There is a model of startup propagated on the internet and in books, mostly from west-coast authors, and it goes like this: “I will conceive of an idea utilizing technology to address a need in a market, I will write a business plan, I will raise money in stages corresponding to the product development cycle culminating in a product launch in which I will release the next ‘Big Thing’ and after doing this a few times and growing, we will be the next Google.” This is the California state of mind. It involves many, many assumptions about how to found and grow a new technology venture.
Having seen ‘the Promised Land,’ (made possible through the gracious donations of our community) I will begin by saying point blank: It is better than anything I could have conceived or imagined.
Silicon Valley is a theme park for startups. At every stage, there is an overwhelmingly nurturing environment to help young entrepreneurs from the world’s largest network of successful entrepreneurs clustered around industries and interest groups who are all aggressively interested in helping one another, to lawyers that not only back-bill, but will directly invest in a startup, to a network of every kind of service provider that provide world class service for the early stage startup to allow it to remain as lean as possible. There is an abundance of funding for exceptional individuals at every stage, including the napkin, and there is enough backup funding to allow repeated iterations through multiple product concepts until a winning product is arrived at. Every imaginable idea across all technology industries is funded many times in parallel. What is more, there is very little risk to founding a startup: there is every chance that your idea, if it has merit and you are a true entrepreneur, will be funded, and there is an abundance of high paying jobs with a high turnover rate such that you can have a new job tomorrow if your startup shuts down tonight. This will likely be a job where you will develop skills that you can use in your next startup. It is a self-perpetuating cycle. Nobody retires in Silicon Valley; they become investors. It is the natural thing to do. Stanford has an aggressive program to teach entrepreneurship, there is a strong exchange between Stanford and the private sector, and there are an overwhelming amount of opportunities to mingle with high net-worth and successful individuals with expertise in every imaginable problem domain and technology area.
Disneyland is less toddler supportive than is Silicon Valley entrepreneurial supportive. Anyone thats been there that tells you anything less is selling you something.
In that environment, the “California State of Mind” makes perfect sense. It is the basis of the success of their economy, and it is based on a unique history going back 100 years to the founding of Stanford University as a center of idealism and top-shelf education where doing the new and innovative thing was the default course of action.
Through the icons of our age, the Steve Jobs and Googles, we have learned that the ‘California State of Mind’ is the true model of success for technology ventures. This belief is pervasive throughout our community in persons under 30, who cut their teeth reading Crossing the Chasm and Guy Kawasaki. It is the unspoken common knowledge filling the head of any new startup entrepreneur.
There is just one problem: In Atlanta, The ‘California State of Mind’ is a Cancer. It is a disease. It has no applicability here and it destroys lives. The commonly stated idea that the difference between Silicon Valley and Atlanta is one purely of scale is false, and the implication of these differences cannot be understated. There are emergent properties of a startup economy that large, that do not exist at our scale whatsoever.
I can’t say that strongly enough. In Georgia, the California State of Mind will try to kill you and will ruin your life. Its not like us. It wants to kill your family. It belongs on the terrorist watch list. Without the supportive environment of the Valley, the Valley game-plan has disastrous effects on human lives. Time and again I see twenty something entrepreneurs (only one of which was me) following the product development and Valley funding cycle. They create a business plan and pursue funding, which is not available without a working product and traction with customers, so they start using their credit cards. As the prototype nears completion, they start demoing customers. They find that the customer’s requirements are not precisely in line with what they have built, or that the market for their innovation is not the one they assumed it would be. By now the credit cards are maxed and so they desperately pursue funding and try to sell what they have, which nobody wants to buy. It is common at this stage for founders to bail on the venture, including key developers, making product iteration impossible.
When a startup reaches this phase, there is a look in the founders eyes that foretells the coming crash months before they will publicly admit it. Atlanta startups go zombie long before they die. When the crash finally happens, founders drop out for a year or two, and work like dogs to dig themselves out of the debt they have accumulated. This usually involves great sacrifice for their families.
In Georgia, the repeated operation of this cycle, with a few notable exceptions who pull the jackpot handle and come up roses, is the reason for the embittered attitude that many in the Atlanta startup community hold. In the absence of a culture composed of several million persons obsessed with nurturing new ventures, the product development cycle and the ‘Valley venture funding model’ is inapplicable.
In contrast, executed en mass in that supportive environment, the California state of mind still produces products that nobody wants and terrible failures en mass. Funding for an idea and a supportive environment in no way ensures the success of the product, but it does mean that the life of the founder is not destroyed by failure. As a result, the Valley model can be executed repeatedly with few dire consequences.
Nobody wants to openly admit it, but the number of early stage ventures funded in Atlanta this year is very near to ZERO. The entire angel community just got slaughtered in the stock and real estate markets. That doesn’t make them bad people, it just makes them unlikely Angels. They have to get their money in the very best deals, and those deals are growth opportunities in companies with significant revenues – not early stage deals. Early stage investment is therefore a completely nonviable model for building startups in Atlanta. Unless you have a very good reason to believe otherwise, like you just sold a company for $30 million and you don’t need my advice, you should assume that no investment capital is available. The first stage to reaching the next step for Atlanta is to accept this fact, to drop the bullshit and deal with it, because there is a solution to the problem.
The solution to this problem is called Customer Driven Development.
There are organizations in Atlanta that will fund new ventures, and they don’t hang out at Angel Lounge. They’re called customers. They’re called companies. The Atlanta metro area ranks third of all US cities in the number of Fortune 500 company headquarters, including 3 fortune 100 companies. If the de facto product for an Atlanta startup founded by twenty something hackers arose not from social media developments in California, but from early and aggressive contact with Atlanta’s economic powerhouses, who actively participated in the creation of the solution because it solves a serious problem they are having, our funding problem would not matter. We wouldn’t have a funding problem. The ‘funding problem’ is only an issue because we are infected by the California State of Mind which has no applicability here. If the de facto path for a startup was customer driven development, our corporations would fund our startups by purchasing minimum viable products that solve fundamental pain for their company.
To achieve this we need two things:
1) If you haven’t read it, purchase Steve Blank’s book, ‘4 Steps to the Epiphany‘ immediately and read it cover to cover. If you’ve ever tanked a startup, it will shock and awe you. Steve outlines a step-by-step framework of check-points that even the most pencil-necked geek can follow to iterate through concepts with real customers, all of which live outside the building.
Steve Blank is no less than the startup messiah. He will save your next venture. If you don’t read and learn his book, you are missing out.
2) We need an open forum where young founders can learn about problems that our large enterprises are facing. A forum where potential enterprise customers can present problems they are facing. Problems they might look to a solution from a startup to solve.
I have every confidence that this forum is going to happen. I look forward to seeing this, and I hope that we can draw in organizations like TAG and the Atlanta CEO Council to be more engaged with Atlanta startups through these forums.
If we adopt the customer driven development model en mass as a community, and if we actively engage large companies as a part of our early and continued product development, we will be able to reach our own promised land in spite of the absence of early stage funding.
Thats the first part of my prescription for our city and region, written at the AWE event this evening (along with a sales proposal). In my next post I will talk about Atlanta’s vertical markets, and how we need to address problems in those areas if we want to grow as a micro-economy in this city and region. This follows the introductory piece, ‘An Introduction from 35K Feet.’ The next piece is an interview with Konstantine Othmer.
