Study shows value of mentoring for startups

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Mentoring for startups is now an international phenomenon. Today my Google alert for “mentoring startups” delivered a very worthwhile article for anyone contemplating entering a mentor program. North West Startups Struggle to Navigate Investment Landscape by Patricia Keating of Tech Manchester (England) highlights a couple of areas where startups say they are weak and where mentoring can help: raising capital and managing HR functions.

An in-depth survey of tech startups and mentors in the North West reveals that many of the region’s new businesses lack knowledge of how to raise investment, with less than a fifth saying they feel confident doing so.

Findings showed that just 19% of startups felt they had good knowledge or confidence in raising investment at the beginning of the 12-month programme, although this rose to 58% by the end.

More than 50% of startups felt they lacked knowledge and confidence in ‘creating a pitch deck’ and ‘pitching’ at the outset.

Tech Manchester is an organization that helps support tech startups. Their report “details the journey of 86 mentor/startup partnerships within its mentoring programme, measuring levels of confidence and knowledge among startups at the beginning and end of the programme.” It certainly would be helpful to see a similar study on U.S. based mentoring programs like TechStars or MIT Venture Mentoring Service.

Tech Manchester director Patricia Keating said: “We saw the biggest increases of knowledge and confidence in raising investment and pitching to investors. Speaking from experience, the language around investment can easily exclude people who haven’t encountered it before. We’ve shown that you can have a significant impact with a few lessons on how to approach investment and pitching.

This jibes with my years of experience at MIT VMS and the MIT Sandbox fund. The startup that doesn’t ask for help raising capital is by far the exception. Yet founder’s knowledge and experience with investors varies widely, with the majority of first time founders lacking any experience at all.  Many have the dangerous idea that they are “giving a way a chunk of their business” in the words of Patricia Keating. I teach my mentees that they are selling their equity in return for capital to finance their business – they aren’t giving away anything!

But investing wasn’t actually the weakest knowledge area of Tech Manchester’s founders, that area was managing people.

Keating added: “A large proportion of founders have never managed people or been party to HR processes within their previous roles, so it remains the most significant knowledge gap among startups. Through the programme we ran sessions on making a first hire and best practice in recruitment, onboarding and people management, bringing the percentage of startups that were confident in HR from 13% to 45%.”

Coincidently MIT VMS announced  a new HR workshop for its founders, run by Calvin Aird, senior VP of TJX company.

The article concludes with a testimonial from a mentee in the Tech Manchester program:

 “I didn’t know anything about the different investment pathways when I joined Tech Manchester. The process of getting funding can be expensive and it’s difficult to know who to trust, so it’s critical to have an impartial third party to give advice or recommend others who can help.

“It’s clear that there is a knowledge gap around the different funding options, but being in the mentoring scheme gave me the tools and knowledge to understand exactly the type of investment my business needs to target to move forward.”

When I mentored at Social Innovation Forum I was struck by how one of my founders evaluated the success of her financial literacy program for inner city entrepreneurs: she measured their confidence in their financial knowledge both before and after their participation in the program, showing a major increase in confidence of these first time entrepreneurs. This is a very simple, but effective way to measure the impact of programs conducted for entrepreneurs.

Government issues get added to post about startups

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A while ago I added government regulations to the four areas both founders and investors now need to examine in order to judge if a startup is investor-ready (team, market, product being the other three).

So I was interested to read the sub-title of the article on Entrepreneur.com Why a Mentor is as Important as Investor for Startup: Running a company needs experienced hands, It needs someone who has been through all the government issues, the give and takes of business, the ups and down.

Government regulatory issues as they affect a startup are something you don’t want to be learning on the job. Before you start a venture the founder needs to ascertain whether federal, state, local or even international government regulations will affect his venture. That’s where experience can be valuable, as this short article about the importance of mentorship points out.

Hundreds of young people are entering the startup ecosystem. It’s a flood of such companies and activity.  The whole country is coming up with new ideas for products and service. Either they are new products, new services, or even new ways of doing the same things. Money is no longer an issue.

The article about the value of mentoring comes from Entrepreneur India, not U.S., as you might think. Clearly mentoring startups has become an international phenomena.  The author, Vikash Mittersain, Chairman and Managing Director- Nazara Technologies Ltd., writes that there are two types of mentors: technology/product development and general management (that’s me!). I agree with this as far as it goes, but it doesn’t go far enough. At MIT VMS many startups also need domain expertise, whether that be in retailing, manufacturing, medical device or education (that’s me again.) Domain expertise can’t be limited to technology. In fact, many ventures come to VMS with technology advisors already; they need help with business problems, not technology problems.

