Compass

The Startup Ecosystem Report 2012 is Live!

2012-11-21T21:08:00Z

Today we released the Startup Ecosystem Report 2012.

The report contains the first data-driven Ranking of the World's Top 20 Startup Ecosystems and a deep dive into the each of the individual Startup Ecosystems.

Check out the initial coverage here on TechCrunch: http://techcrunch.com/2012/11/20/startup-genome-ranks-the-worlds-top-startup-ecosystems-silicon-valley-tel-aviv-l-a-lead-the-way/

And please help us spread the word on Facebook and Twitter by sharing this message:

"The Startup Genome Ranks The World’s Top Startup Ecosystems: Silicon Valley, Tel Aviv & L.A. Lead The Way tcrn.ch/10kSHCc "

You can download part 1 of the report here:

http://blog.startupcompass.co/pages/entrepreneurship-ecosystem-report

We would love to hear your feedback and thoughts once you've looked at report.

The Danger of Celebritizing Entrepreneurship

2012-10-05T09:06:00Z

There's no doubt technology entrepreneurship is becoming its own kind of celebrity. Here is a quick rundown of its appearances on the national stage:

The story of the founding of Facebook receiving a feature-length Hollywood portrayal in The Social Network; Hollywood celebrities like Ashton Kutcher, Justin Timberlake, MC Hammer, Lady Gaga and Justin Bieber investing in technology startups and making their presence known in Silicon Valley; the rise of initiatives like the White House-endorsed Startup America Partnership, due to the starring role technology startups in job growth; Bloomberg creating an American Idol-esque TV showbased on the the New York City session of TechStars; Bravo creating a full-blown reality TV showcalled "Silicon Valley"; and a surge of new technology companies offering their stocks on the public markets, from Facebook to Zynga, Groupon, Pandora and LinkedIn.

As a result of all the attention, we have a phenomenon TechCrunch has dubbed "The New Silicon Valley Douchebag." Everyone and their mother is now an angel investor, and it is safe to say the celebritization of entrepreneurship is only going to get stronger.

We need to start the conversation now about how to handle this double-edged sword, so that the soul of Silicon Valley doesn't get vaporized from the heat of the limelight.

Why is it a double-edged sword? On one hand, celebritization will attract a huge new wave of talent from around globe to Silicon Valley and inspire many impressionable young people to aspire to become an entrepreneur rather than a Wall Street banker or a Hollywood actress. This undoubtedly is a very good thing. The Silicon Valley ethos is a lot more empowering than the narratives most young people are being told around the world. A few months ago, we had a group of Danish Entrepreneurs over at our startup house who told us that when young people in Denmark talk about changing the world, most people tell them, "Who are you to try to change the world? Sit down. Go to school. Get a job. Learn your place."

I hope we abolish that narrative completely. But let's not swing the pendulum too far in the other direction and spread the delusion that starting a company is something anyone can do to get rich and famous quickly. Eric Ries has recently become fond of saying, "Entrepreneurship is not cool, it's not sexy and it's totally uncomfortable. It's boring and grueling, and that part is never part of the movie." And I don't expect it to be part of the Bravo Reality TV show either.

The celebritization effect has caused a meteoric rise in the type of person we are calling the "Starstruck Entrepreneur." This rise is actually dangerous to the health of the startup ecosystem. A few months ago, College Humor released this brilliant caricature of the Starstruck Entrepreneur that sadly hit a little too close to home.

These creatures seem to come in two types. The first type is an "idea guy" who saunters over from Hollywood ready to wow with you a next-generation social media analytics platform. Or maybe he's a self-proclaimed "business model and monetization expert" fresh off the MBA assembly line. This t

ype has an annoyingly loud mouth, but is relatively harmless.

The second type of Starstruck Entrepreneur is far more dangerous. This type includes engineers and designers who have a lot of talent for building technology products, but, because they've been infected by celebritization hype, limit their ambitions to being able to say, "Hi, I'm the Founder and CEO of Self-Aggrandizing Apps." So instead of applying their talents to a company that is actually poised to solve an important problem and become a transformational company, they build another vapid iPhone app that nobody wants. As a result, many potentially transformational startups are inflicted with dysfunctional teams as a result of the depleted hiring pool.

We need to quarantine the Starstruck Virus before it leads to an epidemic facepalms — or worse. The reason the Starstuck Virus is so deadly is that it ends up severely circumscribing both the economic potential and societal impact of entrepreneurship by suffocating the early-stage startup ecosystem with increased noise, increased distractions, corrupted motivations and misapplied of talent.

Fortunately both strains of the Starstruck Virus have a similar remedy. I advocate the dual pronged approach of sociological and methodological (note that the Starstruck Entrepreneur falls short on both economic impact and long-term societal impact):

One potent approach to eradicating the Starstruck Virus is to ignore the infected person. This deprives the Starstruck Narcissistic Personality Disorder of its lifeblood: your attention.

In more severe cases it may be appropriate to use a more vigorous approach: Take a page out of the book of paranoid conspiracists and fight back through the four-step approach of Identify, Vilify, Nullify, Destroy. When a Starstruck entrepreneur tells you their idea, don't smile and nod or (heaven forbid!) tell them their idea is awesome. Tell them their idea is crap. Or, if that is a bit harsh, at least ask them if it's really the most important thing they could be working on, and whether they'd like to sell sugar water the rest of their lives — or change the world.

Methodologically speaking, both investors and entrepreneurs need to get better at recognizing where companies are in the startup lifecycle and let results speaks for themselves. (The Startup Genome calls the developmental stages of the Startup Lifecycle Discovery, Validation, Efficiency and Scale.) By standardizing the necessity of going through the discovery and validation phase it will be clear in a few months that nobody wants another mediocre to-do list app, and investors can invest appropriate amounts so that these entrepreneurs don’t have the rope to hide in stealth and hang themselves.This approach is practical and avoids unrealistic authoritarianism, like implying people shouldn't have the right to start a company. This does not tell Starstruck Entrepreneurs they can't pursue their flights of fancy; it simply lets gravity quickly pull them and their Hollywood halos back to reality, and towards work that actually matters. This cleans out the junk in the startup ecosystem — an ecosystem that powers tomorrow's economic future.

The technology entrepreneurship world is rightfully attracting a lot of press, attention, and money as one of the world's best avenues towards continued economic prosperity, but it must learn to bestow adulation only on the people creating truly transformational companies — otherwise, the Starstruck virus will fester.

As the power of entrepreneurs increases, we would love see the community strive to remember why we do this. It's not about the fame, glory or money. It's about building products that transform the world and drive the humanity forward.

For previous posts in the Transformational Entrepreneurship series, see:
1. Transformational Entrepreneurship: Where Technology Meets Societal Impact (Post 1)
2. Reversing the Decline in Big Ideas (Post 2)

Reversing the Decline in Transformational Ideas

2012-07-18T21:55:00Z

This is post 2 of the Transformational Entrepreneurship series (original on HBR). Post 1 defines Transformational Entrepreneurship and the matrix of socioeconomic value creation used in this post. Post 1 can be found here.

Many venture capitalists are up in the arms because their returns are down, their funds are drying up, and there appear to be a declining number of entrepreneurs pursuing big ideas.

They’ve turned to blaming angel investors for encouraging “an entire generation of entrepreneurs [to build] dipshit companies and hoping that they sell to Google for $25 million”. They say, “this ‘think small’ attitude is driving entrepreneurs who may otherwise build the next Google or Microsoft to create something much less interesting instead.” And this has implications for the whole ecosystem because, “then everyone loses. No IPO. No 20,000 tech jobs. No new buyer out there for the startups that don’t quite make it.”

Unfortunately Venture Capitalists have mixed up their causality. Angel Investors are not the reason more entrepreneurs are thinking small. More entrepreneurs are thinking small, because the costs to starting a company have fallen so dramatically that there is now a whole new class of entrepreneurs creating companies. The founders starting “dipshit companies” are not the same types of founders who would be starting the next billion dollar companies. These founders don’t want to change to world. They just want to make enough money to provide for their family, buy a car, or earn their freedom. These people are the information economy’s Mom & Pop business owners, just more technologically leveraged and profitable than their brick & mortar predecessors. Instead of starting restaurants and hairdressers they build coupon apps that are used by thousands of restaurants and hairdressers.

This is not a bad thing for the startup ecosystem or the economy. Quite the contrary. It means instead of only having companies at the fat head, there are tens of thousands of smaller companies fulfilling demand for the millions of “X for Y” niches along the long tail. And sometimes they may even find the niche was much bigger than they thought. Ever thought air mattresses in living rooms would grow into a billion dollar company that would take on the vacation rental market and the hotel industry? I know many smart investors didn’t.

The only negative effect this rise of the long tail should have on Venture Capitalists, is that they need to get better at filtering the increased noise in the system. At present, the startup ecosystem’s inability to differentiate Mom & Pop tech entrepreneurs from High Growth Entrepreneurs ready to build the next Billion Dollar Company, wastes a lot of people’s time and energy.

Who Is To Blame For The Lack of Big Ideas?

While the VCs are wrong to blame the Angel Investors for fewer big ideas, and while falling startup costs have enabled many more small thinkers to become entrepreneurs, I don’t think VCs are off the mark in their perception that there is a smaller absolute number of entrepreneurs with big ideas. But I think the cause is a far subtler point. I believe the decrease in big ideas for software companies is the result of homogeneous founding teams in the Valley.

Billion dollar companies do not happen if the founding team is not extremely well suited to the market (now called “Founder Market Fit”). In the past, the magic formula was two engineers or an engineer and a businessman. Most of the big successes followed this pattern. Hewlett and Packard, Jobs and Wozniak, Gates and Allen, Ellison and Miner, Larry and Sergey, Thiel and Levchin, the list goes on.

