Things I wish I had known
03-Feb-08
You can read academic advice about IPOs and VCs anywhere. Very rarely are we offered an insight into the emotional demands made on entrepreneurs. A recent study has sought to change that and what follows are candid and compelling tales of entrepreneurs who’ve made it — and the price they’ve paid to do so.
After an academic hospital medicine career, research in aviation medicine and business school, Professor Jeremy Stone worked as a senior strategy consultant at Gemini Consulting Inc. with numerous healthcare systems before becoming CEO of US-based global pharmaceutical outsourcing firm, Snyder Healthcare. Since 1999, he has created more than a dozen successful healthcare and investment companies. He recently became Chairman of Communication Direct Ltd.
I ‘Wish I’d Known’ I would one day be asked to write an open letter like this; it would have given me succour in hard times, believe me there were many. In fact, times are not necessarily easier now, just different in large part because an entrepreneur’s mindset is not one that changes easily. The over achiever-neurotic thrives on the shortlived thrill of success and the terror of failure. The stakes and rewards may differ – they drivers are mostly fixed. Recognising one’s flaws, one’s motivators and that one sees the world in sometimes different ways can be reassuring: it helps partners understand your sometimes odd behaviour too.
I wish I’d known that not everyone is an entrepreneur, no matter what it says on their business card. I wish I’d understood better the informal rules of the game, rather than assumed enthusiasm and youth would triumph _ most people offering money don’t’ deliver of their promise. In contrast, it took several turns to learn not always to take the first offer of funding. In parallel, I discovered the hard way about shareholder registers as long as limbs.
I wish I’d understood better the importance of high quality, trusted professional advisors – Ruskin’s saying never to buy on price alone is wise counsel.
A lawyer who understands your quirks and follies, yet adds a truly commercial perspective is a godsend. Ditto, accountants and corporate financiers. They would have helped me understand that less is often more – simple stories, well told, engage investors. Equally, share structures and investment documents only advisors can interpret, probably signal troubles ahead.
I wish I’d valued muck and brass opportunities – many have passed me by and become successes. I fell victim more than once to ego in this and many other areas – humility is a core skill.
The power of the team is something I preach but have forgotten all too often. I back the team now first and fore most. On starting out, I assumed the idea took precedence.
I wish I had known the dangers of thinking too wide and too far ahead, rather than dealing with today’s issues. A better understanding of the 80/20 rule would have done no harm either – I have delayed launching products or services too long in search of perfection.
I should have valued more the importance of legacy over financial rewards – working for the latter rarely brings the former. I wish I’d raised more money than I needed and worried less about the dilution. Instead I have endured painful renegotiations when cash ran short and seen my stake ultimately worth less.
I wish I was less seduced by the idea of an IPO – magical words that mean colossal and distracting workload, only to expose your business to investors and analysts with often scant interest in anything other than the short term and the quick buck.
I wish I had learned to communicate better in all directions, and felt confident to repeat the message when I believed it was clear – in equal measure. I wish I had understood the value of simplicity of message to fast growing firms, over Blue-sky strategy; and avoid management speak at all times.
I wish I’d started younger, and I wish I’d appreciated how much family and friends would support me beyond what was reasonable and fair. I wish I’d known it was OK to have fun and in so doing not taken myself so seriously – the journey is often superior to the destination.
Steve Purdham is currently CEO of We7 (www.we7.com), the new freedigital destination. He originally founded SurfControl plc, a global internet security company, which has recently sold for $400 million. He is the recipient of many business awards, including IOD Director of The Year.
If you have ever tried to guide a teenage son or daughter through the minefield of life and help them from making the same mistakes you made, then you will know that the ensuing tantrum and abuse quite often leaves you confused and in despair. As a species we seemed to have developed a mental block to such advice as a means to ensure that experience is the only way to really understand. So venturing into the world of someone else’s ‘Things I’d wish I’d known’ in their business life is immediately fraught with problems, and actually that is good because I have to start my eulogy with two warnings.
- Beware of perceived wisdom!
- Opinions are like backsides, everybody has got one (we will come back to this one later)
So ‘Things I’d wish I’d known’ for me, fall primarily into the emotional aspects of business life rather than the standard quantitative and process driven elements of business. All business issues will fall into the hoppers of People, Process, Technology and Policy. They can be solved and taught with time, effort and understanding (zzzzZZZZ) but for me it’s the emotional aspects which are things that seem to bubble under the surface of your execution until there is a sudden eureka moment. Quite often it turns out (as always) to be common sense but, hey, some of us are more common than others. So let’s dive in.
