Wednesday, July 24, 2013

North Carolina: Ideal for Capital-Efficient Startups

Bob Conner is a serial entrepreneur, CED Venture Mentoring Service graduate and CEO/Co-Founder of Sarda Technologies, a fabless power semiconductor company. He has some great advice for regional entrepreneurs.

It’s no news to anyone reading this blog that raising money for your startup in North Carolina is no easy task. However, as a transplant from Silicon Valley, I actually see an upside to that. Let me explain.

The big advantage Triangle-based startups have is capital efficiency, which is often overused and misunderstood (read this for more insight). Comparing building a startup in the Triangle versus Silicon Valley, core costs (people) are roughly the same. Although context costs (overhead) are lower, it’s not a significant factor. (For more info on core versus context costs, read this). My observation, based on working in RTP startups the last eight years preceded by 17 years in the Valley, is that the all important cost per pivot is significantly lower here than there.

Core costs -- employees, counsel, IP, travel etc.-- are roughly the same, because RTP startups must adopt Silicon Valley’s best practices, including:

·       Build a world-class team – recruit employees, advisors, investors and service
   providers with entrepreneurial ethos and experience

·       Think globally – make winning products / services for international markets

·       Network like crazy – work with the industry thought-leaders

·       Mix it up – honor and pursue a diversity of ideas, experience and styles

·       Meritocracy – focus on and incent the contributions to be made right now

·       Be brutally honest – be receptive to change your business plan

It’s a mistake to scrimp on what’s core.

On the other hand, you should scrimp on context costs – rent, accounting, consultants, etc. These costs are lower in the Triangle, but not significant enough amount to account for the capital efficiency advantage.

Most (if not all) startups will pivot at least once and often several times, so the figure-of-merit is the cost per pivot. Entrepreneurs will change their business plan to achieve a more sustainable, scalable, profitable competitive advantage. Searching for the “value proposition most likely to succeed” is a messy process that results in a rollercoaster ride of unknown duration. Pivots are particularly challenging because entrepreneurs are passionate about their business plan, overestimating the strengths and underestimating the weaknesses, and pivots require applying the startup’s technology to a different product, market, value chain, customer base, etc. than the one originally envisioned.

The cost per pivot is lower in the Triangle for several reasons. The first is scarcity of capital. Since it’s harder to raise capital, you have less so you spend less. Necessity forces you to focus. The second is scarcity of jobs which, subconsciously at least, heightens the fear of failure causing Triangle entrepreneurs to be more circumspect than their Valley counterparts. If you fail in the Valley, there are plenty of other opportunities. The third is a different time-is-money mindset due to less overconfidence (read this on the curse of overconfidence). The Valley’s bias is to increase spending to accelerate schedule, which can result in a spectacular success if you don’t need to then pivot or failure if you do. The net is here in RTP ‘turning over the next card’ is a less expensive proposition.

Bob Conner is a serial entrepreneur who has worked in technology startups in Silicon Valley and RTP since 1989. His latest venture, Sarda Technologies, makes the world’s fastest, smallest voltage regulators which improve the energy efficiency and performance and decrease the size and cost of many electronic systems, ranging from tablets to servers.

No comments:

Post a Comment