Interview by Mike Sullivan
Hello, I’m Mike Sullivan. Thanks for joining us today on MO.com, where we feature small business owners and entrepreneurs and then bring you hits, tips, insights, and perspectives on what it takes to be successful. Joining us today is Troy Henikoff. Troy is a seasoned entrepreneur who has built many successful startups from the ground up. He’s the co-founder and CEO of Excelerate Labs, which is an intensive summer accelerator for startups driven by entrepreneurs and investors.
Troy, thanks so much for joining us today. Can you tell us a little bit about your background before we dig into the questions?
I’ll try to give you the short version. I’m a serial entrepreneur. I’ve built a bunch of companies all around technology. Bridging technology and business is my core skill and the thing that I like to do. So I’m as comfortable talking to the developers about object oriented design and sequel queries as I am talking to the venture capital guys about cash flows and balance sheets.
It started right out of school in 1986 with building network database applications. Day one I was lead developer, president, janitor, and everything in between because I was the only person working out of my basement. What was apparent was that in 1986 the PC was becoming a legitimate business tool, but there really weren’t sophisticated software applications. If you had a standard application, you could buy something off the shelf. But if you needed something custom, it just didn’t exist. We ended up writing software for a lot of really interesting niche businesses from a jewelry wholesaler where the value of their inventory changed every day based on the price of gold to companies like CDW, Abbott Labs, McDonald’s. We wrote Hyatt’s worldwide purchasing system in the early ’90s. So we had software in every Hyatt Hotel in the world and had to get data back and forth between the hotels and the central purchasing organization here in Chicago. That was all done by FedEx and five a quarter inch floppies. It’s kind of funny to think about that way back then in the pre-Internet days.
Custom software evolved. That business was actually ultimately bought by Medline Industries, a manufacturer/distributor of medical supplies. We were their software division. We were writing software for hospitals and nursing homes. I left there and built the technology for Jellyvision, their first in-house technology, the creators of You Don’t Know Jack, which was a lot of fun. Then after Jellyvision, I started SurePayroll. From SurePayroll, I went on to run a data company and run a consumer facing website. Along the way, I started teaching entrepreneurship, and then in the last year and half helped found Excelerate.
Excelerate is based in Chicago, but tell me what exactly is Excelerate?
Excelerate is an accelerator. We define that a little differently than an incubator because of what we do. We’re part of TechStars Network. Basically, what we do is we take ten companies each year and help them in a variety of ways. It’s our goal with Excelerate to shine a really bright spotlight on ten companies each year in Chicago and to wrap them with the things they need to be successful. They get free office space. They get some seed capital. They get pro bono legal, and they get more mentoring than they could possibly handle. At the end of our 90 day boot camp, and it is a boot camp, we rent out the House of Blues. All ten companies are on the main stage presenting. Last year they presented to about 250 investors. It’s our goal to make these ten companies be really successful and have them shine. Sure, we want them to do well, but more importantly they are inspirational to the hundreds of other companies in the Chicago area that are looking to make that leap and looking to take off.
If we do our job well, the ten companies will do well, but they will inspire hundreds of other companies and the whole Chicago ecosystem. The Chicago ecosystem for startups is taking off like crazy. It’s a combination of things like Excelerate and Groupon and GrubHub. We just saw SitterCity raised over $20 million. That was the announcement yesterday. There’s so much activity, 37signals going on here in Chicago. It’s fabulous.
Then we measure . . . one little plug. Last year’s class demo day was August 31, and the last data I have is as of six months from that date. Six months after demo day, eight of the ten companies had raised $7.2 million and created 65 new jobs. If you think about that in terms if I came to you and said, “Hey, I’ve got a new company. We’ve raised $7.2 million. We employ 65 people and we’re only six months old,” wow, that’s a lot of impact and it’s growing. I will get new data in the next couple weeks on the eight month mark, and I expect it will be 20% bigger in all the numbers.
This is an incredible opportunity that I’m sure businesses are just jumping at. It’s got to be difficult. Tell me how you go through the selection process. How do you choose which startups to pull in and to mentor?
Selecting the companies is one of the most important things that we do and one the most difficult things that we do. We have hundreds and hundreds of applications each year, and we don’t have a lot of time. We have to do this in a three week’s time period from the time the submissions close until we have to let the companies know. Many of these companies are people coming from out of state. We’ve had lots of applications from out of the country. We haven’t had anybody actually in the program from out of the country yet, but we hope to. They have to quit their day jobs and move. So it’s not easy to do it in the short period of time required.
This year we had three different people who read all the applications, hundreds of applications. They turned that around in less than a week. If you think about what it would take to read a few hundred applications, that’s a lot of time. They narrowed it down to roughly 75 that they recommended. Then I went through those 75 and looked not just at the applications but the websites, the LinkedIn profiles, really dug in. If you’re reading 300 applications you only have time to spend five minutes on an application if you do the math. I probably spent 20 to 25 minutes on each application of those 75, and we selected about 50 that we wanted to bring in for interviews.
Those 50 we brought in for interviews. The interviews were roughly an hour long, the first half of which they interviewed with two of us who dug in on a wide variety of topics that we got out of the application. Then we took a short break, powwowed, decided on what we wanted more information on, and sent the company into an interview with a third person who really dug in on that topic. It could have been customer acquisition, technology, etc. It was a very long process.
Then we took all that information from those interviews, and the Excelerate board spent close to eight hours debating. Literally, we went till 2:30 in the morning one night, debating and figuring out and making the selection of the ten companies we were going to accept this year. It was very difficult because there were so many great companies.
