Startup Advice: The Harsh Truth About Why Most Startups Fail (feat. Paul O'Brien)

Looking for real startup advice that goes beyond the usual clichés?
This episode reveals the harsh truth about why most new ventures and innovation ecosystems fail.

Startup economist and unapologetic contrarian Paul O'Brien joins the show to challenge everything you think you know about entrepreneurship.

Discover why cities are chasing vanity metrics, how Austin’s creative core is shaping its tech rise, and what founders and corporate leaders really need to understand before diving into the startup world.

From defining a startup correctly to avoiding common pitfalls, this conversation is an essential reality check for any aspiring or current entrepreneur.


Timestamps:

00:00 – Teaser
01:00 – Paul O’Brien’s Startup Contrarian View
06:00 – Why Cities Must Support Startup Ecosystems
11:00 – Why Big Companies Don’t Create Jobs (Startups Do)
16:00 – Austin vs. Silicon Valley vs. Nashville
21:00 – The Real Founder Class: Artists, Musicians & Triangle Players
27:00 – Why Most Accelerators Fail Without Incubators
34:00 – Advice for Executives Entering Startup Land
41:00 – The Investor Class Misunderstanding Startups
44:00 – Final Words: Why Paul Will Rip Your Pitch Apart (for your own good)

Guest:

Paul O’Brien
Startup Economist & Founder, MediaTech Ventures

Host:

Melissa Aarskaug

Executive Connect: https://www.executiveconnectpodcast.com
YouTube: https://www.youtube.com/@ExecutiveConnect


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Episode Transcript

(00:00):
if 90% of all startups still fail.

(00:02):
Maybe something is wrong about it
because what you really need within your local community
are the individuals who are starting new things
that manifest in a net positive growth
in all of the jobs that exist.
If you don't have that creative aspect to what's going on,
you don't inspire risk, you don't inspire creativity.
And so really all we do with startups is
we reduce the likelihood of failure as much as possible.

(00:22):
And so there are playbooks to do that.
And that's why you hear things like lean startup
or product market fit.
You hear things like validation, market validation
or customer validation.
In the startup sector, the fact is you have to be conscientious
of your obligation and your responsibility
to be able to do all things.
In innovation and entrepreneurship,
we're trying to help people avoid the mistakes.
We're trying to help you avoid the likelihood

(00:43):
that you're going to fail, so that you can focus
on the things you need to do to make it successful
as opposed to wasting your time on the stuff
that we already know it doesn't work.
- Hey, Paul.
Welcome to the Executive Connect podcast.
- Brian, man, how are you doing?
- Man, thanks you're good.
Thanks you're good.
See you all, good to see you all.
- That's a bit of a lie.
- It is.
(laughing)

(01:03):
Which is what everybody seems to say these days.
Well passed, being locked down, thanks to quarantine
for some reason we're a little less social
than we used to be, aren't we?
Not as many coffee shops and meetups and happy hours.
So it is good to see you.
- Yeah, so you know, I'm sure most of our viewers
don't really super familiar with you and your work.
You wanted us to give us the download on all things

(01:27):
and start it up incubator,
got it your career arc?
- Who the heck is this guy and why is he on your show?
I'm sort of a contrarian with regard to entrepreneurship
by which I mean, if you've read the books,
if you've read the podcast or heard the podcasts,
you get all the same stuff from literally everybody

(01:48):
and their mom with regard to how to start up successfully.
And I'm one of the few guys that kind of says,
hang on a second, if 90% of all startups still fail,
maybe what's being preached is wrong.
Maybe something is wrong about it.
And so I spent a lot of time in Silicon Valley.
I've been in Austin for 16 years.
I've run incubators, I've designed startup curriculum.

(02:09):
I work internationally to a great extent.
I get hired by governments, cities or other countries
for the most part to try to help them figure out
how to build their ecosystem.
And a lot of what I do is just coming in
and pointing out what's wrong
or what they're getting backwards
or making mistakes about so that they can do it differently

(02:29):
or more effectively.
- Yeah, I mean, most people probably don't think about cities
and communities supporting startups.
I mean, is that, can you talk a little bit about
why that's critical?
Because I mean, most of the times when I think of startups,
so you're always thinking of funding
or how do you get the venture funding
or how do you collect the team
or how do you do the product market fit.

