StartupNorth

Year: 2013

  • Don’t blame the system

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    Attribution Some rights reserved by mdanys

    Mark Evans has started an interesting conversation around my tweet (part 1 aim for success, part 2 the VCs respond).

    I posted my comments about building a culture of better informed founders and early employees. But then I realized that maybe all of my comments are aimed at misbehaving children. When the real intent should be to correct the parents. That’s right I just called most startups and their founders, misbehaving children. But the culture is broken. It is broken with technologists and designers looking for handouts.  It is broken with every Tom, Dick and Sally calling themselves an entrepreneur because they think since they’ve had a “great idea” someone should give them money so they work on it because they are the next Zuckerberg.

    This is ass backwards. And it’s part of the problem.

    Something for Nothing

    You don’t get something for nothing. There is no such thing as a free lunch. There are very few people that might invest in you to work on your dreams. Your parents. Your spouse. If you are lucky, your children. It is the belief that “I should get funded because I’m a good person” or “I went to university” or “I worked for a startup” or “I built a prototype” or “I have a pitch deck”. It is thinking like this that is absurd.

    “The reason most founders think there is not enough capital is that they get rejected when they go looking for it. And one of the main reasons they get rejected is that their opportunity does not fit what VCs are looking for” – Mark MacLeod (@startupCFO)

    Raising institutional capital is about building a business that matches the expectations and risks necessary to provide returns to the investors. Not every business should raise growth capital. And that is okay. Not every business is fundable at every moment in time. That is okay too. We need to get better at helping educate founders and early employees and others about how to demonstrate their ability to build a successful business and mitigate the risks associated at the different stages of corporate development.

    Abundance and Scarcity

    Are we suffering from a shortage of entrepreneurs? NO! We are suffering from a shortage of amazing companies. There are structural complaints about the system and some have trickle down impact on early stage companies. The limited number of LPs. The difficulty in VCs in raising funds. But even in difficult environments there are winners, look at Mark McQueen’s post about the truth of VC returns. Even during the dark days, there are VCs generating returns and getting a part of the carry.

    The reason that we talk about Rypple, GoInstant, Radian6, Q9 Networks, Dayforce, Kobo, Achievers, Lightspeed, Shopify, because they are successful companies or building successful companies. They are able to raise money or get acquire or operate profitably. They are looking at how to effectively deploy capital to grow intelligently and faster.

    We don’t have a shortage of entrepreneurs of good ideas. We have a shortage of great businesses. Mark’s argument is that even if you invested in the big Canadian deals early, you would still be struggling. This is a hard game. It’s a game, that I am just starting to understand the scale and scope of from a different viewpoint.

    Use the Force or STFU!

    “Life is to be lived, not controlled; and humanity is won by continuing to play in face of certain defeat.” – Ralph Ellison, Invisible Man

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    Attribution Some rights reserved by jurvetson

    I think we need to stop bitching about the systemic things that we can not change as entrepreneurs. It’s not any easier to raise money for a Canadian in the US, unless you have the pedigree, connections, demonstrated traction and mitigated risks necessary. However, if you are able to raise capital in the US, you’ll find that US investors have more capital to deploy, are more aggressive in deploying capital. You will also see that Canadian VCs face a different marketplace and structure, invest in more companies as a percentage of funds under management, and can be successful. These are not things you can change directly. We can lobby, we can vote for MPs and MPPs and political parties that support the structural changes. There are others like the CVCA and NACO that are also lobbying on behalf of their members.

    “Instead of focusing on the things you can’t change, focus on the things you can change.” – Juniper

    So rather than worrying about whether we should follow a Yozma model or a Helsinki model. You should worry about the things that can change. Go read about accretive milestones and getting traction. And figure out how to mitigate the risks associated with your business. Go get customers! Go build a successful business. Because if you build a successful business, they will come.

  • Growing successful companies

    Mark Evans (LinkedIn) wrote a blog post about my tweet. The blog post captures much of my sentiment and frustration around entrepreneurs. I commented about entrepreneurs learning about how to build a successful, high growth emerging technology companies. And there are lots of ways to learn what is considered a successful company. And a great way to learn is to learn from others that have been in the trenches. Debbie Landa (LinkedIn) and her team at Dealmaker Media have done most of the hard work for you.

    GROWtalks

    They have brought together a great event. Attending the event won’t bring you investment. It won’t make you a successful company. But it might increase the odds. They are bringing together an amazing set of entrepreneurs. And they are bringing them to Toronto and Montreal to share their experiences, stories about what worked and didn’t work for their companies.

    Local Events Matter

    You can and should get your ass on plane and head to New York City and San Francisco to attend events. But you don’t always have to. There are advantages to attending these events locally.

