What’s missing?

It’s been more than 4 years since I first blogged about hosting BarCamp in Toronto. And it’s been a crazy 4 years.

And the thing that I’m most proud of are the dozens of derivative events (like ChangeCamp, CaseCamp, StartupDrinks, eCommerceCamp, and the entire *Camp scene). And the ever increasing number of new people and the connections between individuals. There are fantastic social events like Ignite Toronto and PowerPoint Karaoke. There are mobile events like MEIC, Mobile Innovation Week, MEF, MoMoTO. There are events focused on Generation Y – #genYTO (make us GenXers even more bitter). There are opportunities to connect with others in Toronto. There are parties and fundraisers (#hohoTO, #twestivalTO).

There’s something happening here, and what it is ain’t exactly clear

Guess what? There’s a scene! There are events. There are investors. There are startups. There are parties. There are fund raisers.

Why does this matter? It makes it easier to find others that share your interests and may have shared values. It is easier to find the nodes in the network and then exchange value.  It makes it easier to find potential employees. It makes it easy to identify the funders, the mentors, the serial entrepreneurs. The goal was to build a hub, to enable people to come together, to share and connect. It’s up to every participant to identify who might be interesting to them, to build a trust network and to determine how to participate. Hopefully everyone figures out a way to add more value to the network than they extract.

What’s missing?

Well funding. It’s not that there is a lack of funding, there is funding. Venture capital in Canada is an industry that is changing. But the shortage over the past 10 years has created a unique environment. It has pillaged the talent pool. It has left a talent gap. Hear me out. Companies like Microsoft started hiring away  the  best in the early to mid 90s, “228 grads in 1993, 219 in 1994, 283 in 1995, 233 in 1996” . Sure there were others, but Microsoft, Trilogy, Yahoo, Google, Facebook and others are fantastic training grounds for young entrepreneurs. The secondary effect of hiring out of university is that your young talent is free to move about the country. They are unencumbered by mortgages and small children. They tend to work hard, develop mad skills, grow the company, and then settle in and raise a family. Then they stay.

They don’t come back. Why because the companies have grown, they have vested options, nice pay cheques and the prospects in Toronto are weak at best. There are not enough well funded and executing startups to move back and take a senior level role that pays near market rate. Why take a paying gig? Well you’ve got kids. You need to move back. You haven’t spent 10 years in Toronto building a personal/professional network. You know that in Silicon Valley, Boston, Seattle you can garner a base of $150,000 at a funded startup.  You compare that to startups that think that stock options are incentive compensation (seriously, there’s a vesting schedule you give execs a big grant to incent them to work, if things don’t work out you terminate before the vesting date, sign).

Jumping the Gap

What’s missing? It’s the 25-35 year old up and coming development executive/entrepreneur. It’s the individual that goes from employee to early employee to founder. That experiences the successes and failures of building, launching, selling products in a compressed incubator. We individuals that could be in these roles, but they often get frustrated and leave many of the larger organizations to start agencies and consultancies. They learn the skills of being a time-and-materials junkie (which as previously discussed is not a bad skill set), it’s just different from building a massively adopted product. The lack of funding has meant many of the startups that could hire these individuals can’t because they can’t compete against the base salaries and lifestyles that have been adopted. It doesn’t mean that you VP of Sales should drive an Aston Martin (if that’s part of your compensation package, call me, I’m available for all Aston Martin driving gigs), but it does mean that you need to attract and retain the best available talent locally and around the globe that will enable your company. The chronic underfunding of Canadian companies has hamstrung startups to relying on whoever is willing or able to work for cut rate salaries or those that have the deep passion for the startup culture.

We need to:

Hockey sticks and consultants

Reblogged my StartupNorth post. Comments available on StartupNorth.

Exponential Growth Curve

I’m always giving consultants a hard time. It’s not that I dislike consultants. It’s not that I think that consulting is a bad business model. It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is so important. I’m talking about real numbers, not projections. Revenue. Users. Customers.  (Need help figuring out what you should be tracking? Go read Dave McClure’s AARRR! Startup Metrics for Pirates). And go read Mark MacLeod about why compound growth changing your funding requirement.

Consulting is a linear growth business. It grows based on:

  • # of consultants billing
  • # of billable hours
  • hourly rate

Unfortunately, all of these are limiting variables. There are examples of very profitable firms and corporate structures that enable a very profitable model. I’m not discounting the profitability of the Big5 consulting firms. Consulting firms are generally limited to the number of consultants. Corporate culture are defined by the people.

The number of billable hours is a limiting factor. There are only 8760 hours in a year. You can’t work every hour. You can’t bill every working hour. It’s just not possible. Billable hours are the currency of consulting and legal firms. Many firms require 1700-2300 billable hours/year. Just think about this: 2300 hours/year =  46 billable hours/week + 2 weeks of vacation. If you assume a 80% utilization rate, i.e., 80% of your time is billable and 20% is on overhead/email/meetings/etc.  To achieve 46 billable hours you need to work 57.5 hours per week.

