A conversation with Adeo Ressi, CEO of The Founder Institute.
Startup culture has swept the world, with over 100 million new businesses launching each year. In the United States alone startups raise over $1,500 each second in funding, and while 90 percent will fail- a small selection go forward to change the world.
The hyper-connected global economy scales startups fast, and it’s no surprise therefore that a significant number of our world’s most valuable companies are (relatively) young. Google (Alphabet Inc), with a market capitalisation of over $540 billion is not even 20 years old… Facebook– with a market capitalisation of over $360 billion is barely 12 years old (their founder, Mark Zuckerberg, at just 32 years old- is the 5th richest individual in the world). At just 7 years old- Uber is catching up- already worth over $70 billion and climbing.
To learn more about the secrets of the world’s most successful startups, I spoke to Adeo Ressi, a serial-entrepreneur, and CEO of The Founder Institute, who are one of the world’s largest startup programmes. They operate in over 150 cities, with more than 100,000 people a year flowing through their programmes- which have created tens of thousands of entrepreneurs all around the world.
Q: What is life like for a startup founder?
[Adeo Ressi] Startup life is hard, especially for the founders. There are a large number of opportunities and challenges that need to be addressed at all times. For a founder, selecting what to address when is extremely hard, and many describe it like being on a rollercoaster.
One day, a major problem strikes- but you’re also dealing with a large number of other problems, and you get overwhelmed – you’re speeding down to the bottom! The next day, you win a major contract, two or three of the problems get resolved, you get interest from an investor, and you’re speeding to the top again. It’s a constant up and down gyration!
Throughout all of this craziness, the founder has to remain incredibly optimistic and focussed to achieve their goals and objectives – that’s incredibly hard to do!
Q: What are the characteristics of successful startups?
[Adeo Ressi] Firstly, I want to dispel a common myth. Funding and success are not correlated. There are some very big companies that have received very little funding- Microsoft and eBay are two great examples of companies that grew quite large with very little funding if any (in fact, Microsoft barely even used their funding). While funding and success are not correlated, many of the great entrepreneurs of all-time use funding as a tool to ensure success.
You can look at building a startup much like a resource management game. In the world of startups, the things that really matter are talent and capital!
If you have a large supply of talent, and a lot of capital, you’ll win every time.
The way you get the talent and the capital is by having a very clear vision and mission for what you’re trying to achieve in the world. If that vision and mission is big enough, and exciting enough, the talent wants to work with you and the capital wants to fund you.
You can’t be successful unless you’re genuine as a human being and honest.
The genuine person is someone who- when they say they believe in something, or are trying to do something- the genuinely mean it. An honest person will never- for example- state things that are untrue or misleading. You can be genuine about your vision and mission for example, but you might not be honest about your financials or problems. The startups in our world that are really successful are both genuine and honest; they bring that pure level of passion to the table and they’re very honest about the world around them and what’s happening to the people within and without their business.
Unfortunately, there are a lot of successful people in business who are neither genuine nor honest, some of whom even run for President.
Q: What differentiates extraordinarily successful entrepreneurs from the rest?
[Adeo Ressi] The Founder Institute has studied over 30,000 aspiring entrepreneurs, and looked at their psychological make-up. We’ve also done a longitudinal study examining their success over time- we’ve been able to correlate which components of the founder’s psyche lead to a higher probability of them being successful. It’s one of the largest longitudinal psychological studies ever conducted by humanity, and the findings are fairly conclusive.
There are traits that predict success.
Openness measures how open-minded you are, but correlates to the integrity and honesty that I was referring to before. An open-minded individual is often able to see the world very clearly for what it is, they have an ‘intellectual honesty’ about the world around them. Someone with a low degree of openness may be called closed-minded and they often see the world how they want to see it, regardless of whether that maps to reality. Openness lets entrepreneurs see the market with clarity, but also gives them clarity on the opportunities and problems within their own business. Having that intellectual honesty about your own company and the world around you is very important.
Secondly, Fluid Intelligence.
