StartupYard is now officially underway, and our cohort of 7 exciting startups have now joined us at Node5, to begin an intensive month of mentoring.

How it works

Typically, our mentoring days are hectic. Startups have to study and think about who they’ll be meeting with beforehand, so they’re prepared for many different kinds of conversations in the same day. We require our startups to be present and ready to meet with mentors, who come in during the morning, and begin meeting with the companies one-by-one. They meet with meetings can run as short as 20 minutes, or as long as an hour or more, with some mentors and companies never really wanting to suspend the discussion. Each mentor comes into the experience with different motivations and priorities. Most have backgrounds or a great deal of experience in business, sales, and marketing, and that can be a big challenge for startups that are usually dominated by technical founders. But as we like to tell our startups: you can teach an engineer business skills much more easily than you can teach a businessperson to think like an engineer.

The job of the startups, and particularly their CEOs, is to be like a sponge, absorbing not only what the mentors have to say about their products, their companies, their markets, and themselves, but also how the mentors react to their ideas, their plans, and their work so far. Hopefully, mentors and startups will “click,” for whatever reason, and the mentor will slowly form a relationship with the startup, becoming a resource and a touchstone for future conversations and connections. In the best cases, the mentors become long-term advisors and even sometimes investors in the startups. These meetings are, in part, auditions for that kind of chemistry. To help reinforce these relationships, we require the startups to report on their discussions, with notes and key insights for each meeting, as well as next steps with each mentor (if any). Not every meeting is a home run, but the startups have plenty of chances to meet the right advisors.

We start the first week of the accelerator with a tool we adopted last year, the Positioning Statement. This is a simple but powerful tool for stating, as clearly and as concisely as possible, what a company’s place is on the market. It isn’t a feature list, or a business plan, but more of an orientation about the type of company a startup is and will be, and its relationship to other companies, or to potential customers. The positioning statement format looks like this:

It is the job of the startups to turn these essential points into a brief, declarative statement about the company. Though they’re not always accurate in terms of what a company has accomplished up to the present moment, they represent what the company would like to be when it enters the market.

Why a Positioning Statement?

Ian the intern and Philip Staehelin on Day One

What we find time and again when it comes to startups that are just beginning to think about raising funding for their ideas, is that they are unequipped or unready to talk about their ideas in ways that make sense to different types of interested parties. And being unable to clearly discuss their ideas, they’re often equally unsure or unaware of what aspects of the business they haven’t considered fully, or well.

That’s why the first term in the positioning statement template we use (first pioneered by Geoffrey Moore in his book Crossing the Chasm), is about “who.” If there’s one aspect of a startup’s market that they’ve probably given less consideration than is needed, it will be the customers. We often hear: “we are our own customers,” as if that is an explanation that warrants no further examination at all. Often ideas seem very natural once you’ve lived with them and thought about them for months, or even years. But you will never be inside the head of your potential customer, because you thought up your product. It’s better not to pretend that you can have any objectivity about it; you have to talk to customers -a lot of them- and intellectually understand how they relate to your products and to your company. The thing that sells your customers on your products may be totally unrelated to what motivated you to make the product in the first place. Maybe you wanted a more efficient process, or a more beautiful and intuitive experience. But your customers may respond only to price. Or it may be the exact opposite. You have the opportunity to make a thousand avoidable errors by assuming you know your customers better than you really do. Knowing them takes an enormous amount of input, and it can’t be done any other way than with feet on the pavement, and by calling and writing to as many people as possible. The positioning statement begins as a projection of who you think your customers are: but that is a point of discussion, and the mentors will have ample opportunities to challenge those assumptions, given their years of experience with customers themselves.

That’s all normal, and it’s necessary too. Most startups are built around the kernel of an idea: a feature, rather than a whole product, much less a fully formed company culture, a business plan, and a go to market strategy. We probably wouldn’t take a startup that only wanted to “be in X business,” hoping that they’ll find a niche, simply because there’s money to be made. Rather, we take startups that have a laser focus on one small aspect of a much larger industry. It’s that singular focus that allows some startups to grow so quickly: they do one thing extremely well, and they do everything else well enough that they’re able to make a business out of it. That one thing makes their company a success, and they pick up the other nuances as they grow. The positioning statement is about drawing their attention towards all the things that they need to do well enough to survive and grow on the market, from the earliest stages. Knowing their customers is the first and possibly the most vital thing that they have to do well enough to survive, and which they will have to do very well to thrive.

