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This week brings the first guest blog post for The Art of Navigation, and I am pleased and excited that Denise McQuaid has agreed to share her thoughts on leadership and organisational culture.

My conversations with business leaders are off to an intriguing start for 2019. Brexit is of course featuring as a major concern, but I am hearing time and time again about a specific fear, centred around acquiring and developing new capabilities and talent to support their growth plans. Added to this is a concern about how this impacts the culture of their organisation.

The war for talent rages on. Business leaders are feeling that pressure more than ever, despite the many programmes to attract and retain talented teams.

I have been hearing three dominant themes:

Time: Leaders are struggling to reconcile the time challenges of trying to grow their business and focus on their long-term goals, whilst simultaneously investing in their employees and finding ways to differentiate themselves in a flooded marketplace.

Skills: Leaders are recognising that they are not knowledgeable enough about the emerging skills that could add value to their business. They are having a problem with establishing the metrics for the new skills that are emerging and how these employees might fit into their organisation.

Technology: They are struggling to quantify the impact of technology and to understand how things like AI, big data and evolving platforms fit into their business plans.

Together these concerns often mean that the ‘softer’ aspects like organisational culture are not addressed or are a lower priority. I believe it essential that this balance is redressed. Establishing the right culture is an essential part of creating businesses that find the right answers to these other questions.

What does good cultural leadership look like?

Most businesses have well established priorities: grow the business, improve operational excellence, innovate and, possibly, transform. In my opinion, leaders must also make the following themes - that mainly describe culture - equal imperatives:

Be role models. I believe this is an integral part to business success. Leaders must be transparent about their own need to learn and develop, and be willing to share how they are going about it. They must embrace vulnerability. Not understanding new technologies is not a failing - understanding what you don’t know is knowing too!

Reinforce the value of learning. Leaders must put learning at the heart of the organisational culture. Reinforcing learning across your team is vital, as is the celebration of both the learning and the outcomes.  This is especially true when the project wasn't completed as smoothly as everyone would've liked.

Build sustainable processes to support development. Leaders should be expected to coach and develop their people. At a minimum, everyone should know what they need to improve and where they can go in the organisation. Don’t let time and lack of understanding stop the support you give your team.

Reinforce shared values. Employees should be able to link their everyday tasks and responsibilities to the values in the organisation. People need to understand why what they do is important.

Leverage problems as opportunities for real world learning and development. The idea of an ‘acceptable failure’ needs to be created and defined. Removing fear is key and becoming an organisation that sees problems as opportunities will open a much more communicative and safer environment.

In many ways these are not strategic, long-term actions. They can be achieved quickly and without huge cost. Their implementation will lead to a culture where the broader problems around time, skills and technology are much more likely to be addressed in a rational and effective way.

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The word ‘design’ gets used in numerous contexts, but you don’t hear it much in the context of creating a business. We design buildings, software and even toothbrushes. But who designs a business?

To address that question, we need to look at the reasons why businesses get started in the first place. My experience has been that it is often down to one of the following reasons.

1. You have a burning desire to do something important

2. You feel that there’s nothing you’d rather do

3. You want to recreate something you experienced elsewhere

For myself, the reason was mostly point 2. Frankly speaking, I got bored of working for other people and doing what they wanted to do. I had some ideas, but setting up a business was really just a necessary consequence of there being nobody else’s business to do it in.

But I think I’m in the minority there, along with those in point 3. By far the most people I’ve met who start a business seem to be motivated by point 1. There was something important to them, driving them to make a change, a mission or calling that they could not ignore.

The common denominator among all of these reasons is ‘doing something’ but not necessarily ‘starting a business’. Starting a business is a ‘necessary evil’ that allows you to do what you want to do.

THE ORGANIC BUSINESS

A common story I’ve seen play out is that if you are good at something and doing good work, you pick up more and more jobs until the day arrives where you can’t service them all yourself. Some people start turning work down but, for many, the instinct is to hire some help, and then some more help. Pretty soon you have a business that is looking to you to lead it, but you never set out asking for this.

Maybe your story is a little like this?

The consequence of this kind of ‘organic’ growth approach is that the business may not have been set up to achieve a specific outcome. There’s no real sense of what ‘success’ means for the business, which may leave it adrift as it scales up and becomes more complex. Now that’s all well and good while things are working out but, sooner or later, every business grows out of the context in which it was thriving and into a new context where challenges may start coming from all sides.

For example, a business that starts as a sole-founder and grows to 20-30 people may end up with monthly staff wage bill of £100,000 per month or more. That means bringing in over £1m of business per year just to keep everyone fed. Imagine the pressure on you to keep that going when all you really wanted to do was design beautiful web pages?

