It's one part Y Combinator, one part “Hell’s Kitchen.”

Learning From Tech Startup Best Practices

“Food companies can really learn from the tech world,” says Krysia Zajonc, CEO of Local Food Lab in Palo Alto, where the inaugural fall class of 12 startups included Brunched in the Face (an all-day brunch truck) and LifeBites, which makes energy snacks made from a traditional South African recipe. “In the food world there’s this idea that if you have your grandma’s recipe, you can put it out there and just because you love it the whole world will love it. But imagine saying, ‘I created an app that my grandma loves, so everyone else will love it too.’”

You may or may not love those South African snacks (peanut-corn butter?) but LifeBites must be onto something, because Local Food Lab accepts only startups that have strong business potential (and that fork over the $2,500 enrollment fee). It then puts them through a six-week program to instill the basic best practices of tech startups, like product iteration and testing, data collection, capital efficiency and community engagement.

Local Food Lab CEO Zajonc went to Stanford and Columbia Business School. She’s worked with farmers, producers and buyers of organic food - plus she’s worked at Facebook. She thinks the food business is begging for innovation, so she put together Local Food Lab at Columbia’s Eugene Lang Entrepreneurship Center and launched last fall with cofounders Mateo Aguilar and Laura O’Donohue.

Is Food A Better Startup Market Than Tech?

“The market doesn’t work for all but a very few very large companies,” she says. “And the market size for food is a trillion dollars. So it’s a huge opportunity for lots of cool ideas to make the system more efficient by applying the playbook developed by tech startups.”

Thanks to a new “cottage food” law in the state, it’s now possible for California food entrepreneurs to start up in their garages, just like Steve Jobs (who, incidentally, would go for weeks eating only one thing, like carrots - after which, according to biographer Walter Isaacson, he would assume “a sunset-like orange hue”). The new California law makes it legal to sell up to $50,000 worth of food you made in your home kitchen.

“So you can literally have a food garage startup and test $50,000 worth of product before you have to rent an expensive shared-use kitchen or find a factory,” Zajonc says. “It makes food startups radically affordable for the first time.”

Cook Up Lunch? Or An iPhone App?

And a lot easier than, say, enterprise software. Zajonc reminds Local Food Lab startups that they can get from concept to product in very lean fashion. Say you’ve got an idea for a great new energy snack. You can cook up a recipe (beta development), hand it out to people at the Sunday farmers market (user testing) and watch their facial expression as they chew (data collection).

“Tech startups have disrupted so many different industries,” Zajonc says. “The food industry is ripe for disruption too."

And there's another key benefit. "It’s true you can’t recreate the Silicon Valley ecosystem in other places but you can absolutely create a local food economy any place.”

Image courtesy of Jeff Whyte / Shutterstock.

Kedrosky shared six thoughtful insights about what the future is likely to bring. Most of them could be seen as warning signs, but there are some bright spots sprinkled in there as well.

1. Accelerators Will Slow Down

Startup accelerators were a big story in 2012. By the midpoint of the year there were more than 200 accelerators worldwide, attracting twice as many applicants as they did just two years ago. Recently, however, it's become clear that most accelerators were not turning out viable companies. And now we're seeing the first signs of an accelerator slowdown. Y Combinator, the world's leading accelerator, cut its funding to $80,000 from $150,000 per company and reduced its next class to less than 50, down from 84 in the most recent group.

"I think this will turn out to be the peak," Kedrosky said, "But that does not mean things will tail off dramatically" because accelerators are relatively cheap to start. "This move by Y Combinator is significant... This was not a gut decision but one that was empirically driven by the quality of the incoming classes they were seeing. And what they saw happening with their outgoing classes and their propensity to raise funding."

2. The Enterprise Will Strike Back

Revenue. What a concept. It took a few years - and a few thousand failed consumer internet startups - but investors have gone back to the basics and now demand that companies they fund have income, not just a lot of Web users or app downloads. That means more funding for startups targeting the enterprise in 2013, less funding for startups aimed at consumers.

A related trend Kedrosky sees is the return of discipline. "You won't see crazy valuations," he says. "Discipline went out the window the last few years - and it comes back in 2013."

3. The Cash Gap Will Fix the Talent Gap

The toughest job for startups in recent years was not pulling investment but attracting talented people. With funding freely available, companies launched right and left. Combine that with ever-present competition from high-paying tech giants like Facebook, Google and Twitter and you've created a severe talent shortage.

Kedrosky predicts the talent gap will be closed in 2013. "I notice that good startups are now composed of a group of people who two or three years ago would have been out doing their own thing," he said. "Now they're happy to work as team that has a real chance of going somewhere. The reason for that is the cash trade. Cash now versus cash later. It's generally accepted that cash later is going to be a lot harder to come by, whether it's in the form of funding cash or exit cash."

4. Venture Capital Will Rebound

Everyone's talking about the coming Series A funding crunch. Kedrosky thinks it will be eased by the return to the venture market of big investors like pension funds. They've been staying away from venture funding after getting burned in the downturn - but they're beginning to come back.

"That's been the story for the last six years, actually - Limited Partners (LPs) shying away from the asset class," he said. "But I think this is the end of the venture market contraction. I think these LPs will stop cutting their commitment to venture funds because they see it as a lottery ticket in their portfolios. The rate of new venture partnerships getting funded will be the highest in a decade or more next year. As a result, that will change the dynamics in the market fairly materially."

5. Startup Ecosystems Will Go Extinct

Countries from Chile to Turkey have tried to cook up their own startup ecosystems in the past couple of years. Most have discovered just how difficult it is to make a Silicon Valley from scratch. You can't simply choose a local geographic feature, attach the word "Silicon" and wait for the high-tech boom.

"My feeling is that these efforts will prove to have been mis-timed to the market peak," Kedrosky said. "I'm not optimistic about the success of these startup ecosystems and that will begin to show next year. Too often these first attempts are sheer mimicry of what's happening in Silicon Valley. 'Let's do what the U.S. is doing but let's do it years later.' That's not sustainable. It's not the basis for building a fertile ecosystem."

The upside is that a lot of young people got their first taste of entrepreneuring and may very well be more successful the next time around. "This first wave will end badly," Kedrosky says, "but they could go on in the future to do bigger and better things."

6. Big Data Will Crash

Big data startups were a big deal in 2012. But the big data sector is in for a large letdown in 2013, Kedrosky predicted. "We've hit the end of that cycle. We'll soon start to ask, 'Why there were so many startups in big data and how come so many got funded?' People will have post-funding regret in the space."

As clean-tech startups were revealed to be unsuccessful in 2012, Kedrosky forecasted 2013 will be the year that exposes big data startups. "It will be revealed that data alone is not enough for these companies to make money. In the past, the thinking was, 'If I have enough eyeballs I can make money.' That proved to be wrong. In the same way, just having the data will also prove to be wrong in terms of being able to make money... What really matters is having a paying customer."

None has succeeded. The Dropboxes and Instagrams of the world still flock to the original Silicon Valley.

First Choice For Second-Tier Startups?

But if you’ve got a startup that is not quite as hot as a Dropbox or an Instagram, there could be a good reason to consider one of those other startup ecosystems. You won’t get Marc Andreessen’s number at the next rooftop party. But there’s something else you won’t get: ignored.

“Our startups get tons of hands-on support - much more than they’d get almost anywhere else in the world,” says Lorcan O’Sullivan, manager of Enterprise Ireland, one of the latest of the many campaigns by governments around the globe to attract startups to their shores and inject new life into their local economies.

Enterprise Ireland has a fund of €10 million to dole out. Startups that relocate to Ireland can get between €100,000 and €500,000 each. Those that are accepted must arrange private-sector funding in an amount equal to the Startup Ireland funding. Startup Ireland does not take a seat on the board but does take 10% equity. That’s more than top U.S. accelerators like Y Combinator take (normally around 6%) but O’Sullivan says Enterprise Ireland gives more in return, particularly to startups in sectors where Ireland is strong, such as medical devices, pharma and IT.

