Except, of course, at a hockey game. And, increasingly, in Ontario, where startups, government, industry, universities, angels, and venture capitalists are working aggressively to try to create the world’s leading technology hub.

Source: John Koetsier

Inside Waterloo, Ontario’s new $160M center for quantum computing.

“We want the world’s next biggest tech company to be built in Ontario,” the most populous Canadian province’s minister of research and innovation, Reza Moridi, told a small group of journalists recently in Toronto.

That’s aggression — even if spoken in a kinder, gentler way by an urbane, mild-mannered politician.

It also might strike some as hubris, given that Ontario’s biggest technology story to date is that of a dying smartphone manufacturer, BlackBerry (formerly known as Research In Motion).

But it’s not just words, and it’s not just the government that’s behind this effort.

Ontario’s reverse brain drain

Ontario is home to about 40 percent of Canada’s population and accounts for 48 percent of Canada’s gross domestic product. It’s the fourth-largest population center in North America, after Mexico City, New York, and Los Angeles, and it produces more cars than any other region in North America, including Michigan. Ontario also has the Americas’ second-biggest financial services sector, after New York.

More to the point, it’s North America’s second-leading cluster for technology companies, after California, and has the third-largest concentration of life sciences companies on the continent.

Source: John Koetsier

Google bought local startup BufferBox in late 2012

The government has invested $3.6 billion in those sectors, primarily, over the last decade, with two-thirds going to research and development, and one-third focused on building the entrepreneurship ecosystem.

That money has had an impact.

For years, countries like Canada and the U.K. have complained about a brain drain, with the best talent heading stateside for more options and better pay. Not anymore. In fact, quite the reverse.

“My co-founder left Silicon Valley to come here,” Cream.hr CEO Kateline McGregor told me.

She’s starting her company at Communitech, a thriving, almost frenetic community of startups, accelerators, massive technology companies, students, and coworkers in Waterloo, Ontario. An hour’s drive up the 401 from Toronto, Waterloo is a city of 98,000 that saw more than 500 startups take root in 2012. And the massive burst of innovation has not gone unnoticed.

“Something very interesting is happening here,” Google’s top Canadian employee, Steve Woods, told me. “This area has a very high proportion of startups to population. Google loves startups … and we love to hire entrepreneurial people.”

Woods himself is a Silicon Valley refugee, returning home to Canada after building several companies in the Valley. Google recruited him over the course of several years to lead its Canadian operations.

He points directly to U.S. immigration policies that pose a critical problem for both startups and large, wealthy corporations such as Google. Getting into the U.S. to build a company or join a startup is notoriously difficult and expensive.

Where Woods works: This Google office has a real fireman’s pole, slide, cattle walkway, and more (gallery)

Meanwhile, Canada has just recently taken even more steps — such as the Startup Visa — to make it simpler, quicker, and cheaper to come to Canada.

“Because of visa situations, Canada has received a disproportionate amount of the talent that is coming into North America,” Woods said.

All of that translates into a significant competitive advantage for Canadian startups and tech companies.

More education, more startups

Another competitive advantage, particularly in the Waterloo region, is the constant stream of high-quality students coming out of engineering, math, and computer science schools. I heard this ad nauseam from government representatives I met with, and credible sources in the industry confirmed it.

Source: John Koetsier

University of Waterloo students build startups at Velocity Garage, a for-credit accelerator-like program.

“Waterloo University produces an amazing kind of talent,” Woods told me. “It gives students a great grounding in computer science, but also by the time they graduate they’ve passed through four summers of co-op programs, so they’ve worked at Facebook, at Google, Microsoft, BlackBerry, or other companies.”

Ontario’s 44 universities produce about 30,000 computer science and engineering graduates each year, a steady flow of new talent for the province’s startups as well as established IT, life sciences, and aerospace companies.

By contrast, California — a state with about three times the population of Ontario — produces only 21,000 STEM graduates per year. The results are clear, at least for Woods.

