News for the ‘startups’ Category

forget about the nerds – think about women

One of the big news about media and tech startups the past days has been AOL buying Huffington Post for 315 million USD. As part of the acquisition the most interesting part of the acquisition was the strategic fit with AOL’s 80:80:80 focus.

“80% of domestic spending is done by women, 80% of commerce happens locally and 80% of considered purchases are driven by influencers. The influencer part of the strategy is important and will be potent.”

This is well known about fast moving consumer goods, which appeal to women who traditionally take care of grocery shopping. However, the quote reminded me of an old statement from management thinker Tom Peters who said that the two largest and underserved segments are women and old people. I heard the quote 5-10 years ago and I still think it holds. Often tech startups are praised for solving their own problems and that’s why they’re so focused on building great products which appeal to a lot of tech-savvy people. The problem is that the problems software engineers, who are all but few young geeky males, are trying to solve are very different from the problems that e.g most women have.

Lots of opportunities to think differently exist because most new products and applications all compete for the same small group of early adopters. Instead of sitting around and waiting for every part of the population to discover the wonders of augmented reality, geolocation etc. more etrepreneurs should try to figure out which problems women and old people have. In the startup world an example of this is some of all the interesting startups being created around fashion such as polyvore as well as the more obvious example of group buying sites such as Groupon who have a majority of female customers. In Denmark, trendsales is doing extremely well and have little competition with a customer base that is also mostly made up of younger females.

Regardsless of the sector or idea, the motivation to focus more on women is very simple. Apart from becoming better educated than men, they are also in charge of a lot of the spending.

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Posted: februar 8th, 2011
Categories: startups
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If you want to be a high-tech entrepreneur in Italy you have to be in Milan or Rome

This is going to sound hard and I’m sure some people will disagree, however I will elaborate on why it will improve everybody’s chance of success to concentrate high-tech entrepreneurship in Italy in Milan and Rome. The 20 VC investments made last year in Italy, are already highly concentrated particular around Milan and Rome, so the reality already matches my suggestion.

What it meant when talking about an ecosystem is that there has to be critical mass of activties to support new high-tech ventures so in turn there will be increasing returns to being in a certain location. Firms do not exist in a vacuum and they rely on advisors, lawyers, accountant, investors, suppliers and of course employees.

While it is true that web startups can be build virtually today face-to-face interaction is still essential and investors are most likely to invest in companies they can visit within a couple of hours. The most respected incubators like Y-combinator and Techstars also bring people together in a specific place and for the few success stories of virtual startups, the rule is still that co-location fosters transfer of tacit knowledge, something that doesn’t happen much via skype.

What is the way forward then?
As I have argued before, Italy needs a larger pool of potential entrepreneurs to select from and an excellent approach that I admire, is that taken by Fabrizio Capobianco and Funambol which has their business development in Silicon Valley and R&D in Italy. This means more technical people who are exposed to the nuts and bolts of a startup.
Two other initiatives I believe should get much more attention is making the startup scene much more international and focus much more on immigration, particularly from Eastern Europe and South America where Italy can offer higher salaries and quality of life.
The important thing though, is that every regional politician does not want Catania or Bologna or etc. to become the hub for high-tech entrepreneurship. Fragmentation is not going to help and both Milan and Rome are great and vibrant cities to live in, so Italian’s must forget their idea that their home town is the only place in the world to live and move to where the action is.

There are a lot of good intentions in Italy and I think that things are slowly moving in the right direction, however instead of each region trying to become high-tech clusters Italy must make an overall decision for the common good and encourage all aspiring entrepreneurs to go to either Milan or Rome the financial and state capital respectively which both have a good mix of institutions already in place.

P.S There are great companies such as Balsamiq and Yoox that have come out of Bologna, however Milan and Rome remain the two most obvious choices as I see it.

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Posted: november 25th, 2010
Categories: Italy, startups, VC
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You don’t need to know anybody – Italy is full of good fellas

I find that a reason for why people in italy stay away from starting things is a misconception that they have to have some super-wealthy family or be very well-connected with a lot of influential people. In my experience this hasn’t been true at all and I would like to share how I have gotten many interesting people to listen to my startup idea because the recipe is very simple.

