What social ventures need

I’m doing a bit more work on our field guide to social incubation and I thought it was worth going back to basics and looking at what you really need to get a social venture from zero to something. I found a few things online (like this and this) but not quite what I was looking for so I started pulling together some ideas from my experience and what I’ve seen from the BGV teams. I guess I’m trying to build up a bit of a checklist so if there are other things you think are important, please do let me know.

1. A problem to solve (and then an idea)

All social ventures should start from a clear understanding of an important problem and then an idea about how to solve it. It’s got to be something you care about — big enough to motivate you but small enough that you can solve it (it’s sometimes best to think about the problem as two linked problems).

2. People to work with

Once you know the problem you want to solve, finding co-founders is the most important thing you can do. I’ve lost count of the times I’ve told somebody with an idea that they should spend their time finding the right person to work with and then they’ve come back six months later with limited progress and said they regretted not following the advice. Yes, lone entrepreneurs sometimes make it, but when you look closer you find they’re the exception rather than the rule.

3. Customers

Even before you’ve built anything, come up with a name, written a plan, you should find somebody who wants to pay for what you want to offer — Steve Blank calls it ‘customer development’. There are a few exceptions but for the majority of social ventures, I think it’s the right approach. Your customers may well come from your experience of understanding the problem because if you know it well, you’ll understand who wants to see it solved.

4. A source of advice about the basics

There’s a lot of simple stuff that every organisation has to do and if it’s your first time you can save heck of a lot of time by finding a person or organisation that you can ask basic questions. How do you set up a bank account? Do you need to register for taxes? How do you best set up email? All that boring but important stuff.

5. A source of trusted strategic advice

As things develop you’ll have bigger questions. Beyond the basics, a new venture doesn’t come with a manual and you’ll need to select your priorities and what you work on yourself. That becomes a lot easier if you have access to someone who’s done it before who can help you think through your choices.

6. Cost-effective professional legal and accounting advice

As you turn from idea to venture, it’s worth investing time in finding good legal and accounting support. A good working relationship with a law firm or solicitor and an accountant will really help save time later. Ask around your network for recommendations then talk to them and meet them before making a choice.

7. Money

I’ve put this lower down because I think it’s easy to get fixated on the funding before you’ve actually got other basics right. The key thing is to get the right kind of money at the right time. When you’re starting out, you need just enough to quit your job or survive — getting millions of pounds of investment is going to cause you more problems than it solves.

8. Somewhere to work

You can start a social venture anywhere but it can be exhausting after a while if you don’t have a dedicated space to work together or meet. It might not be your own dedicated office but somewhere you identify as ‘the place you work’ definitely seems to help early stage ventures I’ve watched.

9. A routine

Perhaps this is a bit controversial but I think it helps a lot when things are so uncertain to set yourselves a routine. You can manufacture this yourself, but I know the weekly routine of sessions, feeding back and office hours is one of the things that people value from BGV. So I think it’s important to find a way of setting milestones and setting rhythms. You’ll be pulled from pillar to post if you don’t.

10. Emotional support

The emotional strain of starting something new is incredibly important but often underestimated. Too many founders feel the weight of the world on their shoulders and don’t find a way of sharing it around. Where you find it is up to you but we’ve found that a network of peers who are also setting up social ventures is probably the most sustainable.

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Venture capital redux

Venture capital did pretty badly in the first decade of the century but I wouldn’t say it’s in the doldrums. From an interested outsider’s perspective it seems to be changing pretty significantly and probably for the better. Here are three types venture-capital-like types of institution that have developed over the past 5 years:

The Accelerator+

Leaving aside whether the invention of the accelerator itself was a major innovation in investing (I think it was), some programmes have become pretty phenomenal investment outfits and compete with VC firms directly. It feels a little bit like a classic Innovator’s Dilemma strategy to come in where the big VC firms thought there was no point operating and now they’re creeping up the value chain. Y Combinator is the most obvious but Techstars too now has a follow on fund which means that they can avoid dilution.

