30Mar

Startup Quality and the Economy

Todd Crosland

It has long been thought that the number of entrepreneurial ventures in a society is what matters. This makes sense. The more small businesses that are formed in one place, the more jobs become available, and the more money is generated in said place. However, Jorge Guzman and Scott Stern, both of MIT, have found in a recent study that quantity may not be as important as quality.  Their paper takes an in-depth look at the startup field in America, and makes a few predictions about its future.

What Guzman and Stern do in this paper is describe ways to determine if startup companies are going to grow. Startups are known for bringing jobs to wherever they are based, but some types of companies have to hire more than others. If a small mom-and-pop shop opens in a city, for example, it will most likely only need a few employees. However, if an innovative company with the potential for a large amount of future growth is begun, it adds a lot more value to a community. These are the ones that help the economy the most.

The researchers refer to a company’s potential for growth as the ‘quality’ of the company, and link it to predictions about the future growth of a particular area. They mapped out the quality of different startup companies, and how quality linked to each company’s gross domestic product (GDP) growth. They found a significant correlation between quality and GDP growth in larger quality companies, but no significant correlation in smaller quality companies.

Of course, everyone who has ever taken a statistics class knows that correlation does not equate to causation. The GDP growth of specific companies could be directly related to the area in which the companies are growing, for example. However, this is an interesting concept for further study.

In order to predict the quality of a company, Guzman and Stern formed an algorithm. It tells them if a company with either go public or be bought for a large sum. This algorithm does not churn out highly specific results from company to company, but it gives a broad understanding of if a company will expand in the future or not.

While this paper leaves much to be desired from a research standpoint, it is also sends a powerful message to America’s entrepreneurial community as a whole. It disproves the idea that entrepreneurial ventures in this country are on the decline. It also challenges the idea that America’s economic growth is slow going. The amount of quality startups is increasing, which means that economic growth must be increasing as well.

Overall, this paper brings America’s entrepreneurial potential into the light. I am intrigued to see what the startup community will do with this information.

04Jan

Continuous Crowdfunding

Peak Design is a San Francisco-based startup company that generates accessories for small cameras. It recently just finished a Kickstarter campaign to launch its newest product, the Everyday Messenger Bag. The Kickstarter finished on a great note, with a countdown and celebration.

Interestingly enough, this is not Peak Design’s first Kickstarter campaign. In fact, it is its fifth. The company has been using Kickstarter to launch its new products since it first formed. The founder sees it as a great way to not only raise more money, but also to rope in initial customers who are already excited about the product. It seems to work, as Peak Design is doing very well.

Also, the company refuses to take on venture capitalists. This may seem counterintuitive, but Peter Dering, the owner of the company. wants to maintain his control of Peak Design. Their work model may not fit in with the work model of a venture capitalist, as Dering is constantly working from remote locations and employees are not given specific times in which they must be at work. They are encouraged to get out in the world and be active instead. Despite this, the company’s sales tripled in 2015 and, within its first year, Peak Design was profitable.

Dering’s launch of his company occurred at an ideal time. He created his first product, a clip that locks cameras to belts so they do not swing around, when Kickstarter was beginning to become a household name. Dering saw the investment platform as a built-in marketing plan for his products, and, $13 million in sales later, he still thinks along those lines.

Apparently, fully formed companies returning to websites like Kickstarter with new products is not an uncommon practice. However, Peak Design is part of the 1% that has gone back to the website 5 or more times. This is not for lack of trying, however. Peak Design got all it could with its credit out of a bank for its new product before going back to Kickstarter. The money from the bank would have only allowed them to order 5,000 bags, but using Funding Circle and Kickstarter gave them the money to order 45,000 bags. They would not have been able to do this otherwise without a venture capitalist, or having to sell a part of the company.

Overall, Kickstarter and platforms like it have proven to be a great resources for launching companies, and startup companies that have already launched. Startup founders like Dering prefer working in close-knit teams without any backer influence, which is exactly what crowdfunding has allowed him to do.

