Know Your Business

It helps to know how you create value for your customer

Summertime is perfect for catching up with people and one meeting here last summer really stands out. An engineer and an astrophysicist came to see me with a fire safety device. I like fire engines as much as the next guy, but fire safety tech is a narrow niche of geekery and it ain’t my bag. This product, however, turned out to be much more than a fire safety device and potentially worth a lot of money.

Define cool

I’m a big fan of this Copenhagen-based engineer/astrophysicist combo and I knew they desperately needed to review their value proposition. What it is, what it does, and what that means can be very different things for almost any product. Their fire safety device project took an interesting turn when they shared their conversations with property owners. It turned out the device would remove the need for a second or back staircase in the older apartment buildings common in middle of European cities.

Revenue is cool

Removing the need for a back staircase means that space can be added to the apartments or used to install elevators. More square meters and new amenities both mean more revenue for property owners, a lot more revenue. And property owners are excited about that. Add in that the device could also make it possible to create penthouse apartments in the current attic spaces and it sounds even better.

A new value proposition

By the time we finished our coffee, the two entrepreneurs had a new value proposition. They were no longer in the fire safety business, but were firmly in the “increasing revenue for property owners” business. Adding 2-6 square meters to each apartment – usually in either the kitchen or bathroom – quickly turns into a lot of money. Potentially adding penthouses to existing structures adds even more.

Follow the money

Investors get pitched a lot of ideas and investors aren’t always super imaginative. Helping investors make lots of money catches the imagination in ways that helping them with fire safety does not. I look forward to seeing where the new value proposition takes the engineer and the astrophysicist.

Your Corporation Wants to Work with Startups? Buy Their Stuff

Corporates that want to work with startups could do worse than start by buying some of their product – and paying immediately upon receipt of the invoice.

A couple of years ago in the City of London, I walked into a medical technology innovation event hosted by a friend and got an offer I couldn’t refuse.

“Great to see you, Nick”, he said, “I need a favor. Someone just cancelled on a panel we’re hosting tonight and it’d be grand if you could stand in for them.”

“Of course”, I replied, “what’s the panel about and when does it start?”

“Startups and corporates, innovation, that sort of thing. We’re on in five.”

Say anything you want, as long as it’s interesting

It’s important to know your role on a panel. There was a government innovation expert and two senior pharma industry people. I was the only panelist in jeans and a scarf, so I was clearly there to be the startup guy. My role was clear: make things lively.

Sing for your supper

As the mike slowly worked its way towards me, my three colleagues all shared variations on how innovation was vital and they were working jolly hard at it. I was the wild card,  so when I got the mike, I asked the big pharma guys the obvious question. “What do you actually buy from startups?”

Show me the money goes both ways

There were cheers and applause from the startup people in the crowd. It was an after work event and startups love a free bar, so I had a vocal base of support. To their credit, the pharma guys were game. The conversation turned away from the all-too-frequent discussion of what startups need to do in order to be attractive to corporates. It became a more equal talk about what both sides need to bring to a relationship.

Sometimes being rude isn’t rude

There were claps on the back from a couple of folks after the event and talk of speaking truth to power, but the fact of the matter was much more straightforward. You can’t bridge the gap in understanding between corporate innovation and startups without helping both sides see the other’s perspective. The big pharma guys needed to hear my question.

Pro tip: Pay their invoice upon receipt

There’s a varsity-level follow up to the “have you bought anything” question, which is “under which payment terms?” If you’re a corporate and you want startups to love you, pay them upon receipt of the invoice.

But that’s not how we do it normally

Yes, that’s not how your firm pays bills normally, but your usual terms are asking a cash-strapped startup to wait three months or even longer for payment. What seems like a detail to you can cause serious cashflow problems at a startup. Be a hero. Do the right thing. Pay them when you get the bill.

Fear and Shame Kills Corporate Innovation

How well do your people deal with failure?

Most corporate innovators I meet happily point to the Apples and Ubers of the world when they talk innovation. They don’t mean the Apple that launched the Newton or the Uber that treated female engineering staff scandalously.

