The Digital Economist

Hi, I'm Sam Birmingham. I love startups, innovation and challenging the status quo.

For the vast majority of my years, economies have grown, companies have profited and people have got richer on the back of a once-in-a-lifetime demographic shift and debt-fuelled boom. Those days are through.

Economies must evolve beyond rampant consumerism and confront the demographic headwind that had been a tailwind until the Baby Boomers began retiring. Companies must become nimble, innovate and invent new products to address customers' ever-changing needs in this digitally-disrupted world. And as people, we must focus on solving problems and learn to do more with less.

These are the challenges that excite me. They are what I want to get out of bed each morning and be a part of. This is where I share my thoughts.

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8 posts tagged Startups

It is no surprise that Silicon Valley has double the success rate to Australian startups. The community there speaks the same language, buys and sells from each other, hires each other, invests in each other. The stronger our ecosystem in Asia Pacific, the better we will all do. It’s fun to help each other, but we are also more likely to win. We will continue to participate heavily in the ecosystem and I hope that we can all work together in a bigger way in 2013 to make this thing amazing.

A rising tide lifts all boats

klinger-io:

There is an energetic discussion going on in the Web-Tech Startup World. Each city wants to know - “Can we become the next Silicon Valley”.

It’s a cliché of a question that’s getting incredible boring, boring but still needed. Entrepreneurship and Innovation still needs fostering in our society. Ecosystems are a strong aspect of that.

In most discussions people focus on the missing spots in their local ecosystem. They try to replicate the currently best working system, ignoring their potential Survivor Bias. They focus on what’s missing: VC capital, exits, the will of entrepreneurs or angels to take more risk.

Ranking of Startup Hubs

Björn and Max of Startup Genome came (based on quantitive analysis) just released their yearly update to their Startup Ecosystem report and thus creating a update top10list of international Startups Ecosystems:

The accurancy of this list does not really matter in my opinion. It’s more about a rough feeling where you city resides in the Startup World.

If you are not in this list, you are most probably nowhere.

So if your city is not in this list. What to do? According to Brad Feld it can easily take up to 20 years to establish oneself into this list.

So… Well… F*ck.

Start Hubs as platforms

Startup Hubs tend to compare themselves with the status-quo of their competitors. They try to emulate e.g. Silicon Valley and beat them in their own game by doing what they do.

But Startup Hubs - like Startups - have phases of maturity.

If Startups follow the patterns of later stages Competitors they usually run out of ressources and die. I tend to believe that Startup Hubs have similar problems.

The most common approach of Startup Hubs is to tackle all missing aspects at once and improve them step by step. All of a sudden you end up with more problems than time and energy you have got. You scream for state support to get more ressources. You are competing on all fronts, while your traction is benchmarked with leading startup cities. People tend to compare speed and not acceleration. You are pretty much in a loosing position.

Gabriel Weinbergs compares these approaches to leaky buckets. Systems with more holes to fill than you got time.

Niche to win?

Fact is Startup Hubs can’t compete on all angles at once and especially not all in the same way.

This would just maximise game dynamics and enforce the (power law) distribution among themselves in the ranking. Startup Hubs need to disrupt the system.

Since Silicon Valley is the #1 ecosystem it is assumed that other ecosystems will perform better if they differentiate themselves from Silicon Valley and establish their own strengths. — Björn Lasse Herrman Startup Genome Project

If you think of Startup Hubs as platforms the most common best-practice is to niche on your strongest qualities in the beginning to get initial traction. Focus on something small where you have talent in, create critical mass on demand / supply for this focus, create network effects and use this initial traction to move forward.

The number one job of a Startup Ecosystem

The reason for the typical over-stretching of ambition might be rooted in a very simple miss-understanding the Job of a Startup Ecosystem.

It is NOT the job of a Startup Ecosystem to make sure founders get everything they need along their companies lifetime, that’s the damn job of the founders themselves.

