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Entrepreneurship is hard. Tackling technical and business problems and building a business from the initial idea up, one step at a time is very difficult.
Starting from the idea, technology entrepreneurs make certain mistakes that make their lives even more difficult. These mistakes can be caused by the entrepreneur fixating on what she is comfortable with - people tend to stay in their comfort zones -, or misconceptions of what is valuable in business or maybe simply being a first time entrepreneur. As investors in early stage technology companies, we keep on seeing similar problems in different companies, which tells us that these are common mistakes, especially in emerging regions.
Below is a list of these mistakes which we have seen and which might eventually cause a business to fail or or an opportunity to be missed. It isn't intended to be exhaustive but rather indicative. Some of the mistakes listed are common to the nature of the technology entrepreneur, but some are the results of the state of the sector in emerging countries.
Mistake No 1: "We are a framework company and can do it all"
The idea of a framework company sounds attractive. Especially, in this region entrepreneurs tend to collect their expertise into a "framework" with no product or application definition. Having a framework that works can be very advantageous. However, the downside is the entrepreneur's indecisiveness on selecting a focal application that will act as the showcase for the power of the framework. Sometimes, because the entrepreneur lacks sufficient knowledge on a specific area or the "productization" knowledge and expertise, she tends to sell the framework - and that puts her in a very difficult play.
An example of a successful framework is what the Skype entrepreneurs had. They had a great peer-to-peer distribution application that they developed in a company prior to Kazaa. Later they used this framework in Kazaa. Afterwards, in Skype and now in Joost. Each one of these applications are products that rely on solving the hard peer-to-peer distribution problem.
In a startup, a showcase application and the usability, traction, revenue model of this application is very important in the proof-of-concept stage which will eventually turn to a profitable business.
In addition, honestly, it takes enormous money and effort to be a framework company. It doesn't happen overnight.
Mistake No 2: "Everyone will love this cool technology"
Fall in love with its technology and produce a product that nobody wants
Many entrepreneurs forget that few people buy a product or consumes a service because it is just a cool technology. Unless the end product or service is any use to many, the business can hardly scale to a size that makes you a significant company.
It is the product that matters not the technology in order to become a company that is significant. The technology is an enabler, a differentiator in the product. With technology you can deliver things that you weren't able to before. With technology, you can make it cheaper, faster, better,... But nobody buys the technology by itself, the buyers/ consumers don't even understand the underlying technology. They see the end results.
Mistake No 3: "I want to raise a lot of money so I can feel secure"
Raise too much money and Burn too much cash
Raising too much money is a killer. It actually makes a company die faster. I would say, raise small amounts, test if the bet is the right bet, if not learn and modify and revive. (It becomes harder to be profitable if not anything else)
Smart entrepreneurs debug and test what they think is true and verify with their market that their bet is actually true. They don't assume too much and try to build a huge business depending on their assumptions.
Mistake No 4: "We have the same features as X and more (X being the leader or worse a giant)"
Run after the Competition
Entrepreneurs, believing they have a technology that is much better than that of the big players, the usual suspects, try to adapt the features set of the competitors. That doesn't necessarily make any difference in the product, nor in the experience that the end user receives.
Try to be revolutionary instead of evolutionary and try to disrupt the very rules of the big players. After all, in disruption you have a big advantage being a startup.
Mistake No 5: "While we do our advertisement product, we will also run a content site that uses the product"
Startup with No Focus, No defined Bet
A startup has limited time and limited money to spend. Therefore, the startup shouldn't try to do too much. The startup needs to concentrate on what the entrepreneur and the team knows and can do best. They need to create a value there. They don't need to waste their precious and scarce money and time on things that they don't want to bet on.
The real value that the startup can gain is in the creation or expertise that the entrepreneur and the team will gain in testing its bet, focusing on the core business. Doing that, the company gains huge value learning the market, rather than guessing.
Therefore, the startup needs to focus on a defined bet and learn. When they hit the target and really create something wanted then they can build the business around it. But their core needs to be valuable and most of the work and value creation (operational and strategical) needs to support the core of the company.
