Avoiding the pitfalls that lead to zombification

zombie, zombification, startup zombies

 

Apparently Brad Pitt filmed a movie in Glasgow all about zombies.

 

Many of the streets around the city centre were renamed and given American-style street signs so it looked like a typical US city centre.

 

Zombification in the start-up scene

 

I’m not a fan of zombie movies, so I cannot say I’ve seen this particular film. But, as I speak with numerous UK start-ups and many angel investors, there would appear to be a fair bit of “zombie-ism” or “zombification” taking place in the start-up scene.
There is nothing better than a pitch from an entrepreneur that blows you away. It should be well rehearsed, but not robot like.

It should cover a few of the staple bases, but not be too technical. It should be delivered in a professional and business-like fashion to show respect to the audience and potential investors. There should, in short, be enough to hook an investor into wanting to find out more.

 

Then, if an entrepreneur communicates well with investors and completes some due diligence, a seed investment of say £150,000 can land. It seems £150,000 is a nice number as it dovetails well with the Seed Enterprise Investment Scheme, where up to 50 per cent of an investment made in a qualifying company can be offset against a private investor’s tax burden.

 

So, whether the start-up entrepreneur needs 150 grand, the magical pitch number is – yes you’ve guessed it – £150,000. So, in it goes and the entrepreneur looks at her bank account and her breath is taken away.

 

Yippee!

 

My word, after all that pitching and diligence, HMRC work and business plan formation, she now has someone else’s cash to run her start-up and shoot for the moon. Yippee!

 

But then something happens. Reality kicks in…

 

But then something happens. Reality kicks in and the entrepreneur has to do what she said she would do. She has to hire at least one or two key members of staff. She has to negotiate on contracts, terms, incentives, share options and the like. Then there is the new workplace pension and setting up everything with HMRC and her accountants on payroll, etc.

 

The business of running the business

 

Of course, there will be some form of premises needed to rally the team and stick on the website. There may be the formation of a board and the appointment of non-executive directors as specified by the investors. And still there is the business of running the business. It is here that the zombification process starts to form.

 

focus on hitting certain agreed metrics and targets

 

While the entrepreneur is running around doing admin-type functions to make the business legal and work, she also has to focus on hitting certain agreed metrics and targets. Metrics and targets that she used to convince investors to swell her bank account with coin. But, alas this is really and truly the hard bit. She is on her own and there is no turning back.

 

Dead in five months!

 

She promised a bumper payday and she has to deliver. And the next 12 weeks are torture. As she works out where and how to spend her money to hit targets, get traction, produce sales and attracts users or customers, her cash pile starts to reduce and the brutal reality kicks in… “I could be dead in five months!”

 

Like a zombie

 

So what does she do? Well, she starts to act like a zombie as the zombification process sets in. Her communication with her investors tails off. She does not share her frustrations, insecurities, fears and worries with her team. She starts to feel all alone and even lonelier as she knows that she should ask for help, but cannot work out how to.

 

Her thought processes turn to mash and while there is still some glimmer of hope that she can pull it all back on track, she cannot face the reality that in essence, she has no idea how to run a business. In effect, she is already a zombie and will not get second-stage funding.

 

My shout out to anyone who has raised investment is make sure you avoid zombification. Enlist the expertise of your investors, mentors and anyone who you think has a brain. Be honest and communicate. Brad Pitt won’t always be around to save the day.

 

A Blockchain mindset

Blockchain, crypto-currency

 

It’s time for founders and startups to get real when it comes to managing their investors…

 

I’ve spoken with oodles of investors recently. Before this I spoke with and indeed interrogated a whole raft of startups. What I wanted to get to was the truth about startup founders and their relationships with their investors. What I found was astonishing and needs to be fixed.

 

something happens once the deal is done and the startup founder is off and running.

 

Initially when investors speak to startups, the startup founders love the investors. I guess it’s like dating and the startup founder has big puppy-dog eyes. The investors just love this and lap it up. After all, they need to really like and have respect for each other as one is selling equity in its company while one is purchasing that equity at an agreed valuation. A valuation that is generally based in assumptions, comparables, due diligence checks and some bullshit. But, something happens once the deal is done and the startup founder is off and running.