To talk of success without discussing failure misses a vital ingredient in creating innovation. It almost guarantees they will fail in their attempt to innovate. How do you treat failure? I’ve met it and I know. Do you? Do your people?

Luck can be fickle

We don’t like to admit how much we owe to luck. It’s uncomfortable to think that we might be where we are because of who our parents knew or that we were at the right spot at the right time. Fortune isn’t always random, but sometimes it is.

We embrace failure for a reason

Some see our embrace of failure in startups as arrogance, but this completely misunderstands the case. We understand failure is unavoidable. No amount of analysis can predict the future perfectly. We believe that experimentation is necessary to prove or disprove a business hypothesis. We think real arrogance is believing that proper attention to detail can separate good prediction from bad.

Look to Fuckup Nights

One of my all time favorite event series is “Fuckup Nights”, where startup people retell some of their biggest failures. I’ve spoken at the Copenhagen event twice. Last time it was within an hour of admitting my latest project wouldn’t make it. We do it in part to share the lessons learned, but just as importantly to take the sting out of failure, so we can use the failure to build what we do next.

Startups learn with childlike fearlesness

I have a theory that little kids are great at learning because they’re rubbish at everything. They consequently don’t stress perfection. My four-year is more interested in playing with his monolingual English-speaking cousins than in correctly conjugating their verbs. His mission is to play with them and at this he succeeds wildly. My eight-year old can be a shy English-speaker, but with her cousins, she’s more eager to play than she is shy, so she chatters away.

Guess who the self-conscious teenagers are?

Startups are fearless little kids and corporates are cautious teenagers. When young kids learn to speak a second language, their grammar is just as imperfect in the new language as it is in their mother tongue. Teenagers are self-conscious in all things and struggle with foreign languages, especially because their peers laugh at their mistakes.

Mistakes get you fired

A teenager’s fear of ridicule is real, because the pain of social exclusion is acute. The cost of a mistake in a corporate is just as real. You don’t get hired to make mistakes. You get fired for making mistakes. Couple this with the fact that most corporates hire very selectively, and the fact is that very few corporate employees have ever made a mistake.

If you want your corporate warriors to think innovation, teach them to manage the shame and embarrassment that comes with making mistakes. Teach them how to fail.

Innovation Theater People

Don’t get sucked into someone else’s ’dog and pony show’

The tinfoil hat segment of the innovation business has always existed. The new crazies that I see in the innovation business work at corporates. They may lack the wild-eyed look, but many hold equally improbable beliefs – and create just as little value. Beware of becoming too entangled with them unless you have a clear value proposition like, for example, they’re paying for the drinks.

Innovation is a big tent and we give away a lot of love, including to some who may not deserve it. I have a hard time figuring out how lots of these people add value. There may be method to their madness though, and I am straight up envious of much of it. They seem have a ball, make good money, and not be judged too hard on results. Respect.

The Hipster

Everyone’s got a Director of Innovation these days. The young-ish, sneaker-clad corporate head of innovation is on stage everywhere, talking about their company’s digital transformation. When pressed, they struggle to name anything specific that’s been implemented or sold, but the sneakers look good and, hey, their employer is embracing disruption. Mind the gap between the slideshow and reality.

The Dealmaker

The dealmaker is looking for startups that have product-market fit, a great team, billion-dollar potential, and a good cultural fit with their company. On a personal level, their preferred mate is a supermodel with a Stanford PhD, who, in the immortal words of  the boy band One Direction, “doesn’t know she’s beautiful”. Beware of the long distance and many cups of coffee between meeting them and cutting a deal.

The Community… Something

This person doesn’t exactly have a seven-word description of how they create value. Despite this, I’ll admit to anyone that cares to ask that this job sounds awesome. The KPIs seem to be ‘keynotes given’, ‘cups of coffee drunk at conferences’, and ‘LinkedIn connections added’. It looks like fun, but beware of anything they’re giving away for free.

The Garage Boss

Apart from workshops and events, I haven’t quite figured out what these people do, but garages are hot. The crowds trekking through Silicon Valley on innovation tours have seen the Hewlett-Packard garage and decided they need one too. “Innovation labs” and ”creator spaces” are also garages and a rose by any other name still smells as sweet.

