Tag Archives: Growth

Startup Land : the Zendesk adventure from Denmark to Silicon Valley to IPO

Many of my friends and colleagues tell me that video and movies are nowadays better than books for documenting real life. I still feel there is in books a depth I do not find anywhere else. A question of generations, probably. HBO’s Silicon Valley may be a funny and close-to-reality account of what high-tech entrepreneurship is but Startup Land is a great example of why I still prefer books. I did not find everything I was looking for – and I will give one example below – but I could feel the authenticity and even the emotion from Mikkel Svane’s account of what building a start-up and a product means. So let me share with you a few lessons from Startup Land.


The motivation to start

“We felt that we needed to make a change before it was too late. We all know that people grow more risk-averse over time. As we start to have houses and mortgages, and kids and cars, and schools and institutions, we start to settle. We invest a lot of time in relationships with friends and neighbors, and making big moves becomes harder. We become less and less willing to just flush everything down the drain and start all over.” [Page 1]

No recipe

“Along the way, I’ll share the unconventional advice you learn only in the trenches. I am allergic to pat business advice that aims to give some formula for success. I’ve learned there is no formula for success; the world moves too fast for any formula to last, and people are far too creative—always iterating and finding a better way.” [Page 6]

About failure

In Silicon Valley there’s a lot of talk about failure—there’s almost a celebration of failure. People recite mantras about “failing fast,” and successful people are always ready to tell you what they learned from their failures, claiming they wouldn’t be where they are today without their previous spectacular mess-ups. To me, having experienced the disappointment that comes with failure, all this cheer is a little odd. The truth is, in my experience, failure is a terrible thing. Not being able to pay your bills is a terrible thing. Letting people go and disappointing them and their families is a terrible thing. Not delivering on your promises to customers who believed in you is a terrible thing. Sure, you learn from these ordeals, but there is nothing positive about the failure that led you there. I learned there is an important distinction between promoting a culture that doesn’t make people afraid of making and admitting mistakes, and having a culture that says failure is great. Failure is not something to be proud of. But failure is something you can recover from. [Pages 15-16]

There are other nice thoughts about “boring is beautiful” [page 23], “working from home” [page 34], “money isn’t only in your bank account, it’s also in your head” [page 35], and an “unconventional (possibly illegal) hiring checklist” [page 127]

I will quote Svane about investors [page 61]: “I learned an important lesson in this experience – one that influenced all of the investor decision we’ve made since then. There is a vast spectrum of investors. Professional investors are extremely aware of the fact that they will be successful only if everyone else is successful. Great investors have unique relationships with founders, and they are dedicated to growing the company the right way. Mediocre and bad investors work around founders, and the company end in disaster. The problem is, early on many startups have few options, and they have to deal with amateur investors who are shortsighted and concerned with optimizing their own position.” [and page 93]: “Good investors understand that the founding team often is what carries the spirit of a company and makes it what it is.”

And about growth [page 74]: “Even after the seed round with Christoph Janz, we were still looking for investors. If you’ve never been in a startup this may seem odd, but when you’re a startup founder you’re basically always fund-raising. Building a company costs money, and the faster you grow, the more cash it requires. Of course, that’s not the case for all startups – there are definitely examples of companies that have come a long way on their own positive cash flow – but the general rule is that if you optimize for profitability, you sacrifice growth. And for a startup, it’s all about growth.”

In May 2014, Zendesk went public and the team was so extatic, many pictures were tweeted! The company raised $100M at $8 per share. They had a secondary offering at $22.75 raising more than $160M for the company. In 2014, Zendesk revenue was $127M!… and its loss $67M.


There was one piece of information I never found neither in Startup Land nor in the IPO filings: Zendesk has three founders, Mikkel Svane, CEO and author of the book. Alexander Aghassipour, Chief Product Officer and Morten Primdahl, CTO. I am a fan of cap. tables (as you may know or can see here in Equity split in 305 high-tech start-ups with founders, employees and investors shares) and in particular studying how founders share equity at company foundation. But there is no information about Primdahl ‘s stock. I only have one explanation: On page 37, Svane writes: “the thing about money is, it’s happening in your head. Everyone processes it differently. Aghassipour adnSvane could live with no salary in the early days of Zendesk, but Primdahl could not. It’s possibly he had a salary against less stock. I would love to learn from Savne if I am right or wrong!

Click on picture to enlarge

Lessons from Billion-Dollar Start-Ups: Unicorns, Super-Unicorns and Black Swans.

A couple of colleagues informed me about Welcome To The Unicorn Club: Learning From Billion-Dollar Startups by Aileen Lee. I understand why. The article is closely connected to some of my main interests: high-growth start-ups and dynamics of entrepreneurs. Aileen Lee has analyzed start-ups in the Software and Internet fields which have reached a billion-dollar value while being less than 10 years old. She calls them Unicorns, whereas Super-Unicorns are companies which reached a $100B value!


All this reminds me of my analysis of 2700 Stanford-related start-ups (you can check Serial entrepreneurs: are they better? as well as High growth and profits) and to a lesser extent about the link between age and value creation: Is there an ideal age to create?

