Friday, March 8, 2019

Self-Sustaining, Regenerative Tech Ecosystems

This is a repost from 2011. As I'm diving back into tech, it feels like a good time to revisit this as I'm now based in the MidWest, which, quite broadly, sports a lot of tech companies and some interdependent ecosystems.

The capital for startups is here, but I'm at the beginning of a raise and am not sure if it's like Central Pa capital--slow, small amounts at low valuations--or competitive with NYC and the Valley.

* unfortunately we lost comments from the original post when I disabled Disqus a few years ago, from Arnold Waldstein, Brad Feld, and a few others. Brad referenced it in one of his posts on startup ecosystems. 

---------------------------

This post is conjecture from my observations and personal experience, without citations, and was about software ecosystems, though it could be applied to other sectors

For as long as I've been in tech I've heard the term "ecosystem" applied by people in regions outside of the Silicon Valley tech ecosystem to their own regions--aspirationally applied.

Most of them don't have functioning, self-sustaining, regenerative tech ecosystems. 

What's the difference? 

Pennsylvania's a decent example of aspirational efforts to create 
self-sustaining, regenerative tech ecosystems (in the name of complexity, let's give that an acronym: SRTE and pronounce it 'SIR-tee'). 
I'm making this term up, though I imagine someone else has come up with a better descriptor. 

The Ben Franklin Technology Partners Program has created some successes and I like the people I know working in it, but it hasn't created a single SRTE (to my knowledge). So what has it created? 
  • a form-heavy, long process for applying for inadequate funding
  • a bureaucracy for monitoring investments that includes documentation and reporting outside of the normal course of business
  • a network of support professionals and advisors, some of whom are very good and appropriate for startups, others who are not
  • a few great location-based services, including the incubator at Lehigh
  • a number of success stories, and more on the way, in addition to a greater number of failures, which you'll see in the normal startup world too
But it hasn't generated ecosystems. And I think that's partly because its model is not set up to do that, though it's what everyone would love to see.

*2019 note: Ben Franklin has really stepped up and is a now solid player in Pa-- I'm proud to have started one of its success stories.

Let's define SRTE.

A self-sustaining, regenerative ecosystem has these indicators:
  • new startups formed by former employees of earlier startups
  • new startups staffed by former employees of other startups
  • new startups funded by investors and/or employees of earlier startups with part of the proceeds from earlier successes
  • through at least two cycles
Nowhere in there is a long application process followed by inadequate partial funding with substantial non-standard reporting requirements. 

The most important quality: 'regenerative':
  • new startups formed by former employees of earlier startups
    • people learn by doing. The majority of startups fail, and without some level of exposure to building and scaling a startup, first-time founders have higher chance of failure
  • new startups staffed by former employees of other startups
    • this is the key indicator that you have a true "ecosystem": when you have enough viable, growing startups that employees start hopping from one to another, it's clear there's something positive going on--there's energy in the system when there's healthy movement between startups.
  • new startups funded by investors and/or employees of earlier startups with part of the proceeds from earlier successes
    • the system generated dollars that can be plowed back into the next cycle of startups without seed/early stage capital from outside the region--that's self-sustaining.
  • through at least two cycles
    • it must be long enough to get beyond the 'not dead yet' stage to 'thriving'. 
So if you're building a tech startup, why would you choose Pennsylvania or other "flyover" states? 
  • Family: home is home.
  • Relationships: building a new network of supporters elsewhere isn't easy
  • Easy access to your market (true for some, not all)
  • You want to help create a SRTE and believe that it's important and possible. 
Why would you choose to leave? 
  • Capital. PA ranks horrendously low in investing in tech startups, especially in mid-state companies.
  • Talent. You can find developers here, and you can find smart people here, but finding smart people who'll take the risk of joining your early-stage startup is the tough part. We have a more conservative workforce that values stability, and I'll suggest, perhaps wrongly, but in my experience the sense of urgency and ambition is less than what I see in the ecosystems like NY and the Bay.
  • Energy. There's some some something going on in a true ecosystem, and you can feel it, you're revived and propelled by it, you give to it and it gives more back, breaking all laws of physics along the way.
  • Partnerships. It's tough to develop the relationships that lead to partnership discussions, and phone-based partnership development is simply not the same. It takes a lot more work and travel, and you miss out on the random, incidental introductions you get in the true ecosystem. 
If we really want thriving ecosystems in PA, we need to invest in those SRTE qualities. Philly seems to be on its way, but it's missing significant capital flow,* and doesn't have enough exits creating enough wealthy founders and employees to fund the next round of companies ( *this has changed significantly since 2011). 

