 So you’ve got an incredible idea, are well connected in your industry, and are ready to kick-off your new business, there’s just one problem… how you're going to build your product. You’re not a developer yet alone a CTO and neither is your co-founder. It can be tempting when you’re in a high opportunity, time poor situation to outsource your technology so you can move rapidly but in doing so, you may be jeapordising your business’ long-term prospects. Unless technology plays a supporting function in your business (which is unusual these days), it’s imperative that your tech and product leaders have the same passion, energy, prioritisation and commitment that you do and that means being part of your core team. Product and technology agencies are an effective way to accelerate development of your product but leadership always needs to be in-house. The buck needs to stop with someone in the business otherwise you’ll expose yourself in a multitude of ways. Product market fit right away is rare: Most products require several iterations before they begin to demonstrate product market fit. Think of going live with v1.0 as reaching base camp, not climbing Mount Everest, i.e. the real work (and refinement) is just beginning. Using an agency can become rather expensive after several iteration. . Take a ticket: Agencies have multiple clients and multiple priorities, what might be a critical bug fix for you may be considered a medium priority for your agency. Think about it, why would they prioritise your over work from a larger (i.e. more profitable and stable) client who can spend in a way that you simply can’t? When your product is down and the proverbial is hitting the wall, the last thing you should be doing is negotiating with your developers to prioritise your work over someone else's. Fast, cheap or right? With no ultimate technical owner within your business that reviews architecture and code, an external developer may deliver the functionality you want, but how it’s delivered may be sub-optimal. Buggy products and technical debt are very easy to accrue if your team is thinking short term. Missionaries or Mercenaries? Your team’s motivations, principals and outlook on your business all play a key part in the quality of work they deliver. Are they just there for an immediate pay cheque or do they believe in your long term vision and mission? Look at it this way, if you were going in to battle, mercenaries are an excellent way to fill out your army with experienced, capable soldiers but you’d be mad to hire a mercenary as your General.
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 I was recently invited by Pinsent Masons to sit on a panel at London Fintech Week 2018 to discuss how large corporations and start ups can constructively engage with each other and deliver meaningful results.
If, as an entrepreneur you have found yourself frustrated by the machinations of these giant organisations and not understanding why decision making and execution is so hard then don't worry, you're in good company. In most cases, engagement is really tough as this video with Alison, Yvonne, Kirsten, Mia, Tyler and myself highlights. And just remember, large corporations have market share, financial resources, human capital and a brand. If they could execute as effectively and efficiently as your start-up, would they still be speaking to you?  How much investment does a start-up need and when? Much is said about raising too much money early on. Founders should be mindful of giving away too much of their company whilst its valuation is relatively low. Start up veterans also warn founders that raising too much can result in using cash to cover up product market fit challenges and generally blowing more cash then planned because it’s there. Whilst these cautions are valid, the consequences of not raising enough can be far more detrimental.
A text-book investment round requires a start-up to outline what they want to achieve with the money they’re raising, whether that be product market fit, customer acquisition, scale or something else. The team should carefully put together a roadmap of how this will be achieved and the money required to make it happen. If things go to plan, they get their money, deliver their results and it’s on to the next round of investment. But, what happens when a start-up pivots or under-estimates the costs required to achieve those goals? Many startups find themselves in proverbial “no man’s land” having spent (or knowing they will spend) all their money without delivering the minimum goals required to justify the next round of investment. This position doesn’t bode well for a start up. Savvy investors will want to dig in to the detail to understand why the goals were not met and if this is a hiccup or an inherent problem with the business. The start-up would have outgrown the valuation it raised its last round at but will almost certainly not raise further money at its intended next-round valuation. And so founders begin an awkward dance with investors that can very easily turn into a downward spiral. The ideal scenario for start-ups is that existing investors inject more money at a fair pro-rata valuation that gives the business enough runway to deliver on its goals and make it to the next round. What that valuation looks like is heavily dependant on how supportive existing investors are as founders lose much of their negotiating power when they run out of runway. Tough investors will push for as low a valuation as possible (but rarely lower then the last round) and in many cases, founders will just have to grin and bear it. If existing investor are not in a position to offer follow on investment or even worse, explicitly decide that they don’t want to invest even when they have the means to do so then founders need to be mindful of the downward spiral they’re about to enter. A vote of no-confidence by investors and/or a shortening runway will kill a start-up in its tracks or turn it in to “the walking dead”, moving forward by any means possible even though there’s very little chance the lifeline needed will be thrown. It’s imperative a start-up ensures they have enough money to see them through to the next round. Raising too much is a far more recoverable problem to have then raising too little and being stuck in “no man’s land”.  You would think that with the market share and resources at their disposal, large companies would be at the forefront of innovation, so why is it just the opposite? When it comes to innovation, it’s about culture and intent as much as it is about the resources to make it happen. Here are the 4 characteristics of large companies that often hinder innovation.