About a year ago two friends of mine and I got the idea to start an online discount mobile operator in Italy. It’s quite an ambitious idea since you essentially would be competing against Vodafone, Wind, TIM and 3 Italia (also called MNOs), but we had seen it work in Denmark, so we knew it could work. As I have written about here our professor was not very supportive of the idea but we wanted to give it a shot. I followed a guy on twitter who blogged about telecom and who turned out to work for one of the Italian MNOs. From twitter I emailed him more details about our project and he ended up introducing us to the most senior guy at his firm which was relevant for our project. From that point on we have continued negotiations and are still in contact.

In terms of investors and people from the startup environment, I was lucky to meet some investors through our course. Additionally, I really liked what Stefano was doing at www.thestartup.eu so I emailed him an we met a couple of times and through him I have been introduced to some great people and pitched my project to dpixel where he works. Additionally, a guy Stefano and his firm introduced me to has formerly held key management roles at three of Italy’s four MNOs and is now a very helpful advisor.

At conferences like “mifaccioimpresa” and Milan Startup Weekend, I have also met interesting people. Although introductions work best don’t be afraid to approach the people you meet at these kind of events. Most people, and this goes perhaps particularly for successful people are usually very friendly and are glad to help young entrepreneurs if they can. They have been in the situation you are in, and appreciate how much help and advice can mean.

As i said the recipe for this is really simple: Be very well prepared and try to be convincing. You’re selling your idea and you must convince people that you are going after something relevant and feasible. Also be friendly and flexible. Many people are busy and first impressions last a long time so if you haven’t done your homework and don’t know the market or your competitors or your business model you wont be taken seriously.

It’s fair enough to have blind spots (e.g I still don’t know a lot of things related to the technical aspects and telecom regulations) but be upfront about them and how you are going to solve them. In our case a mobile operator is really a lot of marketing and the legal aspect not even lawyers are sure about, but if you are honest about what you don’t know your can avoid unpleasant surprises later on.

Overall it should be clear that we have spent a lot of time seriously putting together convincing reasons for why an online discount mobile operator is a good idea and could be a good investment, we really haven’t done anything extraordinary but that, to meet a lot of interesting people so there is no reason that you shouldn’t be able to do the same, if you have an good idea and a compelling reason for why you are the right people to execute it. Take my word for it, Italy is full of nice and supportive people that are doing what they can to help people start something cool, you just have to be proactive and persistent to find them and get in touch with them.

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Posted: november 19th, 2010
Categories: Italy, startups, telecom, VC
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Why and when employees leave succesful companies like Google and Facebook

Often it can seem strange why people leave very successful technology companies and startups like Google or Facebook. Often they leave to start their own companies and this phenomenon called entrepreneurial spawning has been investigated closer in a big study of US firms which also has relevant implications for European policy makers who want to foster high-tech startups.

You can find the paper in its entirety here, however the paper looks at employees who leave public companies to start their own VC-backed companies and they use data from more than 5.000 firms and 15.000 founders, and I will focus more on their results and the implications.

  • Companies that were either based in Silicon Valley or Massachusetts and that were once VC backed them selves are most likely to spawn new firms (results control for firm size, patent portfolios and industry)
  • Diversified firms spawn less new firms. Employees in diversified firms are less entrepreneurial
  • Spawning is closely related to growth. There seems to be a natural size limit to how big VC-backed companies can get before employees leave to start their own companies. This is what is taking place with the employees leaving from Google to Facebook, and based on this, Facebook might have the same problem in a couple of years when their grow slows down or they go public and employees can cash in their stock options.

The implications of the findings are relevant for a country like Italy that is still a developing country in terms of high-tech entrepreneurship, because they clearly demonstrate that universities are not the only source of founders of innovative companies, but public companies who have themselves received VC might be a great source of new firms. So instead of trying to copy Stanford, Italy would do well to attract existing technology companies and have them setup offices particularly in either Milan or Rome. The study also finds that entrepreneurial activity in a particular area has increasing returns so instead of each region trying to attract innovative entrepreneurs, Italy has to focus on one or two regions which can realistically achieve critical mass of the know-how related to new high-tech firms. This is well-known however, a lot of regional politicians often get in the way of this even though it is completely unrealistic that Italy will have innovative high-tech clusters in Calabria, Sicily, Trieste etc.