“People that come into Google from the University of Waterloo do disproportionately well,” Woods says.

Source: John Koetsier

One of the meeting rooms at Communitech, a startup mecca in Waterloo, Ontario. Google also has an office here.

Rob Crowe, executive-in-residence for Waterloo-based Institute for Quantum Computing, the second-largest quantum computing research center in the world, agrees.  And he points out another advantage that translates to more startups coming out of key Canadian universities.

According to Crowe, a key difference between the U.S. and Canada is that many Canadian universities have followed the European model of education-funded research and development. Essentially, professors and researchers at the University of Waterloo own any intellectual property they develop, not the institution they work and teach for. That’s an incentive for academics to put their best foot forward while on faculty, and to kickstart companies when their ideas result in a viable product or company.

“This is the university that throws off more startups than any other university in the country,” Crowe told me.

Less tax, more benefits, more investment

All of the above regional traits are excellent for students, researchers, and startups, but there’s also good news for investors. Moridi’s ministry of research and innovation has helped reduce corporate tax, while also providing significant tax credits for companies doing innovative work.

“Ontario has one of the lowest corporate tax rates in North America, at 22 percent,” says John Marshall, president and CEO of the Ontario Capital Growth Corp., Ontario’s voice in two venture funds totaling about $500 million. The funds were raised partially by government, which recently announced intentions to pump in another $50 million, but mostly by venture capitalists and institutional investors.

Source: John Koetsier

Google has invested significantly in Waterloo, Ontario, hiring 200 engineers for its Canadian engineering headquarters.

The goal is simple: Invest in potential high-growth venture-stage startups in Ontario via a fund-of-funds approach that ensures industry participation and leadership in every specific investment. In other words, Marshall puts money into funds assembled by local VCs such as Omers, Northleaf Capital Partners, and Rho Canada. Those VCs in turn drive the actual investments into companies like Shopify, Desire2Learn (which recently closed an $80 million round), Polar Mobile, and BlueCat Networks.

“Our overall aim is to build the ecosystem for innovation,” Marshall says. “That includes the demand side, with accelerators and startups, and the supply side: seed funding, angel investors, and venture capitalists.”

The fund-of-funds strategy appears to be working. Two years ago the average fund size in Canada was $60 million, compared to $180 million in the U.S., but now the average Canadian VC fund is $90 million. Other venture entities, such as Intel Capital and Samsung Venture Investment, are following the money and making their own investments.

When that money gets into the hands of actual startups, it goes further, according to the companies I talked to. The reason is Canada’s federal and provincial research and development credits, which the Ontario government says are “among the most generous of the OECD countries.”

Source: John Koetsier

Ontario had 500 startups in 2012 in Waterloo alone.

Taken as a whole, those credits can reduce the after-tax cost of $100 worth of R&D to just $57 for corporations and just $39 for startups.

Fixmo CEO Rick Segal, an ex-patriate American, says those tax credits are one of the key reasons he chose Toronto as the location for his latest mobile security startup. The CEO of online advertising startup Chango, Chris Sukornyk, told me the same thing.

Marshall says that the credits simply add on to a startup environment that has long stretched every single dollar as far as it can go.

“Our entrepreneurs have already been so capital efficient by necessity,” he says, adding that now that Ontario’s entrepreneurs have access to more money, they’re still using it wisely.

That capital is starting to flow more freely lately, with VC investment up in Ontario in the past few years. But startups, who benefit most from the R&D tax credits, also have additional benefits. Almost every startup that graduates from a major Canadian accelerator such as Hyperdrive and Extreme Startups in Ontario, FounderFuel in Montréal, and GrowLabs in Vancouver, gets offered a $500,000 convertible note by the Business Development Bank of Canada.

That’s cheap and none-dilutive money, and provides more runway for startups. Most of which, realistically, need more than a three-month stint in an accelerator program to become real companies.

