We’ve talked to a number of investor these last months and I can classify their questions into three categories:

• Intellectual Property Protection (IPP)
• Revenues
• and Operations

Revenues is a straightforward concept and reflects market potential, market share, and business-model. Operations can also mean business-model as that clearly affects your operations, it also concerns the team, and it very much concerns *the last mile*—a very detailed understanding of how your product comes of the “factory line” and goes into a customers hands (every step and every screw has to be planned out). And IPP, well IPP is something special.

Intellectual Property Protection refers to legal and other ways that you protect the innovation and knowledge that is built within your company and its people. It is not as straightforward as simply taking out a patent, copyright, or trademark, though those are usually the first avenues that investors will pursue when talking to you about IP. IPP can just as much come from keeping information tacit—inside the heads of your team—, developing systems that spread an innovation across many parts—e.g. the way technology companies prevent copying from factories they outsource production to, by only giving them parts to produce, but not the whole—, another systematic answer could be deep vertical integration, which ensures a higher quality of products and services than can be replicated by vertically smaller competitors (a strategy pursued by Apple and Starbucks), and last but not least: speed—in some industries it pays to just scale very quickly, rather than build a protective base around IP (a contrast between e.g. web and medicine).

But let’s get real for a second. You’re an inventor, you developed something new. The most obvious path to pursue is a patent. The first issue is cost, because taking out a patent is not cheap. Basically, by filing a patent in your country, you can protect yourself for a while because there is a period, 1-2 years, I believe, where you are filing it and it can serve as a type of legal instrument to prevent other companies from filing a similar patent. But in the end, you have to shell out maybe €5000 per country to protect your invention internationally—and those costs do not cover the legal cost or protecting a patent once it’s being breached. Let’s get real x 2: you’re a startup and while your technology may be innovative, it may not be what the market needs (which can relate to actual taste, but also to cost, to regulatory issues, etc.) and that means that your patent, if you decide to take it out, may not be worth squat. Let’s get real x 3: your invention may not be unique, at least not in its current form, and pursuing a patent in that case is not even feasible.

So practically speaking, what do you do? Just to be clear, I don’t have the final answer to this, though it is something I am constantly thinking about as a potential risk in our, a technology startup. So my interpretation and approach are entirely my own, but I am writing this to start a discussion more than to give the final answer.

The answer to me is all about strategy. IP protection has to make sense in the context of a longer term business strategy, long term meaning to me longer than 2 years and preferably longer than 5 (if you have an actual patent and it has market value as well, you have over a decade of protection). And IP, just like a business, is something that can be split up to cover different areas related to supply, to the manufacturing, to the end-product, to the service, etc. So the more broad and comprehensive your way of protecting your intellectual value is, the less it can actually be replicated by your competitors.

All IP concerns aside, it is sometimes of benefit to not protect the whole value chain. This is true in our business, which I will write about some other time, where we can split up our technology into core-components that are integrated into new solutions which act as a platform for more solutions. Locking off that whole chain is perhaps of some benefit, but in some ways we would like to have people innovate in their respective areas and for us to focus on developing better products out of that. My point is that IP protection should be seen as something that can be shifted to those areas most critical to your business and that new development in your industry is not necessarily something to be scared of. In the end, we are in the product business and if we can produce superior solutions for customers that outweighs comprehensive IP solutions.

So the conclusion is, even if you are developing a product that is not entirely novel, there are places in the value chain where you can still develop an IP solution. And if you are developing novel solution, it has advantages on both the supply and the market side, to not make your IP too restrictive and thus diminish your product potential.

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In his MBA-series (that I don’t read enough, but I may not be the target audience), Fred Wilson writes about the role of sunk costs in making future decisions. As an entrepreneur, I am constantly concerned with the cost of decisions, so I was kind of happy to find out (though I do vaguely remember learning this before) that sunk costs—the costs previously incurred in an enterprise (of any kind, incl. love)—should not be an explicit factor in making (financial) decisions about the future. I remember a distinct case not too long ago, where I did include sunk costs as part of my decision-making, so here’s a few thoughts on it.

Sunk costs are part of reality. Every decision you make comes at the cost of not doing another one (opportunity cost) and as soon as you make a choice and invest in it, that money / energy is sunk / gone. The thing that counts then is to evaluate both the context under which the decision was made and the outcome of that decision. While it makes sense to not include sunk costs in a financial decision-making formula, a negative outcome does require taking pause before making new investments. Perhaps this is a European attitude to things, or a risk-averse one, but much of our thinking about forecasts is based on looking at past performance.

What matters most then is the context, and this, in a startup environment, is rather a complex affair. I’m going to draw some analogies with rocket building in the early 1900s, producing art (at any point in time), and staring at goats here. Art is, I believe, a calling that is very difficult to quantify. It is very strong amongst people that seem to be bad at everything else—just based on my own experience. In this case, you have no past performance to base future performance on. And art being a fluid craft where aberrations of the status quo seem to produce some interesting results (but also at terrible odds), it is nearly impossible to predict the future of such an enterprise. Rocket building in the early history of rocket building suffered from similar dangers, in that no one had done it before and it required cracking a great number of eggs before reaching the moon.

All of these are sunk costs that may or may not lead to greatness, and what I take issue with is to then ignore sunk costs in making future decisions. At what point is it justified to ignore sunk costs and at what point isn’t it? If the “staring at goats” division in the army spent half a century, eh, staring at goats, you could argue that it’s an investment in the future, but you could also argue that it’s a foolish enterprise—just for fun, I tried staring at the back of the heads of a few people standing in front of me in a supermarket, I did make a few scratch an (imaginary) itch themselves upon my specific mental request, but I can’t say that this “sunk cost” was a reason to invest some more energy into it.

When we made a financial plan for our startup, we didn’t give much thought to making the wrong decision, though that is a very important factor to consider at this stage. It is nearly impossible not to make a wrong decision when you’re building a rocket to go to a place no one’s gone before. What we did do were two things: 1. we researched as much as we could of the environment we were heading into and the tools & reality we had to work with. 2. Every, and I mean *every* decision that had to be made that involved a financial or time investment was scrutinised as much as possible beforehand. But… both research and execution can be flawed in that not all information may be clear—especially regulatory stuff can be a maze to travel through, as can understanding a science or technology—and execution depends on both good information and good people to execute. And the fact is, I believe with any startup, that we have incurred certain costs that can be considered sunk and gone. When we make the plan for the next stage, we will have to ignore those investments, as painful as they have been.

I’m a great believer in the lean startup. This comes from my father, whose whole life philosophy is based on a Ghandhiesque lifestyle that involves discipline, routines, and a leanness when it comes to living and working. I can’t say that this is exactly the way I want to live my life, but I do believe that the opposite, coming from an abundant lifestyle and trying to make good decisions, is more than often a formula for failure. Entrepreneurs and their startups should to a certain degree remain hungry so that the decisions they make are made with the desire to improve life. If you see the amount of hurdles that are presented to startups everywhere, you know that this attitude of keeping startups hungry is shared by many people.

A part of this leanness in decision-making is what I discussed before: scrutiny, scrutiny, scrutiny, among many a step of the way. But I have to frankly admit that this scrutiny can lead to a near bureaucratic way of doing business, which, to me, seems quite incompatible with creating great innovations that require some significant dreams. Dreams are your mind processing information in funny and interesting ways, and if there was an accountant sitting in the back of your head telling you to not dream this and that because it costs too much, it wouldn’t be much of a dream.

That brings me back to the role of sunk costs in decision making. One must be allowed to make mistakes when engaging on an enterprise. It’s quicker to learn from a mistake than to try to constantly prevent it. I’ve also been thinking quite a bit on the role of subsidies in early stage startups and the chance they present to make these mistakes. That, however, should be the topic for a future post.

My conclusion thus is that while entrepreneurship is a serious business, there can be little great ideas without some (in many cases considerable) room for experimentation. How you quantify this, I think, remains subjective. It can’t be Google’s 80-20 rule, where 20% of an employee’s time is spent on his own ideas. When you start, it should more likely be 50-50, with 50% being aimed at making good decisions and the other 50% at pursuing the dream that make those decisions have meaning.

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Let me start by saying that it’s hard to write about what we’re doing, particularly from a non-marketing angle. Tech IT Easy is a .Org and it doesn’t feel right to use it as a commercial medium (apart from the sponsorship banner, which I value very much and which will at some point host my company’s logo as well).

Marketing aside, it’s hard to write about something that continues to evolve. What is a permanent truth is that you get presented with a lot of information, challenging problems, and Choices (with a capital C) all the time, and I wouldn’t exchange this period for anything (except for a bit more sleep).

The Uncertainties
Today’s post will be about managing uncertainty, which is really at the core of my job description. I wrote about technology, market, people, and other risk before, which is a way to abstract what is happening.

