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PlugAndPlayTechCenter is like a big college dorm, but only for startups. There is great food, all the amenties you could ever want to keep you hacking into the wee hours. Lots of other startups are in there, adding to a unique camraderie.
]]>Now that I've been out here for about two years angel investing, I've uncovered more reasons not to do notes any more. So much to learn but yet no one to learn from except to fumble about and get myself into trouble. Now I've firmed up my rule to never invest in notes. I *might* do a note with a price cap on it, but it is still not without potential future issues. Here are some more reasons why notes are awful:
1. It is possible that the company you invested in achieves significant revenue, enough to do one or both things:
a. The valuation will inevitably jump. So when you put in your money, you expected the valuation to be one value, but when your note converts, the valuation has gone higher and now you've taken all the early risk with your note investment, but have lost share in the company upon conversion.
b. The company has enough revenue that it may not need further investment. Or it can delay seeking investment. If the company does not need further investment, then you're in risk of just getting paid back and not obtain any share of the company. This can also happen if the delay in seeking further investment takes the next fund raise period out beyond when the note is due. Again, you could just get paid back instead of converting into equity.
It is possible to convert still, even if there is no conversion. But it depends on the entrepreneur and they are under no legal obligation to do so.
2. The valuation may jump anyways independent of revenue. Again, if/when you convert, the value of your participation will shift from where you originally put in the money, and it doesn't reflect the risk of your early investment.
3. The terms of the next equity financing are unknown to you at the point you invest. While it is easy to ignore this in the excitement of doing an investment into a note, any problems that may arise will come up later during the conversion process.
You would think that at conversion time some large and/or experienced investor would take care of negotiating the proper terms. In most cases, this is true. However, it is also possible that not-so-favorable terms may appear and seem to be proposed by seemingly experienced investors. The big issue is that you don't know what you're converting to with a note at the time you give up your money; then, if you don't like the terms, you're kind of stuck into accepting them because you can't get your money back. Unless you're leading the investment, you won't be able to affect them much. However, if you do get stuck in one of these situations, I would advise you to speak up about the terms; you never know when you'll be heard and someone might actually change the terms to your liking.
Notes don't align investors and entrepreneurs, and now I've discovered other reasons not to do notes...
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PlugAndPlayTechCenter is like a big college dorm, but only for startups. There is great food, all the amenties you could ever want to keep you hacking into the wee hours. Lots of other startups are in there, adding to a unique camraderie.
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We're in the old warehouse/building of Collier Encyclopedia, whose globe still adorns the main entrance.
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Love the high ceilings and loft style openness! Thank god for IKEA whose inexpensive furnishings adorn our new home. We're also right down the street from great restaurants, bars, the swank new Apple Store, and Google is 2 blocks away.
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The obvious disadvantages are that I had allocated a portion of my personal savings to do this, and I ended up deploying almost all of it in 2 years! This unfortunately meant that I had to slow down dramatically the number of investments I do from now on, and potentially ratchet down the size of investment into new companies.
The obvious advantages of going wide are that you spread out your risk, just like diversifying your investments in your personal investment portfolio of stocks, bonds, etc.. Putting your eggs in one basket, or a few baskets, increases your risk of losing it all no matter what you put your money in.
The non-obvious advantage of going broad was the knowledge I gained from exposure to different companies and their personnel (and their personalities!), their products, their struggles and solutions.
I always knew I had ADD, and that I enjoyed working on multiple products. In my old position as head of user experience at Yahoo!, I could satisfy my ADD tendencies towards getting my fingers dirty in a variety of projects, and learning about many others. After I left Yahoo!, I wondered about how I would provide an outlet for my ADD-ness and orchestrated a solution through angel investing. By investing in many companies and becoming advisor to them, I was able to continue to satisfy my Internet ADD.
However, being exposed to so many products and projects also allowed me to see across many different products and be able to connect them in ways I would never have been able, had I not had access to the depth of information in each product. I was able to see synergies and feed my creativity, which allowed me to come up with ideas that would not have come to light without the broadness of depth of information (if that made sense). I had always been a big believer that creativity can be enhanced with more information (but also knowing that creativity can often be reduced because you get bogged down by knowing too much) and this was further proof of my belief. Working on one or two projects would never had given me the insight that I can see now. Also, if I was not advising and/or investing in these companies, I would not have gotten the depth I needed to be truly successful.