Ambition, meet reality

There’s no doubt that Ontario is taking smart steps with the ultimate goal of dominating the business of technology. But can it really out-innovate the innovation capital of the world, Silicon Valley?

Toronto currently ranks eighth on the Startup Genome’s list of global startup ecosystems, just above another Canadian technology hub, Vancouver. Tiny Waterloo ranks 16th with its population of just under 100,000, bringing to mind Tel Aviv, the super-fertile startup ecosystem of 400,000 people that currently holds third place.

Source: John Koetsier

Toronto’s CN Tower

In addition, Ontario officials quietly let me know that they believe Ottawa would have won a spot in the top 20 as well, if Startup Genome had analyzed the data just a bit differently. That would, of course, have given Ontario three cities in the global top 20.

But even considering the province’s leading contender, there’s still a long way between eighth and first. And every country in the world, seemingly, wants to follow the Silicon Valley model to the yellow brick road of employment and riches.

Few succeed.

VC investment in Canada overall is still just a fraction of that in the U.S., with about $1.5 billion invested in the entire country over all sectors in 2012, compared to $8.3 billion invested in the U.S.  in software alone, and another $6.7 billion just in web-based startups. In Ontario specifically, VC investment was just $603 million, compared to California’s U.S.-leading $14.1 billion.

And RIM, with revenues of $18 billion in fiscal 2012 dropping to $11.1 billion in fiscal 2013, is still probably the province’s biggest tech company.

That’s not a good sign.

Turning to BlackBerry for inspiration

Despite the small numbers, startups are increasingly choosing Ontario as home. Taxation and immigration policies as well as investments from blue-chip funds like Union Square and Kleiner Perkins are having a massive cumulative effect.

Even BlackBerry is feeding the culture of innovation in Ontario, despite being in what are perhaps its death throes.

Fixmo CEO Segal says BlackBerry has been an amazing influence in Ontario, and continues to be influential. “There are lots of alumni from RIM, both voluntary and involuntary,” he says with a wry grin.

Marshall says the growth of BlackBerry from nothing to its heights as the first key innovator of the smartphone revolution has had its own impact, regardless of the company’s current situation.

“Now you’ve got kids coming up who saw their parents do it,” he says. “So they believe they can do it too.”

500 new startups in Waterloo in 2012 alone attest to that fact.

In the against-all-odds world of the startup, belief is the key ingredient of success.

Image credits: John Koetsier

Disclosure: Ontario’s ministry of economic development invited VentureBeat to visit the province, and paid my expenses. My reporting, however, remains my own.

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Big Data and Predictive/Real-time Analytics startups: Are you looking to jumpstart development & accelerate market traction? Sign up for the SAP Startup Focus program to receive technology, support, resources and community to help you develop new applications on SAP HANA, a cutting edge database platform. Get started here, and enter promo code “VB2013″ on the form.

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I’m in Ontario, Canada, on a press junket put on by the government to highlight the startup scene in Canada’s most populous province.

40-50 percent of venture capital in Canada is put to work in Ontario, which is pushing past traditional industries and looking for investment and jobs in high-growth technology-focused companies. Those traditional industries include automotive — more cars are built in Ontario than anywhere in North America, including Michigan — and financial services, which employs more people in Ontario than anywhere else in the Americas besides New York.

But the most interesting stat is about the burgeoning startup scene, particularly in Waterloo, Ontario. Toronto is the big kahuna in southern Ontario, with a population of over 2.6 million. But Waterloo is where Google, Oracle, EA, and Intel have set up offices, where BlackBerry grew from nothing to leading the smartphone industry, and where startups are popping up incredibly fast.

BlackBerry, of course, is quickly returning to nothing, but as often happens in the tech industry, the cycle of creative destruction is resulting in a whole new cohort of hot young startups.

“Waterloo and the culture of startups there is because of RIM,” John Marshall, the president and CEO of the Ontario Capital Growth Corporation says. “You’ve got kids coming up who saw their parents do it.”

