As your editor I generally bring you content based on my experiences in the investor and entrepreneurial circuit in Austin and Atlanta. Last week was one when the number and quality of such experiences outraced the time needed to summarize the wisdom gleaned from them. I don’t cover breaking news, but when I watch the local CBS TV affiliate do a segment on chickens in the road in Bastrop County (yes, true), I sometimes think what I do provide has more lasting value.
On Friday Josh Baer hosted a gathering at Capital Factory to hear Professor Robert Wiltbank of Willamette University talk about two distinct topics of his research: the entrepreneurial mindset and data driven decisions by angel groups. You can see all his presentations on his site, but I’ll give you the highlights of each:
Wiltbank talks about Effectual versus Predictive Entrepreneurship. Effectual entrepreneurs consider what skills and resources they have and assemble them to go after whatever targets are handy. They use the proverbial analogy from the headline of this post – they’re out looking for nails. The predictive types start by analyzing how many nails are struck in the world each year and working back to a business model to capture some share of that market. If you read their earliest histories, you’ll see that some great companies like HP and Apple evolved from the Effectual style. On the other hand, if you’re thinking like an investor, you probably like the more Predictive style that quantifies what sort of returns are possible from a new venture. In that case, Wiltbank says you should be more interested in channels than the more common metric of users; you want that buy-in to back up the predictions.
In either case, one can argue that the bet is on the management team. When projections are forced in situations where the newness and novelty of a concept defy easy quantification, they really don’t provide much data. Yes they may help validate that there is some economic model that is feasible, and it never hurts to think through that. But, many great entrepreneurs, one of whom will be discussed below, get pretty far down the track just being in business without worrying about the grand strategy and the calculating of how to get to the magical $B outcome. I realize that occasionally we see the creation of new hammers for which there are no suitable nails, but wily entrepreneurs generally can adapt to whatever circumstances are presented to them when they are out there swinging. The good ones can get strategic and channel partners to buy in and can thrive in the grand uncertainty of this whole process.
Professor Wiltbank went on to talk about his research relative to angel investing groups. He analyzed 1400 deals that achieved exits in the US and UK over a multi-year period and found that their investors generally achieved about a 2.5X gain on an average of 3.5 years into the deal, or about a 25% IRR. As is true with VC portfolios, a few big winners make up the bulk of the return. And, his analysis is derived from groups that created portfolios and weren’t just doing one-off deals. He manages a fund that makes decisions based on his data, so over time the proof will be in his own results. But, Wiltbank estimates that there are only about 10-15,000 investors in such organized groups and that they are collectively only about 10% of the angel universe. There’s been to date no practical way for an academic to track the behavior of all those individual angels and their returns. As an entrepreneur, it’s probably a very good idea to find and develop relationships with some of them. If you depend solely on presentations to organized groups, you’ll be missing lots of great prospects. Hello Angel List.
Speaking of an Effectual entrepreneur, I had the pleasure of hearing Jonathan Coon of 1800Contacts tell his story to our Longhorn Startup Lab class last Thursday. He founded this company in his BYU dorm room 21 years ago and now lives in Austin. With $400M in sales, it was sold for $900M to WellPoint last year, after having at one time in the past been public.
As a side note, he funded his brother’s production of the movie Napolean Dynamite, which grossed $300M from all sources after an initial cash outlay of only $220K. That’s a nice way to get rewarded for supporting a family business.
Coon exhibits an extraordinary work ethic and the sheer energy and stamina to stay the course in building a company of this magnitude over a relatively long period of time. He began essentially with one partner and was doing all aspects of the business first from the dorm and then a house when literally 100-hour weeks were required to operate the business. (By the way, he also earned his degree from BYU.) Starting with high-touch service to his fellow students, he achieved considerable momentum and eventually had to take on the nation’s optometrists to make his business legal across all the states. That literally required a special act of Congress, and, if you are a contact lens wearer, you have Coon to thank for knocking the exorbitant margins out of that business while providing faster and better service. He continues at the helm of the company and seems just as excited about a major new initiative there as if he were doing another startup.
He showed the Calvin Coolidge quote: “Persistence and determination alone are omnipotent.” Clearly he lives by that. I emailed him to ask his golf handicap, expecting the answer I got that he doesn’t play golf. (I think his hobby is investing in Kickstarters, 32 to date.) Here’s a gentleman who has maintained a singular focus and has been blessed with the drive, good health and family support to do the work of 10 men over his career. He mentioned the countless air miles he had logged in particular just solving his legal battles, and it’s easy to see that he’s never shied from putting forth whatever effort was required to achieve his objectives. He started out with a simple idea and just kept hammering away at it, the very definition of the Effectual entrepreneur.
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