Who You Calling a Jesse?

Accelerator Metrics and Developing Entrepreneurial Talent

I spent a little time at StartupWeekendHamilton3 in April as a mentor and was talking to one young founder that proclaimed that there was one great accelerator in Canada. Who he said it was surprised me a little and got me thinking, what makes an accelerator “the best” and why should an eager founder care? The baseline in my mind is Y-Combinator. No one can argue it is the best seed stage accelerator based on its results. What is difficult for everyone to agree upon is what does it do to achieve those results or even harder, what defines success?

In my opinion the key things it does:

• Social Capital via Paul Graham – how he teaches founders and the hacker culture he has built provides entrepreneurs with access to the very best social capital that exists for anyone starting a technology based company.
• Peer mentorship – the structure of the 12 weeks enables peers to hold each other accountable. This competition amongst comrades is powerful as it turns around the human nature of playing to our own strengths and pushes founders to “keep up with the Jones’s.”
• Hungry founders – funding is minimal. After a bit of a bump it has since been decreased and I would bet if you look at the successes out of YC the biggest ones started off with the least amount of financial resources.

There is some striking similarity to what YC does and the thinking/observations behind the Goldmine Effect by Rasmus Ankerson (watch it, it is interesting). The basic point is that if you can find the talent that has the potential vs the talent that already been refined you will get a better result. Money and facilities do not make a difference, identifying underdeveloped talent does. I think there are three core factors that go into determining the quality of a given program.

• Where is the program located? Are there companies in the immediate area just a stage or two ahead that can help you grow?
• Who is backing the program and what did they invest to make it happen? Do they get involved in the companies they invest in or do they “spray and pray” with their investment?
• What type of companies have been successful in the accelerator in the past? Who gets funding afterwards? Are the B2B or B2C, SaaS or something else, etc.

What is less important:

• Demo Day: The rock show nature of Demo Days is not a good environment for investors but you need to take advantage of the intros and the social capital on offer to build those connects yourself.
• Money: Funding amounts from the accelerator should not influence your decision to go there. Good companies will get funding, build a good company and spend as little as possible doing it.
• Mentor walls: In Canada there is a relatively small pool of people with both time and capital but there are a lot of people that can help you move the needle in different ways.

Right away some might say that the above “less important” items are what builds momentum and if you look at the YC companies momentum being 3x that of TechStars then how can I say that is less important? These things have the greatest effect after the startup object is already in motion, in my opinion. The less important items are used all too often as *the* way to get the startup object moving.

A simple score card to find out who’s best for you

If a score card was set up to measure a program it should look something like this:

• The program is located near companies that I am interested in working with
  • 1 – none that I know of
  • 3 – some interesting founders
  • 5 – who we would exit to and/our would like on our advisory board are within walking distance
• Investors in successful companies that have been in the program are
  • 1 – Not involved in investments
  • 3 – one of 12 investors in the companies that graduate
  • 5 – take a board seat and/or a significant position in the financing round following completion of the program.
• Companies that have been successful in the program in the past are
  • 1 – nothing like us, we are B2B SaaS and all the successful companies are gaming companies
  • 3 – some are similar to us, there is no particular pattern to the type of company
  • 5 – just like us, we are a hardware company and everyone that has done well post-program are hardware companies
• Funding we receive from the accelerator program is enough to
  • 1 – we can go 6-12 months no problem, its great to not have to raise or find revenue right away
  • 3 – it is ok but in 6 months if we don’t have revenue or financing we are done.
  • 5 – we can pay rent while in the program but we have to move and stay lean to survive.

This is by no means research quality metrics but it does start to assign some way to weight rankings… for you. If I was going to score YC I would give them a 5, 3, 4, and 5 which would total at 17/20.

What else should be on this scorecard?

The “Accelerator Bubble” will pop but not for the reason you think it will

The incubator/accelerator market has a growing number of people watching and waiting for it’s bubble to pop. The reasons sighted for this looming pop should be obvious: most accelerators aren’t going to perform as well as some TechStars (TS) programs and not even close to Y-Combinator (YC). Poor performance (measured in the number of short-term wins) along with the short-term nature of the funding behind most of the accelerator programs will cause them to run out of money and simply fade into startup history. But that won’t pop the bubble.

As accelerators have become an increasingly popular way to scatter seed funding among a large number of companies, critics have noted two key developments: Companies of lesser promise are gaining acceptance, and often funding, and the quality of mentoring in the programs has decreased.

