Waterloo, The David vs. Goliath of Startup Ecosystems

This new Compass (formerly Startup Genome) report presents the first Ecosystem Lifecycle model plus lessons that apply to startups and ecosystem leaders worldwide. It marks the first time the wealth of data compiled for the Global report 2015 is used to perform an in-depth analysis of an ecosystem. It also offers recommendations as to how small and medium-sized ecosystems can accelerate their growth and compete with top ones

To analyze and benchmark your growth metrics with Compass' free app, in seconds, go here

The free complete report can be downloaded here.

The startup revolution is a global phenomenon. It has taken center-stage as startups have become the primary engine of job creation and economic growth throughout the world, while large corporations continue to cut down on their workforce to compensate for the long slide in returns on assets.

But as many cities struggle to join the circle of successful startup ecosystems, they face the many challenges of global competition for resources such as entrepreneurs and investors, which are attracted by the multitude of success stories of the top startup ecosystems such as Silicon Valley.

The good news is a few medium-sized cities seem to have “cracked the case“ and made it to the top. With populations of 2 to 3 million, Tel Aviv’s startup ecosystem ranks number 5 in the world while Austin and Vancouver are part of the top 20—each one an impressive feat.

In a real-life story of David versus Goliath, the Waterloo Region in Canada ranks #25 in the Global Startup Ecosystem Ranking 2015 with a population of only half a million. Its startup density is second only to Silicon Valley and a full 50% higher than its closest follower. How can such a small city compete against cities 10 to 30 times their size such as Rio, Atlanta and Rome? How can it be so productive and effective at developing innovative technologies and startups?

Today the lessons from Waterloo are of global relevance for every stakeholder working on growing startup ecosystems and creating economic growth—from investors and business leaders to policymakers and economists. 

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How To Build a Profitable Business - Demystifying Customer Lifetime Value (with exclusive Data from Compass)

This post is written by Ramon Bez, a growth engineer at TourRadar, a travel e-commerce company. They are users of Compass.

For any company to be profitable, it must profit more from each customer (Customer Lifetime Value or LTV) than it spends on acquiring them (Customer Acquisition Cost or CAC). So if your average Lifetime Value is lower than your Cost Per Acquisition, that should be a big point of concern for your company because it means that you are losing money.

Being unable to maintain CAC lower than LTV is one of the main causes for startup failure. This is why Compass shows and benchmarks your CAC/LTV, repurchase and churn rates in Compass’ dashboard. As companies scale, it gets increasingly harder to keep acquisition costs down while also retaining customers. This is a deadly combination, but it can be overcome by well-thought customer acquisition and/or retention strategies.

It’s no coincidence that some of the most extraordinarily successful companies today have low acquisition costs and/or high retention rates. For example:

Traction — New Book Launch Backed by Exclusive Compass Data Analysis

Justin Mares is the co-author of the bestselling Traction: How Any Startup Can Achieve Explosive Customer Growth, published by Portfolio Penguin, launching October 6th. Get your advance copy in the next 24 hours to get exclusive access to their marketing strategy guide, as well as interviews they’ve conducted with entrepreneurs like Jimmy Wales (Wikipedia), Paul English (Kayak) and 35+ more.

We wrote Traction because we consistently come across entrepreneurs with the same problem: they need more customers!

One of the key findings we found while researching the book (and through our own experience) is that your traction strategy will change as your company grows. What works to get your first $10,000 in revenue or first 1,000 users often won’t get you to your next growth goal.

The story of Dropbox’s growth embodies exactly this phased approach. Early on, they relied heavily on social media and community sites like Hacker News to drive their first few thousand users. Later, once that tapped out, they built a pseudo-viral referral program that drove millions of users. Now, as they’re trying to scale, they’re focusing on business development: partnering with Microsoft, and getting pre-installs on smartphones in emerging markets.

As Dropbox’s story exemplifies, the way you get traction will change over time. After your growth curve flattens, what worked before won’t get you to the next level. On the flip side, traction channels that seemed like long shots before might be worth reconsidering during your next growth phase.

At least, this was our thesis, pulled from many interviews and much anecdotal evidence. And, though we’ve done as much research as we could, we don’t have the hard data that comes from working with thousands of startups and seeing how they’re growing. This is one reason why we’re excited about our emerging collaboration with Compass.