What really is happening is that you have multiple people in a company, each has their own job, not each does it in the same (predictable/independent/insert apt term here) way. These people have to build or build upon often multiple technologies that may or may not exist yet. All of that needs to happen before the project runs out of money. You need to involve external parties who have to like what you’re doing, enough for them to give us stuff for free, invest in our stuff, and/or buy our stuff. Risks from all angles but oddly enough it feels fine.

Lilypads allround
In a draft I wrote a few days ago and don’t want to bore you with, I compared it to the following:

Entrepreneurship is different. You may love doing a certain activity more than others, but doing so may very well come at the price of success. If I were to try to describe the feeling, I would say it feels like jumping from one lilypad to the next and keeping them all floating in the same general direction. I can spend more time on one lilypad because it houses a nice frog I like or because the sun’s shining on it just right. But eventually, the pressure would push the leaf into the water and I would drown. Or something to that (slightly nightmarish) effect.

This isn’t that bad, of course, or rather if you think it’s bad, believe me: you’ll get used to it! I wasn’t prepared for this, but I knew it would be hard and now it’s just an everyday thing.

The best way to deal with all these lilypads is to learn to be efficient and to spread the love around equally.

Gut instinct vs. calculated risks
During the early days of my master in entrepreneurship which was supposed to teach me all this stuff, we tried to analyse “the entrepreneur” from the psychological, sociological, and economical perspective. The most frustrating part about it was the psychological side because every academic paper and article seemed to compare the entrepreneur to a superman. It probably didn’t help much that plenty of those articles were written during the .Com days where we all worshipped entrepreneurs many of which later turned out to sell very good smelling air.

One thing that struck me, however, was the concept of “calculated risk.” Entrepreneurship isn’t a risky venture, it is an exercise in calculated risk. I didn’t get what that meant until very recently.

As mentioned, our company is composed of several people, all of whom are different and work differently. I have people that need structure, people that hate structure, and people that seem to jump from one lilypad from the next, with me, the “boss,” chasing after them. In one way I hate it, in another way I really want people to find the best way FOR THEM to work, though of course respecting the general reality of our situation.

I am taking a risk there, but the crucial part is that I do so in a calculated manner. And that is more literal than you think. For example:

We have a very clear vision of where we want to be in several months time, but there are alternative paths to get there. One would be to build upon existing technology, which would involve a slight adaptation but at a very high financial cost. The advantage is that we have a ready to go product, the disadvantage is that we have to calculate the higher cost down to our customers. That’s ok, if it wasn’t for path no. 2.

No. 2 would require building something from the ground up that would interface with an existing technology, except that it allows us to create something much more impressive (and innovative!), as well as build a series of cheaper prototypes until we reach the mature prototype phase. Cost of production would be the same in the end, except that we can produce 10 versions of our product for the same price. The advantage is a superior product for the consumer, the disadvantage from a developmental stance is that instead of a minor adaption such as in path 1, we spend more time on this part, time we could allocate to other areas.

These are pretty much once-a-week decisions that I have to make, and a large part can already be decided by instinct. It is better to build 10 cheap prototypes than 1 expensive prototype. But how much better it is can also be calculated out in time and material cost in a simple excel sheet.

How I choose to interpret “calculated risk” is that it is actually calculated. Risk is simply uncertainty and uncertainty means that there are alternative paths to a destination and we don’t 100% know which is the right one.

You can apply this to plenty of other things, such as how to design products for different business models and how to design companies for different investors. It is amazing what clarity it brings to quickly crunch the numbers when a new idea is introduced that appears to derail the whole project. After calculating the cost of that choice (the “risk”) it may in fact bring the project to a whole new level!

I still consider myself a visual thinker where ideas are concerned, but I am becoming more and more convinced of the power of “the numbers” in turning ideas into commercial innovations. There is a risk to spending too much time in them, of course. Who hasn’t heard of forecastoritis, also known as the hockey-stick financial forecast. Life doesn’t work that way and while any forecast over a longer period of time ends up looking like starting with a large minus that turns into a larger plus, the best forecasts actually reduce the minuses to a minimum. I see a large R&D budget as the equivalent of a welfare state that just sponsors those types of people that don’t really ever want to make money: the scientists. They just want to build things and love an endless R&D budget. What they don’t realise is that when a company actually makes money, part of that money will be used for R&D anyway, which actually becomes an endless development budget! But only after you have a viable cash cow that makes it happen and only if development continues to generate continuous revenue opportunities. Ok, that last paragraph was a bit of a rant…

All my entrepreneurship diary posts can be followed under the tag ‘Vincent’s eDiary.’ I don’t write about what we do as a company on purpose, but you can always ask in the comments or via the email address on the right. Pictures are courtesy of the great M.C. Escher and nature.

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Having reached a personal milestone, part 5 of my entrepreneurship diaries, I should mention that it’s very pleasurable and useful for me to write on these topics, and I hope it’s the same for you. In this post, I want to briefly address the issue of uncertainty in early stage technology companies and how that affects management.

As I mentioned before, I was asked to join this company as CEO after consulting them on the commercial applications of this exciting new technology. Joining a year later, we had a good understanding of the strengths and weaknesses of the current organisation. During the consulting stage, I wrote a business plan with a fairly clear time line (to me and our sponsor), but it wasn’t being executed upon as required. One of my the deliverables I set myself was therefore to get development back on track, which not only respects the resource boundaries (financial, human, technological) we face, as well as sends out the signal that we are a serious business.

One thing I keep hearing over and over from entrepreneurs is that you have to be comfortable with ambiguity. And that is absolutely true. We continue to iterate on ideas based on changes in technology, customer and partner feedback, and our own ideas, something that would drive any sane man crazy, but we have to keep it under control. The best way that I find to do that is continuing to develop the vision of where we are going (the strongest motivator I can imagine) and maintain a loose type of project management that gets us to that goal.

I call this project management, as it deals with schedules, milestones, and resource allocation over a period of time. Uncertainty is an important factor to consider in this. In a large company, chances are you’re dealing with a predictable environment, in an early stage startup this is not the case. Getting a tighter schedule in place continues to be a challenge we are working on, however I find that being alert, flexible, and adaptive all the time contrasts with the more stable art of project management. Please correct me if I’m wrong, in which case present a solution also! Of course, there have to be thresholds in place, which to me is very much defined by risk assessment.

Regarding risks, let me start by saying that not all risks can be addressed, which is why being comfortable with ambiguity is so important. And second, there are many different types of risk, technology, financial, market, etc., but one usually outlines the thresholds that you have to respect. In my case, I see this clearly as market risk, as nothing matters if your customers aren’t buying… however, this really is not something to take for granted.

In medicine for instance, which is traditionally patent-based and largely dependant on a complex regulatory process, you have a 15 year window, of which you can spend up to 12 years developing your super-innovative cure. Clearly the technology risks outweigh the market ones (note: this ignores the rise of generic, cheap, knock-off drugs). In the web-industry, on the other hand, it’s perfect for rapid prototyping, it’s hard to protect innovations and easy for competitors to clone them, and it makes much more sense to push out your products asap. That means that there can be plenty of competition and the risk lies in grabbing sufficient market share to make a (sustainable) profit.

In our case, we are not as “high-tech” as medicine and not as “high-market” as web-development, in the sense that we face both market and technology risks. However, I see market risks as more important and try to align both market & technology approaches together. As an example, one of the things we did several months ago, was demo our technology to the general public and to selected partners. After the experience, we interviewed them thoroughly on their experience, as well as their initial expectations. We want to make sure that people don’t expect something different than what we deliver and that our product meets and exceeds their expectations. That gives us a clear view of where we want the product to go.

On a technology level, that presents us with certain thresholds in terms of “the experience” and price-points. And whenever we face a technology change, whatever solution is being developed, it has to fit within that end-picture the customer expects. That also overcomes the problem of black-box development, which is not uncommon in technology development.

So, that’s more or less how we continue to develop the vision for our company and the project management that supports it. We started with a lucid dream of producing great technology. We demoed initial versions and tried to align our vision to the needs of our users. And we end up (hopefully) building what our customers want and pay for. I would love to do this in a web-environment, as that really makes prototyping so much cheaper and quicker, but we do the best we can with our not so intangible technology.

All my entrepreneurship diary posts can be followed under the tag ‘Vincent’s eDiary.’ I don’t write about what we do as a company on purpose, but you can always ask in the comments or via the email address on the right.

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Both ‘startup’ and ‘entrepreneur’ are terms that immediately evoke an often false reaction from an audience and I would personally prefer not to describe my work using those words. In the following post, I write about three associations in regards to entrepreneurship, one positive, one negative, both somewhat false, and one what I see entrepreneurship as really: just a job. As usual, these diary posts, which I try to write in a short amount of time, are produced with minimal editing. I hope it makes sense. All my entrepreneurial diary posts can be followed under the tag ‘Vincent’s eDiary.’ I don’t write about what we do as a company on purpose, but you can always ask in the comments or via the email address on the right.

