The Brokovich effect; energetic amateurs making a difference

November 11th, 2011 → 8:39 am @

We all love stories of people with boundless energy who take on the established order, triumphing against the odds.  The story of Erin Brokovich stirred us because she was such a person, and it reinforced the notion that you can start off knowing little, learn as you go, and win your day in court.

That same enthusiasm for the untrained, naive underdog pervades the business start-up industry.  It’s somehow more thrilling to see a high-school dropout doing well than to see a person with a business degree and ten years industry experience succeeding. That’s natural because all good sagas include overcoming adversity as part of the story… the bigger the adversity, the better the story.

But I don’t build companies to create epic stories.  I’d rather see my companies march to success on predictable paths, with highly skilled and experienced teams.  There’s plenty of drama in the process of starting a business, and I don’t seek out more.

When I look at the successful start-ups I’ve been involved with, the most successful all had experienced teams, and usually had experienced founders.  The failures were overweighted with naivete and lack of technical or business qualification.

One founder  explained very carefully to me why youth was a primary requirement in his Games development company.  He said they were more creative, and weren’t constrained by the way things had been done before.  I think he’d been watching too many televised sagas about untrained business founders; stories which often ignored the boringly experienced people who provided the ‘engine room’ of the company.  He went broke… but I guess he gained some experience at his investors’ expense!  So, much as I enjoy the Brokovich effect in stories, I’ll continue to stack my companies with as many experienced team members as possible.   Not great TV, but good for the bank balance.

Entrepreneurship &Start ups

Living as an entrepreneur

October 26th, 2011 → 4:32 pm @

My mother is dying.  I’m in an airport lounge typing a blog between flights as I head to her death-bed.  A couple of days ago she said to me, “I don’t know why I bother.”  She was referring to how tired she was of being alive, yet incapacitated.  And I guess she’s now decided not to bother any more. (more…)

Entrepreneurship

The benefits of entrepreneurship

October 10th, 2011 → 1:07 pm @

David the tiler is laying new floor tiles in my kitchen.  His wife, Frances, is crouched outside the back door cutting the tiles.   Steve the gardener is trimming bushes in the back garden.  It’s cold and windy, and I feel sorry for Frances and Steve.  Their miserable work environment reminds me of a time many years ago when I was a Lineman, sitting atop the cross-arms of poles on bitterly cold mornings, and trying to keep my fingers warm as I worked on the wires.

Yesterday, David and I had a coffee break together.  He told me that he’d thought about expanding his tiling business but didn’t want the added risk that came from employing staff. Steve also prefers to keep his business a ‘one-man-band’.  In their efforts to minimise their hassle and risk Steve, David and Frances have become dependent on other people taking risk… and succeeding.  This year the farmers are doing well and, thankfully, spending.  Without the risk-takers… the farmers, manufacturers, and entrepreneurs, times would be very tough for David, Frances, and Steve.

It’s appropriate that risk-takers, including entrepreneurs have the opportunity to earn a lot of money from their efforts.  But it’s more than ‘appropriate’… it’s also necessary.  Without the ‘excess profits’ (to use the economic term) from entrepreneurial activity few people would bother taking all the risk and enduring the hassles of building innovative businesses.  And without the successful entrepreneurs, there would be less work for David, Frances, Steve, and the many thousands of other people who benefit from discretionary spending by value-creators.

There’s certainly nothing novel in the idea that the excess wealth created by entrepreneurs ‘trickles’ through the economy.  But I was reminded of it again today.  If I was still a Lineman, then David, Frances, and Steve would be worse off… and I’d have cold fingers.

Economic Development &Entrepreneurship

My wife doesn’t understand me!

September 26th, 2011 → 10:20 am @

My wife and I sat in the conservatory this afternoon, enjoying a cup of coffee and watching the light sparkling on the water of the harbour beside which our house is nestled.