Feature, Product, Company

The teams meet mentors on Startup Day.

Each of our startups, to varying degrees, are somewhere along the road between a Feature, a Product, and a Company. Few are real companies, although some are getting close. The danger for many startups, and we see this very often in our selection process, as well as outside mentoring, is that they skip one of these steps- most often the Product step.

Often we meet interesting, brilliant founders who have devised very impressive solutions to obvious problems. However, we usually leave these meetings with a single impression: “It’s a feature.” While starting with a key feature is usually the key to a startup’s early growth, a lot of startups stop right there. They build the company too exclusively upon the idea of a single functionality, making it both more vulnerable to competition, and less saleable as a product. You can convince customers to use your calendar app, for example, if it does most things about as well as Google Calendars, but has one feature that Google doesn’t have. However, if it has that killer feature, and doesn’t do any of the basic functionalities of Google, then it will be nearly impossible to actually sell. It might be interesting to customers, but it won’t sell itself. And worse, many startups actually get themselves into this situation on purpose: they tailor the product to a hyper-specific feature set, because they think that that will save them from comparisons to established products. “We can’t compete with Google, so we don’t even try.” Certainly they will have saved themselves from any positive comparisons to the competition. Now all the comparisons will be about what the product doesn’t do. Though many startups will answer this by saying that their product doesn’t have competition, our answer is always the same: there is always competition. Competition is either another product, or doing nothing. A feature list that is too narrow to justify the time necessary to use your product, has laziness or disinterest as an indigenous form of competition.

Startups have to be focused on their key differentiators, but there’s a minimum threshold that a product needs to breach to be called “a product,” and to justify someone paying for it, or adding it to the list of things they will use on a regular basis. And even if a startup hits a homerun with a small, absolutely killer feature, there is little stopping competitors from noticing the demand for that feature, and simply adding it themselves. Job done. This is one of the toughest things for our startups to face, and it’s one of the real values in the mentoring sessions: the mentors help them to understand how they can exist in a competitive marketplace. Finding that recipe of focus is the first monumental challenge for any company that wants to grow like a startup has to.

Overkill To Kill Objections

The positioning statement frames that “window into the mind,” by establishing the company’s (and therefore the product’s), place among other products and in the market as a whole. It establishes, in broad terms, how the startup will go from a killer feature, to a product people will buy, to a company that people will trust, so we make sure that our startups spend quite a bit of time hammering out, refining, going over, and rehearsing their position statements, listening to what the mentors say in response, and paying attention also to what they don’t say in response. The objections that mentors raise will be about basic concerns, many of which the startups have not previously considered. Are there legal complications? Do they understand the market well enough? Is the business plan workable? Do the costs make sense? Do they have the right branding? Would the mentor buy from or invest in the company? These are all objections that add value in experience for the startups- they will have to work to answer all of them, and more that they haven’t even begun to think about. Eventually, these problems will begin to find their solutions, and the startups will be able to incorporate the answers into their pitches, their marketing, and their business plans.

So answering objections is important, but a lack of objections is also key- do the mentors not object because they are convinced, or because they don’t understand? This is a sense that our startups have to develop over many sessions, repeating and refining until they find the exercise to be a waste of time, and desperately want to move on. That’s when we know they’re ready to present.

This week, StartupYard welcomed about 35 of its mentors on the Riverboat Labe, for a 2 hour cruise on the Vltava, in the heart of Prague. The event was cosponsored by our partners, French accounting and legal consultancy Mazars, who operate in The Czech Republic, and have pledged their services to our upcoming cohort of startups.

Mentors from such companies as Seznam, Google, Microsoft, Avast, Ysoft, Rockaway Capital, and Credo Ventures, to name just a few, were in attendance as well.