Mistake No 6: "We can't define the Product, We don't have a CTO, we don't have ...."
Lack of Talent in the right places: The Human Resources Problem
The gap between technology and a useful and wanted product is hard to cross over. It is the entrepreneur's job to find the right people and build the team. However, especially in the emerging world, experienced talent who believes in a startup can be hard to find.
The entrepreneur's job is to find and partner with the right people for the right reasons.
The lack of management talent and the lack of productization experience becomes a killer for the company very early on.
That is why you see many hard core technologies with no specific products.
Another important talent for the startup is the CTO (chief technical officer). CTO is a very important person that a startup needs, who is key in finding the right ways and using the right technical tools and strategies for adoption, stickiness, openness, scalability, etc.
Mistake No 7: " I need to make money fast"
Chose early revenue and divert from the grand vision
An entrepreneur needs to focus on the milestones.
If you are in technology business in an emerging country, it is harder to keep believing in and keeping your head straight out of the local ups and downs, how other people are making money, etc.
Local dynamics become a threat for the entrepreneur, because the technology market is still in its infancy. However, big corporations need consulting budget and have just asked for the entrepreneur's help. Todays' money looks sweeter than risk and tomorrow's gains. And the entrepreneur usually chooses to dedicate some or all of her and the company's time doing consulting and making money, without working on the grand idea or the product.
Lack of success stories yet, lack of respect for innovation and the lack of an existing ecosystem to support the idea owner/ entrepreneur in the region causes the entrepreneur to divert from her idea. By working with a company that doesn't have a place in the grand vision, causes her to give it all up. It is the story of the boiling frog. When she realizes that she hasn't done anything for her product, the window of opportunity is long gone. She probably will realize what she has done when she sees some other entrepreneur doing exactly what she wanted to do.
But thanks to the Internet and the global World, that is changing rapidly. Success stories from the emerging world enlighten the path more and more.
Mistake No 8: " I can't tell anybody about my project. They will copy it right away!"
Secrecy: The tendency to create a closed environment and keep the ideas and projects secret
A smart entrepreneur knows that execution is the key for an idea to be successful. A smart entrepreneur also knows that she needs to learn through the process of talking and sharing. If she keeps the idea to herself and not share and have the opportunity to discuss it with other people, then she will end up learning what others think after she has spent a lot of time and money.
Ideas need to be collaboratively worked on to make it practical for many to use. A smart entrepreneur gets all the information she can about what potential partners can think or what the customers say, even if it is just a preliminary stage. Ideas are very valuable and different ideas concerning
This also has a really negative effect in the environment as the ecosystem of innovation needs and open environment where everybody shares ideas, and opinions and ideas become mature through a collective sharing process. Open environments readies and allows innovation.
It is healthy to get in discussions and create conflicts. No conflict no interest!
Mistake No 9: " We don't have the Stock Option Plan"
Don't share the upside with team members
Stock option plans still don't exist in the emerging countries. It is crucial for a startup to have the stock option plan, because it is the only way to attract talent. Stock option plans allows the wealth to be created to be distributed among the team members. It sends the signal to the team members that the success is through the work of the team and the rewards will belong to the team.
Mistake No 10: "My first motive is to get rich"
Try to get rich instead of changing the world
Creating some local copy of a winning business is an easy win. However, in a fast globalizing world, this strategy will soon be futile. In addition, without understanding the business deep enough, a person can't really make a successful copy. A successful copy needs a lot of understanding of the
business as well. When the entrepreneur's target is to only get rich, we don't believe technology is an area that is easy to play in.
Instead, innovate, innovate, innovate...
Mistake No 11: "Who Needs Mavens, Connectors and Salesman?"
In an era where information is abundant and reachable by anyone, for a product to stick the entrepreneur needs mavens, connectors and salesman. In an emerging World this is another challenge, which we will keep the issue to another post for now.
Mistake No 12: "Show me the Money!"