It was an non-obvious result of the diversity of my investments that I would be a more effective advisor to internet startups. My broadness of vision across many different products and projects means I can bring creative proposals to time starved entrepreneurs whose myopic but necessary focus on their own projects sometimes prevent them from seeing the wide view and potentially better alternative paths and solutions.
]]>In fact, after reading some of the news earlier this week, I too had a moment of "Maybe I should go back and help Yahoo." It came and went quickly amidst similar feelings surrounding not wanting to jump back into the frying pan to not knowing what I would do once I got there.
However, instead of mocking such a thought, I'd like to put another spin on it. And that's the fact that we would even have thoughts at all like that.
What was it about Yahoo that would make a whole bunch of us feel like we could go back and actually make a difference? Why would we want to save the company? What could have possibly shaped our feelings and attachments to a place that was our home for many, many years? Why is it so hard to let go?
Yahoo was a unique place. It was like family. It was like a revolution. You bought into it, got emotionally bound to it, and worked your butt off to make it happen. People would applaud the fact that we worked at Yahoo, and we were seen as celebrities of the internet back in the day. We all hung out, we partied, we succeeded and failed and brought it all back from the brink of internet bust.
That's what makes it hard to let go.
It makes me wonder what we could learn from that experience. After all, wouldn't any CEO want to create a workforce which, even after they left (or were fired, or laid off), that would want to come back and work there again despite whatever obstacles and turmoil there could be? What could inspire loyalty in a corporation like that, in a day and age where loyalty to a company is disappearing...?
]]>It's actually not so hard. Here's how:
1. I've found that advisor time commitment varies greatly from company to company. Some entrepreneurs use me as traditional advisors are used, which is to meet up once every month or quarter and give me an update and go through their plans and get my feedback. If all my companies were like this, I could definitely advise a ton more.
Others call or email me whenever they need something. I have many hours in the day and definitely can field calls or answer emails. Sometimes they ask for a site review or recommendations. This takes longer, but blocking out a few hours to do that isn't a problem.
Some have wanted meetings weekly for a while. The weekly meetings never last though; entrepreneurs are pretty busy and they get going on something and they don't have time to meet up any more. Or they learn enough or have firmed up plans enough to keep them going for a while and then they don't need my constant interaction.
2. Perhaps the greatest time commitment is just thinking about each company daily. I often have at least one (or more) of my companies swirling in my brain and I try to record any ideas down asap. If I am in front of my Mac, I'll open an email and just record the ideas in that; also, I have a small moleskin notebook that I carry around with me constantly to jot down ideas. Once I get all my ideas down, I check it over, do some rewrites, insert additional ideas that come to me on the fly, and then send it to the entrepreneur.
I like to get into the mode of a single company and its product and try to immerse myself in the product as a user, and the experience of needing/wanting that product. That enables me to really get into what I would want, and also what others could want in that product and where improvements can be made.
I multitask on this throughout each day, but sometimes I take some focused time and do this too.
Still, once a company receives these ideas and acts on them, they usually don't need further time from me for a while.
3. Another task I do for my startups is connecting them with potential partners and sources of capital (although definitely I do not bill myself as a fund raiser). This requires me to network a lot with both old and newly met folks. Thus hour long coffees and lunches are the norm and these take time out of my week.
Also, I write a lot of emails introducing my companies to these partners as well. Thinking about which partner to send the company to and also sending the email does take up time, but not all that much.
4. My favorite thing to say about advisor time commitment is that almost all companies need the most time at the beginning of our advisor relationship. There is a big spike in time and thinking from my side and also in interactions and then somewhere between 2 and 6 months later, that time drops to near zero, with little peaks of time to do emails and check-ins.
The rationale behind this is that the company is supposed to learn everything I tell them. They finalize their plans with my input and feedback. They take this knowledge and are off and running building their product. They don't need my interaction so much after this time because they have what they need from me.
