Successful entrepreneurs: Iyeza Express

Mashauri is thrilled to be running a venture accelerator programme with the University of the Western Cape in South Africa. We not only guide the students in starting their own business with tools, process and other best practices, we also motivate and inspire by exposing them to successful entrepreneurs. Charleen Duncan, head of UWC’s Centre for Entrepreneurship and Innovation has encouraged us to not only use the “big names” of the startup world like the South African Elon Musk, but also to showcase people closer to home who are making a difference through their entrepreneurial ventures.

On that basis, we would like to share the inspirational story of Sizwe Nzima who founded Iyeza Health. The company delivers essential drugs to people in townships where normal deliveries are almost impossible through issues like no formal addresses and informal roads.

Take a look at the videos below


He is experimenting with the what3words app to help him as well.


So, maybe you do not need to be Elon Musk to start a business and make a difference!


If you are not lucky enough to be on the UWC programme, you can still start with our free LAUNCH programme.

Mashauri: developing tomorrow’s entrepreneurs today!


Finding and selecting an idea for your new business

Identify and choose an idea for your new business

Frequently when I am giving lectures on entrepreneurship or networking with groups of would-be entrepreneurs, I am asked ”But where can I find a good business idea?”

Initially I was surprised that so many people started with a need to be an entrepreneur, rather than starting with a business idea; but now I realize it is quite common. In fact we recently offered a free survey for people who wished to assess their entrepreneurship potential and as a qualifying question we asked the status of their business – astonishingly more than 40% either did not have an idea or had several ideas but were unable to decide on which one to focus.

So I decided that the next blog in our series should be about how to go about finding a business idea.

Finding the right idea for you is all about hitting your personal “sweet spot”. That is the intersection of four areas:

  • Things that you are passionate about
  • Areas where you have a strong competency (or at least can build one)
  • A real problem that needs a solution (or a better solution than currently exists)
  • A business concept that can generate the type of income / lifestyle / fame / independence / …  that you want.

To make it simple, we have designed an infographic that demonstrates this and includes some further detail about each area.
How to find a business idea

So … how to go about it.

Step one: is to think about the first two points: your passion and your competencies. Brainstorm your ideas and review and refine until you are comfortable with where that leaves you. You might even draw up a matrix with competencies on one axis and passions on another – and then think about what the various points of intersection might mean.
Hint: if you can find something that you like doing that the average person does not like, it can be a good place to start. For instance, Paul Graham of Y Combinator explains how his father likes mathematics, which many people do not. Those things that “don’t feel like work” to you, but do to others, can lead you to some great ideas.

Step two: is to think about what problems exist (that are within your competency / passion space) that are currently inadequately solved. In the best cases, it is a problem that you yourself suffer from; but if not at least one in which you have some experience or knowledge. Make a list of those problems.
Hint: you may need to do some investigation here – fortunately Google is a great source of information at this level. One way of sparking ideas is seeing what others are doing (see “Idea sparking” at the end of the blog – plenty of links and interesting things!!)

Step 3: take the list and rank each problem on the basis of:

  • How big is the problem
    • Number of people / organisations that suffer from it
    • Seriousness of the problem to them
  • How competitive is the problem space
    • How well do the current solutions address the problem
    • Are there lots of companies / solutions providing the solution
  • How well you think you might be able to develop a solution (it does not matter if the solution itself is unclear at the moment?.

It is useful to get a little quantitative here: weight each criteria, rank each answer and work out a weighted score for each problem (click on the text to download our problem assessment calculator as a guide). Let the actual score act as a guide, but ultimately you need to pick the problem that feels “the best” to you.
Hint: after settling on a problem, it is a good idea to chat to a few potential customers to see if your hunches are right.


Now that you have an idea, does not mean you have a business. It is just the beginning. As you have probably heard, more than 70% of new businesses fail and that is because first time entrepreneurs seldom know the right way to go about starting, testing and refining their idea before actually building anything. Even people who have years of corporate business experience do not fully understand how to start a venture from scratch. Fortunately, there is a growing body of knowledge around a more scientific process to launching a new venture that will put the odds of success in your favour. Have a look at our latest blog that discusses this – the no BS step-by-step guide to launching a new venture.

Even better, if you are keen to get going immediately, why not sign up for our LAUNCH Programme to help you get your idea rapidly launched. We have taken best practices in “lean startup” methodology, mixed it with some critical training modules and added mentor input to really help you get your new venture to the critical point of having paying customers. Take a look at the Mashauri LAUNCH programme.
(Or if you want to test the systems first, try our our free LAUNCH).

Our final piece of advice ….  just do something. Too many people think about starting a businesses, dream about new ventures, talk about their brilliant ideas – but never get down to doing anything. To borrow a phrase from Nike: “Just do it!” If it does not work out, the lessons you learn for the next time will be invaluable.

And if 70% failure rate scares you, just remember what Wayne Gretzky said:
“You will always miss 100% of the shots you don’t take.”