Whether or not this is sustainable in the long run has yet to be seen.

For more information on Peter Dering and Peak Design, check out this article in Forbes.

15Dec

Japan Rethinks Startups

The startup industry in Japan is struggling. The country is known for its large companies such as Toyota and Nintendo, but such large companies make it difficult for newly-formed companies to distinguish themselves. Younger people in Japan are more likely to take jobs at established firms, as they value having stable career paths and do not like the risk involved in starting their own companies. Therefore, startups do not thrive in Japan, as funding is difficult to come by. The government, however, is looking to turn this around.

The government is hoping to change many things related to their startup industry. They have already been attempting to encourage the launch of small businesses, but now they are paying more attention to companies that support the small businesses as well. For example, the government is focused on venture capital firms, as well as on creating a supportive startup environment and attempting to change the mindset of the less adventurous younger generation.

Obviously, this will take time and a lot of change.

The Japanese government is looking to start by instituting entrepreneurial classes in some schools, to encourage students to think outside of the box in terms of career paths. This will take a large amount of extra education, as much of the young Japanese population is hesitant to get into a precarious financial position.

The government is also working alongside Japan’s Venture Capital Association to push investors into making venture capital investments. Having large companies work with startups will, they hope, encourage professionals to take risks in starting new companies, as the professionals will now have some support. A large portion of this partnership is educating younger people on how venture capital works. They believe a better understanding of venture capital will lead more people to see venture capital investment as an option.

The government is also pouring a lot of money into the startup industry. They have put billions of dollars into helping the industry for the last two years, and the number appears to be rising every year. Events pairing startups with investors have become a trend as well. Basically, the government is working all possible angles to try and make their startup industry competitive.

The Japanese government wants its companies to be able to tap further into the global market. Their efforts to expand their startup culture will assist them in their goals overall, but they certainly have a long way to go.

For more information on Japan’s startup industry, I encourage you to go to this article in The Japan Times.

24Nov

Startups Embracing Washington as Simply Part of the Job

In the early days, tech companies like Google and Microsoft could make it a point of pride not to be involved with Washington politics. They were companies perceived as independent from, or even above politics and politicians. Now, in the golden age of the tech startup, leaders are having to not only accept Washington lobbying as a part of their operation, but embrace it.

According to the New York Times, startups have received a special kind of attention this year. Uber and AirBnb, two immensely popular convenience apps and startup companies have been in the public spotlight after facing a barrage of questions about their operations. Uber in particular ended up in long legal battles with the taxi companies of various cities. Startups that focus on large-scale innovations have gotten the message and are folding it into their day-to-day. Zenefits for example, an online benefits manager, is only two years old but is a member of two trade groups and has hired lobbyists and public relations strategists from the Obama administration.

“For these new companies, the scale of innovation is so big and impactful they necessitate interacting with Washington writ large,” said Kenneth Baer, a former spokesman for the Office of Management and Budget who now advises Zenefits. “There are huge amounts of questions that society has to grapple with that didn’t exist before.”

While overall money spent lobbying has decreased slightly over the last five years, for startups and young tech companies, it has tripled to $47.5 million. It’s hard to say what the effect has been so far, but for Uber and AirBnb at least, it has let them keep growing. For many startups though, the goal of lobbying in the short term is simply to create good will.

Coinbase, a digital currency platform, is one company who knew they would need to look for help in Washington right away. Knowing that finance is a highly regulated industry, they hired John Collins, former senior advisor to the Senate Homeland Security and Governmental Affairs Committee as their 50th employee. He is now their head of government affairs.

Mr. Collins has to prepare talking points about Bitcoin and regularly meets with officials at the Treasury Department, Consumer Financial Protection Bureau, Federal Trade Commission and multiple congressional committees. Every month he and the company’s chief executive meet with government officials. “So much of what I do day in and day out is not even advocating for anything necessarily but talking to folks about the technology,” Mr. Collins said. Bitcoin remains a largely misunderstood concept among people and almost exclusively receives negative media attention.

