There’s been no shortage of debate and discussion about how to replicate the Silicon Valley startup ecosystem (or whether it’s even possible, worthwhile or applicable to other places). I wrote about it way back when in 2007 and certainly a lot has changed and improved in a few years. But when you read a book such as Start-up Nation: The Story of Israel’s Economic Miracle you realize just how far so many places have to go.

Start-up Nation: The Story of Israel’s Economic Miracle is a book about Israel’s brief, violent and incredible history. It goes through a number of interesting and amazing stories of Israeli entrepreneurs, who essentially built a country surrounded by enemies. It’s a fun, interesting read, but not really about specific lessons that you can learn and apply immediately to your own startup endeavors. It does make you go “Hmmm…”

Since reading the book I’ve been thinking about it a lot and how the Israeli startup experience can be applied to other places, including my hometown, Montreal, Quebec. Truthfully, I don’t think you can apply all the lessons and experiences from Israel, simply because what they experienced is so different from other places. Canada, as an example, was not born out of war. We’re not in a constant state of threat, and therefore can afford to be lazy, slower moving and not as intense (although I don’t think we can afford those things, but we do.)

Still, there are some interesting ideas in the book that I do think can apply and should be talked about a lot more for Montreal and many other small but growing startup ecosystems.

1. You need chutzpah. If you don’t know what “chutzpah” is, look it up. Suffice it to say, as I was reading the book I kept thinking, “Where is Canada’s chutzpah?” Turns out we might have just captured some of that after winning a Gold medal against the US in Olympic hockey. Startups need chutzpah, lots and lots of it.
2. Failure is inevitable. A lot of people talk about failure in startups, but it turns out that a lot of that is nothing but talk. In many places, Canada included, failure is still failure. A black mark. In Israel they genuinely tackle failure differently.
3. Tout the exits. The entrepreneurs that exit in Israel are considered national heroes, the stories become legendary. Canada needs more exits, and it needs to tout those that its had. Those referenced in the book are huge, but I still think Canada could do a lot to promote even the smaller exits we’ve seen.
4. Keep the entrepreneurs. Israel does a good job of keeping people, although they do struggle with brain drain. Canada doesn’t do as good a job of keeping its successful entrepreneurs. Some of them come back, but not many.
5. Mature students are more successful. One of the biggest differences in Israel is the fact that nearly everyone spends at least 2 years in the army. While in the army they learn a ton of critical skills. Most importantly, they’re maturing – fast. By the time a 22-year old leaves the army, he or she has experienced something that no Canadian will even come close to understanding. Somehow Canada needs to find ways of providing students with more opportunities – and crappy internships at large companies doesn’t count. Students need to be thrown into incredibly intense and meaningful internships and roles. They need real responsibility with real consequences.
6. Focus beyond your borders. Because Israel is so tiny and surrounded by enemies, it’s forced to look far beyond its borders for success. That means exporting a lot. It also means having a unique worldview. Too few Canadians look beyond their borders to seek out opportunity, learn what’s going on, etc. Reading a couple blogs like TechCrunch and Mashable doesn’t count (although it doesn’t hurt either!) More entrepreneurs need to be networking past their city limits, and need to recognize how much competition is out there. Smaller startup ecosystems have to work extra hard to be on top of everything that’s going on, and need to get their fingers into every pie.

   I’d like to see more valuable partnerships with US and Israeli-based entrepreneurs and investors. There should be Silicon Valley and Israeli bootcamps and/or exchange programs. I haven’t thought through all the mechanics, but we need to be out there. We need to go out, learn, steal, connect … and then come back to our home base.

I would encourage you to read Start-up Nation: The Story of Israel’s Economic Miracle – there’s a very good chance you’ll find some lessons, examples and ideas in there that will help you and your startup … regardless of where you’re located.

Every so often I read a blog post and say, “I wish I had written that!” That was absolutely the case with Mark Suster’s post, The Fallacy of Channels: Startups Beware. Mark hits the nail right on the head with respect to the risk (and usually the abject failure) for startups using a channel partner strategy.