Feel free to contact me if you wish to discuss your idea or how to go about making it a reality, at simon.gifford@mashauri.org


Idea sparking:
Simply start searching for “business ideas” on Google. Here are some links to get you going (the ideas range from banal to quite interesting):

Another source of ideas is new concepts that are currently being launched. I am not saying that you should copy them, but they might trigger something for you. Great sources are crowdfunding  and new product idea sites. Some examples are:

 


Register here to get more information about conceiving, launching, growing and funding your new business – and get all our free programmes immediately.

Register in Mashauri

Are you ready to be an entrepreneur (free assessment and article)?

The age-old argument between entrepreneurs being made or born continues – and probably will do for long in the future. Our view at Mashauri is that anyone can be an entrepreneur. In fact many people are forced into this journey through necessity rather than desire – and many are successful despite not having the right “genes”.

However, we do believe there are certain personality traits (rather than personality types) that will make it easier for some than others. The three main ones are around risk propensity, self-belief and the way opportunities are viewed. If you want to know whether you have the type of personality that will help you to be a successful entrepreneur, take our test at:

 Entrepreneur Readiness Assessment


One of the better (non-academic) articles written on the subject was published by The Entrepreneur magazine called “Are Entrepreneurs Born or Made?” They asked 2 experts to put forward the conflicting views:

 

James Koch Old Dominion
James Koch: entrepreneurs are born

James V. Koch from Old Dominion University who wrote a book on the topic put forward the “born” argument. His view is that entrepreneurs tend to have a personality type which he describes as:

“They have the ability to deal with uncertainty, to take risks and tolerate ambiguity. They usually have a personality that is mercurial, and they have highs that are really high and lows that are really low. There’s good evidence that they have strong self-confidence but also tend to be overoptimistic. They rely extensively on their own intuition.”

Fundamentally he questions whether entrepreneurship can be taught and that without this personality type, it will be difficult to fit in the role as an entrepreneur.

Julian Lange Babson College
Julian Lange: entrepreneurs are born

Julian Lange from Babson College argues the “entrepreneurs are made” point. He does not deny that there are certain proclivities that help, but he believes education can play an important role.

“I think much of the recent research shows that entrepreneurship can be taught. The thing that some people talking about genetics are getting at is that people have different proclivities toward entrepreneurship and different sets of skills or endowments intellectually. Maybe, simply put, you can’t teach someone to be passionate about entrepreneurship. On the other hand, I’ve been teaching for 20 years, and in my experience people can definitely discover their passion for entrepreneurship in the classroom. And in terms of general skills, if they start out with interests or endowments that make them more likely to be entrepreneurs or less likely, you can enhance their ability to be entrepreneurs through teaching. In some ways we can say there is a certain element of entrepreneurs that are born, not made. But some entrepreneurs can be made better.”

His conclusion is that education on entrepreneurship can make a real difference.

If you want to read the article, it can be found at: Are Entrepreneurs Born or Made?


As a professor at IE Business School, I sometimes give a lecture entitled “MBA versus entrepreneur” which highlights the way that the entrepreneurial thought and decision making process is different to a more corporate-type of person. This is slightly more scientific as it is based on solid research by Professor Saras Sarasvathy. It also supports the view that there are certain characteristics that, if you have them, will make it easier for you to be successful as a new company founder. (If you would like to have this lecture given at your organisation, contact me at simon.gifford@mashauri.org )

So why not go ahead, take our entrepreneurial assessment and see whether you have what it takes.


How to value your startup (pre-revenue)

Startup valuation may feel like a black art, but you can add some science to it if you understand the different methods

There are various ways of calculating the value of your startup when seeking financing. None are perfect and it is best to use a few methods to reach an estimate. This post describes a few of them.

It is important to remember that “value is in the eye of the beholder” and it is almost certain that potential investors will see things differently to you (the entrepreneur). One of the most frequently used methods of valuation by angel investors is called the benchmark or Scorecard Valuation Method (sometimes also called the Bill Payne method) and is well described by Bill Payne in his article.

The two broad steps are:

  1. Get an idea of what are the rough pre-money valuations of previous deals in the region where you are seeking finance.
  2. To increase or decrease that average based on a weighted scoring that considers the keMap for valuation of new venturesy factors that can make a new business successful.
    These factors vary somewhat from investor to investor, as does the weighting. But the main elements are:
  • Management team
  • Size of opportunity
  • Underlying product, technology or solution
  • Competitive environment
  • Strength of partnerships or distribution channels
  • The likely need for further rounds of investments pre breakeven point

For details of how to apply this and find a scorecard template, view Bill Payne’s article here.

For an even better insight, read the article “peeling the onion” which takes Bill’s method and adds a little more insight. It also adds a really useful spreadsheet valuation tool based on this method.

If you are seeking an independent valuation of your venture, there is a service at Value your Venture

Note: if you want to increase your chances of getting funding and a reasonable valuation, then Mashauri’s acceleration programmes can help get you there. Go to our home page and click the button indicating where you are in the process to receive recommendations on how to move forward.


Although the method above gives an excellent basis to a valuation, it is useful to try out a few other methods too as you will get some alternative numbers and more importantly get a better understanding of the underlying factors that drive the valuation.

