What “Mentor Driven” Means To Us

What an Accelerator is For

A journalist visiting TechSquare this week asked me an intriguing question. I say “intriguing,” because as it was coming from an outsider to this business, it demanded a single answer to a question that is not often taken by itself: “what is a tech accelerator really for?” That kind of question demands an answer that applies to all parties: to the investors, to the startups, and to the general public. What do we do that adds value to the world in which we live? The answer I arrived at was this one, and I think it covers all of that: “a startup accelerator helps to manage, facilitate, and encourage intelligent risk taking.”

As Techstars has explained about their own roots, the current mold of accelerators was formed in reaction to risk aversion. Angel investors and VCs were, from about 2002 onward, inflicting far too much pain on startups to prove their worth before securing seed investments, which probably led more than a few worthy startups to stall out for lack of access to funds. The tech crash in the early 2000s had soured many investors on the market, and introduced big barriers to entry. Imagine a world in which Facebook didn’t have the money to get to its millionth user that first summer. This was a real danger at the time. But today,  a service that has added half a million users in a period of several months would be unlikely to have that particular fear. The accelerator movement has been an important part of that shift away from risk aversion, to more intelligent risk taking.

What “Mentor Driven” Means

 

 Over the past month, our teams have met with nearly 40 mentors each. That’s 40 meetings with entrepreneurs, professionals from within their areas, and CEOs of companies that have been in the position that our founders are in now. There have been so many meetings, that many of the teams have had moments of frustration with the process. One of the CEOs told me last week: “They all ask me similar questions, and I haven’t had time to do the things they’re all telling me I should be doing.”

Yes, it can be frustrating, but we also view that feeling as somewhat positive. A founder of a young company who is very aware of the potential problems he is facing is more likely to take a realistic approach to solving those problems, instead of avoiding them. He may be tired of hearing the same concerns, but he will definitely find ways of addressing them- if only so that he doesn’t have to keep hearing about them. He knows where he stands, and where he needs to be when this process is done.

Bad habits and false assumptions, when untested too long, can ossify very quickly, and poison sound decision-making. The accelerator is the antidote to that problem, forcing founders to address their toughest challenges first, rather than wasting time and money working in a market they don’t understand well enough. Constant early contact with mentors breaks up patterns of thinking and working that will lead founders wrong.

It’s About Who the Mentors Are

“Mentor driven,” means that the first steps a startup takes are in consultation with people who want them to succeed. Most of our mentors are not investors, and most will probably not end up working directly with any of our founders later on, but they are people who care about spreading knowledge, knowing their industry well, and making valuable and useful connections with each other, and with new startup founders. While basically all accelerators are concerned with helping their teams raise money at some point, at demo day, or later on, the focus at StartupYard is on giving the company the strongest possible foundation as a means to that end, and to making the company a success in general. Knowing and understanding your own industry, how people talk and behave, and how they think, are really vital elements of that kind of success.

Startups are Not in Business to Raise Money

A lot of startups quickly start thinking that they are in the business of raising money. That’s a cycle that’s easy to fall into. The second an investor wants to talk money, a founder has to completely change how he or she is thinking about the business, and fit that thinking to the way the investor thinks. If founders have conversations with investors too early in their own development, both as business people and stewards of their own companies, they can easily be taken in by the investor’s agenda, which is different, on a basic level, from their own.

A founder should be interested in his or her users, in solving problems for the people that will use their products, and in forming a company that adds value to the world in which they live. A good product or service company needs these goals above and beyond profitability in order to shape its future and give it purpose.

But an investor is only interested in realizing gains on their investments. If 1 dollar today can gain 20 tomorrow, they will invest. And likewise, if making a company stop and completely reconfigure its own priorities in order to win investment can turn 1 million dollars today into 20 million dollars next year, investors will encourage that to happen. So having a company planted on ground solid enough not to be shaken by incoming investment is very important. A founder has to have a vision of his company in 5 years. An investor doesn’t buy that vision, just the part of it that has an upside potential. We need investors to make many startups work, but that doesn’t mean investors should run startups, or tell them what they want too early in their development.