This is one of my main goals: To transfer knowledge from my brain to theirs so that they don't need me any more. If I do this successfully, they should be able to function for a long period of time without my input. Over time, my goal over the term of my advisorship is to help them find resources that would manage what I help them with day to day. This is finding and hiring a great full time design resource and great product management resource. It can also mean finding/hiring a great sales program person as well, to help them monetize their advertising programs.
I've been advising for about 2 years now, so many of the companies on my companies page are off and running without further need of my help.
4a. One thing that I have consistently observed is that if my time requirements spikes again after the initial peak, the company is in trouble...so I keep watch for this and hopefully help prevent this from happening.
5. OK OK I admit it. Even working like the above, I still can get pretty busy in the short term. In fact there was a time when I thought I was overextending myself due to the pace of advisorship signups. So now I am very aware of the pace of companies I advise and have slowed down dramatically based on my current support load.
6. Next, I tell people I shouldn't be put on critical path for anything. It's not what advisors do anyways.
A lot of people ask me to be advisor, but really want me to do the design of their site for them. If they want this, they should either outsource their design or find a designer to hire full time, and not try to turn an advisor into a fake full time person. I think this is especially true in product design; in order to do a great job, you have to be immersed 24/7 with the product and team. It's hard to jump in and out or do it on the side.
If I'm not on critical path, that reduces time commitments from 24/7 to something much, much less and less frequent.
As advisor, I always tell people that I shouldn't be expected to be put on critical path for anything because we're both going to end up being disappointed and frustrated. Very bad!
7. Last, I love being involved in many things. It helps keep my interest level up and allows me to see the entire world of internet startups across the board, which is an advantage. I purposely try to get involved across a myriad of projects, across a range of areas.
It takes me out of being myopic into one thing, and allows me to help my startups by being broad in my thinking and not get too trapped into the details of one project. While this is important from an execution point of view, it doesn't help when you're helping to plan the strategies of these startups by not looking outward and seeing where the trends of the industry are going. Often I bring the broader view to my startups because they don't have time to look at it themselves. They're often too busy to do that. On the other hand, I want them to spend all their time executing and not get distracted.
I've really come to love advising startups. The connection with smart, energetic people working on cool new things is really great, and I enjoy helping broaden their vision and give them the help and knowledge they need to be successful.
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This building is one of those housing a few other notable startups. Many such buildings exist in SF, and the startups all seem to pile together in these old buildings whose remodeled interiors make conditions much more bearable inside.
]]>Enter Scrivener. Wow. What a difference. The software allows writers to separate the work into sections and gives you many different views on the work, whether in corkboard mode or in outline mode. You can then work on the doc section by section which is much more faster for me, and also take a look at the whole doc with the sections assembled to see if it all appears together correctly. The transitions then can be worked on separately, which is fine because my biggest barrier is to just focus on a particular section first and get the text out of my brain.
Then, you can always export the doc into one long Word or text file. The sections get all assembled and you can print it out or send it to a publisher.
The one thing that would have been nice would be to have some collaborative method of working together that doesn't mean coordinating file versions and passing them back and forth. Perhaps some merge method? Online site support where the files are synced? For now, we'll email the file back and forth when changes happen.
If you're writing an article, book, or whatever, I would highly recommend Scrivener!
]]>I just discovered that you can publish a feed of everything you do on Netvibes. I've been looking for this function in other services but am ecstatic that it's here. So now, I plan on sending every article I read to my Netvibes activity feed. If you're curious what I read across my RSS feeds, subscribe to it! I'm also putting this link in my right hand column of this site.
]]>It took me a minute, but I figured out that it was the fact that the senders were super busy iPhone users and trying to type emails super fast, but unfortunately typing too fast to react to the iPhone's auto-correct dictionary, or even caring what the auto-correct comes up with.
The auto-correct function is cool in some ways, but it takes some getting used to, and especially if you have big fingers, you tend to blur over to the adjacent keys more often.
To me, it's an interesting solution to typing on tiny keys on a flat touchscreen. However, I find it's hard to adjust to, even when I'm consciously looking for it. I hope the rumors of a foldout keyboard are true, as I think that learning this new style may not be quick enough for even the most impatient, quick typers.
