Building Great Startup Communities with Investor & Author Brad Feld

Hey everybody, welcome to this Founder Institute webinar. My name is Jonathan Gritchen. I am a co-founder of the Founder Institute. We are expecting a very, very large audience today and for good reason. We have a pretty, pretty amazing speaker that's going to be joining us today. I am just going to quickly go live on Facebook so that other people can get the benefit of this learning as well. And all right. So if you are joining today, one thing I want to make clear, all right, we're— we live in an age of COVID There are a lot of webinars going on and a lot of online events. The value of these events is the interaction between you, the audience, and us, the speakers. Okay, so please don't be shy. Throw your questions into the chat. We do— this is a 100% live event, and we have a lot of people in the chat already. Let us know where you are where you're joining from. All right? We are expecting a pretty international audience. I'm seeing Kansas City, Johannesburg, Pasadena, Denver not too far, Zurich, Calgary, Berlin, Ibiza, wow, Tel Aviv, Hamburg, Gothenburg, the moon. All right.

The moon wins. I'm going there. If you could just send me a thing to get to you, I'd be very happy. Get out of this planet. I've been trying to get back to my home planet for a while. I just can't seem to figure out where the teleporter is.

Yeah, if there was, you know what, startup idea right now, get off this planet in 2020, I think, I think you might be a decent idea. But, uh, but anyway, yeah, the point is, anybody in the chat, please do put your questions in there. We do have members of the FI team that are in there, and we want to have, uh, bring as many questions as you have onto the chat, uh, with, with our speaker today, Brad. So Really quick, Founder Institute, world's largest pre-seed accelerator. Learn about us at fi.co. We're enrolling in a ton of cities. But we are a little bit limited on time today, so I just wanna get to the speaker and get to the topic. So Brad is someone that I followed, I've read, and I've really looked up to for quite some time. He's the co-founder of Techstars. And by the way, Brad, you know, it's— we have about 4,500 companies that have come through FI now, and they've gone through every single startup accelerator probably on the planet. And Techstars consistently is the one that I get the most positive feedback about.

Just fantastic, fantastic to hear.

And we have a lot of data points there, right? So that's not constrained to one Techstars program in one city or anything like that. He also has been the author of several books, Venture Deals, that is Definitely the seminary text on learning the mechanics of how venture capital deals and any kind of investment deals work. I actually, I was speaking to a founder a couple of weeks ago and they were like, oh, I don't have time to read a book. I told them, all right, if you don't have time to read this book, you probably don't have time to raise capital, right? So you should probably read the book. Startup Communities, which was a book that, I personally loved at Founder Institute because it came out, was it about 2012 or so, Brad?

Yeah, 2012, yep.

Yeah, so it came out in about 2012, and that was honestly like right at the beginning of this like post-Great Recession startup boom, right? And it was right about the time when Founder Institute was starting to expand in a lot of different cities, and we were seeing so many different dynamics play out over and over and over in all these different cities. And after I read that book, it really just brought a lot of Order to the Chaos that I was seeing, FYI. So definitely a book that people should check out, and his new book Start a Community Away, which we'll be talking about today. So yeah, Brad, do you want to say a few words, introduce yourself as well?

Well, thanks for having me. It's a beautiful day in Colorado. It turns out that Jonathan and I are probably about 15 miles apart from each other physically, and I'm delighted to be here to talk about Whatever's on your mind.

Okay. One thing I should also mention too, and I was joking with Brad about this before, not only does he write a lot about startups, startup ecosystems, venture capital mechanics, right? But I was listening to his interview with Tim Ferriss last week and amazing relationship advice as well for, especially for couples where one might be an entrepreneur. So I would check out his Tim Ferriss interview. It was honestly, Really, really enlightening. But what I want to talk about today, and I have two— or sorry, I have three topics that I want to cover, okay? But again, everybody in the audience, throw your questions in, all right? I don't have that many topics that I want to cover because I'm just trying to cover a couple of themes that I found most interesting about his new book, The Startup Community Way. And Felicia, in the chat, if you can throw in a link to that and, uh, you know, It's definitely a book that's worth reading, believe me. And the 3 topics that I wanna cover are basically, one of the main things that the book goes through is how a startup community should be looked at as a complex system. And not just from sort of like some pedantic point of view, but it is, it should be looked at that way as in an actionable point of view because of how you can interact and influence that complex system. The second thing that I wanna talk about is the overemphasis on funding that a lot of people in startup ecosystems, you know, practice. And I've seen this since day one. And it's— I'm not sure if it's something that will ever sort of be cured, so to speak, but definitely something that we need to keep in mind. And then finally, if the— with COVID and with the hell of a year that 2020 has been in a lot of different ways for everybody, what maybe some are— what are some of the opportunities and risks that we may see going into 2021. So with that being said, throw your questions into the chat and I'm gonna get started. All right, so Brad, probably the overarching thesis of the new book, Cyber Community Why, is that cyber communities are complex systems, right? And a complex system, just to, I'll paraphrase you, here a little bit, but basically a complex system just means that it's not something that's formulaic. It's not something that you can just have a step-by-step process to get a deterministic outcome. It's something that any one party within that system, the best that they could hope to do is influence that system, not control it, and any kind of measure of control can end up doing much more harm than good. Did I paraphrase that in a decent manner?

