Utah Vs. Silicon Valley Startups: A Podcast with Boom Startup Accelerator’s Tara Spalding
On this edition of the Designing Enterprise Platforms podcast from Early Adopter Research (EAR), EAR’s Dan Woods speaks with Tara Spalding. Spalding is based in Utah and has extensive experience in enterprise software and startups. She was the VP of marketing at SugarCRM, and is now managing director of Boom Startup Accelerator. Their conversation focuses on startup growth lessons and Spalding’s perspective as an incubator executive in a different environment than is typical for most incubators.
This is an edited version of their conversation that can be heard in full below.
Woods: Can you tell us a little bit about Boom Startup Accelerator?
Spalding: Yeah, absolutely. Boom Startup is an online accelerator. It was founded in 2010, here in Utah. However, about five years ago, it made the transformation to go all online, which expanded our reach to include companies and startups across the entire globe. Our focus as an accelerator is to raise the actual business model behind the innovations so that it creates formidable businesses and then to amplify those businesses by either investing in them ourselves, as well as getting investors on board as well.
In the preparation for this, it was interesting to talk to you because Designing Enterprise Platforms is a podcast about the idea of how do you consolidate and assemble, in a company, a platform to solve your problems. And that’s usually assembled through one or more products and then perhaps with some integration or some other development. You’re really focused on understanding that problem and understanding how to solve it. You are focused not so much on the tech, not so much on the financing events, but really on the customer and also on the business model and how to capture value. That’s a real difference from a lot of the conversations about startups, which focus on A round, B round, C round, and then growth for its own sake without really understanding how that fits into a value creation model. You said you felt that there was a substantially different mindset in Utah in terms of startup culture as opposed to the Silicon Valley mindset. Would you describe both mindsets and tell me what you think the differences are?
Yes, absolutely. I started my career in the enterprise software space within Silicon Valley, and it was at the turn of the century, right when we were moving to a SaaS platform as well as different revenue streams versus typical client licensing. It was a bloom of creativity when it came to packaging and delivering of software. The enterprise market was just incredibly important for this sort of creation. I started my career as a coder and worked my way up through marketing and eventually became a marketing executive. I also was co-founder of a couple of startups. In Silicon Valley, we created what we call rocket companies, and the inverse of a rocket is in fact an airplane. Both of them take flight, but they’re using fuel in totally different approaches. I would say Silicon Valley is more like building rockets as companies and the fuel is capital to get that entity off the ground, whereas in Utah, or Silicon Slopes, we build airplanes out here, which has a lot more efficient way of using capital for the fuel to get that growth and that flight.
Yes. One of the properties of the Silicon Valley model that I’ve always found disturbing is the fact that you get your A round and then your burn rate gets high and then you get your B round and everybody is encouraging you to focus on growth, and so your burn rate stays high. You get your C round, and by the time you’ve done that, you as the founder have as much equity as the jerk that they bring in to be the CEO to replace you. You don’t really spend any time protecting your equity at all. The investors don’t care because they’re constantly re-upping as long as they believe and protecting their equity that way, and unless you have more money, you only have time to put in. It really works against the entrepreneur if the entrepreneur is not able to participate in the investing rounds as well.
You’re bringing up a really good point. Let’s look at Silicon Valley and dive into the rocket businesses that it creates. It’s been very successful for decades in doing so. I was a head of marketing at some Silicon Valley companies. I was consistently tracking important data points that basically proved out that top line growth that were these data points for things like how many visits, engagements, leads did you get, and what are the conversion rates of your leads, including the number of downloads, deployments, and trials. All of those are indicators for rapid growth to indicate we’re a rocket and we are taking flight. It was easy to prove rapid top line growth that was expected in the Valley because it’s easy to double and triple digits that are in like the four and five bracket numbers. They’re just numbers. But when you get into the thousands of visits and you’re trying to move into the hundreds of thousands of visits in the same amount of time, that’s when it gets expensive. To your point about fueling that sort of rapid, consistent high growth number, that’s where the cash infusion comes in and we see the transformation of what is the quick early adopter growth to the fueled or artificial growth rate that the topline can be supported by the venture capital community. Silicon Valley is a brilliant ecosystem. Not only do you have these amazing innovators and people like me that are looking at different business models and packaging and deployment strategies, but you’re also completely supported by a very deep cadre of capital investments that are only like 25 miles away from your office. Because there’s heavy and densely populated venture capital that’s looking for the next big things, their only monitor of success is that initial traction and that initial insane growth rate and they’re going to fuel that because they know that’s the catalyst for the exits you were referring to.
