Startups are an Experiment

The most interesting technology startups, in my experience, are those who are trying to do something new.

In Europe, prior to the Enlightenment, one group of people who tried to do something new were the alchemists. Classically stereotyped as people who sought to create gold from base metal, they were lampooned by Tim McInnerny as Lord Percy Percy with his nugget of purest Green. His depiction was of a group of people who attempted, seemingly at random, to apply treatments and actions in order to create change.

Picture of an alchemist

The alchemists were swept away, in part, by the propagation of the scientific method throughout Europe. The scientific methods remains with us today, informing the approaches we take to discovery – and arguably creating innovation cycles that are faster than any could have imagined a thousand years ago.

Do you want to be an alchemist or a scientist? I subscribe to the latter approach over the former – and I believe that those establishing startups should view them through the lens of a scientist, treating them as an experiment

What does this mean? To me it means following an ordered process in order to best understand what you observe and maximise your chances of proving your hypothesis.

Think back to school – hypothesis, methodology, results, conclusion (no, I cannot forget!) – and take the same approach. With reference to startups, I would summarise the scientific method as follows:

  • Question – how can consumers and/or businesses most effectively complete an activity?
  • Observe – what do they currently do, what are the deficiencies to the approach?  Coupons in magazines in 2008 – why?
  • Hypothesise – we believe that businesses / consumers would use coupons more if they were online, promoted on single days
  • Create a methodology – build a site, and promote it for those interested in saving money via coupons; get businesses to provide aggressively priced coupon deals on a daily basis
  • Analyse the results – are people using my coupon site?  Is the promotion right, are the coupons offering deals in the right industries?
  • Interpret – yes, people really like daily coupon sites
  • Create a new hypothesis – people are willing to pay a monthly subscription of £15 to access my daily coupon site

New businesses are created by inquisitive minds who ask questions and observe deficiencies. However, just having a great idea (or a hypothesis) does not mean automatic success.

Consider your business – are you sitting in a candle lit room in a pointy hat, creating nuggets of purest green? Or are you a scientist in a laboratory conducting a series of experiments to prove or disprove hypotheses about businesses and consumers? I know which I’d rather be.

To VC or not to VC

My colleague Aaron came in this morning having attended a TechHub event last night.

Wow, and I thought some of my ideas were bad.  Aaron gave us a long description of a series of ‘companies’ he’d met (I put that in inverted commas because I’d call most of them ‘ideas’) – and some of them were truly depressing, and only one did not evoke the question “but…why would you want to do that?”

Most depressing of all is that the majority of these people are looking for venture capital (VC) investment.  Now, I’ve looked through a lot of VC portfolios and worked with a number of the businesses of which they comprise, and I am always shocked by the quality of some of the investments – and it leaves me asking the question “how?”

In reality the answer is all too obvious: many ‘ideas’ chasing too much cheap capital, brought about by low central bank interest rates.  The sad fact is: most of these companies will fail.  Why?  Because a) they should never been offered investment in the first place, and b) the ‘entrepreneur’s’ motivation for taking investment is misguided.

The first problem I cannot solve – if investors make obviously poor investments, and have access to the money with which to do so, then it will continue to happen.  However, I’d rather that entrepreneurs’ energies were put towards creating useful outputs.

The first mistake is for an entrepreneur to take an idea then go out looking for VC investment in the misguided belief that it is the end-state they want to achieve.  It doesn’t exist to boost egos – it’s there to support company growth.  It is no more than the enabler.  Your idea may not even need VC investment – and let’s face it, it may not need the strings that a lot of modern VCs attach to their investments in order to de-risk them (although you could question why they’d need to do this if they, as an industry, hadn’t had their fingers burned making stupid investments in the past).

VC investments in London these days often constrict the very companies they are supposed to be helping through capital.  They use debt instruments and clauses to take over companies and make the entrepreneur do what the VC thinks is right.  Do entrepreneurs really need / want that?  The only time you should be taking VC investment is when you do not need it.  I was taught that lesson by a very impressive US entrepreneur called Tim Wallace.  You don’t need the money, but it will enable you to do things faster than without it.  At the end of the day, if you need something – you are going to get screwed.

A properly planned business will take account of the trials and tribulations it may face – ‘courses of action’ and ‘actions on’ – it will consider all possible options before piling around the local VC community boring the good investors to death with rubbish, or convincing the incompetent investors to part with (what is often) someone else’s cash.

