The Startup Scene is Broken

Startup companies that turn into major runaway successes are as rare as pigs with wings.

Think of the venture capital industry as that annoying, and possibly psychopathic, teenage kid we all knew. They are standing at the top of a cliff with a handful of pigs, tossing them over the cliff, one at a time, to see if they will develop wings and fly before they hit the bottom.

Something has changed in society in the last 20 years. We are all judges and critics. Anybody who tries but doesn’t measure up to our standards of perfection is judged as a failure.

It’s happening all across society. There are fewer and fewer opportunities for people to rise up through the ranks – they are either brilliant from the beginning or they are nobodies. Anecdotally, this phenomenon is happening all across society.

In our hyperconnected “hey, watch this YouTube video” world we are less and less willing to try for fear of criticism.

Amateur sports and local clubs are getting  less funding and membership. Amateur and professional theatre companies are suffering. The Arts get less funding. There are less live performance venues, and so on.

We see this replicated in the startup scene. Somehow, everybody who has an idea is supposed to be the next Steve Jobs.

The venture capitalists and other well meaning investors are really gamblers. They overcapitalise startups with ridiculous product expectations and timelines, and put everybody in a pressure cooker environment.

The average startup founder takes 3-5 years to develop proper commercial skills (shorter if they are intensively mentored). However, we don’t allow for this.

How many people have had their ambitions destroyed by this kind of mentality. How many good people don’t want to be in the industry any more because they know they have to work hours that would make an investment banker look lazy. How many people hate the culture of high pressure startups. How many amazing companies have failed to come into our lives because of the seeping toxicity of the current startup ‘scale or die’ focus.

People need to be able to fail. They need to be able to learn the hard way. They need to be able to take a chance, and not have the whole house bet on it. Most of the large companies we see in the world started out as small companies, and many of them stayed that way for years if not decades.

Think of companies as being children. You help them learn. You provide them with opportunities. You nurture them. You don’t tell them they are rubbish if they aren’t the best. You don’t kick them out of school if they aren’t the top of the class.

I would love to see the media and society celebrate the many, many small companies that are out there that aren’t on the track to become the next Facebook or Google or Uber. Let’s celebrate anybody with the courage to start up a company and see their idea become reality. Let’s celebrate those who manage to make a living for themselves and a few employees – that is proof their idea was great and that they are an amazing person.

Next time someone tells you that your company has to scale or die, just stop talking to them. You are just fine. Take a chill pill and get on with making your idea reality. If it happens to turn into something huge, then that is fantastic, but most of all, just enjoy the journey you are on. You are my inspiration.

Startup founders don’t need to become billionaires to be successful

If you wrote down the name of a failed tech startup on a piece of paper and then stacked those pieces of paper you would have a stack that would reach all the way to the moon.

Okay, I made that last bit up, but you get the point. We all have an expectation that startups need to be hugely successful, and that failing to do so is a personal failing.  

Facebook, Uber, Groupon, Alibaba…. we all love the success stories of those who succeed. The media is full of articles about great success (unicorns) in the hi-tech industry. The problem with these stories is that they are dealing with the outliers. 

When you realise that you don’t need to build a Unicorn company from the beginning that frees you up to build a successful business in the tech game that will last for years. There are plenty of precedents to this, and here are three of the classic business models out there.

Consultant

Get other people to pay you to do work and learn as you go. Release your own product from time to time.

Many startups either start this way or end up this way to earn money when they find they aren’t getting the volume of sales required to support their overheads.

Graphic design, furniture design, clothes design, jewellery design and the industrial design industries all work this way to a large extent. They all put out some of their own work in their own name, but they mostly work on contract for other companies.

This is a model that can survive decades as it not only allows you to spread costs but it also ensures that you are being forced to keep up to date on languages, technology, and understand customers and consumers.

Artist in residence

Many of the famous artists of history had wealthy patrons. They were provided with an income, materials to work with and a canvas, ceiling or wall to paint on.

There is a lot of money rolling around in the enterprise sector and B2B sectors just looking for solutions to their problems.

Through working with companies to solve their problems you will learn a lot about what companies actually need – trust me, not many in the startup game understand this sector. And if you are lucky, you will develop a solution that could be sold to other companies. You might need to share the IP and equity on your great solution, but then you would never have developed it unless they brought you on board to solve their problems.

Go help them out. Try getting 3 days a week paid work to be a developer in residence at a major company.

Farmer

Farmer’s take a lot of risk. They seed, grow and harvest a crop each year. They take the risk that yields mightn’t be high every year, but they earn enough to keep going.

Many artists do this too. They hold a show every 6 months and in between shows they create a whole bunch of works, which don’t all sell. They earn enough money to keep going.