The popular associations
The word entrepreneur has two popular and a third upcoming association. One association is negative, that of a risk-taker and in some ways a loser—this would be more in a European context where job-security is highly valued. The other is positive, that of a potential Bill Gates or Steve Jobs, i.e. the smart entrepreneur who sees a big opportunity and has the drive, intelligence, and access to other resources to make it very big.

Of these two, the latter is what we are all aiming for, but realistically that applies to less than 1% of entrepreneurs today (using the very broad definition of someone that starts anything from 1-man webdesign company to an ambitious cure for cancer). The first association is also a misunderstanding of entrepreneurship, as entrepreneurs are not blind risk-takers, or at least they shouldn’t be. I would say and hope that it applies to a minority of entrepreneurs also.

The third association: a career-choice
The third association is that of an upcoming trend: entrepreneurship as simply a job. You’ll find plenty of job-adverts with “entrepreneurial attitude a plus” or similar in the job-description, a term I hate just as much as the often mis-used “business development,” standing for just B2B sales.

Added to the job-description part comes that there are plenty of entrepreneurial courses and full academic programmes available to the public, one of which I enjoyed, though I know from personal experience that that doesn’t make a person an entrepreneur.

A third factor contributing to the ‘entrepreneurship is a job’ association is easier access to the marketplace. I’ve had some online discussions with Cecil Dijoux on this blog about today’s technology culture in the context of enterprise software development, and there is as much a democratisation of software-/web-ware development, as there is of other increasingly “low-tech” industries. (As a side note: My definition of low-tech is a technology something has very low barriers to developing it.).

I think that the abundance of resources (not just) in regards to programming, to very well developed (internet) distribution methods for getting products, tangible or intangible, out to customers, as well as more-and-more programmes for funding/assisting startups, means that entrepreneurs have access to a better developed funnel where it comes to their profession of gathering resources and marketing their products.

That doesn’t make it easy, and actually brings other challenges like being one tree in a very large forest, but it does mean that it can be seen as a type of job.

Now, what is there not to like about the word ‘entrepreneurship’?
Maybe it’s a personal thing, but I feel very uncomfortable telling people I meet that I’m an entrepreneur. One, I do see it like a job, a job that I have to do well, and nothing special really. The term ‘entrepreneurship’ makes it sound fancy, which it is not. Two, I’m a European and I do feel the same association that many Europeans have to the word, which is that it’s “less than a real job.” Rationally, I don’t think that’s true, but emotionally I have found myself feeling the following initial reaction more than once when someone comes up to me and describes himself as an entrepreneur:

“Get a job, you hippie!”

Add to this that a startup is not a company until it makes money, and an entrepreneur is not an entrepreneur until he makes money doing what he does.

So I think the term ‘entrepreneurship’ is glorified, perhaps invented to make entrepreneurs feel like they’re doing something special, same as the term ‘Artist’ or ‘Inventor.’ Art isn’t art unless the audience considers it so, and people have invented plenty of mousetraps that are now collecting dust in a garage somewhere.

Suggest something new please
I’d like a new term for what I do and maybe you can suggest one. It should perhaps be related to a startup, which immediately summarises what is happening: A company that is starting up and isn’t there where it wants and needs to be yet.

The problem is that an entrepreneur is not always in the same class as a startup. He can be 50 years old and have a long and successful career behind him. Would you call him a “starter,” a term often used for people fresh out of college applying for a job at Consultant X or Multinational Y? Generally, entrepreneurs are responsible for the activities that happen in a startup in order to make it a success. Their chances of success increase if they have prior experience, resources, and networks to build upon, that make it easier to access the three pillars of “starting up,” as I’ve summarised in the picture above.

In regards to the above, I personally like to describe my work as “I’m running a small company and we’re developing a new product X,” but that is also a bit of a mouthful.

The other side of the coin is that entrepreneurs are in (desperate) need of marketing, where glorification does play a part. I read somewhere that entrepreneurship can be described as the process of developing something irregardless of resources currently in possession. That suggests a pitch is necessary, and perhaps already being termed an entrepreneur helps getting a foot in the door. I doubt it and it would personally bother me if that’s all it took, but I’m smart enough to realise that we “entrepreneurs” need to do whatever it takes to acquire resources, as long as it fits our code of ethics of course.

So, entrepreneurship, yes or no? I don’t like the term, but I may be stuck with it. If I come up with something more apt, I’ll let you know. And same for you please!

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This post is part of a series, a diary of starting a business if you will. It follows part 1, the decision of becoming an entrepreneur.

One thing I found out is that it’s hard to put your responsibilities down on paper… there are so many!!! There is of course a basic job-description, which more or less sounds like that of a project manager/pull-the-rabbit-out-of-the-hat magician: “make it happen that we go from this thing on paper to the product in the hands of customers.” “Make it happen” is a super-loaded phrase, which can mean countless things.

There is a continuous struggle between micro-management and keeping the overview. Micro, because it is your responsibility that every (little) thing is carried out by your employees (if you have them). Overview, because You the entrepreneur are The Organisation. There is a third struggle that shouldn’t exist really, that between your professional life and your personal life. I’ve come to the conclusion that the only way to do this thing well is to focus on it exclusively. Friends, family, love, …blogging… it’s a nice luxury to have, but it comes second place.

The responsibility of an entrepreneur are thus: have a goal and make sure that everything is executed to get to that goal.

In a technology company, there are matters of technology and business (really, in what business except for strategy consulting isn’t there a mix of “technology,” which can mean anything from cooking to software development, and the commercial side of things, which is meant to pay for everything?). What I found was that as someone with a business background, who sort-of-kind-of has an idea about product development, and has a better grasp of business development, I still can’t let go of the reigns of product development entirely.

Product development ties in directly with business development. People are unwilling to pay for something that doesn’t exist and similarly our budget is supposed to last us until we have something worth paying for or investing in. Therefore, as an entrepreneur I have to make sure that product development stays on track. The absolute best way to do this is to have a capable product development manager in charge. The truth of it is that startups by their nature are resource-poor, which includes tripple-A product development managers (probably employed at multinational X or Y somewhere), and there is a lot of learning/training on the job. Learning/training means that the (hopefully) existing product development manager (in our case yes) still has to be managed, through schedules and regular meetings. In any case, product development is in its conceptual stage a very brainstorm-friendly activity, which means the more the merrier. But ultimately, a startup must get beyond this stage, respecting the entire resource-poor situation that a startup usually faces.

So, responsibilities of an entrepreneur as far as the technological product development is concerned: If you have a product development manager, you have to make sure that he works under the realities of the business. If you don’t, which I imagine many 1-person software startups operate under (as well as those lucky strategy consultants), well then you have to do the job of product development as well, keeping a close eye on the business realities.

OK, the business part of things. My role is fairly well-defined here as I come from a business background and approach startups from a business perspective. Assume that role 101 is having a firm grasp on everything that goes on, which can be phrased as “where are resources (people, time, money) being expended at and is it wise to do so.” This entails having a good budget plan and sticking to that.

Role 102 is to build the business, which I call business development, but that often gets confused with sales as that that is what it says in job adverts. Business development is the building of the business, which includes sales, but also includes building the company and all that entails.

So, we are trying to get from point A to point P, how do we go about it? If product development is about turning an idea into a product, business development is building a business plan into a business. Business plans are total BS unless they contain validated information. Some key-chapters in business plans are the market overview, the market approach, the time-line, and the financial need to meet all these objectives. Business plans can serve as a. cannon fodder, b. a plan of approach, c. one of several signals to attract investment. For c. no investor will take a look at your business unless you have a plan of approach (b.). On that plan, there should be a time-line, which you are following (predictability!) and there should be a goal: the market you are targeting and your approach.

The market section of the business plan presents a big problem for technology entrepreneurs. Because (non!) customers often don’t know what they want. I can ask a target group “what kind of air do you like to breathe?” and it wouldn’t surprise me if a significant number of responses would say: “I like to breathe air that smells like perfume.” OK, that’s a terrible question, but what I mean is that people sometimes make up answers that have nothing to do with reality (that said, both the perfume business and the fast-food industry have made lots of money from essentially selling air that smells good. Scent is also plays a very important part in memory, but I digress…)

What I’m a big fan of is validated market data, which is data gathered from actual customer experience with your product or part of it. That brings forth another problem of a bias towards early (and over-excited) adopters, something which the book “crossing the chasm” deals with, but is really not something that I think is realistic to address at an early stage, except that validated market data can also come from experts in the markets you are targeting.

The implication is also that product development is again completely tied in with business development which leads us down the path of rapid prototyping, another practice that works great in software / on the web, not as easily (though not impossible) with hardware. In any case, the experts in this area most well-known today are:

• - Steve Blank, who wrote “The Four Steps to Epiphany” and is currently hosting the excellent Stanford’s Entrepreneurial Thought Leaders seminars (btw. Steve Blank also writes a great blog on customer-focussed development, which I’ve only just started reading.
• - Eric Ries, who authors the blog Startup Lessons Learned and has some great articles on responsible (=lean) development.
• - And Donald Reinertsen, who wrote an incredibly dense book called “Principles of Product Development Flow,” a book which is clearly an authority in the field, but which I cannot recommend to any sensible entrepreneur with a 60hr/week schedule. Those principles, by the by, number in the 100+.

