Batch 9

StartupYard Batch 9: Visualized

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StartupYard Batch 9 kicks off in a little over a month. Final selections are happening next week. Time flies! We can’t wait to see who will be joining us for Batch 9.

Every round, we like to share a visualization of the application process. While we haven’t made the final selection, we can share our initial data about the applicant pool. All data is anonymized, but you can get a nice sense of the trends we encounter with each round.

A full overview of the selected teams will be available at least a month after the start of the program (so no earlier than May).

As we did for Batch 6, and then again for Batch 7 and Batch 8 we find it very useful now to look back on the applications, and see what’s changed this time around. Where are people applying? What are startups working on? What are the hottest buzzwords? Previous experience has shown us that StartupYard applications can be revealing about the key trends to watch for in the next 6-18 months.

Here we’ll give you a visual trip through our applications for this round, with our analysis, and comparisons with previous years.

StartupYard Batch 9 : Who’s Applying?

StartupYard Batch 7 was the first time that StartupYard attempted two rounds of acceleration in one year. Batch 8 and 9 also come in close sequence, with applications closing on Batch 9 only 2 months after the end of Batch 8. The pattern in volume of applications has remained the same: we received almost exactly the same number as with Batch 8: 149 in total.

Below is a word cloud of the areas in which Startups identified their top skills and the markets they are working in. Note: we have eliminated the word “software,” due to its ubiquity in the application pool.

As we can see, Finance takes the top spot, along with Transportation, and Artificial Intelligence coming in second. We can hardly be surprised by this: between Bitcoin and Blockchain hype, Uber’s continued fascination for tech people, and the many emerging use cases for AI or IoT, these areas are naturally attracting fortune-seekers with new ideas.

In Batch 7 and 8, we noted that Marketing took the top spot in terms of which domains the startups were interested in. This was followed in the past by Data, and then Marketplace. 

Going even further back, startups from Batches 5 and 6 were still focused on Platforms, Mobile, and Apps, with UX and UI being important skills to mention. Today, these terms barely appear. It seems platforms with good UX and UI are now seen as default requirements for new products.

Marketing is Dead: Long Live Marketing

Interesting to us is the fall from grace of Marketing, which led the board for years. It may well be a reaction to the broader cultural shift toward suspicion of Big Data and Advertising that have dominated the tech conversion in recent years. Facebook and Google have particularly been the subject of much concern over privacy, the spread of propaganda, and the wellbeing of users.

The rising focus on AI along with Blockchain seems likely to be part of a shift in general consumer sentiment against the mass collection of private data, with its inherent loss of privacy and control over our experience of online services. At the same time though, these terms are increasingly being used as instruments of marketing: companies now talk about using Blockchain and AI to do things for which these technologies may or may not be huge game changers.

While data is still the foundation of AI, it may be that startup founders see what they’re now doing as beyond the data mining business, which is already quite crowded. Big Data may have simply become a fact of life. On the other hand, new privacy regulations in Europe, and a cultural backlash against big data collection may be pushing entrepreneurs to avoid the need for massive data collection.

Finance and Distributed De-Uberization

Finally, Finance has made a big break from the crowd, likely because of rapid shifts in the way consumers are treating finance products. PSD2, European open banking regulations that force financial institutions to allow customers to share their financial data across multiple platforms, was meant to drive more innovation around consumer finance products.

We see increased interest not only in personal finance, but in insurance management (both B2B and B2C), payments, and consumer/corporate investing.

In addition, the sudden rise of the ICO, and thousands of emerging technologies based on the Blockchain, have inspired startups to become “finance” oriented companies. Tokenization of services and networks opens the opportunity for financial products to become involved in more areas of the economy than before.

Whereas in years past, we saw many applications interested in the “uberization” of many services, today startup founders are seeking to “blockchain” everything, from in-person payments to insurance contracts, to day-labor.

This cannot be too surprising, given that the sharing economy Uber has represented for many years has really failed to deliver the benefits it has long promised. Indeed, Uber itself has still failed to become a sustainable business, and has suffered a severe backlash from consumers – once the name on the lips of every founder, Uber is no longer in the conversation.

Whereas “uberization” leverages a common platform like a mobile app to create a marketplace, and extracts rent from the different participants, blockchain startups forgo the platform in favor of a protocol that can be remixed with other services, and which is not centrally controlled.

This is doubtless appealing to startup founders, because it distances them from the deeply unpopular practices and cultures of companies like Uber. Uber still takes a large share of every transaction on their platform, but it is increasingly clear that their centralized model does not deliver significant benefits to the market (which has been largely covered up by Uber’s massive subsidies for drivers and riders).

This is not even to mention that Uber itself is not a sustainable business after nearly a decade in operation. It lost nearly $4 billion in 2017, leading Forbes to label its business model “fundamentally broken,” something many critics had been pointing out for years already.

Startup founders are realizing that services like Uber are certainly attractive to consumers, but they are also asking: “why do you need Uber the company to have Uber the marketplace?” Most of what Uber can deliver to customers and drivers can be done more fairly, more reliably, and more cheaply using a distributed service model.

Where are Startups Applying From?

Let’s start with a view on where applications came from for Batch 8, and compare that with Batch 9. Here they are in sequence:

 

Startup Applicants to Batch 8 – the Previous Batch

Applications to Batch 9 – Current Batch : Blue = low volume, Red = High Volume

I’ve changed the color scheme here slightly to emphasize the volume of applications from 2nd tier countries. As you can see, Czechia is still the leader, but it leads with only a third the number of applications as even last year. Batch 8 had about 45 applications from Czech companies, Batch 7 had even more. This year, there were only 16 Czech companies in the pool.

At the same time, 0ur geographic footprint widened considerably. This year, we attracted applicants from 44 countries: more than ever before. Batch 8 saw only around 32 countries. New countries included Sri Lanka, Gibraltar, Taiwan, and Lebanon- with one application each.

Which countries saw an uptick in applications? Surprisingly the biggest jump was from the UK, where 13 companies applied. That’s more than any previous year. Perhaps Brexit nerves or political tensions are pushing UK entrepreneurs to seek growth in Europe before it’s too late.

Detailed breakdown of application numbers for Batch 9

Anecdotally, we noticed that a significant portion of co-founders in UK based teams were in fact southern Europeans or other ethnicities. Are startup founders looking to abandon the UK and return to mainland Europe before the Brexit hammer drops?

