The Blakeroom

Tonight I had the opportunity to participate on a panel at the GigaOM Mobility Meetup here in Atlanta. Despite the torrential downpour and thunderstorms that snarled Atlanta traffic, it was standing room only.  The event highlighted Atlanta as mobility hub and featured panelists from Atlanta’s global brands like AT&T, Coke, and WeatherChannel.

The panel I participated on was about the startup community in Atlanta.  We are often asked about areas Atlanta already leads in – like Fintech, Health IT, information security, marketing automation, and logistics.  But our moderator, Phil Hendrix of GigaOM, asked a tougher question – he asked us to look forward.  His question was “what big opportunities do you see for Atlanta startups around mobile?”

My answer was connected devices, medical devices, and the ‘internet of things’.  The sectors we already lead in provide an ecosystem and talent base in cloud technologies, big data, and mobility.  Add Georgia Tech’s emerging strength in sensing technologies and you have a recipe for success.

I mentioned a few ATDC companies as examples.  Soneter has an innovative water meter that enables Nest-like monitoring of water usage – without having to cut pipe and install a meter.  NextInput has developed a sensor that essentially enables a third dimension in touch screens which opens all kinds of possibilities in controls on the things we use everyday like appliances, automobiles, and mobile devices.

One of the reasons Atlanta’s startup prowess is what Glenn Lurie of AT&T called “the best kept secret” is we are strong in enterprise and infrastructure sectors which doesn’t get the hype that consumer technology hubs get.  I believe success in connected devices can change that.

What other opportunities do you see for Atlanta’s startups around mobility?

You’ve gone through Customer Discovery and validation.  You have a handful of early paying customers.  Those early customers were probably sold by you (the founder) or your first sales person.  You have validated your minimum viable product.  It’s time to grow.  What sales model is right for your company?

In my time at ATDC, scaling sales is probably the topic I spent the most time on with our ATDC Select companies.  Figuring this out (along with your sales process and lead generation which I’ll cover in another blog) is one of the key criteria that determines whether a company is ready for graduation from ATDC.  A scalable sales model is the key that drives your growth.

A startup’s sales model is primarily determined by two factors:  pricing model and product complexity.

Your pricing model is how your products are priced – how much it costs, the basis for the cost, and how the customer is billed.   For example, enterprise software might cost $x upfront, with an annual maintenance fee.  A SaaS product might cost $y per month.  How much you charge is determined by a range of factors including your costs, uniqueness, and the pain your product solves for the customer.

Product complexity includes the depth of features, ease of use, ongoing service, and difficulty of implementation.  For example, enterprise software is often more complex than a mobile app.

The sales process must be tailored for each company, but sales models fall into the 3 broad categories:

Self Procured

Products that the customer is able to find, determine if it meets their needs, and purchase on their own are self procured.  When you want to add a song to your iTunes library, you are able to search for the song, purchase it online, and download it from the iTunes store.  When you purchase a product at the store you pick it up off the shelf and pay for it at the counter.

Inside Sales

Inside sales is when the sale is completed with the sales person and customer interacting remotely.  Driven by technology, inside sales models are being used more frequently in B2B and some higher end B2C transactions.  For example, when selecting a hosting provider for your web application you might contact several hosting providers to determine which one best meets your needs at the best price point and be given access to the servers remotely.

Field Sales

Field sales, or outside sales, are ‘face to face’ customer sales.  For higher priced, more complex products, cases where there are numerous stakeholders involved in the purchasing decision, consultative sales, or products that need in person demonstrations – visits with the customer are necessary to seal the deal.  Enterprise software that will be used by multiple departments is one example that might require field sales.  Some complex field sales models also require sales engineers, which are product experts capable of performing detailed analysis to determine fit, configuration, and pricing.

Some companies employ multiple sales models.  For example, Salesforce.com uses all of these.  A small company with simple CRM needs can self signup for the cloud service online.  An inside sales rep may also interact with the company remotely, qualify the customer, address their questions and concerns, and sign up the customer.  Larger, more customized enterprise implementations are sold using field sales professionals and sales engineers.

So which sales model is right for your product?  Lower priced products require less expensive sales processes – and more complex products require more customer interaction.  Complex products sold at low prices are usually a recipe for unprofitability.  The chart below illustrates how your pricing model and product complexity determine which model fits your company.

If you spend any time around the Atlanta startup community you’ll no doubt wind up hearing comparisons between Atlanta and other startup hubs like Silicon Valley, New York, Boston, Austin, etc.   In fact, we have a bit of a “little brother” complex to those regions.

