The Harsh Truth About Startups & Why Ecosystems Fail

In this insightful episode of Executive Connect, we’re joined by Paul O’Brien—a self-described contrarian and leading startup economist—who challenges conventional wisdom around entrepreneurship. From redefining what a startup actually is to exposing why most ecosystems fail, Paul lays out a bold vision for what it really takes to build a thriving innovation hub. Learn why most cities are chasing the wrong metrics Discover the “real” anatomy of a startup (hint: it’s not just building a business) Understand the massive gap between angel investors and VCs Hear why Austin’s creative scene is fueling its tech future And get advice for corporate execs wanting to dive into entrepreneurship.

Chapters:
00:00 – Teaser
01:00 – Paul O’Brien’s Startup Contrarian View
06:00 – Why Cities Must Support Startup Ecosystems
11:00 – Why Big Companies Don’t Create Jobs (Startups Do)
16:00 – Austin vs. Silicon Valley vs. Nashville
21:00 – The Real Founder Class: Artists, Musicians & Triangle Players
27:00 – Why Most Accelerators Fail Without Incubators
34:00 – Advice for Executives Entering Startup Land
41:00 – The Investor Class Misunderstanding Startups
44:00 – Final Words: Why Paul Will Rip Your Pitch Apart (for your own good)

Bryan Hancock (0:1.445)
Hey, Paul, welcome to the Executive Connect podcast.

Paul O’Brien (0:4.514)
right man, how you doing? Good to see you all. Good to see you all. You too, It has. Which is what everybody seems to say these days. Well past being locked down thanks to quarantine, for some reason we’re a little less social than we used to be, aren’t we? Not as many coffee shops and meetups and happy hours. So it is good to see you. been?

Bryan Hancock (0:6.087)
It’s good, it’s good. It’s been a little while.

Bryan Hancock (0:23.548)
Yeah.

Bryan Hancock (0:28.197)
Yeah, so, you know, I’m sure most of our viewers don’t, aren’t really super familiar with you and your work. You want to just give us the download on all things startup, incubator, kind of your career arc.

Paul O’Brien (0:40.398)
Who the heck is this guy and why is he on your show? I’m sort of a contrarian with regard to entrepreneurship, by which I mean, if you’ve read the books, if you’ve read the podcasts or heard the podcasts, you get all the same stuff from literally everybody and their mom with regard to how to do a startup successfully. And I’m one of the few guys that kind of says, hang on a second, if 90 % of all startups still fail, maybe what’s being preached is wrong.

Bryan Hancock (0:42.769)
Yeah.

Bryan Hancock (1:10.151)
Yeah.

Paul O’Brien (1:10.410)
Maybe something is wrong about it. And so I spent a lot of time in Silicon Valley. I’ve been in Austin for 16 years. I’ve run incubators. I’ve designed startup curriculum. I work internationally to a great extent. I get hired by governments, cities or other countries for the most part to try to help them figure out how to build their ecosystem. And a lot of what I do is just coming in and pointing out what’s wrong or what they’re getting backwards or…
making mistakes about so that they can do it differently or more effectively.

Bryan Hancock (1:42.663)
Yeah, mean, most people probably don’t think about cities and communities supporting startups. mean, is that, can you talk a little bit about why that’s critical? Because I mean, most of the times when I think of startups, so you’re always thinking of funding or how do you go get the venture funding or how do you collect the team or how do you do the product market fit? But there’s not a lot of airtime that seems like it’s given to the ecosystem that people come up in.

Paul O’Brien (2:7.597)
There’s not a lot of airtime with regard to what you just asked, which is a really good question. Why does it matter? And I say that because there’s a lot of airtime to tech. There’s a lot of airtime to being an entrepreneur. A lot of pop culture about how cool it is, right? There are TV shows about Silicon Valley and magazines called Entrepreneur. But there really isn’t a lot of discussion about the more fundamental economic considerations, such as one that I love is that
you probably notice with whichever president is in office at the time is in the White House, that president claims that they’ve created so many jobs. The government doesn’t create jobs, the government doesn’t do squat about creating jobs. But I point that out because it’s also therefore sort of misunderstood that companies don’t really create jobs either, right? A big company like IBM, they already exist, they’re already established, obviously they employ

Bryan Hancock (2:46.385)
Yeah.

