This week concludes my three part series on the story of MassChallenge with Part 3. If you would like to catch up, check out Part 1: Using Competition to Save the Economy, and Part 2: Finding a Home. In my conclusion of this series I asked John Harthorne, CEO and co-founder of MassChallenge, about the successful completion of the first competition, and what he learned along this journey.
Finding the Companies
From the beginning, MassChallenge wanted the competition to be open to anyone on the planet. Harthorne envisioned startup companies in any industry from all over the globe showing up to compete in the first MassChallenge. The only condition would be that for the first three months of the accelerator, at least one of the founding members would need to be in Boston. The reason being that it would be difficult to provide mentoring for the companies, if they were thousands of miles away. The second precedent for choosing companies was that they had to be serious about their business. “The filters we applied were to put a $295 application fee,” Harthorne explains. “We figured, if you’re willing to pay it then you are serious about your business. For most of them we ended up waiving the fee, or reducing it dramatically. I’d say the average team paid $70 or even less. We didn’t care about the money, we just needed to know if they were willing to pay it.”
Harthorne then marketed the competition through many of his contacts that he had from MIT and Harvard.
While he was at Sloan Harthorne had run the MIT Global Startup Workshop, which was attended by people that ran entrepreneurship centers all over the world. Since he was the one who organized that event, Harthorne had made a ton of contacts. From those contacts he reached out to them with the story of his new MassChallenge initiative.
What’s really great about the startup community is that everyone is online and connected. “Once you capture one person’s imagination…they spread it for you,” Harthorne explains. “It was very much the Hub and Spoke style of marketing. We focused on the hubs, and then we let them contact their spokes, and then those spokes became their own little hubs. Then..you know a million dollars carries its own kind of marketing value. You put up a significant prize amount and it’s a funny psychology that everybody sort of assumes they’re a winner of every contest that they enter. They’re willing to expend as much effort and even money up to the prize amount. So you end up getting huge leverage out of the system.”
“The result is that you get lots of people working very hard on their business under the assumption they are going to win. That’s the sneaky value of the competition. At the end of the day, what we were really seeking was the hard work and effort that people expend trying to win. That’s the actual prize for the world…and us.”
Lessons Learned
The companies from the MassChallenge competition that I had the pleasure of interviewing had nothing but positive feedback regarding their experience. I asked Harthorne to speak to me a little about some of the negative sides of the competition and the lessons he learned along the way. “What’s funny is that we’re a recursive startup, in that we’re a startup…supporting startups,” Harthorne says. “First and foremost, fund raising sucks. It’s painful; it’s like taking your appendix out everyday. I’m sure we annoyed a lot of people asking for money, but I promise the world it’s far more annoying for me to have to ask for it. We’ve been very pleased and surprised however, about how generous the community has been. It’s hard though because you’re asking for money to which there is no direct financial ROI.”
“It’s really hard to run an organization when you spend 90% of your time looking for dollars. We’re really excited for next year, and beyond to create a financial runway where we are not raising the money that we need to spend that day. Instead, we are focusing now on getting ahead in the fundraising curve so that we have the foundation we need to focus on managing the organization more effectively. We need to create a longer runway so we can turn and focus on the business.”
In terms of the structure and the model of MassChallenge Harthorne had always wondered if the competition needed categories. Should the competition have tracks such as: Energy, Healthcare, Life Sciences, Software and High Tech? Or would it be possible to judge these companies alongside one another. “We recognized strategically and logically that Life Science companies are different enough from software companies that they are difficult to judge side by side,” Harthorne describes. “But for year one we just didn’t know how many entrants we were going to get. It’s challenging if you have a category, then do you have to give a prize in that category? What if none of them are good? We didn’t know enough or have enough data to know if we were going to get 10 entrants or 2,000! We weren’t comfortable setting tracks because we didn’t want to imply that we had to give away money in that. So we didn’t create tracks, and I think that was the right decision to make in year one, but moving forward I think we are still trying to figure out the best way to go about it.”
According to Harthorne one of the only major concerns that arose from MassChallenge was “were the winners more established”? The question was whether there was an unfair advantage for the winning pool because they were already two years old, as everybody else was only one year old. Was there a bias toward more established, older companies? “We’ve gathered a lot of data on that. We’re still sifting through it, but what the current evidence suggests is that if you average them [MassChallenge winners]…yeah they were a little bit older. The average entry, I think was about 14 months old when the competition started, while the average finalist was 20 months old. It’s not actually that bad, there were certainly a couple of outliers with two of the oldest companies that we had. There was a slight bias toward older more established companies, but not nearly as bad as people think. Over half of the winners were under 12 months old, and a handful of the winners were significantly more established. It’s a mixed story, but we will revisit whether or not we need to have separate tracks on that criteria.”
MassChallenge 2.0
If MassChallenge were a software company, they’d have just successfully launched version 1.0 to the market. After a years time the team will need to meet to decide what bugs need to be fixed, and perhaps what additional features should be added. So I asked Harthorne, what’s “Mass Challenge 2.0 going to look like?”
“If we look at it from a 5 year standpoint, Year 1 was about proving that the model could work,” Harthorne said.
“The key thing was to overcome the skepticism that: a) you’ll never raise the money, b) you’ll never get good entrants, c) you’ll never get the right mentors and judges lined up. I think that we’ve proven that…it works. Even if there are bugs and slip ups here and there…those are minor and overall the model works.
Year Two is about optimization. Streamline, improve, and figure out what were the quirks. That involves preparing for bigger scale. Right now we had 450 applications, I don’t see why we couldn’t have 1,000 next year, and keep getting a more significant number as we continue on into the future. There will of course be diminishing returns. There are probably not 10,000 really good startup ideas out there, so probably aiming for 2,000 or 3,000 is probably ideal. We couldn’t handle 2,000 this year! We just weren’t built for that scale. We need to get all of our processes down to run like a Swiss Watch so next year we can easily double, triple, or quadruple in size and not even notice it.”
“The next thing we need to look at is what are the expansion opportunities in Year 3,” Harthorne wonders. “Is it geographic? It could be like…let’s open up a location in New York or North Carolina. I’m not sure that’s the answer, I actually kind of doubt it but it’s worth looking into. It could just be, ‘let’s just get another floor.’ Let’s double the accelerator size and start working with startups at different stages of growth. We also might want to look at adding services. For example, how can we integrate more financing operations for the teams? In Year 2 we are going to investigate what some of these growth opportunities will look like so they can be implemented in the future. This year we were really in Beta. Next year, we’ll do version 1.0 and I think Year 3 will be version 2.0.
For John Harthorne and the MassChallenge team 2010 has been quite a ride. If we could take one thing away from the MassChallenge story it would be how important, and valuable competition is to the U.S. economy. This country was built on the foundation that competition makes companies challenge one another to innovate, provide better services, grow, and prosper. The MassChallenge startup competition ignites that spirit within entrepreneurs using competition to hyper-focus founders on their businesses. It was never about the money for Harthorne and Nigam. They were, as Steve Jobs once famously said, “Trying to make a dent in the universe” and help the U.S. recover from it worst economic crisis in history.
