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Startup Nation: Revitalizing the Entrepreneurial Network

“Bring on the Entrepreneurs,” the article that Amy Barrett and I co-wrote for the July/August issue of Inc. magazine, has been generating a steady stream of comments on Inc.’s website — mostly positive, but with some dissenters to be sure. To generalize, the critics of the policies we prescribe in the piece take a predictable anti-tax, anti-“big government” line, with several complaining that we seem to be counting on government to kick-start the startup economy, that entrepreneurs themselves need to be their own saviors.

The pros and cons of specific tax policies can be debated endlessly — and in putting together this story we did debate them. Endlessly, it seemed. In the end, we concluded, when it comes to starting businesses, the tax and regulatory environment really matters very little. People start companies where they live. And what real entrepreneur is going to choose not to start a business because taxes on the profits she hopes to make are too high? As my grandfather might have said, “You should be so lucky.” Regarding the criticism that we are relying on government too much, what Amy and I, and our editors, were aiming to do was to point out several areas where the government — through funding and legislation — can do better. (And yes, we talked with a ton of real entrepreneurs, too — not just policy wonks. I, for one, can’t tolerate too much “wonk.”) But we never suggested that government alone was going to solve the problem, or even play the most important role. Rather, we described several ways that groups of entrepreneurs and nonprofits — not government — are stepping up, whether through accelerator programs for mentoring young business founders, or microfinance institutions for funding them.

Another way that entrepreneurs themselves are making a big difference is by radically rethinking the idea of business “networking.” I reported on several such efforts in a section that unfortunately we weren’t able to fit into an already jam-packed piece. But with the blessing of my editors, I’m posting that section as a supplement to main story here (with links!), to promote the good and important work these groups are doing, and (I hope) to inspire like efforts elsewhere.

Revitalize Business Networking

The workday is over for most of the tenants of the Cambridge Innovation Center, a shared office space for dozens of startups, but its open-plan kitchen area is packed, with a party of sorts in full swing. It’s the 10th meeting of the IdeaStorm, a more-or-less monthly meetup started in fall 2009 by three MBA students in MIT’s Sloan School but open to all comers. (“Bring ideas, bring feedback, and bring friends!” is the motto.) Tonight, the mix includes students from several area universities, local business owners and entrepreneurs, PR flacks and tech geeks, and a handful of VCs and angel investors. A large island is stacked with Domino’s Pizza boxes, and there’s no shortage of cold beer, thanks to a generous donation from a local brewery. But after a brief period for mingling, the similarity to every other networking event you’ve been to ends, and the work part begins.

First up, the organizers pose a challenge question to everyone (some recent examples: What are some innovative things we can put solar panels on? How can we use wifi to solve an everyday problem?) Then, breaking into groups of 10 to 15, participants brainstorm on the challenge question for about 15 minutes. Next, still in small groups, anyone whose brought a business concept or blue-sky idea can pitch it and get (honest but kind) feedback; in the allotted 15 minutes there’s typically time to discuss three or four ideas. Finally, each small group hears from the founder of a startup describing a current challenge to his or her business, and collectively cranks out a variety of potential solutions. After about 45 minutes, all participants gets back together to mingle some more and discuss the best ideas to come out of their work groups.

Simply exchanging business cards over drinks is so 20th century. A new generation of entrepreneurs, in cities from Boston to Boulder to Omaha, is taking business networking in a new direction, where active, intense participation is the rule and slackers need not apply. “Learning by lecture doesn’t work,” says Yao Huang, a cofounder of the Hatchery, a for-profit New York City “venture collaboration organization” that hosts a variety of events designed to educate and connect early-stage tech-industry entrepreneurs and potential investors. “For years, we’ve had the same kind of events for entrepreneurs—you bring people in, someone talks, then there’s a panel. But the messages haven’t sunk in. Hearing and writing down is one thing; knowing and doing is completely different. We bring real content and an element of energy that is different.”