Fluid intelligence measures the ability someone has to rapidly learn and apply rule-sets; it’s the ability to think on your feet. The sheer number of opportunities and problems, and the constant rollercoaster ride, forces entrepreneurs to make very important decisions under very constrained periods of time.
If you’re too agreeable? You become a bit of a pushover in the world. If you have a slightly lower amount of agreeableness, you become steadfast and resilient. Resilience is important to entrepreneurs, for whom many days are a street fight- one for which you’re often ill-equipped. To come out on top after being beaten-up pretty badly is hard to do, and having that steadfast resilience is important.
Fourthly, Giving Back
Entrepreneurs may not give back in the most obvious of ways, but they give back in other ways. When there’s a struggling entrepreneur that needs help, they lend a hand, give their shoulder and so forth. These aren’t the great public charitable donations we all read about, but every serious entrepreneur I know gives back in a significant way to other entrepreneurs.
These things all go back to that base-line of genuine intellectual and human honesty- but we have found certain characteristics like openness, resilience, giving back and fluid-intelligence which are present in the best of the best entrepreneurs.
Q: Do we have enough entrepreneurs in our world?
[Adeo Ressi] From the data I’ve collected, about 2% of humanity is qualified to be an entrepreneur. Not all of those people end-up becoming entrepreneurs. If we got to a point where the full 2% pursued entrepreneurship as a viable way to live their lives? The amount of problems we would solve in human-society would be astounding.
I see it as my moral obligation in this world to help these people unlock their potential so they can start working on humanity’s grand challenges.
Around 36% of our founders globally from Afghanistan to San Diego are women. The fundamental core-demographic is changing worldwide. In the past it was 95% male, and in America the average is around 15% female and 85% male. We’re going to see a fundamental shift in the demographic make-up of entrepreneurs worldwide in the next 10 years. By 2025, we’re going to see 40-50% of all tech entrepreneurs being women, and that’s good news.
Q: What is the role of co-working spaces, incubators and accelerators?
[Adeo Ressi] When I started as an entrepreneur in 1994, there was no help, no programmes and entrepreneurs had to learn everything the hard way. That is not a viable solution to ensure success among some of the most important people in human society!
Here we are in 2016, and there are more programmes than necessary to help entrepreneurs- but that’s a good thing. I do believe that starting this year, we will have a multi-year correction where the number of these programmes and facilities decline to a sustainable level, but we haven’t ballooned out to a level of excess. There may be 20-75% too many programmes and facilities in any given city.
Q: Where are the most exciting areas in the world for entrepreneurship?
[Adeo Ressi] The Founder Institute operates in 150 cities around the world, we operate in almost every country and time-zone. We put around 100,000 people through our events over a typical 12 months, creating around 2,500 new technologies companies around the world.
Today I see great companies come from everywhere, but there are some places that are producing higher-quality companies at a higher-frequency.
We’re seeing some amazing companies coming out of Canada; they have a great education system, it’s relatively inexpensive and borders a major market. That soup of awesome characteristics is leading to awesome companies.
We’re seeing great companies coming out of Indonesia. It’s a fast-growing market, one of the fastest growing technology markets in the whole of Asia. It’s a large market, and very unique! You can see multi-$100 million companies launch, and get to that scale just in their domestic market!
China is a powerhouse in the world of startups. People are rolling out of bed and becoming multi-$100 millionaires within months, it’s incredible.
We’re seeing some of the best companies in Europe coming out of Spain. You would perhaps think it would be London, Paris or Berlin (which is the startup hub in Europe); but we’re seeing some of the most interesting and best executed ideas coming out of Spain!
Q: What are the most common pitfalls for startups?
[Adeo Ressi] A company or startup dies when the founder gives up, period. That’s the only time I’ve seen a business fail.
When a company may not have money, or faces a tough market- the founder often toils on and figures it out, but a company or startup dies when the founder gives up…
The important question therefore is the passion and level of dedication the founder has. If the person has the passion and dedication to see their vision and mission realised in the world? They’ll make it happen no matter what.
