- Capital without mentorship is lost capital.
Create funding mechanisms, either government run or government backed, that make mentorship and financial education a condition of funding.
2- Access to alternative funding is critical.
Create strong relationships and provide incentives with venture capitalists (VCs), incubators and business angels to develop or create initiatives that enable alternative sources of capital.
3- Public funding matters.
Sponsor start-up growth with low-cost funding for targeted groups.
4- Entrepreneurs still need banks to keep credit moving.
Create a new class of loan for small businesses and young entrepreneurial firms that offers targeted funding to meet expansion capital needs.

Tax and regulation
5- Targeted tax and business incentives are highly important to supporting young entrepreneurs in scaling their businesses.
5a-: Encourage investment in start-ups by offering tax benefits.
5b-: Enable young, high-growth entrepreneurial firms to scale up through amplified support for market access.

6- Support global mobility for young entrepreneurs.
Encourage top international talent by changing visa rules and offering funding support.
7- Complex and burdensome rules in areas such as tax hold back young entrepreneurs.
Simplify and streamline tax administration to ease administrative burdens on young entrepreneurs.

Entrepreneurship culture
8- Positive mainstream views about entrepreneurship are needed to attract young people.
Create a positive narrative around entrepreneurship to help engage young people from an early age.
9- Encourage a national, regional and local culture of entrepreneurship.
Encourage and foster hubs, incubators, accelerators and networks to bring relevant talent together.

Developing an entrepreneurial ecosystem
10-For many of the recommendations and actions to have sustainable impact they need to work as part of a regional ecosystem, and within a regional ecosystem framework that fosters and attracts a critical mass of talent, capital and most importantly entrepreneurial leaders.
Create the foundation for a regional entrepreneurial ecosystem to flourish.

And nearly as interesting is the perception from the entrepreneurs. Just notice that the priorities are not emphasized in the same order. We see that tax is not their main problem, an intuition that I always had.

E&Y-young-entrepreneur-needs

The book that launched the Lean Startup revolution

There is nothing really new with Steve Blank’s 5th edition of The Four Steps to the Epiphany. But first I lost my first copy (who has it?) and second I thought I should read again this bible for entrepreneurs. So why not a second look.

Four-Steps-to-the-Epiphany-5th-edition

Ten years after the 1st edition, Blank is as right as ever. His Customer Development model is a great lesson about the dangers of business plans and of product development without some validation form early customers and the Market. You can read my post from 2011, Steve Blank and Customer Development. You should, as I will not say again what I said then. I do not have much to change. Let me just say again a few key elements:

– “The good new is these customer and market milestones can be defined and measured. The bad news is achieving these milestones is an art. It’s an art embodied in the passion and vision of the individuals who work to make their vision a reality. That’s what makes startups exciting.” [Page 22 and see note (1) below]
– Start-ups are not early versions of established companies. they have nothing to do with them in fact. “Startups are temporary organizations designed to search for a scalable and repeatable business model.” As a consequence, people running start-ups (product, sales, marketing, management) need to understand the start-up culture and dynamics. “Traditional functional organizations [Sales, Marketing and Business Development] and the job titles and the job descriptions that work in a large company are worse than useless in a startup. They are dangerous and dysfunctional in the first phases of a startup.”[Appendix A, “The Death of the Departments”.]

Blank’s Four Steps to the Epiphany is not easy to read but it is a must have and a must read for any entrepreneur!

(1) In another interview Balnk explained: Over the last decade we assumed that once we found repeatable methodologies (Agile and Customer Development, Business Model Design) to build early stage ventures, entrepreneurship would become a “science,” and anyone could do it. I’m beginning to suspect this assumption may be wrong. It’s not that the tools are wrong. Where I think we have gone wrong is the belief that anyone can use these tools equally well.” In the same way that word processing has never replaced a writer, a thoughtful innovation process will not guarantee success. Blank added that ” until we truly understand how to teach creativity, their numbers are limited. Not everyone is an artist, after all.”