Paul O’Brien (3:6.337)
hundreds of thousands of people and sure, they might create some more jobs as they grow or become successful. But the fundamental reality is that roughly 70 % of all jobs in an economy are created or recreated by startups, which is to say, look at AI coming along. The only way that we’re gonna have jobs in an AI economy or an AI based academy is because startups
create the new technologies, to create the new business models that are relevant to that. They create the new opportunities based on that innovation resulting in the next phase of humanity, frankly, which puts a bunch of people to work in artificial intelligence. So the fundamental reason it’s really critical is if your city is struggling with jobs, it’s struggling to have jobs, if you’re only
trying to attract big employers or trying to attract companies to employ the people in your community, it’s going to fall short because what you really need within your local community are the individuals who are starting new things that manifest in a net positive growth in all of the jobs that exist and an appeal in the city in which you live for job creators to want to be there so that the people that are in that community are able to get to work.
not just in an employer or the company that you’ve moved there that you’ve made successful there, but in fact, the entire job economy that’s growing thanks to what’s being done there.

Bryan Hancock (4:42.311)
Alright, well so for cities or companies that are looking to, know, where they’re going to set up shop, I know that you used to be on the West Coast, I mean, what should they look for? And you know, what was the appeal for you coming to Austin?

Paul O’Brien (4:57.472)
That’s sort of an amusing question because if for, since you are, when you ask it today, I think most people appreciate the answer, right? Texas economy is booming. The Texas regulatory policies with regard to employment and companies is fairly progressive, frankly, in a positive and encouraging way for employers. And certainly,
We see a lot of tech and innovation and entrepreneurship relocating to Austin, Texas. But I say it’s kind of an amusing question because I moved to Austin 16 years ago. And 16 years ago, you could have asked any VC in the world where you would move and precisely zero of them would have said Austin. I actually moved to Austin for completely different reasons. I studied economics and I studied marketing. And so after about 12 years in Silicon Valley, I started to feel that
that ecosystem was maturing to a point that you might call it late stage innovation, which is to say it’s really good at big companies in technology, now doing more things and certainly the venture capital is still there, but it’s sort of lost its edge with regard to seed stage, idea stage startups. And so you have to look at the landscape of the country or the world and say, right, where else could be, could be, not is, but where else could be effective at that. And it’s hard to argue
that Austin is probably one of the best places in the world for it and will be for a very long time. Not because of Austin in and of itself, but because Austin’s within two hours of four major cities in the United States, which means it’s got a lot of access to talent and capital and exposure. It certainly has the benefits of the Texas economy and Texas ecosystem. But then characteristically, Austin does have a lot of the qualities that Silicon Valley used to have, which
surprisingly to people is in fact things like sort of a hippie culture, a live music scene. It’s this contrarian kind of counterculture and embrace of the arts that believe it or not is actually what encourages and inspires technology professionals and investors to take risks. That if you have a city or a region of the world that’s really hot on tech, but completely abysmal with regard to the arts,

Paul O’Brien (7:18.221)
you’re not going to be a startup ecosystem. You’re just not. You’ve got software developers, you’ve got engineers, you’ve got architects. That’s fantastic. or rather because it’s the ability that we have in a community to see musicians take risks or to see artists be celebrated even though their art might be terrible or to see the city funding, you know, murals throughout the urban core.
you know, when you see the community taking risks on just creative works, it’s an easy path for technology folks to say, hey, I could do that too. I could try something. And even if it fails or even if it isn’t very good, I’ll probably be celebrated or recognized or supported in some way for that. Austin has all of that in spades and like I said, is gonna continue to for at least 15 or 20 years.

Bryan Hancock (8:14.161)
Yeah, mean, so what do you see as the next logical step in that? I hear a lot of bemoaning here in town about, if you want to get the next tranche of funding, we’re great at starting things, but then if you want to try and scale it, you got to go somewhere else to one of the other big ecosystems. Is that still really a major issue here? And if so, is that common to other places, like maybe in Nashville or a place like that that’s got a similar ecosystem?

