Startup Houston

Yesterday, Josh Tabin gathered the Startup Houston contributors to lunch at El Meson; the company and the food were both spicy and excellent (thanks, Josh!). Collectively, and individually, our goal is to help transform Houston into a dynamo of entrepreneurship.

Of course, the main discussion was about start-ups and the environment where they originate and grow – and what we could do to help. As in any conversation about start-ups here, the disappointing fact came up regarding how venture capital is so concentrated on the East and West Coasts (the Bay Area and Boston) and how Houston (and indeed Texas and the other 48 states) is ignorable fly-over country.

I’ve heard comments like that for a long time. And while is certainly true that the preponderance of venture capital and start-ups are both concentrated in those areas, stopping the conversation there, as often happens, isn’t constructive. It makes me think of frustrated bird-watchers looking for some rare scavenger species with a weird diet (e.g. start-ups that can’t live without vitamin VC).

The musing geek part of me is also reminded of Ostwald Ripening (Figure from Wikipedia). This describes process by which a large ensemble of small particles usually ends up as a small collection of large particles. It’s often an important issue in nanotechnology. You can see a very nice simulation of the process here (warning: big animated gif).

Ostwald Ripening Schematic

Here’s the point: is there some social or business process that makes start-ups diffuse to where the VC’s are? Maybe so – I need to ponder that some more. I’m pretty sure that it accounts for the old adage about the rich getting richer. Perhaps it also explains why there is more money in banks than laying on sidewalks, and why trash ends up in landfills (OK, maybe not on those two).

But back to the lunch discussion - of course, we got past the forlorn birdwatcher stage quickly. We all have particular perspectives about important growth factors.

Here’s mine: I think that start-ups come from combining customers with ideas in the presence of an entrepreneur. Now that can be an explosive mixture – fuel, oxidizer and spark. But I’m talking about real customers – live people you meet face to face that have real problems they’ll pay money to resolve. And real ideas – potential solutions that arise from some well informed knowledge about how things work – and how you might be able to make them work better. Of course, you can have a business idea essentially in a vacuum, but if you’re idea serves some faceless ‘market’, you’d better track down a real customer to vet it. And if you have a general idea for a better widget, you’d better find some technical specialist to validate the approach (or learn enough to do it yourself).

The rate limiting step is thus connecting customers with potential solutions. (I know it’s true for me – every time learn about the key problems in an industry, I come away with a year’s worth of ideas). Note that no money of consequence is needed for this. So far, VC’s are irrelevant. I reckon that a big reason Silicon Valley shines for start-ups is because there are a lot of ideas and a lot of customers in a small area. The staff churn out there (yuck!) probably accelerates the process, too. Note that most of the start-ups there involve electronics or software. In my experience, the initial barriers to entry in those fields are generally low and the costs to make or mock up a demo are pretty low, too.

I think that Houston has plenty of customers, and I know that there are lots of well-informed technologists here. So what’s missing? Two things come to mind – Houston is very spread out compared to Boston and the Bay Area, and our major industries, energy and health care, are capital-intensive monoliths. So the flux of entrepreneurial connections is lower, and the barriers to entering the market are fairly high.

The flux issue can be partially addressed by mixer conferences – like the Rice Alliance, BioHouston, Houston Technology Center and Startup Houston events. These are great; we need to grow them and multiply them. And generate some new meetings that are more technology/industry specific. The cost of seeding an idea is a problem if you’re going into energy or biotech, though. My general suggestion is to bootstrap aggressively by using SBIRs and STTRs and connecting with academic laboratories at Rice and the University of Houston. This approach allows you to get to the demo stage while you keep your day job. I’ll write more about that later.

I’d finally observe the obvious – energy is THE hot topic nowadays, and Houston is the world’s energy capital. So we have a big natural advantage and we really should exploit it. I’d note also, that there is an important new trend towards distributed energy - this means small granules of generation and storage at the point of consumption. Thus, some of the monolithic nature of the energy industry is getting deconstructed. This is a MAJOR opportunity for Houston entrepreneurs.

I hope to have a lot more to write about distributed energy in the near future – if you have stories, applications, events, etc. on this, please let me know.