Company founders are the lifeblood of our economy. Thomas Friedman of the New York Times recently wrote a piece talking about the relationship between net new jobs and startups.
"Here’s my fun fact for the day, provided courtesy of Robert Litan, who directs research at the Kauffman Foundation, which specializes in promoting innovation in America: 'Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less,' said Litan. 'That is about 40 million jobs. That means the established firms created no new net jobs during that period.'”
Everyone has noticed that the startup community here in Chicago is growing. The online success of GroupOn has brought about some positive attention.
This year we saw the launch of three new incubator type groups - Lightbank, Scalewell, and Excelerate Labs.
Sam Yagan, founder of OK Cupid, launched Excelerate Labs using what he describes as a "mentorship model". In this model, Excelerate offers seed capital and rigorous mentoring to 10 different companies in exchange for a 5% equity stake in each business. Sam has rallied together the Chicago tech community and assembled an impressive list of mentors, many of whom have founded successful startups, run large companies, or played an influential role in the investment community. A few big names that round out the list include Brad Keywell, co-founder of Groupon, Chuck Templeton, founder of OpenTable, and Kevin Efrusy of Accel Partners.
Grouped together in this office space, the 10 teams benefit from seeing one another fight similar battles and overcome similar hurdles. They also benefit from frequent mentor visits. As you walk around the office, you can feel the buzz.
Last week, I sat down with a handful of these teams to discuss my experiences with starting Lever Works and Inventables. I wanted to help them avoid some of the mistakes that I made along the way.
Here are the companies I met with:
Tap Me - Tap Me Games is an independent video game development studio. Their focus is to deliver a simple message with their products - every experience is a game, and an experience is always better if it's shared. Their games will be available on multiple platforms like the iPhone, PSP, Android and XBox 360. The cool part about their model is that they are democratizing sponsorships so YOU can be sponsored by Gatorade, right alongside Michael Jordan.
Mathzee - MathZee started with the goal of making math education fun for kindergarten kids. The team is made up of educators, musicians, artists, gamers, and engineers with one thing in common -- they love math! And they are working very hard to create a fun world where your child will love math as well.
TransFS - TransFS is a comparison shopping website for credit card processing. Their unique auction process and comparison engine help them save businesses an average of 40% on their credit card processing costs. TransFS is quick and simple to use, and all of the processors that bid on the site are vetted and certified by TransFS to ensure quality and ethical behavior.
Edulender - Edulender hasn't launched yet, but they will be providing transparency in the student loan industry. Stay tuned!
Noblivity - Crossing the Chasm by Geoffrey Moore.
In my experience, it has been easy to understand the perspectives of different customers in the context of the chart above. The first ~14% of the market tend to buy your product because they believe what the founders believe. They aren't buying the product based on features or customer references. They are buying it because they think it might help them gain a strategic advantage over the competition. This is especially true with Inventables. We have a disruptive model for buying sales leads. Traditionally, material suppliers get sales leads from tradeshows or trade journals. Both of these methods require you to pay up front, and neither method is guaranteed to produce leads. The Inventables model is a pay for performance advertising system, and most of the market is not yet comfortable with this approach because it challenges the norm. Vendors have systems and processes in place to get leads the traditional way, and it's not until they see the benefits of paying for performance that they will consider changing.
In my experience, you need to figure out what your product is and develop a repeatable process for selling it before hiring a sales person. This means the product is somewhat stable, and, as the founder, you should be able to use the same sales pitch every time, rather than having to rely on improvisation. I like to think of it the same way Michael Gerber talks about process in the eMyth.
To get those initial customers, the ones who believe in you and your product for what it could be rather than what it is, I am a fan of starting with the "why". Simon Sinek gave a great TEDx talk on this topic, and he's not the only one who thinks it's important. Guy Kawasaki often talks about customer evangelism, as does Jackie Huba in her book Creating Customer Evangelists.
I believe that the value of Excelerate Labs goes beyond the monetary value created in these 10 companies. The residual value of bringing the Chicago tech community together is already paying dividends.