Most people would expect a channel partner strategy to be fairly simple: You find partners who then go out and sell your stuff. In principal it sounds great for startups because most startups don’t have a real sales force. Channel partners are a sales force in a box! Ready to go, experienced and hungry to sell. Right? Right? Well…

To expand on Mark’s points regarding the risks of a channel partner strategy, here are two major issues I’ve experienced:

1. Lack of control. At the end of the day you’re handing responsibility over to someone else to sell your product. And as much as you can get reporting on sales activity, prospect pipelines, momentum, etc. you’re probably not in there closing the actual deals. Mark makes the critical point that in fact you should be doing the sales, but even still, you are giving up significant control of your sales efforts, learning and pipeline through channel partners. You should be very concerned about this. Your investors will likely be concerned as well. If they come to you and ask for a sales forecast but you can’t really give them one because it’s buried in your channel partners bureaucracy, you’re fucked. The lack of learning is a huge risk: If you don’t really know what’s going on inside the channels, you can’t really improve your own direct sales strategy or make significant changes within the channels.
2. The investment is very high. You can’t expect any channel to take your stuff and just sell it. Nothing is that easy. They’ll need training, sales materials, motivation and a lot more. Mark makes a very good point regarding the motivation of channel salespeople – frankly, it probably won’t exist at all. They just won’t want to sell your stuff. They make less on it, they don’t know it as well and it’s just one more thing they have to deal with. In my experience, setting up channel partners took 2-5x as long as expected, and even still there was considerable ramp-up and ongoing maintenance. So the dollar and time investment are huge. And for most startups that can bury you if you don’t have a long enough runway and enough traction on your own.

Four recommendations I’d make:

1. Don’t go to the channels until you know what you’re doing. Channels are really not the right place for validating your business. And they’re not the right place to validate a sales strategy either. You should have a fairly well-oiled machine in terms of sales and marketing before you build out a channel strategy. That way you can provide a lot more cohesive and precise knowledge to the channel. You’ve been selling your product, it’s working and you know what to expect. Now you can use channels to blow that out to a greater capacity.
2. Look for other adoption / sales models. Before going to channels as a sales strategy, look at other evolving enterprise sales and adoption models for your product. This should be done very early on in the customer development and validation process. For example, can you get users and sales from the bottom-up in an enterprise versus going top-down?
3. Assess past channel success. When looking at potential channel partners, make sure you do your own due diligence. Find out if they’ve successfully sold partner products in the past. Find out how they’ve done it. Talk to those other partners and find out how well the channels operated, how long things took, what costs were involved, etc. Remember: It’s your ass on the line if the channel fails, the channel partner is probably much bigger, selling tons of other stuff and can drop you in a blink of an eye. Your time, investment, effort and strategy will just go down the drain. So do your homework.
4. Get widespread acceptance within the channel. I’ve had experience in the past where management was excited to partner, but as it went down to others within the organization, we ran into roadblocks. And management didn’t have the fortitude (and/or interest) to really institute change. So you might negotiate a sweetheart deal with management only to find out that the people who will be selling your product, or implementing it with customers are less interested. You need to get widespread and detailed acceptance from all levels of an organization before you jump into a channel partner relationship.

Channels carry huge potential. And Mark is right – very often a channel partner is an inevitable acquirer. You want to get into bed with these guys. And the potential looks so great. But I’d say there are more “gotchas!” in the channel partner experience than “hoorays!” and there’s huge risk for startups that focus on channel partnerships too early in the game.

One of the big roadblocks that first-time entrepreneurs face is the issue of raising capital. There are no easy answers. But one thing is certain, the only person that can raise financing for your startup is you.

There are enough high quality resources out there on raising venture capital and angel investment. And there are some fairly well-accepted best practices on how to raise capital as well. You’ll have to do your research.

There are plenty of fairly easy ways to get connected to venture and angel investors too. That means more research and legwork.

There are probably people in your network that have done it before and can provide advice. If you need help, you have to ask for it.

If you’re waiting for an existing investor or partner of some kind to do the work for you, you’ll be waiting a long time. It’s most likely not going to happen. And unless you’re prepared and reasonably well-organized, your friends, colleagues, existing investors, partners, etc. will be hesitant to open up their rolodexes for you, because they’re putting their reputations on the line.

Note: Please be wary of consultants that are going to help you raise money for a fee (upfront or for success). This is a scary, seedy, dangerous arena. You can learn more at Jason Calacanis’ Open Angel Forum.

