The Startup Growth Engine

Notes from a talk to the Technology Strategy Board’s Connect 2011 conference

Pilgrim speaking at TSB Innovate 11
(click above image to watch)

A practical viewpoint on how startups drive innovation, and how to survive challenging times; lessons from experience of a serial entrepreneur.

Introduction

  • Career in Innovation: “bleeding edge”, UK & Silicon Valley.
    • All dependent on innovation: competitive advantage
      • Scientific (theory)
      • Engineering (practice)
  • Career in start-ups
    • Early as a hands-on
    • Then product design
    • Last 14 years starting companies
  • Career evolution mirrors Tech sector maturing
    • No longer tech-for-the-sake-of-it (bottom-up)
    • Useful to humans who pay (top-down)
    • Solving problems that need solving.
  • Today we face big problem
    • Affects every part of our lives
    • Threatens
      • health of planet and species
      • economic growth
    • 2 fundamental constraints:
      • Energy we use
      • Waste we produce 

AlertMe as an example

  • Current startup is AlertMe (at 5 years old, startup no more!)
    • Use as example of wider trends.
  • AlertMe is creating the Smart Home
    • Service keeps people in touch with their homes, all the time.
    • Shows what’s going on at home, puts them in control.
  • Focussed applications for Smart Home, benefit everyone
    • e.g. protect their home, or save money
    • e.g. Home Energy Management
      • Explains where energy is going
      • Automatically manage Appliances, Heating
    • Consumers buyit to save money
      • But side-effect is reducing consumption, therefore CO2
    • Small benefit to planet?
      • No – 30% of ALL energy consumed at home.
    • Frankly, didn’t start AlertMe just to save people a few quid on utility bills
      • Opportunity to transform everyone’s lives for the better

Energy

Explore how Energy is fundamental to society: Flows (from & to).

Innovation has caused an energy problem – but might have the solution too.

  • In Computing, we take advances for granted
    • Moore’s Law : just a special case
    • More we make, the cheaper it gets
    • Called the Learning Curve
  • Discovered re: aircraft production.
    • Applies to chips, hard-drives, bandwidth
  • Applies to all technology:
    • More we make – of anything – the cheaper it gets
    • The cheaper it gets, the more we use
    • (Circle)
    • Fundamental: Learning Curve brings Innovation to mass market (affordable)
  • But dark side too
  • More we make, more we consume
    • of energy and raw materials
  • Earth has been storing solar energy for 2 billion years (as fossil fuel)
    • Thanks to Learning Curve, used it up in ~200 years.
  • Sustainability not just fluffy word – take literally.
    • So to keep living as today, sustainable not optional.
  • As we make more tech, need to increase its efficiency too. Obvious!
  • But it’s harder than it sounds.
  • 1769, James Watt invented efficient steam engine
    • Less coal for given work
  • Coal consumption fall? No.
    • Coal consumption grew exponentially, from that day to this
  • Jevons Paradox
    • Improving efficiency of a process can increase use of energy & raw materials
  • Tragedy of the Commons
    • What’s good for me is bad for everyone else
  • Has Learning Curve any more tricks up its sleeve?
    • Help us out of this fix?
  • Applies to renewable generation
    • so cost of wind turbines falling, as build more – likewise solar
    • Great!
  • But running UK today requires ~200GW on average.
    • Way beyond what renewables can generate
  • Come on, Innovation, what can we do?
  • Look at where energy goes:
    • Heating homes, moving us, cooking food, watching TV…
  • In each, we’re far away from physical limits of how little energy is needed to do the job.
  • There is a limit to:
    • how hot our houses need to be
    • how cooked our food
    • how many hours TV we can watch
  • Those limits – plus pain of increasing energy cost – might tame Jevons.
  • We’re familiar how Innovation delivers Features or Efficiency:
    • e.g. latest mobile phone: whizzy features, battery-life <1 day.
    • but prioritise efficiency, innovation works wonders
      • 1-day battery life turns into 10.
  • Time to apply same thinking to everything else.
    • What have done w. CPUs & lightbulbs, do with Heating, Transport, …
  • Can go beyond taming Jevons, to run it reverse:
    • More efficient we get, more energy we have left (=more money)
    • …to invest in more efficiency improvements
  • Today, running cost of things often exceeds purchase cost
    • Haulage trucks, Refrigerators, DVD players
  • Creates strong mandate for efficiency (80MPG cars)
  • Means efficiency improvements often have negative cost
  • And not just at a planetary-scale that we have energy limitations
    • Power-density now fundamental limitation for computation (esp. portable devices)
    • Key reason for success of chip company ARM:
      • Much less power to get the job done
      • Brains, not brawn
      • Not just optimisingbattery life
        • It actually makes applications possible
  • Less-is-more for energy.
  • Likewise for “stuff”.
    • Far away from physical limits of how littlematerial could do today’s jobs
      • Materials science has lots to offer
    • After use, much material ends-up as “waste”
    • Growing problem with waste (esp. CO2).
      • But in Nature, no such thing
      • In jungle, no pile of waste
      • One thing’s waste is another’s food
      • Need more closed-cycle thinking
  • Only relentless focus on efficiency will deliver prosperity
  • With Efficiency: what’s good for me is good for everyone else too.
    • “Euphoria of the commons?!”