But it does generate sometimes amusing emails which produce a WTF from me as I read them!
]]>When I meet startups, I am now telling them to raise more than they were thinking. I try to get them to run the numbers and to figure out how to survive until at least the second half of 2009, or further if possible. I want them to survive through the economic downturn and not be dependent on additional money until then. I tell them to expect that any revenue projections will be missed towards the end of this year, and advise them that if they try to raise money on poor metrics AND they have run out of money, they will have an extremely hard time doing it.
A lot of entrepreneurs are still coming to me with raising $100k-$300k in their plans. Then I try to convince them of the economic issues and that unless you can survive for 1.5 years on $300k, you'd better change the plan. Not all of them listen though. It will be interesting to see if I am right. To me, you should be at least $500k, even better upwards of $1-1.5MM, whereas in a decent economy, you could get by with $300k-$1MM.
Some of them only want to survive 6-9 months to get a prototype up and raise money on that. In a better economy, I would say that this is not a bad scenario. However, in today's world, I tell them that if they are getting traction on an idea in investors' eyes, that they should leverage that inertia and get more money now. If they build a prototype and are not gaining traction in a down economy, it's only going to show that you could not gain traction and investors be much less likely to participate as they look for positive metrics. It's much better to raise money on a beta and/or the idea and get as much money as you can now, and to plan on survival on minimal or no revenues for 1.5 years.
Another issue with the 6-9 month plan: August and the holidays. Running out of money by August really sucks for fund raising. This is because the venture community goes on summer vacation and it's nearly impossible to find someone to get a meeting. You have to wait until they all get back in September. Then you have about a two month window everyone gets distracted once again because it's Thanksgiving and then Christmas. From about mid-November to first/second week of January, the venture community goes on vacation, peoples' minds are on the holidays and families and not on funding you.
If you're an entrepreneur reading this now: raise more cash than you think, expect that any revenue projections you have will be missed, and try to plan to survive on minimal or no revenues until at least the latter half of 2009, and raise all that money now while you have investor inertia.
]]>It was funny for both of us that for all the analysis we can do on a new startup's prospects, that if our gut said no, we'd not invest. How interesting to use such a undefined force and feeling to make such a prominent decision!
After I left Yahoo, I resolved to develop and listen to my intuition more. I really searched down deep inside myself and really tried to become sensitive to the most minute feelings that emerged about anything. I trained myself to be acutely aware of the good and the bad, and those nagging feelings of doubt or uncertainty. Then, once I could identify those feelings, then I told myself that I would act on them and never ignore them. This is because in the past, I feel that I have ignored my intuition and this has resulted in me getting into some really bad situations.
When I meet an entrepreneur for the first time, my intuition is on high alert. I search my feelings as I hear them talk to me about their business. I not only attune myself to pitch he is presenting, but also to who he is. Is there elation on the idea or some nagging uncertainty? Do I feel this person is trustworthy or not? These and more.
However, what can stymie intuition in the world of angel investing is seduction. This is when the pitch and/or the person delivers such an incredible perceived opportunity that it's like seeing the hottest, sexiest woman walk into a bar and you just can't resist. You're hooked emotionally and you're already reaching for your checkbook. Somehow, the seducer has blown past all your defenses and even your intuition seems suckered.
This happened to me in a pitch not too long ago. The pitch was perfect. It was seductive. It claimed solving so many problems and the benefits and monetization were straightforward. The team was experienced and veterans of the Internet, so no problem on solving any kind of technical challenge. But I countered by saying to myself that hottest, sexiest woman is still a person despite what we perceive is her perfection, and thus means she can't be perfect since she is only human. Thus, for this pitch, however sexy it was, I refused to fall under its spell and viewed it with objective eyes. I brought my intuition back online and ultimately felt too uneasy about it to participate.
Walk away from that hot, sexy woman - hardest thing you can do sometimes.
Avoiding seduction is crucial. We have to train ourselves to not fall under the witch's spell and view the entrepreneur and the opportunity with objective eyes.
This brings back the clarity of our gut and intuition, which we must cultivate to make sure we are not doing something that we're not comfortable with.