(02:50):
But there's not a lot of air time
that seems like given to the ecosystem
that people come up in.
- There's not a lot of air time with regard to
what you just asked, which is a really good question.
Why does it matter?
And there's, and I say that because there's a lot of air time
to tech, there's a lot of air time to be an entrepreneur,

(03:10):
a lot of pop culture about how cool it is, right?
The TV shows about Silicon Valley
and magazines called Entrepreneur.
But there really isn't a lot of discussion
about the more fundamental economic considerations,
such as one that I love
is that you probably notice with whichever president
is in office at the time, is in the White House,

(03:32):
that president claims that they've created so many jobs.
- Yeah.
- The government doesn't create jobs.
The government doesn't do squat about creating jobs.
But I point that out because it's also therefore
sort of misunderstood that companies don't really
create jobs either, right?
A big company like IBM, they already exist,

(03:53):
they already established,
obviously they employ hundreds of thousands of people
and sure they might create some more jobs as they grow
or become successful.
But the fundamental reality is that roughly 70% of all jobs
in an economy are created or recreated by startups,
which is to say, look at AI coming along,

(04:14):
the only way that we're gonna have jobs in an AI economy
or an AI-based academy is because startups create
the new technologies to create the new business models
that are relevant to that.
They create the new opportunities based on that innovation
resulting in the next phase of humanity, frankly,

(04:34):
which puts a bunch of people to work
in artificial intelligence.
So the fundamental reason it's really critical is,
is if your city is struggling with jobs,
it's struggling to have jobs.
If you're only trying to attract big employers
of trying to attract companies to employ

(04:54):
the people in your community, it's gonna fall short
because what you really need within your local community
are the individuals who are starting new things
that manifest in a net positive growth
in all of the jobs that exist.
And an appeal in the city in which you live
for job creators to wanna be there

(05:16):
so that the people that are in that community
are able to get to work, not just in an employer
or the company that you've moved there
or that you've made successful there,
but in fact, the entire job economy that's growing
thanks to what's being done there.
- All right.
Well, so for cities or companies that are looking to,
you know, where they're gonna set up shop

(05:37):
another you used to be on the West Coast
and what should they look for?
And, you know, what was the appeal for you coming to Austin?
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(05:59):
- That's sort of an amazing question
because if for, since you are,
when you ask it today,
I think most people appreciate the answer, right?
Texas economy is booming,
the Texas regulatory policies
with regard to employment and companies
is fairly progressive,

(06:20):
frankly, in a positive and encouraging way for employers.
And certainly we see a lot of tech and innovation
and entrepreneurship relocating to Austin, Texas.
But I say it's kind of an amazing question
because I moved to Austin 16 years ago,
and 16 years ago you could have asked
any VC in the world where you would move
and precisely zero of them would have said Austin.

(06:44):
I actually moved to Austin for completely different reasons.
I studied economics and I studied marketing.
And so after about 12 years in Silicon Valley,
I started to feel that ecosystem was maturing
to a point that you might call it late stage innovation,
which is to say it's really good at big companies

(07:04):
in technology, now doing more things
and certainly the venture capital is still there.
But it's sort of lost its edge with regard to seed stage,
idea stage startups.
And so you have to look at the landscape of the country
of the world and say, where else could be could be?
Not is, but where else could be effective at that?
And it's hard to argue that Austin is probably

(07:27):
one of the best places in the world for it
and will be for a very long time,
not because of Austin in and of itself,
but because Austin's within two hours
of four major cities in the United States,
which means it's got a lot of access to talent
and capital and exposure,
certainly has the benefits of the Texas economy
in Texas ecosystem,
but then characteristically Austin does have

(07:49):
a lot of the qualities that Silicon Valley used to have,
which surprisingly to people is in fact,
things like sort of a hippie culture,
a live music scene, it's this contrarian kind of
counter culture and embrace to the arts
that believe it or not is actually what encourages
an inspires technology professionals and investors

(08:11):
to take risks.
That if you have a city or a region of the world
that's really hot on tech,
but completely abysmal with regard to the arts,
you're not gonna be a startup ecosystem.
You're just not.
You've got software developers,
you've got engineers, you got architects, that's fantastic.
But or rather because it's the ability

(08:34):
that we have in a community to see musicians take risks
or to see artists be celebrated,
even though their art might be terrible,
or to see the city funding murals throughout the urban core,
when you see the community taking risks on just creative works,

(08:54):
it's an easy path for technology folks to say,
hey, I could do that too.
I could try something and even if it fails
or even if it isn't very good,
I'll probably be celebrated or recognized
or supported in some way for that.
Austin has all of that in spades
and like I said, it's gonna continue to for at least 15 or 20 years.

(09:16):
- Yeah, I mean, so what do you see
is the next logical step in that.
I hear a lot of bemoaning here in town about,
hey, if you wanna get the next tranche of funding,
we're right at starting things,
but then if you wanna try and scale it,
you gotta go somewhere else
to one of the other big ecosystems.
Is that still really a major issue here?
And if so, is that common to other places,

(09:38):
like maybe a Nashville or somebody,
a place like that that's holding up.
- Stun or ecosystem.
- Nashville's a good, let me start with the last question
to ask is Nashville's a fun one.
Nashville's a fun one because in a sense,
it's best appreciated is the opposite of Silicon Valley
that it's really trying to be a tech ecosystem
and trying to be a startup ecosystem.
And it has some signals that it is,

(10:00):
which frankly can sorta be misleading
because in fact, what it really is
is much more of an arts center.
It's a huge music scene.
- Right.
- Second to LA.
And it's almost too far in that direction to a fault.
And so hopefully you can appreciate what I'm pointing out
is you need both.