Avoid the negative
In building and running a public technology business you are faced with reporting your numbers and strategy to the shareholders every 90 days. This puts you in front of financial journalist on a regular basis. The eureka moment for this one came when, after reporting quarter after quarter of success for years, I became frustrated that we never seemed to get any significant column inches in the business press. So I asked the journalist ‘Why?’ and the reply was illuminating – ‘Steve, give me good news and I will write a paragraph – give me bad news and I will write a page.’
Sadly, this is the world we live in and we are surrounded by constant reasons why not to do something, how difficult it will be, you’ll never be able to do it that way, etc. The British culture seems to amplify this more than most cultures I have met over the years. Whether it’s down to the old class system, when it was seen as almost a sin to try and better yourself I don’t know, but despite the many false smiles and words of encouragement, it is a fact that we live in a negative and unhelpful world and that is the world that as an entrepreneur you have to navigate.
It’s simple to test this; ask anyone how they are and on the whole you know what the response will be – gloom and misery. I always answer ‘Brilliant – Fantastic’; it’s amazing the almost shocked look you get!
Try it!
Failure is acceptable
There is an implicit fear of failure in the UK and the potential stigma associated with it basically freezes most people into a state of indecision and paralysis. When Rob Barrow and I tried to get funding for SurfControl, we ‘failed’ for almost two years seeing VC after VC after VC, Nomad after Normad after Normad, etc. Failure is not wrong – if you have failed you have at least tried and that, in business, is the most important thing you can do. I’ll admit that trying and winning is much better than trying and failing, but doing nothing is always a fail so find that belief and go for it.
Decisions
Make them and remember that a decision is for now, not forever. Too often people either don’t make decision, or if they do, they stay with it forever. This is a fact for most people and either you get frustrated or you help people.
The reality is things will change and you have to adapt. I remember overhearing a new employee in our Boston office being taught a process by an existing employee.
The new employee questioned the way we did the job, and the response was ‘We’ve always done it that way’, at which point I had to intervene; we hadn’t always done it that way as the department didn’t exist three months earlier. The decision that had been made was right at the time but that was then; things change so be openminded and move on.
‘Just Do It’ – Learn to trust your instincts
One of the biggest frustrations, I have had in business is why things take so long when there is no reason for it and I eventually realised that the biggest gap in deciding to do something and then doing it is the ‘justification period’.
When people try to make decisions or (eventually) make decisions, lots of time is lost before they then execute. This time is lost as people look for all sorts of ways to support the decision that they have or are about to make.
If you think about the last big decision you made, your instinct would get to the answer almost immediately; the rest of the time is then spent in justifying your decision. I learnt you can make decisions faster and get to the ‘just do it’ bit extremely fast if you spot when the work you are doing is not for quantitative justification (which should still be done), but rather qualitative reasons to make you feel that you have made the right decisions. If this can be done properly, you don’t save trivial amounts of time you can save months or years in projects and execution.
Keep the faith, stay focused and believe
I said at the beginning, opinions are like backsides, everyone has one. As you grow you will be surrounded by advisors, consultants, lawyers, NEDs, corporate financiers, accountants etc, etc. Many are excellent, but some more excellent than others and they all have opinions. Quite often these opinions, by their nature, cross the line from the factual advice that you need to make a decision, into the polarised views of an individual who will probably have never been in your shoes. You may need help in specific areas but your position of command requires that you own the decision and you have faith in your vision and execution. So choose your friends and advisors with great care.
Traslating funding speak
Over the years I have been involved with raising hundreds of millions of pounds in funding. But I wish I had one of those Berlitz phrase books when I started off. The two phrases I have learnt to watch out for are ‘Good Luck, let us know how you get on’ and ‘Great idea, but we would like to see a little more progress.’ This first is an obvious ‘no’ as VCs don’t like saying ‘no’ just in case they got it wrong. And the second great favourite of mine – ‘Great idea, but we would like to see a little more progress’ means ‘I am not prepared to take the risk. Go and do what you said you would do if you had the money (but without the money), and then come back when there is less risk.’