Venture Capital isn't just a game of finance, it is more a game of operational management capabilities, expertise, network, simply "the business itself". Finance is just the means to be cash flow positive and stay alive without facing bankruptcy during 'the idea' to "to-market'. Venture capitalists need to add significant value to the company. In our mind, that is much more important than the finance that a venture capital firm provides.
Without the value big threats await the startups. The finance speed up the process in a company's growth, in other words capital buys the time to market, make the process faster. In parallel, the entrepreneur and the team needs to be equally ready to deal with the problems that come up faster than they will be ready to face. They need to be emotionally ready to understand the market, interpret what the market tells them, what the next steps need to be or many times deal with the company and team problems, which require more emotional objectivity.
That is why choosing the right Venture Capital firm very important in a startup's life. Seasoned executives know the roller coster ride, foresee the problems before happening and support the entrepreneur and the team and help them keep their business and help them grow.
Mae Ozkan
Golden Horn Ventures team is inviting everybody with a passion in technology - investors, entrepreneurs, idea owners, students - to a series of 'get togethers' starting on 30 January, 2 pm to our offices. We call these "Jam Sessions". A Jam Session is a 2-hour get together where we can share ideas and talk about the opportunities as well as have a chance to discuss how we can help each other or chat about anything that catches our fancy over a cup of coffee.....
To argue that any place will replace the Silicon Valley as the center of technology universe is just a futile exercise. But I believe that more and more success stories will come out of anywhere in the world, and will disrupt the existing winners, the ones in the Silicon Valley.
One common mistake that companies outside of the Silicon Valley do is letting competition define their products.
This tendency has many reasons naturally. There isn't enough support (financial, business connections, etc.) to back up novel ideas and companies. Companies tend to do what everyone else is doing, or better, the bigger guys in the Silicon Valley are doing, just to guarantee to survive.
For example, after YouTube's success, every country got its share of local YouTubes, the copiers. The same was true for eBay as well. YouTube and eBay are known models. It is easy to create applications and websites that imitate them on the surface. And everybody knows that they hit it big. So local versions of them should too, right? I don't think so! It rarely happens that imitators understand the underlying ingredients for a success behind YouTube or eBay. I don't want to get into the details of why eBay or YouTube was successful in this post. However, as an entrepreneur who targets even a local success of a YouTube imitation, he/she needs to bet more than just an imitation of YouTube. He needs to have an original idea that serves the local needs. He needs to create a product regardless of imitation, regardless of competition! He needs to know how to create an original product and an original company at the end.
Let's take another example, a company that is offering enteprise applications such as CRM. Let's say that this fictitous company is competing with the big guys, the usual suspects; Oracle, Microsoft, SAP, etc. etc. Their proposal to their customers is a check list that combines both Oracle's and Microsoft's offerings all united together. The killer part is not only their long list of checklists Oracle, Mircosoft and SAP combined, but also their price tag, which is 1/10 th of the competitors' offerings!
This is just wrong! It is a waste of resources thrown just to stay one step behind of the current winners. There are so many things to do in the enterprise space. It is a land of opportunity. The difficulty of usage of the enterprise applications, the long and difficult processes to get the systems up and running, the price tags, the long trainings needed for users, the neglections of users and user habits, etc. of the competitor offerings don't ring any bells?
The problem is they don't have the courage or the means or the vision (or a combination of all) to not let the competition rule their product and company. This is just a fatal mistake for a startup.
The winners set their own game. They have their own vision. They want to change the world.
What I want to say is, forget the traditional way of doing things. Get out of your obsessions with the features lists of the big guys. Stop letting competition define your products. You have a chance to change the world. It is your turn now. Don't let the competition define you. You try to define the competition, you create one yourself!
Mae Ozkan
There were two interesting news this week:
The first news was coming from India. Google takes an LP (Limited Partner) approach to two early and seed funds in India and for the first time invests in venture capital funds. My take on this is that Google is willing to catch the ideas early no matter which geography of the world the innovation comes from.
An innovative company such as Google itself, is betting early and seed stage companies and technologies and tools that they will create on geographies outside of the US. I congratulate Google on its vision and act.
