The rise of modern startup incubators and accelerators is often attributed to Paul Graham's launch of Y Combinator (the original home of Dropbox, Airbnb, Zenefits, Stripe, Instacart, Quora, Twitch, and literally hundreds more) in 2005. The 13 years that followed saw the launch of more than 1,000 incubators and accelerators across the globe. Survival rates for startups that have come out of incubators are reported as high as 92 percent. These businesses are far more successful at raising investment capital and they're also likely to generate more sales.
In 2010, Ryerson University in Toronto, Canada (colloquially known as the Babson of the North, or Canada's Home to Entrepreneurship) opened its incubator, DMZ. Eight years later, it has supported more than 500 founders and 330 startups. Ventures from the DMZ have raised more than $400 million in capital and created more than 2,500 new jobs. This year, the DMZ is ranked the number one university-based business incubator in the world by UBI Global.the
I was privileged to be around at the beginning. Over the years, I have served on the DMZ board and the selection committee, and I have mentored dozens of founders and helped fund dozens through its seed fund, Ryerson Futures. So after eight years, what have I learned from the world's best university-based startup factory? Here are my top eight takeaways.
1. It takes a village.
They say it takes a village to raise a child. The same is true for startups. Yes, the founders are the driving force, but peer support, access to shared resources, and critical mass all help raise the "startup child."
2. Your idea isn't perfect.
You must accept the notion that your startup is a dynamic, living, evolving creature. This will allow you to pivot along the journey. Founders who view their startup as being fully awesome from the beginning tend to see their ego get in the way of success.
3. Doing always trumps planning.
Plans, strategies, and assumptions rarely survive first contact with customers. Launch early and listen intently. Let customer insight guide your development.
4. Funding takes traction.
The days of funding a business on a back-of-napkin plan are long gone. Today, investors want to see traction. In the dot-com boom, proof of concept was "I turn on the light switch and lightbulb goes on." Nowadays, proof of concept has evolved into "I turn on the light switch and someone will pay me to read under the light it generates." Today, even angel investors want to see evidence.
5. Experiment, fail, learn, repeat.
Since 2008, the Lean Startup methodology has driven the success of startups like Uber, Airbnb, Dropbox, Spotify, and thousands more. At the heart of that strategy is the scientific method. Instead of relying on founder assumptions, entrepreneurs now run low-cost experiments to prove assumptions. When those fail (and they often do), modern entrepreneurs see these failures as a powerful learning experience.
6. Pivot or perish.
Pivoting occurs when a startup changes one of the nine elements of its business model (like customer segment, revenue, or unique value proposition). By pivoting, entrepreneurs abandon assumptions that don't work (e.g. "our customers are women aged 24-40") and pivot to new positions ("our customers are women aged 50-75"). Failure to pivot often leads to the death of the startup, since it runs out of resources before it finds a sustainable, repeatable, scalable business model.
7. One ratio to rule them all.
Modern startup theory teaches that in order to scale your startup, the ratio of lifetime value (LTV) divided by the cost of client acquisitions (CAC) must be huge. Or, in plain English: the key to becoming a great big profitable startup is to spend as little as possible to onboard new users, while simultaneously establishing multiple ways to monetize those users. The greater the spread between LTV and CAC, the more scalable you are. (For example, each Google search costs less than penny, but all search results contain Adwords, which can make the company dollars.)
8. Saying no is the key to success.
Most startup founders live in such chaotic uncertainty that any offer of support or customer revenue is seen as desperately needed. But that often backfires. By not being tightly focused, and by taking on relationships that take away from your startup's unique value proposition, you can overcommit resources and shorten your runway. The best founders stick to selling their value proposition and finding customers who resonate with it.
Over the last eight years, the startup scene has continued to evolve. And Ryerson's DMZ continues to evolve in parallel pivoting on what does not work and doubling down on what does. I for one, can't wait to see what comes next. After all, the best is yet to come.