For app developers this could be a good model. Focus on putting out a bunch of useful and relatively low cost apps each year.  Do it right and you might be able to earn enough to work for yourself, but you could do this in your spare time too.

You are more likely to find what works and make a successful app via this route than spending years working on a single killer app.

Artists too don’t often spend years on a single work, fixing it up when they have inspiration. They take the lessons learned and put them into future work. This is called growth.

-----------------------------

When you learn to recognise the different paths to success you will be more likely to succeed in the long term. And if you manage to hit the big leagues through doing this, then we hope you can become billionaires too; but don’t count on it.

Apps are disposable– embrace it

How often do you use an app for? Days or weeks at most for the majority, some may make it a few months, but there are probably few we use for longer than that. Disney Chief Michael Eisner this week said that the thing he likes most about his smartphone was the flashlight (or words to that effect).

I would like to challenge you all to consider apps as disposable items, and when you accept this you can build a more sustainable business model for yourself and your company.

Let’s start by looking at the music industry. A radio station can only play 300-400 songs per day, let’s call that 2100 songs per week. Each week they will play maybe 4 new songs – that’s 208 new songs per year. Many of those are from known artists with a smattering of breakthrough artists. Compare this to the millions of tracks recorded by musicians in their bedrooms and small studios right through to the major studios.

The odds are really shit.

What makes a hit? First, it needs to get played on the radio or Spotify or whatever your favourite streaming service is. Then people have to like it. Some songs are instant hits, everybody likes them; they somehow tap into the zeitgeist at that moment. Very few of them become classics. How many hits do you actually want to listen to again and again… not many I’ll bet.

It’s interesting listening to bands talk about this process. Most of the time they have no idea which song will take off, it’s the public’s reaction that makes it take off.

So, to all of those of you in app development, I’d say that this makes a good analogy for what you should be striving for.

1. Accept that people will consume and then delete your app.
2. Find ways to make sure people know your app exists. Hit up your local newspaper for an advertorial; most local papers are keen to promote local innovation. Get creative, use word of mouth, tv /youtube interviews, Google adwords campaigns, submit your app for review with respected reviewers. Marketing is essential.
3. Make sure your app is simple and easy to use. Don’t make a Swiss Army Knife – make a carving knife or a pair of scissors. Think like a user – anything that is frustrating, complicated or requires a learning curve to use will not work well. Could your grandmother pick up how to use it in a couple of minutes?
4. Don’t try to put out a killer app – put out the whole album. Do a portfolio of apps, hopefully one of them can be a hit.
5. Release the same app for different market segments under different titles and branding. There are a lot of products on the supermarket shelves that are identical but are branded for different users. Think of shampoo – you can get the same brand for 8 different hair types – even though it is all the same product. A lot of things are branded differently for men, women and teenagers even though they are the same. How about you release a rebranded version of your product (different name, different look) every couple of months. After all, your initial app listings will have sunk by then, so when someone is looking for the functionality you offer a newer listing should come closer to the top. If one of them becomes a hit then ride that tiger for all its worth.
6. Games designers in particular should be looking at a portfolio approach. Put out a bunch of games, and then further develop and refresh those that are most popular. The guy in Vietnam who put together Flappy Bird was more surprised than anyone at how popular it became. You should be so lucky.
7. Just like people buy albums of music from movies (Frozen anyone?) how about making your app work with a product or service to make people want to buy it. For just a couple of bucks people can unlock the potential of their product or service with your app. That might have a bit of lasting power.
8. Price your app like a cup of coffee – another consumable item; used and discarded. Don’t expect to get rich. You want as many sales as you can, and given that the odds of success are staggeringly small, don’t make price a barrier to sales.
9. You need to be lucky. And yes, you can make luck, to a degree. Meet the right people. Create a buzz and follow up on any momentum. Keep up the PR and marketing. Accept that you are running a business and don’t just rely on a ‘build it and they will come’ mentality.

The advantage of understanding this approach is that you will get product out faster and go through the learning curve of product development, release, marketing, maintenance etc. You’ll also develop the skills to be better next time. The odds of making it big the first time you try are lower than winning the lotto. It’s great if you can do it, but can’t plan on it. Plan on being disposable instead.

The limits of the sharing economy and on-demand services

AirBnB and Uber are great companies, and with only a few quibbles I hope that they will succeed for a long time. (My quibbles are mostly along the lines of them offering a service without the regulatory requirements and attendant overheads that the businesses they are disrupting face, i.e. hotels and taxi drivers are complaining that the playing field isn’t even.)

For a while now, I have had the opinion that many of these businesses, while a great idea, are sooner or later going to hit the wall of established human behaviour and existing business practices.

