I’ve had the good fortune to see the Louisville startup community from multiple perspectives. I’m involved in grassroots activities such as Open Coffee, Startup Weekend, Venture Connectors and Forge events. I’m a mentor with the Velocity and XLerateHealth accelerator programs as well as Nucleus LaunchIt, and I’m a member of two local angel investment groups.
In my first career as a design engineer my job involved taking complex things from the real world, reducing them down into software or electronics, and then measuring the results.
Because a healthy startup community is important to Louisville, I thought it would be interesting to develop a simple model for how we think about our startup ecosystem, and how we measure its performance. This is what I came up with.
Building a Louisville Startup Factory
I attended a town hall event for entrepreneurial-minded people recently and felt a touch of déjà vu. Although this one had a generally positive feel to it, these events can turn into gripe-fests, often centered on a perceived lack of angel- or venture-capital.
It’s true that Louisville isn’t packed with billionaires looking to drop a couple million dollars on some promising kid and his idea. But I’ve seen quite a few early-stage companies successfully raise hundreds of thousands or millions of dollars here recently, so there’s no doubt it’s possible.
What struck me about the group discussion was that many of the goals described weren’t very measurable. They involved “getting more venture capital in town” or “engaging GLI and U of L in the process,” and “providing better support for startups.” There was talk of digging up the well-intentioned goals written on a whiteboard somewhere from the last time we all had the same discussion.
As a young engineer I designed products built from digital electronics, and in that world everything has measurable attributes — either a number or a state (e.g., TRUE or FALSE). So, I found myself wondering what metrics we can use to measure the state of Louisville startups, and the performance of the ecosystem that we want to produce them.
A Louisville Startup Factory
It’s well known that job growth comes mostly from smaller businesses, so we’ll take it as a given that Louisville would benefit from a repeatable process for creating more successful startup companies. To make this idea more tangible we’ll call it the Louisville Startup Factory. This factory takes in people, ideas, money and other resources on one end and turns out successful startups on the other.
As a community we want to design an efficient factory with an expanding output of high quality businesses. So, we need to understand what we’re building, as well as the best processes for building them. And to continuously improve the process, we want to measure everything about it.
Conceptually any startup is straightforward – it comprises people and assets focused on a new business idea, and it has multiple points of interaction with other people and organizations. Behaviorally, it has to either grow or die.
Here’s a simplified model:
These are the widgets we want our factory to produce – functioning businesses, well on their way toward NOT being startups any longer. We want startups with complete teams and tested business models, connected to the investors, advisors, partners and customers that can help them succeed.
But, the process for making lots of these widgets isn’t simple – on a spectrum between baking an instant cake and re-creating the Manhattan Project, it’s roughly in the middle.
And, what worked last year may not work next year.
A Model for the Startup Factory
Just as we can model the product, we can also model the factory and what it does. If we know what the inputs are and what the desired output is, we can develop processes that turn the former into the latter.
We’ll start by segmenting our factory into stages based on the maturity level of the startups that each stage works with. We expect, or at least tolerate startups that enter without all of the necessary pieces; the factory works to improve their maturity level and then moves them along to the next stage. The factory has multiple exit points, including both successful and failed outcomes. Here’s a five-stage model for the Startup Factory:
It’s worth re-iterating that we don’t expect all of our startups to succeed – in fact, if we begin measuring at Stage 1, we expect that most of them will fail. But, many startups succeed by achieving some measure of stable growth and profitability, or by advancing into a later stage in our factory.
About Greg Landon: Greg Langdon, an angel investor and startup advisor, is an experienced executive with a background in corporate and product strategy for technology businesses. Langdon has a range of experience in executive management, business development, acquisitions, product management, marketing and public relations, software and hardware product design.
He was a member of a core team that led Efficient Networks from a venture-funded startup into a market-leading position in broadband equipment, an initial public offering, acquisitions of several smaller firms, and subsequent acquisition by Siemens AG. Prior to Efficient Networks he held several product development and system architecture positions in the Internet, telecom and computer industries.