“Of course, a good startup can get funding anywhere. But we think we have extra things to offer.”

Ireland Can Help With Going Global

Enterprise Ireland has so far attracted entrepreneurs from the U.S., Russia, Belarus, England, Greece and South Africa. Many of them are outfits that want to internationalize but don’t know how to do it. “We have a network of 28 offices around the world that are at the disposal of our startups to make business connections and gain access to customers and partners,” O’Sullivan says.

Some of Enterprise Ireland’s startups joined the program because Ireland is the easiest place in the EU to launch a business. One startup in the medical device field that joined recently was attracted by the favorable regulatory environment.

“We hope to attract a wide range of startups, even those who have a reason to leave the U.S.,” O’Sullivan says. “These could be entrepreneurs who can’t get a visa in the U.S. but can get a visa in Ireland, because we have very attractive startup entrepreneur visas here.”

For all his country’s advantages - lower taxes and costs than Silicon Valley - O’Sullivan says he realizes that entrepreneurs with a good shot in the U.S. will not choose Ireland, especially given all the negative economic news about the country of late, including its recession and debt.

“People think, ‘Why would I go to Ireland? There is not money or jobs or anything happening there.’ But we want to say there is very vibrant startup scene here. Are we going to replicate Silicon Valley? No. But you can still be very successful without being Silicon Valley.”

Lead image courtesy of Shutterstock.

Blame Facebook. Blame Groupon and Zynga. All of them had a discouraging year and their flaccid performance caused a lot of investors to cringe and scroll feverishly at their touchscreens in search of enterprise startups to fund.

For perspective on 2012, we talked to Jeff Fagnan, partner at leading venture capital firm Atlas Venture and an investor in early-stage startups since 2000.

"We've seen a pendulum swing in where the early-stage money is going," Fagnan said. "I don't know if we saw a full-scale shift among the entrepreneurs themselves away from the consumer to the enterprise but I did start to see a blurring between the two spaces. There is no shortage of interesting consumer Internet ideas that will get funded, but I did really see a shift in the public mentality and VC mentality away from the consumer side."

Series A, Not to B

 The 2012 Bad-Timing Award goes to those founders who launched consumer startups - and to the investors who funded them. A lot of these companies will not land follow-on rounds. So where do they go from there? Some may join forces, because the constraint in today's market is talent more than money.

On the other hand, "some people will say, 'I'm done. I've got a failed startup. I'm going back to work at Google,'" Fagnan said. "There is huge amount of seed velocity and there can only be so many Series A companies, so there will be a lot of seed startups that don't make the leap."

Worse, that leap is harder than ever, because the bar has been raised. A lot of companies have been funded, a few have gained traction and soared - and made the rest appear insignificant by comparison.

Touched by an Angel

AngelList transformed the startup landscape in 2012. The site, which enables startups to connect with investors and talent, has channeled more than $2 billion in funding for early-stage innovation. It has facilitated over 20,000 talent matches.

AngelList has demystified the black box of venture capital and flattened the old geographic barriers to funding. "Sitting here in New England, I used to have a hard time hearing about startups in Calgary or Louisville," Fagnan said (Disclosure: Fagnan is an investor in AngelList). "Now, suddenly, I hear about them, because they're presented in a taxonomy and social graph that I recognize. Tech entrepreneurship used to be this coastal phenomenon of the Bay Area and Boston. AngelList is democratizing the angel universe across geographies."

Crowding In

By some estimates, crowdfunding platforms will one day provide startups with as much as $300 billion, ten times the amount now deployed in the venture sector. Crowdfunding is not there yet, but the total will still hit$3 billion this year, says Crowdsourcing.org, with the crowdfunding market growing at an annual rate of 63%.

"That is hugely exciting," Fagnan said. "Yes, some people say it's bad for VCs. But crowdfunding s is good for society in terms of creating hell of lot more innovation and entrepreneurship."

Desperately Seeking Talent

The final big startup story for 2012 is talent. It's now the coin of the startup realm, as attracting good people has become more difficult than getting investment. It's simple supply and demand. Thousands of startups are launching and hiring, at the same time that giants like Google, Twitter and Facebook are hoovering up any and all competent tech people.

"The talent issue has been going on for a few years but this year was the most challenging and severe," Fagnan noted. "It definitely took the cake."

Image courtesy of Shutterstock.

Yes, harder to fit on a souvenir coffee mug but a much more accurate handle. A recent study by business research firm CB Insights shows Stanford dominates all other universities in the field of alumni entrepreneurship.

The first-ever University Entrepreneurship Report tracks companies founded by or led by alumni (and dropouts) from six top U.S. schools - Stanford, Harvard, UC Berkeley, New York University, University of Pennsylvania and MIT - and the funding they've received.

Stanford alums have raised $4.1 billion in 203 financings. Harvard alums are second, at $3.8 billion in 112 financings. But strip out Facebook and Harvard funding drops to just $1.8 billion.

"We did go into the study thinking Stanford would stand out from the crowd but we were surprised at how much they dominated," says CB Insights CEO Anand Sanwal. "The level by which they have a lead was more eye-popping than we imagined."

The University Entrepreneurship Report is of interest to a lot of different groups. Schools like Stanford and Harvard, which used to churn out a lot of investment bankers but have pivoted from that focus, want to see if their shift is paying off.

Where Are The Hotshot Startup Founders?

Investors, of course, want to know where to find the hotshot entrepreneurs.

And the report is of interest to local groups because it also measures "alumni leakage." Are smart students soaking up community resources then leaving town to start companies and employ people elsewhere? Stanford and Cal alumni usually stay put, which is not surprising since Silicon Valley is next door. Harvard alums tend to start companies in places other than Massachusetts - mostly Silicon Valley and New York - but MIT grads are less mobile.

"That speaks to the nature of the startups coming out of those universities," Sanwal says. "When you're dealing with the hard sciences, like at MIT, you might need ongoing access to the specialized talent of the universities and the professors, so you might stick closer to your alma mater. Whereas if you're in tech or social media, you don't necessarily need to be tied to Boston, so you're more inclined to go where the money is."

A Different Kind Of Diversity

At all six universities studied, tech startups attracted the most funding. But Berkeley and MIT alums founded more companies in industries outside of tech.

"We were surprised by the diversity of startups coming out of Cal and MIT and the general lack of diversity of startups elsewhere," Sanwal says. "I expected to see more overall in the life science and clean tech realms at the other schools. I think Cal and MIT are more progressive and forward-thinking when it comes to commercialization of research."

What About Your School?

If you're wondering why your own alma mater is not included in the report, CB Insights chose these six schools because they have the most data. They're also the six with the most entrepreneurial alums.

"We've had a lot of other universities calling us and asking why they're not in the report," Sanwal says. "It really came down to how much data we could capture. A lot of people said why didn't we include University of Chicago, because that's where Groupon started. We wanted schools where there was a consistency of funding across many companies, not just a blip with one hot company." (Or, these days, not so hot.)

Why Stanford Wins

So why is Stanford the big winner? A lot of credit goes to the school's emphasis on technology. A lot also goes to the many angels and VCs who live in the neighborhood. They like to support the home team, as do investors everywhere.

"Boston firm Highland Capital is most active at MIT, New York firm Union Square [Ventures] is most active at NYU and Silicon Valley firm DFJ is most active at Stanford," Sanwal says.

And what about students who want to found tech companies some day. Does this study point the way to the best colleges for them? Sanwal seems to think so: "This begs the question: do you have to go to a top school to get funding for your startup?" he said. "I don't see that changing. It's not just what you know but who you know."

And in other news, the sun will rise in the east tomorrow.

But the Startup Ecosystem Report 2012 does a lot more than reiterate the obvious, it brings to light the very real differences between the world's top spots to start a company.

