Unicorn Tears E-Book

Jamie Pride

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 249

Veröffentlichungsjahr: 2018

Beschreibung

The real-world secrets to startup success

Unicorn Tears is the smart entrepreneur’s guide to startups. A full 92% of startups fail in the first three years — but failure is not inevitable. Most of these companies self-sabotage, unconsciously eliminating any chance at success before they even get started. It’s not the economy, it’s not politics, it’s not external factors; failure comes from within. This book shows you how to be one of the unicorns — one of the 8% who make it. Be prepared to un-learn everything you thought you knew about startups, as author Jamie Pride busts the harmful myths that lead so many companies to failure. Drawing upon his history as a venture capitalist, he reveals what investors want to see and hear, and what final factor puts your venture firmly into the “yes” column.

Pride understands what matters in startups, and what gets in the way; his Hollywood Method for start-up success gives you a proven formula based on the tried-and-true framework Hollywood uses to make movies that succeed around the globe. Case studies illustrate what success looks like on the ground, and brings a global perspective to successful entrepreneurship and the strategies that help your business grow.

• Learn the truth behind the eight myths of startups
• Adopt a proven formula for success based on Hollywood blockbusters
• Craft a winning pitch to bring investors — and capital — over to your side

• Gain real-world perspective on startups and future trends

Everyone wants their business to succeed, but wanting means nothing without a solid plan and the means to implement it. Unicorn Tears helps you set yourself up for success, and gives you the tools to forge your path to the top.

Leseprobe

There are moments in life when you step up. Starting you’re own business is one of the biggest. It’s rare to find the few who will and rarer still to find a mentor who has. Jamie has and in Unicorn Tears he shows us how to avoid failure and crush it in business.

— Matt Church, founder of ThoughtLeaders, author ofNext: thriving in the decade of disruption

Unicorn Tears has it all; why businesses fail, how to succeed, and how to enjoy the journey. All presented by one of the countries most respected entrepreneurs and investors. This is a must read.

— Jack Delosa, CEO and founder of The Entourage

If you are a startup, thinking about becoming one, or simply interested in the idea of entrepreneurialism and how to maximise your chances of success, as opposed to becoming one of the 92 per cent that fails, then Jamie’s book, Unicorn Tears, is a must-read.  Jam-packed with how to’s and ideas, and supported with his own stories and those of others, Unicorn Tears, is essential reading for anyone serious about startup success.

— Janine Garner, speaker, mentor, author of It’s Who You Know

We live in a world where expertise is all too readily claimed and the academic world has become, well, a little bit ‘academic’. This is what makes Jamie Pride’s observations so valuable — his knowledge and wisdom has been earned through experience in real world conditions with numerous startups. He makes me want to be a better entrepreneur — and every time we speak, he helps me do just that.

— Dan Gregory, CEO, The Impossible Institute

First published in 2018 by John Wiley & Sons Australia, Ltd42 McDougall St, Milton Qld 4064Office also in Melbourne

© John Wiley & Sons Australia, Ltd 2018

The moral rights of the author have been asserted

All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All inquiries should be made to the publisher at the address above.

Cover design by Wiley

Cover images: © Evgenii141/iStockphoto-Rainbow,© 123dartist/iStockphoto-Water Drop

Disclaimer

The material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.

For Sam, Phoebe, Harrison and Imogen

List of Illustrations

Chapter 2

Figure 2.1:

anatomy of a startup

Figure 2.2:

why startups fail

Chapter 6

Figure 6.1:

founder fitness model

Chapter 7

Figure 7.1:

the four phases of Hollywood movie making

Chapter 8

Figure 8.1:

the Hollywood Method

TM

Chapter 9

Figure 9.1:

funding fitness

Guide

Cover

Table of Contents

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E1

Unicorn: a technology startup company that reaches a $1 billion market value as determined by private or public investment.

Unicorn tears: the 92 per cent of technology startups that fail within the first three years of launch.

