Who You Calling a Jesse?

Early stage companies don’t need money, they need customers

The popular belief in Canada is that the tech startup world has been fairly light on investment dollars relative to other industries in Canada. Because there is such a disparity in seed or angel round investment size in Canada vs the US people tend to point to that as a reason people go south. The perceived result of the funding problem (and likely the weather) is that there are 350 000 Canadians in the Valley. No one can argue the talent to build global calibre tech companies exists in Canada (or at least has Canadian passports) but you can certainly argue Canada lacks that certain something to keep them here.

Five years ago Paul Graham observed that the total cost to get a tech startup started had dropped dramatically and will continue to do so.

So my first prediction about the future of web startups is pretty straightforward: there will be a lot of them. When starting a startup was expensive, you had to get the permission of investors to do it. Now the only threshold is courage. – Paul Graham, 2007

There is a lot of attention around getting young people money but does that help them? Does that keep them in Canada? I would argue that the ones that do need and can use capital don’t pull up stakes and leave town for the investment. They leave town (or the country) because they are missing something more valuable than money — customers, mentorship that helps them get customers, and a network of peers.

Know thy stage

The problem with comparing funding deal levels in Canada and the US is that it ignores the stage the company is in relative to the stage of US startups raising money for the first time. The Startup Genome report 01 and the Startup Genome Compass offers startups an excellent way to measure themselves against a benchmark of over 3 000 startups. In the report there is a table (shown below) that gives you some overall averages for all startups.

From the Startup Genome Report 01.

In last seven years of being involved in the Canadian startup community (mostly in Waterloo) and in the last three years leading what is arguably the best student focused incubator in Canada while founding my own startup. I saw dozens of companies peek into the Discovery phase, a few move on through to the Validation phase.

What I have seen happen before the discovery phase:

• Talk of raising money is used to pull in a large group of talent.
• Focus is not on customers, it is on technology or raising money.
• There is little help by way of mentorship that takes the time to understand the dynamic of the group.
• Mentors focus on finding a way to get them money so they can work full time.

Startups need to focus more on customer acquisition and growth in Canada, enough talk about raising money

There are so many business plan and pitch competitions one could make a career out of attending them. This gives a false sense of success because the ‘winner’ is determined on a lot of factors except their ability to actually get customers. The game becomes about (and has been it feels like) how to put together a report on an idea (business plan) and present in a way that makes you look confident.

The game is really about getting lots of people to give you their money because you provide value to them. What makes you better than others is that you are chasing a much bigger problem that will provide value to a full percentage of the world’s population. Bonus points if you change the world.

Looking at Startups and tech in the Waterloo area for 2012

Over the last few weeks I have had a number of people approach me asking about what is going on in Waterloo’s startup scene and who they should be watching. It is a bit of a complicated question to answer and I am sure to leave some folks off the list but here are the startups I think are going to shine in 2012 and have a presence in the Waterloo Region.

The 100+ employee company that is going to blow everyone away:

• Desire2Learn (D2L) – If you heard the story of D2L from John Baker you would have heard the howto in creating a great company. Lots of hard work, a little luck, and some bold moves gives this company the position it has today. Technology in education is a hot market and these folks are poised to take the leadership spot in a space where the leader, Blackboard, sold for $1.64 Billion in July of this year. D2L’s customer base growing by the day, they are poised to take over the leadership role with some great technology.

The 30-100 person company that is ready to take off:

• Well.ca – Guelph based ecommerce shop, Ali Asaria has built an amazing company with leading ecommerce technology behind it. These folks are going to drive ecommerce in Canada for some time to come but for 2012 they seem ready to make a big move.
• Enflick – Millions of users, really smart team, know how to grow revenue, and a $1Million raise.

The obvious ones that recently raised capital:

• Kik Interactive – Ted Livingston raised $8Million with Fred Wilson as one of the big investors… need I say much else?
• VidYard – Freshly back from Y-Combinator these folks announced a $1.65Million raise from Softech VC, YouTube Co-Founder Jawed Karim, YCombinator, SV Angel, Andreessen Horowitz, iNovia Capital, Gmail creator and FriendFeed founder Paul Buchheit, NV Investments’ Vivi Nevo, former RIM COO Dennis Kavelman, David Nikzad and others. Nicely done.
• TribeHR – Announced a $1 Million raise form Matrix partners in Boston with David Skok. This team will be making some serious waves in the HR space in 2012. Disclosure: I am a co-founder.
• Qwalify – Not sure they have raised anything outside of Angels yet but this is one of the smartest teams on this list with some awesome technology.