AlertMe represents some wider trends

Back to AlertMe: represents several current trends.

  1. Cleantech
    1. A “land-grab” for a whole new sector
    2. Opportunity for UK to lead
    3. Focus on demand-side (vs. supply-side)
  2. Convergence between sectors (Energy + ICT)
  3. From product to service (Apple, Amazon).
  4. Consumer-centric
    1. Co-creation (covered in this pm’s Design Panel)

Lessons from a startup

Get a bit more personal, reflect on my lessons learned from start-ups.

“in at the start” of 7 startups. Outcomes ranging from failure to IPO

  • Phrase “start-up” very different from “small company”.
    • “Small company” can mean a lifestyle business (fine)
    • But a start-up has an element of “do or die”
    • Very structure of startup leads to “IPO or bust” mentality (esp. VC)
  • Innovation never a smooth ride.
    • Failures & near-misses par for course.
    • Very real Support needed.
  • Many ultimately-successful companies have near-death moments along the way.
  • In 2008, AlertMe had its own tough times:
    • Going for ~2.5 years
      • 35 employees
      • Just launched platform to market
      • Had invested significantly
    • Gearing-up for Series A VC  when Lehman brothers failed
      • 9 very tough months
    • But Support:
      • From suppliers and customers (relationships matter).
      • From our Angels (bridged)
      • Won £40k from Shell Springboard (made salary)
    • Successfully closed £8m Series A in Apr 2009
      • Then strength to strength

Ultimately, put our survival down to relationships:

  • Within team
  • Wider network(angels, investors, advisors, commercial partners) :
    • Access best skills
    • Learn from others’ mistakes.

To be contrary: Tough times can create opportunities:

  • Make it easier to find good people
  •  Disrupt the market, creating new niches. 

Do start-ups matter?

I reflected on “why start-ups matter to the UK?” (esp. in ref to Innovation).

3 F’s:

  • Faster
  • Fail fast
    • Failing fast is good for UK because it allows lots of experiments
    • To find the best answers
    • Which is how evolution works
    • So it’s important that entrepreneurs can survive failure
  • Flexible
    • Spin on a dime, change strategy overnight
Charles Darwin: “not strongest species that survives, nor most intelligent, it’s the one that’s most adaptable to change”

Start-ups aren’t best at everything

But start-ups aren’t best at everything

  1. Doing R&D in venture-funded startup very challenging.
    1. VC like rocket-booster – hard to change direction.
    2. Sometimes better to incubate idea within stability of University or large Co.
  2. Popular media view of start-ups is “overnight success”
    1. True, some dot coms: Google, Twitter etc.
    2. 1% inspiration, 99% perspiration
    3. 5 years for a “warm” start
E.g. spin-out (excellent idea), Antenova.
Success can take 10-15 years for “cold” start

Science -> Technology -> Product -> Market.

  1. I love new idea of TIC’s [Technology and Innovation Centres]
  • Bridge between conceptual Academia & brutal Commerce.
  • “Warm-up” ideas before they face the world 

Conclusion

Like to conclude by pulling out a few themes for Innovation in coming years. All aspects of what Douglas Adams called “Fundamental Interconnectedness of All Things”.

  1. We’re deeply interconnected with nature.
    1. Stop thinking of environment as distinct from ourselves, think “closed-cycle”.
    2. Innovation is driver for growth.
  2. But need to think what we’re growing
    1. Maybe “Growth Imperative” is actually to stop growing Consumption
    2. While growing quality of life, and economy
    3. Doing more with less – much less
  3. Internet now connects us all deeply
    1. Effects only just beginning
    2. Interesting area is Internet of Things (rise of M2M)
    3. Symbiotic advance of human and machine
  4. Business models: Transition from Products to Services
    1. Towards consumer-centric services
    2. Indeed offering opportunity to be Producers too
      1. Happened in Media (blogging & tweeting) – produce content as well as consume
      2. Happening in Energy (microgen).
      3. Where else?

Underpinning all is a theme of Convergence, across many disciplines:

  1. E.g. Convergence of Energy and ICT, like AlertMe
  2. E.g. Convergence of Biology and ICT – huge potential as Biology becomes Engineering
  3. And Convergence with humanities: Psychology, Behavioural Economics, Nudge etc.

Polymaths

  • Convergence needs Polymaths
    • (People who span different disciplines).
  • Britain is home of the Polymath
    • Heroes like Alan Turing
      • Whose Genius gave us not just the computer
      • But also insights into Biology – how animals grow etc.
  • Need polymaths spanning not just Science, Engineering and Humanities
    • Also Business and Management too.
    • Some Uni’s now teach Entrepreneurship as “minor” alongside existing Degrees
  • Today’s challenges create a huge mandate for change.
  • For all its faults, humankind has one saving grace:
    • When times are tough
      • We respond
      • We put on our thinking caps
      • We innovate

As Darwin said: It’s not the strongest species that survives …  it’s the one most adaptable to change.

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