Are you made of the right stuff?

Posted on May 31, 2011. Filed under: Companies, Customers, Funding, Investors, Startup | Tags: , , , , |

Endless Forms Most Beautiful

An ambitious and interesting project aimed at discovering the patterns at successful internet startups was announced on Saturday and is called Startup Genome. Over 650 businesses have been surveyed in quite some detail, so the results should be telling. The concluding reports will, I predict, turn out to be some of most influential pieces of research ever done on internet startups.

If you are a passionate internet entrepreneur you will have either already read the report or will do so soon. So, I’m not going to summarise the whole piece of work; not only is it substantial, but it is also a work in progress. Rather I’ll focus on parts that are of particular interest and make some interpretations of my own.

It’s important to state that this study is about internet startups specifically. There are lessons that other businesses can take from the report but one needs to be careful not to generalise. Also it’s important to remember that, as far as I know, the results are largely based on startups in Silicon Valley. As we all know, things don’t happen the same elsewhere: Availability of risk capital is much scarcer, for one thing. Also much of the initial report relates to companies that raised investment funding in seed and VC rounds. We can learn as much, if not more, from failures, of course. Some interesting findings, about that, have now been published here.

Six stages of company evolution are proposed as follows (personally I like this model), which I’ve paired with my personal take as shown in italics  :

1) Discovery: Create something useful and listen or die

2) Validation: Find ways to get customers to part with cash

3) Efficiency: Get more customers whilst burning cash effectively

4) Scale: Growing pains of every type

5) Profit Maximization: Milk your customers, oops sorry: Reward your shareholders

6) Renewal: Start your next venture

The authors propose four classes of startups, as follows, with some well known examples:

These classes are provided without a clear explanation of what they constitute, although helpfully, they have provided a list of example companies and typical characteristics. So, what the hell, let’s have a go at trying to clarify this thinking.

OK, I contend that all the classes of startups are aiming to provide:

  • More efficient & effective ways….
  • to do stuff….
  • for different classes of users

I would then propose to define the four classes as being focussed, on different users, as follows:

  • Automizer: Individuals and small groups
  • Social Transformer: Individuals, in a network, who interact and transact
  • Integrator: SMEs
  • Challenger: Enterprises in complex & rigid markets

OK, I’ve over simplified. But I think their classification of startups is interesting and insightful. I find it helps when thinking about my past experience and current activities.

At Century Dynamics (sold to NASDAQ: ANSS) where I was a co-founding technical director then managing director, we were definitely a “Challenger”. OK, we were largely pre-interweb but we were a software company selling globally, so the model still works. Also we were never funded by anybody outside the company. That’s one of the reasons it was a long road of bootstrapping and 14 years from startup to exit. It did not seem much of an achievement at the time but reading this post makes me question whether we actually did extremely well, particularly since we were selling to some glacially slow engineering sectors.

With the current startups that I am closely involved in, we are an “Automizer” (Pitchie) and a “Social transformer” (Tripbod).

Actually with Pitchie we are in our first month, at the Discovery stage, so it’s quite possible we will end up positioning differently: But to talk about that further would be revealing our plans for world domination, which we are keeping quiet about for now 😉

Tripbod is very much a social transformer. We are driven by our desire to cut out economic leakage in the tourism industry, where much of the money is taken by middlemen. We are all about connecting travellers directly with local travel providers making us a bona fide network business.

Part of the report findings were that Automizers and Social transformers have as their primary motivation a desire to change the world. Similarly the desire to build a great product was found to be the main drive for Integrators and Challengers. Tellingly only 8% of entrepreneurs surveyed said they care more about money than impact (68%) or experience (27%).

One of the main hypotheses, that the authors set out to test, is that success correlates with founders who are open to learning. Their initial findings are, they say, strongly suggestive of that and cite the following evidence, which is interesting but hardly conclusive:

  • Companies that track metrics effectively, and thus learn, achieved 3 to 4 times better growth rates of users
  • They considered that following thought leaders was a proxy for willingness to learn. Those companies that did so were 80% more likely the raise funding
  • Companies with helpful mentors were significantly more successful and raised around 7 times as much investment capital

The average funding received by company stage is shown below:

  • Discovery = $150,000
  • Validation = $600,000
  • Efficiency = $900,000
  • Scale = $3,000,000

The authors recommendations on what they think should be raised are $10,000 to $50,000 at Discovery and $100,000 to $1,500,000 at Validation. They further propose that nothing more is raised at the Efficiency stage. They suggest that the stark differences in the funding raised and what the authors recommend is due to angels over investing in startups. But remember this is in Silicon Valley: I don’t see that problem in the UK and neither does Scott Allison of Teamly.