Conducted by Startup Genome and funded by Spanish group Telefonica, the report compared startup hubs in eight categories:

1. Startup Output
2. Funding
3. Company Performance
4. Talent
5. Support Infrastructure
6. Entrepreneurial Mindset
7. Trendsetting Tendencies
8. Ecosystem Differentiation

Sure, Silicon Valley is far and away the strongest startup region anywhere. (See the end of the story for the complete list.) But did you know the Number Two startup ecosystem in the world is Tel Aviv? Did you know founders in Silicon Valley work longer hours than founders anywhere else?

Here's some other eye-opening info from the report, highlighted by Startup Genome founder Bjoern Lasse Herrmann.

Boston Is Sinking in the East

"This ecosystem has a lot of funding from angels and accelerators and VCs," Herrmann says, "but it has a small output of companies." Boston, which ranked Number 6 in the Ecosystem Index, "is declining dramatically," Hermann notes. "Boston has lost its previous leading position as the innovation and high-technology entrepreneurship center on the East Coast."

The problem: Boston got sidelined in the social media game. "They were previously strong in industry and the enterprise and this is the foundation of their talent," Hermann says. "They're not so strong in social media, especially compared to New York and L.A. However, with big data and enterprise software companies coming back into fashion, you might see a renaissance in Boston."

Women Love New York

New York checked in at Number 5 in the Ecosystem Index but it's the global capital of female tech entrepreneurship. One-fifth of New York's entrepreneurs are women and it's home to twice as many female-run startups as Silicon Valley.

"I guess there are a lot of reasons for this," Hermann says, "but what is really interesting is that the number of female entrepreneurs has not influenced at all the performance of the ecosystem. It's neither better nor worse. It's more of a cultural difference."

He says anecdotal evidence indicates New York attracts women entrepreneurs because startups there tend to be in areas more appealing to women, like ecommerce and media. "Also I think New York as a place is just more attractive to women than Palo Alto."

Los Angeles Is Old School

L.A. culture in general is all about youth. But not its startup culture. Ranked Number 3 in the Ecosystem Index, Los Angeles has the most experienced and oldest entrepreneurs in the world, with an average entrepreneur age of 38.2.

"And then by far the youngest ecosystem was Moscow, with an average age of 27.9," Hermann says. "In Moscow it's a very fast-paced environment where big shifts are happening in society. And for young people there is no defined career path, so it's more common to start companies because there is really no other option for them."

Canada Is Cash Poor

Toronto ranked number 8 in the Ecosystem Index, but startups here are 17% less likely to monetize directly than Silicon Valley startups. While startups in Vancouver, which came in at Number 9, get 80% less funding than Silicon Valley startups, likely due to a significant shortage of angels and VCs.

"The Canadian ecosystem has long complained that their startups receive less funding than their U.S. counterparts," Hermann says. "This data validates what they have long suspected."

Some ecosystems are overhyped. Canada is "underhyped." Hermann says. "Places like Toronto and Vancouver, people don't talk about them too much. And that is partially because of the cultural aspect of those ecosystems. New York is naturally better at self-promotion than Toronto."

Chile Is Heating Up

Santiago, Chile, is number 20 in the Ecosystem Index and is "a really an up-and-coming ecosystem," Hermann says. "It's proof that a program like Startup Chile can be impactful." (See Move Your Start-Up To Chile-con Valley, Get $40,000.)

Startup Chile is a government-sponsored effort to attract and support entrepreneurs from inside and outside Chile with cash and services. It has delivered quickly, while other aspiring startup ecosystems have spent more money and flopped.

"Santiago proves that by attracting talent from all over the world you can have a profound effect," Hermann says.

Index Aims to Help Ecosystems Evolve

Hermann says the Startup Genome report has many goals. To give insight to the strengths and weaknesses of different startup ecosystems so investors and policymakers can build on strengths and work on weaknesses. To help entrepreneurs decide where they want to set up their companies. To enable investors to identify funding gaps in ecosystems and fill them with early-stage or late-stage funding, depending on the ecosystem's needs.

"Finally, I hope this report can inform policymakers, help them understand startup ecosystems and help them to make better decisions," Hermann says. "Most of time they are not successful with what they do. They just build some science park."

The Top 20:

1. Silicon Valley, California
2. Tel Aviv, Israel
3. Los Angeles, California
4. Seattle, Washington
5. New York, New York
6. Boston, Massachusetts
7. London, England
8. Toronto, Canada
9. Vancouver, Canada
10. Chicago, Illinois
11. Paris, France
12. Sydney, Australia
13. Sao Paulo, Brazil
14. Moscow, Russia
15. Berlin, Germany
16. Waterloo, Canada
17. Singapore
18. Melbourne, Australia
19. Bangalore, India
20. Santiago, Chile

To stay in the game, startups need three things:

1. Money
2. Talent
3. Customers

But with competition so intense, founders are finding it extremely difficult to attract those vital ingredients.

Naval Ravikant is the founder of AngelList, which connects new startups with funding and talent. Recently he asked the entrepreneurs who use his service what things they need and how hard it is for them to get those things. The results of his informal survey show a lot of startups are going hungry.

What Startup Resource Is Hardest To Find Right Now

"In the past, funding was the biggest need but today it's recruiting," says Ravikant, himself a serial entrepreneur who founded Epinions and Vast.com, and currently runs HitForge and Venture Hacks, in addition to AngelList.

After recruiting comes funding, then advisers. "That's followed by social-media marketing and press, which really is another way of saying, 'We need lots of customers.' After that comes cofounders, which

is really interesting."

Interesting because, although cofounders is halfway down the needs list, the fact that it's there at all is yet another indicator of how difficult it now is for startups to bring talent onboard.

"In a frothy environment it becomes so hard to recruit people that you start having to expand your cofounding team," Ravikant says. "It was similar back in the dotcom days. Epinions, which we started in 1998, had five cofounders instead of two, primarily because it was really hard to recruit early-stage employees without giving them cofounder equity."

Top Startup Needs

1. Talent
2. Funding
3. Advisers
4. Social-media marketing
5. Press
6. Cofounders
7. Board members
8. Salespeople
9. PR help
10. Office space, lawyers, accountants

Product/Market Fit Is Key

Not all startups have a tough time pulling talent, however. Ravikant says there are a special few with a magic ingredient that automatically attracts top people: product-market fit. "If you've just raised $250,000, big deal - so have lots of other companies. If you've just come out of an accelerator program, big deal -so have lots of other companies. It's companies that have product-market fit that are able to recruit employees. Everyone else is recruiting cofounders."

Funding is the same. Cash flows to startups that have product-market fit- and trickles to those that don't.

"Raising money has gotten more difficult in the last few months, especially compared to the last few years," Ravikant says. "There were tons of companies launched in the last few years and the amount of series-A VC has not gone up. So it's only companies with real breakout traction that can raise new rounds, while everyone else can't."

Millions Of Users

Seed funds and angels are tired of casting a wide net and hoping one minnow grows into a whale. They'd rather shoot fish in a barrel. So the serious funding now goes to companies that get to millions of users very fast, especially on the consumer side.

Takeaway: if you're an unproven startup, set your sights on $250,000 in funding - max - and expect to treat everyone on the team as a cofounder. It's no longer a realistic option to load the cubicles with employees and then go in search of product-market fit.

The New Math

The upside to this new math: Most startups these days don't need a shedload of investment.

"It's possible we'll see a downturn in overall funding and an increase in the number of startups, just because the amount of money startups need continues to decline," Ravikant says. "What I do think is changing, however, is that startups will be seen more as experiments than businesses capable of being backed by venture capital, at least until they've really proven something."

A few years ago, you just had to be in the game to win funding and talent. Now, Ravikant suggests, the startup world is returning to a more traditional script: To the victor go the spoils.

Image courtesy of Shutterstock.

This approach worked for Steve Jobs. But it won’t work for your startup because you’re not Steve Jobs. (Heck, even Steve Jobs wasn’t Steve Jobs.)

