The 3rd NEXT Cologne kicked off on the evening of October 23rd and this time we have four very early-stage startup teams attending the program – Including one team traveling all the way up from France to attend in Cologne – respect!
Tag Archives: customer development
On Customer Development
I’m currently in Silicon Valley on a scholarship, invited to receive the Lean Launchpad Instructors class with Steve Blank at Stanford so I thought I’d share the story about what Customer Development and the Lean Startup Movement means to me and how I got involved.
Although I read “The Lean Startup” book by Eric Ries as it came out in 2011 and found it quite insightful and actionable, it would take almost a year before I got seriously into Customer Development – which the book mentions as one of the components of the Lean Startup but in my opinion doesn’t really go into much detail about.
At the time I first read it, I felt the book, aside from being a bit heavy on anecdotes, was highly focused on building and tweaking stuff (and that is probably why it was a runaway hit with developers and entrepreneurs – Hey! We like to build things, exert our agency in the world and we’re all about action, not about talking!) and could not help feeling something crucial was missing- that in it seemed to me an inherent danger of inviting only more building of stuff for the sake of building more stuff.
It wasn’t before almost a year later and after doing my own startup in all sorts of wrong ways that I got re-introduced to the Customer Development methodology and the teachings of Steve Blank in-depth.
As we were planning to organize the very first Startup Weekend Cologne, we were introduced to the new NEXT program – basically a democratized version of the Lean Launchpad program taught by Blank at Stanford, Berkeley and Colombia and used by the National Science Foundation, teaching Customer Development, Business Model Generation and the Lean Startup methodologies.
So we (Lukas Strniste, Puja Abbassi, Till Ohrmann, Sara Usinger and I) just said yes and jumped on the bandwagon, not really knowing what we were getting ourselves into. Thus I was trained as an official instructor by Steve Blank, Bob Dorf and Eric Koester and in December 2012 Cologne became one of the first very few cities in the world to offer the Lean Launchpad curriculum as taught at Stanford on a local level and for a nominal symbolic fee. And now, half a year later, we are about to start our third cohort of the program.
During the training to become an instructor for NEXT and running the program for two cohorts so far, it became clear to me why Customer Development resonates so strongly with me, and orders of magnitude more so than when reading the “Lean Startup” book.
I founded my first own software company back in 1997 and since then my philosophy in creating software for F500 enterprises and GOs has been “It’s not about technology – It’s about people. Listen very carefully to your customers – and their users. Engage in humble conversation and learn, learn, learn.”.
When creating software for enterprises and GOs, it’s incredibly important to assume that the customer, the person actually doing the project ordering, is only tasked with ordering the problem fixed and not actually having any proprietary insights to the actual problem. So I always asked and listen, asked and listened, challenging the assumptions that they already knew what the problem was and how to solve it – and for whom it actually represented a felt problem.
Anyway, when I finally had a good idea about what the customers ordering the project thought what the problem was and how to solve it, it was incredibly important to press on and ask for further interviews with their actual users, the people who were actually supposed to feel this problem and that would have to live with the actual solution in their everyday corporate life.
And what these users told me usually did not rhyme with what the people ordering the project thought. Usually there was a real and clear cognitive dissonance between the two types of stakeholders, about what their ideas about what the problem actually was and what an actual solution should look like.
So my secret to creating highly successful software that solved real problems for real people for 16+ years now was simply to listen – and listening to enough people, to all stakeholders affected by the problem and the proposed solution, assuming that I wouldn’t get to the whole truth by only listening to the customer ordering the project.
That I wouldn’t get to the truth about the problem before I started recognizing a frequently recurring signal from a significant amount of stakeholders on all levels. And that I would not be able to know what a viable solution to that problem could look like without comparing the stories, the recurring signal, from the different types or groups of stakeholders and figure out the different motivations, jobs they were trying to get done and how they would overlap.
Because the actual solution, the truth, was normally found somewhere in between.
Although enterprises are not startups (the problem that I was trying to solve and the customers I was trying to solve it for was usually somewhat known) suddenly Customer Development made a whole lot of more sense to me as it was in part something I had already been intuitively practicing for years.
In Customer Development, I now had a complete methodology for building a startup incorporating methodologies I myself knew to be validated through my own experiences. I could now preach what I had been practicing – and that is how I became a true believer and practitioner.
So what is Customer Development?
Customer Development is a methodology to get from a belief-based to a fact-based venture, from a half-baked business idea to a company with a validated repeatable and scalable business model.
In an over-simplified nutshell, the Customer Development methodology has two main components. The “search” for and the “execution” of a business model.
The “search” component has four steps, divided in two sub-components – Customer Discovery and Customer Validation.
Customer Discovery – Test the Problem
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- Define your hypothesis: map out your guesses about your business model using a Business Model Canvas as your communication and tracking tool
- Test the problem you think you are solving by getting out of the building and talking to and listening to potential customers, partners and resources – real people
Customer Validation – Test the Solution
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- Test the solution you think solves the problem to a known set of customers by building a minimum viable product (MVP) containing just the minimum features needed to allow you to start learning, to start an iterative build-measure-learn cycle
- Iterate or pivot your business model repeating the steps until you have validated it
Once you’ve validated your business model, you move on to the “execute” component which is also divided into two sub-parts, Customer Creation and Company Building, which consist of creating user demand and building the organization to scale.