Aileen Lee has interesting results:
– out of 10,000+ founded companies per year, there are 4 unicorns per year (39 in the last decade – that is .07% of total) and about 1-3 super-unicorns per decade,
– they have raised more than $100M from investors (more than $300M for consumer-related). They may have been lean in their early days, but they grow fat!
– it takes 7+ years for an exit,
– founders have an average age of 34,
– they have 3 co-founders on average with a long experience together, often back from school,
– 75% of the founding CEO lead the company to an exit,
– many come from elite universities (1/3 from Stanford),
pivot is an outlier.

I found this article interesting, important, and I even felt empathy and let me tell you why. We have a tendency to underestimate the importance of hyper-growth and hyper-fast. Growth is extremely important for start-ups; reaching $100M in value is a success. Looking at the small group which reaches $1B and then $100B is interesting. You need money for this (VC), you do not need that much experience but you need trust from co-founders. The founders of super-licorns seem to be the explorer of unknown territories. You need passion and resources.


On Unicorns, I have done a similar analysis in “Is there an ideal age to create?” I also have an average age of 34 for 1st start-up experience of all founders, and regarding Super-Unicorns which I call Black Swans (highly unpredictable outcome according to Taleb), I have identified 10 Super-Unicorns (see below) and there are 1-4 such companies per decade since the 60s. The average age of their founders is 28 and even 27 if I count the 1st experience.

[My Black Swans – Ancestor: HP (1939); 60s: Intel (1968); 70s: Microsoft (1975), Oracle (1976), Genentech (1976), Apple (1977); 80s: Cisco (1984); 90s: Amazon (1994), Google (1998); 00s: Facebook (2004).
Age of founders: HP: Hewlett and Packard (27) – Intel: Noyce (41) and Moore (39) (but they had founded fairchild 11 years earlier). Andy Grove was 32 – Microsoft: Gates (20) and Allen (22) – Oracle: Ellison (33) – Genentech: Swanson (29) and Boyer (40) Apple: Jobs (21) and Wozniak (26) Cisco: Lerner and Bosack (29) Amazon: Bezos (30) Google: Brin and Page (25) Facebook: Zuckerberg (20) – Cofounder was 22.]

Now more data and statistics based on the Stanford-related companies. You can have a look first at my past slides and then I look at the Unicorn statistics.

Microsoft PowerPoint - BCERC-Stanford HTE-Lebret.ppt [Mode de co

Basic analysis of Stanford-related unicorns

Stanford unicorns by decade

Stanford unicorns by field

There are 3 super-unicorns in that group (HP, Cisco & Google). Out of 2700, there are 97 unicorns, which is a huge 3%! It probably means my sample is not exhaustive! Indeed Prof. Eesley estimates that 39’900 active companies can trace their roots to Stanford. This means now .2%. Now these are real exits whereas Lee includes private companies with no exit but a value provided by their investors. Whatever the ratio, unicorns are rare. Mine are less fat than Lee’s: they raise $30M with VCs.

I have less than 2 Stanford-related founders per company (but I do not count the ones with no Stanford link. It confirms Lee’s comment that many founders have roots back to school. It takes 8 years for an exit (fewer in recent years though) and 7 years for a graduate to decide about founding a company.

Unicorns and high-value creation is an interesting not to say important topic. Billion-dollar companies are not just a rare event, they tell us something about the impact of high-tech innovation & entrepreneurship. They are possible and desirable!

What’s a start-up? (part 3)

My colleague Jean-Philippe Solvay recently asked me to a react to a Facebook post asking what is exactly a start-up. And as you may read there, it is not so easy to answer. One of the best references given in the post is swombat.com rather exhaustive analysis.

In the past, I wrote two posts: “part 1” was in 2011, where I had given my definition: “A start-up is a company which is born out of an idea and has the potential to become a large company” as well as the very good definition by Steve Blank: “startups are temporary organizations designed to search for a scalable and repeatable business model.” (There is something I am not comfortable with Steve Blank’s: I would delete “model”, as a start-up may know what it wants to do, but has not validated it yet. And start-ups copying existing business models would not be ones…)

Then in “part 2” in early 2013, I added the following: “A start-up is a corporation which explores, which is looking for a business model, a market, customers and is trying to innovate. It usually looks for a big market (“scalable”) and therefore service businesses do not qualify (except on the web) as they do not often scale. It is also a matter of strong and rapid growth in emerging markets because the competition is tough and there will be few winners. It often go fast. That is why it is more about a mindset: you are curious, in an uncertain world, trying to bring new things to the world. Because you are looking for a business, you do not have enough paying customers, and you will most likely need external capital (business angels, venture capital) except if your future customers accept to pay a lot in advance. This is why there is a strong correlation between being a start-up and having investors.”

I agree with most features given in the facebook or swombat contributions: “start-ups are new firms focusing on innovation and growth in situations of high uncertainty (or risk)”. They do not have to be about technology and if so, they are called high-tech start-ups. Maybe innovation is not so important, as many just copy others, but growth (through scalability) is critical. Consulting or service firms usually do not qualify because the growth is linear, not exponential (with the number of jobs).