Hourly rate is generally set by the skill set and the market. Flippa. Rentacoder. 99designs. crowdSPRING. Elance. There are others willing to do it for less.The market determines a consultants hourly rate. 

So for an independent consultant billing at $200/hour on a 57.5 hour work week at 80% utilization would have revenues of $460,000/year. This is an extremely high rate. Looking at the NASDAQ 100 using Cognizant averages $35,892 versus Apple ($1,014,969), Ebay ($551,049), Microsoft ($663,956) and others. This might be a little extreme. Don’t believe me, Hoovers.com suggests that IT/software consulting has average revenues of $160,000/employee (MarketResearch.com has this closer to $100,000/employee). Realistically the easiest way for a consulting firm to achieve exponential growth is to grow to the number of consultants working. And the risk of exponentially growing the number of consultants is that you kill the culture that attracts many people in the first place.

“But isn’t the consulting company itself startup? No, not generally. A company has to be more than small and newly founded to be a startup. There are millions of small businesses in America, but only a few thousand are startups. To be a startup, a company has to be a product business, not a service business. By which I mean not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn’t scale. To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.” – Paul Graham

That said, consulting is a great way to take the risk out of a startup. The best consulting projects are the ones where you can build the software you want to sell as a product. This assumes that you have necessary legal agreements where you retain ownership of the intellectual property created during the consulting gig. This is often referred to as “bootstrapping” (read Paul Graham’s Fundraising Survival Guide to understand the tradeoffs).

There’s nothing wrong with consulting. It’s a perfectly viable career. It’s a perfectly viable business model. But do the math, it doesn’t scale like a product company.

Pitching fastballs

Reblogged from StartupNorth

“Do you have some time for a coffee or beer to chat about my startup?” – Anonymous entrepreneur

I’m happy to talk to entrepreneurs, learn about your startup and even help you out if I can. Since I have a bad habit of over committing and taking on too many activities. Let’s see there’s DemoCamp, Founders and Funders, StartupEmpire, my job (yes, I work at Microsoft), and a personal life (think 2 kids under the age of 2). Things are chaotic and busy, I’m starting to ask entrepreneurs to help me. So without more information, the answer to the above question is “maybe, help me understand why we should me”.

This sounds familiar. It’s similar to the problem faced by investors (made more pronounced with time-constrained applications), and journalists, and customers.

“If we get 1000 applications and have 10 days to read them, we have to read about 100 a day. That means a YC partner who reads your application will on average have already read 50 that day and have 50 more to go.” – YCombinator How To Apply

We talk about an Elevator Pitch. Except this isn’t a world where you might have forced my focus of attention by being artificially trapped in an elevator. The goal is like a newspaper headline. It’s to make me read the rest of the story. You need to stand out. You have to be able to simply, clearly convey what your startup is going to do. The YCombinator team do a great job describing what they look for in How To Apply. The initial filtering criteria for a YC application are obviously different than the criteria that journalists use to find stories, and different that what I use when determining to take a meeting or how I can help a startup. But the process is the same.

“What is your company going to make?" This isn’t the question I care most about, but I look at it first because I need something to hang the application on in my mind.

The best answers are the most matter of fact. It’s a mistake to use marketing-speak to make your idea sound more exciting. We’re immune to marketing-speak; to us it’s just noise.” – YCombinator How To Apply

This is about stand out from the pack. And helping the reader/journalist/audience member figure out who you matter to and why. Think of this as demand generation. You’re driving awareness and interest in your company, your team, your solution. The number one key is to be empathetic to the person whose attention and imagination you are trying to capture. Put yourself in the shoes of your intended audience, and help them understand what is special about your company, your product, you.

“Boil down your elevator pitch to one sentence. Tell us what you sell or do in very concrete language. This sets the context for the rest of your presentation.” – David Rose

Here’s an attempt to write that opening description for a few local startups.

  • FreshBooks is a QuickBooks killer. It is a web-based accounting system allows small businesses to have accurate, professional estimates, time tracking, and invoicing.  
  • Well.ca is Canada’s online drugstore. Strong sales growth over past 3 years, raised $1.1M from angel investors in July 2009, technology focused with strong customer service.
  • Rypple is a web application that gathers anonymous feedback from anyone. Peter Thiel is an investor. Founders have a strong track record at Workbrain.
  • Dayforce is an rich internet application and web service that allows managers to visualize and plan their employees schedules and the employees to enter their timesheets. Founders have strong track record including Workbrain.
  • Kiiro is a social project management application built on SharePoint. It uses the web and Microsoft Project to improve collaboration between the project managers and the team on larger projects.
  • CoverItLive is web application for live blogging events. Companies, conferences, individuals can connect photos, tweets, live video, and rich media during events.

