• The Hub For Revolutionizing The Way Startups Work

  • NYU Course on Startup Communities

    Ian Hathaway is teaching a course at NYU called Urban Innovation that features Startup Communities as one of the primary books in the course. The agenda (Urban Innovation Syllabus) looks great.

    While this isn’t the first course I’ve seen that used Startup Communities, it’s the first one where Startup Communities was a central part of it. Ian – thanks – and if there’s anything I can do to be helpful, or if you have any feedback from the class about the book, I’m all ears.

  • Measuring Entrepreneurial Ecosystems

    Dane Stangler and Jordan Bell-Masterson of the Kauffman Foundation have come out with an outstanding paper on Measuring an Entrepreneurial Ecosystem.

    I constantly get asked the question “how are we doing?” and “how can we measure the success of our startup community.” I’ve never had a particular good answer to this, especially one that is quantitative.

    Dane and Jordan have taken a great first crack at this with a paper that I think will be viewed as the starting point for a real discussion about long-term growth and measurement of the health of startup communities (or entrepreneurial ecosystems – call them whatever you’d like.)

    The four measures they focus on – density, fluidity, connectivity, and diversity – are well-defined. The measurements proposed are a great starting point, where Dane and Jordan acknowledge their own hypotheses and ask for feedback.

    I strongly encourage this paper to anyone interested in this topic. Dane / Jordan – I’ll be regularly pointing people to it. Great job on going after a very challenging topic.

  • Thoughts From Abraham Aquino On Why We Need Startup Ecosystems

    Before you ask “who is Abraham Aquino”, my answer is “I don’t know, but he wrote a nice piece on why we need startup ecosystems that highlights Startup Communities.”

    It’s awesome to see people all over the world writing about the Boulder Thesis and the principles in Startup Communities. It’s even more awesome to see people all over the world implementing them!

  • Startup Boards Review By HBS Professor Noam Wasserman

    Last year I co-authored a book called Startup Boards: Getting the Most Out of Your Board of Directors. It was a challenging book to write and we worked hard not to make it boring. We’ve gotten a lot of positive feedback on it from entrepreneurs and board members.

    Yesterday, Noam Wasserman, a professor at Harvard Business School who wrote the magnificent book The Founder’s Dilemmas, wrote an extensive review of Startup Boards. With his permission, I’m reposting it here.

    If you are an entrepreneur with a board of directors, a board member, or someone aspiring to be a board member, I encourage you to grab a copy of Startup Boards: Getting the Most Out of Your Board of Directors.

    ————-

    Four years ago, at a panel discussion for my Founders’ Dilemmas course that featured a handful of experienced serial entrepreneurs, one of the questions raised by a student was, “What’s the most important piece of advice you’ve ever gotten from a mentor?” After thinking for a few seconds, one of the panelists said, “That the goal of every board meeting … is to end it.”

    My heart fell when I heard that answer. A board of directors can be an extremely valuable part of a startup’s foundation, filling in the team’s biggest remaining holes and helping the founders overcome big-picture challenges. Yet, this experienced entrepreneur had gotten burned by his prior boards so often that he chose to give up a board’s potential value by avoiding building or convening a board.

    Fixing such problems is a core mission of the book Startup Boards, by Brad Feld and Mahendra Ramsinghani. If you are pushing off creating your board because of fears like the ones expressed by the panelist in my course, or you have an existing board that you would like to manage more effectively, you should read this book, underline the key elements of its diagnoses, and put asterisks next to their prescriptions. Its content is most relevant to those who have investors on their boards, but much is also relevant to other types of boards, as I discuss below.

    Frank Diagnoses of Misalignment and Conflicts

    At its core, board relations problems are caused (1.) by a lack of knowledge of pitfalls and best practices, and (2.) by inherent misalignment between founders and the members of their board. Unfortunately, investors often paper over the fact that board dynamics can be extremely challenging for founders and CEOs, reinforcing both the knowledge and misalignment problems. They paint a simplistic picture of adding value to the venture, downplaying or even ignoring the risks they might heighten or the conflicts that might arise from their involvement. For good reason, CEOs are also often cautious around their boards: Feld and Ramsinghani quote CEO Paul Berberian that, “every time you are in front of the board, it’s an opportunity for them to judge you.” (p. 100)

    This book explicitly acknowledges that such conflicts exist, and reminds the reader of those challenges on a regular basis. The authors state, “While a great board can be a guidepost and a positive catalyst, a bad board can cause angst and frustration, destroy value, and occasionally kill a company.” (p.7) Soon after, they zoom in on investors in particular: “Since investor board members are also trying to make a financial return, conflicts of interest can arise at every step.” (p. 14) Echoing the core motivation for my own work – the finding that of the high-potential startups that fail, nearly two-thirds are due to interpersonal problems between the founders or between founders and the people brought on to complement them – they quote CEO Dane Collins that, “Board dynamics are 95 percent social and 5 percent financial.” (p. 75)