Yeah, well done. Let me, let me, let me start with this before we dive into the questions. I'll add— yeah, I'll add to it. Um, the best way to understand a complex system is, is through an example. And the reason I think that it's important to sort of have this as a good starting point is Ian Hathaway, my co-author, and I, as we work through trying to come up with a basis for the book Right. Any, any nonfiction or business book that's any good usually has some framing associated with it that people can tie on to. We realized after essentially writing a first draft of the book, 40,000-50,000 words in 2017, uh, and this book was intended as a sequel to the 2012 Startup Communities book, uh, we realized that what we wrote sucked. So we just weren't happy with it. Like, we, you know, the words were fine and there were some interesting concepts, but the thing just was not interesting. And Ian came up with the notion that the metaphor that we should be using in the sort of framework to hang the book on was how complex adaptive systems work. And we shortened that phrase to complex systems because it's just a subset. So let me start with the example and The linkage is that all startup communities are complex adaptive systems. And so understanding how a complex system works is critical to understanding how to grow, develop, and evolve a startup community. And that was really the impetus for this book, right? The first book that I wrote in 2012 sort of defined a startup community, gave a couple of very simple principles, which I called the Boulder Thesis, which at the time were not obvious at all. Today are very obvious. Gave lots of stories, lots of anecdotes about things that were happening. And 8 years later, the phenomenon of startup communities is a global phenomenon. And that phrase in 2012 didn't exist, right? So it— we've sort of collectively created a new construct called a startup community. But there are a lot of people that were saying to us, hey, we've been at this for a while, what now? So the example to start with is, let me talk about 3 kinds of systems. That people can relate to: simple, complicated, and complex. A simple system is making a cup of coffee. You put beans and water in, you get coffee out. There's your coffee. You might add sugar, you might add milk, different types of beans, different kinds of machines, but it's a simple process: beginning, series of steps, end. Deterministic ending. You've got a recipe. A complicated system, uh, is doing your monthly financials. Bunch more steps. They can go in different orders, different inputs each month, different kinds of things that you've got to sort of deal with. But at the end each month, you get a balance sheet, income statement, cash flow statement. It's a deterministic outcome. It's well-defined. It's a bounded problem. Beginning, end. A complex system is raising a child. We've all been children or we have children, and if on the day that child was born you said to the child as a parent, by the time the child is 25 years old, this is what they will eat, this is who they will like, this is the relationship they'll be in, this is the work they'll do, this is where they'll live, this is what their interests will be—

probably the opposite would happen, right?

The opposite. I mean, all you're doing is setting that baby up for therapy, lots of therapy, right? So a startup community is like that. You cannot have a deterministic statement of where it's gonna be in the future. If you go back to my Boulder thesis, I talked about needing to have a long-term view about building startup community, at least 20 years into the future. And today I'd like to talk about it as a continuous 20-year view from today. So I've lived in Boulder, in Colorado I should say, 'cause I split my time between Boulder and Aspen. I've lived in Colorado for 25 years. I'm not minus 5 years on my 25-year journey. I'm 25 years into a 45-year journey. And the interesting and important part of that in this is this notion that I can tell you what things are going to look like in 2040 is nonsensical. And so instead of trying to like have a future and then map that future from the top down and then try to do a bunch of things to get to that future, Really all I can do and really all we can do is approach things from the bottom up.

Right. And I think in, in, uh, in, in reading The Startup Community Way, one thing really became apparent to me is that honestly thinking about— not, not that anybody can run a startup ecosystem, right? Because that's antithetical to everything about it. But in thinking about a startup ecosystem, it sort of operates a lot like a startup itself. Right. It's ideas come from the bottom up, that they're having like crazy amounts of hierarchy, just being able to iterate, having a diversity of opinions and backgrounds. All of these things, the same things that make startups great, also make startup ecosystems great. Right. Would you agree with that?