Interestingly, in India evidently mentors also guide the Board of the company as well as their investors! That’s a scope far beyond most U.S.A. mentoring.  Vikash Mittersain advises founders to start looking for the right mentor as soon as you launch your startup.

Again, I agree with the statement as far as it goes. At VMS we provide founders with a team of mentors and encourage them to add mentors as their needs demand.

Finally Vikash makes a great point about a startup’s needs:

Every start-up must hire a person with adequate company experience, especially understanding of government policies and regulations, tax issues, long term effects of entering into business to business agreements, and also day to day decisions. Often agreements hide issues which an inexperienced hand does not understand as long term pitfalls.  Investor agreements must be whetted very carefully, especially exit terms, controls given to investors, management decision rights to all parties concerned.

An employee at this level of experience may not be affordable for a start-up at initial stages, but that’s when most mistakes are made, so a consultant can be a trusted advisor too.

 

 

 

It’s not what you don’t know that will hurt you, it’s what you don’t know that you don’t know

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Years before Dick Cheney made famous the concept of the “unknown unknowns” (U2s), a business partner of mine identified this as a key problem for entrepreneurs – like us. What we didn’t know we didn’t know about venture capital, for example, would have filled several books back in 1989. Unfortunately for us there were no books about venture capital and we definitely didn’t know what we didn’t know. Fortunately for us we were taken under the wing of MIT’s treasurer, Alan Bufferd, who managed the Institute’s investments and who taught us some of the basics of venture capitalism while accompanying us on our first visit to Greylock – a VC firm MIT invested in and who ended up being the first and only investor we talked with. Greylock ended up investing over multiple rounds in two of our ventures.

The article What startup mentors can learn from family doctors by Prasanna Krishnamoorthy taken from LinkedIn, has a rather misleading title, but has some excellent advice for both founders and mentors. A study of startups at Microsoft and Upekkha in India discovered that founders were unable to take advantage of all-star mentors. Why not? Evidently they found was that “unless a mentor deeply understands the founder and startup well, most advice is too shallow.”

After studying the problem the conclusion was that “mentoring is about helping a founder know their “unknown unknowns.” So the role of the mentor becomes helping founders help with deal unknown biases, blind spots, and gaping voids that are invisible to the them. Having been a mentor for going on 10 years I have to admit to a) never having thought of mentoring in this way and b) never having heard this explicit mandate from any of the many organizations I have mentored for. But here’s the catch: in order to do this successfully a mentor “needs to spend eight to 12 hours with a particular founder.” That’s totally unreasonable and family doctors don’t even spend 10% of that time with their patients.

However, one way to approach the problem is to have a series of deep discussions with founders focused on finding their unknown unknowns. This requires regularly scheduled meetings totaling anywhere from 10 to 20 hours. Frankly even this is beyond most mentoring groups I’m aware of, as mentoring is either usually on-demand (when the founder calls out for help) or lightly scheduled (once per month). But let’s assume the mentor and founder can set aside this amount of time. Incubators and accelerators can be exceptions to this rule, which may account for the success of Y-Combinator and TechStars.

First founders have to prioritize their U2s. Next they needed to create specific problem statements around these U2s. That enables mentors to identify subject-matter experts who can assist with these very specific problems. This process creates a very efficient process for the mentor. In fact at MIT VMS a subject matter expert is often brought in to help with an identified problem beyond the ken of the mentor team. One case the author mentions is not unlike cases I have had myself: founders who were using direct sales but had no idea how to build an inbound/inside sales team and what processes the team would use. They then crystallized the problem statement to “create the core inbound process for lead-gen in the next six weeks,” and connected them to an alumnus who is among the best in India at inbound marketing.

So  what are the takeaways for startup mentors?

  1. Understand the startup’s context and constraints.
  2. Try to enumerate their major problems.
  3. Help the identify their U2s and their blind spots
  4. Help prioritize their problems.
  5. Get them a subject matter expert to help with domain-specific problems like marketing or customer support.

How can a founder take advantage of good mentors?

