Solve a problem you experience yourself. It’s an entrepreneurial adage that borders on cliché, but one that seems to have worked for Brad Feld when he set out to co-write Startup Opportunities: Know When to Quit Your Day Job, with Canadian Sean Wise. For years, Feld – the highly respected American investor who brought his book tour to Waterloo Region with Wise this week – has been hit repeatedly with the same question from would-be entrepreneurs: “Is this a good idea?” And so, he connected with Wise, the Ryerson University professor, investor, former CBC Dragons’ Den consultant and host of The Naked Entrepreneur, to help people answer the question themselves. The book is aimed squarely at those still considering whether or not to plunge headlong into the bracing waters of startup life, and is filled with practical advice based on real-life examples encountered by the the authors and their contemporaries. The quality of a startup idea is, of course, an important question to address before going all-in. But good ideas, as Feld and Wise point out, are essentially worthless without great execution. And execution – heavily freighted with variables, many of the human variety – is where things get really interesting. (Left to right) Brad Feld and Sean Wise discuss their book, Startup Opportunities, with Plasticity Labs co-founder Jennifer Moss. (Communitech photo: Meghan Kreller) The 160-plus people who showed up to Tuesday night’s talk at the Tannery Event Centre got a first-hand look at this as Feld and Wise critiqued pitches from four startups, in often-blunt fashion. The pitches were followed by an in-depth conversation about their book, led by Jennifer Moss, co-founder of Plasticity Labs, a Waterloo Region startup sailing strongly into growth-stage territory. Before the event, I had a chance to sit down with Feld and Wise for a private interview, which follows here. Q – We Canadians are constantly being told we are risk-averse and afraid of failure, so how does an American VC end up working with a Canadian on this book? BF – The way we originally hooked up was, Sean hunted me down to be on his Naked Entrepreneur show. He does this program as part of one of his classes, so all the students do everything, and I had no idea what I was in for; I was just going with the flow of a normal day. And it was awesome. It was one of those experiences that was cool, and that generated a conversation between us. In that conversation, one of the things that I’ve struggled with over and over again in the last 10-15 years is, this steady stream of people coming at me saying, “Is this a good idea?” I’ll send them away, I’ll aim them at other stuff to read, I’ll point them at Eric Ries’s book, The Lean Startup, or point to a blog post. And they literally go away and they come back and they say, “Yeah, that was really interesting. But is this a good idea?” That wasn’t a good way to give somebody a substantive answer to that question. And we started talking about, can we put together a book? Not a beginner’s book; not a ‘how do I be an entrepreneur’ book; but a serious book that kind of came before everything else, and gave someone who was interested in starting a company the context for evaluating whether or not the idea or the opportunity made sense. As part of that, Sean also had been spending a lot of time teaching this notion of opportunity evaluation. That was really the basis for what then turned into this book. SW – In addition to being an investor, I’m a professor, so I’m trying to give students tools. And most entrepreneurship of the last 15 years started with ideation, opportunity evaluation, and then you move into product development and scale and so forth, but the methods for doing it were really antiquated. When Brad and I started as venture capitalists in the 90s, VCs blessed your idea, wrote a cheque, and all of a sudden you were good enough to keep going. But when the cost of launching a company goes from $5 million, to $500,000, to $50,000, to $5,000, you don’t need external blessing. You need customers. And so that got me thinking about, should we move away from a scorecard model, where I have 100 things – how tall are you, how wide are you, how experienced are you, or, in the case of startups, how much is your domain knowledge, how well-rounded is your team, is your value proposition 10 times better than others – to a more dynamic model, where we ask the questions and then talk about how to find those answers. The pivot points are still there – are you 10 times better, can you access your customers – but it’s moved from “nine-out-of-10, six-out-of-10, four-out-of-10, add it up, and oh, it’s good enough to start, to “keep asking these questions until you come up with the right answer, which justifies selling your children for money to start your company.” That’s really where the book came from. We love Eric Ries’s book, The Lean Startup; I love the works by Steve Blank, and by Brad’s old professor at MIT. But before you agree to