Let’s go through some of these.

1. People will go for the free option over the paid option most of the time. If they like your service but can work around it to get a similar result for free, then they will.
2. If they find a great service provider through your service then it makes economic sense for both them and the service provider to cut you out of the middle. Once you get rid of the middleman making 15% to 25% in the middle, then even if the agreed price is lower when they cut you out, both parties get a better deal.
3. Many of the services being tapped into already exist. They are the cash economy, which in case you don’t understand the attraction of it, is tax free.
4. Enthusiasm on all side decreases over time. It only takes a few average to bad experiences to go back to the mainstream provider. For example, I really like the cheap self-published sci-fi books on Amazon. But for every good author I find there are four average ones and a dozen more that are really, really bad. I have begun to really appreciate the role of publishing houses and editors – they select the best out of a huge range of average, humdrum and just crap. It is the same for music – as much as we all like to hate the ‘Labels’ once you are out of your teens to early twenties I think most of us are no longer interested in going through hundreds of indie songs (probably pirated from festivals like SXSW) to find one or two good new artists.
5. One of the major themes of the 1990’s was ‘disintermediation’. That is, the internet allowed many industries to get rid of all the intermediaries sticking the finger in the pie.  This is well recognised as one of great benefits of what the age of the internet has brought us. But, here we are celebrating putting more intermediaries in the market. Go figure.
6. Availability of services is no guarantee of good service. The team at TechCrunch.com recently published a great article on the demise of HomeJoy. To summarise the key point. HomeJoy offered on-demand cleaning services, kind of like Uber or AirBnB – book online, pay online, and all will be happy. The only problem is that the market sets what rate is acceptable for cleaning, so after HomeJoy took a 25% clip qualified cleaners weren’t greatly interested in the work and many so-so cleaners entered the market. The service offered a guarantee on time and price, but not quality of service.
7. Anarchism is good, anarchism is bad. Much has been made of the rise of the anarchic mindset in Silicon Valley in recent months. As a businessman I love anarchism in the sense that there should be no sacred cows, you should always have a tilt at the incumbent players, and anytime legislation is introduced to favour those in power it needs to be attacked with vigour. Where anarchism doesn’t work is where you rely solely on the good nature of the masses participating in your venture. If there is no consequence for bad behaviour (or conversely, reward for good behaviour) then your service will likely head towards the lowest common denominator. Uber and AirBnB figured this out early and rate both the service providers and the customers.
8. It works where it works, and it doesn’t work where it doesn’t. Not every opportunity is ripe for intermediation, especially B2B. I’ll share my painful personal experience on this. A couple of years ago I set up a little site called FreelanceHotDesk.com to allow business owners (like me) to list unused desk space available for rent. When I started it I had grand plans to go AirBnB style, offering an amazing service, customer ratings, all the bells and whistles and most importantly with a payment gateway allowing us to take a clip of the fees paid (If the money doesn’t flow through your bank account then the business model is dead). The dream didn’t last long. You see, business owners hate paying intermediaries, and I can’t put in writing the vitriolic responses I had from business owners when I said that I would be sitting in the middle. I am still blushing at some of the things I was told. Business owners don’t stay in business if they pay everyone in the middle, and if they can smell it, they will avoid you like the plague unless the convenience of service outweighs the costs. Now I run a simple listing service, and will put in a payment gateway one day for people to pay a small fee to list. I think a lot of opportunities exist for such services where the business owner may make a small amount of money, but the press and VCs aren’t interested because it isn’t likely to become a billion dollar publicly listed unicorn.
9. The disruptors will be disrupted. If you prove a new business model it will be copied. Some of the current Unicorn companies will be around for a long time because of first mover advantage and brand, however, I predict that their market share will shrink and many competitors will move into the same space. Given that you can accept payment by card on your phone, how much longer will people accept Uber’s pricing and service? An alternate site allowing customers to rate drivers, and for drivers to accept callouts will come soon – it’s inevitable. And, with all respect to the VCs and the tech companies, they are, as a retired old school entrepreneur friend of mine put it, ‘but novices in the ways and means of making money from people. For every method they are trying, there are twenty other proven strategies they haven't figured out yet.’  

Personally, I think of the sharing economy startup scene as being a bit like junior miner scene in Australia and Canada. They are out exploring new territory, and every now and then one of them will hit the jackpot, but the majority blow all their capital and end up with nothing of particular interest to anyone.

Speaking of which, isn’t it interesting that the latest trend for junior miners is to reinvent themselves as tech startups right now – that shows where the speculative money is going… and some of them will work, but most of them will remain ‘penny dreadfuls’. Caveat Emptor!

