Today I attended The Founder Showcase.

There are a tremendous number of companies looking for access in the space of early ventures. It is hard to compete against all the din.

This year’s Founder Showcase included a few dozen interesting companies at the booths. So it is not strange how even a very sophisticated and advanced companies can get overlooked.

So, what do venture capitalists look for?

Each level of the selection process for a startup is brutal in its selectivity and uses a different filter. The filter applied at the Founder Showcase was one of popularity. This induces biases that businesses and investors wouldn’t have.

One  start-up, Quarrio, was the only company using AI to solve a hard problem – one of making data in tables accessible using plain English. It is a usable and complete product relative to others at the showcase. It was filtered out of the pitch competition.

The pitch competition included a selected few companies:

• Makerblok: Making educational electronics for children.
• Ampl: A bag that can charge all your devices so that you don’t have to worry about charging each device. Is cool but is too heavy.
• Theo: MLS quality data (much more accurate in price compared to Redfin). Also there is an argument that there are many features/amenities that Real Estate agents desire.
• keepe: This is a startup based in Seattle offering handyman services guaranteed in 1 hour.
• Trato: This company serves up customizable legal documents to make it easier for the masses to do business.

The members of the VC panel are listed here.

On the Problem: VCs generally want to know how much pain is there in the problem. Who faces the pain and how much the solution removes the pain. How big the market is. 

Solution: They need to know how the startup solves the problem. How credible the solution is. If there is a technical moat around the solution. Sometimes the moat is market share. If so the biggest advantage is swift execution.

Scaleability: Building connections one at a time is hard. There has to be a plan to reach people quickly. There is a lot of noise around. There should be a plan to get the business past the noise.

Capital intensity: The question here is how much money needs to be invested in the solution before it starts cash flowing. High capital requirements increase the risk.

Team: Investors look for teams when investing. Teams increase stability and credibility. A team with a background in their field of expertise is more likely to create a moat of competence. Similarly a team that has worked together for a long time is likely to work well.

Generosity: Kickstarter is another example of a generous startup that has succeeded by making many other people succeed.

A life-sciences called Suntowater was voted the best in this Founder Showcase event overwhelmingly by both the crowd and the judges. It solves the problem of clean drinking water from the humidity in the air using electricity generated by a solar panel. This innovation is considered generous because it is most useful to the underdeveloped world.

The general recipe for a successful startup is to relate to people, then promise a great future and connect the dots.

Chamath Palihapitiya, Founder of The Social+Capital Partnership, had great insights to share about the makeup of a wildly successful startup in the future. One source of information is the trend in the tastemaker in society.

In an earlier era individuals and companies paid a lot to get attention from consumers through selection by the tastemaker: companies such as AOL who rented their landing page for millions or radio stations that chose the music to be played.

Now the mechanism of taste selection has become “likes” on Facebook where everyone has a say. The downside of this mechanism is the noise. Facebook is likely to face creative destruction as the pendulum swings.

Chamath thinks that the next generation of companies will have multiple lightly curated channels either selected by humans or by algorithms. An example is Patrion, where people support the art they like, similar to Italy during the Renaissance.

Fixing education is an interesting problem. Linda frames education as a way of learning skills. This is more enlightened than the idea of education for its own sake. Startups that solve a problem can expect better reception.

In the past software giants like Microsoft and Oracle were dominant.

There has been a shift towards SaaS.

The next shift is expected to be towards outcomes as a service such as Uber.

For the investors, Warren Buffets letter to shareholders says that he sat on money for over 1/3rd of the time.

Chamath expects a funding hiccup in 2-3 years. Many companies are raising a lot of money in the current bubble. The easy money has to end at some point. 

Companies that don’t have a sufficiently good product to market fit will suffer. But it’s mostly their employees who have given up pay to get stock options who will lose big.

Chamath’s advice to entrepreneurs is to raise money when the going is good and sit on it till the company figures out a good product to market fit.

Did you know that Peter Diamandis didn’t have 10M$ when he announced the 10M$ prize? Nobody asked about the money since he cleared the line of credibility. He had astronauts and the NASA chairman beside him when he made the announcement. Strangely, the winning team spent about 30M$ to earn the prize.

So, where did the money come from?

Peter approached about 150 people who declined to fund the prize. That is a lot of rejection!