For a more detailed and more entertaining introduction, I highly recommend taking Steve Blank’s “How to Build a Startup” course on Udacity and picking up the book “The Startup Owner’s Manual“. If you’ve not heard of it before, Udacity is an amazing online learning site that offers a range of courses for many professions. But don’t just take my word for it as you can find a detailed review of the site here https://learnacourseonline.com/udacity-review/
Now GET OUT OF THE BUILDING!
What’s next for the Cologne startup scene?
This article was originally posted on The Pirates Inn
Last summer, Thomas Grota kicked of a discussion on “what’s next?”, which started one of the longest comment threads on the Cologne Startups Facebook group to date summed up here.
As yet another summer is upon us in Cologne, and as I’ve recently been invited to hold a talk about our community at Stanford in front of a distinguished crowd including Steve Blank, I want to reopen and continue the discussion about what’s next and what’s still missing in our startup ecosystem.
When creating a startup there are lots of questions that you need to ensure you answer in order to be successful. Is there a need for your startup? What’s your competition? How will you find suitable employees? What healthcare insurance solutions are there out there for those employees? How long should you be planning everything? The list goes on so let’s answer some of them today.
Almost a year has passed, so what has happened in that time? Now this is going to be a long one, so you might want to grab a cup or bottle of your favorite hot or cold beverage right now before continuing (and if you want to be my editor, I’m hiring).
First, let’s consider what some much smarter and experienced people than me say is needed for a successful startup ecosystem.
(I recommend reading Startup Communities, Regional Advantage, Startup Nation and watching The Secret History of Silicon Valley for more background on the components of a regional cluster and how to create a great startup community)
According to Brad Feld, author of “Startup Communities: Building an Entrepreneurial Ecosystem in Your City”, early stage investor and co-founder of TechStars it is the entrepreneurs that lead a startup community and everyone else feeds the community.
Those who want to be regional leaders need to be committed to their region for the long term of 20+ years and the community and its leaders must be inclusive and paying it forward, driven by experimenting, failing fast and mentorship.
The feeders include educational institutions like universities, the government, investors, mentors, service providers and large corporations.
Feld claims, contrary to some of the feeders’ traditional beliefs and views, that they are indeed not the leaders of a startup community.
It is Feld’s big idea that this is something we have been getting wrong for decades, that it is instead the entrepreneurs who are the leaders of a startup community, not the investors, governments or universities – regardless if they say or think so. Entrepreneurs lead a startup community, everybody else feeds it.
Feld also argues that continual events and activities are essential to engage all parties.
( (c) 2012 Sacha Chua under the Creative Commons Attribution 2.5 Canada license.)
As a bootstrapping startup entrepreneur myself, it’s not hard for me to agree with Feld’s conclusions, but of course that doesn’t mean that leaders are enough. There’s a dependency between the two. No great feeders – no sustainable and awesome startup community. We need both great leaders AND great feeders.
Now let’s look at the thoughts of one of the godfathers of Silicon Valley, the father of Customer Development and grandfather of the Lean Startup movement, Steve Blank, on what makes a successful regional cluster.
The prerequisites for a successful regional cluster
The following is my personal evaluation of the current startup ecosystem in Cologne using the parameters and insights from Feld and Blank.
Leaders & Feeders
I think by now, our best venture finance people and our most capable entrepreneurs have read Brad Feld’s book and understood what’s needed and how building a great community works. And it seems people in some of our big corporations and the old media and money are starting to warm up to the idea of innovation and new value generation through startups and getting involved in the scene.
The city and our government perhaps not so much – if at all – but as I’m no fan of top-down governmental involvement, I’m fine with that. We’ll lead and they’ll follow. That’s ok.
Events, Activities & Inclusiveness
Since last summer we also saw the founding of NERDHUB to keep everybody updated on the entrepreneurial activities and events. If you subscribe to their calendars you’ll constantly be up to date about what’s going on in the Cologne scene of events and activities and it’s conversely a great way to spread information about your events and activities. Still, I personally do have a gripe with NERDHUB for not being available 100% in English and not listing for-pay events, but that is another discussion for another day. All in all, it’s an awesome value-add for the community in Cologne.
And to make sure that our events and activities get documented and shared for posterity, Ali Mokhtari has been working his butt off, interviewing key people in the scene and recording the events.
Clusterhaus also manifested, and although it faced some difficulties in the beginning as its organizational structure and its intentions for the future seemed opaque, that now seems to have been cleared up, but perhaps still existing more of a self-organized island community of office space co-workers than a fully integrated highly inclusive and accessible node of the startup community.
We also saw the addition and exponential growth of the STARTPLATZ incubator, providing a central location and a buzzing hub for continuos events and activities – and it’s growing faster each day. So far STARTPLATZ has helped defragmenting the scene and bringing more people together from more spheres of the ecosystem and making the scene more accessible and even investing in some of companies (albeit arguably not startups) it’s hosting. Currently, it looks like an awesome win-win situation, but obviously skewed to the host’s home advantage. If this centralization, this single point of failure and focus is sustainable healthy for the community as a whole, only time will tell.
