Let's say you're a VC or an Angel, and you need to figure out which of many companies will survive, succeed, and become a profit-making 'star'. So, you follow a generally accepted set of guidelines. You evaluate the market, examine barriers to entry, rank the competition, and predict the outlook for product sales. You place a value on IP and examine cost projections for everything from the technology infrastructure to the coffee vendor. You often know the 'ballpark', and if you don't, you know someone who does, so you can easily make adjustments and allowances to refine the company's projections.
But there is one thing you can't do - or at least, you haven't been able to do 'til now - and that is to predict how well management will perform as a team.
What's Human Infrastructure? For the past 100 years, business has viewed people as individual units of productivity and/or cost, a bias that is reflected in the terms 'Personnel,' Human Resources,' and 'Human Capital'. In a business plan, this bias shows up as "plug in two for R&D, one for Finance, five for Operations", etc. But has it occurred to you that this concept is way out of date? We live in a world where one person, sitting on a beach in the Bahamas with a laptop and a wireless connection, can execute work that - just 20 years ago - might have required the coordinated efforts of fifty people.
The valley of death refers to the severe financial risks that startups face as they struggle to grow from small teams to viable ventures. The dip of the valley refers to the debt -- i.e., the negative balance sheets -- that companies experience as they invest money now in hopes of making it back upon success (the accompanying figure provides a general description).
Nowhere is this valley of death more evident than in clean technology, where startups face a difficult combination of challenges. On the one hand, there is the challenge of teams seeking $50k to $5M or more in funding to begin translating their advanced science into industrial processes (moving thin-film solar or fuels from algae out of the lab and into commercial production) and, on the other hand, there's the challenge of funded startups trying to raise investments for the industrial-sized plants and equipment needed to utilize those emerging processes.
Serial entrepreneur Steve Blank has an
excellent post on his blog today about the value of
business models vs. business plans.
He points out the ultimate benefit of making a dynamic business model: being able test your assumptions before you waste time crafting a plan that might not actually work.
Blank compares two early-stage startups: one that had spent the last 3 months researching and writing up their business plan -- while the other spent their 3 months building and testing their business model.
Although most of my blogs have focused on advice to technology
entrepreneurs, I take the chance in this blog to reflect on the role of
government in stimulating innovation. I was recently invited to
participate in an on-line debate on government’s role in innovation on
the Economist.com.
The proposition was “This house believes that innovation works best
when government does least”
I voted in favor of the motion, for three simple reasons. First, I believe governments are terrible decision makers in the innovation forum; they do not understand it and have access to limited expert help. As a result, much of their activities has, at best, limited impact, at worst damaging effect on the free-market decision-making process. Second, government involvement in innovation is usually slow, motivated by political imperatives and distorts market forces. As a result, it can damage as much as it can help. This is particularly the case when you explore the gestation period of innovation policies, which are longer than the life of government. Finally, by encouraging innovators to respond to government programs and fulfill government requirements, we divert their attention from identifying customers, and expanding internationally. Even with the best intentions, in the words of John Wanamaker
In states across America, higher education institutions and systems are working to become key drivers of economic development and community revitalization. They are:
Putting their research power to work by developing new ideas that will strengthen the country’s competitive edge in the new economy — and then by helping to deploy those innovations into commercial use.
Providing a wide range of knowledge-focused services to businesses and other employers, including customized job-training programs, hands-on counseling, technical help, and management assistance.
Embracing a role in the cultural, social, and educational revitalization of their home communities.
And, most fundamentally, educating people to succeed in the innovation age.
Together, these trends suggest a new paradigm for economic development programs — one that puts higher education at the center of states’ efforts to succeed in the knowledge economy.
The
Association For Manufacturing Technology - AMT provides a link to
the listings of those identified State Resources that are focused on
helping companies within their respective states develop competitive
proposals for various federal programs. Additionally, these state
organizations have access to resources that can assist AMT members not
only in research and development activities but also in procurement
efforts with government prime contractors. These listings are updated
as often as we receive information and are kept as current as possible.