Here are the other principle methods used (click on the name for more information):

  • The risk factor summation method (a more sophisticated version of the Bill Payne method described above)
  • The venture capital method which is based on what a VC would pay given their desired return and exit estimate.
  • Discounted cash flow based on risk-adjusting future cash flows. This works better for established companies than pre-revenue startups (and in fact is the basis of valuation of listed companies). The link offers a fairly detailed video.
  • Comparable transactions method which looks at a number of comparable transactions and their key ratios; and then applies them to your venture
  • The Berkus method, a very simple, back-of-the cigarette box method, allocating value based on the key risks of a business.

Additional resources:

Get an independent valuation from Mashauri for your startup at Valuation Now

The guys at GroundFlr are doing a good job at matching investors with startups.Why not have a look?

Our friend Mark Stewart is developing a model to help founders visualise the impact of various investment terms on valuation at Startupval.com.

Equidam is also a really useful source of ideas about valuation and has a tool where you can get a valuation for your venture based on a number of methods.


Although at Mashauri we do not (yet) offer funding to our entrepreneurs, we do support them in preparation and seeking funding when necessary.

If you are not yet ready for funding but want to get there in a hurry, then you should get into Mashauri’s acceleration programme. 

Or contact me at simon.gifford@mashauri.org for more details.


 

Achieving startup success through problem solving

The achievement habit : how to be successful by solving the right problem through reframing.

Bernard Roth is the co-founder and academic director of Stanford University’s d.school. He recently presented at Stanford’s eCorner a talk called: reframing problems and getting honest. I was so struck by the importance of the talk for entrepreneurs (and non-entrepreneurs) that I thought I should summarise the key points in a blog, but also publish the talk itself (see below). Read the summary if you like, but the video is definitely worth watching.

From an entrepreneurial perspective, we face problems and challenges practically everyday. Although there seems to be a never-ending supply of support on the web or from experts, sometimes we need to step back from the technical aspects of the problem (especially if you are an engineer) and think about the problem itself. This is where this article will stand you in good stead – and why it should be essential entrepreneurial reading.
Roth starts by establishing credibility through an introduction to himself and giving a bit of his background. He then talks briefly about design thinking which although is all the buzz today, has actually been around for decades in one form or other; although it is now being applied in fields far beyond design, including acting as a problem solving methodology.


The heart of the talk is about problem solving and he challenges the Stanford (mostly engineering) crowd to answer the question: “If we are so bright, how come there are so many problems that worry us, appear unsolvable over time and may even keep us awake at night?”

His answer: “Because you are trying to solve the wrong problem!” The way to address this is then to reframe the problem by asking yourself: “What would it do for me if I solved the problem?”. He goes on to offer up some of his own examples, but let me offer one I have seen. This may be simplistic but it illustrates the method.

Entrepreneur: “I cannot get funding for my startup”

Mentor: “You can keep banging on VC doors or ask yourself the question: ‘what would it do for you if you solved the problem.’”

Entrepreneur: “I could hire a developer to build my product”

Mentor: “How else could you get this done if you have no funding?”

Entrepreneur: “Well I could find a developer and offer them equity. Or I could find an off-the-shelf product and adapt it. Or I could find another way of testing the idea through a different MVP. Or I could learn some code and do it myself. Or …..”

In this case and the one’s that Roth uses, by asking the question a far wider range of solution spaces opens up and suddenly there are plenty of other potential solutions available – not just the one with which you started. If you do not believe me, stop reading for a moment and give it a try with a problem you have been facing for some time.

He also makes the point that we get locked into this particular way of looking at a problem and often find it hard to let go – but often when we do manage to re-frame, the solution becomes obvious. He uses a familiar joke as a metaphor to our behaviours. A drunk is walking home, bumps into a tree and falls over. He gets up and bumps into the same tree and falls again, cursing the tree. He gets up ….. and so on. Eventually, he sits down on the floor and says: “I give up. They have got me surrounded!” Which is how Bernard claims we often act when worrying over and over about a problem we are not solving. We hit the same obstacle without trying to get around it.


The second key point is that we often use reasons as to why we do or do not do things. He says: “All reasons are bullshit.” There is never simply one reason, life is too complex but we hone in on one reason (even if it does feel logical) and that is what stops us changing behaviour. His example was that he was on a Board of a company and always arrived late. His rationale was that the traffic around San Francisco always held him up. After a while he had an epiphany and that was he did not give the Board meeting enough valence or respect. He allowed himself to be interrupted or left late. He realised that if he really cared enough, he could get there on time (and eventually did!). This holds true for many things. If you really care enough (either externally or internally motivated), you can do something – especially if you are prepared to re-frame the problem.


The third point is that “Yoda is wrong!”. Bernard says there is a try and there is a do – and both are OK states. The problem is when you confuse trying with doing.