Data Exploration and Analysis

For our first collaboration project, we looked at how revenue is affected by:

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Making sense of your marketing data with Compass

This is a post about how to make sense of your marketing data using Compass (you can create your free account here). 

This post is written by Ramon Bez, a growth engineer at Tour Radar, a travel e-commerce company. 

1. Why Benchmarking Is Important

We all make decisions about the future every day. The challenge is that so many of our decisions about the future are made under conditions of great uncertainty.

The more data we can find to support ourselves in the decision making process, the better our decisions will be. In a business context, better decisions directly translates to less waste, better results, and greater success.

For online businesses, the newly emergent ability to measure every single customer interaction has opened up unprecedented opportunities for using data to make better decisions..

But even though data are increasingly available to support decision making, this abundance of data has increased the prevalence of gut based decisions relative to data based decisions.

Cardinal Path, a renowned digital agency, published a study showing that the number of projects using marketing analytics has in fact decreased in the last couple years, from 37% (in February `12) to 29% (in February `15).

The reason for this decrease is that companies are simply overwhelmed by the abundance of data and the complexity and training required to utilize it properly. Most businesses are clueless at every step of the analytics cycle. They do not know what they should be measuring, how they should be measuring it, and how to interpret these metrics to make the decision to take one action over another.

And so data often becomes an accessory to arguments in favour of pre-established opinions, and not the basis for creative insights and strategic decisions. As a result, even in the projects where data and analytics are implemented, they are often used by those with management authority to simply back up their previously held opinions.

Greater fluency in analytics would enable businesses to mine their data for golden nuggets of insight, dramatically increasing their chances of success.

A primary cause of this lack of fluency, however, is the fact that most marketers don’t have access to an adequate framework (ie. context) from which they can base their decisions. Without proper context, data is rarely useful in providing new knowledge and, most importantly, new ideas.

At present the primary way marketers obtain context is by comparing their metrics against themselves in the past. What they are missing however, is the ability to accurately and rigorously compare themselves to other businesses who are similar to them, to understand how they stack up.

In so many other areas of society this peer based comparison is a readily available and valuable contextual metric. Students know the percentile of their performance on standardized tests like the SAT, athletes know how their statistics compare to players in the rest of their league, doctors know what normal looks like on a blood panel, yet most business have no idea what good or normal is for nearly all of their metrics.

Compass has been hard at work for many years now to build the conceptual model, analytical framework and API infrastructure needed to enable this kind of peer based context for better decision making.

Context & Benchmarks

The two most common challenges companies face when attempting to find game-changing insights from their data are:

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The 2015 Global Startup Ecosystem Ranking is live!

Download the free complete report here.

To analyze and benchmark your growth metrics with Compass' free app, in seconds, go here

Welcome to the Global Startup Ecosystem Ranking. It has been almost three years since the last Startup Ecosystem Report was released (in NovemberKey 2012), and since then the startup sector has grown at a booming pace.

The centerpiece of the 2015 Startup Ecosystem Ranking is our updated and revamped component index, which ranks the top 20 startup ecosystems around the world. The index is produced by ranking ecosystems along five major components: Performance, Funding, Talent, Market Reach, and Startup Experience.

I. The Increasing Socioeconomic Impact of Startup Ecosystems

Twenty years ago, almost all tech startups were created in startup ecosystems like Silicon Valley and Boston. Today, technology entrepreneurship is a global phenomenon, with startup ecosystems similar to Silicon Valley rapidly emerging all around the world. An interconnected, global startup landscape is taking shape and we’ve gathered the data and crunched the numbers that nobody else has to help you understand how to best navigate this brave new economic world.

In September 2011, we wrote a blog post about the coming “Entrepreneurial Enlightenment” and the factors behind its emergence. The era is in full bloom now and there has never been a better time to be a tech entrepreneur, as entrepreneurs are now blessed with the tools, resources, and market conditions to scale a company to billion dollar “Unicorn” status faster than ever before.

The rise of the startup ecosystems all around the world should also be seen in the context of the larger socioeconomic structural shift taking place. Information Era businesses have become the dominant source of economic growth, significantly automating or altering much of the industrial and service businesses of the previous economic era. Many others have described aspects of this structural shift under different names, such as Marc Andreessen’s widely circulated Wall Street Journal essay, “Why Software is Eating the World”, Deloitte Center for the Edge’s semi- annual “Shift Index”, or Richard Florida’s Creative Class Group, which has published numerous books on the topic, such as the “Rise of the Creative Class.”

