What Paul O'Brien Found After Years Inside Broken Startup Ecosystems

Hi everyone, my name is Ehan Aziz. I'm the head of partnerships at Foundersuits. Super glad for everyone to be here. Hopefully my audio is good. If not, please let me know in the chat. Super excited for today's conversation around startup ecosystems. We've got Mr. Paul O'Brien. He's been here for a number of sessions with us, so he's going to be talking about his new book and I'm going to be interviewing him. But super excited for him to join us. We had about 220 20 people join today. So sorry, sign up. So I'm expecting— we're already at 50 people live, so I'm expecting around like 80 people or so. So no pressure, Paul, if you— um, cool.

Look, uh, guys, always, always good to have a good audience.

Yeah, I know. Uh, yeah, please let us know where you're calling from. I'm in Toronto, Canada. Paul's in Austin. I see D is from Calgary. Dimitri is from Toronto. Uh, we have Charmaine from Baltimore. I don't know where you're calling from, Mr. But George Brown from Jamaica, I saw from Georgia, and Elton from California. Cool, really, really international audience. Uh, uh, or Ramon from Chicago. Cool, really looking forward, um, for today. Maybe before we get started, uh, here, Paul, do you want to give a high-level intro to, to yourself?

Welcome everybody, uh, happy to. Thank you, Ehan. Thank you to Founder Institute as well for hosting us all. Love hearing that there are 50, 60, 80 people here now and a couple hundred that registered. This is a huge topic throughout the world, as I know you all know. I grew up in Michigan, ended up in Arizona, and then California in Silicon Valley. And I've been in Austin, Texas for about 16 years, as Eihan shared. That, in my case, gave me an opportunity to see a lot of different ecosystems. Both the state of the economy in Michigan and Arizona before Silicon Valley really became a massive entity in the world. Then of course, I was in Silicon Valley during one of the heydays, to be sure. I started my career at Yahoo and got to experience all that they were developing to a great extent before many, many other companies actually adopted and took over with those technologies. I worked with Yahoo's radio platform, for example. And so they were in streaming media well before anything like Netflix or Spotify. That was a neat experience. Coming to Austin, as you might imagine, I came to Austin during the mortgage crisis in the United States. So about 2007, 2008. And so you can imagine that change as well, that experience as well, going from the epicenter of capital and at the time, the epicenter of entrepreneurship We're all grateful that that's certainly changed since then. But arriving in Austin just as the economy in the United States was starting to turn around created this wonderful opportunity to get a sense for how these ecosystems work, whether or not we're doing them well, whether or not we're doing them well enough. I was a big fan of folks like Eric Ries and Brad Feld and his book Startup Communities, which I think all celebrate to a great extent for being a catalyst for a lot of places throughout the world, being some encouragement and excitement for places throughout the world. And so what I've been doing for the last 15 years is working with accelerators, working with VCs, working in a lot of public policy with cities and national, US, and other federal governments to better understand whether or not we're doing the right things, whether or not we're focused on the right metrics, whether or not we have learned things in the last 15 years since things like those books, Lean Startup and startup communities, whether or not we've learned things that we could apply better than what we thought 15 years ago. And I think, Eihan, if we're close to ready, I think we're going to talk a bit about that.

Yeah, for sure.

I'm excited.

I'm excited as well. Maybe just some housekeeping, folks. As you can see, there's a chat window on the right-hand side. Please use that to just put some of your thoughts. There's a Q&A button underneath the chat, so please use that to feed me questions. I'll rank it and then show them to Paul towards the end. And right at the end of today's session, we'll have maybe 20 minutes or so of networking, so we'll use that as an opportunity to talk to each other and just figure out some more things. All right, let's get started. Um, you know, Paul, thanks for that intro. So just to some of you guys, Paul is lives and breathes startup ecosystems, policies, working with the state on all these fancy things. So I prepared a series of questions. Yeah, Paul, I'd love to kind of dive into these. Let's see, the first one we're going to talk about, I know you and I talked a lot about this, but the lie of innovation. So most cities don't actually want innovation. They kind of want the appearance of it. And, you know, for an economic development director sitting in this audience right now, What does innovation actually look like in practice? How should a city recognize it from best practices perspective, but also like how can they avoid innovation theater? Maybe I'll start there and I'll let you give your two cents and I have a couple follow-ups on this topic.

Yeah, great. It's a great place to start. And everybody, that's actually where the book starts rather intentionally. Provocative, sort of saying to cities that I love that you're using the word innovation, but you're not actually doing it well. You're not actually supporting it well. And the reason for that, to start with your last point, Eihan, yeah, the reason cities aren't necessarily embracing it well or supporting it well is that there's a fundamental fact that I'm sure you all know about startups, which is that 90% of them fail, that R&D requires funding research into things that aren't going to work. And so R&D, an underlying inherent cause of innovation, requires embracing and celebrating and supporting failure. And I find that what most cities throughout the world do is they actually want to celebrate success. They want to celebrate the wins. They want to host demo days. They want to announce the capital that's been raised. They want to announce the new, you know, innovation hub that's downtown in the city. And in doing so is what we call theater because it doesn't recognize well enough the fact that if you're going to be in the sector of the economy that is innovative, we have to do more to support the people who are taking the risks, who are taking on the challenges that are far too difficult, and who are creating new things. And of course, that requires that a lot of that's not going to work out. And so, I start the book with that, not necessarily because people don't really understand what innovation means, but rather because the behaviors that cities perform, the ecosystems that emerge throughout the world don't reflect the fact that they actually embrace it. Right? They reflect the fact that what they're trying to do is support tech jobs. And tech isn't inherently innovation. Tech is really just the application of new inventions. It doesn't necessarily mean we've innovated or disrupted or changed anything. We have software engineers, for example, who work in tech or semiconductor manufacturing facilities that are tech. And neither of those are inherently innovative, right? They're simply supplying the economy with tech products, tech solutions, and tech GDP or economic impact. So what we try to do and what we try to lay out in the beginning of the book is helping folks appreciate that distinguishing yourself as a startup ecosystem really requires understanding and embracing what it means to be an entrepreneur, what it means to be building startups, not traditional businesses, what it means to be innovative and disruptive and challenging the status quo. To just frame the conversation for everyone that if you are truly supportive of startups in your community, you have to change the narrative a bit to recognize that most of the people working in that sector of your economy are going to be struggling. They're going to be in need of support and sponsorship, and they're going to be in need of grants and angel investors that your community may or may not be developing well enough as they should.