We also took an unfortunate loss in the co-working and event space area as betahaus Cologne was forced to close down and left especially our freelancers hanging without a home base for their community.
So since last summer, we now have a central place for keeping us synced to activities and events and we have what looks to become more and more like a central hub, a single physical location pulling large parts of the scene, a number of new companies starting up, scores of startup and tech oriented topics, initiatives and events to it.
Early this year we finally saw the introduction -through truly inter-community collaboration – of the popular international non-profit event and network Startup Weekend to Cologne, where even the American founder popped by for a surprise visit.
Leaders and feeders suddenly got another reason to get up in the morning with Startup Breakfast, bringing the scene together with regular early-bird meet-ups.
Before Christmas our leaders and feeders came together to help educate our entrepreneurs on a voluntary basis with the introduction of NEXT Cologne, a non-profit pre-accelerator program aiming to create more capable entrepreneurs by making the best startup education as taught at Stanford and Berkeley available to anyone world-wide.
Out of the Railslove, ADVANCE and C’n’B camp, we saw the birth of the new Interactive Cologne event series scheduled for later this June, which promises to bring together and celebrate hack, tech, biz and creativity.
The regular Rheinland Pitch event was brought to life by STARTPLATZ in co-operation with Pitchcademy to improve our startups’ pitching ability and gain an unfair advantage over other regions.
Out of the The European Pirate Summit camp, Pirates on a Plane emerged – a crew of loosely organized local startup pirates sailing around the world as ambassadors for the Cologne scene, spreading the word about us and learning from other successful clusters what to bring home and implement. The Pirate’s Inn blog was the next logical step to keep the world informed about what is going on in Cologne, directly from us in Cologne.
Old media and corporations started to move, forming new interest groups like Web de Cologne and participating in new initiatives like the Executive in Residence program. Now the brand new Corporate Startup Summit promises to help create a platform and a vehicle for regional and international industries in need of innovation, to interface with the startup scene and explore mutually beneficial opportunities.
And some of our existing venture finance have also been busy reinventing themselves in the year that was – and I hear from trusted sources that there’s been a recent infusion of some American blood too, of which I suspect we’ll hear more about and start seeing the effects of soon.
Our universities and educational institutions have also been working on more inter-institutional co-operations and activities and I hear the Founder’s Office of RWTH Aachen (one of the best tech engineering schools in the world) and University of Cologne (since 2012 itself an elite university awarded by the German Universities Excellence Initiative) have agreed to start co-operating this fall in bringing their EXIST scholarship grantees together and collaborate on supporting them.
And there’s the brand new StartUp Day on June 29th, the new HGNC Finance Day and going on the fourth annual Idea Competition – all three events which have been created by the University College Founder’s Network Cologne (Hochschulengründernetzwerk – HGNC of which also NUK and NRW.BANK are members of.
At the University of Cologne there’s now a “Private Friday” where their internally incubated teams connect with serial entrepreneurs and investors, and they have now also started the “Open Wednesday” where experts and coaches present topics such as marketing, recruiting and legal to potential founders.
Long Term Commitment
Of course we have the general problem in Europe that most of our leaders will be on the first plane out to e.g. Silicon Valley if the chance arises. And I think that is a healthy sign, that we at least have founders smart enough to acknowledge that that’s where the best opportunities, the best ecosystem and infrastructure for huge success and changing the world actually exist right now – still.
And as Steve Blank replied at Maastricht Week of Entrepreneurship recently when asked what European founders should do to better compete with the Americans: “Hop on a plane, get over to the Valley, work, live and learn there.” Now, I think he meant that in at least two ways. One, as an emigrant himself, is it really your individual success as a founder in making your big idea happen or the success of and loyalty to some nebulous notion of a nation state that is the most important to you? Two, you obviously do not have to stay in the Valley forever – Go over there and learn what makes it great, then go back and emulate it in your local cluster. Or three, stay in the Valley and be successful, help grow and nurture your native ecosystem from there.
Our biggest challenge over here is that we have less risk capital in general than in the US and on top of that less entrepreneurs with serial exits with less frequency and size of re-investment in our startups. This of course also leads to more risk-averse venture finance. If one of our angels lose money, she’s going to feel the pain much more acutely than a well-buffered serial-exited US angel. So it is no wonder that investors like to try to negate risk in any way they believe they can – including uprooting startups and moving them to the most vibrant, most capable national cluster.
For us in Cologne this has meant seeing an exodus of our startups to Berlin on their first founding event, even as a prerequisite of receiving that investment in the first place. But now I hear from trusted sources that at least two well-funded startups are on their way back to Cologne, so let’s hope that this is a trend that will increase after the hype around Berlin is settling down.
I think from a geographical and demographical standpoint alone, Cologne has all the advantages to become one of the most vibrant regional clusters in Europe. After all, the Romans did not chose to make it the empire’s capital of lower Germany willy-nilly: It’s a short drive, train or plane ride to the most important cities of Europe, we have a huge local market (19m people) surrounding the city and serious old economy money in the insurance, media and pharmaceutical industries now looking for new vehicles for continued growth.
