Putty Hill, a film by Matthew Porterfield (2010)

Something amazing is happening in the world of filmmaking. Crowdsourced funding mechanisms like Kickstarter.com are enabling a new generation of filmmakers to get a foothold doing what they love, where they want to do it. They’re using social media to find acting talent, and new digital camera technologies are making it possible to create amazing high quality films for a fraction of what it used to cost.

Matthew Porterfield

I’m particularly impressed by the work of Baltimore filmmaker Matthew Porterfield, whose films “Hamilton” (2006) and “Putty Hill” (2010) exemplify the new kind of “cinepreneurial” skillset which will certainly come to define 21st century filmmaking. (You can read here about the funding and creative process behind Putty Hill.)

Porterfield is a nice, unassuming guy who teaches film at Johns Hopkins and directs his students that if they want to make documentaries, they need to go to New York, and to go to Los Angeles for pretty much everything else. For today, this is sound advice. It’s the same kind of advice you’d give talented coders looking to unleash the next big web technology — go to San Francisco, because it’s where the industry is centered — at least right now.

But if you ask Porterfield why he doesn’t take his own advice, he’d likely offer a cryptic sort of answer — that he’d considered it but really couldn’t imagine himself anywhere else. I don’t know him well enough to speak for him, so I hope he weighs in here. But Matt and I are kindred spirits: we both are actively choosing place over anything else, and investing our time and talent to make it better.

Let’s Invest in Maryland Film, Not in Hollywood

Baltimore and Maryland have been the home to many well-known movie and television productions over the years, not the least of which have been Homicide: Life on the Street, The Wire, and a slew of Baltimore native Barry Levinson’s films including Diner, Tin Men, and Avalon. And most all of these productions received significant subsidies from the State of Maryland.

As budgets have continued to tighten, the O’Malley administration made a strategic decision to cut back on investment in film production subsidies. And that has probably been a very wise decision. Other states have been more than willing to outbid Maryland, offering ridiculous breaks. And Maryland really doesn’t need to be in yet another race to the bottom.

The Curious Case of Benjamin Button (2008)

The film The Curious Case of Benjamin Button (2008) was based on a short story by F. Scott Fitzgerald (who lived around the corner from me in Bolton Hill when he wrote it), and it was originally set in Baltimore (original text). Yet the film version was set in New Orleans and had a subtext about a dying woman retelling the story as Katrina bore down on the city. Why? Subsidies. New Orleans offered more subsidies than Maryland would. And so the story was changed and moved there. Who knows if the Katrina storyline was a condition in the contract!

I don’t really have an opinion about whether Benjamin Button should have been filmed in Baltimore, but I do have an opinion about engaging in zero-sum games with 49 other desperate states: it’s bad policy. And I also think the time has come to admit that big movie studios are the next big dinosaur to face extinction. Why should Sony or Disney or Universal make the bulk of the world’s content when every man, woman, and child has access to a $200 HD camera and a $999 post-production studio?

Investing in Cinepreneurs

John Waters is one of Baltimore’s great artistic assets. And it’s not because of film subsidies. His work is known worldwide, and it celebrates the quirky, distinctive voice of Baltimore. Matthew Porterfield is distinctive and quirky too, and he makes beautiful pictures: he’ll be next to make his mark. And there are dozens more teeming around places like MICA, the Creative Alliance CAMM Cage, Johns Hopkins, Towson University, and UMBC. We need only to nurture their talent and the ecosystem.

Browncoats: Redemption, 2010

Another film, Browncoats: Redemption was made locally last year and created by local entrepreneurs Michael Dougherty and Steven Fisher. It is utilizing an innovative non-profit funding model. The film’s is raising money for five charities and it leveraged social media and Internet to recruit 160+ volunteers and market the film.

Instead of blowing money on Hollywood productions that bring little more than short term contract and catering work to Maryland, why don’t we instead start investing in the artists in our own backyard? Just as IT startups have gotten much cheaper to jumpstart, it’s now possible to make films for anywhere from $50 to $150K. If we dedicate between $5M and $7M to matching funds raised via mechanisms like Kickstarter, we could make something like 150 to 300 feature length films here in Baltimore. This would unleash a new wave of creativity that would yield fruit for decades to come, and put Maryland on the map as a destination for filmmakers.

We already have great supporters of film in the Maryland Film Festival, Creative Alliance, and many other organizations. It wouldn’t take much to get this off the ground. Instead of going backwards to the 1980′s in our view towards film production (as former Governor Ehrlich has recently proposed), let’s take advantage of all the available tools in our arsenal to jumpstart the film industry and move it forward in Maryland.

For every new artistic voice we nurture, we’ll be building Maryland’s unique brand in a way that no one else can compete with. It will make an impression for decades. And investing in film and the arts will help the technology scene flourish as well. Intelligent creative professionals want to be together. And coders and graphic artists think film and filmmakers are pretty cool.

We shouldn’t let an aversion to the failed subsidy policies of the past get in the way of forging a new creative future that we all can benefit from. We can invest in the arts intelligently. Let’s start today.

I live in Baltimore, in the great state of Maryland. I’ve been studying the economic development process here for many years. While this post contains observations specific to Maryland and Baltimore, the concepts likely apply in other geographies as well. I am curious to hear your perspectives from where you live.

Shh… they don’t know they’re obsolete!

There’s a growing disconnect in economic development. Government sponsored economic development outfits are tasked with 1) growing the tax base, 2) attracting new businesses, 3) helping existing businesses grow, 4) aid in the creation of new businesses, 5) develop and grow the local workforce.

In Maryland, the State Department of Business and Economic Development traces its roots back to the Bureau of Statistics and Information, which was formed in 1884 to compile statistics about agriculture and industry. As industry shifted dramatically in the 1950′s and 1960′s, the focus shifted to providing small business loans and seeding the development of new jobs.

Vast consolidation in manufacturing starting in the 1970′s meant that states were particularly anxious about job losses. The loss of a single plant could deal a staggering blow to the tax base, and could mean a huge loss of jobs — often leading to a demoralized workforce and a downward spiral of negative economic growth. (Think Detroit.)

The Zero-Sum Game

As a result of this process, states began to engage in heated battles to attract and retain manufacturing facilities. The primary tool available to economic development authorities has traditionally been tax credits and other “incentives,” which might include deferred taxes, regulatory considerations, and a “turnkey” permitting process.

As states rushed to use these tools to attract and develop these “big projects,” a kind of zero-sum game emerged between states trying to attract companies and capital. Large corporations were now in a position to effectively “shop” for the sweetest incentives. As you likely know, states have not shown much restraint in their willingness to offer breaks. In fact, it’s all been very embarrassing — a rush to the bottom, where states compete not on their own merits, but on how many baubles they can afford to dole out to their latest suitors.

This disease has so stricken governments, Governors, and their economic development teams that they’ve developed an unhealthy obsession with “big projects” as well. Folks in government, who on average have very little first-hand experience with entrepreneurship or business, tend to think in “causal” terms. If we do X, then Y will happen. And so the logic is that if you want a big result, take a big action.