Organizations within the nonprofit sector are, for the most part, in a constant state of struggle. Between trying to keep funding coming in and keeping all the constituents happy, it can be easy to lose sight of what they are trying to get done. Some of this is just the inherent nature of nonprofits, but much can be remedied by taking a different approach to how nonprofits are run, and therefore perceived. Applying entrepreneurship skills and perspectives to nonprofit organizations will open the doors for a better public reputation and a better opportunity to make a real difference.
Nonprofits, by their very nature, are difficult to manage. Because they are legally owned by the public and exist for the benefit of the public, they are run by a group of usually unpaid individuals. The board is made up of people with a variety of motives for being there -- some have a passion for the cause, some enjoy the role of leadership, some are just trying to beef up their resumes. Between the board and the people who contribute their time and money to work in the organization, there is a sense that everyone has to agree before any move can be made.
The purpose of this paper is to provide an empirical test of the commercialization route chosen by university scientists funded by the National Cancer Institute (NCI) at the NIH and how their chosen commercialization path is influenced by whether or not the university technology transfer office is involved. In particular, the paper identifies two routes for scientific commercialization. Scientists who select the TTO route by commercializing their research through assigning all patents to their university TTO account for 70% of NCI patenting scientists. Scientists who choose the backdoor route to commercialize their research, in that they do not assign patents to their university TTO, comprise 30% of patenting NCI scientists. The findings show a clear link between the commercialization mode and the commercialization route. Scientists choosing the backdoor route for commercialization, by not assigning patents to their university to commercialize research, tend to rely on the commercialization mode of starting a new firm. By contrast, scientists who select the TTO route by assigning their patents to the university tend to rely on the commercialization mode of licensing.
Venture capitalists and angel investors can be very useful external sources of capital for established businesses, but the value they bring to new ventures and start-ups is questionable at best. Entrepreneurs should aim to finance their ventures by means other than venture capitalists, private equity and angel investors unless a large fortune is needed to finance business start-up activities or they choose to work with investors specifically focused on very early-stage start-ups. Here are eight strategies in which many entrepreneurs might choose to finance their ventures:
Business Credit Cards Many successful businesses, such as Under Armour, were financed through credit cards in the very early stages of their venture. While credit cards are not necessarily the most ideal source of financing as they do have their drawbacks, if used correctly they can be a very effective source of financing.
How to use a business credit card correctly: - Effectively manage cash flow by not having to pay for purchases until the end of the billing cycle. - Use to pay for start-up fixed and upfront costs so you can make your first sale - Plan ahead on how you will pay off the balance, then create a backup plan
As national organizations that support the start-up and growth of innovative small businesses, we want to express the importance of ensuring that the Restoring American Financial Stability Act of 2010 does not damage angel investing and particularly the entrepreneurial businesses they support. We join the Angel Capital Association in asking that two small sections in the bill be removed or modified:
Section 412 and 413, Adjusting the Accredited Investor Standard for Inflation. As currently written, this section could result in the elimination of as many as two-thirds of all accredited investors who invest directly in start-up and early-stage small businesses.
Section 926, Authority of State Regulators Over Regulation D Offerings. This section could make it more difficult to raise angel capital from investors in different states, make it unclear what entities regulate angel investments, and introduce potential lengthy waiting periods for businesses to receive their capital, possibly resulting in the death of those businesses.
We appreciate the importance of regulation to protect investors from fraud, but we urge the Senate to consider several factors in improving these sections of the legislation:
Entrepreneurial companies are important to job creation and innovation in the United States. We note particularly the study by the US Census Bureau that companies five years old or less created all of the net new jobs over a 25 year period.