Forcing a choice: how companies get you to pay more

The setup for forcing a choice is very simple – offer three choices. Two choices will be similar, but differ slightly in a key feature such as quality or price, the third choice will usually be absolutely unwanted by most of the customer base.

You are on the receiving end of this trick which, despite being an old trick, has been verified by recent behavioural research in economics.

Let’s use broadband pricing here in Australia as an example.  I have the data for the three main internet service providers here, fresh off their websites today.

Telco’s A & B are the incumbents with the greatest market share. Their pricing is telling us very clearly that the average customer uses over 50 GB a month. So the plans for 30 or 50 GB are a non-choice for most users, perhaps except for the over 50 year old demographic who tend to browse the web and send emails, and perhaps Skyping, rather than downloading a lot of music and movies or youtube clips.

You, as the average user are looking at a step up to 200 GB. The savings per GB are great aren’t they. And, hey, look for only a few bucks extra you can step up to 500 GB in Telco A and really save $/GB.

Telco B offers an unlimited bundle, which I haven’t listed here, as they use some neural network based system to slow your connection down if you exceed what they define as ‘average user downloads’, or if you are not the typical user. In other words, their unlimited bundle is subject to what is known as download speed shaping.

So, for Telco’s A & B, the average user is most likely to sign up for the 200GB plan, with the lure of cheaper $/GB pricing luring some to go onto the higher level plan. You have just been on the receiving end of a game of ‘forcing the choice’.

Telco C is interesting. Their plans are clearly aimed at being competitive and acquiring greater market share from the two major incumbents. 100 GB is clearly attractive to many users, and the price is reasonable compared to the other two telcos.

Now, we know from recent history that Telco C’s pricing has forced the other two players to drop their pricing, which is great, but why haven’t they price matched, and why haven’t they matched data plans. It is simple, Telco C mostly sells the 100 & 300 GB bundles. The higher bundles are attractive, but their network is suffering serious congestion (especially in peak time since the introduction of Netflix a few months back), so the users most likely to buy those services are unlikely to be able to use that extra data.  Given that it is only $10 a month extra to go from 100 GB to 300 GB, you can bet that most new customers are going to sign up for 300 GB – yet again succeeding in forcing the choice of customers.

Let’s look at how this all affects the telco’s topline and your costs.

For the sake of analysis, let’s assume that each telco acquires 1000 new customers in a month.

Telco A selling one thousand 200 GB plans makes $93,000 a month for 24 months. You as the customer using an average of only 100 GB a month are paying $0.93 per GB.

Telco B selling one thousand 200 GB plans makes $80,000 a month for 24 months. You as the customer using an average of only 100 GB a month are paying $0.80 per GB.

Telco C selling one thousand 300 GB plans makes $70,000 a month for 24 months. You as the customer using an average of only 100 GB a month are paying $0.70 per GB.

So on price alone, a rational consumer would have to go for Telco C.  However, Telco A, which is the largest player and ostensibly has the best network and associated infrastructure and has the best overall brand image is deliberately pricing above Telco B and C, so it, ironically, maintains market share and revenues.  So, you are being played on force the choice on two levels by Telco A.

The first level is that you will automatically be suspicious of the unbelievably cheap pricing of Telco C, and they are relying on the normal market share to be allocate between them and Telco B. That is, there are always people willing to pay for their first tier brand and reputation for reliability.  Higher pricing is traditionally used as a signal for higher quality in almost every market.

The second level is that when you do decide to go with them, they use the forcing the choice pricing strategy to get you onto the 200 GB plan.

I know which of these companies I would buy shares in.

This analysis is all a bit of fun, and I bet you can see it in action for many products online, and not just when you buy a car or a new TV. 

As a start-up, you can use the pricing strategy of Telco C to get a decent share of the market, which is great, but you might need to sell out once you reach the natural cap in market share you will reach, plus you have also screwed yourself out of the additional revenue required to actually maintain and upgrade your product and customer service.

It would likely be better for Telco C to offer pricing and bundles similar to Telco B. In which case they are forcing the choice to between Telco’s B & C, and getting the customers to discount Telco A as the non-choice as it is too expensive. 

As a startup, this is a good strategy for you to follow too. If you are unable to differentiate yourself by quality of service, then try other incentives such as discounts for those customers who can convince other family members to sign up, or unlimited download days, or gifts, or even having upgraded data plans for the same price for selected customers (e.g. if you sign up over a long weekend holiday, or for one in 50 customers.)

When you become aware of the game, as a consumer it can be upsetting to see how you are being manipulated, but as a company owner I admire the smarts of those companies that play this game strategically over the long term. It is like watching a chess grandmaster in action – awe inspiring once you know a bit about the game.