He offers up a few useful examples such as when he and his wife stopped to see a concert. She was not really keen and there was a queue. He dropped her off to buy tickets but when he returned she was waiting around and said that they were all sold out. Bernard then went off and bought tickets (he Yoda: Do or do not. There is no try.does not say how, but we assume he bought from some ticket holders or something like that). His point is his wife was trying when she thought she was doing. If you want to “do” you do not let obstacles get in the way. You go around them, over them or through them – whatever! You make it happen because that is your mind-set. Trying is attempting to do something but giving up if you do not succeed – and possibly not feeling too bad because at least you “tried”. He does not say that trying is wrong, but simply encourages us not to confuse trying with doing.

From an entrepreneurial perspective, we face problems and challenges practically everyday. Although there seems to be a never-ending supply of support on Google or YouTube, sometimes we need to step back from the technical aspects of the problem (especially if you are an engineer) and think about the problem itself. This is where Bernie’s teaching can come in useful.

Bernard Roth The Achievement Habit

 

Bernie has also written a book around the topic: The Achievement Habit: Stop wishing. Start doing. Take control of your life. It covers this topic and is full of other useful ways of living a successful life – click on the image to reach Amazon.

 


A final example may be if you are an entrepreneur starting a business, your problem may feel like: “I do not know how to go about launching a successful business.” That might be better framed as : “Where do I find the best resource to help me be successful in my new business?” Then the answer becomes obvious. Mashauri! 

Have a look at our free programme to test us out!

 



The full e-Stanford video can be seen here:

 

Mashauri offers accelerators and training programmes for early stage entrepreneurs who want to learn how to conceive, launch and grow in the right way to maximise their potential to succeed. Why not give our free programme a test drive? Click on the image below and sign up now.

 

 

 

 

How to start a business – the no BS step-by-step guide

1. Introduction
Given my background, you would be forgiven for thinking that I was probably an ideal person for starting a business. Good university degrees in statistics, economics and an honours in marketing. An MBA with a strategy and finance focus. Real jobs in finance and accounting (6 years); in brand marketing with the multinational Kimberly Clark (3 years) and then over 25 years of consulting to major corporates around the world mostly as a partner at a top tier firm (Deloitte; Braxtons). Within that time I also launched two consulting businesses of my own and advised countless friends and family members on their own enterprises. And I even lecture at a top business school on strategy, decision making and M&A!

Jargon buster business modelHowever, it was only when I started researching my latest venture over 3 years ago, did I find that I really did not know the best way of launching a business in the 21st century. You see my training and experience had mainly been around growing and developing existing businesses. That really entails optimising a known business model to best serve a known market. In the majority of new businesses, especially where founders have new ideas or are harnessing new technologies – launching a business is more a process of designing or discovering a business model; and only then optimising it.

Over the last few years, I have worked hard at taking my existing 30+ years of training and experience; and integrating it with the latest best practice in startup thinking to have developed a framework that can assist founders in successfully launching a new business. I do not claim for one moment that I have all the answers or that I am some amazing startup guru – and frankly acquiring these new “startup best practices” has included learning from our (my co-founder and myself) own failures, mistakes and diversions. But now I do have a much clearer perspective of the critical success factors and many of the potential pitfalls that must be addressed in developing a new business from conception to paying customers – and beyond.

The purpose of this article (and subsequent ones) is to share my thoughts with those people who are in the early stages of developing, or considering starting, a new business venture. It will include theory, practical cases, tools and links to important blogs, books and other startup resources. My wish is that it will give you a better than average chance of being successful, provide some useful support – and perhaps put the occasional smile on your lips too – because if you do not learn to enjoy the journey (or “camino”), it may be best if you do not start at all.
Business launch

This introductory article will cover, at a high level, the overall process from conceiving an idea to scaling and growing the business. I will also touch on some of the hype (read BS) around the entrepreneurial environment and then some of the truisms that hold for established businesses and startups alike! I will finish off with some links to some useful resources.

 

I do not yet have the rest of the articles planned out in detail and to an extent I will be using your feedback to structure the themes, but they will almost certainly include:

  • Business models, value propositions and lean thinking;
  • Market segmentation, personas and the customer journey
  • Design-thinking and product development;
  • Funding and finance;
  • The entrepreneurial mind-set with a commentary on depression and optimism.

They will NOT include:

  • The 7 things that successful entrepreneurs eat for breakfast
  • The 5 character traits that guarantee startup success
  • The 10 reasons why venture capitalists have bad sex lives.

Lastly, I am not going to try and keep the articles to 500 words or whatever the behavioural psychologists believe our nano-concentration spans can handle. I am hoping that they will be valuable enough for anyone with a real interest in creating a successful business to want to read through in total – maybe even twice! On the other hand, if you do not – well, I will never know!

 

2. Stepping through idea to growing business
We can break down the development of a new business into phases. In a later article we will cover these in more detail, but for now they are:

Mashauri startup steps

Jargon buster value propositionNote several good authors have described the steps to build a business – probably the best being Steve Blank in his book “The Four Steps to the Epiphany”. The steps I describe above integrate well with his ideas, but Steve tends to use terms that may be a little cryptic unless you read his book (see recommended reading below) so I have tried to use more familiar terminology.