Let me add another point: if the start-up term, was created, there has to be a good reason! When was it created? Wikipedia claims it became popular with the dot.com bubble of the late nineties. However, I found the term in Saxenian’s Regional Advantage (1994) and even in Silicon Valley Fever (1984). There is no doubt the term emerged with the technology clusters Route 128 and Silicon valley, the reason why it is associated with high-tech as well as venture capital. But not all start-ups belong to these geographic clusters. Microsoft and Amazon are based in Seattle, which is (at least was) not really a cluster. When they do not belong to a geographic cluster, they belong to a technology cluster, mostly IT (electronics, software, internet) or biotech/medtech. Tesla Motors is considered a start-up because it belongs to the Silicon Valley ecosystem though it is in an industry where very few start-ups exist. I do not think EasyJet was ever called a start-up because it belongs to no (technology or geographic) clsuter. So I would finally define a start-up as “a new firm focusing on growth in situations of high uncertainty, and belonging to a technology or geographic cluster”.

PS: while looking into the topic again, I found a debate on how to spell the word… In 2007, I had decided for “start-up”, but “start up” and “startup” also existed. It seems “startup” is now more and more popular. I stick to “start-up” for the time being, just to be consistent with what I always did.

Innovation is not about small or large, it’s about fast.

The debate is recurrent and in my last post, I was questioned about my fascination for start-ups and Silicon Valley. In a way this is related, I will come back on this at the end. Two recent articles nearly surprised me. The first one has a famous author, Clayton Christensen. The Empires Strike Back – How Xerox and other large corporations are harnessing the force of disruptive innovation was published in the latest issue of the MIT Tech Review.

Here are short extracts: “It has been a long time since anyone considered Xerox an innovation powerhouse. On the contrary, Xerox typically serves as a cautionary tale of opportunity lost: many obituaries of Steve Jobs described how his fateful visit to the Xerox Palo Alto Research Center in 1979 inspired many of the breakthroughs that Apple built into its Macintosh computer. Back then, Xerox dominated the photocopier market and was understandably focused on improving and sustaining its high-margin products. The company’s headquarters became the place where inventions in its Silicon Valley lab went to die. Inevitably, simpler and cheaper copiers from Canon and other rivals cut down Xerox in its core market. It is a classic story of the “innovator’s dilemma.” […] But now Xerox is turning things around […] In the past, Xerox’s success would have been an anomaly. Less than a decade ago, when we were finishing the book The Innovator’s Solution we highlighted the fact that disruptive innovations are typically introduced by startups, the rebel forces in the business universe. […] Throughout the 1980s and 1990s, only about 25 percent of disruptive innovations we tracked in our database came from such incumbents, with the rest coming from startups. But during the 2000s, 35 percent of disruptions were launched by incumbents. In other words, the battle seems to be swinging in favor of the Empire, as the following examples confirm. The author mentions examples such as GE, Tesla competing with GM, Dow and Microsoft in the article.

The second article comes from The Ecomist and is entitled “Why large firms are often more inventive than small ones.” Let me quote it a little more extensively: “Joseph Schumpeter […] argued both sides of the case. In 1909 he said that small companies were more inventive. In 1942 he reversed himself. Big firms have more incentive to invest in new products, he decided, because they can sell them to more people and reap greater rewards more quickly. In a competitive market, inventions are quickly imitated, so a small inventor’s investment often fails to pay off. […] These days the second Schumpeter is out of fashion: people assume that little start-ups are creative and big firms are slow and bureaucratic. But that is a gross oversimplification, says Michael Mandel of the Progressive Policy Institute, a think-tank. In a new report on “scale and innovation”, he concludes that today’s economy favours big companies over small ones. Big is back, as this newspaper has argued. And big is clever, for three reasons.” The arguments are that 1-ecosystems are big, 2-markets are globals and 3-problems to be solved on a large scale. This is not for small companies. “He is right that the old “small is innovative” argument is looking dated. Several of the champions of the new economy are firms that were once hailed as plucky little start-ups but have long since grown huge, such as Apple, Google and Facebook. […] Big companies have a big advantage in recruiting today’s most valuable resource: talent. (Graduates have debts, and many prefer the certainty of a salary to the lottery of stock in a start-up.) Large firms are getting better at avoiding bureaucratic stagnation: they are flattening their hierarchies and opening themselves up to ideas from elsewhere. Procter & Gamble, a consumer-goods giant, gets most of its ideas from outside its walls. Sir George Buckley, the boss of 3M, a big firm with a 109-year history of innovation, argues that companies like his can combine the virtues of creativity and scale.”

Well I was not surprised for long. The debate is not about small or large. Let me explain by quoting my book again and more specifically the section Small is not Beautiful [page 111] “There is one misunderstanding concerning start-ups. Because they would be young, recent companies, and because many macroeconomic analyses focus on the jobs generated by small structures, there is a tendency to consider with high regard that “small is beautiful” as if it were a motto for start-ups. The ambition of a start-up is not to stay modest. On the contrary, the successful companies have become large, sometimes dinosaurs. In early 2007, Intel had 94’000 employees, Oracle 56’000, Cisco 49’000 and Sun 38’000. These “start-ups” have become multinational companies. […] The San Jose Mercury News, the daily newspaper at the heart of Silicon Valley, publishes once a year for example the list of the 150 biggest companies. The simple comparison of the list between 1997 and 2004 shows that among the top 50 in 2004, 12 were not part of the first 150 in 1997. Zhang also analyzed this astonishing dynamics by comparing the 40 biggest high-tech Silicon Valley companies in 1982 and in 2002 as provided by Dun & Bradstreet. Twenty of the 1982 companies did not exist anymore in 2002 and twenty one of the 2002 companies had not been created in 1982. These dynamics of birth and death are known and positively acknowledged.”

