Last Friday, I organized “venture ideas @ EPFL” with Jordi Montserrat from venturelab. We had the opportunity to have great entrepreneurs from Minsh, Poken, Basisnote and the 20 winners of the ventureleaders program.
Last but not least, Neil Rimer, founder and general partner of Index Ventures shared his thoughts about Thinking Bigger.
More on the EPFL’s venture ideas page and the past events.
As I mentioned in a recent post, I have spent a few days in Sweden where I discovered some features of the Swedish start-up scene. I was invited by Anders Gezelius who has a very interesting profile: a graduate of KTH – Stockholm with an MBA from Wharton, he worked Californie for Intel and then co-founded a startup which was selling accounting software. After the M&A of the start-up, he has gone back to Sweden where he runs Mentor4Research and Coach & Capital.
Here are the talks I made for:
– Stockholm Innovation & Growth: why do start-ups succeed or fail?
– Mentor4research: What we may still learn from Silicon Valley
If there is one interesting lesson that I also learnt from my recent trip to Boston (cf the MIT venture mentoring service), it is that the combination of mentoring and investing as a business angel may become more and more critical. Both are very much needed. Mentors may be seen as friends of entrepreneurs and give advice based on their experience. They may or may not become business angels who invest at an early stage in start-ups.
One of the best illustration of mentoring is given by the encounter of Steve Jobs and Bob Noyce when the Apple founder needed advice…
Nicolas Hayek, founder of Swatch, was yesterday at the Forum des 100.
He talked about the Economic crisis and called for an “International of Entrepreneurs”! His talk was in French and can be found here.
Ironically, in my book , I had quoted Pitch Johnson on a similar topic: “Entrepreneurs are the revolutionaries of our time.” And he had added: “Democracy works best when there is this kind of turbulence in the society, when those not well-off have a chance to climb the economic ladder by using brains, energy and skills to create new markets or serve existing markets better then their old competitors”
So should I conclude with “Entrepreneurs of the World, Unite!”
The question was also discussed in a very interesting debate between Emmanuel Todd and Pascal Couchepin (in French again).
Xconomy is becoming one of my favorite web sites. Here is a short post about three things every startup should do
—Focus on one thing. Whether you make a location-based tracking device, an energy-efficient motor, or a social network for job-seekers, carve out the specific market you’re going after. And then make your product a must-have for that market, using every possible competitive advantage you have. Do what you do better than anyone else, but don’t try to do it all.
—Work on what you’re passionate about. Every successful startup has a story about why it does what it does. That story should ring true with the founders’ backgrounds and expertise. Investors (and customers) can tell right away if a company representative is going through the motions.
—Cut to the chase. What is your company doing that’s special? How is it different from your competitors? People will decide whether your company sounds promising in the first 30 seconds of your pitch, so make sure you answer those questions upfront.
I will be in Stockholm next week delivering 2 talks on start-ups, one being about success and failure (Stockholm Innovation), the other one about what we still have to learn from the USA (Avslutningskonferens 2009). I certainly could have used these 3 points.
Does the crisis have an impact on entrepreneurship. This was the question I was asked by Manuela Salvi on the Swiss Radio (RSR) today. You can listen to my answer (in French) by ckicking here.
Here is my answer in more detail: reality is complex and I am not aware of complete studies on the topic. However the Kauffman foundation has published an interesting report on the topic: Entrepreneurs and Recessions: Do Downturns Matter?
The data set used for this study was a comprehensive list of all 8,464 companies that have gone public on U.S. markets from 1975 to 2006. There were nine such [recession] periods in the timeframe in question: 1907–1908, 1918–1921, 1929–1939, 1953–1954, 1957–1958, 1973–1975, 1980–1982, 1990–1991, and 2001–2003. The figure below does not show big differences between recession and growth period with the exception may be of World War II and also the recent years. But it may be too early to say about the 2001-2006 period.
In another study entitled Economic Crisis Survey, the Kauffman foundation shows that 71% of American people believe that “in light of the economic crisis, it has become more difficult to become an entrepreneur in America”. However anecdotes are many which show real success: Texas Instruments, Revlon were started during the Great Depression, Microsoft, Apple during the Oil crisis. Without even talking about company creation, product launch such as Pampers in 1961 and the iPod in 2001 show that a crisis does not prevent innovation.