In Blink by Malcolm Gladwell, he doesn't like using the word intuition but instead he calls it a form of unbelievably quick thinking. For me, it's both. It's both the gut, the emotional aspect of immediate, primal reaction to something, and the incredibly rapid thought that allows us to make an instantaneous decision. One is cultivated within ourselves and our feelings, the other via years of experience in dealing in a certain area of expertise.
What does it mean exactly when we pass on an opportunity via gut feel?
Just because we pass on an idea does not mean that we think an idea will fail. It might actually succeed. However, I do believe that it truly means that we are not the right people to be involved and that our gut is telling us that, given who we are, how we work, etc, that this project is not right for us.
For the entrepreneur that gets passed due to gut feel, don't feel bad. In the end, it will be better if we didn't work together. Go and be successful, but just with someone else.
]]>In this post, I want to bring out some subtle points mentioned in the previous post which refer to whether or not you SHOULD incubate at all. I assume that if you are thinking about incubating, that somehow you've reached a point in your career/life where you CAN incubate. But does it mean you should?
What are YOU personally willing to do?
Self-examination and knowledge is very important. You need to figure out exactly HOW you can contribute to incubation and the nurturing of ideas into businesses. Then you need to figure out what really motivates you and how you gain satisfaction, relative to the kind of participation you're willing to give.
Are you willing to jump back into the startup life of working 24/7?
If you're not in a position to go back to startup life, then you shouldn't incubate your own ideas. Remember, the idea originator has the resonance with the idea, and is best poised to take an idea to a successful conclusion. If you're not willing to do that, that's a clear sign you shouldn't incubate. Transferrence of an idea to someone else is nearly impossible and substantially decreases chances for success. Incubating at arm's length is still possible.
Do you have incredible, kick-ass product ideas and want to see them flourish?
This is better than having dumb ideas, or ideas that others are working on, or no ideas at all. You shouldn't incubate your ideas if you don't have great ideas to begin with. Again, maybe you should incubate at arm's length.
Being the "Guy at the Top"
The most dangerous thing you can do with incubation is try to be the "guy at the top" who directs things but doesn't get involved in the day to day of any incubated operation. You generate great ideas, and then hire a team to execute that idea, and then think you can sit back and watch the idea flourish, grow big, and you reap the benefits while being able to kick back and just manage it all.
Incubating Your Own Ideas
So you have great ideas and are willing to go back into the startup world. Incubation is a great way to figure out what to do next, if you have the resources to work on many things simultaneously. You will need to be personally involved in the day to day of each incubated idea, and you'll most likely max out at around 3-4 ideas, perhaps less.
Follow the principles in Incubation 101 and you'll do great.
Managing Incubation at Arm's Length
So you don't have great ideas, OR you aren't willing to put yourself back into startup mode regardless of whatever ideas you have.
My advice to you, is to let go of any notions that you be the "guy at the top" and find another way to help others with their ideas. Reorient your values and take great pleasure in watching others' flourish with their own ideas, but contribute in ways that allow you to be involved.
This can be through advisorships and/or investments. Provide value to your entrepreneurs as you invest money in their ideas and they will come to you for help. Create a positive relationship and you can gain some satisfaction in knowing that you contributed to the success of their idea.
Raise a venture fund and support people more through cash, if you aren't so helpful in other ways. Keep the incubated ideas and companies at arm's length as much as possible to maximize incentives and reduce your exposure to ideas that aren't going anywhere. Again, follow the principles in Incubation 101 and you'll minimize risk and maximize your chance of finding something great.
My Personal Experience
Back in early 2006, I attempted to raise a venture fund with an incubation component. I was having a hard time raising it, and ultimately this caused me to get involved with startups in a different way. Looking back, I was glad that I didn't fully realize the incubation operation as I think it would have gotten to a bad place.
In my self-examination, which happened much later, I discovered:
1. I was not willing to put my personal time into any one idea. This would have lead to a bunch of ideas run by me, the "guy at the top". This would have been a risk increasing move.
2. I really didn't have great ideas. I had some, but none that were earth shattering. I didn't have a way to generate great ideas but would have tried to execute some mediocre ideas, again increasing risk.