Mentoring can be a cure for that illusion. Talking to people who have taken on investments and regretted it, as well as those who have done it well and made it work, is an experience of great value to someone who has never had a conversation about money that involved more than 3 zeros.

But most importantly, mentors remind founders that their businesses have to work, not just as investment vehicles, but as *real* businesses. As I said: an accelerator is about taking intelligent risks. Putting 3, or 6 or 12 months of your time into a company is in itself a risk. So why not make it an intelligent one?

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The StartupYard *UnConference*

This week, StartupYard hosted and our director Cedric Maloux ran our first “Unconference.” For those as yet unfamiliar with the format, as I was myself, unconferencing is an alternative take on a conference in which the participants help shape the talks and sessions offered.

How it Works

The format is comprised of informal jam sessions in which very active or experienced participants can lead discussions, but everyone is on the same level. It’s great for groups of people who share a good deal of expertise. And, I can report, it has the advantage of not being boring, which for anyone who’s attended a conference can tell you, conferences are always in danger of being.

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Cedric Maloux introduces the Unconference concept

With about 40 attendees, it was up to anyone present to propose a topic of discussion, either led by their input, or a group discussion. Most of our attendees were mentors or participants in StartupYard, and included people from Seznam, Synot, StudyInterActive, McKinsey & Company, and MediaStudio. The ideas were posted on a blackboard with a timetable and room arrangement. We voted to see which ideas were most popular, and quickly tried to arrange thing so that the most popular sessions were not running concurrently. Talks would be capped at only 30 minutes. A very small window for discussion.

Before we began, every proposed session and its author got about 30 seconds to introduce the concept of the talk, and invite people to join them. It all ran amazingly smoothly, and was really conducive to a friendly atmosphere.

Why it Works

Unexpectedly, I ended up leading a session myself in the first time bracket, on email marketing, a subject close to my heart. My talk was “The 7 Elements of the Perfect Marketing Email.” As the idea had popped into my mind at the last moment, and I had written it into the schedule expecting only a few people to be interested. But about a dozen people arrived to hear me speak about a subject for which I had not prepared any material.

No matter, I forged ahead and proposed a few of the ideas about what I think makes great email marketing. And here’s the best part: because of the informality of the format, and the time constraints, the attendees were quick to prod me with a bunch of questions I had no hope of ever being able to answer completely in the given time. These questions gave me great insights into what they wanted out of my talk. For example, someone asked whether he should send mass emails to his top clients using his personal email address, and if so, how to make sure there were no embarassing gaffes with names and personalization. That’s a question I wouldn’t think to answer.

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Conference attendees moves from discussion to discussion.

Clearly, the unconference is a great platform for launching dialogues and connecting with peers who have skill sets you may not even know about. I found myself spending the remainder of the evening reviewing my comments, and cursing myself for not adding *that* piece of information, or *this* anecdote to my talk. In short, it inspired me to flesh out my own ideas on the topic, and the questions honed in on what interested my conference attendees most.

 

What You Can Get Out of It

A big drag on conferences, it seems to me, is that much of the time, they’re vehicles for a few people to brag to each other, in front of an audience, about how successful they are. They can be cliquey and exclusive, even when they stated goal is to be for networking and expanding horizons. They can also be dreadfully boring, if not run well. Plus, when events are run by and for corporate sponsors, you tend to hear nothing very personal or revealing, nor insightful, just a laundry list of things going on, and impressive sounding job titles and projects. I hosted a conference once, for film makers in the Prague area, in which our first 3 speakers stood up and endeavored to list every single film they had ever worked on or, seemingly,  that they had ever seen on a movie store shelf. Mostly, when you ask people to talk about themselves, they have few insights into what makes them really interesting. What’s interesting about us to other people are things we personally don’t even notice or take into account. So a question based format can be disarming, and invigorating.

