This is the second of a three-part article about startup success. We recommend reading the sections in order. You can find part one here. Shortcut to the lessons in this Twitter thread.
1. Don’t do it for the money.
As a founder and/or manager of multiple businesses, some with more success than others, I've learned many lessons - especially about business, fundraising, and investors - often the hard way. One of my key takeaways is that creating a business from scratch, which aims to achieve something that hasn't been done before (i.e. a startup), is much harder than launching a business that already exists. Innovating involves many "unknown unknowns".
One way around this is to start a business in your area of core competency. There's nothing wrong with competing against others, or leveraging your expertise. Improving on something that already exists is a fine way to create value.
If you are intent on inventing something new, however, do it for the right reasons. What would have made some of my own difficulties easier to tackle, on reflection, would have been an absolute belief in, and passion for, what I was trying to do. If I'm honest about why I've launched businesses in the past, it was often because I wanted excitement, money, and to prove myself. It was not because I'd found my life's purpose. The idea for one of my businesses, for example, came 100% from my business partner. He felt passionately about helping people with no steady job, who relied on shifts to make ends meet. I liked the idea for a different reason. I had worked in recruitment in the early 2000s and felt the industry was in dire need of a good shake-up.
I'm not saying I didn't enjoy the journey. I did, or at least most of it. I'm merely saying that, with absolute belief in what I was doing, I would have been much better equipped to deal with the challenges I was thrown. I would probably have enjoyed it more too, and had a better chance of success. Without a clear purpose it's harder to attract and retain employees, to excite VCs, and to justify the extreme personal sacrifices you make as a startup founder.
As Confucius put it:
Choose a job you love and you'll never have to work a day in your life.”
As an angel investor and venture builder, I look for founders who are pursuing their passion. Starting a business should be about purpose, meaning, and belief, not about getting rich.
2. Understand the problems you're solving.
The company I mentioned above created a platform to disintermediate the temporary recruitment market. By removing the recruiter, we believed we could give companies more control over their temporary workforce, while justifying a small fee for arranging each shift. Meanwhile, we would leave more money on the table for the individuals doing the work. People loved the idea, including our investors. Even my recruiter friends wanted to disrupt the industry!
It seemed like a no-brainer. The problem was that my recruitment experience was from entirely the wrong end of the market, and 13 years out of date.
Looking back, we did not truly understand the problem. We were too quick to dismiss the value that recruiters bring to their customers. Sure, there are certain operators who give the industry a bad name, but it's a thriving business, which satisfies a real need. The potential customers we approached didn't like paying recruitment fees, of course, but they recognised the importance of their recruitment partners. Although most liked our concept, they doubted our ability to deliver. They couldn't see how we could provide the same service as human recruiters, using technology. This made selling our platform very difficult. Worse still, they were right. As we matched workers to shifts in significant numbers, we suffered a consistent reliability problem. 30% of the time, the temps who had accepted shifts on our platform simply wouldn't show up.
When I discussed this with my recruiter contacts, they weren't surprised:
“Of course they don't show up! Why do you think clients pay our fees?!”
It was a horrible realisation. We had focused so heavily on fixing the problem for workers, we’d given nowhere near enough thought to the issues facing hirers. Our assumption was that we could fix no-shows with a clever, 2-way rating system (so clever, in fact, that we tried to patent it). This turned out to be misguided. Our temps didn’t consider our business to be half as special as we did. We thought of ourselves as the next Uber, where someone's digital rating could mean the difference between working and not working. In contrast, our temps treated us like any recruitment service. They picked us up and let us down at will.
We were learning, all too late, that we were far from experts in our chosen field. Our no-shows, combined with a lacklustre sales pipeline, were proving insurmountable. This was much harder than we had anticipated.
3. Founders have to win the first customers.
In the business above, I was the person ultimately responsible for sales. I had been so impressed with our product that I almost expected it to sell itself. It didn't. As time passed, I grew increasingly uncomfortable with our lack of big-named clients.
Customers were not, in fact, climbing over each other to try our platform. We talked to hundreds of prospects - HR managers, site foremen, bar managers, cleaning company executives, and many more. It was soul destroying. What's more, it wasn't just me. We had hired some great people, with solid networks, so we punched significantly above our weight. We were also proactive about dragging introductions out of investors. Yet none of it led to sales of any real consequence. Nobody seemed capable of producing meaningful sales momentum.
When you hire great people, it's easy to lean on them, but if the founder can't deliver customers him or herself, how can they expect others to do it? I've experienced this as a founder and as an employee. I've felt how demoralising it is when a CEO hammers their reports for results, despite us knowing the CEO never delivered revenue either. I've also been the one asking the questions. When one of my senior sales people asked me what customers I had brought in, I blamed circumstances. We had launched our product in London, but at the time I was living in Singapore. He was right, though. It shouldn't have mattered. I was responsible for bringing in our first customers, no matter where I was living.
I believe it is fundamental to any sales-based organisation that the founder leads from the front. It is they who must close the first deals, showing others how it's done, and ideally creating a template or handbook that others can follow.
Founders, don't expect your early employees to achieve what you find impossible.
4. Live where you launch.
Before our London launch, I remember meeting a particularly impressive investor in Singapore. We explained our choice of launch market, to which the investor was aghast.
It can't work. Too hard.
He certainly wouldn't invest. In my view, though, it was doable. I would spend enough time in the UK that living in Asia would be of little consequence. He thought it was a terrible idea.
Launching overseas is not impossible, but there is no substitute for being on the ground in your home market. As a founder, you should be available to meet customers at short notice, motivate the team in person, and build a network where it's needed most. Sure, often the goal is to become a global business, but in those formative years you need every advantage you can get.
If you don't believe your idea will work in the region in which you live, you should be prepared to move. If you're not, your journey will be harder, not least because investors will have an easy excuse not to back you.
5. Be prepared for a lonely journey.
As the founder of a startup, there will be times that you feel incredibly alone. Startups tend to be all-consuming. They not only dictate what you do every day, but also they define who you are. You're "a founder". Sadly, founders tend to fall into two brackets - those who succeed, and those who fail. Are you prepared to be labeled a failed startup founder?
What's more, it's virtually impossible to separate startup life from personal life. There will be times when it's nobody's problem but yours, and that may be at 7am on a Sunday.
It's also very hard to share what you're going through. The pressures of running a startup are quite unlike anything else I've experienced - the uncertainty, the constant feeling that you're running out of money, the reliance on investors, the huge range of responsibilities and duties, and the need to remain composed through it all. There aren't many jobs where you're pitching to VCs one minute, going over the accounts the next, and responding to customer support issues the next. These are things most friends and family will find it hard to relate to.
The best advice I can give is to find a network of fellow founders for support. People who are going through the same things as you will understand, as will those who've been there before. The good news is that such help is not too hard to find. Startup people don't tend to lose their passion for the industry, and many are happy to provide support, guidance, and advice for free.
Read the final instalment here in Part 3.