Mentor Journey: Ecosystem notes 2018
Updated: Apr 12
THE FIELD OBSERVATIONS
THE RISE OF THE INVESTOR ARGUMENT
At the beginning of my journey as a startup mentor, I was fascinated with the founders I met; some of them did not have a fancy educational background, the connections, the money not even the experience required to create their startups. However, this never stopped them to decide on making that startup come to life. If you think about all the hurdles they go through on daily basis, just to survive, it is simply inspirational stuff.
Entrepreneurs looking for mentorship were basically looking for guidance, looking for someone to help them explore questions and investigate answers about their business models. And perhaps that was the most fascinating part of my mentoring experiences.
However, for the past year or so, I have been witnessing a very interesting shift: mentoring requests has morphed from asking for guidance to asking for shortcuts and quick fixes. The focus was mostly on how to get funded, even though most of the time, the asking “entrepreneurs” did not have anything more than an unfinished idea. The questions went from “tell me what I need to say to make the investor give me money” to “I have a great idea, how much would it cost for you to make it look investment ready?”
WHY IS THIS HAPPENING?
From my conversations with the “entrepreneurs”, I noticed that most of them had somehow correlated their personal success with their startups getting funded.
FUNDING EQUALED PERSONAL VALIDATION.
Hence, a lot of brain power and time were dedicated to developing the “investor convincing argument” and not the “customer convincing argument”.
Another major reason was the dreaded investor encounter! Many of the entrepreneurs were dreading to meet the feared investors to the extent that it naturally pushed the need to better understand the customer further on their startup priority list. They never actually met the customer in person. All their customer info were coming from reports and Google. So the customer questions seemed answered. However, the investors are the ones asking all the tough questions and have all the money.
Passing the investor grilling interviews equaled higher personal validation and getting the coveted funding. Of course the higher the funding the better!
THE DEMISE OF THE “HARDWARE ENTREPRENEUR”
Another increasingly reoccurring phenomenon is the depression of the “hardware entrepreneurs”! Allow me first to define what I mean by “hardware entrepreneurs”. They are the group of young man and women with technical backgrounds, attempting to create hardware-based startups. This group of people is characterized by their hard work and diligence to create a hardware-based solution to an observed customer problem. Almost all of them have some kind of a working prototype, an almost clear customer problem yet not a very clear business model.
Developing hardware-based startups takes a lot of time and has higher uncertainty than most of the other types of startups. Accordingly, the local investors’ appetite is usually really low to back up such kind of higher risk ventures. Despite that some of these startups actually make serious progress with very limited resources, they are unable to sustain it because of the pressuring lack of funding, the lack of sustainable ecosystem support and the constant push from their immediate family, university teachers and sometimes colleagues to find a real job! Eventually, they do surrender their dreams and move to finding a job or mostly seek to leave the country!
THE INVERSELY PROPORTIONAL DILEMMA
Another observation from the field is the rise of the lifestyle entrepreneurs and the decrease in the number of startups. This inversely proportional relationship is in my opinion a very interesting dilemma. We have more entrepreneurs than we have startups. (We also have more incubation/acceleration programs than we have startups.)
Being an entrepreneur is the decision one makes to take a “risk” with a certain actionable vision to create highly uncertain but potentially profitable and impactful solution to an observed customer problem. As such, the entrepreneurs are hailed for their boldness to attempt no matter how successful it was. The glory that comes with the success of a startup or the attention that follows a failed attempt and its lesson learned, promotes the entrepreneurs into a rock star like status.
And who among us would not like to be a rock star with all the media glitter and the consequent fan following?
That sparkly dream is suddenly the destination for many of the misinformed young minds. What we are witnessing is the rise of the lifestyle entrepreneurs who will migrate quickly to becoming social media influencers. Perhaps that is why I am getting many mentoring requests for shortcuts to success and not guidance to building value startups. The end result is that we get nothing more than what I like to call “power point startups” and not real value creation ventures.
WHAT CAN WE DO ABOUT IT?
Allow me to share with you some raw ideas. They will require further validation and several iterations until we are able to have a ready to go pilot. The aim here is to create entrepreneurs and not just startups. I know I might be repeating myself, but if we have the entrepreneurs with the right mindset, successful startups will be a matter of time.
FOCUS ON THE ENTREPRENEURIAL MINDSET AND NOT THE STARTUP IDEA:
I believe that focusing on promoting the entrepreneurial mindset is much more important than the startup idea itself or the startup field of activity/tech used. Once we have developed an entrepreneurial culture of learning by doing and not just theoretical learning, install iterative innovative thinking instead of linear process based thinking, personal leadership to vanquish challenges instead of personal branding to accomplish goals and offer an environment that is based on fact based mentoring and not opinion based advising, I believe that creating successful startups will only be a matter of time.