(10:20):
You need both to do it well.
And Silicon Valley was both, Berkeley and,
you know, Hayton, Ashtbury and the protest against Vietnam,
right, that's a lot of what led the groundwork,
laid the groundwork for Silicon Valley to become
innovative in the 70s and 80s, let alone the 90s and 2000s.
You know, to sort of lost that.

(10:41):
Austin's got it.
And that's actually the answer to the first part
of your question.
Is it still true that folks that wanna scale
have to go somewhere else for marketing
or the experience to do so or the capital to do so?
Yeah, unfortunately, it is still true.
And yet it is changing.
It's changing because it takes,

(11:05):
it takes time for those experiences
in that capital to manifest.
In the startup ecosystem, for those of you
in small business and real estate or in companies,
you know, you tend to plan your cycles annually, perhaps even
quarterly, maybe you've got a five year roadmap for things.
In the startup world, it takes a good seven to 10 years

(11:28):
for us to see things cycle, for innovation to drastically change
into cycle out for investors to get returns on investments.
So you can imagine how if the Austin startup ecosystem
really started to boom again eight or 10 years ago,
certainly existed before that, but it was a lot smaller.
So it started to boom about eight or 10 years ago.

(11:49):
We've really only been through one cycle.
We're in the kind of in the middle of the second cycle,
which means we're starting now to see a lot
of new venture capital firms in Texas.
We're starting to see emerging funds raise capital.
We're starting to see existing funds raise
their follow on larger capital rounds.

(12:11):
And what's beautiful in that happening is that
those people now also have more startup experience
than they did 10 years ago.
And so they're able to not just make better,
more meaningful direct investments,
but they're also more capable of appropriate advice
and good direction and connecting the right people
so that founders here could scale.

(12:31):
I think it's gonna take another cycle.
It's gonna take another five to seven years
before we really start to see Texas comparable to New York
or California with regard to direct localized capital
investment, but we're getting there.
- Yes, if you talk a little bit about that cycle,
I've heard that the big exits from the early investors,

(12:51):
there's a big exit and then a lot of them have liquidity
and then they can go reinvest.
Is that sort of like the natural cycle of things
about how money flows throughout or the ecosystem?
- Yeah, that's a talk a little bit about that.
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- Yeah, please in fact, because that's actually

(13:35):
our greatest challenge in Texas if that's
where most of your audience now is that most ecosystems
throughout the world have a culture that tends
to favor property, property development,
property monetization and the like,

(13:57):
which means what?
It's easier for me if I have wealth.
It's easier for me to buy a bunch of homes
or to buy a property in development in real estate
or to buy a property in developed for commercial use
and lease and license that and benefit
from the tax deductions, benefit from the appreciation
that's so forth.
Wonderful.
That's a much more appropriate way to
a mass and maintain wealth.

(14:18):
The challenge is in my sector of the economy,
that's a bad thing.
We have to help shift the way from.
Why? Because we've had 24 unicorns manifest
in Austin in the last few years.
The difference is that in a place like Silicon Valley,
there's no room to grow.

(14:39):
It's already massively developed, it's urbanized,
it's expensive.
And so you can appreciate how the opportunity
in physical infrastructure is less meaningful
in a place like Manhattan or in a place like Silicon Valley
than it is in Texas.
It's more expensive, there is a place to do it,

(14:59):
it's more onerous.
Which means what?
Which means that when I exit from that unicorn
rather than taking a seat back a little bit,
maybe buying some property and just living off that wealth,
I might as well reinvest it in technology.
I might as well reinvest it in startups.
I might as well reinvest it in companies.
So you can appreciate how there's a bit of a catch 22

(15:21):
in the sense that when it comes to a place like Austin,
we need to teach the wealth class and a challenge in that
is the wealth class tends not to like to be taught,
tends to point out the fact that they're wealthy and successful.
So what the hell do you know?
Well, we know that startups are very different.

(15:41):
And perhaps you'd like to consider investing in this kind of stuff,
I need you to appreciate that investing in this kind of stuff
is not at all like investing in a business.
It's not at all like investing in property at all.
(laughs)
And if you come into the startup ecosystem
with those expectations, you're gonna be disappointed,
you're gonna be angry, you're gonna be frustrated

(16:03):
'cause it doesn't work the same way.
But I need to teach you why that's different.
I need to teach you how that works because
we do want you to shift that capital in this direction.
One of the best ways to do it is to explore alternative uses
of property rather than leasing property to co-working spaces.
Why aren't we developing something along the lines

(16:24):
of what's called a startup studio or a venture studio
where you're investing in both the property
and the companies or the innovations that are in there.
And as a result of you doing that,
you benefit from both, but you also mitigate the cost
to your customers.
So you're not running the property for as much on purpose
because we all can't afford it.

