to Use This Book
Our goal with this book is to help you figure out in advance which ideas are worth experimenting with. While this book is intended to be read from beginning to end, we have organized it so that you can read each chapter independently. We want to provide you with a structure to evaluate the idea you have in a formal and comprehensive way while allowing you to quickly think about the key issues that will come up.
We aren’t trying to create a new methodology for starting a company, nor are we trying to replace approaches like Lean Startup. Instead, we are taking a step back and engaging earlier in the process. This book is intended to be read before you read The Lean Startup or participate in a Lean LaunchPad process. We’ll provide plenty of context around different approaches and resources for getting your business off the ground, but our primary focus is in helping you with the prestartup, or the opportunity evaluation phase, when you are still deciding whether to put energy into the startup.
In addition to our perspectives, we’ve included examples from entrepreneurs and the investors who funded them at very early stages. Many of the examples are of companies that have grown substantially. By going back to a point in time near their inception, you can get a sense of how and why the entrepreneur and the investor decided to pursue the opportunity. Other sidebars include expert analysis from practitioners or academics of some of the more important elements in the opportunity evaluation process.
Our primary professional focus is in investing in high-growth startups. Brad’s experience, through Techstars and Foundry Group, is primarily in high-tech companies. Sean’s experience, through Dragons’ Den (Canada’s version of Shark Tank) and his own investing, is primarily in consumer products. To make this book applicable for anyone interested in starting a company, we’ve used examples from each of these domains.
Who This Book Is For
We wrote this book with first-time entrepreneurs in mind. However, we have received feedback from experienced entrepreneurs that this book has been helpful to them while thinking through their next opportunity.
As entrepreneurship engages a wider range of younger people in our society, we see a dramatic increase in entrepreneurial activities from high school and college students. This book is aimed at them and is intended to be used as a part of an entrepreneurship curriculum.
This book is for educators, particularly those teaching entrepreneurship and opportunity recognition and evaluation courses. If you are a teacher whose students often ask, “How do I know if my idea is worth pursuing?” then this book is for you.
This book is also for friends and family who support the entrepreneur on her complicated and challenging journey. If you are an entrepreneur, you can use it as a source of dialogue with your spouse, your siblings, your parents, and your children.6
This book is for fans of Dragons’ Den and Shark Tank. If you have wondered how the judges choose which companies to fund, you’ll enjoy this book.
This book is also for investors, especially angel and early-stage investors, as they try to better understand a new business. In the same way that the entrepreneur can use this book to help shape an opportunity, an investor can also use these concepts to help evaluate an opportunity.
Most of all, the book is for all those who have a passion for entrepreneurship, especially those of you who know that only the very best opportunities deserve your blood, sweat, and tears. Ideas may be worthless, but your time, energy, and focus are not. Friends only let friends work on great opportunities.
CHAPTER 2
The Democratization of Startups
Now is an amazing time to be an entrepreneur. Startup communities are being built all over the world. You don’t need significant capital to start a new business. Knowledge about how to start and scale companies is more prevalent than ever.
Twenty years ago, the Internet was starting to be used in a commercial way. Today, an entire generation has grown up net native, and people are living their lives online and unaware of a time when the world wasn’t interconnected by technology. The rapid change and increased availability of technology has radically impacted how companies are started and built. The dynamics around barriers to entry, especially in businesses that have constraints around communication and distribution, have shifted in favor of startups.
This applies no matter where you are located – from Silicon Valley to Berlin, from New York City to Iowa City. The emergence of concepts like the sharing economy, the growth of smartphone use and the accompanying app explosion, and the interconnectedness of many business functions are democratizing the ability to start a new company.
The Cost to Launch Is Approaching Zero
In the dot-com boom (1996–2001) software companies needed several million dollars of funding to buy equipment just to get started. There was no Google to help attract users, there was no PayPal to make payments frictionless, there was no AWS (Amazon Web Services) to remotely host your application, and there was no Shopify to build your e-commerce store. Just as it was with the early settlers in Alaska, there was no infrastructure to support nascent entrepreneurs. If you wanted to launch a jewelry business online in 1996, you not only had to have kickass jewelry, you had to build your own storefront and your own payment transaction engine, and you had to attract customers one at a time. Basically, you had to put all the pieces together yourself.
By the Web 2.0 era (2007), the cost to start an online business had dropped to less than $500,000. Much of the infrastructure that you needed existed in some form. By 2012, cloud computing had emerged along with software that integrated most of the supply and demand chains. Now you could get going with under $50,000. Today, that number is even lower, with the requirement often being a laptop, access to free Wi-Fi at a Starbucks, and a few online services.
This radical drop in cost is a result of the rise of Internet infrastructure connecting all aspects of business along with the immigration of billions of people onto the Internet. Upfront Ventures summarizes this beautifully in the visual representation in Figure 2.1.
Figure 2.1 Falling Cost of Tech Entrepreneurs Launching Product
The World Is Flat
In 2005, when Thomas Friedman wrote The World Is Flat, the metaphor of viewing the world as a level playing field set a great backdrop to what happened around entrepreneurship over the next decade.
Suddenly, due to technology and the broad spread of information, entrepreneurs became geo-agnostic (i.e., they no longer must live in a certain place to do business). As broadband and mobile Internet expanded around the world, physical location mattered much less. Today, you can take care of just about everything your business needs from your smartphone or a browser. You can sell to customers anywhere in the world from anywhere in the world. A one-person operation with a website and a presence on social media can reach consumers across the world as easily as a large company. While mass markets are more available, the ability to use demographic and social media data to identify small, specific, specialized markets has never been greater – or easier.
The Path Is Known
When we studied entrepreneurship in the 1980s, before entrepreneurship was a popular word, we were given a book
Don’t forget your pets, especially if you have a rubber duck. For more perspective on the value of talking out loud to yourself, see http://en.wikipedia.org/wiki/Rubber_duck_debuggin.