Who are some of the startups you selected to work with in the past, and where are they today?
Last year was our first year, so all of our companies are less than a year old. There are certainly a few that have done very well and gotten a lot of press out of last year’s class. Whether it’s Edgy Lender, think of them as Lending Tree for the student loan market, giving you transparent information about student loans. Give Forward has done some wonderful stuff in providing medical fundraising sites to people in need. TapMe is very interesting in that they are a platform for advertising within games and making advertising not be disruptive, like banner ads that disrupt your play, but making them an integral part of the play. Those are just three that have gotten a bunch of press lately, but there are many, many more. Of the ten, nine of them are still operating, and all nine are doing really well.
That’s interesting because Give Forward was actually an early interview that we did a while back. It’s a great business with a great cause. What made you decide to get involved with and co-create an accelerator in Chicago?
I’ve been teaching entrepreneurship at Northwestern for the last seven years, and some students from the class of 2008 had a really cool idea around music and the Internet called Next Big Sound. They worked on it for a while. They worked on it and built their business plan in class. It was very compelling. They had some interest from some angel investors. They raised a small, tiny amount of angel, and they worked on it for about a year. They really had trouble and they weren’t quite getting it off the ground. Their existing model wasn’t working, and they were on the verge of giving up, honestly.
Then they got accepted into TechStars for the summer of 2009. They went down to Boulder, and they participated in the TechStars program. I’ve been a mentor of theirs for a long time, so I was talking to them through the process. I went to Boulder for demo day, and I was blown away by what happened. First of all, they changed their business model. They pivoted to a much more relevant business model. They’re now basically a com store for the online music industry and doing really, really well by the way. They had an awesome presentation in the Boulder Theater in August. They were asking for $350,000 for their next year’s worth of operation. They actually had a line of investors who wanted to invest and ended up raising over a million dollars and turning people away. Having seen that experience, that was really cool personally.
Then the other thing that resonated was, in 2009, Boulder had ten companies and TechStars had just opened Boston as their second city and they had nine companies. Of those 19 companies, five of them were from Chicago. That gave me pause. Chicago represents less than 1% of the US population, yet we had over 25% of the TechStars population. How cool is that? Until you realize that those companies leave Chicago and don’t come back for the most part. My guys from the Next Big Sound who I’m still in touch with, I’ve made an investment in, I continue to work with, they’re awesome, but they’re in Boulder. We lost them.
It was that evening, after the TechStars event, that a handful of us from Chicago were sitting around a table in Boulder having dinner, drinking beers, and said, “We have to do this in Chicago.” So we got together and started figuring out what it would take and who could do it, and with a lot of effort over the fall and winter we decided to launch Excelerate. We officially made the announcement in the winter of 2010, so January/February. We collected applications in February/March. Ran the program last summer, had a great summer, ten great companies, and now we’re doing it again and we’re here to stay.
You’ve built several successful businesses from the ground up. You work with these new entrepreneurs and startup companies through Excelerate. You teach entrepreneurship at Northwestern. You seem to have a pretty good perspective. Tell me, what does it take to be a successful entrepreneur?
I actually think there’s a combination of things. There’s always been debate about whether entrepreneurs are taught or born, and my answer is both. I think there are some inherent qualities of the personalities of successful entrepreneurs. Things like being tenacious, being comfortable with uncertainty, being willing to take some risk. If you don’t have those innate qualities, and those are personality traits, it’s really going to be difficult for you to be an entrepreneur.
But there are also a lot of skills that can be taught. If you think about the language of entrepreneurship, the language of raising money, you need to understand a balance sheet, you need to understand an income statement, customer acquisition costs, lifetime value, all of these things. SEM, SEO, there are lots of hard skills that can be taught. I think that when you take someone who has the inherent qualities of an entrepreneur – tenacious, problem solving, comfortable with uncertainty – and you give them access to the tools, the skills that they need in order to speak the language and to be a successful entrepreneur, you put those two things together, add in a great business model, and you have something that’s really, really exciting and unstoppable.
What advice do you have for small business owners and entrepreneurs that are looking for funding or investors?
In terms of seeking investors and getting funding, the very best thing you can do is to have traction, particularly in your customer base. If you have traction in your revenue model, even better. The best position to be in is to not need the money. That’s when they’re all coming after you. If you wait till it’s too late and you’ve dug a hole for yourself, it’s a difficult place to be. The best thing you can do is get you product out there, iterate it fast, understand your customer base, and be able to demonstrate traction. If you can demonstrate traction, it will be much easier.
The second thing is that you need to build relationships with these investors. There’s a quote, I forget who said it. I don’t want to take credit for it, but it was, “Investors invest in a line, not a point.” What that means is, if you think about it, if this is a point in time and an investor sees you here, it’s really hard to decide if they’re going to invest. Are you on the way up or on the way down? But if they’ve known you for a while and they see you up here, now they see a trend line. It’s that trend line that is going to cause them to want to invest. Even if you’re not doing very well today, it’s actually really good because you’ll be doing a lot better and you’ll have a steep trend line when you come back and meet with them in three more months or six more months. It’s that trend that investors want to see, that you’re getting traction, you’re heading in the right direction, I want to be a part of that direction. So build those relationships early and recognize that it takes time and it’s about relationships.
Troy, I look forward to hearing more about Excelerate and the businesses that come out of it. It was great talking to you. Thank you.
You too. Take care.
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