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.

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

Cash flow management for a startup – learning to be frugal

Money doesn’t grow on trees, and for many startups the expenses that go with establishing a business come as a shock. The delays in revenues come as an even bigger shock.

Here are some of the key things to remember.

It will cost three times as much and take three times as long as you think.

This old saying is a reminder that you will either need to save more than you think before you start, and that you need to start looking for income or investment in your company as soon as you can. Also, forgive yourself for not meeting your ambitious schedule that wasn’t tempered against suppliers or the market.

Flog product as soon as you can

You may have grand plans for your ultimate product, but I guarantee that you will go bankrupt before it is ever developed. Products are always a work in progress. Always remember that your product needs to satisfy your customer first, and you second.

None of this is suggesting or recommending selling inferior products, only that you sell products that meet your customer’s needs.

On TV we are often treated to tales of people who stick relentlessly to their vision of product and quality and have reaped the benefits in the long run. Fine, yes a few do succeed, but you have a better chance of winning the lotto than doing this.

The people who do succeed like this tend to be artisans for whom there is a small but rich clientel willing to pay for the product.  You also need to have a decent amount of experience, the ability to deliver on your visions of perfection and an ability to ignore the fact that you are out on your own.

The market will tell you what is working or not, and you will very rapidly start adapting your business model and product to match.

In other words, you need to make money to pay for improvements to your product, and you can’t do that unless you are selling product.

Spend as little money as possible

To start a business nowadays you need a website, email address, a business card and a company. This should only cost a couple of grand.  I would have said computer, but as of the last year or so you can probably run your business on internet based software (SAAS) without even owning a computer if you really wanted to.

Wait till later to reward yourself.

Spend money on the product or experience

A typical trap for a startup is overcapitalisation. You pay too much for everything up front to build what you think is the way to run a business.

Stick to this rule – ‘If it doesn’t genuinely make a difference to the customer experience or genuinely help staff retention, safety and productivity, then don’t spend it.’

Here are some tips on saving money: 

1. Office and business premises are expensive, so work from home for as long as you can. Use telecommuting tools and online collaboration tools.
2. Pay a bit more for an unlimited phone plan.
3. If you are embarrassed by your car, catch a cab to important meetings or park your car round the corner and walk a bit further.
4. Spend time doing research yourself rather than paying advisors where you can. As the owner you have a vested interest in making things work, and your time is effectively free as long as you aren’t neglecting sales. So ask around for pointers, but do the heavy lifting yourself to save money.
5. Pay for a virtual office address. Sadly, many buyers feel weird about dealing with people working from home and this is why there are companies who will answer the phone for you, collect your mail and offer meeting rooms for clients.
6. Meet people in good cafes rather than in your home office or tatty cheap meeting room.
7. Meeting rooms, showrooms, retail space and the reception areas should always be professional looking, very clean and welcoming. If you don’t take anyone behind this façade it can be held together with sticky tape and string as long as it works.
8. Use public transport where you can and always but always travel economy class. If you really want to be fresh for that important meeting then it is often cheaper to fly economy class the day before and stay at a hotel for the night. 

Counter examples include: 

• Paying the money to be located near the majority of your potential customer base could be the best investment you make.
• Make sure your website looks great and functions well.
• Don’t skimp on IT for knowledge workers -  I make sure my team get a decent lightweight laptop with a good internet connection and current software.
• Allow people to personalise their work space a bit. That element of choice can make a big difference to morale.

Always bill on time

Yes, this is obvious, but when you are in the time consuming business of a startup invoicing can take second place to more urgent work – after all they have a contractual obligation to pay don’t they.

This is true to a certain degree and can work while you have a decent amount of credit available. The issue here is that the timing of revenues and expenses don’t match.

For example in my own business I pay my staff every two weeks and invoice monthly. In practice this means that I receive cash up to 6 weeks after I pay my staff. If I delay invoices by a week, then in many large companies this means that I am now allocated to the following months invoices, and I will then be 10 weeks out of sync. If you have large expenses this timing mismatch will kill your business faster than anything else.

The second reason for billing on time is more psychological. If you bill late you are effectively saying to your customers that you don’t care so much about money and that they can pay you late too.