The Studio

John Borthwick explains Betaworks as being modelled on the movie studios like Miramax. They make a lot of their own productions but they’ll also back other peoples’ provided they fit into their philosophy. Anthemis has a similar feel but is focussed on financial services rather than the real-time web. Ev Williams and Biz Stone’s Obvious Corporation is also doing it. Interestingly, they’re all structured as companies rather than as funds — making them more like Berkshire Hathaway than VC partnerships.

The full service investor

Traditionally venture capital firms had very small teams relative to the amount of money they managed. They expected the startups they backed to do all the work but would give them the money to hire the right people and advisers. A16Z seem to have changed all that. They become part of the startups they back and have a team of very talented people of their own. They can do recruitment, design and marketing as well as the traditional VC stuff. At the earlier stage I’ve also noticed it at Greenstart and 500 Startups where the core services available to startups mean that they can stay smaller for longer and don’t have to battle quite so hard in the talent war.

Being weird

A brilliant article floated to the top of Hacker News yesterday about the work of Joe Henrich and his colleagues. I’m learning a lot about behavioural psychology at the moment because I’m thinking about cognitive biases in the way investments get selected. The basic point of the article is that a lot of our understanding of psychology is warped for a simple reason:

More than 96 percent of the subjects tested in psychological studies from 2003 to 2007 were Westerners—with nearly 70 percent from the United States alone. Put another way: 96 percent of human subjects in these studies came from countries that represent only 12 percent of the world’s population.

This led Henrich to coin an acronym — WEIRD for Western, Educated, Industrialised, Rich, and Democratic. And it turns out that you get very different results if you don’t use us as a sample group. It’s well worth watching out for when you’re looking at research or thinking about psychological or economic models. Not everybody is the same and actually we’re probably the weird ones.

Peak desk?

I wonder whether we’ll find the idea of sitting in an office all day staring at a computer screen very odd in the future. I still do it on most days, don’t get me wrong, but I’d like to do it less and I can see more reasons for trying new ways of working. I think office design will probably change pretty radically over the coming 5–10 years, indeed it already has in some places. I guess there are three main reasons things might change:

As the economy changes, desk jobs are probably the ones that will disappear. The jobs that are holding up are the ones outside offices — in cafes and restaurants, hair dressers and care homes — places where software can’t really affect productivity by an order of magnitude. We’re going to have to learn to value those more. Maybe Ricky Gervais and Steven Merchant did us a favour by unglamourising the office.

Then there’s the health side of things. Sitting is not good for you. Office workers in the UK took 131 million days off in 2011, with the most common causes being coughs, cold and flu, and back, neck and limb problems (although the number has been dropping in recent years).

And finally there’s the creative side of things. Offices are full of distractions. There’s a lovely section in Daniel Kahneman’s Thinking Fast and Slow where he describes how he walks and thinks in the Berkeley hills (perhaps I’m biased because that’s where I am at the moment). This after he’s written about the technique that he and Amos Tversky used during the most productive academic years of their lives — they went for walks.

I spend a few months each year in Berkeley, and one of my greatest pleasures there is a daily four-mile walk on a marked path in the hills, with a fine view of San Francisco Bay. I usually keep track of my time and have learned a fair amount about effort from doing so. I have found a speed, about 17 minutes for a mile, which I experience as a stroll. I certainly exert physical effort and burn more calories than if sat in a recliner, but I experience no strain, no conflict, and no need to push myself. I am also able to think and work while walking at that rate. Indeed, I suspect that the mild physical arousal of the walk may spill over into greater mental alertness.

Disruption and higher education

Following up on yesterday’s post on disruption, I spotted this interview with Clayton Christensen where he tells the story of how the Innovator’s Dilemma became such a big hit but also mentions the sector he thinks is most likely to be disrupted next — higher education:

I think higher education is just on the edge of the crevasse. Generally, universities are doing very well financially, so they don’t feel from the data that their world is going to collapse. But I think even five years from now these enterprises are going to be in real trouble.

Definitely an area we’re interested in but, as I mentioned yesterday, we’re not looking for disruption for disruption’s sake.