Applications from Ukraine and India also rose this year. Ukraine’s jump was expected because Ukrainians have recently been granted the ability to visit Europe without need of a visa in advance of travel. This is good news for startups, as it decreases a huge barrier to Ukrainian companies seeking to do ongoing business in the EU. It may also be a matter of concern for Ukrainian startups, many of whom have personally confirmed to me during visits that more young people are leaving for the west than in the past.

Full Employment Has Huge Impact

We had believed in the past that the number of applications from Vysegrad countries would continue to increase at a faster pace. This has not happened over the past two cycles. Instead  Slovakia, Hungary and Poland contributed fewer applications in total than came from Ukraine alone.

There may be a key to explaining this in the employment statistics across the region. Slovakia’s rate of unemployment dropped like a rock in 2017, from almost 9% to less than 6% today. Anything under 5 is considered “full employment,” meaning that jobs are available and workers in demand across the income spectrum.

In fact, most of the Vysegrad group are suffering from a lack of workers for the first time since the fall of communism. Poland, Hungary, and Czechia are all below 5%, whereas the European average is about 8%. Wage inflation has increased accordingly, rising in Czechia to nearly the 2007 pre-crisis level of 6% per year.

Meanwhile, unemployment remains higher in Eastern Europe, with Ukraine close to 10%.

For the first time in many people’s lives in Vysegrad countries, governments are taking measures to improve workplace participation among young people, encouraging them to join the workforce earlier.

Because unemployment is very low, wage inflation and working conditions are improving quickly, possibly encouraging more young people to seek jobs in existing companies, rather than starting their own businesses. Increased career security may also give employed people less motivation to leave a comfortable salaried lifestyle and found a startup.

As living standards rise, the risks of starting a business are more obvious: loss of opportunity and income can be more acute when incomes are rising, as people tend to fear losing what they already have. In times of high unemployment, some will take more risks, having less to lose.

In Which Domains are Startups Working?

One of the key items every year is the breakdown of “domains,” or areas of tech innovation where the startups are working. This is often somewhat different from the market focus, as startups seek to apply new technologies to old problems, or bring existing technologies into new markets for the first time.

Batch 9 Domains excluding “other.”

The core domains we focus on represent more than half of all applications. Of these domains, Machine Learning remains the strong leader it was last year.

However, IoT and Blockchain have strongly edge out Analytics and Security, which have been dominant in previous rounds.

It’s important to note that the domains startups identify themselves as belonging to may be a function of fashion as much as the reality behind the words. Whereas in previous years, we would get many applicants who called themselves “security companies,” today those same companies might emphasize AI, or IoT as their domains, with security being downplayed.

In the previous round for example, Steel Mountain, which makes a security device that employs machine learning to hacker-proof connected homes and devices on Wifi, called itself a Security Company. Today, it might rather call itself a Machine Learning company, which does security, or an IoT device company that uses Machine Learning.

Often the product can be the same, but the emphasis in the application may change to fit the new trends. The security topic has somewhat cooled for startups, as blockchain has taken over many of the same applications, and as security companies become more common.

Batch 9 Domains Including “other”

 

As always, the largest single group of applicants represents none of our areas of focus. Some of these companies do in fact work in IoT, Blockchain, or AI, but they choose for whatever reason to emphasize their domains differently.

This has a lot to do again with how founders see themselves and their future in the industry they’ve targeted.

We sometimes ask applicants: “Do you want to be a technology company or an ‘X’ company?” X being insurance, music, entertainment, finance, or 101 other possible domains. The distinction at an early stage is not always completely clear, especially because founders are not always from technical backgrounds, and don’t always see themselves as primarily tech companies.

One conversation we had with an applicant working on Machine Learning revealed that he was focused on one particular industry, and would not be interested in shifting focus. Of course that’s a valid choice, but it’s also something you can’t always tell from the way an application is written. Sometimes applicants begin with one idea, and end up working on something entirely different, aside from the core technology involved.

 

What It All Means

This data set is too small to draw a definitive picture of the startup landscape in 2018. However, as we have been consistently monitoring trends in our application pool for the past 3 years, we can outline some clear trends.

The state of employment has had a clear impact on the volume and sources of applications. We also believe that the state of the economy has affected the types of companies applying to StartupYard. The ubiquitous “me-too” startups and the local clones of American products and services of 5 years ago are all but gone today. Perhaps many of these ideas have already been successfully executed in Europe, but the state of the economy has also changed the landscape considerably.

In 5 years, networks around high-tech startups have matured, and the communities around Central Europe have gained new heroes in the process (including many of our alumni). The first generation of online entrepreneurs, and successful online businesses, are now engaging very actively with the younger generation of startups, as we have observed within our own mentor community. Banks, Telcos, Insurance companies, Manufacturers, and Tech giants feel the increasing need to engage with early stage companies, and younger tech entrepreneurs now have a menu of options for growing a business with corporate partners, early stage investors, and active Business Angels.

It is a good time for startups.

exponential innovation, Startup Mistakes

6 Silly Startup Mistakes You Can Fix in 5 Minutes

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Silly startup mistakes are a dime a dozen. We’re not fans of “startup playbooks,” at StartupYard. Checking off a list of stuff you have to do doesn’t make the difference between a fast growing company and one that is dead on arrival.

That being said, there are plenty of stupid startup mistakes that are easy to avoid. So easy, in fact, that will take you just 5 minutes to fix some of them. Here are 6 of those silly startup mistakes, plus why they’re silly, and how to fix them (in no particular order):

 

6 Startup Mistakes (And How to Fix Them) 

1. Update Crunchbase, Angellist, Facebook, LinkedIn

You know what I and every other startup investor will do when we hear the name of an interesting startup? The same thing you would do: Google it. What shows up in a google search is very important for your first impression – the thing most people will see before anything else.

Here’s a typical experience: A colleague from another accelerator asks me if I have heard of Company X. I Google it, and first thing I see is a search suggestion to change the name to something similar that has more results. Bad sign so far. Hopefully your website is at least in the first page of results. I take a brief look at the website, then go back to the search.

Next, I skim down the list of sites looking for one of the above listed profiles, and check to see how old it is, any recent changes, and any important info. This is where many, many startups go wrong. The info is old, it’s outdated, the profile is inactive, or it’s just not there.