Google garbageGoogle Garbage alert: if you google “x steps to build a business”, you will find a lot of useless, some downright dangerous, advice.

Probably the biggest learning point a corporate business person-turned-entrepreneur will have to get to grips with is that, up until there are paying customers (red blocks in the diagram above), their business idea is basically one big experiment.

The way this experiment is run has also been covered by a number of people, but the most popular must be Eric Ries in his book “The Lean Startup” (see recommended reading list). His underlying theme is that when you start your new business, your concept is at best a set of hypotheses that describe how you think your business will work in the future. Using “lean startup, the founders should build a set of experiments around these hypotheses and test them via learn-build-measure loops that test the underlying hypotheses of the business.

As an example, one of the major assumptions (hypotheses) that the AirBnB founders had was that people would rent their homes out to strangers. The only way to really test this was by testing this idea in the real world. In the process they got to understand under what circumstances this might (and might not) happen so they were able to build this into their product offering.

We will cover more of this in the next article. It is also the underlying methodology we use in our Mashauri programmes and so if you want to start using it right away, you could sign in to our Launch Programme if you liked.

 

3. Navigating the hype.
If the previous section guided you through the right steps, this section is to help you navigate through some of the rubbish that you can find on starting a business on the web.

Perhaps the best way to do this is by busting some of the “myths” you might read:

  • jargon investorsMyth: Everyone should try and get a venture capitalist or business angel (see jargon buster) to fund their business.
    • The chances of getting funded are really slim. Far less than 1% of new ventures get funded (see our blog on “Holy Grails, unicorns, VC funding and other fabled creatures” for more facts). In addition, if you are one of the few that might obtain funding, not everyone likes the loss of control that goes with it – see later article on funding.
  • Myth: Social media is the answer to all your marketing prayers
    • Social media may be a useful channel for many new businesses and can certainly be an inexpensive way to reach customers. But, as in most startup spaces, it requires clear objectives and strategies. Far too many founders launch Twitter accounts, Facebook pages, LinkedIn company pages, etc and then spend mega-hours on trying to get likes and followers with no real idea why or how. One hundred people who willingly register on your website is worth thousands of FB likes or Twitter followers!
  • Myth: You have to offer things for free, especially if you are selling web-based services.
    • Someone using your services for free is a user, not a customer. Once again, there may be a sensible strategy as to why you might have a free version of your product, mainly as a way of allowing them to experience your product before buying a paid-for version. If you cannot persuade someone to part with money for your service, then you probably have not got an appropriate value proposition.
  • Myth: You should attend all the startup events you can find so as to “network” with investors and the like.
    • There are a ton of events on the go, frequently based around pitching competitions, motivational talks and startup “experts” sharing their wisdom. They can be fun, motivational and occasionally useful contacts can be made – but don’t confuse them with work. Generally, founders attending these events, even if they pay, are the “products” on offer to the vendors. (I suspect I may pick up some flak for this comment and, to be fair, there are some great events like South Summit, but you should pick your events carefully and attend with clear objectives in mind.

 

4. Some truisms
Although I started the article explaining how starting a business is not the same as running a going-concern, especially in the early stages – there are plenty of business laws that still apply. Many people holding themselves out as entrepreneurial gurus seem to want to ignore these. Frankly in this day of sky-high valuations on young businesses that are yet to turn a profit; and the rock-star status of some of the founders, it is easy to think that the business version of the laws of gravity can be defied.

jargon unicornMy list of truisms that may seem to be getting trampled to death by unicorns (jargon buster) are:

  • Cash is king – positive cash flows derived from customer revenue will always remain the lifeblood of a business (to mix my metaphors). Even if you can convince an investor to temporarily allow their cash to be that flow, they expect your business to get there – and get there quickly.
  • A startup is a temporary organisation seeking to become a permanent business through finding a workable business model. A business is an enterprise with paying customers.
  • Business strategy is still important. The teachings of gurus such as Michael Porter and Clayton Christensen are as relevant for new ventures as they are for large corporates, even if there are different interpretations.
  • Following the above point, it is essential that you are able to articulate your basis of competitive advantage if you wish to survive. By the way, being first is not a long-term competitive advantage.
  • Not all ventures must have plans to become massive, change-the-world institutions. Lifestyle businesses that simply provide a living or even bolster a salary are just as important – in fact most economies depend upon them.
  • You and/or your co-founders need to be an expert in the business sector in which you are competing and in the underlying technology or process that makes you different. For instance, if you are going to provide a highly customised tourism experience based on big data analysis of customer behaviour, your team must have deep tourism knowledge and excellent big data expertise.
  • Providing true perceived value inside an excellent customer experience in a way that is different to your competitors, will always be at the heart of any long-term business venture.

 

5. Some recommended reading
There is more new business venture reading material out there then you will ever have the time to read. Frankly for most of my readers, you just need enough knowledge of the new venture process to successfully launch and your business, not become startup specialists. I would therefore recommend the following books:

Important reading

Great to have reference books:

6. Conclusions and questions
If you find this article to have been of value, please let me know either via the comments section or direct to my email at simon.gifford@mashauri.org In addition, if you have any suggestions as to how the style may be improved (eg shorter, more examples, etc), please use the same media.