  1. Identify areas you believe your mentor can help with: where they can provide feedback and where they have a network.
  2. Do your homework! Start each meeting with an agenda (which should be sent out in advance) and then report on the status of the homework.
  3. Work with your mentor to identify blind spots, weaknesses, and biases.
  4. Make sure each meeting ends with a recap of action items and summarize them for the team (founders and their mentors) (This is standard practice at MIT VMS).
  5. Circle back to the mentor with the outcomes, positive or negative, from the actions.

Mentorship is obviously now a worldside best practice for startups and we can learn as much or more from mentoring in India as we can from the U.S., and we hope, vice versa.

Elon Musk’s first principles thinking

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I’ve been advising my mentees to minimize their assumptions about their businesses as much as possible.  In the case of their financial projections, their bedrock assumptions are more important than the actual numbers themselves. It turns out that I’ve just scratched the surface of First Principles Thinking.

One of the specific breakthroughs of many made by Elon Musk that I admired was his challenging of NASA’s practice of using one rocket per test – they assumed it was either too difficult or too expensive or both to do otherwise. But Musk challenged this assumption and developed a way to re-use his rockets from SpaceX, thus saving millions of dollars per launch and helping launch his firm SpaceX into commercial viability.

Now from reading Mayo Oshin‘s post on Medium, Elon Musks’ “3-Step” First Principles Thinking: How to Think and Solve Difficult Problems Like a Genius I have an understanding of how Musk arrived at this breakthrough and many others. Musk has built three breakthrough multi-billion dollar companies in completely different fields: first PayPal, in financial services; then Tesla, in electric powered vehicles; and Space X, in aerospace. This doesn’t even include Solar City, energy, which he helped build and acquired for $2.6 Billion recently.

Obviously Musk is brilliant and coupled with that he’s a workaholic, claiming to work 100 hours per week for the past 15 years! But during a one-on-one interview with TED Curator Chris Anderson Musk explained his “reasoning from first principles.”

Musk: Well, I do think there’s a good framework for thinking. It is physics. You know, the sort of first principles reasoning. Generally I think there are — what I mean by that is, boil things down to their fundamental truths and reason up from there, as opposed to reasoning by analogy.Through most of our life, we get through life by reasoning by analogy, which essentially means copying what other people do with slight variations.

First principles thinking is closely related to my dictum of minimizing assumptions, but it is more sophisticated, it means questioning every assumption about a given problem, challenging all your assumptions. Possessing Soshin, the Zen beginner’s mind, an attitude of openness, eagerness and lack of preconceptions even when studying at an advanced level – which is where Musk is 95% of the time.

The way I tend to explain concepts to my mentees is the flip side, reasoning by analogy. Mentoring founders based on my prior assumptions, beliefs, experiences and what I consider to be best practices of respected mentors, like Steve Blank.

Here are the three steps of first principles thinking from Elon Musk:

STEP 1: Identify and define your current assumptions

“If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.”
— Albert Einstein

It’s important you write down your current assumptions, as the act of documenting them may well surface other, related assumptions. It also enables others on your team to review your assumptions.

STEP 2: Breakdown the problem into its fundamental principles.

“It is important to view knowledge as sort of semantic tree. Make sure you understand the fundamental principles, ie the trunk and big branches, before you get into the leaves/details or there is nothing for them to hang on to.” – Elon Musk

The best way to discover these basic elements is to ask questions. Mayo Oshin provides a good example of this in the way Musk challenged the received wisdom about the high cost of battery packs by breaking down the components of battery packs, pricing out each component, and recognizing that the BOM (Bill of Materials) for a battery pack only cost $80 per kilowatt hour vs. the cost of a battery pac at $600 per kilowatt hour. That left him with the design and engineering problem of finding a way to combine these materials into a battery pack, resulting in a much lower cost.

STEP 3: Create new solutions from scratch

Again, asking questions is the way to create new solutions. First define your goal, such as to raise enough capital to last you 18 months.  The first step is to question your goal. Why 18 months? If you only raise enough money for 6 months you won’t have to raise nearly as much money. By making the amount smaller you may open up other options, such as crowd-funding or revenue sharing or a convertible note (loan).

By using first principles thinking you keep asking questions and challenging assumptions by looking a various options and their trade-offs until you hit bedrock. When Musk challenged the assumptions that rockets were not “re-useable” that must have lead him to design a way to retrieve his rockets after they reentered earth’s atmosphere.