This is not a dealbreaker for me or most people, but imagine you’re in a list of 200 companies I’m looking at. I can find decent information on 100 of them. I only need to pick 50 to contact. What am I going to do with the company that has no relevant data available? Probably I’m going to put it aside. Plenty of fish in the sea.

Keeping these data sources up to date takes a few minutes every few months at most. So you might as well do it. Remember: only one contact can change your company’s future. So don’t make it harder for me.

 

2. Fix Your Open Graph Meta Tags

Here is a detailed look at how Open Graph meta tags work. The short version of the story is that 3rd parties, like social media and search platforms, use metadata, supplied by your website or encoded in content you share, to display information about the site or the content on the 3rd party platform.

Think of metadata as an album cover that goes along with whatever you post on social media, or in every link of yours that is shared by someone else. What happens if there are no open graph tags on your site and content? Anything shared about you comes along with a handy blank image and no description. Very professional.

How do you fix it? This isn’t a step-by-step guide, but we have a startup for that! start by checking your site at Testomato.com. It takes 30 seconds, and they’ll tell you if your site is in serious need of help when it comes to metadata (and many other problems).

Pro-Tip: SEO Plugins like Yoast for WordPress help you easily create and validate meta tags for content and pages. Which brings us to our next item:

 

3. Install Free or Premium SEO Software on your Site

We use WordPress at StartupYard, and believe it or not, I strongly recommend that our startups do the same, or at least choose an easy-to-use website builder with plenty of plugins available.

It’s for reasons like this: free software like Yoast SEO, which can dramatically improve your website’s visibility in Google search, and also helps you make sure your content and pages are tagged properly, in the right format, optimized for the right keywords, and well written and formatted as well. Their pro-version does even more, like setup redirects for you.

With the right setup in place, it takes an extra two minutes on a blog post or a new landing page to make sure everything is working properly, and that your customers can actually find in the future. Thanks to Yoast, StartupYard now ranks highly for a number of key search terms that we know startups are using.

 

4. Make Yourself Easy to Reach

My God, is this a bigger problem than you can imagine. As a scout for tech talent and startups, I’ve spent ridiculous amounts of time playing detective to try and figure out how to contact startup founders without landing in their spam folders, being ignored, or reaching the wrong person.

Keep this important information in mind: You are a startup founder. Not a rockstar. Don’t make it difficult for people to figure out how to talk to you. You might even *gasp* share your phone number as well. I like to know I can at least call someone if absolutely necessary.

Here are a handful of things I wish no startup would ever do on their website until it becomes absolutely necessary.

  1. Contact forms instead of email addresses – If there’s a better way of showing people that you aren’t accessible, I don’t know what it is. I hate filling these forms, and in my experience, 9/10 times there isn’t a reply anyway.
  2. Info@ email addresses – Don’t do this. Just don’t do this. Who gets an email sent to info@? As far as I know, it goes right to your spam folder, or to an intern, or a customer service rep. Info@ for a company of under 10 people is just putting out a sign saying: “we don’t want to hear from you.” Put the founders’ email addresses on the site. Let investors (and customers) contact any of them. A pre-revenue company cannot afford to screen emails.
  3. Auto-responders – I hate this. Again, if you’re a company of 3 people, you don’t need an autoresponder. Just reply to emails. Reply to all emails that are specifically addressed to you, even if your answer is just “not interested, thank you.” Just because your mail client has it as a feature doesn’t mean you should use it.

But what about all the spam, you say? What about when I *am* a rockstar, and my email is swamped with customer questions? There’s an app for that: it’s called email forwarding. Create a new email address that is to be shared only for professional reasons, and forward all emails sent to your public address to a special folder in your new inbox. Check it regularly, and create rules for individual senders who are still using your old address, to route them to your inbox. Done.

 

5. Print and Carry Business Cards

Hello, yes it’s 2018 and I’m telling you to get business cards. Yes, people can just send you an email, and you can add them on LinkedIn, and, and, and.

The thing is that some innovations are so good, so intrinsically elegant, that they don’t go away even when there are “better” alternatives available for less. To me, carrying a good business card is like wearing a tasteful watch, or having a firm handshake. It’s proforma, but it’s the good kind of proforma.

Just consider some of the reasons why a business card works centuries after its invention:

  1. It creates credibility. A person who spent money on business cards is taking things seriously. It also makes you seem like a prepared and professional person.
  2. It gives me a way of remembering your name while I’m talking to you. Believe me, that helps a lot of people. Also, it helps me understand your job and business without having to ask.
  3. It helps you stand out. Don’t get *too* gimmicky with your cards, but a bit of creativity shows you care.
  4. It makes it easy for a person to share your contact details with somebody else. That’s what networking is for. A business card makes it easy: “hey I thought of you when I met this person.”
  5. It makes it easy to start a conversation. Shy people sometimes come up to me saying “Can I have your business card?” This happens often after I’ve just spoken in public, or met a bunch of people at once. Those who don’t want to monopolize your time can take your card, and you can then start a conversation with them if you wish.

It takes 5 minutes to order good-looking business cards online. No excuses.

 

6. Fix your Email Footers

Kind of like business cards, this is a proforma thing that is really important, particularly because of modern technology.

Having clearly formatted footers in your email makes it super easy for someone to track down your contact details by searching their inbox. Even better, modern smartphones can use this data to provide contact info on incoming calls, and even help people find your phone number without digging through their emails.

It’s also a bit of much needed context when you’re sending messages or replying to large group messages. The worst thing that happens in those situations is that somebody without their name in the email address itself replies without a name in the footer either. You annoy me, whoever you are.

As a bonus, you can use your footers as guerilla marketing as well. Anytime someone forwards an email or you reply to a group, you can include a link to your product with a tagline. That’s nice, isn’t it?

Do You Have More Startup Mistakes That Take 5 Minutes to Fix?

Tweet it to us at @startupyard, and we might add it to this list!

 

Ready to Apply to StartupYard?

We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Apply to Batch 9 Now

StartupYard, growth strategy

10 StartupYard Companies Raised €2.2M in 2017

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2017 was a good year at StartupYard. Not just financially , but also because we saw a number of our Alumni and recent graduates accomplish amazing things in the past year. Of course, 10 companies raising over €2 million total makes us very happy.