Startups and tech companies are having to get into conversations with Washington earlier and earlier. Marcela Sapone, co-founder of Hello Alfred, has said she wants lawmakers to consider new regulations that would relieve companies from providing some costly benefits. Such a large change requires careful handling.

“Why are we engaging so early? Mostly because we had to,” she said. “We have no choice but to get into these conversations.”

 

06Feb

Google Launchpad for Indian Startups

Todd-Crosland-Startup-Google-LaunchpadGoogle recently tested its startup mentorship program in Israel and is now shifting its focus to Indian startups. Due to the developing interest in Indian startups, Google has decided to implement its startup program, Launchpad, in India. Monday was the start of the first of four weeks long programs. So far, Launchpad has a shortlist of 20 startups and 1,450 venture capitalists to fund the projects. Most of these companies are in the education and healthcare industries Representatives from Google and other companies will mentor and coach developing startups looking to grow.

This will be beneficial for Google for investment purposes in the future as well as emerging itself in the bolstering digital economy in India. Google Ventures has already invested in a real estate customer support tool, Commonfloor and Freshdesk.

Launchpad is set to mentor close to 100 companies in India. Launchpad started in Israel three years ago, and is currently in 20 different cities around the world. As the digital economy grows, so does Google because companies spend money on Google to obtain a larger customer base. Last year, Google increased online advertising spent by e-commerce companies by 47% year-on-year.

All companies that Google aids in their startup program will be consolidated under Launchpad. Google’s Launchpad is seen as a platform to train developers on how to turn their product into a startup company. While most of Launchpad’s activities will be focused in Bengaluru, Google’s startup mentorship program plans to situate itself in 50 different cities all over India.

Google is not the only company entering India’s digital economy. A couple of months ago, Microsoft launched their business accelerator program Microsoft Ventures in India. From 2013, venture capital funding in India is up 261% or $3.86 billion. Venture capital companies form all over the world are intrigued by India’s bolstering digital economy, as Japan’s Softbank plans to invest $10 billion in India’s startup industry.

16Nov

Mayors Who Look to Improve Their City’s Startup Environment

Todd Crosland Startup Silicon BeachWhat does it take to build a startup environment in your city? Entrepreneur.com put out an article that discusses seven different mayors and the steps they have taken to increase incentives for local entrepreneurs. Most city leaders understand that more entrepreneurs and businesses brining in revenue to the city will be beneficial towards the city’s economic growth. The question, however, is how do they attract these entrepreneurs and develop a startup environment that allows itself to grow? This is the question that a majority of Mayors in budding startup cities are facing. Below are some Mayors that have already taken these steps along with different strategies that they have taken to promote startup growth in their city.

In Los Angeles, California, Mayor Eric Garcetti is focusing on increasing profits from LA’s growing Silicon Beach. The Mayor has recently teamed up with Ernst & Young LLP to launce their Entrepreneur in Residence program. With this program, the city’s team of entrepreneurs will be living in City Hall for a one-year term. The goal of this will be for the entrepreneurs to develop strategies and policies to enhance job creation and the startup community.

Mayor Svante Myrick from Ithaca, New York is creating initiatives to move the startup community from the college campus to the city center to boost the local economy. His plan is to rezone the city center to incorporate commercial buildings as mixed-use space for startups and small businesses.

Last but not least, we have Mayor Greg Fischer from Louisville, Kentucky. Mayor Fischer is an entrepreneurs himself, having invented the automated ice and beverage dispenser seen in most restaurants and convenience stores, SerVend. From his company, he was able to develop a private investment firm and Louisville’s first business accelerator program. Mayor Fischer also recently announced that their one-year old free software-training program, Code Louisville, has received a $2.9 million federal grant. This program looks to fill the thousands of vacant tech jobs in the area.