(16:45):
Instead, part of that is considered an investment
in what's happening there.
And so you benefit from the upside and the diversification
of your portfolio while still having some of that stability
in the property that you're working with.
- Yeah, and I know Austin has some examples of this too.
I mean, I'm thinking of different things in my head,
but maybe we can talk a little bit about media tech ventures

(17:07):
and kind of your point of view on this
'cause I know you've been championing
so many of these ideas from while now.
And we've talked about this before,
but proximity to certain things
and the network effects of people being near one another.
Like what are the things that,
so like the goodness that you get out of
the sort of model that you're talking about

(17:27):
for a startup, computer system?
- Yeah, let me start with sharing
what our thesis was with media tech ventures.
It was actually two things.
Coincidentally is where we sort of started the conversation
that you must have both the arts in the creative side
and the technology and the innovation

(17:48):
to actually have a vibrant startup ecosystem.
Too heavy on one side or the other and it doesn't work.
For example, Los Angeles is another good example
of a very, very vibrant, very, very wealthy,
very successful economy,
but it ain't a startup ecosystem.
You don't think it go into LA to do a startup.
Why?
'Cause it's very, very integrated
and understands the music business model

(18:08):
and the film business model and so on and so forth.
But again, it's not at all like what we do in the startup side.
But if you don't have both,
if you don't have that creative aspect to what's going on,
you don't inspire risk, you don't inspire creativity.
So media tech in and of itself was an acknowledgement
and encouragement of the fact
that you have to have both things in place.

(18:30):
And we can't do that, we can manifest that.
We can invest in both creative productions
and technology or innovation
and doing so puts both in place in the economy.
That one consideration isn't actually even something we invented.
If you go back to the 1970s,

(18:51):
gentlemen by the name of Peter Drucker,
who was an economist, management consultant,
very reputable, very well known in big companies, frankly,
made the observation that only two things
actually create value, marketing and innovation.
So twist, twist the words marketing and innovation
to media and technology and there you go, we stuck that together.

(19:14):
So once we put the right cultural or social characteristics
in the economy to make it possible,
then you touch on Brian the things that you're talking about.
That the second consideration is that most people
fail to understand that Silicon Valley is not,

(19:38):
actually not the best place in the world for startups.
It's the best place in the world for some startups,
particularly internet based, SaaS or consumer startups.
And notice I'm not even using the word technology
'cause once you mix it up or mess it up by saying technology,
well, in fact, is biotech and farm is better in Raleigh Durham

(20:00):
and clean tech and energy is better in Houston.
You're not gonna find that stuff in Silicon Valley
and you shouldn't.
So it's this acknowledgement that one of the lessons learned
is mistaking that a place like Silicon Valley is tech
or it's ideal for tech or it's ideal for all tech.
That's just not true.
That is good for certain things which means what then?

(20:21):
It means that in your ecosystem, in your community,
in your city, there are actually certain things
that you're gonna be good at and there's certain things
that you're not.
Dallas and Fort Worth to talk about Texas more holistically,
for example, Dallas and Fort Worth are a great place
for financial innovation in Texas.
It's actually not really Austin.
And so even if you think of a place like Austin

(20:44):
as the best place for startups now,
like my point about Silicon Valley, that's not true.
It's good for some things.
Dallas is fantastic for FinTech, a lot of banks,
the new Texas Stock Exchange, NASDAQ is moving there.
Where do you wanna do FinTech innovation?
If you don't wanna be in New York,
which by the way is the ideal place for it,

(21:05):
not Silicon Valley, well you might consider Dallas over Austin.
So the second thesis was appreciating that
in developing a better startup ecosystem,
we have to focus on the strengths and weaknesses
of industry where you are.
We have to acknowledge that there are things
that are not gonna be good at and we have to be comfortable

(21:26):
and capable of dismissing those things, dismissing those things.
For example, when I see a lot throughout the world,
there's everybody, everywhere wants to be an AI.
Well, like it or not, a lot of your cities
are gonna suck at AI and you need to be comfortable
with the fact that you're not ideal for AI.
Seattle's gonna be great at it.
Texas is gonna be great at it.
Nashville, maybe, right?

(21:48):
Nashville, maybe in the sense of AI in music.
Okay, see, there's a logical fit.
When you don't have that fit,
you can't just kinda make it happen.
You can't just pretend.
Because the entrepreneur class to founder class
can't afford to take stupid risks.
And I mean stupid risks.
You can't afford to try to encourage or enable founders

(22:09):
to do things that aren't appropriate there.
Why not there?
Because you don't have the mentors that know what they're doing.
You don't have investors there that know what they're doing.
You don't have companies that they can partner with.
So why on earth would you try to encourage people
to start things that aren't appropriate
in an ecosystem where it doesn't make any sense?
Those are the collisions that you mentioned, Brian.
That you wanna put the right people in the right places.