So what should Milan do in concrete terms? A visionary plan for e.g. Milan would be to double the number of high-tech employees in Milan by 2015 and attract 3 large foreign technology companies to set up offices in Milan. In the long run, such initiatives might be very good incubators for future entrepreneurs.

PS. A very interesting observation related to entrepreneurial spawning, is that there seems to be consensus (on Quora at least) that no succesful startups have been founded by ex-googlers. For a concrete example of why companies like Facebook play an essential role in spawning new innovative startups take a look at this list of employees that have left the company within the last three years.

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Posted: november 2nd, 2010
Categories: academic papers applied to the real world, startups, VC
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Systemic problems in European VC

Fred Wilson who blogs at AVC has earlier described the venture capital math problem, that there are too many VC funds in the US for them to make good returns. For the record good returns means about returning the fund 3X over 10 years, something that becomes more difficult when there are too many VC firms in the market.

Well as usually with VC, fast forward to Europe for a much bleeker view.

Here the problem is not only that VC is extremely underdeveloped in several parts such as Italy which only saw 20 VC deals close in 2009, but also that returns of VC funds in Europe in general are very bad. Over the past 5 years Europe’s VC firms have returned only 0,7% annually and lost 1,9% annually over 10 years. There are more details in the article here where there is also some more optimistic voices, however if VC funds do not return any money to their institutional investors it’s unlikely they will be able to raise new funds. This is simple natural selection and that funds that lose their investors money have to shut down, however we might have a more serious problem in Europe if there is not only too few VC funds, but the ones that are here are not doing well.

This seems to be a paradox: If entrepreneurs complain that they don’t get funded, a very credible and relevant complaint in e.g. Italy while VC firms might have harder times raising new funds there seems to be a catch-22. More institutional investors and pension funds need to allocate more of their portfolios to the VC asset class and they are not going to to that if they’re not getting any returns.

I think a couple of things are needed to improve this although overall I completely agree with Hussein Kanji’s answer on Quora about what Europe lacks:

  • More early-stage investments
  • Much more interaction. US colleges have the advantage that Computer Science majors can also take classe at the b-school and vice versa. I think more interaction between different disciplines is essential
  • Less bureaucracy and well-meaning states trying to be VCs
  • More of the most successful people from abroad. Just as successful Europeans have become successful in the US and elsewhere, we need some of those to come back to Europe to show how things are done. There’s a lot of pattern recognition in VC and transfer best practices can speed this up
  • More transparency. Of course funds that are not doing well will be against this but then it’ll serve as a way to let the best peformers to share how they are doing
  • More focus on emerging sectors in which Europe may have advantages: sectors like fashion and food come to mind

Another possibility is also that investors are just not very good at their jobs and they have perverse incentives in terms of management fees which reward them hansomely anyway. The few VCs I have met seem genuinely passionate and motivated about creating great companies and I really hope that we will see more VC funds and more successful exits in the near future.

PS. What is considered a disappointing return for a VC might of course be a perfectly acceptable outcome for the entreprenuer (i.e building a sustainable business with a 1-2X return to the VC)

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Posted: oktober 30th, 2010
Categories: Europe, startups, VC
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VC firms should have Anti-Portfolios

VCs get to review hundred of business plans a year and while it should be clear to most people that people are more important than the idea. This is because often the idea will have to change and the original business plan never holds so it is important for VCs to find people they really believe can see their idea through all these changes. At the time most VCs are pitched for investment it is very early and it might often be unclear what the business model of the company is and it is still extremely difficult to predict how people will do. Recently Vinod Khosla told the story of how the Google founders wanted to sell it for a million dollars and this illustrates how extreme the uncertainty can be even for the people who have the idea and vision. When entrepreneurs don’t even realize the potential value of their business it’s of course very hard for investors to foresee which investments will be successful and therefore many VC investments will likely fail. These are the rules of the VC game and most people agree on them.

