Author Topic: What we're now seeing is The Democratization of Entrepreneurship  (Read 1086 times)

rakibul

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What we're now seeing is The Democratization of Entrepreneurship

What's happening today is something more profound than a change in technology. What's happening is that these seven limits to startups and innovation have been removed.

The first thing that's changed is that Consumer Internet and Genomics are Driving Innovation at scale
In the 1950's and '60's U.S. Defense and Intelligence organizations drove the pace of innovation in Silicon Valley by providing research and development dollars to universities, and defense companies built weapons systems that used the Valley's first microwave devices and semiconductor components.In the 1970's, 80's and 90's, momentum shifted to the enterprise as large businesses supported innovation in PCs, communications hardware and enterprise software. Government and the enterprise are now followers rather than leaders.Today, for hardware and software it's consumers--specifically consumer Internet companies--that are the drivers of innovation. When the product and channel are bits, adoption by 10's and 100's of millions and even billions of users can happen in years versus decades.For life sciences it was the Genentech IPO in 1980 that proved to investors that life science startups could make them a ton of money.

The second thing that's changed is that we're now Compressing the Product Development Cycle
In the 20th century startups I was part of, the time to build a first product release was measured in years as we turned out the founder's vision of what customers wanted. This meant building every possible feature the founding team envisioned into a monolithic "release" of the product.Yet time after time, after the product shipped, startups would find that customers didn't use or want most of the features. The founders were simply wrong about their assumptions about customer needs. It turns out the term "visionary founder" was usually a synonym for someone who was hallucinating. The effort that went into making all those unused features was wasted.Today startups build products differently. Instead of building the maximum number of features, founders treat their vision as a series of untested hypotheses, then get out of the building and test a minimum feature set in the shortest period of time. This lets them deliver a series of minimal viable products to customers in a fraction of the time.For products that are simply "bits" delivered over the web, a first product can be shipped in weeks rather than years.

The third thing is that Founders Need to Run the Company Longer.Today, we take for granted new mobile apps and consumer devices appearing seemingly overnight, reaching tens of millions of users--and just as quickly falling out of favor. But in the 20th century, dominated by hardware, software, and life sciences, technology swings inside an existing market happened slowly--taking years, not months. And while new markets were created (i.e. the desktop PC market), they were relatively infrequent.This meant that disposing of the founder, and the startup culture responsible for the initial innovation, didn't hurt a company's short-term or even mid-term prospects. So, almost like clockwork 20th century startups fired the innovators/founders when they scaled. A company could go public on its initial wave of innovation, then coast on its current technology for years. In this business environment, hiring a new CEO who had experience growing a company around a single technical innovation was a rational decision for venture investors.The pace of technology change in the second decade of the 21st century is relentless. It's hard to think of a hardware/software or life science technology that dominates its space for years. That means new companies face continuous disruption before their investors can cash out.To stay in business in the 21st century, startups must do three things their 20th century counterparts didn't:A company is no longer built on a single innovation. It needs to be continuously innovating--and who best to do that? The founders.To continually innovate, companies need to operate at startup speed and cycle time much longer their 20th century counterparts did. This requires retaining a startup culture for years--and who best to do that? The founders.Continuous innovation requires the imagination and courage to challenge the initial hypotheses of your current business model (channel, cost, customers, products, supply chain, etc.) This might mean competing with and if necessary killing your own products. (Think of the relentless cycle of iPod then iPhone innovation.) Professional CEOs who excel at growing existing businesses find this extremely hard. Who best to do that? The founders.

The fourth thing that's changed is that you can start a company on your laptop For Thousands Rather than Millions of Dollars Startups traditionally required millions of dollars of funding just to get their first product to customers. A company developing software would have to buy computers and license software from other companies and hire the staff to run and maintain it. A hardware startup had to spend money building prototypes and equipping a factory to manufacture the product.Today open source software has slashed the cost of software development from millions of dollars to thousands. My students think of computing power as a utility like I think of electricity. They can get to more computing power via their laptop through Amazon Web Services than existed in the entire world when I started in Silicon Valley.And for consumer hardware, no startup has to build their own factory as the costs are absorbed by offshore manufacturers. China has simply become the factory.The cost of getting the first product out the door for an Internet commerce startup has dropped by a factor of a 100 or more in the last decade. Ironically, while the cost of getting the first product out the door has plummeted, it now can take 10's or 100's of millions of dollars to scale.

