You are on page 1of 9

1

How might we support web entrepreneurs in launching and growing sustainable global businesses?
Hereafter, an open-innovation challenge launched by the European Commission on the OpenIdeo web-platform. People are invited to propose their ideas to this question: "How might we support web entrepreneurs in launching and growing sustainable global businesses?" Hereafter, my proposition: http://www.openideo.com/open/web-start-up/concepting/co-found-your-web-startup-with-a-big-itfirm-/

Co-found your web startup with a Big IT firm !

Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

2 BIG IT firms offer you their engineering resources to bring your web business idea to life! Pitch your idea to Big IT rock-star employees. If they love your idea, they will conceive your web product and partner with you to launch your web startup. There is more and more people having disruptive and innovative web-based business ideas, but these people do not have IT-Web/Computer Science degree, knowledge or skills (except using the internet of course). It is very difficult for these people to find co-founders expert and skilled in IT (such as coders/developers, web-designers and web-marketers). Most of IT/Web experts, even young IT graduates, are a rare resource. Indeed they prefer to be hired and to work for Google, Microsoft, Oracle, HP, Apple or other big IT companies than joining a risky start-up project ! Google, Microsoft, Oracle, HP, Apple .... could offer their engineering and business resources to webentrepreneurs who do not have IT skills. People having a web business idea could submit online their idea pitch to the program. If big IT firm employees are seduced by the idea, they will work on it, and improve it in collaboration with the idea holder. Big IT firm employees will design, build and develop the idea to a beta version ready to be tested in real. This contribution will be provided in exchange of equity in the future startup company. Every web entrepreneurs would dream to have Google, Microsoft or Apple as CTO co-founder? For example, in exchange of the work done, Big IT firms and their employees will have 20% of the equity of the future startup. Alternatively, if the web product/service could be commercialize directly by the Big IT firm, the entrepreneur will be rewarded by royalties on revenues of future sales. The Proof of Concept Examples of companies offering their support in design and conception to idea holders: - Quirky: It's a design-driven open-innovation firm for creative products. Submit your idea to the Quirky commnunity, if selected, Quirky will conceive, manufacture and commercialize your product on its e-commerce shop, and you will get royalties on future sales
http://www.quirky.com/

- The Junto: The Junto incubator is dedicated to Non-tech entrepreneurs having a web-startup project. Submit your idea, if selected, The Junto team will conceive your beta version. You can entirely boostrap the project or make it fund it by the crowd / The Junto team work is rewarded by sweat equity or by royalties on future revenues of your startup.
http://thejun.to

- The Startup porgram of Astek: Astek is a global IT engineering and consulting firm with 3,200 employees and a turn-over of Euro 220M (Headquarter in France). Astek has launched a Startup

Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

3 Program: Anyone can submit an e-business idea/project, if Astek managers are seduced and believe in the business potential, Astek will bring all support in engineering, conception and technical development of the web product. This support is provided in exchange of equity (sweat equity).
http://www.astek.fr/en/page-institutionnel/content/startup-program

How will your concept support web entrepreneurship? What is essential for every entrepreneurs, in web and in any other sector, is the technical resource needed to conceive the prototype. With a prototype (or a beta version of a web product/service), the entrepreneur can test the market, and raise funds from investors to sustain all the other resources needed for the development of the startup company. But without a prototype, the idea, even a fantastic one, will remain on the paper even if the paper is a formal business plan written on a strong market research. This concept will enhance the number, the diversity and the quality of web startups. What kinds of resources will be needed to get this concept off the ground and scale it? The European Commission missions will be: - to offer a legal framework for this startup program (term-sheet, sweat equity and shareholder agreement) - to invite all Big IT firms to join the program The program will be full online (no need to travel) and could be launch as an idea contest twice a year, open to all European citizens. The European Commission will have also to actively promote and communicate about the program, and call web entrepreneurs to submit their ideas. How could we get started? This idea is not really complicated to launch, it's just a question of willingness! In addition, the proof of concept is already established (see examples above).

