Tag: startups

Why do executives see romance in the startup culture?

Many managers think startups are romantic – could it be because of the corporate lives they lead?

One of the fascinating phenomenons of the modern era is how corporate managers have appropriated the startup culture.

At the announcement of the Australian Centre for Broadband Innovation’s Apps For Broadband prizes, Foxtel’s CIO Robyn Elliot described her experience of working in a startup.

“Foxtel was once in the category of startup itself,” said Elliot at the start of her speech.

Apples and Oranges

Comparing Foxtel to a scrabbling startup in the modern sense is bizarre given the company was a well funded joint venture between News Limited and Telstra – the company being a good example of modern Australian crony corporatism rather than a risky undertaking by daring entrepreneurs.

This conceit about startups isn’t unusual among corporate executives, in the early days of Australia’s National Broadband Network it was quite common to hear NBNCo managers talk about their startup ethos – this from a company backed by around 30 billion dollars of government funding.

At one stage I interviewed for a job at NBNCo and I struggled not to start giggling when the “startup ethos of the organisation” was earnestly emphasised to me several times during the meeting.

Not surprisingly the job went to an ex-telco staffer, as did most of the team’s roles. No doubt their corporate experience was far more suited to the company’s ‘startup ethos’  than that of actually having worked in four startups. Giggling in the interview probably didn’t help either.

The romantic dreams of executives

Given most corporate staffers would curl into the fetal position and weep after two weeks of working in a real startup, why do executives indulge in the conceit that their business is ‘just like a startup’?

The answer could lie in “The Consequences to the Banks of the Collapse in Money Values” written by John Maynard Keynes in 1931.

A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him. It is necessarily part of the business of a banker to maintain appearances, and to confess a conventional respectability, which is more than human. Life-long practices of this kind make them the most romantic and the least realistic of men.

So it is for the modern corporate executive who has spent their working lives fighting for the corner office having met their KPIs and spending years cultivating their network of like minded managers.

After two decades spent writing stern memos on the use of paper clips and climbing the corporate ladder, it must be tempting for a middle aged executive to look at those funky youngsters getting billion dollar payouts after a couple of years grabbing three hours sleep a night among the pizza boxes under the desk and get pangs of what might have been…..

A harmless startup fantasy

In some many ways the executive startup fantasy is touching and largely harmless, even if it does attract sniggers and giggles from the unwashed and underpaid who’ve actually been there.

The real risk is when a senior executive tries to shoehorn a Silicon Valley startup culture into an organisation.

While most large companies could do with some of the hunger and flexibility found in smaller businesses, there’s many ways that could go terribly wrong – particularly when driven by a starry eyed romantic manager.

For most executives though, the dreams of being in a startup will remain a fantasy – and that’s probably best for everybody.

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A startup’s journey – what businesses can and can’t learn from Silicon Valley

There’s a lot small business can learn from the tales of Silicon Valley startups, but not every lesson applies.

Tech Crunch has a fascinating story on the journey of failed startup, Los Angeles based Flowtab that hoped to create an bar tab smartphone app.

In many ways Flowtab is a story of our bubble economy times – a cheap, easily built service that addresses what is, at best, a minor first world problem.

Flowtab failed when it turned out solving that problem was a lot harder than just writing an app, which is something often overlooked in the current startup hype.

However had the timing of Flowtab’s founders been a bit luckier they could have hit the jackpot.

Dave Winer describes the herd mentality of venture capital investors and had the hot trend of the time been bar ordering apps then the Flowtab team could have been one of the beneficiaries of the Silicon Valley business model.

Along with being a historical insight into today’s investment mania, Flowtab’s story is an illustration of how a new business needs to pivot when the original idea turns out not to be as compelling as the founders first thought.

Even when a business does a pivot, it’s not guaranteed the company will survive, but that’s part of the risks in starting a new enterprise, particularly when it’s undercapitalised as Flowtab was.

There’s many lessons from Flowtab’s failure, but not all of them apply to every business.

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Keeping sane in business

How can business owners and startup founders reduce stress and depression?

Last night some of Australia’s best small and medium businesses were celebrated at the 2013 Telstra Business Awards. There were lots of happy winners, particularly Tasmania’s Bruny Island Cheese Company who won the overall prize.

Speaking at the business awards, previous winner Jason Wyatt of Sydney’s Bike Exchange mentioned some the “stumbles on the way” and keynote speaker Mark Bouris described some of those ups and downs.

