What is Startup Engineering? It all starts with accepting the fact you might not be connected to reality. Your job is to uncover an insight that discovers a problem that people cannot not pay you to help them solve. An idea that makes your customers’ lives a little easier and helps them become closer to who they are.
As part of the June 4 Startup Day ATL and launch of the Summer Startup Academy, Scott Henderson, executive director of Hypepotamus, moderated a conversation seeking to answer the question: What is Startup Engineering? Immediately following the Flashpoint GT Demo Day and opening keynote by Merrick Furst, this conversation included Merrick Furst, CEO and founder of Flashpoint GT (@flashpointGT), Matt Chanoff (@mattchanoff1), investor and partner at Flashpoint GT, and Ed Rieker, successful medical software entrepreneur Flashpoint GT mentor.
Here is what unfolded:
Merrick Furst, Founder at Flashpoint GT (@flashpointGT), leads off the discussion series with a focus on perceived reality vs. actual reality in the world of startups.
Investor Matt Chanoff (@mattchanoff1) touches on making sure the importance of finding an idea that has traction.
Ed Rieker, founder at 151 Locust (@151locust), closes the series with a wonderful comparison between ice cream samples and startups.
Audio Transcript
Transcript services provided by TransciptsHQ, a proud Atlanta startup
Merrick Furst Segment
Scott Henderson: Merrick is an interesting man. Not only has he been involved with teaching computer science for over thirty years, he has founded several successful startups including Damballa and Hypepotamus is now located in the same place where Damballa was. In 2001 you founded Flashpoint at Georgia Tech and it’s not a startup accelerator. Flashpoint is based on a concept of startup engineering but one of the things that you really require from companies coming through Flashpoint is to be connected to reality. So I want to start off with the question of what do you mean by reality?
Merrick Furst: It’s very hard to see the way the world is. You don’t even notice that you don’t see how the world is. In fact, you take it for granted that you see the world. You know Scott, you have a couple of blind spots because of the way your retina is built but of course your brain fills in the blind spots. It feels complete. The world is like that but in a much more complicated way. We are walking around with these little theories that we have in our head about how the world works but the world works in a way that is much more complicated and detailed and we don’t notice that the world is actually not the way we think it is according to our little theories. The way we get disconnected from reality is we think that the world works the way our theories are, we build to the way our theories work, and then we are disappointed and surprised that it turns out that it is much more complicated than that and that there are things that fit our theories but they don’t fit the world.
Scott Henderson: You like to refer to a kind of film analogy between how people view startups versus the reality of what startups are. What is that?
Merrick Furst: So there is this Ayn Rand image that you can get by looking at Roark, the great architect from the Fountainhead, who thinks of himself as a maker, someone who can see what the world is like, decide how the world is going to be, pull together the resources, and by sheer force of will in the face of any obstacle pull together something that will be successful. That’s how people go about startups historically, that’s how most of us go about our lives, but that’s not how startups really go. Startups really go much more like the movie Inception, where you also have a person, played by Leonardo DiCaprio, who is very charismatic outside the movie and even more in the movie. He has a vision of what’s possible and he has the capacity to pull together a team that can construct almost any reality that he thinks he can construct. His job is to construct a reality that fools a customer because he believes that a customer has a certain desire. And they do. The problem is that startups also have this capacity to build any world that they want to build. They imagine that the world they are going to build is a world in which they and their customers are going to achieve value. The problem is that that is a complete illusion. The illusion is that the world of the future that you and your customers both agree on is a better world to be in. Here is how this doesn’t play out. You build to that world, you actually construct the construct that you and your customers agree on and you want to sell it and they don’t want to buy it because it doesn’t actually bring to them the value that they thought it would. That’s one way that startups fail.
Scott Henderson: One of the first things that struck me when we first talked is that you have built startups with success.
Merrick Furst: I wish I had known some of these things back when I could have saved all of us a lot of money and time.
Scott Henderson: Exactly, so is this really about being conscious of your incompetence?
Merrick Furst: I would say that you certainly get to a point where you realize that what you know, you know really well and you know just how little that actually is of all there is to know. So the startup that I can point to and that is most built to all these principles is Flashpoint. What Flashpoint is, it is kind of a minimal instantiation of the world of something which I can look around and it’s creating demand and the demand came before it even existed. In fact, people ask me why did you do this or that and the answer is always, “None of what Flashpoint is, is actually a construct that I had before Flashpoint existed. All of what Flashpoint is, is a reaction to discovering where the white space is in the world and building the smallest thing that I had to build because I couldn’t avoid building it. It’s kind of remarkable when you take that attitude on the world. People have said in the past that a good definition of business is that it is a solution to a problem. But then that means that you have to understand what the problem is and if you really can understand the problem, it turns out that the actual process of figuring out the problem is equivalent to the process of building the product.
Scott Henderson: For those who have gone through and witnessed Flashpoint, you are very infamous for being very pointed with your feedback and really wanting to drive the delusions in these startup founders out of their heads. What do you look for? What is the process?