The job of an ecosystem is to catch, inspire and accelerate talent. Get the idea-makers while they are still energetic, provide them knowledge, uplink and acceleration. Especially in early phases I would not rate Startup Ecosystems based on their output in exits or funding. That are indicators that come by later, when the hub is by far more mature. I would rate early stage hubs based on the fact how wide and talented the can get the base of their ecosystem to be.

Basically start ground up. Go as low-level as possible.

“But what will they do if their ideas are starting to grow and need more money” - Import money, go to accelerators, do whatever you need to do and be successful. People who sit and wait and blame the system around them are not entrepreneurs, they are lurkers.

Entrepreneurs are the leaders. Everyone else is a feeder. — Brad Feld

I would highly recommend to read Steve Blank’s blog-post on Bred Feld’s latest Book. It covers several lessons learned building Startup Ecosystems.

Send your entrepreneurs away.

One predominate factor in many countries and ecosystems is the fear of entrepreneurs leaving the country to start or grow their business somewhere else. While I understand this on a macro level - local tax systems supporting national growth - i cannot understand it on an micro level.

To me it sounds like a later-stage problem which people try to solve too early. If a startup hub is yet in early phases many good people will leave - no matter what - the goal is not to stop that by wrong-aligned incentives, throw cash at them or bind them with laws or contracts. The goal is too keep the backchannel as good as possible, get their learnings and keep them active in the community.

People leave cities not communities.

People leave cities but reimport learnings, knowhow, network and ultimately money.

The role of the government

Some people believe it’s the job of the government to create Startup Hubs. The dangerous part. In many cases the people, who believe this nonsense are working for the government. Brrrr.

The job of the government is to support a Startup Hub. A good start would be to minimize their own blockage - make it easier to form companies, simplify law and tax systems, minimize laws that put entrepreneurs under personal risk, make it desirable to invest in companies.

I don’t mean this in disrepect to the important role and huge success of state support systems. But I personally believe that state money as investment is the purest form dump money. I can mostly speak of Austria, but the absurdity of having an “expert panels” who should cover 4-6 industries and decide at whom to throw 200-800k is ludicrous, if not dangerous.

Large scale investments by the state in a few early stage startups creates an imbalanced market where founders align to the state instead to the private market (customers or angels). Ultimately leading to an army of zombie startups with wrong validation and too much runway to die and too little to live, lurching half-dead in the search for more state-funding. F*ck that, get me a gun.

Investments by the government shouldn’t be in the startups but in the infrastructure.

I’d personally recommend looking for where the community really is and try to support their multiplying activities (e.g. in Europe projects - AMONG MANY OTHERs - likeStarteuropeRailsgirls and StartupWeekend) and focus on them.

Any state investments for early stage should be spray-and-pray - the best practice here is http://startupchile.org/ - they additionally focus on important international talent.

As said I mean above suggestions without any disrespect to the important work of state funds, it’s just inside-out amateur view coming straight from the field.

Summary

Startup hubs need to know the phase they are in and try to act accordingly. Governments can’t lead and need to support scene activities and focus on proven multipliers. Instead of locking entrepreneurs in and trying to recreate and biotope before there is enough nutrition for it, appreciate people leaving to learn and try to keep them strongly tied to the local community as a source for international knowhow, network and ultimately money.

I am pretty sure I am missing millions of aspects. Please let me know your thoughts via twitter @andreasklinger.

Until then. Have fun. Creating startup communities is awesome - Andreas

I popped in to visit a friend at 500 Startups today.

It was great to hear how much Diesel is enjoying the program. Whether Kickfolio makes the big-time or not, the lessons learned are going to be priceless!

After all, how can you not learn from (and love and laugh with) a guy like Dave McClure. His recent Software Eats Private Equity presentation is a classic example of the energy, passion and call-it-like-you-see-it approach that Diesel & Co are going to thrive under.

The Moneyball + Startups slide is my favourite:

It’s not spray and pray. It’s a process.