Without a doubt, other hubs have some real advantages – particularly access to capital and deep networks.  But we have a lot going for us here in Georgia as well.  We arguably have a greater abundance of many of the key ingredients for a successful ecosystem than the regions we compare ourselves to.  We have a track record of successful tech startups and a growing talent pool of entrepreneurs.  Three leading research universities – Georgia Tech, UGA, and Emory – are within easy driving distance of each other.  We have EII, GRA, and VentureLabs to help commercialize technology from those universities.  Technology Square is emerging as Atlanta’s Sand Hill Road or Kendall Square and is home to ATDC (an incubator Forbes named one of the top 10 in the world), Flashpoint, and Hypepotamus.  There is a base of local angel investors.  TAG, StartUp Lounge, ATA, StartUp Chicks, and numerous other organizations support Georgia’s entrepreneurs.  ATV is an exciting recent addition to the startup community sure to attract a hub of activity in Buckhead.  And we’ve already established leadership positions in transaction processing, information security, mobility, and healthcare IT.

In the past few years we’ve seen several organizations and economic development efforts focusing on improving connections and taking to the bullhorn to tell our story.  But there’s one area we should be a lot more focused on – one thing that can truly differentiate Georgia and Atlanta as the entrepreneurial capital of the Southeast.  It’s a strength we’ve touted for years – our strong base of Fortune 1000 companies.  We can make this the best place to start your business by bringing our startups and established companies together.

There are few more meaningful ways to help a startup than providing introductions to early (paying) customers and commercialization partners.  Now is the perfect time to focus on this.  Large companies are increasingly focused on innovation, and awareness of local leaders of the importance of startups in job creation is rising.  We give tours at ATDC weekly to executives, community leaders, and government officials looking for ideas on how to expand entrepreneurial activity in Georgia.

Startups go to Silicon Valley and Boston for access to capital, established startup ecosystems, and experienced entrepreneurs.  Our competitive advantage should this is the best place to get your first customer and access the networks of our regions business leaders.

We started doing this at ATDC with great success.  Last year we launched a program at ATDC called Industry Connect.  The program invites CEOs, CTOs, CIOs, and Senior Executives from Fortune 1000 companies to engage with ATDC companies by becoming paying customers, making an investment, or becoming a strategic partner.   We are very direct in asking them to make a commitment to engaging with our startups.  In the first year of the program we hosted more than 15 companies and connected them with more than 50 startups.  So far this has resulted in at least a half dozen deals ranging from $20k to $200k, and our companies tell us they expect more deals to come from these initial engagements.  We already have 6 companies scheduled in 2013.

Our EIRs and Startup Catalysts work with the companies to understand their strategic needs, coach the companies for their presentations, and facilitate engagement and follow-up.  We’ve learned that not only do our startups need help in learning how to engage with large customers, but also the industry partners look to the EIRs and Catalysts for help in structuring engagements that don’t fit their normal procurement processes.  Even the “no’s” provide valuable customer discovery opportunities for the startups that participate.  We are leveraging Georgia Tech to provide introductions to big companies and several of the companies participating have been the result of introductions from CEOs of ATDC startups – sharing their networks to help other ATDC companies.

While we should continue to work to improve access to capital, connecting the startup ecosystem, and get the word out – we have a unique opportunity to leverage our strength in big business and as home to 15+ Fortune 1000 companies.  We can do this better than Austin or RTP to be the clear leader in the Southeast.  More than anything else we could do – it will create more successful startups and exits, attract more capital and venture firms to Atlanta, solidify our identity as a tech startup hub, and provide a clear reason for startups to locate and stay here.  In honor of the Falcons – “Rise Up Atlanta” – let’s make this happen.

In a recent article on The Atlantic titled Think We’re the Most Entrepreneurial Country In the World? Not So Fast the author makes the point that while the US is epicenter of Venture Capital, we produce more ‘large’ startups, and our startups have a better chance of surviving at least 2 years – we’re not the leading entrepreneurial country.

The article is correct in highlighting we aren’t alone in focusing on innovation and entrepreneurship.  I talked about this in an earlier blog about immigration (click here to read).  Other countries like the ones pointed out in the article have made it a priority – and made it easier to attract the best talent.

Where the article is way off base is in the assertion that startups don’t play a large role in job creation in the US.  The author cites Kauffman Foundation statistics that new businesses are responsible for only 3 percent of all US jobs.  That’s a silly measure.  Of course brand new businesses are a small portion of overall jobs – when they are first formed they have very few employees.  Deep science companies may take years to get to commercialization and scale.

I see the data from the Kauffman Foundation differently.  A 2010 Kauffman study shows startups create around 3 million new jobs a year in the US.  While many of those businesses fail, 5 years later when you net the failures and the growth in the ones that succeed, about 75% of those jobs will exist.  When you look at companies 25 years old, you find that about 68% of those jobs exist.  Meanwhile, companies other than new businesses in all but 7 of the last 35 or so years are net job destroyers.  In fact, the 2010 Kauffman Foundation report states:

Startups aren’t everything when it comes to job growth.  They’re the only thing.”

As for startups and early stage growth companies overall impact on our economy, the NVCA Venture Impact report cites that 11% of private sector employment is in venture backed companies (11.9 million jobs in 2010).  In terms of ROI, the report highlights that venture investment each year is equivalent to less than 0.2% of our GDP – yet 21% of our GDP in 2010 comes from revenue of venture backed companies.