And so they chase after smokestacks and big iron, trying to attract heavy manufacturing, big developments by big developers, corporate headquarters, sports teams, stadiums, and slot parlors. But here’s the paradox: these projects, while flashy, just don’t pay off. Tax subsidies are never recouped, and the jobs that are created tend to be bottom-of-the-barrel service industry jobs that barely support a living wage.

Baltimore’s subsidized Camden Yards stadium produces $3 Million per year in tax revenue, but costs Maryland taxpayers $14 Million per year in subsidies. The heavily subsidized Ravens stadium produces $1.4 Million per year but costs taxpayers $18 Million. Failure to impose or enforce job quality standards as part of subsidy packages provided to multiple hotel developments in Baltimore has led to many low-wage jobs and nearly none of the higher paying jobs that were promised. (These conclusions were taken from this report by the group Good Jobs First.)

New Approaches

Maryland, in an effort to develop a strategic focus on biotechnology, instituted a $6M program of tax credits (later increased to $8M) for investors in biotechnology companies. The program has proved wildly popular, and to Maryland’s credit, it recognized the importance of investing in an industry that had already taken root here and, thanks to the presence of the National Institutes of Health and Food and Drug Administration, was a natural strategic focus for our area.

The only question is how effective the biotech tax credit is at actually developing these kinds of jobs in the long term. It’s a little early to judge how effective the biotech tax credit program will be, but we can make these qualitative observations about that industry:

1. Developing a new biotech product (whether a drug, device, or process) has a very long lead time.
2. Because of long lead times and the need for highly-skilled workers, development is very expensive.
3. Failure is common and is often stark: big bets on molecules that don’t pass approval processes or are copied by competitors can lead to epic financial losses.
4. The kicker: successful companies are often acquired by firms based elsewhere, leading to job losses or relocations, ultimately undoing the benefit originally intended.

I do not want to overemphasize the potential downsides; there are many tangible benefits of this program both now and in the long term. The only question is whether we can do better.

Betting On Ourselves

What if, instead of trying to offer subsidies to outsiders, we start investing in ourselves? A tax credit for biotech is a step in that direction, but what could we do with a comparable program for Internet and IT startups? What if we made investment capital available to Maryland businesses as part of a strategy to develop new companies that actually stay here for the long term (and are not susceptible to subsidy bribes from other locales)?

A new program called Invest Maryland has been proposed by Governor Martin O’Malley, and is based on similar programs instituted in other states. The program would make $100 Million in venture capital available to Maryland businesses. Funds would come from tax prepayments made by insurance companies in exchange for tax credits. The theory is that the cost of the tax credits would be exceeded by the benefit in business development provided by the venture investments.

Done properly, this is probably a very sound program. But to be maximally successful, I believe we need to start placing strong bets on information technology startups in particular:

1. IT startups are very capital efficient. Thanks to lean startup methodologies, IT startups can get up and running for as little as $50,000 to $150,000 in investment.
2. Maryland already has the highest concentration of information technology workers in the world. It’s a strong strategic fit for exactly the same reasons that biotech investment is a good fit.
3. To achieve strong returns with early stage investments, it’s often necessary to invest in 150 or more companies. The small capital requirements of IT companies allow for many more investments to be made with less capital, thus increasing the odds of success.
4. A large portfolio of seed-stage IT investments can yield internal rates of return of up to 25-30% annually, which is terrifically high. That is in addition to the benefit of building a permanent base of IT businesses in Maryland, and all the job and tax-base benefits that would bring.
5. A large number of ventures would, statistically, also have to produce a large number of failures. This culture of continuous endeavor would de-stigmatize failure and allow for repeated teaming and relationship building. Inenvitable losses are not losses, but in fact fertilize the forest floor — building the ecosystem for the long term.
6. A culture rich in startups will keep us from exporting our best and brightest to other places, which we do routinely right now.

$10M for IT Startups

As Maryland’s leaders and legislators consider the Invest Maryland initiative, I propose that the state set aside $10M of its $100M fund specifically for IT startups. With that $10M, I propose that Maryland invest in up to 200 seed stage IT firms at anywhere from $50K to $150K per company.

Doing this well will be difficult. However, by partnering with existing entities such as Baltimore Angels and members of the business community, we can make that investment maximally productive. We’d need to figure out the details, but we can’t expect government employees to make these investments on their own without domain expertise. By leveraging the people in the community that want to see these investments occur and who do have appropriate domain expertise, we can dramatically increase the effectiveness of this fund.

And if the initial $10M investment proves effective, we should consider enlarging the program to $25M or higher later. This strategy carries very little risk for the state and would create a stunning worldwide buzz about the vibrancy of the startup culture in Maryland, and would highlight the innovative private-public partnership that sparked it.

Thinking Small

The businesses we routinely cite as our biggest successes — Under Armour, Advertising.com, SafeNet, Sourcefire, Bill Me Later, to name a few — all came about as home-grown successes. They are not here because we brought them here from someplace else. They’re here because they were grown here from scratch, by people who love it here.

If we start now, placing a large number of bets on our brilliant citizenry, we will do something remarkable: we’ll launch a virtuous cycle of entrepreneurship — the opposite of the kind of downward spiral associated with the rust belt era.

Instead of the simplistic “causal logic” associated with “big” economic development, we’ll be using the logic of entrepreneurial “effectuation,” of the kind promoted by entrepreneurship researcher Dr. Saras Sarasvathy.

It is the combined effects of many people pursuing entrepreneurship that will lead us someplace extraordinary. Suddenly, Baltimore (and Maryland) will become the cover story on the airline magazine — the “hot” place to be. One (or ten) corporate headquarters relocations will never do that, because it won’t bring about endemic entrepreneurship in the culture.

Making lots of small bets instead of fewer “big” bets makes government nervous. Everyone wants to be seen as someone who accomplishes something big, and with short gubernatorial terms, it’s tough to get ramped up with plans that might take 10 or 12 years to realize. But that’s exactly what’s needed.

We need to resist the temptation to focus solely on big development, and instead bet on the tiny startups. The big wins will come when these firms flower, and the ecosystem that gave them life comes into its own. Yes, that might happen on someone else’s watch — but it’s still the right thing to do.

A recent report from the Kauffman Foundation proclaims, “Job Growth in U.S. Driven Entirely by Startups.” If this is the case, Lord knows we could use a lot more startups. If we want new jobs — and not jobs poached from other states at great expense and flight risk — the only logical choice is to focus on creating new startups.

And if solid returns of 25-30% can be realized on a large portfolio of startups, shouldn’t we drop almost everything else and focus only on that?

The first state that adopts this strategy will be sowing the seeds of an incredible, dynamic culture of entrepreneurship. Is Maryland ready to take the challenge?

My last couple of posts have been about finding technical cofounders, either at the start or over time. Many of you have chimed in with your own experiences and thoughts. And I’ve promised to talk about what it takes to find cofounders. Here goes.

The Ideal

You hear about it all the time. Three friends leave Facebook along with two friends from Google to start a new skunkworks project. It gets some traction, some revenue, some press, raises some money, gets huge and then sells out to Google or Disney or whoever. And then the process starts all over again.

This all sounds great, but outside observers often make a fatal mistake; we think, “Wow, that was a really great idea. If I had that idea, I could have done that.” Or even worse, “I totally had that idea. I would have done that but I couldn’t find anyone to help me past my prototype.”

