Paul Allen on the Growth of Midwest Start Ups

Paul Allen on the Growth of Midwest Start Ups
  • One of the bonuses of starting your own company is that you get to meet other interesting entrepreneurs. Paul Allen (no, not that Paul Allen) is someone I met when I signed up for "Tribe of Angels" a network of Jewish angel investors and entrepreneurs.

    Paul is currently the leader of Bizdom, an accelerator funded by Cleveland Cavs owner Dan Gilbert, that runs 3 month programs in both Cleveland and Detroit. One of the novel approaches of Bizdom -- and hopefully we can get into this some -- is that it is a non-profit.

    I'm really pumped to talk to Paul about the growth of the accelerator market across the U.S., start-up growth in the Midwest and the next big market for start ups.

    Paul, tell our audience a little more about yourself, tell us more about Bizdom and how you got involved?
  • First off, thanks for inviting me to do this. Very cool!

    Like many entrepreneurs I have a pretty eclectic background. Experience-wise I've done a bit of everything. Guess I would say I'm a utility player. When it comes to startups I know enough about enough to help entrepreneurs avoid big mistakes and generally make the right decisions -- especially in the early stages. That much of what I do at Bizdom.

    I got involved in Bizdom because I wanted to give back in a more impactful way and I'm interested in bringing the power of innovation and entrepreneurship to regions like Cleveland and Detroit that have struggled to keep pace with other places. What many people don't understand is that despite the public perception of these towns, they are remarkably smart locations to start and grow businesses.

    More generally I advise early stage companies and help them connect with the right people to grow bigger faster. I do that through my personal network that I've developed over the years and through Tribe of Angels.
  • Well let's pick up right there. Making mistakes goes hand in hand with entrepreneurship and ultimately succeeding, but what are three mistakes entrepreneurs make that get in the way of success? How do you help entrepreneurs differentiate between good/bad mistakes and avoid the pitfalls?
  • Interesting questions...

    Well there are lots of types of common mistakes but four ones we see a lot, particularly with first time entrepreneurs, are:

    1. Misunderstanding how hard and competitive it is to start and grow a business. A related mistake is underestimating how much $ and runway will be required to create and promote whatever widget/thing you're hatching.

    2. Under-communicating. There's a fine line between ruthlessly focusing on daily to-do's that are important to growing your business -- and communicating with stakeholders (investors, partners, customers, mentors, etc.) often enough. When in doubt, always over-communicate!

    3. Cutting a deal with the devil... Bad people destroy startups and there are lots of available bad people in the world -- people that are unemployable so they're available but impossible to work with. Oftentimes, first-time entrepreneurs figure it's better to partner up with someone with complimentary skills rather than wait for Mr. or Ms. Right to show up. This is NEVER a good idea at the earliest stages. You must always trust that little voice in the back of your head called Intuition. A related mistake is not defining the culture of your organization. It starts with a 5 minute exercise. Take out a sheet of paper and write down the 10 things that are most important to you and your company. Evolve it over time. A very, very important and related mistake is not firing someone that's just bad for the company and culture. Firing someone bad is the gift that keeps on giving because every day the bad actor is no longer around to pull down the rest of the ship.

    4. Not understanding the big picture opportunities. In order to sail a ship in the right direction it's important to have a birds-eye perspective on things. If you're opening a new restaurant that means traveling a lot and understanding different takes on food, service, design, culture, flavors, etc. If you're starting a new tech company that means understanding the particular players and dynamics of your markets and analogous markets -- as well as the trajectories, pitfalls, and motivational forces involved in bringing any new product or service to life. To paraphrase a not-so-great military leader: "There are things we know; things we know we don't know; and things we don't know we don't know." A great entrepreneur surrounds themselves with people that have deep, broad and different perspectives and is able to humbly synthesize these perspectives to arrive at the best strategy, direction, and ideas to grow the business.

    In terms of differentiating between good/bad mistakes and avoiding pitfalls...

    The easiest mistakes to avoid are tactical ones -- meaning I think it's fairly easy to avoid costly mistakes when it comes to sales process, design, marketing techniques, tax and legal planning, hiring the right people, and so on. Those are half the battle. The harder ones to avoid are the strategic bets. Often these guide tactics. Whenever possible these ought to be based on hard data but oftentimes situations call for intuition, pattern recognition or trial and error. Knowing whether to turn right or left or how long to stay on a particular road, often comes down to decisions the entrepreneur must make with incomplete data and without a crystal ball. That's where advisors or boards can be really helpful -- people that have made lots of mistakes and learned the hard way what bad decisions look and feel like.

    I see a couple types of good "mistakes"...

    One type isn't really a mistake, it's a learning. That's when you try something -- a new design or a promotional tactic -- and it just doesn't work. Often, trying different things is the least expensive way to figure out something that's going to work.

    From my perspective working with lots of startups, another type of "good mistake" is when an otherwise solid entrepreneur bumps up against their own blindspots. We all have them. A blind spot is typically a weakness or limitation that someone doesn't realize they have -- so they keep driving even though the tires are flat. Often the quickest way around a blindspot is to encourage them to keep driving and screw up. As long as it's not life threatening, that's how you fix a blindspot.

  • It's funny because we were just having a conversation internally this morning about defining company culture and that an early stage company has quite a bit of control over corporate culture. Later stage companies not so much.

    Shifting gears, I wanted to ask you about Bizdom, the start-up accelerator you run out of Cleveland.

    Tell us more about Bizdom.