    1. Local connections can help you see The First Rule of Real Estate – you can find and connect with local talent. Whether that is for funding, moral support, hiring, etc. There will be people you do not know yet. Easy way to find them out.
    2. Travel costs are less for regional travel. If you live in Ottawa or Montreal or Halifax, you can make it to Toronto or Montreal by plane, train or automobile for a lot less than travelling elsewhere.
    3. Travel time is lessened. You can spend a day.

    This all assumes that the event is providing amazing content that you would travel to consume.

    World Class Content

    The content that Debbie and team have assembled is unbelievable. If you don’t know who these people are, my advice is take a little bit of time and use the GOOG. These are entrepreneurs that have seen the ups and downs, the ins and outs of successful businesses.

    Every single person is worthy of a keynote presentation at a larger conference. This is not a vanity presentation. They are on stage sharing information about their specific expertises in building successful businesses. It’s not Mark Organ talking about random things, which is fun, but Mark Organ talking about leveraging disruptive technology in fund raising. Holy crap! You want to learn how Mark used AngelList, LinkedIn and other tools to raise 2 of the most impressive rounds of capital in Canada…quickly.

    Every single person speaking, every one, will be providing expertise about what they did to build a successful company.  Here is the list of presenters in Toronto:

    You want more details, check out my first post. Do your homework. But this is an amazing opportunity.  The lineup is different in Montreal. It includes 2 of my close friends, but they are 2 of the best people in helping startups become successful. Mark MacLeod and Alistair Croll . Unbelievably kind and intelligent people, who beyond that know WTF it is startups need to do to become successful. They like the others are the best of the best.

    Our Commitment to Successful Companies

    There are initiatives like Startup Visa Canada and the Upside Foundation that we strongly support. And we’re committed to helping provide education to entrepreneurs to help them to build successful companies.

    We’ve committed to provide a limited number of $100 discounts. I am not going to tell you how many. If you are building a successful startup, and you want to hear the tactics and advice of other entrepreneurs that have been massively successful in building their startups, sign up now and save $100 before the discount expires.

    • GrowTalks Montreal – February 19, 2013 – Register use promo code: startupnorth
    • GrowTalks Toronto – February 21, 2013 – Register use promo code: startupnorth

     

  • Build It

    There is this idea you keep telling friends about… you know it is promising because a day or two after you mention it, they circle back via email “I’ve been thinking about X and it would be pretty cool, any progress with the website / app?”

    Or perhaps you just found some new tech that seems promising… no justification to implement it at work, but you are itching to take it for a test drive.

    Well sometimes you just have to build it. 

    Put it out in the world. Even a rough prototype. And if it is interesting… it might take on a life of it’s own. Who knows were it might lead… a startup? a new job? fame? fortune? Often enough big things have pretty humble beginnings.

    Still on the fence? Fine, let us sweeten the pot. How about you build something awesome this weekend (anything you want) and we (care of LinkedIn Hackday) give you a new Macbook Air (assuming it is the most awesome thing built at the hackday). I’ll be the judge of awesome (well a few of us)… but I can already tell, what you are going to build is awesome!

    This week LinkedIn Hackday comes to Toronto. It is free. You keep your code. The only rule? Start development Friday (advance planning is fine).

    Register here to build it: http://hackday.linkedin.com/toronto/2013

    LinkedIn Hackday

  • The companies I should have paid more

    Building a startup is hard and managing ops is really hard. Devops are hard and expensive.
    Luckily these days there are some amazing companies making it way easier to build the startup of your dreams. Frankly, I don’t think they are getting paid nearly enough while some are getting paid way too much.

    What apps are a key part of your day-to-day and which could you live without? 

    Screen Shot 2013-01-29 at 1.18.04 PMGitHub – Paid: $50/month. Should be: $500/month
    GitHub is the lifeblood of our dev team. Everything lives in it and it has allowed us to avoid hiring devops for years. You can hack it, glue it and spew it all over the place. All the while it is secure and reliable, almost never letting us down. It has a ton of “good enough” features like Issues and the Wiki and they are “great” because they integrate right in to the most important parts of GitHub.

    I want this company to live a long and healthy life. May they never be acquired and may they reign for all time.

    HipChat – Paid: $2/person/month. Should be: $150/month all-in
    Screen Shot 2013-01-29 at 1.18.44 PMWe have a love/hate relationship with HipChat. We wrote our own robot which connects GitHub in to Hipchat and that is useful for managing a big chunk of our dev process. Hipchat also does a great job of maintaining conversation history, so we can find almost anything we need to in those “what was that thing?” moments.

    Hipchat does however have a horrible Adobe AIR desktop client and one of the worst mobile clients I have ever seen for chat. HipChat on the iPhone has no sense of message status. It tells you “you have a new message!” but then you have to, literally, hunt every chat room and look for a new message. It is also extremely slow to load. We call this “Hipchat anxiety” when we are out of the office. If they can fix these issues then it would be a huge positive for HipChat users. The reason I should have paid HipChat more is because it is clearly useful but they also clearly need the money in order to improve the product.
    download

    Google Apps – Paid: $50/user/year. Should be: $150/user/year
    I cannot overstate how awesome it is to have Email, Calendar and Docs out of the box for every new employee. Rock solid service and the apps are always improving. It saves having to buy a MS Office license for every new hire and it has collaboration/sharing baked in. Google apps I love you and I will never hurt you.