    A central area of conflict, who should be CEO, is highlighted in the book. After all, “the ultimate decision of a board is hiring and firing the CEO.” (p. 27) Too often, such transitions are not handled well by one side or another. When the high-stakes inflection point of founder-CEO succession goes awry, “The problem lies on both sides – while entrepreneurs are slow to recognize their own shortcomings and ask for help, VCs are often too quick to jump the gun and seek change of guard.” (p. 147) In the book, Micah Baldwin provides an interesting lens on board dynamics and successor: “If I don’t get fired, then I know I’ve had a good board meeting.” (p. 12) If anything, given both the importance of succession and Feld’s expertise in it, I would have loved to have seen even more in the book on the pitfalls he’s seen when the succession process isn’t handled well and the best practices that he has personally developed.

    Prescriptions

    Given this diagnosis, the authors detail some viable prescriptions. Impressively, they not only outline actions for founders and CEOs, but also demand actions from boards. For instance, on the board’s side, “At times … interests conflict with each other. The board ultimately is responsible for navigating any conflicts that arise.” (p. 11; emphasis mine) While inexperienced CEOs may back away from requiring action from board members facing a potential conflict, a savvy CEO earns a board’s respect by tactfully highlighting potential disconnects and fostering dialogue until matters are resolved to his or her satisfaction.

    Feld is particularly frank about the ways in which the structure of the VC industry can heighten conflicts. For instance, the authors push founders to recognize that when VCs face a conflict between a fiduciary relationship to their own investors, their LPs, and their legal duty to the company on whose board they sit, the “duty as a fiduciary to his investors will often take precedence. … this tension .. is typically not explained or discussed when it is happening.” (p. 70) Another example: They describe how VC syndication (when multiple VC firms share a round of investment) can lead VCs to make decisions that are best for themselves but suboptimal for their startups, how groupthink can harm decision making, the perils of the “walking dead” VC director, and why the supposed “Chinese wall” that VCs erect to prevent conflicts between investments “is virtually impossible in practice.” (p. 138)

    One remedy? Come right out and ask about how your potential VCs handle such issues, because, “You can achieve alignment of your board only if you understand your investors’ motivation for making an investment.” (p. 71) Other problems arise from the selection of the wrong person to chair the board. When VCs want to become board chairs, make sure you do your due diligence about their prior experience as chairs, whether they overplay their role, how decisive they are, whether they maintain the board’s culture, whether they are proactive communicators, and how they responded in challenging situations like running out of cash or having a down-round of financing.

    In almost all that he does, Feld excels at questioning conventional wisdom. Examples from this book include tackling the common perception that a VC is weaker for not having had operating experience (on p. 32 they say, “VCs who have never been entrepreneurs can have extraordinary amounts of entrepreneurial experience based on the companies they’ve been investors in.”), on whether having two or more VCs on a board is a good thing (on p. 30 they approvingly quote Fred Wilson that, “If you have a very experienced VC on your board, you really don’t need more of them. But you can never have enough peers on your board who have been where you are before. That is invaluable.”), and who should take ownership for raising a new round of financing (they say that, “A common mistake of first-time CEOs is to expect that ones they get a VC on board, they will have an easier time of raising money in the future. This is rarely true,” and quote Mark Solon, TechStars managing director, that: “make no mistake about the fact that raising additional capital is the CEO’s job.” (pp. 155-156)).

    Fighting Inclinations, Rich vs. King, and Communication Pitfalls

    Three other recurring themes struck me in the book: The ways in which founders’ natural inclinations about managing boards can cause problems for them, the centrality of Rich vs. King tradeoffs, and the prevalence of communication pitfalls.

    Regarding the first recurring theme, the authors highlight ways in which founders have to fight their natural inclinations or else risk mismanaging their boards. They assert that, “Rather than defaulting into whatever processes start to happen,” founders need to proactively structure their board by creating policies and procedures to establish which decisions require board approval or shareholder approval. They should tackle upfront whether existing directors can be removed and by what process. After all, with such processes, “in most cases, once you have them on your board, it’s difficult to get rid of them.” (p. 31) They emphasize the importance of bringing aboard independent board members “as soon as feasible,” but that “Unfortunately, this effort is often deferred.”

    Another natural inclination I have observed is founders who are hesitant to “give homework” to their boards. Feld and Ramsinghani try to push back against this hesitation from both the CEO’s perspective and the board’s perspective. First, they quote CEO Rajat Bhargava: “The board works for the CEO. What? Wait a second. Isn’t it meant to be the other way around? Technically, yes, but largely only during two key situations: when they hire and fire the CEO. Outside of that, every CEO should view their board as working for them, and every board member should have the same view – they are working for their CEO. … it is the CEO’s responsibility to maximize the value of the board. And that means partitioning work to each of them.” (p. 125) On the VCs side, they cite Feld’s VC partner, Seth Levine: “While the CEO serves at the pleasure of the board, a good board works for the CEO.” A particularly good practice is “making specific requests to board members for their help” (pp. 119-120).