When David Tisch, former managing director of TechStars’ New York City accelerator, stepped down from his role with the program, he complained in an interview that “the majority of accelerators are not good for companies.” - http://www.businessweek.com/articles/2013-03-14/waiting-for-the-accelerator-bubble-to-pop

I think the bubble pops when the application numbers and quality of the people applying drops. That will happen when people no longer feel they need what accelerators offer. The leading indicator will be poor performance of the companies coming out of the program, which is likely a result of the poor quality of entrepreneurs in the program. 

The Angel and VC community reacted to YC’s early success and latched on to the TechStars model that was viewed as a copy of Paul Graham’s YC model but open (there are only two models for success). This experimentation with the TechStars worked in terms of building a big lead list of early stage companies and “founders to watch” that have a baseline education and network. Education is something investors used to have to do on their own for their early stage investments, the TechStars model allows investors a way of scaling that early stage knowledge transfer.

The problem with it is that everyone copied the 12-week TechStars model and didn’t look at what brought Y-Combinator it’s early success. It isn’t the DemoDay or the great list of mentors. It is the education process (which includes holding people accountable) that built the success and now the alumni network that is allowing it to scale to a point.

When looking at the demand (indicated by the ever growing pile of applications), it isn’t just fuelled by the popularity of tech startups and the sexiness of the moment. The demand for accelerator programs is fed by a gap in the services or product that is currently offered in the education system – globally. As building companies that require highly skilled and educated employees has become ‘easier’ the higher education system that was optimized to train PhD candidates hasn’t adjusted to the new reality.

The education industry gets this and it has been learning how it can meet the need. There are a lot of experiments out there in higher education that have a long history but more recently the focus on experiential learning has seen the accelerator model meet education. The common place to find them spreading in higher education globally is to google “Venture Lab” and skip passed the .ca reference. There 25+ of them across the globe and growing.

The first generation of programs are a few years along and the next generation of programs is emerging. There is a range from innovation and entrepreneur streams in undergraduate and graduate programs to full blown programs that are accelerator-like but heavily integrated into the educational experience of students. There are still a lot of unknowns to be worked out but it is clear to me that the education system is better positioned to educate students and will eventually make most accelerator programs obsolete.

These programs will exist at every school and if they are done right at a few key schools the applicant pool will degrade for expensive accelerators.

Startup “ecosystems” in Canada are doing well but…

The Startup Genome released another report mapping top startup cities but this time a bit more specific than it’s heat map from April of this year. Canada did well depending on how you interpret it with Toronto at #8, Vancouver at #9, and Waterloo at #16. In its previous report, Startup Genome ranked Toronto at #4, Vancouver at #16, and Montreal made the list at #25. Oddly Waterloo wasn’t listed in the previous ranking but made it into the top 20 in the new report while Montreal remained outside of it.

Focusing on my Ontario centric nitpick – the separation of the Toronto and Waterloo “ecosystems” when they are anything but separate is not going to give an accurate picture of Canada’s awesome startup communities. They are unique communities but their strength comes from how they work together in the same ecosystem. The emotional energy (and money) burned in defining how they are different is holding Canada back from an even better and sustainable growth curve. A symptom of that energy is in the report.

In Toronto’s profile:

“Toronto competes for startups with regional competitors such as NYC, Boston and nearby Waterloo.”

Then in the Waterloo profile:

“In the near future, it will be interesting to see whether Waterloo is able to hold on to its talent base or whether it will be sucked into Toronto.”

Would you say that about Palo Alto sucking talent to San Francisco and vice versa? No. It’s the valley. A huge area that is far more developed but very similar to Toronto – Hamilton – Waterloo. The problem, I think, is that at some point in the past when local economic development groups were competing on a similar scale for tax dollars (and manufacturing plants) they narrowly defined regions (Golden Triangle, Golden Horseshoe, etc) where everything above the escarpment is barbarians and the urban modern folk live below next to the cold blue lake.

There can be (and there are) healthy communities inside the larger Toronto – Hamilton – Waterloo ecosystem. Every success in the larger ecosystem helps the entire ecosystem and they also share the same problems.

The reported big problem the ecosystem faces (in Toronto):

Startups in Toronto receive 71% less funding than SV startups. The capital deficiency exists both before and after product market fit. Toronto startups receive 70% less capital in Stage 2 (Validation) and 65% in Stage 4 (Scale).