 

The “long-lasting relationship” becomes a one night stand

 

For some reason, the investor relations part of the equation falls by the wayside and the founder no longer has puppydog eyes. What should have been a long lasting meaningful relationship in essence becomes a one night stand. And this has to stop.

 

The Blockchain and all that it encompasses is built on trust. In short, our lack of trust in each other means we need contacts and legals to make things tight. Blockchain creates more certainty in anything that it is applied to. Which is why it is so prevalent in crypto-currency. Blockchain mindset means a cementing of trust that is immutable. All the relevant players on a specific Blockchain all sign up to the trust element. This produces the key and the security code. And this is what is needed in the realms of startup funding. In short, a whole lot more honesty… from all sides of the table.

 

Founders who have taken in cash need to be open and honest about themselves, the right team, where the business really is and what is keeping them up at night. If this means telling the investor that they are stuck then so be it. Investors on the other hand need to be more willing to understand the founder and where the business is. In most cases you will get bad news or news that does not correlate with the forecast. It is at this time that the founder needs you to enable and not berate or criticise or generally give them a hard time.

 

If we could develop a Blockchain mindset in our startups and our investors then so many more ventures would succeed.

Startup life lessons from Arsenal football club

 

Ok, here’s a wee exercise for you. Close your eyes, take a deep breath and tell me the first word that comes to mind when I say “Arsenal football club”.

 

Now whilst I’ve been a Gooner from a young age, there’s no way I think many of your words are positive in light of current events. Lifeless, gutless, pathetic or embarrassing are all adjectives I’ve heard around London over the last fortnight.

 

So what has gone wrong at a club with a world class stadium, unlimited finance and a rich and vibrant history?

 

Profit-itis. The same virus infecting startups all over the country

 

Arsenal have contracted a virus. Pure and simple. Sadly for the UK, this is the same virus infecting startups all over the country. Profit-itis.

 

Being a startup is great, you have access to trendy co-working spaces, free beer on tap and all the digital content you could ever desire. You are a trail blazer, you are your own boss and you will set this market alight and write your own legacy. Investors are throwing themselves at you, money is growing on trees and you are the lord of startupland!

 

your vision begins to narrow

 

You take on your first £150k investment and something strange happens, your vision begins to narrow, you close your eyes and all you can see is £ signs. Creativity levels slowly begin to drain as voices begin whispering phrases in your ear like “payback period” and “cost reduction”.

 

You are captain of this ship

 

Investors want a return on their investment, and rightly so. Their views should be listened to and can often add invaluable advice. However, do not bend over. Do not pander to their every whim and request. It’s their money, yes, but they have invested in your vision. You are captain of this ship but unlike you, they will relentlessly drive for an increased ROI, maximum EBITDA & reduced COGS. No thanks.

 

they strove to be extraordinary and blow the competition away

 

The Arsenal team of invincibles had no such problem. They were not content with merely aiming to win the league, they strove to be extraordinary and blow the competition away. They did not want to just win and increase the bottom line, they wanted to win in style. A class above the rest. It’s this relentless drive to always be extraordinary that set them and Wenger apart, to inspire those around them to raise their game and become better.

 

As soon as you begin to settle for mediocrity, disaster is never far behind

 

Profititis has the opposite effect. Money becomes an all-consuming driver like a spell cast upon you, leaving you devoid of your lateral thinking and creativity. Turing you into a zombie football club or worse yet, a zombie startup. As soon as you begin to settle for mediocrity, disaster is never far behind.

 

To avoid Profititis and maintain your long term health, keep the faith in your vision and never shoot for anything less than being truly extraordinary. Growing your vision, mission and team come above all else as long as you are delighting your paying fans along the way. And to those needy investors who demand you sit up and pay them attention, simply ask them to take a look at the dejected figure of a once great Arsene Wenger and his beloved Arsenal football club.

 

Stop being a startup, become a business builder

 

Moonshot business building

 

Business is the beating heart of a country.  Whether it’s selling mangos at the roadside, building an Internet of Things startup or operating in a large corporate.  Business, as all politicians from all persuasions will tell you, is vital to the success of economies.