Beware disruption for disruption’s sake

Even though it seems like a negative word, people often talk about disruption as a good thing in the tech world. VC firms say they only invest in ‘disruptive’ technologies, founders want to pitch at ‘disrupt’ conferences, companies fear being incremental (often seen as the opposite of disruptive) because it means they will fall behind. As Google’s Larry Page says:

Incremental improvement is guaranteed to be obsolete over time. Especially in technology, where you know there’s going to be non-incremental change.

But there’s a lot more bound up in disruption than just the out-size returns founders and investors are looking for.

First of all, there are the startups who claim to be disruptive but aren’t, as Andy Rachleff writes in this piece. Just making something cheaper isn’t disruptive unless it’s accompanied by a complete reorganisation of the industry concerned. The rail industry was disrupted by the car. The music industry was disrupted by Napster. Advertising was disrupted by Google. People get a bit carried away because the internet is making it possible to disrupt lots more industries, but just because something is on the internet or uses digital technology, it doesn’t make it disruptive.

Secondly there’s the question of whether disruption is a good thing anyway. Disruption can mean people lose their jobs, prices fluctuate wildly and financial security can be compromised for investors and customers. And as Paul Carr points out, without proper checks and balances, disruption can also be a synonym for breaking the law.

In economic terms, the love of disruption comes from a Schumpeterian view of the world. The phrase he popularised was ‘creative destruction’ which, while I agree with the analysis, is something I don’t think we’ve come to terms with. Our society — and particularly social welfare — isn’t very well set up for constant change.

I think that’s where the tension with technology can come from. When I look at systems like the NHS, schools or local government individual members of staff might be very skilled and trying their best, but the system acts against a good outcome because it can’t cope very well with change — disruptive or otherwise. But is the best way of doing that to sack people and replace them with technology? No, for two reasons.

Firstly every job that’s disrupted is a tragedy and has huge knock ons for the people concerned. But secondly because when the system is leading to more and more automation something else happens to society — it hollows out in the middle. As Chrystia Freeland writes:

Technology has really changed the distribution of occupation. That doesn’t necessarily go hand in hand with reduced unemployment, but it creates a more bimodal set of opportunities. There is an abundance of work to do in food service and there is an abundance of work in finance, but there are fewer middle-wage, middle-income jobs.

I don’t think we’ve found the answer to the conundrum of putting technology to work in ways that avoid polarising society yet, but I’m pretty sure that an unfettered love of disruption isn’t the best way forward.

Retro computing — Amiga 500

amiga

I was surprised that it worked, but it did. Dad and I cranked up the old Amiga 500 yesterday. The power supply is bigger than many of today’s desktop computers and it needs a strange set of cables to get it connected to a TV but other than that, it looks like a pretty modern machine — everything built into a space not significantly bigger than the keyboard.

I immediately remembered the familiar tick when there’s no disk in the drive and when you do put one in, it sounds like it’s being ground up like coffee beans rather than read by delicate electronics. The first game we tried — Shadow of the Beast II — didn’t work, I think the disk had degraded.

https://www.youtube.com/embed/INDfzMiA-F4

But Mig-29 Soviet Fighter loaded up without a hitch and was very playable. The Amiga mouse is also a lot better than I would have expected — they haven’t improved that much over the years.

I’d assumed Commodore was a European firm but originally they were Canadian and later moved their HQ to New York. By the time I was using the Amiga the company was in trouble in the US due to competition from PCs, but they kept on going in the UK during the 1990s because it remained a strong market and the UK arm apparently nearly bought out the whole outfit.

Perhaps unsurprisingly, there’s a lot of stuff online about all the games and the electronics inside the Amiga — it was a very well loved machine. A second hand Amiga can cost you about the same as a second hand Playstation 3. I’m very glad it still works and I think it deserves to be used so I’ll bring it into the office at some point.

Exits

Aside from the difficulty of starting and growing a successful company in the first place, there’s also the challenge of getting an ‘exit’ where the return on the investment you’ve put in is made ‘liquid’. In the dot-com boom the answer was an IPO and then from 2002–2012 the answer was ‘get bought by a big american company’, which was fine but a bit limiting.