Since late last year, StartupYard MD Cedric Maloux and I have been working on making StartupYard more of a public resource for Startups and investors in the region; for example, with our SOS program, our public events, and on this blog. As one of our mentors noted to me during the cruise, StartupYard, especially now with the demise of Wayra’s Prague operation, is the sole “full-fledged accelerator,” in the area, providing an intensive mentorship based program. This makes community building and trust among our core of active mentors more important than ever. We remain one of the few communities solely focused on developing startup culture in the Czech Republic, and in the CEE region.

Given the degree to which we rely on our mentors, this event was, we think, a decidedly successful opportunity for them to let us know what they want from their mentorship experience. Aside from networking and finally putting faces to the names that all of our mentors recognize from our blog, our emails, and our public events, our mentors got the opportunity to share their ambitions for this community with the whole group of active mentors. Here are a few of the key insights we gleaned from the event:

CEE Startups Suffer from Chronic Low Visibility

As Daniel Hastik mentioned to me during the event, and as others also expressed, StartupYard’s enduring mission has to be focused on selling CEE startups, and the region, to western investors. While Silicon Valley, New York, and London are glutted with cash; much of it going into huge valuations on “unicorn” startups, CEE startups are consistently cash strapped; despite a high level of technical execution, an attractively low cost base, and a raft of great business ideas floating around.

Cedric Maloux addresses our dedicated mentors.

StartupYard’s own experience in the last year has been proof of this trend. Even though Czech applications accounted for less than half of our total for the 2015 open call, we selected, on their merits, 6 out of our final 7 startups from the Czech Republic. The majority of these startups are already generating revenue, and have clients in place, yet their access to western investment has been limited to non-existent. StartupYard has seen, from our talks with foreign corporate partners and investors -especially those in the UK and France- that there is a growing interest among outside investors in the region, but that investors have little access to good information about local startups. StartupYard and other accelerators and incubators have a vital role to play in bringing standout entrepreneurs onto investors’ radar in the west. And that’s exactly what we plan to do in the coming months; it is one of the purposes of our first ever Investor Week, in which visiting investors will have a chance to see the potential in local startups.

A Responsibility to Give Back

Many at the event represented the first successful technology companies in the Czech Republic.

Also commonly expressed among our mentors, who are composed of entrepreneurs, corporate partners, investors, and domain experts, was a feeling that they were responsible for giving back to the CEE region, and the Czech Republic, by sharing their knowledge and their experiences with younger entrepreneurs. Among our mentors are some of the key creative and entrepreneurial leaders of the Czech technology sector, and that is an economy that had to be largely rebuilt at the time that many of these people were starting their careers. Now those people are among the first in decades to have the opportunity to invest in future generations of entrepreneurs.

StartupYard Sponsor Mazars spoke briefly about fostering innovation in the CEE Region

These mentors have participated in bringing the Czech Republic back towards the incredibly high level of efficiency and creative energy that it experienced during the first CzechoSlovak Republic (1918-1938), after 50 years of war, invasion, and stagnation under communist rule. The Czech Republic’s transition to a market economy since 1989 has been viewed as a model for the region, and these businesspeople and engineers forged that model themselves. So while the Czech Republic largely missed the computer revolution of the 1970s and 80s, its first generation of truly self-made entrepreneurs fought mightily to regain that ground, and is just now reaching middle age, and looking for ways to foster innovation in the younger generations of inventors and business people. An enormous store of talent and experience is now at the disposal of young entrepreneurs in The Czech Republic, and in many ways, that has not been the case in nearly 70 years.

Marek Novy from @seznam_cz addresses StartupYard mentors. pic.twitter.com/GnAJ0b1Osr

— StartupYard (@startupyard) February 18, 2015

Also among our mentors, such as our Executive in Residence Philip Staehelin, Skype Product Manager Amit Paunikar, Zentity CEO Abhishek Balaria, and public speaking trainer Jeanne Trojan, are foreigners who have dedicated many years, or decades, to their adopted country, and are keen to see the generation of entrepreneurs coming forward take the next steps toward fulfilling the region’s enormous creative and business potential.