The ecosystem most likely lacks a sufficient quantity of all kinds of startup capital sources: angels, super angels, accelerators, micro VCs, VCs etc. As a result Toronto startups rely more on self-funding, or rounds from family/friends.

The reported other big problem (in Waterloo):

Waterloo has a funding gap (96% less in the second stage) for early stage startups before product market fit, probably due to a lack of super angels and micro VCs. There are high numbers of accelerators and much lower numbers of super angels and VCs than SV.

Solving the funding problem in Toronto also solves the problem in Waterloo. The more companies that are able to find the money and the talent to scale in either or both communities helps both or am I missing something?

Building a strong economy, community, and ecosystem isn’t a zero sum game.

The transit isolation of Waterloo Region

The Waterloo Region (Guelph too) have had huge gains economically and in population in the last 20 years but it is still a region relatively isolated from the main economic driver of the province, Toronto. I think this isolation has allowed the region to build it’s own identity but as the 401 becomes slower and slower the option for two income families to stay in the region will no longer exist.

The lack of viable commuter options to and from the Waterloo Region also discourages people that enjoy being connected to and more likely live in the increasingly vibrant and young downtown (labeled Creative Class but if you don’t like the label, I think it is the next generation of professional people/families) core of a city like Toronto. Those people are of the professional class companies in the Region desperately need to keep being successful or even grow past the startup stage. This isolation limits the success of the region and I would go so far as to say provides an opportunity for Hamilton to be the place to start and grow a company (and a family) over the longer term (20 years or so) where there are constantly improving and robust transit system (and easy access to Buffalo airport).

Public transit is a big issue to some in Canada at the moment. Rail is just a part of it but the rail system mess in Waterloo Region is a symptom of the larger problem. Something as simple as reliable, cost effective, frequent, and fast (same time as driving or better) should not be that difficult given it exists in Brantford.

The rail system that isn’t as good as Brantford

The communities of Waterloo Region and Brantford + Brant County offer a fairly good comparison:

• Waterloo Region is roughly a 110 km drive to downtown Toronto, Google maps says it is a 1hr 24min drive but I don’t know a time during daylight hours that it is possible in under 2 hrs.
  • Population of the Waterloo Region is closing on 520k
• Brantford is roughly a 105 km drive to downtown Toronto, Google maps says it is a 1hr 20min drive
  • Population of Brant County + Brantford is roughly 130k

These two places are basically the same distance with the big difference being Waterloo Region’s economy and population. Both are West of Toronto and Brantford sits in the bottom left corner of a map between Waterloo Region and Hamilton Region. Related is this research on Canada and how suburban it is, very cool maps and information to gain some perspective. When we look at rail access to Toronto though there are huge differences.

For example, Monday November 12th, 2012 as the travel date:

Waterloo

• VIA Rail’s trains take 1hr 40min
  • leave at 9am
  • return trip leaves Toronto at 5:40pm
  • Commuter pass works out to just under $30 a round trip
• GO train takes 2 hrs <- 2 HOURS!
  • leaves KW at 5:50am and 7am
  • return trip leaves Toronto at 4:45 and 5:45 pm (so no evening events for you!)
  • just under $30 a round trip

Brantford

• VIA Rail’s trains take 1hr 10min
  • leave at 7:30am and 8:50am
  • return trip leaves Toronto at 4:30, 5:30, 6:30, or 7pm
  • Commuter pass works out to just over $30 a round trip
• No GO service

To cover roughly the same amount of ground takes 30 min longer from Waterloo Region. Round trip that is 1hr more out of your day but VIA has recently cancelled the commuter train from Waterloo Region along with the late train. They put GO train on their site as an alternative, it takes nearly an additional 30 min longer to get back on seats not designed for that length of time. That adds almost 2 hrs of commuting time in one day from Kitchener over Brantford which are the same distance to downtown Toronto by road!

Both places lack flexibility for commuters to the Region from the east and returning in the later evening if you were to just go in for a dinner/date night or need to come back later from work. The workaround for commuters in both Waterloo (63km drive, 1hr drive) and Brantford (46km drive, 30 min drive) is Aldershot Station ($16 return GO train ride). The difference in drive times makes it not much of an option for Waterloo folks unless it is a daily commute. There is no workaround for those going to the region of Waterloo from the east.