While it’s a little early to call BlackBerry dead, the fact is that former Research in Motion is indeed in motion, downwards. Apple, Google, Android, and Samsung have taken over market leadership in mobile phones, and Microsoft looks to be passing BlackBerry with Windows Phone.

But the result has been a two-track acceleration of southern Ontario’s entrepreneurship engine. First, as Marshall says, new blood sees that global success is possible. And second, the high-tech workforce shed by a downsizing BlackBerry feeds the founding and growth of small startups.

That’s music to the ears of Ontario officials like Bill Mantel, the assistant deputy minister of the Ministry of Research and Development, which has invested $3.6 billion over the past decade in the startup ecosystem: R&D, seed funding, and ecosystem improvement.

“We want the world’s next biggest tech company to be built in Ontario,” Mantel says. “It’s about job growth … about half of all job growth is provided by the 3-4 percent of high-growth companies.”

That includes companies like Desire2Learn, located about 12 minutes away in Kitchener, Ontario. Desire2Learn has gone from 400 employees to 800 in a matter of months as it took the largest VC investment into a single company in Canada — $80 million — just last September, after bootstrapping for almost a decade.

The results are also visible elsewhere.

“In the StartUp Genome report from last year, Ontario had two cities in the top 20,” Mantel says. “Toronto was eighth, Waterloo was 16th, and we think Ottawa should have made the list too.”

There hasn’t really been the emergence of a BlackBerry mafia, in the sense that the PayPal mafia has kickstarted whole waves of startups in Silicon Valley. But perhaps, in a backwards sense, BlackBerry has had a similar effect in southern Ontario.

photo credit: miggslives via photopin cc

Disclosure: Ontario’s ministry of economic development paid VentureBeat’s costs to send me on this tour of Ontario companies and the venture capital scene. My coverage, however, is my own.

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Big Data and Predictive/Real-time Analytics startups: Are you looking to jumpstart development & accelerate market traction? Sign up for the SAP Startup Focus program to receive technology, support, resources and community to help you develop new applications on SAP HANA, a cutting edge database platform. Get started here, and enter promo code “VB2013″ on the form.

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A Moneyball-style revolution is taking place in venture capital.

Just as the renegade general manager of the Oakland A’s flouted assumptions about baseball and replaced gut feelings and outdated statistics with more effective quantitative analysis, a new breed of venture capital firms are throwing out their Magic 8-balls and are using computer-based models to make smarter investments.

“The bottom line is that the game has changed … and there is a lot of digital exhaust out there,” said Chris Farmer, a partner at General Catalyst, which is considered one of the more progressive of the older VC firms.

Before it pours thousands of dollars into researching a potential investment (work typically performed by a well-paid associate), a small cadre of venture firms are using analytics tools to pull in megabytes of relevant data, whether it’s a game’s performance in the various mobile app stores or conversations about a new e-commerce site on Facebook and Twitter.

Relying on instinct simply isn’t good enough anymore.

If algorithms can predict the results of elections, why not the success or failure of a tech startup? Washington D.C. woke up to the power of data when numbers-cruncher Nate Silver proved critics wrong and delivered a gut punch to traditional punditry by accurately predicting the outcome of the presidential election.

In Silicon Valley, new firms are going a step further by creating an entire investment thesis around data. “Algorithms will be the heart and soul of due diligence — it’s not just a sanity-check mechanism,” said Matt Oguz, the managing partner of new investment firm Palo Alto Venture Science. “It’s the only way to cut through human bias.”

Oguz is taking a cue from Wall Street, which has been using algorithms for years to track the rise and fall of stock, and the macro-shifts in the financial markets. According to him, it’s only a matter of time before this algorithmic approach seeps into the private investment market like osmosis.

He is one of a growing number of investors developing algorithms. Some are vocal about their research, while others are keeping it quiet to prevent competing firms from following suit.