However  just as VCs celebrate when they exit their good investments, it would be interesting to see more have anti-portifolios of the deals they were pitched and turned down, which have gone on to become successful. An old and also very successful VC fund that does this is Bessemer Venture Partners. You can see their anti-portfolio along with the entertaining background stories here.

It’s also clearly not very easy to be a VC and many of them also don’t do a particularly impressive job in generating returns to their investors so they might prefer opecity over transparency but in general I think entrepreneurs and VCs would be better off knowing more about the mistakes VCs have made in evaluating investment opportunities. This takes investors who has also had successes and is honest about admitting their mistakes and from an entrepreneur’s point of view I think it sends a strong signal.

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Posted: oktober 26th, 2010
Categories: startups, VC
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Thoughts on Milan Startup Weekend and why programmers should know some strategy

Last weekend I participated in Milan Startup Weekend and overall it was a really nice experience and a great initiavive. If startup weekend is coming to your city you should go. You will meet lots of like-minded people and although the entire thing was in Italian most people spoke English so don’t be shy if your Italian is not perfect you can still attend.

The idea about startup weekend is not so much work on existing startups as actually showing a real demo that has been made in about 48 hours. This means that the main focus will be on web technologies and rightfully programmers and designers are in highest demand where us with business degree were helping out in terms of strategy, market sizing and marketing ideas.

I really like the concept and I was working on someone’s idea of a social Q & A site for shopping, which I really like. It’s still a work in progress but you can see the site here. Overall, there was a very nice and helpful atmosphere the entire weekend and between working on projects there were guest speakers (Massimo Sgrelli, Raffaele Mauro and Alberto D’Ottavi were most interesting in my opinion).

Since time is the main restraint on building something, many of the ideas will be pretty small features and applications but I like the idea of finishing something managable than start out with some big and time-consuming vision that is unlikely to be realized. It has already been explained that it is becoming cheaper to start web companies and here is an excellent explanation of how disruptive cloud computing is for startups.

However, as the barriers to entry has been significantly lowered  a useful  concept taught in business school today is called the resource-based view comes into mind. The quintessential part of strategy is to create sustainable competitve advantages, and sustainable means that you still kick ass after someone repeatedly tries to copy you, however in order for companies to create these advantages they must do things in ways that competitors cannot easily copy. As anybody can now launch a startup in 48 hours and take advantage of the same tools and technologies (Twitter, Get satisfaction, Amazon web services etc.) the competition shifts to being the best at acquring users and build some a brand as quickkly and effectively as possible. Strategic partnerships e.g. with key suppliers or distribution channels (e.g Groupon if they partner with Yahoo) and finding ways to increase switching costs for users become critical.

Aalthough this is not something that should be the main concern at an event like Startup Weekend it is something that anybody who is thinking about starting a company should spend time on thinking about. If you can launch a live demo in 48 hours so can anybody else and from then on it’s game on about who is able to convince users that they should use your site and not any of your competitiors.

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Posted: oktober 24th, 2010
Categories: Italy, startups
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Competing for the future

Competing for the future is one of the best management books I have ever read, and it also has some important lessons for entrepreneurs or anybody who is thinking about starting a business. Competing for the future is written by Gary Hamel and C.K. Prahalad who are among the best and most original management thinkers in this generation and their most famous contribution to the field of strategy is probably that of core competencies.

Some of the important consequences of Hamel’s and Prahalad’s work is that while companies have core competencies and things they do extremely well, industries change and evolve and companies might not be able to change with them and so they become stuck while continuing to focus on the things that were yesterdays success parameters. Of course managers could avoid some of that by asking themselves more questions about where their industries are headed in the future, however when a certain strategy has brought you success in the past it is very difficult to change the direction the company is going in. Also don’t underestimate how much ego is at stake, most corporate cultures still stigmatize failures so it is quite rare for the same CEOs to strategic shifts that differ significantly from the strategy followed in the past. Therefore a good way to look at it for entrepreneurs today is that there are a lot of companies today where the future has essentially caught up with them and all the systems and processes they have in place are geared to an industry an environment that is no longer relevant.