The architecture is a key identifier. Look for plywood walls, primary colors, cool light bulbs, and bookshelves full of work by the right authors. The garage boss seems to hold a lot of workshops and those books don’t read themselves. Beware of panel invitations to be the ‘fun startup person’ aka the only person not in a suit.

Slide on up to the bar

The Innovation Theater Crowd can steal a lot of your time, if you’re not clear about how they can add value to you. Don’t be an extra in someone else’s show. Once you can see the value, however, make sure they’re paying for the drinks – and enjoy!

Show Them The Money

It pays to know more than one language: Speak numbers.

I hosted a case competition called the CBS Finance Competition a while back at Copenhagen Business School and it was an eye-opener. The case was the Danish manufacturer Danfoss and the focus was their acquisition of startups. Two things stuck out: it was a boys club and it was all about the numbers.

It’s a pickle party

Do not confuse the society we want with the society we have. All twelve of the participants in the competition were white men in dark suits. There were only two women in the first two rows of the auditorium. Both worked in HR. All of the men wore dark suits, except for the professor, who wore a blue blazer, and a member of the Danfoss merger team, whose suit was gray.

Plan for today. Change tomorrow.

By all means be depressed by the current gender-gap and work to change it, but plan based on fact, not aspiration. Danfoss is an impressive company and they’re socially engaged, but facts are facts. If you’re looking for a corporate acquirer, know that the odds are overwhelming that you’ll be talking to a white man who studied finance. The ratio will change in the future, but plan for the ratio that exists now.

Your focus isn’t their focus – and this makes sense

Startups often focus on team and product. Most corporate investors focus on the numbers. They are buying for very specific reasons and usually have very specific KPIs. They may be how many customers you have or the size of the markets to which your product will give them access.

Like the jury in the competition, you’ll most likely be talking to finance people. Their degrees, surprise, surprise, are usually in finance. The exceptions work in an environment dominated by finance. To them, your product is not something that does A for B, but something that can generate X revenue over Y time. Know how to talk their language.

It’s all about the Benjamins

I ran into an old friend shortly afterwards who used to run an accelerator. After a year off spent working for a corporate, he had spent a couple of months helping a handful of his companies raise money. It had gone well. Why? He’d spent a year working on the other side of the table from the startups.

“You can talk about team and product,” he said, “but it’s all about the money.”

 

Be Different

Sometimes you need to break with the herd

I’m a big fan of different. I like different types of food. I like different types of music. I like living in different countries. I also like mentors who take different approaches to a problem.

As well as being a mentor, I run mentor panel sessions. Mentors don’t take to managing much, and some sessions go sideways. One of the toughest mentor situations I’ve ever seen involved two people who I really like.

There’s a storm coming

Five years ago, Navid was an entrepreneur. We humans are flock beasts and his company was one that we saw a lot of five years ago. Their platform helped small stores connect with customers by helping them advertise, sell, offer discounts, and more. Their journey was an all uphill battle.

Cometh the hour, cometh the man

The other person was Peder. He’s an ex-corporate finance guy who did well with a startup he founded and now he’s an active mentor. I introduced them to each other at a mentor session where a panel was going to try to help Navid solve his company’s problems.

Game over

The meeting was brutal. Navid was late. His presentation was not good. Worst of all, none of it was really his fault. Most people who try Navid’s concept, and there have been a lot of them, find out that it’s incredibly hard to execute. The two-hour session ended after just an hour with the panel unanimously declaring that the company should close.

Startups are personal

Navid was crushed. A lot of the feedback had been personal, some of it unfairly so. The session had been hard to manage. ‘Tough love’ has its place, but sometimes mentors try harder to impress the other mentors than to help the startups. Peder used the final round of feedback to reset the mentoring session and fix the balance.

This will be hard, let me help

Peder zigged when everyone else zagged. Six mentors in a row said that Navid should close up shop. Peder agreed and then pointed out that Navid now faced the task of telling his team that the game was over. This was going to be tough, Peder said, and then he offered to help Navid with that conversation.