If you want to succeed today, you need to put your product out on the market, collect user feedback and keep tweaking it to make sure you've got a winner.

You Can't Trust Your Family

To do that, you need to attract early adopters, people who will sample your product or service and tell you what they think. No, not just your immediate family and Facebook friends. Real customers, users who will test-drive what you’re selling and give you an honest assessment. They’re vital. They’ll keep you from traveling down dead-end avenues and save you a lot of time and money.

The problem is finding them. Erli Bird is working to solve that problem.

Erli Bird is a website where beta users can discover new startups, try their products and give feedback. It works for startups, because you get customer insight to keep you on course. And it works for users, because they get to check out your cool new product, provide constructive criticism and brag to their friends that they’re helping to develop it. (Early adopters… You know the type.)

Failure Is A Good Teacher

“The idea came out of an experience this spring when I applied for a spot in Y Combinator,” says Erli Bird founder Mike Siegler. His startup at the time was a dating site based on the Pinterest concept and “it was not very good,” Siegler admits. He was rejected. But he was inspired. How about a startup that doesn’t solve a problem for customers but one that solves a fundamental problem for other startups?

Erli Bird showcases about seven new startups on its homepage every few weeks. It offers slots for early adopters to sign up and test the products. In return for their participation, users earn points that they can redeem for products from other startups. Neat.

“I’ve founded a number of companies,” Siegler says, “and I always thought there should be a service where you could get early users to test out your site and tell you what they think. Some of the startups I launched in the past, I had no idea what I was doing. I would spend time and money on development and get it out there and then nobody would use it.”

There was his dating site. There was a logo-design marketplace. There was a social network for oenophiles called Wine McGee. All of them went sour.

Finding Feedback Loops

“My biggest problem was just getting my product in front of people,” Siegler says. “Even getting in front of 100 people is hugely beneficial. And feedback - without a formal feedback mechanism most people will not tell you what they think, won’t say, ‘Hey, I don’t understand this tab on your site,’ or, ‘This button should be on the left side, not the right side.’”

Erli Bird is an inexpensive way for startups to gather this valuable information. Wahooly, for example, takes a piece of equity before it matches your startup to 5,000 “brand advocates” or social media influencers. BetaBait is free, but the email-based diretory service doesn't provide direct feedback tools.

Erli Bird has a freemium option that connects your startup with around 100 beta users for free. You can connect with more for a fee, which Siegler wants to keep low to avoid the appearance that he’s selling users.

Erli Bird launched in June and now has 70 startups participating. They include Glyder, an iPhone app for small businesses built by a Zynga designer and an OpenTable cofounder, and Capriza, which lets users make their own mobile apps in less than three minutes. Erli Bird has a Kickstarter feel, with a window where the early adopters can meet the company founders.

“You’re creating a product and maybe this is your first time in front of customers,” Siegler says, “but you will get honest feedback and know what you need to do to change course a lot sooner than you would have before - and in the process save a lot of time and money and, ultimately, have a much more successful company.”

Image courtesy of Shutterstock.

The startup study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University. His data showed that the number of immigrant-founded startups in Silicon Valley has fallen from 52.4% to 43.9% since 2005, a drop that Wadhwa calls “shocking.”

Indian Startups Buck The Trend

But another statistic surprised Wadhwa as well: the number of startups founded by Indians is actually climbing. Against the decline in immigrant-founded startups - and our ever more xenophobic immigration policy - Indians are still launching startups.

“The data showed that Indians are defying gravity and starting more companies,” Wadhwa says. “The number of Indian startups went up from 26% to 33% of all immigrant startups.”

The immigrant founders surveyed in Wadhwa’s study hail from 60 different countries - but a full third of them are from India. What gives? Why are entrepreneurs from the subcontinent such overachievers?

Wadhwa says one reason is that Indian entrepreneurs have a very strong support network here in the U.S. Thirty years ago, when Indians began building momentum in Silicon Valley, that first generation of successful startup founders worked hard to help those who followed. They built organizations and created a U.S. ecosystem of successful Indian entrepreneurs - and, crucially, angel funders - to accelerate newcomers.

“It was a very conscious effort put in place by several dozen successful entrepreneurs,” Wadhwa says.

Indian Startups Are Cool

Another factor is the societal value placed on entrepreneurial endeavor. Indian kids think it’s cool to start companies. They don’t grow up aspiring to be the next Justin Bieber. They want to be the next Sabeer Bhatia.

Who?

The founder of Hotmail. “He’s a rock star in India,” Wadhwa says.

How did that happen? Wadhwa gives a brief history lesson. Just a few decades ago India was going nowhere. “The economy was stagnant, India was known as a country of beggars and snake charmers,” Wadhwa says. “Pessimism abounded. India was basically a loser of a country. Suddenly you had these people coming to Silicon Valley making extraordinary amounts of money. This caught the attention of people back home. The media was shocked that Indians could be so successful. Kids started dreaming of coming to Silicon Valley and creating companies like Hotmail.”

So OK. That’s how the Indian community pulled itself to success in Silicon Valley. What’s with other immigrant communities? Why haven’t they done the same?

Can Other Immigrants Emulate The Indians?

Wadhwa thinks Indians benefit from their heritage, which suits them better than many other immigrants to making it in America. They speak English. They come from a democratic society. More than that, they have a serious independent streak.

“Just like here, Indians are free to speak out against the government,” Wadhwa says. “There is a history of breaking the rules, just like here. Culturally, Americans and Indians are similar and that gives Indians a big advantage when they come to America because they fit right in.”

Compare that to the Chinese experience, he suggests. “In China you’re terrified of authority, you dare not speak out against the government because you’ll be taken away the next day. There is a culture shock from that perspective - people who come from authoritative regimes are afraid of defying authority. But to be an entrepreneur you need to defy authority, you need to break all the rules, you need to take a risk.”

The Indians Are Going Home

Now, a lot of Indian entrepreneurs are taking their risks back home. Although his recent study shows Indians are still starting a lot of companies in Silicon Valley, lately Wadhwa has noticed a change. U.S. immigration and employment laws have grown so unfriendly that even the indefatigable Indians are getting discouraged.

“The tide has turned,” Wadhwa says. “Many people could not get their visas to stay here after they graduated from U.S. schools so they went back to India to start their companies, taking their values, experience and education with them. Taking their money with them.”

Result: the tech startup culture in India is booming. Yes, ours is too. But for how long? Wadhwa wonders.

“We’re exporting our prosperity,” he says. “Even though Indian entrepreneurs have had tremendous success here, their numbers could be even stronger. We could have tens of thousands more startups.”

Instead, the top Indian graduates from U.S. universities are going back to the sub-continent. “Gladly returning home,” Wadhwa says. “Every year I see this more and more. There is a gradual but noticeable change in attitude. Many don’t even think of staying.”

Image courtesy of Shutterstock.

A new study shows the number of immigrant-founded startups in Silicon Valley has tumbled from 52.4% to 43.9% since 2005. The study was sponsored by the Kauffman Foundation and conducted by Vivek Wadhwa, who’s the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University.

Wadhwa has authored numerous studies on the topic of entrepreneurship and immigration. He says the findings of his new study are discouraging - but not surprising:

“I had a hunch this would happen. I predicted five years ago that if we didn’t fix our immigration policies we would have a reverse brain drain. Then the Kauffman Foundation came to me to update my research from 2006 because they were seeing entrepreneurship stagnate in the U.S. They were not seeing any significant increase and the economy badly needs it.”

What did surprise Wadhwa is how drastically immigrant entrepreneurship has slowed.

A Shocking Decline

“I was shocked,” he says. “I thought maybe immigrant startups in Silicon Valley would drop to about 50% or 49%, because it’s only been six or seven years since I did my last research and numbers don’t shift that rapidly. But when I saw the early numbers come in at the low 40s I was shocked.”