The innovations that made these companies worth billions of dollar could be classified as computer hardware and software infrastructure. They made calculators, personal computers, databases, search engines and payment processors. The formula worked. Combine a lone technical genius with a mesmerizing sales guy and you had the DNA for a billion dollar technology company.

But times change. These cutting edge applications became today’s infrastructure, and enabled a new wave of billion dollar companies. In the last 7 years it became clear that a technical genius and a mesmerizing sales guy weren’t enough. A new competency started to appear in the DNA of this generations successful founding teams: Design. Design is everywhere. Design thinking. Design Conferences. Designer Funds. Design Celebrities. It’s all there. And if you need a few successful companies who consider design a key competitive differentiator you don’t have to look hard: Mint, Square, Quora, Asana and Path, just to name a few. Design at its best is more than just a beautiful interface, it synthesizes complex technology with a deep understanding of end users’ motivations and abilities into a unified, intuitive product experience.

Why has the era of the designer only arrived now?

The Internet and Technology more broadly, progress very developmentally. Infrastructure is built on top infrastructure, which opens up new possibilities that weren’t possible before. For designers to be appreciated, they needed a web that was fast and robust enough to handle pretty AJAX magic shows. They also needed billions of consumers to get online who would happily through down money for a beautiful, intuitive user interface. No longer were technology companies main customers old, white executive managers who got their jollies off on the largest feature set at the cheapest price.

But now I believe the designer led team is on the verge of irrelevancy, too. The Internet has the necessary infrastructure and achieved the global ubiquity to be able to reimagine and disrupt nearly every industry in the world. But Silicon Valley seems to think that all that is required for disruption are a few “Rockstar Engineers” and “Superstar Designers”. This team type used to be able to lock themselves in a room, come up with a big idea and start executing on it. Now, if you throw 2 engineers and a designer together and tell them to come up with a new startup idea, you’ve got better than 50% odds they will come up with another mobile local social photo sharing app. This team competency was exactly what the doctor ordered when the next evolutionary step of the digital world was just creating software that was actually intuitive to ordinary consumers. But now these teams seem to continually run into a creative roadblock.

What gives? Have all the innovative ideas already been done?

The problem is that creativity works by taking what we know and applying it to something new; and what engineers understand is new enabling technology trends like cloud, mobile, social and big data. This worked great when the problems teams were trying to solve were fundamentally technology problems. But now much of the transformational potential of the “pure information technology” possibility space has been exhausted to the point of terminal differentiation. The new frontier for software is applying our highly developed, easily deployable technology stack to a whole new range of industries, where the problems can’t be properly solved just by firing up a text editor and initializing a LAMP stack. The only way out of this innovation gridlock is an expansion in founding team diversity. I believe the missing piece from the DNA in the founding teams of Transformational Companies is now the Domain Expert, who has deep insight into the industry they are trying to disrupt. Without a domain expert attempts at disruption are unimaginative and incremental at best.

There are so many industries ripe for technology startups to disrupt: Education, Health Care, Business, Art and Government just to name a few. But where are the domain experts ready to be paired with a team of rockstar engineers and superstar designers? Most of them appear to be wandering around attempting to spread their ideas through books, speaking engagements, university lectures and consulting gigs, unaware of the possibility now available to them to integrate their ideas into software applications. An approach that has a dramatically better chance at changing behavior and influencing society.

One of the impetuses for this insight was when I was struggling to come up with a good title for my role on the Startup Genome team. My primary function on the team is to build models and prescriptive frameworks that describe the innovation process and how businesses evolve. What was my title? I realized that part of the reason for the lack of good language was that traditionally the type of work I was doing would be packaged as an academic paper or book. Only recently have the enabling factors arrived to let me build this knowledge into a scalable software product, that can be used by millions of businesses to improve their decision making on a daily basis.

Now I look around and see lost opportunities for collaboration everywhere. The world is full of brilliant domain experts and full of people great at building software, but they rarely speak to each other, much less work together. I see people building personal finance software who have never heard of Ramit Sethi’s extremely effective 6 week personal finance program described in his New York Times best selling book. I see people building weight loss apps who have never heard of BJ Fogg’s Behavior Change Model or his Persuasive Technology Lab at Stanford. I see people who want to build software that supports personal growth and spiritual enrichment but have never heard of Integral Life Practice. I see people building productivity apps who have never heard of GTD, or more importantly Energy Management. Product teams seem to believe that all that’s needed for innovative disruption is to add soup du jour technology features such friending, following and sharing. This implicitly imbues primitive, uninspired theory into the design of products. The world is full of great research and theory, it’s time we transplant these ideas from lifeless parchment and their resident isolated ivory towers and “electrify” this knowledge, integrating it into the software tools that power society.

The number of teams working on transformational ideas in Silicon Valley seems to be declining and homogeneity of founding teams is one of biggest reasons why. We started with the dynamic duo of the businessman and the engineer. Recently we added the designer. Now if want to continue to create products that scale into billion dollar companies, create thousands of jobs and transform society, we need to add Domain Experts to the founding DNA of Technology Companies.

*The ideas discussed here are of course not the only the reasons for a decline in big transformational ideas. There is an important argument to be made that there is a decline in breakthrough science and technology due the risk aversion of the scientific establishment and lack of long term thinking. Two good articles include The Innovation Starvation and In Search of Black Swans.

The Startup Genome Is Taking On Data Driven Investment With The Investor Compass

2012-05-24T17:30:00Z

Over the last year the Startup Genome has produced frameworks, reports and tools to enable startups to make better decisions and be more successful. Our goal has been to take much of the entrepreneurial wisdom amassed in Silicon Valley and put more structure, science and data behind it, enabling us to better separate myth from fact and share the learnings with the rest of the world. Entrepreneurship will never become a “paint by numbers” activity, as there is simply too much uncertainty and the world changes too fast. But by providing entrepreneurs with frameworks like the stages of the Startup Lifecycle, failure patterns like premature scaling and benchmarking tools like the Startup Compass we can improve the intuition of entrepreneurs and their ability to make sense of incoming information about their business.

Startups, however, do not succeed alone. It takes a village to raise a child and it takes an ecosystem to create a startup. But just like entrepreneurs, startup ecosystem players like investors, advisors and service providers have relied mostly on gut-level pattern recognition when evaluating and working with startups. And they regularly go through the time consuming process of asking entrepreneurs hundreds of questions in hopes of finding a few signals in the noise to guide their decisions.

We believe many parts of the interaction between startups and investors can be streamlined to enable these ecosystem players to work more efficiently with startups. Today, to solve some of these problems we are releasing a new Startup Genome tool into private beta: the Investor Compass.

The Investor Compass allows investors, advisors and service providers to track the progress of all the companies they work with on a single dashboard. Since all of these companies have added hundreds of key data points via the Startup Compass we can run a number of automated analyses including color coded benchmarks for every startup’s KPIs, a risk assessment for premature scaling and dozens of red flag due diligence tests, that would ordinarily take hours conversation and manual labor. This augmented view of a portfolio’s performance enables investors and advisors to quickly see who is doing well and who isn’t, and then decide what actions they need to take.

In our last post we shared findings on the explosion of startup ecosystems around the world. This has been followed by commensurate growth in individuals becoming angel investors. Last year angel investors invested in more than 30,000 startups. With the passing of the JOBS act and the imminent rise of the equity crowdfunding market, we can only expect another boom in the number of startups and angel investors. The scale on the horizon of early stage investing makes the current investment evaluation tools of intuition and social proof unsustainable for rookie and veteran investors alike.

A much larger ecosystem will mean nodes of social proof will be overflooded and investors will have difficulty sorting through the noise causing many good startups to fall through the cracks.
Increased startup capital efficiency amplifies this problem by enlarging the investment funnel, with a fixed amount of capital needing to be allocated across many more startups. Additionally many of these new startup investors don’t have very good intuition about what a good startup looks like. Benchmarks of the right metrics and automated due diligence tests can allow inexperienced investors to approximate the intuition of of more experienced investors, and can save precious time for the more experienced. A data driven approach looks to be a piece of the puzzle to handling increasing deal volume and establish scalable standards.

One distinguishing characteristic of data applications is they get more useful the more they are used. The Investor Compass relies on benchmarks from the Startup Compass, and since we launched it a few months ago data the product has been used by over 17,000 businesses. We believe this shift to a quantitative alternative with the Investor Compass is a major step towards opening up the data driven business frontier.

Considering this frontier is fast approaching we should put into perspective some of the limits of data tools, especially when applied to the innovation space. First of all, since startups evolve along developmental stages where the fight for a startup is mostly against itself, then predicting success in the early stages is not a goal worth aiming for. Each stage presents its own new set of challenges, and success in one stage rarely makes a company any more likely to succeed in the next. For instance, just because a product has strong uptake with early adopters, doesn’t mean they are going to be able to successfully scale the company from a marketing or organizational perspective. Rather what is feasible is predicting the probability of reaching the next stage. A large part of that is avoiding stepping on the many landmines and pitfalls that many companies who have tracked similar territory have fallen prey to. It is these patterns that startups can uncover by finding poor performing benchmarks in the Startup Compass and that we’ve begun to index in the Investor Compass with more than automatic 50 due diligence tests. In this sense, it could be argued that, success, at least in part, exists in the negative space of failure. In response, many have rebutted that breakthrough companies are defined by the rules of convention they brake. Yet, if companies are breaking rules, they shouldn’t be doing so unwittingly, and that is what we can help them recognize. Furthermore, innovation does not come from entirely throwing out the proverbial rulebook of convention. Rather, innovative companies bet their success on flipping a few key assumptions on their head, and keep the much of the rest fairly standard.

