Creativity, Failure, Iteration • Brainstorm new ideas & approaches (crazy!) • Try many experiments (be *fearless*) • MOST OF THEM WILL FAIL • But, a few will succeed • Iteration will improve success rates • Critical Mass, Network effects help • “Dance Like No One Is Watching”
FAILURE IS NECESSARY. IT’S A PROCESS, NOT A PROBLEM
Failure = CRITICAL to Innovation • Failure not only tolerated, but ENCOURAGED • Success = Continued Iteration of Failure • Japan: Failure = Shame, Silence, Death • US/SV: Failure = Growth, Education, Shared • Celebrity Role Models for Failure • “Fall Down 7 Times, Get Up 8” = Fail Warrior!
Types of Innovation + Examples • Tech Innovation: Electricity, Semiconductors, The Internet • Product Innovation: Cars, Planes, The iPad • Process Innovation: Assembly Line, Kaizen, Lean Startup • Finance Innovation: Mortgages, Derivatives, Venture Capital • Cultural Innovation: Civil Rights, Entrepreneurship, K-Pop • Legal Innovation: Corporations, Class Action Lawsuits, Startup Visa • Ecosystem Innovation: Rome, London, NYC, Silicon Val ey
Silicon Valley Innovation Technology & The Internet Entrepreneurs & Failure Venture Capital & Incubators
Silicon Valley (R)Evolution • 40’s: Secret History of Silicon Valley (Steve Blank) • 50’s: Shockley / Semiconductors • 60’s: Fairchild / Traitorous Eight • 70’s/80’s: Intel, Apple, Microsoft • 90’s: Netscape, Yahoo, eBay, Amazon, Cisco • 00’s+: Google, PayPal, LinkedIn, Facebook, Twitter, YouTube, Pinterest… what’s next?
Changes in Startup & VC Ecosystem • LESS Capital required to build product, get to market – Low cost servers, software, bandwidth -- <$100K to build product – 20 years Internet infrastructure (Email, Web Services, Payments, etc) – Few big IPOs, LOTS of small acquisitions (<$100M) • MORE Customers via ONLINE platforms (100M+ users) – Search (Google) – Social (Facebook, Twitter, LinkedIn) – Mobile (Apple, Android) • LOTS of little bets: Accelerators, Startups, Smal Investment – Y Combinator, TechStars, 500 Startups – Funding + Co-working + Mentoring -> Design, Data, Distribution – “Little Bets” = quantitative, scalable, iterative investment
Platform Innovation Search, Social, Mobile
Platform Viability Successful Platforms have 3 Things: Fea F t ea ure ur s e 1) Features 2) Users 3) Money Growth Profit Nirvana . User e s r . Pr . ofitable Money Mone Growth
Angel* List: It Rocks. • Startups & Investors • Activity & Metrics • Platform & APIs • Customers & Corporates • *ps – not just for Angels, or USA
Little Bets + Lean Startup Kaizen for Tech Entrepreneurship
Big Data. Little Bets.
Entrepreneurship Innovation • The Lean Startup (Kaizen!) • Customer Development • “MVP” = Minimum Viable Product • Little Bets + Continuous Iteration • Internet Marketing & Distribution Platforms • Revenue-focused Businesses • Incubators & Accelerators • Angel List = http://Angel.co
The Lean Startup Customers, Metrics, Iteration.
