Dear reader (and likely email subscriber),
This is the last post that will appear on swombat.com. Of course, this site has been silent for some time, so perhaps this won't be too much of a surprise. I've tried to resurrect it in a couple of ways but they failed, and I no longer have the energy or interest to write a lot of advice to early startup founders. I still care very much about early stage startups, and get involved in helping (e.g. via mentoring and public speaking), but this blog has run its course (a while ago, actually!).
I continue to be very active in "real life", and also on danieltenner.com, where I blog more about culture than about early stage startups (and I am slowly migrating the best posts I wrote here to this more future-facing medium). My business started 6.5 years ago, GrantTree, is very lively, having recently reached the milestone of £50m raised for UK startups (and it's employing over 30 people now!). I also make and mix music that you can find on dantenner.com.
The reasons for sending this announcement are pretty simple:
- I wanted to end this cleanly and explicitly.
- I needed to migrate the site off its current DigitalOcean droplet, where it's costing $100/m (other sites were hosted there but they're no longer there and so this is the only site taking up cost there) onto Heroku, where it will cost a mere $10/m.
- In migrating to Heroku I have cut down the functionality considerably - for example there will no longer be any auto-tweeting or emailing of articles once the migration is done, in about a week. I also did not see it as worthwhile to add the ability to create new posts (!).
- The tweets often referred to very old articles, and often the linked articles were themselves no longer available. This required me to go and fix the broken links, which more often than not I didn't (because I'm busy), which seemed a bit pointless.
If you have in the past submitted your email, rest assured that it will not be used for anything. The email database is not present at all in the new site migration. It will probably survive in a backup file on my laptop for a while, until this incarnation of my laptop is replaced (probably in a few years) at which point the emails will no longer exist anywhere. You will not receive promotional spam to the email you signed up with, because I'm not an asshole.
So, in about a week, I will take down swombat.com from DigitalOcean and switch the DNS to Heroku, and there will be no more tweets, emails, or new posts. Every post on here will remain accessible for the foreseeable future, however. Over time, I will be migrating some of my best articles to danieltenner.com, along with writing new ones of course. If you want to read more of my writings, follow me there.
Cheers, and thanks for being on this journey.
Daniel
If you read this far, you should follow me on twitter here.
Disrupt or compete ✶
Pontus Siren at Innosight illustrates the difference between direct competition and Disruption by looking at one of the most competitive industries - shipping.
The basis of competition in the industry continues to be the efficiency of moving a metal box from harbor to harbor.
In the last 50 years, ships have grown from 500 containers to 24,000, to the point where harbours are unable to cope. Even the sheer volume of ships is straining the world's main canals.
The industry is highly competitive:
Naval engineers are planning and building ever bigger ships. As the ships grow, their engines have become vastly more efficient and sophisticated, the fuel mix has changed, and complex IT infrastructure has been put in place to coordinate the movement of the containers and ships.
But fundamentally the underlying cost structure of the business has not changed from 1950.
Pontus makes a case that in choosing direct competition or Disruption, you need to consider the efficiency of the industry itself:
It's all part of the relentless drive to reduce the cost of ocean-going freight that has made transportation very cheap indeed. In a private conversation, a shipping executive noted that the cost to ship a pair of sneakers from Vietnam to Europe is two cents. Another executive noted that the container shipping business is a near perfect market with highly standardized products (the ships, the containers, the routes). "It's an impossible business," he concluded. Rather ominously, another executive observed that it's also an impossible business to exit.
With the incumbent players getting ever bigger, the efficiency of their industry drives profits down and ties them to their existing business models. They're handcuffed to a sinking ship!
Which makes a the distinction between competing and Disrupting very clear. When considering how to Disrupt such a competitive industry, you need to look outside it:
There are at least two technologies on the horizon. One is the advances in robotics that could reduce the global wage arbitrage and move some manufacturing closer to the end consumer—from Asia to America, for instance. Likewise,3D printing could have a similar impact if it becomes vastly more sophisticated and accessible. If manufacturing moves closer to the end user, the need to ship goods halfway around the world would be reduced.