Sorry, I know I was posting your book as well in the chat, but no, I agree with all of that. One of the things I want to talk, maybe a follow-up on this, is that on the note of innovation theater, can you, what's your favorite piece of theater you've seen across the years?

Well, if you follow me on LinkedIn or Twitter or anywhere else, you're probably very well aware of the fact that I am a tremendous critic of the word accelerator. I'm a tremendous critic of accelerators that, you know, when I was in California 25, 30 years ago, Techstars emerged, Y Combinator emerged, Founder Institute emerged. And it was easy to appreciate that an accelerator quite literally was the word coined because of what that word means, that an accelerator inherently has to aggressively promote the startups, aggressively promote founders. It has to pull in venture capital. It has to be familiar with marketing and sales. It has to be developing partners. Then an accelerator, by the nature of the word, should not be simply a network of mentors or a coworking space with office hours or or an innovation hub in town that hosts events. That's not accelerating. That's, if anything, more classically perhaps an incubator, right? That's an organization that's incubating ideas, it's incubating founders. But if you're not taking on founders and startups that are already developed, that perhaps at least have seed funding, and from that point, very, very aggressively, and I mean very aggressively, pushing clients and customers to their door, pushing press and attention and social media on behalf of those startups, if you're not just connecting investors, but if you're actually not even putting the investors in front of these startups with support to help them get additional funding, you're not actually accelerating them. So let's stop calling that an accelerator, please, so that the accelerators can do the job that there should be and could be. And so that we help the entrepreneurs and we help the founders find the right place for them, given the stage that they're at, right? If it's someone with a brand new idea, a pre-seed idea, well, that's not ready to be accelerated. That needs programming, that needs education, that needs a curriculum, that needs an incubator. That needs a different type of startup development organization in the ecosystem to help those early, early founders get going and find that initial traction that they're looking for.

My favorite is a 12-month accelerator. Where—

Right. 12 months is a lifetime in startups. You know, you can start 3 things and end 3 things within 12 months if you know what you're doing. Yeah, you can't have an accelerator that runs that long. That's ridiculous.

I've seen that multiple times. I think where it works very rarely, so it's like broken up, like 3 months is phase 1, 3 months is phase 2, 3 months is phase 3. You know, there's some continuation programming taking from incubation to commercialization, then to acceleration. So there's a series of programming. Otherwise it just doesn't work, right? It's just you have the wrong people mixing and stuff. Okay, cool. I think that was a good start. Let's, uh, here's a bit and talk about— I know this is something that you and I spoke about, but you're actually— you talk about this topic of separating small business and startups, like you can't treat them the same way. And I've done some stuff with state, maybe if you can talk a little bit about that. But, you know, um, most EDO programs are treating them the same. They're using the same metrics— job creation— as accelerators or any of the other ones. And this confuses economic development. So like, I'd love to get your hot take on this, like what's actually at stake when we get this wrong, like when we confuse startup versus small business, and what are the things that are needed from an EDO perspective? I'd love your two cents on this.