How to give your startup more power when selling to corporates

A friend of mine used to run a technology project at Tesco, working alongside a growth-stage technology company. Whenever he phoned that technology company, he represented Tesco with the full weight of its brand and its revenue potential: his calls would be answered at all hours of the day. On the other hand, even the CEO of the technology company was seen as only one element of a much wider project, from which my friend would shortly move on to the next one.

There seems to be a clear imbalance of power here. I think that this can sometimes arise from the very understandable eagerness as a growth-stage company to prove yourself and your product or service to the best and the biggest in your sector.

But growth-stage companies should remember that they have power too. And this should be reflected in your approach to potential customers.

Compare these two approaches:

  1. We have a really great product; we have experience in your sector and a proven ROI; we can save you £1m within the first year. Based on your characteristics x, y, and z we think you might be a good fit for us. We'd love to open a dialogue with you to see whether we might be able to help you
  2. We have taken funding from VC investors in order to demonstrate in the next 12 months that one of the major players in this sector can save £1m within the first year through using our product. We're going through a process of identifying which the best company would be to partner with to generate this proof. We feel based on your characteristics x, y, and z that you might be interested in exploring this with us.

The second approach creates a sense of scarcity: the startup is choosing the customer not the other way around. There is an opportunity here to save £1m, the entrepreneur is saying, but it's not open to everybody. The offer won't be around for long because our investors need to see a return. It's then up to the potential customer to convince the entrepreneur that they are the right people to capitalise on this opportunity.

Give yourself more power when selling to corporates by remembering that your resources are limited and so you have to be just as careful to select with whom you work as your customers are.

Do you have what it takes to be an entrepreneur?

Over the past few years, I have frequently heard the title ‘entrepreneur’ brought up in the context of golden career opportunities. At my own university, a lot of resources have been put into giving students the chance to learn more about entrepreneurship and potentially start their own businesses, whether it be through courses, societies, work experience programmes or seed funds. From a ‘hands on’ perspective, it is interesting to learn more about how our clients got their start in entrepreneurship and how they run their business. However, being exposed to this has really made me wonder: what fundamental qualities do entrepreneurs possess that make them successful at what they do?

Mike Southon and Chris West’s The Beermat Entrepreneur: Turn Your Good Idea Into A Great Business suggests some important qualities that all entrepreneurs have to some extent. Some of these outlined in the book include: a ‘can do’ attitude, ambition, charisma, eagerness and energy to get things done quickly, competitiveness, a touch of arrogance (i.e. knowing that you are good at what you do), and knowing how to inspire people to work with you in order to reach your goals. 

While I believe that all of these qualities are beneficial, and sometimes necessary, to have at any given point when running a business, I think there are a couple more qualities that should be added to this list. Looking at RIG and its clients, they all have this in common: they are passionate about their solution and they believe that their offering is better than their competitors’. The former can help you get through the ups and downs of starting up and can capture the interest of potential clients. The latter provides a great foundation for sales and demand generation. Recognising your strengths and knowing how to use them to your advantage can ultimately prove to be a valuable asset in taking your business forward.

“It wasn’t a question of having a grand plan, but I knew what I didn’t want to do."

When thinking about starting a new business, sometimes one of the hardest steps is to know when to take the plunge and just go for it. We asked Tony O’Shaughnessy what were his key reasons for starting his own company, ABS, and how he knew it was the right time to go into the venture:

“It wasn’t a question of having a grand plan, but I knew what I didn’t want to do. The decision to start a business was a combination of pure luck and circumstance. I had been in IT for seven years and I knew it was the right time to start. Even though ABS was an IT service provider, I knew that I didn’t want to carry on just as an IT manager, I wanted to do something different.” 

We also asked him to tell us more about the obstacles he came across during his entrepreneurial career and how he managed to overcome them:

“The obstacle to success for me – when looking back at my own experience – was my own lack of in-depth business knowledge, particularly service strategy and management. That really hurt us at one point in our development.

“If I was advising people starting up a company now, I would want to ask them if they have a clearly defined strategy, do they really know what management is about? In the majority of small to medium companies I know, the managers tend to be the best ‘doers,’ who are normally the worst managers to have.