(22:31):
You wanna get the sectors that are appropriate,
not just downtown, not just in the city.
You want to get them into places where they're gonna talk,
they're gonna socialize, they're gonna cross promote,
they're gonna work together, they're gonna partner together.
And out of that comes innovation in whatever sector
it is that you might be great at.
- Yeah, so let's talk a little bit about the founder class.

(22:53):
You know, I know that you can't go anywhere in Austin
without people talking about startups or collaborating.
There's all sorts of ecosystems for this.
But what's kind of the anatomy of a successful startup?
I know you mentioned a lot about marketing
and there's a lot of talk about product market fit.

(23:14):
But somebody that wants to do this the right way,
that wants to sort of do the lean startup approach
or whatever the latest buzzwords are for this.
What's a good approach for somebody to validate
that this idea that they have really is something
that the market wants.
And then how do they go about sequencing their
sort of their bats in their time to navigate their way

(23:36):
to something successful?
- So here's a great example of what I mean
by being a contrarian.
You're right, there's a lot of talk about founders
in startups in Austin.
And because of that, what you also see is a lot of negativity,
not a lot of criticism, right?
We're tech pros, for example.
Right, you see that slur, frankly, a lot

(23:59):
from the people who don't like that kind of thing.
Well, here's what I'm gonna throw you for a loop.
How do you understand what a startup actually is
and what it takes?
If I play guitar and I hook up with Brian
and I hook up with my friend Sally
and we start a cover band.
What we have started is a business, not a startup.

(24:20):
We are working with the existing business model
for that business.
We learn to play our stuff.
We learn how to promote ourselves a little bit.
We learn what venues to play at.
We learn what kind of music people like
and we learn how to make money with that
either by producing some merchandise or selling tickets.
That's a business.
Starting a new business is not at all like a startup at all.

(24:43):
The startup sector is, I know how to play triangle
and I sort of know how to mess around with this move keyboard
that plays a whole bunch of different sounds,
a synthesizer kind of.
(laughs)
And you're like a grunge hip hop singer.
What's a grunge hip hop singer?
I don't know.
It's just your thing, it's your vibe.
And we get together and you love by triangle.

(25:05):
And we think though that our genre,
our style is gonna be much more compelling
through TikTok videos.
Neither one of us know how to produce TikTok videos.
So what?
We know that that's where we're gonna be hot
'cause the niche for our grunge hip hop triangle music

(25:25):
is really freaking small.
However globally it's rather substantial.
And so we're going to try producing videos
until we figure out how to make it work.
We're going to try producing a whole bunch of different music
until we figure out what people actually like.
That's classically or characteristically,
a better example what a startup is.
And so when you say who's the founder class,

(25:47):
well the fact is the artist who's doing murals in downtown Austin
is also part of the founder class.
The musicians who are trying to make it work in this city
and they aren't just covering music
and playing at the bar on the corner,
they're also part of the founder class.
Yes, I'm sorry to say it.
All of you people who think the tech bros are awful.
The fact is people who do creative,

(26:09):
innovative work whether it's in music or film or coding
or apps or restaurants or food.
You've heard of Siette in Texas, haven't you?
A billion dollar freaking exit.
It's not a business.
Why is it not a business?
It was a startup because they put together ingredients
for chips that no one ever put together before,

(26:32):
which arguably was probably dumb.
Why?
Because selling corn chips and potato chips is really, really easy.
Well, they didn't do that.
They didn't just make another product line selling chips.
They went in a completely different direction.
They were a startup.
They had to figure out how to make it work.
Those are startups and it's important to appreciate
the difference because again,
when you talk about the investor class or the real estate class,

(26:54):
if you want to participate in the startup world,
we're not just following the existing playbooks,
we're not just following the existing business models.
But that doesn't mean there isn't one.
We do know what we're doing.
The difference though is, in the business world,
you could argue that we can be certain of success.
That really the only reason that businesses fail

(27:15):
is because those businesses don't have the experience
didn't follow the business model.
They're stubborn.
There's some stupid reason that you open a restaurant where?
Why would you open that restaurant there?
Obviously, that's not going to work there.
You're going to look at a restaurant and you
can decide whether or not it's likely to succeed or fail.
You can't do that with startups.

(27:37):
And so really all we do with startups is,
we reduce the likelihood of failure as much as possible.
And so there are playbooks to do that.
And that's why you hear things like Lean Startup
or Product Market Fit.
You hear things like Market Validation or Custom Validation.
These are all techniques that we use to address the fact
that we can't just write a business plan and shop that business

(27:59):
plan around to the banks and get some funding and start a thing.
Because odds are most of what we're going to do is fail.
Most of what we're going to do along the way is fail.
The music that we're putting together sucks.
My triangle broke.
What do I do now?
I can't afford to do one.
These things are going to happen that don't work out.
We discover that we were wrong.
TikTok videos are dumb.

