I recently read about Buffalo's new business plan competition to try and spur entrepreneurship in the area. It's called 43North and is offering $5 million in total prizes to businesses and a $1 million grand prize. With every municipality east of Silicon Valley undertaking "entrepreneurship initiatives," I'm usually a little skeptical, because they often seem to lack a real system in place and are just trying to capitalize on buzz; a city can launch as many Incubators as they want, but without a network of support, access to funding or mentors, and a community united behind the project, those spaces fail to really spur any true change in an area.
However, after thinking about Buffalo's initiative some more, I think it's a really good idea. And that's coming from personal experience.
My partners and I launched NMC while still in college, and the motivating factor for the company was the Carolina Challenge, a business plan competition sponsored by UNC. We were lucky enough to win that competition and take home the $12,500 prize (essentially $1 million to a college student). I think I can safely say that without the Carolina Challenge, NMC wouldn't exist; however, interestingly, I do think it would exist even if we hadn't won the competition.
That's the beauty of business plan competitions -- they dangle a carrot in front of you that encourages you to do a lot of the hard work up front. We had to spend a lot of time thinking about what we wanted to do, writing our business plan (which quickly got pitched out the window after a few months in business), validating that to judges, and making connections in the local business community as we traversed the competition. All of those things had to happen before we won or lost, and I distinctly remember all of us agreeing to act on our idea regardless of the final outcome, because of all the work we had already put in and the value we saw in it.
Someone getting cheap space at an incubator doesn't necessarily have to go through all those steps, and it makes them less likely to be fully bought in when times get tough (and they will).
And how did that investment from the community turn out? NMC is now 8 years old, employing a dozen people in the area, helping the local tax base, and contributing to the community in many ways (including fun windows). We're not Google or Facebook, but I'd say it worked out well for that relatively small investment, and we've also tried to pay it back to UNC by helping with the competition and speaking to entrepreneurship classes on campus.
There are definitely plenty of ways to spur entrepreneurship in an area and many are cheaper than $5 million, but I really respect what Buffalo is doing and it seems to be outside the box of what most communities are trying (incubators, pitch days, etc.). It wouldn't surprise me if one of the biggest successes to ultimately come out of the process is someone who doesn't win the grand prize. I'm excited to see where this goes!
And your reward for reading this whole post is getting to see what we looked like when we won that competition 8 short years ago (get a haircut, bro)...
Barry Sanders is one of the greatest running backs ever. It seemed impossible to bring him down unless you had an entire team tackling him. A sportswriter once asked Barry, "What do you see different than the rest of us that allows you to find all the holes and make these amazing runs?" Barry responded simply and powerfully, "I see the same thing as you. The difference is that I know I can get there."
What an awesome quote. Sanders was fast, but not the fastest person in the game and he certainly wasn't the tallest, at 5'7" he was actually one of the shortest. However, he knew he could get there.
I think this philosophy applies to business and life as much as it does to football. We're all seeing the same thing, the difference is some people just know they can get there.
Everyone experienced losing a package or having it arrive two days late -- we all saw that the mail system was broken. Well, Fred Smith saw it and knew he could get there, causing him to start FedEx.
Companies had already built mp3 players, people knew the music industry was changing, but Steve Jobs saw it and knew he could get there, leading to the iPod.
Look at Facebook -- there were plenty of people in the space before Mark Zuckerberg, and while they recognized the value of social networking, they were content to just go with the flow and enjoy the ride. Zuckerberg's determination to actually get to what he saw is the real difference in why Facebook crushed the competition.
These people all have unique skills, similar to Sanders' speed and agility, but those assets alone don't explain how they become such gamechangers. The real difference is their supreme confidence in those skills, even in the face of daunting challenges, and their committment to getting there.
You can have all the foresight in the world, but if you're not totally confident in being able to close that gap and do what's necessary to get into the endzone, you will fall short of the mass disruption you're shooting for.
For me, I vividly remember the first time I embraced the concept that I could "get there." Our startup was less than six months old and two of our co-founders decided to go on to graduate school, and Joel and I decided to buy out the majority of the shares. Joel and I sat in a room, talked about the option for maybe 30 minutes and decided to do it. The decision put us in debt and altered our career and life trajectories toward the unknown.
At this point, the company hadn't paid us a dime, struggled to show a longterm growth path, and was seriously hurting our chances of graduating from college. However, I remember sitting there thinking, "If it comes down to it, I'm willing to get up at 6 am everyday to cold call or knock on people's doors to talk about websites. I'll do whatever it takes to sell some damn websites."
That was me realizing that my vision may be blurred and there could be some big obstacles approaching, but I was confident that I would do whatever I needed to to get there. That was almost 400 websites, nine employees, one co-founder returning, and four years ago to the day. I know the next time I'm presented with such a grand decision, that I can have confident in my determination to get there.
We could all learn from Barry's philosophy whether in work or pleasure, there's value in not just resting on the fact that you recognize something, but actually taking the strong steps to get there.