VCs and investors on the whole don’t know that they are doing it, but you can end up doing a lot of pointless work trying to ‘Make Progress’. There are many such phrases; don’t let them put you off. Just be aware of them and roll with the punches.
So that concludes my little journey of discovery.
Whatever happens in your journey, always do one thing – always take a moment and celebrate the small achievements for yourself and your team around you (who at the end of the day are the people that really make it happen).
Sherry Couts established and successfully exited two financial services software companies: the first was acquired in 1997 and has operations in more than 70 countries; the second was floated on NASDAQ and the London main Market in 2000 and serves 1.7 million financial customers in the UK. I can’t begin to explain how rewarding an experience starting up your own company can be. The key issue here is – are you sure it is something worth doing?
I mean that the company you are starting has the chance of solving someone’s problem. Better if that problem is a big one. Excellent if the problem is big and the number of people who have this problem is huge and growing. In my experience, if you are solving a ‘big problem’ for a customer, then it is easy to attract people to your team and to motivate them to focus on ‘solving the problem’. It is easy to become seduced by ‘an idea’ or a ‘scientific breakthrough’ or a ‘cool technology’ that has no proven (or conceivable) customer demand for it.
‘Must have’ solutions are so much more compelling than ‘nice to have’ solutions. It has to be something that you think is going to get you out of bed in the morning and keep you from going to bed at night for, well, the best part of a decade.
You need a great team – with one you can achieve the impossible
Successful businesses require a team. Big problems require a team because of the problem is worth solving, it will surely take a bunch of people with complementary skills to address. Another benefit of a great team is that you make great friends as you solve more and more customer problems (and are more and more successful). I am still working with the folks from the first company I founded. Five years on from the ‘exit’, we still enjoy solving problems together. Sometimes the problems we are working out are with companies I have invested in, sometimes with companies they have subsequently set up, sometimes with companies they have invested in. Solving problems is something entrepreneurs do.
If you ‘feel’ something – you are probably right
One of the best pieces of advice I had from one of my mentors was that an entrepreneur listens to evidence and then makes decisions based on educated guesses. He said those who were capable, but ultimately unsuccessful in business, liked to analyse things from every different direction and then reflect for a long period of time and then gather more information to check before acting. He said that it was a transition everyone needed to make as they moved from the academic world to the ‘business world’. This is also something alluded to in the book ‘Blink’ by Malcolm Gladwell. Don’t procrastinate. Just do it. Far better to make a mistake than to miss the opportunity and let someone else ‘win’ the customer.
Timing the window is critical
Something I was taught in business school and have been ‘lucky’ with since is timing. If you set up the company to ‘sell it’, then you must be mindful of which companies might have an appetite for buying a company like yours. You must also be mindful of what your competitors are doing. If all your competitors get bought by the likely acquirers, then you will ‘miss’ your window to sell your company. Another window might be a very long time in coming or might not come at all.
Keeping a close eye on the target acquirers and competitors is something you should get from your independent directors, VC backers and angel investors.
It takes more time than you will think
I had to laugh when a friend of mine (also an entrepreneur) reported ‘I am on the seventh year of a two-year project’. He had floated his company and was still very passionate about it. Customers don’t always adopt things as quickly as you think they will… Even though they should!
Different investors have different agendas and interests – you need to reconcile them. Before I floated my company, angels, VCs and trade investors had invested. I did not realise at the time the extent to which the interests of these parties could differ or the amount of time that it would take to reconcile them so that I could get the company through the next stage of its redevelopment. Make sure that you anticipate this and that you work out how to pull them into alignment beforehand so that there is no chance their ‘nonalignment’ can derail a sale/IPO.
Angels/trade investors are great! Angels/ trade investors are horrible!
I had some terrific and terrible angels in my companies and the companies I have invested in subsequently as an ‘angel investor’. One thing is clear: angels are not created equal. My best angel story revolves around one angel who had been involved in setting up more than 70 companies and had floated 20 of them – he helped the company through everything including the IPO and subsequent acquisition of the company. I have also seen some angels too busy running a portfolio of their interests that they did not have sufficient time to devote to the company. These types slow down the company and ultimately it is best to ask them to leave the board. The same things can happen with trade investor representatives.
Lesson to learn: make sure that the persons on your board have the time and inclination to help you grow your company as quickly as the opportunity will allow.
