By Allan Thomas Chiulli, DigElearn
December 1, 2018
I walk into the Capital Factory, a start-up incubator in downtown Austin TX, on a Tuesday afternoon. The first thing that strikes you is the incredible energy in the place. In many ways, this is a marketplace of new ideas, but the ambience resembles a Middle Eastern bazaar: Lots of noise, movement and energy as people and ideas fly back and forth. The second thing that strikes you is that this is a young crowd. The old 1960’s hippie adage “Don’t trust anyone over 30” seems in vogue. People older than 30 are rare – they must be the mentors who help the young entrepreneurs. In fact, to a Silicon Valley crowd, 35 is the age where founders, in entrepreneurial terms, are considered over the hill!
The old 1960’s hippie adage
“Don’t trust anyone over 30” seems in vogue.
An afternoon at the Capital Factory would lead you to believe that entrepreneurship is a young person’s game. The media plays up this stereotype by highlighting the disheveled, metro looks and attitudes of young newly-minted unicorn billionaires. Button down collars and three-piece suits are foreign to this crowd. Tom Agan at the New York Times article summed up most people’s expectations as follows:
“The most common image of an innovator is that of a kid developing a great idea in a garage, a dorm room or a makeshift office. This is the story of Mark Zuckerberg of Facebook, Bill Gates of Microsoft, and Steve Jobs and Steve Wozniak of Apple. Last week, Yahoo announced that it had bought a news-reading app developed by Nick D’Aloisio, who is all of 17.”
Still, studies on entrepreneurship may show why 50+ can be the best age to start a business:
- A new study by the National Bureau of Economic Research found that the average age of a startup founder is about 41.9 years of age among all startups that hire at least one employee. The study also found that the fastest-growing ventures had founders with an average age of 45 and the youngest startup age category is VC-backed firms in New York, where the mean founder age was 39.
- The Kauffman Foundation surveyed 652 US-born CEOs and heads of product development and found the average and median age of U.S.-born tech founders was 39 when they started their companies. Twice as many were older than 50 as were younger than 25.
- Another study, quoted in Forbes, suggests that Silicon Valley entrepreneurs who have a successful exit have an average founding age of 47.
We all know the stories of how Ray Kroc (at 52), Colonel Sanders (at 65) and Sam Walton (at 44) founded their amazing business empires. We also read about Reid Hoffman founding LinkedIn at 36, Chip Wilson starting luluemon at 42 and Bernie Marcus creating Home Depot at 50. The list goes on. Vivek Wadhwa, a well-known technologist, stipulates that “ideas come from need, understanding of need comes with experience and experience comes with age.”
So, what is the difference between the Capital Factory’s super-bright college student, impatient with classwork, who may even drop out to pursue his or her big idea and the older (40 plus! ?) man or woman as they undertake start-up opportunities?
The most common image of an innovator is that of a kid developing
a great idea in a garage, a dorm room or a makeshift office.
A story from my personal experience may help illustrate a common difference:
In 2002, I was working at Jackson National Life (JNL) where we spent $20 million to build and launch Denver-based Curian Capital, a fractional share-based Separately Managed Account (SMA) program. One day, during the buildout, I was visiting the JNL corporate HQ in Lansing MI when George, JNL’s extremely capable Head of IT, proudly ushered me into their corporate data center to show me his new prize possession: He and his staff beamed with pride as they unveiled a refrigerator-size $1.1 million mini-computer that would power all Curian’s operations. Now, we were still five months away from the launch of the company and had $0 in assets under management (AUM).
Today, this approach would be considered insane and would probably get George summarily fired. No one would dare incur a $1.1 MM fixed cost to create that much excess capacity in data processing. Today, data is on the Cloud at a low, metered (based on usage) variable cost. Additional capacity is added at the turn of a dial on an Amazon Web Services (AWS) or Microsoft Azure dashboard. Now, in 2018, it would take many years to spend the same $1.1 MM on data processing!
The point of the story is that, in a Digital Age, the rules of forming a startup company have changed. These changes are dramatic and for the better. Now, the days of extensive business plans, large upfront capital commitments, long product development cycles, corporate data centers, low and slow data usage, hierarchical management structures, large employee staffs and a “damn the torpedoes” mindset are gone.
In a Digital Age, the rules of forming
a startup company have changed.
If you walk into any Venture Capital (VC) funding pitch meeting today and mention any of the above factors as part of your plan, you can watch the VC folks pull out their iPhones to check their email as you kiss your funding chances goodbye. Of course, this assumes the VC people don’t get up and walk out.
The problem with so-called Ageism is that the Digital Obsolete still think in a year 2000-era frame of reference in building products and companies. So, the problem is not age, but the mindset towards digital transformation of many over the age of 40. So, Ageism does not stifle Entrepreneurship, but becoming Digital Obsolete sure does!!!
This new startup method, used by the Digital Savvy (of all ages), has a name: The Lean Startup, based on Eric Ries’ 2011 book. The essence of this method crystalizes in Ries’ definition of a startup:
A startup is a human institution designed to create a new product
or service under conditions of extreme uncertainty.
($20.80 Hard Copy New/$11.07 Used/$13.99 Kindle)
According to Ries’, regardless of size, sector or activity, a startup must acknowledge this uncertainty and determine if their a product or service:
- Solves a problem,
- Has a scalable market, and
- Provides a benefit that people are willing to pay for.
If a startup does not satisfy all three of the above criteria, the startup should either be dropped or its product or service must evolve (pivot) to a new offering that does satisfy these three requirements. Assumptions and wishful thinking go out the door and are replaced by highly disciplined data analytics using a Build-Measure-Learn cycle.