Local Innovation Remains Important

Most of our mentors have been a part of successful ventures in the Czech Republic, and local innovations and improvements in the local economy remain a point of interest for most of them. While our startups aren’t working on local products, StartupYard’s central mission includes improving conditions for startups in Prague. We are also planning a few other exciting events and initiatives, but we’re not ready to announce them… yet!

Last week, we were happy to invite 9 really promising startup teams to StartupYard’s March 2015 acceleration program. As with all rounds, there were loads of questions, and a few startups that weren’t quite sure what they wanted to do. StartupYard was, when it started, one of the only options in Central Europe for the kind of program that we have.

But today, with increasing competition from other accelerators in the region, as well as the muddying of the waters between what defines an “incubator,” vs. an accelerator, and the myriad different terms that startups can be offered, these decisions are becoming harder to make. As the level of progress for the startups we accept has risen, so has interest in those startups from other organizations. It’s a confusing time for startups, and we’re seeing the results today.

An Untypical Situation

One of the startups we accepted last week came back to us with a strange problem. Strange, from our perspective, because it actually *isn’t* a problem at all, but from their perspective it seemed a vital concern. The startup (who we will not name), informed us that they would be attending a competing accelerator in the region, but that they’d welcome us to call and have a chat about the decision. I called them immediately. While it’s obviously their decision, and their responsibility, to choose the best course, I was interested in their reasoning so that StartupYard could improve either in our communication about the value of our program, or in our program itself. What was another accelerator offering that was more attractive?
The founder was expecting my call. The other accelerator, was “going to give us a higher valuation,” he said, gravely.

I wasn’t sure what he meant. “Ok. I understand that any deal you have with another accelerator is confidential… but may I just ask what you mean by that? Are the terms they’re offering different from ours? Less equity for more capital?” “No,” came the answer. The terms, it appeared, were the same: 30,000 Euros for 10% of the company. “Well, in that case, I am just wondering how you think that your company’s valuation would be higher if the terms are the same.”  “Well,” came the response, “they are offering a higher valuation based on the costs to the accelerator.”
To make a long story short, what happened, I think, is this: the other accelerator, in their communications with startups, or even in their terms, was implying that their costs (the amount of money they spend internally on operations and on benefits for startups, like food, events, offices, housing, travel, or anything else) would be figured into the total amount of money they were investing in the startups.

That’s a little bizarre, not least because it’s redundant: the costs and risk that an accelerator incurs are part of its justification for such a high percentage of a startup, at such a relatively low valuation: we take 10% of companies, and give only 30,000 Euros because it costs so much, and because it is so risky. There are not many other types of investors who would commit to that level of investment in anything after a very brief application, and a handful of meetings. Nor would many investors put money into the companies that we fund at the stage at which we fund them. Most investors wouldn’t have the time or expertise to make those kinds of judgements. That is why we exist, to fill that gap in the funding cycle, and improve the chances of standout startups to succeed in later rounds of funding. We don’t “give” startups a valuation. They arrive at a valuation with their investors as part of broader negotiations. The investors and the startups decide together how much the investor wants or can put into the company, and how much of the company that investment ought to represent.

It’s bizarre too because it is so transparent, and so arbitrary. If we were to include the costs of accelerating a startup as part of the “cash” investment that we give startups, we could theoretically state that our “investment” in the companies is around 60,000 Euros. That would give the company a theoretical pre-money valuation of 600,000 Euros. But that figure, and its basis, would be meaningless in determining the value of the company, either in pre or post-money rounds. We could go further even, and state that the value of our program (which includes over 250,000 Euros in perks packages from selected partners) is “worth” over 300,000 Euros. At 10%, that would give our fledgling companies a “valuation” of over 3 Million Euros. Now we’re talking!

Funders and Founders does a decent job of breaking down the difference between a “pre-money” and “post-money” valuation. And why they are so different.