Lately, it seems the web has been abuzz with a new East Coast vs. West Coast battle. However, this battle is much lamer than Notorious BIG and Tupac fighting a turf war, it’s a reputation battle between venture capitalists. Many are claiming that NYC is on the upswing and could soon displace Boston and Silicon Valley as the premiere location for tech entrepreneurs. Here’s an NY Times article on the subject and here’s a Chris Dixon post on what really matters for entrepreneurs choosing a location.
This digital jousting spurred an email exchange between me and a couple friends. One of whom works for a successful middle market Investment Bank and the other works for a VC-backed Real Time Advertising Exchange startup in San Francisco. I wrote a rather long email to them and figured that I would post it here to give my thoughts, and solicit others’, on the venture scene for tech startups in the Triangle (what we locals lovingly call the Raleigh-Durham region).
I should note that my company is not venture-backed, a fact we’re rather proud of, and I don’t mingle much in VC circles. However, I’ve been an entrepreneur in the area for over three years, know many other entrepreneurs in the area, and actively participate in the university system and early entrepreneurship programs; so, I think I still bring an informed, yet unique, perspective to this discussion.
I have always maintained that intrinsically the Triangle’s tech-entrepreneur scene is on par with NYC, Boston, and San Fran. The universities are stellar, the weather is amazing, and there is a natural entrepreneurial spirit. However, in my opinion, there is a lack of Investment Culture. So, even though there are VCs around (albeit fewer than those other locations), it’s not ingrained in students/20-somethings here that they can drop out and raise money for a good business idea.
This cultural difference is because there haven’t been many HUGE tech exits in the Triangle to spin off young Angels and VCs, such as the PayPal Mafia out West, to actively court and mentor young entrepreneurs. I think this fact leads to fewer people even getting to the stage of thinking about starting a company, let alone actually trying to raise real money.
I’m not entrenched in the VC/investment scene here at all, but I know there are several greatfirms. Also, there are some good Angels. However, these resources only reveal themselves to people who are really actively pursuing them, unlike in NYC or SF where it’s second-nature to think that you can raise money with a good idea. So, while there is available cash in the area, early stage entrepreneurs don’t know about it and don’t know to ask for it.
Finally, I think the Triangle VC scene much prefers larger, more mature, biotech-like investments. When we worked out of a business incubator in RTP, everyone there was a pharma, bio, or high tech company. I think the area’s universities spin out a lot of these type of people and the past successful exits have been in these industries, leading to a cycle of similar investments.
If Motricity or Shoeboxed or iContact or someone else had a huge exit and spun off a bunch of 25 and 30 year olds interested in Social Media and Mobile, then I think there could be a real change in the scene. However, until there are a couple of exits like that, it’s an uphill battle for tech entrepreneurs fighting mature entrepreneurs and reclusive funding.
Inc. had a great profile on Jason Fried yesterday in their The Way I Work section. For those of you who don’t know, Fried is the founder of web company 37signals. The company is best known for their suite of easy-to-use project management and collaboration tools, as well as for their popular blog that has over 100,000 subscribers.
I encourage you to check out the piece and read it for yourself. It’s a great read on a very successful entrepreneur and someone that I’ve looked up to since we first started our web design firm in 2006. I’ve jotted down a few takeaways and thoughts.
1. Continue to evolve your business and look for new revenue streams. 37signals started as a web design firm in the services industry. They were beholden to deadlines and client approvals in order to get paid. They worked on their first products as in-house tools to be used for them, but then quickly recognized the revenue potential of these side projects. They started marketing their products to their customers and soon their product business overtook their services to the point where they no longer had to meet another client deadline. Many companies would build a tool in-house and not think to market it — 37signals continued looking for that next source of revenue and it totally changed their business model and lives. This is actually exactly what my company is doing with our new CMS for Designers, HiFi.
2. Don’t be afraid to give away content and “secrets” for free. 37signals has kept a detailed blog for years. Covering everything from their products to business strategy to actual revenue numbers. Some marketers may think its crazy to be so candid and give away the “secrets” of their business. However, it’s that very candor that has allowed 37signals to touch so many people. Due to their unfettered openness and quality content, the blog has close to 100,000 subscribers, most of whom are very excited to buy the next product the company pumps. Fried puts it best when he says you have to “out teach, out share, and out contribute,” just as celebrity chefs do. Share your “secrets”, but reap great rewards in the long run as you engage your target and spread your brand.
3. It doesn’t hurt to have a little attitude. No one has ever accused Fried of being shy or keeping his opinions to himself. However, it’s frequently this controversial attitude that cause people to read his every word. No one wants boring. The web loves some controversy. Fried’s certainly isn’t the only person in the world that values profit vs. user growth, simplicity in application design, and short work weeks. However, he definitely shouts these tenets louder than most other people. Whether he’s Tweeting, blogging, or speaking, he’s always on message. In the profile, he even notes that many of his Twitter followers are just their waiting to argue with him or say something hurtful. However, I’m sure that doesn’t bother him too much as he licks his wounds all the way to the bank.
