Growth Times

In the first two installments of this blog series, I looked into the massive salary of MaRS Discovery District’s CEO, the vast deficit in public reporting in spite of over $130M in public subsidies, the lack of performance management, the systemically poor results and low ROI, the lack of transparency of grant decisions and the reliance on intimidation and ostracization to silence critics.

Yesterday I published a companion post with extracts from the feedback  I received so far, the importance of whistleblowing in a healthy democracy, and the direct impact those who get more than their fair share (like the CEO of MaRS) should know they have on others, like entrepreneurs  who have to work another full-time job to make ends meet.

Now I will take a look into the claims by MaRS that it constitutes a “public-private partnership”, and its expansion into the realm of private services.

But first, the 2009 salaries of MaRS employees were just published as part of the latest provincial disclosure, so below is a screenshot. The CEO made $436K in 2009, and MaRS continues to use public funding to add positions compensated over $100K – there are now 16 (out of 42 employees in 2008 – staff numbers for 2009 have not been disclosed yet):

MaRS salaries above $100K in 2009

What public-private partnership?

On its website, MaRS claims that a “combination of private and public funding allows MaRS—a charitable organization—to offer these services.” While MaRS spins its communication to imply that private donors generously contribute to the budget, and thus that taxpayers’ dollars acted as a catalyst, the reality is very different. Almost all of the revenue (over 90% in 2008) comes from government grants and rental / meeting room income from buildings purchased with public dollars.

If you think much private capital went into MaRS, think again. In an interesting 2006 Powerpoint presentation by the hub, the numbers already showed that only $16M came from private sector donations – while government subsidies amounted to $79M. There were loans too, but those qualify as much as private “investments” as the money credit card companies lend us every month. Overall, a far cry from the catalyst effect we were sold on.

From a planned $79M, the subsidies actually reached $130M by 2008. But the private contributions did not increase – the sure sign of a good public-private partnership. I would also be curious to learn what the private donors got in return for their money. Private companies do not tend to give away money for nothing.

Tell me again, why do we need a taxpayer-funded incubator, when there is plenty of office and private incubator space in the city?

I met MaRS CEO Ilse Treurnicht once in 2007 as I was seeking support for TagOver, a web startup I was working on at the time (an app to replace folders with linkable tags – a technology Gmail recently introduced). I think she was looking to hire people for MaRS, and I was looking to get some help with my venture. The discussion, although courteous, ended quickly given that my little operation was of no interest to her.

See, Ilse was busy presenting MaRS as a public-private partnership to the public. Take a look at this 2008 video (or its transcript). In it, the CEO pulls all the stops to introduce MaRS as a trendy catalyst of private investment.  She talks about “the unique public-private partnership nature of MaRS’ (2:26 in the video), and then in even more epic ways at minute 5:40. The key argument supporting this partnership model was phase II of the MaRS center, which was to be built by a private U.S. developer.

While phase 2, unlike phase 1, might have been a partnership of sort, the developer pulled out of the project during the crisis (see David Crow’s write-up at the time).

But now that the crisis is apparently behind us, it is likely that there is appetite from MaRS to resume the plans, if they haven’t yet proceeded with that. I suspect that the government might be asked again to contribute. After all, the provincial authorities gave Waterloo-based Communitech $26.4m last year for the creation of a “Digital Media & Mobile Accelerator” (a $107-million project, with the rest coming primarily from other levels of government and “some private sponsors”). It looks like the bureaucrats think the main problem of start-ups is to find offices, and that private incubators don’t cut it – so why not take advantage of that flawed belief while it lasts?

Which leads to the real question here: why is a non-profit organization like MaRS in the business of hosting companies using taxpayer’s money, when there are plenty of private office buildings and incubators in the city? And when so many in the entrepreneurship community don’t think it is a good idea (I’d love to call for an independent professional survey here). The extravagant building of the hub goes against the very essence of entrepreneurship and all the advice about bootstrapping. Do you picture Steve Jobs starting Apple from those buildings?