The Lean Startup • Progress ≠ Features; Measure Conversion • Talk to Customers; Discover Problems • Focus on “Product/Market Fit” (good solution) • Fast, Frequent Iteration (+ Feedback Loop) • Keep it Simple & Actionable
MoneyBall 4 Startups http://slideshare.net/paulsingh/ moneyball-a-quantitative-approach-to-angel-investing-austin-tx-aug-2012 1. Make Lots Of Little Bets 2. Count Cards (Metrics) 3. Double Down on Winners
“Lots of Little Bets”* 1) Make lots of little 30% bets pre-traction, Capital early-stage startups 2) after 6-12 months, identify 70% top 20% performers and Capital double-down higher $$$ 3) conservative model assumes -5-10% large exits @20X ($50-100M+) -10-20% small exits @5X ($5-50M) 28 *See Peter Sims book: “Little Bets”
Bet on Singles, Not HomeRuns. (Look for Ichiros, Not Barry Bonds)
The Lean VC: Lots of Little Bets, Incremental Investment Method: Invest in lots of startups using incremental investment, iterative development. Start with many small experiments, filter out failures, and expand investment in successes… (Rinse & Repeat). • Incubator: $0-100K (“Build & Validate Product”) • Seed: $100K-$1M (“Test & Grow Marketing Channels””) • Venture: $1M-$10M (“Maximize Growth & Revenue”) • VC Evolution: Physician, Scale Thyself (Aug 2012) • MoneyBal for Startups, 500 Startups Investment Thesis (Jul 2010)
Investment Stage #1: Product Validation + Customer Usage • Structure – 1-3 founders – $25-$100K investment – Incubator environment: multiple peers, mentors/advisors • Test Functional Prototype / “Minimum Viable Product” (MVP): – Prototype->Alpha, ~3-6 months – Develop Minimal Critical Feature Set => Get to “It Works! Someone Uses It.” – Improve Design & Usability, Setup Conversion Metrics – Test Small-Scale Customer Adoption (10-1000 users) • Demonstrate Concept, Reduce Product Risk, Test Functional Use • Develop Metrics & Filter for Possible Future Investment
Investment Stage #2: Market Validation + Revenue Testing • Structure – 2-10 person team – $100K-$1M investment – Syndicate of Angel Investors / Small VC Funds • Improve Product, Expand Customers, Test Revenue: – Alpha->Beta, ~6-12 months – Scale Customer Adoption => “Many People Use It, & They Pay.” – Test Marketing Campaigns, Customer Acquisition Channels + Cost – Test Revenue Generation, Find Profitable Customer Segments • Prove Solution/Benefit, Assess Market Size • Test Channel Cost, Revenue Opportunity • Determine Org Structure, Key Hires
Investment Stage #3: Revenue Validation + Growth • Structure – 5-25 person team – $1M-$10M investment – Seed & Venture Investors • Make Money (or Go Big), Get to Sustainability: – Beta->Production, 12-24 months – Revenue / Growth => “We Can Make (a lot of) Money!” – Mktg Plan => Predictable Channels / Campaigns + Budget – Scalability & Infrastructure, Customer Service & Operations – Connect with Distribution Partners, Expand Growth • Prove/Expand Market, Operationalize Business • Future Milestones: Profitable/Sustainable, Exit Options
Startup Incubators Lots of Little Bets. Most FAIL. (but a few succeed :)
Incubator 2.0: Fast, Cheap, FAIL • Incubators = supportive startup ecosystem (+ angels, VCs) • Efficient use of investment capital ($0-100K) • High fail rate (60-80%) => large initial sample size
Incubator 2.0: Education, Collaboration, Iteration • Success based on: – MANY, small experiments – common platforms, customers, problems & solutions – physical proximity, open/collaborative environment – Domain-specific mentors & expertise – fast fail, iteration, metrics & feedback loop • Incremental investment; high-risk, but high-reward
Resources Accelerators Can Provide global networks, mentors and staff training and space portfolio companies conferences & events 37
Incubator Innovation • Vertically-Focused Incubators: – Facebook: fbFund – Nike: Sensors / Wearables – Rock Health: Digital Healthcare – Digital Media: Turner Media, NY Times • Investing & Partnering with Incubators – Startup Communities, Conferences, Events – Entrepreneurs, Hackers, Mentors – Hackathons, Contests, Demo Days
fbFund REV fbFund REV: Facebook “Social” Incubator: invest in startups, apps, websites based on Facebook platform & Facebook Connect. • 22 startups @ ~$35K each (< $1M total) • 3 month program: Technology, Design, Marketing, Business topics • Success: 8 startups raised $500K –> 5 Series A -> 3 Series B (+ 3 small exits) • Wildfire Interactive acquired by GOOG for $350M (>50X)
Regional Innovation Rome London Silicon Valley
Regional Innovation • Silicon Valley in 50s: The Secret History • NYC (after 2008 Financial Crisis) • Boulder, CO • Startup Chile • Singapore • … • Osaka?
Government & Legal Innovation Break DOWN Legal Barriers! Break THRU Bureacracy! Open UP Immigration! Breakthrough Innovation!
Govt / Legal Innovation • Government Incentives for Innovation • Immigration Incentives • Personal Bankruptcy / Public Guarantors? • Startup Visa for Japan? • Tax & Research Credits • Ecosystems & Infrastructure