Paul O’Brien (8:37.751)
Well, that national’s a guy. Let me let me start with the last question asked, because national is a fun one. National is a fun one, because in a sense, it’s it’s best appreciated as the opposite of Silicon Valley, that it’s it’s really trying to be a tech ecosystem and trying to be a startup ecosystem. And it has some signals that it is, which which frankly can sort of be misleading. Because in fact, what it what it really is, is is much more of an arts epicenter. It’s a huge music scene.
second to LA. And it’s almost too far in that direction to a fault. And so hopefully you can appreciate what I’m pointing out is you need both. You need both to do it well. And Silicon Valley was both Berkeley and, you know, hate and asperry and the protest against Vietnam, right? That’s a lot of what led the groundwork, laid the groundwork for Silicon Valley to become innovative in the 70s and 80s, let alone the 90s.
thousands. You know, it’s sort of lost that Austin’s got it. And that’s actually the answer the first part of your question is, is it is it still true that folks that want to scale have to go somewhere else for marketing, or the experience to do so or the capital to do so? Yeah, unfortunately, it is still true. And yet it is changing. It’s changing because it takes it takes time.
for those experiences in that capital to manifest. In the startup ecosystem, for those of you in small business or real estate or in companies, you tend to plan your cycles annually, perhaps even quarterly. Maybe you’ve got a five-year roadmap for things. In the startup world, it takes a good seven to 10 years for us to see things cycle, for innovation to drastically change and to cycle out, for investors to get returns on investments.
So you can imagine how if the Austin startup ecosystem really started to boom again eight or 10 years ago, certainly existed before that, but it was a lot smaller. So it started to boom about eight or 10 years ago. We’ve really only been through one cycle. We’re kind of in the middle of the second cycle, which means we’re starting now to see a lot of new venture capital firms in Texas. We’re starting to see emerging funds raise capital.

Paul O’Brien (11:0.855)
We’re starting to see existing funds raise their follow-on larger capital rounds. And what’s beautiful in that happening is that those people now also have more startup experience than they did 10 years ago. And so they’re able to not just make better, more meaningful direct investments, but they’re also more capable of appropriate advice and good direction and connecting the right people so that founders here can scale.
think it’s going to take another cycle. It’s going to take another five to seven years before we really start to see Texas comparable to New York or California with regard to direct localized capital investment, but we’re getting there.

Bryan Hancock (11:41.703)
Yes, so can you talk a little bit about that cycle? I’ve heard that the big exits from the early investors, there’s a big exit and then a lot of them have liquidity and then they can go reinvest. Is that sort of like the natural cycle of things about how the money flows throughout or the ecosystem? Can talk a little bit about that?

Paul O’Brien (11:58.732)
Yeah, that’s, yeah, please, in fact, because that’s, that’s actually our greatest challenge in Texas, if that’s where most of your audience now is that most ecosystems throughout the world have a culture that tends to favor property, property development, property monetization, and, and the like, which means what?
It’s easier for me if I have wealth, it’s easier for me to buy a bunch of homes or to buy a property and develop it in real estate or to buy a property and develop for commercial use and lease and license that and benefit from the tax deductions benefit from the appreciation and so forth. Wonderful. It’s a much more appropriate way to amass and maintain wealth. The challenges in my sector of the economy, that’s a bad thing. It’s something we have to help shift away from. Why? Because
we’ve had 24 unicorns manifest in Austin in the last few years. The difference is that in a place like Silicon Valley, there’s no room to grow. It’s already massively developed, it’s urbanized, it’s expensive. And so you can appreciate how the opportunity in physical infrastructure is less meaningful in a place like Manhattan, or in a place like Silicon Valley than it is in Texas.
It’s more expensive. There isn’t a place to do it. It’s more onerous. Which means what? Which means that when I exit from that unicorn, rather than taking a seat back a little bit, maybe buying some property and just living off that wealth, I might as well reinvest it in technology. I might as well reinvest it in startups. I might as well reinvest it companies. So you can appreciate how there’s a bit of a catch-22 in the sense that when it comes to a place like Austin, we need to teach
the wealth class and a challenge in that is the wealth class tends not to like to be taught, tends to point out the fact that they’re wealthy and successful. So what the hell do you know? Well, we know that startups are very different and perhaps you’d like to consider investing in this kind of stuff. I need you to appreciate that investing in this kind of stuff is not at all like investing in a business. It’s not at all like investing in property at all.

Paul O’Brien (14:26.205)
And if you come into the startup ecosystem with those expectations, you’re going to be disappointed. You’re going to be angry. You’re going to be frustrated because it doesn’t work the same way. But I need to teach you why that’s different. I need to teach you how that works because we do want you to shift that capital in this direction. One of the best ways to do it is to explore alternative uses of property rather than leasing property to coworking spaces.
Why aren’t we developing something along the lines of what’s called a startup studio or a venture studio where you’re investing in both the property and the companies or the innovations that are in there. And as a result of you doing that, you benefit from both, but you also mitigate the costs to your customers. So you’re not, you’re not renting the property for as much on purpose, right? Because we all can’t afford it. Instead, part of that is considered an investment in what’s happening there.

Bryan Hancock (15:0.763)
Right.

Paul O’Brien (15:19.553)
And so you benefit from the upside and the diversification of your portfolio while still having some of that stability in the property that you’re working with.

