Greg Landon

Greg Landon

Editor’s note: This is the third and final installment of entrepreneur and startup expert Greg Langdon’s plan for how Louisville can develop a simple, repeatable process for creating more — and more successful — companies.

Part 1 of this series described a simplified model for thinking about startup companies, as well as a simple model for the processes a community can use to create startups in a repeatable manner – a startup factory.

Part 2 proposed some metrics we can use to measure the maturity level of any startup. These metrics tell us how far along a startup is as it makes its way through the startup factory. Part 2 also offered more detail on what goes on inside the startup factory as it pushes startups along toward a higher maturity level and a greater likelihood of success.

Part 3 ties everything together with a handful of measurements we want to keep our eye on, because they tell us how well the Louisville Startup Factory is performing. Part 3 also provides some perspective on recent, positive changes in the Louisville Startup Factory, as well as some suggestions to improve it.

The first Startup Weekend Louisville 2012

The first Startup Weekend Louisville 2012

Maximizing Louisville’s Startup Factory Output

We know startups are risky, and although no entrepreneur wants his or her new enterprise compared to an insect, in the early factory stages we want to employ a cockroach evolutionary strategy: more is almost always better.

We want more people pitching their ideas, leaving a safe corporate job to take a risk with a startup, applying to local accelerator programs.

But, by the time a startup has made it to the later stages, the factory will have shifted to a human evolutionary strategy: every child is precious and is carefully nurtured into adulthood. This means the factory needs to help make strategic connections with customers, investors, advisors, partners and new employees.

Our goal is to produce a steady stream of growing startups making successful exits from the Louisville Startup Factory. We can identify some actions, and measure related metrics that can maximize the output:

1. Generating more new, early-stage startups (Stages 1 – 3).

2. Ensuring that each stage has sufficient resources — people, organizations, dollars and processes — to operate effectively.

3. Maximizing the success rate for startups at each stage, either by graduating them to profitability and growth, or by advancing them into the next stage of the factory.

4. Establishing and maintaining productive relationships between the people and organizations that comprise adjacent stages in the startup factory.

In short, we want to get more raw ingredients into the factory, and then ensure that as many startups as possible advance to the next stage, or become profitable.

Today’s Louisville Startup Factory

There’s some good news here. Just three years ago there were no events like Startup Weekend or 5Across in Louisville to encourage people to pitch their ideas in friendly settings (and thanks to Awesome Inc. in Lexington for jumpstarting both). Likewise there were no accelerator programs that provided seed funding, working space and access to formal mentoring programs.

5acrosslogoToday we have Velocity, XLerateHealth and the Vogt Awards all meeting these needs. Nor were there pre-accelerator programs like SW NEXT and Nucleus LaunchIt teaching the Lean Startup methodology.

Similarly, while Louisville has had a handful of local angel investor groups, none have ever established an angel investment fund with a charter to invest locally. This is more significant than it might sound — without a fund, each investor is essentially on his or her own to develop the investor coalitions needed to properly fund a Stage 3 startup.

Lead investors are adept at this, but most angels don’t lead investment rounds. Now Louisville is about to launch two new angel funds, each capable of playing a larger role than most individual angels. This is an important, new opportunity for Stage 3 startups.

The big picture here is that more and more components of a Louisville Startup Factory are self-assembling. This is an organic process – no one from Metro government, Greater Louisville Inc., the University of Louisville, local angel groups or anywhere else can create all of the pieces single-handedly.

But, this is a process with measurable inputs, behaviors and outputs, and as a community we can continue to refine it.

Improving Our Startup Factory’s Performance

Even as important new pieces are coming together, there’s still plenty of room to improve the Louisville Startup Factory in measurable ways.

Some of the changes I’d like to see are:

1. More experienced engineers, managers and executives leaving their corporate jobs to create startups.

2. More B2B startup ideas.

3. More early-stage startups with a complete skill set among their team: domain expertise, sales and marketing, product development.

4. More realistic founder perspectives on the value of “just an idea,” and fewer Stage 1 startups seeking Stage 3-4 funding.

5. More startups innovating with their sales and marketing, not just with their product.

6. More growth hackers – experts who can help startups design a marketing and sales plan that incorporates traditional tools plus web, email, social media, e-commerce and analytics, all aimed at jumpstarting revenue growth.

7. More startups capable of achieving ramen profitability – an ability to break even while paying 2-3 salaries, as they prepare for further fundraising.

8. More active mentors engaged at Stages 2-3 (and kudos to Steve Huey).

9. More angel investors at Stage 3, and more investors growing into lead investor roles.

10. Greater involvement from Louisville’s major corporations as investors, partners and customers at every stage.

11. Greater awareness that the unit economics of software and electronics startups are fundamentally different from other businesses, usually in a good way.

12. Increased interaction between UofL’s Speed School and the startup community.

13. More venture capital working at Stage 4 with a charter to invest locally.

That’s a long list, but this factory will be built over months and years. Ask anyone who’s played competitive sports, or managed a sales team or built a high-performance car or reduced unit costs for a manufacturer – you can’t improve what you don’t measure.

We have the ability to measure the performance of the Louisville Startup Factory, and of the startups it produces. With an ongoing effort from many parts of the community, we can continue to improve our factory’s performance.