Once you’re on the journey to make that vision and mission happen, there are many things that can cause you to stumble- but none of them will cause you to fail if you’re pure about your vision and mission.
There’s a lot of problems between founders and investors, and the pendulum has swung back and forth over recent years. In 2016, for the first time in a long time, the pendulum is in the middle… This is a rare moment in time where we can set the future in motion, to eliminate one of the biggest pitfall in entrepreneurship- the tumultuous relationship between entrepreneurs and investors.
I’m working hard to move investments over to common-stuck, essentially eliminating the concept of preferred stock. When you read about problems between investors and entrepreneurs, the problems manifest in the corporate structure of the investment. Preferred stock is a strange entity, it decouples ownership from value. A preferred investor may own 10% of the stock, but control 100% of the value. That creates most of the problems that sabotage the more-successful entrepreneurs in the world who need capital in order to succeed. Aligning the interests of investors and founders will alleviate the vast majority of problems that result from that tumultuous relationship.
The investor-founder relationship is most strained when things are going well, or going badly. When things are going well? Investors try to grab more. When things are going badly? They’re trying to get their money back, or worse- they jump ship.
Q: What is the role of mental-health in the startup world?
[Adeo Ressi] We’ve been able to identify ‘flags’ across the thousands of entrepreneurs we work with; these could be light issues, or more serious conditions.
We did a study that looked at the top 300 graduates out of a cohort of 1300 from our programme. These were the best performing companies, making the most progress, with the highest revenues and greatest funding success. At that point, we had about 20% of our graduates who had mental-health flags and zero of the top 300 companies had founders with mental health flags.
If you have mental health issues? Entrepreneurship may not be a good career for you.
Let me be clear, I’m not judging. I genuinely believe all people are created equal, and the opportunities to do great things are equal; regardless of age, gender, democracy and race.
However, the stresses placed on a human being to be an entrepreneur are immense. Those stresses can trigger and exacerbate many mental health issues.
All of humanity can be triggered to go off a cliff, it doesn’t matter if you have mental health issues or not. Everyone has a breaking point. If you have mental health issues? The edge of the cliff- the closeness of that breaking point- comes towards you. The more mentally healthy you are? The further that breaking point- that cliff- is away. You can deal with a herculean amount of problems before you hit your breaking point.
It does not matter how mentally healthy you are, I assure you that you will hit your breaking point as an entrepreneur- period. I am one of the most stable and mentally-healthy people I know (ish) and I’ve definitively hit my breaking point many times as an entrepreneur, to the point where I’m just sitting there like, ‘I don’t even know what to do next….’
I’ve hit my breaking point, and come close to going off the cliff but I’ve seen many, many people fall off- and the likelihood of falling off the cliff is parallel to their mental-health, and when someone falls off the cliff, it is a very bad thing. This is where you see suicides, alcohol and substance abuse, erratic and destructive behaviour…. It’s awful.
The hardships of entrepreneurship are real, and the disadvantages of struggling with mental health are real, and those two worlds are asynchronous. The challenges of entrepreneurship will trigger your greatest mental health challenges, and that can be a very dangerous combination.
There’s a fraternal relationship between entrepreneurs. They almost instinctively know when their peers are in trouble, and they rally around to help. I’ve dealt with tens of thousands of entrepreneurs, I’ve had people cry on the phone to me and I can relate to them- it’s tough.
Q: What would be your message to aspiring entrepreneurs?
[Adeo Ressi] You become an entrepreneur to pursue a vision and mission that you would do anything to achieve.
There are a lot of aspiring entrepreneurs in the world today who think entrepreneurship is cool, and will be a fun career. That’s not un-true for some people, but it’s more important that you have a vision and mission you believe in if you want to succeed.
I would urge people to spend time to think about why they want to be an entrepreneur.
You can’t have a good ‘what’ unless you have a good ‘why.’
When you get to your ‘why’, you can do amazing things.
Originally published in British Airways Business Life.