She asked me about an entrepreneur I am working with… what was he like?  I probed her questions to understand what she was really asking.  She had seen the drive, energy, persistence and other desirable behaviours shown by the entrepreneur; but she also saw his weaknesses.  He sometimes seemed out of synch with other people’s ways of seeing the world, leading to communications problems and to people distrusting him.  He was impatient and had unrealistically high expectations of other people.  He talked of what could be as though it already was… did that verge on lying?

I reminded her that entrepreneurs are  typically an unbalanced bunch.  Nobody can be everything to everybody, and it’s unrealistic to expect someone as focused and driven as a high-growth entrepreneur to be ‘normal’.  Nor would many ‘normal’ qualities be of much use: Great patience, and acceptance of the frailties of others are admirable traits in school teachers, but they won’t get a high-performing team assembled and able to deliver dynamically developed products with inadequate resources and against near impossible deadlines.

She accepted my answer, but I felt she was waiting for more.  So I said, “Take me for example…”  Her reaction showed me that I’d hit on what she was really thinking about, so I continued, “…. Look at the way Stephen [name changed] behaved when I was building company X.  He was afraid that he’d be held responsible for any failure, so his focus was on avoiding blame, and ass-covering.  I was focused on sales, and on building the team.  It was inevitable that he’d see me as a cowboy who wanted to drive forward regardless of the risks, while I saw him as an anchor slowing us down.  So friction was inevitable [actually, it came closer to open warfare].

She thought about this and nodded… so I ploughed on…”Now which one of us was normal?  Stephen was making deep pronouncements about managing risk, was demanding endless reports, and refused to make decisions until he was very sure he was right…. pretty normal behaviour.  I was making decisions on the fly, with less supporting information than I would have liked, was taking calculated risks, and was asking the team to trust that my plan (being developed as we went) was going to work… not very ‘normal’ behaviour.

Entrepreneurs aren’t normal… no wonder that even our wives don’t understand us.

Entrepreneurship

Getting follow-on funding… after failing to achieve sales

August 25th, 2011 → 10:44 pm @

Several of the companies I’ve invested in have missed their sales targets and are chasing follow-on funding right now.  The Boards have different problems and different approaches to their situation:

Company A has failed to get its product sold in the market, and lost the confidence of some investors.  The Board still believes in the business’s future, and has explained to shareholders that they have a new strategy for entering the market.  Still, the shares are being offered at a heavily discounted price, reflecting the company’s failure to date.

Company B also got into trouble in the market.  In their case, some poor management, compounded by a large European partner going bankrupt left them out of cash and without a significant sale.  The Board hesitated to ask investors for more money to back a relaunch.  Instead, directors worked for many months to find a new way to leverage the company’s intellectual property… and removed the managers. They now have a new story for investors but have had to heavily discount the shares for the new round.

Company C lost both of the two main market opportunities they were chasing.  In each case the deals were lost at the end of a long sales cycle.  But, unlike Companies A and B, Company C had continued to develop an impressive sales pipeline, lodged extra patents, built a strong team, and achieved a surprisingly good brand position (for a startup with no sales!).

While Companies A and B are begging investors for more money, Company C is able to say, “Well, we missed our sales goal (and are hence out of cash), but look how strongly positioned we are!” Company C is delayed, but still on track, and investors will still be asked to fund at the rate of the previous round. (more…)

Angel funding

Finding a Champion is more than getting an endorsement

July 15th, 2011 → 12:40 pm @

Where is Sir Lancelot when you need him?  Where’s the organisational champion who’s going to drag my company’s product into his business…

I’ve just come from a meeting with a man who controls a large national budget, and also with a driver of national policy.  They’re such important executives that I’d even pulled out my suit and tie for the occasion (not something I do lightly)!  I looked just like any salesman, and even had powerpoint slides.  It was a two-on-two meeting, with us being there at their invitation… all good so far… and it got better. (more…)

Start ups

Chaos in the Cap Table

June 29th, 2011 → 2:56 pm @

I’ve just been working on the capitalisation table for a startup company.  We’re preparing a funding plan to take the company right through to IPO or trade sale, and need to capture all the commitments made now, or likely to be made, to fund the business.