(28:21):
We should be doing Twitter live streams for our music.
Well, who knew?
We didn't know that until we discovered it, until we uncovered.
And so instead, what we're doing is we're focused
on finding investors, mentors and advisors, startup
experienced folks who know how to avoid the mistakes,

(28:43):
know how to avoid the pitfalls, know how to scale very,
very efficiently.
Marketing, for example, is one of those things.
Marketing effectively is free.
Everybody?
Marketing effectively is free if you know what you're doing.
And so in the startup world, we're looking for those people who
know how to do the kind of things that are necessary to market
a new innovation because it's rather silly for us to go spend money

(29:07):
promoting it when we don't yet know exactly how it's going to work
and whether or not it's going to work.
But we still need those people who know what they're doing
to iterate and try things and test things as efficiently
and effectively as possible to eliminate the fails,
really fastly, to start to get churned with regard
to the stuff that works.

(29:29):
Seed investors, by the way, angel investors
or seed investors as opposed to venture capitalists,
that distinction is critical because we need the seed angel
investors who know that that's what we have to do.
I'm going to take your money and I'm going
to throw in a lot of things and see what sticks.
Banks don't do that.
Banks hate that.
But angel investors, that's exactly what they do.

(29:50):
And so we need them.
And they're not the same as VCs.
VCs are looking for things that are further along.
They're validated a little bit.
And so if you're in the venture capital world,
I know you're not going to be happy with me just
throwing money around to see what sticks.
But we still need money to throw around to see what sticks
in the startup ecosystem because that's the only way to try things.
You might think of startups as effectively starting as R&D.

(30:11):
How do you get things off the ground that are completely new?
We have to fund R&D.
Can I guarantee that my R&D is going to work out and be successful?
Absolutely not.
I can't.
Absolutely not.
But I can guarantee that if we don't do it,
we won't find new solutions.
So you only want to participate as an investor in the startup
class, in the founder class.
If you appreciate that you are helping fund R&D

(30:33):
so that we can discover what is new and better
than what we're doing today.
Yeah.
So I mean, if you are a aspiring startup person,
there are other metrics you can look at to be able to measure these things.
Austin has this much seed investment versus San Francisco versus Boston
or whatever the other hubs are.

(30:53):
Yeah.
What's fun about this sector of the economy is that there isn't much study about it.
Most most, if you appreciate the economic side of industry,
most economists focus on either micro or macro economics in a broad sense.
Or they focus on corporate development or workforce development.

(31:15):
Or they're at a chamber of commerce.
So they work for the city.
So how many people actually study how startups work?
Dozens.
I mean, literally it's in the dozens.
Are there metrics related to that?
Yeah, there are.
For example, if after seven years, we're not seeing venture capital coalesce.

(31:38):
That's a red flag.
How many times should we take a shot at fostering startups in our community
and in our ecosystem before we acknowledge that the venture capitalists
aren't showing up to fund them?
Maybe something's wrong, right?
Or if we have an incubator or an accelerator in our community,

(32:00):
are we looking at the volume of businesses started,
which is what's typical in a small business program?
Or it's typical in a city program?
Look at how many new businesses we've started.
Banks look at that metric.
Look at how many new businesses we've started.
This is wonderful.
Why the heck would I care how many businesses have started?
It's really easy to get people to start startups.

(32:23):
The more appropriate metric is how many succeed, how many create jobs,
how many get acquired.
And so we look at late stage metrics instead of early stage metrics
that if you got an incubator and it's pumping out 100 startups every six months,
I look at that and go, so what?
How many of those have resulted in successful companies?

(32:46):
And it's an important metric because we know that roughly 90% of all startups fail.
And so when you have a startup program in your town,
if 80% or 90% of all of those startups are still failing,
red flag, maybe that program isn't doing a very good job.
Maybe that program doesn't know what they're doing.

(33:07):
Hopefully the city isn't funding that program because it's not making a difference.
You see that the metrics indicate the successful development of a company,
not the start or volume of things that we're getting going.
And it's a little difficult to discern those things because it takes time.

(33:29):
It takes at least a couple of years to start to discern whether or not the efforts
that are had by angel networks, by venture capital firms, by startup development organizations.
Takes a couple of years at least to discern whether or not they're effective or not.
Luckily in a place like Austin, we're at that point, we're well beyond that point.
We can tell now whether or not programs are effective,

(33:49):
whether or not the city should be doing work.
But if you think about it at large, Dallas isn't at the same point.
San Antonio isn't at the same point.
And so we're still looking at those ecosystems in Texas to figure out if they've got
the right DNA, if they've got the right experiences, if they can put the right programs in place
that are important for what those ecosystems have to offer.