Angel investors are an important source of capital for many of these innovative start-ups. For instance, one of the signatories to this letter, the Association of University Technology Managers (AUTM), has tracked the source of initial funding for university spin-out companies for the past five years. They have consistently found that accredited individual investors are the source of initial funding for a third of all university start-up companies. All of the signing organizations are therefore deeply concerned about any changes that would diminish the size of the pool of accredited investors.
Establishing standards that would significantly cut back on the pool of angel capital is especially difficult during the recession, when small businesses are having trouble finding capital, especially in the $100,000 to $2 million range that is sometimes referred to as the “Valley of Death.”
Startup and seed investments are precisely the types of financing that need uniformity and simplicity the most. It is important to ensure that entrepreneurs raising capital have the same regulations regardless of their state and that they are not subjected to excessive legal costs, delays, complexity, and uncertainty that would follow from Section 926 as currently written.
Consider “beefing up” accredited investor protections for private offerings by clarifying who is disqualified from involvement in these financings and developing more accessible information on individuals and entities with prior records of fraud and deceit in any type of investment activity, so that federal and state securities regulators can more easily review Regulation D filings to ensure that new investment offerings do not include those people and entities.
Thanks for your consideration of these issues and your support of innovative small businesses. We want to ensure that the entrepreneurial startups that create important innovations and high quality jobs not only continue to have this important type of capital so they can grow, but that they are not subjected to regulations that make new and existing companies die for lack of capital or waiting to clear 120 day hurdles and large legal costs to get regulatory approval for the legitimate capital they raised.
Sincerely,
Dan Berglund State Science & Technology Institute
Marianne Hudson Angel Capital Association
Jim Jaffe National Association of Seed and Venture Funds
David Monkman National Business Incubation Association
Matthew Nemerson Technology Councils of North America
Rohit Shukla Larta Institute
Ashley Stevens, D. Phil (Oxon), CLP Association of University Technology Managers
Kerwin Tesdell Community Development Venture Capital Alliance
Eileen Walker Association of University Research Parks
It’s not enough that Warren Buffett has become one of the richest men
in the world. He’s also a world-class storyteller – and nowhere does
this gift go on public display more than in his annual letter to
shareholders.
His latest letter
on the Berkshire Hathaway Web site offers terrific lessons for startup
ventures in shaping their communications.
Lesson No. 1: Converse Like a Real Human Being
There’s something about a position of power that often causes perfectly normal executives to embrace “corporate speak.” Their communications become stiff and jargon-filled drivel.
In contrast, look at how Buffett explains his philosophy of empowerment:
We tend to let our many subsidiaries operate on their own, without our supervising and monitoring them to any degree. That means we are sometimes late in spotting management problems and that both operating and capital decisions are occasionally made with which Charlie and I would have disagreed had we been consulted.
Mathew Ingram at GigaOm recently reminded everyone about Morgan Stanley analyst Mary Meeker's thesis that mobile is the next major wave of computing innovation.
Happily, each wave has been vastly larger than the one the came before it, so there's good stuff in store.
Mary spoke in detail about the mobile explosion at Web 2.0 last year.
Her entire presentation is embedded below (courtesy of Morgan Stanley). The section on Mobile starts on page 28. We have also put together the key Mobile highlights with our commentary below.
Recently, the blog Grasshopper conducted a survey, "The Entrepreneur
State of Mind," and the results have now been summarized in an infographic by Jason Lankow of Column Five Media.
The picture it paints adds some demographics to a fairly amorphous set of people. As you'd expect, entrepreneurs are largely youngish, broke, hungry--and probably far more optimistic than your average bear. The weirdest thing was that 70% are male. Which sounds like a sampling error, but looking around at today's businesses, it does seem like almost all were started by men:
Maybe you’ve seen a PowerPoint presentation that looks something like this [visual: heinous PPT template]. Maybe you were the author of a PowerPoint like that. This is a little unfair—usually people will throw in some clip art to jazz it up a little [visual: ridiculous smiley-face clip art]. How do you avoid the dreaded bullet-drenched PPT? Here are 3 tips.