Question & Answer & Comment: Q: You're right, Ari, big IT firms could definitely offer more by way of these services. Some offer web tools but not so much consulting or business incubator-type functions. It sounds like the key problem you are looking to solve is that innovators' networks do not always contain all of the resources and skills they require. But why should we leave that up to big IT firms to solve? They have a lot on their plate, and perhaps they know they couldn't possibly support all the demand they would receive. As a result, they would charge a lot to reduce that demand to a reasonable size, and then the innovators would be overpaying.
Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

Why not find a way to connect innovators to those individuals who are qualified to work at a big IT company but don't? If you find individuals who are passionate about what you're doing, they will be willing to contribute more to your cause than someone who doesn't care about it and just wants your money. Ari: Yes, you are right. Based on my experience as entrepreneur and startup mentor, one of the major reason of failure of seed projects is the lack of technical resource, more precisely the lack of a skilled tech co-founder(s) (engineer). The tech resource is essential to bring the idea into a prototype (or a beta for a website, software, apps). And without a prototype, all other resources (business, marketing, project management ...) remain theoretical and therefore useless. Startup incubators or accelerators are very efficient to motivate entrepreneurs, they are very efficient to bring business and project management mentorship to entrepreneurs. But they can not provide tech resources as a service, because tech skills are rare and expensive. And most of incubators/accelerators works for free (or nearly for free), with the help of voluntaries. The best they can do is to favor the team-building of complementary co-founders (tech + non-tech skills) by organizing networking events. But once again, tech profiles are rare, and based on my experience, in such startup events, teams have already been built outside of the incubator/accelerator (at their business or engineering school, or just people knew each others before). Therefore, it is very difficult for a single person without tech skills (the majority of people having business idea) to launch a tech-based startup (in IT or any other sector). Concerning the second point: Why big IT firms? Big global companies aspire all the wealth and resources of the planet. It's time for big global company to accept the fact that they have a social responsibility, and taking part of a such program is a way to share their knowledge, know-how and skills with individuals. Offering their support to entrepreneurs is not charity, but a unique opportunity to do something good, to innovate and create wealth together. Q: And exactly for this reason EC DA (European Commission Digital Agenda) can fullfill an important complementary role; For example the Netherlands; there are many ideas, market reach and seed capital. Though currently a lot don't startup because of the lack of tech talent. The freelancers are overbooked and too expensive to pay for grassroots startup. So having great links between Russia/Ukraine/Egypt/Romania would sprout many more EU startups with potential. Ari: We are on the same wavelength! Tech talents, engineering facilities and prototyping are the key of startup success.

Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

5 Q: I agree 100% Ari. The only thing I would add is that we have to have a way to educate the nontech idea people as to the concepts behind the different CMS or other software or programming the tech people might want to use. And, on the other side, make sure the people with the ideas can communicate clearly. Tech people and idea people tend to think in different ways. For instance, taking it out of tech speak, there's a "pump." That "pump" can only work if there are "pipes" and "switches" attached to it. A non-tech, idea person might say, "Fix the pump" and then be surprised later that the "pipe" broke. The tech person will say, "You didn't say to fix the pipe." To the idea guy, the whole apparatus is a "pump" since it can only work when everything works together. To programmers, only the "pump" is the "pump." We have to develop ways to translate between them. Q: True Carrie, the gap is huge in understanding eachother. It is hard to find the tech guy who thinks with you on the whole thing. But when you found one, make him co-owner, you dont want to let him/her go! Ari: Yes, you have raised an important point: the communication between non-tech web-entrepreneurs and tech co-founders. When a non-tech explains his idea to a coder/developer, usually the tech says: "humm, what languages do you want to use? PHP, RoR, Python, CSS, .... ?" ... This is like an Alien language for the non-tech! Of course, you are right to say that non-tech should learn some vocabulary in the IT. But it's time consuming and difficult. Another way is to find an intermediate space of communication, nor tech, nor business. This intermediate space will be a "design-driven communication space". People, tech and non-tech have to talk to each others having this in mind. As example, you know the acronym WYGIWYS (what you get is what you see). It is exactly how tech and non-tech should discuss together, having the "what you see at the end" in mind, and whatever the tech solution that the tech co-founder will choose. If non-tech explains his idea with drawings and ppt slides of what he imagines, of what he would like to see or use the service/product, then the tech could contribute with the same language, by saying: this is technically possible, this is not, .... here another features that could works and give the same "what you want to see" .... ect. Q: Love this thread. Having worked in big (IT) companies before, I know that one of the "restrictions" is that employees generally aren't allowed to work for anyone else. If the company is involved, that of course gives techies permission to be involved with web start-ups. And a great avenue for exposing both the company and the techies to new business ideas. How might we extend this further to allow employees to contribute to web start-ups without formal company sponsorship? Even allowing employees to volunteer in their own time would be a big step for big companies. Ari: "How might we extend ths further to allow employees to contribute to web startups ...."
Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