(34:10):
It's going to take some more time before we actually figure out whether or not they've figured it out.
Yeah, and I haven't been tracking this as much recently,
but I know Austin used to have like tech stars and places like this.
I don't know if we ever had a Y-combinator class here or not,
but do you find that if you can drop something like that into a different city
that it's effective or is it really, are those really more phenomena that work in that location

(34:37):
and the way that they operate maybe doesn't work in a different location?
Yeah, that's a wonderful question because what we know with certainty is that your ecosystem needs
a diversity of those programs.
Now, what is the diversity?
Who knows? It depends on the sector you have there.
It depends on the experiences you have there.
It depends on the culture you have there.

(34:58):
That you touched on something meaningful that I hope people caught in your 10-sprime.
You're right, we used to have a tech star here.
What happened?
That I argue, you can argue that Austin still sort of lacks what you would more accurately refer to

(35:22):
as the incubator stage of programming.
We've got a lot of accelerators and tech stars as an accelerator.
Well, accelerators have to be able to work with something.
Accelerators only exist when you've got a high volume of early stage startups that have been
validated and now need growth capital, marketers, PR, sector access, that kind of thing.

(35:46):
Because hopefully you'll catch it.
It's in the language.
It's an accelerator.
Its purpose is to accelerate the stuff.
If you don't have the stuff that's there or you don't have the people or the capital or the
experience that knows how to do that, your accelerator is going to fail or fall sort of what
it hopes to accomplish.

(36:07):
Why do we have a lot of accelerators in Silicon Valley?
Because they're at that stage where people know how to get things across that initial finish
line to the point that I've got something that I'm ready to scale.
Everyone knows how to start stuff there effectively and efficiently.
This is not to say Austin doesn't know what it's doing.
It's that again, Austin's only maybe seven to ten years into the first cycle of the new

(36:32):
economy and it's going to take a couple of cycles before there's enough experience here.
So what we lack or what we need more of are what you would appreciate or think of as incubators
that are helping people start things.
They're helping people learn how to do marketing without a cost.
They're helping people validate ideas very, very quickly and efficiently that we need to

(36:55):
get more founders in our ecosystem past that first tranche.
And while we're referring to them as the founders that need to get to that point, hopefully
recall what I said about teaching the investor class or teaching the wealth class.
What we actually also need much more of is teaching the investors the different expectations

(37:15):
at each of these stages.
But again, if you want to invest in startups, that's great.
But investing in a venture capital firm or through a venture capital firm is drastically
different than being an angel investor.
It's drastically different than being in a seed fund.
It's drastically different than being in an angel group.
And if you're not familiar with the difference is, I am telling you, we don't want you involved

(37:36):
because you will screw up the process by being an investor who wants this kind of stuff
when you're participating at this stage over here that you're misleading everybody by setting
expectations that are inconsistent with the way things work at that stage.
Pointedly, if you want to be an angel investor, you have to be ready to lose 90% of your money.

(37:59):
You have to know how to very aggressively scale things.
You have to know how to connect people very effectively.
You have to know how to discern new inventions that are meaningful from new investments that
are wasteful.
Most people can't do that.
And so if you want to be an startup investor and you're in that group of people who can't
do that, go talk to a venture capital firm and invest through that venture capital firm.

(38:20):
Do not be an angel investor, please.
That discernment is critical.
But it's critical because again, we can't enable the entrepreneurs and the founders to waste
time.
We can't enable them to make mistakes that are dumb mistakes.
We can't put them in an environment where they're getting the wrong advice because they
don't have the resources to make those mistakes.

(38:43):
We want to be as clean and efficient as possible by connecting people in the right places.
So Paul, I think a lot of our listeners are corporate executives or people that maybe
are trying to make the foray into entrepreneurship.
They probably are very effective at leading and managing large teams or organizations
that somebody else has built.

(39:05):
What advice would you give those folks if they're trying to make them lead to learn to go
operate something from scratch and sort of growth, something from birth?
And how are those skills different than what they're maybe used to exercising in the corporate
world?
Start with the last question, last part of your question.

(39:29):
Appreciate again that my world is completely different than yours.
You don't have any playbooks, there's no HR, there's no budget, there's no boss to make the
decision or take the fall.
It's all on you, all of it.
You are a chief technology officer at a big company who would like to be doing startups.

(39:52):
It is all on you, which means you better learn how to do marketing and sales and graphic design
like right now because you are individually and solely responsible for that.
You are.
Does that mean ultimately that you have to do it all?
No, of course not.
But if you want to be in the startup sector, the fact is you have to be conscientious of

(40:14):
your obligation and your responsibility to be able to do all things.
One of the things that we have in the startup world is that it is your responsibility to
take out the trash.
You're not going to hire somebody to do it.
Somebody clean up the office.
Your job is literally everything.