Here is an extract from the first report:
“At a high level we essentially are concerned with the relationship between the supply of companies (“births”) by founding period, and the outcome achieved by those date-based founding cohorts over time. To deal with this supply aspect, a few broad points can be made. The first is what we might call the scarcity argument. It says that fewer companies are founded during difficult economic times, so we can expect disproportionately fewer successful companies to emerge from that economically constrained population. Why might we expect fewer companies founded during recessions, for example?
There are several reasons. First, entrepreneurs might decide to delay creating companies until the economy into which they anticipate selling products or services is more robust. This argument applies most strongly to entrepreneurs in service industries where there is little lag time from company founding until first product/service sale. If there is a longer lag between company founding and product launch, we might not expect entrepreneurs, all else being equal, to hesitate as much in starting their new ventures. Why? Because first revenues might be anticipated to more likely coincide with a resurgent economy.
There are other reasons to expect fewer companies to be founded during economic downturns. One has to do with entrepreneurs’ unwillingness to leave their current places of employment during a weak economy. Another, and perhaps more compelling, obstacle to company founding in weak economic periods might be the limited availability of risk capital during such periods. To the extent that it is difficult to raise money for a new entrepreneurial venture, we might expect fewer companies founded during such periods.
The preceding touches mostly on supply issues—why we might (or might not) expect more companies to be founded during weaker economic periods. There also is a demand issue. Even if similar numbers of companies are founded, it is plausible that more of these companies do not achieve material financial success due to the poor economy at founding, thus leading to poorer longer-term outcomes for cohorts of companies founded during weak economic periods.
In summary, we can plausibly make three broad points. First, it is reasonable to expect that fewer companies will be founded during weak economic periods. Second, companies founded during those periods might be expected to fail at higher rates than companies founded during more economically receptive periods. Third, the combination of lower birth rates and higher failure rates would conspire to deplete company cohorts founded during recessionary periods.”
There is therefore some difficulty in assessing the impact. As a way to finish this post, without concluding, let me quote another blog (in French) envie d’entreprendre which explains why an entrepreneur would have a higher likeliness of success in periods of crisis:
“Since financing is more difficult to obtain, those who know how to operate in a low-cost, frugal environment have an edge. Since many people wait and see, even are “frozen”, using the crisis as an excuse not to act or cannot act because of lack of financing, there is less competition. Since there is less competition, the employment market is easier [and more talents are available]. Finally, the fact of being unemployed may be the opportunity to start the entrepreneurial adventure. ”
I like these arguments,
– less competition
– more talents available
– better efficiency because one has to be more frugal.
Periods of recession and crisis seem to create more opportunities but it remains clear that entrepreneurs always try, whatever the difficulty of the times.
An interesting post by Xconomy on the topic. It’s been a on-going topic and there are no clear answers.
Check the post at Can Business Schools Teach Entrepreneurship?
In “vibrant ecosystems” such as Route 128 and Silicon Valley, business schools are embedded and students easily find or develop ideas. But I am less sure Business Schools really teach. They explain, they expose and of course they teach management. As I comment on that post:
There is a talk by Prof Byer (Stanford) about the Silicon Valley and Stanford ecosystems, where the author claims about 5% of companies are direct transfers of technology:http://spie.org/documents/Newsroom/audio/Byer.pdf
It is not clear how many companies Stanford alumni have created. At least 2′500 but probably many more. Now the role of business schools is another subject of interest. You have stories on both sides, i.e. pure engineers or scientists (Google, Yahoo, Cisco in the academia, Apple outside) or entrepreneurs from bus. schools (Sun Micro, eBay).
Créateurs, a local newsletter asked me to write short articles about famous success stories. I decided to begin with Adobe and its founders John Warnock and Charles Geschke. You will find the full text below as well as the usual data I like to give about start-ups: the capitalisation table of the company at its IPO and how shareholding evolved from foundation to public offering. Here is the article you may found in french in the Newsletter.
John Warnock and Charles Geschke: Adobe
Start-ups are very often associated to their founders. Entrepreneurs such as Steve Jobs or Bill Gates are obviously linked to the company they created. John Warnock and Charles Geschke may be less famous but their story is as fascinating.
Without the profile of the atypical entrepreneur (they are not “school dropouts” who launched their venture in their twenties), Warnock and Geschke founded Adobe Systems in 1982 when they were more than 40-year-old. Adobe is famous for some of the most popular software worldwide such as Acrobat and Photoshop.