ABOUT THE AUTHOR

Jamie Pride is a serial entrepreneur and venture capitalist on a mission to help build better founders and a better venture capital ecosystem to support them.

As an entrepreneur, Jamie sold his first startup, Velteo, to New York–based system integrator Bluewolf, and has founded six technology startups. As an investor, he has raised more than $16 million in funding for startups via private and public markets, including completing an IPO on the Australian Stock Exchange in 2015.

He has more than 20 years’ experience with international technology and digital media organisations, including leading realestate.com.au and senior positions with Deloitte Digital, salesforce.com, Red Hat, Veritas and Cisco Systems.

Jamie is also a sought-after public speaker and regularly comments on startups, entrepreneurship, venture capital, disruptive innovation and design thinking.

He is the managing partner at Phi Digital Ventures, an early-stage, social impact venture fund that seeks to invest in Australian companies looking to change the world. He is also the co-founder of The Founder Lab, an educational institution for entrepreneurs that seeks to build and support better founders.

Having worked extensively as both an entrepreneur and an investor he has a unique insight into what it takes to make a startup successful and what it takes to get funded.

INTRODUCTIONTHERE HAS TO BE A BETTER WAY!

Over the past 20 years I have founded and funded numerous technology startups. During that time I have seen a clear pattern emerging: startup failure has become an accepted industry norm, and it has an impact that reaches far beyond financial loss to investors. Having experienced my own journey of failure as a founder more than once, I have felt the very real, deep, personal impact of that failure on me, my family and my colleagues.

As I sat at home, licking my wounds from my most recent startup failure, the thought of writing this book took hold — and it soon became an obsession for me. I started talking to founders, and what they shared with me didn’t surprise me at all. Many of the first-time founders I spoke to were lost, with no map to guide them; even the more experienced founders, burnt out or stressed out, felt alone, isolated, with nowhere to turn for support. I was determined to write a book on startup failure by a founder for founders.

I quickly discovered that startup failure is ingrained in the eco­system. Concepts such as ‘fail fast’, misunderstood and misapplied, are thrown around without much thought. The traditional venture capitalist approach to failure is to place a lot of bets on the understanding that, while most ventures will fail, a very few may turn out to be ‘unicorns’ and return vast profits that will make up for all the losses. It is a very wasteful approach.

The financial waste in failed startups is fairly widely understood; less recognised is the largely unspoken issue of human waste. I’ve seen the dark side of startups: 49 per cent of founders in one survey reported some kind of mental health issue. By their own admission, more than 30 per cent of founders have experienced depression while 27 per cent have suffered serious anxiety. Founders are fatigued!

But isn’t the startup game meant to be fun, exciting and glamorous? Don’t we keep seeing successful startup founders smiling on the front pages of the business press, having completed their latest triumphant capital raising or IPO? The culture of ‘I’m crushing it’ makes it hard for founders to admit they are struggling.

The irony is that most startup failure is preventable. In its simplest form, startup failure is often a consequence of ‘self-harm’: rather than crumbling in the face of overwhelming external competition, startups typically implode. This is good news, because it means you can do something about it!

There is a better way. In this book you will learn:

the three elements of startup DNA and how each one contributes to failure

the 10 key reasons why startups fail

how to become a fit founder, and why capacity is more important than capability

how to develop the core founder characteristics of resilience, awareness and adaptability

the myths that surround startups and how to bust them

why Hollywood got it right, and the parallels between making a movie and founding a startup

the Hollywood Method

TM

, a structured approach to founding and building a startup

the importance of investor-centred design, and how to develop your funding fitness program

The 5 Ps of funding fitness and a surefire way to get your startup funded by the right investors, at the right valuation, in the shortest possible time.

So why should you listen to me? What do I know about startups? Well, in short, I’ve made a lot of mistakes so you don’t have to. I have gone through the personal pain of startup failure. I’ve felt the sting of losing investors’ money and the embarrassment and stress of large-scale public failure. And I’m still here. I can teach you the lessons I’ve learned firsthand.

