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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	
  
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.	
  	
  
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?	
  	
  
	
  
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.”	
  
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.	
  
REAL	
  ENTREPRENEURS	
  UNDERSTAND	
  
WHAT	
  DRIVES	
  THEM…EVERYDAY	
  
Lessons	
  Learnt	
  #1	
  
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.	
  
	
  
DON’T	
  RUN	
  OUT	
  OF	
  MONEY!	
  
Lessons	
  Learnt	
  #2	
  	
  
•  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.	
  	
  
WHAT IS THE
PURPOSE OF A
BUSINESS?
	
  
Seeing	
  Differently	
  
3	
  
FOCUS	
  ON	
  THE	
  CUSTOMERS	
  
Lessons	
  Learnt	
  #3	
  
“The purpose of a business is
to find and keep a customer…”
Peter Drucker
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.	
  	
  
	
  
GET	
  THE	
  BEST	
  PEOPLE	
  YOU	
  CAN…
AND	
  WORK	
  ON	
  THE	
  TEAM	
  
Lessons	
  Learnt	
  #4 	
  	
  
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.	
  
	
  
CONTINUE	
  TO	
  SEEK	
  OPPORTUNITY	
  
FOR	
  EXIT	
  
Lessons	
  Learnt	
  #5	
  
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.	
  
	
  
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	
  
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	
  
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	
  
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.	
  
LESSONS	
  LEARNT	
  SUMMARY	
  
	
  
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	
  
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.	
  

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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.  
  • 6. REAL  ENTREPRENEURS  UNDERSTAND   WHAT  DRIVES  THEM…EVERYDAY   Lessons  Learnt  #1  
  • 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.    
  • 8. DON’T  RUN  OUT  OF  MONEY!   Lessons  Learnt  #2    
  • 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.    
  • 10. WHAT IS THE PURPOSE OF A BUSINESS?   Seeing  Differently   3  
  • 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.    
  • 15. CONTINUE  TO  SEEK  OPPORTUNITY   FOR  EXIT   Lessons  Learnt  #5  
  • 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.