And now as we have new actors like STARTPLATZ expressing a long-term commitment to the Cologne community, existing local venture finance like Curtis Newton and Capnamic restructuring and modernizing, our old economy incumbents forming new interest groups like Web de Cologne to search for new growth and business angels stepping out and into the light like never before, I think the feeder side of the community is on a healthy course up and to the right for the long term.
Infrastructure
Predictable Economic System & Stable Legal System
Say what you will about Germany, but the stability of its legal and economic system is renown. With the exception of a suggested change in tax laws that would have been very discouraging to business angels, but which was later abandoned, there hasn’t really been much instability or uncertainty for a while.
Albeit stable, the legal system also have a reputation for being complicated and holding businesses and individuals more liable for more things than in say the US. Litigation is also arguably applied more frequently as a (anti-)competitive tool and I think it is safe to say that the fear of not complying to legal requirements and the fear of getting sued is an inhibiting factor for many people consider founding startups in Germany in general and holding many startups back from experimenting in “gray areas” to push for big new innovations and also most likely impeding our ability to compete globally.
In the US they say that getting sued is just another cost of doing business.
Research Universities
We have three of the U15 research universities in Germany, world renown engineering school RWTH Aachen and Fraunhofer among others in our region.
Several of our universities are participating in EXIST, a support program of the Federal Ministry of Economics and Technology (BMWi) aimed at improving the entrepreneurial environment at universities and research institutions and at increasing the number of technology and knowledge based business start-ups. The EXIST program is part of the German government’s “Hightech Strategy for Germany” and is co-financed by funding of the European Social Fund (ESF). The EXIST basically supports startups (or mostly new companies) out of research based tech universities for a year, paying what amounts to a salary to the team plus extra grants for production and running costs and a coach.
Lately, entrepreneurial-minded departments of the University of Cologne and RWTH Aachen have been starting to collaborate on supporting each other’s EXIST teams and exchange experiences.
Utilities
Broadband and 4G wireless are available throughout Cologne, although high-speed fiber-optic connections are only available in select areas and still expensive. Many locations and cafés offer WiFi, but not all by far. Most publicly available WiFi hotspots outside of cafés still involve a subscription plan or fee for access. The use of subscription services like these will need to be handled by management software, especially with the amount of foot traffic in these public areas. Businesses may want to check it out over at fastspring.com to see how they can start this off.
For co-working and office sharing, we have a plethora of options available, like STARTPLATZ (incubator, service providers, founders), Solutionspace (freelancers, creatives), UFA Lab (incubator, media, creatives), Clusterhaus (service providers, office sharing, startups) and Bottfabrik (devs, service providers, makers).
Culture
Risk Taking
General speaking, the fear of failure runs deep in Europe and Germany. Cologne is no remarkable exception to that. With the exception of perhaps Doo, Auxmoney (albeit arguably a Lending Club copy), ParStream and Traxpay we do not see much spectacular risk taking and crazy big hairy audacious ideas around here – yet. Most startups around here seem content with dabbling in solving small problems with small markets and I can understand why that doesn’t create the interest b by and help draw in new experienced external venture finance.
Apart from the culturally ingrained aversion to failure and losing face, albeit less ingrained in Cologne than in other parts of Germany – after all we are the carnival capital this side of the Equator – I think we still lack the role models, the crazy ones who perpetually and publicly failed their way to success, the entrepreneurs who made it big without just copy-cat-ing and executing existing American business models.
Further more, I think we lack a vehicle for stimulating and teaching our entrepreneurs to take big risks on a regular basis. I believe we are in acute need of an institutionalized way to reward and celebrate big hairy audacious visions around here. We need a way to support extreme risk taking coupled with a fail-fast validation approach. Say, in the form of an accelerator with experience that would support and finance a high-speed validation process for big high-risk tech startup ideas – but for a much lower equity/price point and at a much earlier stage than the current norm in Europe. It obviously won’t solve the problem over night but it could set the stage for a new standard and we could help show the way forward for Europe.
It’s not like anything else than our imaginations and aversion to failure – or lizard brain – are stopping us from making this happen right now.
Entrepreneurial
I think the people and government in our region in general are open and supportive to entrepreneurship, to financial independence, but mostly as related to the scope of a lifestyle or hobby business, not creating a global corporation that will be a force for change in the world.
While generally a resourceful and industrious region, I feel that a lot of people around here still think they need permission or validation from someone or something to pursue their startup ideas. That if only they only had that technical co-founder or even much worse, that if only the state would give them that grant or that VC would give them some money, they would somehow become successful – or solve a real and big problem – over night.
I also feel that the tendency to think small and local instead of envisioning how to change the world is not going to change over night. Perhaps it is due to the fact that the German speaking DACH market is a large market that most seem comfortable with only serving that? Perhaps it’s due to the long history of feudalism or the tradition of individual craftsmanship or the tradition of the family business, that we’re still in aggregate too myopic to envision and pursue businesses much larger than ourselves, much more capable and far reaching than our regional or national market?
Or maybe it’s just our lizard brain’s fear of failure that is holding us back from thinking big and taking the necessary risks to get there?
