Steve Blank's Blog, page 27

Entrepreneurs are Everywhere Show No. 25: Nigel and Vaughn Caldon and Kerry Frank

Tenacity and resilience. Getting people to buy in to your startup vision takes a thick skin, perseverance and willingness to learn. You’ll probably be laughed out of several boardrooms along the way.

Entrepreneurs refuse to take no for an answer.

The latest guests on Entrepreneurs are Everywhere shared what they learned from having their ideas rejected and how those lessons propelled their businesses forward.

The radio show airs on SiriusXM Channel 111 (weekly Thursdays at 1 pm Pacific, 4 pm Eastern). It follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Nigel Caldon

Joining me in SiriusXM’s studio in New York were

Nigel and Vaugn Caldon, co-founders of BallStar social network for basketball players
Kerry Frank, founder of Comply365 digital flight bags for commercial aircraft pilots

Vaughn Caldon

Listen to the full interviews with Nigel and Vaughn and with Kerry by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Kerry Frank

Clips from their interview are below.

Nigel and Vaughn Caldon are brothers who founded the startup The Street Academy for Financial Literacy and now BallStar together. Vaughn served as Associate Director of Alumni Affairs at Prep for Prep. Nigel spent five years working in investment management at Goldman Sachs and Citi Alternative Investments before going in to business with his brother. Nigel also teaches Data Analytics at General Assembly NYC.  

In building their companies, the Caldon brothers have found that when things get tough, there’s always a way to make it work.

Nigel : … We’ve done a pretty decent job … bootstrapping with limited resources — trying to figure out different ways to get work done and move the needle without actually spending any money. … There’s always a way and as long as you’re paying attention you’ll always be able to find some sort of resource that’s there to fill exactly what you need done.

Vaughn : You have to love learning… because some of the ‘no’s’ we’ve had have taught us more about the business than, you know, some of the, “Hey, I’d love to be a part of this.”  

Steve : Give me an example. Tell me about a ‘no’ that made you smarter.

Vaughn : You know, any ‘no’ from an investor that said, “traction” really meant, ‘I don’t understand your idea, but go ahead and try and prove it to us.’ …  also someone who said, “You know, XYZ is this doing better,” or “We use this.” They put us onto a competitor that we didn’t know about. That wasn’t a ‘no’, that was a huge misstep on us not knowing this company was in our space.

Steve :  What happens when someone says, “Take a look at this competitor”? What do you do?

Vaughn : You’re in a better position when you know what it is because you don’t have anything and they’re stuck with what they have. That’s really inspiring me to go after what’s already out there.

If you can’t hear the clip, click here.

Kerry Frank co-founded Comply365 in 2007 with her husband. The company has transformed the aviation industry by replacing pilot flight bags with tons of manuals with digital tablets in cockpits.  

She struggled early on trying to get customers to see her vision for maintaining aviation manuals and other records on the cloud rather than on paper:

Kerry : Just a couple short months after that final testing (of Comply’s 365 product using a Kindle) the iPad came out and I looked at that. so I said, “Geez, I got to go with the iPad because look at this dynamic color and all of this.” I started running around to all the airlines with either a Kindle or an iPad and saying, “We’re going to change your business, we’re going to revolutionize the way you work, we’re going to take all the paper off the plane, we’re going to save you this much money.” I was laughed out of every boardroom.

… They said, “You’re way too innovative, we’re too risk adverse, we’ll never do this, you’re crazy, come back in a decade.”  

… I just continued to say, “No, you don’t have to be a legacy. You don’t have to have that “you can’t change” mentality; you guys can change. Anybody can change. You just have to believe it and we can revolutionize aviation. We can change the way we work and this will be safer. It will be the best for aviation in the long term.” I even went to top charting vendors in the world and said if you do electronic charting …  

Steve:  Like Jeppesen?

Kerry:  Yeah, laughed out of their boardroom.  They said, “We’ll never do an iPad.”

Steve:  Are they on the iPad now?  

Kerry:  Yes they are. After a year of persevering, it was tough. We’re living on 50 bucks a week, a family of five (with the business) in the basement of our home. We have some employees, and we never missed payroll and we’re trying to change the world right? We’re trying to change industry. We got our first win and then our second win, and then within 16 months I had pretty much flipped the market.

If you can’t hear the clip, click here.

—

Focusing on your vision is critical, Vaughn Caldon said:

There’s so much that you want to do and then there’s what you have to do. I think the biggest learning curve is how to be in focused on that straight line. … because there’s something going on over here that you’d love to be involved and have your name next to it … may not be as important as another hour kind of vetting the design with someone you’ve been through it with a hundred times already.

It’s just really about focusing on what’s clearly the next step in front of you. That’s been the biggest lesson for us because … we were quick to bounce around.

If you can’t hear the clip, click here.

Being domain experts and having done one startup together gave the Caldon brothers confidence about starting Ballstar:

Vaughn : The confidence that we can start anything together , came from the fact that we had been the CEO and Director of Development of an organization that we created, and we started interacting on that level. …

The next step (in confidence) was knowing the space. We’re from Brooklyn, we play basketball, we know basketball players. …

… people got on Twitter because Shaquille O’Neal was there first … (Keeping that in mind) we … led with … aspirational leagues.

We went to sign up leagues like West Fourth Street, EVC at the Rucker, Dykeman, Tri-State Classic. These are all iconic leagues that people want to be involved and want to be affiliated with, so getting them on the platform first and catering to them, building that as our customer, and developing those customers was our focus. We knew we could do that.

If you can’t hear the clip, click here.

Here’s how they knew their idea could be a business

Nigel : It obviously started out as an absolute passion (for us).

We had to back-end our way into, figuring out, where is the business (model) in that? You could sell ads or you could sell the data. What we really found that our client was essentially the basketball league, and we could throw ourselves in the middle of the transaction.

There’s almost $2 billion spent in North America on paying to play basketball. If I’m providing a platform-as-a-service to amateur basketball leagues all over the world, now I have the opportunity to take a transaction commission the way Uber does. You can download Uber for free, but as soon as you hail a cab, you’re paying. Download BallStar for free, as soon as you want to play basketball, leave us some change.

If you can’t hear the clip, click here.

—

Customer discovery paid off for Kerry

Kerry : I listened and it was magic. Everyone started raising their hand and saying, “I have this problem, I have that problem.”

Steve :  Did you know you were doing customer discovery?

Kerry : I did. That was a key to my consulting business. … The beautiful thing is when you ask the customers, they’re in the space, they understand it, and they also then have buy in, right, because you’re going to solve their problem …  

Steve :  For our listeners, this is a brilliant insight. It sounds like you practiced it perfectly. They essentially taught you what the product should do.

Kerry : Right. I have 13 products today and everybody says, “How did you think of those?” I say, “I never thought of those, I was just a really good listener.”

If you can’t hear the clip, click here.

Being self-taught, she said, gave her an edge:

I didn’t go to college. I just started working for people … in all kinds of different jobs. …. I was always really good at whatever I did, because I loved working so much, it was my passion. I’d always start getting promoted to another level, but I have this inner thing inside of me that I can’t describe, that as soon as I started to get promoted to management levels I would quit.

I would say, “No, I have a destiny to do something else, and I’m trying to find my way.” I always also struggled with this part that had to get back into help. I was always then also giving to charities, or working for charities, or working for churches, or youth groups. It was kind of this back and forth. It was this incredible path that people look back on and say that’s crazy.  

At the same time it gave me key foundational things that I look on today as a CEO I needed. … (Things) like accounting. I was a bookkeeper, and I managed properties for a long time. It taught me all the accounting principles. It taught me how to handle some of the basic general ledger things.

If you look at different steps in my path, and I’m like, “Wow, that was great,” because now as a CEO I know all these different tools that I needed. Traditionally, you might get that in college, but I didn’t go the college route, so there’s a lot of skills that I picked up along the way that enabled me to be who I am today as a CEO.

If you can’t hear the clip, click here.

Here’s the biggest thing Kerry’s learned from doing a startup:

Kerry : If you have passion and if you’re dedicated to this. It doesn’t matter who you are, where you came from, or what your education is. You can do anything. Everything is possible.

If you can’t hear the clip, click here.

Listen to my full interviews with Nigel and Vaughn and with Kerry by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere :  Javier Saade , former associate administrator for the U.S. Small Business Administration , and Hillary Hartley , deputy executive director of 18F.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.  

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: Customer Development, SiriusXM Radio Show

What Founders Need to Know: You Were Funded for a Liquidity Event – Start Looking

There are many reasons to found a startup.

There are many reasons to work at a startup.

But there’s only one reason your company got funded.   Liquidity.

——-

The Good News

To most founders a startup is not a job, but a calling.

But startups require money upfront for product development and later to scale. Traditional lenders (banks) think that startups are too risky for a traditional bank loan. Luckily in the last quarter of the 20th century a new source of money called risk capital emerged. Risk capital takes equity (stock ownership) in your company instead of debt (loans) in exchange for cash.

Founders can now access the largest pool of risk capital that ever existed –in the form of Private Equity (Angel Investors, family offices, Venture Capitalists (VC’s) and Hedge Funds.)

At its core Venture Capital is nothing more than a small portion of the Private Equity financial asset class. But for the last 40 years, it has provided the financial fuel for a revolution in Life Sciences and Information Technology and has helped to change the world.

The Bad News

While startups are driven by their founder’s passion for creating something new, startup investors have a much different agenda – a return on their investment.  And not just any returns, VC’s expect large returns. VC’s raise money from their investors (limited partners like pension funds) and then spread their risk by investing in a number of startups (called a portfolio). In exchange for the limited partners tying up capital for long periods by in investing in VCs (who are investing in risky startups,) the VCs promise the limited partners large returns that are unavailable from most every other form of investment.

Some quick VC math: If a VC invests in ten early stage startups, on average, five will fail, three will return capital, and one or two will be “winners” and make most of the money for the VC fund. A minimum ‘respectable’ return for a VC fund is 20% per year, so a ten-year VC fund needs to return six times (6x) their investment. This means that those two winner investments have to make a 30x return to provide the venture capital fund a 20% compound return – and that’s just to generate a minimum respectable return.

(BTW, Angel investors do not have limited partners, and often invest for reasons other than just for financial gain (e.g., helping pioneers succeed) and so the returns they’re looking for may be lower.)