The Hatchery’s monthly “Are You Serious?” event subjects entrepreneurs with an early-stage idea to something like the auditions for American Idol, Huang says. Structured like a pitch event, with six companies presenting to a panel of four investors and relevant industry experts, the goal of Are You Serious? is purely educational—to help entrepreneurs hone business plans, fix operational issues, and generally get “cleaned up” for serious talks with investors. The rapid-fire Q&A sessions—which typically attract an audience of about 100—have a distinctly New Yawk tough-love vibe. “We’re not going to stab you in the back; we’ll stab you in the front,” says Huang. “It’s people who’ve been there and done that brutally and honestly telling you the truth. But we’re not out to embarrass people—everyone comes away having learned something.”

Audience members, who come with notebooks, clearly get something out of it, too. Hatchery happenings, which are free or low-cost and also include the Gauntlet, an invite-only pitch event with the explicit aim of connecting well-prepared startups with funding or strategic connections, and the Hatch Match, an open event where entrepreneurs can register for 5-minute “dates” with experienced advisors and potential investors—are inevitably packed, and that has led to requests from universities, foundations, and countries such as Canada, New Zealand, and England to help them design business-community-building events. “We have a reputation for doing things that are not a waste of time,” says Huang, who worked in Big Pharma before starting a successful interactive agency during the dot-com boom years. “There’s something fun in all of these events—it’s not like searching a sea of unknowns, starting ahead at badges.”

Startup Weekend, a program run by a Seattle-based nonprofit, ratchets up the commitment level a few notches—and days. Participants (who pay a fee of $40-$99) commit to spending 54 hours with a group of about 100 or so other would-be entrepreneurs—software developers, designers, marketers, and managerial and legal types — who come to “learn by creating.” At the beginning of the session, those who’ve brought ideas pitch them to the group, everyone votes, and teams of 4 to 12 people form to work on the selected projects—putting together business plans, building product prototypes, designing marketing materials. Along the way there are breaks for food, live music, and visits from special guests who might include investors or founders of prominent local companies. At the end of the weekend, teams “launch” their new businesses and get feedback from the group, and sometimes prizes.

What happens next is up to the participants. About 36% of companies coming out of the weekend are still “alive” after three months, and a little over 10% go completely legit with some kind of follow-on financing or business revenue. “That can compete with a VC success rate,” says Startup Weekend co-director March Nager. “That’s incredible given the total randomness.” One of the program’s biggest successes, Nager says has been “co-founder dating.” “Getting to work with people who are passionate about similar things is the best way to find out about somebody. I have hundreds of people who leave here and start working on another idea together.”

About 80% of the business ideas developed during Startup Weekends—which have now been held in over 50 cities and 12 countries—are for some kind of software application. The rest are product-related ideas. At an event last year in Grand Rapids, Michigan, for example, one of ideas was for a line of furniture designed for the lifestyle needs of hardcore computer gamers. (Don’t laugh—that’s a multibillion-dollar market.) Grand Rapids is well known for furniture manufacturing, and during the course of the weekend the team was able to come up with a business strategy by talking to people in the community and discussing prototypes. “By the end of the weekend, they had a legitimate sales proposal to take to potential partners or investors, rather than a 60-page business plan that didn’t really tell you anything,” Nager says.

While the main goal of Startup Weekends is educating entrepreneurs, it’s also proved enlightening for investors unaccustomed to new-economy businesses. “There is money everywhere,” Nager says, “but often people with the money don’t understand that you can get a startup up and running and generating revenue in 54 hours.” He recalls an investor who came in for the first night of a Startup Weekend wearing a suit, skeptically checking out the T-shirt and flip-flop-wearing participants. By the end of the weekend, he was in flip-flops, too. “There’s a lot of dealmaking going on,” Nager says, “and we try to facilitate that as much as possible.”

Startup Weekend’s own business model is a work in progress. “We went nonprofit for a reason,” Nager says. “We’re not trying to get rich.” The goal is to build self-sustaining communities. Recently, they’ve been expanding into education, providing an inexpensive, hands-on complement to existing business programs, and into countries like Israel and, soon, India. “We’re providing a model,” Nager says. “It takes a community to organize and participate. All it really takes is people to lead it, and some physical space to sit around in. Then once you have a couple of successful companies, you start breeding a culture of success. We can prove that you don’t need to be in Silicon Valley to replicate its magic and successful traits.”

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