One or two hits isn't likely enough (Diapers.com was a great one for Philly and I'm looking forward to seeing whether that trickles down); some capital and employees need to be put right back into the ecosystem. 

I would argue against continuing the BFTP program in its current form, and instead choose two or three regions for a 10-year SRTE plan, and focus all energies on that. 

I'd choose regions with one or more recent successes, and organize capital and resources to create at least one successful, self-sustaining regenerative tech ecosystem. I do think having a loose incubator would help, but that it shouldn't be some overbuilt institutional building, it should be an old tobacco warehouse or the like, and simply provide: 
  • hi-speed internet access
  • a Makerbot. Just for fun, if not actual prototypes. 
  • bunch of Arduino kits
  • printers, including a large-format printer
  • desks
  • 2 small conference rooms
  • bathrooms
  • a bit of a lounge area
  • common kitchen
  • scheduled evening classes by participants, local experts, and mentors
  • And some capital--not a huge amount per startup.
This would cost very little. Let's do some math (this is off the cuff--flag it if it's off substantially):
  • 20 startups
  • $25,000/startup (seed only for now)
  • space, etc, which if you live in PA, is cheap and available outside Philly and Pittsburgh. 
  • The list of stuff above
So roughly, $500k to invest, maybe $100k on top of that. Maybe. Likely less. 

To keep the promising startups going, you need additional investment, though I'd hope the startups would have a business model and revenue to shoot for. Quick pseudo-math:
  • half (generously) will survive
  • 8 will have it together enough to take additional capital
  • add 12 months of capital, say with average salaries of $60k
  • 3 people per startup
  • so rounding way up for taxes, marketing, etc
  • $250k times 8 = $2.0 million. 
So now we've risked $2.1 million per region. Out of that, we've created some jobs and opportunities, with 8 companies funded enough to prove out their models. Start the cycle again every year with a new crop. 

Of those, 4 will attract additional capital, 2 will shut down, and 2 will plod along. And of the 4, one will have a decent exit, and the others might be break-even or 2x to 3x. But the one that makes it will return at least 100% of the entire investment

So let's do that annually for 10 years and round up to $3 million. I'd choose three areas: Lancaster, Harrisburg, and Bethlehem. That's $9 million/year or $90 million total, all of which you'd likely make back. Maybe more--we've got some innovative people here. 

The one thing a light incubator like this creates is its own little ecosystem, where startups help each other, and you get the vibe and feel of a some-something going on. That helps, it's energizing, and uplifting.

But I just get the sense we're too process-oriented here, and have spread resources pretty thin to serve too many regions without much to show for it in terms of significant success and they key outcome we had hoped for: self-sustaining, regenerative ecosystems. But we could try. 

Sunday, January 13, 2019

2020: When the EV Breaks Out

EVs make up a relatively tiny part of US auto sales, but the Tesla 3 outsold all other luxury cars and almost outsold the Toyota Corolla. It's still too pricey, but it's coming down this summer and there's a new, lower-cost model on the way.

More Affordable
GM's Bolt EV gets about 240 miles of range, and costs about $36,000 before incentives, which total $9,000 (including rebates in some states) until April, when the federal incentive is cut in half. It's a great car, but for me the seat isn't comfortable.  The range is enough to allay your range anxiety; you can drive from Lancaster to NYC and back without recharging, depending on how you drive. You can charge while you're there in one of the hundreds of charging stations, many of which are in parking garages.

New and Interesting
Hyundai is coming out with the Kona, which has a range of about 240 miles; it's like the Honda HRV, a small crossover with a good amount of space relative to the Bolt (guessing). Hyundai isn't producing many of them yet.

Kia is expected to come out with the Niro EV, a close cousin of the Kona. Nissan just improved the range of the Leaf to 225 miles (optional), and the big news is VW announced that all car lines will have a long-range EV option.

