How hard can it be? Overcoming start-up obstacles

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This is the transcript of a talk that Mike Lawton and Matthew Dreaper gave at Venturefest Oxford in July 2015.

We see some common obstacles facing start-up companies:

 

The Founder
Yes – it is your idea!  Yes – you’re going to commit 200%!  But your view of yourself may actually be a limiting factor to the success of your business.

We have seen start-ups that are held back by Founders who believe they know best – on every topic, making them reluctant to build a genuine management team.

We have seen start-ups that are held back by Founders who believe they know best – on every topic, making them reluctant to build a genuine management team.

And we have also seen start-ups that never make it because the Founder is too cautious to realise the true potential of their idea.

 

The Founder’s Family
Where a Founder is in any sort of long-term relationship, the pursuit of a new venture can sometimes cause strain – particularly where an existing, safe income is being sacrificed. It’s really important to get the “terms of engagement” agreed with your own “regulator” before you set sail on the turbulent waters of the start-up ocean.

 

Other members of the founding team
The start-up journey is rarely quick or easy. We have often seen situations where a member of the founding team wavers. And invariably this can come at particular stressful points in the start-up cycle for the whole team – particularly challenging when it happens in the closing stages of a funding round.

Getting a realistic view of your journey, and discussing the level of risk and uncertainty that each of you is willing to accept, will help reduce the chances of a potentially fatal obstacle emerging.

 

Money
This is the most obvious obstacle. Founding teams need to be clear about how much money they are willing to invest, and it is advisable not to diverge too far from whatever each person decides to commit. To do so is likely to find you falling foul of what’s been agreed with those dependent upon you financially.

It is helpful to put a value on your time. This helps you to assess how much you are willing to invest (in the widest sense of the word). For example, if you were working for another company you’d have the value of your time neatly defined. Use this metric to work out how much you’re willing to invest to get your dream off the ground.

It is also wise to accept that most successful businesses at some point depend upon other people’s money – whether that’s equity or debt finance. If you are using other people’s money you need to build robust, trusting relationships with them. Don’t treat other people’s money as something to be abused.

 

The wrong sort of investors
We commonly hear Founders talk of “going in to battle” when they are raising investment and talk of “loosing part of their business”. This is such an unhealthy view!

If you are taking investment, you will be bringing new partners in to your business. Get the right investor and you’ll be adding invaluable experience, advice and contacts around the Board table. Of course you want to retain as large a shareholding as possible – but actually the wiser part of your decision should focus on “Who?” as opposed to “What price?” The right sort of investor will be a brilliant ally, a great supporter of your business – and someone that has the additional funds to help you when you are in an unexpected crisis.

The wrong sort of investor can kill a good business. We’ve seen this happen.

 

Fearful customers
Who goes first?  A repeated challenge that we see at start-ups relates to winning the lead customer(s). In the “B2B” segment (business-2-business), it is common for many potential customers to express warm interest in a new venture, but rare that these potential customers are willing to back up their warm words with a purchasing decision.

Conversations with potential customers should be professional and positive, but behind the warm words you need to be carefully exploring the path to receiving that all important initial purchase order. Many entrepreneurs we’ve come across, especially those from a technical background, simply fail to ask ‘ask for the sale’, expecting a potential customer to lead the sales process for them!

In the “B2C” segment (business-2-consumer) there is a similar challenge winning your first 1,000 paying customers. Look after your early adopters, listen to them carefully and be prepared to change your plans based upon their feedback.

 

How best to overcome these obstacles?

  1. Be honest with yourself – don’t try and do this because you saw someone else do it, or because you want to be the next Richard Branson (you’re better looking than him!) – understand why you are taking the risk and what you want to get out of it. There will be extremes of emotions: from the highs of closing that first deal to the doom of “it’s all over” due to a setback. You need to do some soul searching – confirm you’ve got the sort of personality that can ride the extremes and keep your team with you.
  2. Be honest with others – perhaps “guardedly honest” (i.e. there are some secrets that need to be kept). It’s possible to be honest with others but still let your enthusiasm and optimism win their support.
  3. Having a broad strategy and a set of principles is more valuable than having a very precise plan.
  4. Treat investment as a partnership – this is what it is. You have every right to decline investment from people that you are not comfortable with and you have every right to negotiate on a reasonable basis.
  5. Understand “what is the worst that could happen?” if you have set your own parameters thane you can respond to inevitable set-backs in a measured manner.
  6. Remember to also think regularly about what the best outcome might be, and how to remove obstacles to attaining this.

 

ABOUT THE AUTHORS:
Mike Lawton is the CEO & Founder of Oxford Space Systems, and previously founded and exited two technology businesses.

Matthew Dreaper, OSS’ CFO who also runs Chilcomb Management Services, which provides advisory and support services to growing technology companies. .