At the same time we should not underestimate the power of data to enable new novel applications. Every new industry that data flows into it seems to disrupt. The game of baseball changed when Billy Beane brought in the quants. Wall Street is now run primarily by high frequency trading algorithms designed by quants. Why hasn’t data disrupted the startup world yet?

1) We haven’t been measuring the right metrics.

Most attempts to quantitatively analyze startups have failed because people have tried to apply the same financial models to startups that are traditionally used for large publicly traded companies. But startups are not small versions of large companies. This is the dollhouse fallacy at work. Revenue growth doesn’t count as progress for startups. The Startup Genome describes progress for a startup as evolving through 7 developmental stages on the path to becoming a large company: Discovery, Validation, Efficiency, Scale, Sustain, Conversation, Decline. In the the first 4 stages of a startup’s lifecycle, the metrics that are most relevant for measuring progress are the ones that describe how customers interact with the product. Only after the scale stage has a businesses stabilized enough for financial models to behave properly.

2) It’s been difficult to access, aggregate and analyze the right metrics.

Currently the Startup Genome Compass gets this customer interaction data through a survey, but we don’t plan to for much longer. A big wave has been brewing that is now beginning to crest.

Today, nearly every single software application a startup uses lives in the cloud. Soon all of this data will be easily accessible through APIs. This is a trend the Startup Genome will be doubling down on. Over the next year we will build APIs that will allow startups to automatically share data with us from Google Analytics, Salesforce, Quickbooks and many other applications. In return we will offer companies ever more precise insights for how they can run their company better and be more successful. Once this data stream is unlocked a new world of data driven business will soon be upon us. To hit these product milestones the Startup Genome is now raising a seed round on angel list.

If you work with startups as an investor, advisor or service provider you can sign up for the private beta of the Investor Compass here. And if you are entrepreneur you can invite your stakeholders to stay up to date on your progress here.

Let us know how you use it and how you would like to see it evolve. We look forward to exploring this possibility space with you.

Transformational Entrepreneurship: Where Technology Meets Societal Impact

2012-04-23T16:45:00Z

The concept of transformational entrepreneurship describes one of the guiding philosophies of the Startup Genome

The last five years the global economy has been rife with turmoil. Discussion of bankruptcy, bailouts and unemployment have dominated the headlines. On the surface many of our problems stem from giving the financial sector de facto leadership over the global economy, and enabling them to exploit the system to the brink of societal collapse. On the backs of sacrificial taxpayers the economy appears to be regaining stability, but the rumblings aren’t likely to go away for we are at the crossroads of a momentous transition into the information age. To successfully make this transition, much of the socioeconomic fabric of society needs to be reinvented. But most of the world seems lost when searching for the source of reinvention. Industrial manufacturing has long passed its golden age, armies of creative freelancers are too fleeting to create enduring structural change and returning the reins to the financial sector would again tempt economic disaster. The lack of a viable plan isn’t particularly surprising because the people, process and movement that can lead this societal transition have not yet coalesced.

There are early signs however, that the two movements of Technology Entrepreneurship and Social Entrepreneurship are beginning to converge into a promising solution. An increasing number of entrepreneurs are awakening to the possibility of combining the scalable tools and methodology of Technology Entrepreneurship with the world-centric value system of Social Entrepreneurship. Together they create a new type of entrepreneurship that could become our primary source of socioeconomic value creation. What do we call this movement? We propose we call it "Transformational Entrepreneurship."

The major socioeconomic transition we’re going through needn’t be as tumultuous as its been, but for the last few decades the financial sector has led the economy at breakneck pace into a doomed direction. Economies are based on long-term value creation, but somewhere along way short-term value extractors from the financial sector forced their way atop the economic pantheon. Its supremacy is cancerous for one simple reason: financial products cannot fundamentally create new value, they can only optimize other means of economic value creation.

Financial products are not inherently bad. Their intended purpose is to allocate capital where value can be created to maximize its potential output. But the financial sector was not satisfied in its incredibly lucrative role of financial optimizer. When the sector reached the upper limits of the growth it could create through optimization, insatiable greed propelled the sector to commit some of the most egregious feats of corruption and extortion the world has ever seen.

Exactly how the global economy collapsed is complicated, but the cause is no mystery: exploitative financial institutions on Wall Street. Enough incredibly intelligent young men and women in Generation X lived up to their idol’s famous words that “Greed is good.” Many people in the financial sector seem to behave as if they are playing a game of monopoly, where the securities they trade are not connected to the real world, and other people are merely pawns to be manipulated in pursuit of victory. This disconnect from reality via submission to the ludic fallacy not only creates erroneous models that engender massive overconfidence, it leads to a megalomaniacal worldview devoid of moral principle.

Now all around the country, citizens who are mad as hell and not going to take it any more are storming the streets and camping out in public parks, demanding justice from the economic destroyers on Wall Street and the complicit federal government. But unfortunately reining in the bad guys won’t unleash an economic revival. And pushing naive campaigns like “putting America back to work” won’t solve the crisis either. Economies don’t grow by artificially creating new jobs via governmental legislation, they grow by creating new products and services that create value. Government needs to spend less time talking about job creation and more time working to create the necessary conditions for innovation. The jobs will follow. If a worker no longer has valuable skills, then they need to retrain. Receiving a handout only makes the problem worse.

Industries that were once lucrative are drying up, and jobs that were once stable are vanishing. But growth and prosperity are not disappearing, they are just shifting to new areas of the economy. Since the industrial revolution, the agricultural sector has fed increasingly larger populations with smaller percentages of the workforce. The manufacturing sector went through a similar transition as machinery replaced most manual labor. Now the service sector is poised to do the same as software automates the repetitive intellectual tasks of accountants, clerks, stockbrokers, even doctors and lawyers. When sectors shrink because of the increased efficiency of automation, fear of economic depression is not the right response, for new frontiers of growth are often on the horizon.

Over the last few decades nearly all the economic growth and job growth in the U.S. has come from high-growth technology companies. That growth is driven by companies like Amazon, Google, Salesforce, and VMware (which didn’t even exist 15 years ago), and companies like Facebook, Twitter, Groupon and Zynga (which didn’t even exist 10 years ago). Then of course there’s Apple, which brought itself back from the grave in the beginning of this decade and is now the world's most valuable public company. Collectively these companies have created almost a trillion dollars in new wealth over the last decade and a half.

All of these companies were created by high growth technology entrepreneurs. As the world has finally started to take notice, the inner workings of entrepreneurship ecosystems like Silicon Valley have been raised to mythical proportions. Over the last 40 years Silicon Valley has evolved a complex ecosystem geared specifically toward the development of high-growth, billion-dollar technology companies. The output is awe inspiring, but the company-creation process is not magic, though neither is it well understood. More than 90% of startups fail, primarily because of self-destruction rather than competition. We at the Startup Genome Project are committed to turning the murky art of innovation into a repeatable science that can be spread to the rest of the world. To date we’ve released two critically acclaimed research reports on the factors that determine startup success and their primary cause of failure, and put our research into a software tool that is now a digital mentor for more than 13,000 startups. Human history is littered with arts that caved into science, and the startup creation process will not remain standing.

Silicon Valley now sits at the pinnacle of this socioeconomic transition, endowed with the potential to establish itself as the new center of the world economy and reignite the flame of inexorable progress. Yet in its current incarnation, it is unfit to do so. Silicon Valley has mastered the art of building high-growth technology companies but iit hasn’t yet developed the moral compass to figure out what companies are worth building. There are simply too many talented entrepreneurs today building meaningless ventures. From advertising products that get people to buy things they don’t need, to social games that are designed to addict people to wasting their time, to “mobile-local-social” products that attempt to leverage the latest technological trends without giving much thought to the importance of the problem being solved. Furthermore, the unquenchable thirst for growth that fuels much of the wealth creation must be carefully watched, for it could easily turn malignant and lead technology entrepreneurs to commit the same kind of economic atrocities as the financial sector.

Silicon Valley is like an immature superhero who has just discovered its superpowers, but are using them largely for self-interested aims. Silicon Valley needs to recognize, in the wise words of Spiderman’s Uncle Ben that “these are the years a man changes into the man he is going to become for the rest of his life” and “with great power comes great responsibility.“

The emergence of “Social Entrepreneurship” attempts to fill this moral void by refocusing energy and resources on important social problems. While Social Entrepreneurship is promising, its impact has been limited to date as its solutions are rarely devised with scalability and true economic sustainability in mind. Furthermore, while the Social Entrepreneurship community is full of bright-eyed young people intent on changing the world, many of their solutions fail to take into account the complexities of the problems they are attempting to solve, which can lead to doing more harm than good. This backfiring is far too common because the community’s propensity to descend into self-congratulation, starves the founders of the critical feedback required for them to find the holes in their vision. The standards must be set higher than good intentions.

To successfully make the transition to the new socioeconomic era of the information age, we need to learn to focus the enormous power and efficiency of capitalism on the world’s most important problems. To do so will require figuring out how to unite the scalable tools of Technology Entrepreneurship with the moral ethos of Social Entrepreneurship. This is the essence of what we at the Startup Genome are calling Transformational Entrepreneurship.

Transformational Entrepreneurs earn their name by creating innovative solutions to the world's biggest problems that are scalable, sustainable and systematic.

A Deep Dive Into Transformational Entrepreneurship

To ground this idea, we created a matrix that positions Transformational Entrepreneurship, Technology Entrepreneurship and Social Entrepreneurship on the landscape of socioeconomic value creation.

This graph can be further divided into six categories: Exploitative Entrepreneurship, Small Business, Harmful Non Profits, Ineffective Non Profits, High Growth Entrepreneurship, Social Entrepreneurship, Transformational Non Profits and Transformational Entrepreneurship. In the following section we will discuss what factors determine where a business is placed.