EVs are Mainstream and Taking Over
In short, we're here. Electricity is cheaper than gas, even at today's low gas prices. 2020 will be the year the general public recognizes renewables are cheaper than fossil fuels. (If I were a responsible blogger I'd provide links, but alas).

Energy companies would be wise to move aggressively away from fossil fuels and toward renewables. They've been dabbling, but they're not trying to disrupt themselves. That's a mistake--they'll become the Kodak of energy, in a sense, if they don't move fast.

Used Market
You can buy a used 2013 Leaf now for $7,000, with a range for 80 miles--with heated seats! Every two-car family should get one for local trips. How often do you drive 80 miles in a day? 40 up, 40 back? No often, even on a day heavy with errands. You'll save 75% on fuel, and have a peppy, fun, reliable relatively spacious second car for cheap.

Downside: Unemployment in the Auto Industry
The biggest negative impact will likely be on the US auto industry supply chain and after-market retailers. EVs have something like 18,000 fewer parts than gas cars. Gas cars aren't going away entirely just yet, but fewer will be sold, and the decline is going to accelerate between 2020 and 2030 so rapidly there will be major upheaval in these markets.

Imagine a 20% decline in production of new parts--pistons, casings, bolts, screws, linings, exhaust, spark plugs, etc, etc, etc. They can't simply shift production to electric motor parts--there just aren't many parts in an EV.

Which means tens of thousands of people are going to lose their jobs--possibly millions--over 20 years. They should start looking for another job now, while there's still time. It will be a sea-change shift, and we'll be better off for it: better air quality and  water quality; less asthma and less disease caused by chemicals like benzene (from gasoline), etc. Gas stations should aggressively start adding charging stations --and lots of them--and cafes to capitalize on the longer charge times of long-range EVs.

Other Thoughts
The one benefit a gas car has over an EV is refueling time, which will change in the next several years, but right now it's at least a 20-minute wait to recharge a Leaf to 60 miles. Cars with greater range take longer to fully charge; the Bolt takes an hour and twenty minutes. Hence the cafe opportunity :)

You can get a Tesla Model S for under $30,000, if you're willing to buy used. It's a beautiful luxury car, and happens to be electric. Fast, spacious, comfortable, and amazing. Sigh.

I sold my Leaf last year for $7k. I've driven a gas guzzling SUV (Ford Escape, 23 mpg) for road sales and I hate that I burn gas, but I needed the range and couldn't afford a Tesla (and can't see driving a luxury vehicle).

So, yeah, I've loved electric cars since the 90's. I'm one of those slightly obsessed people and almost built my own with a local EV builder.  I look up prices every couple of days, read EV news, spot the EVs on the road, look at industry stats, etc. I'm addicted to this great idea finally coming to fruition. The first EV was built in the early 1900's...it's been a very, very long road to getting to public acceptance. And we're just about here.

And yes I'd work in the EV or solar industry if I had the right opportunity. I'm super excited about micro-grids and the potential for people to organize their own power sources, cooperatively in neighborhoods. A friend of mine turned me on to some new ideas around that, and it's exciting. Lots of hurdles, of course--local, state, and federal laws, working with physical stuff like, well, stuff you have to install.

EV Sites I read
Inside EVs (pure EV site)
Green Car Reports (mix of EV and Hybrid, not dedicated to EV, sadly. Hybrids burn gas--they are polluters and resource hogs. But better than full ICEs. )
EV-VIN  (current lease deals, links to other sites)

That's what's on my mind this morning.


Monday, January 7, 2019

Return to Tech or Stay in Social Impact?

One of the decisions I've put off is whether to stay in the social impact world or return to tech.

Some might argue there's an intersection between the two, but I haven't seen much of it around the issue I care most about, which is poverty and the unfairness of extractive industries. I'm talking about excessive, escalating fines for anything from parking tickets to court costs, or bank fees, or cash checking, or Rent-a-Center, etc, etc.

I'm thinking a lot about that, but haven't found the angle just yet. Payday lending is top of mind; even the framing of that practice is unjust: employees work, then wait one to two weeks for a paycheck. They're basically lending money to the employer, who pays them without interest down the road. In the meantime there are bills to pay.

