Thanks to some grossly overinflated high-profile IPOs, investors are running scared and changing the investment landscape in the process. Here’s everything you need to know, and how to adapt.

The fallout from the 'Vision Fund' disaster is changing investor behaviour, and the consequences are going to ripple out for years to come. Whether you're just getting started or approaching scale, this changing investment landscape going to have a significant effect on how you run your business. You need to plan *now* for what is going to be the on-the-ground reality 12 months from now.

The two major changes that you need to plan for are IPOs going out of favour, and venture capital funds — despite an excess of available capital — doing fewer, bigger, deals.
Why? Because investors have recently been burned in a very public manner. Between them, WeWork and Uber have soured the market on big, over-hyped, tech IPOs. There will always be some exceptions, but this trend is unlikely to end soon and we're likely to see companies who are too committed to the IPO path deliver lacklustre results (see Casper, for example).

Read: 'BREAKING NEWS: building a great software business is hard'

I've never been comfortable with how easily founders reach for an IPO as the default high-level exit strategy. There are so few businesses that have the underlying strength to make a great case for an IPO and it's such a long-haul to get there, so many things can go wrong.

There is already some evidence that the pendulum is beginning to swing back from a focus on market share growth at all costs toward creating profitable businesses. Not before time from my perspective, but if you weren't expecting to worry about profit any time soon this could be a shock.

What does that mean for you?

The prevailing mythology has been that you need an incredibly ambitious goal that is largely based on growth to dominate a marketplace and that such dominance will create opportunities (rent-seeking being an obvious choice) that deliver outsize returns.

This is what businesses like Google, Facebook, and Airbnb have done. It's interesting to look at two businesses that are arguably very valuable but where this has not happened: WeWork and Uber. WeWork is — despite a lot of frothy tech language in their S-1 filing — a property management company, not a technology company. The evidence is that they lost clients as quickly as they found them, as quite often clients would take a free period, then leave before committing further. They built no advantage in their service and couldn't create barriers to entry (indeed they paved the way for competitors), or barriers to switching. It turns out their "advantage" was having Softbank money to burn.

Read: Should you replicate a successful business model?

Uber, likewise, is a great idea (who doesn't love VC-funded, on-demand, ride-hailing?) — for a while, every startup was the "Uber for X". How did it all go wrong? Again their service created no sustainable advantage, no barrier to entry, and no barrier to switching.

There's a thing here too about founders and drinking kool-aid... both companies had ample opportunity and resource to do something different but chose not to until it was too late.

The evidence is that the underlying "market dominance theory" of growth is not generally sound. It requires a context in which market dominance allows the business to create intrinsic value. The point about the businesses that were successful in this strategy is that they had created something valuable that has a non-negligible switching cost and/or where the value of a transaction is high. Say what you like about Google, Facebook, and Airbnb, but they have done this and profited thereby.

Hindsight is 20-20 but it's arguable that WeWork and Uber could have been great businesses if they'd focused more on creating an advantage and being profitable, rather than chasing endless market growth with the expectation of more and more soft money.

Whether or not your business has the potential to scale to the likes of a WeWork or Uber it's worth understanding what went wrong and the implications for the future.

What should I do next?

Plan to do more with less
While raising your first £150-£250k probably won't get a lot harder, raising £500k-£750 is going to get even more difficult and, if you're burning hot, you need to start cutting your expenses now and extend your runway. That probably means cutting headcount. It's painful, but necessary if it means keeping your company around for the long haul.

Focus on growing value, not just your market
This means doubling down on product/market and product/channel fit now. Once you've broken even, you can then decide whether a market growth strategy still has the right dynamics for your business.

Get experimental
Prove what you know and that you know what's risky, and build on that. Don't develop any part of your product if you don't have good evidence that it creates strategic value.

Check your hubris
You have big plans but you probably don't have the wisdom of the sages or an angel on your shoulder. Don't believe your own PR, stay grounded, and do what's right for your company and the world.