“Accept the downside and dream of the rewards on the upside” advised Bouris.

Sometimes though those upsides are hard to find, behind the glamour and glitz of having a successful enterprise the toll on proprietors’ mental health can be tough and this month’s Inc magazine looked at the psychological downside of running your own business.

Running your own business – whether it’s a plumbing service, cheese company or a tech start up – is hard work and risky with not everybody suited to the often demanding lifestyle.

If you aren’t suited to running a business, or you’re unprepared, then those mental health costs can be high.

My own experience is instructive, in fact it’s a case study of what not do as a business founder covering everything from being undercapitalised to choosing bad business partners.

 

Find good business partners

Running a business alone is a mistake, partly because few have the full range of skills required to successful run an enterprise and mainly for the fact being a sole trader or boss is a lonely, isolated experience.

A business partnership though is like a marriage and it’s just as important to choose those co-founders as carefully as you would a spouse.

Good business partners have the skills that complement yours – if you’re good at sales or the technical side of the business then you’ll probably need someone good at the administrative or accounts side. Business is a team effort.

What’s very important is that all the partners in the business respect each others’ strengths and understand their own weaknesses. This makes a powerful team.

Probably the most therapeutic thing about having trusted business partners is that you have a sympathetic sounding board. At the very least you kick back on a Friday afternoon and have a bitch about your customers, staff and the government. That in itself is very important in keeping sane.

Watch the money

One of the biggest problems in business, and one I’ve encountered many times, is that many people don’t understand the difference between cash flow and profit. They see the money in the bank and they spend it.

If your business partner has blown the company’s working capital on a flash car and an overseas ski trip for the family, you can bet the clients, staff and creditors won’t be expecting them to clean up the financial mess.

Should you find yourself in that situation with your partners, get out of the business early before it wrecks your relationships and sanity.

Have sufficient capital

Stories abound of the successful business that was founded in a garage by a couple of penniless college grads and bootstrapped from nothing but they are the exception, not the rule.

While it is possible to bootstrap a successful business – I did it with PC Rescue – it’s a tough, hard road and having insufficient capital exponentially increases the chance of failure. Get some money from family, friends or fools.

Don’t hold out though for the million dollar capital raising though, the Silicon Valley investment model is only suitable for a tiny subset of business and it is possible to be over capitalised as we saw in the dot com boom of the early 2000s.

Stressing about money is one of the greatest problems for business owners and founders, having a little bit of capital makes commercial life a lot more enjoyable.

Watch your business plan

It’s fashionable to say business plans are useless – that is bunk. A business plan gives you some idea of how you expect to spend your money and where the revenue will come from. It’s a good reality check.

However, the 19th Century German general Helmuth von Moltke said “no battle plan survives first contact with the enemy” and it’s true that even the best business plan won’t survive first contact with the customer.

That’s fine because tweaking your business plan in the early days will give you more understanding and control over your business. More control means less stress.

Pivot when necessary

Some of the world’s most successful businesses were started as something completely different, Microsoft being one of the best examples. When it turns out the market doesn’t like your original idea but there’s a similar but different opportunity, grab it.

Executing a business pivot can be time consuming and stressful, but it’s far better for your finances and mental health than riding a failed business plan into oblivion. If you’re the type that enjoys building businesses, then you’ll probably find a business pivot is fun.

Take a holiday

I cannot emphasise this enough. In PC Rescue I went ten years without a holiday. It was a stupid mistake and both my family and my own health suffered for this.

Create limits

Micheal McQueen points out that Baby Boomers are poor at creating limits to their worklives, for many it’s a matter of pride in working punishing long hours.  In small or startup businesses there’s no shortage of opportunities to work twenty-two hour days.

The difference with working 90 hour weeks for the law firm or bank is that managers have a nice salary, sick leave and workers compensation. As a proprietor you don’t and in doing so you’re putting undue on yourself, your business partners and your family by working too hard.

Delegate

One key to success is finding good employees – this is something I totally suck at. While I’ve had the privilege of hiring a few good people, I’m spectacular at finding duds.

Being able to delegate is one of the key skills to business survival, it allows you leave work at a decent hour, take that holiday and – most importantly – get time to think strategically. If the owners, founders or managers can’t delegate then the business potential is limited and the risk of burn out is far higher.

