Silicon Valley is the best place for entrepreneurs. Not many challenge that assumption, and why should they. Twitter’s recent IPO, Pinterest and Snapchat’s enormous valuations, and in Snapchat’s case, subsequent Facebook offer fuels the hopes and dreams of entrepreneurs all around the world. The magic is happening in the Valley and international entrepreneur communities try to adopt lean startup methods and a similar style ecosystem. Despite all of these efforts, most startups still fail. Only one in ten actually survives harsh realities. In 2009 Adeo Ressi set out to change that. The serial entrepreneur founded The Founder Institute (FI) and has since then tried to beat the 1 to 10 rule – all around the world. FI teaches Silicon Valley concepts in 60 cities and counting – with Bangkok being it’s latest addition in South East Asia. Instead of pitching ideas, students have to pass a personality test to get accepted and get assessed throughout the program. During the program the participants learn what it is like to run a startup, develop their ideas and start companies. Unlike other incubator programs, students have to pay a fee to FI and give up 3.5% of their companies’ equity. The program is not full time either allowing participants to stay in their jobs. Is this model successful? Very much. The success rate of startups is close to 90%. We spoke with Adeo Ressi about FI and Asian expansion.
What is the Founder Institute all about? Why did you create it, what are your goals?
We are in approximately 60 cities worldwide right now. What the Founder Institute does very well is to help people that have a dream about starting a company first determine if they have a good idea – and if they don’t we will help them to come up with a good idea – and second, understand if starting a company is the right decision for them. Just because you have a good idea, doesn’t mean running a company is the right career choice for you. If those two are true, we will help you build that company. Of the thousand and three grads we have launched till today, 90% of the companies are alive and 75% are doing well and about 50% are funded. That means if you get through the program, the chances you are doing something that is meaningful and enduring are high.
Have you had any large exits yet?
We are four years old ourselves so our oldest grad is just over three years old. We have just under a dozen exits. They are all under the 10 million dollar range, but the value of the portfolio exceeds 5 billion USD, because we have many operating companies that are well known and successful.
How do you determine if FI participants are made for starting a business?
First, when someone applies, we give them a predictive psychological test and we measure attributes – personality traits –of successful entrepreneurs. If you have a few traits of successful entrepreneurs, it will be easier for you to start a great company. Conversely, if you don’t have those traits it will be much harder for you to become a successful entrepreneur. That is the first way. If you get into FI you have the raw material to be a great entrepreneur. Now, a trait is something like being tall. I’m a tall guy but I’m not very good at basketball. If you don’t work you trait, if you don’t try, you are still going to fail, so the second thing we do is to let the program simulate very closely what it is like to run a technology company. We make you apply your traits. Sometimes people don’t like that. Sometimes they say it is too hard, or they prefer of doing a corporate job. The program itself is the second test.
Is that one of the reasons that many people quit during the program?
On average 60% of the people leave the program. Two major reasons people leave are that they realize that startups are not right for them, and they realize they don’t have as good an idea as they thought. Now keep in mind that FI makes that a very easy lesson to learn. You don’t have to quit your day job to figure that out, which makes our program very popular in Asia because you can essentially make a very informed decision without risking a career.
Normally what entrepreneurs would do is to quit their job and figure out one or two years if entrepreneurship is right for them. With FI they don’t need to quit their job and will normally figure it out within six weeks.
What is your demographic?
The average age is 34.5 years old. Over 80% are working professionals, usually in one of three major fields. Management and Marketing, Engineering, and Product Development and design roles. 36% of our students are female. We are probably the largest female incubator in the world. Some of our classes graduate 50% female entrepreneurs, which is very high.
When a person joins the institute, he or she has to pay fees, which is quite unique and you also do not provide funding at any stage. Can you explain why?
Most of the people in FI are not entrepreneurs yet. They have day jobs. It doesn’t make sense for us to provide someone who hasn’t incorporated a company and may not have a finished idea with funding. It is just a matter of what stage we are operating at. We are so early stage, we cannot just hand someone a check, who isn’t even sure if starting a company is the right thing for them to do.
How did you come up with the idea of bringing Silicon Valley to the whole world?