Outward-Facing Tech Universities
As already mentioned, the University of Cologne is engaging in more and more public efforts to stimulate entrepreneurs and to connect students with the leaders and feeders of the startup community.
Free Flow of People and Information
Besides the free flow of people out of Cologne to Berlin in the past, we’re now seeing people coming back and the European Union is enabling a relative free flow of new people from e.g. the BeNeLux, Balkans and Peloponnese.
With regards to the free flow of information, I think a lot of us still have a feeling that we’re not quite there yet in paying it forward and sharing freely. There’s still more than a feeling that some of the people in the community are trying to take more than they’ll ever give. Some are still constantly looking for an angle, trying to game relationships, to arbitrage and gate-keep information.
Some are still playing small and petty short term gains almost to the point of copy-cat’ing instead of working together with the community as a whole on long term mutual gains and deep trusted long term relationships. And we all know who they are.
Management Tools
Agile Development
Agile, scrum and Kan Ban is very well represented in the region and we have initiatives and meetups like Cologne Lean Coffee, Limited WIP Society Cologne, Cologne Scrumtisch and so on.
In fact, we have so much agile and scrum that I think there’s a real danger of forgetting the message and worshipping the creed. Because agile just for the sake of agile serves no purpose other than making everybody feel they are more productive and working on the right things – when in fact you need more to make sure that you’re not just optimizing a local variable or building the wrong new thing before you’ve talked to potential customers about their problems, needs and desires.
DESIGN THINKING
Although we have assets like Oliver Schirok I feel this is a topic that is currently underrepresented in Cologne. Probably not so much because we don’t have the competent Design Thinking representatives in our region, but perhaps more because they are sill mostly inside of the building of companies and not vocal and public-facing, not interacting with the community on a regular basis.
And Lukas Imrich is currently embedded in our community, researching for his his thesis about Design Thinking to find out how it applies to startups. We’re looking forward to see what his conclusion will be.
Business Model Design
Business Model Generation is starting to get more known through out the community in the form and more application of the Business Model Canvas (BMC). However, a BMC in it self is not enough to discover and validate a new business model. I believe there’s still a lot of pushing post-its around just for the sake of it without completely understanding why around here.
The Business Model Canvas is just a communication tool to help you share with your colleagues, investors and the world what you think your business model looks like at any given time, and to keep track of which pieces of that model that are still guesses and which have already been validated as facts.
Sliding post-its around sure feels like you’re getting work done, but without understanding what a product-market fit is and not knowing or understanding the methodology for searching for it and validating it – or even reaching it as one point, spending a lot of time of the left hand side of the BMC is a waste of time. The only two aspects of the BMC an early stage startup should be exploring is the “value proposition” and “customer segment”.
And because facts are not found on post-it notes inside the building, you have to get out of the building and listen to your potential customers to test your guesses about your value proposition and customer segment. Because inside the building there’s only beliefs and guesses.
Customer Development
And getting out of the building to listen to potential customers is exactly what the Customer Development methodology teaches. The Lean Startup movement did a wonderful job at spreading the methodologies for failing fast, only building the minimum viable product, applying metrics to everything you build and how to make your innovation accountable.
The methodology a startup chooses to use is a major factor that contributes to their success. For example, they may use a3 management to turn day-to-day management into a learning practice for the whole organization. Or, they could focus on a customer-orientated methodology that seems them put the customer before anything.
However, Customer Development – the most important aspect and prerequisite of the Lean methodology didn’t get quite the attention that say a/b testing and building landing pages and metrics dashboards did.
Of course, building stuff is what developers like to do. Fiddling with bits feels more like you’re getting stuff done than spending a lot of time just talking to a lot of people. Besides, talking to customers is a really scary proposition to most people initially. And with coding, you get a build several, or at least once, a day. With customer interviews, it’s going to take you some time before you start noticing any benefit. And it’s not something we’re trained or educated for. It’s not something we can outsource or delegate when it gets uncomfortable. And some are doing it wrong as they have confused customer development with sales.
Although Puja Abbassi started to teach the Lean Launchpad program at University of Cologne to the information systems master students of Prof. Schoder’s eBusiness class in the fall of 2012, most universities around here still teach how to write business plans instead of customer development and business model generation.
And when I’m teaching, I usually do a show of hands to see who’s heard about Customer Development before. Usually one or none in the class raises their hands.
Even most startup entrepreneurs starting out that reach out to me for advice have never heard about Customer Development. And if they have, it’s because they’ve read “The Lean Startup” – but skimmed right through that part and don’t really understand what it means.
I think this is our most serious deficits on the leaders side – albeit one that we probably share with the rest of Germany and mainland Europe – and that’s why I believe it was incredibly important to bring the NEXT pre-accelerator program to Cologne to start properly educate early stage startups about Customer Development as a prerequisite for business model generation and validation or even building your first minimum viable product.
And I believe we also need to be teaching Customer Development in our universities more than how to write a business plan. If we are going to create more capable entrepreneurs in out region, we need to start with out students and provide them with the latest and greatest startup entrepreneurial education available.
Motivation
As far as I can tell from being in the ground in Germany and Cologne for the last seven years, we have been relatively buffered from the impact of the international financial crisis. The motivation to found new businesses around here is still the drive by profit much more than crisis.