Wadhwa increased his sample size but the numbers didn’t budge. They show the immigrant innovation engine in Silicon Valley has sputtered to a halt. This is not good news for the national economy.

Anti-immigrant groups have questioned Wadhwa’s research, claiming the number of immigrant-founded startups is down because the number of American-founded startups is up.

Nice try. Not true.

“That’s not the case at all,” Wadhwa says. “We’re not having more native-founded startups, we’re just having fewer startups.”

But what about the tech bubble all these analysts are hyperventilating about? What about SocialCam and Airtime and Pinterest and Evernote? What about 99Dresses?

Mostly hype, Wadhwa says. It may look like a big fireworks show in Silicon Valley but it’s a sparkler in the driveway compared against past eras. “This so-called boom in startups is pretty weak compared to other periods.”

America's Loss Is The Rest Of The World's Gain

Meanwhile, the super-companies of the future are launching in other countries.

“We will have thousands and thousands of entrepreneurs starting their companies in other countries when they could have been starting them here,” Wadhwa says. “And they will be competing with us. We will wake up five to seven years from now and see Google-like companies coming out of India and China, founded by people who came out of Silicon Valley but had to return home.”

He points out that the impact of Google extends far and wide, because people leave Google and start new companies of their own. And when all that innovation is happening elsewhere, Wadhwa says, “then we’ll ask ourselves, ‘What were we doing? Why didn’t we have them here?’”

So, why?

Stupidity Is The Problem

“Because of our stupidity and our immigration policies,” Wadhwa believes.

Wadhwa says every Silicon Valley company and VC he’s asked - without exception - has told him that the difficulty in hiring immigrants is hurting them.

He thinks three policy changes would quickly ease the problem.

1. Make more green cards available.
2. Untether H-1B visas from employers and allow immigrants to carry them from job to job.
3. Create a “startup visa” and issue it to immigrants who want to start companies here.

Wadhwa points out that other countries issue startup visas and estimates that if the U.S. did the same, there would be tens of thousands of new startups here in short order.

Instead, Capitol Hill is busy stringing barbed wire. Recently Congress shot down the STEM Jobs Act, which would have increased the number of green cards available to foreign-born graduates with advanced science, tech, engineering and math degrees.

“Our politicians are acting like juveniles and not fixing our problems,” Wadhwa complains. “And I’m pessimistic because the problem should have been corrected by now and it has not been corrected. This is a landslide of a drop. This will become a national problem.”

It already is.

Lead image courtesy of Shutterstock.

Like an accelerator or incubator program, NestGSV gives its resident startups office space, advice and lots of other amenities (even a beach volleyball court) at its Redwood City, California, campus near Silicon Valley.

Ecosystm + Incubator = Ecobator

Unlike other types of startup programs, NestGSV is an “ecobator,” an ecosystem plus incubator that brings the many participants in the innovation economy together under one roof so that entrepreneurs are surrounded with all the enablers they need.

Take a tour of the campus and you’ll see representatives from corporations, universities, governments and the investment community. You might even see a bigtime VC like Marc Andreessen in a spirited game of beach volleyball. (OK, maybe not.)

Kayvan Baroumand, NestGSV’s founder and CEO, sees NestGSV as “the evolution of the startup incubator and the startup accelerator.”

Baroumand, the former COO of Plug and Play Tech Center, doesn’t dismiss the value of incubators and accelerators. “They’re actually part of the NestGSV ecosystem,” he says. “They’re an important component. But they’re only three-month programs. And even though they talk about the network, after three months all the startups get booted out of the facilities.”

Startups Remain Vulnerable For Two Years

Baroumand thinks accelerators and incubators can be a lot of help to startups during those brief three months but he points out that most startups are highly vulnerable to failure for a minimum of two years. NestGSV’s solution is to provide ongoing support for startups and connect them with corporate, venture and government programs and funding that can help them survive. Some of them might even be graduates of accelerator programs.

NestGSV can accommodate up to 200 startups on its 75,000-square-foot campus. Currently 22 are residing there, paying $550 a month for a desk with 300Mbps of Internet bandwidth. There are conference rooms with audiovisual systems and seating for 250. Every Friday, NestGSV invites a handful of partners and service providers like lawyers, bankers and investors from its network and they sit down with startups that are candidates for a spot at NestGSV.

“At end of the meeting we give them a one-page report on how we can potentially help them,” Baroumand says. “There’s no obligation to join the facility. The worst-case scenario is that they walk away with the helpful one-page roadmap for their business. The best case for both parties is that they decide to join our community. That really differentiates us from any other accelerator or incubator out there.”

NestGSV also offers regular workshops on leadership, business and technology taught by entrepreneurs, university professors and other experts. Startups participating in NestGSV can attend or not. Sessions aren’t mandatory.

Not Just About Office Space

If you’re familiar with Plug and Play, the model may sound familiar. The big difference, says Baroumand, is that NestGSV is not constantly flogging office space.

“From day one, the most important thing we do with the companies in our facility is to network them and accelerate their innovation and bring all the resources together for them. The approach at Plug and Play is very different. You walk into a Plug and Play and the first thing that happens in the lobby is you get approached by two people trying to sell you real estate. We’re the exact opposite.”

Like Plug and Play, though, NestGSV will invest in resident startups it considers promising. (Plug and Play made its big score with an investment in a startup tenant called PayPal.) “We get very good insight into these companies because we’re living with them,” Baroumand says. “I get to know the good the bad and the ugly. I can predict the companies that will do really well and those that might not make it.”

Baroumand has big plans for the future. He says NestGSV will host hackathons and investor pitch meetings. He plans new NestGSV campuses in New York, Los Angeles, Texas and North Carolina.

Now if only he could do something about that term, “ecobator.” It sounds like some sort of weird... well, you know. We’ll just leave it at that.

“Every startup has a launch party, but what happens when a startup dies?” asks event co-organizer Leo Newball Jr. “No one is around to commemorate the life of that startup. There are launch parties but never any funerals, so we wanted to have an event that celebrates startups that don’t make it and what was learned from that.”

Joining Newball to organize the event were four of his colleagues at New Work City, a coworking space in New York's Chinatown: Kevin Galligan, Jason Kende, Valerie Lisyansky and Jason Nadaf. They had people dressed as priests, mourners, urns full of hard candy, a bagpiper and lots of alcohol, which is almost always a good idea on occasions like this. (The alcohol, not the bagpiper.) They thought about a casket but caskets are expensive, even to rent.

Addieu, Get-A-Game, Kozmo.com

The dead startups honored were mobile social-networking company Addieu, mobile game and activity locator Get-a-Game and the late, seldom-lamented but often-derided Kozmo.com, which failed way back in 2001 but to this day is held up as the embodiment of dotcom-era foolhardiness. Three ex-execs spoke and 100 or so in the audience listened and commemorated.

“These people never got the opportunity to say goodbye properly to the startup they founded or worked for,” Newball says. “So it felt like a real goodbye for them. It was cathartic on a certain level but it was all done tongue in cheek, so there was a spirit of fun and many people just enjoyed the ridiculousness of it. The event was different things to different people.” 

After Grieving, Starting Over

For Chris Siragusa, former CTO of Kozmo, it was a chance to talk about his new company, Max Delivery, which is a lot like his old company. Kozmo offered one-hour delivery of snacks, coffee, DVDs, magazines, tubes of toothpaste - pretty much whatever you wanted at a moment’s notice. Max Delivery does the same, with one big difference: Kozmo was free and was killed by its high-cost, low-revenue business model. (In 2000 its revenues were $30 million, delivery costs $35 million and net loss $120 million.) Max Delivery charges a fee and makes a profit.

“Startups are often an iterative process,” Newball says. “Even if one dies, the entrepreneur can go on and learn from the process. Life continues, even if the startup doesn’t. That’s the message of Startup Funeral. Not everyone is going to make a Twitter or a Facebook on their first try.”