Very much. And I think that's part of where the notion came from originally. Um, I want to add a few pieces to it because there's a chapter in the book, Chapter 4, uh, which is the difference between a startup community and an entrepreneurial ecosystem. And it's important because one of the things in this book I think that's been— was important to Ian and I, and the feedback we've gotten has been extremely valuable, is being precise about language. We introduce a lot of concepts from complexity theory and apply them to startup communities, those same words, that language applies to startups. And I'll just give one example, let me give two examples. One example that's one of my favorites is nonlinear behavior. So with startups, you know, we are searching for companies that have essentially geometric growth curves. You don't want to start up with a flat growth or a flat line, you want a curve that accelerates. And, you know, the kind of accelerating— if you just do doubling every year for a couple of years, you've got a pretty powerful startup. No matter what that base was, if you can triple for the first couple of years your growth, that's incredible. So this notion of a curve that's nonlinear, whereas so many things in our world are focused on linear growth or linear change, um, uh, and it's a thing that humans have a hard time with. We have a hard time understanding not just how to create nonlinear change, but how to process it when it's happening and what to do. And I think probably everybody here is aware of companies that thought they were growing really fast, extended their cost structure, and their cost structure got ahead of the actual growth curve, and they got into trouble. So this notion of nonlinearity is really important to understand. It's a key part of complex systems. Um, another part of that is positive and negative feedback loops, and we've learned that in a big way with contagion. And the notion of contagion around the COVID crisis, right? If behavior is a certain kind of behavior in COVID crisis, let's just say everybody walks around without masks and does lots of interaction with each other in buildings, you see this very rapid exponential curve of COVID cases and also of COVID deaths. But there's a time delay, the deaths lag the cases. We have a lot of measurement issues around the world, and so the actual data that we're getting is not necessarily correlated. And so this phenomenon of positive of negative feedback loops and contagion again play, you can apply those to businesses. And businesses, even the language of viral adoption is a nonlinear construct that comes from complexity theory. One other example, I think it's very, or phrase that's powerful in the book that we try to get to is this notion of a phase transformation or a phase shift. And again, how it applies not just to startup communities, but to startups. Things look a certain way until there's a phase shift, and then suddenly they look totally different. And, you know, we see this with businesses that are overnight success. But think of all the startups where people worked really, really hard for a while building and building and building, and then something happened and they were on a totally different level in terms of visibility. Or think about a startup community, a city that had a certain reputation and visibility and sort of people responded to it and thought about it a certain way. And then something happened. An example that I use in the book, I saw somebody say, hey, what's happened since 2012 in Boulder in the chat. I'll just use this as an example is that in 2012, when I came out with Startup Communities, a lot of people around the world, as I engaged with them and we interacted, I would say a lot of people were absolutely fascinated with it. When people had criticism, The criticism was, that's nice, Brad. Boulder's a small little place. It's 100,000 people, which was part of my point is that you could build a startup community in any city in the world with at least 100,000 people. They say, yeah, but Boulder could never really support anything meaningful. Like, yeah, it's cute. It's a nice example, but you don't really have anything big that's come out of Boulder. And, you know, in 2012, coming out of the global financial crisis, like, you know, it'd been a while since a company in Boulder had gone public and technology company. There have been some biotech companies that have done that, but, you know, like, I didn't have a bunch of examples to fling back at people other than stuff that was making a lot of progress. In 12 months between 2013 and 2014, Rally Software went public, DataLogix was bought by Oracle for $1.2 billion, uh, when that was a meaningful amount of money, and Zayo went public. And Zayo recently went private for a $14 billion transaction. After those 3 things happened in 12 months, nobody said to me again Boulder was small and cute, because all of a sudden, there's like massive exits that occurred. The phenomenon that played out from that in the startup community had very similar characteristics to the phenomenon with those companies where overnight, Zaya was an internationally known company, not just a company known by its customers. Overnight, Eric Rosa and DataLogix had huge visibility because of Oracle then building the Oracle Marketing Cloud around that company and a couple of other companies. Rally Software, you know, was a company that essentially was one of the first companies to really create tooling for agile software development, and as the wave of agile accelerated, Rally was front and center in that. So you have these phenomenons that are not easy to understand And you can't control them top-down. In 2012, if I had said to people, well, just wait in this—

Anybody that saw the ecosystem at that point knew, right? But it's not something that could have been easily measured. I mean, even since it's been a very long time that Founder Institute and, you know, us, we were based in Silicon Valley. I'm now in Colorado, so I'm certainly not biased about talking of Colorado. But it was, it was like Silicon Valley, Seattle, Austin, New York, Boulder. Right. And it's like if you look at all of those cities, like which one does not belong? It's Boulder. And why? Right. And then you start to think about that. So, yeah, it's— and you get into this a lot in the book as well, where I think you call it the measurement trap. Right. Where a lot of— and I think governments in particular, Now, not your words, right? But mine. I have seen the governments in particular fall into this measurement trap where they want to report back, you know, very finite metrics and some metrics, especially in a complex system, are hard to define. Right. And are hard to track. It doesn't mean that they're not valuable. It just means that they're hard to track. And a lot of people don't go through the trouble of doing that. Now, I want to mix in an audience question here real quick. So that's related. Nina is in Macedonia, and her main mission is to position the country as the startup hub in the Balkans. Like, what's the best way to involve the government in building a startup ecosystem that you've seen and something that makes sense? And maybe immediately just, you know, prevents the government from acting like government where they want to control, right? And then instead make them a helpful actor?