This next generation of venture capitalists are fixated on a billion-dollar question: Can an algorithm predict whether a tech startup will succeed or fail?

Venture capital is a numbers game

I recently received an invitation to meet a partner of a leading venture capital firms at a San Francisco coffee shop. The investor popped open his laptop to reveal a snippet of a “stealth” project he’s been working on for years.

At face value, it did not appear to me much more than a series of nondescript charts and graphs. However, he explained that this is the nascent research behind an algorithm that can take much of the guesswork out of venture capital.

In response to my befuddled gaze, he traced his finger over a graph that charts the rapid ascent of Facebook. At a certain point (marked in red on the graph), the algorithm triggers an alert: Facebook has become its own market. At that point, it is wise to invest in a company that would make money by piggy-backing off the social network, like Buddy Media. This is the most basic approximation of how the data might work to his advantage — but it illustrates the point.

This investor requested to remain anonymous. He is in no rush to pass on his research to competing firms with budget to throw at the problem.

Pages: 1 2 3

The 7 signs of failure for internet startups — Bjoern Lasse Herrmann, who leads the Startup Genome project, offers a sneak peek at his team’s research.

How many ways can THQ’s Space Marine game rip off Gears of War? — VentureBeat’s Dean Takahashi says the sci-fi game may be set in the fabled Warhammer universe, but the style and game play look so much like Gears of War that it’s embarrassing.

Flip creator gets into the grilled cheese business, Sequoia invests — Well, this is … unexpected. Jonathan Kaplan, who previously led the company that created the Flip camera, announced his new project on-stage at the D9 conference — and it’s a grilled cheese company.

VentureBeat’s most anticipated games of E3 2011 (take our poll) — The E3 video game trade show will draw about 45,000 attendees to the Los Angeles Convention Center next week. We aren’t sure of all of the big titles being announced, but we attended the pre-E3 judge trip a couple of weeks ago as part of the Game Critics Awards group and we have a good idea of what the big games will be.

U.S. defense supplier Lockheed Martin hit by cyber attack — An unknown cyber incident recently hit Lockheed Martin — the world’s largest aerospace manufacturer and the top supplier to the Pentagon — but was successfully neutralized by the company.

And here are five more posts we think are important, thought-provoking, or fun:

Google still doesn’t get games, bans emulators on Android Marketplace — The move is another slap in the face of Google’s budding gaming populace.

Apple paying music labels $100M-$150M for iCloud — Apple is reportedly paying the four major music labels in the US between $100 million and $150 million in advance of launching its music streaming service iCloud.

Groupon CEO to shareholders: Get ready for “a bumpy ride” — Even though Groupon’s IPO filing is dominated by the usual financial numbers and corporate-speak, a little bit of the company’s mischievousness sneaks through.

Zynga launches its first combat social game, Empires & Allies — The Empires & Allies game is a big switch for a company that has focused on non-violent casual games to date such as FarmVille and CityVille.

Asus takes on Macbook Air with UX21 ultrathin laptop, new Eee PC – Asus debuted its new UX21 ultrathin laptop this week at the Computex conference in Taipei.

In April 2010 I received an email that said, “I’m an incoming Stanford student in the fall and working on a project that a number of people suggested I get in touch with you about.”

Ok, I get a lot of these. Is this some grad student or post doc who wanted to do some independent study?

The email continued,  ”The problem I’m working on is that many founders are either making uninformed decisions or inefficiently learning the new skills they need. The solution I’m exploring is a just in time learning methodology that accelerates founders’ learning curve by aggregating relevant content, peers and mentors.”

Hmm, now I’m getting intrigued. This sounded like one heck of an interesting guy and it’s a subject I care about. I wondered where he got his MBA from?

The email closed by saying, “The project is a hybrid between academic and entrepreneurial circles and I’d really love to begin a dialogue with people in the academic world also interested in solving this problem. Your name has come up a lot in that regard. Let me know if this interests you and if you have any time to speak.”