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Teams from Romania, Kosovo and Serbia have a quick huddle.

The really enjoyable part of the unconference, for me, was that the sessions were mostly unscripted, and not supported by slides or presentations of any kind. Presenters, not knowing if they would have a chance to speak at all, or what about if they did, were much more solicitous of input from others, and looked to their colleagues for feedback much earlier in their sessions. There were no monologues, and no “career narratives.”  This conference got right to the facts, and right down to business. I suggest you try it.

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Michal Illich: “Know your Competition.”

Michal Illich is a household name in the Czech Republic’s technology industry. Aside from developing the engine that originally powered Seznam, the king of search in the region, Illich has founded a raft of companies in the past 15 years. He’s a founder of StartupYard, as well as of Techsquare, the open tech workspace where StartupYard is based. He’s been mentoring our current startups, and we got him to weigh in on the state of the Czech Republic’s tech industry, and what it’s like to mentor new founders.
 
Michal, first things first: we hear you have a Tesla. Were you the first Tesla owner in Prague? How do you like it?

As far as I know, a few (up to 5) owners received their Tesla in the same week as I did. I might be the first because I opted for the earliest possible date. It’s a great car – beautiful, very powerful (4.2 seconds to 100 km/h) and still practical (5 seats, 2 trunks).

You’re one of the founders of TechSquare (homebase for StartupYard), and a founder and investor in StartupYard itself. What got you interested in bringing new startups to Prague?
Well, as I’m one the first generation of Czech people who made some money from their internet projects, I thought it’ll be nice to give something back.
Czech and Central European investors are known for being conservative. Do you think that’s true, and if so, what unique challenges does that present startups here?
I’m not really sure if we are conservative. Most investors I know are realistic or optimistic about Czech startups. I don’t think that the american way of throwing a lot of money into startups and hoping that 1% will became a billion dollar company would work here. We are slower but longterm results of Czech IT companies are quite solid.
You’ve been mentoring the teams at StartupYard since the beginning. What do you find difficult about mentoring at this stage in these companies’ development? What about it is rewarding for you?
As Niels Bohr said, it’s hard to make predictions, especially about the future. No one – even the best mentors – can predict the success of any particular startup. So we search and discuss it together which is interesting for the startup and for me as well.
Is there an area of preparation that the majority of accelerator teams could do better in?
Probably knowing their competitors and alternatives.
What are some projects you’ve been excited about recently? What are you working on?
Almost all the startups in the current batch are nice. We’re working on http://flowreader.com/ , http://testomato.com/ , http://kinohled.cz/ , some machine learning problems and one as yet unlaunched project.
How has the Tech Startup landscape changed in the past 10 years in the Czech Republic? What do you see coming in the future?
From the czech websites, only Seznam.cz is innovating. The other major players did nothing technologically worth mentioning for several years :(.  The global startups operated by czech people are more interesting and I think we’ll have more billion dollar companies (to accompany Seznam.cz, GoodData, AVG and Avast) in the next few years.
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Which Came First? The User or the Network?

It Takes:  “#invites/users * #acceptedinvites > 1” to Tango

Andrew Chen wrote a fascinating piece recently on habit forming feedback loops. I suggest you read it. I’ll wait.

Alright, well if you haven’t read it, Chen focuses on 3 key types of “feedback loop” that are essential to growing a social app’s user base, and subsequently increasing its value.

Here are the 3 types of feedback loops he outlines:

  1. A feedback loop that rewards content posters when they push new content into the network.

  2. A feedback loop that rewards passive content consumers with relevant and valuable content.

  3. A feedback loop that rewards (and culls) connections within the network.

Cracking the Chicken and the Egg Problem

But how did they GET THERE?

But how did they GET THERE?