    Skype –  Paid: nothing. Should be: $30/user/year
    Skype has been free for Skype-to-Skype for so long that I think Governments would be ousted if they tried to charge for the basic service, but wow we used a lot of Skype calls in the early days. Skype video chat is still the best, even if Google Hangouts are getting better, and it’s very reliable.

    Trello – Paid: I don’t think we do. Should be: Something more than $0

    Trello polarizes. Some love it, some hate it. We clearly love it because we use it to prioritize anything and everything. We should be paying something.

     

    Things we paid too much for:

    Some apps are just too expensive for startups and really aren’t worth even doing the free trial.

    My cellphone. Paid: $60 to $600/month. Should be: $60/month.

    A cellphone bill strikes fear in to a startup’s heart. You make a few trips out of the country and you are greeted with a gigantic roaming bill when you get back. You aren’t the bankers and the lawyers that the phone company is targetting with these crazy roaming rates but you still have to run your business and you need to be able to communicate while you are on the road. I wish I could have just paid a consistent amount that would have let me plan for cellphone expenses.

    Box.com. Paid $15/user/month (and tricked in to a 1-year contract). Should be: $10/user/month with no contract.
    Box does this thing where when you sign up for a paid plan they have you click a box that says “I agree to the terms of service”. When you go and look at that terms of service it commits you to a 1-year contract. It really is absurd. Other contract-based SaaS providers are much more transparent about contracts. Dropbox was a cheap alternative that we used even though we were paying for Box.

    Webex/Gotomeeting. Paid: didn’t. Should be: cheap.
    Even if you are a co-browsing startup you need screensharing occasionally believe it or not. We avoided using it mostly but when we did need it there were much better and cheaper options than Webex or Goto.

     

  • Mission Accomplished – StartupVisa Canada

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    Remember back in 2011 when I was xenophobic and wasn’t supporting Startup Visa? To the credit fo the incredible StartupVisa Canada Initiativea team, which I was lucky enough to join and support, the Federal Government is launching a new class of immigration visa with the participation of CVCA and NACO. Check out Christine Dobby’s summary from the press conference (it’s where all my statistics and data are from). Go read Boris Wertz’s story about Summify founders and the impetus for Startup Visa Canada.

    “We believe startups to be the driving force behind job creation and prosperity,” says executive director Richard Rémillard. “We need to be pro-active in attracting foreign entrepreneurs.”

    The new visa is replacing the old “entrepreneur class” visa, which required the applicant/immigrant to hire one person for one year. In 2011, the federal government issued approximately 700 of the old entrepreneur class visa. The government is making 2,750 visas, issued to immigrants based on selection and funding by venture capital investors. Immigrants receive immediate permanent resident status. Looks like a pilot program with a 5 year lifespan, with the opportunity to make permanent depending on uptake.

    Thinking by Zach Aysan (zachaysan)) on 500px.com
    Thinking by Zach Aysan

    My issues back in 2011 and previously, were not with the intent of the program. But in the proposed implementation details. One of the biggest assets, in my not so humble opinion, is the population diversity, with 46% of Toronto’s pouplation being foreign born. It is the creative tension between differing viewpoints that makes Canada an amazing place. The implementation of startup visa makes Canada an even more attractive place to recruit foreign born scientists, engineers and now entrepreneurs. I love it!

  • The first rule of real estate

    Before you read this, go read Mark MacLeod’s post on Who not to take money from…. It’s not related to this post, but a great post for entrepreneurs to read when talking about investors.

    RT @Cmdr_Hadfield Chris Hadfield 19 Jan With a long tradition of hockey on the shore of Lake Ontario, introducing Toronto - Go Leafs Go! @MapleLeafs pic.twitter.com/iZdN2yZb

    If geography doesn’t matter, than why do plane tickets cost so much?

    “When it comes to raising funds, I just don’t think the geography matters that much. Good solid product that solves an actual pain can find it’s way to investors any where in the world thanks to the internet.” – Adeel vanthaliwala

    I read a lot of comments like Adeel’s. And I agree that geography might not be the most meaningful filter, it still impacts startups in raising capital. It is far easier to raise money from a broader range of sources today, than it was 10 years ago. Changes to Canadian Tax Act (Section 116) have helped open the border to outside capital. There has also been a rise of new Canadian funds that have all closed in the past 2-3 years including: OMERS Ventures, Relay Ventures, Rho Canada, BDC Venture Capital, Real Ventures, Version One Ventures, Golden Venture Partners, Tandem Expansion Fund , Georgian Partners, etc. I worry that comments don’t take into consideration the complexity and challenges of raising capital. The impact of geography on raising capital has been reduced, but geography does still affect startups raising money.

