One of the great things about running an incubator is the opportunity to see early stage companies develop. I get to view firsthand the triumphs and the setbacks, and how entrepreneurs deal with them. Each startup is a unique creation, yet most of them experience very similar issues in their development. Now that 40 companies have run through the Envestnet | Yodlee Incubator, I’ve been able to see some patterns develop. I thought that I would set down here some of the milestones and pain points that we have seen repeat themselves amongst our companies.
Positive Customer Feedback
About 75% of our companies are at the pre-seed stage, meaning it is unlikely that they’ll see classic product-market fit while in our 6-month program. But they are aggressively iterating on features and positioning while holding conversations with potential customers and channel partners, and there is often a point during the program when the iterated product description starts to have resonance with the potential customers, and that gives the startup a direction in which to push. We call this “prototype-research fit,” and while it’s a long way (a really long way!) from actual paying customers, it’s a start, and in our experience it’s a tremendously exciting moment for the entrepreneur. Seeing the founders realize “hey, this might really work” is a highlight for us. Here are a couple of recent examples:
- We had one company move from a capital-intensive business model to a leaner marketplace approach, and we’ve seen how this change has shifted the tenor of conversations with customers and partners.
- Another company had a technology that could operate in a variety of scenarios, and as they have narrowed down their set of use cases their discussions with potential customers have become ever more fruitful.
Moment of Panic
While finding prototype-research fit is a moment of elation, we also frequently see companies hit a moment of “OMG I am so behind.” Our program structure involves speakers coming in to educate our entrepreneurs on some startup-related topic (eg. fundraising, intellectual property, tracking your marketing funnel, etc.). Often what happens is that a speaker will discuss what a startup needs to execute on (eg. You need dozens of venture funds on your target list and need to find a warm intro to each) and a CEO will realize that they are not even close to that goal, and have no idea how to reach it. From the entrepreneur’s perspective, a giant wall just went up. “I only know of two venture funds, and I don’t have any connections to either of them. Aaarggh!” It would be easy at this point to throw your hands into the air, or to focus on other parts of your business and avoid the big wall until it’s too late. But the entrepreneurs don’t do that. Instead they rally, digging into the problem, asking for help, finding relevant knowledge, working working working the problem until they get where they need to be. Sometimes they need the OMG moment and the giant wall to inspire them to push to the next milestone.
Iterate + Data = Iterata
We push the founders in our Incubator to spend a lot of time talking to customers and prospects. This is standard Silicon Valley practice, and it works. Founders who talk a lot to customers tend to produce better products. The Envestnet | Yodlee twist to this practice is that among the things learned in these customer conversations is how best to use the consumer financial data that Envestnet | Yodlee provides. Which data items are used, how they are presented, language around privacy and security – this all gets refined during customer conversations. Refinement makes the data more useful, which improves the product, which then leads to better customer conversations, and the entrepreneurs iterate this process throughout our program, and (hopefully) even after graduating from the program.
Failure to Execute
One thing I have definitely learned watching 40 startups is that the companies that are ultimately most successful are the ones that fully engage in our program; they are present at bootcamps, they listen to the speakers, they participate in the workshops, they follow up with mentors and experts. I’m not saying our program is so amazing that our teachings can make a company successful (although they can). Rather, the traits in the founders that enable them to fully engage are the same traits that make their companies successful. These founders manage their time well, so that they can both keep their company moving and be part of an incubator. They prioritize, making sure that little problems don’t get in the way of big opportunities. And they are relentless about taking advantage of those opportunities, never passing up a chance to pick an expert’s brain or follow up on an introduction that may prove worthwhile. After all, being a startup CEO is an exercise in juggling, in figuring out what you have to do now vs. later, and quickly learning the many things you don’t know. Being able to leverage those skills in order to spend 10 days in our incubator is probably a good test for how you’re going to handle the overwhelming next several years trying to run your startup.
Wrap it Up
Of course each founder is on their own journey, with individual twists and turns and dips. Yet even those distinctive paths generally lead through the same fragrant fields and dank swamps, where the entrepreneurs celebrate or slog through, and where we incubator directors, and our better paid counterparts at venture funds, try to help keep nudging the teams forward. As our fifth cohort heads into demo day (May 23) and gets ready to graduate from our program, I will have the opportunity to see how the patterns discussed herein play out in the companies’ ongoing successes and setbacks. And I’ll be keeping my eye out for new patterns that might trip up entrepreneurs, or that might accelerate their development. No matter what, I’ll be supporting Cohort 5’s companies as they grow.