Yeah, so I put together a whole section in the book called The Things We Refuse to Distinguish. And everybody, frankly, I'm still being provocative. I'm still being critical. Right. We're talking to your city leaders, your policymakers, your economic development office, your ecosystem builders. And we're sort of intentionally saying you have to start distinguishing these things. And there are a lot of things in the book. We distinguish incubators from accelerators, for example, to make sure that's clear. But I like what you're asking, Eihan, because one of the most important findings over the last 15 years is that we make a huge, huge mistake. Failing to distinguish a small business or a new business from a startup, that we're too quick to encourage or celebrate calling anything new a startup, any new business, and any freelancer standing up their consulting shingle, we'll call that a startup. And it's a huge problem. I've had a handful of people argue with me about this. But let me explain why it's a huge problem. We know for a fact that a startup is distinctly new to the economy. Right? There are a couple of really great definitions of startup that we can draw from 20 or 30 years ago, that it's actually a temporary venture. It's not even a company. You see, of course, you incorporate it, but it's not actually even a company yet. It's a temporary thing because what you're doing is you're endeavoring to figure out whether or not you can develop a solution that is actually meaningful it's compelling, it's valued. You aren't able to just write a business plan and launch a business similar to things that already exist. That distinction is a new business. And it's an important differentiation because the way new businesses operate and the way startups operate are completely different. One is developing prototypes and testing things and asking a bunch of questions and having to have investors and advisors who understand the implication of of taking a risk on something that's very likely to fail, right? Whereas a new business is, in fact, something we can, to a great extent, expect to succeed because we know how it works. We know how that new restaurant should work. We know how that consulting business should work. We know how that real estate business or that new law firm should work. We can copy what exists. We can write a business plan. We can get a bank loan for it. And the challenge is evident in the fact that we know that 90% of startups fail. We know that roughly 60% of new businesses fail, right? So even the metrics are different, right? And why would that be the case? Well, again, we know how a small business, a new business should work. So we can darn well expect it to work. We can't expect a startup to work. The work of your ecosystem builders and your advisors, the work of the city on behalf of startups has to be de-risking as much as possible because the entrepreneur is going to take on a lot of risk in trying to get this thing off the ground. When we fail to distinguish those two, you end up with startup organizations, you end up with accelerators, you end up with coworking spaces where everyone intermingles, and you end up giving the startup founders advice that's pertinent to a business. You end up giving the business owners' advice that's only pertinent to a startup. For example, the number of times that I hear a new business tell me they're looking for or they're interested in venture capital is astounding. And venture capital is not appropriate to a new business. The likelihood that a business is going to get venture capital is essentially zero. Notice that in that conversation with with entrepreneurs, we're seeing and we're exposing the fact that we're causing problems by not distinguishing these two things. And so we see it all the way up to the federal level. You see it all the way up to your national government where they might have a small business administration like we do in the United States, a business administration or a business organization. And they try to support entrepreneurs. They try to support startups as though they're similar. And they're not similar. We really need economic development offices. We need cities. We need states to develop startup-focused policy groups and administrations that are comprised of people that understand this sector of the economy in particular, so that it's managed, it's developed, it's taught, it's communicated as something completely distinct from the business side of your economy. Because indeed it is completely distinct from the business side of the economy. The idea of a startup is, is to become a business, right? It's to become a company, uh, but it isn't inherently one when it gets off the ground.

Yeah, maybe I'll just add to that, just because, Paul, I talk a lot about this as a topic. So the first thing is, when it comes to financing and funding, like, definitely startups need more equity-free grants, like small microloans, just to kind of get things going. Versus a small business might need something like $100,000 or $200,000 or $300,000 financed because they have a PO or something that's more physical, right? So I think that distinction is quite significant because in the startup you're kind of venturing out in the unknown, you're building, you're trying to get feedback versus a small business might already have a product that's like battle-tested, so they just need to go get distribution. So I think the levers there of of programming and support is significantly different, right? So when startups go to small business center and get like, hey, like, you can be eligible for this loan if you have 12 months of business, and it's like, well, that doesn't make sense, right? Um, cool. Uh, let's move on to— just because of time, I don't want to kind of have like 4 more questions, so let's kind of get to plow through this. So, um, there's another part in the book that calls Capital is a signal, not a gift. A lot of EDOs right now are sitting on real capital, right? You know, there's different funds, grants, state innovation dollars, plus if you add in like Chamber of Commerce that are getting donations from high net worth individuals, it's quite significant, right? Then you and I have discussed this in detail. How should that be deployed, like, to startups, SMBs, and like where should that capital follow? Like, and what should EDOs actually be using with— like, what should they be doing with that capital? Like, You know, you can put an arbitrary number, like let's say you're the city of Paul and you have like $5 million, like where would that go? Like, or where should it go? Or how would you like slice and dice it maybe?

So I, just to acknowledge a couple of points that I see in the chat, maybe I'll repeat some of your questions, Eihad, in case your volume is a little tough for people. Thank you for putting that out, everybody. Yeah, so we shift a bit. In startup ecosystems in the book, from these provocative questions to, of course, starting to give some advice or perspective. And so next we're talking about the question of capital, and it actually comes in two flavors. Eihan, you make a great point that one of the flavors of capital that we need to talk about is public capital, right? What do economic development offices, what should your city, what should the government do with publicly available funding? On behalf of startups that, you know, y'all may be aware, you may have this. A lot of states, a lot of governments will allocate public funding, which, which, mind you, is taxpayer money. They'll allocate it to something like an innovation fund or a startup fund. And frankly, we've learned that's not necessarily the best idea. And frankly, you all probably know that's kind of common sense that that's not necessarily the best idea. Why? Because startups inherently fail rather frequently. And so you want to leave capital allocations that go directly to startups. You want to leave that to the subject matter experts. And those people tend not to be policymakers, which isn't a criticism, right? It's just reality of the work that they do. So instead, what could or should public capital be funding? Well, it could be funding things like startup development organizations, right? Why not allocate some capital to the curriculum or the education or the platform that's necessary to help your startup ecosystem? Why not allocate capital in the form of tax incentives or property allocations, physical property allocations, so that you can develop more venture studios? Venture studios are owner-operator investor startup organizations. They basically do everything related to startup. Why not undercut the cost of the real estate for that kind of stuff, or undercut the cost of real estate for a lab or an R&D facility? That there's an appropriate place for public capital, and it's in the underlying assets of an ecosystem that can help it thrive better, right? That can help the performers and the professionals in the ecosystem do so more efficiently and more affordably. The other side of the coin, very quickly, because I know we're short on time, very, very quickly. The other side of the coin is though the idea that the idea in the book is that capital is a gift. And the notion there is that what Aihan and I have had a lot of conversations with different cities about, and I continue to almost every day, is that a city will come to us and say, we need to develop venture capital. Because our startups are struggling to get venture capital. And what I want people to hear in that statement, what I want folks that work within cities and economic development offices to appreciate, is that the capital already exists. If it's not showing up, it's not because you're not developing it. You don't have a lack of capital problem. You have an ecosystem gap. You have a challenge in your startups. You have a challenge with your founders in the sense that it's not properly attracting the capital. There's more than enough venture capital in the world, I assure you. And so when we hear a city say we have to focus on VC, we have to focus on capital, or that we don't have the capital to develop our startup ecosystem, that is, for me, the first signal that they're doing things wrong, that they don't understand how this works. You could certainly develop a very healthy startup ecosystem without capital. Because capital will show up when the results of that healthy ecosystem start to manifest. And so in the book, we talk about that quite a bit as well. I've written rather extensively about it as well. There are a lot of things you could do to get your ecosystem a lot healthier, to better develop the founders and startups so that the capital starts to arrive. And in fact, I think one of it is one of the coming questions that we've got before us today. So thank you for turning the page with us to the subject of capital.