1. Be simple. I know, you’ve heard it before. But it’s worth hearing again. There’s a trial lawyer who holds a focus group with the jury after every major case. His one overriding conclusion: If you make 10 arguments to the jury, no matter how good each argument is, by the time they get back to the jury room, they’ll remember nothing. If you say 10 things, you say nothing. Well, your colleagues are your jury. I know it hurts to cut but if your main points are going to shine through, you’ve got to be ruthless.
2. Show something. To be clear, that’s not the same thing as using clip art. You don’t need to decorate, you need to communicate. What you show doesn’t even need to be on the screen. I got an email from the president of a power tools company who was on the way to a sales meeting. He’d prepped a long presentation about how great his tools were. At the last minute, he decided to toss it out and instead, he put two drills on the table in front of the customer—his and his competitor’s. He disassembled both of them side-by-side to show the durability of his drills. The customer loved it. The best presentations are like this—they bring a little reality into the room.
Harvard Business School’s Josh Lerner, an expert on entrepreneurial finance, has largely good things to say about recent steps out of Washing D.C. to strengthen small business growth.
But the Obama administration has gone wrong on some key policy directions, Lerner says, steps that could seriously undermine the best of intentions.
For example, the administration is focused on the idea of loosening up bank credit to fund expansion. Yes, that would help many small businesses, but not the ones that create jobs — the object of this exercise. Lerner points out that very young companies — say less than 5 years old — are the biggest job creators. A 25-year-old small business is more likely cutting than hiring. Actions to help venture capitalists and angel investors, who are also hampered these days, would better serve start-ups.
Disclaimer: The information contained in this website and newsletters is for general information purposes only. The information is provided by Innovation America via its newsletters (InnovationDAILY), but not written or endorsed in any way by Richard Bendis or Innovation America unless otherwise noted. While we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
Serial entrepreneur Steve Blank has 
Organizations within the nonprofit sector are, for the most part, in a constant state of struggle. Between trying to keep funding coming in and keeping all the constituents happy, it can be easy to lose sight of what they are trying to get done. Some of this is just the inherent nature of nonprofits, but much can be remedied by taking a different approach to how nonprofits are run, and therefore perceived. Applying entrepreneurship skills and perspectives to nonprofit organizations will open the doors for a better public reputation and a better opportunity to make a real difference.
The purpose of this paper is to provide an empirical test of the commercialization route chosen by university scientists funded by the National Cancer Institute (NCI) at the NIH and how their chosen commercialization path is influenced by whether or not the university technology transfer office is involved. In particular, the paper identifies two routes for scientific commercialization. Scientists who select the TTO route by commercializing their research through assigning all patents to their university TTO account for 70% of NCI patenting scientists. Scientists who choose the backdoor route to commercialize their research, in that they do not assign patents to their university TTO, comprise 30% of patenting NCI scientists. The findings show a clear link between the commercialization mode and the commercialization route. Scientists choosing the backdoor route for commercialization, by not assigning patents to their university to commercialize research, tend to rely on the commercialization mode of starting a new firm. By contrast, scientists who select the TTO route by assigning their patents to the university tend to rely on the commercialization mode of licensing.
Venture capitalists and angel investors can be very useful external sources of capital for established businesses, but the value they bring to new ventures and start-ups is questionable at best. Entrepreneurs should aim to finance their ventures by means other than venture capitalists, private equity and angel investors unless a large fortune is needed to finance business start-up activities or they choose to work with investors specifically focused on very early-stage start-ups. Here are eight strategies in which many entrepreneurs might choose to finance their ventures:
Mathew Ingram at GigaOm recently reminded everyone about Morgan Stanley analyst Mary Meeker's thesis that mobile is the next major wave of computing innovation.
Harvard Business School’s Josh Lerner, an expert on entrepreneurial finance, has largely good things to say about recent steps out of Washing D.C. to strengthen small business growth.