The Deal With the Devil

What does this mean for startup founders? If you’re a founder, you need to be able to go up to a whiteboard and diagram out how your investors will make money in your startup.

While you might be interested in building a company that changes the world, regardless of how long it takes, your investors are interested in funding a company that changes the world so they can have a liquidity event within the life of their fund ~7-10 years. (A liquidity event means that the equity (the stock) you sold your investor can now be converted into cash.) This happens when you either sell your company (M&A) or go public (an IPO.) Currently M&A is the most likely path for a startup to achieve liquidity.

Know the End from the Beginning

Here’s the thing most founders miss. You’ve been funded to get to a liquidity event. Period. Your VCs know this, and you need to know this too.

Why don’t VCs tell founders this fact?  For the first few years, your VCs want you to keep your head down, build the product, find product/market fit and ship to get to some inflection point (revenue, users, etc.). As the company goes from searching for a business model to growth, only then will they bring in a new “professional” management team to scale the company (along with a business development executive to search for an acquirer) or prepare for an IPO.

The problem is that this “don’t worry your little head” strategy may have made sense when founders were just technologists and the strategy and tactics of liquidity and exits were closely held, but this a pretty dumb approach in the 21st century. As a founder you are more than capable of adding value to the search for the liquidity event.

Therefore, founders, you need to be planning your exit the day you get funded. Not for some short-time “lets flip the company” strategy but an eye for who, how and when you can make an acquisition happen.

Step 1: Figure out how your startup generates value

For example, in your industry do companies build value the old fashion way by generating revenue? (Square, Uber, Palantir, Fitbit, etc.) If so, how is the revenue measured? (Bookings, recurring revenue, lifetime value?) Is your value to an acquirer going to measured as a multiple of your revenues?  Or as with consumer deals, is the value is ascribed by the market?

Or do you build value by acquiring users and figuring out how to make money later (WhatsApp, Twitter, etc.) Is your value to an acquirer measured by the number of users? If so, how are the users measured (active users, month-on-month growth, churn)?

Or is your value going to be measured by some known inflection point?  First-in-human proof of efficacy? Successful Clinical trials? FDA approvals? CMS Reimbursement?

If you’re using the business model canvas, you’ve already figured this out when you articulated your revenue streams and noted where they are coming from.

Confirm that your view of how you’ll create value is shared by your investors and your board.

Step 2: Figure out who are the likely acquirers

If you are building autonomous driving aftermarket devices for cars, it’s not a surprise that you can make a short list of potential acquirers – auto companies and their tier 1 suppliers. If you’re building enterprise software, the list may be larger. If you’re building medical devices the list may be much smaller. But every startup can take a good first cut at a list. (It’s helpful to also diagram out the acquirers in a Petal Diagram.) When you do, start a spreadsheet and list the companies. (As you get to know your industry and ecosystem, the list will change.)

It’s likely that your investors also have insights and opinions. Check in with them as well.

Step 3: List the names of the business development, technology scouts and other people involved in acquisitions and note their names next to the name of the target company.

All large companies employ people whose job it is to spot and track new technology and innovation and follow its progress. The odds on day-one are that you can’t name anyone. How will you figure this out? Congratulations, welcome to Customer Discovery.

Treat potential acquirers like a customer segment. Talk to them. They’re happy to tell anyone who will listen what they are looking for and what they need to see by way of data or otherwise for something to rise to the level of seriousness on the scale of acquisition possibilities.
Understand who the Key Opinion Leaders in your industry are and specifically who acquirers assemble to advise them on technology and innovation in their areas of interest.
Get out of the building and talk to other startup CEOs who were acquired in your industry.  How did it happen? Who were the players?

It’s common for your investors to have personal contacts with business development and technology scouts from specific companies. Unfortunately, it’s the rare VC who has already built an acquisition roadmap. You’re going to build one for them.

After awhile, you ought to be able to go to the whiteboard and diagram the acquisition decision process much like a sales process. Draw the canonical model and then draw the actual process (with names and titles) for the top three likely acquirers

Step 4: Generate the business case for the potential acquirer

Your job is to generate the business case for the potential acquirer, that is, to demonstrate with data produced from testing pivotal hypotheses why they need is what you have to improve their business model (filling a product void; extending an existing line; opening a new market; blocking a competitor’s ability to compete effectively, etc.)

Step 5: Show up a lot and get noticed

Figure out what conferences and shows these acquirers attend. Understand what is it they read. Show up and be visible – as speakers on panels, accidently running into them, getting introduced, etc.  Get your company talked about in the blogs and newsletters they read. How do you know any of this?  Again, this is basic Customer Discovery. Take a few out to lunch. Ask questions – what do they read? – how do they notice new startups? – who tells them the type of companies to look for? etc.

Step 6: Know the inflection points for an acquisition in your market

Timing is everything. Do you wait 7 years until you’ve built enough revenue for a billion-dollar sale?  Is the market for Machine Learning startups so hot that you can sell the company for hundreds of millions of dollars without shipping a product?

For example, in Medical Devices the likely outcome is an acquisition way before you ship a product. Med-tech entrepreneurship has evolved to the point where each VC funding round signals that the company has completed a milestone – and each of these milestones represents an opportunity for an acquisition. For example, after a VC Series B-Round, an opportunity for an acquisition occurs when you’ve created a working product and you have started clinical trials and are working on getting a European CE Mark to get approval.

When to sell or go public is a real balancing act with your board. Some investor board members may want liquidity early to make the numbers look good for their fund, especially if it is a smaller fund or if you are at a later point in their fund life. If you’re on the right trajectory, other investors, such as larger funds or where you are early in their fund life, may be are happy to wait years for the 30x or greater return. You need to have a finger on the pulse of your VCs and the market, and to align interests and expectations to the greatest extent possible.

You also need to know whether you have any control over when a liquidity event occurs and who has to agree on it. (Check to see what rights your investors have in their investment documents.)  Typically, a VC can force a sale, or even block one.  Make sure your interests are aligned with your investors.

As part of the deal you signed with your investors was a term specifying the Liquidation Preference. The liquidation preference determines how the pie is split between you and your investors when there is a liquidity event. You may just be along for the ride. 

Above all, don’t panic or demoralize your employees

The first rule of Fight Club is: you do not talk about Fight Club. The second rule of Fight Club is: you DO NOT talk about Fight Club! The same is true about liquidity. It’s detrimental to tell your employees who have bought into the vision, mission and excitement of a startup to know that it’s for sale the day you start it.  The party line is “We’re building a company for long-term success.”

Do not obsess over liquidity

As a founder there’s plenty on your plate – finding product/market fit, shipping product, getting customers… liquidity is not your top of the list. Treat this as a background process. But thinking about it strategically will effect how you plan marketing communications, conferences, blogs and your travel.

Remember, your goal is to create extraordinary products and services – and in exchange there’s a pot of gold at the end of the rainbow.

Lessons Learned

The minute you take money from someone their business model now becomes yours
Your investors funded you for a liquidity event
You need to know what “multiple” an investor will allow you to sell the company for

Great entrepreneurs shoot for 20X
You need at least a 5x return to generate rewards for investors and employee stock options
A 2X return may wipe out the value of the employee stock options and founder shares


You can plan for liquidity from day one
Don’t demoralize your employees
Don’t obsess over liquidity, treat it strategically

Filed under: Technology, Venture Capital

Learning Through Reflection

“Sometimes, you have to look back in order to understand the things that lie ahead.”

We just finished the 6th annual Lean LaunchPad class. This year we made a small but substantive addition to way we teach the class, adding a week for reflection. The results have made the class massively better.

For the last 6 years I’ve taught the Lean LaunchPad class at Stanford and Berkeley. To be honest I built the class out of frustration watching schools teach aspiring entrepreneurs that all they need to know is how to write a business plan or how to sit in an incubator building a product.

If you’ve read any of my previous posts, you know I believe that:

a product is just a part of a startup, but understanding customers, channel, pricing, – the business model – is what turns a product into a business
business plans are fine for large companies where there is an existing market, existing product and existing customers, but they are useless in a startup where most often none of these are known
entrepreneurship is experiential and requires theory and a ton of practice.

Therefore, we developed the 8-week Lean LaunchPad class to teach students how to think about all the parts of building a business, not just the product.  We organized the class as:

Team-based

Students apply and learn as teams of 4. Eight teams per class


A “flipped” classroom

Students watch the lectures as homework via our MOOC


Every week we teach a new part of the theory of how to commercialize an insight or invention

using the business model canvas as the framework


Every week we teach the practice of Lean

by having the students get out of the classroom and talk to 10-15 customers a week and build a new Minimum Viable Product weekly
in order to validate/invalidate their business model hypotheses
The teaching team critiques their progress and suggests what they might do next


Every week the teams present their results

“Here’s what we thought, here’s what we did, here’s what we found, here’s what we are going to do next”

The combination of the Business Model Canvas, Customer Development and Agile Engineering is an extremely efficient template for the students to follow. It drives a hyper-accelerated learning process which leads the students to a “information dense, evidence-based” set of conclusions. (Translation: they learn a lot more, in a shorter period of time, than in any other entrepreneurship course we’ve taught or seen.)

Demo Days Versus Lesson Learned Presentations

One thing we always kept in mind – we were teaching students a methodology and a set of skills for the rest of their lives – not running an incubator or accelerator. As a consequence, we couldn’t care less about a “Demo Day” at the end of the class. We don’t want our students focused on fund-raising, we want them to maximize their learning. Secondly, even for fund-raising, you couldn’t invent a less useful format to evaluate a startup’s potential then the Demo Days held by accelerators. Demo Days historically have been exactly what they sound like, “Show me how smart your team is at this instant in time.”  Everything depends on a demo, presentation and speaking style.

We designed our class to do something different. We wanted the teams to tell the story of their journey, sharing with us their “Lessons Learned from our Customers”. They needed to show what they learned and how they learned it after speaking to 100+customers, using the language of class: interview, iterations, pivots, restarts, experiments, minimal viable products, evidence. The focus of their presentations is on how they gathered evidence and how it impacted the understanding of their business models – while they were building their MVP.

Reflection Week

In the past, our teams would call on customers until the last week of the class and then present their Lessons Learned. The good news is that their presentations were dramatically better than those given at demo days – they showed us what they learned over 8 weeks which gave us a clear picture of the velocity and trajectory of the teams. The bad news is since their heads were down working on customer discovery until the very end, they had no time to reflect on the experience.

