5 secrets of winning start-ups

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5 Secrets of Winning Startups Dr. Gregg Li, Hawaii May 2014 With generous insights borrowed from Douglas Glen, Alpesh Patel, Tytus Michalski, and Other Angels and Venture Capitalists

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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.

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Page 1: 5 Secrets of Winning Start-ups

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  

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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.    

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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?    

 

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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.”  

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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.  

 

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REAL  ENTREPRENEURS  UNDERSTAND  WHAT  DRIVES  THEM…EVERYDAY  

Lessons  Learnt  #1  

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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.  

 

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DON’T  RUN  OUT  OF  MONEY!  Lessons  Learnt  #2    

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•  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.    

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WHAT IS THE PURPOSE OF A

BUSINESS?  

Seeing  Differently  

3  

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FOCUS  ON  THE  CUSTOMERS  Lessons  Learnt  #3  

“The purpose of a business is to find and keep a customer…” Peter Drucker

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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.      

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GET  THE  BEST  PEOPLE  YOU  CAN…AND  WORK  ON  THE  TEAM  

Lessons  Learnt  #4    

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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.  

 

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CONTINUE  TO  SEEK  OPPORTUNITY  FOR  EXIT  

Lessons  Learnt  #5  

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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.  

 

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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  

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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  

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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  

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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.  

 

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LESSONS  LEARNT  SUMMARY    

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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  

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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.