What the external observer fails to account for is the power of pre-existing relationships. How do companies like this get started? At bars, parties, over lunch, and over time. Notice that the company was formed by “friends.” That’s really how it works. So, how to get started?

Making Friends

Many people, especially engineers, are not particularly extroverted. But at the end of the day, if all good entrepreneurial endeavors are born from relationships, it is necessary that you be a social creature. That means cultivating many personal relationships — and not just on Facebook or Twitter either. A good litmus test? If you know somebody well enough that they would consider inviting you to their house for a party or dinner, that’s a good indicator of a strong relationship. We’ll call these “strong ties.”

There may be countless other relationships which are not quite that far along, and you’ll need those too. These are your “weak ties” and will be the people who can help you find accountants, lawyers, customers, and vendors. Some of these relationships will ultimately evolve into “strong ties” as well. You need a lot of both.

So how do you go from being “just you” to having all of these relationships? One stupid thing you could do would be to move to Silicon Valley. In one move, you will manage to weaken your existing strong ties, blow up your weak ties, and force yourself to rebuild all of that from scratch. But too many people assume this is the only answer. (In fairness, there are a lot of great people in the Valley, and if you know people there already, it might help you move forward; but that’s a subject for another post.) But even there, you have to be a relentlessly social creature and meet anyone and everyone who might be potentially interested in what you’re doing.

When I talk about becoming “social” I am not talking about being some kind of socialite, bon vivant, or “party animal.” I think we all are frustrated with the constant barrage of networking events and the people who want to “be seen” at them. I’m as cantankerous and introverted as the next geek, yet I’ve made it my business to become extremely well socially connected — and not because it’s cool to be connected, but because I’ve sought out people in my area and around the world that care about the things I care about.

Getting Out There (in Engineered Contexts)

One way you can become more social is to go to events and meet people. Startup Digest (which I co-curate here in Baltimore) is a great way to find out what events are going on in your area that might be relevant to startups.

Many “businesspeople” feel out of place at “geek” events, and vice-versa. But if you are really serious about starting businesses, you need to get to know people of all stripes. Go to each event and tell people your story and even more importantly, ask people about theirs. What’s your story? “You’ve been doing X for Y years, and now you want to try to do Z.” Nothing more than that. People want to help you succeed.

As I mentioned, we all get frustrated with traditional networking events — stand around drinking a beer, talking to 10 people who find you odd, and pretty soon you’re checking the clock. So, instead of going to generic networking events, think about ways you can “engineer the context” of the event. Here are some:

1. Events with a speaker plus networking are almost always better than events with none.
2. If there’s no speaker, make sure there’s a focus or targeted community you want to understand better.
3. Events with multiple speakers (like Ignite) are even better because they expose you to many points of view.
4. Raise your hand, ask questions; share your expertise and passion publicly and let others find you.
5. Be the speaker. Find a way to present to a community you care about.
6. Be authentic. Don’t pass yourself as expert on something you’re not.
7. Hold your own events, or sponsor others. Host a Tweetup, targeted to people you want to attract.
8. Befriend thought leaders; ask how you can help with later events.

These are just a few ways you can go about building your network of potential cofounders. But these all pale in comparison to what I’m about to tell you.

Start Coworking Today

If you really want to start building your network of potential cofounders where you are, there is simply no substitute for spending time with a lot of them on a regular basis. Coworking is a great way to do that.

Coworking is a worldwide movement based on shared workspaces for creative professionals. They’re run by their respective communities with the goal of getting teleworkers out of the house and making friends. In Baltimore, I helped to form Beehive Baltimore in February 2009, and it’s grown to include over 100 professionals in its ecosystem. On any given day, there are between 10 and 20 professional programmers, designers, marketers, and entrepreneurs that participate in our community. That same story is repeating itself in every city in every country around the world.

There’s simply no substitute to being around people, sharing ideas and the occasional laugh with them, and getting a feel for what makes them tick. In a sense, you’re engineering the kind of workplace context that occurs when “friends from Facebook and Google” leave to form a startup.

You’re creating the same opportunity for after-work drinks and weekend interaction. You’re creating a shared context for the reinforcement of ideas and exploration of imagination. And it’s vitally important you do this with others.

Relationships First, Ideas Second

Ideation is a social exercise. But ideas are cheap. If you have an idea but haven’t yet strengthened it by sharing it with others, odds are it’s still a pretty weak idea. (And if you’re scared to share your idea with someone, gosh, well, I’ll get to you later.)

I keep a list of about 150 business ideas at any given time. My idea list over the years has included ones closely resembling Google Earth, e-Bay, Foursquare. These ideas, while great, were in many ways obvious and “in the air” at that time — what mattered is execution, and others beat me to it. And that’s OK. It just shows that execution is the only thing that matters.

Sharing ideas with others allows you to get buy-in from other potential cofounders. If you are able to get three or four of your coworking friends excited about an idea, and one of them suggests a tweak that makes it even better, chances are you have something pretty strong there. Run with it. Get that team to build it at night and on weekends. They very likely will, because they believe in the idea. (IndyHall Labs is a great example of this dynamic.)

Your Cofounders Are Your First Investors

If you can’t convince technical people to at least show interest in working with you on your idea, you are likely going to have a very hard time changing that later by waving money at them. At the end of the day, people want to work on stuff they believe in. Start from there.

Also, investors will be excited to look at a team of eager people who are already working together to attack an interesting problem — much more so than a lone entrepreneur who needs to “raise money” to “find programmers.”

Put Yourself Out There

In the end, entrepreneurship is not something you really control. You have an idea of where you want to head, but almost always you end up someplace else. That’s fine. And that’s the point. Entrepreneurship is something that happens to you.

And so, if you start today and get yourself out there, talking about ideas, asking people about theirs, developing weak ties and pushing your weak ties to become strong ties, you’ll get there. And people will start finding you. Because over time you’ll learn that some of your ideas resonate, some don’t. And you’ll pursue the ideas that resonate.

Resonance drives interest. Your cofounders will find you. If you build something awesome, customers will find you. If customers find you, investment will find you. A large percentage of VC deals happen not because someone pitches them, but because VC’s find a hot growing business that’s attracting attention.

It’s been said that advertising is a tax for being boring. And there’s probably an analog in startup-land. Don’t be boring. Be remarkable. Get out there and meet the people you’re going to build your future with. That’s how this process works, and it can happen anywhere in the world if you employ the right approaches and understand that it’s relationships that drive the startup engine more than anything else.

Some interpreted my last post (about finding technical co-founders) as advice to “do nothing” — to wait until the stars align to start working on an idea. And in a way, that is what I’m suggesting. But that observation is really part of a larger picture of how a fully functioning entrepreneurial ecosystem works. In such a system, both ideas and businesses are born from personal relationships. However, outside of a few niche industries in a few niche geographies, these ecosystems do not (yet) exist. What then?

Start With What You Have

You may know I am a big fan of Dr. Saras Sarasvathy, the entrepreneurship researcher (now at University of Virginia’s Darden School of Business). Her clear-eyed analysis of the entrepreneurial process suggests that entrepreneurship is a behavior and a process. She believes that entrepreneurs are made, not born. And I absolutely agree with her.