The term "disrupt" gets used a lot in the startup world, often incorrectly when you consider the definition coined by Clayton Christensen.
A Disruptive Innovation is an innovation that helps a new market become customers, or separates and focuses specifically on a low-end market which the existing industry doesn't value. It's contrasted with sustaining innovation, which only helps the existing industry improve how they serve their current customers.
If you're truly Disruptive, you'll Disrupt an entire industry, not just the players within it.
If you read this far, you should follow me on twitter here.
Hidden cofounders ✶
Suranga Chandratillake on partners, friends, etc, as hidden cofounders:
I've found that "hidden co-founders" - husbands, wives, girlfriends, boyfriends and even parents - are often a crucial factor in the success of a startup. Why? Because being a founder and entrepreneur is not like a regular job. Startups are under-funded, under-connected and under-resourced compared to their competition. The way you beat these odds often requires super-human effort and commitment. This places you under strain, and the primary nature of this strain is physical. You have to travel, with no notice and at inconvenient times, often around the world. You have to focus entirely on the company and its mission, often pulling all-nighters and usually working through weekends.
...
All of this strain takes its toll. You will extract time and energy from some other part of your life and that probably means your family. Having someone else who can change their schedule at the drop of a hat, keep the trains running at home and go that step further to provide unconditional support, understanding and advice (after all, who better than your life partner or spouse?) is key in allowing you to perform at your best.
To make this relationship work in the long term, however, I believe founders need to be fully aware of the (often quiet) sacrifices these hidden co-founders are making and work to balance the effects of these contributions.
Suranga then proposes five principles to help this type of relationship work, based on respect, openness and balance.
This seems like very good advice, and is to be contrasted with the exceptionally terrible advice coming from a respected figure like Ron Conway, who stated:
Dating someone or married: warn them that they're not first in line, that you have this vocation, that your duty is to your company. It has to be that fanatical.
Please don't do that. That is execrable advice, guaranteed to torpedo a relationship that you deeply depend on. On the contrary, respectfully start by making it clear to your significant other that they're always first in line, even though in practice it may not seem so at times.
You don't get extraordinary commitment from people without offering them extraordinary commitment on your side. If you tell someone they're second place, don't be surprised to find yourself also at second place (and therefore not worth all the hassle).
If you read this far, you should follow me on twitter here.
True ecosystems ✶
I somehow missed posting this last year, when it was published. An excellent article by our very own Salim Virani, on the topic of ecosystems.
Sal and the rest of the FounderCentric team spend a lot of time working with incubators, accelerators, governments, outreach teams at large companies, etc, and helping them develop their startup scenes. Their mission comes from the heart (they really care about helping startup founders), and they are, as far as I know, the best at it at this point, in Europe.
So their thoughts on the topic of how European ecosystems should develop are worth paying attention to. Here's one of the points that particularly stood out for me:
He leaves us with the final takeaway "Support only the best people who have set the objective of being the 1 in 50,000". So, only support the hugest successes - and leave the others stranded?
From a broad ecosystem perspective, investors are often stumps we have to ignore and grow around to get to the next level. "Like a rotting treestump in the forest, they've established themselves from a past leadership position, still get all the attention, but get in the way of progress." They do what works for them, but we have to see the broader picture to grow a successful ecosystem.
Investors aren't bad guys; most work in the best interests of startups from their point-of-view.
The problem is when they perpetuate the idea that the "best" startups for them are the best startups for everyone.
Taking the Silicon Valley definition of a "successful startup" and requiring that everywhere in the world as a bar to entry is short-sighted for people who want to bootstrap a startup ecosystem in a city where there is none. There are many ways to build successful businesses, and the "funded mega-high-growth startup" way, the unicorn chasing approach, is simply not a smart approach for most parts of the world.
If you're interested in startup ecosystems, read the full article here.
If you read this far, you should follow me on twitter here.
The fatal pinch ✶
Paul Graham explains how startups that are burning through their first round of funding often don't realise they're about to die, and need to either make more money or cut expenses:
There may be nothing founders are so prone to delude themselves about as how interested investors will be in giving them additional funding. It's hard to convince investors the first time too, but founders expect that. What bites them the second time is a confluence of three forces:
The company is spending more now than it did the first time it raised money.