If major names like WeWork and Uber have gotten it wrong, it's clear that building a great software company is hard. If you're undertaking this journey, you don't need to do it alone — get in touch if you want to chat with a software business consultant about your unique challenge.

Who knew?

There has been so much change in the software industry since I joined it in the early ’90s. The idea that you could have an application built, deployed, and in the hands of thousands in mere weeks was a fantasy back then — today, it’s reality.

What is the “average” story? What does life in the software industry look like for most of us, not a select few?

Going from idea to product is still a great challenge because the fundamentals of developing the right product have not changed. It’s just that in 1994 you either had a ton of money or you had bullet-proof evidence to persuade investors. Now you can raise a quick £50-100k via the Seed Enterprise Investment Scheme (SEIS) and be on your way. But the evidence is that most new software businesses will die prematurely.

So, the average story tends to be one of despair.

"Move fast and break things" is the mantra everyone wants to aspire to, and understandably so — it's bold, it's exciting, it suggests we can be driven-yet-carefree in a way billionaires usually appear to be.

... but imagine you are standing at the edge of a minefield. Does "move fast and break things" sound like a good idea? To me, it sounds disastrous. But the edge of a minefield is where most of us tend to be. Better advice could be “move carefully and be sure not to throw your life away”.

For most software companies, moving fast is a desirable phantasm. It’s not their pace that will kill them, it’s that nobody wants what they're building. I often have to restrain clients from spending many thousands of pounds per month, building a product that likely is not commercially viable.

In the beginning, you know less than you think about your customers, their problems, how they think and feel about them, and what will make their lives better. As CEO your real job is to make sure you figure this stuff out, not to start building product straight away.

Now and again someone like Steve Jobs comes along and makes this bit look easy, but most of us aren’t Steve or anywhere close to his level of nous. The reality is that, for most of us, this bit is really hard and we need to sweat it.

Then again, wanting to build software solutions is only one part of the equation. We need to also recognise that our product is both feasible (looking at you AI kids, hope you have a warm coat handy) and viable, which is to say 'can we make the kind of money out of it that advances our mission?'

Feasibility questions mean having good, trustworthy, technology people on your team and advisory board. It also helps if you follow the principle of "Minimum Viable Value Proposition" and don’t try to invent too much in one go. Tools like Assumption Mapping & Impact Mapping can help you focus on proving the most valuable hypothesis for your business, or hitting important milestones.

Lastly, think about your profit model. Yes, the business model is important too, but it’s your profit model that could make the biggest difference to your success. That was actually true before the collapse of the WeWork IPO but is even truer today.

Too often people try to copy a business model without thinking about the context that supported that model and how they are going to tap into the value chain — but, once you start thinking about this, you may find interesting ways to create value, as well as new models of competition. This is very important as a startup. A great read on this is The Art of Profitability

Building a great software company is hard, navigating the minefield is hard, what would help you most right now? Want to talk about your unique challenge? Get in touch.

Photo via unsplash.com

This week I’m taking a look at Demand Innovation. So, what does that term mean? It is the process of driving the development of new products/services (innovation) by looking inside existing customer value chains to find new, possibly more valuable, problems to tackle (demand).

Slywotzky’s view & my advice

A key author in the space, Adrian Slywotzky, argues that large businesses can get stuck in a ‘no growth zone’. Often, this is because they assume they already know everything they need to about their customers. The problem is that many of their assumptions are likely to have been partly wrong, and the ones that were good still have a shelf-life; they may not age well.

I would argue that it’s not only large business that are in the “no growth zone”. It’s hardly unusual that SMEs or scale-ups looking for growth go on the search for new customers and a broader value proposition, rather than challenging their assumptions and exploring further up into their existing customers value-chains and trying to create demand there.

My advice? Go deep before you go broad. Especially when you take into account that existing customers are those with whom you (hopefully) already have a good relationship with and have built up some level of trust. At the very least you know where to find them! Looking for new problems there has to be easier than starting from scratch, right?

The example

Slywotzky uses the example of a company in the pharmaceutical transport business (i.e. running fleets of trucks to move pallets of, e.g., painkillers from a pharmaceutical company loading dock to a hospital loading dock). Whilst essential, this is a relatively low-value activity in the value-chain of hospital supply.