As well as of course Toyota and plenty of other experts out there, I’m sure, many of which are referenced by the people mentioned.

I think that it can safely be said that task 3 or a sub-task of business development is working towards the customer, the lifeblood of a business.

There are other tasks of course, which have to do with human resources, legal work, accounting, etc. Some of which can be outsourced, some of which can be done half-heartedly (oh no, I didn’t say that), some of which are really-really important, etc.

All these tasks, however, require a certain authority. The entrepreneur’s responsibility is to either be an authority on a task level or to be sure to work with authorities, either in the company or in an (informal) consulting fashion, so that they are carried out responsibly.

Task 4 can thus be entitled: be an authority on the tasks that need to be carried out or have access to one.

So, a whole can of worms starting a company can be and it is vital that it does not interfere with the single most important thing that you must do as a human being: be healthy! Health is part sleep, part exercise, part food, part love. There is no yin without yang and vice versa. Thus forget everything I said about personal life being no. 2. The best is if it reinforces what you do in your work. Health leads to happiness and happiness leads to optimism: a key-quality in entrepreneurship if there ever was one.

So the responsibilities of an entrepreneur summarised:

• 100: keep your eye on both sides of the court: the goal & the resources needed to get to that goal
• 101: align Product development with Business development
• 102: always validate your market data by staying close to your customers
• 103: be an authority on the tasks that need carrying out or have access to one
• 104: stay healthy and happy.

This was written in a single session with minimal editing. I hope it kind of makes sense. Part 3 of my e’diary will be on the topic of: can you prepare for entrepreneurship? As I have a master in entrepreneurship, I thought it might make for an interesting perspective. All my entrepreneurial diary posts can be followed under the tag ‘Vincent’s eDiary.’ By choice, I’m being mysterious about my company. If you have questions, feel free to comment or write to me via the email address on the right.

Picture courtesy of Be The Dream.

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I’m always fascinated by business models, i.e. at how entrepreneurs and companies put together services in order to make money from them. I’d call it the source code of business if I hadn’t seen the other source code in Luxembourg —legal and accounting—but arguably that’s more like binary code, i.e. 99% unintelligible.

Sarah Lacy writes about SMSONE, a ultra-local news provider in India similar to Outside.IN, a Union Square Ventures funded US-only company that provides news updates via the web. SMSONE does it, as the name suggests, via SMS. And it spreads through a franchising model, working with local entrepreneurs that pay a franchise fee and also collect a share of the advertising revenue from locally focussed businesses. It is able to do this because of something that apparently doesn’t exist in the US (but does in Europe): receiving an SMS in India doesn’t cost the recipient anything.

When reading about this, I was immediately reminded of a similar business model employed by a Dutch entrepreneur in Russia, Ms. Annemarie van Gaal, founder of Independent Media, a company that distributed Russian versions of magazines like Cosmopolitan, Marie Claire en Good Housekeeping (source). When she spoke at the Star entrepreneurial seminar in Rotterdam a year ago, she told us about how she differentiated herself from the competition (paraphrased as I haven’t got my notes with me):

The trouble with getting your magazines distributed in Russia was that you had to pay quite a lot of money (some would call it bribes) to companies that would then take care of it… badly. Instead van Gaal decided to do it differently. She would hire street kids to distribute her magazines, similar to the gold days of newspapers: the newspaper boy.

If you read Sarah Lacy’s account on Techcrunch, you’ll see that SMSONE does it similarly, hiring local kids, often without much education, to take care of distribution. Doing it via official channels is likely a nightmare over there, and centralising distribution kind of defeats the purpose of micro-news.

It’s a different way of thinking, which many of us westerners don’t have. I mean, would you entrust your products to a beggar on the street or to a street musician? Not only is it probably against the law (except if the government does it), we pride ourselves on our super-organised infrastructure, where anything from temp-workers to interns are there to provide companies with a flexible workforce, and anything from printing presses to mobile internet exists to produce and distribute your stuff.

Of course, I wouldn’t just leave you with these two examples. In the beginning of 2008, Boston Consulting Group published a study of “local dynamos”— domestically focussed companies, which use creative business models to capture value from emerging markets that are filled with challenges, like lacking infrastructure and low-income consumers. The map below shows how widespread these companies are.

Some very interesting examples are mentioned, like:

• Shanda, a Chinese gaming-company, that, in order to combat software-piracy, focusses on providing interactive services through gaming, services that are impossible to pirate. And to overcome a lack of a financial infrastructure to pay for online services, they work with pre-paid cards.
• Indian CavinKare, which sells cheap sachets of shampoo through small local retailers, while using educational marketing to teach customers how to use their products.
• Goodbaby, which targets the many 1-child families in China, who are both willing to spend more on their child than multi-child families would, but are also in need of education.
• Amul, an Indian food-and-beverage-marketing-organisation, which collects and pays for milk locally, while tracking all operations via satellite and uses ERP solutions to make analysis based on the data and gauge whether future supply needs to be increased or decreased.
• Wimm-Bill-Dann Foods (Russia), which works extensively with local partners, and has devised leasing schemes for expensive machinery to boost their production and is able to serve 280 million consumers nation-wide.

The BCG, of course, takes the stance of its customers, Western companies, and the study is mainly aimed at how multinational companies (MNCs) can replicate 6 of these dynamo’s advantages, in order to compete with them. They are:

1. Customising to local needs – which involves first understanding these needs, and then meeting them.
2. Devising innovative business models that overcome local challenges – a logical follow-up to the last point, how to make money from the info you gained.
3. Leveraging the latest technologies – meaning that these emerging economies are less burdened with traditional infrastructure and quicker on the uptake of more affordable, newer, and easier-to-spread technology, e.g. mobiles.
4. Benefiting from low-cost labor and overcoming shortages of skilled labor – there’s two ways to look at this; a local workforce will be better equipped to interact on a local level, a highly-trained workforce will be better equipped to run a business. Tough call.
5. Scaling up fast – Russia, India, China, Brazil, etc. are all giants with the promise of huge rewards when you capture them. Many of these dynamos grow quickly through both through acquisitions and building up their network of suppliers and distributors.
6. Sustaining long-term hypergrowth without imploding – this kind of follows on to the last point

Some of the Western companies mentioned, which have managed to compete on a local level, include:

• General Motors, which has adapted its luxury-liners to meet the demands of its Chinese customers, who are usually sitting in the back;
• LG, in China, which has learned that the audio-quality of its televisions is more valued by its customers, who often reside in noisy environments;
• Carrefour, which has started to work with local municipal governments in China, as these don’t meddle in their operations like local dept. stores would, and are able to provide access to prime locations;
• Perfetti Van Melle, in India, a candle/chewing-gum manufacturer, which has found local means to advertise, interacts frequently with local partners, and has adapted its products to local tastes;
• and Yum! Brands, which owns Pizza Hut and KFC, and has adapted its menus to meet local Chinese tastes, started a new food-chain aimed specifically at the market, and uses its international expertise to integrate IT, lean supply chains, and a higher level of food standards into their offering.

It shows the value of out of the box thinking in terms of reaching people, and I believe that traditional “Western” thinking should long ago have been thrown out the door anyway, particularly in light of the troubles that media-, automotive, and financial industries are going through. We are in the flux of disruptive innovation and only those quickest to grasp new technologies and ways of thinking are able to survive another day.

No shortage of lessons on that from entrepreneurs in emerging economies…

Vincent out

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Last February, I was in Silicon Valley for a week thanks to a course I was taking. Here’s a summary of what happened there.

UC Berkeley: Center for new Music and Audio Technologies.

Prof. David Wessel showed us a new instrument that was basically 32 touchpads. Each was connected to a sample loop and the x- and y-axis and pressure modified that loop. It was an interesting idea, because it didn’t look like just pushing buttons to make sound.

Fail whale at LHS

UCB: Raymond Yee, “Mixing and Re-mixing Information”

A lecture from a course on web mashups. Yee has written the book, Pro Web 2.0 Mashups. The students need to plan and work on a mashup project. There were lots of interesting ideas, but I was worried that most of them were remixing for remixing’s sake and didn’t add value along the way.

Lawrence Hall of Science

Our contact at UC Berkeley had warned this place was mostly for children, and sure enough, this is a place to avoid unless you’re 7 years or less. Almost as complete waste of time as our Google visit.

We had also pizza available for but no-one from UC Berkeley came (we were too scary). Except one guy, whose name I forget. But he took some of us for drinks downtown, so that was great.

Digital Chocolate / Trip Hawkins

Hawkins really loved "Bowling alone"

Trip Hawkins talked a lot about how leverage is the key to successful business and what are the differences between the supply chain in when he was at EA and in operator-controlled world of mobile gaming. He told how he built EA so that it was NFL who wanted them to use their brand, not the other way around. This is why he sees that his competitors who just put out license games based on movies will ultimately be driven off the market, because they do not control the IP.