I really encourage you to check out the article and learn from one of the web community’s best and brightest. Be sure to leave any other thoughts in the comments.
Mint.com recently had a successful exit to Intuit for $170 million. While some, such as Jason Fried, have argued over whether the exit was a good decision or a premature one, I don’t think we can pass judgment without knowing a significant amount of confidential details (i.e., profitability, user growth, revenue growth, VC pressure, etc.).
So, this post is operating under the (perhaps naïve) assumption that any exit where the founders make a ton of money and keep their product intact is a successful one.
In just a few short years, Mint grew from just an idea in Aaron Patzer’s head to a product being used by 850,000 people. This dramatic growth and subsequent acquisition didn’t just happen by luck, and there are several lessons to be gleaned from the success of Mint:
1. Don’t be scared to challenge an established player. Mint launched as a boot strapped venture by Aaron Patzer. He saw an opportunity in that all other personal financial software was cumbersome and not necessarily targeted at younger users. Rather than just complain to friends and be afraid to challenge multi-billion dollar competitors like Intuit and Microsoft, he sacked it up and decided he could do it better than them. We always hear of the fabled garage startup putting an established player out of business, but most entrepreneurs still remain frightened of challenging these big companies. Mint proved you with the right idea, you can out swagger even the most mighty of competition.
2. Elegance in an app matters. One of the first comments made about Mint by new users is almost always the beauty and intuitiveness of the app. The company understood that their product, no matter how many cool features were packed in, would be rather useless to customers if it wasn’t extremely usable. They when went the extra mile and added a shine of elegance on top of the intuitiveness. In addition to this strategy making the app fun to use, it also helped capture college-aged users (a prized demographic) who are used to working on the web and appreciate extra attention to detail in their software (see: Apple).
3. Think of ways to break the “usual” business model. Mint is a free service. So, it must be supported with revenue from banner/text ads, right? I mean, that’s the way free things work: Google, Facebook, Myspace, NYTimes.com, etc. Is there another option? Mint didn’t fall into the trap of just mindlessly following its predecessors (albeit very, very successful predecessors), but came up with a model unique to its offering. Mint made its money by analyzing a user’s financial situation and habits, and then recommending relevant products or offers. This is different than a freemium model (see Evernote or DropBox) and the typical advertising relationship, but that didn’t prevent Mint from giving it a shot and ultimately succeeding with it.
4. Free can work. While my company certainly believes in charging for our products and services, I fully understand that many start-ups haven’t been charging lately. While I, like many others, have an issue with this general approach, I can’t deny that it can work in certain situations. If your product or service can gain users at a such an accelerated rate that you can make money because of them rather than from them, then go for it. However, don’t hold on for too long, thinking that the big jump in users is just around the corner while you spend all of your cash. It’s better to start charging early than too late.
5. It’s ok to exit. I think I’ve made it clear in this article that I think it’s more than ok to make an exit, if the terms make sense. Much of an exit decision goes far beyond just compensation and places a lot of emphasis on other aspects of the deal, such as product future, ongoing commitment to purchaser, and more. Mint was able to keep its product and free subscription model in place, while also doubling its user-base with Quickbooks’ 1.4 million users moving over to Mint. I’m sure CEO Aaron Patzer would not have exited without assurances that the product and business he built would remain intact and that he was also excited about the idea of growing his product in such a large way.
6. Take your time. Mint was launched in 2006 and took several rounds of funding. It was originally bootstrapped by Patzer and he hired slowly before getting his first round of funding. Not every successful exit is some blowup success over night. These things take time and taking time is the way to build the best company possible. I remember when we first launched NMC, we thought we’d have an easy exit that would make us filthy rich within the first five months of the company – while we did have an opportunity to sell that quickly, it wasn’t the right deal and by understanding the importance of taking our time and not rushing, we’ve been able to build a much more valuable and enjoyable company.
7. Word of mouth can get it done. Mint outgrew its large, public competitor at such a staggering pace that it would seem that they were investing all of their money in marketing. However, the company had a rather miniscule marketing budget, spending only around $50,000 on search engine ads. Everything else was done through inbound marketing, word of mouth, and hard work. The company kept an updated and very helpful blog (this very cool graphic is actually how I first found the company: Visualizing Uncle Sam’s Debt), attracted fans on Facebook, and provided useful information on Twitter. I know I helped in this effort, as after I started using Mint, I instantly added it to my Facebook favorite links and emailed it out to about two dozen of my friends.
As you can probably tell from this post, I think presents a pretty inspirational story as a startup and marketing machine. However, unlike people like Fried, I don’t think their acquisition means that the story has ended, but that its simply entering a new chapter.
Are there other lessons to be learned from Mint? What other startups are putting these lessons to use? Have you?