Identifying True Grit In A Startup Founder

“If you are going through hell, keep going.” – Winston S. Churchill

Jessica looked more than exhausted when she walked into the coffee shop, looking around slowly before spotting me and walking over. Late the night before I answered the phone to hear a tired voice say, “Can we catch up. It’s all just going shit. I’ve had some wins along with the crap, but I can’t take joy in anything right now. Half of my people have quit or plan to quit. How long does this keep going for?’

Have you ever noticed how sometimes people seem to shrink, or seem smaller than they are. I see this all the time. This isn’t about depression, this is about what happens to someone when they get up every single day and fight their way through it only to wake up the next day and do it again. With the stresses of being the person who leads a startup into the unknown and squarely shoulders the burden of all the uncertainties about the business model, funding and the future the founder can become ‘compressed’ – like they are under pressure from all sides and just shrink. Even worse is when they are also dealing with personal grief, whether it is a relationship breakup, a loved one dying from cancer or major illness.

Jessica was compressed – and clearly suffering from the adrenal exhaustion that comes from 10 cups of coffee a day for weeks at a time.

“We had some great wins lately. We have signed up a new alliance which will double the size of our customer base in 12 months.  This is brilliant news.” Sighing, she continued. “Our existing customers are playing silly buggers and paying late. Some are discounting their payments until we add more functionality, even though there is no product in the world that can offer a fraction of what ours does. Don’t they understand contract law? All my lawyer friends won’t do any more pro bono for me, so I can’t even sabre rattle properly. I have trouble meeting payroll because of this. My credit cards are maxed out, my husband has loaned me every penny he has, even worse, I took money from my grandmother. Can you believe that? I hate myself. She has so little, and she’s been through so much in her life, but when she heard how bad things were for me she wrote a check. I hate myself for accepting that check. I am no longer the person I thought I’d be.”

This is not an untypical episode in the life of a startup founder, and of all the people I know Jessica will get through this. She has that famous ‘reality distortion field’ that people said of Steve Jobs, although it was sputtering and sparking this morning. Normally she would have charmed half of the people in the coffee shop with her charisma and stories, and had at least one person ask about an internship. Not today.

I am fascinated by how some people like Jessica can persevere when others simply collapse. Some people can persevere for a month, some for a decade. It’s all a head game, and you can’t tell what is going on inside somebody’s head from outside.

I have met triathletes and marathon runners whom I thought had perseverance but couldn’t take the uncertainties of the startup life. We are all told the importance of having routines, but sometimes the sports obsessed can be obsessed with routine to the exclusion of the need for flexibility that comes with running a startup.

I know mountaineers who have scaled peaks solo, and others who have ridden half way across the world by bicycle through places people rarely go. People who perform magnificent feats of endurance against all the odds tend not to be good at dealing with people. They can shy away from the emotional pain and disappointment that comes with relationships. It is quite interesting to note that many of these admirable characters are clinically depressed and use extreme adventures to self-medicate.

A clear warning sign of mental fragility is the over use of inspirational quotes. A good quote can help us reframe a problem and change the narrative, which is a good thing. There are a few quotes in this article, for example. When someone fills their LinkedIn and Facebook pages with inspirational quotes about leadership and optimism my first reaction is “Oh crap, they aren’t doing well.” At which point I usually call and ask how they are. Inspirational quotes should be like a hit of sugar that recharges us, not a crutch we use to keep going.

Excessive alcohol consumption is likewise a temporary crutch. It may dull the pain and help you sleep at night, but it also makes it harder to get out of bed and face the day and do things which need to be done.

Talking about changing the world – an expected line from TED speakers and young people in general – will win praise from all quarters and may get you laid but will very rarely win funding from investors. Taking on all the burdens of changing how people and society think and act is a good way to absolutely destroy yourself and descend into cynicism and alcoholism.

Having brilliant ideas and expecting others to deliver is also a warning sign of detachment from the realities of a startup. Many others in the startup space have also made the comment that being the ideas man, while good, is not sufficient. Startups are Darwinian in many ways. You may have a group of founders starting off with equal shares and great enthusiasm, but six months in, when half the team have been working 15 hour days delivering the product, the one who tries to tell them what to do but can’t contribute is going to be sidelined. Incoming investors often demand that such people are given the shaft. Startups don’t need middle management.

If I had to define what I thought were indicators of true grit in a founder I’d put it down to genuine optimism, and the desire to beat your enemies.

