“Accelerators are essential and are probably in the future one of the core pieces of any startup ecosystem to support entrepreneurs in their growth” – Bjoern Lasse Herrmann.
A few months ago we wrote about one great project, Startup Genome Project, which revealed some interesting insights on what makes the Silicon Valley startups successful. One week ago, the same team launched the first product of this great project and that was the Startup Genome Compass, “a simple benchmarking tool for entrepreneurs to evaluate their progress against other startups and make more informed product and business decisions by utilizing a data driven feedback loop” as explained on its official website.
Early this week we interviewed one of Startup Genome Project’s team members, Bjoern Lasse Herrmann. He provided great insights about the project itself: how it started, what criteria has been used in the startup selection, as well as some detailed comments on the 6 stages of startup lifecycle development elaborated in the project. He further described the new product, the Startup Genome Compass, in greater details, pointing out to its importance for startups especially the ones operating in more risk averse countries, such as the Arab World countries. In the end he emphasized the role of startup accelerators in supporting entrepreneurs in their growth. Finally he sent a great message to all Arab entrepreneurs: “Do what you are passionate about. There are too many entrepreneurs out there who started a business because they think it’s cool to start a business and not because they are passionate about starting a business or about solving a specific problem. And that’s the first and the most important reason for company to go through this very long journey”. The transcription of the interview is below.
INTERVIEW TRANSCRIPT
Seeqnce: You are part of the team from the beginning of this project. How did the whole project start? Could you briefly share with us the Startup Genome Project Story?
Bjoern Lasse Herrmann: So it started off with a few friends just come together and we just spy it spy it the massive increase of entrepreneurship globally and just seeing that startups are popping of the ground all over the world. We were seeing the massive impact of entrepreneurship on our economies; we were seeing that 90% of entrepreneurs go to the US, come from high growth ventures and we were seeing that this trend is expected to increase. Another thing we saw was the massive failure rate with most startups. So more than 90% of all startups fail and most of them due to self destruction rather than competition and we also saw that there is a way to reduce this failure rate by creating sort of an ecosystem where startups can reduce risk and lower the chance of self destruction. And in the beginning we were thinking like let’s build somewhat of a Mckinsey for startups. Then we pivoted towards software. The research we have been doing is trying to discover the way startups work and how we can help them create that feedback loop that a lot of accelerators do for their startups and automatically we hope they can do it better in a larger context and help founders to medicate risk by understanding how they are doing, help them to measure the progress to see if there is consistence in their actions or not.
Seeqnce: What is your previous experience with startups, and how would you best introduce yourself to the Arab World audience?
Bjoern Lasse Herrmann: I guess I am an entrepreneur with purpose, I am still young, I am just 26 but I’ve done a few ventures in Germany, Russia, Bangladesh, US and all of them were somewhat education and HR related. It has been mostly targeted to unleashing human potential, helping individuals to discover their potential and make it happen. And for example I did the Supercool School before, which is an education startup that enables people to build their own school with 1 click. I also did HR startup that helped large companies to assess employees and I did also one nonprofit organization in Bangladesh. We helped especially very slow businesses to accelerate, mostly by connecting them with distribution channels in Europe.
Seeqnce: So far you have collected data about more than 3200 (three thousand and two hundred) high growth technology startups. What criteria did you use when selecting startups for the project?
Bjoern Lasse Herrmann: High growth Internet startups
Seeqnce: Were there any startups from Arab world included in the project
Bjoern Lasse Herrmann: Yes. Out of our whole data, there were around 2-3% startups from Middle East.
Seeqnce: Can you put your startup’s history on a timeline for us? When did you start (date), when were major milestones, and when do you foresee major milestones in the future?
Bjoern Lasse Herrmann: We started at the end of last year, in December. At that time we started off with the idea for Mckinsey for startups, then we pivoted towards software, we released the first information about the Startup Genome Project idea in mid of February this year, we released the first report at the end of March and we released the startup Genome Compass one week ago. These have been big public milestones and in between we’ve been starting to work with a lot of VCs, helping them to assess the portfolio companies and that’s also one way how we expanded our reach to more companies. The future milestones are improving the service for startups, moving from a monthly benchmark towards a daily and extending the product for investors so that they can use it with the startups they work with.
Seeqnce: In you Startup Genome Project Report you define 6 stages of startup lifecycle development. 4 of them are based on Steve Blank’s 4 Steps to the Epiphany and you add two more which are not covered in the report and those are Profit Maximization and Renewal. Can you share with us some insights about these 2 stages?
Bjoern Lasse Herrmann: I guess the first two stages are the same as Steve Blank’s and the third and fourth are different. The last two, the fifth and the sixth, is when the product starts to be a large company. All of the stages are product centric so we look at a company as an organism. As the company evolves each product goes through a life cycle. And a large company can be assembled out of a number of these products.
Seeqnce: You mention that your assessments of startup stages rely on milestones, such as MVP, and thresholds, such as rate of retention, which depend on specific startup type rather than traditional ways of assessment like funding, team size, user growth ..etc. Could you give us more examples and insights on this?