What I saw in the world in 2008 and 2009 was a global collapse of financial system caused in large parts by bankers and politicians, making decisions about the society, economy and things like that. They were making largely bad decisions. Conversely, in my view, entrepreneurs were creating a great amount of value in the society, yet they were essentially second class citizens. They get treated badly by investors, they struggle and often failed. My view was that if we can help entrepreneurs to have a more prominent role in society and if we can help entrepreneurs have a higher degree of success, if we can invert the failure rate, it would overall be a good initiative for the world.
The average is that 90% of startups fail, but if you are a graduate of the Founders Institute, 90% of our graduates are alive. We have already inverted the failure rate, but in order to have an impact globally, on the economy and on civilization at large, you need to do that at scale.
There are a lot of companies out there that will help 10 to 15 companies per year, but that is not really moving the needle. We said, we need to produce a thousand or more companies a year in order to impact things on a societal scale.
We had hoped initially that we can do some of this virtually, but we run a series of structured tests and it turns out that you really need to do it face to face, with people in a room. Whenever you try to do something virtually, the results were worse than during a face to face workshop. So we decided to do it face to face and that encouraged us to scale to as many cities as possible.
Our model is very well suited to Asian societies, where there are a little bit more conservative. The concept of providing someone with the ability to have your cake and eat it too – keep your day job and determine if Startups are the right path for you -is very synchronous with a Pan-Asian world view.
Yes, but we train that out of them (laughs). You were earlier saying ‘globalizing Silicon Valley’. Silicon Valley has some of the most advanced concepts of how to do entrepreneurship effectively in the world. However, those concepts are not universal. In fact, they are not even common across America, and if you draw concentric circles from America they become less and less common. There are infinite numbers of examples, but what we said is “hey, why don’t we take the key ideas from Silicon Valley, in terms of how to start a company, how to structure equity and such, and bring them to different cities around the world?” For example, we have introduced one of the first employee stock option policies in the country of Columbia. We brought the concept of founder vesting to dozens of countries around the world where it is not really understood. A lot of people would ask “What is founder vesting?” and try to search it on the internet, but it’s not really described anywhere, but it is completely common place in Silicon Valley. It is so common that nobody writes about it, but it is so uncommon outside Silicon Valley that nobody knows what it is. There are best practices here that are not used anywhere else, and not talked about online.
Have you ever seen concepts from the Valley fail around the world, or concepts you use at the Institute?
There are some places where we can’t work without doing some legal acrobatics. For example in Russia there are no minority shareholder protection rules. That creates problems if you are applying Silicon Valley style concepts because you will have a lot of minority shareholders. What happens in a place like Russia, we say “Incorporate your primary company outside of Russia”. Then you can take advantage of best practices, and you can setup a Russian subsidiary to address the local market.
We haven’t seen failure but we definitely had to be creative in different cities and countries, based on local laws and customs.
How many chapters do you have in Asia right now?
We are in Sydney, Jakarta, Kuala Lumpur, Singapore, Bangalore, Ho Chi Minh City, and Hanoi, and now opening in Bangkok. We are working to open in Manila, Hong Kong, Tokyo and Seoul. Those should be all online by early 2014.
Do you see similarities or differences, particularly among the South-East Asian countries, which stand out?
Oh yes, there are major differences, but also similarities. As I said, generally speaking, the Pan-Asian mindset is a bit more conservative than the western mindset, when it comes to startups. Some countries are trying to change that. Singapore for example is trying to push to change that mindset. People are very hard working and technically confident in Asia. It’s a huge advantage.
What do you think are the major challenges in Asia? Usually people hint towards funding when confronted with that question. Would you agree?
Yes, but! Let me give you an example. We have two chapters in Vietnam. We have a couple of companies that have raised a few million USD each. To raise a few million USD in Vietnam is unheard of, but if you ask people they will say “fundraising in Vietnam is impossible”. Well it wasn’t impossible for these guys. This goes back to the chicken and egg problem. What comes first, funding or company? I would argue that you can’t fund a bad company. That means you need good companies first before you get funding. If we create good companies the funding will come. We have seen that in Vietnam, we have seen that in Columbia, we have seen that in dozens of countries around the world where people said to us “There is no funding here! What are you going to do?” and my answer is: We are going to create great companies that will create great funding. If Facebook started in Bangkok, and got a few hundred million users, it would have received funding. It is that simple.