    Fugetaboutit!

    The best advice on geography is from Brad Feld in 2007:

    1. Don’t worry about it
    2. Be realistic about the available resources
    3. Find the local entrepreneurial ecosystem – now!
    4. Don’t try to get investors to do unnatural acts
    5. Don’t play the “we can be virtual” game

    From the point of the investor, geography probably doesn’t matter that much. Unless of course there is a limitation in the partnership agreement that limits the geography where the capital can be invested. There are other more practical concerns about having remote startups including legal and or taxation concerns (see Section 116). Or the ability for a startup to leverage personal/professional networks for hiring, business development, etc. And none of this describes the challenges of having to spend 6 hours flying each direction to attend a board meeting. But beyond that, proximity is not a requirement from the investor side. Good startups can be located anywhere.

    “Local brewers = geography matters. As macrobrew VCs are increasingly spending time in multiple geographies (separate from their HQs) there is real potential to differentiate along knowing that you can actually sit down and see your VC face to face. For some that’s important, but for some that’s a negative. Just as some people here in Boston prefer drinking Cambridge Brewing Company ale; others could care less it was brewed locally.” – David Beisel

    I like David Beisel’s   model of the VC industry starting to become more similar to the beer industry. There are larger funds, local funds, specialized funds, and individual partners. They all matter differently to entrepreneurs depending on the company, stage of development, location, etc. Understanding the available resources and your ability to access them are key.

    Traction trumps geography

    Non Linear Growth

    There is going to be the inevitable argument about companies raising money from foreign VCs. The great news is since the changes to the Tax Act and the fall of Section 116, we have a lot of examples:

    Not to belabour the point, it is possible to raise capital from foreign investors in Canada. But the level of traction demonstrated by most of these companies was very high. For example:

    “Since HootSuite’s Series A financing, we’ve grown from 200,000 users to almost 2.5 million! We’re proud of our progress and are looking forward to the future with more success on the roadmap.” – Andy Au, Hootsuite

    According to my calculation that’s a 431,690% CAGR of the registered users between when they announced their Series A and Series B financing. Go big or stay home. Traction and growth trump geography. Paying customers, a scaleable business. Being able to demonstrate that for every dollar that goes into the business you understand how many (more) dollars come out. You need to be able to demonstrate appropriate milestones to mitigate risk.

    Avoiding Unnatural Acts

    “Don’t try to get investors to do unnatural acts: Assuming you are looking for capital, focus your energy on two categories: (1) local investors – either angel or VCs and (2) VCs that are interested in the specific business you are creating. In category #2, “software” is not a specific business – you need to be a lot more granular than that. Your chance of #2 is enhanced by a relationship / investment with someone in category #1, so make sure you focus enough energy on that early on.” – Brad Feld

    The secret here is that social proof that VCs are doing deals north of the border is not enough on its own. You need to focus your efforts, and assuming that you’re doing everything you can to hit accretive milestones you still need or want to try to avoid doing unnatural things. A local investor is not required, but it can be a signalling risk about the team, market, product, or other, i.e., what am I missing if local investors are cold? (There are situations where you can imagine an entrepreneur choosing to avoid local investors, particularly if they have had a deal go sour in the past, but usually the entrepreneur discloses this very early).

    What to do about location?

    1. Fugetaboutit!
    2. Start nailing concrete milestones that demonstrate traction and mitigate the risk associated with your business.
    3. Get connected to your local community. Look for events like Founders & Funders, Elevator Tour or GrowTalks to have initiate low risk conversations with both local investors and entrepreneurs that have raised capital.
    4. Do your research! Use AngelList, Google, Bing, LinkedIn, portfolio pages, etc.  to find partners following and investing in companies in your very specific vertical.
    5. Figure out who locally is investing locally and figure out how to get a warm introduction and find 30 minutes to meet.
    6. Listen, ask questions, try to figure out what is missing, what is the biggest risk factor and how you might mitigate the risk.
    7. Rinse and repeat with non-local investors aka get your ass on a plane and keep hustlin’ (go re-read Mark Suster’s Never ask a Busy Person to Lunch).

  • The White North – It’s Great for Seed-Stage Startups

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    Sit down with any Canadian entrepreneur and you’ll often hear similar grievances about the Canadian startup community. The consensus seems to be, “It’s getting significantly better, but we’re risk-averse, funding is hard to come by, and the US is a bigger market.” We are a a startup that decided to move from Silicon Valley (as part of the Y Combinator Summer 2012 cohort) to Toronto. We’ve seen a wider  range of startups and startup hubs than most. We’ve been able to compare and contrast the communities, and have a lot of faith in the Canadian startup scene as a whole. We want to share why.