Surely a difference today is that it costs a lot less to build an internet business than it did even two years ago. Many of the companies surveyed must have started out before that time.

Apparently there was no difference in whether investors were helpful or not on a daily basis. They conclude “We think this may be because investors’ main value add is their ability to increase the valuation in future rounds, and get larger exit sizes. Their help on a daily basis, which consists mostly of introductions and help with recruiting is not that significant because great entrepreneurs will find a way to get introduced to the people they want to hire and build a great team even if their investors don’t help.”

The most telling finding, in my opinion, is buried in the Miscellaneous section. They found a dramatic difference in the market size estimates made by the companies for their target markets, as shown here.

For companies that did not raise funding:

  • Discovery: $200Bn
  • Validation: $120Bn
  • Efficiency: $50Bn
  • Scale: $8Bn

For companies that did raise funding:

  • Discovery: $0.16Bn
  • Validation: $1.3Bn
  • Efficiency: $20Bn
  • Scale: $9Bn

Enormous differences you will agree at the first two stages! One is tempted to conclude that if you have failed to raise early funding then it’s very likely you are deluded.

Finally here is an interesting statistic that is reported without explanation or context: 81% of entrepreneurs don’t care about rules.

What do you think, fellow troublemakers?

  • How would you classify your startup? Do you like the classification used? Is it helpful?
  • Are mentors important for your learning? Or are they just good for contacts, so raising funding becomes easier?
  • What are you going to do differently having read this blog post or the report?
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If you want money, ask for advice

Posted on November 22, 2010. Filed under: Investors | Tags: , , , , , , , |

For the last 3 years I have been helping start-ups and early stage companies raise investment finance in the equity gap.

Having been through a successful trade exit (Century Dynamics, sold in 2005 to ANSYS (NASDAQ: ANSS)), I am often asked: “Why have you not made investments in the companies that your are helping?”. The short answer, for most cases, is that I cannot: As a Portfolio Director, with the Innovation & Growth Teams, I am paid to be a impartial supporter to companies and to sit on their side of the table.

Now, I have helped in my spare time, other entrepreneurs and companies who fall outside the remit of my day job with the Innovation & Growth Team which has a geographical boundary. So there is a longer answer and angel investing was something I considered. However back in 2006 my personal enquiries into angel investing led me to the apparent collective wisdom that:

  1. You need to make at least 10 investments to hedge your bets
  2. One should expect only one of those 10 investments to do very well and compensate for complete losses on 6 or more of the others
  3. Investing as part of a syndicate (group of angels) is likely to be more successful
  4. Only invest money which you would not lose sleep over losing

So on balance the priorities of investing in my young kids or making 10 investments and not worrying about losing all the money were clear.

More recent research in a report “Siding with the Angels” by NESTA backs up what I learnt a few years before: “In the UK, 9 per cent of the exits produced 80 per cent of the cash returned. In the US, 10 per cent of the exits produced 90 per cent of all the cash returned”. Other conclusions from that report are:

  • Angels with entrepreneurial expertise outperformed those without it, especially in earlier-stage opportunities
  • Those who invested in opportunities where they have specific industry expertise failed significantly less
  • Those who perform at least some due diligence, even just 20 hours, experienced fewer failed investments
  • Post investment some involvement with the venture was related to improved investment outcomes

Over time, I have come to regard the “collective wisdom” in numbered points 1 to 3 above as being rather pessimistic in outlook. Wise perhaps but it rather comes across to me as being all about risk management rather than opportunity creation. After all, there are other ways to balance your investment portfolio which I won’t go into here. Some other aspects of some angel investor behaviour also irritate me:

  • Lack of interest in meeting with the entrepreneurs face-to-face early on. Why assess a business plan when the business is run by people. Business models and plans can and do change. People don’t change much! If I want to hear about an investment proposition I would rather hear a pitch by a CEO than receive a business plan.
  • Lack of politeness: Many angels do not even bother to send any response to propositions unless they are interested and currently investing. Nobody is too busy to write a short email of response simply saying: “Thanks for sharing this short investment proposition with me. It’s not really for me this time but I wish you well in your efforts”. I can understand sending no response to unsolicited, dreadfully prepared and presented, propositions. But is this wise, on the part of the angel, to a well prepared solicited proposition?
  • Middle men: Those who will take an upfront fee to introduce you to their network of investors and then take a success fee (typically 5%) of the money raised. If you are good enough at this why do you need an upfront fee? Some of these people are great but many are a waste of space. I could do a whole rant on this topic alone but it’s been done by others notably Jason Calacanis here.