Merrick Furst: I am not being pointed to cause any pain although in the first batch of Flashpoint we had founders cry. They would stand up and they would explain where they were and claim their assumptions about the world. They wouldn’t even realize that they were claiming their assumptions about the world, they would basically describe the world and what they are working on and a series of questions later they would cry, because I was just being legitimate and genuine with them about trying to understand how they were thinking. And someone actually stopped me after one of those and actually said to me, “You can’t make people cry Merrick!” At first I was quite worried about it, it wasn’t my goal to make people cry, it was the opposite, it was to make them successful. Then I thought about it more and a friend suggested, “Actually, what happened there was that you took someone who had all of their hopes and dreams wrapped up into something that wasn’t true, and they saw it, and you want that to be an emotional moment.”
Frankly, who wants to have their lives so clear? Well, I think it matters and what I have discovered is that in a setting where there is so much uncertainty and so little resource available to recover from mistakes, if you can help people achieve clarity, accuracy, the reduction of ambiguity, and increase attention to where their uncertainty is, it then increases their chance of success, increases the efficiency with which they can reach the success, and the success becomes larger. So I’m relentless about it. What we found at Flashpoint is the following: it requires a mindset change to be able to act like the kind of founder who is really successful. That mindset change is not so easy to accomplish and in order to accomplish it, you have to have a set of principles, a touchstone to the ground truth. And you have to have practices and have someone like me hitting you upside the head every so often to remind you of these illusions. We all have them – no one is immune to them. Even I find myself in this situation regularly where I can’t believe that I actually thought something a few weeks back. I thought the same stupid thing that I tell everybody else to be careful of. You often simply can’t see it in yourself.
Scott Henderson: Well, thank you for your time.
Matt Chanoff Segment
Scott Henderson: You have experience as a management consultant, a speechwriter for Senator Paul Simon, an investor in several startups including Damballa, CodeGuard, Ionic Security and a number of Flashpoint cohort graduates as well as other companies. You are based out on the West coast in San Francisco. How would you explain startup engineering to a fellow investor?
Matt Chanoff: We are living in a world right now where there is a lot of knowledge and thought about lean entrepreneurship and most people who are involved in investing have read Steve Blank, they know something about that world. So what are we trying to do in startup engineering that is a next step or that is pushing beyond what people are doing right now with lean entrepreneurship? One of the ways to think about that is that we are trying to get closer to the origin.
Before lean entrepreneurship, there was the Roark idea that Merrick Furst mentioned about a brilliant visionary with a magical idea and there is a black box about where that idea came from. It’s because he is a genius and he came up with this idea. You look at lean entrepreneurship and they say well, that idea is just a hypothesis, let’s go out and interview lots and lots of customers and see if we can hit on one that’s really true. Let’s have that epiphany where we finally find that idea that has traction. What Merrick has started to do is really go beyond that and say, what’s inside that blackbox? How can you unpack that and see what demand looks like and what pain looks like and what gaps look like and start building products around that instead of starting with a product and showing it here, there and a third place and hopefully finding traction.
Scott Henderson: So what are investors really looking for in startups?
Matt Chanoff: I think they look for a plausible big idea and it’s a question of how sensitive people are to bullshit, basically. Because you can hear a lot but when somebody stands there and they tell you something and it doesn’t quite fit with what you know to be reality, it can go right by you on a conscious level but you’re not going to invest in that company. It’s going to lodge somewhere in your head and it’s going to lead you to ask questions, hesitate, and think about other opportunities and eventually it goes on forever and the investment doesn’t happen. I think it’s when people have something and it doesn’t have to be a big thing, it doesn’t have to be that they have accomplished a whole lot but what they have accomplished is genuine and you can see that it’s going somewhere and could go somewhere valuable. That’s what early stage investors are looking for.
Scott Henderson: How would you characterize the difference between a startup that is just starting the startup engineering process at Flashpoint versus one that has completed the program? What are the before and after pictures like?
Matt Chanoff: There’s a before picture that most startups have, which is a bunch of ideas in people’s heads and nobody knows whether those ideas have any connection to reality. I think it’s interesting to look at the difference at the first set of companies, the ones that have gone through the first stage of Flashpoint and the ones that are further along and have done it and have now been working. The companies that go through the first stage have discovered some real demand, something for which there is a real need. They haven’t necessarily built a product around that need but they have discovered something that is there.
Let me give you an analogy from the non-profit world. Imagine that you want to do something about homelessness and you know that there are people out there who when they walk by a homeless person lying there in the street, they want to do something for them. They are people who want to help that person but they don’t do it, they walk by. Why not? It turns out that they have all kinds of theories in their head that now allows them to be both the person who wants to do it and the person who doesn’t do it. They have theories about the homeless person just using it on drugs, or thinking that it can’t just help one person, or they have to do something for themselves and so on. So if you have found those people as your customer, those people who want to give – the product that you create is a charity that answers those questions. If I see a charity that shows me, oh they are not going to use it on drugs, it is going to help them, it is a positive thing in the world and it answers all those theories about why I don’t do it, if I am a real customer for that charity, I cannot walk by without giving money. That’s the shape of the product.