The Y Axis: Economic Impact

The Y axis is relatively straightforward. We measure companies based on the economic value they create, using standard financial metrics like revenue, profit, market cap and ROI. The organizations that have the greatest impact have scalable business models that produce products and services millions of people are willing to pay for. We extend the graph in the negative direction to describe organizations that cannot sustainably support themselves like nonprofits and charities. Nonprofits that create a transformational societal impact like Wikipedia often go deeper into the negative direction of economic impact the bigger they get, because it takes more donation dollars to support their growth. There are scalable revenue generating models that some non profits can access but for the most part they have yet to be explored and developed.

The X Axis: Long Term Societal Impact

Where a business falls along the spectrum of long-term societal impact depends on what it is doing to solve one of the world's biggest problems. There is a subjective element to what one could consider a big problem, but a number of organizations, including The Copenhagen Consensus, Singularity University, The Millennium Project, The UN and The World Economic Forum have done a good job putting structure around the problem space.

The prescriptions from these organizations fall roughly into two categories. Third-world problems that consign billions to poverty and a low quality of life, and first-world problems that if solved could ignite new societal transformations and drive the continued progress of humanity. This is the sustainability / innovation dialectic and both perspectives are necessary for progress. Some people are more drawn to bringing the third world up to the prosperous living standards of the first world, establishing a healthy baseline for our emerging global village. Others want to push the edge of first-world society, extending the story of humanity farther into the realms of possibility.

The Copenhagen Consensus produced the most rigorously evaluated list of grand challenges. They began by convening many of the world's top economists who were tasked with finding the best ways of advancing global welfare in third-world countries. Their final list ranked solutions by their ability to cost effectively improve life in the developing world. It was ordered as follows:

1. Malnutrition & Hunger 2. Subsidies & Trade Barriers 3. Diseases 4. Education 5. Women Empowerment 6. Global Warming 7. Sanitation & Water 8. Conflicts & War 9. Air Pollution, and 10. Terrorism.

The frameworks for analyzing first-world problems were noticeably weaker. Perhaps this is evidence of the complacent malaise that has swept much of the first world. There seems to be a script running through the minds of many that the future has arrived. There are no major innovations on the horizon and society has reached the end of its evolution. #firstworldproblems are trivial ones like the waiter at the restaurant being too slow or being locked out of your house. All that's left to do is to give the developing world the same quality of life as the developed world. The fact that we refer to the first world with the past tense verb "developed" is further evidence of how embedded this story of stagnation has become in our cultural consciousness.

But this story couldn't be further from the truth. We are just at the cusp of a new societal era. Humanity doesn't see new eras very often, but when they come, every aspect of society yearns for reinvention: Government, Business, Finance, Education, Health, Energy, Technology, Art and Science all need upgrading. The Industrial Revolution was the last great societal transformation, and the scientific enlightenment that ensued gave rise to modernity. With two billion broadband internet users and billions of smartphones entering circulation, the necessary tools and infrastructure are now in place for the information age to burst into full bloom, moving beyond the confines of the technology industry to reinvent all aspects of society.

Defining X Axis of Long Term Societal Impact

Establishing the X axis of long-term societal impact is our call for entrepreneurs and business leaders to turn away from incremental improvements on the status quo and focus on solving problems that will transform the world.

Here are a few guiding principles for where to place a company along the x axis of long-term societal impact and then we will provide a number of examples.

Section 1: Negative Long Term Societal Impact [-5,0]
Persuade people to buy things they don't need or that harm them long term
Exploit people
Waste people's time
Make people or the world unhealthy
Give a false sense of satisfaction or accomplishment

Many companies make a profit while making some of the world's biggest problems worse. They do this by either providing convenient painkillers that hide the problem rather than treating it, or merely shift the problem somewhere else rather than solving it. Examples include McDonalds and Zynga, discussed in more detail in the next section.

Section 2: Marginal Long Term Positive Impact [0,5]
Treat symptoms
Incrementally improve relatively efficient areas
Make people feel better about themselves
Help people make a living
Niche focus

Most businesses fall in this section.

Section 3: Transformational Societal Impact [5,10]
Approach problems systematically, treating root causes
Teach men to fish rather than giving them fish
Focus on unlocking human potential
Create more value than they capture
Seek to empower people
Improve people's relationships, their ability to create and ability to learn
They nurture ecosystems and platforms

“We don’t build services to make money; we make money to build better services” - Mark Zuckerberg in Facebook’s IPO Filing letter.

Examples: Mapping Socioeconomic Value Creation

With the basics of the framework defined, here we put it to use to classify a number of markets, product types and companies on our map of socioeconomic value creation.

An appendix which contains examples for how a number of markets and companies were mapped to this matrix of socioeconomic value creation can be found here. Where a market or company falls is not set in stone, but is in fact a very important debate. This matrix is intended to provide structure for having the conversation about the value we, as a society, are creating and what opportunities we should be directing our attention and energy towards.

The Startup Genome As A Transformational Company
I would be remiss not to include a personal story describing the transformational philosophy guiding the direction of the Startup Genome, the company I founded last year with Bjoern Herrmann and Ertan Dogrultan. A few years ago when I was immersed in the futurist community, I learned about Moore's Law and the more expansive accelerating pace of technological change. The implications for the future of society were immense and I was struck with an impulse to find a way to contribute to the revolution on the horizon. My search process led me to conclude that one of the biggest leverage points for socioeconomic evolution would be to find a way to increase the success rate of startups. Startups are the primary carrier and distributor of technological innovation but 90% of them are failing, mostly due to self-destruction rather than competition. We set out to find a scalable solution to this problem and arrived at the Startup Genome. We conducted research with leading thinkers in the field on the primary causes of startup failure and released our findings to the world. This research formed the basis for intelligent technology tools that will enable businesses small and large to be more innovative and scale faster to success. We believe this can accelerate the pace of innovation all around the world, and together with a new generation of transformational entrepreneurs, unleash a socioeconomic revolution.

Conclusion

The opportunity to reinvent society is within our power, but the future doesn't invent itself. We must create a culture that encourages and empowers transformational entrepreneurs and celebrates little else. Anything less is selling short ourselves, our ancestors, and the future of the human race. That may feel like hyperbole, but the latent socioeconomic revolution that now lurches beneath the surface has only arisen four other times in human history. Revolutions are dangerous transition periods that can cause a societal slide into turmoil just as easily as a rise into transformation. It's up to transformational entrepreneurs to rise to the occasion of the present moment.

We encourage everyone to look within themselves and around their environment and seek out opportunities for transformational change. Ask the entrepreneurs you know how the company they are starting is transformational. Ask students and job seekers what transformational problem they want to solve. Ask everyone else what transformational ideas, projects and companies they are excited about. Get people talking, reading, writing, researching and creating in the spirit of transformation -- because it is our best hope for reviving socioeconomic progress.

Further Exploration: Transformational Thinkers And Entrepreneurs

The Founders Fund Manifesto
Long Shots, Vinod Khosla
Why Software is Eating the World, Marc Andressen
Innovation: Crucial to Our Future, Judy Estrin
What's Better: Saving the World or Building Another Facebook App?, Vivek Whadwa
Do Great Things, Justin Rosenstein
The End of the Future, Peter Thiel
The Failed Promise of Innovation in the U.S, Michael Mandel

A special hat tip to Tyler Emerson for compiling this list and many great discussions over the last year on this subject. Tyler is the founder of Belong, an upcoming initiative that aims to facilitate, inform and honor the people investing in the long-term potential of humanity.

Startup Ecosystem Ranking Clarification

2012-04-20T17:39:00Z

Last week we put out a mini report on Startup Ecosystems, where our main focus was on the comparison of Silicon Valley, New York City and London. Along with this mini report we also put out a ranked list of startup ecosystems, but we noticed that many people interpreted this ranking to be based on much more than it was, so we want to clarify what it was based on.

The list we put on the top 25 startup ecosystems was simply ranked based on the “average throughput” or the total activity in the Startup Genome dataset. Given the Startup Genome has one of the largest datasets on entrepreneurial activity worldwide, with over 16,500 startups in total, we thought analyzing the data by location could create more transparency for the many entrepreneurial ecosystems emerging worldwide.

However to be clear, this list should not, and wasn’t intended to be used to determine which ecosystem is best. Activity is simply one factor to determine the quality of an ecosystem. Additionally, although our dataset is large, it is not completely random, as there is some selection bias based on language, where we received the most press, and our focus on Internet startups.
Some have also noted, the places where our dataset doesn’t correlate with datasets that measure the size and quantity of VC deals in various geographic regions. It seems a large part of this discrepancy comes from the fact that although we have thousands of companies that have raised funding, many startups don’t. This early stage focus slants our perspective in a direction there’s been little insight into, as there is little public data about this cohort of pre-VC companies.

But what we can see is that there is a clear demand for a more detailed ecosystem ranking.
In the coming months we plan on creating a robust ranking system based on a diversity of performance indices, supplemented with additional data sets, to better capture the strengths and weaknesses of different startup ecosystems. Currently, we only have a large enough sample to do a detailed performance analysis on a small set of the top 25 ecosystems. This is why we haven’t put out this kind of ranking system yet. But since the release of the report last week we’ve had dozens of people and organizations from ecosystems around the world offering their help and support to help us cross that threshold.

For the last 50 years the technology startup scene was dominated by Silicon Valley and a handful of smaller ecosystems. Only in the past few years have new startup ecosystems started to spring up all over the world. We’re excited to be a part of helping these startup ecosystems figure out what they need to do to flourish.

Let us know in the comments or over email at feedback@startupcompass.co what factors you think are an important measure of ecosystem health.

And here’s an interview Bjoern did with Silicon Allee on a similar topic.