As we’ve been finding a lot with our current cohort of startups, many appear to be confronted with a chicken-and-egg conundrum. Namely, they will need engaged users to create content and keep the platforms viable, and they will need content to win engaged users. This is a sticky wicket that many social and mobile platforms are currently struggling with. Which of these things comes first? And at first blush, it looks insurmountable. How do you get the equation: “#invites/users * #acceptedinvites > 1” to work when you can’t inspire users to invite friends, and you can’t inspire friends to accept the invitations?

Failing to execute a user-feedback strategy that follows Metcalf’s Law, as Chen points out, will cause the opposite effect to take place: a social network that is losing users is losing value, meaning it loses more users, and is accelerating its loss of value.

However, there is hope.

All Your Base Don’t Belong to Us

I think a fair bit of this startup anxiety about growth comes not from lack of self-confidence in the startup’s abilities, but from pride. In a world of startups where the “me too” pitches flow like Hollywood scripts, a lot of founders are probably afraid of being perceived as derivative, rather than innovative. They tend to see their potential social networks as essentially divorced from, rather than dependent on, the existing ecosystem of competitors. But that isn’t the case at all. The fact that there are 10 Million users in your product category already is a good thing, because it means there are users looking for a product like yours, and there are sure to be a fair number of people who will want the innovation you provide over an established competitor, whether it’s in price, efficiency, or a host of other areas. As we say, if you don’t have competition already, you almost certainly have no market, just a piece of technology looking for a problem.

 All-Your-Base-Are-Belong-To-Us

Tending An Unwalled Garden

So it’s important to understand, if you want to initiate feedback loops that will actually continue to grow, a number of things about your market and your target users. And it’s also important to understand how those users differentiate themselves. Luckily, most of the users a new social network would want to attract are *already* seeking the features or the community your new network would provide, and they are probably already doing what your network will allow them to do more cheaply, more quickly, or more efficiently. Your garden needs to have doors to other networks- they just need to be in the right places.

There are 3 basic types of users for a social network, one for each type of feedback loop: the content creator, the content curator, and the “lurker,” or content consumer. They’re often described as following the 1/9/90 spread, meaning that there are 9 curators for every 90 consumers, and 1 creator for every 100 total users. That means on any typical social-based app or platform, 1% of users will actively generate compelling content (hopefully), 9% will engage with that content actively (sharing, curating, editing, recommending, commenting), and 90% will view the content, and take no other actions.

Each of these user groups carries out a vital function, and their activities feed each other’s loops. Each social-based network has particular strengths. A content creator can be rewarded for the total size of her audience (Youtube profit sharing is an example of this), encouraging her to create more similar content. At the same time, viewers can be rewarded by a cornucopia of fresh content that they enjoy, presented to them every time they log in. Content curators, editors, mavens, and social butterflies, the 9% of users who can be relied on to share knowledge with others, can be rewarded in a few ways: some networks, like Facebook, reward this type of behavior with positive reinforcement: your attempts to join the conversation garner positive likes, making you feel like a content creator, without the hard work involved in actually creating the content you comment on, or share. Others reward this behavior through enhanced perception of status: followers on Twitter, or a rough prestige score, or a rank, such as those employed by some fan forums, or curation-heavy services like delicious and Scoop.It.

Keeping these three interests in balance is an important, and ongoing process. Facebook users will recall the deluge, reaching its peak around late 2012 and early 2013, of “content creators,” who were actually content curators sharing memes and jokey posts on Facebook, in an effort to drive ad-supported clicks to their sites: 9-gag, Upworthy, and others were the biggest culprits of this kind of “click-bait” exploitation of the Facebook platform. They were leveraging real content curators, the users who enjoy sharing with friends, to gain access to passive viewers. Facebook responded by raising the barriers to virality for that kind of content: stopping shallow or non-rewarding content from swamping the typical newsfeed.