Sack the troublemakers

Something that always bemuses me is how small business owners constantly moan about staff. While it’s true one dud staff member can cause untold damage to a business, bad customers are far, far worse.

Pareto’s law – otherwise known as the 80/20 rule – comes into play here. 80% of your troubles will come from 20% of your customers and rarely will the slow playing, demanding troublemakers be your most profitable clients.

If you’re in business long enough you’ll eventually encounter the psychopaths who actually enjoy stringing out invoices or creating commercial disputes. It’s your duty to your own sanity to get these people out of your life as quickly as possible.

So sack them, write off their debts and get them out of your business. Your time on this earth is too short to be dealing with bad payers, the crazies or the one percenters who get their kicks from screwing other people around.

Watch the warning signs

“Five years in tech support will turn you into an axe murdered, I did twelve” is a joke I often make.

There’s a strong element of truth in that line though as IT support in particular is a stressful, thankless trade and running a business in that sector exposes you to a lot of negativity.

While I genuinely enjoy customer service, tech support and running a business I hadn’t realised just how that negativity and stress was affecting me.

It was only when I noticed the signs of stress in a couple of my good contractors that I started researching depression in the IT industry and did the Beyond Blue K-10 anxiety and depression checklist. The results weren’t pretty.

The exit from PC Rescue and IT support in general started shortly afterwards.

In retrospect I’d stopped enjoying the business and dealing with customers about five years earlier and that should have been the warning sign to get out.

“Love what you’re doing” was Jason Wyatt’s advice at the Telstra Business Awards and he’s absolutely right – the moment you stop loving your business is when it’s time to start looking for something else.

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Surviving in business by executing a pivot

One of the key skills in running a business is knowing when to change direction.

One of the key skills in running a business is knowing when to change direction, to ‘pivot’ in the language of Silicon Valley.

Yesterday I had the privilege of interviewing Jonathan Barouch, founder of social analysis company Local Measure about the service’s pivot from Roamz.

I’ll be writing that interview up in more detail in a few days, but Jonathon’s observations about pivoting businesses reflected my own business experiences.

PC Rescue was born out of a pivot and its ultimate demise was due to the failure of the company’s management, and my own, to move decisively when it was clear the business wasn’t working as planned.

The founding of PC Rescue happened out of a virtual assistant service my wife an I set up in 1995. We’d been victims of the curiously insular attitude of Australian managers towards employing expats and starting our own business seemed to be the right option.

So Office Magic was born.

Office Magic was a good business, but in talking to clients it became quickly apparent there was a bigger need for computer training and repairs. Most small businesses were struggling to find reliable techs to help them out with their IT services.

So Office Magic pivoted into PC Rescue.

For  the next ten years PC Rescue was a profitable business, the problem I had was the classic small business proprietor’s dilemma – I couldn’t get the right people.

The staff and contractors I had were good computer techs but I couldn’t find one with the skills or motivation to take over the day to day supervisor role so I could work on growing the business. I was stuck in the trap described by Michael Gerber in his book the e-myth.

Originally, PC Rescue’s business plan had been a five year strategy — two years validating, two years executing and one year exiting. The exit I particularly liked was creating a computer support franchise operation.

This didn’t happen because the company lacked the human capital required;  my wife and I lacked the management resources to move PC Rescue to the next stage.

When this became apparent we should have pivoted the business. We didn’t because I was too busy with the day to day stresses of keeping customers and staff happy.

Eventually we achieved an exit of sorts, ten years later than intended and not in a satisfactory way. The business remained under capitalised and the new partners turned out not to have the expertise or drive required to grow the operation.

Which make Jonathan’s pivot of Roamz so much more interesting. He listened to customers, looked at the direction of the industry and realised where the company’s strengths lay.

Rather that doubling down on a model which was struggling, he took the business in a new direction.

Having that flexibility is probably one of the greatest assets for small and startup businesses as larger corporations struggle with executing massive changes.

As markets evolve and the rate of economic change accelerates, having the skills and mindset to execute successful pivots could be the difference between survival and failure for many big and small businesses.

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When Venture Capital meets its own disruption

Falling barriers to entry are disrupting Venture Capital investors as much as incumbent managers.

Tech industry veteran Paul Graham always offers challenging thoughts about the Silicon Valley business environment on his Y Combinator blog.

