Are Innovation & Evolution Really the Same Thing?

I am fascinated by evolution. It’s a controversial topic (+), science knows it exists but can’t explicitly determine how it works (+), our existence is a result of this mysterious phenomena (+). What’s not to like, you couldn’t make up this sort of drama? Of the literature I’ve read the punctuated equilibrium model where after eons of consistency something happens and as a result there is a dramatic jump in evolution (either within a specie or more frequently across many species) seems to me to be the best justification for evolution.

So what does evolution have to do with business? Well, you see, I’m a fan of Glee. I know I’m not exactly the target demographic but it’s a fun show and I recently read How Fox’s ‘Glee’ Married TV and Music in a New Money Making Model. It got me thinking that if it weren’t for the Internet and DVRs popping up and causing all sorts of havoc for network television Glee probably wouldn’t have emerged, at least not in the form we have today. For years TV remained pretty static, sure it went from B&W to Color and later Cable and Satellite emerged to add choices but the model remained the same. Until web video and DVRs changed things. The same is true of the music industry, it’s hard to imagine Glee selling as much music as it has if it weren’t for MP3’s dislodging physical media and the emergence of iTunes where people can watch the show and download music simultaneously.

So, while the dinosaurs in traditional media went extinct some evolved… and sure other new species emerged to fill the vacuum. All this has led me to a new question: does more innovation (valuable sustainable innovation) happen in steady-state as innovators see opportunities or has it been in a response to changes in the landscape that the greatest advances in technology, business process and business models have taken place?

Are you an entrepreneur or entrepreneurial?

I’ve spent a good amount of time thinking about this issue over the last few years. There are clearly both types of people in startups and both types of people start startups but they are clearly different in my mind. This is akin to asking, “are you an addict or do you just use drugs?”

The metaphor is quite relevant in this case. While I’m proud to call myself an entrepreneur it does carry with it some of the negative connotations associated with addict, namely, I couldn’t really change if I wanted to. I’d be curious to see if those entrepreneur’s that are the most success are addicts or just users.

More opportunities than time? Priorities!

Most of what I envisioned this blog would be about is the ways in which b-school and the lessons it teaches are different from the realities associated with starting a company but there is one area that they couldn’t be more alike – priorities.

B-school is a bonanza of opportunity and best of all much of it comes to you. At Foster, we’re able to tap into Seattle’s vibrant business community and indeed in many cases busy professionals come to campus to spend time with us (they’ve clearly chosen to make giving back and investing in us a priority). This represents a problem, on any given day there are events that not only conflict with your class schedule but each other.

Startups are similar, especially a pre-revenue startup. There are plenty of opportunities that you could justify pursuing but you only have so much time in the day.

But wait, there’s more. A life you say? You want a life? You have a family you want to spend time with?

So how do you prioritize? I don’t have the answer but it seems coming to grips with the fact that you must make sacrifices is the start. I’ve heard my classmates complain about having to choose between spending lunch one great company exec or another, we are to be pitied aren’t we. As a glass-half-full kinda guy I’m just happy to be in a position to have these sorts of tough choices to make. Besides, isn’t making these sorts of choices what leadership is all about?

The attitude I’m seeking for my startup

Team, team, TEAM. No matter how you write it it’s a simple concept and really important to a startup. I knew when I started my little venture that I wanted to build a team that I could get excited about working with every day and it’s been an interesting ride. Suffice it to say I’m still spending a lot of effort on team building.

Capabilities are important, but not that important. People can always learn what they need to. What I’m really looking for is fit. A big part of B-school, especially at Foster, is developing leadership which includes understanding what type of leader you want to be. I want to be a leader that has the vision to know where we need to go and the humanity to build a work environment that makes people enjoy the journey. But like any leader I struggle to answer the question, how do you find and cultivate relationships with people that complement your style to create a company that is more than it’s sum?

If you’ve worked with me you know that I like to think about stuff. New stuff, new ways of doing old stuff, ways to make old stuff new again – you get where I’m going. It’s in playing out scenarios and talking through issues that I’m best able to process potential opportunities and set direction. In my experience, I’ve come to realize there are 3 types of people: the pessimist that’s already too busy or too set in their ways to get excited about something new, the yes-man (or woman) who thinks everything they hear is terrific, and the can-do person who pushes back to understand the issues at play and adds value to the evaluation process. One of the most important aspects of these can-do people is that they don’t just appreciate the idea but that they’re excited to tackle it – this is HUGE in a startup, especially one as lean as ours.