From the printer to the printing protocol
It all began in the 70’s, at the renowned Palo Alto Research Park of Xerox, the vendor of copy machines. The two engineers are more and more frustrated. Xerox may have enabled the development of the computer mouse, word processing, email or Ethernet, but it has been incapable of transforming them in commercial products. Warnock and Geschke cannot convince their management of the potential of their research. “Part of it was fear and misunderstanding” but they also admit that “in fairness to the management, I think we as researchers were a little naïve about what it would take to get these things from conceptual operating prototypes all the way to full-production, supportable products. But we sort of hoped that they would hire the people who could do that.”
They left Xerox in 1982 and raised $2.5M to develop their project: high quality printers and a system which connect them to computer networks. When they met potential customers (Apple, Dec), they discovered that nobody is really interested. Steve Jobs explains to them that he needs their printer protocol, Postscript, for the Macintosh he is developing. They immediately change their business plan. Adobe became a software company with the success we all know.
Some good advice
Their vision of what is an entrepreneur is enlightening. It was more an accident than a destiny. But today their advice is worth reading.
You should always be flexible. You should try and explore many solutions, test them with customers and abandon the wrong ones very fast. They have the same views on the personality of entrepreneurs: “99% of founders fail because they cannot change and want to control too much”.
Passion, risk taking and self-confidence seem to be the critical strengths of entrepreneurs combined with intelligence and hard work. “But this is not sufficient. Luck also plays a major role.
When their age and experience is mentioned, Geschke adds that “I don’t think there’s any mystery in running a business. I think it helped that we were in our 40s, that we had worked for a variety of organizations. We had worked in other companies, but tried to leave their bad ideas as proprietary to them. We tried to pick the best things that we saw.” What is essential is to have a vision of what you want to do. “I am not a hunter, never have fired a gun, but I’m told that if you want to shoot a duck, you have to shoot where the duck is going to be, not where the duck is. It’s the same with introducing technology: if you’re only focused on the
market today, by the time you introduce your solution to that problem, there’ll probably be several others already entrenched.”
The ingredients of success
From the initial frustration which is at the origin of their departure from Xerox to the success of Adobe, the lessons are many. Never be a one-product company; technology cannot be simply transferred, you need to add brain power, hire good professionals; and as founders, you need to have “the intellectual capability, inherent honesty, ethical behavior and principles by which we lead [your] personal and business lives.”
In a few sentences, the ingredients of success are numerous, complex as well as simple and probably common to all great entrepreneurs.
To know more about Adobe:
The Revolutionaries: www.thetech.org/exhibits/online/revolution
Adobe Systems, Computer History Museum: www.computerhistory.org
Founders at Work, J. Livingston, Apress (2007)
In the company of Giants, R. Jager and R. Ortiz, Mcgraw-Hill (1997)
Next Article: Bob Swanson: Genentech
Now the cap. table in 1986
and the shareholding structure from 1982 to 1986:
A new report has been published about the Entrepreneurial Impact of MIT
It is full of data and even if obviously self-serving, it remains very interesting. Let me just quote what I noticed:
– Growth: the number of “first-time” firms has increased from about 2’000 in the 70s to 6’000 in the 80s and 10’000 in the 90s.
– Origin: Non-US founders had slight visibility in the 40s, grow to 12% in the 90s and 17% in the 00s. 30% of MIT foreign students founded a company at some point.
– Age: Before and during the 70s, 24% of first-time entrepreneurs were under 30, growing to 31% in the 80s and 36% in the 90s. There is no real difference between industry segments.
– Serial entrepreneurs: I have a small disagreement on that point as I am not sure serial matters, but… about 40% are serial entrepreneurs so 60% are not…
– Engineering vs. business degrees: EE/CS degrees is 22%, management is 16% for the 90s. Clearly science and technology matter.
– Location: in the 50s and 60s, majority of companies were in Massachusetts, but thereafter Silicon Valley has become a critical locus. In the 00s, 26% are in MA and 22% in CA.
Then the report talks about the culture and the ecosystem. It is also very interesting. We should always remember that:
– Tons of money went to research from the militaries and space agencies.
– MIT had more of a tacit and hands-off role, but much encouraging.