 

You’ve heard it all before – right?  Business creates jobs for people.  It gives people purpose and gets them out of bed.  It pays HMRC taxes and in some cases contributed towards pensions.  Business is essential and it is everywhere.  Train franchises to farmers to airlines to grocers to ecommerce to newspapers.  Every country has programmes in place to support business and encourage people to enter – startupland.

 

The UK has many such programmes.  But, something is missing…. And if we don’t take action, it will kill off the next generation of business builders.

 

much of what we have out there supporting these “startups” in startupland is not hitting the spot

 

I’m being pedantic here in my language and proactively referring to people starting businesses as business builders.  It’s time to re-frame the lexicon that has creeped in over the past decade where firstly startup and then scale up became the sexy words that encompassed business and indeed entrepreneurship.  Startups are everywhere and we have shed loads in the UK from Edinburgh to Manchester, Birmingham and London.  But, much of what we have out there supporting these “startups” in startupland is not hitting the spot.  Too many of them are still failing and still not making it.  There are multiple reasons for this.

 

Short termism permeates startupland

 

First off the bat is the short termism that permeates startupland.  I see it all over the UK.  Startups who are jumping onto the investment travelator and whose stole purpose in life is to get investment.  It’s all about the funding and that’s why they then dive bomb once they have brought it in.  Ostensibly, they are building a model that is attractive to investors, whether they be family and friends or high net worths or angel syndicates.

 

it may be more prudent to ask them, how they are going to run the bloody business

 

But, all the questions are wrong, it could be argued.  Instead of asking these newbie startups who have just come into startupland, what their exit strategy is, it may be more prudent to ask them, how they are going to run the bloody business.  It’s everywhere, startups creating three minutes pitches, business plans and investment decks showing potential investors the big pay days they may get.  But, these newbies in startupland don’t have a scooby doo on how to actually run a business.  Therein lays the first problem.

 

Secondly, our startups don’t understand what “timing” means.  Timing is crucial when starting a new venture, seeking investment and building a business.  Let me give you and example here.  Internet of things [IOT] businesses are trendy just now.  I spoke to a young startup recently who is developing an umbrella that uses photovoltaic energy to power your iPhone while it’s up. It can also Bluetooth stuff from your smartphone while interacting with beacons etc as you walk.  Pretty impressive stuff.  But, if this idea had been put out 5 years ago, it would have been too early.  The flip side of this is coming to market too late and trying to create the next Facebook.  Timing is key to understanding when investors invest and where they will be and where your service or product fits.

 

We have too many solopreneurs

 

Thirdly, despite all the signs and signalling from the USA, VCs and all the support out there, we just do not have enough teams.  We have too many solopreneurs, who cannot or do not have the capacity or nous to co-create a business with others.  Trust me when I tell you this is really tough and it requires you to think and act differently.  Team formation at the leadership level is crucial to potential success.

 

Having a co-founder is also a big plus point.  Whether it’s serendipity and you stumble across each other and hit it off with the same vision for the idea or whether you have to actively go looking, a great co-founder speaks volumes to investors.  It is the team that will execute.  It is the team that will think things through and overcome.  It is the team that will pull through when time are really tough.  It is the team that co-creates and has that emotional buy into progress and success.  But alas, we do not have enough startups in startupland who can pull this off.  And it is having an affect right now on how startupland is functioning.

 

think about you, your co-founder and team as business builders

 

Finally, and I could go on a bit on this rant, we do not have the mindset of business building.  As I said earlier in this piece, startups are looking too much like short term bets.  Forget labelling your self as a startup or scale up and think about you, your co-founder and team as business builders.  It’s a mindset change and one that is overdue in Scotland and beyond.  So, I would encourage all those involved in supporting businesses to re-purpose support and thinking into a longer term approach that puts Business Building at the forefront of a startup’s mind.

 

It’s perhaps time to take a step back and re-examine how we as a nation as helping to create our new business builders, after all….. business is the beating heart of a country.