So it's really a line of credit they're giving to the employer--the employee is the lender, and the employer is the borrower. There's something to that. An employer will argue the interest is built in. But the delayed pay benefits the company's cash flow, as they're currently structured. But maybe they should be depositing part or all of the pay on a daily basis, and adjust their cash flow practices around that. Why? Because it's more fair and makes life easier for low-paid workers.

Is there a tech angle? Maybe, but it feels like more of a policy issue, or practices issue.

I'm interested in solar and EVs (been obsessed about EVs forever). There's an intersection there and I'm watching some interesting ideas. The price per kWh is below fossil fuels now, and battery technologies are advancing rapidly. Graphene might be the key. Or the new thing out of MIT. But getting those to mass production will take time.

I don't like the "buy one, give one" model. It's basically philanthropy, and while free shoes are welcome (thanks Tom's), it doesn't promote sustainability and can have negative side effects.

And I don't like the 1% model. Again it's philanthropy, rather than introducing systemic change through a business model--the holy grail of impact business. Philanthropy isn't necessarily a bad thing, but it's every inefficient with a lot of overhead, and tends to treat symptoms rather than root causes, many of which could be changed by policy.

So we'll see. I love tech--it's intellectually stimulating and can be a lot of fun. I'm looking at something pretty deeply right now. Not mine, but I'm pretty jazzed by it and I bet we could blow it up to something substantial.

What am I missing? Lots, I bet. It's a good time to dig in, do the research.

What excites you in tech and impact? Let me know in the comments.



Friday, January 4, 2019

Friday punt: Jay Coen Gilbert

Jay Coen-Gilbert is a cofounder of B Labs, the folks who started the B Corporation movement. He has a column in Forbes now and then I enjoy, including this one. 

Enjoy.

Thursday, January 3, 2019

Startup Guy, Restarting

Welcome back!

Over the past few years I haven't felt much like blogging, partly because I was constantly tired and stressed out from managing The Lancaster Food Company through one challenge/cliffhanger to the next, and partly because I felt I had nothing new to say.

This blog had been my outlet for sharing insights about building startups; I hope it was helpful to those of you building companies or helping startups in some way. Writing is a way for me to process, and to share what I've learned so maybe others can learn what to do--and not to do. More to come on that ;)

Starting today, I plan to post almost daily, mostly about lessons learned over the years with startups, and if I come up short I'll post links to helpful articles or other blogs. And while I'll talk about certain problems in the companies I've started, I largely won't talk about the people involved, and in most cases won't identify the company; this is to make it easier to talk about some of the harder stuff.

The last five years have been, to say the least, tumultuous, filled with excitement, growth, problems, and disasters that only come with underfunded food companies, and of course conflict, disappointment, and deep pain--along with triumphs, inspiration, true accomplishment, proud moments, fulfilling new relationships, learning, and growth. It was a mix.

I'm still processing the loss of the dream of building an employee-owned food company designed to hire people out of poverty. But I don't miss the stress for the most part;  worrying about perishable products, layoffs, funding falling through or coming through, chains saying yes and then dragging their feet for quarter over quarter over quarter (wtf, food industry?).

But when it came down to it, they weren't buying what we were selling. Not enough of it, anyway, not fast enough. At our peak we had a run rate of over $1 million annually, and needed to be at $2.5 million to get to break even. We weren't a mom & pop shop; we tried to do this at a relatively small scale but the break-even point was quite the lift: 3,000 retail units per day, or 15,000 per production week.

Toward the end we only needed one additional chain to get us over the top. Private label with Trader Joe's (we were close but they were too slow), Costco Northeast (had the approval for 60 stores, which was delayed/changed by the head buyer), Whole Foods NE, etc. And there wasn't fat to trim, just a baseline overhead that needed more time and capital, with the capital coming in a pool instead of dribs and drabs. Long, long story. Hundreds of things had to go right from production to ops to capital, and any combination of a few could derail.