Investors have much higher standards for companies that have already raised money.
The company is now starting to read as a failure. The first time it raised money, it was neither a success nor a failure; it was too early to ask. Now it's possible to ask that question, and the default answer is failure, because that is at this point the default outcome.
What is most interesting to me, though, is this paragraph:
Whereas if you only have a handful of people, it may be better to focus on trying to make more money. It may seem facile to suggest a startup make more money, as if that could be done for the asking. Usually a startup is already trying as hard as it can to sell whatever it sells. What I'm suggesting here is not so much to try harder to make money but to try to make money in a different way. For example, if you have only one person selling while the rest are writing code, consider having everyone work on selling. What good will more code do you when you're out of business? If you have to write code to close a certain deal, go ahead; that follows from everyone working on selling. But only work on whatever will get you the most revenue the soonest.
The bit in bold applies to every startup, funded or not. Which brings me to the obvious conclusion, that won't be very surprising to regular readers of this blog... why not skip the funding and go straight towards having "everyone working on sales"?
The answer is, that's not possible for some businesses. But it is possible for most businesses, despite the apparent, loud popularity of the Valley model of "raise funds first, figure out how to make money later". And, from the above sentence, I deduce that it is also possible for most Valley startups.
So the next question is, which one is better? I guess they both have pros and cons. As I've argued before, investment is a springboard, not a cushion. If you're an experienced entrepreneur, who knows how to build a business, and you want to do it faster, raising investment makes a lot of sense even if you could bootstrap the business. If you're a new entrepreneur, though, I still recommend going without, and learning the basics of how to build and run businesses before hitting the "boost" button.
What's clear is that even amongst the Valley model startups, those companies that can afford to neglect sales and other "proper" business topics are few and far between.
If you read this far, you should follow me on twitter here.
Early stage capital in EU vs US ✶
I've covered this topic before, obviously, but this seemed like an excellent article, worth linking to.
In short, things haven't changed much since I posted those articles 4 years ago: European VCs are still slow to respond, slow to make decisions, risk-averse, overly focused on formalities like business plans, etc.
But that doesn't deter European investors from requesting a full deck, including a three-year business plan as a prerequisite to any form of conversation. If your path to profitability is not already proven, you will have a hard time getting as much as a phone call. From what I saw, in the US, the focus is on the potential market, the team, and the product. The rest will be sorted out at the series A/B stage. I tried the European way before getting into Y Combinator, with the business plans and absurd forecasts.
What I can tell you is this: when you have no idea whether you're building something people want yet, trying to paint your startup as a Fortune 500 company feels very wrong.
Perhaps the most telling part of the article is implicit, though: the article talks about early-stage capital, and throws around the figure of $3.1m. By UK standards, certainly, that's a Series A, not early stage capital. Early is up to maybe £500k (that'd be a large seed round).
The UK has largely solved it's early seed stage funding gap, thanks to SEIS, an incredible investor tax break that has basically flushed the UK early seed market with money (my thoughts on it, as an investor, are here.
However, later stage funding is still a problem. Personally, when considering whether to invest in a business, part of my decision process is to think whether this startup would really be better off being in the US. This is not true for every business. Investing in a competitor to, say, tomorrow's Dropbox, based in the UK, seems like a losing proposition to me: in that space, there will already be half a dozen competing companies based in Silicon Valley, and all of them will have the significant advantage of much better access to funding, in a business which is likely to swallow mountains of cash because it has strong network effects and so rapid growth is favoured.
If you read this far, you should follow me on twitter here.
Bill Barnett at Stanford comments how so many startup pundits fail to learn when observing failures. Indeed, not only are the lessons learned often lost, but also the opportunity to use others' failures as one of the fastest sources of actionable information.
Unfortunately, most observers skip the logic part. It is mentally easier to jump to the "obvious" conclusion: If the business failed, the business model must be wrong. Full stop. You can easily tell when this skip happens. The person will name an example as if it were a reason. Is online grocery delivery a viable model? No: Webvan. Is internet search a viable business? No: Alta Vista.