The last thing she would suggest that an entrepreneur do is “wait” before taking action. Instead, she suggests that all entrepreneurship is a series of successive “small bets” — specific kinds of bets, with “affordable” downsides and higher, or possibly even uncapped upsides. By participating in this process, the entrepreneur actually changes the world around them and influences the success of their later activity. In short, they begin to mitigate the risks of their own bets, enhancing the upside and lowering the downside of the entire entrepreneurial process.

And this is exactly how entrepreneurship works. In this model, you never “wait around” — you start right away, taking successive small risks, and then going from there.

Doing It Right (and Wrong is OK too)

Matt Mireles wrote in on the last post to express his objection that he felt that I was suggesting that folks “never even try to get off the ground.” And I realized that wasn’t my intent at all.

Matt wrote (among many other thoughtful comments):

At least in the stall spin you have altitude to lose! Your advice seems to be “don’t even try to get off the ground.” This bothers me.

Who cares if you throw the prototype out? Who cares if you switch from PHP to Rails? That’s all sunk costs. The only thing that matters is that you make progress, build the team and get customers.
…
Case in point: SpeakerText. My original co-founder built the site in PHP and the app in Flash. The product kind of sucked, but there were some cool features, it got the idea across and we used it to get some good press. He ultimately wasn’t ready to commit and we did the whole stall spin thing you describe (although we parted ways amicably and he still helps out from time to time). Burned through some cash, our angel round imploded, etc.

Matt’s experience, of working with mercenary developers, getting it wrong, losing some cash and probably also causing a certain amount of misery in the process, is not uncommon. And it’s perfectly awesome. It’s exactly what entrepreneurs should be doing, which is failing early and failing often! Think of the lessons that he’s now learned!

Does this contradict my other advice? Not at all. Because Matt did one key thing that victims of the “stall spin” never do, which is to control their downside risks. Matt lived to tell the tale. In flying terms, he gave himself enough altitude to live through the stall spin and recover; his willingness to learn from mistakes and his awareness of what he didn’t know made it possible for him to live, where most people die.

And that’s really what the last post is all about: how to avoid making fatal mistakes by aligning common interests, which is (in effect) a way of capping downsides.

I promised a follow-up post about finding technical cofounders, which will further explore what a functioning ecosystem looks like. But here’s a preview to ponder: in functional startup ecosystems, you see more alignment of interests, risk taking with capped downsides, and strong pre-existing relationships (by way of meshed social networks). Can’t wait to share those ideas with you.

In the meantime, take Dr. Sarasvathy’s advice and start now. Just control your downside risks, learn from failure, and know what you don’t know! And meet lots of people who can help you along the way. You’ll do great things!

Avoiding The Startup Stall-Spin:
Why Your Startup Needs Technical Cofounders

I’ve spent the last several years working with early-stage technology startups. More often than not they fall into one of these two categories:

1. They have an “idea” and are trying to raise money so they can hire somebody to help them realize it.
2. They already have some money and are trying to find a “technical person” who can “build it”

Let me say it now — if this sounds like you, you are probably already doomed. Seriously. Stop now and go back to middle management, or start your efforts over from scratch. If you stick on the current path you WILL fail. Here’s why.

Mercenaries Are Not Paid to Care

If you are trying to build something, you presumably care about it and think it is worth doing. (If you don’t really care about it but just think it can make money, you should stop reading my blog altogether.)

If you can’t make other people want to join your team simply on the basis that they like your vision (and like you) then you are going to be faced with “hiring” someone to “build” your vision for you.

And that person is not paid to care about your vision. Free agent programmers, while they may be consummate professionals and quality engineers, will most often build exactly what you tell them to build.

There are three major problems with this:

1. You probably don’t know what you want to build.
2. You will probably do a very bad job of describing what you want to build.
3. You will spend most of your capital building something that no one actually wants.

And when the “prototype is built” and the “programmer” hands you the keys, who is going to maintain the code? Who is going to make ongoing structural adjustments to reflect the needs of your customer?

How will you identify and collect the metrics that will inform your business decisions?

Most entrepreneurs give fuzzy answers here, like “we’ll raise money on the prototype,” or “we’ll hire someone once we have revenue,” or the most laughable answer of all, “we’ll outsource that.”

The bottom line is that there is no substitute for TEAM. And there are lots of creative ways to build teams, but it has to start on day one.

Why Entrepreneurs Fail to Build Teams Early

This one’s really simple: isolation, inexperience, and negative reinforcement from past experience.

Isolation: most novice entrepreneurs exist in some kind of vacuum, limited to their social circles from their previous jobs, schooling, or professional discipline. As an example, many smart “businesspeople” simply don’t know any good “programmers.” Good startup teams emerge from relationships that already exist. And if you don’t have relationships with people that can help realize your vision, odds are you also haven’t asked them what *they* think of the idea. That can be incredibly revealing and instructive.

Inexperience: novice entrepreneurs are, by definition, new to the game. They don’t know that founding teams don’t come from “help wanted ads” for “incredibly talented programmer who will build my crazy web service.” They simply don’t know. Memo: this is not how it happens.

Negative Reinforcement from past experience: Many entrepreneurs and experienced business people alike have exactly one idea of how to “find people,” and that is to “find someone” who can “do the job.” And since jobs are paid for by money, they assume that funding is important so the firm can “hire people” to “get the task done.”

The very idea of “hiring someone” sets the task up wrong. Here’s why.

As the “hirer” you’re making several statements:

• I think this “job” is worth exactly this many dollars and nothing more.
• I don’t give a @#&%& about your opinions — build what I want you to build.
• You are replaceable.

And when you do hire someone on these terms, you get what you ask for — someone who will leave you for something that pays better (and who probably left something else to go bleed you dry).

The Startup Stall-Spin

As a pilot, I sometimes use flying analogies. A stall-spin, if you have never heard the term, is a dangerous situation: the plane tries to climb upward too steeply, loses lift, then begins to fall, spinning nose-first straight down towards the earth.

Often in the fall the pilot will incorrectly try to adjust the wings to “steer” the plane back into control, but at that point there is almost no air flow over the wings and this action makes the spin even worse. The only correction the pilot can make is to adjust the tail rudder to stop the spin, and then the plane will begin to regain lift and maneuverability. Often a pilot will lose over 1,000 feet of altitude in a stall-spin correction and it is certainly dangerous; for a pilot that encounters a stall-spin without some training and awareness, it is very often fatal.

Entrepreneurs need similar training to avoid (and, less preferably, correct) the “startup stall-spin.” Here’s what it looks like.

1. Entrepreneur has some “idea.”
2. They get a programmer to “build it” at considerable expense.
3. It is released to the public and is met with lackluster response by the market.
4. Revenue projections are missed.
5. Morale suffers. Everyone from employees to investors to strategic partners suffer a loss of confidence.
6. Funds are depleted. Required product changes are delayed until funds can be secured.
7. Original mercenary programmers lose faith in the effort and may even badmouth the entrepreneur.
8. New programmers become reluctant to join the effort.
9. The project becomes toxic and burns and dies. Everyone loses money.