I think that there’s also a difference between the mindset that you need for a B2B company and a B2C company. Because a lot of the VCs that we have here in New York think the product should be engaging people and growing virally and that’s when you know you have a big winner. Like Fred Wilson at Union Square Ventures, who wrote blogs about his skepticism of spending on marketing because he felt the product itself should be the way that marketing happens. That works well in a consumer space. But when you’re talking about a complex enterprise software that solves a high value problem that involves incorporation of lots of different departments and takes a while for everybody to get it, it’s never viral in the same way. It can get viral, but much later on when it becomes ubiquitous like Salesforce. And even that virality is much slower and happens years after the startup has gotten going and has a whole ecosystem that can support it. So what’s the difference between the Silicon Slopes mindset and the Silicon Valley mindset when you’re trying to build an enterprise software company?
I think I’ve done a good job eliminating the Silicon Valley rocket. Let me revisit Silicon Slopes and the concept of building an airplane and why going back to that ecosystem is our approach. Clayton Christensen is the author of The Innovator’s Dilemma, and he is one of the leading American economists and is from Utah. He went to high school here in Salt Lake City and then went to BYU, then went to Harvard, and became a well-known author because he had this disruptive model that is about a process and an approach versus just focused on innovation. Clayton Christensen’s thesis is that the incumbents, the behemoth companies out there, can be upset because all they’re doing is trying to profit and maximize the experience of the customers that they make happy. But that leaves so much open space for applying satisfaction. Going back to your point earlier, it’s all about keeping an eye on who is your customer, first and foremost. And so smaller companies that are more agile and are paying attention to the blind spots or the negative spaces within industries, the dissatisfied users, this is where that disruption in The Innovator’s Dilemma comes in. You have to unlearn what works and then go forward by getting to know this dissatisfied community and figuring out exactly how to create a solution, be it experiential or process or value-oriented, that now better fits their needs and then you acquire that customer.
That plays into the next thing I wanted to talk about, which is the idea that there’s a scorecard if you’re in the Silicon Valley mindset that you are trying to maximize and optimize for. And that scorecard, involves a number of users, growth, a variety of different metrics that are focused on acceleration and showing that you have a really rapid pace of growth. While in the Silicon Slope’s mindset, you focus much more on business creation mechanics and your card is different. You’re not focused as much on growth. So what are you focused on instead?
It starts with the ecosystem because it builds and creates a different DNA. It builds a different animal, builds an airplane. Utah does not have the sort of capital resources that either coasts have. An iconic investor here in Utah is Paul Ahlstrom. He’s the one who authored the book Nail It and Scale It, because it has the mindset that you’re going to build a company that is 100% focused on your customer and you’re going to immediately start selling, because if they don’t buy it, you don’t have a business. You may have an innovation, but you don’t have a business. And if they’re the wrong customer, then adjust, and you’re going to adjust either, one, by looking at a new set of customers, or two, in reshaping your innovation, your packaging, your delivery, your sales channel, or the innovation itself, because it’s just not enough to provide that given value.
I think the idea that successful enterprise software entrepreneurs are intimate with their customers is very important. They really know what’s going on. But one of the most important metrics is sales, so that you’re not selling the product at a price that is funding the sale by having the VC money subsidize it. You’re actually selling it at a profitable price. But you have to have metrics that describe the whole business, not just the growth. So in your experience, it’s vital to pay attention to many metrics, not just growth. What does that look like?