Everyone talks about “thinking outside the box” but what does that mean? First principles thinking comes from physics, where complex phenomena are studied by “reverting to first principles.”

In physics, a calculation is said to be from first principles, or ab initio, [from the beginning] if it starts directly at the level of established laws of physics and does not make assumptions such as [and] empirical model and fitting parameters.

For example, calculation of electronic structure using Schrödinger’s equation within a set of approximations that do not include fitting the model to experimental data is an ab initio approach.

First principles thinking provides founders with a three-step process to “think outside the box.” And that’s the place to do your thinking if you are going to succeed in finding novel solutions to problems like Elon Musk has.

“I am what survives me.”

 

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Jane Brody, who has been writing about personal health and nutrition for The New York Times for years, might seem an odd source for a blog about mentoring entrepreneurs. But, of course, the title to her New York Times article Want to Leave a Legacy? Be a Mentor sub-titled How to make a positive impact that would keep you alive in the memories and lives of others caught my attention.

Her reading of Marc Freedman’s new book, How to Live Forever: The Enduring Power of Connecting the Generations inspired her to write this column about mentoring. Mr. Freedman, the founder of Encore.org and co-founder of Experience Corps, both dedicated to helping older adults find purpose later in life, calls himself a social entrepreneur. Mr. Freedman’s latest endeavor, now in its second year, is called Generation to Generation, a foundation-supported nationwide project that aims to “build a movement of older people focused on the well-being of future generations.”

Here’s the quote that hit the heart of the matter for me:

“The real fountain of youth is the fountain with youth,” Mr. Freedman said. “It’s spending less time focused on being young and more time focused on being there for the next generation.” As the developmental psychologist and psychoanalyst Erik Erikson said nearly 70 years ago, “I am what survives me.”

The bulk of the article is about how older people, like me, benefit from staying engaged with others and ways to do that. Certainly it’s been a privilege to be a mentor at MIT in several different programs, The Venture Mentoring Service, The MIT Sandbox Fund, and the Post-Doctoral Program. As a mentor I’m sure I get more out of it than I give: the brainpower, creativity, and drive of the students and alumni I mentor are energizing. I tell people that I’m like an RFID chip. Alone, I’m can be passive. But the powerful rays of energy radiating from an entrepreneur energize me just like an RFID chip is energized when struck by radio waves.

Mr. Freedman sees older people as uniquely suited for a mentoring role:

“The critical skills for nurturing relationships — emotional regulation and empathy — blossom as we age.” And, of course, those who are retired also have more time to devote to younger people, be they grandchildren, neighbors or strangers.

This is probably why I see so many gray haired heads at the monthly VMS mentors meeting!

But we do have some younger mentors, and there is no reason why young people can’t be mentors. In fact my 98-year old mother has been mentored in the use of her Apple iPad by Babsonn College students, who visit her at her continuing care retirement community. She raves about them all as being knowledge, patient, and helpful.

The key to mentoring is what I consider the purpose of life: gain personal satisfaction through helping others. It only took until age 60 for me to realize this! And ever since I’ve found that mentoring entrepreneurs is the best way I have to help others.

Through my successful ventures and the many more failures, I’ve learned a lot about mistakes to be avoided by founders and tell my mentees, “Please be creative, don’t  repeat my mistakes, invent your own!”

What survives us is the impact we have on others. There is no point in being the richest person in the cemetery, but having been the most influential would be worth striving for.

 

Get mentors out of their seats – Show, don’t just tell!

A sales process flowchart drawn on a whiteboard.We had a great mentoring session the other day, thanks to the leadership of my colleague Beth Kahn. We were doing a pitch scrub for a founder and Beth came up with two great ideas on the fly.

It was clear that our founder was having a bit of trouble telling her story in a convincing manner. Cadence and inflection are very important when speaking and her delivery was flat. So Beth, rather than providing typical mentor feedback, asked Linda Lewi, the other member of our mentoring team, to deliver the founder’s pitch for us! Linda, being an experienced presenter, complied and showed by example how to deliver the vitally important verbal part of the pitch. No matter how good your slides are – and our founder did a very good job with most of them – if you don’t project enthusiasm, totally familiarity with your material and tell a story, the audience is going to tune you out.  It was clear that our founder got it, and we’re confident she can deliver her pitch just fine now that she’s seen how it should be done.