Our objective is to help you to be more successful in launching and growing your business. The Mashauri process, mentors, training and community are part of that; but should you decide not to use our programmes we hope that at least these articles will be of some value. If you do want to fast track your business to success, then I suggest the LAUNCH programme which is mentor-backed and about to commence.


Sign up to get more articles and access to our programmes and courses.

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Some shared wisdom for founders and investors

Over the weekend, I watched a fascinating interview of Chamath Palihapitiya sharing some valuable wisdom on a number of topics of interest to entrepreneurs and investors. Admittedly, I had not heard of him before – but he is the guy responsible for Facebook’s growth and AOL before then; and now founder at Social Capital … and so has some credibility.

The video is posted below and if you can spare about 30 minutes, it is worth watching. I am also posting my thoughts and takeaways in case you want a quick overview or a little more detail to see if you think it is worth viewing.

Note: the interview was conducted by the Founder Institute. Mashauri and FI overlap in a competitive space, but we acknowledge the great work they are doing.

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Thoughts on trends

Chamath discusses trends and likens them to a pendulum. His point is that the best ideas (and deals) are from companies who can adapt both sides of the extremes and still find a balance.

Gretzky skating to where the pucks goingMy personal takeaway was:
As founders, are we really building for the future? We tend to look at the mainstream companies in our industry and build something different to them and believe we are riding the future wave. I am not sure if we look hard enough at the future to see where that is going and try and build for that. Or using the one on my favourite metaphors, the skater Wayne Gretzky’s comment: “Skate to where he puck is going, not to where it is ….” Are you really building for where the puck will be?

 

 

Thoughts on investments

Chamath sees some sort of crash or at least an industry “reset” in about 3 years caused by some externality (he discusses a few). He makes some great points about companies not having to reach $1billion valuation to be successful as he discusses the craziness of the levels of investment in some B and C rounds. He shares some sensible thoughts about reaching a moment when it is time to just “buckle down and make this f$%^^ thing work” rather than chasing the next round of funding.

My favourite quote of the interview:
“Failure should be celebrated. Stupidity should not be”.

Thoughts on education

Chamath covers question at the end of the interview about education. He notes how it is now obvious that the US College system is fundamentally broken; but applauds the idea that Edtech is moving from a “save the seal” type mentality to one of recognising that it is about building and deploying human capital.

 

Mashauri has the mission of increasing the success rate of startups around the world. Beyond the acceleration programmes and training courses we host, we also share ideas and cases from successful founders to motivate and educate our users. Why not sign up to make sure you receive these articles when we publish them?

 

Startup failure rate is too high – and it’s NOT OK!

News article version of startup failure article

Mashauri (Mashauri.org) is an organization with a mission to significantly increase the success rate of startups across the globe.

Infographic: startup failure rate is too high

They have written a number of articles about startup failure rates – and why Silicon Valley and others are not right in the accepted view that the majority of startups must fail and that failure is “good” because it is simply a learning experience.

Although they recognize that there will be failures and that it should be a learning experience, they believe that we can learn how to be better at launching and growing businesses – and in fact that we can learn from other founders’ success and failures and do a better job at developing viable businesses. They also claim that failure is far less of an option for many entrepreneurs than is the case in perhaps Palo Alto where funding is more plentiful and entrepreneurship is a choice, not the only option.

Mashauri have recently conducted an investigation into UK Government statistics where they have combined a number of databases to  paint a picture of what is the actual failure rate of new businesses and when are they likely to fail. There are good reasons for using these particular datasets and they believe that the learnings are translatable to other countries, although the results might need to be adjusted for local factors.

Their overall findings are:

  1. About two thirds of all businesses fail within the first five years
  2. Almost one third of new businesses never gain traction (ie receive income from customers or receive funding)
  3. We are not getting better at helping new businesses become successful– in fact we are getting worse

These are shown with the relevant charts in the infographic below.

The full article can be found at: Startup failure rate is too high.

Or click the link at: http://wp.me/p7JRbh-IW

The next article in the series is going to look at the “why” of failure and try to map this onto the “when”.

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The author, Simon Gifford, is CEO at Mashauri, Director of Genesis management Consulting and an adjunct professor at IE Business School in Madrid.

Startup failure rate is too high – and it is not OK!

1. Introduction

Peter Thiel likes the aticle

This is the second article in the series: Its not OK, where we try and bust the myth that 80% of new ventures must fail and that this ratio is fine. Our claim is that this level of failure is far too high and we can learn from the mistakes of others as well as our own failures. This may be a little controversial, so hopefully it will spark debate! (If Peter Thiel likes the article, it MUST be controversial).

Note: infographic at end of article

 


The 3 main conclusions we will cover, with data-driven support, are:

  1. About two thirds of all businesses fail within the first five years
  2. Almost one third of new businesses never gain traction (ie receive income from customers or receive funding)
  3. We are not getting better at helping new businesses become successful – in fact we are getting worse

Startups RIPNaturally, we do accept that there will be some failures and we also accept that fear of failure should not be a barrier to trying to develop a business. Please read our first article where we introduce the theme.