The old rule is that if you act like you’ll get paid then you will. I have learned the hard way how true this is.

Learn to think short term to reduce locking yourself into longer term risks

Lease equipment at the start. Sure the monthly bill may be high, but you get to sign up a short term contract, or even take equipment on an as needs basis.

For physical products use rapid prototyping or other higher unit cost, short product run methods for your initial product. The reason being is that it the capital costs are a lot lower. You don’t want to spend $30,000 on tooling dies when you can print your product on a 3D printer or use a slower more labour intensive method.  Many of the truly cheap unit cost manufacturing technologies require you to make many thousands of your product. This can be the kiss of death to startups as it is pretty much guaranteed that your first design or two are not going to be as popular with the market as you think.

There are also manufacturers who specialise in short product runs and prototype manufacturing for complex goods. They spend a lot of money on equipment and sell their high quality services to a wide range of clients.

Use local IT people for any complicated web based business where you can. The reason for this is that you can have that face to face interaction and spend time with them to learn what the problems are and sort them out. Yes, this is a lot more expensive that hiring people out of India, Ukraine, the Czech Republic or so on, however, it makes the process smoother and brings local cultural sensibilities to design and wording.

Keep on being frugal

I could keep going on this topic, but you get the essence of it now. Learn to be cheap where it doesn’t matter and you will do better.

Stop trying to do it all yourself

Why are you doing the work yourself?
But darling, I save on fuel.
Yes, but it takes us ten times as long to get there.

The formative stages of your new business venture are hard. You need to be doing a little bit of everything – marketing, legals, accounting, design, IT, HR and more.  You very rapidly learn to be a generalist.

If you can get across the fundamentals then you can help the company grow rapidly with a minimum of indecision. This works for a while, but sooner or later the company gets too big for one individual to be the decision maker – there are just not enough hours in the day.

I have seen many examples of fast growing companies topping out at about 20 employees and having trouble growing beyond that. I have no studies to back this up for you, but the maximum size of a company under a central decision maker seems to be in the 20-30 employee mark.

The issue here is the founder. Once they worked out how to do everything they then try to keep doing it. Sooner or later you need to start trusting your people and managers to do their job.

You can use part-timers to help out. Hire an accountant one day a week. Hire an experienced HR person on a 2-3 days a month basis. Put on salespeople on a commission basis. Have IT support on a retainer.

Give yourself a break and help your company live up to its potential and stop trying to do it all yourself.

Act like you own it

Nah ... not my problem.

When you own a business you own the successes and the failures.

As an employee it is always possible to find a way to put off decisions and deflect blame. A lot of people go their whole careers avoiding making decisions or taking responsibility – and to a degree they are correct as the system largely determines ability to make a difference to outcomes.

The experience of setting up a business is a bit like moving out of your parent’s home. It is scary. There are a lot of things you don’t know how to do, and you didn’t realise how much was done for you.

It’s the weather. It’s the competition. My employees are just lazy. The red tape is too much. My suppliers have it in for me. We have a great product but nobody recognises it.

All these are excuses I have heard and can guarantee I will continue to hear. These come from people who don’t own the outcomes of operating a business.

Now it’s just you. Accept this reality and get on with it.

If you think you’ve been screwed you probably have

Being stuck in the middle hurts  

When you go into business you leave the protected and cosseted world of being an individual. Now you are fully exposed to commercial law at its finest.

• You will never have all the information you need to make a decision.
• Contracts are legally binding – Yes this is obvious, but many people entering business think that they can change their minds at a later date and the other person will be reasonable. You are required to perform. I see this mistake all the time. Make friends with your lawyer.
• You don’t have time to do all the homework you need to.
• The other party is under no obligation to pass on any information, other than that which they are legally obliged to for the formation of a contract.
• They may pressure you into making a deal now (the ticking clock approach, and the ‘this is a one-time opportunity’ approach).
• If you don’t include all your costs and the conditions precedent for you in the contract you may not get them.
• You are required to seek your own tax and accounting advice. Your agreed price may end up costing you more than you thought.
• Some people get tricky with the conditions and pricing of their services/products. This can come back to bite you at a later date.

All this is a fun learning curve – but never forget that it is a learning curve.