Another problem is when the owner of the business finds they rarely get to do the things they are passionate about and which gave them pleasure in the first place. For example, a past client loved to write client copy but with so many others things to do as MD, felt guilty about spending time on it!

An organic business can be fine but we should recognise that it is likely that problems will be discovered as time goes on.

So, what can we do about that?

THE DESIGNED BUSINESS

The alternative to an organic business is a designed business.

We don’t find much discussion of ‘business design’ and I’ve often found that strange, when design is so much of a facet of most things in our lives; our cities are designed, the cars we drive, the trains we use, buildings, computers. Design is all around us.

Someone poured over how these things will be used - the objective, the constraints, risk and safety, fitness for purpose and so on - to produce a designed object that has a good chance of working and standing the test of time. Yet, by contrast, most businesses are rather slapdash affairs  - glued together as they go - responding to events as they happen, and everyone wondering, “Why doesn’t this work better?”

Don’t you think it’s strange too?

What I mean by ‘business design’ is to set an intent for what the business is meant to do and how it will do that, taking into account all the many twists and turns that you are likely to experience along the way.

Business design encompasses the ideation, design and execution of a strategy and business model, this means digging deeply into value proposition design. In a business with significant financial goals it also involves designing very carefully how it’s going to make money, how it’s going to be profitable.

This last point is an important one, often missed. There are a lot of ways of making money (and even more of not making it) and there is often a focus on only one that is either familiar or current. 

WHAT ARE THE COMPONENTS OF BUSINESS DESIGN?

Mission - that is a short, pithy, statement that describes the positive impact the business intends to have on the world. But remember that ‘impact’ and ‘world’ can have different meanings to different people. Your world could be your family, your town, or just ‘people like you’. Impact can have many forms. You don’t have to be putting a man on the moon…

Values - the sine non qua of behaviour. These define a cultural norm about what is absolutely not acceptable. A good set of values help to ensure that everyone is aligned to deliver on the mission and to avoid the risk of saboteurs.

Horizon goals - the 2-4 numbers that describe the winning condition outlined in the Mission. Typically this can be formed into the vision or kept separately. If these measures are met, we won, congratulations!

Strategy kernel - borrowing the idea from Richard Rumelt this is the high-level strategy that identifies the challenge inherent in delivering the business mission and horizon goals, as well as the critical factors for success, and choices of gameplay - the tactics that we expect to succeed with.

Value proposition and business model - the understanding of the customer, their needs, and how the business will generate value for them that is commensurate with the value it wants to generate for itself.

Operating plan - the plan that defines how all these things will actually be achieved over time by measuring key outputs. The plan outlines how assumptions will be identified and tested, how tactics that don’t work will be identified and replaced with others that do. How the business will iterate to deliver on the mission. 

A business that has all of these things can truly be said to be designed. It’s not that an organic approach can’t work but if you approach it systematically, if you design it, you give yourself the best chance of overcoming the challenges that stand between you and the mission, the best chance of success.

Where do you stand on business design? 

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I blame ‘software engineering’. When it was called ‘computer programming’ nobody except us nerds knew or cared what it was. To the uninitiated, it was a dark art best not talked about. But some of us weren’t happy with that and wanted to be considered ‘serious professionals’. This is why ‘software engineering’ was born. And this is where all of our troubles began…

Now, people who didn’t know anything about computer programming may hear the word ‘engineering’ and assume that’s about building houses or bridges. “I’ve had an extension built on my house, I know something about that,” they think. Before we knew it, the rot had set in.

THE CONFUSION

The problem is that, at a glance, writing software does look a lot like engineering. Enough so that you could be forgiven for mistaking the two. You create specifications which are like building floor plans and coding is often described as ‘building’ software. Maybe you have heard about ‘code reuse’ or ‘frameworks’? They sound suspiciously like the prefabricated components they build skyscrapers out of. It’s no wonder this brings about such confusion. 

WHY IS THIS A PROBLEM?

Unfortunately writing software only looks like engineering. For example, when building a house your floor plans lay the foundations - the rooms, doors and windows - all the features that you want. Then from these plans, the house is built. To the uninitiated, this is an attractive way of thinking about how software is made; it’s specification based, it’s predictable, its standardised, and it’s completely wrong. 

The guilty secret of ‘software engineering’ is that it’s incredibly messy, nothing fits together properly, nothing looks like its specification (assuming you had one), requirements are poorly understood and they change fast. And no two jobs are the same anyway - no matter how similar they look.