Raising venture capital is not something that most of us have experience in when we first become entrepreneurs. And when you first start a company the only way to get experience is do your research, learn as much as you can, prepare the documentation & pitch, and get to it. There’s no excuse for not jumping in and figuring it out.

People assume that startups have a certain type of culture. It’s fast-paced. Lots of caffeine is involved. Personal hygiene is optional. And the culture is automatically ingrained from day one. But none of those things are (necessarily) true.

Too many startups – and specifically startup founders – ignore their internal culture or don’t maintain a consistent one. They don’t create a strong set of consistent values. It’s not easy; after all founders are insanely busy and their company’s culture probably doesn’t rank overly high on the priority list (next to releasing products, raising financing, closing deals, etc.)

But it doesn’t take much for founders to adversely affect their team without even realizing it.

It might be a bad word or two about a frustrating prospect or customer. Or (dare I say it!) harsh words about your investors. Badmouthing customers is particularly troublesome, because that will very quickly give employees the perception that they can treat troublesome customers (and eventually all customers) in a negative way.

Founders have to consistently set the tone for their startups and be cognizant of how they’re doing it. If you want to go negative, so be it. If you want to be ultra-aggressive, OK. If you want to be more passive, that’s your call. But however you’re going to act and respond to things, you want to make sure that your team understands the motivation and intent. Otherwise they’ll pick up cues (even subtle ones) and run with them, probably without you realizing what’s going on. And all of a sudden what seemed like a strong, cohesive, motivated team is falling apart at the seams.

Founders: Think long and hard about the type of company you want to build. Imagine the company with 100+ employees, where the first few employees are now running significant areas within the company. What values, goals, personality and culture will they be driving through the people they work with and manage?

How often have you seen startups go down the following road?

1. A couple people come up with an idea. They’re excited. Really, really excited.
2. They get nervous about competition or people stealing their plans. So they get very hush hush.
3. They start building something. This usually involves locking themselves in a small, dark room with lots of caffeine.
4. They raise money quickly. It’s quite often a seed round to get them through to launch.
5. Lots of code is being written. Lots of ideas are on a whiteboard. People are pumped. And there’s money in the bank.
6. Development is taking longer than expected. Scope creep is insidiously sneaking its way in. Estimates are out of whack. But there’s no turning back.
7. They hire an extra person or two to try and accelerate things.
8. Money is running out, but motivation is still fairly high.
9. They launch! Time to party and await huge success.
10. No one cares.

Now at this point, or possibly around step 8 or so, some amount of panic has set in. It depends a lot on how much blind faith the founders are running on and/or how successful they are at convincing themselves everything is going to work out.

One of the huge problems is that the number of points of failure actually increase as you move through these steps. You’re not eliminating points of failure or risk, you’re adding to them.

This path towards launching a startup is what I would call: Startup D.O.A — Startup Dead on Arrival. It sucks big time. It’s painful to watch. It’s depressing and frustrating. And it’s extremely common.

Here are three major problems that too many startups end up facing:

1. Not enough systematic validation early on.

Validating a startup idea is a very big challenge in and of itself. But without some amount of systematic validation you’re flying completely blind. Some ideas are harder to systematically validate than others. Business-to-consumer web apps, for example, can be hard to validate. How would you validate a Twitter before it existed? But even in that case if you’re going exclusively on a hope and a prayer there’s a very good chance you’re D.O.A. We hear plenty about the success stories; a lot less about all the failures.

Please, please, please, please find a way to validate. Sit down with your co-founders and talk this out. Think about how you could validate. Think about who you should speak to. Don’t be shy. Get past the fear of rejection as quickly as you can. Please.

Please, please, please, please be rigorous about it and have the gumption to say, “We went through a systematic validation process and this isn’t flying. Let’s kill it now before we’re Startup D.O.A.”

2. Not enough money.

If you raise money for a 6-month runway you have to start raising a follow up round the next day. That’s because it takes ~6 months to raise financing. If you don’t give yourself enough time to launch and iterate thereafter to build up traction and measurable milestones, you’ll have a freaking hard time raising more money. This isn’t necessarily an argument to raise tons of money out of the gate, but it is an argument for understanding how to spend the money properly, launching more quickly (so you have time to reach better, measurable milestones), and not getting bogged down in trying to build massive systems that will be overwhelmed by scope creep. Solve small problems well. Start small, stay focused and have a clear value proposition. Make a frequent use product. Please.