“The steepest learning curve for me over the years was that we ended up giving people who were great doers – because they were very skilled at computer programming or analysis – a team to manage. Because we both had very little experience in management, we tended to aggregate problems. Especially with small companies, being very proactive with little management knowledge will only go so far.

“Retrospectively, it’s easy to say that it would have been useful to bring in mentors or consultants to help, but that wasn’t how we approached it. We were thinking that we had this great idea for a product or solution and we wanted to tell the world about it. What tended to happen is that we learned the hard way by running into the problem, wondering why the strategy isn’t clear, why the customer is only getting part of the message, why internal people love the company in one dimension and find it frustrating in another. It was a very long haul process about what is or isn’t a priority. Because we didn’t have the necessary structure in place, it cost us time and money.”

Networking: where do I start?

Despite the fact we live in a ‘global world’ it never fails to surprise me how localised various industries seem to remain. Indeed, the old adage, “it’s not what you know; it’s who you know” seems to remain a significant component of doing business in the 21st century. And it is with some modicum of frustration that I note that this challenge – of knowing the ‘right’ people – seemingly exists regardless of the compelling nature of your solution.

To clarify, I am not suggesting that a business will not be successful without actively ‘networking’ but rather that networking itself, or more importantly monetising those networks, remains a key component of business.

It was with this in mind, and with aspirations to replicate the success of Debra Meaden, that I began my ‘networking career’ back in July 2010 – beginning from a standing start my objective was two-fold:

  1. To identify appropriate  networking groups, forums and events through which to network into my target sectors and with key decision makers
  2. To gain access to these key decision makers on behalf of my client

Challenge 1, which I somewhat naively thought would be easily solved through a few hours of internet research was in reality rather more challenging.  Although a plethora of networking groups, forums and events exist identifying the right ones and subsequently maximising my time was a key consideration.  With this in mind I set out to find groups which met my 4 criteria below:

  1. They needed to be industry specific
  2. They needed to be attended by key decision makers
  3. They needed to be free or of minimal cost
  4. They needed to be easy for me to access

What I hadn’t allowed for in this criteria however was that the group itself need to accept or preferably welcome industry outsiders.  Indeed, as I quickly found out a significant number of groups were not keen to admit people who they saw as targeting their members with the eventual aim of selling to them – in retrospect hardly surprising.

As a result, this process was much like internet dating, involving some rejection, a little flirting to establish the relevance of each party to the other and an eventual agreement that ‘we were well suited’.

Eventually, after over a month of searching I joined two very different networking groups, one in each of my target industries.

To be continued….

Choose your customers

One of the topics I like to discuss with prospective RIG-ers at interview is what the first steps are that they would undertake to plan the demand generation (i.e. marketing) strategy for one of our typical earlier stage clients. I describe this ‘typical’ client as having the following characteristics:

  • A market ready B2B SaaS offering
  • One paying customer
  • A recent angel investment with the objective of driving sales and marketing

There are numerous mechanisms, processes, and strategies in planning the initial stages of an effective marketing effort for such a company. However, I try and guide the discussion to the central tenet of any successful plan – the fact that you need to begin by choosing your customer. This becomes remarkably obvious to the candidate when I tell them, but it is non-the-less a vital step in any marketing strategy.

The key of course, is how to invest limited resources to maximise chances of market traction. In order to do this, you want to sell your solution to an organisation which has:

  • A problem / opportunity which your product solves / enables them to exploit better or cheaper than alternatives
  • An awareness that this problem / opportunity exists
  • Available budget

Now you have chosen your customer, in which markets do you find them? What is the best way to reach them? How are you able to articulate your proposition in such a way that it is most compelling? How do you make it more compelling than going with a competitor, doing nothing at all or doing something in house? How should you price the solution and what is the anticipated return on investment? How do you navigate the complex sale?

Once you have found a way to do it, how you codify this process to drive both repeatability and visibility for the purposes of revenue predictability? What are the key hires and what can be done to ensure the optimal candidate is recruited and able to perform? When is more investment required? Would growth objectives be better met if partnerships were formed in certain areas? How are the best partners found and what management processes are needed to reduce the risks of failure?

These are all the challenges we not only advise our clients on, but actively execute for them, and they are all areas that I will cover in future posts.

At this stage in the interview, the candidates are always suitably fired up about our business!