MaRS charges high rates for booking meeting rooms and hosting companies, and one key reason clients go along with it is preferred access to public money and connections (remember the very reason the U.S. selected Washington D.C. as their capital city was to distance it from the business interests in N.Y. and Boston). The claims of creating a “global address” as MaRS puts it is highly debatable. Most people in Toronto don’t know what MaRS is, let alone people internationally. If we spend those millions for awareness, then it’s not clear that it worked – we could achieve better results with much less money. VCs and investors I know also tend not to look at delegations led by a public-sector institution as a sign of dynamism.

The bottom line: our taxes should not help create bureaucracies that replace a more efficient private sector.

It’s not just real estate

MaRS, a non-profit organization, and the other hubs in the region increasingly offer private-sector services like business planning,  sales and marketing, financing and funding strategy, human resources, financial management, product development and marketing, customer relationship management, strategic partnerships. Now, I may be biased, since many of those are services I offer through my private practice, but I think my experience both as a private provider who also saw MaRS “in action” (or inaction) – and has to be deliberately retained by clients based on performance -  is relevant.

Currently, consultants or contractors in strategy and marketing are seen as “generally not as effective in dealing with the needs of emerging companies as people with more specific background”, as I was told last year by the head of the Market Readiness Program, in spite of the projects I was referred and complimented for by MaRS advisors (and a specific background of dealing with the needs of emerging companies!)… Yet the publicly-funded institution has no problem partnering closely with lawyers and accountant, even co-organizing events with selected private practices like Deloitte and Ogilvy Renault, and welcoming several as tenants in the MaRS building, so it looks like a clear case of rejecting competitors to the hub – and to the private practices that multiple advisors support or run on the side.

But, if the private sector is that efficient, why can’t it simply out-market the non-profit institution? We often do, actually. But it’s hard to beat free. Free creates a culture of free – entrepreneurs who received free help from hubs are not only less prone to paying for commercialization services, but they also end up more suspicious of the added value, since the institution frequently falls far short of the expectations.

MaRS’s selective give-away advisory services disrupt the marketplace, harm a perfectly viable private sector and prevent the creation of a viable, sustainable ecosystem for start-ups and early-stage ventures. With the right tax policy and less red tape (congratulations to the Federal government for repelling section 116), I’d argue that the private sector is best equipped to provide commercialization support.

After all, the essence of commercialization is about making people pay for a solution to their need: if hubs can’t do that for themselves, they should not be in the business of teaching it to others.

We don’t need no start-up bureaucracy – give the money to start-ups instead

Start-up evangelist David Crow pointed out the expansion of those public hubs in this post. There is now a myriad of agencies each with their own “advisors” and “entrepreneurs-in-residence”, competing for power and funds, and increasingly venturing into activities that are perfectly viable for the private sector.  The expansion of those bureaucracies seems insatiable (MaRS alone added another 10 positions in 2008) and anyone in that space knows that there is a clear power struggle at play, along the attempted institutionalization of commercialization activities.

What’s clear is that MaRS so far has been little more than a public play. It operates an incubator using public money and competes with perfectly viable private interests. It does not have the private sector efficiencies and built-in performance management. It would fit right in Dubai but does not get us closer to a Silicon Valley.

We all agree that a public “oasis” acting like a forum and meeting space for entrepreneurs downtown is a good idea. But taxpayers in Toronto pay $50 each for this oasis, now taken over by a group that by all account is using these resources to further their own interests. As a Toronto venture capitalist recently told me: “this is a honey pot, and parasites are going to take advantage of it until the last drop.”

There are other hubs running mostly with volunteer professionals as advisors, and the help they provide is not subpar compared to MaRS with its highly-paid professional staff. Their ROI is likely much higher. With the rise of commercial hubs based on the Y-incubator model and the growing number of highly-experienced commercialization consultants with a clear incentive to perform, there is no need for public advisors, and with the money we save from their salaries we could help many startups. So give the money to start-up founders instead – and through tax breaks.

We could also make use of an organization with the clout to represent entrepreneurs’ interests in the political arena, but MaRS isn’t even well equipped for that, since it is paid for by the government. That’s something professional associations are best equipped to do, as NACO and CVCA have recently shown.