Bryan Hancock (15:27.079)
Yeah, and I know Austin has some examples of this too. I I’m thinking of different things in my head, but, you know, I know maybe we could talk a little bit about MediaTek Ventures and, know, kind of your point of view on this, because I know you’ve been championing some of these ideas for a while now. And we’ve talked about this before, but, you know, proximity to certain things and the network effects of people being near one another. Like, what are the things that, so like the goodness that you get out of this sort of model that you’re
talking about for a startup ecosystem.

Paul O’Brien (16:0.022)
Yeah, let me start with sharing what our thesis was with MediaTek Ventures. It was actually two things. Coincidentally is where we sort of started the conversation that you must have both the arts and the creative side and the technology and the innovation to actually have a vibrant startup ecosystem. Too heavy on one side or the other and it doesn’t work. For example, Los Angeles is another good example of a very, very vibrant, very, very
wealthy, very successful economy, but it ain’t a startup ecosystem. You don’t think you’re going to LA to do a startup. Why? Because it’s very, very integrated and understands the music business model and the film business model and so on and so forth. But again, it’s not at all like what we do in the startup side. But if you don’t have both, if you don’t have that creative aspect to what’s going on, you don’t inspire risk. You don’t inspire creativity.
Media tech in and of itself was an acknowledgement and encouragement of the fact that you have to have both things in place. And we can’t do that. We can manifest that. We can invest in both creative productions and technology or innovation. And doing so puts both in place in the economy. That one consideration isn’t actually even something we invented. If you go back to the 1970s,
a gentleman by the name of Peter Drucker, who was an economist, management consultant, very reputable, very well known in big companies, frankly, made the observation that only two things actually create value, marketing and innovation. So twist the words marketing and innovation to media and technology. And there you go, we stuck that together. So once we put the right cultural or
social characteristics in the economy to make it possible, then you touch on Brian, the things that you’re talking about. The second consideration is that most people fail to understand that Silicon Valley is not, actually not the best place in the world for startups. It’s the best place in the world for some startups, particularly internet-based, SaaS or consumer.

Paul O’Brien (18:19.955)
startups. And notice, I’m not even using the word technology, because once you once you mix mix it up or mess it up by saying technology, the fact is biotech and pharma is better in Raleigh Durham, and clean tech and energy is better in Houston, you’re not going to find that stuff in Silicon Valley, and you shouldn’t. So it’s this acknowledgement that one of the lessons learned is mistaking that a place like Silicon Valley is tech, or it’s ideal for tech, or it’s ideal for all tech. That’s just not true.

Bryan Hancock (18:20.881)
Red.

Paul O’Brien (18:49.357)
it’s good for certain things, which means what then? It means that in your ecosystem, in your community, in your city, there are actually certain things that you’re going to be good at and there are certain things that you’re not. Dallas and Fort Worth, to talk about Texas more holistically, for example, Dallas and Fort Worth are a great place for financial innovation in Texas. It’s actually not really Austin. so even if you think of a place like Austin as the best place for startups now, like my point about Silicon Valley,
That’s not true. It’s good for some things. Dallas is fantastic for FinTech. A lot of banks, the New Texas Stock Exchange, NASDAQ is moving there. Where do you want to do FinTech innovation if you don’t want to be in New York, which by the way is the ideal place for it, not Silicon Valley. Well, you might consider Dallas over Austin. So the second thesis was appreciating that in developing a better startup ecosystem.
We have to focus on the strengths and weaknesses of industry where you are. We have to acknowledge that there are things you’re not gonna be good at. And we have to be comfortable and capable of dismissing those things. For example, what I see a lot throughout the world is everybody everywhere wants to be an AI. Well, like it or not, a lot of your cities are gonna suck at AI and you need to be comfortable with the fact that you’re not ideal for AI. Seattle is gonna be great at it. Texas is gonna be great at it. Nashville?
maybe, right? National maybe in the sense of AI and music. Okay, see, there’s a logical fit. When you don’t have that fit, you can’t just kind of make it happen. You can’t just pretend. Because the entrepreneur class, the founder class can’t afford to take stupid risks. And I mean stupid risks. You can’t afford to try to encourage or enable founders to do things that aren’t appropriate there. Why not there? Because you don’t have the mentors that know what they’re doing.
You don’t have investors there that know what they’re doing. You don’t have companies that they could partner with. So why on earth would you try to encourage people to start things that aren’t appropriate in an ecosystem where it doesn’t make any sense? Those are the collisions that you mentioned, Brian, that you want to put the right people in the right places. You want to get the sectors that are appropriate, not just downtown, not just in the city. You want to get them into places where they’re going to talk, they’re going to socialize, they’re going to cross promote, they’re going to work together, they’re going to partner together.