How do you know you are dealing with a great company, a great founder, a great idea?
We don’t. What we rely on is the tests. We measure everything in the Founders Institute, including the sentiment of peers and the sentiment of local mentors. They tend to match up with reality. If your pears think you are good and your mentors think you are good, the test predicts you are good, you are probably good. It is not a perfect system but we collect a large amount of data and if there is a large enough amount of positive sentiment it is a pretty clear indication is that someone or some company will be successful. We measure and track that and that is very helpful.
What are the traits that make entrepreneurs successful?
There are several. Fluid Intelligence and Openness are very predictive. Fluid Intelligence measures your ability to learn and apply a rule set. As an entrepreneur you have to be able to switch positions and points of views quickly and Fluid Intelligence measures that. Openness is your ability is a big five personality trait and is your ability to see the world for what it is and apply sort of creative problem solving and creative ideas. Entrepreneurs tend to have very high Openness scores, because they are able to identify opportunities and problems in their business quickly, which gives them a competitive advantage in building a successful business.
What about professional experience? Do you think it’s important?
Yes, our data indicates that. Older entrepreneurs are in a better position to achieve success than younger entrepreneurs, but not necessarily, because you could be a younger entrepreneur with certain traits that would make you stronger than your older counterpart. It’s a mixture of things, but the older and more experienced you are and the more experience you have, the more real insights you can bring. A common mistake that younger entrepreneurs make is that they solve problems that don’t exist. That doesn’t happen very often with older entrepreneurs because they have a lot of experience and are able to say “I know the problem”. The negative of that is that a lot of times the businesses of older entrepreneurs tend to be more conservative or less radical, but they also have a higher success rate etc.
How do you deal with FI participants that obviously have a bad idea, but they are too stubborn or ignorant to abandon them?
Every week founders get up and pitch their idea to mentors and the mentors give them feedback. That feedback can be fairly detailed and often is. The founders are expected to incorporate that feedback and improve. I’d love to tell you that is how it works, but not every founder incorporates the feedback, unfortunately. One of the things you learn in the Founder Institute is that the world is a relative place, just because the mentor says it is a good or bad idea, it doesn’t mean you do. It is one piece of feedback you get along with a lot of other feedback. Because you have so much feedback in the Founder Institute, we help the founders calibrate their own startup compass, so they can what is right and wrong for them and their business. It is a very subjective decision.
There are definitely some ideas that are bad – don’t start a fax machine company. Period. But beyond that a lot of stuff is subjective.
What do mentors have to bring to the table to be part of the Founders Institute?
We have commoditized mentorship around the world. We have, I think, 2570 around the world. Mentors make about a six hour commitment to the chapter and they get some equity in all of the graduating companies in return. The mentors commit to give a session at the Institute and provide feedback and often times there will be a few meetings with founders outside the sessions. That’s about it. It is about six hours. Some mentors give more, some mentors give less. The mentors are rated too, so if a mentor gives more and gets rated better he receives more equity.
It’s a bit like gamifiying mentoring?
Well yes. Gabe Zicherman, who coined the term Gamification, is running our New York Chapter and we spend a lot of time talking about those concepts, but I would say, it’s a fair way of compensating people for their help.
How does the follow up process with all graduates work?
We do a bunch of different things. Our focus is to help you launch your company. That is 90% and that is what we are doing very well. We are saying there are other things we need to do, and that are the other 10%. Some of the things we do are a global communication network where graduates can post news and chat about things like issues they have, questions they have, help each other. We do a semi-annual event where we try to bring all our graduates from around the world together, meet one another and socialize. We do master sessions, which are every month or every couple of weeks, where we do a call with maybe 10% of our graduates and try to address issues around marketing, fundraising or teambuilding, but our primary focus is helping building your companies.
Do you try to match or encourage participants to work on overlapping ideas?
Participants meet co-founders in the Institute but we don’t try to encourage it. Everyone is unique and even if someone has a very similar idea, they might actually not like one another. So we don’t try force people to work together, but there are people that meet their co-founder through the Institute, build relationships and start companies together. That is very common. Making a decision to co-found a company with someone, is a very serious and important decision, and is something people need to think about long and hard.