Yeah, I think the starting point actually is to just recognize that government by definition generally approaches things from a control perspective. And I've learned a lot in the last decade, you know, from when I wrote the first book. And the first book in 2012, I would say I didn't do a particularly good job in that book of addressing government. I kind of said just hope government does no harm. And it came from a lot of my own examples in the US, including in Boulder, where our local government was basically a parallel universe to the startup community. They, you know, they really didn't engage, and the startup community didn't engage with it. But there's many positive things that government can do, both at a local level and a state or a country level. And I think the thing I would start with is to understand very clearly this construct that I define as leaders, feeders, and instigators. So, uh, today I separate the world into 3 categories. I say that entrepreneurs have to be the leaders of the startup community. However, there's another group of people who can be leaders in the startup community, and I refer to them as instigators. And these are people who work for the feeder organizations. The feeders are organizations. They're government, university, nonprofits, large companies. Service providers that help and support entrepreneurship. Those are the feeders. Within the feeders, you can have individual people who play leadership roles. The key thing though is that those organizations themselves cannot play the leadership roles. It has to be individual people. And the reason this is so important is that often, um, the— those actors, the feeders, the organizations, and the word organize— organization has as its root the word organize. Like, they just want to organize things. And one of the first things you learn about complexity theory and complex systems is that you can't organize a complex system. It just doesn't work. And so there's an enormous amount of wasted energy by these organizations when they try to organize what's going on. This links back to a thing I said a few minutes ago, the separation between a startup community and entrepreneurial ecosystem. We separate them in this book very clearly because the startup community has a singular goal. There's one goal, and that goal is to help entrepreneurs succeed. That's it. So the goal of the startup community is help entrepreneurs succeed. When you're engaging with the startup community in any way, you should ask yourself— one should ask themselves the question, is this thing that I'm doing helping entrepreneurs succeed? And I'll give an example of this in a sec. In the entrepreneurial ecosystem, which is bigger than the startup community— the startup community, if you think of it as concentric circles, is a circle at the core. Entrepreneurial ecosystem's bigger, has a bunch of actors in it that would include the feeders, that include the university, that include government. Those actors, one of their goals is to help entrepreneurs succeed, but it's not their only goal. Here's a government example, and then I'll flip to government positive. Every time I've ever interacted with somebody in local government in the US, in city or even state government, in other countries, I see this oftentimes at a country level, but a lot at a national level or whatever the regional level dynamics or city level dynamics are as well. When I talk to somebody in one of those government entities whose responsibility is economic development, where economic development is somehow linked to the startup community. So they're trying to get more entrepreneurs in their city, or they're trying to help in some way, or they're trying to become, you know, the tech hub of the Balkans. When I talk to that person, they're usually senior, they're in the government infrastructure, they're not a junior person, senior person, but that has purview for this. I say, well, what are, what are some of the, some of your goals? Just super simple. What are some of your goals? The person will inevitably, amongst their goals, say to create more jobs. They will say that as a goal. And I say to them, you know what, that is something the startup community doesn't need your help with. The outcome of startups is to create more jobs. So the outcome of the startup community and the startups in the startup community is to create more jobs. So I, local government, don't need your help. Creating more jobs. I might need your help with lots of things around hiring, recruiting, retaining the right kind of people, attracting the right kind of talent, educating the right kind of talent. I need help with that as an entrepreneur in the startup community, but I don't need your help, quote, creating more jobs. In the entrepreneurial ecosystem, by the way, creating more jobs is not a bad thing for the economic development person to be doing. It just doesn't really flow into the activity of the start-up community. The inverse of that, however, is very powerful. Local governments can do an amazing job of marketing their city and attracting more people to their city that are the right types of people. Local government can do lots of things around allocating resources to things around educating and attracting the right kind of people, creating visibility for those programs in the city. And it escalates up. So at a state level, uh, in the U.S., for example, um, state governments have— they do have some money that they can allocate as resources. When they allocate those resources as investment capital into companies by themselves, that's usually the least effective use of that capital. The most effective use of that capital is working with the startup community, working with the private sector, and figuring out how to deploy that capital in public-private partnerships against things that have fundamental amplification of the growth and development of these companies.

So just one point, or two points actually, I want to make.

You pressed a rant button there, so hopefully the rant was helpful.

A lot of people love the instigator. So there's a lot of instigators in the chat here, clearly. As soon as you said that word, there was a lot of That's good.

I'm not watching the chat carefully because it's scrolling fast, but keep it coming.

Right. Yeah. So the instigator side, and I'll get to that in a second. But on the government side, and I certainly don't want to bash governments or anything, but I do think that in a lot of cases, there are sort of unintended consequences. Right. So, for example, we have seen in one market, I'm not going to opportunity in the market or anything. We've seen the government came in and said, okay, we have this much money and we're gonna fund 2 organizations, right? And there was a grant system. And then all of a sudden, every single— there were many more than 2 organizations. They all aligned, kind of created sort of vertical integration, so to speak, in the market. And all of a sudden, this really collaborative market then became like super competitive because they were all aligning themselves to create this amazing stack to get this this government funding, right? Now, to be honest, that was back in like 2012, 2013. So I'm not seeing that so much anymore. But, you know, in terms of the governments look at things like, okay, we wanna fund something. Like, what have you seen? And by the way, there was another great point in your book where I think you mentioned somebody, I don't remember where it was from, but they said, hey, I wanna invest in 200 startups. And you were, I think your response was invest in 200 rock bands instead, right? I think there's a lot of differing ways that governments can attack the problem that's very different from the way that they're sort of classically trained to do so.