Entrepreneurs & Venture Finance
It is of course silly to compare Cologne and our “Rhinegold Valley” to Silicon Valley, but even when comparing us to Berlin, Munich or London, things are arguably still left to be desired regarding venture finance in our region. We do have some highly respected brands and we do have some serious money around here – both actively being invested in startups and plenty still locked up in old industries that need to innovate in an age of disruption – but in comparison we lack more venture finance that has vast experience with very early, high-risk tech startups.
I think this is one of our acute weaknesses here and one that I do not have an easy solution to. Perhaps one way of starting would be to bring in a brand-name accelerator, which I’ll come back to later. I do however hear the likes of Index Ventures and eVentures are taking a keen interest in Cologne and I think we’ll be seeing more of how and what in the near future.
On the other hand, because of the current vibrancy in the Cologne scene we have also witnessed more private investors and business angels that were previously completely unknown popping up from out from seemingly nowhere and starting to participate more actively and publicly in the community.
Another thing I keep hearing from German and bordering BeNeLux entrepreneurs is that more and more are considering moving to Cologne instead of Berlin – a thought unheard of only last summer. We have also started to see more people from the east and south e.g. the Balkans and Peloponnese driven to emigrate to Cologne by their regional economic conditions.
“The real test of a cluster “catching fire” is not when it provides local employment, but when people from outside the area start coming to work and invest there.” -Steve Blank
One thing is for certain, we live in highly interesting times. There has never been a better time to found a tech startup in Cologne than today and I think we’re this close to reaching the tipping point.
My evaluation of the Cologne cluster, June 2013
So what’s next?
1. More experienced and international risk capital
We need brand name(s) with vast international experience with very early, high-risk tech startups to establish themselves in Cologne to make sure our tech startups move out of town on the fist pre- or seed round.
I also think Cologne would benefit from an accelerator for very early stage, high-risk tech startups with a fail-fast approach and bringing in vast experience from outside, like in the form of TechStars, 500 Startups or similar that won’t demand an exorbitant equity stake from very early, pre-validated startups. Someone with the appropriate experience, network and risk profile that would:
a) Counter balance the national and local incumbents and stimulate competition, diversity and reward extreme risk-taking and fast failures, Valley-style
b) Turbo-inject the Cologne startup scene with knowledge, the right culture and top international connections
c) Place us more firmly and publicly on the map as a regional cluster to be reckoned with, regionally, nationally and globally
d) Help create stories, publicity nationally and internationally on a regular basis
I’m passionately obsessed about this and I’d love to have conversations with other parties interested in making it happen. Like yesterday. So let’s talk.
2. More entrepreneurs who are not afraid to take high risks and fail fast (and the vehicle(s) to support them in doing so, see above)
We need more crazy visionaries, more big huge ideas, more will-work-for-equity attitude, less will-only-work-for-market-pay-as-employee show-stoppers, more vehicles, more support for the crazy ones with the big hairy audacious goals, we need to have less fear of failure, to quiet that lizard brain, to kill that inner fief instilled in us by centuries of feudalism in Europe. Because the best US VCs will never finance our myopic ideas.
“In Silicon Valley, we have a special word for a failed entrepreneur – it’s called experienced.” -Steve Blank
We must reward those who fail fast and invite them to play again, we must spend less time thinking of business plans, more thinking about how we can improve the lives of millions and change the world and less how we make sure we don’t offend anyone and get permission from incumbents and secure ourselves front left and center from legal issues before actually getting an inch closer to finding the product-market fit or validating the business model or thinking of the size of the market opportunity.
We must teach our entrepreneurs how to NOT build stuff, how to define a minimum viable product (MVP) and how to test their assumptions pulled more or less qualified out of their backsides before they start building, iterating in short build-measure-learn cycles before they’ll spend the next six months huddling up in an office high on low sleep, high-fives and drinking their own and perhaps their inexperienced investor’s Kool-Aid, only to find out too late and after launching that no one wants their solution, that no one has the problem or that the problem is so small that no one cares about it.
We need to celebrate and reward entrepreneurs not afraid of pursuing insanely ambitious ideas, which visions border on hallucinations, nurture the entrepreneurs intent on solving real problems for real people, and with ideas which solutions are so good, so needed, the execution so hardcore that great financial success is the by-product, not the goal of the venture.
And to those who still think they need permission to do this, I am that person who will give it to you. Right now. So you now have the permission to do whatever you want, however you want: So get the hell out of the building, start something and fail fast!
We need less asking for permission, more asking for forgiveness. We need less talk, more do!
“First they ignore you, then they laugh at you, then they fight to get in on your round, then you win.” -On venture finance, Mahatma Gandhi freely paraphrased
3. More Pay-it-Forward culture
The culture, the attitude towards sharing everything, not herding and gatekeeping information, contacts and opportunities is one of the things that makes Silicon Valley what it is today and in theory one of the things it should be the easiest for us to replicate.
In theory.
If I could wish for one thing that we all participate in until next summer, this would be it. It’s so easy to do that there is no excuse for not participating. This is not a zero-sum game. If you want the Cologne community to be truly awesome, just pay it forward and watch real magic happen over time.
What goes around, comes around.