In stage one of Flashpoint, you find the demand. “Oh yes, there really are people who want to give that thing!” Afterwards what you develop is the product around that, that has the features that make it impossible to walk away from.
Scott Henderson: Can you explain that idea of finding things that your customers cannot not do and put it in the context of a startup?
Matt Chanoff: I think of it in terms of gaps where somebody is something. Somebody sees that they have a role in their job and their family. They have a little voice in their head that they learnt from their parents about what’s right and what’s wrong. They have to eat and have all these physical needs that people have. And then they have ideas or aspirations about themselves. “I want to be high status. I want to feel like I’m being a good father. I want to do all these sorts of things.” Very often there are gaps between those two things. It’s important and central for who I am to be a good father but when I walk home and I’m too tired from work, I snap at my kids. If I could find a product that could solve that problem, I don’t know, an exercise course so you could get some of the energy and bad feelings after work out before you see your kids. Or a bar where you could have a drink. If I could find the product that solves that dilemma and that gap between who I need to be and who I find myself actually being, then you cannot walk away from that product. That person cannot not buy that product and be who he wants to be.
Scott Henderson: Thanks Matt!
Ed Rieker Segment
Scott Henderson: Welcome Ed Rieker! Ed is the founder and owner of 151 Locust and he has successfully built up a number of healthcare software firms. Ed brings an interesting perspective because not only have you founded four healthcare software companies, you have been inside the ATDC here at Georgia Tech, you are a mentor at Flashpoint, started the accelerator and you had a co-working space in Avondale Estates where you are the mayor. Earlier we heard Matt talk about the lean startup being a major theme and trend in the startup world. How does startup engineering fit into the broader startup ecosystem in your perspective?
Ed Rieker: I have actually had a lot of fun working with the lean startup adventure that’s going on right now. I have had a lot of fun at Flashpoint and I want to thank Merrick for inviting me to participate in that. I think that Atlanta really is a hub for startup engineering. As I’m going around different parts of the country, I see events like Startup Weekend and NEXT, which we do here in Atlanta and I’m a facilitator for that. I’ve also done the Steve Blank Lean Launch Pad Educator’s program out in Berkley, California. As Matt said, you have the customer discovery part of it and I think we have taken and evolved from Steve Blank, Eric Ries, and those guys and Merrick has extended that knowledge and platform.
I think the analogy really is this. Everyone goes to ice cream stores, right? You ask them, “Can I sample that?” and so with a five week Startup Weekend, NEXT program, you know it’s like going to the ice cream store and they give you that tiny little spoon and you get a little ice cream and you go, “Boy, that’s good!” Now, maybe if you go to the Educators Program it’s like you get a scoop of ice cream. Well, what Merrick is doing at Flashpoint- it’s really an ice cream factory. It really is in depth, it’s involved, it’s world class and I’m not seeing anything like it anywhere else in the country so we’re very fortunate here. I know there are a lot of young folks in the crowd, I can say that because I’m an old guy now. I wish Flashpoint was around 25 or 30 years ago when I got started. It will save you so much time and it will help you eliminate risk. If you could take a business and eliminate five or ten percent of the risk or even make it possible to have an advantage over another startup by five or ten percent, you would do it. So I think that this is really a place that has a really effective process.
Scott Henderson: You have been through the founding of companies directly and you have also been an early stage investor. I’m curious, how would startup engineering have helped you when you were in the trenches building those companies?
Ed Rieker: Well, it would have helped me immensely because I’m absolutely delusional when it comes to doing a startup. I think that you wake up one morning and you have this idea and it’s in your head and all the sudden you write this 400 page business plan that’s in your head. And there’s maybe 50 pages of Excel spreadsheets that back up to the second how much you are going to sell and have profits. Then you get in a room with a bunch of people and you start to make stuff and it’s just a lot of fun and you are coding and everyone’s got an idea of how to improve it. It then gets built and you have this Alpha and then you say let’s go talk to a customer and then you go out and talk to a customer and they look at you and go “What’s that? Oh, no I don’t want to buy that. If it did this, then maybe.” So what happens in my case is that great teams and resources using the old methodology waste time… I guess on average I wasted a year to 18 months doing that. When I see the teams now at Flashpoint, I see them going out and talking to hundreds of customers. Now imagine that, think about that when you do a startup going out to talk to hundreds of customers before you build your first thing, whether that’s code or art or whatever it is. It’s really fascinating what you learn from your customers, it really is important work.
Scott Henderson: So if you were going to boil it down to one differential point between the lean startup idea that’s out there and startup engineering, where does startup engineering go that lean startup doesn’t?
Ed Rieker: I would say that they’re all going in the same direction and I would say that lean startup is a really good place to begin. I think as you get further along in the spectrum of knowledge and skills and process, I think that’s where we’re going with startup engineering.
Scott Henderson: Thank you!