Richard Branson declined to fund twice. After a lot of insecure moments, they found that there is insurance against unlikely events that could cover this event.

A private company going to space was considered unlikely, so he was offered a $3M premium to insure against the outcome. He negotiated it down to a 50k/month premium. Then it was a question of finding people who would support the bet on a monthly basis.  This spreads the pain out, but it lasted for ever.

Richard Branson marched in weeks before the prize was won with an offer of $250m to commercialize the winning tech so that he could have his picture taken with the winners.

… and that is how Venture Capital works.

Image credit: Alpha Sangha

It’s impressive when a market set to double from roughly $4+ billion to $8+ billion by 2019 doesn’t really solve the problem it claims to solve.

Huh?

The market is collaboration software and, based on new research, it only works for half the problem.

Unfortunately, it turns out that inducing more collaboration may hinder the most important part of problem-solving: actually solving the problem. While connecting employees does increase the ability to gather facts during the early stages of tackling a problem, it also inhibits the ability to analyze those facts and find a solution.

The 21^st Century approach that’s been pushed by academics and the collaboration industry has been supported only by research done separately on the two halves.

Solving any problem requires two distinct steps,

1. Collecting data
2. Analyzing and using the data.

The first responds well to collaboration; a variety of people with different experiences and world-views are less likely to homogenize their information-gathering.

… the most-clustered groups gathered 5 percent more information than the least-clustered groups…

However, the gain didn’t carry over to a solution.

Clustering also seemed to inhibit the breadth and number of answers that the players proposed. The least-connected networks came up with 17.5 percent more theories and solutions than did the most-connected networks.

17.5% is a significant number — especially when it’s your organization.

Collaboration is a marvelous tool, but it’s not a silver bullet.

As with most good tools it needs to be used where and when it works.

Flickr image credit: Ron Mader

Last Thursday we looked at the importance of using your culture as a screening tool to be sure the people hired are, at the least, synergistic with it.

Note that being culturally synergistic has nothing to do with either age or gender.

Friday warned against confusing perks with culture.

But with culture, what you see may not be what you get.

More important than the company’s overall culture is the culture that develops under any given manager, based on individual MAP, and the individual’s management approach.

To ensure a successful hire the culture and management style described must actually exist as opposed to an idealized or misleading version created for interviews.

Strange as it sounds, managers often describe their style more as it ought to be, i.e., what they think it is or what they think the candidate wants to hear.

Obviously, managers aren’t about to tell candidates that they micromanage or don’t believe in helping their people grow, because they might leave.

But today’s workforce is the savviest in history.

Mix that savvy with the uncontrolled and unfiltered information provided by social media and you have a situation that demands authenticity and honesty.

At the least, it requires sins of omission.

Lies, AKA, sins of commission, such as describing the opposite — a boss who encourages growth, provides complete information, then gets out of the way, etc. — as reality pretty much guarantees a turned-down offer or fast turnover — in other words, an unsuccessful hire.

And in case you’ve forgotten exactly what a successful hire is, it’s hiring the right person into the right position at the right time and for the right reasons.

Flickr image credit: Susanne Nilsson

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Back in the early 1980s when there were no cellphones, no email, no WWW and Apple was the hot young company with the great perks a friend of mine interviewed with them.

She was a very talented programmer and Apple wanted her badly.

When I asked her how it went she said it was the dumbest interview she had ever had.

All the manager talked about was how “cool it was to work there” and “the great perks, like the group’s own foosball table” and how much money she would make her and on and on about the stock.

While all that was true, what the manager didn’t spend much time on was the work itself, what she would do, what she could learn, what value she brought and what her career path might look like.

In other words, she was looking for substance and the manager spent almost the entire interview on fluff.

She said he was very surprised when she turned down the offer.

I know it wasn’t that she was female, because I knew many guys who had similar interviews.

And it wasn’t just that manager.

It happened over and over because the perks and stock were constantly spotlighted in the media, like Google and Facebook today, although Apple is the granddaddy of cool perks culture, and the people who worked there couldn’t believe anyone would turn down a chance to join.

The lesson here is that focusing an interview on what the media (real and social) finds noteworthy is not necessarily what attracts people and may cost you real talent.

Image credit: HikingArtist

Years ago, Neil Senturia, CEO of Black Bird Ventures posted his thoughts about CEOs, hiring and culture.