The Rise of Startup Ecosystems: Silicon Valley vs. New York vs. London

2012-04-09T23:25:00Z

(The original post can be found here on Techcrunch)

Falling startup costs have caused an explosion in the number of software companies being started. As a result, new startup ecosystems are springing up all over the world to support the success of these companies and jumpstart regional economic growth. Since startups are one of the biggest drivers of job growth and economic growth, this is a big democratizing force. Previously, most startups were located near Venture Capitalists in Silicon Valley, Boston and New York City, because as Paul Graham noted “when starting a startup was expensive, you had to get the permission of investors to do it.” Now companies are being started everywhere.

Entrepreneur magazine claimed “the overarching theme of SXSW this year was that you don’t need to be in Silicon Valley to do a startup.” With so many options, how do entrepreneurs decide where to start their company? What are the advantages and disadvantages of different ecosystems? And what are the characteristics that differentiate entrepreneurs across ecosystems?

There has been plenty of qualitative reporting about benefits of different startup ecosystems, but to date there’s been very little data to support these intuitions.

One year ago, we started the Startup Genome Project to crack the innovation code and increase the success rate of startups. In September, we launched the Startup Compass, and have had more than 13,000 companies use this simple benchmarking tool to evaluate their performance, align their team and better allocate their product development and customer acquisition resources. As a result, we have now crossed the threshold of critical mass of data in the world’s top startup ecosystems to begin comparing them to each other. For the first time we now have the opportunity to create a Startup Ecosystem Index with a live pulse on how the world’s startup ecosystems are evolving.

As we’ve started to dig into the data we have begun to uncover valuable insights into the strengths and weaknesses of different startup ecosystems. As this study study progresses we hope it will yield insights for entrepreneurs deciding where to start their company, investors deciding where to allocate their capital, large companies looking for acquisition targets and policy makers who want to make their startup ecosystems flourish. The world is in need of economic revival and unleashing a Entrepreneurial Renaissance is our best hope.

Currently, the three most popular ecosystems worldwide are Silicon Valley, New York City and London. And today, we are releasing 22 insights on how they compare.

Defining Characteristics of Each Ecosystem:

Silicon Valley: Biggest throughput. Strong early stage funding ecosystem. More mentors. Most Ambitious. High Risk.

New York City: Diverse. Niche Focus. Marketplace and Social Network focus. High risk.

London: Well educated. Bet big on perceived proven winners. Project Management / E-Commerce Focus. Low Risk.

Startup Throughput: The Silicon Valley startup ecosystem is 3x bigger than New York City, 4.5x bigger than London, 12.5x bigger than Berlin, and 38x bigger than Boulder.
Startup Success Rate: The Silicon Valley ecosystem has proportionally 22% more companies that make it to the scale stage than in NYC and 54% more than in London.
Availability of Capital: On average Silicon Valley startups raise 2-3x more money in the first 3 stages of development: Discovery, Validation, and Efficiency. But in the scale stage, compared to Silicon Valley, New York City startups raise 27% more money and London startups raise 30% more money.
Job Creation: In the Efficiency and Scale stages, Silicon Valley startups create 11% more jobs than NYC startups and 38% more jobs than London startups.
Risk Profile: The number of high risk companies decreases steadily through the startup lifecycle, except in New York City where the number of high risk companies spikes from 45% to 67%, and has 4x more high risk companies in the scale stage than Silicon Valley.
Product Types: Compared to New York entrepreneurs Silicon Valley entrepreneurs are 2x more likely to build games, 50% less likely to build marketplaces, 23% more likely to build social networks, 3.5x more likely to build infrastructure and 2.5x less likely to build financial tools. Compared to entrepreneurs in Silicon Valley, London entrepreneurs are 50% more likely to build e-commerce products, 35% less likely to build social products, 3.5x less likely to build products based on user-generated content and 2x more likely to build project management software.
Market Type: Silicon Valley entrepreneurs are 13% more likely to tackle new markets than London entrepreneurs whereas London entrepreneurs are 21% more likely than entrepreneurs in Silicon Valley to tackle existing markets with better products. New York entrepreneurs have the highest proportion of companies trying to resegment existing markets with niche products. They are 30% more likely to build something niche than entrepreneurs in London.
Market Size: Entrepreneurs in Silicon Valley are much more “ambitious” than entrepreneurs in New York City and London. Silicon Valley entrepreneurs are 22% more likely to estimate their market size as greater than 10 billion compared to New York City entrepreneurs and 120% more likely than entrepreneurs in London. They are also almost 2x less likely to estimate their market size to be less than 100 million.
Revenue Streams: Subscription is the most popular revenue stream everywhere. Compared to London, Silicon Valley entrepreneurs are 4.4x more likely for their primary revenue stream to be Lead Generation, 3.6x more likely for it to be virtual goods and 2.6x less likely for it to be the rapidly fading model of license fees.
Perceived Competitive Advantage: Compared to Silicon Valley Entrepreneurs, New York City entrepreneurs are 4.3x more likely to consider content their primary competitive advantage, 40% more likely for it to be niche focus, and 90% less likely for it to be team. Compared to Silicon Valley entrepreneurs London entrepreneurs are 58% more likely to consider technology their primary competitive advantage and 5.3 less likely to consider user experience to be.
Product Development: London and NYC companies outsource 34% more of their product development than Silicon Valley companies.
Adaptability: Pivoting happens much more frequently in Silicon Valley. Pivots happen 45% more on average in Silicon Valley than New York City and 33% more than London.
Mentorship: The Silicon Valley and New York City ecosystems have more helpful mentors than the London ecosystem. Silicon Valley companies have 46% more helpful mentors than companies in London.
Thought Leaders: In Silicon Valley, Steve Blank and Paul Graham are the most popular startup experts. In London, Paul Graham is by far the most popular expert and NYC shows their local pride, voting Fred Wilson as their favorite startup expert.
Work Ethic: Companies in Silicon Valley work 35% more than companies in New York City. In Silicon Valley teams work 9.5 hours a day on average vs. 8 hours in London and 7 in New York City.
Founding Team Composition: Silicon Valley founding teams are 34% more likely to be technical heavy than founding teams from NYC. Whereas NYC founding teams are almost 2x as likely to be business heavy than Silicon Valley founding teams.
Founder Education Background: In London most founders have a masters degree, whereas in Silicon Valley and NYC most founders have just an undergraduate degree. But NYC has 2.2x more founders with PhDs than Silicon Valley.
Founder Gender: New York City has almost double the female founders of Silicon Valley and London (80-20 vs 90/10 ratios, respectively).
Founder Age: The average age of founders in all three ecosystems is about the same, with an aggregate average of 33.5.
Founder Experience: Silicon Valley founders have on average started almost twice as many startups as founders from NYC and London.
Founder Motivation: Silicon Valley has 30% more founders that want to change the world than London or New York. New York has 50% more founders that want to make a good living than Silicon Valley or London. London has 2x more founders that want to make a quick flip than Silicon Valley or New York.
Founder Challenges: New York City startups are 3.7x less likely for team building to be their biggest challenge, at the same time they are almost 2x as likely to consider “having too much do and being over capacity” their biggest challenge.

These insights are part of a new Startup Genome research initiative on Startup Ecosystems, in which we will be releasing regular mini reports on new startup ecosystems as we receive a critical mass of data. We've brought on two brilliant researchers to work on this project: Danny Holtschke from Maastricht University and Jessica Richman from Oxford University.

Here is a list, in ranked order by average throughput, of what we’ve found to be the 25 most active startup ecosystems around the world.

Silicon Valley (San Francisco, Palo Alto, San Jose, Oakland)
New York City
London
Toronto
Tel Aviv
Los Angeles
Singapore
Sao Paulo
Bangalore
Moscow
Paris
Santiago
Seattle
Madrid
Chicago
Vancouver
Berlin
Boston
Austin
Mumbai
Sydney
Melbourne
Warsaw
Washington D.C.
Montreal

To reach the critical mass needed to analyze these burgeoning ecosystems, we are partnering with local media outlets who can help us get enough entrepreneurs in their area to sign up for the Startup Compass and contribute to the Startup Genome. In exchange we are offering them exclusive early access to data they can share with their ecosystem.

We have a number of great supporters already including Endeavor, Mamstartup in Warsaw,Startupi in Sao Paulo, SGentrepreneurs in Singapore, and Startup America & Microsoft BizSpark in other cities around the world.

We'd love to find local support for each of these ecosystems. If you are interested or have any suggestions please contact us at contact@startupcompass.co

There is so much more we'd like to do with this project but we are a start-up ourselves and our resources are limited, so we are also opening up the opportunity for a few sponsors to underwrite some of research and development costs of the Startup Ecosystem Index in exchange for appearing on the reports. To date our research reports have been downloaded more than 25,000 times and have been covered in over 100+ blogs and publications in more than 15 languages. We'd love to have a vision aligned company help us create even more impact. If you are interested or have any suggestions please send us an email at contact@startupcompass.co

We hope you are as excited as we are about the potential of this project to further democratize entrepreneurship around the world. And if you run a software company, do check out the Startup Compass. In addition to helping you make better decisions, you will be contributing to generating insights that can allow startup ecosystems everywhere to flourish.

If you would like receive the full Startup Genome Ecosystem report once it’s released you can sign up here.