It was signed Max Marmer.

I set up a meeting and at Cafe Borrone some kid who looked 18-years old came up to me and introduced himself as Max. “How old are you? I asked. “18,” he replied.

Holy #&!*.

When I asked Max why he was interested in solving entrepreneurial education problems he replied, “I was always interested in big picture trends for where the world is headed. I spent time with organizations like the Institute for the Future and Singularity University. My conjecture became that the world’s biggest problem isn’t poverty or disease or any oft-stated major problem, but that we don’t have enough people engaged in trying to solve these problems. A big piece of the solution lies in the scalable impact of entrepreneurship and an increase of successful entrepreneurs. But potential impact consistently fails to be realized because of self-destruction.”

I don’t think I touched my sandwich. I tried to remember what I was doing at 18 and whatever it was I wasn’t this. Max continued, “That’s why I’m really interested in ways of optimizing the entrepreneurship ecosystem to allow more entrepreneurs to go from idea to reality. To do this requires: a methodology, tools and systematically reducing friction.”

I was feeling pretty old. Max set the record for smarts divided by age.

Max entered Stanford in the fall of 2010 as a freshman, took as many of the engineering entrepreneurship classes as he could and independent study with me. (He was part of the Sandbox network – a group of incredibly smart under 30 year olds.)

Max dropped out of Stanford after his first quarter.

But he left to work on what he told me he came to do - crack the innovation code of Silicon Valley and share it with the rest of the world. He set up Blackbox.vc, a seed accelerator for technology startups (and one of the tour stops for entrepreneurs from around the world.) They went to work gathering deep knowledge of what makes successful Internet startups.

Max and his partners interviewed and analyzed over 650 early-stage Internet startups. This week, they released the first Startup Genome Report— a 67 page in-depth analysis on what makes early-stage Internet startups successful. Here are some of their key findings:

1. Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.

2. Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52 percent less likely to scale prematurely than startups that pivot more than 2 times or not at all.

3. Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.

4. Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)

5. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.

6. Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.

7. Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.

8. Balanced teams with one technical founder and one business founder raise 30 percent more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.

9. Most successful founders are driven by impact rather than experience or money.

10. Founders overestimate the value of IP before product market fit by 255 percent.

11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.

12. Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.

13. Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.

14. B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.

———

I’m not sure I believe every one of the report conclusions – it just covers very early stage web startups, and the methodology is still shaky – but this is a landmark study. I think these guys have gone a long way to turn hypotheses about early-stage Internet startups into facts. And they’re just getting started.

I can’t wait to see what Max does by the time he’s 21.

Two months ago, my team at Blackbox set out on a mission to crack the innovation code of Silicon Valley and share it with the rest of the world. Now we are releasing a report based on the results of our first survey. We want to thank Sandbox, FastCompany, Inc., ReadWriteWeb, Hackernews, youngupstarts, Yourstory.in and many more who helped us spread the word and gather a total of 650+ survey results. And a special thank you to all our fellow entrepreneurs who shared information about their company for this cause.

Here is a sneak peek of our results, showcasing 7 signs of failure:

1. Not Working Full Time
If you decide to start a company, don’t do it half-hearted. Creating something from nothing is hard. Succeeding almost always requires going all in. Temporary moonlighting is permissible but significantly curbs performance and potential.

Many times we hear people say they will work half time until they have raised money. Here you can see that people who work half time are able to raise money, but about 24x less than founders who go full time. They also have trouble building up the intensity required to drive the user growth needed to validate interest in their product. Working full time is especially critical for startups with a product that requires critical mass to be valuable.