Yeah, perfect. Thanks for that. Uh, yeah, I apologize for my audio. I'll try to speak a bit louder so everyone can hear me. Um, if not, and I'll also post the question in the chat, but, uh, let's move on to the next question. Thanks so much, Paul, for this insight. Um, I appreciate you going into so much detail. So let's kind of take another stab at startup ecosystems. There's one line in the book that says that you say systems behave exactly as designed, which I found really, really interesting. So I want to tie it to EDO programming, which is like, hey, if EDOs keep producing what they're producing, they're producing activity, not outcomes. Where does things actually end up? Right? And what are your two cents on this? Like, what should be done? And yeah, like, maybe we can leave it at there.

What, one of the things that I've been that I've had the blessing and the opportunity to be able to take advantage of is that I've worked in startups, and then I worked in incubators and accelerators, and now I'm working in policy. And so I've been able to have firsthand experience with what startups go through. And so this idea, this direction comes from design thinking, if you're familiar with it, everyone. Design thinking, that a principle of design thinking is essentially that The behavior, the operation, the MVP that you build, your go-to-market plan, your— as a startup, the way that you design your roadmap and what you intend to do in fact has a lot to do with the outcomes. If you design an MVP and you require that customers sign up in a certain way, obviously customers are only going to sign up in that way and you might miss another opportunity that, that could be before you. And so what we do here is we take that, that notion and we apply it to the city. We apply it to your ecosystem. Is, is the ecosystem not doing exactly what you designed it to do? And the best example of that is probably, uh, the, the proliferation of meetups and demo days, uh, that if you're gonna, if you're gonna start a startup ecosystem and you're Your approach to that as the city is to host demo days, pitch events. Why would you do that? Well, it plays on the previous chapter, the conversation we're just having about capital. Well, if you hear all the founders saying we need capital, we're having trouble getting venture capital, a lot of startup ecosystems will launch a demo day, right? We'll host a meetup for VCs. Well, what you're doing is you're actually designing then the outcome that you can expect to happen because of that, which is what? You end up then having your founders be performative rather than intentional. What do we mean by performative? We mean that you actually then push your founders to put a lot of work into the perfect pitch and the perfect pitch deck. And I gotta, I gotta get the pitch exactly right. Why? Because I'm gonna get on stage in front of a bunch of investors and I really need their capital. And this is how it works, right? Because this is what the ecosystem has structured and designed that we should do in order to meet investors and in order to convert investors. We just got to perform. We got to put together the right pitch deck. And hopefully you all know that's false. That's absolutely false. One of the leading indicators too of a startup ecosystem that's struggling is when you hear the founders constantly say they need referrals. And I know you hear this, even see it on Twitter. In fact, that warm referrals are a great way to meet investors. It's actually not. It's actually a red flag. Right. And the red flag is that you've created an ecosystem in which the founders are led to believe they've got to go to the innovation hub. They've got to go to the meetup. They've got to go to the demo day. To meet investors. Why? Because the investors aren't active otherwise. They aren't showing up otherwise. And so the challenge you end up with is that as a founder, I don't know who the investors are. I need a referral to them. I can't find them. I can't figure out who they are unless I go to the events. And in order to go to the event, I've got to put together a perfect demo. I've got to put together a perfect pitch, all of which is false. All of which is false, right? If you develop a great startup properly, investors will come to your door. Investors will find you. And so a lot of what we're talking about in this section is that we design the ecosystem in a sense backwards. We design for the wrong things. And so we talk about how to change what you're designing, what you're putting in place, so you can actually affect the outcomes that you want to have happen, which is successful ventures, an improvement on the 90% failure rate. You want capital showing up and arriving. You want, you want press attention. You want journalists talking about your city. How do you make those things happen? When you're getting those things, obviously you're starting to put the right things in place to develop an ecosystem that's quite a bit more effective.

I think Ermit has this new function. I want to try it out with you. So I'm going to use this each time you drop some knowledge and insights. If you heard that, that's from me. And the reason is because I think you're taking a take that a lot of other people are not, versus everyone's like, yeah, do the demo days, do the meetups and everything, versus you're saying like, hey, no, you're— if you do that, you optimize for the wrong metrics, which is great. Maybe instead of me asking a follow-up question, I really like this question from Aurelia. I'm going to show it on stage.

Great.

Whenever you're ready.