Yeah, I think that— I mean, there's lots of mechanisms that work.

Yeah.

I think the most effective mechanisms, if governments want to provide funding, where that funding goes directly to organizations. Is to try hard not to create two phenomena. One phenomena is what you described, which is that it's funding going to nonprofits, and all of a sudden, where the nonprofits were all collaborating, they're all now competing. So it's sort of the mistake of picking the winner versus allocating small amounts broadly and trying to support many different activities versus, again, create the top-down control dynamic. Another part of that is to recognize that deploying capital directly into organizations, especially for-profit organizations, is something the government is generally pretty bad at. And so there's lots and lots and lots of different people on planet Earth and organizations on planet Earth that are quite good at deploying capital. That are existing investors. And even if they're deploying capital through nonprofits versus for-profit type organizations, depending on the type of capital, there's also a lot to learn from there. So an example in Colorado that's easy to look at is in the COVID crisis, we recognize that the smallest businesses in Colorado, 25 employees or less, were very disadvantaged in the government, federal government funding of the PPP loans. And especially true for minority, women-led, veteran-led, and rural businesses. Basically, if you didn't have a pre-existing banking relationship with what in the US is called an SBA lender, of which many of these types of organizations didn't, you just didn't get access to the money. And I would say some of it was probably just lack of effectiveness in the program, and some of it was probably, you know, quasi-discriminatory behavior. So in Colorado, we set up an organization called Energize Colorado.

I'm a mentor.

You're a mentor in Energize Colorado. In Energize Colorado, we have a program called the Energize Colorado GAP Fund. It's a fund to do extremely low-interest loans and grants to businesses under 25 people with a focus on those priority groups I described a moment ago. The state of Colorado got CARES Act dollars from the federal government to deploy to small business, and rather than the state trying to figure out how to allocate that themselves, they've allocated now $26 million to the GAP Fund. We're raising private money separately that we're using for loans. And we're, the private nonprofit, which consists of a lot of people in the state as volunteers, are deploying that capital. Another example, positive examples throughout the country, and I think it's also positive in many other parts of the world, is that governments are deploying investment capital, but through intermediary funds, in different geographies, and they tend to be focused on doing that in geographies that have a lack of local capital versus a surplus of local capital. The challenge, and this is the challenge to be conscious of, is that government often allocates capital and has adverse selection. So the people who are willing to be the ones managing or deploying the capital are not the best, at that because the constraints and requirements on it are high, or when government starts allocating it directly, they're not focused on allocating the capital in the most effective way. So personally, I think it's much, much better when governments look to partner in public-private partnerships around any sort of capital allocation. And it's also amplifying for governments in any kind of programming that they do to not be selective and try to funnel and concentrate everything through one vehicle. But again, to try to bottom up, nurture a lot of things, knowing some of those things are not gonna be very effective, but the ones that will be effective will have a positive feedback loop on the whole ecosystem.

Choices are good for entrepreneurs in any ecosystem, right?

Absolutely. Great ways.

We see this a lot with like coworking spaces, right? 'cause they have the space and then it's like, oh, like let's create an event thing and accelerator and a fund and all this stuff, right? And try to vertically integrate and own this whole market. And that typically is pretty detrimental from what we've seen to—

The natural phenomenon and the natural goal of anybody in the ecosystem, especially feeder organizations, right? And I would put coworking space, even though the coworking founders might be entrepreneurs, I would put the coworking space as a feeder organization. The individual founders can play a leadership role as instigators, but, you know, when they start thinking about their business, they can think about it in the context of the startup community and collaborate with the other actors, or they can think about it in a control environment where they're trying to dominate and control all the pieces. It's so much better to have good collaboration even if there's some overlap. And, you know, think about it even from a go to the non-competitive for-profit perspective, even just from an event perspective, an activity perspective, I knew that something special was happening in Boulder when I couldn't go to all the events that were happening. There would be too many events on a Tuesday night and I had to choose one. So, it wasn't that somebody organized the events and said, hey, you get to do Tuesday and you do Wednesday and you do Thursday. And then when there were events that kind of did the same thing, that was okay too. And the conversation between the people running the events at some point when they both had some critical mass was, hey, figure out ways to be complementary to each other. And the ones that did actually saw their events grow. The ones that were competitive saw their activity stagnate, or you'd see one that was growing and the other that was losing interest. And when ego took hold for the person losing interest and they said, well, I, I have to do better than that person that's having success versus saying, you know what, hey, everybody that's coming to my event, let's start going to that event over there and let's provide some leadership for that. The last comment on that, this is holding on to things, right? One of the things that startup communities need, and this is very true regardless of the actors, whether they're, again, university or for-profit or nonprofit or government, Um, you need a lot of people who are starting things as well as people who are running things. And so in a startup community, you're going to have a lot of people who are good and excited about starting things. And then as they scale up, those organizations that help support the startup community, they should aggressively nurture leaders to take their place so that they can go start new things to support the startup community. Versus like, I've been running this one thing for the last, you know, 10 years and this is the only thing I do. Right.