– Role models: “entrepreneurs could name about ten other new companies before they started their own”. Authors compare to another study where “Few of the Swedish entrepreneurs could name even one or two others like them”. They quote Schumpeter: “The greater the number of people who have already successfully founded new businesses, the less difficult it becomes to act as an entrepreneur. It is a matter of experience that successes in this sphere, as in all others, draw an ever-increasing number of people in their wake”
– Feedback loop: there is a positive impact of such examples and this may be the main reason of the creation to tech. clusters.
– Culture: the best is a quote by Bob Metcalfe, Ethernet inventor, founder of 3Com and now a partner at Polaris Ventures: “It’s not just that MIT’s entrepreneurial environment flourishes under its institutional commitment to technology transfer,” he said. “It’s also that MIT includes both ‘nerds’ and ‘suits.’ Divergent life forms, yes, but necessary to and working together at MIT on entrepreneurial innovation. And what keeps MIT’s entrepreneurial ecosystem accelerating is that nobody is in charge. There are at least twenty groups at MIT competing to be the group on entrepreneurship. All of them are winning.”
… Nobody is in charge…
– Tech. transfer: the majority of the exclusive licenses go to startup companies. The TLO’s strategic dependence on startup companies has been the reluctance of large companies to invest in “university-stage” technologies, because the risk and cost of development is high and the time to market is long.
– License deals: For startups, instead of cash up front and in lieu of some of the royalties, the TLO usually takes a small equity ownership that is less than 5 percent of the new firm.
And some conclusions:
– Universities that are strong in research and technology are at the forefront of knowledge creation and potential application. When the university is able to couple this capability with the inclination and resources needed to connect ideas and markets, impressive possibilities exist for generating entrepreneurship-based economic impact at the local, as well as national and global levels.
– Numerous changes are needed in most universities over an extended period of time in rules, regulations and, more important, attitudes and institutional culture.
– Until quite recently, MIT had followed a “hands-off” approach toward entrepreneurial engagement, in contrast with many other universities in the United States and abroad. MIT has neither created an internal incubator for ventures nor a venture capital fund to make life easier for prospective startups.
– Instead, MIT has relied internally on growing faculty, student, and alumni initiatives, especially during the most recent thirty years, to build a vibrant ecosystem that helps foster formation and growth of new and young companies.
– Educational programs require investment in and acquisition of faculty to develop and teach such programs. Effective and well-trained academics are, unfortunately, still scarce in most entrepreneurship related disciplines. Fortunately, successful practitioners are available everyplace and the MIT history indicates that they are quite willing and enthusiastic about sharing their time and experiences with novice and would-be entrepreneurs.
For those who have been so far, first you should read the full report and second I aggregate below a few tables from the report:
I refer again to the excellent Xconomy with the post Paul Graham on Why Boston Should Worry About Its Future as a Tech Hub—Says Region Focuses On Ideas, Not Startups
I had to react so I posted my own comment on their site, which I copy here:
There is no doubt Paul is right (unfortunately). I do not care about Boston too much but about the ROW. The debate, I think, was definitely closed when AnnaLee Saxenian published Regional Advantage (I think in 94). She had predicted before that SV would suffer from too much activity: “In 1979, I was a graduate student at Berkeley and I was one of the first scholars to study Silicon Valley. I culminated my master’s program by writing a thesis in which I confidently predicted that Silicon Valley would stop growing.” She admits she was wrong at a conference in Stockholm in 1998! So what?
SV is the only place on earth where the right environment for start-ups exists. Read again Paul’s essays on his web site www.paulgraham.com. One important element is that Fairchild gave birth to hundreds of start-ups and this is well documented. The start-up culture emerged at that time. I am so passionate about the subject that I have published my own book and [this] blog (”Start-up, what we may still learn from Silicon Valley”). But if you do not like self-promotion, you may also want to read Junfu Zhang’s extremely detailed work: “High-Tech Start-Ups and Industry Dynamics in Silicon Valley” that you can find online I think and where you will discover the different dynamics at work there (vs. Boston again)…
Boston is by far nb2, no doubt, but we, the nb3 and below, should be worried that even Boston does not manage to compete with SV…
An interesting post from the interesting web site Xconomy.
Robert Beyster gives his views about how much stock a founder should keep and his answer is….
“8 to 10 percent of their company”.
This is quite an unusal piece of advice as most accounts on the topic try to maximize the stake. Beyster focuses on value creation and incentives to all parties.
This is consistent with what I teach about equity (see the post equity split in start-ups dated October 30, 2008).