Five things a VC wants you to know about network effects

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Five things a VC wants you to know about network effects

This is why the DMZ recently jump started its monthly investor series, Capital Catalyst, to help entrepreneurs maneuver through the current fundraising environment. Our first official session was on network effects. Often underutilized or not carefully executed, network effects are a key component in what venture capitalists look for when considering whether to invest.

It’s important for entrepreneurs to fully grasp what network effects are and how to gain them positively, especially from an investor’s standpoint. Network effects are straight forward: increases in usage lead to direct increases in value. And although it may seem like an obvious component in developing a successful company, many entrepreneurs are missing some key details.

This is why we invited Angela Kingyens and Boris Wertz from Version One Ventures -a $35 million fund that backs startups across North America- to break down the layered concept of network effects, how to best utilize them to grow a business and more. We’ve broken down the top five takeaways from the session:

Have a strong founding team According to Version One, it’s the combination of domain expertise, talentand passion that makes a strong founding team. As a founder, you need to have the knowledge and experience within the market you’re tackling, have the talent to execute those plans efficiently and of course, exhibit the passion and drive to build and scale your company.
Leverage network effects The basic concept behind network effects is that the value of the network increases the more users you gain. As a result, your company is able to build momentum and create shields against new potential entrants into the market, and those larger existing rivals. Companies that sufficiently and positively use network effects to their advantage are what Version One Ventures is looking to invest in According to Version One Ventures, network effects can be unlocked by connecting people and through data at scale. A great example of such effects is Uber: the more drivers they onboard, the more ground they were able to cover, the more pickups they were able to make (simultaneously driving wait times and pricing downwards), leading to faster pickups and increased number of users, which in turn lead to a greater demand for more drivers. As you gain more users and the value of your product/company goes up, you’re then able to build a better market strategy and scale your business in different directions using the data.
Use the bottom-up approach The bottom-up network driven approach targets the user base first, as opposed to the traditional approach that targets the larger clients at the top first. This gives your startup a better understanding of the market, validating your product, as well as giving you leverage when targeting the other side of the equation (the larger companies/clients).
Target a market that people care about Version One highlighted that they’re ultimately seeking companies that are targeting a market in high demand (and relevant). At minimum, this early-stage fund is looking for a startup that has minimum viable product (MVP) with the potential to grow on a global scale.
Solve an important problem in a unique way Last, but definitely not least, Version One (like many other investors) are looking for a startup that is able to stand out from the vast number that flood the tech industry. Therefore, it’s important to provide a one-of-a-kind value proposition and solution.

Innovation in education: Why Canada needs it now more than ever

Global Entrepreneurship Week is the largest celebration of innovators and job creators, aiming to raise global awareness about the benefits of becoming an entrepreneur.

From small towns to big cities, entrepreneurs all over the world are creating an economic and social impact that continues to improve the livelihood of millions. How so? Small street vendors in Bangladesh are introducing mobile payment and microfinancing into their businesses. Right here in Ontario, we’ve reached our highest level of women entrepreneurs and a much more equal distribution of startup founders across age and income groups.

With entrepreneurship becoming more opportunity-motivated, people around the world are finding ways to create, build and share their innovative ideas. If this is turning into our new normal, are we doing enough to make sure that our youth are equipped with entrepreneurial skills at a post-secondary, high school or even elementary school level that reflect the needs of our modernized job market? A key piece to our future generation’s success is missing from the majority of our K-12 classrooms – entrepreneurial and innovative education. It’s never too early to encourage youth to think with an entrepreneurial mindset. And in order to drive change to the curriculum, it takes key players, from government to school boards to private sector to veteran entrepreneurs to get involved. This is what my next piece in the Huffington Post delves into. Read about next piece in the Huffington Post.

The four pillars to make sure your startup stays on track

Dave Chalmers, an Entrepreneur-in-Residence at the DMZ, helps startups with growth, operations and strategy.

Building a tech company is a pressure filled experience that requires founders and their employees to have a great work ethic, be multi-talented and open to change, all while executing against sound business fundamentals. Often founders look to the billion dollar unicorns for inspirational and guiding examples for what business methodology they should consider following for their company in the hopes of finding a path of least resistance or a proven path to success. In reality, there are a multitude of potential business blueprints that can provide founders with guidance and insights with respect to how they can structure their organization, build their teams or establish their go-to market strategies/

Here are four important attributes that will help startup CEOs and founders establish a strong foundation from which to build their team, their marketplace and their company.