We realized that we had been so focused in packing content and work into the class, we failed to give the students time to step back and think about what they actually learned.

So this year we made a change. We turned the next to last week of the class into a reflection week.  Our goal—to have the students extract the insights and meaning from the work they had done in the previous seven weeks.

We asked each team to prepare a draft Lessons Learned presentation telling us about their journey and showing us their:

Initial hypotheses and Petal diagram
Quotes from customers that illustrated learnings and insights
Diagrams of key parts of the Canvas –customer flow, channel, get/keep/grow (before and after)
Pivot stories
Screen shots of the evolution of Minimum Viable Product (MVP)
Demo of final MVP

The teaching team reviewed the drafts and provided feedback to the teams and to the class as a whole. We discussed what general patterns and principles they extracted from all the customer interaction they had. On the last day of class, each team shared their Lessons Learned presentations, giving everyone in the class the benefit of what every team has learned.

We used this week to help teams reflect that they accomplished more than they first realized. For the teams who found that their ideas weren’t a scalable business, we let them conclude that while it was great to celebrate the wins, they could also embrace and celebrate their failures as low cost learning.

By the time the final week of the final Lessons Learned presentations rolled around, the students were noticeably more relaxed and happier than teams in past classes. It was clear they had a solid understanding of the magnitude of their journey and the size of their accomplishments – eight teams had spoken to nearly 900 customers, built 50 minimum viable products, and tested tons of hypotheses.

Here are four examples from our 2016 Stanford class

Pair Eyeware

Be sure to look at how they tested their hypotheses on slides 11 and 12, and the before and after value proposition canvases on slide 13 -17. A great competitive Petal diagram is on slide 22

Share and Tell

Great story and setup in slides 3-7. Understanding their market in week 6, slide 31.

Allocate

Notice how they learned about their customer archetypes on slides 12-14. After 80 interviews, a big pivot on slide 16.

Nova Credit

Look at the key hypotheses on slide 2 and their journey in the class on slide 5.

Lessons Learned

Dedicating a week for reflections expands what everyone learns
Students extract the insights and meaning from the work they did
See all the presentations here

Filed under: Lean LaunchPad, Teaching

Entrepreneurs are Everywhere Show No. 24: Drew Silverstein and Craig Kanarick

“This is the West, sir. When the legend becomes fact…print the legend”

The Hollywoodization of Silicon Valley startup stories “prints legends,” but for most startups those stories are pure fiction. They don’t tell the awful, painful, and exhausting job it is to build a business.

The two guests on today’s Entrepreneurs are Everywhere radio show tell it like it really is to navigate the chaos of a startup.

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Drew Silverstein

Joining me in SiriusXM’s studio in New York were:

Drew Silverstein, co-founder and CEO of the music technology venture Amper Music
Craig Kanarick, founder of the indie food site Mouth

Craig Kanarick

Listen to the full interviews with Drew and Craig by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interview are below.

Drew Silverstein is an award-winning composer, producer, and conductor for film, television, records, video games, and an MBA student at Columbia Business School.

He created Amper Music to change the way music is composed and created for video content, but it is not his first startup.  

At his first venture, Henry O’Bryan, LLC, Drew quickly learned that startup life is nothing like the movies.

Drew : It wasn’t a successful startup. We didn’t sell it. We didn’t IPO it. It went really well for a while … and then we closed it down breaking about even. I think that removed the sheen of startup glory (for me).

… I had the perception of, “You start a company, you build it, you go, and ta-da!”

Steve :  It grows up like Facebook.

Drew :  Exactly. … Just like the movies. I should’ve known (that wasn’t true) because I’m in Hollywood, and we know what really happens behind the scenes. …  

… In a startup you need to be an expert in what you’re doing – not just doing something you have a cool idea for. You better know the problem in and out, and if you can have lived it, even better.

It’s important to have a fantastic team around you. We had a great team, but I wasn’t the best, most valuable team member I could’ve been for the project. 

… I learned that in a startup things don’t always go well. In fact, usually they’re not going well.

If you can’t hear the clip, click here.

Craig Kanarick’s career has integrated digital technology, design and strategy. In 1995, he co-founded the digital services firm, Razorfish and grew it from a two-man startup to more than $250 million and 2,200 employees. Craig also co-founded Razorfish Studios, a media and entertainment company, producing books, films, TV shows, albums and websites. 

After leaving Razorfish in 2001, Craig spent a year immersed in food, including a stint as a prep cook at Babbo, Mario Batali’s flagship restaurant. At the Rockwell Group, the architecture and design firm, he co-founded Studio Red and the Lab, an incubator for integrating digital technology into physical spaces. He founded Mouth in 2012.

At Razorfish, Craig’s lack of startup experience showed:

We expanded too quickly, and in particular we merged with a company that was a complete culture clash with the rest of the company. We were creative designers and front-end developers in a highly creative environment, and we merged with a Boston-based back-end technology company who was working in Fortran, and old school.

(In hindsight, the culture) mattered a huge amount. After the merger people were asking, “Why am I working for these people now? I don’t get them. I don’t understand them. I don’t like this place … “

… The other (mistake) was … not responding to the market and understanding how the market was changing and how quickly it was changing.

If you can’t hear the clip, click here.

Founders, he acknowledges, sometimes get past their skill set

…there’s a big difference between creating things, managing things, and operating things. We were better at creating things and not so good at managing or operating them.

… I’d not even managed myself. I’d never been a boss of anybody before Razorfish … so we really had to learn everything on the fly.

If you can’t hear the clip, click here.

—

Drew shared where the idea for Amper came from:

We recognized that what we were doing in terms of writing music … could be distilled.

Not distilling the high artistic level but at its core we could distill what we were doing into a process that could be replicated by a computer.

… Algorithmic computer music has been around for decades but we think we’ve figured out a novel way to approach the solution based on our experiences as film composers.

At the same time we had clients coming to us and saying, “We need this. Not every project we do is this high-budget triple A blockbuster. With these other projects, we don’t like the (music) solution that we have. Can you do it for us instead?”

We … put one and one together and said, “If we can offer you a solution that provides the product that you want, the music that you want, that’s driven algorithmically, is this something that you’d be interested in?”

Overwhelmingly the response was like, “Yes. Yes. Can we have it yesterday. Why don’t you have it already?”

And that’s … when we said, “All right. We don’t know if we can do it but it sounds like we should explore the opportunity.”

If you can’t hear the clip, click here.

Customer input shaped Amper’s product:

One of the things that was really important to us was using Lean methodology. We … ended up doing it before we knew what Lean was…  

… Before we had a clue what that was, (we had customer input). … We said at its core, what are our assumptions, how do we validate them, and then how do we change paths or iterate based on that as quickly as possible?

 … outside the building, you learn how many nuances there are to what you’re doing. It’s not one big umbrella of a problem; there are so many different elements to it. … We learned it’s not just music for media it’s, well, here’s one use case, here’s another use case, who is doing it and why? You you need to boil this down to the most pinpoint thing you’re going to do, be successful at that, and then grow.

I think unless you’re asking people and learning from people and asking to meet more people and figuring out where this is going … it will take a lot more time to figure that thing out than doing it the lean way.  

If you can’t hear the clip, click here

Drew wishes there was a playbook for how to be a startup CEO at Amper:

There is a lot of information on, “How do you raise money?” (but) there’s a lack of information, or certainly less thereof, in terms of what do you do after you raise money? How do you run a business and how do you be the person you need to be to everyone you’re interacting with? How do you deal well with investors, with customers, with employees, with your colleagues?

… you are responsible now. People have given you a lot of money and said, “Do this thing.” …fortunately, we have a great team of advisors, who I think are invaluable because, just like anything, it’s an apprenticeship.

If you can’t hear the clip, click here.

—

Craig explained how fund-raising has changed since doing his first startup:

It’s completely different. … There was no angel investing in the days of Razorfish. It was all strategic partnerships leading to IPOs. That’s just not the path right now. The whole idea of crowdsourcing and crowd-funding and doing angel investing, and then a series A with VCs, that path didn’t exist in the late ’90s at all.

(Today) there’s more access to capital, and it’s a pro-entrepreneur world. It’s cool to be an entrepreneur.  

If you can’t hear the clip, click here.

Here’s why Craig started up again:

The first thing that I tell people is to make sure that you love what you’re doing, because you’re going to have to work an enormous number of hours doing it.

You’re going to spend a huge percentage of your time doing this, you’ve got to love what you do, you have to be good at it, and you have to be honest about both of those two things.  

Because you can fool yourself into thinking it’s worth it because I’m going to get paid at the end.  When the Internet was on fire people said, “How do I make some money off this Internet thing?” If you’re asking that question, you’re in the wrong place.  

Steve :  You know my line is, “Entrepreneurship, it’s not a job, it’s a calling. It’s the world worst job, but it’s the world’s best calling.”

Craig : It is. It’s the reason I’m doing it again.  

If you can’t hear the clip, click here.

Listen to my full interviews with Drew and Craig by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere:  Nigel and Vaugn Caldon, co-founders of BallStar and Kerry Frank, founder of Comply365.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: Customer Development, SiriusXM Radio Show

Entrepreneurs are Everywhere Show No. 23: Nina Tandon and Brandon McNaughton

In a startup cheap may be expensive.

And just having cool technology doesn’t make a successful business.

What it was like to get out of the research lab to build a startup was the focus of interviews with two of the latest guests on Entrepreneurs are Everywhere, my radio show on SiriusXM Channel 111 (airing weekly Thursdays at 1 pm Pacific, 4 pm Eastern).

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Nina Tandon

Joining me in SiriusXM’s studio in New York were:

Nina Tandon, CEO and co-founder of EpiBone, the world’s first company growing bones for skeletal reconstruction
Brandon McNaughton, co-founder and CEO of Akadeum Life Sciences cell sorting technology company

Brandon McNaughton

Listen to the full interviews with Nina and Brandon by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interview are below

In addition to her work with EpiBone, Nina Tandon is the co-author of  Super Cells: Building with Biology . She is an Adjunct Professor of Electrical Engineering at the Cooper Union. Nina has a bachelor’s in Electrical Engineering from the Cooper Union, a master’s in Bioelectrical Engineering from MIT, a PhD in Biomedical Engineering, and an MBA from Columbia University. Her PhD research studied electrical signaling in cardiac, skin, bone, and neural tissue.  Fast Company named Nina one of the 100 Most Creative People in Business .