So what would interest me enough to invest? You may ask, and my answer is, in rough order of importance:

  1. A great CEO and/or founding team
  2. An idea , technology or business model with disruptive potential
  3. A business where I can contribute with much more than money
  4. A business that through success makes the world a better place
  5. A new interesting challenge where there is an opportunity to learn and grow

And, of course, since it’s an investment a big potential upside and good return.

Well after four years of mentoring entrepreneurs, working closely with around 100 early stage businesses and interacting with angel investors, I have now made an investment for an exceptional case.

Three months ago at a TWiST (This Week in Startups) London event I saw 4 great pitches by @Teamly, @opentwit, @campingninja and @Tripbod. You can read more about this great little event organised by all action Steve Schofield of  @Fidgetstick here.  The video for the winning pitch by Sally Broom, founder and CEO of Tripbod is here. To say, I was impressed would be an understatement and afterwards in conversation with Sally she enquired as to whether I was an investor and I replied that I wasn’t, explaining some of the reasons why. Shortly afterwards she asked me if I could provide some advice. Naturally, I was delighted to be of help to enthusiastic entrepreneur with a interesting business. In short, this led onto much interaction over several weeks. It was clear that advice and guidance was helpful to them but some financial support was required too. I really did want to help and by this time had got to know Sally and the business well. It just goes to show that the old adage “If you need money, ask for advice” does work!

This whole process has reinforced my contention that you should invest in people first. Sally has many great attributes but perhaps most of all she is relentlessly resourceful. The same  applies to her co-founder Liz.  So what is  Tripbod?

  • A Tripbod is a trusted local person, with local knowledge, who can help you plan your trip before you go
  • Tripbod provides on-line personalised bespoke trip planning across the globe
  • The one-to-one service includes unlimited on-line contact with your Tripbod through a private trip planning page and personal calendar before you go

Some of you may be wondering whether I have any relevant industry experience to contribute to Tripbod. Well, I don’t. I can certainly claim to have a lot of experience of international travel both as an independent tourist and businessman. However, no worries there, as I am being delighted to be joining as an investor and active board member with Martin Dunford, who was a co-founder of Rough Guides, and who stayed with them through acquisitions by Penguin and Pearson until last year.

No doubt, I’ll be blogging about progress with Tripbod in future posts, so I’ll leave it there. If you’ve read this far, thank you for your interest. We would love your feedback on what you think of Tripbod. Would you use it? Do you think a local travel expert can enhance your next trip? Let us know here.

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How to Find a CTO

Posted on October 18, 2010. Filed under: CTO, Development, Events, Leadership, Personal, Recruitment | Tags: , , , , , , , |

One of the most common requests I get from portfolio companies and entrepreneurs goes along the lines of:

  • “How and where can I find a CTO/tech co-founder/key developer?”

This is invariably followed by:

  • “How do I go about selecting and assessing candidates?”

Whilst this post will be primarily aimed at companies where software forms an integral part of the business, there are some answers to these questions that relate to any type of early stage company.

Personal Experience
Before looking at these questions it’s probably a good idea to tell you a bit about my background and experience of recruiting.

My passion for computers was ignited, in the 70’s, at school. It occurs to me, writing this post, that I was always the first person to get the latest electronic calculators: Indeed I still have the ones in this photo.  These cheap calculators were bought with money scrapped together from milk rounds, newspaper runs, plus growing and selling fruit and vegetables to the village shop.

The flames really took hold when I got my hands on the electronic analog computer in the physics lab at school. I can vividly recall the excitement of quickly programming traffic lights using a few op-amps and a plug-board. Did you know that computing was once done non-digitally? If not, might want to read this short article on Analog vs Digital computers and this for a more detailed history on analog computing.

Now I’d have loved to have bought a PC in those days but frankly I could not afford one until the Sinclair ZX Spectrums came out in later years. Anyway in my country backwoods world, Apples were things you sold to the village store. With the ZX, I really started having fun especially with the graphics. This was enhanced by programming on mainframes at university, and in industry during vacations. The problem was that to get any decent time on the university mainframe meant staying in the faculty at party time, when nobody else was using it.

In industry it was like: “What do you mean you want to write a program? The computer is for running the payroll”. Having got over that objection, with the help of more senior colleagues, I was still appalled that we had not plotting or graphics capability: Graphs had to be done by writing characters on a line printer. This in a company with 30,000 employees! So I took the opportunity, at an event, to make a case directly to the CEO. A few weeks later we had a PC: At the cost of embarrassing and no doubt pissing-off the Technical Director! But now we had some graphics capability the visualize the simulated motion of the physical products myself and colleagues were designing for manufacture.