Time management

For tech founders, one aspect of time management that is often overlooked is attending external events (invitations aplenty for entrepreneur meetups, speaking engagements, you name it) whereby there are no strategic initiatives attached to the event that correlate with the corporate goals. Often founders talk themselves into the value proposition by remembering the great connections that were made, the branding/exposure their company received, the wonderful speakers that they heard, or the size of the audience that they had a chance to be a panelist in front of. But it’s important to take the time to properly gauge the value of every event by properly considering the amount of time required to support going (travel, costs, preparation required, total time out of the office, etc.) and what that means from the perspective of lost productivity. Your time is valuable, and you’ll never get back the hours you dedicate to external events – so make them count.

Detailed planning

You have a talented team, or maybe you are the talent. You have the hustle, you’re serious, you dedicate long hours, you have MVP established and you have the personal aptitude to do amazing things. Most companies that are well poised to take the next step in their corporate maturity and revenue growth also have one additional ingredient that they leverage as their secret weapon: a go-to-market plan and strategy. It’s a plan that is succinct, clear in action items, built on (the right) measurable goals and that can be tracked. Everyone at the company knows who’s accountable for which pieces, like who’s going to drive client engagements and secure revenue. The plan helps to set in motion a framework that you can edit, pivot and benchmark success against. Don’t be afraid to build and execute simultaneously. The market doesn’t wait for those who are slow to perform – don’t let others out-execute you or your company.

Measurable goals

Once the plan is created and your team is engaging with clients, driving traction and working towards closing revenue, it’s very important to have structure as it pertains to corporate milestones, goals and objectives. This can help measure success, build team alignment and chart the course for corporate strategy to determine which pivots or tweaks need to be made to your go-to market plan. Information is king and the more you have, the better your measured strategy will be. Your goals should cover a very defined view of being specific, measurable, achievable (debated depending on your level of aggressiveness), relevant to the company and narrowed to a particular time frame from the standpoint of them being yearly, or quarterly or monthly goals. In the view of emerging tech companies, often quarterly goals (broken down monthly) help to produce very focused and ultra aggressive seven day ‘sprints,’ which can be extremely effective for combining planning, execution and measuring achievements within a short period of time.

Alignment of activities

Often overlooked as a strategic pillar within the day-to-day operations of a young tech company because of the ‘hustle’ and busy calendars that everyone has, aligning activities can often be the carbon monoxide of your calendar if you’re not paying attention. Meaning, most organizations equate effectiveness to their levels of activity. The person who makes the most outbound sales calls or who is able to send the most emails is clearly superior to everyone else in terms of speed and aggressiveness. Not so. Activity is nothing without the proper focus and discipline. Often startups CEOs and founders will begin their week with high hopes and big plans, having a functional strategy with goals and milestones in place that has them brimming with confidence. Then Friday afternoon hits and they do a quick review of the mountain of emails, meetings, calls and texts that were reviewed, sent and shared, and ‘the week that was’ ends up as ‘the week that could have been.’ All that activity didn’t align to anything, and unfortunately if there’s one thing that stands out above all the rest, it’s that startups don’t have the luxury of wasting time.

Committing to coast-to-coast innovation

Canada is charting a forward-thinking path; a path that fuels innovation and opens new opportunities for economic growth. And as we continue to grow, our prosperity depends on the progress of not just a couple cities, but every city and town coast-to-coast.

This past summer, I had the opportunity to travel to the east coast’s provinces of New Brunswick, Nova Scotia and Prince Edward Island. During my visit, I witnessed the work of several small, but impressive tech hubs that are fostering innovation – something that the east coast is establishing a reputation for.

A recent Entrevestor report shows that there are almost 400 startups in Atlantic Canada, including the likes of Proposify and Radian6, which was acquired by Salesforce – two examples among many in a vibrant Atlantic Canadian startup community. Because of the growing movement outside of metropolitan areas, our national startup ecosystem is developing, encouraging more diverse forms of innovation and empowering people throughout the country to express their ideas through tech.