Paul O’Brien (21:15.829)
And out of that comes innovation in whatever sector it is that you might be great at.

Bryan Hancock (21:21.031)
Yeah, so let’s talk a little bit about the founder class. I know that you can’t go anywhere in Austin without people talking about startups or collaborating. There’s all sorts of ecosystems for this. But what’s the anatomy of a successful startup? I know you mentioned a lot about marketing, and there’s a lot of talk about product market fit.
You know, somebody that wants to do this the right way, that wants to sort of do the lean startup approach or whatever the latest buzzwords are for this, you know, what’s a good approach for somebody to validate that this idea that they have really is something that the market wants? And then, you know, how do they go about sequencing their sort of their bets and their time to navigate their way to something successful?

Paul O’Brien (22:8.781)
So here’s a great example of what I mean by being a contrarian. You’re right. There’s a lot of talk about founders and startups in Austin. And because of that, what you also see is a lot of negativity, not lot of criticism, right? We’re tech pros, for example, right? You see that slur, frankly, a lot from the people who don’t like that kind of thing. Well, here’s what I’m gonna throw you for a loop. How do you understand what a startup actually is and what it takes?
If I play guitar and I hook up with Brian and I hook up with my friend Sally and we start a cover band, what we have started is a business, not a startup. We are working with the existing business model for that business. We learn to play our stuff. We learn how to promote ourselves a little bit. We learn what venues to play at. We learn what kind of music people like, and we learn how to make money with that either by producing some merchandise or selling tickets.
That’s a business. Starting a new business is not at all like a startup at all. The startup sector is, I know how to play triangle and I sort of know how to mess around with this Moog keyboard that plays a whole bunch of different sounds, synthesizer kind of thing. And you’re like a grunge hip hop singer. What’s a grunge hip hop singer? I don’t know, right? It’s just your thing. It’s your vibe. And we get together and you love my triangle.
And we think though that our genre, our style is gonna be much more compelling through TikTok videos. Neither one of us know how to produce TikTok videos. So what? We know that that’s where we’re gonna be hot. Cause the niche for our grunge hip hop triangle music is really freaking small. However, globally it’s rather substantial. And so we’re going to try producing videos until we figure out how to make it work.
we’re going to try producing a whole bunch of different music until we figure out what people actually like. That’s classically or characteristically a better example of what a startup is. And so when you say who’s the founder class, well, the fact is the artist who’s doing murals in downtown Austin is also part of the founder class. The musicians who are trying to make it work in the city and they aren’t just covering music and playing at the bar on the corner, they’re also part of the founder class.

Paul O’Brien (24:33.259)
Yes, I’m sorry to say it, all of you people who think the tech bros are awful. The fact is people who do creative, innovative work, whether it’s in music or film or coding or apps or restaurants or food, you’ve heard of Siete in Texas, haven’t you? A billion dollar fricking exit. It’s not a business. Why is it not a business? It was a startup because they put together ingredients for chips that no one ever put together before.
which arguably was probably dumb. Why? Because selling corn chips and potato chips is really, really easy. Well, they didn’t do that. They didn’t just make another product line selling chips. They went in a completely different direction. They were a startup. had to figure out how to make it work. Those are startups. And it’s important to appreciate the difference because again, when you talk about the investor class or the real estate class, if you want to participate in the startup world, we’re not just following the existing playbooks. We’re not just following the existing business models.
But that doesn’t mean there isn’t one. We do know what we’re doing. The difference though is in the business world, you could argue that we can be certain of success. That really the only reason that businesses fail is because those businesses don’t have the experience, didn’t follow the business model. They’re stubborn, right? There’s some stupid reason that you open a restaurant where? Why would you open that restaurant there? Obviously that’s not going to work there.
You’re going to look at a restaurant, you can decide whether or not it’s likely to succeed or fail. You can’t do that with startups. And so really all we do with startups is we reduce the likelihood of failure as much as possible. And so there are playbooks to do that. And that’s why you hear things like lean startup or product market fit. You hear things like market validation or customer validation. These are all techniques that we use to address the fact that we can’t just write a business plan.
and shop that business plan around to the banks and get some funding and start a thing. Because odds are most of what we’re going to do is fail. Most of what we’re going to do along the way is fail. The music that we’re putting together sucks. My triangle broke. What do I do now? I can’t afford to do one. These things are going to happen that don’t work out. We discovered that we were wrong. TikTok videos are dumb. We should be doing Twitter live streams for our music.