Double Or Nothing

But any investor smart enough to chew gum and walk at the same time would want to know one thing, and one thing only about these figures: how much of that is cash? What relationship does the amount of cash spent have to the number of users/clients/sales the company has, will have, or could have in the future? Traction. That’s it. That’s everything. And if anything, the idea that a company has a 600,000 Euro valuation, and still has the user numbers and traction of a 300,000 Euro company, is worse than the alternative. And to pile on, a startup that receives in-kind services and accelerator help, and actually represents that help as a form of asset to the company is lying and misrepresenting itself to any investor.

They are deceiving the investor as to the real market value of the company, because while an accelerator program absolutely should raise the profile of a startup, the results that an accelerator brings should be evident in the skills of the team, the company’s go-to-market strategy, and the actual gains in traction the company has made already. To include the dollar value of an accelerator program would be to ask for double the credit, for the same amount of work. It would be like charging an administrative fee for processing an administrative fee.  Credible investors, the smart kinds of investors that startups should be courting for their first investments, will not view that kind of sophistry with kindness. They will punish a founder for it. And, having lied and misrepresented itself once, the startup and its founders will have poisoned the pond with that investor for any future deals.

The Valuation Trap

This is all what I’d like to call the “valuation trap.” The idea that investors are going to be impressed by the pretension of talks about a higher valuation without the fundamentals to support it, and that this will push investors to put more cash into a startup for less equity than they normally would. That is a lie, and a trap. While you may trick a naive investor, early on, to buy into your company for vastly less equity than the investment is worth, that will work exactly once. And all future investors, the more sophisticated ones that will look with concern at your actual cash resources, and their implications when it comes to your team, your traction, and your userbase, will see the scam for what it is. Valuations have to go up, not down. If they don’t go up, early investors aren’t rewarded for their faith in your company. And allies, people who are more likely to be supportive of your efforts (and have backed up that faith with real money), will be burned, and may turn on you.

If you bring a naive investor in at a low price, based on a dishonest representation of your company, then the next investor will be wise to the scheme, and will not invest at the multiple you are hoping for. Instead, they’ll insist that the valuation needs to either not go up at all, or to go up only slightly. This may be the only way that you can get investment at all in later stages. And what will you tell that first investor, the one who believed in you the most, when another investor comes in and gets even more equity out of your company, for the same price? If an angel investor comes in at 50,000 Euros for 2 percent, and the next investor comes in at 150,000 for 20 percent, you’ve just cheated that angel investor out of either a great deal of money, or a good chunk of equity in your company. That’s how he/she is going to see it, even if you had no choice. The numbers are supposed to go the other way, and suddenly the angel investor has paid 50,000 euros for something worth 15,000.

Given all that, the idea that you would even want an artificially high valuation for your young company is specious, at best. What about your company is more attractive to an angel investor at 600,000 Euros than at 300,000? If he/she looks at your burn rate, your traction, your product, and your team, and sees real value there, the lower the valuation, the more attractive your company becomes as an investment. You always have to give more equity to early investors. So keeping your valuation grounded is an important thing when considering an angel round. And an angel round or a seed fund is how most startups we work with are going to raise their first serious investment after the accelerator. Few have enough traction, enough history, or enough of a convincing business plan to attract a serious VC deal early enough to avoid having angel investors or doing a larger seed round.

An Accelerator Is Not A Typical Investor

StartupYard at its founding in 2011. We’ve come a long way.

If you’re looking at an accelerator as a potential source of cash, and nothing more, then you’re looking for what will ultimately be a pretty bad deal. The equity split will not be favorable for the amount of money involved, and you’ll waste a considerable amount of your own time in the accelerator program- time you may see as wasted. We always have a few applicants who are obviously treating us like a potential source of cash, and a hassle they’ll have to deal with, rather than an opportunity. We’re not insulted by that. Some startups don’t need our help, and wouldn’t benefit much from joining us. Either they’re already accomplishing what they need to, or they aren’t, but they aren’t equipped with the humility necessary to use the help we would offer. Startups that don’t think they need our help, but are willing to take a 30,000 Euro investment for a 10% equity stake, probably do need our help. If they didn’t, they wouldn’t need the money either. But needing help and accepting help are two different things. And we’ve become more practiced at spotting the difference.