THE ROOT OF THE ISSUE

Let’s get to the real root of the issue. It’s because we’ve been living in houses for around 11,500 years and building software for only around 50. The user needs behind a ‘house’ are well understood and encoded into architectural patterns. Although needs can vary (extra rooms for the kids, somewhere to park the car etc.) they don’t vary enormously. Well known patterns are followed. 

This is the point where the metaphor breaks down: user needs are often one of the least understood aspects of building software. When a carpenter builds a door or window frame, while there may be a few new details, they are not typically re-inventing the notion of ‘window frame’. In software, on the other hand, it’s often the case that everything will get re-imagined.

Even when you are building something similar to a previous project there will be many small changes that inexorably ripple out through the design and create new problems, new complexities and new decisions. And these changes can happen right in the middle of the project - you may have started out building a 2-up 2-down only to find yourself adding a new floor, atrium, and wine cellar.

When you are building software the only certainty is uncertainty - the only constant is change.

IN SEARCH OF A BETTER METAPHOR 

A metaphor I’d like you to consider is a law suit. It’s likely to be expensive, risky, and conducted in a language you don’t understand. The facts of every case, however superficially similar, are always different and can have a strong bearing on the outcome and your case needs to reflect that.

To craft a good case you need expensive experts - lawyers - to build it for you. They are versed in the complex beast that is the law and use their knowledge and experience to make the best case out of the available evidence and precedent. They may specialise in an area of the law but still know that every case is different and has its own problems.

If you hire good lawyers, listened to their advice, and build a strong case then hopefully you win. But, if the situation arose again you’d likely think long and hard about the cost, the risk of failure, and how best to ensure you’ll get a good result.

It would be wise to apply the same approach to building software. Understand that it’s complicated, no two pieces of software are the same no matter how similar they look and it’s all done in a language you don’t understand.

There are many traps for the unwary - don’t get caught. Hire good people and listen to their advice.

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“Why should I pay attention to you?” you may be thinking. That’s not a bad starting point and, perhaps, you shouldn’t! Let’s see…

The people I am speaking to are running businesses where technology is a key component of what they do and, typically, they are making (or contemplating) significant investments in building software, where failure has serious consequences for their business.

If this isn’t you - that’s okay. Please do read on, as even though much of what I say isn’t written directly *for* you, it will still be of good use. 

It was in 1986 that I began to write software. In 1992 I turned professional. 2000 was the year that I joined my first startup and I continued working in the startup world until 2012. This means I have around 30 years of experience of building software commercially. At the risk of sounding like an old fogey - I’ve been around.

My startup experience is perhaps of most relevance and interest to you. Because every one of those software startups - including two of my own - failed.

In my early work as an advisor and mentor I’ve seen even more startups go on to fail in some sense: either going out of business or struggling to get anywhere near their objectives.

In short, I’ve seen a LOT of things go wrong.

I wish I could say that I learned the lessons immediately, but it actually took me more than 10 years of failing (over and over) and then another 2 years trying to help other companies before the penny dropped and I began to learn the lesson of my experiences. 

In almost every case, there was one or more of the following 5 critical failures at work:

• An inability to articulate a vision in a way that lead to a concrete plan of action which could either be followed or invalidated

• A team that were not able to align themselves to work properly together, either through miscommunication or subtly working at cross-purposes, if not outright sabotage!

• A value proposition that was as unclear to them as it was to their customers, nobody could perceive the value

• A product that didn’t meet the needs of customers enough to sell in sufficient quantity or at a price that made the business viable

• An inability to stick to a plan and to learn which tactics work and which do not, so that effort is wasted pursuing the wrong tactics

The end result of these kind of problems is usually that things begin to slow down, targets are not met, tension and unhappiness rises, money becomes a problem and the company either dies or becomes a zombie that will never achieve its lofty ambitions.

But it doesn’t have to be this way. We can learn from the mistakes of others (including mine). If we value turning vision into something concrete and measurable, use appropriate tools to keep the team aligned, test our assumptions and strengthen our value proposition, create strategy, and measure our tactics - we can do better.

Better yet, if we adopt a system - a programme of work designed to address the issues we are likely to face, we can do better and get luck on our side. Louis Pasteur is quoted as saying, “Chance favours only the prepared mind.” This is the kind of approach that I preach.

So, my reason for thinking you might want to listen to what I say is that I have experienced many of the ways that companies, startups and SME’s, can go astray. And I’m trying to translate my experience, the lessons I’ve learned the along the way, into a systematic approach to success in the software business. Trying to turn beautiful mistakes into hard-won learnings via The Art of Navigation. 

