Lean Case: Techstars

 

TechStars

Techstars is a pioneering, mentor-driven startup accelerator. Since its initial 13-week program in 2007, Techstars has helped launch well over 100 companies, 90 percent of which have received follow-on funding. Today, it runs a dozen sessions a year in six US cities and recently expanded into Europe. At the same time, Techstars has branched out into corporate innovation, helping Microsoft, Nike, Kaplan, Sprint, and RG/A extend their existing businesses and build new ones. Co-founder Brad Feld started his first company in 1987 while a student at MIT and went on to become an early investor in
[Fitbit]
[Harmonix]
[MakerBot]
and
[Zynga]
In between advising Techstars and making venture investments via Foundry Group, he has written or co-written six startup-related books. He spoke with us about corporate innovation strategy.

 

How did you come to found an accelerator, and how did it become a franchise?

 

Every month or so, I meet with whoever wants to meet with me for 15 minutes a shot.
In 2006, David Cohen, who was a local entrepreneur in Boulder, arranged a meeting and described the notion of Techstars. We had no idea if it was a good idea but, together with David Brown and Jared Polis, we gave it a shot. It far exceeded our wildest expectations, qualitatively as well as quantitatively — the joy and satisfaction of working with these entrepreneurs, the fun, the intensity of the experience. By the third year, we had received about 50 requests from people in other cities who wanted to start an accelerator, too. Bill Warner in Boston dragged us to start Techstars Boston. Then we got pulled into Seattle and New York, then Chicago, San Antonio, Austin, and London. Around 2011, we did the first Powered By Techstars corporate program, helping Fortune 1,000 companies build entrepreneurial ecosystems around their brands, products, and technologies.

 

How does the Powered By Techstars program work?

 

Many companies build a platform that allows other companies to extend their products.
Microsoft did an extraordinarily good job of this in the 1980s, and Facebook has done much the same thing. That ecosystem dynamic is hard for a lot of companies to manage.
And, by the way, many of the people in those companies have never worked in a startup, so they don’t understand the pressures and dynamics of a startup. We come in and say, “Here’s a way to help startups build stuff around your technology and infrastructure.”
We’re an interface to those very early startup companies as they figure out how to work within a corporation’s environment.

 

Why don’t established companies innovate as effectively as startups?

 

Established companies are good at extending existing successful product categories that they own. Clayton Christensen wrote about the innovator’s dilemma, where companies defend their turf rather than disrupting it. Almost by definition, they’re trying to get the most ROI out of products they’ve created rather than disrupting their industry with something totally new. You see this over and over again, and not only in the technology industry. Part
of the challenge is the way organizations are set up. Part is incentives. Part is cultural norms within a company: the ability to use lean startup methods, try stuff, get it out there, get feedback from customers, an iterate aggressively. That’s not the way large companies work: It’s not the way a planning cycle works, it’s not the way to get budget dollars, it’s not the way you deal with colleagues who don’t want you to encroach on their area. Also, a lot of large companies view this kind of activity as a hobby rather than a core function of their business. These are enormous structural and cultural barriers to disruptive innovation.

 

The marketplace appears to be increasingly chaotic. Billion dollar companies rise overnight, and entire classes of business disappear nearly as quickly. How can innovation teams cope?

 

Keep in mind that the vast majority of significant enterprises still take a long time and a lot of resources to build. In the tech industry, large, incumbent companies acquire smaller, fast-growing companies to build out their teams as well as new product lines.
Some buy early, when they need technology teams and don’t care about the product, revenue, or customer base. But others, like Oracle, buy mature companies that have tens or hundreds of millions of dollars in revenue and significant product lines. That model can work across innovation in general.

 

New tools and technologies have empowered small teams to achieve results that once required corporate departments. Do small teams now have an advantage over large teams?

 

I’ve always believed that small teams have an advantage. Organizing in small groups that use an agile model is much more powerful than working in large groups, whether it’s 10 or 100,000 people. You don’t have to break up the sales department into lots of different organizations, but the number of people who need to be involved in a specific decision or working on something totally new should be small.

 

What team size do you recommend?

 

There’s no magic number, but it’s important to organize according to a network model rather than a hierarchy model, especially around new product development and launch.
My whole world is a network. Techstars has 50 full-time employees, 400 companies, 1,000 entrepreneurs, 1,000 angels or VCs, 1,000 mentors — that’s a big network. If you were to manage it as a hierarchy, it would be a disaster: PowerPoint decks attached to emails with 37 people on a chain. But if you manage it as a network, where people self-organize, where good stuff moves forward and bad stuff gets killed quickly, where you have clear ways to make decisions and mediate conflict, that’s incredibly powerful.

 

Is it important to move fast? How can enterprises do that?

 

It’s important to move both fast and deliberately. Every startup that I’ve ever been involved with gets frustrated at some point because suddenly they’re moving slower than they were at the beginning. They’re not really moving slower; it feels like there’s too much process because there wasn’t any before. The key is not to move so quickly that there isn’t any process, but to be aggressive about eliminating blockers, having lightweight ways to keep things moving, and working through the decision-making process quickly.

 

Many innovations in recent years have resulted in winner-take-all markets: Google, Facebook, Instagram, Airbnb. Is there room for a Number Two in emerging markets?

 

I don’t buy that assertion. Facebook? There’s also Twitter. Instagram? There’s also Snapchat. However, I do believe that the vast majority of the rewards in any particular category go to top two players. And frequently markets re-segment, so Number Four may become Number One in a differently segmented market.

 

In your experience, how many swings at the innovation ball does it take to hit a home run?

 

It varies dramatically. You have people who knock it out of the park on their first swing and others who are still swinging 100 times later. Lots of companies step up and get lots of stuff done, and others do something amazing and then struggle to do it again.

 

How are the financing requirements for innovation changing?

 

The amount of dollars that it takes to innovate has come down dramatically. A couple of things have driven this change. One is the falling cost of technology infrastructure required to design, develop, and build new products. Also the fact that you can abstract your compute infrastructure to a cloud host provider. The shift from waterfall to agile has also had a huge impact on costs. Methods like the lean startup make it possible to measure the impact of go-to-market activities while you’re in the innovation process. And there has been an incredible democratization around innovation. There are so many sources of information.
Fifty years ago, it was people in white lab coats, with big R&D budgets, in big companies. Today, it’s anybody, anywhere.

 

What advice would you give to corporate innovation teams looking to develop disruptive products?

 

People believe they have resources that don’t exist, or they think they’re going to get access to resources and then don’t. At the other end of the spectrum, they dive into projects without having any idea what success means. They follow a path and think they’re successful, but they’re not successful in the context of the business. So my advice is: Always make sure you understand what resources you have available and what the measures of success are.

 

Brad Feld, co-founder

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