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Given that my limited posting to this blog has centered around alternative ways to do a startup and/or support the startup community  I will continue this theme with a few more thoughts for discussion…

I just finished reading a blog post by Brian Link – Entrepreneurs Need to Bootstrap to WIN – and it prompted me to start writing this post, likely because in comparison to similar articles, it is short and sweet, clear, and to the point.

It’s an opportunity to comment directly on some of the messages in the article and perhaps use them to present an alternate view and ask a few questions for debate.  Here we go:

…Bootstrapping is hard. You need to stick your neck out; quit your job; have some money to spend; have a great network to lean on; and have a lot of confidence and guts. It’s certainly not for everyone. But for the brave who have a great idea, the reward can be huge.

Do you always have to quit your job?  What about bootstrapping in your spare time?  I know many will argue that you can’t be successful unless you throw yourself into something and take on the appropriate amount of risk.  Still, I’d like to argue that there can be opportunity to bootstrap on the side.  Granted your project will move more slowly but, a lot of wannabe entrepreneurs could use this approach to get further along  – develop early beta product, find a few customers, maybe even find some revenue.  Using this approach, perhaps boostrapping becomes a great way to get off the ground without all the risk and can help put entrepreneurs in a position to raise their first round from a stronger position and then fully take the plunge.

Let’s move on.  The next bit moves on to Brian’s four major points.

The best practices for bootstrapping can fill volumes of books, but here’s a quick summary of some ideas and strategies:

1. Equity. By bootstrapping, you can control your own stake and your partners’ equity percentages better. Equity is your most powerful tool to attract big talent. But be careful, there’s great need for balance here. Don’t dole out too much too soon and conversely don’t hesitate to share your equity for the right reasons. Many entrepreneurs fall into the stingy founder’s trap – they refuse to give up equity and because of that, they never get the help they need to launch the company. In that scenario, they have 100% of a company that’s worth nothing. Instead, offer equity to those who can dramatically move your business forward, but get advice about what percent makes sense at your current stage of growth. Equity, they say, is the most expensive compensation you can dole out (1% of your company when it becomes a $100MM company will be worth a million dollars!).

Again, nothing here would stop you from bootstrapping on the side and maintaining control of your equity.  Just be careful to understand the details of your current employment contract to ensure that your employer doesn’t have rights to something you might work on independently from your full-time job.

Brian’s point about the stingy founder is an important one.  It is very easy to guard the equity of a company that’s worth exactly zero, and this will get you no where.  Still, the informational resources available to the startup community often create this sort of mindset for new entrepreneurs as they are warned against the evils of bigger investors who will attempt to take too much equity and ultimately, too much control.  While it is fine and good to talk about raising money when you don’t need it, I think this is unrealistic in many scenarios.  Bootstrapping your way to a mature product, a critical mass of customers and revenue is very difficult without a reasonable first or second round investment.  That all being said, there is no single approach to this issue and simply put, the founder(s) need to be careful and strike the right balance to find and motivate valuable  people and resources while ensuring dilution is not too significant now and in the future.  Not an easy task I suspect.  I have to be careful not to come off as an expert on this matter.  In fact, I’m far from that and simply read and write about this subject out of interest and to spur some discussion.  Essentially, and I’ve said this before in other posts, I think a lot of information and advice targeting new entrepreneurs is generic, unrealistic and only speaks to a small audience.  For those reasons, I’m prompted to have a different or expanded dialogue on the subject.

2. Partners. Choose your partners and co-founders wisely. They should complement your skills and pass both the beer and elevator tests. Is this person someone you’d want to hang out and have beers with? If you were stuck in an elevator with this person for 24 hours, would you murder them? You’ll be spending more time with your co-founders than you might with your family, so best to have a great relationship and high level of trust and respect.

This goes without saying and I’m certain is one of the most important steps in the process to have any chance at success.  An interesting aside to this is the concept of co-founders as “good” friends.  In discussions with my wife on the topic, she gets very nervous about the idea of going into a new venture with a friend.  She believes that there is so much risk involved that you have to be willing to accept the fact that you are suddenly putting your friendship on the line.  I, on the other hand, believe that in order to meet some of the requirements listed above to find a good partner, it’s going to be quite difficult to find someone who is not already a close friend of sorts.  Part of the process and agreement has to be to create a strong foundation on a shared understanding of your approach and goals.  Furthermore, you must always remember that this is business and shit happens.  If your friendship going in is strong, then it should weather the many storms that you are sure to encounter during the startup process.  While Brian doesn’t quite say this, I think that a similar belief comes through in his message.