4. A public, highly accessible social gathering place
STARTPLATZ is great, but it isn’t quite the highly accessible public melting pot, the serendipity engine of the coffee houses of the enlightenment era or say a Seats2Meet in Amsterdam, a Coffee Bar in Soma SF, a Wagon Wheel Restaurant or a betahaus or St. Oberholz in Berlin.
And who can and will make this happen? Will it be Solutionspace2, a new thing at the ever expanding STARTPLATZ (not the ideal geographical location) or perhaps something else entirely? Where would the perfect location in Cologne be? Near Friesenplatz? Bruesseler Platz?
5. Awesome startup education
Since last summer, I also found my second passion in life – after founding startups that is – Education! It’s something I have become obsessed with from experiencing first hand how one person can have an impact, that I can play my small part in creating more capable entrepreneurs in our region with just sharing my experience, my mistakes and what other smarter people taught me along the way.
For over a year I have been lecturing at several business universities in the region on startup lessons learned, customer development, business model generation and the Lean Startup methodologies – and it has become painfully clear to me that we desperately and urgently need an alternative to the old business plan driven curricula that still seem to be the staple diet around here.
Everywhere I’ve been, the students haven’t even heard about the latest insights we now have about how and why startups are not smaller versions of large companies, about how we now know that business plans for startups never ever survives first contact with a customer.
Don’t get me wrong. We still need the traditional business education and the MBAs, but what you learn to get that title is not going to be that helpful for creating successful startups.
But a startup is a temporary organization in search of a scalable and repeatable business model. What you learn as an MBA is to execute a known and validated business model, not how to search for and validate them. Once a startup has found and validated the business model, that’s when we need the MBA to write the business plan and execute it. A startup can also look into management software from companies like ProSymmetry to help keep on top of the business plan as well as delegate projects when needed.
These are Steve Blank’s big ideas.
So how and what do we teach our hopeful startup entrepreneurs to search for and validate a scalable and repeatable business model? After having been trained by Steve Blank and Bob Dorf to become the instructor for the NEXT program and running two cohorts of startups through that program in Cologne already, I am now a true believer in that our best answer is the Lean Launchpad curriculum (that the NEXT program is based on) as taught at Stanford, Berkeley, Caltech, Colombia and The National Science Foundation.
The Lean Launchpad is taught by by Steve Blank and introduces an experience based approach where the students have to get out of the building and into the field to actually talk to potential customers to search for the product-market fit and using business model generation and the business model canvas instead of writing business plans.
It covers the core concepts of Customer Development, Business Model Generation, Agile, Minimum Viable Product (MVP), Innovation Accounting and the Lean Startup methodologies – and pushes the students to get out of the building to listen to real potential customers to discover and validate a product-market (problem-solution) fit.
And recently Harvard Business Review published an article about why these core concepts collectively known as The Lean Startup are a big deal.
So I have decided to take action to help build us one of the important pillars of a successful startup ecosystem – outstanding entrepreneurial education – by going to Silicon Valley and Stanford to bring home the official Lean Launchpad curriculum from Steve Blank himself. To start building an official bridge from us to the Valley and Steve Blank.
I have taken it upon me to teach the best available startup education taught at Stanford and Berkeley to our students here in Cologne.
And I’m also offering you to be a stakeholder in this endeavor as this is a much bigger thing than just one single person going over the Atlantic and back. I believe this should be a community effort and I hereby invite you to play an active role in making it happen by June 16th at http://igg.me/at/valley2cgn/
Thanks to Puja Abbassi, Marc Kley, Till Ohrmann and Manuel Koelman for contributing to this article.
What are your thoughts? What do you think is still missing in Cologne? What’s next?
Crowd Funding as MVP
There are lots of different ways you can raise funding for your business. Some people are lucky enough to have enough saved to set up their own business. Others get loans from banks that they repay over time. A few invest in risky but rewarding opportunities and then use the profit from it to fund their startup. If you want to try this then Bitcoin is currently a good investment that is predicted to increase in price. It’s easy enough to create an account on trading platforms like Swyftx to get started. Take a look at this Swyftx Review to find out more about this platform. However, an even more popular way to fund startups is through crowdfunding. If you raise enough hype and appeal around your product, people are willing to pay to see it become real.
I recently posted a rant my thoughts about the current trolling in the crowd funding discourse, and in the discussion that ensued on Facebook, Lukas Imrich shared a video interview which made me think and reflect some more. I’ve attached it below. Watch it for yourself.
I have the greatest respect for Mark Suster as an entrepreneur and investor. I really treasure his insights. I also have great respect for the theories and methodologies of “competing against non-consumption and “jobs to be done” of Clayton M. Christensen. I teach them to startup founders and corporations.
Let me be crystal clear: When I talk about the benefits of crowd funding for bootstrapping and validation, I’m talking only about crowd funding without selling equity.
I argue selling your actual product or service is a great way to bootstrap and validate your business, in effect using crowd funding as a channel for taking pre-orders.
I make a clear distinction between trying to crowd fund an idea or a vision and crowd funding a real product or service. That is to say, I think there is a real difference between selling your product or service (asking in effect the market to pay for it and help you validate if they will buy it) as the reward or perk you offer instead of offering ephemeral perks and rewards not directly related to your product or service (which will not help you validate if people will buy it). The latter could be better achieved by going to learn more about other funding avenues available out there.