Now there are some new options starting to appear. It’s good to see that the London Stock Exchange has announced a new proposal called the High Growth Segment which got quite a lot of coverage in the business pages this week. The idea is that small but fast growing companies can go public and retain their independence rather than having to sell out. Combined with initiatives like the Social Stock Exchange (which is apparently about to launch) all this gives me some hope that London is becoming smarter about the whole life cycle of investment.

Bethnal Green Ventures — some good news

Thank goodness for that. It being Valentine’s Day we can finally talk about what we’re up to with Bethnal Green Ventures. We’re very pleased to be able to announce that we’ll be back bigger and better for 2013 and beyond with new investment, new digs and the ability to back lots more talented founders using tech to solve social and environmental problems.

Our main partners will be the Cabinet Office, Nesta and Nominet Trust — between them they’re investing £1.8 million over the next four years. We’re also going to be getting support from our friends at Keystone Law and Google Campus as well as a whole host of other organisations and mentors that we’ll be able to announce over the coming months.

The basic format of BGV will be the same. We’ll run a call for ideas, choose the best teams that apply, invest £15,000 in each venture and run a three month programme that involves learning directly from people who’ve already built great startups, free office space (this time at Nesta and Google Campus) and a Demo Day at the end. The difference is that rather than six teams, we’ll be able to invest in 20 teams a year (in two cohorts of ten — one in the summer and one in the winter).

The investment gives us the capacity we need to build up an amazing community of founders using tech to solve social problems. That’s where we think the real value will come from — the peer network that emerges from our alumni and mentors — and we’ll now be able to grow that to several hundred people in a few years time.

I’ll be blogging more about what we’re looking for and how the programme will be improved over the coming months. We’ll definitely be tweaking it based on the feedback we got from the teams, mentors and investors last year.

Applications are going to open on 6th March but if you have an idea you’d like to run past us before then, feel free to get in touch — hello@bethnalgreenventures.com is the best way. We’re more than happy to meet up or talk it through. Even if we don’t invest we’re really very friendly about it — if you’re trying to do something that uses tech to address a social or environmental problem, we’ll try our best to help.

What happened to nanotechnology?

Ten years ago I was doing quite a lot of thinking about the future of nanotechnology. Strangely though, even then, it was already over.

I first came across the idea when I was at school and reading everything I could get my hands on by Richard Feynman. Back in 1959 he gave a talk called “There’s plenty of room at the bottom”. The most famous quote is perhaps:

The principles of physics, as far as I can see, do not speak against the possibility of maneuvering things atom by atom. It is not an attempt to violate any laws; it is something, in principle, that can be done; but in practice, it has not been done because we are too big.

Technology then sped ahead and many of the things that Feynman had predicted became possible — including in 1990 a team at IBM using a Scanning Tunnelling Microscope to position individual Xenon atoms to spell “IBM”. In the 1990s and early 2000s the idea started to spill into popular science led in particular by an MIT researcher who had a knack for communicating the subject — Eric Drexler. His book Engines of Creation (actually published in 1986) and all the public speaking and interviews he did raised the prospect of molecular machines, of cars and buildings made of diamond and the ‘everything box’ which would enable us to manufacture whatever we liked at home.

Then, in Europe at least, the genetic modification debate happened and there was a sense that nano could be the next technology to face a backlash. And Eric Drexler sort of disappeared. This Wired piece from 2004 paints a picture of a man pushed out of the field he helped to popularise. I’d got a sense of that the year before when I was at a conference about the implications of nanotechnology and found out that the organisers had wanted him there but their academic funders had blocked him being on the agenda.

I was reminded of all this by the article in the current issue of Wired UK which accompanies Steven Levy’s interview with Google CEO Larry Page. It’s called “A healthy disregard for the impossible: 7 epic projects that can change the world”. Almost all of them have the ring of the kind of ideas that Drexler thought nanotechnology would make possible and I wonder how much of his thinking is now around us or close to commercialisation.