Category: entrepreneurship

19
Aug

August Startup Drinks in Toronto and Montreal! Update: now Ottawa too!

The inaugural Startup Drinks Toronto had over 100 people thanks to David Crow and his organizing efforts.  Montreal had another really nice mid-summer showing as well! We’re back for another round this Wednesday, August 26 in Montreal and Toronto for more startup networking.

For Toronto:

Venue: C’est What,  67 Front Street East, Corner Farquhars Lane

When: Wednesday, August 26, 2009 from 6pm

Sign up: here or on Facebook, if you prefer

For Montreal:

Venue: Brutopia, 1215 Crescent St (South of Ste-Catherine, Metro Guy)

When: Wednesday, July 29, 2009 from 5:30pm

Sign up at TechEntreprise

As always, I look forward to seeing you there!

Robin

UPDATE!

If you’re reading this from the fair city of Ottawa, you can also join in the synchronous fun too thanks to Scott Annan from Mercury Grove!

Here are the details:

– Date: Wednesday, 26 August, 2009
– Location: Metropolitan Brasserie, 700 Sussex, Street level entrance (map)
– Time: 6pm until late

Sign up here!

04
Aug

Ontario Emerging Technologies Fund: Good for Investment, Not Good for Angels

The Ontario Emerging Technologies Fund was unveiled last week and I know investors across the country have been anxiously awaiting the details. Here’s the skinny:

  • $250 million fund size
  • Matches investments for qualified investors (more on that later)
  • Invests in Ontario companies
  • Sectoral targets: clean technology, life sciences and advanced health technologies, and digital media and information and communications technology sectors

Most Angels I talked to previously were wondering what the qualification process would be and whether the fund would discriminate against out-of-province investors.

Now that the details (at least version 1.0) have been released, I can say that there’s good news and bad news.

The good news is that, over five years, $250 million will be flowing to early stage tech ventures in Ontario. This is nothing to sneeze at and a much-needed shot in the arm for Ontario entrepreneurs. Will this encourage new investments? Absolutely, especially in clean tech and life sciences where capital needs are greater.

But several aspects of the fund are not great for Angels and other seed-stage investors, especially in ICT or even the earliest stages of clean tech and life sciences.

Investment Round Must Be $1 Million or More(p. 10, Fund Guidelines, link to PDF)

According to the Kauffman Foundation (Appendix to Returns to Angels Investors in Groups) the average Angel investment is less than $200,000. This is consistent with what I’ve seen in Canada. Many Angel groups and seed funds invest in this range. So why the $1million threshold?

If this is a conscious choice by the OETF to favour later stage deals, they may actually draw Angel dollars away from pure startups and towards later-stage entitities. This would be a bad thing for growing the number of startups in Ontario.

If this is a subtle encouragement to Angels to invest more dollars, it ignores the fact that many (I’d say most) pure startups don’t need $1 million. I would personally never invest in a startup whose capital needs from day one were in this range. It’s not exactly “lean”.

Angels Must Re-Apply for Qualification for Each Investment (p. 7, Fund Guidelines, link to PDF)

Venture funds can apply for qualification once and have this remain in place for all future investments. Angels, on the other hand, must re-apply for each investment they make. I’m going to give the OETF the benefit of the doubt and assume that getting qualified once will mean getting qualified again. But this doesn’t exactly reward Angels or Angel groups who have a proven track record. Why not treat them the same as VCs?

Ontario Footprint

OETF is not the only fund tied to a specific geographical region so this is not a new complaint. But it still bothers me to see penalties for a company no longer having “enough” of an Ontario footprint:

  • OETF has the right to force repurchase of its shares at a price set by a 3rd party, or
  • OETF has the right to force refund of its investment + 10% compounded annually

As an investor, I prefer the highest return on my investment no matter where the company needs to grow. These kinds of terms discourage investment from outside the province and outside Canada.

Favouring Ontario-Based Investors

Finally, there are some silly questions in the Angel application about proving that you are dedicated to investing in Ontario. Presumably, this doesn’t apply to Angels who live in Ontario. This is counter-productive. It’s better for Ontario to draw in investment dollars from outside the province. And why do I have to prove that I want to invest in Ontario when I’m already showing that by applying to invest in a specific deal?

The not-invented-hear syndrome is not good for startups and it’s not good for regional investment.

Conclusion

I applaud the Ontario Government for taking steps to encourage early-stage investments in the province. It’s difficult for governments to truly take a back seat to private investors when it comes to investments and the OETF is a good example of this struggle. It’s not really the matching investment fund that we had hoped for, but a new investment entity with specific regional and sectoral focuses. It’s still good to have a new player on the scene and I hope that the model evolves based on market feedback.