Who are the ecosystems that are doing startup and innovation support well, and what are they doing? And how does that compare to other ecosystems that are not doing well? Well, that's a, that's a big question. I wrote a 300-page book about it, and, and I'm excited to share. I've actually got Book 2 and Book 3 in the works. And so I'd love it if you pick up this book and start giving me some feedback and some reviews and connected with me because What we're going to talk about in the next book, it's kind of a trilogy, is how every city can actually accomplish this. Because again, a lot of cities say they don't have the capital for it or they don't have the resources for it. And that's not true. We've learned that even underprivileged or economically developed or economically disadvantaged cities can easily do this as well. The challenge is they see themselves as not having the capital that's necessary. And that's a mistaken approach. So we're going to talk about that in the next book. And then the third book is going to be a little bit more about public policy and legislation. What's interesting in that question is that, frankly, there is no ecosystem that's doing it all well. There's no such thing. Frankly, it's kind of like a startup, that there is no startup that's perfect. There is no playbook for how this actually works, right? If there was, we'd all launch startups and be billionaires. It's not that simple. What we've been able to do over the last 15 or 20 years is study how Silicon Valley emerged, studied how Singapore emerged, studied how the Netherlands emerged, studied how Germany did quite well, but appreciate, if you're not familiar with these different locations, appreciate that they all have very different economies, different cultures, different societies, different laws. And so they have to operate in a number of different ways. And what we've been able to study is What doesn't work throughout all of those? What does work throughout all of those? And I'll give you one example as an answer. What doesn't work is a bit of what we're talking about. What doesn't work is, is when you, when you launch a bunch of meetups, maybe you've got 3 or 4 different accelerators, you're doing a bunch of demo days. We call that startup theater because it looks good. And the problem is what you're doing is you're fracturing everything. You're breaking everybody up into different different pods, different communities. You're not sharing the best mentors across the different sectors of the ecosystem. It seems like it's accomplishing things because you're hosting events and people are showing up and startups are pitching, and it sounds— it seems wonderful, but it doesn't actually accomplish much. What accomplishes something more effectively instead is some sort of infrastructure in place that makes sure Everybody is connected. A universal newsletter for everyone, a social media platform that has everybody on it. Founder Institute has some great white label infrastructure that they use to power their programs in cities and regions throughout the world. Put that in place and you get all of their mentors on the infrastructure. You get all of your mentors on the same infrastructure. And then you just funnel your founders through it. To not necessarily even Founder Institute. You funnel your founders through it to any program, but it, but at least you're getting them all in the same place. And so you're able to see everything that's going on. You're able to support everyone in a meaningful way, and you're not creating what we call silos, which I know a lot of you have heard about and even complain about because silos are a huge problem. We know they don't work. And so if you have silos in the ecosystem where you live and work, the book and I get very aggressive with cities about the fact that they need to tear those down. They need to be active in breaking down the silos and removing organizations or programs or entities from the ecosystem that actually create those silos because you're harming the founders by doing so. Hopefully that answers the question. A lot more in the book. So I appreciate that. That's a good question. Thank you.

No, I appreciate it. The reason I threw that in there, because I thought it was very timely. And I like the questions, so, and it's always good to get audience Q&A during our regular Q&A. Let's switch gears. We have two more questions here, folks, so please add your questions to the Q&A so I can bring them up as well. But the next question here is about marketing. Paul, you know, you're a marketer by profession and you're doing a lot of stuff with startup ecosystems, but one of the things you've been very vocal about is that, hey, a lot of these startup ecosystems are treating marketing as the missing discipline. It's one of the most undervalued and underfunded portions of the startup ecosystem. Why is that? Why do people miss out on it? Like, what does it really cost? Like, where— how are EDUs— like, how can EDUs fix this?

Yeah, yeah, it's, it's, it's a great question. It's an important question for startups as well. Um, when I, when I, when I left Silicon Valley and started working in a lot of other cities, one of the most alarming things that I would hear from investors and advisors is when they tell a founder, you're not ready for marketing. I often wanted to just rip their hair out because the reason for it, to answer that part of your question, Eihan, the reason it's happened is that marketing 30, 40, 50 years ago is the discipline of the market, all of it—market research, competitive analysis, SWOT analysis, strengths, weaknesses, opportunities, and threats. That's what marketing means. And what happened is that in about early 2000, with the emergence of the internet, traditional marketers, CMOs in companies didn't know how to do anything on the internet yet. It was new. And so, we spun out this thing called digital marketing or online advertising, right? We spun it out as like a separate thing. And the problem that that created is it allowed marketing to descend into being considered promotion, right? Let me just run Google Ads and do SEO. And so, you do hear this advice, you're not ready for marketing. But what people are really saying is you're not necessarily ready for advertising. You're not necessarily ready to promote what you're doing. And unfortunately for startups and startup ecosystems, what it's resulted in is that none of you are actually doing marketing. And we see that in pitch decks. We see that in pitch decks, for example. And here's the point about your startup ecosystem. We see that in pitch decks in the fact that your TAM, SAM, SOM, slide, your total addressable market, your obtainable market. That slide is almost always horrific. And I'm saying this very meaningfully, intentionally to every founder who's paying attention right now. I almost never see a good one. You focus on the TAM, the total addressable market, right? We're going to be in this billion-dollar market. Isn't that wonderful? And in fact, the most important data in that slide is your SOM. Your obtainable market. Here's what I can go get right now. Here's what we can serve right now. And here's what it's going to mean to us. That's what, that's what should be in the pitch deck. That's what we want to hear. And so, and so we, we've noticed that cities aren't doing this either. Cities aren't doing a SWOT analysis of the startup ecosystem. They aren't doing a competitive analysis of startup ecosystems. They're saying we want to be like Silicon Valley or we want to be like Austin. And I'm like, oh God, no, no, you don't. You don't want to be like Silicon Valley. You're not like Silicon Valley. You don't want to be like Austin. You're not like Austin, Texas, where I live. And so we know that you're not doing traditional marketing work to understand what are your strengths and weaknesses as a startup ecosystem? What are the opportunities and threats to your startup ecosystem so that you can then better leverage policy? Or public funding, or you can leverage different kinds of people depending on what it is that you need to address in your ecosystem. That marketing is, in fact, the most important thing and certainly the first thing that every startup and, and a startup ecosystem should be doing to figure out what needs to be done. Because you don't just replicate a different city. You don't just stand up an accelerator and hope for the best. You don't just stand up demo days. And hope that that works, that you need to understand what you're working with, what you're missing, where to reallocate some things, where to put some more resources in place if you really want to develop a healthy ecosystem. And all of that, just like in a startup and figuring out the right priorities for a startup, all of that comes from doing marketing work and getting the right people in place that understand how to do that. Perfect. Thanks.