Using a Lean Startup mindset and methodology, let’s look at how the Digital Savvy develop ideas, build products and create companies:
|OUT:||Extensive Business Plan|
|IN:||One-Page Business Model Canvas|
50-page ultra-detailed business plans are useless when confronting conditions of extreme uncertainty. Nowadays, no one will read long business plans full of guesswork projections and hockey stick revenue charts. Venture capital people joke that every startup’s business plan shows year three as the big winner! Instead, startups use a one-page, nine section Business Model Canvas. A popular version from Ash Murya is below:
Or: search on “one page business model canvas” and click on images for a variety of samples.
|OUT:||Long Product Development Cycles|
|IN:||Rapid Testing and Iteration|
The two-year build and launch cycle is dead and buried. Now, the goal of product development is to learn, as quickly, efficiently and cheaply as possible, whether a product or service satisfies a need, has a market and people will pay for it. These answers come from constant, rapid testing cycles using relatively inexpensive and quick-to-market Minimum Viable Products (MVPs), thereby enabling a startup to generate validated learning supported by extensive data from actual customers. MVPs serve as a platform for rapid Build-Measure-Learn experimentation cycles that build on previous learning, continuing refinement and consistent improvement. DevOps, Agile, microservices and containers follow.
|OUT:||Large Upfront Capital Commitments|
|IN:||Capital Contributions Tied to Progress|
Large upfront commitments are rare as capital contributions are tied to achieving progress milestones. Still, the VCs recognize the inherent uncertainty in startups and that pre-set milestones may be missed. The VCs often weigh their confidence in the startup’s management team and the value of the startup’s validated learning as they evaluate additional contributions.
|OUT:||Corporate Data Centers and High Fixed Costs|
|IN:||The Cloud and Low Variable Costs|
Corporate data centers are out and the dashboard-driven Cloud is in. Capacity is added or removed at the turn of a dial. Data storage also moves to the Cloud and data scientists become extremely valuable.
|OUT:||Low and Slow Data Usage|
|IN:||AI-Driven Predictive Analytics|
Artificial Intelligence (AI), Big Data and the Cloud work hand-in-hand, that is, they converge into a single operating experience. The Internet of Things (IoT) is also important as remote devices are loaded with powerful Internet-connected sensors and processing power. Decisions are pushed to the edge, where the sensors are located as AI-driven predictive analytics replace guesswork.
|OUT:||Large Staffs of Employees|
|IN:||A Core Team Surrounded by Gig Talent|
Large, expensive staffs of employees are out. Core teams supplemented by gig workers form new teams, accomplish their task and are disbanded. The gig workers are talent, as they move to new teams or move back and forth among teams at different companies.
|OUT:||Hierarchical Management Structures|
|IN:||Flat, Flexible Teams|
The constant experimentation, and decisions whether to proceed to scale, require a flat management structure with a free-flow of information and the elimination of pet projects and vested interests. Innovation and responsibility are distributed and flattened. Leaders provide the vision and ensure a healthy ecosystem of core, talent, resources, experimentation, validated learning, technology, scaling, partners and distributors.
|OUT:||A “Damn the Torpedoes” Mindset|
|IN:||Validated Learning and, Possibly, a Pivot|
Today’s entrepreneurs should never assume anything! The “damn the torpedoes, full speed ahead!” mindset of yesterday is replaced by constant experimentation, an openness towards learning and an understanding that failed experiments are expected, valuable and instructive. In fact, too little failure may signal constricted thinking. Amazing transformations have occurred during Build-Measure-Learn cycles. The result may be a pivot: The original product or service is dropped in favor of a new product or service based on MVP-based validated learning that a revised product solves a problem, has a scalable market and that people will pay for it.
Here are seven famous business pivots by startups:
- Twitter: Began as Odeo, which helped people find podcasts.
- Paypal: Began as Confinity, as people beamed payments from their PalmPilots.
- Groupon: Began as The Point, which was a social fundraising site.
- Flickr: Began as Role Neverending, an online role-playing game.
- com Began as Fabulis, a social network targeted towards gay men.
- Pinterest: Began as Tote, which allowed people to browse and shop their favorite retailers.
- Instagram: Began as Burbn, a check-in app that began as an online game.
As we see, Ageism does not stifle Entrepreneurship, but being Digital Obsolete can. The rules governing startups changed – startups are faster, sleeker and cheaper than before. In fact, VCs at one time despised the Cloud, as the VCs received large chunks of equity in return for funding a startup’s data center. Now, VCs give away free Cloud credits to startups. The reason is that the Cloud enables the VCs, with the same amount of capital, to reduce risk as they diversify their portfolios across a larger number of startups.
This new startup method, used by the
Digital Savvy, has a name: The Lean Startup.
The Lean Startup is an important element in the human side of digital transformation and one that entrepreneurs of any age ignore at great risk to their new endeavors.
If you are not sure if you are Digital Savvy, then please go to our www.DigElearn.com website and take the FREE Progress to Digital Savvy quiz. Regardless of a high or low score, you now have a starting point to measure your improvement. Also, please visit our FREE digital learning resources and look at our membership programs.
You will Win in the Digital Tornado!
Allan Thomas Chiulli is the co-founder of DigElearn, an online digital learning membership experience at www.DigElearn.com and the author of Winning in the Digital Tornado. Both are guides to digital transformation for business and technical people needing to catch up and stay ahead of digital transformation. Readers may take a free quiz to measure their Digital Savvy at www.DigElearn.com.