Sandbox stories are a collection of posts about Sandboxers and their visionary work. Sandboxer Bjoern Lasse Herrmann and Max Marmer published their Startup Genome Report on Saturday. It gives an invaluable insight into the genomic success structure of Internet startups. It’s also remarkable pioneer work that will hopefully set off a wave of similar research projects to discover more patterns which exist around us. Here are their seven signs of failure to look out for when you build an Internet startup. Download the report here.

Two months ago we set out on a mission to crack the innovation code of Silicon Valley and share it with the rest of the world.

1. Not Working Full Time

If you decide to start a company don’t do it half-hearted. Creating something from nothing is hard. Succeeding almost always requires going all in. Temporary moonlighting is permissible but significantly curbs performance and potential.

Many times we hear people say they will work half time until they have raised money. Here you can see that people who work half time are able to raise money, but about 24x less than founders who go full time. They also have trouble building up the intensity required to drive the user growth needed to validate interest in their product. Working full time is especially critical for startups with a product that requires critical mass to be valuable.

2. Solo Founder or 4+ Founders

If you make the commitment to go full time your first big challenge is to convince someone else to join your company who will fully commit to making the company successful. If you can’t convince at least one person to join you, or you believe you can do it all yourself, it is a strong signal that company isn’t likely to succeed. However, trying to find safety in numbers by having too many people to join the founding team doesn’t turn out very well either. The right number seems to be a founding team of two to three people.

3. Don’t Have A Technical Cofounder

If you start a technology company and nobody on your team is technical you are unlikely to succeed. Unless the company is in a very sales intensive market the founding team should be at least ⅓ technical, 50% ideally. However, too many cooks in the kitchen are not good either.

The first problem you have by not having someone technical as part of the founding team is that you do not have anyone who has full ownership of the product. The business founder doesn’t own the product because they don’t understand the code and the employees or consultants don’t own the product because the company is not theirs. As a result companies with no technical cofounder are almost twice as likely to scale too early. They also have 3-5 times less user growth on average and need 7-8 months longer to reach the scaling stage.

4. Wrong Founding Team Composition for the Wrong Type of Startup

Once you’ve found your team, you should make sure to tackle a market and build a product that suits the strength of your founding team.

We identified three major types of Internet startups with various sub-types. They are segmented based on how they perform customer development and customer acquisition. Each type has different time, skill and money requirements.

The Automizer (Type 1)
Common characteristics: self-service customer acquisition, consumer focused, product centric, fast execution, often automize a manual process.
The Social Transformer (Type 1N)
Common characteristics: self service customer acquisition, critical mass, runaway user growth, winner take all markets, complex ux, network effects, typically create new ways for people to interact.
The Integrator (Type 2)
Common characteristics: lead generation with inside sales reps, high certainty, product centric, early monetization, SME focused, smaller markets, often take innovations from consumer Internet and rebuild it for smaller enterprises.
The Challenger (Type 3): large but rigid markets, strong sales, enterprise market
Common characteristics: enterprise sales, high customer dependency, complex & rigid markets, repeatable sales process.

These graphs show business heavy founding teams are more likely to succeed with a startup that requires enterprise sales, whereas technical heavy founding teams are more likely to succeed with a self-service consumer Internet startup. Balanced teams perform well with all types of startups except those that require a lot of enterprise sales.

For example, in our data set, 35% of business heavy founding teams were doing Type 1 “Automizer” startups before product market fit. But after product market fit only 12% of the business heavy founding teams were doing Automizer startups. This decrease indicates that business heavy founding teams do not do as well with Automizer startups.

5. Don’t Pivot at All or Pivot Too Often

If you have finally found the perfect founding team and a product and market suited to your team’s strengths, your next big challenge is having the determination to make your vision a reality while being flexible in how this achieved. The chances that you will need to modify some significant aspect of your business is very high. When real world feedback shows you that something isn’t working you need to adapt. However, changing your business too frequently will leave you running in circles. We have found
that founders who pivot 1-2 times have 100% more user growth and are 48% less likely to scale prematurely. (We told founders to consider a pivot a major change in their business).

6. Don’t Listen to Customers

Pivoting is almost always a decision that is made with incomplete information and under conditions of extreme uncertainty. But taking the time to gather feedback by interacting with customers significantly increases the odds of making a good decision. We have found that startups that track their metrics and listen to customers have 400% more user growth.

7. Scale Without Validating Market

Lastly, one of the most critical mistakes we found is that founders get too anxious about making progress and scale their company prematurely, before validating their market and streamlining their customer acquisition process. If they have raised a lot of money or have a lot of determination the result is typically a slow death. If they have neither then a speedy death is likely.