Given technology startups’ critical role in the information economy, the importance of healthy startup ecosystems only stands to increase in the future. With this report we want to accelerate the development of startup ecosystems around the world by answering critical questions for entrepreneurs, investors, and policy makers that are difficult to answer without the data we have gathered and analyzed in this report, as well as to raise the general populace’s awareness of the increasing socioeconomic importance of startup ecosystems.

One of our main goals with this report is to help various stakeholders answer the following kinds of questions:

a) For Entrepreneurs:

“Where should I start my new company?”

“When I’m ready, where should I open up my startup’s second office?”

b) For Investors:

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The Startup Revolution Series Part 4: The Critical Role of the Startup Ecosystem

— by Max Marmer and Cheyenne Richards

In our previous posts (The Great Transition: Industrial to Information Revolution, The Decline of the Blue Chip and The Rise of the Startup), we’ve argued that we’re in the middle of an epochal societal transition from the Industrial Age to the Information Age, that blue chip companies are becoming less and less able to be the primary drivers of the global economy and that the startups rising in their place are the only creators of net new jobs.

So if our entire global economic future rests on our ability to support the growth of startups, how do we help them thrive? With a flourishing local ecosystem.

Wait... what? Aren’t internet businesses inherently global? Haven't tools like Skype and Basecamp made location meaningless? If successful traditional businesses get started every day around the world, why do startups need the special support of an ecosystem?

If you’re an experienced entrepreneur, the challenges described below may seem all too familiar and we invite you to provide your own thoughts in the comments section. For the rest of the world, still trying to understand the complex and unique drivers that either support or suppress startup growth, we hope this provides some additional perspective on the importance of the ecosystem.

High growth technology startups are very different from other businesses.

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How Much Should You Pay Your Engineers? (Infographic)

by Cheyenne Richards

With the world’s ever-expanding appetite for great engineering talent, hiring is becoming a larger and larger challenge for tech companies. Never has it been more critical to know just how much you should pay that promising candidate. 

If you're a startup -- How do your salaries compete with more traditional IT firms? Where in the world is the cheapest place to source talent? And if you're bootstrapping development, which are the least expensive programming languages to work with? 

If you're an IT firm -- Are freelance or in-house resources more cost effective? What is a benchmark career path for an engineer? 

Whatever your situation, the following insights from the Compass.co Research October 2014 survey of engineers around the globe, may prove helpful. In addition to data from our own members, for this report we reached across the web for comparison data from oDeskElanceToptalGlassdoorAngelList and Payscale. In the process, we owe a special shout-out to the folks at Elance-oDesk and Toptal, who helped us access and interpret their data. 

The Startup Revolution Series — Part 3: The Rise of the Startup

By Max Marmer, Compass Co-Founder Emeritus and Cheyenne Richards, Compass Writer and Marketer

This is the third installment in the Startup Revolution Series. In the first post, we suggested humanity may be approaching—or have already passed—the tipping point between the Industrial and Information Eras. In the second, we provided data that demonstrates fairly conclusively that Industrial Era-focused blue chip companies have lost significant value over the past 50 years, as defined by return on assets.

So what is rising in their place? This post will focus on the Information Era businesses that are best adapted to this new Darwinian business environment: Startups.

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CrunchBase and Compass (formerly Startup Genome) Partner to Rank Global Startup Ecosystems in 2015

The survey for the 2015 Startup Ecosystem Report kicks off today — in a partnership by CrunchBase and Compass. Participate here.

San Francisco, CA, 4 February 2015—CrunchBase, the world’s most comprehensive dataset of startup activity, and Compass, creator of the most extensive benchmark data for startup performance, announce the kickoff of a collaborative project that is as critical to the global economy as it is ambitious. Since the groundbreaking results of the Kauffman Study, which demonstrated that “Startups that develop organically are almost solely the drivers of job growth,” there has been an increasing demand for information about how to create thriving local ecosystems.

Beginning today, startups around the globe may access the Startup Ecosystem 2015 Survey to provide their data to help measure the health and growth of their ecosystem relative to as many as 40 others. They will also be able to benchmark their individual results with their relevant peers, providing a highly useful perspective that enhances decision-making.

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