Lab Notes

Why We Build Startups

I’d like to start this article by making a case for why the University of Minnesota should strongly consider retracting my MBA.

Consider the evidence:

In March 2009, the U.S. economy was in a tailspin; perhaps in the 2nd round of a 12-round prizefight that would pummel the country for years to come. That same month, A.J. Meyer and I launched GoKart Labs, our digital invention lab. After all, what clients wouldn’t want to spend money on cutting-edge digital concepts during the worst economy in 80 years? We couldn’t lose!

This was my second startup in as many years. Yes, I was launching another business while my first was still in its infancy.

Within 6 months of launching itself, GoKart Labs launched two more startups within the same walls: Sophia Learning, a first of its kind peer-to-peer learning platform invented by GoKart, and BringMeTheNews, a curated news model invented by Rick Kupchella, a long-time Twin Cities investigative journalist and news anchor. (Again, who wouldn’t want to be going into the news business during a time when so many papers were being shuttered? Are you picking up on my sarcasm?)

So, by the end of 2009, we were operating an education business, a news business, a music business (Rumble) and a digital invention lab. All four were less than 18 months old and unemployment in the U.S. had doubled in that same period.

Surely the business school gods like Porter, Kotler, and Collins would be shaking their head in disgust by this point in the trial, right? Case closed. MBA retracted. And it’s really no surprise to those who know me, as my inability to focus on one thing is well-documented.

So why do it?

Well, in the spirit of offering a defense (should it please the court), let me submit the following:

In 2009 and 2010 (the deepest valley of the Great Recession), Sophia and BringMeTheNews accounted for nearly two-thirds of GoKart’s revenue and allowed us to aggressively add talent when everyone else was shedding it in order to cut payroll costs. It was like Digital Moneyball and we were Billy Bean.

Sophia Learning was ultimately sold to Capella Education Company in 2012 (NSDQ: CPLA).

BringMeTheNews was ultimately sold to Go Media, a division of the Pohlad Family Companies (owners of the Minnesota Twins among many other holdings) in August 2015.

Truth be told, launching 4 companies in 18 months nearly killed me and is clear evidence of my fundamental disability to ignore things that fascinate me.

Today, GoKart Labs employs more than 50 of the best-and-brightest digital minds in the north and a number of these superstars joined us precisely because of our startup activity.
According to Inc. magazine, GKL is one of the fastest-growing private companies in the U.S. and has been named one of Minnesota’s “Best Places to Work.”
Today, we serve a list of clients that humbles me to the core, including the Mayo Clinic, Target, National Geographic, U.S. Bank, and Laureate Education (the world’s largest higher ed provider).
Most importantly, many of these category-leading clients proactively reached out to GKL precisely because of the innovation displayed in our startups.
It may be that my partners and I were crazy. But it worked. And it continues to work.

So, was ignoring traditional wisdom our plan all along? Have we discovered a new growth model that business schools should be teaching? Of course not. I’ll confess openly that the strategy of inventing our own clients and using them to attract talent and more clients was not planned. Truth be told, launching 4 companies in 18 months nearly killed me and is clear evidence of my fundamental disability to ignore things that fascinate me. (I’m an entrepreneur, after all). Sophia and BringMeTheNews were both just too compelling and too fun to pass up! I felt like if they didn’t get launched, I’d never be able to live with myself.

No, this was not an intentional strategy. Instead, what happened was what another business school god — Mintzberg — would call Emergent Strategy. If you’re unfamiliar, emergent strategy is :

“a realized pattern [that] was not expressly intended in the original planning of strategy. Emergent strategy implies that an organization is learning what works in practice.”
In other words, my partners and I unintentionally discovered a great situation and were smart enough to recognize it. And ever since then, we have continued to learn about the power (and perils) of continuing to behave like a startup and propagate more of them at GoKart Labs.

Today this strategy is absolutely intentional.

Despite the entrepreneurial A.D.D. that A.J. Meyer and I share, GoKart Labs is run with tremendous discipline. We adhere tightly to the “Traction” operating model evangelized by Gino Wickman. As part of Traction, we regularly update both our 10-year and 3-year vision for the company.

We insure that soft ideas get killed quickly and strong ideas go faster. By the time something gets to launch, we feel confident in the opportunity.

In our 3-year vision, we clearly state that by the end of 2017, at least 2 of our clients will be companies we have either created or co-created. And every week, our Leadership Team spends time discussing and tracking our measured progress toward that vision. Intentionality.

Why? Having made it through our startup days, why does GoKart Labs remain committed to creating and launching startups? Three key reasons:

1. Done right, it’s good business.

Over time, GKL has developed a formal stage-gate process to manage and monitor the ideas in the pipeline. Any employee can advance an idea and funding and time is granted based on key criteria. By staging this and tying further funding to specific milestones, we insure that soft ideas get killed quickly and strong ideas go faster. By the time something gets to launch, we feel confident in the opportunity.
Just like any service business, GKL invariably ends up with some “bench time” when our employees aren’t booked on client work. Being able to assign this time to our own ventures is a huge positive for us and keeps the team fully engaged.
At least four of our startups have garnered outside funding. Between this funding and the fact that most of our ventures are revenue-generating from the start, we truly are creating our own clients.
If you think we’ve seen our last economic bubble, I have $1 trillion in student loan debt I’d like to talk to you about. There’s absolutely more trouble ahead. Let’s just say that growing our own garden makes us less likely to starve in a downturn.

2. It strengthens the right muscles, not just the “beach muscles.”

Launching startups keeps people around GKL honest and helps us avoid the tendency of many agencies to focus on beach muscles. These are the muscles that look great, but aren’t very useful.
Great ideas are sexy and can win awards, but building those ideas into businesses that create real jobs and make real revenue? That’s what our clients require. And doing it requires muscles that really matter. Core muscles. Simply put: if we don’t keep working those muscles, they will atrophy.

3. It makes us interesting.

I’m a firm believer that if you want to be interesting, you have to be interested.
Our focus on startups keeps us constantly scanning the horizon for new trends and new opportunities. It keeps us curious. And, most importantly, it attracts curious people to us (double-entendre entirely intended here).
Curious means interested and interested means interesting.
Do I recommend every agency adopt our incubator model? No way. You’d have to be crazy to put yourself through this kind of stuff (see earlier comment about almost dying in 2009-10).

Further, there are some serious perils in doing both client work and incubator work. They require cash. They devour resource hours. They invite distraction. They mandate a strong pool of startup ready talent; meaning, dedicated, full-time operators and staff — not “hobbyists.”

And don’t forget the fact that you have to be very careful about staying away from anything that competes with your clients. It’s quite a gauntlet.

But for GoKart, it’s been an experience that has turned into very intentional strategy. More simply though, it’s at the heart of our business and our culture.

So much so that when people ask “Why does GoKart build startups?” they may as well be asking “Why does a fish swim?”

It’s what we do.

A stirred—not shaken—cocktail of cool calculation and wild creativity, Don is the high-beam examination of all things we create, build and release to the world, keeping us on-task, on-budget and all of our work on-point. He’s also a freakishly fine musician, as well as the spark that ignited an online education revolution.

  1. Hummm. Let’s just say that emergent strategy has always been around. In the military they say: your strategy is only good until the first shot is fired.