    As Canadians, it’s easy to look South and feel overwhelmed. The United States is ten times bigger in terms of economy and population. It’s difficult to fault an ambitious entrepreneur for wanting to move South and capture a significant chunk of a significant market. Likewise, no maturing startup can avoid the US as a potential market…

    The question for us was: what are the pros and cons of being a seed-stage startup in Toronto, or Canada as a whole?

    Why Toronto? And Why Now?

    Seed-stage startups rejoice — the Toronto/Waterloo community is a great place for seed-stage startups. Before I begin listing the benefits, I do want to iterate that it’s all one big place [Ed.: Can’t disagree here, when you fly in to SFO or SJC, it’s still the Bay area]. At times, it seems unfortunate to me that Toronto and Waterloo are treated as two separate entities in which a startup would operate. Sure, driving down Highway 401 isn’t the most enjoyable experience, but your startup will face bigger challenges than congestion during rush hour.

    1. Talent Pools

    The universities spanning the Greater Toronto Area and surrounding cities boast over 200,000 undergraduate students, many of which are studying engineering, computer science, or other technical fields. The Universities of Waterloo and Toronto both boast high quality math, computer science, and engineering departments, many of which are regularly hounded by big and small companies for potential recruits.

    Hiring was a key factor for us when choosing our base of operations. Being able to pick from so many students, let alone professionals and developers working for large corporations, helped make this an easy choice. Better still, few startups actively approach this population — most of the keen, startup-oriented folks end up traveling to San Francisco to look for jobs. By bringing the opportunity to their doorsteps, we made the sometimes frightening decision of jumping into a startup significantly easier. Our recruits get all the joys of working for a Silicon Valley-funded startup without the hassle of immigration, relocation, and saying “goodbye” to towns they know and love.

    2. Excited Customers

    Few people realize that Toronto was the first city in North America to surpass 1 million Facebook users. Move over New York, and see you later, San Francisco! Not only are Canadians notoriously friendly (collecting feedback on your product will be easy!), they are also hungry and interested in innovative products. Others have argued that Canadian cities are good grounds for experimentation as well, citing the fact that we tend to focus on stable techological trends and avoid fads that might only survive in more stereotypically tech-crazy startup hubs.

    While I wouldn’t go so far as to cite this as a reason for basing your startup in Toronto, it means that you don’t risk finding a product-market fit by being based here. Combined with our own strong network and following here, it was a safe bet for us to settle down and start experimenting with an initial set of corporate customers or pilots.

    3. Low Cost of Operations

    Compare your average salary, apartment rental, and parking spot in Toronto to those of US startup hubs like Silicon Valley or New York, and you’ll see a noticeable difference in pricing. The Toronto/Waterloo area enjoys a significantly lower cost of living than many other hubs, which often means that your own expenditures will be significantly lower — if you’ve already raised angel or seed funding, this essentially boils down to a longer runway for your company.

    Pair the low cost of living with Canada’s many government-supported startup programs, and your cost of developing a product can be 40% of what it would cost in the US. Better still, basing your operations in Toronto/Waterloo mean you have a 90-minute flight to major American cities, which could easily become your next point of contact or expansion for your products. All the benefits of a large global city, and few of the costs!

    4. A Changing Startup Landscape

    Startup entrepreneurs are often goaded by their investors to ride waves of industrial changes and take advantage of major societal shifts. A quick look at AngelList valuations by city and startup hub shows startups in Toronto/Waterloo are holding their own, on a global scale. Our own seed-stage round had investors from both sides of the border, and many regularly told us they see Canada as a great opportunity to expand their market reach outside Silicon Valley (or the US as a whole).

    As more Canadian companies have fantastic and successful exists — think Radian6, Eloqua, or BufferBox — we’ll see more investor interest in our region. If you’re an entrepeneur keen on surfing an investor wave, getting ready for what interest might come to Toronto is a great place to start.

    Planning Ahead

    As with any discussion on the benefits of a major and complex decision such as base of operations, one should not forget what they do give up by being based here. It’s important to plan ahead, and any startup choosing a base of operations in Toronto, particularly when planning to expand to the US, should plan around this.

    1. Don’t forget your friends down South

    It’s easy to limit yourself to your geography. Remember that expanding into a city or market in the US means you first need to develop a network there. Are you planning to raise a VC round in three months? Planning to expand from Toronto to the New York City market in six? Start building those networks now. It is amazing (or gloriously terrifying!) how important serendipity is to the success of some startups. Ensure you have a network in these cities, even if the connections are only digital.

    In our case, we keep in touch by attending conferences on a regular basis, maintaining e-mail contact with the companies and VCs we admire, and constantly ask ourselves if it’s time for an in-person visit.