He thinks that the iPhone is the coolest thing in all time and how the rest don’t get it: “If you’ve played around with Storm or Android you know, wow, these suck”. In his view, the others had focused in Features (“What it is”) and not on Advantages (“What it does”) and not at all at Benefits (“Who cares?”).

Digital Chocolate’s game development doesn’t depend on the device, because they change all the time and they can publish all their games in every device. This is the only way to make the business work in the mobile space. Hawkins doesn’t see that there will be any standardization, because that would move the leverage away from mobile operators to handset manufacturers.

He also believes that the social starving that began around 1950′s because of TV is the reason people are so keen on the social gaming and internet services and is the driver for “omnimedia”. His suggested reading are The Innvator’s Solution and Bowling Alone. Even in the old days, he didn’t see gaming as waste of time. When playing, he said that “I was thinking, learning and motivated”.

He recommended that we try Tower Bloxx, their Facebook game. I was a bit disappointed, the game itself isn’t that bad if you want to kill time, but it is really spammy. Not only is more screen real estate spent on questionable ads than on the game, not only does it notify your timeline every time you play the game, not only the “social aspect” is just a high score table of your friends, but it also spams your friends every time you play to add the game. Not exactly what I’d expect from the guy who’s partly responsible for the great games EA pushed out in the early days. I asked why is it that as a former hardcore gamer, the only interesting game I played last year was World of Goo. In his opinion this down to how big corporations work and can’t innovate. If Tower Bloxx is Digital Chocolate’s answer to this, I don’t think it’s just big corporations.

Sun Microsystems / Mårten Mickos

FAQ: "If heating is a problem, why is it black?"

We were given the tour at Sun’s Executive Briefing Center. They showed the SunRays and other stuff and it was pretty nice to see up close the Black Box.

Afterwards, Mickos gave us a presentation about open source development and MySQL. He said that MySQL is like “New Orleans” of web apps in that if you want to control an important river, you need to control the important cities and this was the reason Sun acquired them. He also anticipated the question about superiority of Postgres, which is probably asked from him all the time. “When I joined MySQL, Postgres was better. Some say it still is. But who cares?”

He also started a discussion about “Why are web companies so closed?” – a poke directed among others Google, who benefit a lot from GPL software, but due to a loophole in the agreement can get away without publishing their improvements because the software isn’t redistributed. This is what he calls the hypocrisy of open source: “People just want to get stuff for free”.

Like Hawkins, he said that the most important thing for startup business is category-leadership. One advice he gave for Finnish start-ups was “not to be Finnish”: MySQL didn’t have sales offices in Nordics, only in the US. Other thing was that if something sounds good in Finland, it takes 10-15 years for until it’s widely accepted as a good thing, so don’t go to market too early. “There’s still time to make a Google-killer”, he said.

This was one of the best sessions we had, not only because Mickos isn’t there anymore and looks like Sun won’t be either but also because we got vodka and swag. You could see there was an economic crisis, because elsewhere we didn’t get anything.

Nexit Ventures / Michel Wendell

Wendell, from Nexit Ventures, a VC firm interested in Nordic IT startups, told how the VC market works and what kind of mistakes Finnish companies usually make. He told how he ended up in the business of helping Nordic companies make it in the US. Being a VC has lot to do with knowing people.

Lots of interesting discussion, but it was late in the evening and it’s pretty hard to upstage either Hawkins or Mickos.

IDEO

We got a standard theme park tour at IDEO. If you have seen the documentaries on TV or at YouTube, there’s not much to see. I was surprised that they actually avoid any systematic or analytical approach to design and focus more on a holistic, iterative and therefore probably pretty expensive (to the client) approach. As a case study they presented Nokia N-Gage platform they did concept work for. A surprising choice, because not only being old was also a spectacular flop. I guess they thought that being from Finland and the course given by ex-CTO of Nokia, we’d be interested in Nokia or something. If we were, we probably didn’t need to come all the way to Palo Alto for that.

Stanford University / VHIL

At Stanford, we got a nice presentation from Jeremy Bailenson from Virtual Human Interaction Lab. He was talking about the Proteus Effect, or how avatars change humans and their behaviour. For example, even though Blizzard has nothing in World of Warcraft code that gives advantage to taller avatars, they nevertheless level up faster than shorter ones. Also, taller avatars get better results in the Ultimatum Game, the real world height of the human is irrelevant. As I’m interested in behavioral decision making, it was nice to see that it might be possible to do empirical studies in virtual worlds, where we can control many variables that social sciences haven’t been in the real world.

Nokia Research Center at Palo Alto

First NDA of the tour. They showed us some research projects they were working on and had the worst slides of the tour. Most of us came out there frightened how out of touch Nokia can be.

Stanford University / Entrepreneurship Week / “Next Big Thing” Panel

Tim Draper, Tony Perkins and Michael Moe talked mostly about Twitter and iPhone and how making revenue is irrelevant. Draper really loves the free trade. Apparently ad-supported business model is the next big thing.

These guys were either drunk or lived in a bubble of their own. Probably both.

IBM Almaden Research Center / Ray Strong

There's pr0n in it, I'm sure.

Strong talked about how IBM tries to predict the future. First of all, the Almaden Research Center looks like a super-villain’s secret lair from Bond movies (it didn’t help that the guy we met had a Bond-esque name). Forget Google, this is the place to visit. There was the world’s first hard drive in the lobby, which was a nice monument to how long IBM has been in the game.

The main thing Strong told was that it isn’t possible to predict technology in to deep future, only in to the business horizon of up to 5 years. This is what they told to an unnamed government agency that wanted them to do so. As government usually gets what it wants, IBM decided to find a way to do it. They brought in people from academy, futurologists and social scientists. Their approach is half scenarios and half technology landscapes, but their ideation emphasizes backcasting from deep future (>50 years) using trends that can be with high probability assumed to continue.

One problem with scenarios has been that it’s really hard to transform them into strategic actions a company should take. IBM tries to close this gap between scenario planning and strategy by using what they call signposts. These signposts are future events that are both recognizable (when they happen) and actionable.

Strong also talked about how predicting future, it’s important to stay in the qualitative side of things, not only because quantitative side of things usually doesn’t work and might be harmful because of the tendency to use numbers to calculate expected values or other figures, even though they are full of uncertainty and can be harmful.

This was by far the best visit during the tour.

Google

NDA. It was a standard theme park tour. It was pretty clear that Google is exactly as “open” as SEC demands it to be, not an inch more. I guess many for many of us the myth of Google was totally burst.

To be fair, this was the only place where our contact wasn’t executive level so we might have gotten a better experience with a more suitable contact. Even though our host was great and all that, he probably wasn’t the right one for our group.

HP Labs

Runner-up in best architecture for a research lab.

NDA, but they mostly showed published academic research about nanophotovoltaics or something to that end. Our guess is that they didn’t want to tell us anything but out of courtesy showed something. When they talked about things I could understand, they talked about MagCloud and how HP is transforming from a printer and computer company into printing and computing company.

Next day, couple of us went to see the garage (more like a shack) Hewlett and Packard started from and what is considered as the “Birthplace of Silicon Valley”. Not much to see, but at least it had some historical value.

All pictures by me. All rights reserved. Originally published in my private blog, but I decided to get rid of it so I republished this thing here for people interested.

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Hey guys,

I wanted to pose this question on Twitter, but couldn’t describe it in 140 characters. Basically, if I want to learn about investing, what would be the best way to go about it?

I noticed, reading Business Accounting for Dummies, that accounting is a topic that is very nationally driven. Sure, there are general standards, but there will be subtle legal differences for each country and in the end you have to learn something twice or thrice (depending on how often you move).

Is it the same for investing? Am I better off talking to my local bank and seeing what my options are there? I have to say, I prefer being already informed before letting myself be sold service X or Y, so what is a good way to find out about investing via books or otherwise?

I’m not a Dummies-freak or anything, but I did like Consulting for Dummies a lot (review here) and some chapters in the (British) Business Accounting for Dummies book. Would you endorse reading the Investing for Dummies book or another one (bear in mind, that I am a “dummy” as far as investing is concerned!)?

In any case, those were my questions, which wouldn’t have fit the 140 character format. Any advice you can give is welcome!

Vincent

P.S. we are now on a new server, which shouldn’t affect your experience one bit. We may post more polls though :p

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Inspired by the Grasshopper podcast on Venture Voice.

Har har,

Vincent

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First, what I love about business plans. I contains four elements very close to my heart: Writing, talking to people, innovation, and entrepreneurship. That is not to say that writing business plans is a fun activity that should be taken lightly. The crux of writing a business plan is that it needs to be executed upon. And that is where the complication arises.

One of my last freelance projects was amazing fun and in two ways very rewarding. Financially, because the investment that followed it, far exceeded the more than generous fee I was paid. Creatively, because my involvement lead to a lot of focus product- and strategy-wise, and we developed what I thought was a clear timeline as to the execution of the plan in different phases of product and market development.