Respect Your User’s Roles

It’s important to keep in mind that most of your users will not want to be active creators of content, or to take any active roles, in a social platform. A lot of founders are probably in the smaller cohort of curators and content creators, and don’t empathize with passive users. And this doesn’t just apply to startups looking to create social platforms. The ghost-town that is Google+ fell victim to a super-user mentality that was baked into its product DNA , and from which it has never recovered. When Google+ was ready to switch on for ever user, even forcing users of affiliated services to have a Google+ profile, there remained no focus on rewarding them for the types of users they were. It remained an exclusive club, that everyone was forced to attend. When Google’s attempts to enforce their own culture on their users don’t come off as corny, they seem frightening. That’s not how you want to be perceived.

Don't be *that* app

Don’t be *that* app

Instagram and Facebook both focus deeply on the rewards users get from generating content, but they don’t pester their users with reminders to use the service. Content creation is both stupidly easy, and uncannily rewarding. Others, Twitter for example, offer virtually no rewards for content creation, de-emphasizing depth of content through artificial restrictions, but focus heavily on curators, pushing their few active curators to gain followers and increase their profile, and leveraging large numbers of passive browsers to make that process rewarding. Still, Twitter allows its user-base to segment itself easily, relying on hashtags to make curating and browsing content seamless, and encouraging special interest communities to form in ways they can’t on Facebook. Interest is prioritized over relationships from user to user. The mix that you attract will be unique to your platform, but the platform should still be balanced toward the 1/9/90 paradigm, or it will likely not grow organically.

The Startup Line: Week One

Last week marked the start of the StartupYard Spring 2014 accelerator round. And it’s been a hell of a week so far.

We’ve welcomed teams from all over the world, including the US, Kosovo, Kazakhstan, Romania, Serbia, and the Czech Republic. Teams range in age from as young as 19, up to 35.

The teams are working on three mobile apps, a data mining application, an educational platform, a cloud platform for small retailers, and one search engine.

Team from Romania with mentor Ludovic Neveu.

Team from Romania with mentor Ludovic Neveu.

Petra and Petra (The Petras), the managers of TechSquare, our home, marked the occasion by arranging all 23 tables and chairs in our co-working space with a nice note and a can of Red Bull. The message was clear: let’s do this. We really appreciated the gesture, if not the caffeine hangover.

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The Teams are mostly staying all together in “The Big House,” a 4 story house near Techsquare, where the teams sleep or “collapse,” to use a more appropriate descriptor, after long days hacking away at StartupYard.

The Lion, The Pitch and the Positioning Statement

We’ve focused quite a bit in this first week on the pitches that Startup CEOs will be making to investors and potential partners 3 months from now. As we mentioned earlier, the teams had all written up positioning statements before they arrived. Most were pretty long, including features, technical details, business and marketing plans, etc. We, Cedric and I, worked with the teams in individual sessions to distill these initial drafts down into single paragraphs that average only 60 words.

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You merely adopted the dark. These hackers were born into it. Molded by it.

This has given the teams an amazing amount of focus, forcing them to very carefully define the problems they are trying to solve, and the customers they are planning to target, and how they will do this in a space they share with often more established competitors. It’s also an opportunity to start practicing their pitches, which are derived from the positioning statements they’ve formulated. In meetings with mentors, the teams have given their pitches and discussed their markets and technical challenges, and the positioning statements have given mentors a helpful sense of the context in which each team is working. As a result, the teams have all received more valuable feedback.

This Friday, the 7 CEOs from each of our startups gave their pitches in front of a crowd of techsquare denizens. It was a performance they are hopefully bound to repeat many times in the next several years. And honestly, the pitches were great. We can’t wait for you to hear them.

Justifying Your Existence

A concern from some of the teams early on, was that it wasn’t possible to distill the essence of their business plans into 60 words. Where was the profit motive? This is true. But the positioning statement is not a business plan— it’s more of an outline of a company’s mission. What is your company really all about? In what way is life on Earth better with your company in it?

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Startups need to be able to justify their own existence. And that goes beyond money.