It is exactly what the Economist article explains: “However, there are two objections to Mr Mandel’s argument. The first is that, although big companies often excel at incremental innovation (ie, adding more bells and whistles to existing products), they are less comfortable with disruptive innovation—the kind that changes the rules of the game. The big companies that the original Schumpeter celebrated often buried new ideas that threatened established business lines, as AT&T did with automatic dialling. Mr Mandel says it will take big companies to solve America’s most pressing problems in health care and education. But sometimes the best ideas start small, spread widely and then transform entire systems. Facebook began as a way for students at a single university to keep in touch. Now it has 800m users. The second is that what matters is not so much whether companies are big or small, but whether they grow. Progress tends to come from high-growth companies. The best ones can take a good idea and use it to transform themselves from embryos into giants in a few years, as Amazon and Google have. Such high-growth firms create a lot of jobs: in America just 1% of companies generate roughly 40% of new jobs. Let small firms grow big The key to promoting innovation (and productivity in general) lies in allowing vigorous new companies to grow big, and inefficient old ones to die. On that, Schumpeter never changed his mind.”

I say it again, there is a difference between start-up and SME. This does not fully answer Christensen argument about the Empire striking back. Well it means large companies have smart managers who learnt from the mistakes of the past. But he also implicitely say that 65% of disruptive innovations come from new comers, not incumbents. Gazelles still have a bright future.

The challenge of growth (3/3): views from a WEF report

Following my two previous posts on the challenge of growth through Greiner and Google, here is my final contribution thanks a recent WEF report: Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies

It is a 380-page rich analysis of what it takes to grow and the ecosystem of high-growth companies. I will soon give a few data points on venture capital compiled by the authors, btu I want to focus here on the challenge of growth. Section 2 of the report (The Early-Stage Entrepreneurial Company Journey) focuses on growth accelerators and different growth challenges as well as dark moments and the main lessons from entrepreneurship.

On the growth accelerators (pages 37-38), market opportunity comes first but HR and organization is not too far behind. For the growth challenges (pages 37 and 42), HR is far ahead with market opportunity really behind. Dark moments (pages 37 and 42): it is much more balanced with financing 1st, markets and environement both second, top management 4th.

What is really inresting in the report are less the statistics than the summaries of the inetrviews and let me extract quotes on the dark moments and main lessons on entrepreneurship. they do remind me reading the books Founders at Work, Betting It All and In the Company of Giants. I hope you will appreciate tham as much as I liked putting them here!

Dark moments

There were times I went to bed thinking ‘game’s up’ and when you wake up you find it is not. The many systems challenges in our early years created some very stressful Saturday afternoons that were at times particularly dark moments.” (Betfair)

We thought we were invincible […]. But we didn’t know what was coming and that we were going to face serious trouble[…] All our glory and credibility disappeared. On top of that, my partner left the business. Many of our people in the US left. The company was declared ‘almost irrelevant’ [..]. But we decided we didn’t want to let the company go. I wanted to turn the company around, and the board supported me in that. So we made a number of key moves. (Business Objects)

We needed to convince people that the Internet was a real market. Many potential distributors thought that the Internet was a research network and had no commercial potential. Thus, convincing people to be our first distributors in 1993 to 1994 was by far the biggest challenge. (CheckPoint)

The core issue was a failure to properly plan for the hyper-growth of the site. […] As long as the site was functioning, it was easy to ignore the engineering team’s pleas that the site was running on Band-Aids™ and fumes. […] Unfortunately, those pleas were discounted by members of the senior team until it was too late.” (eBay)

The general worst moments are as you’re running out of cash […] and there’s no term sheet yet […] that was a periodic dark day as I call it. That would come somewhat predictably, but it always and nevertheless hung heavily in the back of my mind. It was one of the few things that could interrupt my sleep. (eSilicon)

There was one particular time in our history, and that was back in the very earliest days of the company when we were still based in New Mexico. One of our first customers was MITS, which was acquired by another company, they stopped paying us and we basically had no income for a year. We were just barely able to hang on, and after that I had a rule that we always had to have enough cash on hand to be able to operate for a full year, even if nobody paid us.
“The first decade it was IBM that almost killed us. I mean they were a great ‘angel’ in a way, but they also almost killed us a few times. We were in a situation long before Windows where we were totally at the behest of IBM. And IBM could have crushed us on many occasions. They had huge demands on us and sucked our resources. We were basically a low cost, outsourced programming sweatshop for IBM. They paid us very little and the only thing we really got from them that turned out to be very lucrative was the right to sell the DOS operating system to other companies. IBM was a large company and we were a small company and every new code release would have to circulate around to all these different divisions, and it was very difficult to keep our technical people motivated to serve the beast, as it were. When we launched Windows, IBM had a competing project, which they were working on with us called OS/2. Previously, IBM had always set the standards. We would provide the technology and their brand recognition and clout in the industry were what really set the standards. When we launched Windows 3.0, that was the first time that we really went out and did it without IBM. We had made an internal decision before that, that whether IBM was with us or not, we were going to launch Windows 3.0. The day before the launch, IBM reluctantly decided to endorse Windows.” (Microsoft)

There were maybe two dark moments. Because it was difficult to get financing, we decided to bootstrap the company as much as we could with our own money and develop the service. That was a challenging period. That was in the spring and summer of 2003. As we started to incur costs in the software developers, we started to run out of money. Some people internal to this project maybe did not believe it would happen. That was one big challenge. (Skype)