When I came to Utah in 2014, I came as an incubator itself. And so what I did as an incubator was quickly get my fingers on 20 or 30 local companies and figure out how did they get from idea to revenue. And all of them were using very important phraseology. First off, the financial education, especially around cash flow management like balance sheets, is superbly high here in Utah, because there isn’t that immediate infusion of capital just in case and so you’re finding innovators and developers that have a sense of profit and loss. Secondly, there’s also this unit cost economics that they do behind the innovation. And so unit cost economics can actually be offset by the Utah academic community, and that’s another facet to why this is a different ecosystem. And then also there are things such as the customer lifetime value as well as the acquisition cost. You look at a customer according to their profitability to your company, and it’s these sound values that really increase or decrease marketing and sales spends because it’s survivability and it’s self-reliance for that sort of expansion.
The kind of businesses that you’re creating are ones that have much more focus on the accounting and cost structure. What’s the difference between how early you build a sales function and a marketing function in a Silicon Slopes company compared to Silicon Valley?
When you have too easy of an access to capital and there isn’t that starvation stranglehold, it creates this false sense of security behind the business. And that’s just because the ecosystem is over-weighted with access to capital to balance out the innovation. And on the West Coast, in Silicon Valley, for example, we also had an imbalance because we had a huge user base of early adopters. And so even when I was mentioning those false metrics of acquisition and leads and trials, that’s just because everybody wanted to be on the cool new next thing. But that’s not how everyday America works, even when it comes to enterprise software. And so out in Silicon Slopes, we have an ancillary level that’s helping us with advanced technology, which are the academics. We have a dozen phenomenal schools with undergraduate as well as graduate programs and we’re focusing on many different aspects of technology, not only enterprise technology, but also biotech, clean tech, etcetera. This academic support allows the idea to permeate and mature to see if all of those trials and tests can in fact be passed. These academic communities permit what we call a tech transfer through licensing, where all of a sudden the IP that’s just been tested and rooted and cleaned and validated can then become a company. That fast tracks, with protected IP and proven IP, companies that are spurring out. When does the marketing start? The answer is immediately. And if you’re starting with a tech transfer or if you’re starting with your own code that you wrote in the garage, great. But to your point, if you don’t start with understanding and addressing the market and listening to their response and watching their behavior with your innovation or product, then you’re not going to get that reciprocated insight, which you need to figure out how big is this market, who else can I apply this technology to that has similar pain points? And that’s when we need to take a backseat as executives and thought leaders and just pay attention. And there’s certainly low hanging fruit, especially when it comes to identifying those early adopters, that are on the coasts and, you know, in tech areas, because they are intellects and they are willing to try new stuff. But those aren’t the people that you’re going to mirror in profiles. It’s the everyday users that are having problems and pains that you need to know and match those needs accordingly.
It’s sometimes easy to get lost that the Silicon Slopes mindset is also about building huge, successful, massive businesses. It’s just that it’s a different mindset. The easiest way to discuss the difference is it’s not necessarily about a brand creation as much as it’s about a category creation. Think of an interesting innovation, like a kitchen gadget that helps people do some business process. But then as time goes on, that kitchen gadget then becomes part of a bigger claim of it’s not just helping you chop the onions, it’s also helping you make a better meal. Then you get more of the kitchen real estate. And then eventually you realize that, no, wait, this category is bigger. It’s actually about building a different kind of kitchen or a different room in your house. And that’s when you have created a category, when the idea is this problem is so big that everybody has to have one and we happen to have defined that and we are now the leader, because you now need a new room in your house. That’s a lot different than a viral story. How do you go and support that as an incubator of these business models and what is the journey like?