Even if the hubs’ generic advice and select grants help some start-ups, overall it distorts the playing field and hurts our attempt to create a self-standing, sustainable innovation economy based on sound market principles. Overall, the MaRS model costs too much and does not work.

In my final post, I will make suggestions on how to improve public support to entrepreneurs in Ontario.

Related articles by Zemanta

• Background Note on Whistleblowing (in Context of the Series on MaRS Discovery District) (growthtimes.com)
• Troubling Facts about MaRS Discovery District (Part 1 of 4) (growthtimes.com)

Canadian entrepreneurs commercialization, entrepreneurship, incubators, mars discovery district, marsdd, Ontario, performance management, public accountability, public policy, public-private partnerships, toronto

Since I started this series, I have received multiple emails of support from entrepreneurs – several of whom are “clients” of MaRS – and innovation practitioners. Here are some extracts:

I appreciate your courage to post your views (which I share) on the MaRS topic”  (from a university research commercialization specialist and entrepreneur)

“Being a client of MaRS, I share your sentiments, but wouldn’t do so in public (for the same reasons you mention)” (from a Toronto entrepreneur)

“I forwarded your site to some of my friends at MaRS. I’m finding it quite revealing to say the least!” (from a MaRS tenant)

“I saw your post on MaRS. I had heard the numbers, but had not had the link to them. Thank you.” (from an angel group member)

“MaRS is like the planet. It’s cold and distant. Apart from some educational sessions, it doesn’t do much for actual start-ups, yet it wants to control our galaxy. They should call it the Death Star.” (a Toronto entrepreneur)

“Can’t disagree with anything you are saying” (a long-time MaRS client)

“The story sounds interesting, and clearly quite relevant.” (from a national paper business columnist)

“They’re all so pompous and useless at MaRS, as if they’re running a NASA lab (…) If they had given that money to real entrepreneurs instead, they would have created more jobs and wealth” (from a Toronto entrepreneur)

“MaRS lacks any sort of accountability. Their impact is unknown because they don’t publish any relevant metric” (executive at another innovation hub)

In case you wonder, I received only one negative comment (see the update to my first post – showing that according to MaRS’s own statistics, each advisor works a total of 5 days per year to help entrepreneurs). In a way, it is disappointing. And no news from MaRS, which I imagine is making sure not to give this any publicity.

Note I am looking to inform relevant people in the political sphere about this issue, and I would welcome any suggestion as to whom might be appropriate. You can email me at gregboutin -AT- gmail.com.

On whistleblowing

A recurring theme in most of the emails of support communications is fear. There are many, many people agreeing that something is wrong with the MaRS approach, but most of them admit fearing the consequences on their reputation and revenue if they were to publicly express their thoughts.

There is something very wrong with our system if one can’t put forward valid concerns without feeling threatened. Being a whistleblower is rarely a career-enhancing move – but I’d argue that, when confronted to such a waste of dollars, raising concerns and asking questions is an ethical requirement. How can one go home and look at their kids in the eyes otherwise?

In the past few years I have done that a few times, so I am used to the label. Plus, I was born in France, which doesn’t help given the reputation. I guess I should have been a journalist, but I don’t write that well and I prefer to be actively involved in companies.

In 2003, while working shortly as an intern for a financial analysis firm in Richmond Hill, I discovered that Shell was misreporting their oil reserves. Told that to my boss, who chose to ignore it. Bad move: 6 months later, we had this.

Last year, I pointed out that the web app Twine lost 80-90% of its traffic after being flagged by Google. A number of us had mentioned the usability problems of the application, meeting a hostile response from the founder. After wasting $25M, Twine’s CEO was recently let go and the company’s resources “merged” with another company in the same investor’s portfolio. The investors could have saved a few millions, or even the whole venture, simply by listening to the concerns.

Hey, I’ve been wrong sometimes too (my recent RRSP investments in cleantech prove I can’t predict the future!), but the point is: raising relevant questions shouldn’t be punished, it should be rewarded. See financial crisis.

Wasted lives

There is a direct connection between wasted money and wasted lives. Between poor policies, indecent executive compensation, and poverty.  I have a picture I can’t take out of my head: when I was living in Manila, I saw a woman sleeping on a bridge, a baby in her arms, above the busiest highway in the city. I could contrast that with the opulence of the diplomats I worked with (for the record, I was making just a little over $1,300 per month as a trainee.)