The second news was about the successful technology venture vapital firm of Europe. Index Ventures closes its forth fund at more than $400 million and reaching the total capital under management to over $1.3 billion. It is getting exciting in Europe as well.
We will see more and more success stories from all around the world as more capital and interest goes to early stage companies outside of the US. This is just the start of the globalization of early stage venture capital. The results will be innovation and information flowing throughout the world regardless of borders and geographies, democratizing and leveling the field of innovation.
Mae Ozkan
One of the problems with the entrepreneurial environment of the emerging countries is not the lack of ideas, but the lack of tools that help the entrepreneurs to make something out of their ideas and the examples of successful companies.
The scarce resources are finances such as venture capital for early and seed stages, business experience and an open environment, where innovative ideas are fed by each other and talented people are supported by experience and networks.
In emerging countries, all of these important ingredients are lacking. The environment doesn't have finance tools. The environment doesn't support openness. There is no conversation among companies where they encourage each other for more innovation and build on top of each other's ideas. An open environment could easily be supported by rewarding the talented and innovators and encouraging dialogs among them.
The scarce resources are barriers to produce meaningful products and companies from innovative ideas and technologies. The end results are what makes the difference in the world. The consumers don't buy the ideas, but the products. However, the scarcity of tools and opportunities to make the end results and successes from meaningful ideas stay on the way of an entrepreneur.
However, luckily, the world is changing. Some of the ingredients that are needed to turn ideas into products are becoming more available for people all around the world. The result will be leveling the field for innovation and thus, the ideas will worth more and more as the needed ingredients are becoming abundant and commodities.
For example, the Internet has leveled the reach of information for most parts of the world. The open source movement has been a great force in the industry. It has disrupted many companies, while giving opportunities to many entrepreneurs with ideas.
Now, the rise of services such as Amazon’s Simple Storage Service (S3) and Elastic Compute Cloud (EC2) that are cheap alternatives to storage and heavy lifting of Internet applications, will level the playing field. Solving heavy lifting problems will result more time being dedicated to differentiated ideas. The result will be more innovation and smaller market cycles, therefore more opportunities for the ones that have the right alignment, and more threats for the ones that are big, hard to move and lack an understanding of the industry dynamics.
The technology industry is going through a faster chage more than ever. It will change other industries related with it, including the venture capital industry. When the ideas matter, the power of whoever holds bigger chunks of money will be replaced by whoever holds the bigger and better ideas and whoever has the value to add. This exciting change will disrupt many things along with it. These changes will give a chance to the world's best kept secret projects to be secret no more!
Mae Ozkan
The cover of Economist magazine's Sept 16th issue reads "Surprise! The power of the emerging world". The articles inside are very interesting and supports Golden Horn Ventures belief in the emerging markets and Turkey in particular. There is one survey on the world economy titled, The New Titans.
Here is an excerpt from it:
"Last year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy. The developing countries also have a far greater influence on the performance of the rich economies than is generally realised. Emerging economies are driving global growth and having a big impact on developed countries' inflation, interest rates, wages and profits. As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution. Indeed, it is likely to be the biggest stimulus in history, because the industrial revolution fully involved only one-third of the world's population. By contrast, this new revolution covers most of the globe, so the economic gains—as well as the adjustment pains—will be far bigger..."The chart numbered "2" shows that countries that were once strong, became weaker with the industry revolution and they are"re-emerging" again.
"Emerging economies as a group have been growing faster than developed economies for several decades. So why are they now making so much more of a difference to the old rich world? The first reason is that the gap in growth rates between the old and the new world has widened (see chart 3). But more important, emerging economies have become more integrated into the global system of production, with trade and capital flows accelerating relative to GDP in the past ten years...."
"What is also new is that the internet has made it possible radically to reorganise production across borders. Thanks to information technology, many once non-tradable services, such as accounting, can be provided from afar, exposing more sectors in the developed world to competition from India and elsewhere..."