One of the quotes that I have really taken to me from the book is that “starting resource positions are a very poor indication of future leadership”. This is tremendous news for anybody who’s trying to start something, bacause it means that whoever is going to leas in ten years is not decided by who has the biggest budgets today. Many industries today change at a break-neck speed and there are loads of opportunities to find things that large corporations today are not doing very well and attack those niches with all the scrapiness and clout you have. As an example of this opportunity take advertising. Advertising continues to drive many business models online and yet as this blog shows the majority of the billions of advertising dollars are still spent on television and newspaper ads so there is still a lot of billions in advertising dollars thar are going to migrate from offline to online. Even outdoor advertising is still a huge market that seems ripe for disruptions, possibly by these guys.

So I suggest you go ahead and read the book and study some of the examples of successful cases where corporations that have been huge underdogs have ended up overtaken their much larger competitiors. You can buy the book and read reviews of it here.

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Posted: oktober 11th, 2010
Categories: startups
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Entrepreneurship news from the past week

Last week there were a couple of positive entrepreneurship-related events that I think deserve to be mentioned.

The first was the inaugural meeting for Bocconi’s new entrepreneurshup club Young Entrepreneurs at Bocconi. The club has the valiant purpose to encourage more entrepreneurship and to be a place where young entrepreneurs can meet and exchange ideas and help each other out. The idea is also to have guest speakers and work shops with various purposes so its activities are like entrepreneurship clubs at most universities. It’s a great initiative and it seems like Bocconi is also supportive, so I hope it’ll be succesful. However there is also room for improvement:

  • First of all more people have to know about it. Only 6 people showed up and three of us were foreigners so foreigners are perhaps more apt than Italians to have entrepreneurial aspirations?
  • If it’s going to be helpful people have to openly share their ideas and what they need help to! I can’t say this enough but it’s really a banal and unjustified fear to be afraid of having ones idea copied.
  • More technical focus and not being afraid of bold projects. The challenge with an entrepreneurship club just for business students is that the skill sets are very similar and whenever somebody has to built somethng technical, software developers are needed. I think it would be ideal to have the entrepreneurship clubs of Bocconi and the different technical universities meet up and share ideas.

The club doesn’t yet have a website but if you are at Bocconi and interested in joining I really suggest you go check it out, since it is just getting started you have a great opportunity to get a lot of influence from the beginnig! If you want to know more then send me an email and I will get you in touch with the founders.

The second event I attended was “mifaccioimpresa” this weekend at Bocconi. It was a fair dedicated to entrepreneurship and with lots of panel discussions about everything from financing and marketing to legal issues and the role of VC in Italy. The fair lasted all of Friday and Saturday however I only attended on Friday and the most interesting thing for me was a panelk discussion about innovation and financing and SMEs and the role of VC in this.

The panel consisted of Roberto del Giudice head of the Italian Private Equity and Venture Capital association AIFI, Francesco Perrini from Bocconi and an investment manager from the Italian VF fund Quantica sgr. The discussion was about the status of VC in Italy and although this might be already know to some, the state of affairs is pretty bleek. Here are the main takeaways from the discussion:

  • A total of only 20 VC investments were made in Italy in 2009
  • 5 VCs represent 50% of all the deals and out of these, the most active were Innogest, Piemonte High Technology and Quantica
  • Some funds barely average 1 investment per year from 2004-2009
  • Italy is completely divided in North-South in terms of VC and no investments at all in e.g. Calabria, Puglia and Sicily.
  • Overall, Italy is a country of SMEs but not innovative SMS.
  • To put innovativeness in perspective, the 20 VC investments are out of 5000 new firms formed every year.

Overall, the picture is bleek and anyone who has tried to raise seed or venture capital in Italy knows that it is extremely difficult, however one can also look at in a more contrarian and positive way. Since so few innovative companies are founded in Italy you actually have a better shot at being funded if you offer something cool and innovative!  The start-up scene is not exactly Silicon Valley so if you do something original there are plenty of chances to get yourself noticed. One of the reasons I do not worry much about anybody copying our business idea is simply that most people Italians think it’s nuts and that it can’t be done.

So get started and don’t blame the bad economy, now is a great time to start a company!