Anyone who has started, will start, or wants to start a startup MUST watch this video

My favourite quote:

Be brazen, but don’t be arrogant. Be humble, but don’t be timid.

I really like the hierarchy/networks dichotomy in this Brad Feld-narrated Kauffman SketchbookStartupVille:

"In entrepreneurship - especially at the early stages - there is no hierarchy. If the hierarchy tries to drive the startup community it essentially stifles it.

The hierarchy is really collapsing; and many, many, many more aspects of what we do are behaving as a network. This was my starting point for thinking about how startup communities evolve.”

In the same way that open ultimately beats closed, I believe that organic ultimately beats inorganic.

The question I’m asking myself at the moment, though, is does organic just happen? Is it better to provide some sort of framework or platform to facilitate the “networked chaos” that Brad talks about at the end of the video; or should the leaders simply just do what they do?

"Those four pieces are essential for the long-term health of a startup community. It’s just the sort of networked chaos of entrepreneurs doing what entrepreneurs do - which is create things. That force of the entrepreneurs to build something bigger than just themselves and their companies is incredibly powerful."

"There is something really cool going on in the world today…"

Entrepreneurs Are Everywhere

Startup Weekend Perth was one of the highlights of my past few years!

As much as everyone gets caught up on ideas, I have always maintained that Startup Weekend participants should focus on learning - their ideas are simply the vehicle by which to understand the processes and techniques, which can then be scaled across your next hundred and one ideas.

Our uber-judge Hugh Mason looks at it similarly:

"The legacy is not so much the startups, it’s actually the relationships."

And in the words of our facilitator Dave Moskovitz:

"The primary purpose of Startup Weekend isn’t to produce startups in 54 hours. It is to inspire the people who come along to continue on their entrepreneurial journey and connect them with other people and resources in the ecosystem. When they leave Startup Weekend on the Monday morning, if their 54 hour startup is a winner then that’s fantastic, but if not, hey, it’s a safe place to fail. Maybe one, two or three of the startups that come out of here will be go-ers, but the people who come will all have a new set of skills and a whole new set of relationships that they can apply to working on a real startup." 

PS - Another awesome quote from Dave in this video:

"Startup Weekends are the crack cocaine of entrepreneurialism. We’re giving them their first hit for free at Startup Weekend…"

My Challenge To The Innovation Community

I am always surprised by the number of people who say “I don’t know where you get all your ideas from” or “I have lots of ideas but never any good ones” or “I’ve got this idea but I don’t know how to take the next step”…

The way I see it, the innovation process comprises a series of hurdles. Viewed in isolation, it might seem a long way from idea to business, but it shouldn’t be such a quantum leap when you break things down, step-by-step.

The first hurdle is to have an idea: I am adamant that everyone has ideas, so let’s move on to step two.

You’ve got to realise that you’ve had an idea: Too many people dismiss their ideas as a mere passing thought, without recognising that it could be the kernel of something much bigger.

Third, you’ve got to be willing to act on your idea: A huge percentage of people don’t get past this point… Maybe they don’t know what to do next? Perhaps they’ve got a family to look after or a mortgage to worry about, and don’t feel that they can afford to take the risk?

Assuming you can get past that hurdle, the next step is to envision how your idea might become a scaleable business: That is not to say that you need a fully developed business case, but you must at least have a sense of how to monetise whatever product or service you are providing. 

And finally, you’ve got to be able to execute on that vision: As Yoda says Do or do not, there is no try!

Now, let’s put some numbers to that whole exercise…

Say only 10% of prospective entrepreneurs get past each hurdle. If we started with 10,000 people with ideas, by the time they’ve realised it, been willing to act, envisioned how their idea might become a business and executed that vision, we’ve only got one person left.

My challenge to the innovation community is this:

How can we improve the ratio of people overcoming each hurdle?

Just think about it… If only we could double the number of people progressing to the next stage, all of a sudden we would have sixteen times as many aspiring entrepreneurs giving life to their idea!

[Originally posted May 2011]

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