commit three to five years of your life to proving it’s a good idea, shouldn’t you know, yourself? Q – (To Feld) What have you learned about the Canadian startup scene through your work with Sean and your visits to our cities? BF – I think generally the startup scene in Canada is very similar to the startup scene in many other parts of the world, including the U.S. You have a lot of activity, suddenly, around entrepreneurship, especially in major cities. That activity is a function of a number of different things. If you follow the Startup Communities thread that I talked about when I was here last – this notion of entrepreneurs being leaders of the startup community, and then lots of other organizations doing things to support that – that tends to be the thing you see in the most successful startup communities. I think in Canada you have a little bit of defensiveness in different cities around, “We haven’t had that really big success,” and that’s not unique. You see that all over the world. What’s happening is, many of the things going on right now are the seeds that are being planted for those big successes. So, this idea that the big successes happen in two, three, four or five years is wrong. They generally take a long time, and these startup communities that are building and developing are ones that will be very robust for a long period of time, independent of the macro cycles, because of what people are doing today. And you see it here in Waterloo in a meaningful way. You also see it in other major cities throughout Canada. I would focus on it being a city-by-city phenomenon rather than a country phenomenon. So, I think it’s easy to talk about entrepreneurship in England, but it’s a lot more interesting to talk about entrepreneurship in London and Cambridge. You could talk about entrepreneurship in the United States, but it’s a whole lot more interesting to talk about entrepreneurship in Boston and New York and Boulder and Silicon Valley and Seattle. Those local regions are where the inflection point really is. Four startups pitched to a judging panel that included Brad Feld and Sean Wise at this week’s Communitech event. (Communitech photo: Meghan Kreller) Q – The book states quite bluntly that startup ideas are essentially worthless. What do you guys mean by that? BF – I’ve been saying this for a very, very long time: It’s not about the idea; it’s about the execution of the idea. Starting from a position of a bad idea is no good. You should do things to improve the percentage chance of you being successful based on that idea. But having the idea itself is the price of admission. One of the things that’s been hard to explain to people, and it hopefully comes across in this book, is that the idea is not simply the product idea, or not simply the service idea that you come up with. It’s the context around it; it’s the people, it’s the product, it’s the way you’re going to go after the market, it’s the way you’re thinking about the business of the company that you’re going to build. That’s all part of the idea, and many entrepreneurs don’t even think about any of that stuff. You start a business and you don’t think about who your business partners are going to be, and this random person is your partner because they’re interested in starting a business, too. But before you know it, your business is completely screwed up because you have a terrible partnership, because you have no basis for working together. That’s just as important as getting the right technical whatever put together. There used to be more of an emphasis on investigating the idea, and doing a huge amount of up-front work investigating the idea, versus the model now, which is much more interesting and much more effective. Which is, this rapid iteration of testing lots of things – starting from a base and trying lots of things, having some things work and having some things not work, and iterating from that. Still, the idea itself is just the entry point. SW – I think ideas are great, and you have to have one to get started, but where the rubber hits the road is, as Brad says, in the execution. Fifteen years ago at MBA school, they told you not to share your idea because someone could steal it. Well, it’s not the idea they’re stealing; it’s the opportunity, and not all ideas can become opportunities. What makes a good idea into a great opportunity is the team you wrap around it, how you go to market, how you attack that market with a value proposition. And if you look at the pieces in the puzzle, the idea is a starting point, but it’s what you do with it that really matters, and who you bring to bear on solving that problem, more than just the idea. I think that really came to light in 2008, when Steve Blank’s work and Eric started talking about “tell everybody your idea; collaborate with everyone; talk to your customers.” Because, if they could build it, they would have already built it. So, this idea that collaboration trumps privacy, or trumps keeping it