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Posted: oktober 4th, 2010
Categories: Bocconi, Italy, startups, VC
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Choosing colours for your startup

One of my favourite blogs is easily kissmetrics which offers great insights about marketing, webdeisgn and usability.

A couple of weeks ago I read their post about how colours affect purchase decisions and it is does a good job of showing which message different colours convey to US consumers. Startups should think about this when designing their website but don’t overanalyze it and if you are unsure you can run A/B test to test which colours are most effective with your visitors.

While it might seem obvious today that facebook is blue, they actually chose this because Mark Zuckerberg is red-green colour blind so since you will be looking at your website a lot, just choose a colour you really like and which supports your products’ message.

You should also look at which colours the existing competitors are using and choose a different one. In the industry I am trying to start a company in, there are few very large companies. Since I have always liked green and none of the current companies use green we chose green and are sticking with that. Choosing colours shouldn’t become a major decision to make and in the early stages and it can be changed if you completely regret it.

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Posted: oktober 4th, 2010
Categories: marketing, startups
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Entrepreneurship in Italy from a non-Italians’ perspective

Following the interesting and lively debate about the Italia startup environment kicked off by he founders of Mashape and followed up by Stefano Bernardi, I want to add my point of view of the startup environment in Milan as I have experienced it. Particularly, I like a lot of the ideas and comments to the two blogs about an Italian eco-system and how we can improve the conditions for startups and entrepreneurs in Italy.

My perspective is after finishing a graduate degree at Bocconi and working on a startup idea in the Italian ICT sector for the past year. After two years at Bocconi it is hard to come away with any other conclusion that it is every young Bocconi students’ wet dream to either work in fincance, consulting or for a huge multinational corporation. That can be fine as well but it means that you’re an outsider if you want to start a business and while the US celebrates failure, it is scorned upon in Italy.

It is true that a major problem in Italy is the culture, and most Italians never fail because they never try. I had no contacts in the industry we’re trying to start a company in and yet I have received advice and help from Italian top executives and successful Danish entrepreneurs as well as been introduced to Italian VCs and angels. My experience has been that people are extremely helpful when you approach them as well-prepared and with an open mind.

First of all, there is only one elective in English at Bocconi focused on entrepreneurship and having taken that elective it leaves a lot to be desired. The ideas people had for startups and business plans were mostly very poor and showed the classical mistake to focus much more on the idea than the execution (Italian restaurant in Dubai anyone? Also we have no competitors were often considered to be a good thing).

The problem as Stefano pointed out, is simply that the pool of potential entrepreneurs is extremely small. Therefore the ideal strategy is to bring as man of these people together as often as possible.
What really disappointed me in my experience with the University here is the complete lack of interaction between the different universities. Why aren’t there common classed for CS students from Politecnico, business students from Bocconi and the Design students from Marangoni for example? Interesting things happen when people who think differently meet and I think this is vastly misisng in Italy! In a similar vein, the startup scene in Italy has seemed very un-international to me. Although it is silly and a waste of energy to dream of a Silicon Valley like eco-system there are nice things about Italy: People are friendly and helpful, the weather and food is good and the living standard is high compared to many countries. Certainly, Italy could leverage this to do much more to attract e.g Eastern European and South American talent but for that to happen the culture has to become more international.

Finally, Bocconi like many European business schools suffer from the problem that they view entrepreneurship from a very academic perspective and except for the interesting guest speakers students would be better off reading the list of popular startup and VC blogs. Instead of these courses being taught by accomplished entrepreneurs they are often taught by dry academics and it is easy to lose your hope if you only listen to this type of people. Our professor hated our idea and since it was the only idea that would require VC he also considered it far to risky and big for us to undertake.
This in many ways sums up my experience with entrepreneurship at Bocconi: An Italian restaurant in Dubai is considered a better idea than a business model with several successful exits in other European markets.

p.s a great and much needed initiative to encourage more startups is also to reduce bureaucracy. I particularly like David Welton’s initiative to reduce the costs of creating an SRL. Read about it here and sign the petition here

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Posted: september 22nd, 2010
Categories: Bocconi, Italy, startups
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Comments: 4 Comments.