While building EpiBone, she quickly learned to avoid business shortcuts:

Nina : Cheap is expensive.

Steve : What does that mean?

Nina : I don’t think there’s any corners that can be cut. Sometimes if someone offers you free services …, it can be tempting to take them up on that offer, but then you might create a problem that’s a lot more expensive to unwind down the road.

Steve : Because you’re committed to the wrong people, the wrong service or whatever?

Nina : (Nods.) I’ve made some mistakes that are inadvertent but that needed to be undone.

If you can’t hear the clip, click here.

A tech entrepreneur and inventor, Brandon McNaughton  was entrepreneur in residence for Detroit Innovate , an early-stage venture fund . He also founded and served as chief technology officer of Life Magnetics. Brandon teaches entrepreneurship at the University of Michigan Center for Entrepreneurship.

Brandon’s current startup Akadeum was one of the 760 teams to go through the National Science Foundation (NSF) Innovation Corps, which teaches scientists and engineers how to take their science out of the lab and into the marketplace.

Brandon’s biggest takeaway from the NSF program had nothing to do with technology:

I’ve learned that business is about relationships. Relationships with customers, it’s relationships with your employees, your investors, because when you buy something, there’s an expectation, there’s a back and forth.  

That’s something that I didn’t really appreciate until after my first startup. I thought it was all about the technology, “Oh, if I could just get this technology to work. If I could just get it to do this, then everything’s going to be OK,” and in some ways I now think technology doesn’t matter. … what matters more is the … the customer’s problem.

… I think the epiphany was when we closed down Life Magnetics …It was hard to find that right product-market fit. The technology was working, but finding that market fit was challenging. …

…We couldn’t figure out the right business model to move forward with. That’s actually how I look at startups now. It’s trying to find that business model as quickly as you can that will support a company. You don’t need new gee-whiz technology to do that. What you need is to understand the problem to know what do deliver to the customer.

If you can’t hear the clip, click here.

Getting to know customers, Brandon said, only happens if you get out of the lab and talk to them:

Brandon : (The I-Corps program) was a combination of being an accelerant, but also getting us (the founders) on the same page, because we all had … different mental images and … different expectations …

Steve :  Of what a customer was and what commercialization was?

Brandon : (Nods.) And whether or not we wanted to start a company, when we were going to start a company, and what the company would look like.

The I-Corps process was great. It was exciting to see Gwangseong Kim, (my grad student and member of the Akadeum founding team) up in front of the class because as the entrepreneurial lead he was the one who got up there and presented what we learned. (co-founder) John Younger and I just stood there … I mean, we also did the work, too, talking to customers, things like that. But the entrepreneurial lead is the one who gets to represent the team.

… It was so amazing to watch the transformation in him. And for Gwangseong one great moment was (when) he did his first cold (customer) call.  When we were in Berkeley, we were talking about cold calling and how to do it. (And Gwangseong) was a little bit of apprehension…

Steve : Because he’s a scientist?

Brandon : Exactly. I still have that even when I talk to certain people, it’s like, “Oh, I’m bothering somebody …”

(But) Gwangseong made the call and within 15 minutes he gets invited to lunch the next day. Right? So he hit a nerve with a potential customer and was incredibly excited that you could make a call and get that kind of response.  

…this (lunch meeting) was the kind of thing you dream about (when you’re starting a company). You want to find those moments of opportunity and you don’t know unless you make the call, you don’t know unless you go.

If you can’t hear the clip, click here.

—

Nina shared what it was like to get out of comfort zone of the lab:

As a scientist you think that you’re confident about uncertainty because you’re operating in the uncertainty of knowledge, and yet you have the crutch of the scientific method constantly at your side saying, “Hypothesis, test, conclusion, reevaluate.”

But to take that to the jungle in the real world (outside the lab) is a totally different level of uncertainty. (And to add even more uncertainly) throw in having to make a payroll, wanting to make sure you take care of people, knowing that people’s lives and livelihoods depend on my ability to make sure there’s enough money in the bank.

Now that’s operating in uncertainty.

If you can’t hear the clip, click here.

There was a moment when the startup became real for her and her team:

Nina : We had a lot of conversations with people and having talked about ideas, and all of a sudden there were things that were manifesting in real time, in front of us, that gave us the sense of, this isn’t a joke. This is real.

Steve :  We’re going to have to actually build something?

Nina : Yeah, it became concrete.

…We were hiring our first employee … we didn’t have a lot of (money in the bank), we only had one grant $350,000 at the moment. We said, “Well, we’re going to hire our first employee, and you know what? We’ll pay him before we pay ourselves.” That was a moment where we realized, OK, we’re setting a precedent here. We want to take care of our employees and we’re willing to sacrifice our own salaries in order to do that. Luckily we only ended up hiring him two weeks before we hired ourselves, but we joke that he’s the most senior employee.

If you can’t hear the clip, click here.

Nina also shared the best advice she’s received:

Nina : My mom says that people often don’t remember what you’re saying, they remember how you made them feel, and be really careful not to try and use other people as a stage from which you can display your own intelligence. …

My dad who retired at 55 told me, when I was thinking about my career … “You can’t be afraid to jump off the merry-go-round,” because he’s seen people who’ve built elaborate cages for themselves as their desires … changed along with their economic potential, and then there was no going back.  

Nina : And my third (piece of advice) is from Steve Blank.  … I don’t know if you remember you told me this, but when I called you after getting a really important investor on board … you said, “Nina, don’t you dare confuse money with scientific validation, don’t you dare.”

If you can’t hear the clip, click here.

—

Brandon explained how Akadeum determined if their cell-sorting technology could be a business:

Brandon : … The first thing we wanted to find out was is there a need for our product.

Steve : You woke up and said, “Who needs cell sorting?”

Brandon : That’s right. We started reading the literature,… trade magazines … scientific publications. What we’d see is sometimes people would be quoted as thought leaders and  (we’d) write down their names (and) reach out to them.

Steve :  What would you say? “I’m a scientist in the University of Michigan. I want to talk to you”?

Brandon : Yeah. We would say, “we’re looking at developing a new technology. We just need 5 or 10 minutes of your time. We’re trying to figure out if this needed or not.” …

Steve :  They would respond?

Brandon : Yeah. They would respond. … in our experience, people are very nice. People are very generous (with their time.) If you’re genuine, and honest, people, they’ll spend time with you. They’ll help you. Really, they were helping us figure out if there was a need for this or not.

… The first thing they would do is share a little bit about whether they thought this was a good idea. Sometimes, they would say, “We have a problem that we’re trying to solve that this might be a good fit. …”

If you can’t hear the clip, click here.

Listen to my full interviews with Nina and Brandon by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere:  Nigel and Vaugn Caldon, co-founders of BallStar and Kerry Frank, founder of Comply365.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: Customer Development, SiriusXM Radio Show

The Mission Model Canvas – An Adapted Business Model Canvas for Mission-Driven Organizations

As we prepared for the new Hacking for Defense class at Stanford, we had to stop and ask ourselves: How do we use the Business Model Canvas if the primary goal is not to earn money, but to fulfill a mission? In other words, how can we adapt the Business Model Canvas when the metrics of success for an organization is not revenue?

Alexander Osterwalder and I think we have the answer – the new Mission Model Canvas.

Here are our collective thoughts.

—-

The Lean Startup is the way most innovators build startups and innovate inside of existing companies. As a formal method, the Lean Startup consists of three parts:

The Business Model Canvas – to frame hypotheses
Customer Development – to test those hypotheses in front of customers
Agile Engineering – to build Minimum Viable Products to maximize learning

The Business Model Canvas has been a great invention for everyone from startups to large companies. Unlike an org chart, which describes how a company executes to deliver known products to known customers, the Business Model Canvas illustrates the search for the unknowns that most new ventures face. The 9 boxes of the canvas let you visualize all the components needed to turn customer needs/problems into a profitable company.

From Revenue Streams to Mission Achievement

The Business Model Canvas has served all of us well in thinking about building businesses – and therein lies the problem. In a business the aim is to earn more money than you spend. What if you’re a government or a military organization or part of the intelligence community? In these cases you don’t earn money, but you mobilize resources and a budget to solve a particular problem and create value for a set of beneficiaries (customers, support organizations, warfighters, Congress, the country, etc.)

For these organizations, the canvas box labeled Revenue Streams doesn’t make sense. In a mission-driven organization such as the defense and intelligence community, there is no revenue to measure. So the first step in building a canvas for mission-driven organizations is to change the Revenue Stream box in the canvas and come up with a counterpart that would provide a measure of success.

We’re calling this alternative Mission Achievement. Later in this post I’ll explain how we’ll measure and describe Mission Achievement, but first our Mission Model Canvas needs four more tweaks.

Customer Segments is changed to Beneficiaries
Cost Structure is changed to Mission Cost/Budget
Channel is changed to Deployment
Customer Relationships is changed to Buy-in/Support

The rest of this blog post explains the how and why of these changes to the canvas.

Customer Segments Change to Beneficiaries

At first glance, when developing a new technology for use in the defense and intelligence community, the customer appears obvious – it’s the ultimate war fighter. They will articulate pains in terms of size, weight, form fit, complexity and durability. But there are other key players involved.  Requirement writers and acquisition folks look at systems integration across the battlefield system, while contracting officers, yet another segment, will count beans, measure the degree of competition and assess the quality of market research involved. The support organizations need to worry about maintainability of code or hardware. Does legal need to sign off for cyber operations?  So yes, war fighters are one customer segment, but others need to be involved before the war fighter can ever see the product.

So the first insight is that in the defense and intelligence community mission models are always multi-sided markets with the goal of not just building a great demo but getting the product adopted and deployed.

Second, in the defense and intelligence communities almost all of the mission models look like that of an OEM supplier – meaning there are multiple layers of customers in the value chain. Your product/service is just part of someone else’s larger system.

So to differentiate “customers” from the standard business model canvas we’ll call all the different customer segments and the layers in the defense and intelligence value chain beneficiaries.

The Value Proposition Canvas

Of all the nine boxes of the canvas, two important parts of the model are the relationship between the Value Proposition (what you’re building) and the beneficiaries. These two components of the business model are so important we give them their own name, Product/Market Fit.