3. Business Plans. Don’t dwell so much on the format and length of your plan, but rather on the concepts of the business, the product or service and your competitive advantage. You should know exactly what your customer looks like, what alternatives they have, what the value is of what you’re offering and where you’re going to find those customers. And if you don’t have all those answers, get yourself some partners or team members who can. An executive summary of 1-2 pages is best. It should explain the big picture as concisely as possible. Don’t drag anyone through the details of your product until you’ve completely nailed it at a high level. Also prepare a Kawasaki 10/20/30 presentation and the two sentence and three paragraph versions. You’ll need those for marketing and email conversations to get people interested in having conversations with you.

Can’t really disagree with anything here.  I certainly take the first point – don’t worry too much about the format but rather, ensure that you’ve covered off the most important aspects of the product or service.  I’ve done this myself and it’s just a waste of time – especially early in the game.  There is plenty of time much later to spend time on formatting and adding information that certain stakeholders might be interested in seeing but aren’t necessarily critical to the concept.

4. Investors. You’re going to need investors at some point. Hopefully later instead of sooner. But as CEO of your company, your role is chief fundraiser, so start building great relationships. Find a trusted few to be part of your inner circle to give you honest and direct feedback. It’s never too early to plant seeds and start conversations. But be sure your message is polished enough before you request the face to face meeting. It’s not as hard as you think to get meetings with investors. But it’s very hard to build a compelling enough story to make them part with their money. Practice your pitch a dozen times on friends and friendly investors before you start talking to your big target investors. Also, do not assume that the big VC is your only option. Angel investors and chunks of $10-20K are extremely viable. It’s a lot easier to find a dozen people or more with $20K than it is to ask for large fractions of a million dollars from any investor.

Again, it’s hard to argue with anything here.  I think Brian’s last point is the most important one, especially if you’re doing your venture in Canada.  The VC industry in Canada is very small and limited and it seems more realistic these days to raise money through angels, formally or informally.  Creating a network would be vital to raising money and there is no reason that you can’t be doing this all the time, whether you’ve quit your job and thrown yourself into the project or are working on it more quietly on the side.

So in the end, I suppose I wrote this post for two reasons.  Firstly, I liked Brian’s article for it’s simplicity and straightforwardness.  There is so much stuff out there and often it’s convoluted and doesn’t really tell you anything.  This, at the very least, is a quick and helpful reminder of some things to think about when going down the path of bootstrapping your startup.  Secondly, I wanted to add my own point around the concept of taking this same approach but doing it in your spare time.  I’m sure that a lot of people already do this and it’s quite possibly the way that most ideas get off the ground.  What I don’t see is a wealth of information and resources that speak more directly to this approach.  Perhaps that’s because most people in the startup community in some form or another don’t believe that it’s effective.  I’m interested to hear your point of view on this.

Justs came home from my third democamp and again, feel inspired and enthusiastic about the tech/entrepreneur/startup ecosystem that appears the be alive and growing in Toronto.

Firstly, a quick roundup of the democamp 22 presenters:

1.  Converstation with Yossi Vardi and Mark Skapinker – Yossi is a seriously accomplished tech investor who likely has an infinite amount of knowledge and experience from over 40 years of starting and investing in businesses.  Still, it was clear that the only way to tap into that knowledge in a meaningful way would be in a small social setting, through story telling (funny stories to be sure).  Clear and concise presentations don’t seem to be his strong point but he is certainly an entertainer.  Both Mark Skapinker and David Crow attempted to ask the question:  What do we need to do in Canada to invigorate the startup community?  I’ll get back to this later…

2. Agilebuddy – A Brightspark company with a tool to enable agile development and project management using an intuitive, web 2.0 interface and offered on a subscription SaaS basis.

3. Assetize – An ExtremeU graduate building an advertising platform to monetize your twitter profile.

4. iStopOver – Another Brightspark venture allowing peer-to-peer renting of space in people’s homes as an alternative to hotels and hostels.  Starting to do the same with office space.

5. Locationary – Very ambitious project to free data and make it available on commercial websites and products with location specific context.

6. Thoora – A Rogers venture and participant at TechCrunch50 last week – they are indexing the blogosphere, twitter and media sites to bubble up the most popular and relevant information, using what appears to be a pretty cool indexing algorithm that can find blogs and information that are relevant, regardless of the number of links to that information.

7. Uken Games -Another ExtremeU graduate and creator of a facebook game called Superheroes Alliance that is image-based and lets you fight, create missions and kill other super heroes, using your facebook network.  They have 50,000 active players and are cash-flow positive.

Find a more detailed account of these companies and presentations at Thomas Purves’ blog or at the democamp site.

I want to get back to the core question that was asked of Yossi and not really answered, perhaps because no one knows the answer.  How do we find and make available the capital necessary to fund innovation and startups in Canada?