    One of the interesting characteristics that stuck out to me is that the Bizdom fund is a nonprofit. I used to keep track of many accelerators, but I had never seen an accelerator so structured. Was Bizdom the first to utilize this model and do you feel that it adds strategic value to the fund's portfolio to conceptualize the investment as "charity?"
  • Yes Bizdom is a nonprofit but you have to bear in mind that it was founded by Dan Gilbert, a very successful businessman and Founder and Chairman of Quicken Loans and partner and investor in lots of other very successful businesses. Dan created Bizdom to help reinvent the cities of Detroit and Cleveland through entrepreneurship, innovation, and technology ventures. Bizdom is run with the same discipline and focus on performance as a for profit accelerator.

    All of the returns from Bizdom investments go back into our fund to reinvest in more tech startups in these cities. We invest in 18 new businesses in each city every year -- so 36 total per year.

    I think what really distinguishes Bizdom from other accelerators is a very specific culture we share with all the Quicken Loans Family of Companies (over 60 businesses!). It's a culture obsessed with finding better ways to do things, an intense focus on the customer, a deep sense of urgency, and a commitment to always doing the right thing. Also, I'm not aware of any other accelerators that have instant access to so many experienced team members and potential partners and customers as Bizdom. I truly think we're the most networked accelerator out there.
  • Wow. That's a powerful claim.

    If I can ask, what makes Bizdom the most networked accelerator available?
  • The Midwest has a very high concentration of Fortune 500 companies so from a geographic standpoint we're well positioned but that aside, we have a very unique situation in our relationship with over 60 business that are part of the Quicken Loans Family of Companies -- business spanning venture capital, financial services, gaming, professional sports, real estate, education, pharmaceuticals, new media, private equity, design firms, and marketing firms. Bizdom is not only able to instantly tap into the expertise and relationships at these businesses, but the culture of the Family of Companies is one in which the contacts at these organizations act with urgency to be helpful with knowledge and relationships. As a result, the total reach and size of our network is truly massive.
  • I guess this is related to your last point, but why, beyond Bizdom, would you counsel entrepreneurs to set up shop in Cleveland/Detroit? What are the advantages over more classic start-up cities like Silicon Valley, Austin or NY?

    Are there specific industries where you would tell entrepreneurs "If you're in the ____________, you really ought to be in Cleveland/Detroit?" What are some of the initiatives these cities are taking to attract and cultivate an entrepreneurial community, both in and out of tech?
  • Great questions...

    There are a lot of reasons why serious entrepreneurs should consider places like Cleveland and Detroit. First off, I think that thinking like an entrepreneur means NOT embracing the herd mentality that makes places like the Bay Area so attractive to so many. Thinking like an entrepreneur means going deep to explore unsolved problems and unaddressed opportunities. When you look at the trajectory of places like Detroit and Cleveland you see cities that have great potential and are rising. Put it in terms the private equity folks can understand, they're great turnaround opportunities but they have all the element you need to be successful!

    The actual advantages of places like CLE and Detroit are numerous. These places are nothing like the old stereotypes. The quality of life in these towns is very high, costs are lower than the tech meccas, you spend far less time in traffic, and you and your team have a chance to get a front row seat and participate in the rebirth of these great old cities!

    Also in these towns you and your startup get to be large fishes in small ponds. Good luck trying to get attention for your precious new app in San Francisco.

    I wouldn't encourage all entrepreneurs to flock to places like Cleveland and Detroit but where there is alignment with regards to talent and other factors I would definitely be encouraging. For example, via Bizdom we have very strong relationships with professional sports teams and consumer finance businesses. So startups targeting those industries have an advantage. Also we have a world renown healthcare and medical research community here and lots of Fortune 500 companies and advanced manufacturers. There's an incredible strong base to grow upon.

    There's also a fair amount of early stage funding available to startups, including several programs offering non-dilutive low interest loans and grants.
  • I've really been thinking about your last reply. To me, speaking as someone who's started something, the notion of not following the heard and looking for blue oceans -- whether it be talent or funding -- is really appealing.

    Other than getting accepted to Bizdom, what other measures can Cleveland, Detroit or other big commercial cities without traditional tech communities take to attract tech companies -- or do you think the better strategy is to grow your own talent and not rely on imports?
  • Bizdom has had a lot of success attracting amazing entrepreneurs from San Francisco, New York, Seattle, Los Angeles, and Boston, to Cleveland and Detroit -- and I think this trend will continue. But we also have plenty of amazing entrepreneurs in our backyard and more and more of them are applying to Bizdom.

    The other things that I think Cleveland and Detroit can do are already happening. That includes focusing on strengths -- things like diversity, a renewed interest in living and working downtown, a desire by people of all ages to participate in civic and political life (and to feel like you can make a difference!) and investments in real estate and infrastructure to make these cities even more exciting places to live and work. Again, it's already happening. If you think you know Detroit or Cleveland and haven't been there in awhile you'll be surprised.
  • I'm very sympathetic to that point. I come at this from an interesting perspective because I grew up in Houston and now live in NYC -- which, at least outwardly, is doing everything it can to become a tech Mecca.

    But I've always had a little of a chip on my shoulder about Houston because I don't think people in the three glam cities -- NY, Chicago and LA -- understand and appreciate enough the sophistication of the Houston market.

    I think ultimately Houston will decide to devote more energy -- as Cleveland and Detroit are doing right now -- to introducing tech into the professional ecosystem.

    Paul -- thank you so much for joining me for this conversation, please use the final Reply of our conversation to promote Bizdom or any other of your projects and feel free to include links!