Archive for the ‘Entrepreneur Essentials’ Category

How to Build a Global Center of Innovation Excellence in Salzburg, Austria

Pascal Levensohn Salzburg

 

 

 

 

 

 

 

 (c) Blowup Salzburg / Fachhochschule Salzburg

I recently joined the Advisory Board to Gerhard Blechinger, the Rector of the FachHochschule Salzburg, (the Salzburg University of Applied Sciences) and became a guest lecturer on Entrepreneurship at the University.  My inaugural keynote lecture focused on the challenges and opportunities for Salzburg to become a global center of innovation excellence.  To succeed in this ambitious initiative, the academic, business, and entrepreneur communities will need to collaborate closely.  In my view this commitment to collaborate is in place. I also believe that the greatest challenge for the region will be overcoming cultural biases that punish risk-taking and are intolerant of failure in the process of building new companies…

Below are selections from my formal remarks:

“… While many countries have accelerated their national research and development investments and funded national venture capital ecosystem development programs, there is still no proxy for the scale that has been achieved in the US, particularly in Silicon Valley itself.

The challenge that many regions face in seeking to become innovation centers of excellence can be summed up in one sentence:

Good ideas are generated from all corners of the earth, but few regions offer a complete and cost-effective ecosystem to develop these good ideas into great companies.

Why is this the case?

Silicon Valley has proven its fertility in giving birth to world changing technologies over many decades; its inspiration to the entire world has grown exponentially over the past 20 years because the Internet has empowered millions of previously unconnected individuals to collaborate, enabling information about anything to be shared globally and discussed in real time through audio and video conferencing on an unprecedented scale and at extremely low cost.

But it is not enough to simply have technology tools and risk capital in hand to build a sustainable innovation ecosystem.

For Salzburg to succeed as an innovation hub, it is essential for local private sector business leaders to make a long-term, active, and visible commitment to be active partners in this process.

How can Fachhochshule Salzburg act to further catalyze and contribute to a complete and cost-effective ecosystem for innovation?

How can the Salzburg community come together to nurture ideas into startups and see these startups grow into globally relevant companies?

How can we transform the Salzburg region’s traditional rural economy into a knowledge based, innovative business community?

First, we need to differentiate between whether Salzburg should prioritize the funding of entrepreneurs who are pursuing breakthrough innovation as opposed to incremental innovation. Pursuing breakthrough innovation can lead an emerging company to global scale more quickly, whereas incremental innovation leaves a resource-constrained startup vulnerable to both entrenched and emerging competition, especially in a regional innovation center.

Many entrepreneurs confuse what may be an exciting idea that is only a feature with a truly innovative concept that can become a standalone company. For example, today, designing a smartphone App that alerts you when you have lost your car keys isn’t a viable standalone company; today, a service-based local software solution to manage ecommerce for brick and mortar companies, even if it is profitable, is not an interesting technology investment.

In contrast, consider a patented, proprietary software platform that verifies whether goods are authentic or counterfeit. When that solution combines low-cost, unique labels that are a fraction of the cost of all other solutions, and uses an App on your smartphone to interact with your customers in a manner that has previously been considered impossible, that is an example of an innovative company. Not only does that company exist, it is Salzburg’s own Authentic Vision—and you will hear more from co-founder Thomas Weiss later this evening when he tells you about his journey as a Salzburg entrepreneur.

… Because of Silicon Valley’s large private risk capital pools and attractive startup ecosystem, many startups based on incremental innovation have flourished, but the long-term survivors, now industry leaders, remain few in number—this is a widespread reality in the world of technology: think of the semiconductor industry’s implosion since the 1980’s; the browser, search engine, and ecommerce wars of the late ‘90’s; and the social media wars of the 2000’s—giants have emerged, but many more players have fallen on the battlefield. Let’s not forget that Microsoft had a huge monopoly in operating systems in the 90’s. Apple’s iOS & Google’s Android emerged, challenged, and overtook operating system dominance in the space of a few short years.

In America, Silicon Valley’s cycles of creative destruction and renewal continuously spawn many new challengers– by funding multiple startups that compete relentlessly until they reach dominant self-sustainability, acquisition by a competitor, or bankruptcy. This has not occurred without excess and without some years recording staggering losses.

But the fundamental concept that entrepreneurs have the freedom to fail, and that, if they are worthy, the resources are out there to support them to try again, is at the core of the culture of entrepreneurial success that defines Silicon Valley.

Ideally, innovative startups should be built on ideas that face little or no competition—and this is one of Peter Thiel’s key messages to entrepreneurs who want their startups to be “born global”. Peter Thiel was born in Germany, co-founded PayPal and Palantir, and is one of the most successful venture investors in the world through his Founders Fund. He published the book Zero to One in 2014 . In this book Thiel urges entrepreneurs to pursue only breakthrough innovation: “don’t compete, truly innovate—competition sucks your profits away—find a way to have a monopoly.”