6 I think we could interest big IT firms by offering a % of equity of future startups in exchange of the work done by their employees. The equity stocks should be fairly shared between the Big IT firm and its employees. If it's only the big IT firm that owns the % of equtiy offered, this will demotivate employees, and if it's only the employees that own the % of equtiy offered, the big IT firm will not accept to allow its employees to take part of the program. For example, the program can establish this rule: 20% of the equity of a future startup will be offered in exchange of work done by a Big IT firm, and the equity offered will be shared 50/50 between the big IT firm and the employees who worked on the project. The agreement will indicate that the 20% sweat equity will have to cover the conception, design and development of the web product/service, before and after the incorporation of the startup, from the seed stage (idea to prototype) to the early-stage (from prototype to a market ready product/service). Then, it is the job of the CEO (the entrepreneur who brought the idea) to make the startup live, to build a team and to develop the business. Of course, as shareholder the Big IT could also bring its business support to the startup (but this is not mandatory). Even if some big IT employees decide to leave the Big IT firm and to join the startup, it's not a problem, because a part of the startup is owned by the big IT. So there will be a shareholder and stakeholder interest between the big and the small which is finally a spin-off company (with the peculiarity that the origin of the idea came from outside the firm and not from inside. The equity offering is the key to interest big firms in such programs. Q: have the passionate startup 'renting' a room in the big IT building. They get a public wall/window in the building to visualize/mindmap their thoughts etc. The big IT boss probably became big because he/she gave space to great coders. He/she should when being big still dare to do that. More things like NDA/background knowledge need to be tackled but maybe somebody else has suggestion for that? when the public wall mindmap is growing, people during walking/coffeebreaks, maybe once a week timeslot to come at a table and brain about the technical sides would encourage big IT firm coders to engage. Q: Very interesting concept and in particular interesting discussions in both threads. Having been around since before Microsoft swallowed RBase and Visio I ambivalent about partnering with the large IT firms. However my other questions are: In "what" does a start-up offer equity to a technically competent partner? If the answer is in the intellectual property in the idea - at what point and utilising what resources does the entrepreneur/startup secure the rights to that property? Ari: The startup will offer a part of the corporate equity to the big IT firm and employees as soon as the startup is incorporated and has legal existence. This equity (example 20%) will be offered in
Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

7 exchange of the work done by the big IT firm (and employees) to conceive, develop and improve the product. Therefore, the deal is shares in exchange of work, instead of cash in exchange of work. The intellectual-industrial property property will be fully owned by the startup company and the cofounder CEO. We can imagine a lower percentage of equity (example 10%) but the big IT and its employees could be aslo co-owners of the IP with the CEO. But I think it's not a good deal, because the CEO will not be free to develop his company as he wants. The CEO should remain the CEO. Q: we have been in this situation when involved in a Eurostars project where the startup with the fresh ideas had to let the work being done by a huge IT firm. At Eurostars when applying you need to fully detail out 'background knowledge' you bring in without claiming IP after/while using it for the new product. So in a way the skills and method of working by big IT person is 'given' to the new venture, giving breath to the little CEO and overview for the big CEO on what he puts in for the shares. IP is a tricky thing with big firms, but this is the only way I know about at the moment to have a big fish swim hungry next to a small fish. Ari: The program proposed should be designed in favor of entrepreneurship, creativity, innovation and business development, not to satisfy the greed of big firms. Therefore the deal has to be Win-Win or there will be no program! Q: Last night I heard a brief interview with CEO of Microsoft Worldwide (from France) who was talking vaguely about start-ups growing under the Microsoft umbrella, then went on to talk about Skype as an example, but Skype is now wholly owned by Microsoft. Immediately after that was another article about two very different attitudes to undertaking entrepreneurial activity: 1 - fast prototyping, development and iteration with a view to a quick return on sale of the enterprise; and 2 - building a solid foundation with a focus on long term profitability. It seems that the first is more common than the second. Keep up the good work in this area Ari - I shall watch developments with interest. Ari: This is an excellent idea and an excellent thread. It's closely related to one of my concepts. Ari, below you write: "Based on my experience as entrepreneur and startup mentor, one of the major reason of failure of seed projects is the lack of technical resource, more precisely the lack of a skilled tech co-founder(s) (engineer)" This is exactly my (bitter!) personal experience too, having started a company without a tech cofounder. The company has been successful to a degree but ultimately failed to scale because of its
Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