Teams wanted their positioning statements to include business strategy especially- they wanted to talk about who their users would be *and* how those users would be monetized. Though monetization is a part of every successful business plan (it is essentially the definition of a good business plan), it is not necessarily an element of the company’s market position that needs to be defined early on. Plenty of companies that find massive monetization opportunities later on, launch without any proven sources of income.

Vasek Formanek giving an early version of is pitch, with the StartupYard positioning statement as a guide.

Josef Steinberger, from Pilsen, giving an early version of is pitch, with the StartupYard positioning statement as a guide.

We often struck on analogies in the real world. We asked teams to imagine a positioning statement or a pitch for a product like Facebook, or Youtube. Facebook and Youtube *make money* selling ads. But are they positioned as ad providers? No. They are positioned as places where people can connect and share the ideas and content that interests them. Advertising is the monetary benefit from a service that makes the world a better place (or at least a much more distracted place). But the essential market position of a Facebook, a Youtube, or even a Google, is providing a consumer facing experience, not a beneficial platform for ad-buyers. The platform is born out of the first condition: a great consumer facing experience means a great potential ad platform. Even for those startups in StartupYard who are essentially B2B concepts, it’s important to differentiate between what their products do for their clients and for users, and what those products do for the founders themselves. In terms of a company’s market position, the initial goal always has to be loftier than just making money.

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We Don’t Need No NDA

The question came from one of our startups quite early, on Day One, in fact. A team asked whether they would be signing any NDAs with our mentors. The answer is no, they won’t, but in the interest of clarity, we thought we’d make it clear what our view of NDAs or “non-disclosure agreements,” is.

A lot of startups are familiar with NDAs, and their members have probably signed one or two in their time. I’ve signed a few myself. But they aren’t worth much, particularly to a startup, for a couple of reasons I’ll lay out here.

They’re Worthless To Founders

You may have signed an NDA as an employee or contractor for a medium to large-sized company. In the context of corporate legal departments, an NDA makes a sort of sense. It is a piece of the due diligence of any company to show, through their normal procedures, that they value their proprietary information and practices, and are willing to defend them when necessary. Not to do so, in that context, would leave a larger company, and its legal officer, in danger of being found negligent, should legal action need to be taken against an employee who steals secrets, or leaks information.

On its own the NDA is not a powerful legal document that grants the company a right to control what you say, but it gives the company cover, in case an employee decides to really abuse their insider knowledge. But that arrangement is for employees and close partners, not for outsiders like investors. The only across-the-board exception to this general rule is for sensitive, one-time events like mergers or acquisitions, in which the details of the deal leaking could present major headaches for investors and companies both. In that case, NDAs are common, and not far-reaching in their scope.

All contractually obligated not to listen to your pitch

All contractually obligated not to listen to your pitch

VCs Won’t Sign Them Anyway.

And with good reason. A VC may hear 50 pitches in a week. And even if he hears only 2, there’s always a chance that your pitch, and the next company’s pitch are similar. The VC would open himself up to unnecessary risk by signing an NDA with you, if he knows that tomorrow, somebody presents him with a similar, but possibly better, idea. The value is in the team that is receiving the investment, and how they are executing their plans, not in the idea. That is virtually always the case. And VCs know this, and don’t want to be barred, possibly for life, from dealing with companies that do things similar to what your company does. By the same token, you wouldn’t want a VC to say: “I won’t invest in you because I’m afraid of legal action on the part of one of your competitors.” Does that sound fair to you?

It Makes You Look Arrogant

Contrary to most of our wishes about ourselves, our ideas are not usually all that valuable. So unless your pitch or your presentation to an investor includes earth-shattering news that simply must not be leaked for fear of some catastrophic consequence to your business (for example: you’ve invented cold-fusion, or you have created The Singularity), you’re likely to come off as an arrogant jerk for making a VC sign an NDA to hear your idea for the next Candy Crush Killer. StartupLand, however it may resemble Hollywood these days, is not dealing in tentpole movie releases, and VCs are not leaking screeners to Pirate Bay.

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