Last August 2020 Endeavor Miami interviewed Ninety Upsilon Sigma’s Founding Partner, Juan Damia, about our proprietary technology for evaluating and accelerating startups.
“Amidst a global pandemic, business shutdowns and a four-month quarantine, summer 2020 sees Endeavor Miami running cohorts for its two growth acceleration programs…”.
“Together, the two programs are helping 19 Florida-based companies scale – furthering innovation, growth, and employment within the state.”
“Leading the Diagnostics is Endeavor Entrepreneur and Endeavor Mentor Juan Damia, who has over 20 years of experience in Data Analytics, and has been nominated twice (2013 and 2016) as the “Most influential industry contributor” by the Digital Analytics Association. After selling multiple businesses and even writing two books, Juan decided to put together his industry knowledge and passion for entrepreneurship, to create Ninety Upsilon Sigma, a venture capital firm that employs technology to analyze the performance of start-ups using an in-house algorithm.”
Here’s the full interview:
Where did the idea of Ninety Upsilon Sigma come from?
In 2010 I started providing mentorship sessions through Endeavor and other ventures, reaching a point of about 300 mentees in one year.
I quickly realized how the process of evaluating companies was too informal and subjective. The evaluation and derived feedback depended on several factors, such as your mood that day, how many other companies you had previously evaluated, what questions came to your mind at the moment, embedded prejudices about similar companies you had invested in the past (and probably did not work) among many other factors. Being an entrepreneur myself, I felt in debt with the entrepreneurs that I was working with.
In a mentorship session, you have on one side the entrepreneur that is putting his money and life into the company. On the other side, you have the mentor that has no commitment with the startup’s results. An average mentorship session takes 45 minutes to an hour, and the idea of someone telling the entrepreneur what to do, after an informal conversation, seemed to be unfair and overpromising.
So being the data person that I am, at some point I started working on a formal assessment process with 10 variables, which later turned to 25 and then to 210. With the variables in place, I started working with cohorts to test the technology (for about 8 years!). Finally, I used the data to play around with algorithms until I had a model with an acceptable level of risk.
Initially, I had no intention in turning this process into a company; I did it just to be better structured when helping entrepreneurs. At some point, however, I started talking with friends who work in venture firms about the model and they loved it. So, I turned the model into a SaaS.
Why do you think it is important for programs, such as ScaleUp Program and EndeavorLAB to have a Diagnostics component?
Having a formal process to evaluate companies in a homogeneous way has several benefits:
- It promotes a data driven culture. I find this extremely useful, as most startups we evaluate in the Endeavor programs are still building their corporate culture. At this stage, adding the data driven component is way more efficient than trying to change the culture of an established company.
- It improves Endeavor’s capability to identify the real constraints to growth that startups are facing, therefore helping the team to focus the acceleration process in activities that will directly impact their growth.
- It makes entrepreneurs laser focused on execution, which is a challenge for most entrepreneurs. A process that helps them to find out what their priorities can be is game changing.
- It facilitates the follow-up not only for the entrepreneurs, but also for all the people involved during the acceleration process (mentors, advisors, experts, etc).
What is the most common mistake that you see entrepreneurs make when scaling up their businesses?
I’ll mention two of the most frequent ones:
Becoming a product entrepreneur: A product entrepreneur is someone who has some expertise in an industry or business, finds a problem and creates a solution. The focus of a product entrepreneur is on creating the best possible product. This is a mistake that I personally committed, and it was one of the most expensive learnings I had throughout my entrepreneurial journey.
The reason is that at the very moment you launch a company, you should switch your mindset from a product to a business entrepreneur, with focus on business and not on product. If you have a good business, you will be able to have the best product. On the contrary, if you want to have the best product without a good business, you will have to focus all your energy towards getting capital to fund a product that nobody can assure that will be successful and more often than not, you will end up crashing your company.
Thinking that their main constraint is capital: No matter how big your company is, you will have budget constraints. I see the lack of capital as a “blessing”, as it will prevent you from becoming inefficient or making wrong decisions. Raising capital is something that is only recommended when you have proven scalability and profitability, in a context in which more capital can multiply what you already have. If you are in this situation, be as detailed as possible on how you will invest the money, and ideally, show proof of the expected results.
I had the opportunity to help several entrepreneurs to get the money they were looking for from their own clients (discounts for advanced payment, bulk discounts, high commissions to the intermediate channel, upselling/retention strategies, etc), and my experience has shown that making deals is a more effective way of getting capital. Of course, having a great deck could help you (or not) to raise money, but what is really unbeatable is having a solid (present or future) business. If you have something interesting (from the business standpoint), everybody will want to be a part of it.
What are some growth hacks you recommend to entrepreneurs in our network?
We normally provide very tailor-made recommendations to Endeavor program participants, but I can mention some overall ideas:
- Integration: Determine whether your product or service can have a good fit with other established products or services that are already in the market. Hundreds (or thousands) of new technologies that perform specific processes are launched to market everyday, which turns the life of end users into a mess. The more you can integrate your product or service with other technologies that your clients are using, the better the user experience and the more attractive and visible you become.
- Guerrilla Marketing: This is probably the most efficient and underutilized demand generation strategy. Guerrilla marketing is a marketing strategy that utilizes the surprise factor or unconventional interactions with clients to generate demand. Most successful companies have implemented Guerrilla Marketing strategies, and that is why it surprises me that there are not more startups taking advantage of it. The DollarShaveClub.com “Our blades are F***ing great” video, generated 25MM views and launched the company from zero to $20MM in revenues in less than 2 years, with almost zero investments. Airbnb used this strategy as well when they launched, getting new and cheap traffic into their website. When they realized their main audience was in Craiglist, they simplified the process of duplicating the listing from Airbnb to Craigslist, which allowed them to grow at zero cost based on someone else’s traffic/demand.
- Partnership programs: Growing in hundreds or thousands of clients is a complex enterprise. Partnership programs (with attractive economic benefits) have demonstrated to be one of the most efficient growth strategies. Each partner has a small number of clients with whom they generate a level of engagement with, which would be impossible for a startup to do alone. Now, if you multiply that small number of clients by the hundreds of partners a business may have, you end up getting an incredible level of coverage and engagement for the money you have invested,, which is basically paid through commission instead of working capital.
- Use clients to drive growth: Another option for startups that already have clients is driving growth through their first clients. Giving discounts per scale or per upfront payment is a great way to increase sales and to generate working capital. In the case of B2C ventures, the use of data science models to identify upselling or churn reduction actions is also a great source of revenues and capital that most entrepreneurs don’t take advantage of.
- Theory of constraints: The theory of constraint is a great growth approach for entrepreneurs. It allows them to generate a constant growing cycle based on identifying one company constraint (the main one) at a time and investing the scarce resources they have only on the action that is preventing the company to increase its throughput (speed of money through the organization). I normally recommend entrepreneurs to read the book “The Goal” by Eliyahu Goldratt. In his book, Goldratt uses a novel style writing to explain complex engineering concepts related to the Theory of Constraints and Theory of Systems.
Take a look at the original note: How Data Science Helps Endeavor Miami Understand Businesses