Back in 2016, 2017, I had the honor of working with Matt DeBergalis, and if his name is not familiar, it should be because he’s the founder and CTO of Apollo GraphQL. My background is actually in open source and commercializing open source and I got to work with him accordingly. What GraphQL does as an open source project—I like to compare it to superglue for data. But the cool thing about this superglue is that it’s flexible and also dynamic, and most importantly, it’s lightweight. But the problem is, when it was released as an open source project, it had all of this elasticity and capacity and capability but it just wasn’t productized to help enterprises with really big problems to actually apply it. And so Matt and his cofounder got together in 2016 and said, forget it, let’s start our own company. And the way they did this was brilliant. They went and talked to massive enterprise companies and said ‘how do we get our software to not be skunkworks?’ The developers at these massive companies were using the open source product without any sort of support, and so that’s why it’s called skunkworks. And so they figured out exactly what they needed, figured out how to make it not just an open source project that’s relevant for a social media platform, but also to help out and power companies like BMW, Airbnb, and Survey Monkey. I was there as a part of their team to do and capture these customer stories. It was fantastic and shows the DNA as to who they were as a founder. Apollo GraphQL has grown significantly. When I was there in 2016 and 2017, they were just deploying implementation instruments that they would support for any sort of device and consumption, both front end as well as back end, and they also had a CDN library. Now in 2019, they are now the industry leader. It takes a whole line of those kitchen utensils which you referred to. But they started off with a really sharp knife, right? But they continued to listen to their audience, because those are the clients that are going to tell you exactly where you need to get next. And in 2019, they closed $22 million dollars in funding by Andreessen Horowitz, and they are the market leader for GraphQL.
We talked about how solutions to enterprise problems are really constructed as platforms internally. The executives inside a company, the technologists inside a company, assemble a platform out of a variety of different products and integrations. And I think you can say the same thing, as you become closer to becoming a category, your product itself becomes a platform. It’s no longer that one innovation, that one kitchen gadget. It’s now a whole complex of them that then define and are integrated and also describe a process for solving a problem and creating value. Is there anything you’d like to say to sum up about the difference between the Silicon Valley and the Silicon Slopes mindset?
One thing that both spaces have taken advantage of is market timing. And by paying attention to outside factors, I think those who are savvy enough to understand the new set of pressures and problems that are arising from either the current or prospective user bases is how they’re taking advantage of rapid and stable business growth. Even this platform, Zoom, it’s just the right market timing and the right packaging to figure out what’s needed and take advantage.
What is the difference between an incubator in the Silicon Valley model and an incubator in the Silicon Slopes model?
I am the founder of Hen House Ventures, which is an incubator, and it’s a service-based industry that specializes in go to market strategy, validation, as well as helping companies figure out funding preparation. It’s not intended to have long relationships. We’re just the drop in experts to fill in the blanks. Accelerators became popular in the 2010s and they were focusing on helping and providing creative spaces for the innovators to solve problems, either unaddressed communities or new advanced ways. Look at Y Combinator with 500 Startups. We have Tech Stars. They’ve done a fabulous job. What I do with Boom Startup is that we’re going to be dropping in and helping with the acceleration of business growth in Utah style, so do you have the sound financial economics, do you have the sound product market fit and addressable market to attract the right sort of capital, first and foremost paid by from your customers, and then secondly, from private equity spaces such as venture capitalists, angel investors, etcetera?
What do you think that the difference is from an entrepreneurial perspective, like my day and my interaction with the incubator in a Silicon Valley mindset is focused on X, Y and Z, and in a Silicon Slopes mindset is focused on A, B and C. What are the different ways that you’re getting value from the process?
I think all programs now have transformed because of Covid and before, it was like if you’re going to join my accelerator, you need to move and actually house your startup founders at our office for the next three to six months and leave Maine and come to San Francisco. Covid messed all of those components up and every single platform is transforming so that we can provide services and check in points remotely. Our new set of endeavors is to create peer to peer communities that were being held in a shared office space but now online. And it’s creating a new structure that’s driving more poignant conversations within the experts that are grooming these startups and within the startup peers themselves.
Well, thanks. This has been another edition of Designing Enterprise Platforms, a podcast from Early Adopter Research.