The 401 is an ever increasing mess and that isn’t going to change

It is no secret that Toronto has a traffic problem. Transit is starting to improve but even Toronto politicians seem incapable of planning for the future around transit despite the continued suburbanization of the city. This exacerbates the issue for Waterloo as it puts pressure on the professionals that are couples (or not) to choose downtown living or living near rail corridors in order to avoid the carmageddon on the highways. My bet is that Waterloo Region is not an option for most of them at the moment.

Waterloo needs to fix its growing islotion from Toronto (both downtown and Pearson airport) that will become an increasingly dire problem for economic growth. I don’t believe that the traffic problems in Toronto will drive employers out of the core of the city to the suburbs, I think it will move them to the core of another city that has an increasingly active airport, is closer to the border with the US (and Buffalo Airport), and tight transit corridor with Toronto – Hamilton.

The train issues shouldn’t be issues but they are because there is no political champion in Waterloo Region that seems to be legitimately concerned that it can take 3-6 hours out of someone’s day to pick someone up at the airport never mind go downtown Toronto for a meeting.

Step 1 is simple, get a train service that is at least on par with a small town just south of the region. The only people that can do it are our politicians, someone needs to show some leadership.

Managing perceptions and product at RIM like Apple did

A tweet by Peter Mansbridge brought a lot of people’s attention to an article entitled Steve Jobs’ Lesson for RIM: Power of Perceptions, Turnaround 101 which focuses a lot on how Steve Jobs changed the perception of Apple. That perception shift was driven a lot by product and it wasn’t the iPod that did it. It was the other product, the Mac computers and Apple’s ability to extend the life a dead OS that did it I think. Apple focused on revenue building and its ‘cult of mac’ first.

The problem Steve Jobs faced with their OS going from the OS 8/9 to X and where RIM is now feels very similar. Apple extended the life of a dead OS while it built the OS for its future (OS X) that gave Apple the flexibility to build the iPod, the iPhone, and beyond. Did Jobs manage perceptions but how he spoke about Apple? Sure, but he needed product to deliver on that promise that Apple is innovative and cool.

Managing the OS shift over years: Think Different

It is worth looking at Apple OS 8/9 to start as this is where the perception changed started. Compared to Windows 98, Apple OS seemed limited. There were few games, limited software available (mainly multimedia focused software), and these ugly beige boxes in its future. Building a new OS is hard though and Apple was out of money. They need to sell product in the interim. Since they couldn’t get an OS they changed the easier part, they went sorta experimental on the hardware. Bondi Blue iMacs, Power Mac (blue G3, graphite G4), Cubes (at the end of OS days), Clam Shell ibooks, Titanium bodied laptops. These experimental designs appealed to the multimedia creative crowd that used Apple for work. However, at first I think the designs were largely cosmetic but it didn’t matter. It was different.

This perception shift was product driven and brilliant. The faithful kept faith because there were constant updates and new ideas being offered to them. It was different, it was cool, it was worth that Apple premium on ‘top end’ hardware. I remember when I first opened the side of a Graphite G4 in 1998 when my Uni room mate got one. It was way cooler than anything I had seen before.

Then enter OS X.

**The 1998-2001 section in this Wikipedia article goes through the period before OS X which was basically the perception shift ‘heavy lifting’ period I think.

Lesson for RIM is 1998-2001 Apple

RIM is a mobile computing company with their BB OS 7 reaching end of life, they have devices that don’t capture the imagination (but who does at the moment?), and a hardcore group of users similar to the Apple fans of that transition period at Apple. In order to pull an Apple, I think RIM needs to capture people’s imagination with BB OS 7 now and slow down the talk on OS 10 outside of the dev community. Outside of devs I don’t think people care what OS it is anyway, they just want email and messaging.

With BB OS 10 coming soon it could do some things that I think would win over the fans:

• The latest Bold is a nice device, the Porche designed one is kinda cool. Do more of that but make it really inexpensive for people to get one.
• Offer those that get the latest Bold now the new BB OS 10 device in an exchange for $100 and offer app store credit of $100.
• Do something awesome with the NFC tech — help a loyalty program deploy it and offer some crazy promotion on Bolds, give a Bold to every person at the NFL season opener and have their tickets managed via NFC on the device, etc.

I am certain that if you get the right people in a room with a whiteboard for a week (they should be at the FELT lab every day!) they would come out with a few things that are possible to do relatively quickly and will excite the loyal fan base. It seems like Alec Saunders is building his team still so maybe that is where the magic is going to happen? Hope so.