This is just the beginning. But that is the point. The goal is to entice the reader to want to know more. Ideally I’d love to see a short description of what you’re building. A clear identification about how you think you’re going to make money. What you think your secret sauce is. And a brief summary of key team members. Sound familiar. It’s very similar to the advice that David Rose provides as a Pitch Coach. The goal is to take basic pitch information and digest it into a smaller, customized components for your audience. It means that entrepreneurs are going to have stop being ego-centric and start thinking about others. You need to understand what is important to the individual that you are trying to reach and to shape your message appropriately.

For me, I want to understand what your company does/builds; the management team; the market opportunity; the business model; the stage of corporate development (pre-funded, funded, pre-revenue, etc.); why you think I care about this; and what your ask is of me. Is that too much to ask?

Open challenge to local startups to “pitch” for a meeting in a 140 characters or less in the comments (more realistically less than 420 characters – basically 3 tweets).

Resources

Big Hairy Audacious Goals for Startups

Originally posted on StartupNorth.

Reid Hoffman talks about LinkedIn’s startup story on CNN. It’s a very interesting story about a successful entrepreneur becomes a serial entrepreneur by focusing on both a vision and a set of success metrics.

We had this initial challenge of, "How do you get a million people?" The first challenge was getting enough people so that functions like searching for people or sharing information had enough people in it to be valuable. The year 2003 was all about tuning and viral growth.

I’m a huge believer in getting a million people, getting them engaged, and then building a business model on top of that.

Why does a million people matter? Is this a good metric for other startups? How will know if you are successful? This requires having both a set of measures and a set of goals.

AARRR! Be Bold. Be Humble.

What should you be measuring? The good news is that others have done a lot of the heavy lifting. Dave McClure has a great presentation on Startup Metrics for Pirates. The

Dave has a quick 5 point plan for understanding how to frame a startup, the business model and the performance of both the marketing and product development efforts.

  • Passion for problem/solution + Hypothesis of Customer Lifecycle
  • 1 page Business Model: Prioritized List of (Users + Conversions + Priorities)
  • Critical, Few, Actionable Metrics + Dashboard of Measured User Behaviour
  • 1 page Marketing Plan: (Channels + Campaigns) * (Volume, Cost, Conversion %)
  • Velocity of (Product Execution + Cycle Time of Testing) * Iteration

This shouldn’t feel like rock science. It’s a way to frame the problems that all startups should be used to answering. What problem do you solve? What is life cycle of your customers? Who are your customers and how are you acquiring them? How do you reach your customers? How do you know if your development process is healthy? How will you know if you’ve been successful? It’s not rocket science.

BHAGs

Startup Metrics provide the baseline set of things a startup should be measuring. You should be building the data collection into your application, and he suggests you should “delegate each metric to someone to own”. This is the what, but it’s missing the Big Hairy Audacious Goal. The metrics are the starting point for measurement, and not they are not the target for an organization. 

What is your “million users” goal?

Questions for most promising startups

logo-tia BCTIA has published their criteria for the 2009 Technology Impact Awards. The submissions are due on March 13, 2009. As a start-up there are tradeoffs about participating in these award programs. Depending on the program there might be a cash prize, introductions to funding sources, press opportunities, etc. Or it could be a giant waste of time. You have to evaluate each program individually. I think the BCTIA program is a good balance of Recognition and Exposure. It is really about growing and supporting the local technology ecosystem.

My favourite part about the TIA awards is the submission criteria. I think every start-up should be able to answer these questions [PDF 48.9kb]. 

Summarize why this submission should be considered for Most Promising Start Up Award category and explain the relevancy of the business concept based on the following four equally weighted criteria and using the listed questions as a general guideline:

  1. Value proposition
    What problem are you solving?
    For whom?
    How will you make money?
  2. Competitive differentiator
    What differentiates your product, service or technology from alternative solutions?
    What is your sustainable competitive advantage?
  3. Market opportunity
    Please be specific as to the addressable segment of the market you are targeting.
    How large is your market?
    What is the nature of the competitive landscape?
  4. Management team
    Who are the key team members and board/advisors?
    Why does your team have the ability to execute on the business plan?

The questions are perfect for early-stage companies to identify the problem, how you’ll make money, the market opportunity and the differentiators. (The application puts a further limitation of 2000 words).

Why not give it a try?

If you’re a Canadian start-up write a blog post that is less than 2000 words that answers the above questions. Send me an email or a tweet, just @reply me, with a link containing your answers to the question. I’ll retweet the submissions and see if I can share some recognition and exposure.