Following are a number of graphs that show that startups that scaled after product market fit raise 3.2x more money, and have 1.5x more user growth. Interestingly, startups that scaled prematurely had been working just as long as startups that scaled appropriately.

Find The Startup Genome Report’s 14 key findings here.

Innovation in higher education (post-secondary education) is a hot topic amongst entrepreneurs today. There number of businesses are trying to capitalize on shortcomings in the existing system, whether it is by improving the quantity and quality of learning material available (the Kahn Academy offers a large variety of tutoring videos) or by implementing new interactive learning techniques to tackle familiar standardized tests (Knewton prepares individuals for the SAT, GMAT, LSAT etc.). While these companies may improve upon some of the flaws in the existing system, they still are not disrupting the core of education today.

The education revolution does not rely on the use of technology to embellish the system that we already have in place. Rather, as Sandboxer Michael Karnjanaprakorn states, we need to “flip the traditional notion of education on its head and revolutionize learning.” In his article, Why College is Overrated, Michael asserts that a college degree does not necessarily lead to success in the form of higher paying returns, because not everybody attends an elite institution. For the average individual, cultivating high-quality skills through real world experience makes them a far more attractive candidate in the job market. This is why pioneering startups like Supercool School, founded by Sandboxer Bjoern Herrmann, Udemy, founded by Sandboxer Gagan Biyani, and Skillshare, co-founded by Mike Karnjanaprakorn, are the ones triggering systemic change. They are building platforms that seek to add value to human capital by enabling people to learn any skill, from anyone.

In a world where the borders between learning, innovation and work are shrinking rapidly, these startups have realised that “the new education market will be deeply ingrained into the evolving social ecosystem of massive knowledge sharing, collaborative work and online communities” (full article). This means that the education market will become less and less distinguishable from everyday work and communication, and more geared towards people who learn through practical experience. Educational content will be digitalized in real time and may, in part, be accessible for free. Moreover, it will be embedded in a social context, so that individuals who wish to teach will be able to do so as easily as others are able to learn. The end result will be the creation of a global learning community that fosters entrepreneurial spirit and encourages individual initiative.

« Back to the Six Themes overview

Entrepreneurship has changed. While companies used to be started by Bill and Steve in their garages not too long ago, today’s young companies are more frequently born out of incubator programs, where several teams with an idea live, work and develop their ideas together in the same place over the course of several months.

It seems almost as if Bill’s garage has been turned into a factory. Incubation programs run on a structured process how to turn an idea into a market-proven product. The factory’s ingredients are simple: select promising ideas at early stage, bring a variety of projects together at the same physical place, create a social experience so people build friendships and can learn from each other. Support the innovators with advice from experienced entrepreneurs and create connections to press, buyers and investors. At the factory, some ideas will die, some new ones will be created and at the end a surprising number of viable new companies will emerge and continue their lives outside the factory.

The programs are not just useful for the future Bill and Steve. The mother of all incubators, Y Combinator, is based in Silicon Valley and has been developed by investors to produce Internet startups at rapid pace. The organizers behind incubation programs invest a relatively small amount of money into their selected projects and get a share of the company. After going through startup boot-camp, young companies have a higher chance of survival and success than they would have otherwise. Y Combinator shows that incubation is potentially a valuable way of making a lot of money. The well-known Internet entrepreneur and blogger Jason Calacanis recently stated in his newsletter that, “the data is clear: tech accelerators are creating massive, marketable value. They’re stepping into a huge gap left as higher education gets more and more out of sync with the dynamic, and sometimes even spastic, global markets.”

As the incubation model becomes more proven it is being replicated allover the world, and not only for Internet startups. Sandboxer Teju Ravilochan has created The Unreasonable Institute, which uses Y Cominbator’s methodology, but focuses on ventures with social impact. After their six week intense program in Boulder, Colorado, the chosen startups have grown, gained exposure, experience and focus. The Economic Development of New York launched a fashion incubator for rising designers, as well as a culinary incubator, more recently, to help people with restaurants scale up their operations. The famous design school Pratt opened an incubator for sustainable innovation.

Incubators are popping up so quickly in various industries across the globe that some call it a bubble. Time will tell which industries the incubation model pays off for, if any. However it seems worthwhile to point out the potential that this approach offers the corporate world. If you can coach innovators in a big house to develop new technology products, couldn’t Nestle do the same thing within their range of products? What about if the Red Cross would host internal and external innovators for six months to further improve their services? In 2009, Sandboxers Hans Raffauf and Mathias Holzmann pioneered this approach through Palomar5, which was sponsored by Deutsche Telekom, the largest telecoms provider in Germany.