Because of the complexity of multiple beneficiaries and to get more detail about their gains and pains, Osterwalder added an additional canvas called the Value Proposition Canvas.  This functions like a plug-in to the Mission Model Canvas, zooming in to the value proposition to describe the interactions among these beneficiaries, war fighters, etc. and the product/service in more detail. Using the Value Proposition Canvas with the Mission Model Canvas lets you see both the big picture at the mission model level and the detailed picture of each beneficiary at the “product/market fit” level.

In the defense and intelligence community mission models, there will always be multiple beneficiaries.  It’s important that each beneficiary gets its own separate Value Proposition Canvas.

Distribution Channel changes to Deployment

In the commercial world we ask, “What type of distribution channel (direct sales, app store, system integrator, etc.) do we use to get the product/service from our company to the customer segments?”  For the Department of Defense or Intelligence organizations, we ask instead:

“What will it take to deploy the product/service from our current Minimum Viable Product to widespread use among people who need it?” (What architecture components can they innovate on and what can’t they?)
“What constitutes a successful deployment? (number of users, units in the field, time to get it into the field, success in the field, etc.)”
“How do we turn a Horizon 3 innovation into something that gets adopted by a Horizon 1 organization?”

Customer Relationships changes to Buy-In/Support

In an existing business, Customer Relationships is defined as establishing and maintaining a relationship to support existing customers. In a startup we redefined Customer Relationships to answer the question:  How does a company get, keep and grow customers?

For the defense and intelligence communities, we have modified Customer Relationships to mean, “For each beneficiary (customer segment), how does the team get “Buy-In” from all the beneficiaries?”

Customer discovery helps you understand whose buy-in is needed in order to deploy the product/service (legal, policy, procurement, etc.) and how to get those beneficiaries to buy-in? (Funding? Mandates? User requested? etc.) In addition, the long-term support and maintenance of new projects need to be articulated, understood and bought-into by the support organizations.

At the Pentagon a favorite way to kill something is to coordinate it to death by requiring buy-in from too many people too early. How to determine who are the small group of critical people to get buy-in from – and how to determine who are the next set required to sustain the iterative development of future MVP’s – is one of the arts of entrepreneurship in the defense and intelligence community.

Revenue Streams changes to Mission Achievement

Mission Achievement is the value you are creating for the sum of all of the beneficiaries / the greater good.

It’s important to distinguish between the value for individual beneficiaries (on the Value Proposition Canvas) and overall Mission Achievement. For example, Mission Achievement could be measured in a variety of ways: the number of refugees housed and fed, the number of soldiers saved from roadside bombs, the number of cyberattacks prevented, the increased target surveillance of sensor fusion, etc.  None of these are measured in dollars and cents. Keep in mind, there is only mission achievement if it delivers value to the end beneficiary.

Lessons Learned

In the defense and intelligence community the metrics of success are not revenue but mission achievement

We’ve modified the Business Model Canvas into a Mission Model Canvas
Changed Revenue Streams to Mission Achievement
Changed Customer Segments to Beneficiaries
Changed Cost Structure to Mission Cost/Budget
Changed Channel to Deployment
Changed Customer Relationships to Buy-in/Support


Organizations without specific revenue goals can now use a version of the Business Model Canvas

Filed under: Business Model versus Business Plan, Customer Development, Science and Industrial Policy, Teaching

Entrepreneurs are Everywhere Show No. 21: Grant Warner

While finding product-market fit is important, getting the rest of the business model right is the difference between a great demo and a great business.

And embracing risk-taking or failure is hard when you go to college and have to be the example for your family.

Lessons learned from starting up and teaching entrepreneurship were the focus of an interview with the latest guest on Entrepreneurs are Everywhere, my radio show on SiriusXM Channel 111 (airing weekly Thursdays at 1 pm Pacific, 4 pm Eastern).

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Grant Warner

Joining me in SiriusXM’s studio in New York was Grant Warner, director of innovation and entrepreneurship at Howard University’s College of Engineering Architecture and Computer Science, and co-founder of ConnectYard.

Listen to the full interview by downloading it from SoundCloud here.

(And download any of the past shows here.)

Clips from his interview are below.

Dr. Grant Warner is the Managing Director of the HowU Innovate at Howard University. HowU Innovate provides campus-wide innovation courses, in which students are guided through the process of founding technology startups.

Grant is a core faculty member of the NSF I-Corps and directs the Howard University – Hampton University I-Corps Site, which commercializes university research. Additionally, he is the co-founder of ConnectYard, a social analytics platform for e-learning platforms. He is also a co-founder of XediaLabs, a DC-based incubator that provides training and technical consulting to local startups.

While building ConnectYard, Grant learned that product-market fit is not the only ingredient for success:

Grant : One thing I would say about my co-founder, he’s very intuitive on the sales side. We did do a lot of … customer discovery. We did a lot of talking to customers, trying to understand who really had the need. What was the value proposition? That helped us develop a product.  

What we didn’t do as well was really explore the (rest of the) business side – channels and all the other things. …(And that) hurt (our effort).

… We had raised some money and had moved forward. We found customers who said, “Yeah, this is a real problem,” developed a product, they said, “Yeah, we dig it.” We were able to acquire some early customers … (and) used that to raise some money. Then we decided, “Yeah, we’re going to go and sell this directly to universities.”

(But not focusing on the other aspects of the business model) hurt tremendously. We pretty much ran through all of the money without finding the proper way to reach (customers).

Steve :  You weren’t thinking about the right channel and that should have been something else being tested in customer discovery? If you would have had a framework, you would have said, “Hey! We haven’t tested these hypotheses.”

Grant : Correct.

If you can’t hear the clip, click here.

Howard University’s approach to entrepreneurship education for students in this historically black college has them plugging into the DC-area startup ecosystem. Grant explained why:

…This parallel between hip-hop and startups is an important one, particularly when you think about technological entrepreneurship for people of color.

When I think about hip-hop, it started off as something that people did as a hobby. Then an opportunity to grow business ventures off of hip-hop (emerged), and that opportunity spread like a virus. People said, “Wait, hiphop is a model that shows how I can step through this to grow what I’m interested in.”

  I think the same opportunity is available now for people of color to participate in technology startups. We need to show the model and broadcast the model.

Steve : You think that’s widely understood among people of color, that this is an opportunity not just for white folks?  

Grant : Yeah, I think there’s a growing understanding of it but there’s two sides to the coin. One side is understanding for people of color, this is something that you can do. But on the flip side, it requires people who are driving industry to say, people of color can participate in this. …  

Steve : You think there’s bias in funding and in startups?

Grant :… Look, we’re people, right?  There’s no reason why funding should act any differently (based on color) but there’s an unintentional bias that comes from networks and exposure to networks. One of the things that we’re trying to push (at Howard University) is the integration of what we’re doing on campus in entrepreneurship with the broader (Washington) DC ecosystem. We want our students to understand who are the movers and shakers in the ecosystem that can help them grow.

If you can’t hear the clip, click here.

He also spoke about the cultural implications of failure:

Grant : Fear of failure has some cultural implications for us. For our students, they come in to school, and they think, “you have to be the example for your family”.  You might be (the first in your family to go to college).  

Steve :  And entrepreneurship is for crazy people.  

Grant : Right. (They think) it’s only for crazy people. We want to encourage them to take more risks with their career. Part of it is real, right? You might feel like, “I want to graduate, get a good job, so I can help my family.” That’s a real thing that people feel.  

Our take is that, “Well, you could graduate. Take a risk. If you fail, the good job is always going to be there as long as you learn a lesson.” So you’re not recklessly failing. …  

… what we’re pushing against is that you can fail without being a failure.

If you can’t hear the clip, click here.

Grant said doing a startup changed his overall mindset:

Despite all of the years of undergrad and graduate school, I learned more in the first couple years of building ConnectYard than I had prior to that point.

… ConnectYard changed the way I viewed what I was doing at the university. … I’d go to faculty meetings and realize, “These conversations are pointless, nobody wants to get anything out of this (meeting).” (At ConnectYard) we couldn’t afford that. Each meeting we went into for ConnectYard,had to end with hopefully something positive. If not something positive, at least something quick. That changed the way I thought about making decisions.

Steve :  That’s a great lesson. … I remind entrepreneurs that in a startup there are only two types of decisions, revocable decisions and irrevocable decisions. In a meeting, if it’s a revocable decision, meaning you can change your mind later, you are making a decision in that meeting. There is no other meeting to have the meeting to schedule the conference room to have the meeting. However, there are a few decisions that irrevocable. Who are you taking money from? Do we sign a five-year lease? Do we hire 50 sales people? Those are hard to roll back. For a startup you might want to have 48 hours to consider those. I think what you just pointed out is some people in large organizations tend to make revocable decisions into a four-year meeting process.

Grant : That’s exactly what it is. They just go on forever.  

Steve : What was the light bulb (moment) that changed you?

Grant : It really was going through the life or death of ConnectYard, realizing that each day was a day that the runway (of money left in the bank) was running out. We couldn’t afford (to waste time). It changed the way I looked at things. The other piece was that my partner had some of the Lean Startup process down cold. Thinking about that … helped me think about how you approach projects, and understand what’s important in the project and get to a result quickly. …  

Steve :  You think it’s made you a better faculty member?

Grant : It’s made me a better everything. … Really, I do believe that. Definitely a better faculty member because it’s helped me talk to students in a different way. It’s helped me approach projects in a different way.

If you can’t hear the clip, click here.

Listen to my full interview with Grant by downloading it from SoundCloud here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere : Nina Tandon , co-founder of EpiBone ; and Brandon McNaughton , co-founder and CEO of Akadeum Life Sciences .

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: Customer Development, SiriusXM Radio Show

Entrepreneurs are Everywhere Show No. 21, Part 1: Kathy Ku and Orin Herskowitz

Research done by professors and their grad students in U.S. universities labs are being turned into commercial products and life saving drugs and devices thanks to an act of Congress – and the efforts of technology transfer offices in schools like Stanford and Columbia.

How this research is transferred outside the university, and why this “tech transfer” process is important was the focus of an interview with two of the latest guests on Entrepreneurs are Everywhere, my radio show on SiriusXM Channel 111 (airing weekly Thursdays at 1 pm Pacific, 4 pm Eastern).