As this continues, there is a clear effort from our leaders -in business and in government- to head bold opportunities for economic growth. But there should also be efforts made by tech hubs throughout the country to continue partnering with one another and create mutually beneficial opportunities and help Canadian companies scale.

Incubators like Venn Innovation in Moncton, Planet Hatch in Fredericton, Volta Labs in Halifax and Charlottetown’s new Startup Zone are strengthening the pathway to job creation and economic prosperity in the region. And the DMZ understands that partnering with emerging startup ecosystems like these will allow entrepreneurs to have greater access to national and international markets.

This is why we’re focusing on finding ways to better support the diverse and tight-knit startup sector in regions such as the east coast to continue growing and scaling Canadian companies that think globally, but are headquartered in our cities and regions coast-to-coast. By expanding our existing national effort in creating soft landing opportunities, staff exchanges, strategic knowledge sharing and other initiatives with tech hubs and post-secondary institutions, we’re not only creating strong ties among our national ecosystems, but helping each other become active producers of technological innovation that have a social or economic impact at home and abroad.

Canada has all the ingredients to be a global leader, which includes the talent, leading post secondary institutions and an incredibly supportive community. Our way forward relies on diversifying our efforts to support future generations of innovators in all provinces and territories. When this becomes a key component on a national scale, we will continue to see made in Canada startups become the best in class.

Six things to consider before hiring your first sales rep

Rajen, an Entrepreneur-in-Residence at the DMZ, helps startups gain sales traction and build high performing sales teams

Once startups land a few customers, they often face the point where they wonder: “As the founder or CEO, I’m the only person responsible for sales on my team. I’m thinking about hiring a sales rep because I just don’t have the time to focus on sales and I want to grow faster. What should I look for?”

While having a few paying customers is great (and I applaud you for getting there!), it doesn’t necessarily mean you’re ready to bring on a salesperson to scale for growth. Before you hire anyone, it’s important to ensure you’ve actually built out some type of working, repeatable process for getting new customers.

Here are six things to consider before making your first sales hire.

Are you ready to add distance between you and your customers?

The best part of being a founder running sales is that you can use every sales call as an opportunity to engage in customer discovery. As you try to bridge the gap between the product you’re building and the market you’re building for, outsourcing these conversations and customer interactions can be a huge crutch. The true risk here is that the impact of this can go beyond sales and into product development as well. As an early-stage company that’s still finding product market fit it can be a huge risk and can ultimately slow down your entire company.
Do you have a working sales process?

Have you actually built out a working sales process (even if it’s hacked together initially for 5-10 deals) that you can then hand off to a new sales rep? This doesn’t have to be complex, it can be a basic sales funnel, but there should be some type of consistency to generating leads and closing deals. The best way to check is to look back at the deals you’ve closed and map out this basic process, even if it is just on a whiteboard initially. If you look at your closed deals today and the process to find and close them looks totally different across all of your deals, then you don’t have a working sales process just yet.
Do you have measurement tools in place?

Have you put some measurement tools in place that allow you to effectively capture data on your deals, track your sales activity and monitor results? Having a CRM is typically just the starting point, and often, spreadsheets are used in the early days. This is fine when it’s just you as a founder, but before making additions to your team, invest the time in researching how to best use your existing CRM to monitor both pre-sales activity (i.e. lead generation, lead enrichment, opportunity progression, etc.) and post-sales results (i.e. revenue, onboarding process, engagement, etc.). You’ll need this to track your progress or else you’ll be flying blind when it comes to managing your new sales rep.
Have you set targets and realistic goals?

Have you set internal benchmarks for yourself (that you’ve actually been able to meet) that you can then use to define sales targets for the new sales rep? For example, as a founder, let’s assume you’re able to send 100 emails, talk to 10 prospects and conduct two demos on a weekly basis, knowing that you’re only spending 50 per cent of your time for sales. Then once you have a fully dedicated sales rep ramped up, your sales rep should be able to do twice your activity with 200 emails, 20 prospect conversations and four demos. There is a lot more to defining sales targets and sales compensation, but in the early days it’s particularly difficult when you have virtually no historical data. Every salesperson deserves being given realistic targets, and if done correctly, it can be a huge motivating factor towards sales productivity and growth.
Are you documenting?