3. I realized I was much better at taking someone else's ideas and making them even better.
Thus, I am today at something-like incubating at arm's length. I feel that I have yielded a much better risk profile through my work with startups across a number of great ideas and entrepreneurs, and leveraging my personality preference for making an existing idea better versus coming up with a great idea myself. I also have higher personal satisfaction working in this fashion.
Read Incubation 101, do the self-discovery, and do incubation the right way for YOU.
]]>Incubation has had a bad reputation over the years, especially the large ones like IdeaLab and Internet Capital Group that raised enormous sums of money but didn't return nearly what they were supposed to. When I tried to raise my own venture fund 2 years ago and wanted to include an incubation component, I was advised unilaterally to not call it an incubator or else I would get nowhere fast! Investors had been burned way too much on the incubator model in the past to trust new ones.
Yet incubation is sexy. Generate new, cool ideas. Create new businesses. Find the next Google. Unbridled innovation, unlimited success! Wow!
If only it were that easy or certain. Incubation is really hard, but in my research I've uncovered some guiding principles which make incubation viable and possible as a strategy.
Here are the highlights:
Incubation works nicely for internet projects
Developing products and services for the internet has gotten so cheap and easy that invested capital can be very small relative to other industries.
Incubation is HARD
It's not easy to come up with a great new business. Attempting it is not for those wishing for a quick win. You have to be patient, focused, and be able to let go of projects that aren't getting anywhere or waste too much of your time and resources.
Go cheap
The less money you spend, the less money you need to properly incubate. Testing ideas as cheap as possible reduces overall investment. Don't invest a ton in infrastructure liking buying a pretty building and cool office furniture. Outsourcing can help with being cheap especially in the international marketplace for talent.
Build fast
Get your concepts out there fast and test. Being slow means competitors can get into a space before you can test properly. Also, the more ideas you can generate and test, the more chances you have of hitting on something worthwhile.
Fail and remove fast
If something is failing, close it down fast! Have the discipline to kill projects that aren't working. Throwing money at failing projects doesn't solve the problem either. The ability to let go of bad projects is extremely important. Otherwise, projects that are sitting around languishing just waste money and effort to keep afloat.
Go wide...Carefully
Risk is reduced if you cast your net wide of ideas to try. Throwing all your eggs into one or a small number of baskets increases risk substantially of failure. But go wide carefully, meaning don't stretch your resources too thinly.
The founder of an idea needs to go with that business
It is nearly impossible to properly transfer an idea to someone else. Trying to do so raises risk tremendously. To reduce risk, the person who comes up with an idea should stay with that idea, should that idea blossom into a business. This is because the originator of an idea typically has some intrinsic resonance with that idea as a business, and is the right person to build, innovate, and nurture it.
If you are not willing to take an idea through to its proper conclusion, my advice to you is to re-examine your life and what you want to do. If you're not willing to jump back into a startup, then I would tell you to just let others develop their own ideas and let go of your own. Take pleasure in nuturing others and their ideas into great businesses. Raise a venture fund and help others do well.
The team members also should go with that business
Shared resources developing an idea is a nice concept, but to reduce risk, as soon as an idea starts taking off, the development and product team should immediately be deployed on that project. Switching people on a project is hugely problematic and wastes time in education, learnings, and experience.
Any resources working in an incubator should be told beforehand that if they work on an idea, they can't just sit around and keep coming up with new ideas; they need to see the blossoming idea through to its conclusion. If anyone can't buy into that model, then they should find a job somewhere else.
Keep resources at arm's length
The more resources you can keep not on recurring payroll, the better. It's easier to remove people who aren't working out, or shut down projects. Hire the teams on projects that are flourishing to the corporations in which those projects reside.
Build a rolodex of resources you can deploy at a moment's notice. Find great people who are willing to give you great rates and can do great work.
Be disciplined in a process for evaluation
Set clear checkpoints for your incubated projects. If they do not reach basic minimum levels, then they should be shut down ruthlessly. Budgets, time, goals all can be used to create checkpoints.