8 inability to iterate fast enough and because it burned through investor's money too quickly by outsourcing APIs and rebuilds. Even when you are safely past the prototype stage and have built a working product, the need to iterate never goes away- if anything it intensifies as you get more customer feedback. Our ideas are different approaches to the same problem- how to avoid burning through cash by paying for specialist expertise, especially in the case of non-tech entrepreneurs. One reflection on this type of entrepreneur- they are often experienced 'thirty and forty-somethings' who know their market very well and have terrific customer insight, which young developers simply don't have. They also have family commitments that make taking the plunge and leaving their job a very high risk prospect. Many of these people often never become entrepreneurs or when they do take the plunge, suffer from a very short runway. This is not a brain drain, more of a brain blockage that needs to be freed. Should we try to mitigate the risk for these mature entrepreneurs and help them incubate their product ideas before they have to give up their day job? Especially given the fact that few VCs or Angels will consider giving money to someone who hasn't got the self belief to back their idea full time themselves. Ari: Thanks for sharing your experiences and thoughts! We are on the same wavelength! I agree with all you wrote above. Just to paraphrase further: Tech talents, engineering facilities, prototyping and ..... iteration, iteration and iteration are the key of startup success. Iteration is essential to continuously improve a new product and enhance its value for users/consumers. And iterations need to be done in a very reactive manner, and having tech talents inside of the startup (as co-founders and/or employees) can allow this reactivity. Alternatively, due to the paucity of tech talents, the other solution will be to have a tech resource outside of the satrtup, not as service supplier (client-consumer relation) but as shareholder-partner who will be fully involved in the success of the startup in a long-term view. Your "vouchers for equity" based solution is very interesting and offers more liberty to entrepreneurs to customize the resources they need. : Q: Comments in this thread are equally fascinating - in particular the insights about barriers to tking initial steps. At 61 I have had a non-web based idea on the drawing board for 10 years for a niche market of several million consumers but so far I have not protected my idea because the capital cost of securing IP rights is prohibitive and also because my research indicates the manufactured cost is presently too great for the market. Q: I really like this idea too. Mainly because I think it has the potential to address, what I believe (and have seen documented in many studies) is an EVEN BIGGER constraint for tech start-ups than technically-skilled people. Namely, it has the potential, through key partnerships with large techcompanies, to address the problem of discovering innovative distribution channels.
Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi

As far as I can see, even the most innovative technology fails, if it can't find its market quick enough to generate revenue to support growth or iterate, etc. We hear success stories all the time about companies that received VC or Angel funds, developed amazing platforms, sustained themselves for years generating very little revenue, before becoming profitable (if they ever did.) But this is SO RARE (like 1 in 100,000) mainly because it is not a sustainable model. Most start-ups need to be market-minded and should be generating revenue to sustain growth as quickly as possible. This requires innovation in technology, AS WELL AS innovation in distribution channels and revenue streams. For better or worse, the big IT companies, essentially own distribution channels on the web (in that they have amazing amounts of data around them, as well as control - think Google Ad Works) - so most start-ups could definitely benefit from their data and expertise in this area. Hopefully an entrepreneur might add some creative insight into how to exploit niches or opportunities that big companies totally missed. Q: Hi Ari, some IT firms are already doing this as you mentioned under their own brand and umbrella. Do you expect to bring all this into one place or do you expect to "standardize" a little bit their service to make sure, entrepeneurs can compare them? Ari: Yes the idea is to organize this startup program under the umbrella of the European Commission with a standard (but flexible) legal structure (term sheet, partnership/shareholder agreement ...). The term sheet, shareholder agreement could be very standard, but the services provided by big IT firms could be different ("propose what you want") therefore, there will be some competition between the big firms (and at the end they will all propose the more ... engineering and product development and improvement/iterations, web-design, e-marketing, or even off-line marketing and other business support).

Ari Massoudi / Consultant Strategy of Innovation / www.strategy-of-innovation.com / www.linkedin.com/in/arimassoudi