Bjoern Lasse Herrmann: When we did this report it was a static assessments; it was based on specific milestones and thresholds that we learned from different experts, investors, and leaders from the startup space. Today the assessment works very differently. It’s based on machine learning, and we use for each assessment of types and stage model, typically between 30 and 50 attributes. It’s very complex and for every company is different and for every type is different. For example we ask you what kind of people you hired. And as a milestone for example we look if you hired a CFO, a first product manager which is typically for a company entering stage 4 and if this company is doing this prematurely then it will be classified as scaling prematurely.
Seeqnce: You say that startups that pivot once or twice raise 2.5x (two point five times) more money, have 3,6x better user growth and are 52 % less likely to scale prematurely than startups that pivot more than twice or not at all. Can you share more insights on this issue? For example: When is the right moment to start pivoting? For instance Chris Dixon says: The most common mistake is to pivot too late ? But how to know when is the right moment?How to know when is too late?
Bjoern Lasse Herrmann: The right moment to pivot is when you have the right insights. A bad pivot, very generalized, would be when you pivot because you see that what you are doing doesn’t work. A good pivot would be that you pivot towards something that you don’t let works. So one would be proactive pivot and another one would be a defensive pivot
Seeqnce: One of your findings reveals that the challenger type of startups needs to raise significantly more money than other types. Why do you think this is the case? Is it because they need larger teams than the rest or is it something else?
Bjoern Lasse Herrmann: There is a number of reasons for it. But generally they tackle a market that needs much longer to penetrate, they are much more rigid, they need larger teams, more sales people, people who lead transactions, whereas a Type 1 which is usually entirely self-service doesn’t require sales force at all. Everything is automated. That’s why the challenger type needs more money.
Seeqnce: Can you briefly describe your first product, the Startup Genome Compass and why would it make a difference to Internet startups?
Bjoern Lasse Herrmann: It’s a benchmarking tool that compares you to similar startups like yourself and helps you to assess your current stage, helps you to assess whether you are working on the right things, whether you are making progress, and helps you to align your team behind specific directions and by showing that maybe you are lacking behind on let’s say your product because your conversion funnels are really bad so you have to go back and work on your product; or it’s the other way around you have really great conversion funnels but you haven’t spent any time on customer acquisition so seems like you should start acquiring more customers . So those are kind of strategic decisions that you can start making based on looking at the report. It’s a good way to extend board meetings. So if you already received an investment or you have potential investors then the frame of the benchmark that you can share is very good to keep them up to date, or to inform them about the progress of the company. You can use it obviously also for mentors or other people who somehow relate to your company. Then it also gives you a lot of other relevant resources and tips that can help you improve your company as well as providing indicators which show whether you are scaling prematurely or not, whether you are consistent or inconsistent which we found as one of the major reasons for failure.
Seeqnce:The Arab World is considered culturally “risk averse” when it comes to Startups. How can the Startup Genome Project help change this culture to enable and encourage more interest in this form of entrepreneurship?
Bjoern Lasse Herrmann: We basically made entrepreneurship more calculable .We help founders to medicate risk by giving them more context around their company which means that we help founders, especially in countries where people are more risk averse, to better understand their company, to better understand where they are moving etc. What happens here in Silicon Valley is because of all of the things that Startup Genome Compass does, things that are already known, people are less risk averse because they understand risk better. They are more accustomed to fail because that is sort of part of the process. They don’t even see it really as a failure but more as a self learning. I think that Startup Genome Compass can help people in the Arab world to reduce startup risk and therefore it can become easier for a lot of people who otherwise wouldn’t have thought about starting a company to start a company.
Seeqnce:As you might be familiar with, Seeqnce is one of the first Arab World Startup Accelerators. It advises and facilitates the funding of Internet Entrepreneurs across the Arab World and features State-of-the-Art Coworking & Community Spaces for Web & Mobile Professionals & Students. What, if any, do you believe the role of Startup Accelerators to be in your Startup Genome project?
Bjoern Lasse Herrmann: I think that we can help accelerators to help their companies better by providing them with a knowledge and infrastructure they can use to work with their companies and I think we can also give you a strong feedback with the Startup Genome Compass .It’s still open for interpretation and you still require a lot of resources and then actually act on the feedback that you get from the compass. So that’s something where accelerators are essential or are probably in the future one of the core pieces of any startup ecosystem to support entrepreneurs in their growth.
Seeqnce:What would be your advice for tech entrepreneurs in Arab world ?
Bjoern Lasse Herrmann: Do what you are passionate about. There are too many entrepreneurs out there who started a business because they think it’s cool to start a business and not because they are passionate about starting a business or about solving a specific problem. And that’s the first and the most important reason for company to go through this very long journey. And we can help you and we can accelerate this journey with the knowledge we provide in the Startup genome Compass and you with your accelerator can do the same but if people are not passionate about their companies then they will fail because they won’t be doing the right things.
Don’t forget to participate in Startup Genome Compass Beta Testing https://beta.startupgenome.cc/