Yossi is probably right in that this type of community is supported by creating the right culture.  I find this depressing though, because I’m not sure that culture is an easy thing to change.  I’ve said it before on this blog – Canadians are conservative investors and, to repeat what David Crow said tonight, are only willing to take on serious risk when it involves drilling into the ground.  The VC industry in Canada is largely dead, with the few funds that exist winding down and no sign of raising new funds.  Not for lack of trying I’m sure, but it’s likely too hard to raise any significant or meaningful funds in this country at this point.  To blame the economy is fair but the VC industry in the US is still alive, along with a much larger Angel community and that economy has been much harder hit than Canada.  Again, this points to a significant cultural difference.

There are certainly people and organizations out there doing good and supportive things in Canada but we need more, otherwise our best and brightest will go elsewhere to find the real money.

So where do we go from here?  Thoughts?  Ideas?  Perhaps we need to take the collective energy spent on new and innovative ideas for startups and pour it into a fix for this fundamental problem.

I started writing this post a month ago after reading an article on Paul Graham and Y Combinator in Inc. Magazine.  I left it and got busy with life and only now, while on holiday on the beautiful Gulf Coast of Florida, have I found the time and inclination to come back to it.

As with one of my previous posts, after reading this magazine article, I am left wondering if there isn’t a different incubator model that doesn’t require what Graham refers to as “ramen profitability,” in reference to the cup-a-noodles the Y Combinator attendees live on under his tutelage.  Here’s where I left off when I started this last month…

Reading Inc. Magazine’s article this month on Paul Graham and Y Combinator got me thinking about the topic of these incubator models… again!

Cheap meals are, in a strange way, part of Y Combinator’s formula for start-up success. Graham wants founders to spend as little money as possible. Live cheaply enough, he believes, and you can become cash-flow positive without going on a lot of sales calls or spending too much time talking to investors. Graham calls this “ramen profitability” and says it allows companies to say no to bad investment terms and forces them to think about long-term viability. It also ensures that most Y Combinator founders are in their 20s — or, for the few who happen to be older, that they are capable of living in dormlike conditions. “That culture of frugality and discipline is really important for the Y Combinator mindset,” says Sam Altman, founder of Loopt, a graduate of Y Combinator’s first class. “The start-ups that do well are the ones that are working all the time.”

In reference to my previous post on this topic, it is clear that Y Combinator and similar models are no place for entrepreneurs with children, mortgages, debt… you know, your average thirty-something professional who hasn’t cashed in on their first startup success and doesn’t necessarily have a spouse/partner/family who can pick up the slack while they give it a go.  Enough with my apparent whining on this matter – I already did that before.  I’m more interested in getting some discussion on the development of another model that might be entirely different from the incubators out there today.

From the perspective of capital, this likely calls for a return to the earlier days of VC funding where substantial series A funds could be raised without product/customers/revenue/etc.  Given that VCs cannot, or don’t need to follow that approach anymore, then the investment comes from the angel community.  This is fine, although I believe it is in the amount of money raised through this investment group (for the most part and especially in Canada) that is the problem for the thirty-something founder.  He/she might need enough capital to build product and give it a real go over the course of 12-18mths, not the 3mths that Y Combinator provides.  This longer period and subsequently larger investment both speaks to what might be required to really get something going and what it takes to motivate the entrepreneur who won’t leave their stable, well paying job to take a chance with funding that covers them for 3-6mths, and at a greatly reduced salary (if they are any good in their current job).

I appreciate that a lot of money was wasted in the initial dot.com boom where VCs and their LPs lost billions by pouring too much money into ideas and businesses that were never going anywhere.  Still, rather than completely changing the model, perhaps we can learn from those mistakes and simply be more prudent in our investments.  Instead, the investment community has simply said, let’s invest a lot less until the idea is fully proved out and then everyone will race to get in and at much higher valuations.  Personally, I think this might leave a lot of good ideas on the table that never get funded and we’ve left the world of tech innovation to the twenty-something, recent-grad crowd and the small group of previously successful entrepreneurs.  In today’s economy, I’d like to think that there are some creative ideas out there to figure out how to motivate and capitalize on the creativity and drive (maybe not the ramen-eating drive) of the large thirty-something crowd who have ideas and experience to go along with their kids, mortgages, student debts and who knows what else.

Just to reiterate my intentions here… Please do not take this as a whole lot of whining and very little action but rather, a call to all those that care about developing a stronger entrepreneurial community, to start discussing ways to motivate and support a group that I refer to as the thirty-something group (which really means anyone who has good ideas and experience but cannot eat cup-a-noodles and leave their families for 3mths to do a startup – I really need a proper name for this demographic!).  Please start discussing here and anywhere else where there are people to discuss!

I can’t believe it’s taken me so long to find such a vibrant tech community in Toronto, supporting entrepreneurs and startups through various forums, including Democamp – periodic events to demo new and exciting products and ignites to pitch startups. This is a fantastic, event for promoting your ideas, getting feedback, networking, improving presentation skills and having a good time. And there’s beer and pizza!