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Kathy Ku

Joining me in SiriusXM’s studio in New York were:

Kathy Ku, executive director of Stanford University’s Office of Technology Licensing
Orin Herskowitz, executive director of Columbia Technology Ventures

Orin Herskowitz

Listen to the full interview with Orin and Kathy by downloading it from SoundCloud here.

(And download any of the past shows here.)

Clips from their interview are below

—

As executive director Stanford University’s Office of Technology Licensing, Kathy Ku oversees the licensing of Stanford-developed technologies.

From 1994-98, Kathy was responsible for Stanford’s Sponsored Projects Office. She took a break from Stanford in 1990 and 1991, as VP of business development at Protein Design Labs, Inc. Prior to that, she spent 12 years at Stanford; worked at Monsanto and Sigma Chemical as a research scientist; administered a dialysis clinical trial at University of California; and taught chemistry and basic engineering courses.

Kathy has been VP and trustee of the Licensing Executives Society (LES), and was president of the Association of University Technology Managers (AUTM) from 1988-90. She received the AUTM 2001 Bayh-Dole Award for her efforts in university licensing, and is currently a member of the NIH Advisory Committee to the Deputy Director of Intramural Research.

Orin Herskowitz has been executive director of Columbia Technology Ventures since 2006 and is also VP of Columbia’s Intellectual Property and Tech Transfer.

In addition, Orin has served on boards or as the Principal Investigator for the NYC Media Lab, PowerBridgeNY, and the Columbia Coulter Translational Partnership. Prior to joining Columbia, Orin spent seven years with the Boston Consulting Group’s New York office.

Tech transfer is about far more than simply licensing technology, Kathy and Orin explained:

Kathy : Tech transfer has a broader mandate. … it’s helping entrepreneurs, it’s creating the culture, the ecosystem for fostering entrepreneurship and startups. I think our mandate is just getting broader and broader.  

Orin : …The rap on tech transfer used to be that it was about picking the winners. The offices would only focus on (licensing) the one or two things that were going to be blockbusters. That is certainly not the case (anymore) at all. The mission of tech transfer is to get as much out of the (university) labs and into the market as possible, because you never know what’s going to be a hit.

You never know what’s going to transform the world. I think what you’ve seen is an increasing effort among the tech transfer offices to professionalize, to try to make (the tech transfer process) as transparent as possible, as fast as possible, and as predictable as possible, so that the negotiations don’t drag on for years, you’re not asking for exorbitant rates, it’s just easy and fast.

Steve :  Kathy said a phrase I thought was pretty important for the future direction of tech transfer, and that is “tech transfer offices are helping to create an ecosystem around our universities.” That is, instead of just  looking inward, thinking that your job is to create the most amount of money for the university, it sounds like you’re also now thinking your charter is to actually build the ecosystem around the universities.

Kathy : For sure. I think many universities are feeling this pressure (to create a broad entrepreneurial ecosystem). I think there’s … pressure to do more applicable research with results that are useful to the public. The tech transfer mission has broadened, and it really literally is technology moving from the university sector out for the public good. … it typically moves out with the smaller companies I would say.

(Smaller companies – startups) are more risk-taking organizations. They don’t have to worry about the quarterly report (or other) financial reports that the big companies have to do. Also I think that whole revolutionary technologies are hard to get into an old established company with a product to protect.

If you can’t hear the clip, click here.

Kathy and Orin provided a brief overview of what tech transfer does and how it works:

Kathy : The federal government funds most of the research at universities … (to the tune of) tens of billions of (dollars a year).

(In the 20th century) the U.S. government research agencies (the National Institutes of Health The National Science Foundation, The Department of Energy, etc.) … all had different patent policies (on what universities could do with the research that the government funded). …

Steve :  Meaning if I was a government agency and i gave your researchers money, you had to follow my agencies rules; there was no national standard of what I could do with that technology. Is that correct?

Kathy :   … The law at the time said the government (not the university) owned these patents.

Steve :  (This was true) even though these were university researchers, because they got government money, the government owned the rights to this stuff.

Orin : …You can imagine what a priority that would have been for the government at the time … to actively market these technologies and find venture capitalists and all that. (The government had no interest and/or ability to market these technologies and find venture capitalists.)

Steve :  Congress passed a law, which was called Bayh-Dole to solve this problem… what did the Bayh-Dole Act do?

Orin : … Essentially what the Bayh-Dole Act does is transfer the right to own these assets from the federal government, to the university that receives the research funding.

Steve :  That’s a big idea. The government says, even though we’ve paid for this, even though we funded this research, here Stanford, Columbia, and any research university getting a grant, you guys go make money on this if you can figure out how. Is that what the Bayh-Dole Act said?

Orin : Essentially. The idea was … (to) give the incentive to transfer the rights and obligations to do this to the people who have an incentive to try and make it work.

Kathy : …(Bayh-Dole) was a huge deal. (At Stanford) we had individual agreements with a few of the agencies, the NIH and NSF notably. We could take title (ownership) too those inventions funded by that agency, but the rest of them we had to go and fight each time and say, we wanted to take title or not. The agencies were all of differentiating ilk, and so they may or may not give us title.

Orin : The thing to keep in mind, too, is that … this initially was only relevant for the faculty members that were working on federally funded research.

… What most universities have done since then… is extended (tech transfer to include) to any research done on campus, that uses university funding, or university labs.

Steve :  (So it means today a university will try to license and commercialize more than) just the stuff that gets money from the federal government. Anything that the university would have claim for, now says we’re happy to license and whatever, but oh by the way, if you did it on campus, we own it.

Kathy : Right. … Bayh-Dole was not necessarily created to have the universities make money, but to incentivize universities to do this tech transfer thing. The government realized that all the patents that they had filed on, just sat in some repository, and never got used.

If you can’t hear the clip, click here. 

Here’s how Columbia and Stanford universities market their technologies:

Kathy : Right now, what Stanford does is … market our technologies to … anybody who might be interested…. We put (these inventions and patents) out on the web or we contact companies etc.

Steve :  That means you have an invention that one of your professors have done that does x and y. Here’s the description, is that what you mean by market?

Kathy :  … and it might do this and it might be cheaper, faster, a better something … (We basically say) come and tell us if you’re interested in it (whether you’re a startup or a large company). (But) The reality is most times nobody is interested. …It’s really too early. That’s the sad thing. We have lots and lots of good technologies but it seems that our system is such that many of the large companies can’t either recognize that or don’t want to invest in this early stage stuff.  

Orin : … (The problem of getting someone interested in University technology is even tougher than it sounds) … take the role of a venture capitalist. … In the average VC portfolio … 1 in 10 companies (they invest in) will turn out to be a big hit. … And if you’re in the pharmaceutical industry, 1 in 100 compounds that start life with a big pharma will actually make it to market and be a big success.  

Our science (we license) is early (for VC’s and companies) because unlike a corporation, when the faculty members have a new idea, they are going to publish it in a journal (that’s how academics get credit and recognition for their research.) So we file our patents very, very early on (often before the ideas get published.) The most successful moments for us, when we pop the champagne, is when we license something to a venture capitalist for a startup or to a pharma company to become one of those 100 things that might make it to market someday.

If you can’t hear the clip, click here.

Orin shared Columbia University’s recent Eureka moments:

Orin : Last year, we had roughly 200 faculty members who interacted with our office and (those 200 faculty members) created 400 new inventions. (Think of those as) roughly 400 Eureka moments by the faculty.

Steve : These faculty say, we think this idea is worth patenting or licensing?

Orin : (Nods.) (For) some of them it’s very clear. They say, “I have a new compound that has never been seen before that I believe is relevant for this specific disease.” In other cases, they might say, “I’ve observed this cool interactions between two things. I don’t really know how it’s going to be used yet.”

… 200 faculty labs, 400 inventions… at Columbia at least, we file patents on roughly two-thirds of those, so 200 some odd patents get filed. We, last year, did 117 licenses with companies of which 27 were startups.

If you can’t hear the clip, click here.

Kathy offered insight into the process at Stanford:

(At Stanford) here are close to 500 (new inventions that my office sees.). I would say we file patents on about 60 of them… and we license about 25 to 30 percent.

(We think of licensing an invention from Stanford as) “you go over my bridge, you pay my toll.” We offer a mix of what we call non-exclusive licensing (we will license the same invention to multiple companies)– — (We also offer) exclusive licenses (we’ll license the invention to just one company. We do that as an) incentive for the company to invest the resources (to further develop the technology into a product). … I would generally say (we do) 50-50 (exclusive and non-exclusive licenses.)

We have a strong engineering school, strong medical school, but we’re way more successful in licensing in the medical side of things.   I think (it’s because) the medical industry believes and realizes the importance of patents patents. They  also understand the long R&D phase, much more than high-tech. High-tech is just trying to get a new product every 18 months out. Their patents are just a piece of their picture.

If you can’t hear the clip, click here.

Listen to my full interview with Orin and Kathy by downloading it from SoundCloud here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere: my interview with Grant Warner, director of innovation and entrepreneurship at Howard University’s College of Engineering Architecture and Computer Science, and co-founder of ConnectYard, in part 2 of this post coming later this week.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: Customer Development, SiriusXM Radio Show

Entrepreneurs are Everywhere Show No. 20: Nayeem Hussain and Will Zell

Your product and company vision needs to match your appetite for funding.

And know that just because a venture failed doesn’t mean that you’re a failure.

Funding challenges and other issues founders face in the early days of starting up were the focus of interviews with the latest guests on Entrepreneurs are Everywhere, my radio show on SiriusXM Channel 111 (airing weekly Thursdays at 1 pm Pacific, 4 pm Eastern).

The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Nayeem Hussain

Joining me in SiriusXM’s studio in New York were

Nayeem Hussain, co-founder and CEO of Keen Home, creator of smart vents that create a more comfortable home
Will Zell, co-founder and CEO of Nikola Labs wireless power company

Will Zell

Listen to the full interviews by downloading them from SoundCloud here and here.

(And download any of the past shows here.)

Clips from their interviews are below.

Prior to founding Keen Home, Nayeem Hussain spent his career focusing on M&A, corporate development/strategy, and financial analysist, first at Prudential Financial and then at Loral Space & Communications. He previously founded N&N Investments LLC, a real estate investment holding company; and is a program leader and fellow of the Startup Leadership Program. 