“The first dark moment occurred in the summer of 2002. We were running out of money, struggling with a new product and having difficulty penetrating any major customer. We were about to be saved from our misery through an acquisition by our largest competitor, but then they walked away from a definitive acquisition agreement after two months of diligence, during which they had learned all of our secrets and dirty laundry. We could easily have let this situation destroy us, but instead, we took it as a slap-in-the-face and redoubled our efforts and commitment to success. Our founders took this slap personally, and within a year, they had delivered a breakthrough product that was much better than our competitors’ products and allowed us to penetrate Cisco and other key customers. (Netlogic)

“Every company has dark days. In a young company there’s a huge amount of uncertainty. One dark day occurred in the first quarter after we went public. I’m off on a Friday with my wife and my aunt and uncle, and we’re up in Point Reyes –there was no email. So I called into my voicemail, and we had just got notified by one of our customers that they were cancelling a US$ 375,000 development project. We were going to miss our first quarter public. The rest of the day, I’m living in a silent movie. They’re all talking to each other, but I have no idea what’s going on. I’m sitting there spinning in my own mind. I have a knot in my stomach. I am calling into the office every 15 minutes, but there is no news. I came into the office on a Monday morning, after having some time to reflect on it. I said, ‘Well, first we ought to try to go back up to this company that cancelled us and see if we can get them to give us US$ 100,000’. We did a lot of things that quarter, and we figured it out. It was a very dark period. Bad news travels fast and everybody knew we were just hosed. There was no way to fully make it up, and it was awful.” (Veritas Software)

Lessons from entrepreneurship

1. The three Ps are important: Persevere, as you will have many setbacks; be professional in everything you do; and be passionate.
2. Being able to overcome problems is a pivotal skill: After you overcome each problem, you will feel good because you know you are on the right end of that problem and that some other company
will have to handle it.
3. The most undervalued commodity in an entrepreneurial venture is time: You must get things done in a time-efficient way and with minimal distraction.
4. When you get lucky, two things are essential: (a) quickly take advantage of it; and (b) don’t kid yourself it was not luck. Be brutally honest with yourself.”

1. “The famous lesson from Jim Robbins’ book, Good to Great: ‘Confront the brutal facts but never lose faith in the positive outcome’. This is essential to come through victorious from difficult periods.
2. “Have a clear concept of value and innovation: We started with a great innovative concept that was easy to explain to our customers and we created a brand new market.
3 “Follow a proven entrepreneurial model: a) attract venture capital and have options available for employees to participate in its financial success, b) go global as early as possible, c) find the better market for going public.
4. “Encourage a culture of passion: Adapt quickly to changing circumstances and always be clear about the growth drivers. Cascade goals all the way down in the organization and measure or monitor. Communicate [goals] heavily to your team, so they can lead their own teams.
5. “Take advantage of a global talent pool: it completely changes the fabric of an organization and creates new opportunities.”
(Business Objects)

1.Key leaders in an organization need to be extremely flexible with the ability to get into a completely new field and build a team and strategy to handle it.
2. You never stop being an entrepreneur. At every step you need to build a working and stable infrastructure, and yet still challenge yourself with shaking things up and finding the next new opportunities.
3. In order to succeed, you need an innovative product, a growing marketplace and a great team of people. It is impossible to succeed without the right people, but the other factors are critical to successful growth.
“Whenever you do something, try to do it in the best possible way. If it works, you will establish a precedent that will last for many years. So try to do the right things in the right way the first time.”

One of the things I found really rewarding while working in Silicon Valley is that risk is not only accepted – it’s encouraged. There are tons of experiments going on there all the time. Risk is, in part, how work gets done there. For me, failure only happens when you don’t learn from your experiences. […] Being an entrepreneur is a tough occupation – you have to believe in what you’re doing, even when others are pointing out all the reasons why your idea won’t work. You have to develop a higher risk tolerance and be ready to find the lesson in each idea that doesn’t work.

Point number one is about the motivation for entrepreneurs. On a risk-adjusted present-value basis, no rational person would ever be an entrepreneur if they did it just for the money. Most young entrepreneurs go into this thinking it’s a quick route to the gravy train. And in fact it’s not. It’s more about creativity and self-actualization than it is about compensation.
“Point number two is about having the right venture capital behind you. I encourage people to seek senior partners who hold central power in the VC firm and will be your long-term funding champion.
“Point number three is about the people. A great product or technology misapplied in the market cannot be recovered by a bad management team. But a great management team can take a B product and win by making the right chess moves at the right time.
“Point number four is our three S’s: speed, simplicity and self-confidence. Winning requires speed. Speediness is achieved through simplicity (non-bureaucracy and non-territorialism). Self-confident people feel good about their position in the company and deliver speedy solutions without behaving bureaucratically. A CEO has to ensure that the three S’s are engrained into the company culture.”

“One of the key things is that you have to be in the right place at the right time. This isn’t a question of luck. It means that you have to recognize the opportunity early, and go after it with incredible focus and commitment before anyone else does. […]. You also have to be willing to take risks and make mistakes. Nobody should have to worry about being penalized for trying something new and not having it work out. The key is to learn the right lessons from mistakes so you can continue to move forward.”
“Hire the best people you can. One of Microsoft’s strengths was it innovated that way. It spent a lot of time at universities, before that was fashionable, to seek out talent. They hired for high IQs first, and then figured out a way to organize them and make them productive.”