That sounds pretty simple, but it’s amazing how quickly a cap table can turn into a nightmare… and high-growth companies are particularly susceptible because it’s all happening real fast. 

One day you’re sitting with a shiny new founder who owns 100% of his company, say 10000 shares, all in common stock.  The next thing you find is that you’re burrowing through a sea of obligations.  Here’s what can happen: (more…)

Angel funding

Having too much focus

May 17th, 2011 → 8:23 am @

Investors spend a lot of time keeping young entrepreneurs focused on the critical tasks.  Like a dog in a field full of rabbits, the inexperienced entrepreneur tends to run from one opportunity to another without closing any of them. That behaviour, and the techniques used by investors and Boards to keep the founders focused, are well known. 

But sometimes the need for focus can be overemphasised, particularly in the seed and start-up phases of company development.

Typically, in the seed phase, the idea is still being turned into a marketable product.  In the start-up phase a company is being organised to get that product to market.  In each case, there are typically many variables which are unknown… these may include optional features which may be important, extent of functionality validation required, size of each potential market, specific customer needs, correct segments to target, and many other factors.  Now that many companies are “born global” the variables are multiplied as geographic, cultural, and other issues become more immediate. (more…)

Entrepreneur behavior &Start ups

Speaking the other guy’s language

April 1st, 2011 → 12:57 pm @

We spend a lot of time in business, and in personal relationships, trying to ‘get our message across’.  Relationships fall apart, and deals are lost through communication failure.  I thought this morning about the difficulty of communicating simple messages about how to build a company.

An aspiring entrepreneur was sitting in my office.  I had just advised him to get his team focused around an achievable target, allocate tasks with agreed delivery dates, and manage the delivery of the target (in this case, trial customers for the product).  He was confused; “But you told me once before that entrepreneurs have to be innovative and flexible, and change the plan dynamically as they build the business.  Now you’re telling me we need to decide exactly what to do, and stick to it.  Which is right?” (more…)

Mentoring entrepreneurs

Sell value, not benefits

March 11th, 2011 → 5:40 am @

We’re in San Diego, meeting with potential business partners. We’re holding court in a hotel, and doing 2-3 meetings per day… that doesn’t sound like a lot, but these are multi-hour strategy sessions, which require preparation and post-meeting follow-up.

Today we met an industry insider who’s looking for a piece of our company. He said, “Don’t worry about getting meetings with big players; that’s easy… the important thing is to have a value proposition which makes them a buck with relatively little risk.” His next move was, of course, to point out that his position within the industry left him well placed to help us to prepare a more powerful value proposition. But, regardless of his motives, his statement was absolutely correct.

Start-up companies frequently focus on getting the big meeting with the company they hope to work with, and neglect to prepare their value proposition adequately. They arrive at the meeting with a long list of benefits, and hope to inspire the target company with the same enthusiasm the start-up has for its technology. Occasionally that approach works. But a surer way is to examine the target company’s strategy, and work out how the benefits brought by the start-up can be gained by the company at relatively low cost, and with relatively low risk of negative fallout (bad press, internal strife in the company, dissatisfied customers, political interference… and so on). Then draft a financial model for the target company. Now, when you walk into the meeting with the company’s managers, you can show them the return on investment they can expect, as well as how all the downside risks will be mitigated. If you’ve really done your homework, you’ll also be able to show the target company how your offering fits into their current strategy, plus why and how they can roll it out right now. That’s much stronger than just promising a raft of benefits, and leaving the target company to ‘fill in the gaps’.

The industry insider was right; it’s easy to get meetings… the hard part is to be properly prepared to bring real value to the target company.

Start ups