I’ve heard guest speakers in class talk about how they hire talent even if they don’t have an immediate role for them, I think my version will be “I hire can-do.”

If you want to get involved with a startup and you’re full of can-do I want to hire* you. (*Disclaimer, our startup is bootstrappy poor right now so we’re not looking to hire but we are looking to conduct 3-6 months “interviews” with the potential to earn what will likely be below-market wages doing awesome things with our firm at it’s conclusion.)

We’re bootstrapping… seriously, we have no money

Let me start by saying I fully appreciate the “would you rather own an entire grape or part of a watermelon” argument for pursuing angel and VC funding. That said, my hope has been that we’d be able to bootstrap and wouldn’t need to raise external dollars. (I started writing this post a few weeks ago and for a variety of reasons things may be-a-changin).

Our team is mostly MBA’s, that means we’re in the glorious position of having guaranteed income (in the form of student loans). As individuals that’s fine but as a company we’re poor. We’re not interested in raising significant money at this point, see my post “How are you funded?”, but we could use a little more cash in the ‘ol bank account.

I’ve spent a lot of time trying to recruit people who are willing and able to work without cash compensation but it’s been tricky. Since returning to school after the holiday break I’ve been asked a number of times, “hey, how is the startup going?” My response has become, “The BizDev and Strategy is going great but development is seriously lagging.” We’re building the first feature of our prototype web application in India and they are working for free (great) but it’s been sporadic (boo). I can’t blame them, they have bills to pay and they engaged us because they’re a new small firm looking to build its brand and get a US reference customer but that doesn’t cover payroll.

I used to talk about our company as a sales and service organization built to be scalable on a web platform but, lets face it, we’re a tech company and we need a tech lead and developers – if you know people… Anyway, I’m not naïve, I know that good devs with experience are hard to come by but despite the tough environment finding an entrepreneur incentivized by equity hasn’t proven as attractive as I’d hoped.

So, if you were and enterprising MBA student looking for find a talented and passionate Rails guy or gal to join the world-changing company as a technical cofounder but couldn’t offer immediate cash compensation what would you do? The business is reaching the point where fundraising is plausible but definitely not a given, particularly in light of our full-time MBA status, and the valuation still would be quite low. Are tech folks more interested in the cash today than equity tomorrow? If so, perhaps raising cash would just act to shift most of the allotted the equity from the “founder” to the investor while finally accelerating development in the direction of a revenue-producing product? Startups are fun.

Are you going to raise money? Aka, How are you funded?

If you’re looking for a loaded question this is it. I’ve heard it from a bunch of people, some that I’ve been courting to join the team, classmates that I’m just looking to bounce ideas off of, and experienced folks I’m tapping for advice.

Here’s my read of this question: it’s 20% curiosity about the potential capital structure of the organization and 80% delegated diligence. Venture Capital is meant to accelerate high-potential startups and is clearly needed in situations where you need to reach mass for network-effect reasons or you need a long runway to become cash flow positive but it seems to have become the defacto standard for determining if a startup is going to be acquired for big bucks or do something particularly exciting.

Heuristics are great, they let us build quick models to shuffle the crap off our plate to make room for the good stuff but this is a risky one. Look, we’ve got a take-over-the-world strategy just like most startups and if we wanted to go after it right now money would definitely be required but that doesn’t feel very pragmatic. Our initial “product” will solve a real need with real companies in a niche that hasn’t drawn too much attention yet and  we *could* generate real money but not quite that $100M in annual revenue that VCs tend to look at. But the great thing is, this initial business is Phase-1 not the end game. Sure, it will take time to build and the landscape will shift as we go potentially impacting our long-term strategy but hey if we reach year 4 with $50M in revenue we’ll still have plenty of options – plus I like to think that my team and I will be smart enough to sniff out new opportunities along the way.

Of course, maybe I’m way off the mark and the 80% is really just people wondering where their salary would come from.