Angels and entrepreneurs: what do you think of the OETF?

27
Jul

Investors: What Have You Done For Your Startups Lately?

Over the last two weeks I’ve spent over 24 hours driving to various client meetings for one of our startups. Yes, the ratio of driving time to meeting time (6:1) is pretty high, but these were crucial meetings that were significant milestones for the startup. During these long drives I had a lot of time to think about the crazy things we investors do to help our startups.

At the same time, behind closed doors I hear a lot of entrepreneurs quietly complaining about how little hands-on help or “value add” their investors bring after closing a deal. So I thought I would put out a challenge to Angels and VCs: What Have You Done For Your Startups Lately?

If you’re wondering what more you can do, here are some suggestions:

  • Work your Rolodex – Remember all those times you bragged about your fabulous network? Besides the week after closing, when is the last time you systematically went through your contacts and opened those doors?
  • Make sales calls – Don’t just shoot off intro emails. Pick up the phone and call in favors. In the early days most sales will be through personal persuasion/coercion.
  • Have a good elevator pitch – I’ve met a lot of investors who can’t give a convincing elevator pitch for their startups. Your elevator pitch should be as good as the CEO’s.
  • Know the details – Knowing the size of the market is great for evaluating a business plan, but do you know the crucial details of the business? What specific segments are they targeting? Who are their customers or prospects? What are the features and technology. What’s the price? Knowing the details makes you a knowledgeable ambassador for your startup rather than someone who can just put someone in touch with the CEO.
  • Give feedback – Investors have a habit of dropping out of sight then giving harsh feedback at board meetings. I always tell entrepreneurs to manage upwards, i.e. manage your Board. But the same applies for investors. Be a hands-on mentor to your entrepreneurs. And don’t forget that praise is feedback too.
  • Get your hands dirty – Besides providing sagely advice from the “high level” think about giving day to day help once in awhile. You can be sure your startup needs it. If you’re financially minded (which you are because you’re an investor right?) get into Excel and help the CEO develop projections and budgets. Sit in on practice pitches and help build their next sales deck. Look over their legal documents and fire up your MacBook to test the latest deployment on Safari. Getting tactical means saving the management team precious time.

At Flow we take hands-on to the extreme because that’s our model. Not many investors are writing code, closing sales, executing marketing plans and recruiting employees. But no matter what your model is you can be sure that your startup needs you.

22
Jul

Startup Drinks, Montreal and Toronto: Wednesday, July 29!

This Wednesday, July 29, Startup Drinks will be held simultaneously in two different locations! We’ve been working behind the scenes with Canadian startup agitator David Crow

to get our Toronto brethren into the Startup Drinks act.  Startup Drinks Toronto makes its debut in the wake of DemoCamp and at last count there are over 180 (!) people slated to be there.

Speaking for Montreal, this drinking and networking event has become a touchstone for the tech community because of the regulars who keep the open spirit of the startup culture alive.  With David’s help, I hope we can achieve this modest end in Toronto with the same “no frills” philosophy and conviviality.

I asked David – who has no lack of projects on the go, mind you – why he was getting behind yet another community building effort and he said it’s because “Startup Drinks embodies the culture needed to build strong connections between entrepreneurs. Montreal has such a fantastic startup culture, and sometimes imitation is the finest form of flattery. This is a great social event for entrepreneurs and startups to gather over a pint and share what we’ve been working on.”

If you’re a Montrealer in Toronto for DemoCamp, check it out just as our own Raymond Luk will be doing.  You know the drill!

Without further ado, these are your need-to-know details:

For Toronto:

Venue: Pogue Mahone, 777 Bay St (Cnr College St)

When: Wednesday, July 29, 2009 from 7pm

Sign up: Startup Drinks Toronto Facebook Event


For Montreal:

Venue: Brutopia, 1219 Crescent St (Sth of St-Catherine)

When: Wednesday, July 29, 2009 from 5:30pm

Sign up: Coming soon!

You can come by yourself, with a friend or with a posse.  Everyone is welcome!

See you there,

Robin

20
Jul

The Thinking Behind Starting Up: 10 Posts

The Flow Ventures blog has been up and running for over six months and during that time it’s naturally gravitated towards topics for early-stage startups. Partly because that’s our focus at Flow and partly because people still overlook all the difficult work that happens right at the start of a startup. Things like idea screening, brainstorming, finding strategy, and finding competitors are all things entrepreneurs should be doing for themselves, not just when requested by outsiders.