An accelerator is not a typical investor. And the equity it takes doesn’t define the value of the company it invests in. Investors should know this. If they don’t know it, you should tell them. A good accelerator should deliver enormous value to a company it invests its time, knowledge, and money in. But at the same time, a company coming out of an accelerator has to justify its valuation based on its own merits, which I’ve enumerated above. An accelerator can’t and shouldn’t “give” any valuation. A valuation is a number you arrive at as part of a negotiation with your investors, and should represent both the interests of the investor, and the interest of your company. Your interests as a company are 1) to get enough money to operate and grow, 2) to leave room for future investment rounds for the same reason, and 3) to become ultimately profitable. A sky-high valuation can work against some of those goals early on, making it harder for you to get investment, and leaving no room for your valuation to grow and attract new investors, while rewarding the early ones. A higher valuation will also set expectations for future profitability that may never materialize, hurting your chances of selling the company, and of appearing successful in comparison to the competition.

An accelerator like StartupYard works to make sure that your product, your team, and your plan are solid, and worthy of investments. Then we work to connect you with investors, and get you ready to work with them. It is in our interest that you not only get investors, but that you get the right investors for your company, at the right valuation. Some accelerators take less equity than StartupYard, but the amount of equity taken is not a function of how greedy an accelerator is. I can assure you that StartupYard, while it gives less cash to startups and takes more equity, is not seeing the upside that Techstars and Y-Combinator are. And the moment StartupYard can afford to, we will offer more cash for less equity than we currently do. We would have to, but it would also be in our best interest. That’s why we tripled our cash/equity ratio just this year, and are seeing even better prospective startups for the program as a result.

But even as we tripled our funding for startups, and made significant investments in our team, our program, and our facilities, we didn’t triple the red tape necessary to be accepted to StartupYard. We are offering, with each successive accelerator round, a more attractive package for our investors, and for our startups. It’s a process, and we’re not at the end of it. Just as we can’t and won’t sell our investors on value we don’t yet have, we would never advise a startup to do so either.

Why Some Startups Are Doomed to Fail 

Last week, StartupYard finished its selection for the first 2015 acceleration round. We can’t tell you anything yet about the teams that we’ve chosen to invite to the accelerator, but we can say that it was a great experience to meet the teams, and the final choices were very difficult- much more difficult than they ever have been before.

Often, it is very tough for an evaluator to separate his or her impression of the team being evaluated, from the impression of the product. As I’ve said here often: the team is almost everything. We have taken, and will continue to take, teams that are working on products we don’t necessarily think have found a product/market fit. Sometimes it’s up to the teams to convince us that their ideas will work, and sometimes it’s up to us to convince the teams to change directions.

What we don’t do, is take teams we don’t believe in. This is not to say that we never have taken teams that presented us with certain doubts. But even those doubts have almost always been justified in the end. The biggest point of failure in startups is not the product design, the marketing, or the investment plan, but the willingness and ability of the team to adapt and persevere.

Having now read over several hundred applications, and heard scores of pitches over the last year, though, I’ve identified a few common issues among the teams we have rejected. These are not hard and fast rules, and they’re very subjective. Plus, almost every team we accept *has* at least one of these issues to some degree. The difference is that we believe in the team enough to give them the chance to overcome it. Here are a few of those issues:

It’s a Feature. Not a Product.

By far, the most common product issue with Startups that are rejected from StartupYard’s final rounds of evaluation has to do with the strength of the product vertical. It’s one thing to help a strong team to focus its efforts on a smaller market than they envisioned originally. It’s quite another to ask a team that has devoted considerable energy to a niche, to take the wider view of their product category. Many strong startups *do* start with relatively narrow market approaches- but they also bring ambitions for expanding into new areas. Sometimes, however, we see startups that are so focused on a particular aspect of what they do, that they’ve effectively lost sight (or never had sight) of their place in the bigger market. A common question for us when we meet these teams is: “what happens when X (Google, Microsoft, Apple, Facebook) copies this feature?” Many a potential startup has been crushed by its functionalities being added to an operating system or platform it depends on to survive.