    The second recurring theme is the tension between the founder’s remaining on the throne of the venture (“King” as I refer to it) and building the value of the kingdom (“Rich”). The authors state “the overall theme of this book: economics and control,” and recommend, “if you care about control, just bootstrap your business. Relinquishing control comes with the VC territory.” (p. 145) They cite Steve Blank’s advice to his alumni founders: “they should think about their board strategy as a balance between the amount of control given to outsiders versus the great advice outsiders can bring.” (p. 80)

    The third recurring theme: Communication pitfalls abound, including what to discuss, when to discuss it, and how the topic is presented. On the issue of what to bring up, they quote attorney Mike Platt: “There are times when matters should be dealt with in a properly convened board meeting, times when a matter should not be on the board meeting agenda until management has had independent discussions with each board member, and times when something is not ready for a board discussion at all.” (p. 43) On the CEO’s side, Chris Heidelberger admits that after first becoming a CEO, “The biggest mistake I made was going into board meetings with big open-ended questions. It’s not necessarily a group of advisers.” (p. 89) What should you do instead? CEO Todd Vernon says: “I think you can ask any question of your board that you want to, but the price of entry is you have to do some homework – show them your analysis. … [Otherwise,] they will think: Why is he asking us – it’s his company? It’s one of the biggest faux pas you can do as a CEO.” (p. 90)

    Another communication pitfall is the natural inclination to avoid sharing bad news with your board or chairman, one I have seen firsthand and work actively from the time of board formation to counteract. VC Greg Gottesman observes: “I think many CEOs have a tendency to want to communicate only if there’s good news. If there’s bad news, you try to fix things. I think the best CEOs are ones who step up the communication when things are difficult.” (p. 121)

    ***

    We would hope that board challenges would get easier as first-time founders gain experience and move on to their next startups. However, this may not be the case, as suggested by the serial entrepreneur I mentioned above who was a panelist for my course: when first-time founders get burned by the board issues described above, they may react in their next venture by avoiding building one, or only building one they can control. Startup Boards goes a long way toward solving the first of the twofold challenge of education and resolving misalignment, and contributes to reducing the risks posed by the second. The result will hopefully be more founders who can found a board and harness it, rather than running in the other direction when they see a board member approaching.

  • Revolution

  • Communities

  • Life

  • Boards

  • Metrics

  • Startup Hub

Kauffman Paper on Building Board of Directors



Posted on:
Posted by:

Presented at the UP Global Summit that happened last weekend, a new paper from Kauffman Fellow Suren Dutia makes a convincing argument for the need for a board of directors early in a company’s life cycle.

A board of directors and the need for corporate governance is an often over looked aspect in early stage companies. However, having a board of directors can lend experience to the company as well as a built-in mechanism for mentorship. Brad Feld and Mahendra Ramsinghani address this in detail in their new book, Startup Boards.

This paper from Dutia gives a good overview of the issues surrounding an early stage board of directors including why a board is needed and how board members are compensated.

You can find the full paper here.


Startup Community in a “One Horse Town” – Nick Such



Posted on:
Posted by:

The PR Tech Summit just finished up and there were some great conversations about how to build startup communities and stories from startup community from around the world.

One standout presentation was from Nick Such. He talked through his experience of building a startup community in a “one horse town”, otherwise known as Lexington, Kentucky.

The presentation touches upon Brad Feld’s Boulder Thesis from Startup Communities.

You can find the deck used for the presentation here. A big shoutout to Nick Such and the community from Lexington, KY.


Brad Feld on Denver- ID8 Interview



Posted on:
Posted by:

Brad Feld, a Managing Director at Foundry Group and Co-founder of Techstars, speaks prolifically about Boulder, the Boulder community, and how Boulder has come to be an international renown startup community.

What many do not know is that Boulder has sister startup communities in Denver, Fort Collins, and Colorado Springs – the four innovation hubs of Colorado.

In this interview with ID8, Brad talks about the entrepreneurial growth that Denver has been experiencing in the last few years. Among the topics covered are Boulder’s relationship with Denver as well as what Denver needs to do to take their startup community to the next level.

Source: http://www.entrepreneurship.org/en/ID8/Denver/Drivers/Brad-Feld-on-Denver.aspx

 

Enhanced by Zemanta



I have known Stefan Alfason for quite sometime while he has been building his startup Jivaro. I met Stefan in 2010, he used to be a Foreign Currency Trader in one of the failed Icelandic banks. He ...