Tuesday, September 17, 2013

What Y Combinator Really Does for a Select Few

The UpTake: With its selective criteria, high-profile leadership and $1 billion examples of success, Y Combinator can easily make promises to aspiring startups. But it has the mentors and network to back it all up. The Polish founders of Estimote got one-on-one help from top U.S. startup founders, access to leaders at Google and Apple and intros to many of their target retail customers. Now they're easily raising dollars too.

The Polish cofounders of a startup called Estimote knew Y Combinator would be their ticket to the U.S. market—for funding, networking and introductions to the Fortune 500 retailers they hoped would use their unique sensor technology in stores.

What they didn’t expect was product guidance and retailer insight from Groupon’s founder and ex-CEO Andrew Mason, the technical expertise of Posterous founder Garry Tan and geo-location know-how from Sam Altman of Loopt. They also had easy access to Apple and Google, whose operating systems would have to communicate with the Estimote sensors. And they took advantage of office hours with Y Combinator founder Paul Graham.
Even with startup accelerator programs trending in cities around the world and far fewer barriers to starting a company in your own basement, Graham has managed to keep Y Combinator—the pioneer of accelerators—a top choice for launching and funding promising tech companies. And the Silicon Valley program seems to have just as much allure for the newest to join its ranks. An interview last week with Estimote revealed some inner workings of the program that inspired all the rest.

“It’s the best accelerator in the world, so we wanted to try and see if it would work,” said co-founder and CEO Jakub Krzych. “And it worked. It’s a world class brand, and a door opener when we talk to investors or customers or anyone.”

It wasn’t that the men needed much business help. Krzych built a Krakow, Poland ad network called AdTaily that was purchased in 2009 by the largest media group in the nation. His partner and CTO Lukasz Kostka is a computer scientist with expertise in smart cities and big data.

And it wasn’t that they lacked focus for their idea. Estimote is solving a problem that all retailers face. With so many products available online, customers often visit brick-and-mortar stores to see items in person and try them on, but head home to find a better deal or more options online.

Estimote’s network of wireless sensors on products within a store sense a shopper’s location and populate her smartphone screen with the product, its specs, color choices and sizes. There are deals personalized to the shopper and an option to pay for the item in the app and have it shipped home or delivered at the front of the store (for example, in an Ikea store).
The Bluetooth low-energy technology that makes the sensor operate automatically will be built into Apple’s new iOS 7 coming this fall and to mobile operating systems announced by Google and Nokia.

But the product advice that came from high-profile Y Combinator mentors was invaluable for getting the sensors into the hands of customers during the three-month accelerator. Thousands of $99 packs of three sensors have been sold online since July and Estimote expects to soon announce pilot projects with some of the companies on that Fortune 500 wish list.
Their key advice: Get the product into the hands of customers, and fast. And it fit pretty seamlessly with Y Combinator's motto (and the tagline on its hand-out t-shirts): Build Something People Want.

“Andrew (Mason) said that we should always start with the customer and try to understand what kind of problem they have when they walk in a Walmart or retail store, and try to solve that problem,” Krzych said.

Following his advice, they learned about the idea of “showrooming,” browsing, trying on and buying later online. They also learned of privacy concerns of retailers and shoppers (they’ll have to opt in to the sensor network). They built a prototype and tested it with customers daily throughout the program before manufacturing the first batch of sensors and selling them online.
“We think our sensor technology will build a bridge between the physical store and online,” Krzych said.

If he’d focused more on the customer in his previous company, it would have grown a lot faster too, he said.

All of the product testing has led to plenty of other applications for the sensors. Hospitals have reached out to use the network to track the location of doctors. Museums hope to provide supplemental information about exhibits (or perhaps to replace the audio recordings typically provided for a self-tour?).

The men have developed an operating system to go along with the sensors, and developed an API so apps can be developed on top of it. The sensors have their own processors, accelerometers and thermometers. Krzych is excited to see what people develop on top of it.
The final benefit of Y Combinator, the men are still realizing. Since Tuesday's Demo Day, they have fielded calls from all sorts of investors. They expect to close a round of convertible debt (they don't have a specific amount in mind) within weeks with investors strategic to the retail industry. They'll keep offices in Mountain View and Krakow.

“We didn’t expect Y Combinator to take our hand and show us everything,” Krzych said. “At the end of the day, we’re founders and we are the company and these are our decisions. But they have a network and experience, and it was up to us to take advantage.”

Laura Baverman is a business journalist newly relocated to Raleigh, North Carolina. Before her move, Laura spent nearly four years tracking Cincinnati's growing technology and startup scene for the Cincinnati Enquirer.

This is a repost of an article that appeared in Upstart Business Journal on August 26, 2013

Note: Jakub and Lukasz will be appearing at the YC Swarm hosted by Hive 53 on September 23, 2013 at 6:00pm at the Stage on Łobzowska 3.  Look for my report about the event next week.  

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