The other person will always know something that you don’t. A good businessperson leaves something on the table to keep the other party in a long-term relationship. However, some people can’t help themselves and they have to screw every last penny out of a contract.

The worst are those who profess to wanting a win-win outcome but by their actions don’t care at all. These are usually the big corporate purchasers who tell the media that they want a sustainable supplier base, and then tell their consumers that they get them the best price they can. You are stuck in the middle getting screwed by someone with good PR – and it hurts.

Trust your instincts, and find ways to duck and weave, delay decisions, build in options and variations, build in ratchet points or other mechanisms to revisit price, or other ways to make sure that being screwed doesn’t destroy your business.

Think like a wholesaler

Supply to as many as you can

Want to get stupidly rich? Then think wholesale not retail.

I don’t mean that you actually have to set up a wholesaler, just take the mentality.

Have a product and sell it to as many people as you can with a small margin.

By having a small margin – you product is more competitive and more attractive to more customers.

As your customer base grows, your brand grows and you will naturally attract more customers.

By having a product that reaches as broad a client base as possible then you maximise your chances of a sale, and you also minimise the effects of losing a single client.

And yes, this advice does go against the advice that is commonly given about finding an niche and becoming the best at it. While there are some good examples of that, most of the time going for high volume markets is a better choice.

The sticky bit for this model is that you need to have a good amount of working capital upfront to allow you to charge the lower margins from the beginning. Also, your suppliers will give discounts with volumes too, so your costs could go down over time on this basis.

There’s good money in thinking like a wholesaler.

Stop trying harder

Are you trying almost anything to get an extra sale?

Effort is rewarded isn’t it?  To a degree yes, but when things aren’t going great working harder may not make any difference. You could be putting extra hours in for nothing.

The key concept to keep in mind is that you can’t control everything. Let’s go through a few.

Location – you can choose where to locate, but vacancies and price determine whether or not you can take it.

Brand name – you can choose the brand and the image. However, what builds a brand is a large and growing customer base, not what you pay a graphic designer or an advertising agency.

Web presence – you can design a website with almost infinite variations, however, you need to understand what it is that drives your customers to the site and converts them to a sale. It is not your website – it is their website.

Costs – you can cut costs, hire and sack staff, change the quality of your product inputs, or even the quantity of your product. However, you need to keep your customers happy. If you take cost cutting too far then quality of service and quality of product will drop to a level that your customers will abandon you – overnight.

Revenue – generally the market sets the price.  You may be able to play on the margins, but generally speaking you are locked into a range. If you try selling an average product for a premium price then your lack of customers will let you know. If you believe that you can use packaging and gimmicks to sell bad product at a premium price – after all there are some companies that do exactly this very successfully – but for most companies it utterly fails.

General economic conditions – you have absolutely no control over the broader economy – so stop losing sleep over it. There may be rough periods, mostly you can just ride them out. You need to keep some working capital or savings to help you out over those periods. However, there is always need for a good product, so make sure you are getting the fundamentals right. Have a good product and good service with great customer experience and you can survive. 

Competitors – you can’t stop competitors setting up and taking some of your business. However, what you can do is recognise that customers will likely buy from all of you to varying degrees, with the best known and largest brands getting the lion’s share. Embrace the competition as it means there is a great market – go grab some of it.

It’s important to keep your sanity by limiting your activities to those things that actually make a difference. If you find yourself working harder than ever just to stay profitable then step back and take a look at your business – the problem may not be what you think it is.

Get out and walk the floor

One of the biggest mistakes you can make in running a business is to lock yourself away from your staff.

Get out and talk to them – regularly.

1. They need reassurance that all is well.
2. They need to know that they belong.
3. They need acknowledgement – in that they are contributing and are valued.
4. They need feedback.
5. They like to see that you are getting on well with your other key managers (i.e. that everyone in the family is getting along well).
6. They feel better that you know more about them, and that they can humanise you.
7. They put you on a pedestal and can be afraid to talk to you – talking to them can reduce their irrational fears about you.
8. You can talk directly about their concerns and pick up on how the overall culture of the place is developing.
9. They may have good ideas that were otherwise filtered out by the normal channels.

Get out and walk the floor – it is a good thing.