Paul O’Brien (26:54.967)
Well, who knew, right? We didn’t know that until we discover it, until we uncover it. And so instead, what we’re doing is we’re focused on finding investors, mentors and advisors, startup experienced folks who know how to avoid the mistakes, know how to avoid the pitfalls, know how to scale very, very efficiently. Marketing, for example, is one of those things. Marketing effectively is free, everybody.
Market effectively is free if you know what you’re doing. And so in the startup world, we’re looking for those people who know how to do the kind of things that are necessary to market a new innovation because it’s rather silly for us to go spend money promoting it when we don’t yet know exactly how it’s going to work and whether or not it’s going to work. But we still need those people who know what they’re doing to iterate and try things and test things as efficiently and effectively as possible.
to eliminate the fails really fastly to start to get churned with regard to the stuff that works. Seed investors, by the way, angel investors or seed investors, as opposed to venture capitalists, that distinction is critical because we need the seed angel investors who know that that’s what we have to do. I’m gonna take your money and I’m gonna throw it at a lot of things and see what sticks. Banks don’t do that, banks hate that. But angel investors, that’s exactly what they do. And so we need them.

Bryan Hancock (28:17.948)
Bye.

Paul O’Brien (28:21.569)
And they’re not the same as VCs. VCs are looking for things that are further along. They’re validated a little bit. So if you’re in the venture capital world, I know you’re not gonna be happy with me just throwing money around to see what sticks, but we still need money to throw around to see what sticks in the startup ecosystem because that’s the only way to try things. You might think of startups as effectively starting as R &D. How do you get things off the ground that are completely new? We have to fund R &D. Can I guarantee that my R &D is gonna work out and be successful? Absolutely not. I can’t. Absolutely not.
But I can guarantee that if we don’t do it, we won’t find new solutions. So you only want to participate as an investor in the startup class or in the founder class if you appreciate that you are helping fund R &D so that we can discover what is new and better than what we’re doing today.

Bryan Hancock (29:8.769)
I mean if you are a aspiring startup person, mean are there metrics you can look at to be able to measure these things? know, Austin has this much seed investment versus San Francisco versus Boston or whatever the other hubs are.

Paul O’Brien (29:23.753)
Yeah, what’s fun about this sector of the economy is that there isn’t much study about it. If you appreciate the economic side of industry, most economists focus on either micro or macro economics in a broad sense, or they focus on corporate development or workforce development, or they’re at a chamber of commerce, or they work for the city. So how many people actually study how startups work?
dozens. mean, literally, it’s in the dozens. Are there metrics related to that? Yeah, there are. You know, for example, if after seven years, we’re not seeing venture capital coalesce, that’s a red flag. How many times should we take a shot at fostering startups in our community and in our ecosystem, before we acknowledge that the venture capitalists aren’t showing up to fund them? Maybe something’s wrong, right? Or
If we have an incubator or an accelerator in our community, are we looking at the volume of businesses started? Which is what’s typical in a small business program or it’s typical in a city program. Look at how many new businesses we’ve started. Banks look at that metric. Look at how many new businesses we’ve started. This is wonderful. Why the heck would I care how many businesses have started? It’s really easy to get people to start startups.
The more appropriate metric is how many succeed, how many create jobs, how many get acquired. And so we look at late stage metrics instead of early stage metrics that if you’ve got an incubator and it’s pumping out a hundred startups every six months, I look at that and go, so what? How many of those have resulted in successful companies? And it’s an important metric because we know that roughly 90 % of all startups fail.
And so when you have a startup program in your town, if 80 % or 90 % of all of those startups are still failing,

Paul O’Brien (31:32.204)
Red flag, like maybe that program isn’t doing a very good job. Maybe that program doesn’t know what they’re doing. Hopefully the city isn’t funding that program because it’s not making a difference. You see that the metrics indicate the successful development of a company, not the start or volume of things that we’re getting going. And it’s a little difficult to discern those things because it takes time. It takes at least
a couple of years to start to discern whether or not the efforts that are had by angel networks, by venture capital firms, by startup development organizations, takes a couple of years at least to discern whether or not they’re effective or not. Luckily, in a place like Austin, we’re at that point, we’re well beyond that point, we can tell now whether or not programs are effective, whether not the city should be doing more. But if you think about it at large, Dallas isn’t at the same point, San Antonio isn’t at the same point.
And so we’re still looking at those ecosystems in Texas to figure out if they’ve got the right DNA, if they’ve got the right experiences, if they can put the right programs in place that are important for what those ecosystems have to offer. It’s gonna take some more time before we actually figure out whether or not they’ve figured it out.

Bryan Hancock (32:44.731)
And I haven’t been tracking this as much recently, but I know Austin used to have like Techstars and places like this. I don’t know if we ever had a Y Combinator class here.
you find that if you can drop something like that into a different city that it’s effective? are those really more phenomena that work in that location and the way that they operate maybe doesn’t work in a different location?