Software, support & visibility

microsoftbizspark It’s funny, I’ve asked about startups building on .NET in the past. And with the development of programs like BizSpark the continued support of events like StartupCampMontreal and Founders & Funders, and yesterday’s funding announcement at Xobni, there a number of new opportunities for startups to get access to free software and exposure.

Microsoft Blue Sky competition for the so-many startuppers using MS technology” – Heri

BizSpark is a program aimed at providing startups with access to software, support and visibility. Startups need to meet the following requirements:

  • Is in the business of software development,
  • Is privately held,
  • Has been in business for less than 3 years, and
  • Has less than US $1 million in annual revenue

There are no initial costs. At the end of the three years there is a US$100 fee. Startups can participate in BizSpark for up to 3 years, (assuming they haven’t changed ownership or gone public in years 1 or 2). The program includes Visual Studio Team System Team Suite (VSTS) with MSDN Premium for development, testing and demonstration purposes. There are also production licenses for Windows Server, SQL Server, BizTalk Server, and Office SharePoint Server. It’s a pretty complete package for startups looking to gain access to the tools for design and development.

How do I sign up?

First you need to find a Network Partner.

What is a Network Partner?

“Network Partners are active members of the local software ecosystem engaged with high-potential, early stage Startups. They are organizations specifically focused on supporting software entrepreneurs and Startups, or whose activities include a focus on promoting and supporting software Startups, through programs, mentoring, networking, business advices, financial and legal assistance or similar services and activities.” – Network Partner Program Guide

Basically, these are the folks supporting startups. In Canada today, there were over 20 Network partners including:

I keep looking for Network Partners to join the program. I’ve been working on folks in Alberta, British Columbia and on the East coast. Turns out there is a lot of ground to cover in this country. If you have an organization that supports start-ups in Edmonton, Calgary, Sudbury, Charlottetown, Halifax, Dartmouth, St. John’s, Quebec City, Yellowknife, drop me a note and I’ll do my best to get them to register. Or if you think you should be a Network partner, sign up using the Champ ID = davcrow.

If you can’t find a Network Partner, drop me a note.

Other Programs

If you don’t meet the requirements for BizSpark, there are other partner programs. I’m not an expert here, I find that most early stage companies are limited due to the “being in business for less than 3 years”. The other program is Empower for ISVs. I’m not entirely sure where you fit if you’re offering a SaaS solution outside of BizSpark. But there are programs that can help, check out the SPLA and SaaS On-Ramp Programs

BlueSky & Ignite IT

blueskyThere are 2 programs that offer developers and ISVs an opportunity to showcase their products and solutions. The Microsoft Blue Sky Innovation Excellence Award offers Canada ISVs (Independent Software Vendors) a way to gain access to product experts and members of the Emerging Business Team Portfolio Managers (think Christopher Griffin, Don Dodge, Cliff Reeves and others), exposure on MicrosoftStartupZone and a case study, access to new technologies and architectural guidance, software tools, among other things.

igniteitawardsThe Ignite IT Awards are a Microsoft Canada awards program aimed at celebrating the problems that were solved through IT solutions. There are both Developer and IT Professional stories. There are 2 prizes of $5,000 along with exposure. These aren’t primarily startup focused, however, since a lot of startups should be using technology to solve a problem and the Submission Form is nothing more than your elevator pitch. It’s should be good practice to practice giving your pitch and creating a 60 second video demonstrating why your solution is valuable. Think demo or clip of happy users. My thought is that this could easily be repurposed to help explain to your potential customers the power and benefit of your solution.

 

HomeZilla launches

homezilla HomeZilla launced today. HomeZilla is a research assistant for researching and buying a home. It is not a real estate site like Realtor.ca or ZooCasa which are focused on listing houses for sale (read more about Realtor.ca and ZooCasa on BlogTO). HomeZilla is similar but very different, it tries to help home buyers connect with the 95% non-commercial information about their potential neighbourhood including information about:

  • 99% of all public Canadian schools
  • Over 1000 fire stations across Canada
  • Demographics like average age, median income, etc
  • Rail transit in Vancouver, Edmonton, Calgary, Toronto, and Montreal
  • Over 800 liquor stores from across Canada

The services is aimed at helping potential home buyers answer questions such as:

  • Where is the closest school, subway, bakery, dog park, etc.?
  • What is the average price for homes in this area?
  • How much money do people in this neighbourhood make?

It will be interesting to see if Sandy and the team can develop a business model that does not primarily rely on impressions to drive revenue (read Don Dodge’s post on advertising business models). CPM models require a huge number of visitors to drive revenue. There’s a business in market segmentation and targeted advertising. Figuring out a series of business development partnerships with other complimentary local players (ZooCasa, BlogTO, OurFaves, PlanetEye, among others) is a good starting point to help drive some traffic and driving up targeted advertising revenue. Where I could see a very strong partnership is an integration with the ranking and local reputation system being built by GigPark.