Yeah. Collaboration is incredibly important. And it's something that any, anytime we go into a city, for example, like we try to go in not, not in any kind of competitive way, but to try to partner with people and to leverage our resources to help them do what they're doing.

And all that. I think, I think that FI has developed a really great reputation. I mean, you know, the same comments you made about Texas, right? There's a lot of Founders Institute companies that have gone through Founders Institute that then go through Techstars, and it's, it's a dynamic where the coexistence of this stuff is good. Now, there's an interesting phenomenon, and, you know, we talked about— that touched on the measurement trap earlier, and I want to just reinforce an important part of this. The valuable part of a complex system or a startup community is not the parts. It's the interaction between the parts. And that's what we've been talking about for the last 10 or 15 minutes. You can have lots of different parts, but how those parts interact with each other is so important. Now, the reason that Ian and I wrote this chapter, chapter 11, called The Measurement Trap, is because we have a cliché in business which is you can't manage it if you don't measure it. And it's a cliché that's often attributed to Peter Drucker, and it's a misinterpretation, uh, which is one of the unfortunate things about clichés. The real concept is that if you don't measure the right things, you can't manage them. So the key is to measure the important things. However, in startup communities, people generally— and entrepreneurial ecosystems, and most entrepreneurial ecosystem frameworks that have evolved in the last 6 or 7 or 8 years measures the easy things to measure.

Quantitative, right?

Amount, amount of funding, number of this, number of that, versus measuring the interactions between things. Because by the way, the interactions between things is super hard to measure. And by the way, it's not the number of interactions, it's the value of the information that's exchanged in the interactions, which is almost impossible to measure. I mean, you have to be really serious if you want to measure anything that resembles that. So what ends up happening is people measure the easy stuff and then they think that, okay, well, I measured these things and if I have more of these next year, then we're making progress. And there's a myth that's the more of everything myth. And you don't need necessarily more of everything. You need more of some things and you need more of different things at different points. And if you, again, embrace this complexity theory, just generating more of something does not necessarily make something better or healthier or evolve.

Right. And Ingrid in the chat here is saying, you know, it's vanity metrics, right? And it's the same kind of parallels, I think, um, to even in individual startups where—

oh, Ingrid's being kind. And it's true with startups too. They're not vanity metrics anymore. They're bullshit metrics. And, and, and this is a very useful thing to sort of grasp onto, is that As entrepreneurs, if you've been part of a successful company, you know, you'll have learned a few things. Ingrid, thanks for, for putting it out there though. Um, you learn a few things. Number one, what people are measuring today as quote success can change rapidly overnight. You must have a certain amount of growth. Now you must have a certain amount of growth. Now if you want to be an interesting company, you have to have a certain amount of growth. Now you have to have efficient growth. Now you have to actually be profitable or have a path to profitability. Like, all of these things that are the measurements that everybody starts talking about, they have a contemporary positive correlation to interest, but they don't necessarily have a long-term correlation to your business's success. Um, and a great macro example of this is Amazon. For many, many years, people criticized Amazon, and Amazon's stock price was interesting but was not enormous because Jeff Bezos said very famously, and he wrote it in his letters year after year, I am not focused on making a profit right now. I am focused on investing all of my profit into my business because I have such a growth engine that as long as I have availability of capital, I'm going to keep innovating and keep investing into the growth engine. Amazon built an unbelievable growth engine that today almost can't help itself but generate massive profits as it continues to grow in a very, very substantial way. There was a period, I don't know, about a decade where the criticism from the public markets of Amazon were very significant, because while the growth was there, the profitability wasn't. And of course, today, you know, Amazon's economic value is extraordinary and just continuing. Another point that I can give people sort of on the private side is, and, you know, just coming back to, again, bullshit metrics, is the amount of money you've raised and the valuation that you have is irrelevant. It's nice in the moment, but it's now static. You raised a certain amount of money at a certain valuation. It no longer is meaningful. Now what's meaningful is what you do with that money you've raised and how you deploy that money over the next period of time. And you could say, well, you know, if I deploy that money correctly, I'll get a higher valuation, I'll be able to raise more money. True. As long as you're building a durable long-term business. If you're not building a durable long-term business, you might find yourself in a position where all of a sudden, uh, you are not able to raise more money at a higher price, or you're in a position where your existing investors lose interest in you because your business, even though you raise money at a high price, is no longer working. And this sort of illusion that people have that never happens is, uh, well, I don't know if people have the illusion it never happens. There's a view, uh, that's sort of a bias against people focusing on that. That happens more often than it doesn't happen, and the difference is you just don't hear about it very much, right? Uh, there's a very common phenomenon called survivorship bias, um, and much of the stuff that people measure is subject to survivorship bias. Which is that the stuff that doesn't survive doesn't continue on in the measurements. And so all of those things that disappear, while they come out of these sort of total number, sort of what happened to them doesn't appear in the analysis going forward. And we make a lot of sort of decisions against that, and it's another challenge I think that government has, which is that they generally extrapolate off of off of numbers that have a lot of bias in them. And one of those big biases, especially around macroeconomics, is this notion of survivorship bias. So, I just sort of end with be really, really careful about how you're measuring things and more specifically what you're measuring and focus your energy on the interactions between the parts, interactions between the actors, interactions And not just that they're expanding and growing, but that the quality is increasing.