1. “Think big and think global. Think differently. And even if people around you don’t believe it, if you really think you have something, you need to believe in your gut feeling and go for it.
2. If you want to go anywhere in life, if you want to pursue your dreams, you have to take risks. Risks involve failures. You cannot be afraid of failure if you want to pursue your dreams.
3. Entrepreneurship is a lifestyle. It is about what defines you. It is about a passion to change and build things. When you look at it this way, it is also about having fun.
4. Once you get going, stay very focused on getting the right people.”

1. “Think beyond the possible and then back off to reality. Just sit down with a piece of paper and look at what you’ve got. I really believe in a very simple SWOT analysis. Then plan, plan, plan. And then adjust.
2. Hire the best people when you can afford it. A great idea can come from anyone in the company.
3. Be prepared to make mistakes and keep innovating.
4. Customer pull is a hundred times more important than a technology push, but nothing is more important than a great engineer.”
(Arm Holdings)

“The first lesson is, don’t start a company just because you want to make money. You start a company because you believe in your idea and are passionate about it. Also, the idea has to be practical, be implementable and solve some real user problem. Then wealth creation will be a by-product.
Second, you should get off the ego trip. Associate yourself with the right people to complement you. Don’t think, just because you are an entrepreneur and the founder, you should be the CEO. You may or may not be CEO material. To succeed, use your strengths rather than assuming you’re strong in every area.
Another important lesson is that you’ve got to attract good people. You can do it if you have a convincing idea that is really attractive. If you don’t have the right idea, or if you’re not passionate enough about it, you can’t attract the right people. You can’t do it alone. Not any one person will have all the expertise.”

“Personally, I would recommend that any founder and entrepreneur not initiate a venture on one’s own. In my view, the fact that we had a founding team of three – and later four – meant that we could share the psychological load and stress that a fast-growing company brings. While good friends, we largely had independent social lives so we could ‘switch off’ the company from time to time.

The most important lesson is cliché. In technology, the intelligence, creativity, motivation and teamwork of the people ultimately determines the level of success. Providing an environment that attracts, keeps and motivates top employees is an absolute requirement.

1. “The most important thing I learned from Silicon Spice is that no matter how sexy or exciting your idea may look, if you want increase your chances for success, then you must actively engage with potential customers early on. They may not become your ultimate customer, but they certainly will teach you about the product and its features and functionality very early on. I would say that’s one of the most critical things to do, even if you have to make a sweetheart deal with them to get their engagement.
2. As an entrepreneur, you have to have the DNA in you to not give up. I could have easily given up on Silicon Spice and moved on to do something else. This drive to succeed at any cost is part of every successful entrepreneur I have worked with. You have to figure out whatever it takes to make a success of the company.
3. The biggest thing I learned from Intel and that I have carried with me since is there is a discipline about focus and execution. You have to focus on very crisply defined deliverables. You can’t just clutter people with 100 things. You have to distil them down to one or two. However, you have to be very careful. You can’t dump all of Intel’s culture into a start-up, either. But there are elements of the Intel culture that, when brought in a suitable manner, can help a start-up become far more efficient and successful.”

“Number one: The most important thing is the right product, in the right market, at the right time.
“Number two: The greatest flaw that the entrepreneurial character has is that they get excited about their own ideas and they start filtering with a confirmation bias. What you want to do is open all portals to new information.
“Number three: One of the hardest things for me is this very profound ambiguity you experience. You have a vision of what you want to do, who you are and what defines you, but along the way, you have to do all these opportunistic and pragmatic things, which draw you in different directions and you just never see that original vision. You have to be able to do things that betray that original vision for the good reasons along the way. Sometimes you have to just abandon it and move onto the next thing because it’s the better thing to do. For me, that turned out to be a very hard thing to do.
“Number four: If you don’t listen to your board, you may or may not get fired. But if you listen to your board and investors, you’re guaranteed to get fired. I believe you have to take leadership. And if I sit and think about the business 24 by seven, and when you run a company – it’s the only thing in your life, it’s 24 by 7 – guys that show up once a month or quarter, and kind of flirt with this thing, are simply not qualified to have a better opinion. And investors who buy your stock and sell it ten minutes later, are even less qualified to have a better opinion – although that doesn’t prevent them from having opinions. You have to do what you believe is the right thing for the company and you have to put your job on the line to do it sometimes, and that’s just part of what it is. Sometimes you win, sometimes you lose.”
(Veritas Sofwtare)

The challenge of growth (2/3): Google

Following my post, yesterday, about Greiner’s paperEvolution and Revolution as Organizations Grow“, here are some data about Google. Well you know that Google is my favorite case study. I read and heard a few things recently which are related to the topic of growth and that I found interesting.

There is first the fact that Google employees generally say how impressive is the management of growth in hiring. The process is thorough with many phone and face to face interviews, assessing the quality of the future employee and her ability to work in teams. Then there is the process of managing teams which has been published under the code name Oxygen. (Thanks to Corine for mentioning it 🙂 ).

You can learn more about the project from Google Project Oxygen: Rules for good management or Google’s Project Oxygen.