This is a good segue into our last question. Can everyone please go drop questions in the Q&A because that will allow me to sort through it. Oh yeah, for the last question here, Paul, like, you know, we talked about so many different KPIs, um, and you talk about in the book as well of like, hey, what are the KPIs an EDO should have? It shouldn't just be jobs created and companies created. There's other like KPIs like survival rates and capital recycling and talent mobility and all this other stuff. Um, but I think, you know, just to wrap things up and then before we're going to audience Q&A, it's like, let's try to make this actionable for the EDOs in the audience, you know, or EDO professionals. What's the one thing they should stop doing and the one thing they should start, um, you know, to kind of like influence the structural change that what you're alluding to in your books and stuff to make this into something more meaningful, right? Um, so what's one thing they should stop doing and one thing that they should start doing as an EDO?

Yeah, that's a great, that's a great question because the, the, there's a very high degree of certainty this in, in economic development research. Uh, stop saying tech. Stop saying you're a tech city. Uh, we can't all be tech cities because it's not possible. Uh, Silicon Valley is exceptional with certain kinds of tech It is not a tech hub. It is not a tech city. That Raleigh-Durham in the United States is a great region of the United States for biotech and pharma, but it's not a fintech hub. It's not a finance tech hub. Notice that difference, right, and appreciate that difference. That's what we need you to be doing. That when you refer to your entire ecosystem as just tech, you make it difficult for investors, advisors, and founders to figure out where to fit in. Right, let me repeat that. When you say tech, when your federal government says tech, and the US does, we have a tech economy, the US says we have a tech economy, well, semiconductor tech is completely different than video game development. Absolutely different. They're not even in the same ballpark. They're both tech, but they're not remotely the same thing. And, and it's an important distinction for you to make because of that marketing work that we just talked about: strengths, weaknesses, opportunities, and threats. Right? What are you actually good at? And what are you weak in? But it, but it's more important in the, in the sense of the other part of this question, those KPIs that you asked about, Anne. One of those, one of those KPIs is something we call talent mobility, or in the book, I refer to it as optionality. And, and economic development offices, speaking to you specifically, You have this thing called workforce development, right? Which is where you're focused on workforce training, you're trying to attract employers, you're trying to help businesses that are employing people, you're developing the workforce to be meaningful and to have jobs. And the challenge that we get and we see through the startup side of your economy is that first and foremost, founders don't really have traditional jobs, right? They're all working for free as they try to build something. But by extension of that, the team members, the people that they bring on, they're likely not getting paid market rate. Startups can't afford it. So you have a completely different slice of the economy that you're developing. And talent mobility optionality means— recognizes that when those startups fail, those people will have other opportunities to fall back on. They'll have other jobs to fall back on. So we need you tracking whether or not your city, your ecosystem has optionality. That refers back to my point about, say, semiconductors or video games. If you're a generic tech ecosystem and you're trying to support every startup possible, and I happen to be doing a video game platform as a startup, and there are no video game companies in town, there are no other video game startups, uh, how likely am I to stay there? In your city? How likely am I to thrive if this startup doesn't work out? How likely am I to need to move somewhere else to get a job if I have to fall back on a job? Why? Because I can't go work in the semiconductor industry, which indeed are tech jobs, but I'm not in that sector of tech. I'm in something different. If I'm a fintech, a finance founder, how likely am I to be successful or want to move to Raleigh-Durham where that's not the strength, right? I should be in New York City. I should be in Dallas. I should be in London. I should be in one of the big financial hubs where I'm more likely to take risks. I'm more likely to start something. I'm more likely to join a startup as an underpaid employee. Why? Because I know that I have other opportunities here. And so it's important to do that marketing work, figure out those strengths, lean in on those strengths, and in your workforce development work, focus on the specialties that you have, focus on the sectors that are particularly unique there, and attract those kind of employers, attract those kind of businesses, so that the people that live there know that they can thrive through optionality and finding other opportunities. If you're not tracking that kind of thing, like capital recycling. Capital recycling means that the money invested in startups continues to be invested in more startups, by which you have exits from those startups, and out of those exits, the founders and the investors put the capital back into the startup ecosystem. That's capital recycling. We find a lot of cities where that doesn't happen because the investors take their wins and they go home, uh, or the founders take their win and they're happy to just be be rich now and be satisfied. So if they're not participating further in the ecosystem, they're not recycling the capital. That's a metric we want you to track. Optionality is a metric we want you to track because those are indications of the fact that your ecosystem is healthy and supporting entrepreneurship in a more meaningful way. Talked about extensively in the book. It's on Amazon now, everybody. I think Aihan dropped the link, so thank you for that. Please pick up a copy. I want to hear as much criticism perspective as you all have based on what we put together there.