Variable product quality while learning a new production facility which led to a loss of a private label customer, delays in sales, illnesses, false starts with partners, competition with very deep pockets, Amazon throwing the entire industry into a frenzy, a poor choice in the freezing method for large-scale shipments. But it came down to execution over time, and perhaps a vision that exceeded our capabilities, a flawed strategy, or the wrong team for the growth needed. Or all of that. I recognized that I wasn't the person to lead the growth of a food company in summer of 2018, but we didn't act on it until I had to stop working in April from my illness--it took too long. And even then, it took too long in recruiting my replacement,

Lot of lessons here; the sale piece is a good lesson for any of us: if you're not getting that job, not getting enough clients, not selling enough product, there's a pretty good chance the problem isn't the company or customer, it's you, how you're selling it, or what you're selling. Positioning can make or break you, as can product, as can story, as can branding, etc, etc, and etc. You have to get most of it right, consistently.

And we did get most of it right, but as the main salesperson as well as the CEO trying to keep us running, I suspect my stress was evident to the buyers at the chains; they are typically conservative in their choices and tend not to take chances. They want career-building products, and startup food companies introduce risk. So telegraphing stress certainly doesn't help. We needed the deals, and they could sense it.

I'll write more about that and other things over the coming months. But I'm also looking ahead, building a new story, thinking through new ideas, and am excited about some of them.

I'm looking forward to 2019. The rest of this is an update.

Health
A few of you asked on social media and in email, so here's the update: my health is good--better and improving. 2017 and 2018 were very challenging with respect to health, and I've been fortunate to be able to bounce back through access to the health system, a miracle drug, and the support of friends and family. I'm grateful for those who were in a position to help and did--I noticed.

Work
I'm a startup guy, and I'm restarting. After investing five years and all of my loose (lost) change, I'm personally working on going from 0 to 1 again. But that's always been my strength. I've started four companies and have had two positive exits, one voluntary shutdown of an unfunded effort, and this recent involuntary shutdown (i.e., running out of money).

Recently I've tried to remind myself of my own accomplishments to try to get past the deep sense of loss: I've raised over $14 million in my career, battled successfully with giants like Microsoft, IBM, Salesforce, and unsuccessfully with Flowers foods and Bimbo. And helped people along the way, including dozens of startup founders. Designed award-winning software and built the third-largest fundraising software company. Moved some mountains along the way. There :) that feels a bit better. It's tough when things have been hard for a long time, but a friend reminded me "you're the only still thinking about the loss...everyone else has moved on." Most of us have, anyway.

Sometimes I need to remind myself that it wasn't all hard, and wasn't all a loss. It wasn't, and it's time to stop mourning it.

I'm officially looking for work--not sure what just yet. I'd like to run a funded startup, or help an existing company turn around, or to grow through innovation. Or consult, which isn't my favorite thing but I'm open to i.

I might start another thing. I've been kicking around some of my own ideas and have been asked to look at a few...we'll see where that goes. The toughest part of a startup for most people is getting it from concept to first revenue, but that's always been the easy part for me. And the most fun. And because of that I've thought about launching an incubator where I could have teams working on several projects at once, and also nurture other startups.

But we'll see.

Personal
After not much consideration I'm wintering in Grand Rapids, Michigan (because why not!) to be able to spend more time with a fantastic person. I'm glad I'm here, but it's a bit strange to step out of the networks I've developed over several decades, and exciting too--I get to learn about new things and meet new people doing interesting stuff. There's a strong startup scene and a thriving localist economy. Fortunately we're just a short flight from NYC, BWI, SFO, parts of Florida, etc. Warm places are on my list :)

So let's reconnect. I'd love to hear how you're doing, and what you're working on. 2019 is going to be a great year for me, and hopefully for you too.

See you tomorrow?