3. Not knowing how to run a business.

First-time entrepreneurs generally don’t know how to run companies. That’s because they never have. It’s just the reality of the circumstance they find themselves in. Even people who have kicked the startup can a few times still have issues in this regard. It’s hard. Get help. As much of it as you can. Get good help. Recognize that you don’t know what you’re doing and find out who is willing to help. Please.

Being Startup D.O.A sucks.

You pour your heart and soul into it (and a lot of blood, sweat and tears … and money!) only to launch, fall down and not have the resources, wherewithal or strength to keep going. But there are ways you can change this. And now is exactly the time that you need to, even if that means massive shifts in your strategy, your team, your roadmap, etc. Change everything and anything that needs changing. Don’t wait and hope it gets better. Don’t wait and expect millions of people to visit your site and pay you. The sooner you make the change you need to make, the better your chances.

Lately, I’ve been thinking a lot about “mega trends” and how to use them when pitching your startup. Investors like mega trends. After all, they’re big. And most of us are aware of them and have been affected by them (or expect to be in the future). Tens of millions of baby boomers getting set to retire, for example, is a mega trend. Everyone using an iPad is another mega trend (OK, I had to slip in an iPad reference somewhere!)

Mega trends are good for storytelling, and a big part of doing a great startup pitch is exactly that … telling a story.

Startups should leverage mega trends and weave them into their pitches. Startups should also think about how they can piggyback on other companies that have huge traction. An obvious example is Twitter. Lots of companies are piggybacking on Twitter. But very few of them do it well. At some point in a startup’s life it has to jump off the mega beast’s back and be able to survive and scale much more on its own. StockTwits is a great example of that. It started by aggregating tweets with a $ symbol and capturing the conversation on Twitter about stocks and stock trading (which was largely already happening). Stocktwits found itself at the intersection (or piggybacking) on a couple mega trends – Twitter and people’s appetite for communicating on stocks (in a more public way). But ever since it launched, Stocktwits has actively pulled itself away from Twitter, reducing its reliance on it.

Mega trends.

Which ones will your startup ride and leverage? Which mega trends and mega companies can you piggyback on, use to tell a great story, and then move to the front of, in order to become a leader (instead of a follower)?

Not all business is created equal. Not all revenue is created equal either. Everything has a cost. Bad business and revenue can cost more than they’re worth to acquire.

You need to have clear definitions of good business and bad business for your own company. The definitions can change over time (almost everything does evolve) but you need definitions just the same. Then you need the intestinal fortitude and vigilance to say “NO” when bad business lands on your doorstep. Otherwise it’s too easy to get distracted (and sometimes destroyed) by it.

One of my favorite exercises is brainstorming startup ideas with other entrepreneurs. You can gain a lot of value from a fresh perspective. When “pitched an idea” for brainstorming or feedback I tend to go through the same 7 key points and questions each time. That tends to spur strong discussion, new ideas and new opportunities.

I’m certainly not going through a full analysis of startup ideas or assessing the entrepreneurs themselves and their ability to execute. I’m not an investor; just a fellow startup guy that wants to help (if I can). And I’ve seen a lot of entrepreneurs that get too deep into the weeds of their ideas – either focusing too much on one thing (and the wrong thing!) or stuck at certain points with no clarity on how to move forward.

So here are 7 key points for brainstorming startup ideas that I use regularly:

1. Use Cases. I find it’s helpful to understand a startup in the context of use cases. How will someone use the product or service? Who are the different types of people involved (e.g. customers, vendors, advertisers, etc.)? I often ask, “Walk me through how I would use this thing?” It gets people thinking in simpler, linear paths and often helps clarify questions in my head as to whether or not the product or service (as envisioned) will actually be usable.
2. Risk and Failure Points. When you ask someone about the risk and failure points you often get to the underlying assumptions being made. Sometimes, entrepreneurs haven’t quite thought through the assumptions they’re making, but they can more easily recognize failure points. This becomes easier once you’ve asked someone to go through a few use cases as well, because now you have clearer, step-by-step processes lined up that describe how the product or service is used. So an entrepreneur might respond, “Well if no one puts any content into the system, it won’t work.” So then a critical assumption being made is that people will put content into the system. The next logical question is, “Why?”
3. Incentives and Motivation. People usually don’t do things for the heck of it. Consciously or even unconsciously there have to be incentives and motivations. The clearer the incentives, the better. Brainstorming around incentives and motivations is fun. And universally there aren’t that many incentives and motivations that drive humans to do things. We’re now getting into the weeds of psychology (albeit basic psychology), but the key brainstorming question is this, “Why will people do what you want them to do, especially to remove the point of failure we’ve just discovered?”
4. The One Feature. I like looking for the one feature that’s going to be the real hook inside the use cases and driving the incentives and motivations. Entrepreneurs like to stuff features into their products. And they often make the false assumption that one more feature will win the day for them. It’s not about more features, but it very well could be about one feature – the one feature (or use case) that drives the bulk of activity, virality and momentum. Brainstorming around this can be very interesting because it allows you break things up into small, digestible pieces and decompile a grand vision into potentially manageable chunks. I like to look for a starting point where an entrepreneur could focus on one small piece of their master plan and test it thoroughly with customers before moving on. Brainstorming around the “one feature” really gets to the heart of ideas very quickly, and helps create a lot of focus.
5. Target Market. Most of the time, entrepreneurs know what market they’re going after. But it’s not always the right one. When you look at something from the outside in, it’s much easier to think of other applications and target markets for a startup idea. Brainstorming around this often leads to interesting ideas on product features, but more importantly on go-to-market strategy and whether the customer (that’s in the entrepreneur’s head) is really the right one. For example, there are fairly simple and interesting ways of taking a B2C web application and targeting it at businesses. The reverse is true as well; take a B2B application and steer it towards a B2C adoption model.
6. Monetization. It’s interesting to brainstorm ideas on monetization, as well as its importance at an early stage for startups. In some cases it makes sense to monetize right away, in others it’s better to wait. I don’t think there are any hard and fast rules that can be applied to every startup. When brainstorming something for the first time, I don’t get caught up in monetization, because the other points are more important in terms of assessing an idea more thoroughly, and tackling it with new perspective. It’s not that a single idea will guarantee success whatsoever (because it won’t), but all startups start with the idea.
7. References and Referrals. One of the last things I tend to do when “being pitched” an idea is see if I have any references or referrals that can help. A reference might be as simple as an article I can share. A referral might be a potential customer, business partner, or other entrepreneur with experience in the field. If I see merit in the idea and the entrepreneur, and the timing is right, I like to help as much as I can in terms of my network and history. It’s quite easy to do this, as long as the connections you’re making are meaningful and don’t waste anyone’s time.

I love listening to new ideas (or seeing how ideas and startups are evolving). It’s fun, educational and valuable to come in from the outside, tackle the issues and questions above and hopefully provide some level of assistance. And if I can’t, then maybe I can point you to someone else that can.

Most of the points above do form the basis for a strong investor pitch as well.

The goal in a brainstorming session isn’t to solve every problem, or even discover every problem. I like to focus on moving things forward by at least one step. Can you uncover one key point to focus on? Can you think and talk your way through a few issues that leads an entrepreneur to further research, discovery and progress?

And finally, after doing a number of brainstorming sessions it becomes quite clear that most entrepreneurs have a lot of the answers already, but they still need someone to talk to. For example, you meet someone that’s hemming and hawing over an idea, but isn’t sure it’s “great” and isn’t yet ready to quit their day job. They ask, “Should I quit my day job and pursue this idea?” You can’t give them the answer – they have to make that decision, but chances are they already have. It’s still nice to talk it out though.

photo courtesy of shutterstock

One indication of a strengthening startup ecosystem is when past founders start new companies. Even if those previous companies weren’t successful (although that certainly helps!), it’s a good sign when entrepreneurs keep trying. Another good sign is when startup employees decide to make the leap into startup founders. In fact, I think this is even more important to a small, but growing startup community, because it creates more entrepreneurs.

And today I’m pleased to point you to two guys – Marc-Andre Cournoyer and Gary Haran – that have done exactly that, moving from startup employees to startup founders. They’ve just announced the official launch of Talker, which they describe as “fast, intuitive and extensible group chat.”

