The best accelerator in Iowa

I recently pinpointed my earliest experiences with Customer Acquisition Cost (CAC)—even though I wouldn’t know the term for it until almost 15 years later.

I had my first business at the age of 10, selling sports cards with my cousin. I had (and still have) binders upon binders of NFL cards featuring legends such as John Elway and Brett Favre; MLB cards featuring legends such as Derek Jeter and Ozzie Smith (my favorite baseball player of all time).  While we would set up at sports card shows in malls throughout Southeastern Iowa, we started out by selling single cards. People would walk up to the table looking to complete sets or looking for their favorite athletes.

It was a straightforward business. I’d trade with friends and cousins ahead of a show, and I’d buy packs of the new sets as they hit store shelves. Clearing a few hundred bucks in a weekend at 10 years old was great. But one day I found myself walking into Jason’s Sports Cards in the Ottumwa mall, to discover a giant plastic bin the size of a kid’s swimming pool. It sat smack in the middle of the store. I walked up and peered into the bin, to discover hundreds of brown bags. The sign read “Grab Bags $1 each.” Jason walked over to tell me he had inserted 3 game worn jersey cards into the 300 total grab bags. Each of the jersey cards were worth $50+ at the time. All the other cards were considered bulk; maybe they’d be worth the $1 in total, but they’d be really hard to sell and get rid of later on.

ASIDE: This is a good situation to think about Expected Value (EV). If 1 in every 100 grab bags have $50 in value, and we consider the bulk to be a loss, our EV of buying 1 grab bag for $1 is $.50. At the end of the day, if you walked in and bought all 300 grab bags for $300, you’d receive $150 in higher end cards. So why do people play this game? The variance. You have a chance to buy 1 grab bag, to pull 50x the value. Just like lottery tickets.

Jason told me to pick out 2 grab bags from the bin for free. I picked 2, furiously opened them up, to discover just bulk. But then my odds to pull a jersey card had gone up, right? So I bought 5 more. Then 5 more. Then 5 more—where I finally lucked out and pulled one of the jersey cards, after spending only $15. I loved the concept.

By the next card show, I had introduced grab bags at my table.

When Jason told me to pick out 2 grab bags, that was his cost to get me as a grab bag customer.

Just a few years later as a teenager, I’d discover the exact same approach at Spud’s Emporium of Comics and Games. When someone would walk into the store, Jeff (the owner) would determine if they were interested in comics, cards, or games. If it were comics, Jeff would often toss them a #1 of a new title. Months would go by and I’d see that same person back in the store, now a dozen plus comics into that new series. The same went for card games such as Magic: The Gathering or Pokémon. Jeff would give them 1 or 2 packs at no cost.

That’s CAC at a basic product level, but now I want to switch gears to CAC at a much different level. A level that doesn’t just create value from a product, but value from a location, for a location and its future value.

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The year is 2016. KinoSol has just been accepted into CYstarters’ cohort #1, a summer accelerator program here in Ames. The program accepts current Iowa State University students and recent graduates. If your company is accepted, you receive office space, resources, structured training for the summer, and a check. The check for companies in cohort #1 was $12,000. No equity was taken.

The program is run by Iowa State University alum, Diana Wright. Diana is a connector and can help anyone to think more clearly about their marketing and story they want to share with their customers—an ideal leader for the program and the stage the cohort companies are at.

Outside of the program being run by Diana and an awesome team, there are 2 reasons why I believe CYstarters is the best accelerator in Iowa.

The 1st reason is their focus on CAC.

On the surface, that check for $12,000 (nowadays it’s more per company) covers the founders’ living expenses for the summer. It gives them the flexibility to focus on their company and product (and hopefully customers). But what if Iowa State University saw the opportunity to pay a handful of smart, ambitious people, to work on something in Ames, over the summer?

If you start a company in location A, and your first customers are in location A, you’re WAY more likely to build and grow the company there. On the other side of CAC is Lifetime Value (LTV) of a customer.

If there were 10 companies, each receiving $12,000, that’s $120,000 invested into that group of founders. What if just 1 of the companies found traction, grew their company, hired more people, and stayed headquartered in Ames for the next 10+ years?

More jobs, more sweat equity, more chances to recruit and keep graduates in the area. More opportunity for Ames to benefit.

Iowa State University’s CAC may have been $120,000 for the overall program in cohort #1 (+faculty costs). That cohort was PACKED with talented, great people. Many of these individuals have gone onto start other companies, join other companies, and to have created value from right here in Central Iowa. Some of have left the state, some have left and returned (and even joined the CYstarters program team!), and many have stayed as their companies have grown here.