Finally, we'd like to share what a few friends in Silicon Valley, New York City and London had to say about their startup ecosystem:

"People in Silicon Valley really believe in "pay it forward". It's not all transactional and tit-for-tat. Folks help each other and those not as far along as them. It's also very accepting of failure; if you have some real catastrophes on your resume, that's considered a badge of honor - there are not a lot of places on the planet that's true. It's also the easiest place in the world to start a company. Everyone is here to help you kick ass. :) "

- David Weekly, Founder of PBworks

I moved my first company, Tickle.com, from Boston to San Francisco in 2000. As a Boston-area native, I feel like most people from back east are highly protective of their ideas. I was amazed to find people in Silicon Valley to be openly sharing ideas, even if another entrepreneur may steal it. It took me several years to really get it. Silicon Valley is full of great ideas, but ideas are cheap... and execution is the hard part. If you think you have a great unique idea, I'd bet 5 other people in Silicon Valley already thought of it. It's because we share ideas, we riff off each other and sometime great companies are born. But the key to taking a new born idea to an IPO is the ability to execute. Silicon Valley has the best combination of factors to provide for that success including the highest concentration of VC's, highest density of tech entrepreneurs and engineers, great schools pumping out more smart grads every year, countless hugely successful VC-backed world-changing companies, pride in a merit-based system that rewards intelligence and hard work and above all... an attitude that supports collaboration to build incredible things. It's extremely hard to replicate all of that in another location, especially the belief that we, in Silicon Valley, can change the world through innovation.

- Rick Marini, Founder of Branchout

The diversity and multicultural nature of the London startup ecosystem both in terms of startup founders and those working in startups makes London a vibrant and exciting place to be. My own startup Enternships.com is comprised of people of various nationalities including American, Iraniana, Romanian, Indian, Chinese as well as British, which enables us to share insights from different parts of the world whilst working towards a common vision.

London also provides a great base to access global markets - with Europe on your doorstep and strong global communications links and a relatively smaller pool of people (compared to Silicon Valley) working on similar issues you have a better chance of standing out, being recognised and ability to access emerging economies.

- Rajeeb Dey, Founder of Enternships

The beauty of the London startup ecosystem is that all parts of the startup value chain are worldclass: Universities and research institutions as an innovation engine, successful entrepreneurs and angel investors act as mentors, a financing ecosystem that ranges from early to late stage, creative input and thinking from all of the arts, tech companies and large industry, and finally some of the world’s leading media companies. There are few places in the world that can claim this combination of assets to be natural, and while there are still lots to work on, the breadth of startups in London is a testament to these origins.

- Philipp Moehring, Associate at Seedcamp

BraveNewTalent currently has it's HQ in London but also has an office in Silicon Valley and Bangalore. There is a cluster of tech talent in all three locations. We chose to locate our development team in London so we could compete better for the 50X engineers than we could in the Valley.

In London there is a fantastic network of peers among the other tech Founders. I find the community hugely helpful.

- Lucian Tarnowski, Founder of Brave New Talent

People always speak about Europeans being less risk friendly due to cultural reasons. I believe this is too superficial. Entrepreneurs are less risk friendly because the market favors this behaviour. In Europe you have the same downside as a startup in the US but in case things go right you will face a slower and thus smaller upside than you do in the US. Europe is fragmented into countries with their own markets, cultural behaviours, media and language. This slows things down to the extent that startups have to treat countries with populations of only 8 million with their own market entry strategies. This fundamental difference in the system creates market dynamics that favor behaviour that seeks to limit downsides (e.g. skipping product/market search aka cloning).

The only way out of this is to think global and act global from day one. In Europe, London may be the only place that provides that kind of international uplink . But London is more than that. London's strength is that it is more than "just" a web-tech startup hub. It is one of the most important cities in dozens of industries: finance, media, advertising and fashion to name a few. This creates an environment that's very special and unique in London.

- Andreas Klinger, Founder of Lookk

I believe NYC is the most diverse ecosystem of all these three cities. It has a quickly growing startup community, the access to capital and the talent pool, but at the same time it is also the home of big media, of style, of finance. Above all, NYC is very supportive of entrepreneurial initiatives and ideas.

It wasn't a strategic decision, but all three co-founders ended up in NYC. We have been considering to move the company to SFO, but believe that because our company is at the intersection of sustainability, e-commerce and design, it makes more sense to be in NYC. Plus, we just love it here ;-)

- Fabian Pfortmueller, Founder of Holstee

NYC has key assets for the founder with vision beyond the start-up realm to leverage:

- culture (arts & multi-cultural population)

- commerce (multiple global industries)

- connectivity (midway west coast, europe/middle east/africa, midway from Boston to DC, schools & government)

It may have been the case thus far that entrepreneurs have been overshadowed by Wall Street, but as the Mayor has indicated, Silicon Alley is strategically & geographically well positioned for more startup capital & resources.

- Neil Anderson, Partner at Hubitat

Happy Birthday, Startup Genome!

2012-03-01T13:00:00Z

The Startup Genome was born last February and today at the anniversary mark we’d like to take the time recognize its growth and accomplishments in its first year of existence.

Over the last few years technology entrepreneurship has exploded around the globe and has come to be recognized as the primary engine of new job creation and a leading driver for economic growth. At the same time, more than 90% of startups fail, primarily due to self-destruction rather than competition. This struck us as an enormous lost opportunity for personal and societal value creation, so we initiated the Startup Genome Project to crack the code of innovation and enable businesses all over the world to be more successful. In February 2011, we announced the Startup Genome Project and shared our first call to action: contribute data to the Startup Genome Project and help us bring the magic of Silicon Valley to the rest of the world.

Several months earlier Max was doing independent research at Stanford with adjunct professor and retired serial entrepreneur Steve Blank. Under his guidance he designed a lifecycle model that synthesized Steve’s insights with other entrepreneurship thought leaders that included Alex Osterwalder, Janice Fraser, Eric Ries, Sean Ellis, Dave Mcclure and Geoffrey Moore.
After Bjoern and I tested the model hands on with 50 startups, we built a survey and asked the greater startup community to contribute data to the project so we could take the Startup Genome to the next level. To our excitement more than 650 startups participated.

Three months later, at the end of May, we released the findings from research in the first Startup Genome Report: a new framework for understanding the success and failure of startups. The response was overwhelming: 50,000 unique visitors, 100+ publications in more than 15 languages, including Huffington Post, CNet, GigaOm CNN Money, more than 10,000 downloads of the report, 3,200 new survey responses and hundreds of emails from entrepreneurs all around the world thanking for us our work. Central to our success was the addition of Ron Berman to the Startup Genome team, a 3rd year PhD at UC Berkeley doing quantitative marketing research.

In the summer we were ready to take the Startup Genome to the next level. The Startup Genome Report generated a lot of attention and acclaim, and got us a lot more data, but we needed to take the big step of building our first software product. The only challenge was we still hadn’t found someone who could lead the Artificial Intelligence part of the product we envisioned. We met with a few dozen potential candidates, many of whom were our friends, but circumstances or interest level never aligned. In the midst of the search, Bjoern and I continued to make progress. I continued to refine the Startup Genome as a predictive model, Bjoern worked on the design and front end for the application and we both did a lot of customer development.

Then we caught two amazing breaks. Radu Spineanu, a serial entrepreneur, amazing engineer and friend of Bjoern’s from Romania came to stay at our startup house, Blackbox Mansion and in his spare time helped us build the architecture for our prototype. The other big break started to unfold a week before Radu arrived. Ertan Dogrultan, who recently dropped out of his Machine Learning PHD from UCLA to move out to the Bay Area and pursue building a startup in the datamining space. Before he graduated he had done a data mining project that used Crunchbase data to try to predict startup success. His professor saw the Startup Genome Report when we launched it in May and he encouraged Ertan to reach out to us. The three of us met, liked each other right away, and Ertan started working with us part time during the summer, helping us to translate the whole Startup Genome data model from linear formulas to much more robust bayesian classifiers.

We launched the Startup Genome Compass in combination with a new report on Premature Scaling on August 29th and it was another homerun. We received coverage all across the web including TechCrunch, Forbes, and PBS, reached more than 25,000 downloads of our reports, the research was recognized by various top Universities & found its way into the curriculum of 50+ Universities and had 13,000 companies use the product over the next few months. Shortly after, Ertan joined full time and the founding team solidified the dream combination of bottom up data mining (Ertan), top down conceptual modeling (Max) and product vision (Bjoern).

In the last few months we have turned our attention to the future. While our communication with you all has primarily been as a research endeavor, it has been our intention all along to build a software company. Harnessing the massive leverage of information technology for societal impact is a core tenet the Startup Genome Project and we would be short sided not to utilize that leverage ourselves.

The research conducted so far was merely the necessary foundational work to build the increasingly intelligent business software tools of the future. In recent years, large companies like Google, Amazon and Zynga have leveraged predictive analytics technology to run circles around their competitors. Predictive Analytics haven’t been accessible to small companies because they require large datasets, expensive data warehouses and custom models built by specialists. We are looking to change that by building the next layer of the software as a service stack, what our friend Evangelous Simoudis at Trident Capital calls Insight as a Service. We will share more details as the vision becomes reality. Meanwhile we will have new writing, research and tools coming out next month in March. Stay tuned. We look forward to continuing to share this journey with you of empowering business all over the world.

Defining the X Chromosome: the DNA of Women Led Startups

2011-12-29T13:00:00Z

Guest post by Pemo Theodore, EZebis

For over a year I have been video interviewing venture capitalists, angel investors and women founders trying to investigate the apparent shortfall in funding for women led technology startups. My goal has been to listen to as many people as I could from both sides of the table, in order to get a diversity of opinions on this controversial subject. Whilst I have been doing these interviews, many people have said to me that no problem exists and that women can be as easily funded as men if they have a great idea, team, plan and advisors. However the statistics show another story. The percentages of women in technology, female entrepreneurs and female venture capitalists are extremely low compared to men. But the reasons are multifold and complex and cannot be resolved quickly or easily. With this post I hope to shed some light on the intricacies of this issue. Everyone that I interviewed was inspiring and added a different voice and view to the puzzle.