VCs are great (my own) VCs can be terrible (vicarious)
I was lucky with my own VCs. They were super smart, experienced, ambitious people. They created all sorts of opportunities for the company and helped us overcome a variety of obstacles that are experienced when companies grow very quickly. On the other hand, I have a variety of friends who are entrepreneurs and have not had the same experience. Be very sure about the value your investors can add and make sure you ask the entrepreneurs who they have backed, how they add value and what they are really like after ‘the deal’ has been done. There are also sites which help you see what other entrepreneurs think – www.thefunded.com.
Another thing to bear in mind is that there are many people who will claim they can ‘help’ you get financing. Bear in mind that for them it is just a deal that they will make commission from; they will not need to live with the consequences for decades.
Forecasting is something that needs to be done all the time – is there gold in them there hills?
It is even more important after funding to check the information you put in your business plan forecasts is correct. Is the pricing right? Adoption as you thought? What about retention? Otherwise, you may find that you run out of the money you raised faster than anticipated. Cash is King and you really really really don’t want to try to raise money when you are out of it. If you are a great scientist or deal-doer, then make sure you get someone on your team who can keep track of the cash.
It is hard, but not impossible to lead a balanced lifestyle
Given that I have chaired board meetings from the labour suite of a hospital and I was five months pregnant with my second child when my company IPO’d, it seems a bit rich making this statement, but it is important to try. I don’t think it is really possible to keep things in balance every day, but to try and keep and eye on it. You will always need your health, family and friends and you will be able to keep up the marathon if you maintain them. Business is a marathon, not a sprint.
If you don’t try, you will never know It is hard to describe what it is like to have millions of customers using the services of a company that you created. It is also hard to describe what financial independence feels like. It is also hard to describe what it feels like to know that most of the people who backed you made a lot of money from doing so. Just suffice it to say, it feels really good. Go on, give it a go. There are a lot of really big bad problems that need to be fixed and you might be in a superb position to make a really big difference to the world we live in and will leave to our children and grandchildren. How good would that feel?
Marc Moens cofounded Rhetorical Systems in 2005, which developed leading edge text to- speech systems. In December 2004, Rhetorical was acquired by ScanSoft, a US-based speech company. Marc left ScanSoft in 2005 and since then has been involved as an advisor in a number of IT start ups.
When you are about to start a company, just as when you are about to invade a foreign country, there are, to quote Donald Rumsfeld, known knowns, known unknowns and there are unknown unknowns.
Known unknowns
This is the easiest category. There are doubtless a lot of things you know you don’t know. However, when you now you don’t know something, that’s actually quite good. When I started, I knew I didn’t know anything about financial reporting. That turned out to be less of a problem than I had anticipated. As your company grows, you make sure your skill set grows. And then you reach a point where the company is big enough to hire someone who can take over this task and who is properly skilled to do it. In my case, we got a finance director after our first funding round. Until that point, I did the financial reporting to the board and to the target investors myself, with a lot of help from my mentor and our friendly accountants. It wasn’t a big deal; it was a known unknown.
Known knowns
That there are known knowns may seem obvious; perhaps you are the world expert in cold water ducts, and that’s what your company is going to be about. So that’s a known known.
But before starting a company, there is a more important issue that I think people should turn into a known known, and that is your reason for starting the company. I don’t think there are good or bad reasons, but you need to know what your personal reasons are. Setting up and running a company is an all-consuming activity; you will spend less time with your partner and your children than you imagine; your holidays and weekends will be different from those who are not doing a start up.
If you think work is something that you have to do while you’d rather be doing your hobby, then you are likely to become unhappy in your starts up. The only way you can decide whether t is worth giving this up is by having a clear idea as to why you are doing it. It could be the money, although I think there are less risky and less time- consuming ways of earning reasonable amounts of money. It is more likely that it is something you need to get out of your system – proving to yourself that you can do this. Or you’ve spent a lot of time thinking theoretically about a bunch of problems and now you want to show this has some practical use.
Or perhaps your career has reached a plateau and the only way you are going to move up or remain sane is by starting your own company. Whatever your reason, make sure it is a known known, so you can remind yourself over the years why you are doing this.