Not only am I a founder, but I am also a venture capitalist. This gives me a unique perspective. I have sat on both sides of the table and have insights into how each player in the game thinks. I truly love what I do, and I am on a mission to help build better founders and a better venture capital ecosystem to support them.

You might say I am a misfit. I hope you can identify with that. Most founders I know are nonconformists. They don’t thrive in the corporate world. They are passionately committed to bringing their ideas into the world, but they are struggling. It doesn’t have to be that way. Founding a startup should be one of the most rewarding, exciting and challenging things you do in your life. I hope reading this book will help you enjoy those rewards and avoid your own unicorn tears.

CHAPTER 1COUNTING THE COST

More than 100 million startups are founded every year (that’s about three every second), but 92 per cent of them will fail within three years — and the crazy thing is that this is largely preventable.

Just think about that for a second. In any other area of your business or personal life, if 92 times out of 100 a course of action didn’t work, you’d think of doing something quite different. Yet in the startup world these high failure rates are accepted with a shrug, because ‘that’s how it is’. Why?

This book aims to challenge that acceptance. Failure shouldn’t be the natural way of things.

We need to study startup failure more closely to understand why it happens. That’s what struck me when I started investing in startups. If we can better understand why and how startups fail, then we can increase the chances of their success. By learning from others’ mistakes, we can ensure we don’t repeat them. If we can move the needle to decrease the failure rate by just a small amount, it will have a huge impact — both to the founders who put their heart and soul into their startups and to the investors who back them.

Paul Graham, the respected venture capitalist and co-founder of Y Combinator, distinguishes between startups that are default dead (if they maintain their current trajectory on sales, growth rates, expenses, they will run out of cash) and those that are default alive. The reality is that most startups, especially in the early stages, are default dead. Many founders don’t even ask this question, or they ask it way too late. Graham goes on to describe the ‘fatal pinch’, where a startup is default dead, unable to raise the cash to survive, essentially the ‘walking dead’. The founders are deluded into thinking they can raise more cash, but they are essentially in a death spiral. Raising capital is by no means easy or certain, and even for those who do manage it, fundraising success does not equate to future success. Especially if the company is default dead.

Default alive, on the other hand, means a startup is at or heading to break-even and can survive and thrive on its available cash. These businesses have a viable future, and can move on from thinking about fundraising to thinking about growth and new prospects. I want to help founders think about the default state of their startup, and to consider why and how it could fail.

THE CULT OF FAILURE

Failure is a word you hear a lot in the startup community. The term fail fast is associated with the lean startup movement, which is very well articulated by Eric Ries in his book The Lean Startup. However, I believe the term is much overused in the startup community and indeed misunderstood by many founders and their teams.

Behind the lean startup is the concept of iteration. The idea is that if a new product proves to be unsuccessful, the business should let it fail fast, after which the product can be iterated based on customer testing and feedback. You develop a minimum viable product (in which you invest the least expense needed to make it workable), and you test it with customers. You iterate and improve it, then repeat the cycle.

It is a sensible approach, but it is often misunderstood by founders. What Ries is talking about in The Lean Startup is a robust approach to product development and a way of validating product/market fit. Let’s get some customer feedback, then we’ll test, iterate, test, iterate, and we’ll go through that product cycle. The challenge is that founders often misconstrue the fail fast idea by applying it at the company level.

Ries doesn’t mean that your startup should fail. He is talking about iteration and customer feedback loops at a product level. The startup community gravitates towards these catchphrases and sound bites that don’t mean much outside their proper context. Your startup still needs a plan.

I’m all for developing a learning culture inside a startup and truly practising the ideas behind the lean startup, but I want to define the difference between good failure and bad failure.

SELF-HARM: GOOD FAILURE VS BAD FAILURE

Most founders think about failure as an ‘external’ event — something that happens to you, causing you to fail. More often failure is an ‘internal’ event. It’s about self-harm: you are doing something or not doing something that causes you to fail. Sadly, most startups fail from the inside.