Photo via Ames Tribune. Demo Day for CYstarters Cohort #1, summer 2016.

I’d expect the LTV of a founder staying in the area, contributing to Ames and the local economy, is worth 100x what was spent to acquire them.

That’s an awesome model. It’s working right here in Ames. This summer will be the 6th cohort. At 5 cohorts in, here are 2 amazing stats provided by Diana Wright.

·       64 companies have completed CYstarters to date

·       $533,500 has been given to companies (again, no equity taken) to date

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The CAC-to-LTV for the program is phenomenal. If you’re wondering about other programs or locations that have maybe figured out CAC and LTV at the grandest scale, look no further than the Mayor of Miami, Francis Suarez. His “How can I help?” approach to tech titans relocating from California is increasing Miami’s future tech hub value by 100x right now. How far should the state go in tax incentives? They could go (very) far and still keep a great CAC-to-LTV ratio.

Miami Mayor Francis Suarez, engaging on Twitter in the clearest possible way.

Another example that I’ve been excited to follow along with is what’s happening in Wyoming. Caitlin Long founded Avanti, the first crypto-native bank in the US. I can only imagine how many crypto companies will register and begin doing business in the state in the coming months and years. That CAC-to-LTV ratio may be even bigger than Miami’s, and from following along with Caitlin’s journey, I am 100% convinced she’s the perfect person to be leading those efforts.

If you’re wanting to grow your community and its future value, what are the costs in keeping talented and ambitious people there, while encouraging others to come to you?  

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Now for the 2nd reason I think CYstarters is the best accelerator in Iowa.

When CYstarters’ cohort #1 kicked off, we were all sitting in a conference room in the Iowa State University Research Park for orientation. When it arrived to me to introduce myself and to speak about what excited me the most about the program, I spoke about the opportunity some of us would have working with each other on various projects and startups. The future strength of the program was in the network. A network that would grow year-after-year. Not only from cohorts, but also from mentors and other partnerships. If I were to recruit for a startup, I felt the CYstarters network would be the first local group to start with. Some of the best early employees are previous founders.

Over the past 5 years, that’s come to be true for Nebullam. Fellow cohort #1 member, Mahmoud Parto, joined Danen and I as Co-Founder at Nebullam in 2017. In January of this year, Nick Herrig (also a fellow cohort #1 member) joined Nebullam to lead all our software engineering. As I write this, we’re in the middle of recruiting a 3rd CYstarter alum from a different cohort. It’s incredible to see the program payoff in this way.

When I asked Diana Wright about the CYstarters community and cohorts’ strengths, she responded with:

“I believe the community is so strong because of how intentional we have been in creating it.  As you know, it takes many people to build a company.  Think accelerators, funds and investors, entrepreneurs, university researchers, industry professionals, and mentors.  Now add in the CYstarters alumni network, and there is no doubt in my mind that the startups in CYstarters (and future ones) have a greater opportunity to succeed.  For me, my proudest accomplishment to date is the relationships I have gotten to have and continue to stay connected long after a CYstarter goes through the program.”

Being intentional in how the CYstarters community has been created has been a homerun. Well after a cohort ends, there are 2 simple-but-powerful touchpoints to keep the network’s strength intact and growing.

The first touchpoint is the CYstarter Insider, a monthly email Diana sends to past cohort members which highlights CYstarters in the news, job postings, new product launches, and big life event congratulations such as weddings and kids being born. This newsletter has brought us customers, team members, and new friendships—and many members closer together throughout COVID.

The second touchpoint is Breakfast Club, a bi-weekly event where past cohort members can show up to share the highs and lows of how they and their company are doing. These events are key for cross-pollination between cohorts. This event allows me to put faces to the monthly email, and then interact with each of the other 50+ companies I previously didn’t know the founders of.

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If you pay an awesome individual or team a small amount of money to work on solving a problem over the summer, the downside is only the $ being lost. The upside is network, economic change, lifelong friendships, and amazing products and technologies being launched from Ames, Iowa, for the world to utilize.

CYstarters is the best accelerator in Iowa because it has an amazing CAC-to-LTV ratio.

By you reading this post right now, you’re helping the CYstarters community to continue to grow. For paid subscribers, your $ is going directly to CYstarter scholarships, beginning this summer. Why? I want to sweeten the pot for companies to be encouraged to stay here and build here, and I think offering a surprise couple of scholarships may provide a 100x return for Ames.

If you’re enjoying this newsletter and aren’t yet a paying subscriber, please consider ponying up $10 per month, so we can help more founders to keep building.