P.S. if you or someone you know is interested in investing in a startup whose principals are full-time MBA students, let me know.

Becoming Ubiquitous is Hard!

In business school marketing we talk quite a bit about product diffusion, in entrepreneur and strategy classes we talk about technology or innovation diffusion. We use fun terms like Innovators, Early Adopters, Early Majority, Late Majority, and Laggards and plot against the Diffusion Curve. Books that talk about Crossing the Chasm have sold out of countless bookstores, physical and virtual alike. Yet I’m constantly reminded of how difficult it is for something to become truly ubiquitous whenever I visit my hometown of Placerville.

This smallish town I grew up in is located in Northern California. Despite it’s geographic proximity to Silicon Valley, only 2 hours traffic willing, it’s a world away. My mom is just now able to get DSL and she’s asked me to help set it up while I’m home for Christmas, she doesn’t realize you just plug the thing in. My wife’s parents are still unable to get anything but a spotty Verizon wireless connection.

I’ve spent a good deal of this trip using my extended family and long-time friends as an unknowing focus group. Here is what I’ve found (in first person): the internet is a tool I use or a thing I visit when I have time, it doesn’t get in the way of my real-life; I don’t subscribe to any blogs, why would I care what some random people have to say? (also, what’s an RSS feed?); What’s Twitter?… oh, that’s, um, interesting – I don’t have time for that. Skype, with its ubiquitous nature, sports between 13 and 20 million users at a time – that’s a lot to be sure but compared to 300M American’s that’s well under 10%.

Don’t misunderstand, my research subjects are smart people. These are people who’ve run successful businesses, are viewed as leaders in their community, have college degrees and in some case graduate degrees but their lives aren’t as intertwined with things that I take for granted as an MBA at a respected research university in one of the foremost technology hubs.

I can’t help but think, if this is what things are like in a town in California there are probably more places like it across the US than are like Seattle. What opportunities lay in wait for those who are able to Cross the Chasm and bring something of real (or perceived) value to these people we classify as Early and Late Majority in the towns and cities of Texas, Michigan, the Carolina’s and the like?

Founding with a Full-Time Job

I was at Startup Day here in Seattle a few months back and Hillel Cooperman made the comment that if you’re thinking about starting a company and currently have a full time job, DON’T QUIT. That’s not to suggest that you shouldn’t start the company but why would you quit when you have an income from your day job and nights and weekends to work on your own project.

Starting a company in business school is pretty similar. It’s a great time to start something and very low risk, aside from the value of your time. In school you even have income, sort of, in the form of student loans.

There are obviously some concepts that require an all or nothing push from the start but most need a little time to get their bearings, working full time wouldn’t necessarily help accelerate that process. Besides, a startup is a labor of love and it’s easy to get myopic if you don’t have exposure to anything else.

Whatya mean you don’t get it?

I like talking about my startup, it gives me a chance to refine the message and get feedback on what I’m doing from smart people (and some not so smart people). My goal in every case is to take something away from the conversation no matter how brief the conversation is.

I realized recently that sometimes what has become a given to you others may simply not get, especially if what you’re doing is clever. Of course, you’ve spent countless hours in bed thinking about it and they’ve just been hit upside the head with your idea so it makes sense. Lately I’ve gotten a few blank stares and I’ve realized it’s because they’re not the customer. The benefits our solution would provide, no matter how simple or strange, simply don’t resonate with non-customers.

Selling your idea to non-customers can be a futile effort and distract from the opportunity to glean insights that people who ‘get’ your business can’t provide. It’s seems that in starting a company you don’t just need to learn but you need to devise new ways to learn. Why would you want to do anything else?

Decisive or Impulsive?

In an open-source, Elance world how much diligence should one conduct prior to pulling the trigger on prototyping?

We’re in the process of developing our primary application and we’ve uncovered what could be a lucrative way to engage customers while we continue developing it. Due to other time constraints we’re in a hurry to sign up lead users and beginning the engagement process what’s more this microapplication comprised mostly of open source components and plug-ins could be built in 5-10 dev days. Clearly you can’t run out and build something every time you think “hey, what about x” but sometimes you should. Where do you draw the?