The lessor known but great companies in my mind:

• esentire - the coolest security company I know of.
• Miovision – they automate a lot of things around traffic monitoring building both the hardware and the software.
• 17 muscles – recently added Carol Leaman as CEO, fresh off the success at PostRank.

Scrappy upstarts with amazing teams:

• MappedIn - they have their stuff deployed at malls and a growing customer list, so much awesome here.
• Bookneto - the education technology space is hot, these folks are building amazing software to make the education experience better.
• BufferBox - annoyed with standing in the 1 hr + line at FedEx this holiday season? These folks fix that.
• TitanFile - keep stuff secure. Smart team from Halifax that are currently set up at the Communitech Hub.
• Willet - I have a soft spot for this team. They were one of the first companies to enter the VeloCity workspace and they are awesome people. Fresh off a term at FounderFuel, expect to hear lots from them in 2012.
• Lumos - Metrics and insights for your games. Watch for this team to find their place in 2012.
• Others?

This is by no means an exhaustive list for Waterloo but it is the list of the folks that are really stepping up their game going into 2012 as StartupNorth suggest we must. Who do you think belongs on here? Who did I miss?

Also, if you are just getting started or have been working for a bit and have something to show off… StartupCampWaterloo12 is January 18th, you should come out.

Kitchener-Waterloo Turkey drive: Every family deserves a Christmas dinner

The following is my public service post of the season…

The Kitchener Conestoga Rotary Club believes every family should have a special Christmas Dinner, including a turkey. Five years ago, the Club decided to help make that a reality and has since raised $732,000 in support House of Friendship’s Christmas Hamper Program, which shares the gift of food with local families in need at Christmas time.

What are the facts?

This Christmas, House of Friendship anticipates the need for turkeys and Christmas Hampers will increase – that means 3,500 turkeys and 4,000 food hampers to feed over 10,000 people!

What will that cost?

The Kitchener Conestoga Rotary Club’s 2011 Turkey Drive goal is $275,000 to purchase turkeys and food products. We know this is a big goal, but we believe if we all pitch in a little, we will reach this goal, and more importantly reach thousands of local families. For as little as $20 you can sponsor a turkey. Or you may choose to sponsor a food hamper with a turkey for $80. All donations over $20 will receive an official income tax receipt. How many turkeys and hampers will you sponsor?

How can YOU help?

You can sponsor turkeys and food hampers rather than Christmas or corporate gifts; honour your clients with a donation to the Turkey Drive. Sponsor turkeys and food hampers and encourage your family and friends to do the same. Better yet, ask them to volunteer with you to pack or deliver hampers and turkeys.

How can I talk turkey?

Donate securely online at www.turkeydrive.ca or drop me an email to jrodgers at uwaterloo.ca.

The Daily Bulletin Editor that changed the University of Waterloo web

On Tuesday November 8th, 2011, Chris Redmond let everyone know (at the bottom) he is no longer the editor of the University of Waterloo’s daily news publication — the Daily Bulletin. He covers some the history of the Bulletin:

I have been editing the Daily Bulletin through more than 4,500 issues now since it was created in the spring of 1993. Originally the Daily Bulletin was distributed by “gopher”. In the spring of 1995 the first Web versions of the Daily Bulletin were tried out. In 1998, the “Link of the Day” was introduced; in 1999, the use of photos became a regular occurrence. The “When and Where” events listings began in 2003, and the present graphic design dates mostly from 2006.

What he leaves out is the role that he, along with Roger Watt and Carol Vogt, played with getting “UWinfo” online and to the staff, students, and faculty at the University of Waterloo.

When I started at the University of Waterloo in 2001, hired as the campus’ first Web Developer, I was interviewed in Chris’s office atop Needles Hall. That was the first time I actually met him. I heard about this UWinfo group that was two techies and a writer that learned HTML. That writer provided the content that grew into a very rich University of Waterloo web space.

Every business day Chris published an editorial on what is happening on campus. It was easily one of the first blogs in the world, never mind campus. The difference was that before there were commenting systems the uw.general newsgroup is where the ‘discussions’ happened about stories in the Bulletin. This engaged people in the publication at an early time. This is long before they were called blogs and sure comments never found their way into the Bulletin but I don’t think that is a negative thing.

Chris’s work on the Bulletin and what became the University of Waterloo ‘home page’ (something he “edited” daily until sometime after 2007) gave the University of Waterloo a template of content rich web pages. I believe everyone emulated his content focus in the early days and still influences how the web presence will evolve in the future. He saw the value of the web early and worked to use it for good to the best of his ability.