Paul O’Brien (33:12.333)
Yeah, that’s a that’s a wonderful question. Because the what we know with certainty is that your ecosystem needs a diversity of those programs. Now, what is the diversity? Who knows? It depends on the sector you have there. It depends on the experiences you have there. It depends on the culture you have there that you touched on something meaningful that I hope people caught in your your tense, Brian. You’re right, we used to have a tech stars here.
What happened? That I argue, you can argue that Austin still sort of lacks what you would more accurately refer to as the incubator stage of programming. We’ve got a lot of accelerators and Techstars is an accelerator. Well, accelerators have to be able to work with something. Accelerators should only exist when you’ve got a high volume of early stage startups that have been validated and now need
growth capital, marketers, PR, sector access, that kind of thing, because hopefully you’ll catch it. It’s in the language. It’s an accelerator. Its purpose is to accelerate the stuff. Well, if you don’t have the stuff that’s there, or you don’t have the people or the capital or the experience that knows how to do that, your accelerator is going to fail or fall short of what it hopes to accomplish. Why do we have a lot of accelerators in Silicon Valley?
because they’re at that stage where people know how to get things across that initial finish line to the point that I’ve got something that I’m ready to scale. Everyone knows how to start stuff there, if effectively and efficiently, which is not to say Austin doesn’t know what it’s doing. It’s that again, Austin’s only maybe seven to 10 years into the first cycle of the new economy. And it’s gonna take a couple of cycles before there’s enough experience here.
So what we lack or what we need more of are what you would appreciate or think of as incubators that are helping people start things. They’re helping people learn how to do marketing without a cost. They’re helping people validate ideas very, very quickly and efficiently. That we need to get more founders in our ecosystem past that first tranche. And while we’re referring to them as the founders that need to get to that point.

Paul O’Brien (35:35.086)
hopefully you recall what I said about teaching the investor class or teaching the wealth class. What we actually also need much more of is teaching the investors the different expectations at each of these stages. That again, if you want to invest in startups, that’s great, but investing in a venture capital firm or through a venture capital firm is drastically different than being an angel investor. It’s drastically different than being in a seed fund. It’s drastically different than being in an angel group. And if you’re not familiar with the differences, I am telling you,
we don’t want you involved because you will screw up the process by being an investor who wants this kind of stuff when you’re participating at this stage over here, that you’re misleading everybody by setting expectations that are inconsistent with the way things work at that stage. Pointedly, if you want to be an angel investor, you have to be ready to lose 90 % of your money. You have to know how to very aggressively scale things. You have to know how to connect people very effectively.
You have to know how to discern new inventions that are meaningful from new investments that are wasteful. Most people can’t do that. And so if you want to be a startup investor and you’re in that group of people who can’t do that, go talk to a venture capital firm and invest through that venture capital firm. Do not be an angel investor, please. That discernment is critical, but it’s critical because again, we can’t enable the entrepreneurs and the founders to waste time. We can’t enable them to…
make mistakes that are dumb mistakes. can’t put them in an environment where they’re getting the wrong advice because they don’t have the resources to make those mistakes. We want to be as clean and efficient as possible by connecting people in the right places.

Bryan Hancock (37:19.505)
So Paul, think a lot of our listeners are corporate executives or people that maybe are trying to make the foray into entrepreneurship.
probably are very effective at leading and managing large teams or organizations that somebody else has built. What advice would you give those folks if they’re trying to make them leap to learn to go operate something from scratch and sort of grow something from birth? And how are those skills different than what they maybe are used to exercising in the corporate world?

Paul O’Brien (37:55.568)
Start with the last question, last part of your question.