I often tell people that the very first step in a startup is relatively risk free. You haven’t committed your time and money yet and you haven’t made promises to others that obligate you to a certain path. You have time to noodle around finding great ideas and discarding bad ones. This is the time to spend at whiteboards, in cafes debating your ideas, and doing research on the Web and in the real world. This is the time to assume your idea stinks and try to convince yourself that it doesn’t (not the other way around).

We’re going to keep focusing on the early stages of startups but here are 10 blog posts we’ve written so far that provide some practical ways to think about idea and business creation:

Writing this list makes it obvious that there are lots of gaps in our coverage. Hopefully, we’ll fill in some of those gaps over the rest of the year.

06
Jul

The Value Net as a Tool for Competitive Analysis

Having talked about the goal of competitive analysis and being better, not just different, it’s time to talk about a framework for doing competitive analysis. The Value Net, developed by Adam Brandenburger and Barry Nalebuff, is inspired by Porter’s Five Forces. It’s easy to understand but includes a lot of depth that will allow you to more fully understand the competitive forces surrounding your startup.

Let’s take a look at the graphic above. It shows 4 sources of potential competition surrounding you: Partners (whose products and services complement yours), Rivals (who compete with you), Suppliers (whose “raw materials” you require), and Customers (and distributors) who are the destination for your products. The horizontal items are the players in your industry and the vertical items are your supply chain.

Rivals: More than direct competitors

Most new companies do everything they can to say “there is no competition”. I’ve already covered why this is tantamount to saying “I do not know what I am doing.” Just because there isn’t a company that looks exactly like you doesn’t mean you don’t have competition.

Rivals are all the people or forces competing against you for the dollars and attention of your customers. They include:

  • Direct competitors – if you’re a best-of-breed product, look for integrated solutions and vice versa
  • Indirect competitors – if you’re a product company, watch out for service companies
  • Alternatives – like doing nothing, in-house solutions
  • Changing standards and regulation – when standards change, everyone in your industry might suffer

Think of it from the customer’s perspective. If you want to improve employee communication you might build an employee portal, buy one, hire a consultant or put it off until next year. There are many alternatives competing for your time and money.

Partners: Wolves in sheep’s clothing?

Partners are your “friends” in the marketplace whose products or services complement your own. This could be someone who integrates your product into theirs or provides a value-add service, like consulting, that makes it easier for people to adopt your product. Why even consider partners in a competitive analysis?

The reason is because partners, like rivals, are also fighting for customers’ attention. Sure, in the beginning you may specifically go into a partnership to reach markets outside your immediate target. That may be your partner’s strategy too. But the more successful you are, the more your partner might realize that your market (or your business) is something worth emulating. They could become a direct competitor. This is especially true in the type of partnerships startups tend to enter into, i.e. David (you) vs. Goliath (them).

Here’s an example. You build the next great mobile enterprise app. You license a “lite” version to a major portal so they can market it to individuals and SMEs. It becomes a success and the portal decides not only to replace you with something they developed on their own, but to release an enterprise version that competes directly with you in your other markets. For them, you were just free R&D.

Yes, you can do things legally to protect yourself. The point is don’t forget how easily partners can turn into rivals.

Suppliers

How can a supplier be a threat to you? When they decide to work with a rival instead of you. This isn’t as rare as you might think. Exclusivity agreements could lock you out of a key technology. Or a bigger rival could simply eat up so much bandwidth that your supplier can’t pay any attention to you. Employees are “suppliers” too and competitors would like nothing more than robbing you of your stock of talent.

Don’t overlook the fact that the more volume you drive to a supplier the more they might think about competing with you. This is called forward integration and it’s especially acute when your supplier has leverage over you in the form of an exclusive resource, the best price, or some other unique advantage. Here’s an example: you build the next great mobile enterprise app that relies on you licensing a patented mobile synch technology from another firm. This is great for them because you drive sales and they don’t have to do any work. But, the more successful you are the more it’s tempting for them to move forward in the supply chain with their own branded product. Worse, if they cut you off from your supply of technology it will put you at a competitive disadvantage.

Customers (and distributors)

The area of the Value Net above you includes your customers as well as any resellers or distributors you use. Like with partners and suppliers, be aware when these people have power over you in some way. E.g. customers (and distributors) have power when there are a lot of rivals in any industry. Or there may be other industry practices that favor resellers: e.g. brokers in real estate and insurance.

