Friday afternoon I was holding a session at RISE Week Austin. I was talking about key factors, which make entrepreneurs fail or succeed – regardless of your other assets. I also was talking about how those keys change with culture, but also with time and will continue to change. There are many, many other problems to solve when you start a company, but what I call the keys are the central factors every entrepreneur will face. And if you do not have solutions for them, you will most likely fail.
I was starting my first two companies in Germany back in the 80s and 90s. Germany is different from the US, but entrepreneurship happens anywhere on the planet, even in unlikely places such as North Korea. The two main trades in the German culture are alignment around what is considered to be German values (das deutsche Wesen) and risk averseness. Germans feel great responsibility to do the right thing and follow the strict code of a classful society, passed on for ages.
These two remarkable features make for great trades people and scientists, but do not invite individualism and risk taking. But the later two trades are so important in entrepreneurship, specifically if you do not follow (German) protocol of becoming an entrepreneur, such as being born into the wealthy upper class, having graduated from an elite ivy league school, and paid your dues in some big prestigious corporation in some middle to executive management position.
When I started my first business I was 16. We made peripherals for the popular Commodore C64 home computer. The two key factors were access to knowledge and access to distribution. I was still in high school. I was much too young to learn the secrets of engineering at the elite schools in Munich, Berlin, or Aachen. Growing up in a small town, I had no relationships to the big distribution channels, which are all controlled by certain family dynasties. But home computers were new and we all learned by discovery. We were all a bunch of teenagers connected by a common interest and exchanged our knowledge.
We exchanged knowledge with people we could reach – by riding there on a moppet. And our friends knew other friends, who they could reach via their moppet – and so skills spread throughout the country – by moppet. It was kind of an open-source community, anybody contributed and anybody utilized the knowledge within the network. My skills were in simple circuit design, component selection, and the design and manufacturing of circuit boards. Distribution again happened within a network of people. Of course revenue is relatively small when you only sell to people you can physically reach, but some of us, who were a bit older, founded mail order companies, being very happy to sell products from small shops. Key factors, access to knowledge, and establishment, which considers you an outsider. Solution: activate the eco system of like-minded and build an alternative around obstacles and cultural barriers.
Skipping a few years and a few startups later. Late 90s, I made it to the Bay Area. My own project called Ezclick became a failure for various reasons – though it had a well thought out business model, which later other folks built into billion dollar companies. But what I learned in this time, is the key factors which any dot-com entrepreneur needed to have: One was a napkin idea which was just outrageous, something ingenious and new, and innovative, and crazy. Ok, creative minds can come up with crazy dreams to change the world. This part was easy and I solved that well with Ezclick.
The second one was much tougher: any investor expected that you put together a team of the world best. The thinking was, once you get funded, you need all this brainpower to make it happen – fast. And if the idea turns out really bad, smart people can always come up with a new idea and pivot. The problem was just that smart people during the dot-com days were in ultra-high demand and paid Wallstreet like compensation. You needed to assemble a team of future employees, as well as advisory board members, without that you could pay anybody – just on the promise of hopeful funding. People needed to commit that they will join you, as soon as you get funding. I was not exactly the social skill kind of guy, but my roommate was, and he was able to put his dream team of Berkeley grads together and rose that 8-figure funding for his own startup.
Ok, a napkin idea buys you squat these days, even if you have that dream team. After dot-com, things changed quiet a bit. Unless you are well-connected, you are not getting that funding. Today, things work quiet differently. On the upside, you do not have to come up with a crazy napkin idea. In fact, it most likely will not attract too many takers on something, which is too beyond the established trend. You need to think more about a real solution, for an existing business problem, for a market, which is large enough for you, and all the other guys, who discovered it. And a market, where there is some margin in and not a market where all you guys trying to beat each other bellow cost – as this is the case on many Etsy hosted markets.
The second key point is that you need a POC = proof of concept. Investors want to see something before they drop even a single dime. You need a prototype, a mockup, or better a beta product with some real customers. This is very unfortunate, as great ideas and concepts with revenue and growth potential need to overcome great barriers of entry, which can only be overcome with massive investments into a professional organization. Lean does not overcome that. Barriers of entry are low if you just reassemble existing stuff without providing enough value. But for the most part, it is what it is. On the bright side, you do not need to spend 8-figures and that dream team as many technologies are there off-the-shelf. On the downside, you still have to come up with $20-50k to make this prototype happen.
The message of my post is that it does not matter in which environment you are, country, time, political and cultural climate, there is always space for entrepreneurship. You need to figure out what the key factors are and how to overcome them. You need to solve them, or you most likely will not be successful. You will have to solve many other issues down the road as well, but those key factors needs to be solved first, or else – exactly! (SB)
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