Thursday, November 12, 2009

Valley of Death

I am involved in a government thing at present, trying to help innovation in another country. There is a bunch of money available to help startups be successful and to try and solve the “commercialization problem.” I am looking at materials around how that process will work and can't help concluding it’s a jobs program for domestic consultants rather than a fix for startup success. There are lots and lost of inputs and activity, lots of boxes to check--consultants who can handle your taxes, legal, IP, and ugg Marketing--well not real marketing in the sense that an entrepreneur thinks about it, but more marcom or branding.

The problem is that good entrepreneurs self-select out of these programs. They don’t need the government to solve these problems for them. If they did they would have little hope of solving the really hard problems of the marketplace, which is of course where they really need the help. Domestic consultants in that country are ill equipped to navigate a foreign ecosystem because they are living in it currently. Like the entrepreneurs, the entrepreneurial service providers, patent attorneys, lawyers, accountants, real estate brokers, etc who all work for equity here in the Valley, don’t do so in other ecosystems and wouldn’t naturally migrate to a government program because they are entrepreneurial enough to do it themselves.

It's not lack of basic business advice that kills startups, it’s the valley of death, that gulf that separates the first early adopter customers and the mass market that propels a company to revenue growth, scaling and success. Many, many companies survive in purgatory for years, without achieving success, but government programs might label them as successful because they didn’t fail ... in other cultures there's a great fear of failing--but as with skiing, if you don’t fall down, chances are you won’t learn to ski!

The power of networking is an awesome thing to behold, and no one uses it better than a great entrepreneur.

So you have a great technology idea for a laser sheep shearing machine and you want to get it funded; you talk to a few friends, and one of them knows an angel or a VC; they set a meeting. That investor doesn’t like the deal but he knows someone else who does, he makes a call, you meet for a coffee and sketch the business model on a napkin. The second investor laughs and you go through five iterations together, and he sends you away with three more names to vet it out. Next day, you meet those three people, one is a domain market expert who has worked in the sheep shearing market for 15 years. The other is a laser expert, who vets your technology, and the third is a former entrepreneur who has never seen a sheep but built five successful laser companies.

After your business plan has been torn down and rebuilt seven more times, you have a fairly invested group, and a solid plan and you can go back to the VC. You also have the names of three other VCs who invest in laser technologies (which means you have the worldwide market for laser investors ;-) ).

One of those VCs tells the former entrepreneur, looks great idea but there are five of those deals going around the Valley now, and I’m pretty sure X funded one of them--better check it out. The sheep shearing guy knows the customers and verifies, yes in fact VC X did fund them, so we’ll cross that VC off the list--is there an angle here to partner, compete, or should we give up this idea? We still have time to put together a new plan, and it isn’t even the weekend yet …

No cash changed hands in these interactions, no commitments were made. If the company had been funded, chances are some of the people who helped would become advisors or BoD members, maybe the seasoned entrepreneur would have ultimately stepped in as CEO. The people involved will stay connected, the entrepreneur who came up with the idea, will try to find ways to help those who helped him, and pay it forward. Value gets rewarded, any good entrepreneur knows this, and knows how to reward and nurture those who help.

One way to deal with the valley of death is simply to avoid it--when pitching an idea to a VC the second best answer you can get is NO, but with sound reasons. It's awful to spend years trying to build a business, languishing in the valley of death, it's far better to avoid it all together and do something else.

If you are Evil Knievel, then you may be able to jump the valley of death. So how do you cross the valley of death?