Have you effectively documented the knowledge that you’ve gained on your customer’s pains, industry trends, and product value proposition? Is this documentation good enough that you can use it to teach it to someone with virtually zero experience in sales or your industry? It doesn’t matter if you’ve convinced the number one sales rep from your competitor to join your team. It’s imperative that once you make a sales hire, there is some type of structured training to transfer your knowledge over to them. Far too often, I see companies bring on a sales hire, do a bit of product training, and then just give them a bunch of leads to work. This is a recipe for failure. When making a sales hire, put your new teammate in the best position to truly succeed.
Thinking “sales” is actually a role

Do you actually know what you’re looking to hire for? Hiring a “sales rep” doesn’t actually mean anything because there are different types of salespeople suited to specific parts of the sales process. Are you looking for someone to help with lead generation? Or do you need help doing demos and closing deals? Does your licensing model even justify having a dedicated sales person? Before finding a solution, you need to have a clear definition of the problem you’re trying to solve for. This is just as true in building a product as it is in making new hires to your team. Know what the bottleneck to your sales growth is and then decide what you need to do (or whom you need to hire) to fix it.

The common theme is if you haven’t figured out all (if not most) of the above for yourself, then there’s a good chance you’re not ready to add a salesperson to your team. Any founder can learn some basic sales skills, and there is a tremendous amount of information available online to help you build out your initial sales playbook. You absolutely can do it for yourself. This will not only help you avoid making a bad sales hire, but it will also help make you a better sales leader when you’re ready to bring someone on in the future. Like most other items in a startup, build out your initial MVP, get it working and then start investing money and resources to make it better.

Are we celebrating Canadian entrepreneurs?

If asked to name a famous Canadian hockey player, the names Wayne Gretzky or Sidney Crosby may come up. If asked to name a well-known Canadian entrepreneur, it may take a bit longer to think of someone. But why is that?

My next piece in the Huffington Post delves into a survey conducted by Ipsos on behalf of the DMZ, which found that 40 per cent of Canadians can’t name one Canadian entrepreneur. Read my take on this and more here.

Swift health care is at the heart of this Toronto company’s plans

“The minute you make a nurse’s life easier is the minute you start to gain critical acclaim and support from that community.”

Traditionally, doctors, nurses and health-care professionals working in wound care management have been forced to manually study and describe patients’ wounds. This process is complicated by the fact that the wound itself can change rapidly and quick response and treatment is crucial to effective healing. As such, it is difficult for patients to get the care they can both trust and understand.

Fortunately, one innovative company has found a way to simplify and improve wound care management. Founded in 2015, Swift Medical aims to bring automation and standardization to visual health-care assessments on a global basis. Their latest product, Swift Wound, allows doctors, nurses and patients to easily measure and assess chronic wounds using their smartphone.

Using a phone’s camera, users can scan a wound and the Swift Wound app will detect and capture an image of the wound as well as measure the wound and provide details on its size, dimensions and shape. With additional assessments, users can visually and numerically examine exactly how the wound is changing over time. This information can then be viewed by a single user or team of users working within a medical facility.

“People could have these wounds for years and they would never go away,” said Swift Medical’s Founder, Carlo Perez. “It’s a problem that just shouldn’t be happening, and we’re passionate about making a change.”

But just how can technology, especially from within an app, actually improve wound care management – something that, until now, has been primarily a manual process?

“Ultimately, it means better care, faster care and more connected care,” said Perez. “For the patient, the most important benefit is that the clinicians that you’re interacting with actually know if you’re healing or not. It’s really scary to think that leading up until now they didn’t know, or rather they didn’t know in such a precise fashion.”

Perez and his team come from both medical and non-medical backgrounds.

“I think where we came into the medical space, we actually came at it with engineering first and foremost,” he explained. “We have clinical members on the team and we also have team members who have deep backgrounds inside of visioning and computer vision, and what we decided to do was apply that in as many ways as we could to various different challenges.”