To me genuine optimism is the belief that things will work out and trying regardless of the doubts and fears in your head. Whether there are genetic factors at play here I am not sure. To be a genuine optimist you need to have been beaten down many times and still have the ability to get up. Or as the 19^th century satirist Ambrose Bierce put it “It is held with greatest tenacity by those most accustomed to the mischance of falling into adversity…”

In modern society positivity has become a quasi-religion. You see many people who smile and enthusiastically accept every challenge when talking to those above them in the food chain, but behind closed doors all that optimism proves to be just a mask. People want to be seen as being positive and a doer, especially in the month or two leading up to a performance review. People in their twenties usually haven’t faced too much hardship so this is an easy mask for them to wear. In our thirties and forties we take responsibility for children, our parents and we often see our grandiose dreams crushed.  If someone is still optimistic at 35 then that’s a good sign that they are a keeper.

Speaking about having enemies means having rivals. It may simply be a case of one-upmanship over friends or old university colleagues, a fellow entrepreneur whom you feel is stealing too much of the limelight, or a competing business. Enemies define us because every time we think that things are working well, they come up with a new and better way to do things which we then need to emulate and surpass.

“To be successful you need friends and to be very successful you need enemies.” – Sidney Sheldon

Nothing can motivate us more than the need to beat a rival.

I am sure that next time I catch up with Jessica she will be back to her normal self; she has true grit. I also know that many other startup founders are going through the same and some of you will make it and others of you won’t. No matter the case, forgive yourself for being human. When you are tested it makes you stronger and even if you don’t end up being the next Facebook or Uber millionaire, you are going to be better the next time you start a business or take a job.

To end with yet another quote from quite possibly the most quoteworthy individual in history.

“It is not enough that we do our best; sometime we must do what is required.” – Winston S. Churchill

Your customers are rational…. Just not the way you think they are.

Recently I have been enjoying reading The Logic of Life by Tim Harford. He is an economist who uses the framework of economics to understand the apparently irrational decisions that people make in everyday life. The point he makes throughout the book is that people are almost always rational, it’s just that their measures for cost and benefits may be different to yours.

In other words your potential customers are rational when they don’t buy your product. I don’t know about you, but I find this a good challenge to my thinking. Here are a few thoughts.

1) As a first pass, price is important. Are you overpriced?

Is your pricing structure too complicated? The complicated point is key. You might think you are doing the right thing by your customer in offering all sorts of optionality and usage based pricing, but most of the time your customers are looking for a simple price with options on when they pay (e.g. discount for paying a full year upfront through to monthly payments). Keeping it simple is even more important for new companies as if you are even a whiff more complicated to deal with than the incumbents then you will be screened out of consideration.

2) How much of their core business or business IP are you asking them to trust you with?

Purchasers in mid to large companies will be looking closely at your business and the sustainability of your business.  Let’s unpack this a bit further:

a) How much time do they need to invest to prove they can upgrade to your service? 

No rational company will run the same system in complete duplication for a long period. They might run in duplicate for a test period but not for the longer term. Can you use their existing data fields, metatags or match their existing platform’s processes. This can be a powerful selling point, but is likely to cost you a lot of unrecoverable time in customisation.

A better approach would be to allow them to keep their primary systems (databases, data warehouses, etc.) and then use APIs to access that data, and make it useful in their everyday lives, especially on mobile platforms. The flaw in this approach is that if their primary system provider decides to add that functionality then you are toast, in which case you are really a stopgap solution.

b) Proprietary information, where is it hosted?

When dealing with enterprises you need to offer data storage on their own devices and servers, without a copy ever coming through your system. Smaller companies may be happy to use Dropbox or Onedrive but large companies will assume by default that your system is the weak link in their IT system as far as security of their IP is concerned.

c) Who are you, and how do I know you can deliver?

Success breeds success, but at the beginning of your business you need to find your first buyers to have any success. You need early adopters who will go with you through the early stages, and be more relaxed on the two points above.

If your balance sheet is small and your trading history is short then larger buyers will likely screen you out by default. A key strategy to deal with this would be to identify the highest ranking decision maker you can find and give them the information they need in order to champion the adoption of your product.

If you stay lower down in the decision making foodchain, you will find that the people you are dealing with have other motivations (rational ones) about keeping their career intact, which often involves not taking big risks, meaning they won’t be taking major risks on you.

3) They love the idea, but ….

This is the killer for most new businesses, everyone seems enthusiastic but they won’t open their wallets. What they really mean is a variation on the following:

• It will take too much time out of my day to use it
• I don’t how this will be useful in my everyday working life
• I can already do half these things, maybe not as well, but the systems seems to work
• I have people who already do this

There is no simple answer to this. It can be hard to crack these issues, you might need to take a bit of a risk to get there.  Larger companies have an advantage over you in this regard as they can afford to put in the time and budget to develop a complete product, as compared to most of us who can only afford to bankroll a minimum viable product.