Incubation offers a protected environment to experiment, fail fast, learn from people who have done it before and share experiences with people in a similar situation as yours. As New York VC Fred Wilson says, “you get the benefits of scale without having scale yet.”

« Back to the Six Themes overview

Social media, the web 2.0 – whatever you want to call the fundamental change in the Internet landscape in the last 6 or 7 years – is not news anymore. In fact, looking back it is astonishing how quickly many of these online platforms have become deeply ingrained in our daily lives. Does anyone remember the time we didn’t have a Like button for stuff? This rapid rate of adoption also means that the social media (we really don’t like the word) is quickly maturing. While there are still a lot of interesting startups emerging, the big players like Google, Facebook or Twitter will most likely stay very dominant in the near future.

The most important development in this space last year has been location. A couple of years ago, users immersed themselves in virtual worlds like Second Life. Today, the widespread adoption of smart- phones means that location has become another data point. Location- based services like Foursquare or Facebook Places are at an early stage, but already demonstrate the huge potential. The augmented- reality browser Layar is another example of how location ultimately will lead to the real and digital worlds coming together. This is why we like to think of social media as an infiltration rather than a revolution.

Another trend we have identified social media that has growth potential is digital intimacy. A year ago, we had argued that creating and maintaining meaningful relationships is becoming increasingly important. Now, we feel like that there might be a sense of over- sharing and a need to interact digitally with smaller, more intimate groups of people. Consider the recently launched photo-sharing app Path, which only lets you share your pictures with 50 selected people. This does not mean that people will not be on social networks anymore. It also is not the often talked about privacy backlash that is still waiting to happen. It simply means that users will start to fragment their interactions online, depending on the group of people they are talking to. For Facebook, the currently dominant social network, this means that it will have to give its users even more fine-grained control over which content is shared with whom. The increased need for digital intimacy will definitively make clear that social media is at its most powerful when it is not thought of as a mass medium (which it is not), but as a tool to interact with smaller and more tightly knit communities.

« Back to the Six Themes overview

We have gotten used to having access to anything, anywhere, at any time. While limited access to products and data used to be a problem, today we are faced with too many choices to actually make sense of them all. Unlimited choice has in many cases overwhelmed rather than empowered people. If there are thousands of products to choose from, many people are happy to opt for a carefully selected recommendation made by someone else, rather than try to make an uneducated guess about the right article. Carefully made limitations of choice open up new business models in many industries and media channels. We call it curated scarcity.

We have been provided with shopping recommendations, especially on the Internet, for a long time. So what is it that separates curated scarcity from the suggestions we get on Amazon? Until now, websites have tracked our previous purchases to provide suggestions for future purchases. We have also been able to read the product reviews of earlier shoppers. Curated Scarcity makes things more personal. Passionate experts leverage their knowledge by choosing the right products and creating stories around them. It is the multi-media equivalent of walking into an enormous clothing store and have an experienced tailor recommend his favorite pieces to you.

Curation works across different media and target audiences. Sandboxer Maria Popova runs the successful blog and newsletter Brain Pickings which presents the most inspiring stories on the web. They spend “450+ hours a month to curate and edit, between the blog, the newsletter and Twitter.” The innovation blog Cool Hunting curated a pop up store for Gap last December, selecting local products from independent companies in the New York area: “Our editors hand-picked each item using the same principles—innovative design, artisan craftsmanship, social and environmental consciousness —that attract the site’s following of over 700,000 monthly readers.” Urban Daddy targets urban male professionals and curates a daily email that highlights,”the single thing you need to know every day about your city.” They strive to recommend highly relevant products, events and stories: “We start from the premise that there’s a lot of noise out there when it comes to your city—poor recommendations, shills, plants, promoters, liars, enemies, and exes. Our goal is to be your friend. The kind of friend who knows everyone [...]. And the kind of guy who lives to share the wealth.”

« Back to the Six Themes overview

Who hasn’t heard stories about the lack of collaboration and silo- thinking within large organizations? Why is it so hard for people in finance to collaborate with the folks in sales?

In order to address this problem, large organizations are looking to learn from online communities. With the help of the Internet, people have gathered in millions of communities to exchange ideas, build relationships with strangers, collaborate and drive a common cause forward. If this works on the web, it should also work in large organizations.