    2. Use Global Benchmarks

    One of the most important things a startup can do is to do is benchmark itself against its industry, or other startups. Know what valuations your competitors are getting, and what sorts of employees they are hiring. Most importantly, ensure you’re using global benchmarks. While being the best “Canadian” startup is nice, remember that to truly achieve global scale, you’re competing against the best startups in the US, China, Israel, and everywhere else. It’s easy to become complacent by forgetting about these massive centers of innovation.

    Indeed, one of the biggest benefits of our being in the Y Combinator program has been seeing how our batchmates work, move quickly, and succeed at nearly any cost. Seeing this hunger and drive has left us with no excuse for avoiding success. We use our network of VCs, friends around the world, and startups we admire as a way to regularly benchmark ourselves and ensure we’re progressing at a decent pace. Case in point: the Big Data industry is growing over 40% every year — and we aim to outperform it.

    3. Pay It Forward

    And please, remember to pay it forward. If you choose to grow, develop, and succeed in these fine, frigid cities of ours, ensure you give back to the communities. As Brad Feld so eloquently wrote in “Startup Communities”, the only way to make a startup hub successful and grow is through having entrepreneurs leading the community, to have them involved for the long run, and to be inclusive.

    Sometimes that’s easier said than done, as evidenced by Zak Homuth’s view on Toronto startups in the Startup Genome: “We have all been somewhere else, worked somewhere else, and got money somewhere else.” Success breeds success, and it is important that for those of us who grow and succeed through the benefits of our community also give back to it.

    To us, building a successful community is as rewarding as building a successful startup. We aim to ensure that every single person passing through or working with Canopy Labs will leave with better career prospects, more ambition, and the necessary training to succeed in whatever they do. Not only does this make it easier to hire great, talented individuals, it also ensures we’re constantly developing as a team.

    Conclusion

    While the Toronto startup community is getting more attention in recent times, there is still a great deal of work to be done. Toronto is a fantastic place for startups and Canopy Labs is a case in point. We’re a six person startup with a significant runway and exciting customers, and all of this is enabled by our being in Toronto. At the same time, we’ve got a global mindset: we benchmark ourselves against all players in our industry, and are constantly building and growing our networks in new cities and countries.

    We’re proudly Canadian, comfortably Toronto-based, and our office is on Richmond / Spadina in the heart of Toronto’s startup hub. We’re excited and happy to be here, and feel we’re growing faster here than we could hope to grow anywhere else. Drop by any time!

  • Firing People

    I hate firing people. It’s the worst part of my job. Even after all these years I still spend days or even weeks agonizing over a decision to let someone go. I feel absurd complaining about this, given that of course it’s a hundred times worse for the person being fired than it is for me. Still, I hate firing people.

    My first firing at Top Hat was our VP Sales. He was employee number two, he joined right after we raised our angel round. In retrospect it was doomed from the start, and it was entirely my fault. I had no idea what I was doing when it came to building a sales organization and brought him into a role that didn’t make sense (read about the lessons learned in building a sales team). It took me 6 months before I finally pulled the trigger. In the end, it was undoubtedly the right decision and set the company back on track. But at the time it was an extremely tough call. It was admitting failure – to myself and to our investors – that this first major hire was a mistake. I felt  ashamed about it for months and kept convincing and re-convincing myself that we could still make it work.

    As a general rule once you’ve lost faith in an employee, things rarely get better. You can sometimes fix a skill-level problem by giving someone time to grow, but you can never fix a personality problem. If you’ve identified that someone isn’t a fit you need to move on it quickly and decisively. The longer you wait the worse it will be for both parties.

    Firing is an essential part of running a successful company.

    In a narrow way, it’s actually more important than hiring. You could, in theory, use a shit-against-the-wall style hiring strategy and as long as you filter out the bad apples quickly enough you’ll be able to build up a functional team over time. Of course that’s probably not the best approach.

    The reality is that even the most effective interviewers are rarely more than 70% or 80% accurate. The average interviewer is quite a bit worse than that and isn’t much better than chance – often even worse, because the naive approach just selects people who are great in interviews, which disproportionately selects for bullshitters. However, even if you’re some kind of super-human talent screening machine with a 95% success rate, that 5% will accumulate and degrade the culture until you’re surrounded by bozos.

    The Best Firing Process is a Better Hiring Process

    Of course the best “firing process” is not to have to fire people, which can only be done through effective hiring. That being said, not having an effective firing process is like not having an immune system – the first cold will eventually kill you.

    It’s fairly common knowledge these days that A players only like to work with other A players. A slightly more subtle observation is that someone’s status as an A player isn’t fixed. Bringing a weak player onto a team has a tendency to poison the culture and downgrade the rest of the team (especially if that weak player has a shitty attitude.) This bad apple syndrome has been observed to happen fairly reliably in studies on organizational dynamics.