Later as a co-founder and CTO of a software company, I got to pursue further my developed passion for solving problems and creating tools using programming. It is true to say that I was never the most brilliant coder: Programming for me was and remains a means to an end. But I will contend that I was extremely good at solving difficult technical problems and creating easy-to-use, albeit technically complex products, using programming.

As a CTO, and later CEO, I was instrumental in building a team of 40 people across 5 global offices. Since we developed almost all our technology in-house and outsourced little, most of our staff were technical and indeed based in the UK office. Software development often had to be done for things you would never do nowadays. For example, myself and colleague wrote a 3D graphics library because there was no such thing on PCs with DOS at the time.

By the time I was CEO, we had a sizeable development team deployed on four products: One of which I had been chief architect for and another one which I had pretty much written from scratch. But all these products were a team effort, built by hiring great people. As lead on recruitment I discovered a further passion for interviewing, assessing and recruiting people.

Funnily enough, speaking with a lot of CTO/CEO types nowadays, I have often noticed a distinct lack of enthusiasm for interviewing and recruitment. I find this hard to understand, quite frankly: What can be more motivating and interesting that meeting with, assessing and recruiting smart people? People with whom you can build a great company.

Oh yes, and finally, a few years ago I started a small specialist executive search project which taught me a whole lot more about how to connect with and find talented people.

Practical steps and CTO types
But let’s get practical now and have a look at some tips on recruiting, questions you should ask and some awesome blog posts on this and related topics. Also I’ll point you to some resources that can help with this problem and hopefully some of you will chip in with some comments and tips.
I am going to ignore the well-known conventional recruitment options of advertising,  job boards and executive search agencies. It may well be that these can help solve your problem but many of the companies that I interact with can’t afford those luxuries. For those that can, I’m sure you’ll be keen to see how you might slash your recruitment costs.
First some questions you should ask yourself, particularly with regard to CTOs:
  • What do you really expect your CTO to do?
  • What kind of CTO do you require? Details at this paperbut in outline do you want:
    • CTO as “Infrastructure Manager”
    • CTO as “Big Thinker””
    • CTO as “Technology Visionary and Operations Manager”
    • CTO as “External-facing Technologist”
  • How much would you be prepared to pay your ideal hire, above that of an acceptable hire?
  • What are your intentions with regard to shares and options?

Recruitment Tips:

With regard to CTO’s, assuming you don’t have one already: Always consider hiring a lead developer and then if they have the chops, promote them to CTO. When recruiting lead developers and potential CTOs you, of course, want somebody who is a team player and is potentially a good manager and leader.

You also want somebody who is ambitious. But be wary of ambitious people who are ambitious for themselves and not for the company. You are likely to be a stepping stone to their next job; soon after you have begun to see the fruits of your investment in them. As put by Andy Grove, ex-CEO of Intel:

  • The right kind of ambition is: Ambition for the company’s success with the executive’s own success only coming as a by-product of the company’s victory
  • The wrong kind of ambition is ambition for the executive’s personal success regardless of the company’s outcome.
  • You can read more on that topic here at the blog of Ben Horowitz.

I am very much in agreement with Paul Graham about hiring good people for any role in start-ups and about developers in particular. He says that you need to hire “someone who takes their work a little too seriously; someone who does what they do so well that they, pass right through professional and, cross over into obsessive.”


Now I completely agree with this: Of all the really great hires and colleagues that I have worked with, I can’t think of a single one who was not somewhat obsessive-compulsive. Not to the extent of having a disorder you understand, but somebody who was incredibly meticulous, tending towards perfectionist and often completely wrapped up in solving a problem, completing a task and shipping on time.

Paul Graham expands on hiring programmers, as follows:

“For programmers we had three additional tests. Was the person genuinely smart? If so, could they actually get things done? And finally, since a few good hackers have unbearable personalities, could we stand to have them around? That last test filters out surprisingly few people. We could bear any amount of nerdiness if someone was truly smart. What we couldn’t stand were people with a lot of attitude. But most of those weren’t truly smart, so our third test was largely a restatement of the first. When nerds are unbearable it’s usually because they’re trying too hard to seem smart. But the smarter they are, the less pressure they feel to act smart. So as a rule you can recognize genuinely smart people by their ability to say things like “I don’t know,” “Maybe you’re right,” and “I don’t understand x well enough.”