What is really impressive (if true!) is that Google continues to maintain the start-up culture it had from its early days. In the early days, Brin and Page were interviewing all new hires. Google was also famous for giving math tests such as this one (extracted from the GLAT – Google Labs Aptitude Test). And finally, just as with Apple, people work in small teams (the famous “One pizza should feed the team”.) And this helps in keeping a start-up culture with not much hierarchy.

As a simple conclusion, Google tries to stay creative (following Greiner’s model).

Next and final part: some notes on the WEF report, Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies.

The challenge of growth (1/3): Greiner

Growth of start-ups is probably their biggest challenge. As you may imagine given my interest for the company, I will focus on Google in a future post, but first let me mention an article mentioned to me by my colleague Jean-Philippe M.-F. (thanks 🙂 ): Evolution and Revolution as Organizations Grow, by Larry E. Greiner. As the author writes, it is a quite generic article: “In one sense, I hope that many readers will react to my model by calling it obvious and natural for depicting the growth of an organization. To me this type of reaction is a useful test of the model’s validity.”

What is interesting for me is the first phase of company growth, called Creativity. If your start-up is in that phase or if your are helping such a one, then it should have the following features (quoted from Greiner)

– The company’s founders are usually technically or entrepreneurially oriented, and they disdain management activities; their physical and mental energies are absorbed entirely in making and selling a new product.
– Communication among employees is frequent and informal.
– Long hours of work are rewarded by modest salaries and the promise of ownership benefits.
– Control of activities comes from immediate marketplace feedback: the management acts as the customers react.

and a crisis will arise at some point, called the leadership crisis:

“As the company grows, larger production runs require knowledge about the efficiencies of manufacturing. Increased numbers of employees cannot be managed exclusively through informal communication; new employees are not motivated by an intense dedication to the product or organization. Additional capital must be secured, and new accounting procedures are needed for financial control.

Thus the founders find themselves burdened with unwanted management responsibilities. So they long for the “good old days”‘ still trying to act as they did in the past. And conflicts between the harried leaders grow more intense.

At this point a crisis of leadership occurs, which is the onset of the first revolution. Who is to lead the company out of confusion and solve the managerial problems confronting it? Quite obviously, a strong manager is needed who has the necessary knowledge and skill to introduce new business techniques. But this is easier said than done. The founders often hate to step aside even though they are probably temperamentally unsuited to be managers. So here is the first critical development choice–to locate and install a strong business manager who is acceptable to the founders and who can pull the organization together.”

More in Greiner’s paper and then my post on Google in the near future.

High growth and profits

Before I talk about the topic I announce in this post, let me mention briefly my coming back in the research world! I published a paper at the BCERC Babson Conference on Stanford high-tech start-ups. You may wish to go through the slides below.

I promise to come back to growth and profits and indeed there is a link to my own paper so be a little patient. But I need to mention one other thing before! The two keynote speakers were great.

First Ernesto Bertarelli, former CEO of Sereno and winner (and loser) of the America’s Cup with Alinghi gave a great 20-minute talk on entrepreneurship. Let me just quote him:
– in entrepreneurship, you need passion, fire and love, these are critical,
– you need a team, you can not win alone so you need to accept to hire better people than yourself and you need to accept change,
– you need vision, i.e. you need to visualize your plan and objectives,
– entrepreneurship = business, i.e. it is about taking chances, about asking yourself why should I not do it,
– if you’re sure to win, it’s boring; the risk of failing is OK and he was honest enough to show his two victories and then his defeat with Alinghi.
In summary, it is not so much a process it is about values.

Second Nicolas Hayek, founder and chairman of the Swatch Group, gave his views about entrepreneurship and business. He said basically the same things. Entrepreneurs are creative people and the pity (with our current crisis) is that we train managers who are not risk-takers, who are not creative people (or only for creative finance!). In fact, we kill creativity with our kids when they are 6-years old and business schools / MBA programs do not change this.

So now that I have mentioned typical keywords of entrepreneurship, (this above is not new at all, but the speakers were great and convincing), I can elaborate on the title of my post . At the Babson conference, there was a paper entitled “MUCH ADO ABOUT NEARLY NOTHING? AN EXPLORATORY STUDY ON THE MYTH OF HIGH GROWTH TECHNOLOGY START-UP ENTREPRENEURSHIP”

As you may imagine, I was shocked. I was discovering a totally new field of research exemplified by Per Davidsson. High growth would not be as important as profits. Said this way, I do not think anyone would disagree. If you are interested, you should read “Davidsson, P., Steffens, P. & Fitzsimmons, J. 2008. Growing profitable or growing from profits: Putting the horse in front of the cart? Journal of Business Venturing” (pdf manuscript here) if you have the restricted access.

The reason why I was shocked is that my experience with high-tech start-ups is that profits come later than sooner as you need to develop a product that no customer would pay for its development. So first you lose money, usually through funding by investors. Then you grow and generate profits.

Indeed Davidsson is not saying the contrary: in his paper, he states that “For external investors, our results imply that high growth in a low-profitability situation is a warning signal rather than an unambiguous sign of positive development. However, we must caution that our results do not necessarily apply to the much more select group of high-potential firms that VCs invest in. First-mover-advantage (FMA) reasoning suggests radical innovators who create entirely new markets play under different rules to the average SMEs. This said, the lack of proof that size leads to eventual profitability is something that has concerned the very researchers who coined the FMA concept: (Lieberman and Montgomery, 1998:1122). Similarly, in the specific context of disruptive innovation, Christensen and Raynor (2003) have argued forcefully for patience for growth but impatience for profit, a notion directly in line with our ‘profits first’ arguments and findings for SMEs more generally. In combination with our results, this provides sound reason for external investors to put more emphasis on establishing profitability through VRIO resources within their portfolio of firms, and having more patience for the growth that can eventually realize the full value of opportunities developed and pursued by these firms.”