There is only one way to recover from this, and that is to correct the original mistake: instead of hiring mercenaries, restart the effort from scratch with a real technical cofounder.

And here’s the kicker: if you can’t find one, you’re going to fail. Also, if you don’t do it before #3 (dealing with lackluster market response by making modifications) you will also likely fail.

And here’s why: you can never hire someone who will care the way a cofounder will care. And if you can’t find a cofounder, stop — unless you can get to a point where you’re generating revenue all by yourself.

Many of you may be saying, “I tried to find cofounders, but it was hard.” And it can be. And I will address that in my next post.

Meantime, I hope you give some thought to the “startup stall-spin” and how you can avoid it. In an airplane, you try to avoid stall-spins by avoiding stalls entirely. It is no different for a startup. Because recovery from that error, while survivable, is risky — and terrifying. Only a solid team of committed cofounders can keep you out of trouble!

Pride, Passion, Talent on Display at Startup Weekend Seoul

I believe that Silicon Valley may soon be going the way of the floppy disk.

For the last two weeks I have been traveling around Asia with a group of tech entrepreneurs, on a trip called “Geeks on a Plane” organized by Silicon Valley investor Dave McClure. I took the same trip last year.

Why take a trip like this? The answer gets at some very real and seismic shifts taking place in the startup world that will be big news over the next few years.

Startups Cost Less

Ten years ago a successful Internet startup might require one to five million dollars in outside funding. Data centers, engineers, and software licenses were hot commodities and could easily drain a startup’s resources.

Now it is possible to get a startup to the point of testing it in the market — with real customers — for $25,000 to $50,000. This effectively removes VC’s from the equation at these early rounds and turns things over to angel investors. As angel investing becomes increasingly professionalized, success rates increase and more people become involved with it.

“Silicon Valley is a State of Mind, Not Necessarily a Real Place”

Pay attention to this one! This is a quote by Dave McClure and it captures what is happening perfectly. Everywhere you go, there are techies and entrepreneurs who follow the tech business scene, and they are all ideological peers.

Silicon Valley is all about embracing the idea that the world can be changed for the better, and that one can (ultimately) realize rewards by changing it. If you believe this, you are a part of Silicon Valley. What about that statement is related to place?

In Shanghai, Beijing, Seoul, Singapore and Tokyo I have seen first hand the buzz and excitement that comes from people who believe that they can engage with the problems of our world imaginatively and productively. And they are not moving to Silicon Valley.

3D Printer at Singapore’s hackerspace.sg

Place as a Strategic Differentiator

Not being in Silicon Valley is very helpful if you are trying to tap into developing markets like those in China, Korea, and Japan. It is also helpful if you don’t want to have to pay Valley salaries and sucked into the echo chamber there.

As an example, a skilled developer in Silicon Valley might cost you upwards of $120,000 per year; the same person in India would cost $12,000 per year and in Singapore they would cost $48,000 per year.
If you are trying to build a product to serve the Asian market, wouldn’t you rather base your company in Singapore?

Being in “a” place is more important than being in “the” place

It is widely assumed that internet technologies like Skype and email crush distance and make global distributed business possible. True, but there are exceptions.

Real creativity, trust, and ideation has to happen face to face. This is where the magic occurs. If you don’t spend time with people you can’t create.

New-technology tools can help with execution, but only after the team dynamics are in place; they are great for keeping people connected and plugged in, but suck at creating an initial connection.

Love your place. Find the other like minded souls who love your place and start companies with those people. The creativity you unleash in your own backyard is the most important competitive differentiator you have. No one else has your unique set of talents and point of view. Leverage it.

Every City is Becoming Self Aware — All at Once

I do not know of a city anywhere in the world that is not presently undergoing a tech community renaissance right now. This is a VERY big deal.

Every city in the United States along with Europe, Asia, and South America is now using the same playbook — implementing coworking, hacker spaces, incubators, angel investment groups, bar camps, meetups and other proven strategies that will have the effect of cutting off the oxygen supply to Silicon Valley.

Let me say it again: Silicon Valley is getting its global AIR SUPPLY cut.

For the last few decades, Silicon Valley has traded on the fact that people are willing to move there to start companies. The MAJORITY of valley companies are founded by foreign born entrepreneurs. What if they stop coming? What if they find the intellectual and investment capital that allows them to self-actualize in their home turf, where they already have a competitive advantage?

The fact that we have made it so hard for new immigrants to come to the valley and create startups just makes things that much worse. That is why the Startup Visa concept is so important if America – not to mention the valley – wants to keep excelling in innovation and the economy of ideas.

“Soul-crushing Suburban Sprawl” – Paul Graham

The Valley Kinda Sucks

Everybody says that the big draw to San Francisco is the weather. True, it can be pretty nice at times. But it can also be pretty miserable.

The reality is that the weather makes no f*cking difference if you are slaving away 26 hours per day on your startup; and the fact is that humans only really perceive changes in weather anyway: you’ll notice a nice day if it has been preceded by 10 rainy ones, or vice versa. Studies have demonstrated this. Look it up.

Paul Graham said it best, “Silicon Valley is soul-crushing suburban sprawl.” And he also suggested that places that can implement a bikeable, time efficient startup environment without sprawl have a significant competitive advantage over the valley.

Nearly every major city is becoming that place for its community of entrepreneurs. All at once.

So Why Travel?

It’s simple: to go to where the startups will be coming from. Investors who wait around for startups to show up in the valley are going to miss out on serious innovations and investment opportunities.

This means leaving the Lamborghini parked on Sand Hill Road and cabbing it to a gritty hackerspace in the Arab section of Singapore to meet the innovators who are building the future. And this is something that most investors think they are too good and too important to go do.

Fortunately there are scrappy, forward-thinking folks like McClure who are willing to go out there and embrace the future and begin the creative destruction the next wave of innovation will bring to valley culture.

Our challenges are too great to demand that innovation happen one way, in one place, with one set of people. Innovation needs to be systematized and distributed, and this is the opening act.

The Future of Entrepreneurship

I had a great conversation with Dr. Meng Weng Wong today, founder of Joyful Frog Incubator in Singapore. We pondered questions:

• In the future, will companies form teams and then try to get funding, or will entrepreneurs just gather, form ideas and try things?
• How do bands form? And are incubated startups just boy bands?
• Are we not always just betting on individual ability to execute?
• Doesn’t team (and execution) always trump idea?
• Is entrepreneurship a cycle? Shouldn’t exited entrepreneurs come hang out with first time entrepreneurs and try ideas together?

These are important questions in their own right, but the most important thing is that we are asking them. And so are people around the world. And it has nothing to do with Silicon Valley, the place.

Want in on the ground floor of this next wave of innovation? Understand the change that is coming and leverage it in your own backyard. Get involved.

Because I guarantee that in five years the Valley will be a very different place and that we will see thriving startup communities bearing real fruit in every major city.

Why go to the Valley? Good question.

Thanks to everyone for engaging in this conversation!

The recent discussions of entrepreneurship here prompted several entrepreneurs to contact me, both via email and in person. Here is one kindred-spirit’s story, reproduced (and edited) with permission.