2. Solo Founder or 4+ Founders
If you make the commitment to go full time, your first big challenge is to convince someone else to join your company who will fully commit to making the company successful. If you can’t convince at least one person to join you, or you believe you can do it all yourself, it is a strong signal the company isn’t likely to succeed. However, trying to find safety in numbers by having too many people to join the founding team doesn’t turn out very well either. The right number seems to be a founding team of two to three people.
●    Solo founders raise less than 50% of what 2-3 founders raise. One reason for this is that during fundraising, solo founders are now forced to split their time and attention between the product, the business and raising money.
●    Solo founders have 290% less user growth and are 16% more likely to scale prematurely than founding teams of 2-3.
●    More than 42% of the startups that are moving more than 20% slower than the average time needed to reach the scale stage are solo founders.

3. Don’t Have a Technical Cofounder
If you start a technology company and nobody on your team is technical, you are unlikely to succeed. Unless the company is in a very sales-intensive market, the founding team should be at least 1⁄3 technical, 50% ideally. However, too many cooks in the kitchen are not good either.

The first problem you have by not having someone technical as part of the founding team is that you do not have anyone who has full ownership of the product. The business founder doesn’t own the product because they don’t understand the code, and the employees or consultants don’t own the product because the company is not theirs. As a result, companies with no technical cofounder are almost twice as likely to scale too early. They also have 3-5 times less user growth on average and need 7-8 months longer to reach the scaling stage.

4. Wrong Founding Team Composition for the Wrong Type of Startup
Once you’ve found your team, you should make sure to tackle a market and build a product that suits the strength of your founding team.

We identified three major types of Internet startups with various sub-types. They are segmented based on how they perform customer development and customer acquisition. Each type has different time, skill and money requirements.

The Automizer (Type 1)
Common characteristics: self-service customer acquisition, consumer focused, product centric, fast execution, often automize a manual process.

The Social Transformer (Type 1N)
Common characteristics: self service customer acquisition, critical mass, runaway user growth, winner take all markets, complex ux, network effects, typically create new ways for people to interact.

The Integrator (Type 2)
Common characteristics: Lead generation with inside sales reps, high certainty, product centric, early monetization, SME focused, smaller markets, often take innovations from consumer Internet and rebuild it for smaller enterprises.

The Challenger (Type 3): Large but rigid markets, strong sales, enterprise market
Common characteristics: enterprise sales, high customer dependency, complex & rigid markets, repeatable sales process.

These graphs show business heavy founding teams are more likely to succeed with a startup that requires enterprise sales, whereas technical heavy founding teams are more likely to succeed with a self-service consumer Internet startup. Balanced teams perform well with all types of startups except those that require a lot of enterprise sales.

For example, in our data set, 35% of business heavy founding teams were doing Type 1 “Automizer” startups before product market fit. But after product market fit only 12% of the business heavy founding teams were doing Automizer startups. This decrease indicates that business heavy founding teams do not do as well with Automizer startups.

5. Don’t Pivot at All or Pivot Too Often
If you have finally found the perfect founding team and a product and market suited to your team’s strengths, your next big challenge is having the determination to make your vision a reality while being flexible in how this is achieved. The chances that you will need to modify some significant aspect of your business is very high. When real-world feedback shows you that something isn’t working, you need to adapt. However, changing your business too frequently will leave you running in circles. We have found that founders who pivot 1-2 times have 100% more user growth and are 48% less likely to scale prematurely. (We told founders to consider a pivot a major change in their business.)

6. Don’t Listen to Customers
Pivoting is almost always a decision that is made with incomplete information and under conditions of extreme uncertainty. But taking the time to gather feedback by interacting with customers significantly increases the odds of making a good decision. We have found that startups that track their metrics and listen to customers have 400% more user growth.

7. Scale without Validating Market
Lastly, one of the most critical mistakes we found is that founders get too anxious about making progress and scale their company prematurely, before validating their market and streamlining their customer acquisition process. If they have raised a lot of money or have a lot of determination, the result is typically a slow death. If they have neither, then a speedy death is likely.

The following graphs show that startups that scale after product market fit raise 3.2x more money, and have 1.5x more user growth. Interestingly, startups that scaled prematurely had been working just as long as startups that scaled appropriately.