Promoting such qualities will not come by offering startups a typical business school approach to learning on how to create new ventures. If we consider the Steve Blank definition of a startup:”a startup is a temporary organization in search for a repeatable and scalable business model”, we can observe that offering startups a mini MBA style of learning is futile simply because an MBA is designed to teach executives how to execute effectively and efficiently an already established, repeatable and scalable business model. Hence designing, investigating and validating a business model requires a completely different approach of learning. An immersive learning experience that is focused on the curiosity of fact based discovery will offer entrepreneurs the potential to reach better results, in less time with less resources. Actually, it is more like what is taught in science schools rather than business schools. It is how we take an observed customer problem with all its assumptions, turn it into testable hypothesis, collect experiment based data and discover learnings that either validates our approach or requires a “back to the drawing board” action. This approach is repeated until the most critical assumptions are turned into well grounded facts and eventually a point is reached where we are ready to execute. At this point, an MBA type of learning will be highly recommended and essential.
OFFER STARTUPS MOTIVATIONAL FUNDING:
Accordingly, startup funding should support such approach. It is useless to promise startups any kind of funding depending on their attendance and how they fulfill the checklist the different programs impose as a sign of compliance on the startups in order to graduate. Entrepreneurship programs should not be confused with educational programs and should not be designed with the aim to graduate glittery startups but rather designed to give graduating startups a better fighting chance in the business environment.
Funding should be designed to motivate entrepreneurs to create progress with their startups and the amount of received money should be relative to the type of the startup, the time it demands and the level of validation it has reached. I mean, a hardware startup should not by any mean be equated to a service based startup in terms of funding amounts and the needed incubation period. Customer Validation is also critical to measure the progress level of a startup. It is important to identify the progress level of a startup from the point of view of how close they are to understanding the dimensions (functional, social and emotional) of a specific customer’s problem and then how close they are in creating a feasible and viable solution that responds to those different problem dimensions.
To accomplish that, I suggest that entrepreneurship programs should offer serious startups a validation budget and not a predetermined specific funding amount, along side dedicated mentorship from experienced practitioners to carefully investigate the business model value creation potential. This process should take a period not less than a month and not more than four months. At such point, the startup should deliver its fact based results to a diverse panel of experts and investors and accordingly offered funding that is proportional to their level of validation if they have performed in a satisfactory way. The startup is then motivated to start working on developing their technical and operational part by prototyping their tech forward in order for them to progress to the next funding level. Again, the time requirement is totally dependent on the type of startup and its field of activity. I mean, a hardware startup should not be expected to deliver a working prototype at the same time frame offered to a service startup.
If the startups have already completed the first part on its own, then they should present their results and accordingly be offered a place in the second part of the program directly. This process will enhance the allocation of funding, time and resources according to the pace and performance of the startups. The progress of the startup will be measurable and therefor better serviced.
Selection will hence be based on facts and not how trendy the startup idea is or how admirable is the startup founders are. Believe it or not, these factors hold a substantial weight in the current startup selection criteria.
FOCUS ON THE SEEDS OF TOMORROW AND NOT THE LOW HANGING FRUITS:
When recruiting startups, many programs are looking for the stellar startups with the charismatic entrepreneurs and not necessarily the future creators of value. They are looking for the low hanging fruits and not the seeds of tomorrow! I understand that this is a typical corporate approach to creating new revenue streams but it is definitely counter intuitive to promoting entrepreneurship.
Perhaps instead of promoting a program that is focussed to on a certain type of technology, instead focus on recruiting startups that are offering a promising value in a certain domain to a specific customer segment problem. So instead of offering funding to fintech/agritech/healthtech/cleantech or other tech startups, offer entrepreneurs the opportunity to explore the potential of their proposed solutions based on a specific customer segment apparent national/international challenge. In other words, develop programs with problem tracks and not technology specific tracks. For example, the successful African clean tech startup M-Kopa, they managed to convince hut owners in Kenya to replace their kerosene lamps with their solar energy solutions. They did it not by offering a clean tech solution but by offering a reliable fintech solution for customers to easily charge their accounts with credits, in a similar way to charging their telecom line account, to light up their homes according to their lighting needs and their limited budget capacity. M-Kopa is hence not a cleantech startup and not a fintech startup, it is rather a value tech startup, i.e., a startup that used technology to create value for its customer and by its customer. As of Spring, 2017, M-Kopa had connected 500,000 homes and aspires to reach 4 million by 2020.
I believe that this approach will offer entrepreneurs the space to seek “customer value-startup value” fit instead of “startup pitch deck-judging panel” fit! And it will definitely reduce the number of buzzwords in pitches to a minimum, I hope!
We are in a time where entrepreneurship awareness and attention seems to be at its peak all over the country. I mean for the first time in years, entrepreneurship is under the spotlight and substantial number of new programs are being founded with comfortable budgets being poured into them. Despite all of that, we are witnessing a measurable decline in the number of viable startups and instead of witnessing the birth of Egyptian unicorns, we are actually regressing to the time of the “idea” phase startups.
The ‘Silicon Valley approach’ to creating a startup ecosystem is not offering Egypt what it needs. It is time to consider creating the ‘Nile Valley approach’ to creating an Egyptian ecosystem of thriving entrepreneurial future leadership and value innovation startups.