“Building a team is the key to creating a successful start up—picking the people who will fit into the culture. The CEO’s most important job is hiring well and being the visionary and model for the culture that you want in your company. There are great players but what wins Super Bowls are great teams.’

While everyone talks about building teams, the importance of teams, etc., bosses continue to hire skill sets without enough thought or rationalizing as to whether the candidates possessing them fit the culture.

It often takes the threat of a team revolt to force them to pass on candidates with great skills who obviously don’t fit.

Culture is high enough on the radar now that most entrepreneurs know that the wrong hire can derail their culture, but they still have a problem passing on badly needed skills.

It still takes guts to make the correct decision for the long-term in a world that runs on short-term.

It’s never an easy choice, but it is one that will pay off for years to come.

I wrote Don’t Hire Turkeys! Use Your Culture as an Attraction, Screening, and Retention Tool and Turkey-Proof Your Company 15 years ago and it’s just as true today as it was then.

Your culture is the sieve through which all people should pass—without contortions or rationalizations—preferably aligned with and passionate about it, but at the very least synergistic.

The keynotes of a culture are:

• Consciously developed – Cultures happen with or without thought. Those that just happen are the easiest to twist and manipulate.
• Flexible – Just as trees bend in strong winds and buildings are designed to sway in an earthquake, so you want to build your culture to withstand pivots, economic storms and the winds of change.
• Scalable – To grow as the company grows requires a deep understanding of the values that are cultural bedrock vs. trim and accessories.
• Sustainable – Although originally stemming from the CEO, at some point the culture must become the property of the employees if they’re going to support it.

None of this predicts what the culture will actually be, that’s a function of the CEO’s values and MAP (mindset, attitude, philosophy)™.

The important point here is to hire with your eyes wide open, so you don’t end up with a round peg trashing your square hole.

I often claim the label of Luddite and am know to my friends as a digital dinosaur (I spent the weekend upgrading from Office 2003 to 2007).

I’m not a lover of the Internet of Things, because I believe anything/everything can be hacked. (If you have evidence to the contrary, please share).

To me, the idea of hackable self-driving cars is a nightmare and drones make me cringe.

Obviously, I’m not the only one who feels this way.

It seems my revulsion is shared by my distant cousins.

However, if I react the same way I would probably be sued and possibly jailed.

The problem, of course, is that technology is light years ahead of society, not only on a moral/ethical level, but on a consideration of consequences — of which there seems to be none.

Video credit: Bergers’ Zoo

After spending six hours on the phone with tech support and doing everything else in the other four I realized I had no energy to write something intelligent, let alone engaging.

Which is OK, because I have 20 intelligent, engaging posts to share, whether you agree with them or not.

So without more ado, welcome to the May 2015 edition of the Leadership Development Carnival focused on Leading Yourself.

Enjoy!

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Years ago I wrote a post for a leadership blog about coping and based on the questions I’m hearing and the discussions I’m involved in it’s time to re-post it.

“Life is not what it’s supposed to be. It’s what it is. The way you cope with it is what makes the difference.”
–Virginia Satir

Smart lady, Virginia.

That thought, or any variation thereof, is probably the single most important concept people need to wrap their heads around.

Neither vehement denial nor passionate pleas will change what is; what matters is what you choose to do.

Positional leaders and those who claim the leadership label are often more into pleas and denial than they are into coping.

Understandable, since it’s much easier to rail or whine than to get off the proverbial ass and do something.

But that is exactly what leading requires and leading yourself is the most important leadership job you will ever have, because if you can’t lead yourself you will never have the opportunity to lead others.

Coping isn’t about playing ostrich or ignoring something and hoping it will go away.

Coping doesn’t involve ideology and rhetoric.

Coping doesn’t always mean solving the problem or overcoming the challenge.

Coping isn’t about being a hero or going it alone.

Coping rarely yields a perfect or even a complete fix.

While founders are less into obvious pleas and denial, they tend instead to superhuman efforts and projecting a ‘we can overcome anything’ persona.

They would do better to embrace the final description of what coping truly is.

Coping means facing whatever it is head on, recognizing it in its entirety, figuring out how best to deal with it, and then doing what needs to be done—all while accepting the reality and limitations of what is possible.

Image credit: HikingArtist