With Carol Vogt retiring a few years back (and sadly passed away shortly thereafter), Roger Watt retiring, the last of Waterloo’s web content pioneers has left his publication that defines the university web space for so many. It’s a big deal in my mind. Yes there are a few other folks that shaped those early days still around but to me the “UWinfo” group was the web… and if I missed anyone that deserves credit for that, sorry. I can update the post.

Good luck in retirement Chris (which isn’t for a few months at least), I look forward to all the content you have yet to create!

Edit: Hat tip to @garywill — almost forgot about Simon the troll

Why I think Higher Education should experiment with an incubator model

In Canada the rise of the incubator choices is quite noticeable. The success of the Y-Combinator (YC) model is hard to ignore, it seems to be the accepted way to grow young tech companies at the moment. However, it isn’t clear if the model works anywhere but YC and TechStars, these programs cost a lot of money to run so does the math hold up for everyone?

How many companies make it a big enough exit (assuming you need a $30 million exit per incubator) and in what time frame? In Canada there is a trend that shows some crazy growth in exits but how many are in that ‘big enough’ range or more that haven’t been around for 5-10 years or more? I think one maybe two. It isn’t just Canada though, how many exists are there in a year for any tech startup anywhere? Likely not enough to sustain the current number of incubators globally.

The talent pool is half empty

The limits on size, depth, and overall health of the talent pool is a problem for incubators if you assume that they simply tap the current talent base and help them be successful faster. If the number of exits isn’t currently there then you have to look at ratio of incubators to exits and figure out how many companies it takes to fill the gap (what is the current market and what do you have to create? Yup, it is basically a product you are creating). At a guess, the current level of incubators needs to create a lot of brand new entrepreneurs from those that would normally go work for someone.

There is talent out there but they aren’t being developed in any sort of formal educational process. A VC backed/run incubator might not be the best place for young guys and gals to receive this education for the first time. Not saying it couldn’t work, I think Y-Combinator was initially successful not because of the money or location but because an educator runs the program. In 2008, Mashable was claiming that “Y Combinator is the premier university of Internet startups.” I agree. What motivates YC though? Paul Graham’s comment on my post in StartupNorth offers a bit of insight as well (also with a bit more on why in his Why YC post).

When we started YC, the returns seemed completely unpredictable. (They still do actually.) What allowed us to do it was that we didn’t care if we made money.

An incubator that is about educated the ‘student’ is a lot like higher education and should not be about profit. That might be a values based statement but it is something I believe. If you are measured by the success of the student and not by the profit margin, the student has a better chance at success.

Herein lies the opportunity for Higher Education. Not unlike engineers or scientists, there is a demand for entrepreneurs (or if you are Richard Branson you want intrapreneurs). It isn’t good enough that students have the technical chops, they need to be creative and look at solutions to problems in a way that is willing to take more risks. This is soft skill development we are talking about — you can’t engineer an entrepreneurial process. Being entrepreneurial pretty much requires you laugh at the limitations or restrictions and find a way to succeed. You can engineer an education process that offers some perspective on that but that requires some entrepreneurial thinking to design and implement.

Higher Education needs to look outside of courses and modules, entrepreneurs shouldn’t be measured

Traditionally to address a skills gap in a student a course would be created and the student would receive a credit. This just increases the cost of education for students and if you have been paying attention, there is a bit of higher education bubble according to Peter Thiel. What I have seen from students is that they absolutely are against another course that is outside their specific discipline for various reasons. Enter the incubator model in higher education (or in VeloCity’s case the dormcubator).

Create an environment where innovation, networking, competition, and experience is shared as well as celebrated. Create it  outside of the traditional academic course model. Support it institutionally so the quality and knowledge is passed on (doesn’t disappear when students graduate). Then try to connect it back into the classroom. Leverage institutional Alumni networks for mentors and other forms of support. Don’t be afraid to fail a few times.

There is no set way to execute on this model but you need to try, iterate, and keep going. My belief that in order for higher education to remain relevant it needs to experiment with these different ways of learning. Students will not only appreciate it, I bet they will have a better experience and years later the institution will benefit by having them re-engaged.

Footnote: the incubator model

For those unfamiliar with an incubator or accelerator model, the easiest way to explain it: an incubator is where a group or individual provides resources (money, mentorship, space to work, expert services, a network of people) to an early stage company in exchange for equity or another arrangement. Generally it is always equity but in Canada we have publicly backed models (the Accelerator Centre for example) that charge rent for services or in the case of VeloCity you pay what you pay anyway to live in residence and it is a service offered to students.

The entire explanation of the VeloCity model is another post.

More on incubator in Higher Ed: To Be or Not To Be: University Incubators