But, as mentioned, writing a plan does not mean that it reflects the reality. I was reminded of this again, listening to a venture hacks podcast on “pitching hacks” (you can watch and listen to the presentation here). Business plans are worth squat, because a. there’s a lot of them, and b. the proportion that is executed upon is fairly small.

In theory, business-plans serve as a way to make the strategy of a young company explicit. Kind of like Gerber’s “Franchise manual” for startups in the E-Myth Revisited, it allows you to solidify what you do while you’re doing it. But, I don’t think it automatically leads to a (better or actual) business…

…

Those three dots is where I stopped writing some three weeks ago, and I have in the mean time developed my thoughts further on this. I think that the gist of good business planning is taking ownership of the project. And the single most important key-component of the business plan is the timeline section. And the single most important action as an entrepreneur is to already have at least 10-30% completed of that timeline.

In other words:

• if you’re an entrepreneur you should write your own business plan: you cannot outsource this!




• The most well-developed section of your plan should be your timeline: as conservative and realistic as possible!




• The best way to illustrate the value of your plan (and timeline) is to already be following it: actions scream much louder than written words!

If those three components are in place, I think that the world of business planning and entrepreneurship would be a much better place.

End braindump…

Vincent

Addentum: The problem of multiple agendas! I should also add that another complication is that plans are written with a singular vision in mind, perhaps alternative scenarios are included, but it still very often reflects a singular approach to “doing things.” But… many companies are composed of multiple people, who may or may not have multiple agendas. I still think it can belong to taking ownership of the idea, in the sense that the plan is worked on together and perfected until everyone agrees with it. But more often than not, the business function is delegated to certain individuals, meaning that this isn’t the case.

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Depending on where you stand, this is going to a long boring blog post or an interesting one. While I didn’t write much about it, my last consulting project as a freelancer was to help get a startup into the European Space Agency Incubator (ESI)… successfully, I’m happy to say. I wanted to write a post about how interesting it is, I think, to invest your time and money into space technology businesses, particularly because it’s about spinning space tech off to applications into the real world, but realised that this interview with Bruno Naulais, ESI network manager, would probably do the trick.

I conducted this interview in the summer of 2006, as part of my thesis. It was previously published on my personal blog, but it [the whole blog] has since disappeared into MySQL “does not compute” hell. Here goes.

The Interview

VvW: What is the ESA Incubator all about?

BN: It is actually called ESI, the European Space Incubator. It is part of a network, called ESINET, and consists of 35 incubators, spread across most of ESA member-states and some Eastern European countries (eg Ukraine, Bulgaria).

The ESI business-model, in a large part conceived through Niels Eldering’s thesis [a fellow Rotterdam School of Management graduate] and BN’s Business Plan, could be described as consisting of three dimensions. These are the start-ups, the stakeholders, and the supporting services.

1st Dimension: The start-up

The start-up is seen as a place where fertile (space) technology meets an individual or a team of people. They in turn go through an incubation process (at the ESI) and finally come out as a company to do business.

2nd Dimension: Stakeholders

This doesn’t apply to all incubators in the network, but in the Netherlands, the two main stakeholders are the ESA and the Dutch ministry of economic affairs (EZ). Both naturally want to promote employment, economic growth, and entrepreneurship in the Netherlands. Furthermore, ESA has the objective to improve the image of space in the eyes of the general public, of investors, and of businesses.

The latter is of particular importance, as space is still perceived as expensive, dominated by large players, and generally irrelevant to the lives of Earth’s citizens. What the incubator aims to do is to show to it’s stakeholders and to the general public, that space-technologies and space-systems can be benefited from in everyday life.

3rd Dimension: Support

This happens both through 3rd parties, something called Key Innovation Business Services (KIBS) and in-house. Through this, the aim is to prepare the start-up for doing business in the real world, and to receive further investment. The latter of course depends on the ambitions of the founder. Some are pretty limited in their targets. They only want to set up in their country, or perhaps the Benelux. Others want to go cross-continental or even global.

VvW: Exploring the “Support”-angle further, how does the ESI assist it’s starters in finding private financing?

BN: First, it is necessary to assess the type of start-up. Depending on the type of product/service and the market, an advice is given as to what the growth-strategy should be. This doesn’t always need to be angel or venture financing. In many cases, the advice is to consider a strategic partnership. In this case, there’s a larger company already active in the market/industry that the start-up is targeting, and has an interest in taking a stake in the company, with the option to acquire it at a later stage. This requires there to be a kind of fit between the partners. So far, the ESI has had two start-ups taking that option.

Then there is also the option for a joint venture, an equal partnership between two starters in ESINET, or a starter and an existing company. One ESI start-up has done that.

For private financing, like a business angel or venture capitalist, start-ups usually still have a way to go. Usually, they first attract financing from the 3 F’s: Friends, Fools, and Family. This can happen before or during the incubation-phase. More experienced investors usually require the company and idea to be more mature. With a proof of concept, you can attract a business angel. When you are ready to sell a commercial product, you can approach venture capitalists. There are some exceptions to this of course, but this is the way it usually works.

The aim is to ultimately have a core group of business angels that are allied with the incubator. To a degree, this is already the case with venture capitalists, of which a group is being made aware of the inner proceedings of the incubator-companies. The idea is that the start-up does not need to educate these people on space or their idea, the incubator is already doing that for them. And the incubator will basically give residing start-ups feedback on their stage of development and, depending on that, the availability of pots of business angel- or venture capital.

VvW: What are the advantages of a start-up approaching investors through the incubator, rather than going at it alone?

BN: To start, a venture capitalist can receive thousands of business-plans during a year. The aim is that ESI-plans land on top of that pile. This is because the ESI, and the ESA, provides a quality label to its’ residing startups, which manifests itself in four ways.

For one, there’s the quality of the work done at the ESA, their procedures and methodologies. The incubator tries to pass those on to the start-ups.

Second, there are the favourable statistics for technostarters residing in incubators. A survey from 2004 [which I still have to read] reports that ca. 87 % of start-ups in the incubation process are still alive after three years. For a standalone technostarter, this figure is much lower, between 20-30 %.

Third, there are the networking-aspects of the ESI. Business incubation does not work well as a standalone function, it has to be part of a network. In the case of the ESA, it is present in 17 countries, as well as active in non-member states, such as the US and Russia. This can be useful as a gateway for the start-up to expand or move to another country. It’s also good for cross-fertilisation—between different ESI-start-ups and -graduates, suppliers and customers, investors, and other companies. Through the ESINET-network, it is also easier to conduct international market-studies.

Last, but not least, there is the access to the ESA technology and resources (experts, labs, test centre, software tools, facilities, etc.).

VvW: Are there examples of venture capitalists investing in any of the ESI startups?

BN: Sure, there’s ThruVision, which received a substantial amount in two rounds of investment [note: I know the exact sum, but am not sure if I can make this public knowledge: I think it's public since it is mentioned on their web site; perhaps you should have a look (http://www.thruvision.com)]. This company has now graduated, i.e. no longer resides within the ESI.

VvW: From your experience with venture capitalists, how do they feel about the companies that are still in the incubation-/seed-stage?

BN: As was mentioned, they prefer more mature ideas to work with. The key-phrase here is “work with.” Venture capital really means two things, investment + support. Along with the investment, the venture capitalist wants to coach, put people in the right place—on the board, as a CEO. For the latter, most of the start-ups in the ESI-program are founded by someone with an engineering-background. A founder is typically someone that understands the technology and how to build a service or product on top of it.

A venture capitalist, on the other hand, looks at the team, the product/service, the market. He or she will look for people that can run the course, manage the growth. The preference then usually falls to someone with a track-record, who has experience doing that. In the case of ThruVision, the founder is now the technical director, and the CEO is someone with an impressive business-cv.

Another statistic from the European Venture Capital Association (EVCA): In something like 95 % of start-ups invested in by venture capitalists, the founder has been replaced as CEO.

VvW: Do venture capitalists also support the incubator itself in some ways?

BN: Not hands-on, no. They do provide access to a network of companies, investors, and people to work with, which wasn’t there before. There will be more, once the ESINET-fund is started.

VvW: What is the ESInet fund?

BN: First a little background. There is obviously a gap between early stage and growth. This was known from the start of the incubator. This is especially so when you talk about space. Investors look at the space-sector with skeptical eyes. They see it as a market for large players like Alcatel and Astrium. They see it as a niche-market. And when you think about satcom, there’s a lot of international competition from the terrestrial systems. The satcom has already lead to a few big-name and big-investment projects to go bankrupt, example of this are Iridium and GlobalStar.

Furthermore there’s a misunderstanding about what the utilization of space-technologies and -systems really means. Utilization means you are using something that already exits. You only need to adapt it to a non-space sector. This means testing, modification, and validation, something that doesn’t need to take years, rather months. Space-systems refer to satellite-technology, for which you don’t need to build the satellite, you need to be able to receive a signal and use it. For space-technologies, we are talking about transferring and adapting applications and materials used and developed for space to non-space sectors.