The insight here is recognising that it’s not about karma or fate. Most startups are disruptive to some extent: it is they who are delivering external competitive pressure to traditional businesses, not the other way around. Most startups are not disrupted by someone else — they implode. And guess what? That’s great news, because it means you can develop a plan and take action yourself to avoid failure.

Later I will discuss the 10 main reasons why startups fail. Every single one of those reasons can be prevented. There is a belief that startups defy gravity. We have this twisted idea that startups are somehow special, but the truth is this: a startup is no more special than any small business. If I intended to start a small business such as a bakery or a café it would be reasonable to be asked, ‘Do you have a sales plan? Do you have a marketing plan? Have you thought about where you’re going to locate it and the demographics of your customers?’ Many startup founders, however, think they don’t need a plan. They are just going to ‘fail fast’. No shit. The startup myth perpetuates the view that gravity does not apply to them. In fact, they need all the planning and execution that any small business needs.

PLACE YOUR BETS: THE VENTURE CAPITALIST APPROACH TO FAILURE

Venture capitalists (VCs) understand very well the risks associated with investing in technology startups and have developed a simple but effective approach to managing that risk. The conventional VC approach to risk mitigation is to invest in a broad portfolio of startups. VCs traditionally came from finance backgrounds. Before and during the internet bubble, they funded startups with little understanding of the companies or business models they were investing in. They knew there were high failure rates, and their approach was ‘let’s just lay a lot of bets’.

The premise was if 92 out of 100 startups fail, then put down 100 bets and the eight successes need to pay off big enough to make up for the failures (and they did). In a world of unicorns, the eight paid off at rates that were so high that it made the 92 failures insignificant — except to their founders.

It was a reasonable strategy from the VC point of view. Let’s just lay out a whole lot of bets, assume that 92 of them are going to fail, and make sure the eight are unicorns.

Today VCs are far more sophisticated. They are more involved with the companies they invest in (many of them are former entrepreneurs and startup founders), and far more interested in examining the reasons for failure and mitigating them. If you look at the problem from a venture capital perspective, there’s an absolute economic reason to improve the success rate of startups — investor return. More success equals more money for everyone.

That said, a lot of investing behaviour, particularly at the early stage, is still very much influenced by what I call the slot-machine effect.

THE SLOT-MACHINE EFFECT

Human behaviour is a funny thing, especially when it comes to payoffs. Everyone knows that you can’t win at the slot machines, that they are wired and programmed for you to lose — casinos were not built by the winners. Everyone knows the statistics, but people play them anyway. Imagine 100 people playing slot machines; 92 of them pull the handle, and 92 lose their money. Then eight people sitting near them pull the handle and make a billion dollars. Human behaviour doesn’t look at that in a rational, statistical way.

It’s the same reason people play the lottery. Even though people know the chances of winning are minuscule, the jackpots are so enormous that they create a reality distortion field. People don’t think rationally about the losses.

When people see an Uber, a Facebook, an Instagram or an Atlassian — all high-profile startups — they put them on a pedestal. There’s a lot of cultural storytelling about those businesses, which has created a powerful mythology. In fact these companies are rare exceptions to the rule, yet humans have this inbuilt emotional belief that says, ‘If I want it badly enough, I’m going to be one of the exceptions.’

I listen to three or four startup pitches almost every week. Most people who pitch to me haven’t addressed the core, foundational issues around avoiding startup failure. They don’t have a business model. They don’t have a value proposition for a product or service that customers will pay for. It’s astounding.

I meet prospective founders all the time who say (and believe), ‘I’ve got an excellent idea — it’s going to be the next Facebook.’ That’s easier said than done. There’s a big journey between a brilliant idea and Facebook. Too many founders don’t recognise that or they minimise in their minds how challenging the necessary execution around an idea is.