Another thing you should make sure you have very clear, is knowing what your role is and what the role of any cofounders, For example, a tech start up might need a technical brain who has invented version 1 of the product ad is already dreaming of version 2. You may also need an engineering genius who can implement and deliver version 1.1 and then version 1.2 and 1.3 and who will make sure the product has documentation and is robust and runs on different platforms, This person is probably different from the technical visionary. You will also need someone who can sell the vision behind the company. This goes beyond talking abut the brilliance of the technical invention or the robustness of the firs prototype; you need someone who can deliver the vision to potential investors, to landlords who think it is too risky to rent out space to a start up, to potential employees who might be taking a risk joining an unknown venture, and to customers. You also need someone who can turn technology into something the customer wants to play for.
It is unlikely that a single founder can do all these things. You need to know what you know, you need to know what should be your role in the company and, if you have co-founders, you need to know the responsibilities of each of your co-founders. The founders are likely to have an equal stake in the company, but it shouldn’t follow from that, that there is no hierarchy between them when decisions need to be made.
In the scenarios above, you would need to decide if the engineering genius can overrule the technical visionary, and whether the latter can overrule the customer-facing evangelist.
If you are the sole founder, or you are the leader of a team of founders, it may come as a bit of shock to realise that nothing in your brand new company will happen unless you make it happen. This isn’t just about designing the product and having a sales strategy and attracting customers and shipping a product on time. It’s all, the other things you may have taken for granted in your career so far; having a staff manual and a policy about statutory holidays, arranging work permits for new employees, making travel arrangements to go to see a customer, making sure there is paper by the photo copier and the waste baskets get emptied. In fact, making sure that there are waste baskets… and desks … and chairs. If you’re in charge, you have to make sure this all happens.
Getting some of these apparently small things wrong can have very visible consequences. Because of that, the small things may start taking up time and attention, which you should be spending on the more important things. So make sure you have someone alongside you who can organise this, and a lot more, without even needing to be asked.
Amongst the things I didn’t know I didn’t know is the importance of having a mentor. When you start your first company, you need someone who has been through it before, who is willing to stand by you, who will listen to what you are trying to do, who will step in when necessary and be invisible when that’s appropriate; someone who can give advice on small, practical issues, comment on larger strategic issues, or offer advice on life issues. At my first company, we were lucky; we didn’t set out to find a mentor, but a mentor found us and became our chairman, or was it vice versa? It’s important you find that mentor very early on in your start up process. And don’t wait for it to happen by accident. Make it happen.
There was one major unknown unknown at the start of my first company; the market for our product was a lot more complex and fragmented than I had anticipated, with an intricate eco-system of large and small companies providing all or part of a solution to which we only contributed a small component technology. This made it quite hard to get traction in this market or to get lock-in with customers. We did well in turning this restriction in to a unique selling point. I now always recommend that people try and understand the market ecosystem that they are entering with their new product or their new company.
However, if I had known then what I know now about the complexity of this market we entered all these year ago, I might have decided not to start the company at all.
Mark Twain said that education is the path from cocky ignorance to miserable uncertainty. When you start a company, cocky ignorance is not necessarily a bad asset.
THINGS I WISH I’D KNOWN: THE GENESIS
Ernie Richardson, CEO of technology company MTI, explains why he wanted to find out about the personal dramas of successful entrepreneurs.
‘I wanted to find the real life story, not the spread-sheet reality. I wanted to learn about the personal traumas, what drives people to become entrepreneurs as opposed to how they handled a floatation.
‘The only requirement we had was that the response could be contained on two pages and wasn’t libellous.’ Had he identified an entrepreneurial DNA? ‘No, there was not a lot of common ground except people don’t seem to do it for money; what drives them is a desire to change the world. ‘One example is co-author of our report, Peter Denyer. He genuinely has changed the world and invented technology that enables mobile phones to take pictures — technology used in about a third of the world’s mobile phones.
‘Money was important in as far as it gave a sense of keeping score, but it wasn’t the end game for any of the people we interviewed.
‘What was also interesting was the number of people who went on many cleared off to play golf for a few months but soon got bored and wanted to get back to the terror and excitement and fulfilment that work brings.’
Ernie Richardson is CEO of MTI, an investor in young technology businesses in the UK and USA. www.mtifirms.com ‘Things I Wish I’d Known’ was sponsored by The British Private Equity and Venture Capital Association (BVCA) and National Endowment for Science, Technology and the Arts (NESTA). www.bvca.co.uk