More Funerals Coming

The team behind Startup Funeral is now planning its second event, which will take place early next year. They’re deciding between a marching band and a Viking funeral theme. The hardest part, says Newball - aside from getting a permit for a flaming Norse galleon - is finding startup founders willing to stand onstage and tell an audience what they did wrong.

“It takes a brave person to get up in a public forum and say, ‘Hey, I failed.’ But, honestly, we don’t care what you say when you get up to the podium. You can talk about your dog if you want. Or you can talk about the lessons you learned. We won’t judge you one way or another. We’re just happy to have you at the event.”

Two people who did not attend the Startup Funeral were Kozmo cofounders Joseph Park and Yong Kang, the guys who blew through $250 million in funding in three short years. Park is now president of BibleGateway.com. Kang went back to his former career, Wall Street investment banking… at Lehman Brothers. Some people never learn.

The Benefits Of Being Famous

The temptation is understandable. Celebrities offer a startup many potential benefits. Bold-face names can attract instant attention and help draw paying customers. At the same, they can establish credibility with investors, who these days will fund consumer Internet companies only if they can demonstrate a customer-acquisition cost lower than Kim Kardashian’s neckline.

Plus, the celebs are into it too. Ever since Ashton Kutcher and Bono got (way more) rich investing in startups like Foursquare and Airbnb (Kutcher) and Facebook and Dropbox (Bono), every Hollywood star and has-been wants in on a hot startup.

But if you have a consumer Internet company and you don’t already have a celebrity investor, you've pretty much missed the bus. The startup-star marriage is over. Over like Tom Cruise and Katie Holmes. Over like Paris Hilton and DJ Afrojack.

Every Which Way But Loose

Trouble is, all the good celebs are taken. There are only a handful of stars like Kutcher, who invests serious money and, by all accounts, adds real value to the companies he funds. The rest are just into tech for the buzz. And you don’t want people like that - or their hangers-on - getting their paws on your startup.

“This is typical monkey behavior of imitation and greed,” says Paul Kedrosky, a senior fellow at the Kauffman Foundation who focuses on entrepreneurship and innovation. “We’re all a bunch of apes and we see the other apes doing things that make them money and get them attention, so we imitate. And there’s no place more full of imitative behavior than the entertainment industry. These people are acutely aware of being a fast follower and that currently involves this fondness for technology.”

Kedrosky says celebrities come with the same advantages and disadvantages as other angel investors “but dialed to 11.” Some do have domain competencies that match the startups they pair off with - like Lady Gaga and Turntable.fm - but even then they tend to be fickle. They don’t have the attention span for follow-on investments and they hit the exit at the first sign of trouble. “It’s the usual bipolar disorder you get when dealing with angel investors,” Kedrosky says, “but way more exaggerated.”

Is Your Startup A "Winner"?

Worse, you could end up hitching your company to a Charlie Sheen or Amanda Bynes. “You rise up with them but then they become embroiled in some goat-boy scandal and you fall with them, with no connection to the merits of your company.”

If you feel you must recruit a celebrity, aim for a star with a large Twitter following. “If you are going to get an angel investor involved who’s writing smaller checks, they’d better be able to bring a lot of Twitter followers,” Kedrosky advises. “There’s a correlation between people on Twitter with the most followers and the likelihood they’ll become celebrity investors. I have no hard data but I’d argue that is absolutely the case.”

Make Sure The Stars Align

Also make sure your product aligns with the talents of the star, Kedrosky suggests. “If you have some kind of enterprise application for building cloud services, good luck with that. Odds are you won’t get an A-list actor to invest.”

Whoever you decide to pursue, you should hurry. The celebrity-investor craze is coming to a close. In fact, Kedrosky thinks it’s time to get out of the consumer Internet business altogether.

“As soon as it becomes obvious to people that this is an easy way to make money, then it no longer is easy. So we’re approaching the end of the current cycle. My guess is we’re long past the peak of the consumer Web and the mobile/local/social cycle. It peaked at least a year ago and now you have a bunch of monkeys showing up at the end, not knowing that the meteor has already struck and the fire is coming across the landscape and they are toast.”

Hmmm. ToastedMonkey.com? Somebody get Billie Joe Armstrong on the phone!

Images courtesy of Shutterstock.

So says David Feinleib, author of Why Startups Fail: And How Yours Can Succeed. Feinleib has been on both sides of the process. He was a venture capitalist at Mohr Davidow Ventures and, prior to that, he founded four companies of his own, one of which was acquired by Hewlett-Packard, another by Keynote Systems.

See The Silver Lining

He’s learned to see the founder pink slip’s silver lining.

“An old colleague recently called me, upset because the guys who gave him money for his startup wanted to get rid of him,” Feinleib says. “My response to him was, ‘Congratulations, man. You’ve arrived!’”

Of course it’s not easy to give up the business you’ve built. When your board members call you in to tell you it’s time to move on, you might be mad, you might be sad, you’ll probably have to force a smile, but you should be glad.

Why Getting Replaced Is A Stamp Of Approval

Founding CEOs should consider getting the boot a stamp of approval, Feinleib says. “It means you did something right and people care enough about your company to want to replace you.”

OK. This is where you start rolling your eyes at the VC-speak. But Feinleib has a valid point and many of the best entrepreneurs know it. They launch and leave - and let other people sweat the long-term.

“But other founders are more like, ‘This is my baby and there’s no way you’re taking it away from me,’” Feinleib says. “They may even see that things are not going the right way or they don’t have the right skill set - and still they won’t relinquish.”

Don’t Take It Personally

Most founders get replaced because they have the vision to create a great company but they don’t have the tools to scale it.

A common shortcoming is interpersonal skills. Often founders with a genius for product are not so good at managing people. Maybe they don’t hire fast enough or they’re too short-tempered to attract top talent. That’s when the board decides to kick the founder to a corner office so the company can grow.

The key is not to take it personally, Feinleib says. “If you’re getting replaced as CEO, it does not mean you’re a failure or disgrace. It can mean quite the opposite. It can mean the company is outpacing you as the founder and you either have to transform yourself or get out of the way. But it’s hard for a lot of founders to see that.”

Seeing The Writing On The Wall

Something else many founders don’t see: the warning signs, even though they’re usually readily apparent. This, according to Feinleib, is why investors are often unfairly cast as the bad guys, blaming the founder for everything and giving him the quick heave-ho when it suits them.

“In one way or another, someone on your board has been indicating to you that it’s time to ramp it up well before the ultimate conversation ever takes place. For founders, there are telltale signs that they may be in trouble and need to step aside. Like if you agree to hire a new VP of engineering and six months later you still haven’t done it, you’re heading for a conversation with your board members.”

Another red flag: a board member suggests you sit down with someone because that someone might have good advice. A lot of founders reject the suggestion out of hand. Others nod and smile and never take the meeting.

Investors notice. And eventually they react.

When they do, try to look at the upside. “Getting ousted is a rite of passage,” Feinleib says. “It means you’ve arrived. You’ve done enough. You’ve raised enough money, you’ve hired enough people, you’ve built a great product.”

Sort Of Like Getting Dumped By A Girlfriend

At times, Feinleib starts to sound like a girlfriend who’s breaking up with you. “It’s really a growth moment,” he says. But he’s right. And besides, there are lots of other fish in the Valley.

“Getting replaced as a founding CEO is not the end of the world, especially in Silicon Valley. It’s not a black mark. You’ll have the opportunity to start another company. There are tons of guys who have rebounded and gone on to new and better things.”

Hmmm. Where have we heard that before?

“There have been a lot of companies that had a lot of users and didn’t make as much money as they should have, so investors are reevaluating,” explains Naval Ravikant, founder of the startup advice site Venture Hacks and the investor-entrepreneur matchmaking site AngelList. “This became most apparent in the Facebook app craze, when lot of top-ranked Facebook apps showed 60 million or 100 million users but ended up being worth almost nothing. Even Facebook hasn’t been able to monetize as well as Wall Street was expecting.”