Some of the amazing female entrepreneurs and venture capitalists I interviewed for this project were Cindy Gallop, IfWeRanTheWorld; Danae Ringelman, Indiegogo; Julia Hu, Lark; Leila Chirayath Janah, Samasource; Lisa Stone, Blogher; Wendy Lea, Get Satisfaction, Ann Miura-Ko, Floodgate; Catharine Merigold, Vista VC; Patricia Nakache, Trinity Ventures; Brad Feld, Foundry Group; Chris Dixon, Founder Collective; Dave McClure, 500 Startups; Fred Destin, Atlas Venture; Fred Wilson, Union Square Ventures; Guy Kawasaki, Garage Ventures; Jason Mendelson, Foundry Group; Jeff Clavier, Softtech VC; Mark Suster, GRP Partners; Neil Rimer, Index Ventures; Randy Komisar, Kleiner Perkins and Tim Draper, Draper Fisher Jurvetson. You can see the full list here.

I have teamed up with Startup Genome to help get a critical mass of women to participate in the Startup Genome Project in order to add the dimension of quantitative data to the discovery of the DNA of women led startups. The Startup Genome has already learned that “approximately 70% of the startups in their dataset scaled prematurely. I am very interested to see if the same pattern holds for women, because through the interviews I have conducted the consensus has been that women tend to be perfectionistic, moving slower but more surely than their male counterparts. Is it possible that the more careful nature of women may cause them to fail less? We shall see what the data reveals, but the Startup Genome Team reminds me that while women may be more likely to avoid premature scaling, they may fall prey to "dysfunctional scaling", a problem that occurs when entrepreneurs fail to step on the gas pedal once the product has been validated. Following are some of the strands of DNA I have identified through the 130 interviews I have conducted over the last year.

Is There a Problem for Female Entrepreneurs?

Many people have said to me that no problem exists and that women can be as easily funded as men if they have a great idea, team, plan and advisors. However the percentages of women in technology, female entrepreneurs and female venture capitalists are extremely low compared to men.

Is There Overt Discrimination?

Many suggested that there is no conscious bias on the part of investors but that we all naturally feel more comfortable with those who are similar to us. Investors are looking for low risk and high reward. If someone is dissimilar to them and they do not understand them, they may see them as a riskier investment and decide to pass. True to the law of you get in what you put out; many suggested that if you act as if there was no overt discrimination, then you may be less likely to be discriminated against. However women may tend to keep mum about discriminating behavior by men in business in order to protect their credibility and careers.

Does Bias Keep Women Disadvantaged for Investment?

Studies suggest that we all have unconscious bias and that of course then can affect female entrepreneurs when raising investment due to their low numbers. Some suggested that there were fewer obstacles to raising funding through other means for women rather than venture. As a result, larger percentages of women are raising investment through alternate means such as crowd sourcing, debt, friends and family etc, than are attempting to raise venture capital. Successful women may also strive to succeed through their own merits in an effort to support the notion that there is no gender bias.

Are there Advantages of Diversity?

There have been studies done about the advantages of diversity and many people spoke about how startups, just like corporations can produce better results by having a diverse executive team and board. It was suggested by some that having women on the executive team of a startup would help the company better understand and serve their customers because the internal team composition would better mirror the composition of the target market. Women also bring stability to teams and greater creativity through providing perspectives that often differ markedly from men.

Should We Generalize About Gender?

Many of those interviewed baulked or apologized about making generalizations about gender but most did just that at some point in the conversation, including myself. Unfortunately, it's very difficult to discuss issues about men and women without generalizing, as it is something we all fall back on when we try to make sense of those dissimilar to us.

Are There Differences Between Men and Women?

Having said that, I will mention some generalizations that people discussed. We all acknowledge that men and women are different, not just physically but our early training and roles deliver a different version of life. There are also many studies on the fact that our brains are wired differently along with the fact that we are ruled by different hormones. It was suggested by many, that women generally perform better with human factors in business and often attribute their success to others. Due to their varied roles and responsibilities they also seem to be able to manage both home and business well. Women may tend to take business more seriously than men. However it was also suggested that women can be just as competitive and ambitious as men, particularly when that is encouraged and supported.

How Does The Female Demographic Impact Investment?

The female market is huge particularly in online businesses and drives a lot of revenue. Women are also a tougher market to target as they are more demanding. Therefore having more women in startups could mean better insight into customer needs, which could allow those startups to serve those markets better and achieve greater success than their peers.

Do Women Even Want To Become Entrepreneurs?

A great many small businesses are run by women, about 50% in the US. So why are there less technology startups led by women? It could be that women have to make adjustments to adapt to the greater demands of the lifestyle of a high growth technology entrepreneur. Women have been proven to be good credit risks and are a major force now in in the upper management in the Fortune 500, so perhaps tech entrepreneurship is just one more area where women will soon prove their equal competency to men. There could be a new focus on the strengths of women in business to counteract old erroneous images in the culture and to encourage more women to become high growth technology entrepreneurs. In the startup world there is a certain stereotype of the type of founder that investors love to fund: young, white, male and geeky. Female entrepreneurs need to challenge this stereotype by showing that they possess alternative approaches to solving problems that can make for great startups and disrupt industries in new ways.

Raising Capital

A lot of feminine strengths may not match up to historical and portraits of successful entrepreneurs. This could mean that some women may need to learn skills and shore up certain qualities to be a good fit. Many spoke about the need for great female entrepreneurial role models and mentoring of women both by men and women, which includes peer mentoring as well. Women entrepreneurs may also need to learn about the venture and angel industry and to identify the best investors to whom they should pitch their startup. There are now many women friendly investors, many of whom I interviewed. It is helpful for women entrepreneurs to grow their networks and to get to know investors before stepping up to the plate to raise investment capital. This can help a female entrepreneur’s general confidence and help her identify the best avenues for her to target. Here are some interesting stats on women who raise venture from a 2007 survey by British Researcher Library House:

women ask for exactly what they need in capital and end up with half what they require from investors
men tend to ask for twice as much venture in hopes of getting half from investors
female CEOs delivered higher revenues using less capital than those by men
the average venture backed company run by a woman has annual revenues 12% higher than those by men using on average one third less capital

Female Venture Capitalists

Female venture capitalists are a very small percentage of the venture industry. It was noted that many successful entrepreneurs become venture capitalists later in their careers. Due to the small numbers of female entrepreneurs this has limited the number of female venture capitalists. This funnel is a problem. Increasing the numbers of female entrepreneurs, may in turn increase the numbers of female venture capitalists, starting a virtuous cycle. If investment firms also mentor more women and encourage them into their ranks this could also kickstart the cycle that could get women into the startup ecosystem.

Advantages of Being a Female Entrepreneur

One of the current advantages of being one of the few female entrepreneurs is that you are noticed and often remembered more than men. If an investor is conscious of bias then this could become an advantage. If women entrepreneurs can deliver the necessary requirements when pitching and develop the qualities that investors are looking for, then their minority status could make them more likely to get funded as investors look for undiscovered gems that other investors overlooked.

What Do Female Entrepreneurs Have Going for Them?

Consumer internet already has a number of successful women and this may be an area that women feel comfortable leveraging their strengths to create successful startups. If women can learn to better leverage their strengths: networking, forming fabulous teams and advisory boards, and managing their businesses with resourcefulness and creativity, they could become very proficient at playing the startup game.

The Importance of Being Yourself

It was stressed by most investors and founders that it is crucial to the success of a startup and raising funding to be yourself. Being a minority, women may feel under pressure to act like men, but most of the people I interviewed encouraged female entrepreneurs to remain authentic and not to try to act like men when trying to raise money. It does not help anyone’s confidence and sense of presence if they are not relaxed and comfortable with who they are, no matter their gender.

Potential Challenges

Women's receptivity to others may at times undermine their confidence and they may not come across as brash as some men. However a positive focus for themselves and their ideas along with encouragement from others can easily change this issue. It was also noted that extreme aggressiveness is required to achieve success in business. This may be a key factor that holds some women back as this may not be a natural response for some. Women may often tolerate unfriendly or unsupportive people for too long. There may also be a challenge for women in their style, finding a middle path between being empathic and warm and making tough decisions. It is of course possible for women to learn to become very flexible in these different modes of operating or feeling. Inner strength and confidence raise awareness of this propensity and skills such as assertiveness, active listening and negotiation can be learned.

The Importance of Confidence

Everyone spoke about the need for extreme confidence and passion in entrepreneurs when building their businesses and raising capital. Women often attribute their success to others or circumstances outside of their control and may not focus enough on building their sense of self-efficacy. Our training and culture encourage us to put others first, as the principal care takers in the community. It is helpful to stay objective by focusing on your traction and market to show investors that your startup can succeed. Having the necessary requirements to inspire confidence in investors and knowing the data well can be a big confidence boost. A healthy ego makes for a balanced person and a great business. Overconfidence and brashness may be confused with authentic confidence but many investors suggested that brashness can be a turn off and doesn’t necessarily inspire confidence! Women are often great consensus takers but ultimately a good CEO will be able to make her own decisions after listening to her advisors.

Risk and Failure

Many people that I interviewed suggested that women can be more risk averse than men. Risk always implies the possibility of failure. Women may take risk more seriously because failure often feels like a life and death matter to them. If women are not exposed or interested in sports when they are young, they need to find other ways to support them in being willing to accomodate risk and failure and at times to even enjoy the thrill. Women need to be encouraged to find their competitive expression without damaging their ability to be receptive to others.

Think Big – Scale your Business

Whereas many men have big dreams, women may tend to ‘think too small’. This may stem hormonally from our primary focus on the immediate people in our care or responsibility. Historically big picture thinking and exploring may have just been the domain of the male hunters. However this can easily be learned and changed if needed. Women’s sports and working on teams can provide confidence in winning and losing on a big scale.

Don’t be Afraid to Ask for Money

Another big issue that many brought up, is that women don’t like to ask for money. This is a huge problem if you are an entrepreneur that needs to raise money. You definitely have to become comfortable with asking for money! There seems to be something deeply ingrained in us as women that we should do what we can with what we have.