First investors need to get this picture. But even if a few of them understand, that doesn’t mean they have the needed expertise. Usually venture capitalists are experienced in certain areas like biotech, meditech, telecoms, etc. Space-related technology does not have that many corresponding VC-experts. So the thought was, if investors will be so hard to find, why not start our own fund?

And this is where the ESINET-fund comes from. Its fund managers don’t need to be convinced on potential business development from space systems and technologies (much) and there is funding for early stage ideas. ESA was convinced to sponsor the fund with 5 million Euros and recently selected a management company from 12 applicants to manage the fund and raise more. The target-size of the fund is 40-50 million Euros in total, to be completed by mid-2006. The ESI is responsible for the deal-flow. This will mostly come from ESI-startups, though if those do not fulfill the needed requirements, investment van occur into other ESA-“ventures.”

The fund-management company will act much like a venture capitalist as far as investing is concerned. It will be present during selection of start-ups and have a supporting role in the development of invested-in companies. And it will take shares in the companies it invests in.

VvW: What do you think the effect will be on other investors, to have this fund running?

BN: It’s always a nicer picture to have a fund tied to an incubator. Having a fund will hopefully attract other investors. Many venture capitalists like to invest in syndicated deals, meaning a group of investors spreading the risks between them. In investments, there’s also usually a leader and followers. It is hoped that the fund can fulfill a leading role in the process.

For business angels and the three F’s, there will always be space. For one, they invest much smaller sums, and second they provide the added value that they bring as people. Like many informal investors, business angels are often interested in a hands-on approach, to be involved in their start-ups, which will benefit entrepreneurs greatly.

VvW: What is the investment climate like in the Netherlands, compared to other European countries?

BN: The Netherlands is not so great for finding private capital, except for subsidies. Both the UK and Germany rank highly for private capital. France and Italy have good governmental support.

VvW: OK, back to your start-ups, what criteria do they need to fulfill to become part of the incubator?

BN: During the course of the incubation-phase, they are asked to prepare financial projections, including parameters like Net Present Value (NPV), Return on Investment (ROI), and other ratios. Templates are provided, if needed, and access to third parties that can help. Over the course of the incubation-phase, the incubator-staff tries to follow the evolution of the NPV. In the future, it is hoped that NPV will be calculated at the application-stage, before the start-up becomes part of the incubator. If that’s possible, of course.

Other than that, the number 1 criteria is the market. If they are not able to define it, they will not be accepted. Similarly, a market-study must be prepared.

VvW: How does the ESI feel about teams starting?

BN: Very supportive. On the whole there are both types, entrepreneurs starting solo and finding partners along the way. Or entrepreneurs that start in a team. Generally the incubator encourages partnerships between technologists and business-people. Investors invest in a team after all. The incubator also has good ties with MBA-programs to find people for start-ups.

VvW: Is the staff able to deal with all the demands of the incubator?

BN: The staff has broad knowledge about issues like legal and intellectual property matters. There are specialists that advise on strategy, market, technology, etc. But it is impossible to know everything in depth. For that the start-up can approach third-party specialists, of which they can get the contacts via the incubator.

VvW: Do you compete with other incubators?

BN: Not at all. In fact, collaboration is encouraged and projects are sent to others as well. Geography is also very important to entrepreneurs, they have a life, etc., so it’s not that feasible to draw them away from a more logical location-choice.

Note: If you have any questions, don’t hesitate to post a comment or mail me. If you are interested in applying to the incubation programme at the ESA also, check out this page and also don’t hesitate to ask me about my experiences of working with two tech-startups in the programme.

Vincent

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I’m sitting here writing this on my new Intel Macbook, 4GB of RAM and 256MB of video-memory, coming from a 4-year old PPC iBook with 1GB of RAM and 32MB of video-memory. The latter is the very definition of the principle I’m talking about. From the beginning, I’ve had to find creative solutions to doing my work and it’s been incredibly rewarding. I’ve yet to experience a boundary to the Macbook’s abilities. Having total freedom is exhausting. It encourages exploration, rather than getting things done, and it leads to exhaustion. No matter how far you try to go, you’re still inside that box.

I’ve been engaged in three funding proposals in the last two months. The first, ok, more of a business-plan competition than a funding application. The second, applying for a government grant. The third, applying for a large venture capital investment. Of these three, the grant application was my least favourite and I loved the VC application process. Why?

We have an undefined amount of time to apply for the government grant. We had to follow a template with ultra-confusing headings (e.g. I have three sections that want me to describe the market… am I supposed to do it thrice?). And the total had to be no more than 25 pages.

We found out about the VC option very late in the game, 24 hours before the deadline in fact. We had to fill out a webform, which was in total ca. 8 chapters. Each section had a character-limit (not word), ranging from 100 to 4000. One section for the market and business model = 4000 characters. What the company does = 100 characters. A simple form to fill in the finances, focussing on the key-figures only (revenues, EBIT, equity) which forced us to do all of the complicated calculations for ourselves, and a section for what we wanted to give away of the company and why. Instead of doing an unlimited amount of writing, we used whatever extra time we had to discuss the problems and solutions.

I wrote the 8-page piece for the competition in two hours. Because that’s all the time I had left, after handing in the VC proposal that same day. It forced me to focus on the essentials and nothing more.

It doesn’t matter if we’re talking about a productivity-tool like a laptop, making a startup survive, raising kids, educating people, boundaries are the key to ultra-focussed, ultra-creative solutions to the problem at hand. Giving people total freedom rarely leads to the right results; it makes life easier to both in the very short-term. In the long-term it definitely creates more overhead, as you’re constantly chasing after those that you gave the freedom to. “Kid, it’s been a month, where are you now?” “I’m on the introduction, but I have all the time in the world, right?” Kid, for your sake, I hope not.

The end.
Vincent

P.S. looking for the right picture lead to this article on the same topic.

Audience: How do you set yourself boundaries? I’d love to know!

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I attended LeWeb, a conference dedicated to…the Web industry, almost 2 weeks ago in Paris. I apologize not to have blogged before, but December was a frantic month, business-wise, and I wish I could blog during the conference but as you may have read on the blogosphere, there was no Internet. On top of that, I wanted to leave some time before I blogged to check whether my words would soften.

I arrived at Le Web, investing a lot of time (2 full days) and money (more than EUR 800, that is to say around USD 1100 – which is a lot of money for what I got), with very high expectations, and I have to say that this conference was a huge disappointment to me. Actually, it was more of a disappointment: I actually found Le Web ’08 conference to be a huge piece of crap. Here’s why.

The organizers: Loïc & Géraldine Le Meur

Prior to the conference, I was a big fan of Loïc Le Meur. The guy looked like Midas to me: everything he touched became gold. The guy gets people lining up to invest in his startups (look at his list of investors in his last startup Seesmic here, impressive). Loïc understood that blogging was going to be big before everyone, and positioned himself accordingly (a huge blogger and founder of Six Apart, the editor of TypePad). Loïc is also an early investor in LinkedIn, my favorite web app, and recently founded and funded Seesmic that I find to be a very cool video conversation platform. Well, the guy seemed to be the perfect investee for VCs, and the perfect investor for entrepreneurs. However, when it comes to organizing conferences, I would tend to say it’s not there yet. Loïc and his wife Géraldine have been organizing the Le Web event for something like four years. Last year already, criticism had emerged, but overall comments were positive. Well, after attending one Le Web conference, I can only blame myself for not having due diligenced better: I wasted my time and my startup’s money.

The theme

Love. This year’s Le Web conference was about love. At first sight, I found this theme brilliant – too bad the idea wasn’t well executed. Love is a universal value that is only discussed in novels and Vogue. Plus, Love is the perfect theme if you want to think an outside-the-box conference program. Unfortunately, this wasn’t the case at all. Although there were a number of supposedly quality speakers, most didn’t actually mention the theme, and I guess some didn’t even know that the theme was Love (Marissa Meyer of Google, Didier Lombard of France Telecom, Maurice Levy of Publicis, to name some of them…). I think it’s a big waste, because having a truly deeply-thought consistent program around Love, with at least some continuity between speakers, could’ve made of Le Web a truly mainstream event rather than just a reunion self-proclamed visionaries.

The speakers

Speaking of self-proclamed visionaries, I had a hard time looking for new ‘stars’ on Le Web panels. Or even just interesting content.

Paulo Coelho is a brilliant man, but he had nothing to do at Le Web: his speech didn’t bring anything new, it was self-promotion, and an uninteresting one as a matter of fact. Same with Susan Wu from Ohai, preaching her church (virtual goods): boring slides, boring intervention.

Didier Lombard was absolutely out of scope too. He basically paid to get on stage. And you could feel it.

I was very disappointed by Maurice Levy from Publicis (and by the questions asked by Loïc Le Meur: boring) – the guy could’ve given us interesting insights on web advertising. Instead, we had a boring “fireside chat”, as they say. I liked one thing about Maurice Levy though, he publicly gave his email address saying he was looking for startups to invest in.

