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Monthly Archives: July 2011

Trail and Error spawn Success

I just read an article in The Next Web, where the author explores the mediocrity of the start-up scene in Silicon Valley. That the vast majority of the start-ups are meaningless, produces no value, and are initiated for the wrong reasons, namely to exit quickly and make a nice pile of cash. According to the author, the business of starting up a business must not be approached as what it is – to pay the rent and put butter on the bread – but must be done for philanthropic reasons.

It’s not that I don’t get the point, because I do. An entrepreneur, who actively believes in his idealistic vision, is easier to idolise and if only everybody were like that then the world would be a better place and people would smile and not curse.

However, it’s utopian to assume that big successes don’t attract ambitious youngsters, who would like to earn money and fame. Ignoring the obvious monsters of Silicon Valley, a simple project like Instagram, where still only the 2 or 3 founders are working (at least last I checked), is an example of how easy you can get traction using limited resources. These successes are conceived because hundreds are trying. If nobody gave the small and accessible ideas a shots, we wouldn’t get anywhere. And normally the big mammoths of the tech scene arise from the small ideas, which were just allowed to evolve. Did you know that Flickr started out as an online multiplayer game

On a side note it should be mentioned, that most venture capitalist find entrepreneurs more attractive if they have failed with a start-up beforehand. The reasoning is that they have gained experience, even in tough times etc. If failing actually turns out to be a positive thing, why patronise youngsters who get into the game of entrepreneurship early, potentially fail, allowing them to move on to more demanding projects wiser and more experienced?

Secondly, if you can build a small start-up, offering say an iPhone app, in days, this makes sense, since the risks are that much smaller. It just makes sense that you see more of these since barriers to entry are so low. This is just a trait of a competitive market.

Since Silicon Valley has become the synonym of tech start-ups it’s the natural place to initiate a tech business. Even the incompetent entrepreneurs flock to the area, however that does not limit any of the competent entrepreneurs from succeeding, or any of the successful companies from becoming even more successful. It may drag the average success rate down, but I don’t agree with the argument that Silicon Valley experiences a problem from this, as the title of the article, which I’m attacking, argues. Eventually the idiot entrepreneurs will give up and get a job (at one of the surviving ventures, perhaps), they will succeed with the subsequent project, or they will leave.

Last point; are the entrepreneurs too short-sighted, and too unambitious in terms of solving the problems of the world? How can the author be so moralising as to assume that entrepreneurs are more responsible of solving world hunger, warfare and health problems than other people? Anybody taking a 9-5 job is just as responsible (or just as little), however entrepreneurs are generating work for future employees, at least in a much more direct way than the average office slave. Any current entrepreneur, retired entrepreneur or venture capitalist is encouraging a rookie business founder to create a product/service that he would want to use himself. And if you want to use an app, that directs you to the nearest tofu cupcake, then that’s what you should build. And not be criminalised because of it.

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Dressed for failure – Business suit and no experience

When I was in San Francisco around a month ago I was fortunate enough to hear a presentation by Silicon Valley-icon, Guy Kawasaki. He was one of the main drivers behind the initial Macintosh, has founded a handful of tech companies in the Valley, and is founding partner and entrepreneur-in-residence at Garage Technology Ventures. Further he has written a long list of books about entrepreneurship, marketing, raising capital etc.
And as he has a pretty memorable name, and he held an inspiring presentation (wearing an orange Hawaii shirt, inspiring us to wear flamboyant clothes to our next pitch event), I noticed one of his books, as I was just browsing Amazon’s books about entrepreneurship.

I’ve now read the first 70 pages of his book ‘Reality Check’, and a few points deserve the attention and a quick rundown on this highly selective blog. The book is written very similarly to an online blog – from where many of the chapters actually originate.

Kawasaki explains how he receives numerous emails from hopeful business students, who wish to get into the game of venture capitalism. Their hopes of artificially becoming the center of attention of all aspiring entrepreneurs seeking dollars to finance their startups and mingling at events in their business suits, while securing an impressive pay and the additional cut of the multibillion aquisitions they facilitate. And who can blame them?

This is where Kawasaki has created a test, which assesses your chances of being hired as a venture capitalist ‘first-step-on-your-career-ladder’ – employee, as opposed to just becoming a VC because you successfully exited your startup and are now equipped with enough money to gamble. It’s called the Venture Capitalist Aptitude Test, VCAT. Here are some of the interesting points of the test:

Background
Are you technically minded (engineering degree) or do you know how to market and sell a product (sales education)? These are the directions of study, which improve your chances, since a new product/service either needs to be developed and/or sold, and you get plus points in the test.
Do you have an MBA, or are you educated within management consulting or investment banking? These are the big no-no’s. You subtract points if you fall into one of these categories.

The two first tend to arm you with the perception that, as long as you have done your market research, as long as you have calculated your NPV, applying conservative guesstimation (when you acknowledge that you can’t even estimate), and when you know all the important concepts like ‘Porter’s 5 Forces’, ‘Product Life Cycle’ and ‘diminishing marginal utility’, then implementation is straight forward, and will happen exactly like you wrote in your business plan, which you wrote prior to everything else. (Immanuel Kant would be proud of a sentence this lengthy).
These guys are the once who rarely succed in the startup environment, thus making them poor representatives for an VC fund.

This is kinda similar to all the overly-ambitious business students, who I’ve had the pleasure to get to know during some years of studying at Copenhagen Business School, CBS. Having a shot at working McKinsey & Co, Boston Consulting Group etc gives these fine students an academic orgasm, and justifies wearing a suit to lectures, despite the fact that they will spend several hours at home before going to work later that day.

What the target group of Kawasaki’s test and consulting-horny students/recent graduates have in common is the desire to apply their academic theories and ‘ideal type’-frameworks to the real world, which of course makes sense. However, they tend to have that (unintended) arrogance that they know better than people who have been in the industry for 15-20 years. Or that they can evaluate the potential of a startup, when they have never founded a company. I have never ridden a horse, so I would not be the ideal judge at a dressage competition, even less someones horseback riding coach.

That was only one point from Kawasaki’s test, but the link is just above, so read the rest if you like. It’s quite interesting.

An ending remark: The person who ended up with the highest GPA at our class at CBS, and was invited to a job interview at McKinsey, had been selling his empty bottles the previous day, in order for him to buy marijuana (you know who you are).
Not really that there’s a point to this, but nonetheless a fun piece of trivia.

 

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