These examples are data, not logical reasoning.
Wannabe investors and startup advisors are particularly villainous here, often heard retorting loudly against future billionaires in this way.
John Mullins has a more constructive approach to analyzing these failures. He separates them into analogs and antilogs:
There are companies before you who have done something like you want to do that you can copy from, and others who have also done something similar, but that you choose not to copy from. These are your analogs and antilogs respectively. The process of going from Plan A to a plan that will work is to begin with these.
For instance, when Steve Jobs of Apple decided to get into the music business that eventually completely changed Apple as a company, he had a whole range of analogs and antilogs he could refer to. Sony Walkman had sold over 300 million portable music players, so he knew there was a demand for portable music. Also, people were (illegally) downloading music from Napster, so he knew that they were open to downloading music online (as opposed to buying CDs). Jobs also had a key antilog, which was Rio, the first mp3 player that had a terrible interface and was rather clunky.
Not only does this mean you have a plethora of data available to analyse and learn from, but it also points you to better sources and advisors.
You'd be surprised how many of these founders are happy to share lessons learned from their failures with you, and how much faster this can be than talking to customers or running your own experiments at first.
Talk to 10 customers and run a few experiments, and you could still be barking up the wrong tree in the wrong forest. Talk to a founder who's been-there-done-that, and you'll be more like a bloodhound on the scent.
If you read this far, you should follow me on twitter here.
Non-violent communication ✶
First Round Capital's written a thought-provoking guide to internal startup communication:
When startups experience conflict — particularly between leaders — efforts quickly become uncoordinated, motivations get misunderstood, and results fall short of expectations. You simply can't produce an incredible product if the team building it won't agree on fundamentals.
Avoiding problems only allows them to fester and impact more people, while hasty, non-strategic communication can turn a small fire into a blaze.
It centralises around a commmon mistake:
Watch out, because the jump from observation to judgment happens almost immediately,
Which is often surfaced in unhelpful questions:
A. Will you get your work done this week?
rather than
B. What do you need to hit your deadline this week?
Open-ended questions ... acknowledge the level of effort you're already putting in and offers to help. It asks for more than a one-word reply — it seeks valuable input.
While a lot of startups aim for modern team structures, they're still riddled with old-fashioned communication norms. A common one is assuming your perspective is complete enough that your assessment is accurate. Then, you start asking for things without communicating the context; you remove the others' ability to assess for themselves. The conflicting assessments are the root of more visible conflict, but those remain unaddressed.
A lesson can be drawn from large design firms that have become effective with functional silos - they make sure they communicate the options they're considering and the trade-offs between them, so others throughout the company can share relevant factors.
Mehl advises preparing constructive statements ahead of time before heading into any confrontational discussion. Doing this will help you stay focused and minimize incoherent or incomplete explanations. Preparing also sends the signal that you're invested in doing the right thing. It demonstrates good will.
Separate the person you're in conflict with from that problem.
The post shares a few in-depth explanations of how to do this well, but it basically means assuming positive intent from the other person, respecting their time and sovereignty, sharing your feelings and needs, separating those from the outcome you'd like - and offering constructive suggestions.
They also share techniques for when team communication breaks down.
"It's incredibly helpful to talk about the early days — the inside jokes, the long nights, what brought everyone together in the first place."
"It's like a game of tennis — the longer you keep the ball in play, the more you learn from each other." And, just as tennis players are happy winning best out of three or five sets, colleagues may need to go multiple rounds before a solution is reached.
If you're a startup founder, you probably have a big ego and a strong sense of direction. If you're co-founders, its' communication skills and empathy with your partners that'll manifest the multipliers between you.
If you read this far, you should follow me on twitter here.
Coding isn’t easy, but it is learnable ✶
Pamela Fox, from Khan Academy:
These campaigns are telling students that "coding is easy," and then they're trying it, and now not only are they struggling to learn something new, but they're feeling bad about themselves because hey, "coding is easy", they shouldn't be struggling.