Thiel’s core thesis to get from zero to one is all about breaking through and doing something really new, and he encourages starting on a small scale: “Start small and monopolize.Once you create and dominate a niche market, then you should gradually expand into related and slightly broader markets.”

With this in mind, and of direct relevance to Salzburg’s entrepreneurial initiative, I will now point out several of the most important elements for establishing a successful center for global excellence in innovation and assess their viability in Salzburg:

Defining a Global Center

To be more than moderately successful today, any startup’s potential must be considered on a global scale from its inception. This means that all entrepreneurs must be aware of competing global technologies and try not to step directly in their paths— I have visited entrepreneurs from Finland to Shanghai to Santiago who are simply not doing the work required to be aware of the best in class technologies, of their competitors at other startups, and they don’t really know how to find out what is happening in Silicon Valley.

Silicon Valley Special

In closing, I would like to highlight how we believe that Salzburg can be transformed into a vibrant global center of innovation excellence. Salzburg is blessed with several key elements that are necessary preconditions for a global innovation center of excellence to emerge …

I do see challenges with respect to overcoming some of the cultural barriers to an entrepreneurial culture—specifically in developing and nurturing a cultural understanding and tolerance for entrepreneurial failure. But at the same time I am convinced that there is a real opportunity for global collaboration, supported in partnership with leading international corporations from the Salzburg business community, that can attract the best and the brightest entrepreneurs to FH Salzburg.”

Salzburg Advantages

New Video: Key Startup Investing Risks for Friends, Family, and Angel Investors

Establishing a mutual understanding between investors and entrepreneurs as to what each expects from the other is essential to a harmonious beginning for a new venture.

The future is likely to be challenging;  if entrepreneurs expect to be able to count on additional support from their friends, family, and Angel investors, several key risks that must be addressed in advance.  This video focuses on four of those fundamental risks:

(1) A startup’s high probability of failure;

(2) The mathematics of dilution;

(3) The tendency to misunderstand a company’s stage of development and, therefore, its capital needs;

(4) Understanding the risks associated with investing good money after bad and knowing when to call it quits.

Some important statistics:

In 2012, the average amount of seed or angel capital raised per company was $880,000 (Source: Pitchbook)

61% of seed-funded companies will not be able to obtain follow-on funding (Source: CB Insights)

Those seedlings that won’t find capital will be the victims of the so-called Series A Crunch

While seed investments increased by 64% in 2012, Series A investments declined by 2%. This defines a supply/demand imbalance exists between institutional VC capital and the ‘Seed Crowd’ .

It is a tribute to America’s innovation culture that, while most startups fail, we are currently experiencing such a boom in seed financing in the United States. Institutional venture capital is not increasing; on the contrary, the industry continues to consolidate by firm and is declining in total.

Being aware of the risks inherent to startup investing and having a clear understanding of the basic parameters of dilution mathematics should be helpful to investors and entrepreneurs alike.  If you are an entrepreneur, this video may be very helpful to you so that you can explain these risks to your investors.  If you are an investor in very early stage companies, this video provides useful perspective on risk and portfolio management.

This video is Chapter 2 of the Entrepreneur Essentials Video Series.

How to Break the Familiar Pattern of Board Dysfunction in a Startup

After watching Board Dysfunction: Root Causes and Solutions, an experienced CEO told me that the video succinctly identifies and summarizes issues that are intuitively clear but often overlooked in practice. Experienced investors know that successful investing often employs pattern recognition. But when it comes to boards of directors, the unfortunate recurring pattern that is familiar to many experienced directors raises red flags about dysfunction. This is particularly acute for startups because most startups have inexperienced board members, and usually the least experienced directors come from the management team. This problem is compounded in the earlier stages of a company’s development because inexperienced co-founders often make common mistakes that could be avoided. Left unchecked, such errors in board management, board configuration, and in board process can cripple a company’s future growth path.

If you are an entrepreneur involved with your first startup, a venture capitalist who wants to educate management on acceptable and unacceptable board behavior, or an independent director new to small company board dynamics, this video should be helpful to you. The video combines PowerPoint slides with specific anecdotes to illustrate frequent errors made by inexperienced boards. The content also highlights typs of behavior that are unacceptable and that should raise concerns among all directors.

It’s easy to say that directors need to communicate more frequently and openly.  But how do you accomplish that? How do you hold directors accountable to each other? The video outlines process tools that are readily available to boards and that can help solve problems. Ironically, viewers may watch this and feel that a number of the points raised are intuitively clear. That is actually the point of this work– most of the time, the people in the room know what’s wrong, they feel it, but they either don’t feel comfortable articulating the problem or can’t easily implement the solution. By watching this video with your peer directors, you can now raise issues that are already in your mind but have not been comfortably stated out in the open.

Please consider this video to be a management tool. It is for investors and entrepreneurs alike, with a focus on the perspective of the entrepreneur.