Anyone getting a salary they don’t deserve is responsible for supporting the wrong system, a system that put that woman and her baby on that bridge. They will look the other way, make donations to feel better and find excuses for themselves, on how $470K per year is justified given this and that, how others make more, how the system requires them to make that much – but the only valid question is: all things considered, am I destroying value and human lives by taking more than my fair share?

In the case of MaRS, is the CEO’s obscene salary forcing some entrepreneurs to take a full-time job while starting their company? I know a number of such entrepreneurs in Toronto. Two of them just had babies. So cut MaRS CEO’s salary and give them the money instead – I assure you they will create more value.

Now, I am not suggesting we cap salaries or downsize all well-paying jobs. I am suggesting that there should be clear performance management and accountability, especially for large public-sector rewards whose value to the public constituency they are supposed to serve can be fuzzy.

And if we ever want to live in a true meritocracy, raising questions and protecting the whistleblowers is a must, not an option.

Related articles by Zemanta

• Troubling Facts about MaRS Discovery District (Part 1 of 4) (growthtimes.com)
• Why MaRS matters (part two) (marsdd.com)

Canadian entrepreneurs canada, commercialization, entrepreneurship, executive compensation, mars discovery district, Ontario, public policy, toronto

ReadWriteStart, the entrepreneur’s channel of ReadWriteWeb, nicely published an article I wrote for them called 10 Principles For Not Killing Your Startup.

With the new wave of entrepreneurs brought about by the financial crisis, I suspect the mortality rate of startups is at an all-time high. I didn’t find robust data to back my observation yet, but I did come across a page that points out that, before the financial crisis:

• the chances were six in a million that an idea for a high-tech business eventually would become a successful company that goes public;
• a venture capitalist financed only six out of every 1,000 business plans received each year;
• and bankruptcies occured for 60% of the high-tech startup companies that succeeded in getting venture capital.

Wow. Persistence is paramount.

As you know if you have visited my “corporate” blog, my mission in life is to change that. Start-ups shouldn’t die. They should live, prosper, and grow into healthy businesses that make people happy.

So I tried to identify the most frequent root causes of death, and for each, I created a principle. You will find the result here: http://www.readwriteweb.com/start/2010/03/10-principles-not-killing-startup.php#comment-195260

Please help make the list stronger by commenting and offering additional principles.

Develop, Fund, Lead, Market commercialization, Entrepreneur, entrepreneurship, managing a startup, new business, product management, Start Up, start up mortality, start-ups, starting a business, tech ventures, venture

In my experience helping entrepreneurs, the most important success driver of any business founder is the capacity:

1. to know their success drivers,
2. and to keep everything they do tied to those.

So being able to keep one’s eyes on the prize and not get lost in the weeds is the top quality any good entrepreneur should cultivate. In this age of information overload, however, requests are being thrown at us from every direction, and in the midst of that flood it can quickly become difficult to discern what matters from the rest.

Luckily, whatever problems technology throws at us, the human brain can still solve.

One method I recommend to solve the focus problem is to create two living documents to keep you on track:

• A Masterplan, that lists both the overall goals for your business and the immediate milestones you are pursuing. Think of each as, respectively, your cardinal direction (I find that concept more flexible than a “destination”, which sets things a bit too much in stone), and the first island your boat should be headed to (in that same direction!)
• A To-Do List, prioritized roughly

A few implementation tips:

• Keep it simple. Both documents don’t have to be fancy. In fact, they really shouldn’t be. Try to keep them as concise and as clear as possible. The longer and fancier – as in feature creep - both documents become, the least chances you’ll use them and the more chances you’ll get lost on the way
• Use standard software. For the masterplan, use a text editor like MS Word. For the to-do list, use a spreadsheet program like Excel, with 2 columns: Task, and “Done” (and if you’re good at excel, you can add an automatic timestamp for the Done entry). If you want my excel template for the to-do list, email me at gregboutin “AT” growthroute.com
• Keep one version only. This one is obvious, but you should have only one version of each document. If you spread the information over more than one version, you’ll have version control issues, have conflicting objectives across the versions and won’t be able to assess the priority of tasks against each other as easily, so avoid that. Yes, even if you work on more than one business. If you want to create similar documents for your personal life, however, I recommend keeping those separate.
• Update them every time. Very important: always, always keep both of the documents updated. Those should be working documents. Remember, they should be the unique source of truth for your business goals and your tasks. Captains use maps, compasses and task lists for the same reason. Yes, captains have task lists too. Or they should, in any case.
• Start small. Iterate, completing each document over time, especially after each shower when you finally got some strategic thinking time!
• Prioritize to-dos intelligently. I suggest a prioritization based on a loose combined factor of importance and urgency as perceived by the entrepreneur. Some like to separate both, thinking what’s urgent is not necessarily important. I disagree. First, it complicates your list. Second, the more important it is, the more urgent it should be, and vice-versa. But sure, some things are very important and can’t be done today, due to some dependency. Then either list the dependency, if that’s an action you should do soon, or downgrade the to-do, or move it to the Masterplan and make it part of your ”first island”: it might be important but it’s not actionable immediately, which is the key criteria for a working list. What’s top of list is what you should do next.
• Align both documents. Check whether the actions you’re pursuing – which should be listed in your to-do list – further the goals in your masterplan. If not, or not much, scrap them. Understanding why some actions you listed do not align with the goals you expressed in the Masterplan may also lead you to revise those goals.
• Share, but own. You are welcome and even invited to share your masterplan with your trusted partner(s), and to ask them for inputs. But remember, you are the Captain, and for as long as you are, you continue to own and be responsible for those documents.

What’s your system? Have recommendations? Please share.

Lead building a business, business creation, commercialization, Entrepreneur, entrepreneurship, focus, innovation, masterplan, Start Up, tech venture, Technology, to do list

As previously announced, I was at Communitech last Friday to talk with their Product Management group about the key challenges to launching blockbuster tech products. I decided  to tackle the divide between Techies and Biz types, as this has consistently been one of the main hurdles I saw at the ventures I work with. I was a little worried as at first I expected possible controversies over some of the points I brought up, but to my surprise this resonated well and strongly with most people in the room. About half the room were techies and the other biz types, so the distribution was spread nicely in the middle. There were no punch exchanges, mud fights or even light food fights (or food light fights for that matter).

I posted my presentation on Slideshare, so you can find it below. I had two hours at Communitech so this is quite a long deck of 40 slides. It’s all there. For those who attended, note I revamped quite a bit of it and there are several slides I didn’t show during our discussion. So you  can take a fresh look at it.

Slideshare did a poor job with the graphics so, for example, the cover page I was so proud of is all scrambled. Time permitting, I am available to deliver this presentation at other forums and welcome invitations. Rest assured I have unscrambled slides to present.

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My friend Fred Sweeney of VG Partners pointed me to this interesting call for help by the biotech industry in Canada, whose start-ups are finding it difficult to raise money to survive, let alone thrive. In these times of hardships, the ventures with the least obvious path to commercialization and revenue are the ones who suffer first and most. Given the lengthy development cycles and uncertain payout, biotech ventures evidently stand at the frontline of the crisis.

What all that shows is that a start-up should at all times be able to articulate the revenue model it is proposing to pursue. It should tie all its current efforts to this model, or “reverse-engineer revenue” as per the expression I coined at GrowthRoute. Doing just that provide three benefits: one, you stand in first row against competing start-ups when comes the time for VCs to hand out cash; two, keeping your eyes on the prize helps you identify where to focus your efforts today, and better allocate your current resources; three, spending some time thinking about how you will make money could point to nearer-term sources of revenue you may not have thought of.

Without a destination and a map to get there, you can have a tight ship and yet run it in circles. Better to never count on the government to get you back on track.

Develop, Fund biotech, biotech industry, business model, canada, commercialization, customers, eyes on the prize, Fred Sweeney, government programs, innovation, innovation entrepreneurship, Revenue model, Technology, technology commercialization, venture capital, vg partners