SEED MONEY EMERGING + EXECUTION CHALLENGES: Two tips from a flight with entrepreneurs

I had a lot of startup action during the first leg of my flight to Cornell yesterday.

I enjoyed a conversation with a young woman assisting a friend’s early efforts to do her first startup (fashion). Then I read a newspaper account depicting how well Reddit (news) grew in spite of being sold to a large magazine publisher. I watched a low budget documentary ("Going Cardboard") about how world-class board games originate from Germany and attract gamers across the globe. The time passed quickly and my favorite sandwich (from home) and Lindt chocolate added a touch of class to the otherwise grind of modern flying.

As the plane approached landing, I began to reflect on what I had been consuming during the four hour flight (SFO to Phily). Two points emerged that I want to share with you:

SEED MONEY SOURCES ARE GROWING, SPREADING AND SPAWNING CREATIVITY

• The range of available startup seed capital is wide and readily available.
  • For example, Kickstarter and other crowd-sourcing fund raiser businesses have made a mark and are here to stay (until such money-raising is abused). “We are looking for some money to do the prototype, looking at Kickstarter and maybe angels” was the opening comment by the traveler next to me. I found it noteworthy that a patent litigant lawyer (generic trials versus patented drugs) knew how this fresh source of funding works. Her friend has a clever fashion design business in the works. That is but one of an increasing number of young people seriously considering obtaining initial capital from the crowd sourcing businesses such as Kickstarter. The implications are going to be fun to watch.
    • Tiny: A creative fishing guide I respect told me three weeks ago that his photographic story about a famous river he loves was going to be published because of funding via Kickstarter.
    • Quick: Cash will arrive fast for a lot of fresh enterprises, small and not so small. Investors will feel a sense of urgency in making decisions to put their money at risk. First time entrepreneurs will expect swift time to money.
    • Surprises: Several startups have raised millions to seed fresh efforts. And so-called “impossibles” have attracted (small amounts of) cash, built products and begun selling them.
    • Innovative: The lists of (mainly) projects to be funded shows a lot of creativity at work, the things traditional venture capital cannot make money investing in.
    • Abuse: So far no fraud or other demonic uses of Kickstarter have appeared. Let’s hope the clean run continues.
    • Stay tuned.

EVEN THE GOOD STARTUP IDEAS REMAIN CHALLENGING TO EXECUTE

• Execution of even the amazing sounding startup plans remains very tough.
  • Expressed by the experienced gamers in the documentary, I was struck by the serious tone of caution and the complexity in their stories. They openly shared how the joy of the startup process had lead them though successive stages, from initial game idea through final launch, during which they encountered staggering issues, challenges and decisions.
    • Initial learning (from naïve and often frivolous beginnings) is soon transformed into a serious process involving specialists. New markets begin with people and simplicity. In this case (board game business), as the learning progressed game after game, the designers began to move more and more through deliberate steps and meetings where staffs of increasingly expert individuals critiqued the proposed game. As the fledgling industry began to emerge, so did groups of people who became experts in everything from board design and layout, study of the intent of the game and demographics of the ideal players, creation of proprietary names of the movable pieces and box colors, and so on.
    • Growing expertise leads to specialization of operational skills in new markets and increases operational complexity. This complicates the plans of individuals who want to control the whole product (game) from beginning to end (idea, design, prototype, trials and testing, physical production, publishing, public relations/buzz, launch, inventory management, order taking, shipments, cash flow management). This game documentary told the stories of how several such individuals moved up the food chain to become publishers of games designed by others. Events and bloggers became specialized as well. Designers had more choices to make, more decisions to conclude in the process of getting their games to market.
    • Disappointments are normal. Poignant stories were told by game designers whose very personal creation took two, three and more years to move from prototype to launch via a respected publisher. One example never got off the launch pad after years and triggered a tortuous legal process that finally clarified who owned the publishing rights to the game. Often alone, game designers lamented and warned of what could happen and to do things to be prepared to manage through the mess. Advice to the first timers from the business experienced gamers was poured out during the interviews.
    • Passionate determination is mandatory. The gamers were energetic about what they were creating, enjoyed the people who played their games, and had fun with colleagues whom they worked with. I could sense their passion as I listened to them tell their stories. They saw the hard work worth the costly (emotional) effort.
    • Cinderella stories are stories, yet tough reality is wonderful. Idea to launch to riches is the dream. Sadly it’s a myth perpetrated by the quick-to-print/write media. Reality instead is about a lot of years of very hard work, difficult decisions, losses and troubles, as well as the joy of creative energy put to work doing something the entrepreneur is in love with. The story of Reddit’s eventual success was about a slog of a startup lead by founders who were determined to execute well on their initial plan. Year after year in the face of at least one very powerful competitor (Digg), they continued making good progress. After a series of (now fatal) strategic moves by Digg, Reddit emerged the victor (gorilla of the new market category of news).

BOTTOM LINE: The current wave of startups now includes a group that are going to do impossible things using creative sources of seed financing. As they learn by doing, the lessons of their predecessors will become part of their stories. Their initial joy will soon be complicated by the reality of increasingly difficult execution of the ever-changing plans for their new enterprises. This process of executing a plan for a new enterprise has been likened to “riding a bicycle while you are building it.” It is not easy but has to be done, cannot be avoided. Serial entrepreneurs are open about how difficult doing a startup is, and how you better be in love with your idea before you begin, yet not so in love with it that you cannot pivot and morph it into whatever it must become to succeed. Temper that enthusiasm with wisdom from experienced entrepreneurs and you’ll be much more likely to emerge with what it takes to build an unfair competitive advantage.

I wish you The Best on your Adventure!