Jobs-To-Be-Done Theory
“If I had asked people what they wanted, they would have said faster horses.” -Henry Ford
“Disruption happens when companies use technology to help customers “achieve what they already had been trying to do.”” -Clayton Christensen
The theory simply asks, “What job your product is hired to do?” And if you want your customers to switch products you need to ask, “Why would they ‘fire’ the other product and ‘hire’ yours?”
Competing Against Non-Consumption (disruptive innovation)
True disruption occurs when companies compete against non-consumption. “A new-market disruption is an innovation that enables a larger population of people, who previously lacked the money or skill, now to begin buying and using a product and doing the job for themselves,” – Clayton M. Christensen.
If you’re an upstart chasing after the non-consumer, the great news is that your audience is non-discriminating. They want something easy to use and they want it cheap. They’re not expecting that same level of quality and performance. “Because,” says Clayton M. Christensen, “something is so much better than nothing.”
(Business Innovation Factory, 30.01.2006)
I think it’s obvious that Crowd Funding fits the properties of a disruptive innovation and I don’t think anyone is arguing otherwise.
However, (or perhaps not that surprising as Suster is already vested in the world view of the incumbent as a VC) Suster and Christensen seem to ignore the disruptive power of crowd funding as seen from the side of the table of the entrepreneur.
I sense the classic argument we always hear from the incumbents in the talk between Suster and Christensen: It always seem to revert to the argument of quality – as if that is all there would be too it.
We’ve heard this before.
Remember the records industry? “Who would like mp3 files when you can have quality audio on CDs?” Turns out the story was rather people want the freedom of choice to select just the good songs without the 10 other crap fillers on a CD, and would quite eagerly sacrifice audio quality for the ability – hence Napster was wildly successful, hence they sued Napster out of the world BUT without taking over the space of Napster, still not recognizing what people want, what the new opportunity offered them.
And we’ve seen how this turned out before.
Instead of seizing the opportunity for themselves, iTunes, Last FM, Spotify, Amazon, Pandora et al came in and screwed the records industry out of the opportunity – and no one was sorry for their loss but themselves.
And it’s the same old story, same old arguments which are today being bandied about in the discourse about with Massive Open Online Course (MOOC), but that’s a different albeit highly related discussion. Check out Clay Shirky’s post on MOOCs for more on that topic.
Christensen teaches us about the concepts of “jobs to be done” and “competing against non-consumption”. As far as I can tell, Crowd Funding without selling equity is doing both for the entrepreneur very well.
To the best of my knowledge, crowd funding without selling equity is:
- Getting the job done for entrepreneurs of getting early stage funding, or perhaps more precisely validating their product in the marketplace (explicitly or implicitly) without substantial financial risks and without taking a lot of time producing something first that perhaps the market doesn’t want (negating risk and time to market or failure for the entrepreneurs).
- Enabling entrepreneurs that otherwise would not get the attention – let alone the funding – of a VC, bank or angel, effectively competing against non-consumption (lower barrier to entry for entrepreneurs).
- A highly valid MVP (Minimal Viable Product) when used correctly.
As an entrepreneur, you no longer have to ask the incumbent private equity gatekeepers for permission to play. You now have the option to walk it alone.
If you fail, there’s little to no downside. It’s a learning experience. You’ve only lost face. Get used to it! Now pick yourself up and play again. And again.
If you’re successful, maybe you won’t even need an investor at all for scaling or at least you’ll have revenue from sales as a bargaining chip to get the term sheet you want.
Am I saying that the VCs will go the way of the Dodo? No. The way of the record companies? Most likely.
VCs will have their place and will still be a highly valid or even the only right play for some types of ventures, just like the elite schools of Stanford and Harvard will not go out of business because of MOOCs.
I am saying that crowd funding without selling equity is a powerful disruptive tool for entrepreneurs.
It is enabling many more entrepreneurs to succeed that wouldn’t otherwise be able to play.
And it will enable many more entrepreneurs to FAIL – and fast, before they have spent all their savings, bet the barn, lost their spouse and spent a good part of their life building something that no one wants.
And that’s all good:
For the VCs that will be able to fund more validated businesses and proven entrepreneurs instead of throwing spaghetti on the wall to see if it sticks (perhaps at the cost of less proprietary deal-flow).
For the entrepreneurs that get to play without asking for permission and again and again ad infinitum with little or no cost and risk to learn, learn, learn.
And for the world that will hopefully see more value generated, more new jobs as a result of the lower barriers to entry for more people.
Do listen to anybody that tries to tell you otherwise – just don’t take their advice. You no longer need their permission. JFDI.
On NEXT Cologne Q1 2013
So we brought Startup Weekend NEXT to Cologne as one of the first few cities in the world back in December 2012 and now the second cohort of the program in Cologne recently finished.
Here’s a little update on how that turned out.
Startup Weekend NEXT is an intensive five week educational program to help more startups survive by having the startup teams getting out of the building and into the real world applying customer development and business model generation to help validate their startup idea and find their product-market fit.