We believe the topic of “when do new businesses typically fail” will make for interesting reading for both entrepreneurs and those involved in the entrepreneurial world (such as investors, accelerators, incubators, universities, governments and corporate innovators). The article that will follow as to the “why” of failure will likely be of higher value, but it is necessary to build some sort of fact-based platform as to “when” to develop this. Our article is based on the UK data but we feel it is of value across the globe, although the conclusions will need to be adjusted for local factors.

It is worth mentioning that “success is in the eye of the beholder”. A Venture Capitalist (VC)  idea of “success” would be their investment in a very high growth company that exits; while an investment in a company that ends up surviving and providing a good lifestyle for the owners may be a failure to the VC, but the founders may be happy with their success. For the purpose of this article, a failure is a company that legally gets dissolved as the owners/authorities do not believe it is a going concern.

In this article we take a fact-based approach to getting to grips with startup failure rate and when failure happens. We have used multiple sets of statistics published by the UK government (Companies House and Office of National Statistics). The sources and detailed calculations are available in the appendix. Admittedly the data is messy: different sources, different start/finish dates, limited cohort information and rounding errors. However, on the positive side, we are dealing with big numbers (more than 600,00 companies were incorporated in the UK last year) and a year-to-year comparison reveals reasonable consistency. Furthermore we do not have to get to decimal place accuracy and so the data and conclusions can be considered reliable.

This is UK data (including Scotland, Wales and Ireland) and when considering other geographies, you may need to adjust for local factors. For now we consider, this to be fairly representative of the entrepreneurship failure rate in most developed economies – but the failure rates are probably somewhat higher in developing economies. In a subsequent article, we will use Global Entrepreneurship Monitor (GEM) data to see how we can assess for those differences

2. The evidence

2.1 Conclusion: almost two thirds of new businesses fail in the first five years

The two charts below show the data in different formats (source: UK Companies House).

The “Number of companies remaining” shows a cohort view – that is if 100 companies are launched at the same time, the number remaining at the end of each year is shown by the column (eg in year 3 only 56 would remain).

 

New business failure rates
How many companies remain 5 years after starting

 

The “Average failure rate” shows the number of companies that fail each year. For instance in the 3rd year, 16% of companies who started year 3 will have failed by the end of the year.

Its not OK average failure rate
Average failure rate of new businesses

The number failing in the first year does appear low to those who have helped prepare this article. Our logic is that there is a sort-of “honeymoon period” where founders cannot conceive they will fail (and so continue in the face of warning signs), and more importantly there is a delay in actually getting started and facing reality.

In the next article, we will spend more time on the “how” of failure.

2.2 Conclusion 2: more than 30% of new businesses never reach “traction”

A separate set of data from the UK Office of National Statistics (ONS) captures the number of companies that have registered to pay VAT or to pay tax on behalf of employees. Both these payments offer a reasonable proxy for “traction”, which we define as having paying customers or having received funding (which would normally mean a strong indication of paying customers or paying customers in the near future).

The number of tax paying companies as a proportion of all companies incorporated, is shown in the chart below. Over the last 5 years the proportion of companies gaining traction is steadily decreasing. Although we are launching more new businesses (which is partly due to the ease in which this is possible), we are not doing a great job of helping them learn how to reach the point of having paying customers – 3 out of 10 never achieve that goal!

30% of new businesses never reach traction
Many new businesses never even gain traction

 2.3 Conclusion 3: we are not getting any better at improving new business success rate

Despite the increasing number of new business starts, we are not getting any better at improving business success rate. The previous point above demonstrates this. However, there are two more sets of data that also give this statement credence. Below is a chart showing new incorporations and dissolutions by year. It is clear we are starting more businesses and we know that there is greater encouragement to do so; and it is far easier to do so. Despite this, the ratio of dissolutions to incorporations is deteriorating which would indicate that the survival rate is dropping – albeit net new numbers is increasing. If you throw enough infantry at the enemy, although many of the cannon-fodder will die, but some will get through!

Ratio of new and failing businesses
Ratio of new and failing businesses

A second number of interest is the number of acquisitions of more than £1 million that are occurring (source: ONS). Although the data is very “noisy” with many factors coming into play, we would hope for an increasing number of acquisitions that might indicate successful startup exits. However, if we compare the latest 5 years history with the prior 5 years we see a substantial decrease in this number. Although this data is inconclusive, it certainly does not show an increase in exits unless they are small – and that probably equates to acqui-hiring rather than a true acquisition. (Note: we recognise the imperfection of M&A data and the large amount of factors that play a role, but the trend is not positive over this period).

 

UK acquistions

 

 3. Conclusions

After considering all the 3 points above and merging them with what we know about the development of the entrepreneurial ecosystem and the life cycle of startups in general, we have arrived at some insights:

  • Most new businesses survive the first year simply though a delay between registering a company and real work beginning, together with the passion, excitement and initial perseverance that goes with the initial stages of a new venture.
  • Probably about 25% will steadily give up through years 2 and 3, as they conclude that they are never going to reach traction or not at a rate that will develop into a going and growing concern.
  • A further 30% to 40% will fail over years 4 to 6, struggling with some level of revenue that perhaps exceeds breakeven but is not sustainable and certainly will never scale into a large company.