As the Internet and the abundance of information and technology has connected the emerging world to the developed world (to the distribution points, the centers/hubs of economy), there are more changes coming up.
The Internet feeds emerging markets with information and brings different communication and business rituals. The globalization itself has created know-how in the emerging countries. I have partly discussed the very same points in my previous post titled, Innovation, Technology and Emerging Markets.
What I would like to add to the Economist's article is innovation from the emerging countries and the disruption that it creates on the world economy and markets. Technology introduces many new ways of distribution and creation. It also allows the voices of the poor and far audible all over the world. The products and services of the ones in the emerging markets become available in the international markets as the barriers to entry decreases or better to say, the ability to distribute and innovate is democratized. That will result more innovation from the emerging countries, thus creating more disruption in the world economy.
As a result, the catching up to the developed world standards will be faster than we envision it will be. The way that it will happen will be disruptive. Just as startups can rock the monopolies (eg. the entertainment industry), companies from the emerging world can rock the world economy's existing equilibrium and create more prosperity for many in and outside of the emerging markets. Pretty soon the definitions of "emerging" and "developed" will change. The macro stories will be changed by "micro" successes and disruptive company/product/service names.
Wasn't that the hidden promise of globalization anyway? The promises are there for us to grab. It isn't easy, but it is here and it is the future.
What the Brand New World means for IT?
• Countries that have only been used for outsourcing start creating innovative products and services,
⁃More innovation will come out of the emerging countries as the emerging countries have piled up information and ideas and the reach of technology and building a technology company getting cheaper everyday, thus the geography of the innovation is becoming trivial,
• Local will become international more quicker than ever,
• In addition to big companies (such as Microsoft, IBM) being international and harvesting the benefits of being international, startups from the emerging countries will become international if /when there is a value (a new technology, a new business model, a new distribution model, etc.) in them (I specifically say startups, not companies, because I believe that only startups can pursue opportunities and create disruption),
• The markets are getting bigger (the transition from the mainframe to PC has created more than $300 billion wealth, the transition from PC to services will create even more significant wealth). The sharing of this wealth between the developed and emerging markets is starting to shift as innovation comes from any geography,
• New distribution models make it possible for emerging market players to become global for service businesses and digital products as broadband connection becomes prevalent,
• New business development models are rising: (Business 2.0, A VC blog by Fred Wilson) that are more independent of the geography of the company, but are dependent on the technology and usefulness and their disruptive qualities,
• New venture capital models are rising:( Venture Capital 2.0 , Early Stage VC blog by Peter Rip)
⁃"The basis for competition in the Venture 2.0 Crossover model is a focus on markets, independent of stage, geography, and risk capital instrument.",
• The disruption is happening everyday. The strong is weak when it lacks to innovate (eg. The rise of new business models, the struggle of Microsoft with advertising model vs. the software as a package),
• Innovation, disruption and links; The innovators that have a link to the centers of the economy have a global impact and influence. Disruptors that have links to Silicon Valley will effect the equilibrium of the market.
Mae Ozkan
On my last post on Social Entrepreneurship and Startups, I have mentioned Paul Graham's essay on how to be a Silicon Valley. In the post before that, Brain Drain or Brain Circulation, I have mentioned news.com's interview with Anna Lee Saxenian. I agree with her when she points out knowledge circulates with people. When people who have worked in Silicon Valley come back to their home towns and establish similar businesses, they carry the knowledge and business experience of Silicon Valley with them.
In this post I would like to combine my thoughts on these two topics and discuss how to create the right environment for startups and how to link to the heart of technology, Silicon Valley. This post will also shed a light on why we, Golden Horn Ventures, would like to build a bridge between Silicon Valley and Turkey.
For a knowledge / technology economy or innovation, the first and most important ingredient is people. People and their visions are crucial. People and their ability to dream and the passion to execute their dreams make all the difference. With dreams humanity have built and collapsed nations, have invented and built machines, sytems, medicine, etc. Dreams have brought us from homo sapiens to mankind of today.
As Paul Graham puts it in his essay:
"What it takes is the right people. If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley."