Still, the money is less important to us than what the money says, which is that these companies are doing good things that investors believe in, and that therefore we’ve done our job well.

10 Companies, €2.2 Million

More StartupYard alumni raised funding in 2017 than in any previous year. 10 Alumni and startups in the program raised funds in rounds worth between €35k and €750k. Many of these investments we’ve announced, but others have not been made public yet.

We’re also happy to report that there are additional deals in the pipeline, and we will hopefully be able to announce those very soon. We hope that 2018 will follow 2017 as another record year for fundraising.

How Does StartupYard Help Startups Fundraise?

The Network:  Aside from the obvious, which is that we begin by investing in Startups that go through our program, every deal that one of our alumni have closed in the past year has been with the help of the StartupYard network.

Through mentoring, and especially Demo Day and the following Investor Week, our startups meet and get a chance to pitch a huge number of likely investors, including business angels, VCs, and even banks and large corporate investors. In every case in the past year, our startups have been able to raise money because of contacts made during the program. In most cases, the startups raised directly from StartupYard mentors or existing investors.

The Reputation: As with any long-running accelerator program with a decent track record, we have a smart group of investors who will pay close attention to any startup we work with. Being around for many years, and having made many right calls in the past, we are trusted by investors to offer clear, honest and helpful feedback about our alumni.

That doesn’t mean investors do whatever we say. But they do listen.

Our investor network know that we do not shop investments that we don’t believe in ourselves. Credibility in the investment community matters very much. You don’t always have to be right, but you have to be informed, open, and honest. I can safely say that every company I’ve worked with in the past 4 years at StartupYard that deserved an investment, got it. We find a way to make it happen.

The Program: Just as important as having the right network to do your initial fundraising, you have to be an investable company to begin with. One of the things we look for in startups we select is that they are usually almost investible, or we see that with some hard work, they will be investable sooner rather than later.

That naturally incurs a big risk for us, but it also helps define our mission- not to find “the best” most shiney startups out there, but to find the ones with the most real potential. One of the metrics we use to determine our success at picking “go over show,” is how well our startups do after our program at raising smart money (that is, from investors who know what they’re doing).

The Backup: Another quiet but important part of StartupYard’s role with alumni companies is to provide “backup” in negotiations with future investors.

Having an existing investor on your side of the table is an important practical and psychological advantage in investment negotiations. For one thing, an existing, experienced investor helps ensure that new investors behave themselves, and make fair offers on fair terms. Knowing an experienced partner is behind the startup encourages fair play and discourages game playing.

For another, StartupYard has the network and platform to expose bad actors, and to make sure our startups don’t deal with them in the first place. We have the power, in extreme circumstances, to block investments in our most recent alumni. This should be seen not as a blocker for investment, but as a negotiating advantage for startups, who can always fall back on us to block or negotiate terms that are unfavorable to the founder, on their behalf.

As we say, we can be “the bad guy,” with future investors when we are needed to be.

Listening to What an Investment Actually Says

Many founders who apply to StartupYard, and many who join us and go on to raise further investment, begin with some wrong conceptions of what raising investment is all about.

Of course, it’s the money they’re usually thinking about. But this is only part of the picture. If you need money, there are lots of places to look for it. Not all of those places are good, and not all of them are ultimately worth your effort or the risk you take in going there.

I used to joke with our founders that if you got into this business just to make money, you should just sell drugs instead. It’s almost true.

If there is good money and not so good money (clean or dirty, smart or dumb) how do you decide whom to take money from, or whom to ask for it?

Try approaching the question from the opposite tack: not “how do I get this money,” but instead: “what will it say if someone gives me this money?”

It should say that the investor believes in the upside potential of what you’re doing. Any investor in an early stage company should be nowhere near defining the real market value of the investment, because that value hasn’t been fully explored or proven yet.

The investment has to say what the investor can reasonably believe. Here are some things an early stage investment should say about what the investor believes:

  • The company will be worth more in the future
  • The founders are honorable and trustworthy
  • The product is good and there is a market for it
  • The founders will work hard, and pivot if necessary
  • The founders will eventually sell or realize a profit
  • Failure is possible, and ultimately acceptable

Maybe one or two of those points surprise you, but I hope not. We should not expect early investors to be total true-believers in what a startup is doing, but we should be able to answer all these questions before accepting an early investment from someone.

We should also not expect investors to be unemotional, or completely calculating in their early-stage investments. A true opportunist is a dangerous friend to have.

Picking the right investor is not just about sleeping well at night, though that’s part of it. It’s also about making sure that you actually have the clarity of vision and the confidence you will need to do what the investor believes you can do. Convincing someone of something is a lot harder than telling it to yourself.

One of the best ways to get someone to believe all the things I’ve mentioned is to really believe them yourself. The best way to believe those things is to make them true.

Make Yourself Investable

As we’ve seen, becoming an investable company is about more than having a great idea, or the energy and determination to make it happen. It’s also about the network you have, and the choices you make early on.

If you think you have a tech idea with great potential, consider working with an accelerator like StartupYard to grow your immediate network, and turn the idea into a business investors and customers can really trust.

Finding investors, just like finding any business partner, is about knowing what exactly you need, and what to reasonably expect. StartupYard helps you figure those things out.

 

StartupYard is currently accepting applications for Batch 9.

We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Apply to Batch 9 Now

Startups: Do You Make Me Money, or Save Me Money?

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Something jumped out at me from a recent podcast by Y-Combinator with Des Traynor, Founder of Intercom. Asked about the problem he solves, he described how over time, their approach to sales has changed:

“. When you’re trying to pitch them something, they just say “Hey, here’s my two numbers, which one of these are you changing?” And I think when we show up and we’re like, well if you love your users you’re going to stick around, and they’re like sh-sh. Don’t care about any of that. Are you going to make me money or save me money? And we need to get better at answering that question. And we need to have better evidence to answer that question.”

In Startup culture, there is always a lot of talk about “solving problems.” Every product and service has to solve some problem. That’s true as far as it goes, but “solving a problem” for your users is not, in itself, enough to build a business on. You have to also answer some version of this question: how do you make me money, or save me money?

As we accept applications for StartupYard Batch 9, this question will be forefront on our minds when making initial selections.

Lots of problems exist, but not all of them are promising new businesses. How do you know when you’ve nailed down that problem that people are willing to pay money to solve?