But Beth wasn’t done yet! I had criticized of one of our founder’s slides that showed the process her venture’s clients went through and how they benefited from the process. It would have been fine if she was emailing the deck to someone who had the time and interest to study the deck and that slide in particular, but for a presentation its complexity would cause the audience to either ignore the slide, or worse yet, resort to looking at their phones. I had suggested she create a much simpler, linear process flow, leaving out much of the detail that was in fact distracting, not informative.

So Beth said to me, Steve, why don’t you diagram the client process flow? I like diagrams, but no longer being in the business of creating pitch decks only critiquing them, it had been a quite a while since I had diagrammed anything. And since any first grader possesses stronger graphic skills than I, I felt a bit challenged. But I really like the founder’s venture and have given it a lot of thought over the course of several meetings. Because I did understand how clients moved through the venture’s process it was actually pretty easy to step up to the wall and diagram the flow in a simple, but effective manner. Everyone said, “That’s it!” and I knew it was pretty good when the founder stood up and took a picture of the diagram with her phone. I’ve now seen her version of my scribbled whiteboard diagram and it looks great.

This was a real breakthrough mentor meeting for me. Beth showed us mentors that there is more to mentoring than sitting back in our chairs and firing off bursts of feedback to the founder. There are times when we need to show, not tell. To lead by example. From now on I’m going to look for opportunities to get my fellow mentors out of their chairs and step to the front of the room or up to the whiteboard and show, don’t just tell!

A founder flies red flags about mentors

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While Scott Kitun, CEO of Technori, has some good statistics about the value of mentors to startup ventures, his personal experience seems to not have been positive. Thus his article on Entrepreneur.com Does Something Feel ‘Off’ About Your Mentor-Mentee Relationship? subtitled Don’t ignore these 3 red flags that indicate your relationship is toxic.

Let’s start with the positive about mentorship:

Today, in business, the value of mentorship is largely a given. It’s why, according to the Wall Street Journalnearly 70 percent of Fortune 500 companies offer corporate mentorship programs. And that’s of course a good thing because, in theory, mentors help founders stay focused on a road map; they provide early introductions, experience-based advice and perhaps even a little capital.

and

… a UPS study found that 70 percent of mentored startups examined stayed open for five years or more, while non-mentored companies survived at only half that rate.

But here’s Mr. Kitun’s warning flags about mentors:

1. A lack of credentials

Mentors needs both expertise and experience. According to a study published in the Academic Medicine journal, a lack of experience is a leading factor in the failure of a mentoring relationship. Mr. Kitun advises founders to question potential mentors about their backgrounds and ascertain that their experience is relevant to your venture.

2. An appearance of no strings (or cash) attached

Mr. Kitun made the classic founder mistake of spending his valuable time at networking events, as he says “When I was a new entrepreneur, I attended countless happy hours and networking events for months on end. I found myself swimming in a sea of people who freely offered up their help and expertise in exchange for nothing — initially. ” But who else attends these networking events? Service providers: lawyers, accountants, venture capitalists, angels, consultants. Many will offer their services for free. But there are some bad actors out there who will try to leverage free into paid – in his case they asked for a percentage of his revenue. One of the big advantages of the MIT Venture Mentoring Service and the 80 sister programs it has sprouted is that mentors can have no agenda, whether than be compensation or anything else that could color their mentorship. Violating these guidelines is cause for expulsion from the mentor program. Find your mentor through your own network, not by fishing at innumerable networking events.

3. Demands for huge changes

Founders need to keep in mind that they and they alone are in the driver’s seat. Mentors are backseat drivers, giving advice not controlling the venture. I’ve written elsewhere about my distaste for the fad of “pivoting” – the key success factor in startups in my experience has been persistence. Mr. Kitun warns of mentors pressuring founders to make big changes in their venture. He claims “Many companies have fallen off the map because they chased bad advice or an illogical agenda down a rabbit hole, purely because it was something the mentor wanted.” I’ve never seen this myself, nor heard of it, but these are his red flags, not mine.

The moral of this story is that due diligence is required of any relationship a founder enters, including mentors. Talk to your prospective mentor’s mentees. Was he or she helpful? Did they have a personal agenda? Take a test drive with a prospective mentor and see if their style is a fit with your company. Mentors and advisors can play important roles in new ventures and thus should be chosen wisely and with care. Mr. Kitun’s experience and red flags should be headed by founders, but don’t let his experience cast a pall on mentorship, which in my ten years of experience is virtually always a benefit to founders.