An increasing number of companies are leveraging this fact by exploring how they can build meaningful communities internally: networks where people trust each other and get things done. IBM runs over 1800 internal communities with approximately 500’000 employees worldwide. By building corporate communities, companies enable their employees (and possibly other stakeholders) to communicate across geographical and structural borders (like hierarchies and departments). Community building leads not only to a better knowledge flow and increased coordination. It also spotlights innovations from within, creates more trust among employees, and therefore contributes to a better corporate culture.

Corporate communities, we believe, are solving a few of the problems large organizations are often facing, and they are bound to become even more important. This creates a whole new area of expertise: professional community management. While corporate communities can be partially self-organizing, community managers are needed to select the right people, promote diversity, enable decentralization and provide a framework for collaboration within the community.

« Back to the Six Themes overview

Online digital media usage is moving up the Maslowian hierarchy of needs. Until now, most web tools have focused on enabling new forms of communication, connected to the human needs of love and belonging and partially self-esteem. Facebook, for example, enables us to foster new friendships and strengthen old ones. However, as the online space matures, we see more applications trying to fulfill the higher needs of achievement, morality, creativity and problem- solving. Web tools have given us the ability to take on small, yet tangible, responsibilities. Individuals can contribute time, money and other resources to causes that they consider worthwhile, raise awareness and funds for projects that they are working on, and take initiative to help in the case of a global crisis.

The Internet has increased people’s willingness to collaborate with, or even financially support, complete strangers, when united by a common cause. Kickstarter uses crowdsourcing to give people the power to fund creative projects and ambitious endeavors. IfWeRanTheWorld is a real-world experiment in tapping good intentions and turning them into tangible, do-able micro-actions that anyone and everyone can help with. Ushahidi has made it their goal to create the simplest way of aggregating information from the public for use in crisis response. The Ushahidi Platform allows anyone to gather distributed data via SMS, email or web and visualize it on a map or timeline.

It remains to be seen how much impact shared micro-responsibility will have. After all, there is a difference between clicking the Like button on Facebook and actually taking the initiative to further a cause. However, as the phenomenon persists, more sophisticated tools are emerging that better allow us to rally people and channel their energy into effective outcomes. It will be exciting to see if micro-responsibility can also be used address longer-term issues which do not necessarily get significant media coverage.

« Back to the Six Themes overview

At Sandbox, we’re fortunate to interact with some of the world’s most inspiring young innovators and visionaries on a daily basis. As our community grows across the globe, our passionate members are constantly pushing the boundaries of entrepreneurship in a wide range of disciplines, both through ideation as well as the capacity to transform these ideas into tangible projects. By observing patterns within our community and studying trends of our clients, we identified six major themes to look out for the coming years.

1. Shared Micro-Responsibility

The Internet has increased people’s willingness to collaborate with, or even financially support, complete strangers, when united by a common cause.Web tools have given us the ability to take on small, yet tangible, responsibilities. Individuals can contribute time, money and other resources to causes that they consider worthwhile. » Read More

2. Corporate Communities

An increasing number of companies are learning from online communities, and are exploring how they can build meaningful internal networks where people trust each other and get things done. We believe community building leads to better knowledge flow, spotlights innovation and contributes to a better corporate culture. » Read More

3. Curated Scarcity: The Solution to Filter Failure

We have gotten used to having access to anything, anywhere, at any time. While limited access to products and data used to be a problem, today we are faced with too many choices to actually make sense of them all. As a result, carefully made limitations of choice have opened up new business models in many industries and media channels. We call it curated scarcity. » Read More

4. Digital Intimacy

A year ago, we had argued that creating and maintaining meaningful relationships online is becoming increasingly important. Now, we feel like that there might be a sense of over- sharing and a need to interact digitally with smaller, more intimate groups of people. We think users will start to fragment their interactions online, and will want even more fine-grained control over which content is shared with whom. » Read More

5. Incubation

Entrepreneurship has made it to the assembly line. While companies used to be started by Bill and Steve in their garages not too long ago, today’s young companies are more frequently born out of incubator programs, where several teams with an idea live, work and develop their ideas together in the same place over the course of several months. » Read More

6. Innovation in Higher Education

The education revolution does not rely on the use of technology to embellish the system that we already have in place. Rather, as Sandboxer Michael Karnjanaprakorn states, we need to “flip the traditional notion of education on its head and revolutionize learning.” » Read More

What do you think?

We would love to hear your take on the Six Themes – let us know in the comments, or shoot me an e-mail!

You can also download the Six Themes as a PDF. And be sure to check out the first version of the Six Themes, which we released in January 2010.

…and a big thank you!

These themes are the result of a collaborative effort. We’d like to thank everyone in the Sandbox community for their time and contributions. Special thanks to Thierry Blancpain for his great design!