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    The Bad Apple Syndrome

    We’ve experience this at Top Hat a couple of times. One of the most instructive was with our inside sales team. Early on when we were in a pinch to fill the team we lowered our standards and brought on a few people that we should have passed on. The results were disastrous. The quality of the team degraded and eventually hurt not only the inside team but also other parts of the company that came into contact with it. It took nearly a year of solid effort to rebuild the team. For a time it seemed hopeless. No matter what changes we put in place, no matter how much talent we threw at the team, the cancer of negativity and poor morale just wouldn’t go away. The most profound mistake we made in the process of trying to fix the team was to keep those who were performing well but had a negative attitude.

    There was a pattern we observed a few times: we’d put a new person into the team, their performance would be great and they’d be super enthusiastic. Then like clockwork after a week or two their numbers would slowly drop, and they’d become engrossed in the culture of negativity and gossip. It was only after the cleared out the ringleaders who were perpetuating the negativity (who happened to have decent performance numbers!) and put in strong positive management that things finally began to change. The most amazing thing is that many of the people who were B or even C players when the team was dominated by negativity shot up to solid A player status. The overall output of the team per person went up by nearly 300%. In addition it seems as though life was trying to setup a lab experiment for us to prove just how much things had improved – we had a person who had left the company a few months prior re-join the team. His feedback was that he was blow away, he couldn’t believe it was the same team.

    Lessons Learned

    The first lesson we learned was that no matter how strapped for manpower you are, no matter how much it seems like the world will end if you don’t fill a position, compromising on the quality of talent will surely be more damaging. Second, we learned that in fixing a damaged team the key is to identify the cultural sources of the underlying problem and focus on those. Finally, we learned to use a divide and conquer approach – we would pull all the top talent into a separate team while rehabilitating the broken remaining team separately – it really helped prevent the “negativity cancer” from spreading while we were fixing things. These are simple things in retrospect, but it took a while to pull it off.

    One of the most revealing questions I tend to ask when interviewing potential managers is whether they’ve ever had to make the decision to fire someone. The answer and subsequent discussion usually tells you two things: first, it tells you if the person has ever had to deal with the most difficult problems in management, second it tells you if they know how to handle those problems through the process they followed. Assuming the person has ever had to hire and manage a team of a decent size for any length of time, it’s almost certain they’ve made hiring mistakes, and their answer tells you that they know how to detect and correct these mistakes. If the person simply walked into a mature team, or has had HR handle all the hiring/firing decisions for them, then they’ve been living on easy street.

    The process of firing someone is always somewhat unique to each situation. That being said there are some basic principles that you should always follow:

    1. Give people plenty of notice and regular feedback. Give people several chances to improve. The actual firing should never be a surprise – if it is then you almost certainly did something wrong in setting expectations. Depending on the role the whole process should take 1-2 months (longer for senior roles.)
    2. Try to be generous with severance and leave the person in a good spot to find their next employment. I know it’s not always possible in a startup, but do what you can. It’s the decent thing to do.
    3. Take time to reassure the rest of the team and explain (with discretion) the process that was followed and why the decision was made. Letting someone go is always a huge morale hit (even if the person wasn’t well liked, it still scares people.) You need to make people understand that their job is not in danger.

    Firing someone is always a brutal experience. Anyone who says otherwise is either lying or is a psychopath. That being said, it’s unfortunately a necessary evil and understanding when and why it needs to be done is essential to the success of any business.

  • GROWtalks in Toronto Feb 21

    GROWtalks

    Debbie Landa, Clare Ryan and the Dealmaker Media team are part of the reason that I love GROWConf and GROWtalks. They put on amazing events by putting entrepreneurs first, foremost, and front and centre. They are bringing GROWtalks to Toronto (Feb 21) and Montreal (Feb 19). And we have a discount code at the end of the post.

    “A hands-on playbook for creating startup success”

    I like learning by example. It’s a mixture of seeing what worked for someone else, and then trying the appropriate tactics customized for my situation. The challenge is trying to do with more efficiently than 9 or 10 coffee meetings. GROWtalks brings together the best entrepreneurs, who are killing it, and has them present what is working for them. THis is what GROWtalks is, an event for entrepreneurs with entrepreneurs sharing their strategy, tactics, metrics and successes, even the failures. (Full disclosure: I am MCing the GROWtalks event, however, I am not being compensated for this, but I do get the opportunity to participate and learn).

    Check out photos from the 2012 GROWtalks event in Vancouver:

    It’s rare we get this many awesome startup founders all talking about the hard part of their business. I know that all of these folks will be around throughout the day, they’ll be hanging out, answering questions. It’s going to be a fantastic day. Check out the line up:

    I might be biased. My employer is an investor in some of the presenters. My cofounder is one of the presenters. But I’m honestly stoked about the speakers. I’m really looking forward to hearing Beltzner, Rutter, Fitton and Morrill. The mix of product, early customer acquisition and understanding lifetime value are converations I have with almost every founder. I’m very curious to hear the opinons, experiences and thoughts of this group.

