The Startup Community Way: Evolving An Entrepreneurial Ecosystem

Brad Feld,  the longtime investor and founder of both Foundry Group in Boulder, Colorado, and Techstars, the now-global accelerator program, has a new book coming out next week called “The Startup Community Way: Evolving an Entrepreneurial Ecosystem.”

The Startup Community Way: Evolving An Entrepreneurial Ecosystem

In it, he and co-author Ian Hathaway offer some advice about how to make burgeoning Startup Community as powerful as possible now that they exist around the world.

We rang up Feld this week to talk about the book; we also wound up discussing what founders in any ecosystem can do to survive when something like COVID-19 sneaks up, shredding even the best-laid plans.

Here’s a small part of that chat, edited lightly for clarity. We’ll feature more of the discussion — including around what happens with many newly funded companies and what he calls the “measurement trap” — in an upcoming Extra Crunch piece.

TC: Your new book talks about complex systems. How do founders balance the need to manage these complex systems with the fact that controlling these complex systems is sometimes out of their hands?

BF: The first step is getting rid of the notion that you can control the systems, and instead focus on what you can influence [because] in the context of what you can influence, that starts to become a place to focus where you put your energy.

An example of this would be in the current moment. If you have existing investors, and if you have not asked your existing investors directly how much money they have reserved for you for future financings and what you need to do to get that money from them, you’re not focusing on what you can influence.

The worst thing your investor can do is say, ‘I’m not going to tell you that.’ But if your investor is really on your side and wants to see you be successful, it’s likely your investor will say, ‘All right, well, you know . . .’ There might be some wishy-washy [talk] and [dollar] ranges and non-committal language, but you’ll at least have a frame of reference whether that’s zero dollars, a little bit of money, or a lot of money. And you can start to understand, ‘Well, what do we need to do given this moment?’

BF: Step one — that hopefully you did two months ago — was aggressively cut your cost structure to make your cash live as long as it could last. And then next, make sure you understand with your investors what the expectations going forward are around your business, versus whatever the previous expectations.

I think there’s going to be a whole category of companies that get an asterisk for their 2020 performance. It’s kind of like a sports season that gets cut short.

Anybody who played in the NBA in 2020, on the back of their basketball card or their online stats, there will be an asterisk because [they played] fewer games. And there’s gonna be a lot of companies where investors are measuring your 2019 to 2021 performance, because 2020 has an asterisk on it.

TC: I hosted an event back in March where Alexis Ohanian suggested to founders that: ‘If what you’re doing now is just not a viable solution in this new world and in a different economy, then find something that is.’ Have any of your portfolio CEOs completely changed course in reaction to COVID-19?

BF: I can’t think of anyone who has torn up their business plan and said ‘This isn’t going to work; we’re going to do something totally different.’ We do have a number of companies that very aggressively stopped doing sets of things — whether it was pursuing a new product, expanding into new markets or trying to go down a particular path that was additive to what they were doing.

Then we had several companies that had to reposition really dramatically. A good example of that would be Formlabs, which is one of the largest desktop 3D-printer companies at this point — maybe the largest in Boston — and very successful and doing very well.

Now, a chunk of their business — I don’t know the percentage but greater than 10% — was the dental market. And they had a lot of dental labs buy Formlabs printers. They own a manufacturing facility, so they have a lot of custom resins that are bio-certified so they can make [products] on a service bureau basis or they can sell printers to the dental industry.

But when everybody starts shutting down [earlier this year], dentists are shut down. They’re not essential. You can’t go to a dentist. You can go to dentists now and get your teeth cleaned, but for two months, no dentists. And that market went to zero overnight.

Instead of rolling up and saying, ‘Oh, woe is me,’ they looked at the need for certain things in the context of COVID. And they realized that one of the immediate shortages in COVID was [nasal] swabs for doing PCR testing. And it turns out that on Formlabs printers, using their bio-certified products, you can print swabs quite easily and you can print lots of swabs. So they started printing swabs; they did a deal with one of their customers that was a hospital to get them certified.

They designed them, they tested them, they went through the whole certification process that they needed to go through very quickly, and all of a sudden, they started supplying swabs.

Well, as it turns out, all of a sudden hospitals realize that they can’t rely on the normal supply chain for getting swabs. They might be able get the reagents, they might be able to get the testing kits, but they can’t get the swabs.

Hospitals started realizing, ‘We can print the swabs ourselves if we have a Formlabs printer.’ So they focused that part of their business that previously sold to dental labs to sell to hospitals.

BF: When I reflect on our portfolio, the CEOs in our portfolio who are doing the best job navigating through this — where their businesses are benefiting or where they’ve been impacted — are being assertive about trying to continue the situational awareness with us and with them, because, by the way, the companies that are benefiting from this could [pandemic’s ripple effects] also see that stop all of a sudden.

It doesn’t mean you’re not still making progress, but the thing that was pushing you forward [sometimes vanishes]. And so assuming that those things are going to continue forever is another problem with linear thinking.

If on February 15th you’d said to someone that almost all of the people who work in offices around the world are going to be working from home for the next couple of months, they would have said, ‘You gotta be kidding me, no way.’

Similarly, telemedicine made 10 years of progress in four weeks. The technology existed, the software existed, humans could do behavioral telemedicine . . . But we had this massive phase shift that happened as a result of this thing that occurred in a very short period of time. That happens over and over again with innovation. And, frankly, it’s one of the things I think a lot of entrepreneurs are frustrated with, especially around investors.

Because when entrepreneurs start having that sort of logical shift to the next thing, and the investors don’t see that, it can be frustrating. Or maybe it does take five years because of the incumbent dynamics, and you know that you’re going to eventually get there, yet there’s this urgency of ‘Why not more now, faster?’ against the backdrop of these changes.

It’s not a criticism of the venture industry. I think it’s one of the dynamics that’s also hard in this mix.

Originally published at Tech crunch