UNICORN TEARS: THE REAL IMPACT OF FAILURE

It’s easy to think about the financial impact of failure. Millions of dollars of investors’ money is flushed away every time a startup goes under. Billions of dollars are wasted every year. As a founder myself, I have also seen the results of failure on another level — the personal impact. I’ve seen founders whose marriages have broken up, founders who suffer from depression, founders who have turned to alcohol or drugs, or have even become suicidal. This is the dark side of startups that no one wants to talk about. We love to focus on the glamour and the unicorns, but not on the unicorn tears.

Startup failures take a huge personal toll on founders. They have taken a risk, put themselves out there, worked themselves to the bone, then the business goes under, usually in a very public way. They must go home and tell their partner that they don’t know how they’re going to make the mortgage payments or the school fees. They have lost their job, and the rest of their team have lost their jobs too.

This is the reason I wrote this book, and it’s something I am hugely passionate about. By addressing the preventable failure of startups, and the impact this failure has on founders, I want to help you to avoid the unicorn tears.

We should be concerned with investors losing their money, it has a huge impact on the economy. But we should also be concerned with founder waste. For our society to progress we need innovators and risk-takers. We need startup founders. Too many of those innovators are wasted, chewed up and spat out, never to return to the startup ecosystem. Some may say this is Darwinism at work, that only the strong survive. Yet most founders simply aren’t equipped with the skills they need to be successful, and we are only now starting to explore and understand why startups fail and how to prevent that. I want those founders, having learned from their mistakes, to come back and build bigger and better startups.

CASE STUDY: MY ‘CLIPP’ AROUND THE EAR

Several years ago I made an investment in an early-stage startup called Clipp. It is a business operating in the mobile payments space, solving the problem of bar tab management. To use Clipp you go to a bar, open a bar tab using the mobile app, order drinks and pay automatically. It is a very smooth, Uber-like experience.

When I met the company founders I was excited. It was one of the few startups I saw that year to do something new. They had built a functional version of the product, and it was working ‘in the wild’. The technology was unbelievably well built and the software developers in the business were amazing. I was one of a group of investors who seed-funded the business, representing approximately 27 per cent of the equity and taking a seat on the board.

In retrospect, if I look at the reasons for startup failure that I will discuss in detail in these pages, I think this business ticked almost every box. In my view there were founder issues and funding issues, and the business model turned out to have major challenges.

There were a lot of arguments. From an investor perspective, I would say that the founders were difficult to coach in the way I would have hoped. By this I mean lots of people with experience were trying to help the founders of the company, but that help wasn’t well received. The founding team argued among themselves too. They were all really nice people personally, but I feel that the dynamic between them, and ultimately with us as investors, deteriorated — to the detriment of the company.

From a funding perspective, we probably gave them too much money in a single tranche. And we didn’t link the funding to key operational milestones. More importantly, even though it was a sexy product, in my view the business model had serious challenges. It just wasn’t possible to make enough money using the business model we had. The model had made that business default dead. It came close to running out of funding (the fatal pinch) and another strategic investor took on our investment. The initial seed investors lost a reasonable amount of money.

Clipp was one of my earliest investments. I made a lot of mistakes. That said, the experience was a major inspiration for this book. After my investment in and subsequent exit from Clipp, I reflected a lot on why the business didn’t achieve its full potential, and what I could have done differently. Many of the lessons outlined in this book come from what I learned from that investment. It was then that I began to look more deeply into why startups fail and the various levers that you can pull to prevent it.

In the aftermath there were a lot of questions. Could we have foreseen the founder dynamic? Could we have done more due diligence around identifying the risks? Could we have put more effort into validating the business model before we made our investment? Could we have helped the founders validate their business model? How could we have partnered with the founders more effectively around some of the issues — their cash burn rate, for example — so the business was more successful? It was a business with so much promise — more than I’d seen in a long time. Sadly that promise was just not realised, largely because of preventable, internally driven issues.

It’s easy to underestimate the huge personal impact of these failures, when you have investors breathing down your neck and unhappy customers, and the embarrassment of telling your friends and family, ‘Hey my business isn’t going well — it may go under.’