So you could think I feel better. Not at all! The paper “Much ado about nearly nothing” by Malin Brännback, Niklas Kiviluoto and Ralf Östermark, from Åbo Akademi University, Finland and Alan Carsrud, Ryerson University, Canada seems to indicate similar results in high-tech to what Davidsson is stating for SMEs. More specifically, another paper, “Growth and Profitability in Small Privately Held Biotech Firms: Preliminary Findings” by Carsrud and his colleagues states that “A high profitability-low growth biotech firm is more probably to make the transition to high profitability-high growth than a firm that starts off with low profitability and high growth.” Well maybe there is no contradiction between my views and theirs. It might be that start-ups are about outliers and probabilities then are, yes, very low to succeed from low profitability. I am still convinced high value creation comes from there and still, I doubt you can focus on profits first, on growth second in high-tech start-ups. It is however an interesting topic which if true, entrepreneurs, investors, policy makers and researchers should know better about!

Any reaction?

Gazelles and Gorillas – part 2

Following my post of April 19, Gazelles and Gorillas – high growth startups, I went back to the chapter 8 of my book where I compared the growth of the European and American gorillas. I had not computed then the 5-year and 10 year growth of these very successful companies. The following table gives the results of my work this morning. These are not gazelles (20% growth), there extremely fast gazelles!

Gorillas seem to grow at 100% rates or doubled their sales each year on average… Now growth is never an easy path (ask Steve Jobs about Apple growth!) so let me add much more details. Below, you will see the yearly growth of all these companies and you may notice there are sometimes a lot of ups and downs!

Gazelles and Gorillas – high growth startups

Since I have been interested in start-ups, i.e. 1997, I have always been puzzled about the macroeconomic impact of start-ups, i.e. fast growing companies, mostly in high-tech. The famous Intel, Apple, Microsoft, Cisco, Yahoo, and other Google have an impact, but what is it exactly for the economy?

Surprisingly, it is not that well-known. I have read in the past weeks some recent papers on the topic that you may download if you are interested. The Kauffman foundation which I have mentioned already is doing a great job and particularly Dane Strangler. He is the author of High-Growth Firms and the Future of the American Economy and of Exploring Firm Formation: Why is the Number of New Firms Constant? as well as Where Will The Jobs Come From?

Thanks to his reports, I became aware of older studies such as Gazelles as Job Creators – A Survey and Interpretation of the Evidence and High-Impact Firms: Gazelles Revisited both dated 2008. Finally the Brittish government has its own study, High growth firms in the UK: Lessons from an analysis of comparative UK performance.  This last report is interesting as it not only considers gazelles, the fast growing companies, but also gorillas, the young fast growing companies which reached a large size in less than 10 or 15 years.

The first answers were provided in 1981 by David Birch who showed that large firms were not the providers of job creation anymore. But even today, the answer to the question is not so clear. At least it took me longer than I would have thought to understand what all these reports claimed. So for example, here is a table of how small, mid-size and large firms create jobs in the USA. The numbers come with no real guaranty as I have compiled them from a number of sources, mostly the High-Impact Firms: Gazelles Revisited

So what does this mean? First high-impact firms contribute to most of the new job creation in the USA. What are high-impact firms? These are the firms which grow at a 20% annual rate (in jobs and sales*), the fast growing firms. As you may see, low-impact firms also create jobs but only if they are SMEs (small and mid-size). It explains why we think that fast-growing small firms are so important.

But it is an over-simplification. High-impact firms are not small and all these studies also show that:

– they are not young. On average, they are 25-years old.

– they are not necessarily high-tech, they can be found in all sectors of the economy.

– a minority is VC-backed. This is obvious as we have here about 300’000 gazelles and probably only a few thousand companies are VC-backed each year in the US.

More on gazelles here. Now, what about Gorillas? Gorillas are extremely fast growing and young companies. The UK report above defines them as less than 15 years old, with the same growth as gazelles. I remember that Geoffrey Moore defines them as leaders in their market. Well, not much is known about them. The UK report mentions there was no Gorilla in the UK whereas Yahoo, eBay, Amazon, Yahoo and Google were Gorillas in the USA.

Dane Strangler in his report is providing more interesting data. They are not the gorillas per se, but probably quite close:

– In any given year, the top-performing 1 percent of young firms generate roughly 40 percent of new job creation.
– Fast-growing young firms, comprising less than 1 percent of all companies, generate roughly 10 percent of new jobs in any given year.

Qiote impressive! Well, I still do not have all the answers I would like to have, but I now know gazelles are important, and gorillas maybe even more. And at the end, what is the impact of high-tech, of venture capital is just another but interesting story!

*: Growth in terms of jobs is more complex than 20%… experts use the Employment Growth Quantifier (EGQ), that is the product of the absolute and percent change in employment over a four-year period of time and take it as bigger than 2 for “high-impact”… A 20% increase in sales is also a factor 2 over the same period of time.