You can check out the video podcast here:

A Problem That Isn’t a Problem

The reason we always begin our acceleration program with the classic Positioning Statement, is that expressing the problem you solve is one of the hardest things an early stage startup has to manage.

Often times the “problem” founders pick to talk about is just another way of saying that their customers want their product. Maybe they do, but why?

Over the course of in-depth positioning discussions with dozens of startups, I’ve developed a sort of framework for determining whether a problem is in fact a real problem, and not a “startup problem.” While not universal, this framework is extremely helpful in determining whether you’ve really nailed down the problem you’re solving.

I apply this mental checklist:

  • Does the problem have clear financial implications?
  • Is the customer aware that this is a problem?
  • Does the customer actively search for other solutions?
  • Is this problem something your customer would list among their most important concerns?

One of the most typical early positioning problems is that founders will identify things like “a better interface,” or “more efficiency,” or “saves time,” as the key benefits of their solution to a problem.

But by applying this checklist, we can see that benefits like “saving time,” are not always as urgent as they might appear. Does the time have a clear financial cost? Is the customer aware that they can do something faster? Would they actually seek a faster solution on their own? Is this time that they are wasting a concern for them?

You can sell me a way to shower in half the time every morning, but I wouldn’t buy it. It’s only a problem if the time I spend showering is a frustration to me.

Sometimes I ask founders: “Have you ever sat down and googled: “how to do x faster?” Most of the time, they haven’t, because that’s not typically how people behave. Only when something is taking so long, and is so arduous that it has become a clear problem, do people act to find solutions.

A Case Study: Steel Mountain

Steel Mountain

Getting your positioning, and particularly your problem statement to answer those questions can mean changing deeply how you talk about what you do, and how you see your customers, and who they are.

I’m going to use the case of one of our most recent startups Steel Mountain, the home-network security company that will soon be offering a single device to monitor and protect homes from digital intruders, viruses, and other threats.

Steel Mountain, it must be said, were already in a more than usually advanced stage of development when they joined our program, but I would say this exact roadblock was among their toughest questions early on. They had a compelling product, but they needed to really be able to express the problem that it solves.

The “You Need Us” Problem

After about a month in the program, their positioning looked something like this:

“The privacy and security of homes and small businesses are increasingly at risk from digital threats. Steel Mountain’s Secaura device plugs into your router, providing enterprise grade security across your entire home network. Unlike typical security software, Secaura covers all connected devices instantly, requires no active maintenance, and employs advanced artificial intelligence against known and unknown security threats.”

That is a very straightforward positioning statement, quite typical of a security company. Just one problem: it doesn’t quite pass the checklist I mentioned earlier. Let’s see:

  • Does the problem have clear financial implications?

Not really. We are told first of all that there is a threat lurking out there somewhere online. But that threat has no exact proportion, and the target customer (the head of a household or small business), is at pains to estimate how much exactly a digital threat means in terms of lost income, lost business, theft, or other mischief.

  • Is the customer aware that this is a problem?

Maybe… although given that this is such a simple solution to a complex problem, it’s rather doubtful that anyone who truly understands the problem doesn’t already have a solution in place. Perhaps there is market awareness of the problem, but we aren’t yet clear from this statement that the target market knows they’re in real danger.

  • Does the customer active search for other solutions?

Again, it’s not yet clear whether the target customer actively engages with this problem at all. Some probably do, but the alternatives mentioned, such as security software, serve only a minority of households. Most do not have a sophisticated solution in place. Is the product only for security minded people, or is it for people who can’t deal with complex solutions?

  • Is this problem something your customer would list among their most important concerns?

Again, we can speculate that the typical household or small business does not list security among its top concerns. Those that do are probably using more complex solutions. For those who are using no solution, it is seen more as a low-level, constant issue that many people would rather ignore than understand, and most people believe will never have an effect on them either way.

As we can see clearly from this checklist, we haven’t identified an urgent, well-understood need from a well-defined target customer. 

Making the Problem a Real Problem

How did Steel Mountain come down to a positioning statement that did involve a clear problem and urgent need for the solution?

First, they took the painful but necessary step of considering that while their expertise and the value of the product as they see it is in security technology, the typical customer in their target market has no way of evaluating such products.

Instead, they went back to these 4 checklist questions and identified a problem that satisfies all of them at once.

The problem they identified was this:

 

“Parents of families feel great pressure to provide a safe digital environment for their children, and are prone to wasting money and effort on partial security solutions that never completely protect their homes and families.”

Bingo.

For starters, we have narrowed the customer set in this positioning statement to parents. In doing so, we’ve been able to identify a more universal emotional and social problem that the target customer can easily identify with.

So the problem is no longer: “my home is not secure,” but instead: “I am afraid of feeling like a bad parent who can’t protect their family.”

How does it do with the checklist?

  • The problem has clear financial implications. Every parent has wasted money on safety equipment that wasn’t really needed. This solution promises to end that guess-and-check approach to digital security.
  • The customer is very aware of the problem. Any parent who gives their child a smartphone or a tablet knows the dangers, and tries to consider them.
  • Nearly every parent in the target market has or will in the future investigate digital security to protect their children. The solutions are in fact much broader than merely software, as in the earlier positioning statement. Education products, specialty devices, operating systems, and many other solutions are available to address the same concerns. This solution can now be compared to those as a cost effective and complete alternative
  • Child safety is a top concern for most families with children. Again, by shifting the problem to one of “parents with children” rather than “owners of homes,” we have also shifted the conversation towards top concerns that parents have, for their children. Now, rather than comparing Secaura to an anti-virus software, we can compare it to other home security essentials: baby monitors, door locks, or fuse-plugs.

This process also helped the founders identify more features of the product that were very attractive for customers. Parental content locks, and “bedtime” settings for individual devices, though the founders had included them as an afterthought, were of prime interest to this new target market.

The reactions the founders got began to change because of this new positioning.

When Steel Mountain’s CEO Will Butler began pitching the company with this strategy, the change in enthusiasm was remarkable. People in his target market started asking: “Can I have one?” And “I’ve always wanted that!” It went from a geek product to something the customer had to have, and should have already owned.

Steel Mountain CEO Will Butler pitches about the stress of living up to your role as a parent.

It’s often said that “people don’t buy security.” What’s really meant by that is that people have a hard time seeing the value of something that protects us against a problem we don’t understand. If the product solves a problem we do understand, and even better, one we already have right now, then the customer is much more likely to consider buying it.