Hey Dave,

I’ve been reading your blog for the last week or so, and I wanted to let you know I appreciate your thoughtful angle on entrepreneurship, design, and intellectual life. Like many of your posts indicate, the challenges of developing personal creativity and starting something new are profound in our current culture. Last June I graduated with an engineering degree from the University of Maryland. Instead of acting on ideas to change the world, I did, as most graduates do these days, took the full time job that paid the most. (Chris Dixon’s post on the topic hits it). Add consulting and government consulting to where all the talent goes in the DMV. To a college kid, the prospects of a $70,000 salary are blinding. And if you consider yourself a self-starter, you realize quickly that you are fighting a powerful majority that would call you crazy for not taking such a lucrative offer.

That said, I have devoted a lot of my free time to developing my startup ideas through mockups and requirements. Yet, despite my engineering background, I just don’t see myself as the technical co-founder that many think is the necessary half of successful startup teams. I can spend hours reworking code, but developing from scratch is beyond me. So the question I have been struggling with is how do I find the real technical partner? As you posted, startups are about the people, but finding that passionate partner is incredibly difficult.

My current idea that I have been toying with revolves around [redacted]. From mobile app, to website … I am at a point where I would consider outsourcing app development, just because I believe in my idea and want to make progress. However, say a couple months into the future, I now have an iPhone App (and a lot less money) but I still don’t have a team to further the idea. In addition, I am not so sure my concept has clear profitability, but at my age (23) what’s wrong with idealism as a starting point?

Sorry for the length, but I wanted to offer some of my thoughts as to what it means to be on the outside of entrepreneurship, wanting in. Any return advice would be great!

Regards,
Lance

My response to Lance:

Lance,

Thanks for writing! Certainly sounds like you have the right spirit about things, and I agree with you re: Chris Dixon’s post. He’s got a very good take on things.

Some things I’d recommend:

1. Subscribe to Startup Digest Baltimore. Go to http://thestartupdigest.com

2. Go to Innovate Baltimore on Wednesday 5/19 and introduce yourself. http://innovatebaltimore.com

3. Come hang out at Beehive Baltimore. It’s where the community is centered. http://beehivebaltimore.org

4. Let’s find a time to talk some more. I am out of town for two weeks starting next Friday but we can find a time in June. Pick something: http://tungle.me/davetroy

Looking forward to meeting you!

Do you mind if I share your note, along with my response, on my blog?

I want to keep reminding people that there are LOTS of people like you out there…

Best,
Dave

Response from Lance:

Sure. No problem. If you could edit out the sentence or two about my current idea, that would be great. Also, I currently live in the Northern Virginia area, so I’ve been on the DC and Baltimore Startup since I was introduced to them at BootstrapMD. I just started looking for resources like InnovateBaltimore and BeehiveBaltimore around DC. Any suggestions?

Thanks,
Lance

My response to Lance:

OK, thanks.

You should consider moving to Baltimore as the startup + coworking scene is now a lot more active. Innovate and Beehive are just the tip of the iceberg.

There are some OK things going on in the DC area (Founders Institute, Launchbox Digital, Social Matchbox, DC Week), they run on weird schedules and are not active all the time. Baltimore’s scene is a lot more persistent and becoming much more interesting. Affinity Lab is like an expensive corporate version of coworking. Beehive is real coworking.

Anyway, I’m biased, but this is something we’re serious about in Baltimore and we’re committed to making it happen, all the way from the Governor to the Mayor to each individual startup.

Hope to see you around the Hive soon.

Best,
Dave

Bill Gates: dropout. Paul Allen: dropout. Steve Ballmer: dropout. Richard Branson: dropout. Warren Buffett: dropout. See a pattern?

Entrepreneurship is the opposite of University culture, which celebrates progressive levels of achievement, with the ultimate goal of becoming a college professor. Entrepreneurs create the circumstances of their own success, by changing the world around them and making their own game.

I’m not suggesting anyone dropout, but we do have to ask: is our educational system creating maximum value for society? Or is it just creating clones, steeped in the idea that there is only one true path to security and achievement, which are then manipulated by true entrepreneurs and leaders who really know how to shape the world around them? And which are you?

This post started out as a reaction to yesterday’s post by Matt Mireles in New York City about the dearth of talent available to startups there. I felt it was relevant to the Baltimore/Washington area and shared it with some of our local leaders. It sparked a deep conversation — which I captured below.

Dave Troy to some area investors, entrepreneurs, and economic development officials:

This blog post out of NYC is a decent analysis of the problems that east-coast tech startups face.

• Drop in “federal sector” in place of “Wall Street” and you have an almost perfect analysis of our situation here in Maryland.
• Scarce technical talent wants to be employees, not co-founders for equity.
• A large well-funded ecosystem that sucks up available talent (Wall St, Feds, etc)
• Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent

As the guy points out, a few good exits and some Stanford-like thinking can quickly change things. Tomorrow he’s writing some about how the NYC community is addressing this problem.

Roger London (investor, director of America’s Security Challenge):

I agree for the most part. I would tweak it as follows (comments embedded below).

1. Scarce technical talent wants to be employees, not co-founders for equity.
Totally agree, however technical talent in this region is not nearly as sophisticated and picky as the Palo Alto engineer sited in the blog. While most technical talent here would not take equity or options in lieu of a paycheck, I believe there are many that could find a suitable combination. This crop of “vested” technologists will anchor our next generation of technology entrepreneurs. They must first get a taste for the long-term value of equity and just as importantly realize a bit of a payoff so that a “paycheck” is no longer their motivation and requirement.

2. A large well-funded ecosystem that sucks up available talent (Wall St, Feds, etc)
I don’t think our technical talent goes to work for the feds, but they are hooked on the federal R&D heroin that so liberally “strings out” our technical talent making them addicted to and dependant on research funding, thereby unwilling to consider leaving the “shooting galleries” of the university and federal labs (got carried away with the drug metaphor). The feds could do a better job leveraging that investment by coordinating private sector collaboration, specifically startup collaboration with these technologists to open their eyes to the possibilities. In the absence of any progress there, we need to make a concerted effort to bring the eventual customers and serial angel entrepreneurs to the fed researchers to identify, shape and license technology that is desired by the market.

We need to find a more efficient way to produce more profitable and more successful startups. While mentoring, incubators and similar programs are valuable, the most effective way to increase the probability of success is to bring the customer to the startup table and have them help shape the requirements and solution. Who are the largest technology consumer enterprises in the state? State of MD government, Hopkins Healthcare Systems, Constellation Energy, T Rowe Price, Legg Mason, Lockheed, Fort Meade, Coventry, Marriott, Host, WR Grace, Catalyst, Discovery, Black and Decker, McCormick immediately come to mind. There are a number of technologies that most of these companies would want to procure because it improves their performance, customer service, security, bottom line, etc….things like high speed computing and distribution, more effective customer interaction tools, more effective customer security re their identify/information and customer logins, network security, building and vehicle fuel efficiency, etc.

Almost every agency and department of the federal government also has requirements for these and by establishing beachhead Maryland customers, we can stand up and provide credibility to young companies and then help springboard them into the federal government. With varying degrees of success, organizations already exist that follow this model but their efforts should be amplified.

3. Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent
See above

As the guy points out, a few good exits and some Stanford-like thinking can quickly change things. Tomorrow he’s writing some about how the NYC community is addressing this problem.

NYC does not have the research funding that we have in the state and their solution might not be replicable here. Our ecosystem of capital, talent and customers is fairly unique which is another reason why we can’t just “copy” the innovation models from NYC, Boston/MIT, Silicon Valley, RTP or other innovation regions. The assets we have in this region that are not found anywhere else is the vast amount of federal R&D (#1) and the largest consumer of technology on the planet, the federal government. Unique programs need to be developed with those two factors deeply embedded that fosters emerging growth tech companies and helps to bridge the gap between research and market adoption. That work needs to be designed and operated by entrepreneurs and early stage investors. While collaboration with academia, federal and government stakeholders is important, their participation in the design and operations should be limited or we will get more of the same.

Bob Bloncheck, investor and serial entrepreneur:

My two cents:

I think we have the opposite problem as NYC. We have a lot of young techies trying to do start-ups in the region, and not enough of the non-technical entrepreneurs.

And when the experienced non-techies do give a start-up a try, they come at it from a professional services business model perspective, which is another side-effect of the government focus (indeed addiction, Roger) in the region.

Everything is driven by a time-and-materials mindset here that permeates not only government, but other big institutions as well, and contributes to the lower risk tolerance.

I just had another conversation with an entrepreneur last week who is considering abandoning a product approach and going to a services model. And it is because a large health care institution keeps telling him that they never would buy a product/technology from a young company. But they would do business with him on a services basis using his technology.

As many of us have learned the hard way, products and services are very different. And to the extent we are trying to foster a start-up ecosystem in the region focused on products, and not just more 3-10 person services spin-offs from other services businesses,
we need (as Roger said) unique programs that would encourage these large organizations to adopt products from local start-ups more readily (and not just technologies implemented using a services approach).

And we need the universities to start teaching more:

• Product management (not just project management or business analysis – they are different)
• Product marketing
• Market focus (in addition to customer or sales focus)
• Entrepreneurship

Business model is king, and it needs to be more than just billability, if we want a vibrant start-up culture in the region.

Mike Subelsky, entrepreneur and community leader:

Thanks for sending this Dave. I can only speak for my sector (consumer Internet), but this guy is DEAD ON. Maryland is awash in entrepreneurs with good (or good enough) business ideas, who are willing to take the big risks, but who just need someone who can build software who’s willing to take on some of that risk as well.

I know this empirically, because (due to my blogging about startups in Baltimore and due to Ignite), a lot of them end up emailing me asking for advice about how to find a decent programmer. I’ve had that conversation at least 10 times in the past 2 years. One of the most promising of these people actually just gave up and started teaching himself Rails so he could get his education software prototype out the door — when that guy starts looking for funding, if he even ends up needing it, look out!

My friend Gabe Weinberg, an entrepreneur in Philadelphia, had an interesting response (link).

I’m encouraged because we’ve been working on the kind of “drawing us out” he suggests for a few years now. But there’s a long way to go. Even just in my one little neighborhood, I’m still meeting very qualified technical people who have zero idea about the startup world in Baltimore. It’s not a matter of “do they prefer cash or equity” — it’s that they’ve never been offered and have no idea such a distinction might even be available.

Brad McDearman, Economic Alliance of Greater Baltimore:

We just took a group of 40 Baltimore business, government, education and non-profit leaders to Austin to see what we could learn from that market. We were hosted by the Greater Austin Chamber and the Lance Armstrong Foundation.

I think most participants from Baltimore would say two things stuck out related to how Austin deals with entrepreneurs…and the Austin people stressed these in their presentations to us:

• Celebrate entrepreneurs and wealthy people. Make rock stars out of them…and make sure wealthy people in the community and the entrepreneurs are hooked up. Get the wealthy people to invest in the start-ups.
• IC2 at the University of Texas – this is an institute at UT that stresses and supports entrepreneurship in the region and is what many point to as being the catalyst for driving the entrepreneurial culture in Austin. They put out white papers, provide support and networking for entrepreneurs…and connect people.

Many of us came away wondering how we make this happen in Baltimore. How can we get Hopkins to take a leadership role in Baltimore’s entrepreneurial and economic development efforts? JHU is a known entity and the folks in Austin kept talking about how lucky we are to have Hopkins given their research and world famous medical center (which Austin does not have). But JHU does not lead an economic development effort the way UT does.

They have created a culture in Austin related to entrepreneurship that even the corporate businesses respect and believe in…and it seems like they did it in a grassroots way (through the entrepreneurs themselves) and through the major institution (UT). But it doesn’t appear to have had much to do with the traditional business organizations (although the Austin Chamber does receive high praise for its broad impact and support).

Scott Paley, Baltimore entrepreneur, former New Yorker, to me:

Just from my own tiny perspective, this has long been a problem in NY. When I lived up there, I’d say I was contacted at least 5 times a year by non-technical startup founders asking me if I’d leave my own company to work with them as a technical founder. Even now I still get calls from non-techs asking if I know smart tech people in NYC.

Scott Paley to Roger London:

Hi Roger,

You wrote:

technical talent in this region is not nearly as sophisticated and picky as the Palo Alto engineer sited in the blog. While most technical talent here would not take equity or options in lieu of a paycheck, I believe there are many that could find a suitable combination.

I’m curious why you think this is the case (I’m not disputing the assertion – I don’t yet know enough about the local technical scene to be able to do that.) But, why should an engineer in Palo Alto be more sophisticated? Is it cultural? The experience of having gone through multiple startups, failures, and eventual successes? As a relatively recent “immigrant” to the Baltimore area (from NY), I’d like to try to understand the region better, so conversations like these are really helpful to me.

It does seem like in SV there is a general culture (or perhaps “badge of honor”) in starting a company, failing, starting another, and eventually hitting it big. In such a culture, people optimize for equity, but I’m not certain that should be characterized necessarily as “sophistication”. Could it be that, in general, technical talent in SV is younger and less established in the typical “traps” that make it hard for people to consider entrepreneurship? Failure is “easier” in a sense?

I can say from my own experience that the idea of failing was easier to contemplate when I was in my 20′s without a mortgage and kids than it would be today.

Of course, this seems line of thinking seems most relevant for first time entrepreneurs, which takes us back to fixing what Dave wrote in the first email:

Universities are barely aware of the startup ecosystem and do not contribute a good supply of talent.

Roger London to Scott Paley:

Scott- the article described the Palo Alto engineers thinking as “sophisticated”, not my words. I do think most of what you describe re multiple startup experience is true.

Experience gained over several startups for several years each likely puts that person around 30 years or older. I don’t think however you can replicate that experience (sophisticated thinking) by working with universities and getting a larger volume of people in their 20’s.

This region also has a lower tolerance for failure. Rather than throw young people to the wolves and try to make them entrepreneurs realizing in this region you cannot erase the black mark of a failed venture, we should make them entrepreneurs-in-training and help place them in a growing company where they can still earn a paycheck, but have some skin in the game while simultaneously experience but not be responsible for the critical elements of successful entrepreneurship…. how to acquire key initial customers, product development, building a team and staff, operational infrastructure, raising capital, etc.