Perfect. Thanks, Paul. We have about 15 minutes left, so I want to do some couple audience Q&As. So I like this question from Sheffy, based out of Georgia Southern— sorry, she's Director of Business Integration at Georgia Southern. The thing is cut off, so I can't read the full name, but she's like, asking, well, what's the vision of different ESOs and EDOs and entrepreneur support organizations versus entrepreneur development organizations? Yeah, I don't know if you have two cents on this, but I'd love to invite you.

Well, and actually, let's clarify, Sheffy, great question. Do you, by EDO, do you mean entrepreneur development organization or do you mean economic development office? And I assume you mean economic entrepreneur support organization. I'm going to go with presuming what you mean is a startup-focused thing versus the business or corporate-focused thing. Thank you. Yes, in the comments. I appreciate that, Jeffy. What's the vision for the difference? Well, the difference truly starts, and it's where I'm going to go here with my third book. It truly starts at a more policy or legislative level. Because what we have is a gross misallocation of capital and resources and even just understanding, knowledge sharing, knowledge transfer within local, state, federal governments about the difference between these two things. And so the vision is almost more of a policy question because there's no reason we, we can't have an economic development office supporting both startup organizations and small business organizations. The, the challenge inherent is that today they don't. Today they don't discern the difference. And when you don't discern the difference, then no one else does either, right? And so you end up with things like real estate investors or, or bankers who want to participate in the startup ecosystem because it's exciting, because everybody wants to say they're an angel investor. And a problem inherent in that is that if we're not then distinguishing the difference and teaching the founders, teaching the entrepreneurs, that that real estate investor might call themselves an angel, but they're clearly not actually a startup investor, right? They may have invested in a startup, but you want to be cautious of, you want to be leery of, you want to be wary of their advice and even their feedback because their capital and the risk tolerance is allocated in a completely different way, right? In Texas, I like to use the analogy that your oil and gas money is not applicable in the startup sector. We'll take it, we'll take it. But because you know how to put a hole in the ground and pump out oil and make money from that does not mean you know how to build a SaaS platform with AI and monetize it. So it starts at a policy level in the sense of restructuring the language we use, restructuring the organizations, right? Maybe the economic development office should have a distinct startup set of people employed, a team of people that work in marketing and venture capital and even sales and business development in the startup sector. And the working theory And I call it theory in a scientific sense. Like, we know this is what should be done, but let's be honest, it's just practice, right? We're just trying things. The working theory is that if we applied at that level, it does trickle down, not to use the old trickle-down economics reference, but it does trickle down in the sense that then your journalists will start to use the language properly. Your bloggers and your ecosystem builders will start to distinguish things better. Your startup development organizations will start to distinguish things better. You know, that you might have a small business entity, a small business program in your city. Well, let's be clear about the fact that that's meant for new small businesses and should in fact be excluding startup founders because we need to be teaching the startup founders completely different things than what's going to emerge in a small business program. That's, that's my vision to start, start it, Sheffy. And we're seeing a lot of organizations in the United States lead by some examples, right? There's the Center for American Entrepreneurship, there's Make Startups, there's Right to Start. There are a lot of organizations that are starting to look at policy issues, both legislatively and just in terms of language that we use and in terms of capital allocations, recognizing that a better part of the problem has been that our economies are designed, in a sense, they're designed by what the government does and how the government thinks of things. Even in a free market capitalist economy, right, the way the government talks about things is likely how the economy is going to work. And if it's wrong, which is the case here, if it's, if it's blending all of these things together, then we cause problems, right? We cause headaches, we cause confusion, we cause dilution of allocation of resources. And we need to fix that. We need to fix that as quickly as we can. I've been doing some work with the Small Business Administration, for example, On this question, I've got a white paper on my website at seobrien.com, a white paper about the difference and the implications of discerning small businesses from startups for this very reason, trying to help governments appreciate why it's important they make this distinction and start to allocate things a little bit more meaningfully.

Perfect. Thanks, Paul. We have Few minutes left. I want to do one more question if that's okay with you. Yeah. Yeah, so this is a big question, but I still think it's valid. So feel free to break it up how you see. So Faran from Frankfurt is saying like, how do you incentivize and create a good startup ecosystem in a risk-averse place? He's based in Germany. So I think his location is, yeah, Frankfurt. So regardless of geography, if you have a startup ecosystem, it's generally risk-averse and they've never done this before, like they've never launched a startup ecosystem, they don't understand that as an asset class, where could people start? Maybe let's— well, that's a good place and then feel free to take it as you wish. But where do you start and where do you go from there?