Some security companies only manage to sell to customers who have already been victimized by attacks and theft. But others find a way to sell “peace of mind,” instead.

When solutions really find a clear and understood problem and customer, they begin to feel not just strong, but practically inevitable. Why hasn’t someone done this before?

Applying it Yourself

Of course, not every problem has to do with security, or money, or peace of mind. Your customer might not be concerned with saving or making money. The logic of the framework is about the relevance of the problem to a particular customer. Have you picked a customer and a problem that match?

If not, how can you change your thinking about who the customer really is, or what their problem really might be?

Squaring that circle is never easy. As a founder, you’re naturally absorbed in what you’re building, and driven by your own reasons for building it. Opening up and applying that work to problems you haven’t considered is part of a continuous creative process. It involves talking to your target customer and others about what their real feelings and concerns are.

You have to talk to a lot of people. Not just customers, but the people who sell to those customers, and understand them best.

Getting the problem right is a life or death challenge for an early stage company. That’s one of the reasons an accelerator can be such a great choice for a team like Steel Mountain, or many other companies we’ve worked with. The opportunity to shift your thinking and test it with so many mentors and potential customers in such a short time is a rare opportunity for a startup.

 

StartupYard is currently accepting applications for Batch 9. We’re looking for startup founders in Crypto, AI, IoT, and AR/VR!

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Apply to Batch 9 Now

Cybersecurity, Cryptelo, StartupYard

Why Cybersecurity Startups Should Apply for StartupYard Batch 9

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StartupYard is currently accepting applications for Batch 9. One of the key verticals we are focusing on during this round is Cybersecurity.

Prague, and StartupYard itself have a long history of security successes, which we’ll cover here.

In the past 4 years, StartupYard has accelerated a number of high-profile tech startups, which have gone on to have a big impact. These include enterprise mobile security firm TeskaLabs, secure storage and exchange platform Cryptelo, and most recently, the home network security provider Steel Mountain. We are looking forward to adding companies in the cybersecurity, cryptography, and blockchain in Batch 9. Applications close January 31st 2018.

 

Apply to Batch 9 Now

 

Why Cybersecurity?

There is no single more pressing issue than cybersecurity in the technology industry today. As big data proliferates, and AI takes over many tasks and systems formerly run by humans, our digital lives and businesses become less physically vulnerable, and more dependent on secure transfer, storage, and access to data and the devices that use it.

As StartupYard’s recent alum, Steel Mountain founder Will Butler put it on this blog: a digital attack on your home now has a greater potential danger than a physical one. These dangers are not only related to money or to privacy, but increasingly to basic safety as well.

Mixed Reality Cloud, Ghost Shell, StartupYard

The number of potential weak points in digital security continues to multiply daily, constantly increasing the rewards to those who would steal information and compromise networks.

For enterprises and governments, the story is much the same. Forbes magazine called 2017 The Year of CyberWarfare, and from attacks on democratic institutions to massive data breaches in enterprise systems, affecting billions of individuals, this has turned out to be true.

State actors and potential terrorists have also gotten into the game, with massive black-hat propaganda campaigns, targeted data thefts, DDOS, doxing, and more. This year saw organized cyberwarfare against Ukraine, and a possible state-sponsored attack on public and private utilities across Europe in the wannacry ransom attack.

 

Why StartupYard?

As the number of threats to our data and our electronic systems has increased, a new wave of cybersecurity companies has risen to meet the challenge.

2017 was a record year for cybersecurity startup fundraising. The sector has grown from under $1bn in 2012 to over $5bn today, with a record 44 M&A deals occurring in the first quarter of 2017 alone.

You might think that in this kind of environment, a team with a cybersecurity product and a few brain cells between them could make it big. And in fact they could, if they were very, very good, and very, very lucky.

The reality is that even in a hot space, and sometimes even *especially* in a hot space, differentiating yourself and building a network that will sustain you and grow your business for years into the future is as hard as it ever was.

Growing a global business is hard, even when you’re selling something everyone needs. Especially when you’re selling security, which everyone needs, and no one wants to buy.

Note our emphasis on sustainability and the future. StartupYard believes strongly in building a sustainable global business for the future. The winners in cybersecurity will be those who started with a stable foundation, a network of mentors who know what they’re doing, and a set of investors ready to support them long term.

So here are the ways StartupYard can help a Cybersecurity Startup in 2018:

Trust and Reputation

You may know the old line about conservative business decision-making: “Nobody gets fired for buying IBM.” This is still very true. Security is all about trust and reputation. Big corporations with complex decision-making processes and complex needs have to work with companies they know.

After all, no one wants to “buy security.” They want to buy peace of mind – insurance against things they don’t want to think about.

Cybersecurity, StartupYard

The only way your technologies will end up being used at Microsoft, or IBM, or by a government or a bank, is if someone who already has that level of trust and comfort with those same customers helps you to enter the inner circle.

That is exactly what StartupYard’s mentor network is set up to do: give startups a ready-made relationship with trusted partners who can make those connections for them, and help them build trust faster than they could on their own.

Location and Community

StartupYard is at the heart of the Central European tech ecosystem, and our home city, Prague, is a hub for cybersecurity technology in Europe. World leading security companies such as Avast, Cognitive Security, and AVG were founded and grew right here, along with Eset in neighboring Slovakia. Their influence, knowledge, and reputations have made the Czech tech ecosystem particularly suitable for security companies looking for partners who understand the value of their work, and how to use it.

Central Europe Accelerator, Cybersecurity, StartupYard

Not only is Prague an excellent place to develop a cybersecurity business, it’s also a great place to build your team, including engineering and sales. Czech security and cryptographic skills are among the highest in the world. The region is known for producing superior talents in security engineering, and knowledge of sales in this field is particularly strong.

StartupYard has a deep web of connections to this industry, that growing companies can leverage right away to grow and position themselves for success.

Experience and Knowledge

All of which would be meaningless, if StartupYard were not the home of more than one high-profile cybersecurity startup.

Our track record includes companies such as TeskaLabs, the first Czech company ever to attend TechStars, and now a profitable and growing company with major enterprise clients such as O2 and Cisco. We also have Cryptelo, which boasts a world-leading standard in cryptology, with secure storage and transmission of data.