We can't move people from Silicon Valley to Turkey, however many people who got educated and worked in Silicon Valley end up back in their home towns in Turkey. They want to work and produce as they have done before. They are used to the ways of Silicon Valley; the openness (open organizations, open discussions, open software, open ideas, etc.), the competitiveness, the venture capital, the values (to 'dare' is valuable), the business rules and the business rituals. They are used to the ways of how to innovate as in Silicon Valley, get your product out there, release early, build business partnerships early, etc.
He adds:
"I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move."
Rich people and nerds. However, they both need to be more passionate in Turkey than they are in the US. In the US there are reference success stories. There are numbers that show that when you innovate, you succeed! In our case, the rich needs to believe in building a startup / technology economy and building a better future for all. The rich and the nerds both need to understand the global dynamics and the opportunities that lie under.
In developing countries, or in any place where there is not a startup / technology economy - where startups haven't become successful businesses and haven't generated wealth for the many- nerds end up with some work to sustain living such as fixing PCs. Eventually their ideas and their dreams die with every PC that they fix. That is why in places where there is no startup economy, the rich needs to have a clear vision of what future holds for those can innovate and those that can not and the opportunities that are waiting for those who can.
But how about the accumulated know-how, capital and talent? Just because we have 5 teams and 5 startups set up, Turkey wouldn't become the centre of technology and innovation. We need links and partnerships to the accumulated know-how, capital and talent. We need connections to the world of technology, Silicon Valley.
By connections and links, I mean people and partnerships. They will help how things get done, how technology is applied, how technology turns into a product and a business.
By the web, we all reach to information, blogs, codes, examples, theories, messages, discussions at the same time. But connections are needed to be a player, to get more of the accumulated information in the Silicon Valley case by case. With each project the teams will get smarter, understand it better, get the culture of the Silicon Valley in their DNA. Later this will accumulate in the form of know-how and talent. By every sucess story capital will add to the equation. As a snow ball, it will get bigger in every turn. Please note that for know-how and talent to accumulate 'openness' needs to be deep in the culture - open discussions and open organizations.
By the rich people and the links, the nerds will get an access to experience, capital, advise and connections.
It is the people and people only that will make the difference.
Another point that I want to quote in Paul Graham's essay is:
"A corollary is that you have to keep out the biggest developer of all: the government. A government that asks "How can we build a silicon valley?" has probably ensured failure by the way they framed the question. You don't build a silicon valley; you let one grow."
Nerds want to think free and act free! People with dreams could only be fed by other entrepreuners financially and business-wise! People who have dreams to change the world by production and innovation should be set free to do so and supported in an entrepreunerial way. In this way a healthy ecosystem will evolve for technology and innovation and startups.
Mae Ozkan
The fund that we are raising for Turkey is called "“Golden Horn Ventures Fund” (GHV). GHV is looking to raise a new $50-million Turkey fund, to invest it, $1 million to $6 million per deal, in early to pre-expansion-stage startups.
Our focus is on software companies that are
What we believe is that to “innovative”, to “dare” and to “experiment” needs to be highly appreciated and valued, especially in markets that change fast such as information technology (IT). We also believe that companies, which "innovate" and "dare" will yield high returns, if nothing else will be valued highly for the experience and the know-how for the market that is ever changing.
We believe in working with entrepreneurs from idea inception to funding to company building and internationalizing. We want to be involved in; - as an advisor, not as a driver of the company -
GHV - Markets to Invest In
The markets GHV invests in are mostly what is new and promising, what is risky and potentially rewarding (80%). We would like to invest a small percentage on what is widely invested, hot and popular now! That will make up around 20% of our investments.
Here is a list of areas of our interests:
We want to applaud the thrill of innovation and to encourage financing it. Our goal is to be ahead of the curve instead of riding it!
The criteria for selecting companies for the portfolio companies are:
We also believe that:
I will try to talk about some of the companies in Turkey that are examples to portfolio companies that we would like to invest in in the next posts.
Mae Ozkan
