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.
From Command Line to Reporting Line: The Diary of a First-Time EM
5 Secrets of Winning Start-ups
1. 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
2. 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.
3. 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?
4. 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.”
5. 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.
7. 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.
9. • 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.
11. FOCUS
ON
THE
CUSTOMERS
Lessons
Learnt
#3
“The purpose of a business is
to find and keep a customer…”
Peter Drucker
12. 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.
13. GET
THE
BEST
PEOPLE
YOU
CAN…
AND
WORK
ON
THE
TEAM
Lessons
Learnt
#4
14. 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.
16. 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.
17. 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
18. 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
19. 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
20. 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.
22. 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
23. 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.