(40:34):
That's a big leap of faith for people who are used to or have experience or are comfortable
with what their MBA taught them or what their HR department takes care of for them or what
the process is in the company.
None of that exists.
It's all out the window.
By the way, including the fact that you appreciate again why startups are the ones that actually create

(40:58):
new jobs because in our world, our objective is to break your business model.
Our objective is to put you out of business.
It really is.
We look at the way things are done and we go, well, that's silly.
Why don't we do it differently?
Why don't we do it better?
Well, how do we do that?
Well, we're going to have to take down the big existing companies that do it a certain
way.

(41:18):
So we quite literally have to think differently than the existing stakeholders in a sector,
including can we completely change public policy?
Maybe we should go through the government and break things.
Maybe we should break the law for a little while.
Is AI stealing content from other people?

(41:41):
Yes.
Is it illegal?
I mean, technically in the United States, it's illegal, but it's not illegal in China.
So if we want to build AI that is capable of competing and doing something cool in that
sector, what do we do?
Do we have to play by the rules?
Or do we have to go, it'll sort itself out, right?
You have to be comfortable with that.

(42:03):
And ultimately, then, it tends to the first party question, how and where do you get involved?
Don't go it alone.
Don't try to start your own thing in isolation.
There are lots of people like me, like Brian.
There are lots of people like me who have experience in what it is that you would like to

(42:25):
be doing.
And you're kind of bringing us full circle, Brian, where we started the conversation, talking
about media tech a little bit or talking about those collaborations or connections that
we hope to make in an ecosystem.
What you do is you figure out what sector it is that you want to be doing something, which
again is not tech.
It's not a startup.
The sector is maybe it's real estate tech.

(42:46):
Maybe it's music tech.
See, it's real estate or it's music or it's pharma.
And you want to go find that community.
And that community is more than happy to embrace you.
I assure you, because we are constantly looking for the executives and the investors and so
forth that have experience in and want to change what it is that we're trying to change.

(43:10):
We're trying to make better.
And so you could literally just show up at that office space or that community space so
that meet up and say, hey, look, I have an idea and I want to try something, but right now
I work at Dell and I'm not really sure how to get started.
And I guarantee you within 24 hours, you will have 10 people saying, well, here's what you
could do.
Why don't you work with me or do you know Brian, we should be doing this stuff together.

(43:32):
You get plugged in very, very, very, very quickly.
But you do it to be clear.
You need to do it in the sector that makes the most sense because if you go show up at
the startup hub, if you go show up at the tech center or you go show up at the innovation
center, you're going to run into a business.
A thousand different people doing a thousand different things.
And that coming out of the executive sector, coming out of the corporate sector, that's

(43:53):
going to mislead you because you're going to hear people give you advice based on the way
it works in their sector.
And that's not necessarily what's appropriate to what you want to be doing in your sector.
Startups are not all the same.
Startups are very, very different by context and by sector that they work in.
Again, that should be very evident in Texas because working in the oil and gas industry

(44:14):
is not at all like working in the music business, is it?
So if you're doing tech in either one of those, you just take the tech advice and put it
to work in oil when all of your experiences in music, no.
You go talk to the energy guys or you go talk to the music people and they guide you as
to how to do it most appropriately.

(44:35):
Don't make the mistake of getting misdirected by the people that don't know what they're
doing and whatever it is that you want to be doing.
All right.
Well, hey Paul.
I think we're almost out of time here.
Is anything you wanted to leave the listers with before we depart?
I would only encourage that if any of this resonates with you, I don't just talk about
it.
I write about it.

(44:56):
I expose it a lot.
I'm known as Startup Economist and some of my website.
If you just look up Startup Economist, I should show up on LinkedIn or Google or whatever.
If you ever want to explore the upside down perspective that it takes with regard to your
economy, your sector, your industry, the technology in that space, that's what I'd love to do.

(45:17):
If you bring me a pitch for an idea, the first thing I'm going to do is I'm going to rip
it to shreds.
I'm going to tell you why it's wrong.
Because again, in innovation and entrepreneurship, we're trying to help people avoid the mistakes.
We're trying to help you avoid the likelihood that you're going to fail.
It's not helpful for someone like me to just say, hey, that's a great idea.

(45:37):
Good luck.
Go talk to more customers and maybe find an investor.
That's not helpful.
I'm going to tell you what's wrong with it so that you can focus on the things you need
to do to make it successful as opposed to wasting your time on the stuff that we already
know doesn't work.
Look me up.
I'm happy to connect and I'd love to have those kind of conversations with everybody.
All right.
Hey, Paul.
This is great, man.
It's actually the time that I would have to do this again.

(45:59):
Anytime.
Same to you all.
Look you up online.
Cheers.
All right.
Thanks.