Sunday, January 21, 2018

Lessons from the End of 2017

I'm not one for New Year's resolutions, but the time during (and after) a two-month pause in the mission we've worked on for over four years gave me a chance to rethink a lot of things and have come to some conclusions, some of which are new, but most aren't.
  • Everyone deserves a second chance, and all of us get them. Some of us need the third, fourth, eighth chances, etc--to get it right, to find the groove, to align what we do, how we do it with what we believe. And as a friend reminded me once, we're all ex-offenders, just some of us got caught.
  • Don't believe everything you think. For me this translates to withholding judgment of other people's behaviors and choosing not to interpret intent. I wonder about assumptions people make about me, and how those align with fact, or my own thoughts and beliefs. And I'm am working on aligning my own beliefs with my daily routines and actions, which is difficult for certain personality types (mine) for whom routine is not routine.
  • There's a fine line between faking it until you make it and lying--it's a delicate balance. Internally you know the line, or at least should; if you know, you have a responsibility to be clear with people about that line, that everything is conditional until things truly come together.
  • List the worst things that can happen in case the worst does happen, and for each of those write what you would do in response. Acceptance is a valid answer to any of those, and perhaps a necessary step to recovering. Its can be very freeing.
  • Listening is the best way to develop trust with people and to get to know them more deeply.
  • Health, family, friends and love are the most important things to me. This isn't linear; they're all interrelated and important, none exist in a vacuum, and they all take consistent investments.
  • Setting aside emotion helps you focus on the job at hand; suppressing emotion can lead to negative effects. It's better to sit with it when it happens, or at least on the day it happens, acknowledge it, and move forward. Force is not a good method for handling your emotional life.
  • Never underestimate the kindness and optimism of other people.
  • Don't make assumptions about other people, what they think, what's behind their decisions and behavior, how they feel, and what they will or won't do for you. It's fair to ask, but accept the answer for what it is.
  • Never give up. I watched Jimmy Valvano's farewell speech (he died of cancer soon after) a number of times over the past six months, and it reminded me that it's not over until time runs out, and also reminded me that however bad things could be, I'm fortunate, and there's usually a new, fresh life ahead if you design it that way (within the limits of your circumstances).
  • Try to maintain an overall loving mindset. This isn't an easy one when people treat your poorly, or behave badly, or your situation is dire, but like acceptance, it's freeing.
  • Don't feel afraid to ask for and accept the help of others. I tend to resist this, but have been more and more open to it, especially over the past two months.
  • Seek advice from others. Not answers--only you can come up with the answers because only you fully understand the context of your situation.
  • Hire a coach. Coaches aren't your friends, they're more objective and can help you cut through the murkiness of your thoughts as you muddle through the tough stuff. I'm interviewing coaches and looking forward to having that help in the future.
That's what's been on my mind. I was excited to see everyone at the company meeting today, and grateful for the opportunity to get back to building the business. Their work and commitment is what gets me up every day, and it's a privilege to work with them.

Tuesday, January 24, 2017

The Lancaster Food Company: 20,000 Loaves Donated

One of the biggest challenges of building a commercial bread company is handling unsold product, otherwise known as waste.

From the beginning we donated any unsold product, initially to the Council of Churches Food Bank because I had a previous relationship with them from my Lancaster Community Gardens days. Over time we added a variety of food banks, kitchens, and churches, including Crispus Attucks and Water Street.

One of our key indicators is our "return rate"; it's the measure of invoiced products vs. unsold product; we give full credit to stores for unsold bread. We lose money when there's a lot, and we make money when there's only a few. When there are no returns, we're leaving money on the table because we don't really know the strength of the demand.

The ideal scenario is that we keep increasing the amount we deliver, and it always sells out, but that doesn't happen ofter, so the next best thing is we find the bottom of the market, which is indicated by just one or two unsold units of each variety.

We don't currently disclose our unsold rate, so I'll just say we've helped feed thousands of families since 2014. While it's been a source of pride for us, it's also a painful reminder that not all customers at all stores want or know about our products, and we have to do a better job marketing them.

And donating bread doesn't align with our goals to get to profitability: we want to donate less--not because we don't care, but because we need to be self-sustaining before helping others (put your own mask on first).

So we've been testing selling previously unsold product at Grocery Outlet, which has 22 stores in PA and over 300 in California. It's going very well, so we'll continue to add more of the PA stores, to the point we expect to reduce our unsold product to a very low percentage. This strengthens the company, gives people with lower incomes access to tasty, locally made organic bread at a lower price, and keeps read out of the waste stream.

We'll continue to make donations, and we hope to get back up to our previous levels, but only as part of our overall growth plan. We much prefer treating root causes of poverty (with income through thriving-wage jobs), and keeping the company on the path to profitability.