That resonates much with my own experience. I would also add that, in my view, really smart people have a large dose of humility. This means they are not worried about asking questions, or for help, when other clever or political people might be too proud or arrogant to do so. Smart people recognise their limitations, seek help and then learn and grow as a result. If you are interested in more wise words from Paul Graham on startups here is a link to the full article.

Here is another interesting post on how to recognise a good developer where positive and negative indicators are cited. Positive indications are programming projects outside work and before university whilst negative signs are learning new technologies only on courses and a lack of passion.

In the case where you are looking for a CTO co-founder, or indeed any co-founder, the following two articles are interesting.

  • The first one is written by an entrepreneur turned seed investor
  • Whilst the second gives a more legal perspective.

My last  personal tip is as follows:

  • Don’t be afraid of recruiting a great person with the minimum necessary skill set over a person, who you may have doubts about, but who has an impressive skill set.

Some of the best hires I ever made where with passionate, determined, relatively unskilled team players who learned new skills on the job, and no doubt at home. They invariably became more effective than those with better qualifications and an apparently impressive CV. They quickly acquired new skills. Notably the ones the company needed rather than a skill they wanted on their CV.


Now what about resources for finding people? Beyond the conventional means, here is a list of ideas that will cost only a small amount of cash or nothing at all, except for your time:

  • Search on LinkedIn and indeed place adverts there
  • Post a job on Crunchboard
  • Check out Twitter lists: I keep one of geeks here
  • Open source developers: You can check out their work after all! You will need to look in several places.
  • There are several cofounder sites out there. It’s a big problem and nobody has yet cracked it so most are not much use unless you are in Silicon Valley. However these two are better than most, plus there is a raft of answers now appearing on Quora on other sites:
  • Also freelancers: Some are freelancing in the hope of hitting upon a great permanent opportunity and you can always hire them for a project first to check them out before making a bigger commitment:
    • One suggestion is Guru which puts you in touch with freelance developers
    • Another useful UK freelancer site is Peopleperhour
    • vworker is an amazing site for engaging with freelancers and spotting tech talent
  • Engage in developer meetups: Again these take time and some intelligent searching but check out
  • This list is a far from being exhaustive and, no doubt, I will have missed some gems. What can you suggest to add to this list?

Since I wrote this post, this related answer on Quora, has attempted to survey the various resources you might look at.

What are you own experiences of recruiting and trying to recruit?

I’d love to hear from you and so would other readers.

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Companies, Stars and You can’t have it all

Posted on August 24, 2010. Filed under: Astronomy, Companies, Customers, Investors | Tags: , , , , , , |

CEOs, entrepreneurs & boards all struggle with how to satisfy 1) shareholders, 2) staff and 3) customers.

It’s hard to do that really well. Indeed most companies, with some lifespan, probably make a reasonable first of keeping two, of those three, stakeholders happy. Now I reckon striking a balance and keeping all three stakeholders happy, and importantly maintaining that balance, is nigh impossible.

I could bore you with a long post trying to prove this via examples.

Rather I’m going to can explain it conceptually, as a three-sided hill, looking like this from above.


Supernova remnant


Companies that gravitate to satisfying investors/shareholders and users/customers tend to expand (very fast in the case of VC fuelled growth), get well-known, achieve success for a (relatively) short while then, so often, fade from view: Let’s call them supernovae. Think MySpace or, one of 10 failures you never heard of or forgot about. OK, the analogy is imperfect (supernovae are the death knell of stars) but you get the drift.

What about those companies that keep investors and founders happy but ignore customers? Well they end up building something customers don’t even want. Typically these companies develop a solution then go looking for a problem. There may be lots of energy, noise, activity and engineering going on in that company but nothing much comes out of it. A bit like a black hole really!


A star near us


Companies that look after their staff and customers well are more like stars: They often have a much longer life (like companies with a sustainable business) and have a more gradual start and end, when they burn out.

Indeed some stars turn into black holes and others get wiped about by supernovae.

You know it’s hard to keep a ball on top of a hill.


What do you think? Got some good examples? Perhaps you disagree with my broad thesis and can cite an example that disproves it.

Any comments are welcome. I don’t expect you, or anybody, to do so on this first substantive post, but go on surprise me.

Images sources: NASA and painting of Cerberus by William Blake

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    I help entrepreneurs and small high growth potential companies in Sussex, Surrey, London & sometimes further afield. Flexible to your needs but typically help in raising investment finance and mentoring. Previously I was co-founder, CTO then CEO of a software company which we sold to a NASDAQ listed company


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