The proposed network for internet access will fill in the coverage gap with a constellation of micro-satellites, ground stations, and end user devices. The idea is not new, but their perspective is, information can no longer come at a cost. The end result would be astounding: 5 billion disconnected people will have equal access to a ubiquitous, free, and reliable information service. Can you imagine a future where everyone on Earth has a voice?

As of 2009, 83% of the world is literate, and another 79% has access to electricity. These two factors are all that is required to make use of an information service. Unfortunately only 25.6% of the world has internet access. Kosta believes that every human deserves the right to make improvements to their condition by utilizing the great breadth of human knowledge available on the internet. After all, the future of a sustainable world depends on responsible decision-making made by a well informed human population.

By enabling 5 billion people with access to information tremendous improvements will be made in the following realms: resolving the information disparity, providing disaster relief, facilitating remote education and remote medicine, as well as encouraging democracy.

So what’s the plan? A Human Right is already working closely with NASA Ames, and an Australian company which has already started a satellite design to meet the demands of this project. Low cost satellites, inexpensive ground stations, and an end user device that turns into a wireless hot spot wherever it is set up, are all parts of the system they are designing. A pilot study to test new business models around this idea is currently underway in Nairobi.

While they have already built a global team of volunteers, donors, companies and advisers who are all pitching in, A Human Right is constantly looking for new partners to involve themselves. The beauty of this project is that it is all about connecting people all over the world. If you believe you can contribute, reach out to Kosta.

“In my dream job I’ll have day-to-day variety, I’ll see ideas become reality, I’ll work with great people, and I’ll have tangible impact on the success of interesting projects.”

Over the past two years, we have been observing members of the Sandbox community, the jobs they choose, the way they work, the companies they start. We have been the witnesses of a rapid change in the the wishes and priorities of the younger generation of leaders with regard to their job. To better define this change, Paul Gleger – who works with us from New York – has recently conducted a study about the future of the workplace involving a panel of Sandbox members and HR leaders.

At the last LIFT conference in Geneva, I had the privilege to give a workshop about the future of corporate culture and although the study is not finished yet, I presented the first results in the form of six bold trends that stood out of our first analysis. All of them go into the same direction: people are always less interested to work for large organizations that don’t have a human face.

It doesn’t mean that they don’t want or like to work: at the contrary, Sandboxers are among the most driven people there are in this world. It just means that they feel the need to develop new approaches to make work more efficient and more fun. It is amazing to watch the change happening right now because of them in many start-up companies and in some bigger organizations. We believe that these trends will have a major impact on how we will all work in the future.

More meaningful work

The first and major trend cited by almost all participants to the survey is that they want work to be more meaningful. They want to feel that they have an impact. Organizations can improve that by more levels in strategy making, but even more importantly by defining a core mission, a bold mission statement, that truly inspires the employees. Then, they can help employees understand how their projects help achieve their vision and how through their work, they contribute to impact the organization and further, the world.

Genuine corporate values build trust

Sandboxers want genuine corporate values, that match the reality. How to define these values? Several startups have written a manifesto, check out the Holstee manifesto. By having everyone agree on common values, you create a family feeling between the employees. How to make sure that your employees share your values? It goes through defining them collaboratively, hiring – and maybe also firing – in consequence.

Trust allows to give more freedom

As a result of having strong values shared by everyone in the organization, you can trust your employees much more and give them more responsibilities:

- Netflix lets employees decide of their own holidays
- The German magazine Brand Eins mentioned recently an example of a company where employees even decide on their own salary!

Intrapreneurship rules

“Resistance to change and innovation is very frustrating – especially when the changes I propose would save money and time.”

Young leaders want their ideas to be heard. How to empower intrapreneurs?

- create the right climate (no fear of failure, no judgement)
- you have to give your employees the tools, ex. Google’s 20% rule

From top to bottom to horizontal organizations

The way organizations are built, and maybe also their size, might change in the future.

Today, all big corporates are built from top to bottom. In the future, we will witness the arrival of more horizontal structures:

- with small, specialized teams
- that come togehter project-based
- that are inspired by the way web applications work

Think of Wikipedia for example: large amounts of great work have been done without a strong central hierarchy.

Constant rewards

Last thing we observed: the need for constant and instant rewards. Young leaders need to feel progress and to receive recognition for their successes. How to go into their direction? By changing the promotion system: more, smaller promotions instead of big steps forward.

Antoine is a Co-Founder and the CEO of Sandbox. The big trends cited above are the first results we derived from the Sandbox HR study. The study itself will be published in the next weeks.