Growing our startup ecosystem is the best long term growth strategy.  In 2010 at the height of the recession, San Jose and Austin led the nation in job creation.  Why?  Developed startup ecosystems.  There’s no doubt job creation at scale happens in more mature successful businesses.  But you can’t have more butterflies without first having more caterpillars.

Over the past 3 months I’ve worked on a task force with U.S. Citizenship and Immigration Services (USCIS/DHS).  The Entrepreneur in Residence program brought a group of private sector entrepreneurs and investors together with USCIS experts to help streamline the immigration pathway for foreign entrepreneurs to start high growth technology companies in the US or join startups (you can read more in this White House blog post).  Last Monday we had the opportunity to host an update on the progress of the task force at Georgia Tech

I’m not an immigrant – I grew up in a small town in North Carolina.  So why am I volunteering my time for this effort?

In part, because I believe access to technical talent is the biggest threat to our global competitiveness and ability to innovate.  Clearly the US needs to focus on nurturing more STEM (Science Technology Engineering and Math) talent here at home.  But we also need to continue what has worked for the country in the past – attracting the best minds from all over the world.  It’s a cliché we often hear, but it’s true – we are a nation of immigrants.

But the real reason this resonated with me is because during my time as an EIR at ATDC I’ve come to believe keeping talent here in Atlanta is one of the biggest keys to strengthening our startup community.

Startups will tell you the students they recruit out of Tech want to go work for Google or Facebook and talk about how we need to do more to highlight the startup community here in Atlanta to retain them.  They are right.  Fortunately folks like Keith McGreggor are working to become on-campus evangelists for the startup community and the execs at the companies at ATDC are becoming more active in the Georgia Tech community.

But there’s another issue – we’re losing much of that talent not just to other tech hubs and companies here in the US – we’re losing them to other countries.

One of the coolest parts about being an EIR at ATDC is seeing all of the incredible technology innovations coming out of Georgia Tech and other research universities in the area.  Commercializing these innovations represents enormous economic development and job creation opportunities.

Behind each of those innovations are teams of professors and students. At Georgia Tech, about half of those inventors and would be entrepreneurs are foreign born.  They came to the US to study because we have the best universities and advanced degree programs in the world.

For graduates that want to go work for large established companies, the immigration pathway is clear.  But for those that want to commercialize their innovations, immigration obstacles often prevent them from starting a company or joining a technology startup.

Many would say “So what… let them get a job with a big company or go home.  Leave those startup jobs to Americans.”  While unemployment in Georgia is over 8%, unemployment in the technology sector is less than half at 3.2%.  Money and talent are the two biggest challenges for the early stage companies.  I run the CEO Roundtable at ATDC and one of the most frequent topics of discussion is how the struggle to find great technical talent is their biggest barrier to growth.  Think about that – coming from startup CEOs located on the campus of one of the top engineering schools in the country during a time of record unemployment – and their biggest challenge is hiring the employees they need to grow!

When foreign students get their masters or PhD and take that knowledge with them and start their companies in another country, we lose out on the jobs created and taxes collected from the wealth generated.  If they join startups in another country, our local startups can’t hire the talent they need to grow.  We lose out on the technical, sales, marketing, and other jobs that come along with the success.  In addition, their research is funded by not only by commercial sponsors, but federal and state grants as well.  I want the benefit of those taxpayer investments to stay here in the US.

Current immigration laws hurt our economy by losing out on the next Google or PayPal (both co-founded by foreigners) and denying technical employee starved companies like those at ATDC of the talent they need to grow.  I attended a U.S. Citizenship and Immigration Services (USCIS – part of the Department of Homeland Security) summit in Silicon Valley earlier this year on this topic where leading West Coast VCs and academics outlined the problem and talked about the Startup Visa initiative currently stalled in Congress.  They took it farther by outlining the danger of this reverse ‘brain drain’ on US competitiveness and innovation.  Other countries like India, China, the UK and Singapore are benefiting not only by recruiting these entrepreneurs and startups, but they are attracting venture investment dollars that would otherwise be invested here in the US.  Chile has gotten a lot of attention for a program created to attract the brightest entrepreneurs by not only eliminating immigration barriers, but by giving them $40,000 in seed money to locate there.

USCIS Director Alejandro Mayorkas deserves a lot of credit for putting this task force together.  He gave us incredible access to USCIS officials and allowed us to travel to the regional operations centers to educate the USCIS employees that adjudicate these cases on startups and the realities of business today.   Those of us from the private sector gained an appreciation of what a difficult task they face and the complexity of driving change in the immigration process, policies, and laws.

I think we made some important progress in addressing immigration barriers for entrepreneurs and hope to see some of the recommendations implemented soon.  It’s a big opportunity to increase the talent pool not just in Atlanta, but nationwide.   I’ll share more about our progress, what we learned, and my thoughts on streamlining the pathway for foreign born entrepreneurs in a future post.