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.

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? 

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