By not treating the hospital as a ‘black box’ into which drugs get poured and examining the hospital value-chain, the company was able to identify that warehousing, stocking, and dispensing drugs to wards were activities that are (a) not core, (b) complex (c) costly, and (d) potentially risky (e.g. when the wrong drugs end up in patients). When the hospital recognises this problem, it creates new demand.

The solution

The company then created a solution for the hospital to specify the drugs required each day, by each individual patient, and to supply a ‘robot’ that could be wheeled directly from the loading dock to the ward where it would correctly dispense each patient’s drugs for that day.

While the hospital would likely maintain an emergency supply, this significantly reduces the need for managing pharmaceutical inventory and potentially eliminates the risk of dispensing errors on its wards. Reducing cost and improving ‘service’ delivery - a massive win for the hospital and the company.

Note that this is still recognisably the value proposition of ‘delivering drugs from pharmaceutical companies to hospital patients’ but re-imagined to solve a deeper problem for their customer.

This solution was possible because this ‘transport’ company was able to:

1. Look past its own identity and, “the way we do things”, to look for new problems and new opportunities to create value. 

2. Throw away some of its assumptions about the customer and their real problem, and explore demand further up the value chain

Having successfully done this once, it was able to repeat the exercise. Through finding a related problem in the value-chain and expanding the sphere of the problems they tackle, they were able to create new demand within the customer and new value for themselves.

Questions to think about

Where do you stand on Demand Innovation? Here’s a few questions to think about: 

• When was the last time you explored your customer value chain for unaddressed pain and problems you could deal with?

• Are you occupying a high-value position in their value chain? 

• Do you assume you know everything you need to about your customers experience and their problems?

• Do you need more and better business?

• If so, might this be a good time to throw away some of those assumptions and explore their value-chain again?

For more please see, Demand: Creating What People Love Before They Know They Want It. Or anything by Adrian Slywotzky, really. (Can you tell he’s a favourite of mine?!) 

Until next time…

Find me on LinkedIn Follow me on Twitter Join my Mailing list

Image via NASA (Unsplash.com)

I don’t think anyone would argue with the idea that goals are a critical aspect of running a successful business. Although, it’s often been my experience that peoples’ goals are either too fuzzy, too under-ambitious or too convoluted to really help them.  

In my work I tend to distinguish two main types of goal, and both kinds must be used for the desired impact:

1. Horizon goals - these represent our understanding of what ‘winning’ looks like. This might be an exit valuation, profitability of a business or a desired social impact, e.g. ‘1 million people have access to fresh drinking water.’

2. Proximate goals - these represent desirable waypoints on the journey to winning, that are more predictable and easily attainable than the horizon goal.

A classic example of a horizon goal is the May 25th 1961 announcement by U.S. President John F. Kennedy, that the U.S., “should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth.”

Now, this was certainly a laudable ‘win’ for the U.S. in the space race, but I’m not entirely sure how James Webb - then head of NASA - was feeling. Although he had conceded that it should be possible, NASA had no plan. I would not be entirely surprised if a mild sense of panic accompanied this public pronouncement.

That’s another sign of a good horizon goal. You’d like it to come about but you feel a mild sense of fear about how challenging it appears. If you’re not a little panicked, the question might be, “Is this goal worthy enough?”

If Kennedy had said, “Okay NASA, speak to you in 8.5 years,” he might have been in for a rude surprise come July 20 1969. Maybe the goal would turn out to be impossible, or maybe much of that time would have been wasted chasing up blind alleys?

Landing a man on the moon and bringing him back alive was a massive undertaking. If you were James Webb sitting in your office on the day after that first announcement, where would you even start?

A proximate goal could have been, “Get a man to orbit the moon and come back alive.” This is a useful goal because, if we could do this, there is a more plausible chance we can achieve our horizon goal. Yet still, this could be seen as a major challenge (in fact, it would not be achieved until December 1968 - some 7 years after the original challenge was set).