Marc-Andre and Gary used to be employees of Standout Jobs. Marc-Andre was the first person we ever hired. We told both guys when we hired them that our intention was to help them learn about running a startup (versus just working at one), so that one day they would go off and so so themselves. Part of Standout’s culture was to create “startup children”. Inasmuch as it’s disappointing to no longer be actively working with these guys, it’s great to see them break out on their own.

You can’t really know what running a startup is like unless you actually do it.

So congrats to Marc-Andre and Gary for making the leap!

A few things I like about Talker and how they did things:

1. Launched quickly. It’s been just about 3 months and they’ve already launched. They previously had gone through a beta period of at least a month if not more as well. That means they got the product into people’s hands very quickly.
2. Scratched their own itch. They built Talker to address some of the issues they saw with other group chat applications, especially for developers. So they’ve targeted a few key differentiators such as feeds and plugins. This gives them added motivation and focus in terms of a target market.
3. Launched with paying plans. They’re out of the gate with paying plans. That’s a bold move for a web startup where most people expect everything for free.
4. API available. One of their key value propositions is the availability of an API. You can’t devalue the importance of APIs and 3rd party development for most web startups these days. Just look at what happened with Twitter, and what we’re now seeing with others such as Foursquare. When you give people (who are passionate about your startup and product) access to make it better for themselves and others, you’re heading in the right direction.
5. Documentation & support. They’ve launched with a support infrastructure in place including some documentation and discussions. This isn’t overly robust for now, but it will grow over time as a critical resource for them. A 2-person startup can’t answer every question or handle every request. You need to drive people to a place where they can interact, get information and feel as if they’re being provided with a high level of support. And, at some point, a support system like this hits a critical mass where the community takes over and drives it.
6. Built their brands. Both guys have invested in their personal brands for a few years. This was also something that we encouraged a great deal at Standout Jobs. Marc-Andre has launched numerous projects with a great deal of success. Both guys participate actively in the local startup community. The personal brand building that both guys have done (and will continue to do) will help drive momentum, interest and support in Talker. Had they launched Talker without any personal brand whatsoever they would not have gotten as many beta sign-ups and buzz.

Go check out Talker.

I expect over the next year or two we’re going to see a lot more startup children emerge in Montreal, as past startups evolve, get acquired or shut down. This will create new opportunity for past startup founders, but also encourage and drive more startup employees to take the plunge and create their own companies. That’s one key part to building a strong startup ecosystem.

Doing sales isn’t typically one of the favorite things of most startup CEOs (and by extension, startup founding teams). Certainly they want sales (because sales = $$), but they don’t want to actually do the sales. This is a huge problem for startups.

Startup CEOs need to be very close to their prospects and customers

Startup CEOs need to understand why people are buying and why people aren’t buying. They need to understand the buying and decision-making processes.

Even technical startup CEOs or technical co-founders need to be actively involved in the sales process. Ultimately this is going to make them better founders. It’s also going to help with product development, and the communication within the startup.

Startup CEOs are the only salespeople you need

At least initially, the CEO and founding team are the salespeople. If you outsource sales (whether that’s through hiring or through a channel partner strategy) you can very quickly get into trouble. Setting targets is easy, but understanding why you’re hitting them, or more likely not hitting them, becomes almost impossible if you’re not doing the actual sales work.

Figure out sales first, then hire others to execute

Startup CEOs need to understand the sales process through-and-through so that they can, as quickly as possible, create a genuine sales strategy. Once a sales strategy is in place, you can hire others to execute that strategy and measure their success.

Most startup CEOs aren’t natural salespeople. It’s probably not a significant part of their work history. But if you can’t do sales for your own startup you’re going to end up relying too significantly on others for your startup’s overall success. You won’t be able to communicate appropriately with your Board of Directors, investors and employees on how things are going — because you won’t really know. And you won’t be able to communicate with your customers either; you won’t understand their needs, challenges, frustrations, etc. well enough to respond accurately, intelligently and quickly. Reports from salespeople aren’t enough. Startup CEOs need to “get their hands dirty” in sales.

Startup CEOs: Stay close to your prospects and customers

Don’t make the mistake of outsourcing sales to others while you’re busy doing a million other things. I know you’re up to your eyeballs in millions of decisions and running like a headless chicken, but make active sales participation a priority.