Nobody should feel bad for struggling to learn something new. They should be commended for trying to learn something new at all.
It's interesting that most founders are brazen and keen to tackle a load of business challenges, figuring things out and learning new skills - but we often put "the technical stuff" in another category. Then, the only solution seems to be finding a tech cofounder.
I was introducing JavaScript to a few Roma kids the other day, and they asked "will this be easy or hard?" I had to fight my first instinct to make say easy, but I still wanted it to feel achievable. " My answer: "It's gonna be hard, but you're smart." They got mentally prepared-one step closer to being self-educating hackers, rather than "learning to code."
Coding is getting easier to teach and learn, due to recent pedagogical advances. It's still not easy though - the question is, why is this stopping you?
If you read this far, you should follow me on twitter here.
Building international relationships ✶
Irina Dzhambazova shares how Bulgarian startups deal with obscurity, and succeed building international relationships:
Serendipity and true partnerships
"Investing time in getting to know an organisation or a person, without looking for the immediate quid pro quo is the way to go. Just get to know people, interact with them in the manner you do with friends and leave the rest to chance." - Vesselina Tasheva
Good partners understand each others goals and can act proactively on each other's behalf. This type of relationship is much easier when you can relate this way at a personal level. Vesselina's advice is to start here - the deal's come more easily later.
She's the former partnerships manager for a large, multi-national IT company, and now runs community for the largest accelerator in Southeast Europe, so has seen this work in both contexts.
Getting in the door, with research
Max Gurvits, an internationally-connected investor, emphasises the value of a little research. He encourages startups to invest a few hours in a list of 100 desired connections.
He wants them to do the mental exercise and leap to realize just how many people are hidden in Linkedin, Crunchbase, or alumni groups. All they have to do is look rather than rely on the obvious choices. Probabilistically, this larger amount of people also increases the chances of a connection actually happening and being helpful.
A list of 100 might seem daunting at first, but it's easier if you break it down into categories:
- ideal customers
- distribution partners
- investors
- analogs (companies who've done something similiar and can share benchmarks and advice)
- compeititors
- antilogs (comppanies who've tried something similar and failed)
- domain experts, including press
Aim for a minimum of 10 per category, and you'll probably start finding a lot more low-hanging fruit.
Being equal
Boyan Benev, learned the importance of equal terms early on in his real estate career. He now has a few startups behind him and is a national TV personality. "If you put yourself as an inferior, you effectively are saying ‘Hey I am different from you.' People are very good at sensing that and, with the neediness that you exude, they would subconsciously judge you more harshly. We are in fact all the same, entrepreneurs, investors and venture capitalists and we should feel equal with each other all the time."
Lino Velev, director of Obecto, a software development company, starts on the outskirts of a certain social groups. For him, getting to the core through the weaker connections is more practical than going straight for the big fish.
Lino relies on story-telling to be memorable. I also happen to know he parties a lot too!
All of these are viable, authentic, and easy approaches to building your international network. Sofia, Bulgaria now has a growing startup scene, but it happened because of founders like these, hustling their way up from the remote, Southeast corner of Europe.
You have to be prepared; it takes a while for your network to build. But it usually pays off faster than you expected. No reason to let your current obscurity stop you.
If you read this far, you should follow me on twitter here.
Benjamin Kampmann, a reputable hacker and product manager, relays his experience with the Lean Canvas over the past few years, in particular how it removed his attention from the customers that actually wanted his product:
The likelihood of the end technology still being a great fit for the market you decided on at the beginning is rather small.
Lean Thinking emphasises the principle of minimizing waste. The common interpretation of Lean Startup assumes that the lead cause of waste is always a lack of commercially-viable demand. But research shows there's a wider range of causes of startup failure. In addition to customer demand, early-stage startups often die from team problems and a lack of connections. Later-stage startups from weak industry positions.
Benjamin goes further, explaining that even with a market-first, rather than product-first approach, assuming he knew his first customer segments, rather than researching them broadly, slowed him down.
Even worse, overly focussing on a [single] market creates a harmful narrowing of your focus: Deciding on how and to whom to sell a technology that hasn't even been developed yet, leads to focusing on building something sellable rather than exploring the actual impact your technology could have.