Paul O’Brien (38:1.997)
appreciate again that my world is completely different than yours. We don’t have any playbooks. We don’t have any rules. There’s no HR. There’s no budget. There’s no boss to make the decision or take the fall. It’s all on you. All of it. You are a chief technology officer at a big company who would like to be doing startups. It is all on you, which means you better learn how to do marketing and sales and graphic design like right now.
because you are individually and solely responsible for that. You are. Now, does that mean ultimately that you have to do it all? No, of course not. But if you want to be in the startup sector, the fact is you have to be conscientious of your obligation and your responsibility to be able to do all things. One of the sayings that we have in the startup world is that it is your responsibility to take out the trash. You’re not going to hire somebody to do it. There’s nobody to clean up the office.
Your job is literally everything. And that’s a big leap of faith for people who are used to or have experience or are comfortable with what their MBA taught them or what their HR department takes care of for them or what the process is in the company. None of that exists. It’s all out the window. By the way, including the fact that, appreciate again why startups are the ones that actually create
new jobs. Because in our world, our objective is to break your business model. Our objective is to put you out of business. It really is. But we look at the way things are done. And we go, well, that’s silly. Why don’t we do it differently? Why don’t we do it better? Well, how do we do that? Well, we’re going to have to take down the big existing companies that do it a certain way. So we quite literally have to think differently than than the existing stakeholders in a sector, including can we completely change public policy?
Maybe we should go through the government and break things. Maybe we should break the law for a little while. Is AI stealing content from other people? Yes. Is it illegal? mean, technically in the United States, it’s illegal, but it’s not illegal in China. So if we want to build AI that is capable of competing and doing something cool in that sector, what do we do? Do we have to play by the rules or do we have to go,

Paul O’Brien (40:31.755)
It’ll sort itself out, right? You have to be comfortable with that. And ultimately then to answer the first part of question, how and where do you get involved? Don’t go it alone. Don’t try to start your own thing in isolation. There are lots of people like me, like Brian, there are lots of people like me who have experience in what it is that you would like to be doing.
And you’re kind of bringing us full circle, Brian, to where we started the conversation talking about media tech a little bit, or talking about those collaborations or connections that we hope to make in an ecosystem. What you do is you find, you figure out what sector it is that you want to be doing something. Which again, is not tech. It’s not a startup. The sector is maybe it’s real estate tech. Maybe it’s music tech. See, it’s real estate or it’s music or it’s pharma. And you want to go find that community. And that community is more than happy to embrace you.
I assure you, because we are constantly looking for the executives and the investors and so forth that have experience in and want to change what it is that we’re trying to change. We’re trying to make better. And so you can literally just show up at that office space or that community space or that meetup and say, hey, look, I have an idea and I want to try something, but right now I work at Dell and I’m not really sure how to get started.
And I guarantee you within 24 hours, you will have 10 people saying, well, here’s what you could do. Why don’t you work with me or do know Brian, we should be doing this stuff together. You get plugged in very, very, very quickly, but you do it to be clear. You need to do it in the sector that makes the most sense. Cause if you go show up at the startup hub, if you go show up at the tech center or you go show up at the innovation center, you’re going to run into a thousand different people doing a thousand different things. And that coming out of the executive sector, coming out of the corporate sector, that’s going to mislead you.
Because you’re going to hear people give you advice based on the way it works in their sector. And that’s not necessarily what’s appropriate to what you want to be doing in your sector. Startups are not all the same. Startups are very, very different by context and by sector that they work in. Again, that should be very evident in Texas because working in the oil and gas industry is not at all like working in the music business, is it? So if you’re doing tech in either one of those, you just take the tech advice and put it to work in oil.

PPaul O’Brien (42:56.341)
when all of your experience is in music? No, you can go talk to the energy guys or you go talk to the music people and they guide you as to how to do it most appropriately. Don’t make the mistake of getting misdirected by the people that don’t know what they’re doing in whatever it is that you wanna be doing.

Bryan Hancock (43:13.893)
All right. Well, hey, Paul, I think we’re almost out of time here. Is there anything you wanted to leave the listeners with before we depart?

Paul O’Brien (43:22.469)
I would only encourage that if any of this resonates with you, I don’t just talk about it. I write about it. I expose it a lot. I’m known as a startup economist. And so my website, if you just look up startup economist, I should show up on LinkedIn or Google or whatever. If you ever want to explore the upside down perspective that it takes with regard to your economy, your sector, your industry, the technology in that space, that’s what I’d love to do. If you bring me a pitch,
For an idea, the first thing I’m going to do is I’m going to rip it to shreds. I’m going to tell you why it’s wrong. Because again, in innovation and entrepreneurship, we’re trying to help people avoid the mistakes. We’re trying to help you avoid the likelihood that you’re going to fail. And it’s not helpful for someone like me to just say, hey, that’s a great idea. Good luck. Go talk to more customers and maybe find an investor. That’s not helpful. I’m going to tell you what’s wrong with it so that you can focus on the things you need to do to make it successful.
as opposed to wasting your time on the stuff that we already know doesn’t work. So look me up, I’m happy to connect and I’d love to have those kinds of conversations with everybody.

Bryan Hancock (44:27.687)
Hey Paul, this is great man. Thanks for the time, did I ever have to do this again.

Paul O’Brien (44:32.415)
Anytime and same to y’all. Look up online. Cheers.

Bryan Hancock (44:36.765)
That’s the executive connect podcast folks.

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