Startup competition updates were extremely repetitive; the only thing you could here was “despite the crisis, there are still a lot of innovation around; I’m thrilled by what I saw in the startup competition room”. Except that when you looked at the jury in the room, they were all on their Blackberry or iPhone aswering emails.

I liked Yossi Vardi, Chris Anderson, John Buckman (good tips for entrepreneurs), Marissa Meyer (a few insights on the Google roadmap, like wanting to take Chrome out of Beta) & Joi Ito though.

The sponsors

Le Web’s official sponsor was no company else than Microsoft, the tech giant that probably least understands the Web provided the very poor quality of its online applications, like Hotmail, or its total absence of the collaborative web apps landscape outside its expensive minority stake in Facebook. The good news is, Microsoft folks are smart asses and let some selected startups (some of them embedding no single Microsoft technology) demo their applications rather than demo Microsoft products. Microsoft alone paid Le Web USD 110,000 or EUR 80,000 to get its brand on top of others, rent a lounge space, and get speaking time.

Google also was a sponsor of Le Web – they had Microsoft move first when it came to getting the “official sponsor” title. Google had a special room dedicated to presenting its own stuff during day 1. Nothing new there, except that Google brought in speakers on a number of topics like Adwords, APIs, etc. I guess the fee also included the 2 keynotes Google got. If I were Google, I would, to ensure a maximum buzz around my brand, not attend or sponsor Le Web. That would make the entire conference speak about the absence of Google whilst the whole web revolves around the Google search engine. Google being a sponsor amongst others makes of it a regular company. Too bad.

There were other partners, like SwissCom that sucks big time (they had a booth, and did not manage to make the Internet work during the entire conference + Loïc Le Meur says they got paid more than USD 100,000! to make nothing work), Facebook (?), SixApart & Seesmic who got it for free obviously,…and a number of others that are not worth talking about in this not-so-long post.

The budget, the price

1,400 participants x an average of EUR 1,000 per entrance

Sponsoring & demo room for at least EUR 200,000

The overall budget for this 2-day conference amounted to EUR 1,500,000. Yet, there was no wifi running, definitely not enough food for all participants (I had to go grab a sandwich each 2 days), no consistent editorial line, a crowd of people investing time and a lot of money to listen to the same self-called visionaries on stage.

I haven’t paid myself in one year (I live on my fiancée’s salary), every since I started Verteego. I bought myself a ticket to Le Web almost as a Christmas gift, hoping to enjoy a lot. It was a sort of sacrifice (EUR 850 + 2 days of turnover for Verteego – I’m the sales guy there – is hell of a lot of money! the price of a superb laptop or a great long weekend, say, in Venice) but I was plenty of hopes. The least I could say even 2 weeks after the conference is that I have a very angry feeling at myself: I feel I’ve been financially abused. And I lost two days of hard work during an important period.

The place, and the temperature…

Well, it was free-zing. Which is okay for me, except that with so many people inside, there must have been a sort of natural warmth, which wasn’t the case. I felt this place had the worst energetic efficiency in Paris. This absence of environmental awareness stroke me: the second day, it was warmer. I couldn’t believe how much energy was used to heat the place. I am very disappointed by the overall lack of consciousness of web entrepreneurs for environmental issues: if you are really about changing the world, then you should think about measuring their environmental footprint and take action to reduce it from one year to another & compensate the remainings. But they sure didn’t. And I’m not writing this just to sell Verteego Carbon here: I just don’t understand entrepreneurs to pretend they want to change the World and who don’t care about behaving socially & environmentally responsibly. I think that Le Web, an event that took place in Europe at the same time as the Poznan conference (pre next Kyoto talks in Poland) AND which theme was Love, was just perfect place to ensure Social Responsibility and Sustainability became buzz words in the blogging, startups & VC microcosm. Géraldine & Loïc completely missed the train here.

The startup competition

I didn’t apply to the startup competition. I felt it wasn’t right to make startups pay EUR 1,500 for just a pitch. I was wrong in doing so. The startup competition was probably the only interesting thing during this conference. I paid, as I said, EUR 800+ to go to Le Web Paris ’08 and basically meet with friends. It would’ve been worth paying the double to try and get 7 minutes to pitch Verteego in front of around 300 people. That makes it 5 euros per viewer’s attention, + the backlinks, visibility, and blog coverage you could get later on. Not applying to the startup competition was perhaps my only regret. And that would probably be the only reason I would attend next year.

The food

It was a shame. There’s no other word for it. I could get no food at all, not during the first day, not during the second day. The first day because there was none left. The second because there was no vegetarian food! Both days I went outside for a sandwich. I could then make friends because people were coming to me to ask where I had gotten this.

Worse: during Day 2, I needed to drink water during the day because I caught a cough during Day 1, because of the cold. And I was basically given a negative answer, because the bar was opened neither at 11am, nor at 3pm (which actually made me leave the place). You get 1500 people pay EUR 1000 on average, and there’s no food, and no water???

The Internet

There was very little Internet during the whole conference. Here’s a recap of this lousy situation: not only were you locked in with boring old speakers & because of the price you paid, you couldn’t answer client requests, or blog because of this.

Loïc Le Meur wrote an apologetic post, but I found this post actually ridiculous for him: Le Web gave EUR 100,000+ to SwissCom not to get a service. The excuse is: no provider is used to so many attendants. This is untrue: the very week before Le Web,  I attended a huge (20,000 visitors per day!) Trade Show, Pollutec, in Lyon. And there was perfect Wifi.

The attendants

Obviously, I met with many of my existing friends, and I was glad to. I also met with new people from everywhere around the world. Lots of great people there, from everywhere around the World. But come on, at what price…Furthermore, the mindset was rather negative: people weren’t ambitious or optimistic. They should be: the crisis is a great opportunity to move fast whilst remaining lean.

The TechCrunch party

It was so-so, I was disappointed and angry: 1) I had bought my business partner (who hadn’t attended Le Web) a EUR 30 ticket, to be told at the entrance that a pass to Le Web was worth 2 entrances. I think it should’ve been explained somewhere because I basically wasted EUR 30 with no possibility to get a refund. 2) I waited for 30 minutes outside, in line, to get in. And during this time I saw 2 groups of people showing up in front and squeezing the line: I found this very abnormal, because the Web is about democracy, having all the same access to information. 3) the place was very small, but this is less of an issue.

Conclusion

For the price I paid, I got very little value back (basically, the only benefit of Le Web was that I got to see many of my friends in very little time). Rather than apologizing, and provided the HUGE profits this conference made, I believe not reimbursing participants for providing no wifi, no heating, and no food services is irresponsible at that cost. I repeat: rather than blame their food supplier, Swisscom or the Cent Quatre (for the heating), I think Loïc & Géraldine Le Meur should’ve refunded participants for providing such a low standard service rather than making this huge profit (I also think they should display publicly the P&L of the conference). This is the least they could’ve done since giving me back 2 days of work isn’t physically possible. Loïc and Géraldine Le Meur didn’t show any social responsibility here, no respect for their customers.

Last, but not least, those who are not going to complain about Le Web ’08, both in terms of organization and content, are either those who didn’t pay anything to attend, or those who paid so much that blaming the event would make them look stupid.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… C: wait… SD: wait…

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In many ways, I consider this the best strategy book, I’ve ever read. “Valuation,” by George Norton, is, as the name suggests, a book that uses financial models as a basis to build (sound) strategies. It is also a textbook—my version is hardcover and 190 pages long—but written in a format that reads easily and is structured to be implemented—ca. 30% of the book are (group-)exercises meant to implement what the book suggests.

If I had to criticise it, it’s that I don’t consider it very practical in an entrepreneurial setting. One thing that such methodologies require, is time, which is often a luxury that smaller/younger companies and projects do not have. Building up a set of co-ordinated, organisation-wide strategies can be a matter of years, and, I expect that if you were to follow the book’s advice, you’d engage in a 6 month trajectory, at least.

That said, it is a well-written book and achieves the objective of a book, which is to make understood its topic. In this case, valuation means understanding the value of companies, their products, and business activities. The financial part only really plays a part in the first third and last third of the book, while the middle is more about the actual coming up of the company’s mission, its broader goals, its objectives, and its strategies—the latter being the nitty-gritty activities of how to fulfil the grander vision.

And, where valuation comes in, everything will affect the cash position of the business: some activities may be research-intensive (= costly), but lead to greater rewards in the long-term; others will be quick-sale actions, which generate revenue, but may not always improve the long-term position of the business, unless that revenue is re-invested in more sustainable growth.

I find that these principles easily translate into small business- and individual activities, but only if taken on a holistic level, in which case reading this book may be overkill. But if you’re a finance-geek that wants to learn how to better translate the numbers into practical company-activities, or, vice versa, if you’re a creative business-person, who wants a relatively easy intro into the financial fundamentals behind strategies, then this book may be for you.

Vincent

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