Agreed. And so I'm going to jump forward here to the just COVID and how this move to a digital world, what kind of impacts that will have on startup ecosystems. But I do just want to bring up Brad's point in the book where you go through a concept called the Seven Capitals. And I have seen this over and over and over again in startup ecosystems, just the complete overemphasis on financial capital, right? And just saying, oh, there's no funding here or anything like that. And one of the biggest takeaways, and I think just really salient points in the book, Brad, was how you outlined that's only one part of the formula, right? So that is just something for everyone You know, check out the book. It's a super interesting part, but it probably is one of the more prevalent things I've seen in any ecosystem is just the overemphasis on the amount of capital that's available. If you build good companies and there's usually capital available, it's just figuring out a way to activate it and also trying to accentuate on what the values that your city does have versus what it doesn't. Right. But on the COVID side, so I'm gonna start this with the question from Andres, where, you know, distributed talent startup teams, is that changing? You know, I guess I'll look at this in one respect. Is that changing as an investor, how you see a startup team, but also in terms of an ecosystem, is that changing, you know, the fact that we're not all in physical spaces anymore, exchanging ideas, information, and things like that, which is so crucial.

Uh, I think there's some amazing things that are happening in this moment, uh, both around entrepreneurship startups and startup communities. Much of the historical writing I've done on startup communities has been very place-based, like using physical place as a focal point. We use a phrase, topophilia, which means love of place, and it's a very powerful construct. If you love your place, then you want to do great things for your place, and that's a very strong motivator.

Especially here in Colorado.

Well, I think Colorado, but many, many other places in the world. Interestingly, the ability to work remotely is not a new phenomenon, and the ability to be a distributed company is not a new phenomenon. And it's something that has been gradually happening and gradually weaving its way into both tech and startup communities broadly, and business to a lesser extent, globally over the last, you know, number of years. Part of the broad democratization of entrepreneurship, by the way, I think is based off of this. When I, in 2012, I, even with startup communities, I did a lot of video conferencing around the world rather than flying all over the the world, whereas my guess is if I come out with that book in, you know, 1998, I would have had to fly all over the world to do the same thing. Of course, in 2020, I never leave my, you know, I never leave my house. Here are a couple of quick-hit things though that are happening. We accelerated in a couple of months by 5 years. So we went from 2020 to 2025. All these phenomena about the remote distributed work were were happening. And we, in January of 2020, if we had described the world like we have today in terms of office work and how people would be working from home all day long and everything that we would normally do would be getting done, deals would get done, funding would get done, businesses would grow, customers would be sold to, products would be built, companies would go public. And somebody in January said, you're out of your mind, that can't happen, it's not gonna work. And even though human beings are not gonna be able to do that, and the infrastructure won't support it. Well, wrong. I love to use the telemedicine example. Telemedicine made 10 years of progress in 4 weeks in the United States. The shit, the shits existed. The technology's there. It was just incumbents that resisted the behavior— healthcare system, doctors, insurance companies, and even patients. And all of a sudden, when the worst place in the world to go unless you have COVID is the hospital, and you don't feel good, you figure out a way to get together with your doctor. If you can't get together with your doctor in your doctor's office, because your doctor's office is closed, and your doctor is realizing how to use telemedicine, you figure out how to do it. And boom, that happened overnight. So we're in that phase now. The interesting part of that is if you look at cities that have been high concentration of people, And if you, if you did a survey of all those people, pick San Francisco, pick New York, pick Boston, I don't care where you pick, pick Chicago, and said to all those people, are you 100% sure that this is the place you want to live if you could live anywhere? Not 100% of them are going to say yes. And if you look at places like the Bay Area today, you know, for, uh, many, many people, it's no longer an affordable place. Or if you're working at a company, you're now stuck in a commute to that company. And now you're sitting in your small apartment with your 2 kids working remotely for a company. And you're like, why am I here? You know, why am I doing this when my parents live somewhere else? Or I grew up somewhere else, or I've always wanted— I love skiing. I've always wanted to live in a mountain town. Or, you know, gosh, I just need to get out of this place. And what you're seeing is many more companies being very comfortable with that migration. Many more people migrating. Companies, you know, like Facebook saying they're going to be remote first. Companies like Twitter saying you never have to come back to the office again. But lots of startups recognizing, gosh, the fact that we've only been recruiting locally in Seattle or in Boulder or in Denver is a constraint. Like, yeah, sure, there's plenty of creates so much more opportunity. Why can't I recruit from anywhere? And then on top of all that, if you want to link it back to startup communities, the most powerful startup communities are the ones that have lots of linkages into them and out of them. So if you're a startup community and you're not connected anywhere else to anyone else, you're going to stagnate. But if you're a startup community, you got lots of people coming to your startup community either physically or virtually and you've got people leaving your startup community either physically or virtually, you extend your network so that physical place is no longer the only piece. And there's lots of organizations— Founders Institute, Techstars— that build global networks, and you're part of that network. And I think people that are part of those networks that focus locally but also get a lot of benefit from those linkages into other geographies sort of have an intuitive feel for this phenomena that's happening very, very quickly. I think it's going to be transformative because there's a lot of people in our society that, that, you know, are struggling, uh, really, really struggling with how to think about a distributed or remote way of life. And by the way, there's lots of people that will go back to working in an office at some point, and lots of companies that will go back to having offices, but the companies that embrace this phenomenon as part of their hiring motion, especially startups sort of build it into their communication motion from the beginning, approach sort of their way of focus to balance both, right, or to have harmony between both. It's not you have to be in the office or it's not you have to be fully remote, but we're an organization that has the flexibility to take advantage of those things. You'll build much, much more powerful organizations. Those organizations, many of them will still have a geographic focus on a startup community. And so that topophilia is still going to matter a lot. Last comment I'd make for this, it enables this sort of motion and this behavior enables topophilia for places that you don't necessarily live in. Um, let me give a couple of places in the US that I have this feeling towards. I lived in Boston for 12 years. While Boston's not home for me, I still have a lot of topophilia for Boston. Seattle is one of my favorite cities that I've never lived in. I have deep and long linkages to Kansas City, and if you're interested in seeing an example of that, tomorrow on my blog at felt.com, I'm making an announcement about something I'm doing in Kansas City. So you can have deep affinity and deep connection and deep involvement in lots of other places. Without having to physically be there and help those startup communities grow and evolve, which by the way will help wherever you're located as well.