He stressed that your product and company vision needs to match your appetite for funding:

One thing that we learned very early on was, have a plan for fund-raising. … We had a lot of inbound interest from investors, but to be painfully honest … we were not ready to engage with professional investors (because) we weren’t able to coherently communicate a broad vision.

We were portraying the company as a vent company.  

Steve :  And they wanted a bigger business than just a vent company.

Nayeem: (Nods.) If you’re a venture capitalist … you have limited partners that give you money to invest on their behalf, and you’re responsible for giving them outsize returns. The limited partners could put their money in the stock market, but instead, they give it to you, the venture capitalist, which is much more risky, but you’re promising them huge returns. Therefore a venture capitalist needs to invest in startups that can turn into billion dollar companies.

Steve :  And a vent company wasn’t that?

Nayeem: A vent company might have been a hundred million, or a couple hundred million (dollar company,) which to most people, including myself at the time, sounded great. That’s a huge company. I’m coming out of business school building a three hundred million dollar company. Slam-dunk. (But) go in to pitch to a venture capitalist, and … I’m off by a zero. They need to return the value of their whole fund.

Steve :  They want Nest, not the vent, right?

Nayeem : That’s correct. We quickly understood that we needed to really understand what our brand was going to be. … Everyone needs to ask themselves that question. Is your … company venture-scalable and venture back-able?

… For a lot of people, the answer is no, but they refuse to see that, and they end up pitching the wrong type of investor.

If you can’t hear the clip, click here.

Will Zell started his first company, a real estate business, at age 22. Over the past decade, he has launched multiple businesses, including three technology companies. Will was honored at the White House as part of the 2011 Empact 100 list, for his work as a young entrepreneur.

Here’s how Will copes with the inevitable failure founders face:

I think that’s one of the biggest challenges is to not let failure define you. … You really have to separate the pursuit that you’re on, the business pursuit that you were taking, from you as a person. It’s hard, because you’re emotionally invested, financially invested, and it’s tough when something doesn’t work …

One of the most important things that I do, when I have something that doesn’t work is separate the journey …from me as an individual, and then learn as much as I can.

Literally take a significant amount of time to think back, to look back, to analyze what happened, what went wrong, what could I have done better, what could I do better in the future, and be brutally honest with yourself.

Also know that because this particular venture failed doesn’t mean that you’re a failure.

If you can’t hear the clip, click here.

—

Getting Keen Home’s smart vent to market was no small task. Nayeem explained why:

Building a hardware product standalone is very, very difficult because you have to deal with supply chain, you have to deal with customer service, you have to deal with fulfillment.

… our product is manufactured in Shenzhen, China … along with most of the high-tech electronics in the world, so we had to locate a factory, we had to find the right partner to build this product and work with us …

Steve :  Did you personally know about any of this?

Nayeem : I didn’t, no. Thankfully we were able to hire our … Chief Technology Officer, who did this his entire career.

… (Still) We had no idea the complexity that would be involved from sourcing the manufacturer and how long it would take once you found that manufacturer to be able to engineer the product… It’s very different when you’re engineering a product to make 100 of parts. …

You can start by using all sorts of off-the-shelf components, etc. … (But) when you’re going to scale, you have to source components oftentimes from all around the world with different lead times. For example, our product has more than 300 discrete components … just for the vent.

 … oftentimes if you buy the parts in advance they can be as much as 50 percent cheaper. So there’s what called spot market, and a futures market (for parts). Imagine a chart that’s 300 lines long for each component and you have to strategize when you’re going to buy this component and how far in advance you need to purchase it in order to get the price you need to get your cost of goods sold low enough that you’re going to make money on this thing.  

Steve :  Wow, and those are some pretty big unknowns because (the price of) those parts could swing back and forth.

Nayeem : That’s correct.

If you can’t hear the clip, click here.

A strong founding team will help a startup weather the chaotic early days, Nayeem said:

The key thing that I would tell people is really know yourself, know what you’re good at, and know where your holes are. Hire around you to fill those weak spots. …

As an entrepreneur, you’re always fighting that external war whether that’s with partners or with investors. … Make sure that the team you build around you are those that share your passion, share your vision, and really fill the holes from a skill set perspective. ….

Steve :  …was there any time a crisis of faith?

Nayeem : There wasn’t. I can honestly say there wasn’t. There was very many times when we were almost running out of money. Very, very many times. … That’s a crisis of bank account but …, to my team’s credit … when one person’s down the other person picks them up.

…That’s how you know you have a good team because some people are going to have bad days inevitably and you trust your team members to pick you up. Thankfully my team members always have.

If you can’t hear the clip, click here.

Keen Home appeared on the TV show, Shark Tank, in 2012, landing one of the highest valuations in the show’s history. Here’s how being on the show affected the company:

The process for getting onto the show is pretty grueling. You have a lot of weekly touch points with producers for months on end. When you’re trying to build a company, any commitment like that eats up a lot of your time, so you have to think very carefully about it, because it’s an opportunity cost to do other things that might directly benefit your business. We asked ourselves that all the time and the producer was very honest telling us almost every week, “You may not get on a show.” There’s no guarantee that after all this time investment you’re even going to get on television.

We rolled the dice … Certainly, for us, it was worth it because we were on prime-time television for 10 minutes talking about our product.

… It really exploded our perception and visibility in the United States. … Orders increased. Inbound interest for partnerships, for employment, for investment (increased) — you name it from small companies, small HVAC contractors to large companies like AT&T. Certain big brands and large companies that would never return my phone calls were all of a sudden emailing us saying, “Hi. We’re big fans of the show. We saw you were on it. Wonder if you’d be willing to tell us a little bit more about Keen Home.” It really opened a lot of doors for us.

If you can’t hear the clip, click here.

—

Will learned one of the most important founder skills while working as an insurance salesman during college:

Insurance is a commodity, right? You can go anywhere and buy insurance, and you’re going to get a competitive price in most places. You really have to be able to differentiate yourself when you’re sitting across the table selling someone an insurance policy. That ultimately boils down to the personal relationship that you can build with them in a short period of time.

Steve :  Do you think learning how to sell is an integral part of learning how to be an entrepreneur?

Will : Absolutely, 100 percent.

Steve :  Why is that?

Will : Because you’re always selling … You have constituencies, right? When you’re an entrepreneur or when you’re going to start a company… you have groups of people that you have to influence. … You have investors … or directors and advisors. You have your team. … whether that’s partners or employees that you bring on. And most importantly, you have your customers that you want to sell your product or service to.

It’s different types of selling. But it’s sales that really drive your progress with those three groups of people.

If you can’t hear the clip, click here.

Being in Ohio, which lacks the startup ecosystem of an entrepreneurial cluster like Silicon Valley, made it difficult for Will to get funding for his first startup, Huddlewoo:

The type of business that we were building needed an investment of capital ahead of revenue.

Steve :  So you needed to raise money to actually build the business?

Will : Yes, and that was my first brutal intro into the difficulties of raising venture capital where I lived.  

Steve :  There is probably is no venture capital for 50 miles, if not 500 miles.  

Will : Yes, (although)… Columbus, Ohio, has come a long ways, frankly, from a venture perspective.

Steve : Seed round to maybe an A round?  

Will : Ironically, you can get an A (funding round) a lot easier than you can get a seed round right now. …Drive Capital came in (to Columbus). Mark Kvamme, who was with Sequoia Capital, launched a $250 million fund. (But) that didn’t exist (when Will was first starting up) … and even getting a seed round is still pretty difficult. There are some angel investment groups, but the pool of investment capital and number of investors at the earliest stages is very, very small.  

If you can’t hear the clip, click here.

Will also shared the hardest part about being a founder:

Being misunderstood, just completely misunderstood.

Steve :  You mean in the community you’re in where the founder is an outlier, rather than at the core where you go to New York or you to go Silicon Valley and everybody’s a founder, including the waiters?

Will : Absolutely. Every time I go to Silicon Valley I’m like, “Oh, this place is great.”

Steve :  And so why do you stay?

Will : … I want to focus on impacting my community and region as much as I possibly can. That’s important me. Because of that I believe, and am even more convinced now, that there is opportunity and there is ability to build great tech companies in Central Ohio, so I stay because I’m committed.

If you can’t hear the clip, click here.

Listen to my full interviews with Nayeem and Will by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Next on Entrepreneurs are Everywhere : Orin Herskowitz, executive director of Columbia Technology Ventures; Kathy Ku, executive director of Stanford University’s Office of Technology Licensing; and Grant Warner, director of innovation and entrepreneurship at Howard University’s College of Engineering Architecture and Computer Science, and co-founder of ConnectYard.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: Customer Development, SiriusXM Radio Show

Entrepreneurs are Everywhere Show No. 19: Carmen Medina and Don Burke

Change agents inside a corporation or government agency know how to build consensus and be a rebel at work.

They are attuned to finding colleagues who think like they do. And they can figure out how to get new ideas adopted within their organization’s culture and framework.

And oh by, the way my two guests did it while at the CIA.

How to be a rebel at work was the focus of interviews with the latest guests on Entrepreneurs are Everywhere, my radio show on SiriusXM Channel 111 (airing weekly Thursdays at 1 pm Pacific, 4 pm Eastern).  The show follows the journeys of founders who share what it takes to build a startup – from restaurants to rocket scientists, to online gifts to online groceries and more. The program examines the DNA of entrepreneurs: what makes them tick, how they came up with their ideas; and explores the habits that make them successful, and the highs and lows that pushed them forward.

Joining me in SiriusXM’s studio in New York were:

, former director of the Center for the Study of Intelligence at the Central Intelligence Agency and co-author of Rebels at Work
, digital architect for the Central Intelligence Agency

Listen to the full interviews by downloading them from SoundCloud here and here. (And download any of the past shows here.)

Clips from their interviews are below.

, co-author of the book Rebels at Work, spent 32 years at CIA. In her last assignment she was the Deputy Directory of Intelligence and part of the team that led the CIA’s Analysis Directorate. She began the CIA’s Lessons Learned program and led the Agency’s first effort to address the challenges posed by social networks, digital ubiquity, and the emerging culture of collaboration.