Jared Goralnick, entrepreneur and community leader shared an interesting response by David Fisher:

- Have better ideas and bring more to the table: There are a few non-technical people that I’d follow anywhere and its because they do have consistently great vision and ideas. Show people that you can lead and followthrough. One of my good friends Tim Hwang can’t code at all (AFAIK), but I’ve seen him execute with the Awesome Foundation, ROFLcon and the Web Ecology Project. I know that if he gets a great idea, that he will hold up his end. Do things like this and you’ll have no problem finding developers and technical co-founders.

It’s true that if you’re a “tested entrepreneur” then people will want to be part of your vision, but most people aren’t their first time around. Still, I think this speaks to the value of community involvement in lieu of us having a really technical and available scene.

I don’t think it’s actually particularly easy to find co-founder engineers or engineers in general in the valley. I bet we’re going to feel this way everywhere…

Jared Franklin, product manager at Bill Me Later:

Thanks for posting the responses in “Baltimore Area Leaders Sound Off on Startup Scene.” I completely agree with those who cited the lack of support and production from our Universities in the area. I graduated last year from Loyola as an MIS major and now work for PayPal/Bill Me Later as a product manager. I would never have landed the job if I didn’t intern for Bill Me Later 20+ hours a week for 2.5 years of my time in college. School simply isn’t enough.

Our MIS major consisted of <10 graduates in the 2010 class and I'd consider it to be the most "entrepreneurial" major at the school. Our biggest class in the business school were either general business majors or finance majors. The school did not do enough (or anything) to teach students what other majors existed or what type of jobs they help you develop skills for. Additionally, the MIS majors capstone project consisted of a business plan and a non-functioning prototype of a web product. However, a portion of a semester and lack of coding skills did not help. I wish they paired us with the CS majors to develop a product together. This would have been beneficial for both the MIS majors and CS majors. I find myself in the same predicament now, one year out of college. I generate ideas (for projects outside of work) but need someone who can code. I was exicted to see Bob Blonchecks point of view stating that he thinks we have a lack of non-technical entrepreneurs.

Anyway, thanks for the post. It was great.

Please feel free to post YOUR thoughts and comments!

• Adam Bachman wrote an interesting response, citing a paper by Dr. Saras Sarasvathy I’d also referenced.
• Keith Casey had a couple of interesting tweet responses. [one, two]

What are YOUR thoughts about East Coast startup culture?

I’m enjoying watching folks around the world prognosticate about the iPad, what it is and is not, how it might sell and what it means for computing. Sorry, but I can’t help but weigh in with some predictions.

My son (age 12) and I have a bet at the moment about the outcome of the NCAA basketball tournament, which I know nothing at all about: I wagered that Duke would emerge victorious (I ignored the rest of the brackets). If I am correct, he owes me $487 trillion dollars; otherwise I owe him $12. (Hey, I’m trying to teach him about Popperian philosophy.)

So, it is with the understanding that if I’m right, you, dear reader will owe me $487 trillion dollars, that I offer this humble marketplace analysis.

• iPad will be released on Saturday, April 3. That means that a ton of people are going to get to play with it over the Easter weekend. And I’m talking about peoples’ moms and aunts here. It’s been widely reported that the experience of using the device is quite seductive, and I’ve argued it’s because it activates different parts of the brain. Somewhere around 200,000 units will be sold over this coming weekend, and each one will be shown to an average of 10.6 other people, creating a latent (nagging) demand for another 21 million units.
• A bunch of old-media outlets will rejigger their offerings for the iPad and try to monetize the audience. Many already have. But this is Waterloo. Or Little Big Horn. They will sucker some folks into using the device for the “traditional” content, but sales will be disappointing. Ultimately they are going to have to radically reconsolidate their offerings and innovate in some serious ways. See below re: piracy.
• The device is going to continue to rip through the population, busting past all sales records for a general computing device. This will have nothing to do with features or even the apps (yet). This will be based on the user experience alone. Everyone who uses the thing comes away sounding like a religious convert. In the same way that the original iPod just “felt right,” Jony Ive has managed to bring meaning to a general purpose computing device like nothing ever before. The central thing Ive has done is to bring the experience of computing directly to the user, with no barriers and no “analog” devices like the mouse. People will have a visceral relationship with these devices.
• Roughly 20% of the initial batch of Wi-Fi only devices will be “handed down” to a secondary wave of users when the 3G models are introduced a month later. This will amplify the initial sales numbers, as many folks end up buying two units in the first month.
• PDF-format books and news will become the Lingua Franca. What happened to music and movies is about to happen to books. A wave of piracy will couple with a race to the bottom in content prices. Some killer app, possibly Kindle for iPad, will capture a big chunk of the market share. It doesn’t much matter how it plays out, but paper books are going to be items of “significance” and the kind of thing hipsters trade, like vinyl records.
• All desktop software will seem obsolete overnight. The obsessive attention Apple has paid to aesthetics in the built-in reader, calendar, and email apps will set the bar not only for other app developers on the iPad, but also for the iPhone and particularly the Desktop. Expect your Mac to feel particularly creaky. And Windows? It’s gonna seem steampunk compared to the twee aesthetics and colors emerging in the iPad design universe.
• WiFi is going to become even more ubiquitous and free. Businesses are going to trip over themselves to get iPad users into their establishments, as the iPad rides its way to prominence. WiFi-only iPads are going to be somewhat cooler than the 3G versions.
• Hipsters are gonna start using iPads as cell phones, using Skype and similar apps to bypass carrier relationships altogether. I’d expect the 3G-iPads to be used for voice too, marking the first significant use of the cellular network in a “data-only” mode, which will ultimately lead to the scrapping of the whole “voice/voicemail/minutes” paradigm. The first carrier to do this will have a temporary competitive advantage.
• A whole new market in mouseless/keyboardless computing will emerge. Yeah, I don’t know what it’s going to look like either. But the raw numbers (100 million by 2015) of the iPad platform will create a new kind of pop/tech culture. Expect a New York Times Sunday magazine piece; potentially in that publications’ last print issue.
• The next generation Macintosh, if there is such a thing, will be based on the iPad OS. Hard to say what this might mean, but I would not be surprised if Mac OS was phased out over a few years, or possibly converted into a server-only OS for the MacPro / X-Serve platform only.

Remember that demand is not static waiting to be filled by the possible universe of devices: if that were the case, the iPod and the Mac and the iPhone should never really have gotten any traffic. What Apple understands is that good design can change the market, and invent new markets.

And this is what the iPad will do: invent a new market. And the presence of that new market will profoundly change the dynamics of the existing (previous) market. New demand will emerge, and all kinds of new supply will emerge. The great thing about Apple, particularly Jobs and Ive, is that they know how to drive change.

And that, ultimately, is what entrepreneurship and innovation are all about. If it were just about building devices to match the demands of the existing market, the Chinese seem to do a pretty good job of that.

And I will supply my banking information, so you can wire me the money, when this all comes to pass. If I’m wrong, I’ll buy you a beer.

You’re welcome. Discuss.