Having a feature that mimics your product’s behavior doesn’t have to be the end of your company. There wouldn’t be successful calendar apps, email services, browsers, timers, messengers, and 100s of other services if that were true. But if your product category is so narrow that your customers only identify it with a specific functionality, rather than a whole market, then you may have problems.

We have had to reject very interesting projects for this reason: the team has just worked so long and hard on a single feature, that they have become unable to envision its place in the market as a whole product. Because no matter how ingenious a particular feature is, and no matter how useful it may be, it has to be something that can be marketed and sold. Otherwise, it will inevitably become a part of another product that can be.

Doing it For the Wrong Reasons

Not everybody in tech wants to be a Steve Jobs or a Mark Zuckerberg. If that’s what you want though, get in line. There are probably people a lot smarter than you with the same ambitions. But these luminaries, and the thousands of others who have made real, deep impacts on the world of tech and business, did so by channeling their passions, for many years, through wise, careful business decisions that accomplished goals unrelated to making mountains of money. The money is the by-product, a useful sideline to their missions to change the world for the good. And those two gentlemen both gained some notoriety for not caring that much about it to begin with.

If you want to be famous, you’re much better off going on auditions for television dramas (or worse, reality shows) than you are starting a company. In fact, starting a company in the hopes of being famous is sort of like trying to invent a new camera in the hopes of becoming a moviestar. There are shorter routes to fame, and ones that don’t involve wasting the time and energy of dozens of other people.

It’s Not a Business

I don’t think many people would argue that any modern day startup founder was smarter than Alan Turing, or that any CEO of a large tech company was a brighter mind than Alexander Graham Bell. Both contributed enormously to the world that we now work in. But neither Alan Turing, nor Bell, were really businessmen, and though they respectively invented modern computing and telephony, neither profited much from it during their lives.

Some of the most creative and interesting startups we talk to are like this. They have engaging, intriguing ideas, and they are good at talking about them. But when it comes to laying out a plan for growth and profitability, it becomes clear quickly that what they have is not really a business. It *could* be a business, but even though they’ve done incredible intellectual work in developing their ideas, those ideas are about as relevant to starting a business as Einstein’s work was to the Manhattan Project. Einstein discovered that nuclear fission was possible. The skills needed to do that were unrelated to the skills necessary to make a nuclear bomb, or building a nuclear energy plant. A startup is not that different. The world needs visionary programmers and thinkers to come up with ideas we couldn’t previously imagine- but the world will take advantage of those ideas in ways that those thinkers may not have the skills to help with. The cruel reality is that most inventors have an uphill battle to fight, if they want to capitalize on their ideas. And history is full of visionaries who failed to profit from their own ideas. The perfect startup has visionaries and executors in the same team, but few have enough of both.

Local Niches are not a Path to Global Markets

We see a fair number of startups that aren’t exactly “me-too” products, but that don’t exactly have global appeal either. These are the niche products: the ones that work for reasons apart from their core functionality. They appeal to a specific type of person that doesn’t want to buy a mainstream product. . A niche product can be highly successful, with a devoted fan base. Given time, a niche product can spread itself to all corners of the world, finding like minded customers in many diverse cultures and markets, and binding them together over a single idea.

But local niches are something else. If a product is designed to serve a single market, and a single pain in that single market, and it doesn’t lend itself in any way to growing its userbase, or expanding its territory, then its days are probably numbered. Either international competitors will slowly eat the ground from under them, or the circumstances of the local market will shift, and customers will have fewer reasons to use their products. Having done all the work to develop the market for their product, the local niche company will quickly be challenged by better, shinier, newer, cheaper products to fill the niche, or international companies that can leverage userbases and investments 10 times larger, will push their way in, and starve the niche company out. Local dating apps eat each other, and then they are all eaten by Tinder.

Sometimes great, interesting, truly useful products will fail because, while they don’t have a product problem, they do have a business problem. They don’t have a way of growing and sustaining themselves against shifts in the market. And a company like that can never expect to be successful on a large scale, or for a long time.