Yeah, it's certainly a frequent question. So thank you. Thank you for asking, Fran. It's a frequent question because obviously, in this sector of the economy, we need risk tolerance. By design, you have to have risk tolerance. And to be clear, everyone, right, risk tolerance is not just amongst the founders. We need investors who are risk tolerant, who are happy to allocate capital knowing they're going to lose most of it. They're going to lose most of it. And that's one way to start the conversation. Is distinguishing better. Let's stop talking about distinguishing small businesses and startups, distinguishing better the investor class. That if you're a venture capitalist, in the last 7 to 10 years, you all have probably seen a lot of criticism of venture capital, that the model needs to change, that it's not funding everything properly, it's not funding enough. I'm actually not in agreement with that. The venture capital model is designed to do— to talk about design thinking again— it's designed to do and work exactly as intended, which is what? Which is that it allocates money to what is most likely to fail in the economy, right? It doesn't allocate money to new restaurants. It doesn't allocate money to new businesses. It's analogous to public sector funding grants for R&D. Think of venture capital as effectively funding R&D. You're funding entrepreneurs to try things, to test things, to learn things. That's the role of venture capital. And when we don't force it to behave that way, when we don't force it to be treated that way, uh, we allow it to contribute to that lack of risk tolerance that Ferran refers to in in Germany. Japan struggles with this a little bit too, this, this lack of risk tolerance. It doesn't mean we can't work within that ecosystem. We certainly can. What it requires, and what I'm referring to, what it requires is actually just more, more exclusion, frankly, than inclusion. It requires exclusion of stuff that doesn't apply. It requires excluding the the public funding that demands job growth. Well, you can't do that to startups, right? Startups are likely to fail. So if you're tying funding to job growth, you're going to have to wait 7 years to find out whether or not it works out. You can't do that. So you exclude that. You put that in a different camp. I like to point out— I'll leave you with this thought too. I like to point out that one of the things that's also amusing about most startup cities is that In addition to not recognizing that you have wealth and you're just not activating it, what we often find is that we're not properly distinguishing entrepreneurs. Who are the entrepreneurs? A lot of cities make the mistake of treating entrepreneurs as business owners. And that's not actually correct because a business owner might be an entrepreneur. A business owner isn't necessarily an entrepreneur. And what's the difference? You can think of somebody like Elon Musk as entrepreneurial. He's all over the place doing lots of different things. That's very different than a CEO of a company who runs that company, runs that business. That's one thing. That's the distinction of entrepreneur. And the reason it's important, the question is, again, you can carve out, you can build your ecosystem around the entrepreneur class. Not the startups per se, not tech, not business owners, but those distinct, distinctly different kinds of people who are highly risk tolerant. And when they collaborate, when they communicate, when they are in a community that celebrates those risks, that celebrates the chances they're taking, that supports the chances they're taking, they're more likely to do so. right? That if you've got a group of 10 entrepreneurs in a city of 100 people, just to keep it simple, in a city of 100 people, and you blend those 10 entrepreneurs amongst everybody else, and everybody else is talking about business plans and bank loans and, and we need job growth. Well, those 10 entrepreneurs feel like imposters, right? Which is where we get imposter syndrome. I feel like I don't belong here. I feel like I can't take risks here because our ecosystem doesn't do that. When the reality is you have 10 people right there that do. You're just diluting their experience with stuff that doesn't apply and shouldn't be influencing their culture and their behavior and the way that they'll operate in the ecosystem that you can very easily develop and again freely develop. What is that? That's a, that's a Slack channel. It's a, it's a a LinkedIn group, it's a newsletter, it's podcasts about just those people. It's focusing on the kinds of people that start things and take those risks and excluding the people that don't. Not to be exclusionary, but just to make sure that you're supporting the people who do in the most meaningful way possible.

Perfect. Thanks so much. I think that's a good way to end today's session. I feel like you and I can— I know we've spoken about these topics for like 3 hours straight. I don't think people are going to stick around for 3 hours, but this is a good 1-hour session. And we'll do more of these, folks, because this is obviously a very important topic and there's not a lot of education, surprisingly. So that's why I'm very grateful that Paul spared that time on his day to talk to us about his experience and what his thoughts are and his takes are on all stuff. We have a lot of economic development professionals in the audience, and, you know, it's just you're going after the wild west and you're just learning as you're doing. Cool. Look, guys, we'll open up networking now. Paul, I don't know if you have a few minutes, you want to jump on some of the tables, but we'll open up some virtual tables. If you want to stick around for networking, please stick around. Please keep in touch as well. You're all on our mailing list now, and And then, yeah, I put it up once again. Here's Paul's book. Go order it if you can, and please provide feedback. I'm sure he'd be appreciative. Paul, any last—

Yeah, well, I was going to jump gun for you. Yes, I'll stick around for a little bit if we're going to do some networking after so we can have some sidebar conversations. I'd even add, for the sake of what came across as a lot of criticism, everybody, to be clear, There are frameworks in the book. There are checklists. There are a lot of the questions that have to do with, yeah, but what do we do? Or what should we track? Or what do we start with? Or what do we put in place? Rest assured that that was the point of the book. I like to start with acknowledging that we're not doing things well enough. I like to point out that, you know, if the rate of failure among startups is 90%, and it's been 90% for 30 years, by the way, which it has been, obviously we're missing something, right? We should be able to move that in the right direction and actually start helping people more effectively. So let's figure out what's wrong. And then of course, yeah, pick up a copy of the book because we do explain, we talk about what to do about it and give you some direction. And I'm always happy to help with that directly as well. Reach out, connect with me on LinkedIn. Let's have a conversation about your ecosystem.

Perfect. Thanks so much, Paul. Okay, I'm gonna break out now for networking. Thanks everyone. You'll get a recording of today's session and some URLs in the follow-up email, but thanks everyone. Bye.