1. It’s not really one large company but lots of small ones Large companies are siloed into departments and behave like lots of smaller businesses working “together” but often with conflicting goals. For example, the R&D division may want to develop new products whilst Finance may challenge the ROI. Sales wants to sign up as many clients as possible whilst Technology are working tirelessly trying to meet the subsequent deadlines promised by Sales. These conflicts build barriers that are difficult to break down resulting in the lacklustre innovation culture we associate with large companies. 2. They often work from a position of fear “Nobody gets fired for hiring IBM”! The culture of fear is rampant in large organisations yet many will attempt to cover it under the guise of being risk averse. Learning from failed experiments is often undervalued and many companies see failure as failure regardless of context. Leadership must accept failure as part of innovation otherwise individuals won’t risk their careers to innovate. And so, they play it safe and make decisions based on risk mitigation rather than innovation and change. 3. Shareholders and the need for results Shareholders in the Roman Empire may not have expected Rome to be built in a day, but definitely by the end of the quarter. The pressure on companies to perform quarter after quarter has a detrimental effect on a company’s ability to innovate. Innovation is often de-prioritised by boards and shareholders as results may take years to appear and they need results this quarter. Only when the CEO’s gravitas and vision outweigh the shareholders’ desire for immediate results do large companies succeed at innovation. There are very few companies with this dynamic in place and they disproportionately dominate their industry (think Amazon and Facebook). 4. Circumstance creating complacency Large companies are large for a reason. They’ve built themselves up over time to offer their customers what (they think?) they want and receive substantial revenue with (hopefully) decent profit. Mix this with the “if it ain’t broke, don’t fix it” attitude many companies embrace and you have yourself a classic complacency dynamic. Innovation comes from a hunger to learn, improve, help, revolutionise and fundamentally disrupt, as far from being complacent as you can get.  Bitcoin, Ethereum, Litecoin, Monero. It seems that every month a new crypto-currency is in the news, but what are they, and why have they grabbed our collective attention?
In order to understand crypto-currencies, we need to understand how our existing fiat currencies work. Fiat currency is issued by the central bank of a nation and declared legal tender by its government. It allows central banks to manipulate the value of a currency, to kick-start an ailing economy or slow down an overheating one. Just as importantly it lets governments track transactions of substantial value to ensure nothing illegal takes place and tax is paid. One challenge of fiat currencies however is the fact that a population’s liquid wealth is at the mercy of policy makers who if they get things wrong, could wipe out the value of people’s savings. What happened in Zimbabwe is an extreme example. In the wake of the 2008 financial crisis, central banks around the world started printing new money to give their economies a kick start and everyone’s existing hard earned savings were diluted. Much like watered down wine, you needed more of the stuff to get the same effect (this is what technically causes inflation). With the culprits that triggered the crisis getting away with a slap on the wrist and the ordinary person getting kicked in the teeth with diluted savings and footing the bail-out bill, many who understood the injustice were rightfully angry about what had taken place. One of those (presumably) angry individuals went by the alias of Satoshi Nakamoto (nobody knows who Satoshi is). In the aftermath of the crisis, Satoshi created a new digital currency, designed to completely dis-intermediate central banks, retail banks, investment banks, governments and pretty much any organisation that would traditionally claim to have authoritative influence over a currency. Satoshi called their new currency “Bitcoin”. Bitcoin was not only a symbol of defiance against a financial system that favoured the powerful, it was the first implementation of an architecture that made decentralised transactions practical and practically unhackable. That architecture was Blockchain, the most revolutionary change to recording value since double-entry bookkeeping. Blockchain works by regularly taking a sequence of pending transactions, making sure they can take place, wrapping them up in a “block”, executing them and appending them to the end of a chain of existing blocks that represent past transactions. This is akin to the settling / clearing process found in traditional monetary systems. For Bitcoin, this happens every ten minutes (newer crypto-currencies typically have shorter intervals). And, because a blockchain contains all historical transactions, it knows what the ledger would have looked like at any moment in time. It is an encrypted, immutable version of the truth both past and present and to ensure it cannot be compromised is replicated and stored in the computers and mobiles of its users making it peer-to-peer. This last part is key to its organic resilience. A hacker may be able to hack one instance of the blockchain but would need to hack more than half of of the live instances within minutes before the blockchain caught the anomaly and flagged the hacked instance as corrupt. Bitcoin, much like many “firsts” has its challenges. It’s transactional throughput is limited, the electricity required to mine it (do the proof of work that helps validate transactions) is unfeasibly high and its underground history and quasi-anonymous transactions status have given it a mixed legacy. Bitcoin may not be a practical crypto-currency in the long term, but that’s not to say Etherium, Litecoin, Ripple or even Monero won’t take the crown from Bitcoin and reign as the currency of choice. The idea of a global, trustworthy currency that’s difficult to manipulate and that settles in minutes if not in near real-time is highly appealing for obvious reasons but two questions remain unanswered; will Governments use draconian measures to shut them down before they have a chance to become ubiquitous and if allowed to flourish; which currency will build enough critical mass to be the de facto currency of choice? |
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