Right, yeah, and I think we're looking at a lot in the same way too. It's an opportunity, right? Obviously there's, there's a lot of terrible things about COVID and this move, what has precipitated this move to virtual, but it creates so many opportunities, especially in linking kind of regional startup hubs together. Which, like, I, in my opinion, I've seen like a startup hub would look at some other startup hub on the other side of the world and be like, yeah, let's collaborate. But then they'd look at the one, you know, 50 miles down the highway, right? They'd be like, oh no, we're head to head, right? Like they'd host like almost like these fight nights where people would, not literally a fight night, but I've seen it before where, you know, like startups from one city would pitch, startups from another city would pitch, and then there'd be a winner. And it's just like, that's sort of the wrong mentality.

It's the, it's 180 degrees wrong. And in fact, you know, Aspen is such a good example. You know, there was, uh, uh, the way I like to tell people, if you, if a lot of people know of Aspen, they probably don't, may or may not know of Basalt. Um, and it's not the Aspen startup community. Aspen's only 5,000 people. It's a tiny little city, even though a million plus people a year come through Aspen. Aspen, including lots of entrepreneurs and lots of wealthy people. If you drew a circle around Aspen that had a radius of 50 miles, you'd get the Roaring Fork Valley, you'd get Aspen, Basalt, Carbondale, Glenwood Springs. That's an interesting startup community. That's an interesting place. And so instead of trying to like have Basalt and Aspen as adversarial things 15 miles from each other as both two small cities, take advantage of the different relationships and the different values and the different benefits that each has. And oh, by the way, if you're Coloradoan, I mean, Carbondale is this incredibly fast-growing city because it's very affordable, good schools, lots of people can move there with land, and all that.

German, right? Spanish.

It's got a bunch of entrepreneurial heat, right? And so all of a sudden, you get this linkage to things and you start to understand Well, why is Aspen interesting? Why is Basalt interesting? Oh, the Rocky Mountain Institute, clean energy, people that move through places. Why is Aspen Institute interesting? Aspen Institute, all the people each year that move through. And as an entrepreneur, if you don't have to be in a big city anymore because you can have a distributed workforce, you can start to think about those types of communities in very, very different ways.

Yeah. Okay. So I know Brad's got another, another, uh, another event he's got to jump to, and the life of an author, he's doing a lot of stuff these days. So Brad, thank you so much for joining.

We did— thank you everyone, this is great.

We did put info into the chat for the book, and we'll follow up with the video as well. Brad, thank you so much.

Thank you everyone, good luck and be safe.