A more proximate goal would be putting a man into Earth orbit and return him safely, which was achieved in Feb 20 1962. This is a useful proximate goal because, again, it is on the path to our ultimate goal but it was also somewhat understood how this would be achieved.

From all of this, we can see that proximate goals form an arc, over time, leading towards the horizon and, at the same time, a set of go/no-go checkpoints as to whether that horizon goal is achievable at all.

In most cases I think it makes sense to define proximate goals in terms of a month, a quarter, and a year, which creates a nice blend of the close at hand and mid-term. I’ve no objection to planning over a longer term, but we need to understand that things change so quickly that 3-5 year plans are often outdated before the ink is even dry.

When setting proximate goals, the closer the time frame, the better understood the goal should be in terms of our ability to execute on it. Meaning, do we understand how we will achieve the goal? And do we have the skills, tools, and resources required to achieve it?

Setting a goal we plan to achieve in a month’s time is highly likely to fail if we don’t know how it will be done, nor have the tools, resources or skills required on hand. 

This might suggest that our goal is too ambitious and should be broken down further. It might imply that our timeline is unreasonable and that our horizon goal needs to be moved out. It could be that we need to marshal new skills and resources to achieve it on time. In my experience, it’s better to know this as early as possible and adapt our plans, rather than realising after 8 years that we’re not going to the moon after all!

So, in order for a business to thrive, you need ambitious, meaningful, horizon goals that both challenge and motivate. And a series of proximate goals that guide you along the way or help you to understand when you need to change course.

“Shoot for the Moon; you might get there”, said Buzz Aldrin. Are you setting the right kind of goals to get to take you where you want to be? 

Find me on LinkedIn Follow me on Twitter Join my mailing list

Image by Jordan Bridge via Unsplash.com

What is navigation? According to Wikipedia, ‘Navigation, in a broader sense, can refer to any skill or study that involves the determination of position and direction.’

In its purest form, I work with business leaders to help them understand the position of their business, and make smarter, more effective decisions about what direction to go in. I am a navigator.

I wasn't always a navigator; it took one of my clients to show me that I am. Previously, I was confused: I'm not a coach, although I use coaching methods at times. I'm not a consultant, as I only have ready questions, not ready answers. I do mentor, but I'm not a mentor. I sometimes advise, but I'm not an advisor. You can imagine how confusing other people found all of this. Unable to determine a clear definition for my offering, I created the concept of the Art of Navigation.

Now, you might be asking yourself why a navigator is essential in business? The root of my answer to that is in the sorts of questions I think should pre-occupy the mind of an MD or a CEO:

Where are we going? Why are we going there? What's draws us there?
How are we going to get there? What will it take to succeed?
What challenges lie between us and our goals? Are we taking the best route?
What is the best vehicle for the journey? Do we have it? Could we?
Are we making progress? If not, why not? If so, why so?
Have we discovered somewhere better that we could go?

What all of these questions seem to have in common, is that they are about where we are and where we can go: position and direction. They are about navigating your potential business future.

A useful definition of strategy (from Max McKeown) that I find people engage with very quickly, is in the form of the following five questions:

1. Where are we now?
2. Where do we want to be?
3. What has to change for us to get there?
4. How will we make this change?
5. How will we get and use feedback?

These questions lead us back to position and direction again, but with the added element of feedback; of observing whether we are taking the journey that we planned. To this end, navigation is about strategy, value proposition, business model, and what I call, 'forensic strategy' or 'measuring what we do'.

So, why might you need a navigator? I think anyone who is doing something challenging needs help. I created the Art of Navigation out of beautiful mistakes and hard-won learnings from over 15 years of my own and others’ entrepreneurial experiences. It is a holistic approach - a system - that helps a CEO or MD to steer their business in the right direction.

If you want someone very focused on the journey - how you will get there, the perspective to understand if it's the best journey for you, and feedback about whether you are on the right journey - then a navigator might be just what you need.

Find me on LinkedIn Follow me on Twitter Join my mailing list