Sometimes people need more than tough love

It was the first helping hand had anyone had offered Navid since he walked in the door. The panel had scented red meat and gone for it. Yes, the concept was flawed and everyone including Navid knew it. The panel did him a huge service by getting him to see it was time to cut his losses. But now he needed a little humanity.

Startups are about people

Peder saw the person who was going to have to tell his co-founders they had to close the company and offered to help. It was a big moment. You could see almost everyone in the room lean back in recognition of the kindness in the gesture and think,

“Damn, I wish I had said that”.

Give Me Three Good Reasons

Scaling things is hard and ideas matter less than execution

”By the end of dinner, I want you to give me three good reasons why you’re building someone else’s brand instead of your own.”

The challenge came from Mikkel as we walked to a late dinner at Tommi’s Burger Joint. It was one of those questions. The kind you knew had been on the way for a long time and that once asked really needed no answer. We all need friends like Mikkel.

“I can’t think of a single one.”

I launched my last business in a niche that I knew well, tech and startup events, doing a variation of something I’ve done for years. I decided to work with a guy who developed a concept I really liked. I’d open it in my city and together we would see how far we could scale the concept. Over coffee, it looked like a great plan, but everyone knows the proof is in the execution.

Execution is hard

For years, I’ve told startups that execution has value, but concepts are worthless. A patent is only one piece of a business model for turning an idea into money. There are a lot of good reasons why repeatable success is so highly valued and one is it’s really, really hard. What works in one place often doesn’t work in another.

Don’t love your idea, love the results

Things didn’t work out. Mapping the concept to Copenhagen took a lot of adjusting. This took time and effort that we couldn’t spend on things like sales. I loved the idea, but making it happen sucked up huge amounts of time. The more we had to invent solutions that didn’t exist to deal with situations that didn’t exist, the less it looked like the original concept.

Franchising looks simple. So does golf.

Franchising only looks simple to those who’ve never tried it. It’s really hard if the concept is new and the product is new. It’s harder still, if the brand is new to the market as well. It takes a lot of support, great tools, great marketing, and a really clear road map to roll out a new franchise. As a mentor, I now give much more specific feedback on franchising.

The concept is dead. Long live the concept.

Eventually, I realized we were working in parallel instead of together. The synergies we had hoped for didn’t appear. Discussions turned into criticism and the criticism got personal. Cultural note: if a Swede curses at you, things are really, really bad.

Sometimes you need a push

I know I do. Hindsight is a clear, but distorted lens. Some things you know at the time and some things you don’t. I’m not going to beat myself up about the mistakes I made. I’m trying to learn from them. I overlooked things I shouldn’t have. Luckily my friends pushed me.

 

“They Didn’t Do As I Said!”

Action shot of me facilitating an investor panel and explaining what not to do.

A pitch doesn’t have to be perfect to work

Startup mentors spend a lot of time giving pitch advice. The advice given spans everything from format and content to delivery and even personal wardrobe choices. Some of the advice is good and a lot of it is not, but in defense of the well-meaning mentor, it is worth noting that the target – the right message delivered the right way to the right audience – can be hard to hit.

“Thank you for a really good pitch…”

Take for example, a pitch I heard recently while running an investor panel in Gothenburg, Sweden. The pitch was awful, and yet it really caught the panel’s attention. The pitch was vague. It was long on the problem and short on the value created, but Swedes are unfailingly polite. Each investor started their feedback by saying ‘thank you for a really good pitch’, before asking some rather revealing questions.

The first investor said he didn’t understand the product. The second investor agreed with the first and said that she didn’t understand the business model. The third agreed with her predecessors and said that she didn’t understand how the product was sold. The pitch looked like a disaster.

Sometimes ugly works

The fourth agreed with all of his colleagues, but then said that he wanted to meet with the company after the session. Why, you ask? Because they had 10,000 B2B customers, that’s why. He said he wanted to know what the customers understood that the company had been unable to explain to the investors. The other three investors all agreed.

Traction is king.