4) No budget

In the current economic climate, this is going to be the killer for your product. Yes, everyone wants to save money, and improve productivity. But, and this is the big one, they are all working within a budget system in which they have to prove their utility, the need to maintain staffing levels and on a purely practical political level, no rational manager wants to shrink the size of their personal empire.

When a company makes deep cuts to budget and staff then they might well become a purchaser in order to implement new ways to do things. However, you will find just as often that they just adjust their way of doing business to match their limitations in resources.

One way to break this cycle is to get to those so high up the food chain that they can genuinely see the benefits. Think of the CFO, CIO and CEO as your potential champions in this regard.

5) New and novel …. I just don’t know

If I am betting a good chunk of the future of my own business on your new technology or service, then I really want to know that you can deliver. This applies just as much to foreign companies cracking a new market as it does to start up businesses.

The classic way to overcome this is to demonstrate the benefits of your service at a minimum of cost to your buyer. That way if it doesn’t work, they can let you go without them being too deeply out of pocket.

For example, you could ask for a smaller part of the business to prove what you can do. You could also offer free trials, or low cost, no penalty to cancel demonstrations. Indian and Chinese companies are aggressively trying to take on the US and Japanese incumbents in the enterprise sector using this exact approach.

6) Existing suppliers

It is easier to crack the supply of simple physical goods with new customers if you offer the right combination of price, customer service and quality.

With complicated services which are implemented over a period of time, there is a large penalty to the buyer if you don’t perform. Changing out suppliers doesn’t just cost money, but valuable time, and delays to their own business.

You need to develop a track record however you can.

You need to be able to offer guarantees/warranties on your service too.

Fortunately, in the current economic climate many companies are starting to treat services as a commodity. This is fortunate in the sense that if you are offering the same service as the incumbent then there is a chance that your customer will be running tenders in order to do test the market. This is your chance to swap out the existing supplier. Beat them on service, price, quality or a combination thereof.

If you can get inside your customer’s thinking you will find that they are in fact rational in their decision making according to their own take on costs and benefits. Don’t assume they are stupid or slow, try to understand them and match their view of the world.

Passion comes from experience

If we all followed our passions when we were 20 years old, we’d all be musicians, actors, bartenders, artists, professional surfers, baristas and fashion designers.

I think there is a big piece missing in all the hype around ‘following your passion’, and that is, it takes a long time to learn how an industry works, and master the skills of your calling.

Most of the examples of passion used in business articles are like those mentioned above. They are based around simple systems where you, as an individual, have a high level of control over activities.

However, the chance of ongoing success in those callings are vanishingly small – yes, some people succeed, but the thumping majority don’t.

In the modern workplace many of us work in large workplaces, which have complex structures, selling products into a complex market, all sitting in the backdrop of a complicated regulatory environment and changing economic conditions.

It takes 10-20 years to master an understanding of your profession as well as how the industry works.

Many of the large companies that hold up as examples about had founders who had been working for more than 10 years. They understood the industry, they understood the end users, they understood what the problems were, and they had a passion for solving those problems.

I think that passion is something that develops as you gain more experience and know yourself better.  The common refrain about following your passion is overstated, and potentially leading many people away from what their real calling could be as is really a simplistic refrain telling us to pursue our adolescent dreams.

After all, there’s nothing wrong with having a passion for ensuring that the accounts are balanced, or that employees are treated fairly, or any other career. Only time will show whether it really was passion or just an impulsive interest. 

Maslow's Hiearchy of Needs - Are We Getting It Wrong?

We all hear about Maslow’s hierarchy of needs.

HR use it as a reason to talk about your career and work life balance. Want to be entrepreneurs use it as an excuse not to start. And, as an entrepreneur I often lament the lack of balance in my life 

according to the hierarchy.

The common understanding we all have is that you can’t have any of the higher layers of the hierarchy until you have the lower layers.

For example, you can’t have safety until you have your physiological needs. Or, you can’t have self-actualization (the top of the pyramid) until you have esteem.

Given that many people are using this pyramid in making decisions in their lives, the question is, how did Abraham Maslow intend for people to use it.

1. First off, he never used a pyramid.
2. Secondly, Maslow himself said that individuals will need varying amounts of each level of the hierarchy at any given time, and may not even need some of the levels of the hierarchy.

Examples given where it breaks down include:

• A mountain climber taking risks (i.e. ignoring the safety hierarchy) in order to get to the top (i.e. self- actualisation, belonging, esteem).
• A musician or actor who is focussed on self-actualisation but may be living with their parents or friends, barely able to pay for their food or board.
• A community worker who is held in high esteem, has a good sense of belonging, achieves self-actualisation, but has poor income and may even work in risky situations.