    Part of my MCing was to request StartupNorth logo tattoos for all the speakers (we’ll see if that happens), and a discount code. Register before Februrary 1, 2013 and get 10% off (use promotional code: startupnorth). It reduces the ticket price from $195 to $175.50.

    GROWtalks Toronto

    February 21, 2013, 10am-4pm

    Size: 200-300 people
    Speakers: 9 Industry leaders
    Time: 10am-4pm
    Website: www.growtalks.com
    Toronto: http://www.growtalks.com/events/toronto/

    GROWtalks is a one day conference focused on how to create simple, actionable metrics, and use them to make better product and marketing decisions for startup success. Industry experts will share actionable advice to startup teams on how to improve design, product and customer development, acquisition, retention, and more.

    Topics Covered:

    • Customer Development
    • UX/UI Design
    • Growth Hacking
    • Customer Retention
    • Fundraising
    • Customer Engagement
    • Product Development

  • Fundraising, Valuation and Accretive Milestones

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    I keep having a similar conversation with early stage entrepreneurs about fundraising and valuation. “Do you think a $1.5MM valuation is good?” “How much should I be raising?’ Well, it depends.

    I’m finding more and more, the conversation about valuation is one that resembles not being able to see the forest because of the trees. Early stage entrepreneurs tend to fixate on valuation and assume product is the biggest risk at the seed stage thus defining product launch metrics as key metrics. Often, valuation and risk mitigation are tied together. And the milestones or traction metrics required to mitigate risk can help establish valuation. 

    Valuation

    Fortunately, valuation is a topic that others have covered. Nivi and Naval, on VentureHacks, have provided incredible insight into early stage fundraising over the past 5 or 6 years. The advice is often summarized, “as much as possible is especially wise for founders who aren’t experienced at developing and executing operating plans”. The translation means that founders see rounds of seed stage companies raising $4.2MM at what must be a huge valuation.

     “‘As much as possible while keeping your dilution under 20%, preferably under 15%, and, even better, under 10%.’ ” – Nivi

    You can make some basic assumptions about the valuation. Most seed stage companies should be looking keep dilution in the 15-20% range. The specifics will be determined in fundraising but you can start to do some back of the napkin estimates:

    You start to see a range for how much a company will raise at what valuation. The numbers aren’t set in stone but they provide a framework for estimating the amount valuation. As Nivi points out the difference between a seed round and “a Series A which might have 30%-55% dilution. (20%-40% of the dilution goes to investors and 10%-15% goes to the option pool)”. The more you raise early, the more dilution you can expect. The goal becomes managing the different risks associated with startup. You also see why raising debt early, which allows companies and entrepreneurs to delay valuation until certain accretive milestones, is attractive.

    “The worst thing a seed-stage company can do is raise too little money and only reach part way to a milestone.” – Chris Dixon

    So given the back of the napkin dilution terms, what are the milestones that you will need to hit in order to raise the next round.

    Raising the next round

    So you’ve raised a round, how much should you raise at the next round?

    I like the rule of thumb that Chris Dixon uses. “I would say a successful Series A is one where good VCs invest at a pre-money that is at least twice the post-money of the seed round.” The expectation is that companies are roughly going to double their valuation at each raise. This isn’t to say that a 2x increase in value is your target, it’s the minimum, the floor. The art of raising a round it to raise enough money to get to a significant milestone, and not too much money taking too much dilution too soon. So how do you define the milestones. The milestones

    “partly determined by market conditions and partly by the nature of your startup. Knowing market conditions means knowing which VCs are currently aggressively investing, at what valuations, in what sectors, and how various milestones are being perceived.” – Chris Dixon

    So part of the market conditions, i.e., raising money in Canada is different than raising money than in Silicon Valley, New York , Tel Aviv. You are measured against your peers, and this might be defined by geography of the company or the VC. Being connected with other companies, advisors and investors can help provide insight in to the fundraising environment. The second part is determined by the nature of your startup, but generally expressed as measures of traction. We’ve talked a lot about getting traction and what traction looks like to a VC.

    “The biggest mistake founders make is thinking that building a product by itself will be perceived as an accretive milestone. Building a product is only accretive in cases where there is significant technical risk – e.g. you are building a new search engine or semiconductor.” Chris Dixon

    Entrepreneurs tend to focus on the product early. This is usually because the product is something that entrepreneurs can directly affect. But the product risk, is may not be the  biggest risk that entrepreneurs need to mitigate early. The trick is figuring out which risk you need to eliminate to satisfy potential investors. And you can try to figure this out yourself, but I like to see entrepreneurs engage investors and other founders to get their opinion. The discussion usually is a combination of what other startups are seeing in the market place as milestones from investors (yay, market place data). Then you can work backwards the necessary resources and burn rate to reach those milestones.

    Thoughts?

    Additional Reading