Incentives are key
Nothing motivates people better than survival instinct and a life or death deadline. The survival instinct is activated when they know they're going to run out of money (like their salary, their means for eating and paying rent, etc.) if they aren't successful. The life or death deadline is activated when they know they're not going to get any more resources or help beyond a certain point. So they MUST be successful or else they're gonna starve.
On the other side of the coin, it is highly motivational to know that their success is also tied to success of their project in a large and singular manner.
Paying them a regular salary from the overall incubator pool is not motivating enough; it makes them too comfortable knowing that they could fail on any idea but still are able to go on surviving. It also severely reduces their urgency, knowing that they're still going to get a paycheck whether or not it launches today or 3 months from now.
Giving them large ownership in a separate corporation formed from their project is. Tying their salary to the separate corporation is even better.
Forming a separate corporate entity per project increases clarity in ownership and process
Keeping projects internally makes it difficult to track and assign costs properly to each project. When you have a separate corporation each with its own budget and resources, tracking becomes easier.
It also makes it clear who owns what part of what corporation, and how much of it. Keeping projects internally removes that fact as you're part of and being paid by the whole.
This clarity extends to funding as well. When an entity is running out of money, you have to take an official step to put more funds into that corporation's bank account, along with all the ramifications in doing so in ownership, and why you have to do so. It really makes you think twice about funding a business that may be faltering or flawed.
As mentioned before, when peoples' salaries are tied to the corporation, then incentives are highly aligned with the success of that corporation, and not blurred with the whole incubator.
Some ideas require a sustainability component to be fully tested
A recurring theme among internet products is that ideas can be launched quickly and once it's out there, people will come and use it, love it, and it will grow. Banking on an idea to grow organically by itself is a recipe for disaster. The problem is that not many ideas have the ability to do so. We often fool ourselves that by launching a new idea live, that people will just come and use it and it will be the next Google. It might happen, but probably won't. Then we get frustrated wondering why it isn't growing, and often end up thinking that the idea sucked and we should close it down.
However, it is deceptive to think that an idea which does not grow organically is a failure. The reality is that the idea might actually be good, but just requires people, time, money, and smarts to apply to it and then it might grow. Thinking through the sustainability of a launched idea and how that can be supported for at least some period of time is really important.
Incubation works great if you're personally trying to figure out what to do next
If you have some personal capital and want to find a new idea to work on, incubation could be for you. I've talked to a number of people who have employed incubation at a personal level successfully. Instead of working on just one idea, they launch 3-4 and work on all simultaneously. Each idea gets funding and their own team. At the end of the process, the most successful idea survives. The other projects are closed down or sold, and you become CEO of the surviving, thriving business.
It could work much better than working on singular idea and trying to determine if that idea is the right one or not. Or working ideas serially. Being serial takes up a lot more time than doing things in parallel.
Yes it takes a lot of time and effort, and requires a multi-tasking brain. But if you're a startup person, you're probably used to working like that anyways.
Find great startup people
Seems basic right? It's actually harder than you think.
Find creative, hard working, caffeinated people who are smart and motivated AND can take a project to a conclusion. Too many people float at the creative, idea stage and don't have what it takes to stay with an idea over time and develop it. Discovering people who are like this is very hard, so beware.
As mentioned previously, keeping them at arm's length makes it easier to get rid of inappropriate people. Be ruthless in culling people who aren't working out.
Young people are great. They can work for long hours, live cheaply, have almost no other attachments in their lives. They will try stuff because they don't know better, unlike us old, jaded, experienced people. They're not so great because they don't have enough business experience to know how to take a business further.
Build an idea with revenue generation on the mind from day one
If an idea is generating money, its ability to sustain itself grows dramatically. Creating products which bank on the free model and gain lots of users, but have no concept or plan for short term revenue, is great for people who have a powerful investor as backer and who is willing to fund growth beyond that point. For an incubator, I would say that this is not a good path to go down and substantially increases risk of failure.
Revenue generation sustains the incubation process
Following on the last principle, if you can find a way to generate revenue immediately, then the incubation process can be self-funded and sustaining, and opens up the ability to try new ideas without deploying more outside capital.
Good luck with your incubation efforts, and I'd love to hear how you're doing if you are going to incubate new businesses.
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