proprietary, has become very much part of the 21st century entrepreneurial ethos. Q – Popular wisdom seems to suggest successful entrepreneurs are really aggressive and have big egos, but in the book, you suggest that people who are self-aware and humble stand the best chance of success. Where is the disconnect between this popular myth and reality? SW – Popular media. It’s much more exciting to have someone on a TV show who is loud and bombastic and knows it all. Everyone wants to think that’s how Steve Jobs always was, and they don’t realize what happened when he got let go from his own company; they don’t realize why he adopted Buddhist philosophies; they don’t ground themselves in that. It’s very easy to break things down into little digestible pieces, but that only gives you a bite-size view; it doesn’t give you the full picture. I think the best people have mastered what we call, in the book, the Stockdale Paradox, which is, you have to believe that you’re going to succeed; otherwise you won’t get up at 3 a.m. to do [quality assurance] and start to do returns and debug your program. But that belief that you’re going to succeed at all costs, that you’re going to overcome all obstacles, has to be balanced with a humility and a realistic approach to how difficult it will be. The people who come onto Dragons’ Den, where I spent five seasons, and say, “We’re going to beat Google; they don’t get it,” worry the hell out of me. Because Google does get it, and if they’re not getting it, I wonder what you know that they don’t know. Whereas, on the other side, it’s just as bad. If you don’t have that courage to go forward; if you don’t have that internal locus of control, that high adversity quotient to overcome those setbacks, you’ll fail just as likely. As Admiral Stockdale, whom the Stockdale Paradox is named after, said, you have to walk that line that doesn’t allow you to go down the road of wilful blindness, but does not allow you to give up hope, either. Q – Brad, you first visited Waterloo Region two years ago. In that time, we’ve been working more closely with Toronto, and several then-startups have moved on to the growth stage and raised significant rounds of follow-on funding, which wasn’t really happening when you were here last. What does that tell you about the evolution of this community? BF – I think it’s profoundly positive, if you come from the perspective that building a company takes 10, 15, 20 years, and that when building a startup community, you’re always looking 20 years forward. The fact that you have very demonstrable progress on different dimensions is a super-positive reinforcing principle. The fact that you have lots and lots of startups, some that fail and some that then raise a Series A, raise a Series B and become more significant – we just came from Thalmic, where they’ve got 70 people – that kind of progression is natural in a startup community that’s succeeding and growing. I think it’s awesome that you’re working hard to connect the two cities. It’s very similar to the Boulder-Denver phenomenon, where you’ve got a much bigger city in Denver and a small city in Boulder, and they’re very different, but they can really leverage each other and balance off each other in a very meaningful way. If you try to build something that’s connected before there’s a base to connect, it’s very, very hard, but once the bases start to grow, that connection becomes very natural. Q – Anything to add, Sean? SW – Well, I’m a player in the Toronto community. With Ryerson, the Digital Media Zone, MaRS, Velocity at the University of Waterloo and [Wilfrid] Laurier [University], I like the way things are evolving, not just because I’m Canadian and I prefer collaboration over competition, but because this is a hell of a mountain to climb. We have to go from saying “I’m sorry” to “we win,” and that is going to take everybody. It takes a village to raise a startup, and that village isn’t Waterloo or Toronto; it’s the whole area. I can prove that if you look at which companies go back and forth; at which one of “our” companies ended up in Rev, which I think is a great program; at which one of the companies graduated here and came to Toronto, because that’s where their client base is; at how many Waterloo engineers we have at our DMZ; at how many business students end up in Waterloo. One of your program managers is one of my former students, who I’m happy to see succeed. I think that’s what’s going to judge us, I really do. It’s the Corels, the Research In Motions, the Canadian companies that will make it easier for all of us, because more people will see us as a place to find great Series A rounds that aren’t oversubscribed; a place to find great founders. The truth of the matter is, it’s a big, big mountain, and you ain’t gonna climb it alone – not as a city, not as an individual, not as an accelerator, not as a fund. There’s enough room for everyone to pitch in, and I’m really happy to see that starting to happen more and more.