Indeed, the Lean Startup approach is often misinterpreted as talk-to-customers-first, rather than find-the-right-market-first, and the way the Lean Canvas is taught re-inforces that.
It's worth looking at Lean's origins in Toyota. Their approach to early-stage product design is much closer to how Benjamin describes exploring needs and possibilities. Rather than picking a single market and determining their needs, there is a wide exploration phase, narrowing down on actual opportunities from multiple angles.
Customer conversations vs product experiments
Even though I've been in favour of taking potential markets into account from early on, the reality is that there is little point in doing that when you just started coding: This is an experimental stage, there is nothing to see, test or prove for weeks or months after you started your project.
This is true, but not in every case, which makes it dangerous advice to apply without consideration.
Depending on what you need to learn, another Lean Startup principle - iterating the product quickly - might give you regular and actionable learning faster. But if you start with tech, your experiments and releases need be fast enough. That's hard at first.
There are further issues. When building smaller products as experiments, there's more than the build time to take into account; you need a reasonable amount of time for the market to respond. You can fall prey to the Immediate Response Fallacy, where you don't leave the right amount of time for the market to respond, and incorrectly conclude the experiment failed.
Business model problems
Benjamin also considers his experience with multi-sided models, not just SaaS.
By narrowing your focus to build something you can sell, you can easily forget to make it attractive to the people actually using it - which aren't your customers per se. This doesn't only apply to ad-driven social networks, it is equally true for building a platform for fund-raising or petitions: if you don't have active users, why would any "customer" ever want to run a campaign on your platform?
And lastly, he warns how using the Lean Canvas as his main de-risking tool led him away from noticing some fatal assumptions:
Ergo, instead of thinking of the "market" when building a tech venture, you should think about those who'll ultimately benefit from the technology first.
Though the initial build is a vital part of a tech venture cycle, you have to hide it to make the Lean Startup Canvas work. Awkward.
Building a functional prototype gives you real data. You can actually observe user behaviour, rather than rely on people's descriptions of their behaviour. If you have an open mind, rather than a narrow focus on your idea of their stated "top 3" problems, that data can lead you in the right direction. In Benjamin's case, it's led him to completely new customers.
Choosing the right tool for the job
The key lesson I get from Benjamin that he chose the tool he liked better, but wasn't the right tool for the job. It's possible he didn't make himself aware enough of his options.
Often, the Lean Canvas is chosen because it covers keywords that people think are important at first, like "Problem" and "Metrics," or simply because it's called the Lean Canvas.
This reasoning doesn't answer: is this the right tool for the job I have?
My experience with a large number of startups in accelerators is that the Lean Canvas and Business Model Canvas are helpful in seeing key assumptions as a whole, and to spot gaps in thinking.
One problem is that both give the impression of being thorough and complete, but aren't. Other equally-important assumptions are covered in The Assumptions Exercise, Business Model Environment, and Seven Domains Framework.
In practice, canvases are also awful dashboards - you'll notice they're commonly abandoned when used that way - old post-its gathering dust on the wall.
For early-stage and market driven assumption spotting, I've found Giff Constable's Assumptions Exercise to be much faster and more effective.
The original Business Model Canvas is particularly useful in prototyping and exploring a range of options quickly. It's stood the test of time, for companies that have started and expanded in a range of directions. I've noticed more coherent and innovative business models from startups who use the BMC this way.
When considering the impact of trends, competition, and other aspects that investors scrutinise, the business model environment is effective.
A good tech creation canvas has to assists developers in thinking about their benefactors and user base early, without narrowing the focus of the technology to what can be sold only.
Alex Osterwalder, the creator of the Business Model Canvas, has also recognized the need for finding product / market fit - and from both directions. His new Value Proposition Canvas is actually designed to be split in two, product ideas and customer segments explored more independently of each-other, with customer problems and their jobs-to-be-done as the glue to finding the right match.
There are other great tools out there too, but as always, you need to look at your options.
If you read this far, you should follow me on twitter here.
