Category — Entrepreneurship

Steve Blank – Defining the Scalable Startup:

A “scalable startup” takes an innovative idea and searches for a scalable and repeatable business model that will turn it into a high growth, profitable company. Not just big but huge. It does that by entering a large market and taking share away from incumbents or by creating a new market and growing it rapidly.

Saturday’s Kiva Dev Garage was a huge success with a great turnout and real progress on both some existing and entirely new projects. We had people working on iPhone and Facebook Apps, a Kiva loan browser, and lots of other cool things. My team worked on a Wordpress Widget that is both really easy to install and hopefully really compelling and will lead to more people lending to Kiva Entrepreneurs. Check out this great video from the event:

I’ve been reading a LOT about how to increase learning speed in startups and how to shorten feedback cycles to quickly see what is working and what isn’t and to then iterate on that. Because of this I found the following bit about decision/feedback loops in the military from Free Range International extremely interesting:

“According to Boyd, decision-making occurs in a recurring cycle of observe-orient-decide-act. An entity (whether an individual or an organization) that can process this cycle quickly, observing and reacting to unfolding events more rapidly than an opponent, can thereby “get inside” the opponent’s decision cycle and gain the advantage. Frans Osinga argues that Boyd’s own views on the OODA loop are much deeper, richer, and more comprehensive than the common interpretation of the ‘rapid OODA loop’ idea”

That rapid feedback loops are important in many areas makes perfect sense but I really liked how if you replace “opponent” in the paragraph above with “customer” you get a basic version of rapid learning for startups – except that you’re trying to make something they want instead of killing them. There’s a lot of other processes and approaches startups can learn from other fields.

I was just reading an interview Online Marketing/Metrics rockstar Dan Martell did with a Canadian business blog and wanted to share his great thoughts on the importance of celebrating your success.

We do not celebrate our successes enough. When your moving quickly to create something big and meaningful, you sometimes forget to celebrate along the way. I am constantly looking at ways to reinforce the good work done by our employees. For example, if a customer has said something positive about the company, I take it back to the employees. I explain to them how their work furthered the company strategy. If an employee or team was singled out, then I make sure I talk to them and again relate it back to our strategic goals. Talking about current successes and relating it back to strategic goals is a great way to reinforce the belief in the company’s vision. People need to be constantly reminded that their work contributes to the company achieving its strategic vision.

This might same like stuff from the first lecture of Obvious 101 but when you’re in the middle of a startup and you have 50 things to do every day and more coming in every day you often forget to take a step back and really think about what you’ve accomplished. Additionally, the type of people that startups often attract are so focused on their work and just doing a great job that they don’t realize the importance of what they’ve just accomplished. At Apture we bought Champagne for celebrating our “official launch” (the one with lots of press) in June 2008 and it’s still sitting in the office unopened because we spent that entire day fixing bugs and revving the product and the same happened with every other release we do.

Dan is exactly right in pointing out how important rallying around a success is for your team spirit (and your own) and taking the time to celebrate is (almost) as important as releasing awesome products that people love. Oh, and Dan thanks for taking us all out to lunch this week, I think we came up with some great ideas!

Richard Florida has a phenomenal article on how the current crisis will shape the geography of American cities. Recent growth has focused around growth in increasingly suburban cities clusters and the feedback loop that this created and about how the kind of sustainable economic growth that we want for the future will be about communicating and spreading ideas. But first things first, let us look at a typical housing boom city:

As prices rose, more people moved in, seeking inexpensive lifestyles and the opportunity to get in on the real-estate market where it was rising, but still affordable. [...] Cities grew, tax coffers filled, spending continued, more people arrived. Yet the boom itself neither followed nor resulted in the development of sustainable, scalable, highly productive industries or services. It was fueled and funded by housing, and housing was its primary product. Whole cities and metro regions became giant Ponzi schemes.

The big increase in suburbanization was a product of the World War II era, young men returning from the war, starting families, buying houses in cheaper areas, stores opening to sell to this new market, factories also moving to make use of the cheaper space and plentiful labor, creating jobs, attracting more workers, … This is where it gets interesting:

While I personally find the complexities of the financial system fascinating it is important to remember (especially with lots of people currently questioning it’s usefulness) what the purpose of the financial system is. Brad DeLong (who uses Apture on his blog) sums up an old Robert Shiller paper on the purpose of financial systems and the problems, distortions, and inefficiencies they face:

Financial markets are supposed to tell the real economy the value of providing for the future–of taking resources today and using them nor just for consumption or current enjoyment but in building up technologies, factories, buildings, and companies that will produce value for the future. And Shiller has more than anyone else argued economists into admitting that financial markets do a really lousy job. The prices that financial markets feed the real economy value safety too much, are also much too frightened of risk, on average are too low–that is, greatly undervalue the worth of providing for the future, and are also grossly excessively volatile. Depending on the date, the same flow of rationally-expected future profits and values can vary in its price by a factor of three depending on what Akerlof and Shiller call “animal spirits”

Both group think and excess volatility are topics that everyone is very aware of right now but I few people would cite excessive risk aversion as a problem after the subprime mortage debacle. I do, however, agree that when it comes to investing in the future investors are very risk averse, at least when it comes to industries that they don’t fully understand. The problem was not that people knew that subprime mortgages were extremely risky but took the risk anyway, they understood subprime loans quite well but made the (fatal) assumption that house prices would continue to rise forever.

When it comes to the kind of risks that innovative startups face (“is this technically possible?”, “will people really find it valuable?”, “can we figure out how to monetize it?”) I do believe that most investors, even most (not all!) venture capitalists tend to be too risk averse. Paul Graham recently wrote an excellent essay on the topic and I believe that creating the next generation of successful companies will require investment in big and bold ideas – even if some of them (especially in biotech) will take significant time until they make money. The eventual payoffs will be worth it.