Understanding how your customers buy (from you or from your resellers) is an important aspect to understanding competition. Again, look at it from their point of view. The customer might value on-site installation and customization. Your Web 2.0 SaaS model might be feature-rich and inexpensive but your competitor’s product is sold through local VARs who can provide consulting, installation and after-sales support on the customer’s premises. The point is that competition can occur between different types of sales channels, not only between firms.

Putting it all together

To summarize, here’s how you can use Value Net to do competitive analysis:

  1. Identify your key Rivals, Partners, Suppliers and Customers/Distributors – Be paranoid and build a long list that you pare down later
  2. Look at the red arrows to understand behind-the-scenes competitive dynamics
  3. Look at the grey lines to understand your power relative to your rivals, suppliers, partners and customers – any area where you have less power is a potential competitive threat

The nice thing about the Value Net is that it’s easy to fit onto one Powerpoint slide. Showing this level of depth for your Competition slide will be a huge improvement over what I normally see in startup pitch decks. I’ll post some examples of completed Value Nets in a later post.

09
Jun

June Startup Drinks + Montreal Girl Geeks

Startup Drinks has joined forces with Montreal’s Girl Geeks to bring you the networking juggernaut of the summer!

On location will be another fine installment in the Montreal Girl Geek speaker series featuring local tech entrepreneur Christine Renaud (E-180).  Christine will talk about her travels in social entrepreneurship in her talk entitled “The Good, The Lucrative and the Web Friendly”.

Here’s the deal:

The Date:

  • Wednesday, June 17, 2009

The Times:

  • 5pm: Montreal Girl Geeks, featuring Christine Renaud.  Check out their blog for more details! You MUST register to reserve your berth as space is limited.
  • 6pm: Startup Drinks madness will kick off at 6pm until whenever with beer, networking and snacks.  Registration is recommended at techentreprise!

The Place:

  • UPSTAIRS (as in, not downstairs) at Brutopia,  1219 Crescent St (south of St-Catherine), Metro Guy-Concordia

The Cost:

  • Nothing, nada, zip.  Both events are free and you can come to one or other or both. As always, everyone is welcome!

Thanks to Tanya McGinnity for her collaboration on what promises to be a great night!

See you there!

Robin

08
Jun

Lead to Win: An Open source Business Accelerator

Here’s an interesting idea: take a city that is experiencing high-tech job loss, create a program that helps laid-off workers create startups, run it like a summer school program using local experts, charge nothing for the program and take no equity stake in the businesses. Oh, and Open Source all of the learning materials used!

It sounds too good to be true and it is, unless you live in Ottawa. Lead to Win

is an accelerator program created by Dr. Tony Bailetti. Currently underway with about 50 participants, this is actually the second time such an accelerator has been run in Ottawa, the first one being in 2002 during the last tech downturn. That program created about 15 new companies, 300 new jobs and a significant amount of investment dollars. More importantly, it created a new cohort of tech entrepreneurs that have gone on to found new companies.

Here’s a taste of some of the things covered in the agenda:

  • Design your business for success
  • Define compelling customer and partner value propositions
  • Lever ecosystems, open source projects, and open APIs
  • Identify customers most likely to buy from new company
  • Price and brand with confidence
  • Build team and organization
  • Define clear agreements, term sheets, and sales contracts
  • Protect intellectual property
  • As well as pitches and discussions with experts and LTW alumni

Since we all love to classify things, is Lead to Win a startup accelerator? Tech accelerators (remember, we don’t use the term “incubator” anymore…) are on the rise. StartupCFO has a nice post on the subject and First Ascent Ventures has probably the best early analysis of the accelerator space and guesses about early returns (Parts 1, 2, 3). We sometimes describe what we do at Flow Ventures as “acceleration” since we provide a mix of financing and operational services (though no office space!).

What is compelling about Lead to Win is its Open Source business model. It’s not only free (as in beer) but free as in all of their materials are available online. In fact, they’re encouraging other cities to follow suit. This openness allows LTW to easily partner with government, local tech organizations and the private sector. Unlike other accelerators, there is no implied goal of helping the company raise money at the end, e.g. there is no big funding pitch session for graduates. I like this because it emphasises bootstrapping and early profitability. Neither of these is friendly to VC funding models but they’re friendly to entrepreneurs and helping build products that markets need.

I would definitely call LTW an accelerator. After all, they help more people create new ventures quickly while providing some care and limited feeding along the way. Like many other accelerators, Prof. Bailetti has figured out that the most important thing entrepreneurs need is not cash but access to an ‘ecosystem‘ that can support the venture. This ecosystem can provide talent, technology, customers and financing.