Revenue Rules

The new generation of billion-dollar internet companies is built on revenue. Businesses like Airbnb, GitHub and Dropbox all have plenty of users. But much more important, those users generate serious cash flow.

The flipside is that even companies without massive traffic can now attract intense investor interest - if they have real revenue. “A company like Uber doesn’t have a ton of users but they’re making gobs and gobs of money with their high-ticket mobile car service,” Ravikant says. “They have huge margins and high-frequency repeat business.”

You Now Need 20 Million Eyeballs

Users do still figure into the equation when VCs evaluate an Internet startup. But the bar keeps rising. The new thinking, as outlined in a recent blog post by Chris Dixon: 10 million is the new 1 million. And a few years from now the benchmark for consumer Iinternet startups could be 100 million.

“Think about it,” Ravikant said. “Instagram reached 80 million users with only six employees. User stats can get blown out very quickly. But VCs are starting to adjust. There are a number of companies that have come along recently that have generated huge user-number spikes - but either those numbers are not sustainable or they’re not reflective of engagement underneath or they’re not monetizable.”

Take Socialcam, for example. It has a lot of users but can those folks be monetized? Autodesk, which paid $60 million for the video sharing app, will have to figure out the answer. “Eyeballs will always be a proxy stat to get to valuation,” predicts Ravikant, who founded Epinions and [Vast](http://www.vast.com/. “But if you give it a long enough timeline, people will learn to game proxy stats. But they can’t game profits.”

Turns out that many of the highest-usage consumer Internet companies also have the thinnest and least monetizable engagement, which is a big disincentive for investors.

Early Revenue Matters Most

So a lot of Internet startup founders now emphasize early revenue when they pitch VCs.

“That’s for two reasons,” Ravikant says. “First, you can move the needle more on early revenue than you can on early users. If you have a product that’s not getting picked up by the marketplace, getting to 5 million users can seem like an impossible problem. But if, say, you need $20,000 a month in revenue, you can do that just by picking up four or five big customers. Second, a lot of companies have such a low burn rate that if you can get revenue quickly you can get to break-even and sustain yourself much longer. You can do $10,000 in revenue with just four or five really impassioned customers.”

Customers… what a concept!

Eyeball image courtesy of Shutterstock.

Get A Mentor

Most startup competitions offer entrants the chance to connect with a mentor. Take it, says Klein, who has signed up for a mentor at every competition she’s won.

“We’ve had media mentors who have gotten us press. I had one mentor who helped us negotiate a term sheet. Anyone entering a business plan competition should sign up for the mentorship. It’s a huge mistake not to.”

Best of all, mentors are often on the competition’s panel of judges. So even if you don’t take home prize money, you will benefit from the free advice.

Keep It Simple

It’s easy to be complicated - to show up at your presentation and regurgitate the technical details at the heart of your innovation. That will not sway judges and investors.

“Even if you have a complicated concept, you should make it understandable,” Klein says. “You get engineers and mathematicians who are starting companies and they get so bogged down in details they don’t do a good job of explaining what the business does. Make it simple, make it so a third-grader can understand.”

Pack Your Bags

Klein has entered and won competitions from Xavier University to the University of Dayton, where she took five of the five awards on offer. On May 10 she won best of show at FinovateSpring and the week before finished first at Business Insider’s Startup 2012.

“The downside of participating in all these competitions is that it’s a tax on your time,” she says. “You have to be there in person. We drove to St. Louis six times for the Olin Cup competition at Washington University. We did win it but we had to be there on six different occasions.”

Be Yourself

You’re not Mark Cuban. Don’t try to be. When you present at a startup competition, just be yourself, Klein says.

“If you’re a funny person, be funny on stage. If you’re a storyteller, tell stories. If you’re a sweet person, be sweet. The judges want to believe in the jockey. The horse itself may be a concept they like or don’t like. They want the jockey. I know I raised money from people who liked me and not just my idea. They want to see you’re poised and confident and quick on your feet.”

Klein is certainly confident. At 31, she’s won $500,000 dollars in prizes and raised over $1 million in angel and seed funding. She was born to a teenage mother, the oldest of five kids, and her father left when she was 5. She has four college degrees and has had ovarian cancer twice. (It’s now in remission.)

Enter Plenty Of Competitions

She recommends that every startup enter at least five competitions. Even if you don’t win, you’ll learn how to pitch. “The reason I do all this is it gives me great practice for when I go in front of investors. It is intimidating and stressful but that’s a good thing. The second benefit is most of the judges at these competitions are also investors, people who are looking for deal flow.”

But Avoid Those Without Prize Money

Obviously, Klein has entered far more than five competitions. But there are those she avoids: the ones that don’t offer prize money. She won’t sign up for any competitions that doesn’t promise at least $10,000 in prizes. And while she’s pocketed her share of cash, she’s won a lot of services as well, including six months’ free office space in New York and legal help from three different firms.

“I don’t know if winning all these competitions will translate into a successful business. We’re still a startup. But what I will say is that I can articulate what my business does to anyone. I can sell the vision.”

Klein recently launched her own startup competition, SoMoLaunch. First prize is $5,000 and consulting from Klein. She’s taking applications at SoMoLend.com until Sept. 30.

Image courtesy of Shutterstock.

Everyone loves a good game of musical chairs. The tune kicks on, everyone jumps up and runs in a circle laughing and the party is good. That’s Silicon Valley over the past few years. A lot of people whirling around and having a grand old time. But what would happen if the music started and nobody got up to play? What if companies want to hire but all the workers stay firmly seated in their current positions?

The truth is that Silicon Valley startups depend on job-hoppers to fill their open positions - and a lot of them would struggle if the job-hoppers stopped hopping.

Job Hopping Makes Silicon Valley Hum

“That’s why employers populate Silicon Valley, because they have access to great talent,” said Kathryn Shaw, a professor at the Stanford Graduate School of Business, who researches ways that firms attract top talent in knowledge industries. “They want people to be relatively mobile, because when they have a need for a particular skill, they want people to be available.”

Job-hopping means startups have an easier time finding a match for their needs. If job-hopping ceased, Silicon Valley would lose a lot of its appeal as a location, Shaw said. “You need job-hopping to continually update the matching process between employer and employee. That’s why we have Silicon Valley. Otherwise people would be more scattered.”

So job-hoppers are a vital commodity for tech companies. But what about the other side of the chip? Conventional wisdom among startups workers is: move around as much as you can and you’ll benefit from ever-increasing compensation as firms seek to attract your talents.

Surprise: Job Hoppers Make Less Cash

In fact, that’s not true. In her research, Shaw has discovered that people who stay longer at one company get paid more. A few years ago she did a study of 50,000 Silicon Valley software employees and found that those with at least five years’ experience at the same employer typically earned annual raises of 8%, compared to 5% for those with a history of job-hopping. She also found that employees who stay in place longer are more productive and creative. (Perhaps because they don’t waste so much time in orientation sessions.)

Shaw’s data included stock options vested as they were realized. She drew her data from the state of California, not survey forms.

“To constantly hop between jobs to try to chase the greatest pay is not advisable,” she said. “If you take someone who has high income right now and look at the sources of that income, what they did to achieve that high income, how they did it was staying with one or two employers, not by hopping [among] employers.”

The Future Of Job Hopping

So will startup workers keep on job-hopping? Culture is the key to the decision-making process. When workers see a culture in which every employee at Instagram gets filthy rich overnight, it’s only natural for them to decide to chase the next Instagram. When they look around and see their friends jumping from one startup to another for more stock options and cooler rooftop parties, it’s easy for them to do the same.

But what happens if the bubble pops and everybody sobers up and admits the reality revealed in research by people like Shaw? it’s likely there will be less mobility in Silicon Valley. Exactly how much job-hopping continues could hold long-term implications for companies big and small - not to mention their employees.

IBM, anyone?

Image courtesy of Shutterstock.