And there’s Steel Mountain, our latest investment in the field, focusing on consumer digital security, who have recently signed agreements with a major manufacturer to build their breakthrough home network security solution for families.

Cybersecurity, StartupYard

These companies contribute to our team’s experience in cybersecurity, but they also act as mentors and support mechanisms for future startups in the StartupYard program. They bring a network of mentors, investors, and advisors with a proven track record of getting results for growing companies in the field.

Should my Cybersecurity Startup Apply to StartupYard?

Are you an early stage company, with a unique approach to a serious security issue, that would benefit from a deep network of mentors and advisors with long experience in cybersecurity?

Are you two or more founders, who know the value of an accelerator, and are looking to build a global, sustainable business, serving clients potentially all over the world? Do you believe in what you do? Do you think you can convince others that you’re right?

Does your work have the potential to impact the lives of many people in a positive way?

If so then yes, you should apply.

 

Get started applying to StartupYard Batch 9. Applications close January 31st, 2018.

Apply to Batch 9 Now

 

Why Should VR-AR Startups Apply to Accelerators in 2018?

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Applications are open for StartupYard Batch 9!

Are you a startup, or an entrepreneur with a great Deep Tech idea?
Applications are now open.

 

Find Out More about StartupYard and Apply

 

Why Should VR-AR Startups Apply to Accelerators in 2018?

VR/AR (Virtual Reality and Augmented Reality), have been around as concepts for a long time. What we might recognize as VR in its modern form dates back, surprisingly, to the 1950s, when the inventor Morton Heilig developed the “Sensorama,” a machine that combined stereoscopic images, binaural sound, and even smell into 5 short films.

 

Augmented Reality, or AR, has in fact found broader applications in the past few decades. It is common in military applications, and in aviation, where it is used to enhance HUD (Heads Up Displays) with flight data. Today, even some production cars include HUD displays as a safety and ergonomic feature.

 

 

Since the 50s, VR has periodically captured the public imagination — notably in the 1990s, when both Sega and Nintendo developed headsets (though Sega’s never reached the market). Even photorealistic 3d simulations were possible by the late 1990s — I tried one myself at the Kennedy Space center nearly 20 years ago. But despite the hype, VR has never taken the mass market by storm.

This post will dive into some of the reasons why not, and why now is probably different.

For the past few years, familiar signs of a resurgence in VR popularity have been growing. What has changed?

It seemed cool, but it was pretty awful.

Obviously something. StartupYard has received more inquiries from AR/VR and so called “mixed reality” startups during our current open call than in any previous year. In fact, I’ve personally met more VR startup founders in the past 6 months than I had in the past 4 years combined.

 

Why are VR/AR Startups Applying to StartupYard Now?

This year, we got an influx of applications from startups, all working on AR/VR technologies and applications. We shortlisted several, and eventually accelerated two: Mixed Reality Cloud, and Mindbox. In this post, I’m going to outline a few reasons why I think the AR/VR train is suddenly coming into the station in 2017.

As with any technology, there is not always a perfect correlation between being able to do something, and having a good reason to do it. As we will find in this piece, technologies tend to really explode only when both those conditions are fulfilled.

Thus, here are a few reasons AR/VR is a legitimately big deal for early stage startups in going into 2018:

 

1. The Smartphone Has Peaked

As Gizmodo noted over a year ago, the massive adoption of smartphone technology has peaked, and is now slowing down as consumers cycle more slowly through technologies that bring fewer noticeable improvements, at a lower rate over time. The release of the iPhone X, for all its technical achievements, underlined the basic premise: the smartphone concept has been fully articulated, and is now undergoing continual refinement.

Smartphones and tablets have ceased to double and redouble their abilities every year, and have begun to be refined into replacements for the traditional desktop computer for many consumers. Already, tablets and phablets have replaced home computers for many consumers. In business, the same trend will likely follow.

This has had a few consequences. First, the core benefits of a smartphone have more or less been fully realized. A typical smartphone can do almost anything you’d want it to do. There is no longer a huge demand for performance improvements, given that even a low-end phone can do so much. The market has become highly differentiated, and every niche has been filled.

Second, as smartphones have become ubiquitous, the businesses built on leveraging them have also achieved scale and begun to saturate the market. As room runs out for smartphone makers to stand out against competitors and justify their higher prices, new use cases must be found or invented. And VR, particularly recently, has been the beneficiary of that pressure.

And…

2. We’ve Hit Peak Mobile

Related but distinct is the peak of the “mobile revolution.” It may be hard to believe, but it was only in 2016 that mobile web browsing overtook desktop browsing for the first time. Today, a majority of human interaction with the internet is done using mobile devices.

Facebook, at the center of that revolution, has grown to over 2 billion active users, but its unprecedented growth of the late 2000s and early 2010s (which was around the time Facebook transformed itself into a mobile-first company) has slowed to a crawl. Not because people are using it less, but because it isrunning out of new people to add to the platform.

As a sign of how mature the mobile market has become, Facebook indicated in 2016 that it would soon run out of space to show people ads on their newsfeeds, prompting the company to begin delving into new experiences in which customers can see and interact with advertisers (such as messaging, and soon, VR).

The mobile revolution brought the age of apps from the Apple App store, Updates from Facebook, Google Maps and the Play Store, and mobile gaming. Mobile gaming alone became more profitable than traditional gaming in 2016.

Again, as with peak smartphone: peak mobile means that mobile software and content developers, along with advertisers, face higher competition and a more saturated market than ever before. Differentiation on mobile has become harder, and so they are actively seeking new media that can provide fertile ground for new content, and new marketing.

And…

3. We Still Need Immersive Experiences — and We Aren’t Getting Them

Gartner noted in their predictions for consumer digital technology in 2017, two very interesting trends. First, that the key upcoming innovations in mobile mostly have to do with AI, IoT (Internet of Things) and ubiquitous computing. Not with consumer applications, but with intelligence and data layers that enrich our lives without necessarily meaning we need to actively engage with them.

And this is backed up by recent hardware developments. Amazon is promoting home computing systems with no physical inputs at all. Apple has just announced the HomePod, which again, proposes to eliminate some use cases for smartphones and televisions, and free up our eyes for looking at, I suppose, other people. I have been told that is what people used to do.

