Wednesday, March 17, 2010

Mentors-Plus-Capital Programs – Intense Incubation

By Jim Flowers

A few months ago, Marty invited me to comment on business incubation and what a startup company ought to expect from an incubator. Relationships, I said back then. And I stand by that assertion.

At VT KnowledgeWorks we screen prospective clients for their Market opportunity, for the Magic that they offer to their prospective customers, and for the Moxie displayed by the start-up team. We reasonably assure that they have oil for their engines, in the form of logistical, administrative, and professional support services that reduce their risk.

Then we do our very best to make sure that they build a broad set of relationships that will be continuing sources of interpreted information, that they have a full complement of Mentors to assist them as they make tough decisions

Well, here’s an important follow-on story.

There is a growing fellowship of special-case start-up programs operated by closely-knit, permanent groups of angel-mentors. Paul Graham (pictured above) built the mold at Y Combinator, which he founded back in 2005. They have processed well over a hundred client start-ups so far and have an impressive list of successes.

With modest variations on Paul’s pattern, this new class of mentors-plus-capital programs has grown to include TechStars operating in Boston, Boulder, and Seattle, Austin Capital Factory, deep in the heart of Texas, LaunchBox in the DC area, and a number of others. The latest entry is DayOne Ventures, just opened for business in Southwest Virginia, and seeking applicants.

What’s special about these operations? They bring powerful relationships to the table as a requirement of engagement. They are funded and staffed by groups of accomplished entrepreneurs. These veterans work closely for three intense months with lightly funded, new company teams to maximize the opportunity in each start-up and squeeze out unnecessary risk.

At the end of 90 grueling days, they, and other aggressive investors, listen to each start-up’s polished pitch for continuing investment. The strong get money and live to fight another day. The others go home, empty-handed, but typically energized, rather than defeated.

This process is not for the faint of heart. The entry screenings are tough. To get the mentors and the seed money, the start-up teams must clearly demonstrate what I call Moxie, the strength of character to play the game to its conclusion.

Of course, they also have to bring a cleverly identified marketplace opportunity, and some value proposition that will set them apart from the competition and generate serious profitability. So, in my favorite terms, if the team has a Market, some powerful Magic, a solid business Model, and an abundant supply of Moxie, they can qualify to get both the Mentors and the Money they need to pull off a strong launch. And it all happens in the span of 90 days.

That’s intense incubation.

Today's guest blog is by Jim Flowers, a forty-year veteran of technology-based start-ups, Director of the VT KnowledgeWorks Business Acceleration Center at Virginia Tech, President of the Virginia Business Incubation Association, and author of "MOXIE and other fundamental entrepreneurial concepts". He blogs at



Saturday, March 6, 2010

The Right Stuff for the Economic Recovery

The common feedback from investors is that startups must expect a continued squeeze on new funding during the economic recovery. I subscribe to the "glass is half full" wisdom which says that startups with the right stuff can win big in these tough times.

The big question is, "What is the right stuff?" Here are some key elements that will always get their attention:
  • Play where you are the expert. We all can site exceptions to this rule, but if you have no background or credentials in medicine, now is not the time to ask for money to help you cure the common cold. But if you have deep domain knowledge and business experience in engine technology, you will likely find many people who will buy or invest in your new alternative fuel startup.

  • Face the issues head-on. You must demonstrate a spending strategy and a marketing budget that recognizes economic realities. Highlight in your investor presentation, and your business plan, that you have tuned your plan to account for today's realities.

    You should address the obvious questions on investors minds before you are asked, like, "What are you doing differently because of the spending crunch?", and "Why should we believe that you can make money when all around you people are barely hanging on?" List examples of how you are "walking the talk", like not moving to that expensive office building this year.

  • Be adaptable. Even in the best of times, startups need to constantly adapt. Be ready to proudly admit that you have improved your strategy as you learned from technology issues, customer input, and economic changes. Don’t turn off a potential investor by insisting on charging straight ahead, despite evidence that the world has turned a corner.

  • Be in the right sector. Energy, green, and biotech are good bets. Everyone wants alternative energy sources, to stay healthy and save the environment. If you have "the next big thing" in one of these categories, you can get money and you can get customers.

  • Get creative on funding. The best funding alternative is bootstrapping, or no outside funding. Serial entrepreneurs like Rich Christiansen set themselves a “tiny” budget like $5,000, and parlayed it into success a dozen times. Variations on this theme include bartering your skills for office space, government grants, and getting advances from potential customers.

  • Be a leader. The best thing about being an entrepreneur is that you are tackling challenges that no one else has won. Adopting a cautious or negative approach probably won't get you there first, and certainly isn't much fun. Everyone likes to follow a leader, and investors and customers like confidence. Be one of the first to jump on the upswing, so you can ride the wave rather than be swamped by it.

  • Stay healthy physically, mentally, and emotionally. This is important because you can’t really compete if you’re not physically healthy. Good health will counter stress and help you think more clearly. Your emotionally health is important because you won’t be so easily blinded by your emotions, and you will be happy and positive. Keep a positive attitude about yourself and life in general.
As the CTO of IBM's systems and technology group recently said "You're not going to save your way to greatness." But you can innovate your way there. Economic hard times are historically the times for major innovation. So stop feeling sorry for yourself and start looking for the right stuff.

Marty Zwilling