Last month’s post looks at investment trends and how the venture capital industry itself is being disrupted as startups become cheaper to fund. He also touches on a profound change in the modern business environment.

Graham’s point is Venture Capital firms are finding their equity stakes eroding as it becomes easier and cheaper for founders to fund their business, as a result VC terms are steadily becoming less demanding.

An interesting observation from Graham is how the attitude of graduates towards starting up businesses has changed.

When I graduated from college in 1986, there were essentially two options: get a job or go to grad school. Now there’s a third: start your own company. That’s a big change. In principle it was possible to start your own company in 1986 too, but it didn’t seem like a real possibility. It seemed possible to start a consulting company, or a niche product company, but it didn’t seem possible to start a company that would become big.

That isn’t true – people like Michael Dell, Bill Gates and Steve Jobs were creating companies that were already successes by 1986 – the difference was that startup companies in the 1980s were founded by college dropouts, not graduates of Cornell or Harvard.

In the current dot com mania, it’s now acceptable for graduates of mainstream universities to look at starting up business. For this we can probably thank Sergey Brin and Larry Page for showing how graduates can create a massive success with Google.

One wonders though how long this will last, for many of the twenty and early thirty somethings taking a punt on some start ups the option of going back to work for a consulting firm is always there. Get in your late 30s or early 40s and suddenly options start running out if you haven’t hit that big home run and found a greater fool.

There’s also the risk that the current startup mania will run out of steam, right now it’s sexy but stories like 25 million dollar investments in businesses that are barely past their concept phase do indicate the current dot com boom is approaching its peak, if it isn’t there already.

Where Graham is spot on though is that the 19th and 20th Century methods of industrial organisation are evolving into something else as technology breaks down silos and conglomerates. This is something that current executives, and those at university hoping to be the next generation of managers, should keep in mind.

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Staging a sales blitzkreig to win the market battle

Retailer The Iconic is a good example of the Silicon Valley greater fool model

Part of the Silicon Valley greater fool model requires ramping whatever metrics are necessary — page views, unique visitors, revenue or profit to attract prospective buyers to acquire the business.

Elizabeth Knight in the Sydney Morning Herald looks at the cracks appearing in online retailer The Iconic where revenues of thirty million dollars were subsidised by forty-four million in losses in the e-commerce operator’s first year of trading.

The Iconic has all the hallmarks of a classic ‘buy me’ Silicon Valley operation — big marketing spend, high customer acquisition costs and fat operating losses in an effort to build market share.

Getting market share is one of the key aspects of the greater fool model, being the leader in a segment almost guarantees a buyer, usually the one of the shellshocked incumbents.

Knight quotes emails from one of The Iconic’s founders, Oliver Samwar, on the importance of being number one in their sector.

‘‘The only thing is that the time of the Blitzkrieg must be chosen wisely so that each country tells me with blood when it is time. I am ready – anytime!’’ one said.

‘‘We must be number one latest in the last month of next season. Full month, not a discount sales month

‘‘Why? Because only number one can raise unbelievable money at unbelievable valuations. I cannot raise money for number 2 etc and I have seen it how easy (sic) it is for me in Brazil and how difficult in Russia because our team f….d up.’’

As we’ve seen with companies like Groupon, being number one can impress gullible corporations but when that market position has been bought by investor’s money subsidising operations, the business is rarely sustainable.

Whether investors are prepared to continue subsidising The Iconic’s losses or if the business can attract a buyer will depend upon the business maintaining momentum on its key metrics.

Probably the most important thing for companies like The Iconic though is the availability of easy credit and accessible funds.

As we saw in the original dot com boom, when that easy money evaporates so to do most of the businesses.

For the incumbent businesses threatened by well funded upstarts, some might find the best hope for survival is to hope challengers run out of money.

In the meantime though, they may have to survive a market blitzkrieg.

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Startups and stress

Stress is an overlooked aspect of building a new business.

An article in Business Insider describes how staff morale has collapsed at recommendation service Foursqure as the company struggles to maintain its relevance and solvency.

Something that’s missed in the current startup mania is that building a business from scratch is hard work for everyone from the founders to the staff – not to mention the investors.

While many people working in safe jobs for big organisation wax lyrical about the romance of startups, the reality is most corporate employees would be found under their desks weeping after a couple of weeks at a new business.

That stress should be something anyone considering starting or joining a start up should give deep thought about, along with all the other factors.

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