Just ask the Samwer brothers, Oliver, 39, Marc, 41 and Alexander, 37. The founders of Berlin-based imitator incubator Rocket Internet, they’ve cloned dozens of successful internet companies, from eBay to Facebook. And all three of them are billionaires.

Until recently, the Samwers kept a low profile. The press usually referred to them as secretive. But lately they’ve been getting more attention. After all, it’s hard not to draw attention when you’re raking in billions by copying almost every successful Internet company that comes along.

But could the growing acceptance of the Samwer brothers also be due to the fact that people in the tech industry are finally admitting in public that imitation is good business?

We decided to find out. We couldn’t get the Samwers on the phone, so we called up Oded Shenkar, the man who wrote the book on the business of clones: Copycats: How Smart Companies Use Imitation to Gain a Strategic Edge.

“In the tech startup world, people tend to equate entrepreneurial activity with innovation, and that’s the wrong assumption,” said Shenkar, a professor of management and human resources at Ohio State University. “There’s a long history of successful startups that are built on imitation, not innovation.”

Facebook is one. Apple is another. We should recognize Mark Zuckerberg and Steve Jobs as great imitators, Shenkar said. Zuckerberg didn't invent social networking. Friendster launched in 2002, MySpace and LinkedIn in 2003. Facebook didn't come along until 2004. Similarly, Jobs cobbled together the Macintosh user interface circa 1984 out of ideas and technology he first encountered at Xerox PARC in 1979. Shankar doesn't count these imitations against the two men. Rather, he celebrates their seminal work in duplication.

“We have this reverence for innovation, but imitation is often the key to success," Shenkar explained. "Imitation was critical to human evolution, and today imitation is more critical than ever - because it’s much cheaper and more feasible than previously. Business is the only discipline that’s 50 years behind, in that it looks at imitation as a dumb thing that’s done by people who can’t innovate. In all other academic fields there is a belief that imitation is an intelligent capability. But in business we’re still stuck on this religion of innovation.”

Partly that’s because innovation is hard, and the business world exalts high achievers. But imitation isn’t easy, Shenkar said. You have to know how to do it, which is why some imitators fail and others, like the Samwers, succeed so well. Their hit rate is around 50 percent. Their neatest trick: copying successful companies, then selling the knockoffs to the originals. They sold their Groupon clone to Groupon. Recently they sold their version of Care.com to Care.com.

And imitation does not work only in the internet world, Shenkar pointed out. It’s easier there, yes, but copycatting has long been common in all sorts of industries. RC introduced the original diet cola, Diet Rite, in 1958, but it was flattened by imitations from Coke and Pepsi. European discount airline Ryanair was in a downward spiral until management flew off to Texas to learn from Southwest how to properly run a cut-rate carrier. Now Ryanair is profitable. Hertz and Enterprise are currently in the process of ripping off Zipcar.

When imitators execute well, they usually succeed better than the first movers, because they study the errors of the innovators and learn from them, as Facebook learned from the mistakes of MySpace.

“Every study that has looked at this issue has found support for the imitators,” Shenkar said. “And even those that found a modest advantage for the pioneers invariably found that the effect is getting smaller over time. So even if there is an advantage for innovators, it’s getting smaller not larger, despite our worship of innovators. On balance, the research supports the imitators and we’re moving more and more into an imitator age.”

Location Still Matters

It’s a central paradox of our time. The Internet and all its associated machines and gadgets enable anyone to be connected to anyone else -anytime, anywhere. But startups located anywhere other than a high-tech center may as well be pitching for investment in the Silicon Taiga. (Yes, there is one, don’t ask where.) Because relationship networks and personal contacts still matter.

Judy Sindecuse, CEO and managing partner at Capital Innovators, a startup accelerator in St. Louis, is trying to crack the code. Her organization runs a 12-week mentorship program for promising entrepreneurs in the St. Louis area and provides them $50,000 in seed funding. But then comes cap-and-gown time - and the hard part for Capital Innovators graduates: attracting real investment from bigtime VCs on the coasts.

That experience is consistent with research conducted by Aziz Gilani, a director at Houston venture capital firm DFJ Mercury. Last year, Gilani ran a study of 29 North American accelerators for the Kauffman Fellows program. He found that 45% of them produced not a single graduate who went on to raise venture funding.

Getting Past the Flyover Syndrome

“We’ve been very successful in our follow-on seed funding,” says Sindecuse. “We’ve had 13 companies graduate from the program and we’re somewhere between $7 million and $9 million in follow-on funding for our grads. But that follow-on money has come primarily from local angels and high-net-worth individuals in our network. What I need to solve is the A round of institutional venture funding.”

One plank in her pitch: it costs less than half as much to buy into a company in St. Louis than it does in Silicon Valley. She just has to convince the big-money folks that there are smart founders with promising companies around the U.S., not only in the graduating classes at TechStars and Y Combinator.

In the meantime, Sindecuse is working to develop a strong local investor community that can support companies coming out of Capital Innovators. A group of high-net-worth individuals in the St. Louis area recently banded together to create a seed stage fund called Cultivation Capital. The fund has promised at least $1 million over the next year to Capital Innovators grads.

Two Capital Innovators companies that have taken decent follow-on seed rounds are LockerDome, a social network that connects sports fans and athletes, which raised $2 million after over-subscribing on a $1 million round and plans to raise between $5 million and $10 million in the next year; and JBara Software, which makes customer-management software and raised $250,000.

The Missing Piece

But Sindecuse admits that the series A venture capital round “is still the missing piece and is something our region has always struggled with - building a network with the tech centers on the coasts. We have the local component nailed but getting that big round of capital is the next piece of the puzzle.”

If she can actually solve that puzzle, she’ll be one of the first to do so.

St. Louis image courtesy of Shutterstock.

Our first guess was that the key to startup success is the founder’s ability to go to their parents’ house to cadge a hot meal. And that’s not entirely wrong. But there’s more to it than that.

The study, by Professor Olav Sorenson of the Yale School of Management and Michael Dahl of Aalborg University in Copenhagen, Denmark, is titled “Home Sweet Home: Entrepreneurs’ Location Choices and the Performance of Their Ventures.” It looked at data from 13,166 Danish startups founded between 1995 to 2004 and discovered that companies launched by founders with an average tenure of 6.4 years in a region had a 9% lower failure rate and took in $8,172 more in annual profit than companies launched by newcomers. Each additional year of tenure reduced the failure rate by nearly 2% and increased profits by $1,362.

Location = Industry Experience

“The effect we found is substantial,” Sorenson told ReadWriteWeb. “It’s similar in size to the value of having prior industry experience.” Although his study was conducted in Denmark, he thinks the data would look similar in other parts of the globe.

Sorenson surmises that startup founders do better amid familiar surroundings because social networks are vital when you’re starting a business. “You need investors and early employees to trust you and those are people you already know,” he says.

Prevailing wisdom has it that the path to startup success is shorter and smoother if it leads through Silicon Valley. But Sorenson says this is not necessarily the case. Remember: for every Mark Zuckerberg who moves to the Valley to build Facebook, there are thousands of itinerant founders who go there and faceplant.

Follow the Money

His caveat: if some investor throws a stack of funding at you, go wherever the VC asks you to go. “If you find a VC who will fund your business if you move, you should probably move,” Sorenson said. “Because VCs don’t just bring money to the table, they connect you to other execs and early employees and suppliers and so forth. So that mitigates some of the disadvantages of moving to a new place.”

But what if you live in, say, Idaho and you have a great idea for a new company? Shouldn’t you load up the Corolla and set the GPS for Palo Alto? Sorenson said “no”. Unless you have VC waving cash at you from Sand Hill Road, you’re better off staying home in Coeur d' Alene.

“Your chances of success will be better, your expected profitability will be higher. And for the same amount of money you will probably get higher quality people onboard in Idaho.”

And you won’t have to pay $2,000 a month for a one-bedroom apartment in Cupertino.

Image courtesy of Shutterstock.