Carmen was the first CIA executive to envision many of the applications now used by CIA analysts, including online production, collaborative tools, and Intellipedia, the Intelligence Community-wide wiki developed by Don Burke and Sean Dennehy. Upon her retirement from CIA, she received the Distinguished Career Intelligence Medal. From 2011 to 2015, Carmen was a member of Deloitte Federal Consulting serving as senior advisor and mentor to Deloitte’s flagship innovation program, GovLab, sponsoring research on Bitcoin, Millennials, and the impact of the Internet of Things on government.  

Carmen’s two keys to successfully innovating inside a large organization:

If you’re going to be an effective change agent, you can’t do it alone. Even if you have one other person who can help you and be your guide and counsel during that journey, it’s really important to have it.  

Two, you can’t give up. If your idea is important enough to you, and you’ve socialized it with other people, so that you have other people supporting you, you owe it (to your company to stick with it.) … In my case I owed it to the CIA, and I owed it to what I thought was the national interest to argue hard and not give up on the idea.

If you can’t hear the clip, click here.

has worked 24+ years in the Federal government. In 2005, while at the CIA, Don helped found Intellipedia, the Intelligence Community-wide wiki, with his colleague Sean Dennehy. Intellipedia helped show the way for many other “Web 2.0” initiatives across the Federal Government; Don established many of the core principles for how the Intelligence Community uses Intellipedia. In 2009, Don and Sean won a Service to America Medal.

Don also brought the Wiki concept to the Department of Energy through a project called Powerpedia where he enabled collaboration across the DOE. He is currently working as a “Digital Architect” to transform the CIA’s records management tools, culture, and processes from paper-based to electronic as required by a recent Presidential Directive to all Federal Agencies to manage their records electronically by 2019.

Getting others in the agency to buy in to the Intellipedia idea was critical to the project’s success. Here’s how Don and Sean did it:

What was really powerful is we came together as a team that was cross- organizational…. That allowed us to come at things from very different perspectives. One of the things that I think was critical for us is we had … gravitas in the organization. Both of us were very highly respected, we were both managers, we both had really large networks of people that we knew. …  

Steve : You just weren’t some crazy people who just came in the agency running around saying, look what’s going on outside.

Don : Exactly, and we weren’t part of the IT organization. We were from “mission.” We were from part of the organizations that were … supposed to being doing stuff.

What we literally had to do was we … call every one of our contacts. We would … go down our contact tree, and we’d say, ‘Can we come talk to your organization about this thing called Intellipedia?’ We would go tell them about it, and we’d ask them questions about … their pain points… Invariably… (the people in) that room would say, ‘Well you know, that’s not really for us. The guys right next to us, it’d be really great for them.’ (And) that (would be) the room we just came from.

Steve :  It was circular firing style.

Don : Exactly. (Except) almost without exception, one person in that room would be looking at us with a little … twinkle in their eye. A little questioning of what, maybe (this would work)…

… We had to be extraordinarily attentive to body language, to the language that they were using, and we’d find those folks. Then the next day, we’d go talk with them …

Steve :  You mean you had to act like an intelligence agent.

Don : That and really (for) anyone who’s trying to help people transition their thinking, from one way of habit to another way of habit, you have to be very, very, attentive to their thinking.

If you can’t hear the clip, click here.

—

Carmen discussed the pitfalls of “large organization disease” and how it manifested itself when she worked at the CIA:

I thought that, “Here I am an analyst, and I’m a smart person, and I have only the best intentions, and that the organization would want to hear my new ideas.” It came as a rude shock to me that the last thing anybody really wanted to hear from me were my ideas that were different from the prevailing orthodoxy of the organization.

Steve : In hindsight, what’s going on when smart, crazy, innovative people intersect with the, “No, this is always how we’ve done it” (establishment). What’s going on?

Carmen : Well, there’s several things … going on. In my case, one of the … was that I was advocating too early for an idea whose time had not yet come, as far as that organization is concerned.

An organization has spent so much time preserving and establishing that wisdom, and the protocols and the way of doing things, and along comes this new idea. One of the things I learned is that there is nothing so weak as an idea whose time has not yet come. In an organization, when you’re someone from below trying to present that idea, unless other people see the idea as you do, it’s very difficult to get any kind of traction.

If you can’t hear the clip, click here.

Change agents must to understand an organization’s current culture and how to work within it, she said:

I would stand there and … broadcast my brilliant idea. I gave brilliant speeches and wrote beautiful essays.  

I did that before I did any homework. Before I actually understood how the organization worked. Before I understood the bureaucratic landscape.

What happens in a large organization like the CIA, or really any larger organization, one of their pathologies, one of the symptoms of large organization disease is passive-aggressive behavior. By shouting out my ideas before I did any homework, or any planning, or understood the organization, all I was doing was warning the passive-aggressives, who went out — because they understood the administrative rule book way better than I did — and laid all these traps, and I just stumbled right into them.

The first thing you have to do, there’s no precise order, but there is an order in your organization that’s going to work. You as a change agent need to be smart about that before you start broadcasting your ideas.

… You have to understand the order of battle and the tempo. (Some) of the … characters that live in large organizations I call … bureaucratic black belts. A bureaucratic black belt is the person who (understands) the existing order of the organization. That’s, after all, what organizations are there to do: preserve the existing order. They know all the rules and they want to preserve that order. A change agent like me usually thinks like they’re the scum of the earth. They’re worthless. Our advice to change agents … is befriend a bureaucratic black belt… who can be your guide.

Find someone who’s neutral or to whom you can talk. Ask them questions… People love to be interviewed. … They love to be flattered. Ask them questions like, “You’ve been around for 20 years, Jack, and I bet you’ve seen some successful initiatives. What made them succeed?” Another question, “The ones that weren’t worth the effort, what about them told you not to support them?”

If you can’t hear the clip, click here.

Also, Carmen cautioned, not all rebels at work are effective:

A bad rebel does it alone. Bad rebel is ego-driven, which is probably similar with doing it alone. … Bad rebels don’t have a sense of humor about what they’re doing. (They) are really eager and aggressive to go forward.

We say that good rebels are actually reluctant because a good rebel has actually understood what he or she is getting herself into and is not sure that they want to risk their job, their livelihood, their reputation on this.  

Steve :  You also said good rebels build consensus.

Carmen : Yes, of course.

If you can’t hear the clip, click here.

—

Don shared how Intellipedia came to be:

(In 2005, Stephanie O’Sullivan, then the CIA’s director of science and technology) asked me to look at how do we do a better job capturing and tracking information, because the world was changing so fast under our feet …

…. If we think about that, even in the 2000s, (circa), 2005, the iPhone wasn’t out yet and we were still really emerging into the modern era. But a decade or so in, probably a little more, we were living in a world where the information was flowing so fast inside our organization, in shared drives and different kind of databases, and here and there, that it was much harder to actually know … what we knew.

Steve :  You were being swamped by information.  

Don : Absolutely, and … she wanted to know how could we do this a little better? My past experience had said, we try to do these big projects that solve these big, hard, intractable problems … and they can never get enough money, they can never get enough traction, because the organizations revolt.

Steve :  You mean like building a giant data warehouse. …There’d be a hundred million dollars, we’ll get Oracle software and we’ll do this, we’ll get three hundred programmers, etc. By the time you get it out, it’s no longer needed or your specs have changed.

Don : Exactly. Just about that time a colleague (Calvin Andrus) had written a paper called The Wiki and the Blog: Towards a Complex Adaptive Intelligence Community. …

… He was briefing it around (she Intelligence Community) saying there’s this thing happening. … As a nerd I had a little bit about Wikipedia, which was four years old at the time … and these things called blogs. Can you imagine? Inside our hierarchical organization, the concept of that was just going nowhere, of course. It was just like, “Are you kidding? Anyone can just edit?”

He started talking to my colleague Sean, and through a whole series of efforts we partnered with a variety of people to set up a server in a part of the network that allowed all of the different intelligence agencies to access it. This was really novel stuff at the time.

… the idea that there would be a place where anyone in the intelligence community could post something without approval was really, really a transformative and disruptive idea.

If you can’t hear the clip, click here.

Here’s how Don engaged his colleagues in the effort:

I learned (that) inside of large organizations (one of) the most important things is to not have a big title and not have a lot of money.

… Because inside of large organization you have to change multiple teams. There is no way of having disruptive innovation by changing just one team. When you have a big title and you have a big program everyone sees you through the lenses of that title and that program.  

… You become your title and they wonder what really is your motivation? What are you really after, and the result is they think you’re on a power play. It is much harder for you to expend, to execute persuasion because of the biases of that title. Sean and I during Intellipedia time selected titles that didn’t mean anything.  

… I adopted Intellipedia doyen (as a title). … I got that because a friend of mine who we had persuaded Intellipedia was an interesting thing had used that term (doyen) to refer to me. Of course I had to look it up at that time.  

… It basically means like a senior statesman in country … without portfolio. They’re a person that has gravitas. I adopted that …

Steve : (So) they didn’t feel threatened?

Don : Well, they may. (But) The first they had to ask, Who are you? and Where do you report in the organization? and What’s your authority? By that very fact they were then having to engage in an intellectual conversation to understand me and what I was trying to do, rather than just say, “Oh you’re a program manager. I know what a program manager is.”

If you can’t hear the clip, click here.

He also explained the difference between intrapreneurship and entrepreneurship:

The core lesson of innovators’ dilemma is if you’re in a big company and you want to create this new thing, you have to expel it. You have to push it out and let it survive on its own. Find its own customer base, build its own structures for reporting, and all startups, I think, do that. They become this small, little nucleus and they try to survive.

Inside of big bureaucracies, you don’t get that luxury. You have to create the change with the existing structures, or build new structures inside the interstitial space of that organization. You don’t get to change out the people. You have to persuade the people.

If you can’t hear the clip, click here.

Listen to my full interviews with Carmen and Don by downloading them from SoundCloud here and here. (And download any of the past shows here.)

And read the blog post on Why Corporate Entreprenuers Are Extraordinary.

Next on Entrepreneurs are Everywhere : Nayeem Hussain, co-founder and CEO of Keen Home; and Will Zell, co-founder and CEO of Nikola Labs.

Tune in Thursday at 1 pm PT, 4 pm ET on Sirius XM Channel 111.

Want to be a guest on the show?  Entrepreneurship stretches from Main Street to Silicon Valley, from startups to big companies. Send an email to terri@kandsranch.com  describing your entrepreneurial journey.

Filed under: SiriusXM Radio Show