KC Startups, Revisited
21 July 2019
I've been thinking about how to build a billion dollar technology company in Kansas City for awhile now. This post represents a slow hunch that's been gathering steam in my mind for the last few years.
A little over 4 years ago, I published a post called Starting up in KC with some tactical advice and lessons I'd learned up to that point. Then a few years later I wrote What Kansas City Lacks for Startups, where my premise is we lack the density of experience required to truly take a company from $0 to $1B.
So, a few years later, and a whole lot more startup experience under my belt, I'm back to reflect.
I don't think we've made any progress at turning Kansas City into a technology hub in the Midwest. Zero. Zip. Nada.
I don't think the common wisdom of encouraging more people to start companies actually drives the results we desire.
In fact, from my perspective, it seems like we've driven a lot of good talent away to find better opportunities elsewhere. Maybe if we're lucky, one day they will come back and contribute their experience to a Kansas City-based endeavor.
I believe it is more important than ever that we learn how to build technology companies in the Midwest and break the coasts' monopoly on technology.
I'm going to start with a list of anti-patterns I have personally seen and have had relayed to me by people I trust.
Anti-patterns
1. Poor Leadership
This is probably the single biggest problem hindering the success of startups in my mind. Whether it blindly following advice that isn't applicable to the situation, like at the startup that would rotate who was responsible for support every two hours. Or, just assuming things about the future that make an ass out of yourself, like you'll be able to sell the company if you run out of money.
Leadership should solve problems, or simplify them for the team, not create new headaches. I've had far too many horror stories relayed to me from engineers working in local startups.
I recently had coffee with an investor, and I asked them the question:
Are all startups just a complete cluster-fuck? I mean, I understand, its a startup, things are constantly changing and you have to adapt, but it seems like there is just a lot of poor leadership.
His advice was the seek out people who have had success before and are going back to try their hand again. This is good advice, and advice that I'd already been following without realizing it. Places where the CEO has started previous startups and achieved success have generally been the companies where I was more successful and learned a lot.
2. Outsourcing your Core Competencies
If you're building a software company, and the way that software company makes money is by people paying for a product, it is almost always the wrong decision to outsource the building of that product to a team of people who are not employed by that company.
It creates massive dis-alignment between the people building the product and the business. You won't get the same level of quality or attention to detail if you outsource, and I'm not even talking about outsourcing to another country. Which gets even worse.
All of that knowledge about how your product works is being built-up outside of your business, and not inside, where you can make decisions about how to retain that knowledge. It is a massive disadvantage. Also, the delays in feedback loops will bleed you of cash.
3. Not Giving Employees Ownership
Not ownership over a project, ownership over the business. Sure, make sure it vests and there is cliff, but being stingy with stock or believing it doesn't matter is a terrible choice, you're leaving so much on the table.
I've personally seen startups where none of the employees, even the ones that have been there forever don't have equity. I've had founders tell me I was going to get x% and then cut it in half over the weekend. Have had the question ignored completely.
Equity is the single best way to align the interests of the company with the interests of the employees. You can't replace a salary with equity though, even if you are paying market rates, you want the people that work for you to have ownership in what they are building.
Seriously, stop being stingy.
So how do we solve this?
I believe the encouraging more people to startup companies is the wrong approach to building a billion dollar technology company in Kansas City.
Remember, I don't believe that capital is the limiting factor, but experienced people.
Because of this, I think we want to give people significantly more stock/options than they would get elsewhere, probably with slightly longer vesting schedules.
I have a feeling that this is a challenging thing to convince most investors of, especially in the midwest, so if you're starting from zero, you'd either need to:
- Bootstrap it until you have enough leverage to control the deal terms
- Find an visionary angel or investor to back it
Or maybe a little of both.
I no longer believe that Kansas City lacks experienced people, but that it lacks a good mechanism for bringing those people together. A sustainably-growing technology company, with strong leadership, that isn't stingy with equity seems like it might be a possible mechanism.
It might sound like I'm suggesting we go hunting for bigfoot, but I believe encouraging people develop the skills that would make them useful in a startup like that, vs telling them to start their own company would create better outcomes all around.
And if you did achieve the status of the billion dollar technology company, you'll create a lot of experienced people, and as you create more experienced people, you can support more of these types of companies within an ecosystem.