The fifth change is the New Structure of how startups get funded
The plummeting cost of getting a first product to market (particularly for Internet startups) has shaken up the Venture Capital industry.Venture Capital used to be a tight club clustered around formal firms located in Silicon Valley, Boston, and New York. While those firms are still there (and getting larger), the pool of money that invests risk capital in startups has expanded, and a new class of investors has emerged.

First, Venture Capital and angel investing is no longer a U.S. or Euro-centric phenomenon. Risk capital has emerged in China, India and other countries where risk taking, innovation and liquidity are encouraged, on a scale previously only seen in the U.S.

Second, new groups of VCs, super angels, smaller than the traditional multi-hundred-million-dollar VC fund, can make small investments necessary to get a consumer Internet startup launched. These angels make lots of early bets and double-down when early results appear. (And the results do appear years earlier than in a traditional startup.)

Third,venture capital has now become Founder-friendly.A 20th century VC was likely to have an MBA or finance background. A few, like John Doerr at Kleiner Perkins and Don Valentine at Sequoia, had operating experience in a large tech company. But out of the dot-com rubble at the turn of the 21st century, new VCs entered the game--this time with startup experience. The watershed moment was in 2009 when the co-founder of Netscape, Marc Andreessen, formed a venture firm and started to invest in founders with the goal to teach them how to be CEOs for the long term. Andreessen realized that the game had changed. Continuous innovation was here to stay and only founders--not hired execs--could play and win. Founder-friendly became a competitive advantage for his firm Andreessen Horowitz. In a seller's market, other VCs adopted this "invest in the founder" strategy.

Fourth in the last decade, corporate investors and hedge funds have jumped into later stage investing with a passion. Their need to get into high-profile deals has driven late-stage valuations into unicorn territory. A unicorn is a startup with a market capitalization north of a billion dollars.What this means is that the emergence of incubators and super angels have dramatically expanded the sources of seed capital. VCs have now ceded more control to founders. Corporate investors and hedge funds have dramatically expanded the amount of money available. And the globalization of entrepreneurship means the worldwide pool of potential startups has increased at least 100-fold since the turn of this century. And today there are over 200 startups worth over a billion dollars.Change Number 6 is that Starting a Company means you no longer Act Like A Big CompanySince the turn of the century, there's been a radical shift in how startups thought of themselves. Until then investors and entrepreneurs acted like startups were simply smaller versions of large companies. Everything a large company did, a startup should do--write a business plan; hire sales, marketing, engineering; spec all the product features on day one and build everything for a big first customer ship.We now understand that's wrong. Not kind of wrong but going out of business wrong.What used to happen is you'd build the product, have a great launch event, everyone high-five the VP of Marketing for great press and then at the first board meeting ask the VP of Sales how he was doing versus the sales plan. The response was inevitably "great pipeline." (Great pipeline means no real sales.)This would continue for months, as customers weren't behaving as per the business plan. Meanwhile every other department in the company would be making their plan--meaning the company was burning cash without bringing in revenue. Finally the board would fire the VP of sales. This cycle would continue then you'd fire the VP of Marketing, then the CEO.What we've learned is that while companies execute business models, startups search for a business model. It means that unlike in big companies startups are guessing about who their customers are, what features they want, where and how they want to buy the product, how much they want to pay. We now understand that startups are just temporary organizations designed to search for a scalable and repeatable business models.We now have specific management tools to grow startups. Entrepreneurs first map their assumptions and then test these hypotheses with customers out in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product. When founders discover their assumptions are wrong, as they inevitably will, the result isn't a crisis, it's a learning event called a pivot--and an opportunity to change the business model.The result, startups now have tools that speed up the search for customers, reduce time to market and slash the cost of development. I'm glad to have been part of the team inventing the Lean Startup methodology.

Change number 7
The last one is perhaps the most profound and one students graduating today don't even recognize. And it's that Information is everywhereIn the 20th century learning the best practices of a startup CEO was limited by your coffee bandwidth. That is, you learned best practices from your board and by having coffee with other, more experienced CEOs. Today, every founder can read all there is to know about running a startup online. Incubators and accelerators like Y-Combinator have institutionalized experiential training in best practices (product/market fit, pivots, agile development, etc.); provide experienced and hands-on mentorship; and offer a growing network of founding CEOs.The result is that today's CEOs have exponentially more information than their predecessors. This is ironically part of the problem. Reading about, hearing about and learning about how to build a successful company is not the same as having done it. As we'll see, information does not mean experience, maturity or wisdom.


Reference:https://www.inc.com/steve-blank/changes-to-entrepreneurship-innovation.html