5 secrets of winning start-ups
DESCRIPTION
What are the key reminders for start-ups and entrepreneurs as they begin to scale? Dr. G gathered a list of interesting reminders from fellow angels and venture capitalists. This presentation was aimed for an audience of start-ups.TRANSCRIPT
5 Secrets of Winning Start-‐ups
Dr. Gregg Li, Hawaii May 2014 With generous insights borrowed from Douglas Glen, Alpesh Patel, Tytus Michalski, and Other
Angels and Venture Capitalists
Background of Research and Contributors
• Douglas Glen, an avid angel from the US and working in Hong Kong
• Tytus Michalski, from Canada • Alpesh Patel at UK Trade and Investment • Global Entrepreneur Programme (GEP), basically InvestHK or similar government ouSits whose aims is to aTract investment into their country.
Background to Certain IndicaUve Numbers Used in this PresentaUon
• 300 Companies • UK • Winning means growing at
100 to 300% per year • Losing means growing less,
say below 50%
• GEP asked this simple quesUon … “What’s the difference between winning entrepreneurs and the also ran's?
First Ume entrepreneurs?
• 90% were first Umers. Not too many serial entrepreneurs
• 70% worked for someone else at first to pick up their skills, knowledge, and $
• 90% had max’ed out their credit cards and most failed to make payroll at least once in a 2-‐year period.
• And…they probably had close to 10,000 hours of focus on something that is burning inside each of them. Doug Glen…“The only sustainable compeUUve advantage is the ability to learn faster than your compeUUon.”
Our Kind of Entrepreneur • Natural risk takers who refuse to lose. • Able to recruit and moUvate people smarter than they are. And have them follow the founder.
• Leaders who know how to say, “follow me.”
• Consistently realisUc, avoid “denial” • Charisma that commands respect and trust.
• Playfulness that makes the journey fun.
REAL ENTREPRENEURS UNDERSTAND WHAT DRIVES THEM…EVERYDAY
Lessons Learnt #1
How much was the worth of the company at start up?
• What % built their own IP? 80% • Less than 15% were spin-‐offs from universiUes.
• Vast majority gave away less than 10% of their IP during early stage money raising (reference Silicon Valley’s Rulebook on Share AllocaUon)
• The value of the firm is not their PE equivalent, not their balance sheet…but cash flow management.
DON’T RUN OUT OF MONEY! Lessons Learnt #2
• Being able to aTack and hold on to customers was typical of these companies – Learn fast – Be responsive
• Good ones make mistakes, get feedback, try again.
WHAT IS THE PURPOSE OF A
BUSINESS?
Seeing Differently
3
FOCUS ON THE CUSTOMERS Lessons Learnt #3
“The purpose of a business is to find and keep a customer…” Peter Drucker
How important is the team?
• Angels and VCs will take an “A” team with a “C” or “B” business plan over a “B” team with an “A” business plan. Because nothing starts out as they are.
• Get the best people you can and don’t seTle for whose available. May work for large corporates, but not for start-‐ups.
• Acqui-‐hire these days.
GET THE BEST PEOPLE YOU CAN…AND WORK ON THE TEAM
Lessons Learnt #4
How did they exit?
• 90% of the exits were acquisiUons. Contrary to popular opinions, they were not IPOs.
• 90% of all start-‐ups failed during the first 3 years, but typically only 10% of the winning entrepreneurs would fail amer 3 years
• “The best startups go through four or five near death experiences and succeed ten years later.”…Douglas Glen.
CONTINUE TO SEEK OPPORTUNITY FOR EXIT
Lessons Learnt #5
When’s the best Ume to invest
• Best Ume to invest in these companies are post revenue (making sales) but pre profit.
• The ability and momentum to scale was a Upping point that separated winners and losers
• For the angels and VCs, that means looking for business models that can scale is the top deal breaker.
Our Kind of Deal
• Seasoned leadership. • DisrupUve of a big, complacent market.
• Vulnerable compeUUon.
• High margins, low capital requirements.
• At least one big fat unfair advantage. • I’m able to add value (in addiUon to
money).
• Good fit for the local market at first.
Source: Douglas Glen, 2013
Instant Deal Killers
• No disrupUon. • No unfair advantage. • No low cost way to prove the concept. • No margin for error.
• Naïve belief that their idea is invincible. • UnrealisUc about the Ume, sweat and
blood it takes to succeed.
• No realisUc 100X outcome for seed investors.
Source: Douglas Glen, 2013
Scaling a Hong Kong Startup – Challenges
• Labor pool lacks criUcal mass and key talent in many sectors.
• Local market too small to scale meaningfully.
• OperaUng costs relaUvely high. • Western markets omen pivotal and difficult to service from HK.
Source: Douglas Glen, 2013
Scaling an Hawaii Startup – OpportuniUes
• Do in Hawaii what Hawaii does best – tourism, ???
• Bring in the best team.
• Locate most engineering in places with deep labor pools.
• Locate manufacturing to best serve consumpUon markets.
LESSONS LEARNT SUMMARY
1. Real entrepreneurs are passionate and each believe he/she has a calling
2. Don’t run out of money 3. The customers and their saUsfacUon is the
only true measurement of success. Don’t forget them
4. ConUnue to seek $ and exit 5. Get the best team you can buy
Conclusion • Almost nothing works out as planned.
• Three out of four won’t make it, but the one out of four is well worth waiUng for.
• The pivotal success factor usually comes as a total surprise.