It started with dermatology and quickly transitioned into wound care, something they realized was a much bigger problem. In fact, Perez says that when they looked into the statistics “it was 40 per cent error from one measurement to the next on average.”

With this knowledge and unsolved challenge in front of them, Perez says, “We had the skills and background to be able to solve it, and we had a clinical team that was absolutely insanely passionate about it and had been working on this for years.” The rest was history.

Now, Swift operates within a software as a service (SaaS) model – per-bed or per-practitioner, per-day, depending on whether it is being used in an in- or outpatient setting.

Current projections have Swift being used in thousands of facilities by the end of the year. Evidently, doctors, nurses, health-care professionals and their patients have recognized the benefits of Swift.

Looking forward, Swift Medical is in talks to enter into several exciting partnerships – including a recently announced relationship with leading North American electronic health record (EHR) provider, PointClickCare, powering their Skin and Wound app – and will also be introducing new technology to the Swift platform. In other words, this is just the beginning.

“We recently did a stage demo and had 1,500 nurses standing and clapping for what they were seeing on stage,” Perez said. “I think by and large Swift’s been received incredibly well and I think ultimately it comes down to the fact that this has been hard for them to do forever and now they can do it with not a $25,000 device but the smartphone in their pocket.”

From Europe to the DMZ: How three entrepreneurs made the most out of their summer in Toronto

In six years, the DMZ has given over 25 entrepreneurs from around the world an opportunity to learn the ins-and-outs of the Toronto startup community. This past summer, three entrepreneurs from Ukraine and Poland got to join our growing roster of international fellow alums.

The two Ukrainian startups – Adtena and Navizor— were graduates from 1991, the first non-profit incubator in Ukraine. They were offered their fellowships by Marie Bountrogianni, Dean of the Chang School of Continuing Education, in partnership with the Western NIS Enterprise Fund. Tutlo, the Polish-based startup, was recommended by the Warsaw School of Economics, a renown business school that Ryerson has been building academic ties with.

Learn a bit more about our fellow startups below.

Adtena, an online platform for managing advertising campaigns in Wi-Fi networks, which provides precise geolocation and customer targeting.
Navizor is a web and mobile navigation platform that allows users to analyze road conditions and plan driving routes.
Tutlo offers a platform for people to become a language tutor instantly, and offers students the ability to connect with native speakers at a lower cost.

What made you decide to apply to the International Zone Fellowship Program?

Andriy: We became one of the winners of a competition at 1991, an incubator in Ukraine, which allowed us to apply for the fellowship program at the DMZ. I’m here for the first time and it’s actually a great opportunity for us to develop our startup for the North American market.

Damian: Our startup is based in Poland and one of the main challenges for many local startups is that we concentrate on our domestic market instead of focusing on the global market. Being a part of the DMZ gives us an opportunity to look at our business from a different angle and to begin thinking about expanding into new markets. There are a lot of experts, mentors and advisors who are able to give us unique advice.

How has your DMZ experience been so far? How has being here helped or influenced your business?

Andriy: It’s great. I made new connections, new friends. I believe it’s helping us develop our business plan and make partnerships – that’s why we’re here and I hope it will continue to be a great experience for us.

Oleksandr: It’s an amazing place. The DMZ is where you can make connections or meetings with any mentor you need and any company on the market. It’s amazing and it’s easy to reach anyone in executive positions I’ve conducted some research already and I’ve learned a lot.

Did you set foot on any tourist attractions in the city?

Andriy: Yes, I visited the Toronto Island with one of my friends from Ukraine. There’s a campsite on the island. So, we made a campfire, ate marshmallows and looked at the Toronto night sky. It was really great. I also visited Wonderland. I rode the crazy rollercoasters. It was pretty cool.

Damian: I prefer sightseeing on a bike so I rode my bike around downtown. I haven’t been to the CN tower… so I plan to go there.

Did you learn anything about Canada that you never knew before?

Andriy: I really do love the natural parts of the city, because downtown is very big, and very crowded. But when you go maybe half an hour from the city, it’s really different and there are a lot of beautiful places where you can just stay and relax. It’s a very beautiful country and I love it!

Oleksandr: It’s my first time in North America, so the first thing I learned is about the people. They’re so open to conversation anywhere, even in the street..