Flow will be at Lead to Win later this month providing advice and feedback to entrepreneurs. I strongly recommend you check this program out and if you think this could work in your city, contact Tony Bailetti.

25
May

Competitive Analysis for Startups: Being Better, Not Just Different

In the last post

I talked about the goal of competitive analysis. In this post I’ll talk about why (and when) it’s ok to compete head-on.

Let’s review why startups spend so much time showing they’re different. Anyone who’s read (and hopefully re-read) Crossing the Chasm knows that it’s important for startups to find a beachhead, i.e. a niche where they can get some traction without forcing bigger rivals to respond. This is a good strategy because it’s easier and cheaper to start generating results, and revenues, in a beachhead.

But what happens when you’re not the only player attacking a beachhead? Some investors pass on opportunities because there are already one or two funded startups in a space. Others only invest when they see that a space is heating up.

Don’t Be Afraid to Compete

You don’t convince someone you’re going to win a 100-yard sprint by talking about how you have a totally unique approach to running that involves your hands, not your feet. In other words, it’s ok to talk about areas where you and your competitor(s) will compete directly. Your job is to prove how your team, your structure and your approach will mean you’ll win. This is almost entirely overlooked in business plans (and business planning) because we’re all too busy showing why we’re Different, not why we’re Better.

Some examples:

  • Funding – I hate to say it as a believer in lean startups, but in some cases more money = more ability to compete. This is true in markets where you’re already competing on price or greenfield markets where there’s a rush to grab open real estate.
  • Focus – You may have the exact same product as a competitor but you may be focusing on a different aspect such as bundling/integration, customer service, ease of use etc. You need to prove how your focus translates into competitive advantage, e.g. the best buyers want the best customer service, not necessarily the most features.
  • Team – This is why recruiting will always be one of the top priorities of a CEO. In head to head competition the better team (e.g. more experience, more industry contacts, more skilled) will always have a competitive advantage. If you have an A team you should be talking about it front and center.
  • Speed – If your startup is built for speed then you don’t need to be first to market. Let your competitor invest in all the R&D and market education. Being a fast-follower is a great head-on competitive strategy and one that’s very well suited to lean startups. Plus it annoys the hell out of your competitors.
  • Best Practices – A great way to nullify the competitive advantage of a bigger rival is to adopt industry standards. Being close to the associations that set standards means that competitors cannot say that choosing your product is risky. You won’t have an advantage over competitors but you’ll level the playing field so you can compete in other areas.

I’d like to see more startups openly talk about direct competition and how they’re designed to win that kind of competition. When you think about it, saying you’re unique is just another way of saying your R&D and product development is better than your rivals. In the end there’s a lot more direct competition than startups like to think. It’s ok to compete head-on (assuming you’ve made sure that you have real competitive advantages of course).

22
May

Competitive Analysis for Startups: The Goal

One of the hardest things for emerging companies to get a handle on is analyzing the competition. Investors grimace when we hear “there is no competition” because outside of the world of patents, it’s just not true. But on the other hand, what’s the point of starting a new company when there are lots of competitors, implying a crowded space? Entrepreneurs often get lost somewhere between “no competition” and “too much competition”. This leads to unconvincing business plans or, worse, a strategy that’s blind to real competitive threats.

What’s the goal of competitive analysis?

For most entrepreneurs trying to convince people about a new product, the goal seems to be to prove, at all costs, that what they have is unique. There’s a standard series of tricks to accomplish this, two of my favorites of which are:

 

 

 

 

 

 

and

 

 

 

 

It’s pretty easy to define your competitive analysis in such a way that you appear totally unique. The question is, are you defining criteria that your customers care about?

“Competitive Intelligence” vs. “Competitive Analysis”

Whether you’re preparing a VC pitch deck or just strategizing about your business, remember that your real goal isn’t to show that you have a competitive advantage. Why? Because you might not. The real goal is to be an expert about your competitive landscape (and a paranoid one at that). The real goal of the Competition section of your business plan is to impress the reader that you are a) an expert about your competition and b) more paranoid than the reader (since the reader isn’t the one running the business).

The bad news is that being a real expert about your competition takes more time than creating a 2X2 matrix. But the good news is that you’ll be much better prepared for conversations with customers and investors who love pointing out that “Product X already does that”.

Stop Being Afraid to Talk About Your Competition

The takeaway is that you shouldn’t be afraid to have a competitive analysis that seems to be full of competitors. Your job is to show that you have a sophisticated understanding of your industry and where you fit in. I’m always more interested in how a startup is going to compete rather than why they don’t have to.