There has been a lot of talk about how the Amazon Echo and other home audio devices are a new medium for advertising, but I’m sceptical of how important that will be in the future. In a technology landscape where more and more of our contact with computers and information is self-directed, and two-way, the nature of advertising and marketing will have to change as well. Perhaps in 5 years a display ad will be a dying relic, and new “marketing AIs” will instead engage directly with individuals to find products that best suit their needs.

At the same time, Gartner predicts that VR, not television, and not tablets or smartphones, will be the leading area of innovation for digital media. So as home computing trends toward becoming less obtrusive, and less all-consuming, at the same time, VR promises to offer a deeper content experience than any medium ever has before.

If smartphones and home computers are going to be less attention-consuming than ever, then where will content creators and marketers go? A good bet is that many will see AR/VR as fertile ground for development. What better medium than somewhere people choose to go to become totally absorbed?

3. People Aren’t Happy with the Status Quo

As smartphones and mobile-first applications have become the core of our experience of media in general, our experience of online content and storytelling has, in some ways, become less impactful. Everything is noise, and nothing is substantial- a feeling you’ve no doubt detected on your Facebook News Feed more than once. Technology has progressed, but it’s failed to deliver experiences people engage with ever more deeply. We may check our phones hundreds of times a day, but do we watch whole movies, read a whole magazine, or play through entire games? Not so much.

And in fact, consumers are not happy with these changes. The ASCI found in its most recent consumer studies, that consumer satisfaction with computer software, smartphones, and social media platforms declined overall in 2017, or failed to make any gains – breaking a decade long trend of increasing satisfaction in these areas.

So we’re getting sick of the status quo. VR can be seen as literally the antidote to checking a smartphone 150+ times a day: a medium that requires your full attention as no other digital media does. And that’s a super attractive prospect, not only to a content creator, but to an advertiser as well.

As the smartphone has evolved, it has at times tried to fill very contradictory roles. It wants to be, by turns, invisible, and very visible: innocuous, and attention getting. We’ve cycled rapidly between smartphones technologies that virtually disappear into the background (like smartwatches), and those that dominate our field of view, like phablets, and even mobile VR headsets. Very often the same companies, like Apple and Samsung, try to sell us both ideas at the same time.

But I am betting that the age of “in-between” experiences is not going to last forever. Ultimately, people want rich content experiences. People still go to cinemas, even though they can download thousands of titles on demand. People still read paper books, even though it rarely makes economic or practical sense anymore. I would bet that VR will join staples of media like the book and the cinema- a technology people use not for convenience, but for the value and depth of the experience.

And…

 

This is What Big Data Was Always Supposed to Do

StartupYard has been involved with data focused companies from the beginning. But for years, up until just very recently, one of the only ways of turning big data into a business was the same way people had been doing it for generations: selling it to somebody.

Of course, that generated many user-facing applications that enhance people’s lives and make things easier, but at the end of the value chain for most data, there is an advertiser waiting. Facebook, Amazon, and Google have built empires on that assumption, and Apple and Microsoft have made the infrastructure and devices that generate the data, and make it possible to distribute the resulting content, with ads embedded.

Data may still be “the new oil,” as it has become popular to say, but we must remember that as with oil, it took many years, and many fits and starts, to discover its ultimate potential.

Consider the evolution of oil in the modern world. First we burned it, and when that trick got old, we figured out ways of distilling it to make it burn even hotter. Then we figured out that you could use it to make things: chemicals, plastics, synthetic rubber, and other materials.

The innovation with oil wasn’t setting it on fire (we have known oil burns for thousands of years). The innovation was in making novel things out of the oil: fuel, but also tires and even whole cars, smartphones, microchips, and everything in between.

 

So if Data is the New Oil, then VR may be the new Plastic

VR promises at least one way in which big data will actually translate into novel products that ordinary people can use. Creating artificial environments, or enhancing existing environments with information and interactive elements takes a lot of data. As sensors and data processing platforms have grown in complexity and scale, we are approaching a point at which we can use that scale to be creatively free to make new things.

I have met recently with more than one startup who are counting on that very assumption: that now, unlike ever before, we have enough data about places, objects, physics, and people, to make artificial environments that will be fulfilling to use, and add detail to real environments that will be really useful.

I believe that a century from now, we will view VR as the child of big data — just as we now view the automobile as the child of big oil.

And…

 

VR Was Inevitable, But Not Always Obvious

There are some technologies that have been so easy to describe, that we’ve known we wanted them since long before they were possible. Powered flight, for example. For centuries, humans understood the benefits of flying, but still, we didn’t have the knowledge or skill to make flight a reality.

And yet other technologies are strangely elusive in that way. The telephone was patented in 1876 by Alexander Graham Bell, who, according to legend, was unable to sell the technology to Western Union for $100,000 because they thought it was a toy.

Despite what we know now about the transformative power of the telephone, it’s surprising to learn that despite the fact that transatlantic telegraph cables existed before the telephone was invented, the first transatlantic telephone call took place over 50 years later, in 1927. And that first phone call from England to the United States happened the same year as Lindberg’s first flight from New York to Paris, only 24 years after the first working airplane was built.

Airplanes were never underestimated, but it took a lot of imagination to picture the way the telephone would transform life as we knew it. Western Union had been right at the beginning: without a dense network of connections to make it truly useful, the telephone was only a novelty. You needed dense telephone networks on both sides of the Atlantic to make a transatlantic call economically viable. Yet when it became commercially viable, the benefits were so obvious that in another 25 years, there was a telephone in literally every house in the developed world.

So while international telephony was inevitable due to its technical advantages, it was not obvious, due to its network dependency.

VR is a lot like that. It’s been not much more than a toy for decades, because the network needed to support its most promising functions hasn’t really existed until recently. How do you generate content? How do you distribute it? These solutions have been long coming, but they have only just begun to make VR an obvious area of growth in the future.

And today, startups are seeing opportunities in the same way that businesses first began to realize the potential of the telephone decades after its invention. A network has been needed, and today, with a world full of smartphones, connected by social networks, and filled with content creators and eager marketers, that time has finally arrived for VR.

 

 

Applications are open for StartupYard Batch 9!

Are you a startup, or an entrepreneur with a great Deep Tech idea?
Applications are now open.

 

Find Out More about StartupYard and Apply
StartupYard, DemoDay Batch 8

Batch 8 DemoDay: As it Happened

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