I found this community through some trolling on local blogs and sites, such as:

• startupnorth
• democamp
• Toronto Events Calendar
• OCE (Ontario Centres of Excellence)
• Barcamp/Torcamp

And some personal blog sites – in particular, the organizers and central figures of this specific community:

• David Crow
• Jevon Macdonald
• Jay Goldman
• Joey DeVilla
• Leila Boujnane

Following these people and some of the people around them on twitter has helped immensely to quickly integrate myself into the Toronto tech community and, while I’ve only just met a few of them the other night at democamp, I quickly feel as though my finger is on the pulse and I will meet many more interesting people in the near future.

For detailed info and analysis of democamp 20, search twitter via #democamp and/or #dct20.  I number of people have covered all the details in their personal blogs.

Thanks for a great event and looking forward to future events and getting involved with this great and supportive community of people.

Lately, I’ve read a lot about the local community here in Toronto of tech entrepreneurs, VCs and everyone who falls somewhere in between or on the fringes. Now, I’m certainly no expert and haven’t done all the research to back up my opinions, but I am starting to believe a few things that might be worthy of discussion.

Firstly, the comparisons to the US are problematic on so many levels. While Canada looks and feels very similar to the US, speculative investing and risk taking in general is an area that has always differentiated the two countries. If it doesn’t come out of the ground, the average Canadian investor has no interest until the product is proven and the cash flow is certain. Therefore, it’s not surprising that Canadian VCs have trouble finding Limited Partners and raising substantial funds. Furthermore, the Canadian Government cannot be compared to its more business-friendly neighbour and really, always has much more pressing economic issues around industries and labour markets that need support today. Why would they want to support the privileged, white collar world of engineers and MBAs – even if future success in this area would certainly lead to better economics for the country as a whole.

All this being said, forgetting about the comparisons, what can we learn from our neighbours and our general experiences around this issue? If we recognize that the core issue in building an environment where Canadian entrepreneurs can succeed, is dealing with the question of risk and our baseline of risk tolerance, then I think we might be attacking the real crux of the problem. I was asked the other day what it would take for me to leave my current job to start my own venture and this helped me see that the “risk” of this proposition is the core problem – and that doesn’t mean that I am not a risk taker or that I don’t recognize that the profile of an entrepreneur must be someone who is willing to take on an enormous amount of risk. At the same time, an entrepreneur doesn’t have to be stupid or irresponsible with the risk they take on. This issue becomes all that more important in today’s economy which has completely moved the baseline for what is considered risky.

Because we so often see the world of startups through the stories of overwhelming public success, we get to hear how Mark Zuckerberg dropped out of Havard to make a go of Facebook or how Sergey Brin and Larry Page left their PhD programs at Stanford to take Google to the next level. While we all know that these examples are more representative of winning the lottery than examples or models for statup success, they do end up taking on a place in our minds that might consciously or subconsciously represent the profile of a tech entrepreneur. What if you have this image in your mind, but you happen to be well out of school, have a family to support and you’re just not in a position to start a company out of your parent’s garage? How many amazing products and companies have never been realized because so many of us just can’t quite take the risk, or the capability or idea came to us at a point in life when the risk is that much greater? Now, I might just sound like I’m whining and am afraid to take the startup plunge, but I am trying to get to the point…

What I’m really thinking about is what type of environment needs to exist to push this group of people to explore their ideas in a tangible way. We already have a lot of this in place with the cheap or even free access to technology and infrastructure to really bootstrap a product from concept to production. What we clearly have less of is time and the many other resources required to make a product successful. Take myself as an example. I have ideas and a strong background in technology product management with over 12 yrs of experience but, I’m not a pure engineer and can’t really develop my ideas into working code – or at least something that I think is worthy of putting in front of a customer. The fact is, I’m not a developer. Now, this shouldn’t be a problem in a world where development is becoming (if it isn’t already) a commodity. But, if you’re not in a position to fund the development yourself, where are you left? The days of investing in ideas are over and investors want to see real product, if not customers and revenue to back it up. You can’t get to customers and revenue without the product so how do you get started.

The incubators like Y Combinator are really targeting the 20-something team who have a cool idea but more to the point, are capable of developing it themselves both because they can code and, more importantly, there is nothing whatsoever in life holding them back. In my 20s, nothing would hold me back from trying something new, not getting paid, moving away. In fact I did some of this, but it’s now that I have experience and ideas that I think are worthy of taking to market.

I’m going to think on this some more. I have some ideas about how one might foster a better environment targeted at this group of people, myself included, that can’t work for free in a garage. I’d love to hear your thoughts if you’re reading and have anything to say.