Possible Hindrances

Then there is the challenge of the intensity and crazy lack of balance in startup culture that is not appealing to many women who value their family and personal lives. This necessitates women’s organizations and networks, along with individual female entrepreneurs developing their own version of startup culture. Creativity is necessary to match the time demands and pressures. A few mompreneurs spoke about thinking outside the box and solving these problems.

Sex and Power

One of the big differences for female entrepreneurs is the physicality of their gender. Some had been propositioned by investors. It is important that both investors and women keep clear about sexual boundaries in the pitching process. Everyone needs to understand that funding is based on merits of the startup and team. However when chemistry does happen between people who are looking to work together, it can easily be mistaken for sexual chemistry because it comes from the same place in us, our passion! Rather than pretending this important part of the creative process doesn’t exist, misinterpreting it by fearing it, or acting out sexual innuendo, investors and women entrepreneurs need to respect and honor this chemistry so that they can work together successfully. Investors need to take this risk along with the financial risk when they invest in a female entrepreneur and know that this fertile energy can be harnessed to build a great business. Female entrepreneurs should not be afraid of the power of this chemistry and its transformative affect on them and their business.

Children

Female entrepreneurs may choose to segment their careers around child rearing ages before and after but it is important that investors do not prejudice their choices in funding an entrepreneur on supposition that they will abandon their business to start a family. For female entrepreneurs it is important to address the elephant in the room (as Mark Suster suggests) and update investors even before they ask about how they have decided to prioritize their business and family life.

Helping Other Women

Many people suggested that things will change when more women help other women. Most women are juggling a lot on their plates but that does encourage empathy for others in the same boat. There are already some great organizations that support female entrepreneurs like Astia, Pipeline Fund and Women2.0. However it is on each one of us to do what we can for other women as we move forward. The female startup ecosystem will only become stronger and therefore will be more conducive for meritocratic funding. There are also a few great organizations worth mentioning that encourage and support young girls to study science, math and engineering like NCWIT and Anita Borg Institute.

Investor Dynamics

The role of a venture capitalist is fund and advise startups to become successful and profitable businesses. It has become something of a cottage industry with its own unique culture. As with the startup culture, it is composed mainly of men and even though they deal with risk in a major way, it has been shown to be an industry that is slow to change. Limited Partners who provide the funds to venture firms are resistant to change and insist on continuing with a model that is possibly broken. As Chris Dixon said to me “They're people that work at pension funds and endowments and just like in any situation where somebody is investing on behalf of somebody else, there's what economists call 'agency problems'.” Despite this additional challenge in the industry, the one constant that we all face is change and the venture industry will not be immune to this force of nature, particularly as it hits the bottom line. All the venture capitalists that I interviewed were open and willing to invest in great female founded ventures. Some have already discovered the benefit and advantages of being ahead of the pack and are deliberately investing in great women led startups. And of course venture capitalists and angel investors will ultimately benefit more when there are greater numbers of female startups.

Bottom Line: Investing in Diversity

Because women think differently and see the world through different eyes than male entrepreneurs there may be great opportunity now. If we encourage openness with each other and respectful networking, then all will benefit. This path could also play a major role in improving economies in the western world which are suffering from the type of brash male dominated thinking that triggered mortgage crises and the ensuing financial collapse. Accessing the untapped potential of more venture backed female entrepreneurs could be a critical missing piece to creating the prosperity we all want.

How You Can Help

I am encouraging all women led startups to use the Startup Genome Compass so that we can have more hard data about the gender differences in the world of technology entrepreneurship. If you know any women entrepreneurs please share this article with them and point them to the Startup Genome Compass.

Entrepreneurs can sign up here: https://www.startupcompass.co/

What the Fortune 1000 Can Learn from the Startup Genome Project

2011-09-15T09:09:00Z

In February, 2011, we started a very ambitious project to crack the innovation code of Silicon Valley and increase the success rate of startups all over the world.

Two weeks ago we launched the Startup Genome Compass, a benchmarking tool for startups and our new research on the primary cause of failure for startups. The response was overwhelming. More than 8,500 high-tech startups started using the application and our research reports have been downloaded more than 25,000 times. Now it can be found all over the Web in blog posts, infographics, and in over 15 languages. It has been extremely humbling for us to be able to touch the lives of thousands of entrepreneurs living around the globe.

In the last six months the Startup Genome Project has collected a tremendous amount of data on startups, built a theoretical model based on synthesizing ideas from entrepreneurship's eminent thought leaders and taken big strides towards demystifying the process of entrepreneurship and innovation.

The basis of our theoretical model is looking at a startup as a product centric organism that interacts with its environment, the market. The core dimensions that define this organism are customer, product, team, business model and financials. The key challenge for a startup is to keep those five dimensions in sync with the actual customer response. An example for getting out of sync would be moving too quickly on the product dimension. The result would be an over-engineered product that is less likely to be adopted.

In order to group and benchmark startups, we segment them by type and stage. Different types of startups are differentiated by the complexity of their customer interaction and customer acquisition. Stages are described by the life cycle through which a startup evolves on its path to becoming a large company. Each stage has a different set of goals and key activities. For example, in the first stage, Discovery, the startup performs a mostly qualitative search process, where the exit criteria are problem/solution fit. In the next stage, Validation, the startup performs more quantitative testing with a working software prototype. (More details about our methodology can be found here.)

Since we've been working on the Startup Genome Project, numerous Fortune 100 executives have reached out to us, wondering if our tools and research could also be applicable for their work. While our original focus was on startups, we've discovered that our methodology extends beyond just measuring the progress of startups to being able to measure the progress of a diverse array of innovation projects. Much of the theoretical groundwork for this leap of insight was laid by Clayton Christenson and Steve Blank.

Clayton Christenson made the important distinction that disruptive innovation was fundamentally a different activity from sustaining innovation, requiring different rules, different managerial tactics, and different types of people. Steve Blank then connected the emerging science of entrepreneurship to the disruptive innovation occurring in large companies by noticing that the ideal organizational structure for disruptive innovation was a startup. The problem is despite the emerging science of entrepreneurship, innovation is still perceived as somewhat of a dark art. Bill Gates, Steve Jobs and Marc Benioff appear to have performed innovative feats capable only by the super-human, because it's very difficult to describe how they were able to disrupt enormous markets with seemingly unbeatable foes.

But now the Startup Genome can begin to uncover what makes these innovation projects succeed or fail and can offer a new paradigm for the management and accounting of innovation.

Here are a few relevant findings from our research, and three use cases where our tools and research can help.

Selected Research findings

Most successful startups pivot at least once. Startups that pivot once or twice raise 2.5x more money, have 3.6x better user growth, and are 52 percent less likely to scale prematurely than startups that pivot more than two times or not at all. A pivot is when a startup decides to change a major part of its business.
Large companies tend to inhibit pivoting for their "internal startups."
Different type of markets and products require different type of founders and resources. B2C vs. B2B is not a meaningful segmentation anymore because the Internet has changed the dynamics of customer interaction. We found four different major groups of startups that all have very different behavior regarding customer acquisition, time requirements, market risk and team composition.
Large companies tend to project learnings from their main business on their innovation initiatives, which leads to mistakes.
The major reason for failure of startups is premature scaling. About 70 percent of our dataset showed up as premature scaling or inconsistency. One driving factor for inconsistency is too much capital, teams that are too large, bad team compositions, too little testing, etc. - pretty much everything a large company does, anticipating high certainty in their planning.
The results:
- No startup that scaled prematurely passed the 100,000 user mark.
- 93 percent of startups that scale prematurely never break the $100k revenue per month threshold.
- Startups that scale properly grow about 20 times faster than startups that scale prematurely.
Large companies tend to pressure their "internal startups" to scale prematurely.
Early-stage startups spend most of their time discovering. Consistent startups spend two to four times as much time discovering who their customers are, whereas inconsistent startups are focused on validating that customers want their product. Consistent startups are searching. Inconsistent startups are executing.
It's widely believed among startup thought leaders that successful startups succeed because they are good searchers and failed startups achieve failure by efficiently executing the irrelevant.
Large companies tend to jump to execution after their initial market research and miss out on two import stages: Discovery and Validation.
Startups that monetize too early are more likely to fail. Trying too hard to monetize leads to inconsistency. Ninety-three percent of inconsistent startups make less than 100k a month when scaling the business. While money can be an important validation indicator, stressing it too heavily will lead startups to ignore opportunities and drift towards non-scalable opportunities that are likely to turn into small business or custom consultant shops.
Large companies tend to focus on revenue instead of the key value proposition they want to provide with a new product or service. The result is typically mediocre value propositions.

Use cases

We can help large companies assess startups and make decisions on when the right time is to invest.
We can help large companies assess internal startups in order to make more effective buy or build decisions.
We can facilitate the integration process after an acquisition by using our framework as an alternative measure of progress and control system.

It is estimated that 70-95 percent of acquisitions fail. A significant percentage is due to the friction that is created by trying to integrate the startup with the large company's financials, HR department, product, market and business model. Most startups when they are acquired are uncertain on many of these dimensions, and forcing them to conform on any one of these dimensions to the large company can stunt their growth and often kill them.

For example, a parent company may want to use a startup for lead generation that has a lot of users but no business model. As a result, the startup's product deviates from the original value proposition, and this can cause the user base to erode and cause significant vision conflict within the team.

Our framework can solve some of these ailments by enabling the parent company to measure the stage of the development of the startup and only begin integrating the startup once they've reached a requisite level of maturity and stability.

As competitive pressures continue to increase, innovation will increasingly become the lifeblood of every large company. When innovation stops, a company's days become numbered. The Startup Genome does not provide a serum for infinite living, but we're working on building the tools and infrastructure for healthier living.

(this was also posted on Sandhill.com)