I still have a lot to learn, for sure. My approach is still being developed along the way but I hope that, like me, you will make it your ambition to try and make only new mistakes!!

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When we talk about raising seed investment, we are mostly talking about raising in the region of £150k-£350k from angel investors - perhaps as a first raise or perhaps after raising a pre-seed round from friends and family.

So, when you are raising investment from angels you need to understand the investor mindset. Too many people treat investors as ‘wealthy customers’ and don’t get into the psychographics of the investor, the mindsets behind them, and the decision drivers that are at work when they consider making an investment.

In this article we will consider:

1. Investor psychographics

2. The psychological drivers underlying investment decisions

So, why do angels invest? According to Bill Morrow, one of the founders of Angel’s Den and a man whose seen more of the UK angel investment landscape than almost anyone, the top reasons are:

1. I’m bored

2. I want to give something back

3. The money

4. Give me something interesting to talk about

Does it surprise you that money isn’t #1? It did me when I first heard it. But if you think about it, they already have money, and if money was their primary concern then property is a much safer bet.

The reality is that a lot of angels get bored. Being retired seems great but there’s only so much golf or tennis you can play. On average it takes less than two years before they realise it’s all a bit dull. But what can they do? They’re not crazy enough to to start a venture of their own, but if they find someone doing something interesting where there is an alignment of values - well, being an investor can make a lot of sense!

In London, many angels will have made money through property or finance. They may be angel investors but by no means are angelic. Investing in companies with a good mission is a way to give something back. Further, they may feel they have useful skills and experience and being able to mentor is another opportunity to give something back.

And then there’s money. As we’ve already discussed, money is not the primary reason to invest and it’s worth bearing in mind that serious angels are already wealthy; their relationship with money isn’t necessarily that of you or I. They’re not philanthropists, so they want financial success but they accept this may not happen. What they don’t want to see is their money being squandered foolishly.

So, having established some of the psychographics of the angel investor, let’s turn to the decision model for investing in any given business. Most investors are operating with three concerns in mind:

1. Value potential of the opportunity

2. Risk of wasting their money

3. FOMO

1. Some entrepreneurs make the mistake of thinking of investors as ‘big customers’. This can be the case but it’s rare. It’s not even likely that they will be interested in/knowledgeable about your space - you will need to persuade them. It seems obvious when you write it down, but I see a lot of people assume the investor will already be interested and it can doom them. You also need to persuade them that the opportunity your business represents has sufficient value to help drive their portfolio.

EXAMPLE

2. Angel investors may be wealthy but they also know that you don’t stay that way by investing foolishly. No investor wants to put their money into something daft. They want results - not a beautiful office of beanbags and exotic plants.

You need to spend on what you think is right, but it is key to prove to potential investors that you are a responsible custodian of their money and that you make good use of it. A great way of demonstrating this is through investing money in your own company. Angel investors like this. By putting your money where you mouth is, you show the investors that you are spending funds as precious to you as they are to them.

Now think about how you can demonstrate that you have been a wise and successful custodian of the money you’ve raised to date. What milestones did you predict and hit? How have you de-risked your project? What advantages have you created? And how you can present these to best advantage in front of a sceptical ex-accountant with £25k to give you.

EXAMPLE

3. The third factor you have to play upon is their fear of missing out. All investors face the fear of missing out on something good and this is largely because most investor business models are predicated on needing one or two break-out hits to make their portfolio return numbers work. An investors ability to predict the future is probably no better than average - this is a problem. And the fear of missing out is not only financial - ego comes into it too, of course.

EXAMPLE

It is therefore imperative that you are able to show how not investing in you will feed that fear. You need to articulate how your business model will exploit trends that can be credibly argued to be moving in a direction that will generate success for you.

A reliable model for understanding how to think about this is Rowan Gibson’s 4 Lenses of Innovation. I plan to cover this in more detail later, but in brief the lenses are:

• Understanding customer needs

• Challenging orthodoxies

• Harnessing trends

• Marshalling resources

Using a model like this, you can create a position in which the investor faces a risk of missing out on something good. Although investors do suffer from FOMO - good investors will still take a long-term view.

Your job, when thinking about things like a pitch deck or an executive summary, is to understand the investor mindset and balance the 3 forces to create something compelling.

What’s are your thoughts and experiences in raising investment? Feel free to comment below.

My special thanks to Bill Morrow for his help in refreshing my memory on some important points that really improved this post. All the mistakes… totally mine.

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