Damian: I really like that the people here are really positive and open-minded. I read that Toronto is a multicultural city, but I didn’t know it could be this multicultural. It’s great!

Toronto’s startup culture- a moment of truth

Startup culture has received a lot of attention lately.

As a certain type of culture has pervaded the public’s perception of the global startup community, it gives us the opportunity to see what we can improve on as we move forward not just internationally, but also on a local level.

As Federal Minister Navdeep Bains has said in the Toronto Star, we live in a “transformative period where our diverse… and welcoming society seeds innovation and entrepreneurship.” And as we continue to work towards success in the modern economy, there are several players, including government, which are critical to ensure that such cities as Toronto succeed on the world stage.

Incubators like the DMZ are a major stakeholder that have an integral part to play in the future of the startup community. As this community develops and matures, so must the incubators, accelerators and innovation hubs that help foster their growth. It’s important for the DMZ to continue to set higher standards when accepting startups because resources should be focused on those we know will create social or economic impact. And when accepting those companies, it’s important to develop programs that will not only provide hard skills needed to help them grow and scale into world-class businesses, but also those soft skills needed to be a successful entrepreneur. These skills range from engaging your audience with a compelling pitch to having the empathy to understand your customer. A lot of this has to do with being open to feedback. To rephrase what Rumsfeld once said, entrepreneurs know what they know, they know what they don’t know, but they don’t know what they don’t know. And that’s where places like the DMZ come in.

It’s also the job of an incubator to bring out the not so glamorous parts of startup life. As the startup community grows, entrepreneurs and incubators should not only share successes, but also failed attempts. Entrepreneurs need to share more than just the cool open bar events. We need to be open about the moments where our emotions run high. We need to share some brutal truths like the fact that many startups don’t see a dollar in revenue until six months to a year into working seven days a week, 16 hours a day. This is what people need to know about the real life of an entrepreneur.

So when we speak to aspiring entrepreneurs, let’s talk about more than just “being your own boss,” because it’s important to show that “being your own boss” is a double-edged sword. When that’s understood, we can create an ecosystem that doesn’t just have a growing number of players, but grows with quality players who know that building something truly innovative takes a lot more than just an idea. Let’s make the term ‘entrepreneur’ one that people strive towards and not just a label used after trademarking a business. And once we do that, we can separate the ones who are doing this for the right reason and the one’s that are performing in “entrepreneurial theatre”.

Currently, we have different types of people with different training and different experiences starting businesses in Toronto. And that’s a great thing. It’s also a point that we kept in mind when creating the DMZ’s advisory council. But as a community, we need to select those startups whose ideas have the best chance at success and whose people realize that there is a great difference between saying you’re an entrepreneur and actually being one. And there is an even greater difference between loving what you do and being obsessed with it.

The NBI in Fintech – Generating value for startups and banking

startups and banking

As our NBI in Fintech program draws closer to an end, we’ve connected with our friends at BMO to provide an update on our six startups who’ve shown tremendous growth with their innovations that are contributing to a more advanced and robust financial ecosystem in Canada.

Below is Cam Fowler’s, Group Head of Canadian Banking, BMO, take on our partnership and how the program is going so far.

This past April, BMO announced a new partnership with the DMZ. So why has one of the largest Canadian banks joined up with the leading university-based innovation incubator in North America? The answer is simple: partnering is an excellent way to bring the best experience to our customers.

Banks must continue to move quickly in a market that is adapting to digital capabilities. Customer expectations have increased and this introduces new opportunities and operating models. BMO has focused on empowering customers to bank how they want, where they want and when they want. We’re bringing customer-focused solutions to market more quickly than ever before.

So where do partnerships with groups like the DMZ fit in? First, we share a focus on supporting the entrepreneurial community and building momentum to make Canada a global leader in innovation. Through the DMZ we can stay current and be a part of helping fresh ideas gain scale. Together we have broader reach across geographies and industries through our joint strengths – ours in the financial services industry, matched with the technologies of these start-ups.

This is a partnership that benefits both our customers and community – we’re stronger together. Our collaboration will help us maintain pace with the evolving needs of customers and ensures that the next big idea gets the support it needs to become a reality.

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Five things a VC wants you to know about network effects

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