These exceptions are to show that everybody has a slightly different mix of needs, and that you will be fulfilling some or all of them, to varying degrees, at the same time.

In other words, don’t get hung up on it, don’t force people to follow it, and don’t lose sleep over it at night.

As a business owner you may well have a loving family, achieve self-actualisation, and have esteem, but also be struggling to pay bills at the same time. This is all normal.

At best, use the Maslow's theory is a good guide to the kinds of things that people value in their lives, and using it that way will enrich your understanding of other people. However, it should never be used as the benchmark by which you should make decisions.

My advice would be to go and talk to other people in your situation and share stories rather than focussing on the ‘pyramid’.

Are we over ‘Authentic’ yet?

Authentic means all the good things, such as genuine, done with passion, original, and not taking short-cuts.

I frequent ‘authentic’ cafes staffed by bearded men (who apparently wax the rest of their bodies), and tattooed ladies, all festooned with the other accoutrements that go with Hipster style (jeans, retro-t-shirts, messenger bags, androgynous clothing, body piercings, etc.).

Sometimes I do find myself wondering if it is actually possible to be authentic when you are actually copying the same style as everyone else, but yet again, maybe I am just being curmudgeonly. I enjoy the overall image – it implies creativity, even if it isn’t; at least it provides a bit more variety than the usual corporate bland.

I’m a big fan of cafes where the coffee and food have been made with an obsessive attention to getting the product just right. And as an amateur designer I am a huge fan of the homewares and everyday items that are now coming out, but, unfortunately, refuse to pay for any of these designs in the ‘authentic’ design shops – I can’t afford it.

On the flipside, I am sure that you, like me, are sick of trying every new ‘authentic’ cafe – when most of new cafes I go to would be better off with a Nespresso machine, or at least go on some barista training courses to better learn how to use their machine (even if they do buy the best authentic coffee roasts).

From a business point of view the best examples of businesses that follow an authentic model are cafes that source their beans, roast their beans, educate their customers, and put up a décor that is original and inviting. Customers are willing to pay a bit extra for this experience.

If you wish to set up an authentic business then you need to realise the following.

1. Excellence is the requirement – your product must be of the best quality. It could be fresh ingredients cooked perfectly, it could be great design with great materials and fabrication, or it could be a perfect experience.
2. Sustainability – it requires customers to remain interested in what you are offering. If you are ‘on-trend’ then be prepared to no longer be fashionable in a short period of time. Minimise your costs and retain profits to enable you to pivot to the next trend.
3. It is hard to scale – the pricing point and ‘authentic’ experience need to be systematised and replicated, with quality control in place. You can set up a good sized family business, but there are likely limits.
4.  It requires a good customer base. For example, there is large and growing organic food business with supermarkets stocking organic growing. However, organic food is recognised as being more expensive, so people tend to have an ‘organic’ phase in their life rather than be that way for life. There’s nothing like having a mortgage and kids to make you appreciate the price of cage laid eggs, milk and vegetables from the regular supermarket. Hell, have more than four kids and you will consider dumpster diving out the back of takeaways, fighting off the homeless and drug addicts just to save a few pennies.
5. The longer you are in business the less tolerant you are of the idiosyncracies of ‘authentic’ employees. You know, people who work to the timetable in their own head, turning up when they want to, can’t take criticism, and don’t respect that you own the business and that you have to do capitalist things such as paying bills.
6. You are really setting up a craft/boutique business that relies on customers willing to pay for the product. This mostly sucks as a business model as you are competing against larger businesses who can produce goods at a lower cost and market better than you. Such businesses have been round for centuries, and sell almost exclusively in the luxury market as that is the one market willing to pay for quality and innovation/originality.
7.  Marketing is hard. You can’t simply call yourself authentic any more, and put bearded guys wearing shorts showing off their tattooed legs to indicate you are all original. Now that is the new norm, you are going to have to find ways to cut through.

We are now seeing not only big brands co-opting authenticity, but also legions of well meaning amateurs with zero originality or interest in the product setting up businesses, and trying to take advantage of the higher pricing point. They have diluted the ‘authentic’ brand and are well on the way to destroying it.

At best, the ‘authentic’ brands with great products will grow – just a bit, and we are all going to stick with them. A bunch of new entrepreneurs have been inspired by this trend and have set up great new businesses. We will see, however, a winnowing of the rest.

I am, however, now over everything being authentic. When McDonald’s starts selling ‘authentic’ Big Macs it will be time to find a new trend – you have been warned folks.