To avoid painting too gloomy a picture, there will be 20%+ who do make it – they will develop into flourishing enterprises, perhaps grow extremely large (the occasional fabled unicorn) or may be bought out for good value multiples by other corporates. In addition, many (or some) of those founders who do fail will learn from their errors. A few will start again and with that experience, increase their chance of success the second time around.

Our view is that this failure rate need not be so high. Although there are multiple and often combined reasons for failure, surely with the volume of dissolutions in the UK alone we should be doing a much better job of increasing new business success? There has been exceptional work done by people like Steve Blank, Eric Ries and Noam Wasserman to name a few. Organisations like the Global Entrepreneurship Monitor also do amazing research into understanding what are the factors required for new business success. Clearly however, this is not trickling down to the founders themselves who lemming-like seem to be starting and failing at increasingly higher rates.

Mashauri believes that it is possible to learn from experience and use technology to codify processes and activities into a flexible system that can guide founders along the path to success and avoid at least the major pitfalls and unnecessary risks. We do not naively believe that every new business will be successful, but we are convinced that through the right focus, efficient use of resources, shared experiences and the occasional re-direction, a significant portion of potential “failures” could be turned into successes. And lets call out the elephant in the room: failure really sucks – especially when you bring down others with you. When your families suffer, those friends who invested in you lose their money, those few employees who trusted you are without employment  …..  getting slapped on the shoulder by some wealthy VC and being told not to worry and that it is a useful learning experience just somehow does not compensate.

Peter Thiel - failure is not great

I am not always a fan of the utterances of Peter Thiel (billionaire entrepreneur and philanthropist who founded payPal and was an early investor in Facebook), but in the case of startup failure we are in agreement. As he says:

“Every time a company fails it is not a beautiful working out of the Darwinian free market and it is not a fantastic educational experience for all involved. Every death is a tragedy and that is even true of deaths of companies.

“I don’t think that we should be setting people up for failure in all sorts of ways and that is something that should be avoided.”

The purpose of Mashauri is to make a difference to the success rate of new businesses across the globe. Our initial work has been to research entrepreneur failure (and success) and early stage founder requirements. We have run a beta site (Mashauri.com) for a number of years and helped various founders both online and offline. We are beginning to figure out how we can make a difference. It is likely that those startups selected by VC’s and the top accelerators have a higher than average chance of success (by nature of the competitive process if nothing more), but the vast majority of new businesses (probably in excess of 90%) do not fall into this elite category – and it is here that we believe we can make a difference. Learning from each other, understanding patterns of success (and failure), providing the right focus, encouragement and pace, using the tools that are available, providing critical training …. none of these will guarantee non-failure, but they will certainly increase the chances of success.

We are just launching this new site Mashauri.org, with a few acceleration programmes and soon-to-be training programmes. We admit that as it stands, the site is going to be creaky for a while and the programmes may not be overly sexy – but this is just the beginning and an extension of our earlier learning process. Future moves include using Mashauri information linked to other sources, to use big data to gain better understanding patterns of success and failure. Then supporting the process with AI-enabled mentors to help scale the system at a truly global level.

If you care about this as we do, it would be great if you could spread this article wider and help us to engage with other people who are also concerned about startup success – and can join us in our quest to make an impact in the world of new business.

Watch out for our next article where we will build on this one and start to discuss why and how failure happens. This is even a more complex subject with even less reliable data. However, we will tap into the excellent work of organisations like the Kauffman Foundation, the Global Entrepreneurship Monitor and we will rope in some real gurus on the topic to work with us on these hypotheses . Peter Thiel: are you available?


Thanks to contributors to this article, especially Apoorv Bamba, Guy Harris, Peter Quinlan and Peter Bryant.


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Infographic: startup failure rate is too high


 

How to start a startup – ideas, products, teams and execution

Stanford University, in conjunction with Y Combinator, have launched a course teaching about starting startups. They are using some of the top presenters from previous YC programmes – and are making the videos available to those who cannot attend the lectures. Mashauri have decided to publish these videos on our blog with a brief write-up in case you do not have the time to view them – or would like to get a quick overview of the content.
Lecture 1:

  • Welcome, and Ideas, Products, Teams and Execution Part I 
  • Why to Start a Startup

Lecture 1 kicks off with Sam Altman (president of YC) discussing the 4 areas in which an entrepreneur needs to excel to build a successful startup company. These are:

  1. Idea
  2. Product
  3. Team
  4. Execution

In this lecture he discusses the first two only – idea and team. The lectures are fast-paced and content-rich – although admittedly it appears that Sam and Dustin probably dropped out of Stanford before they learned much about lecturing style and slide quality!
In terms of idea, Sam is in disagreement with current thinking that the idea is not so important and that a founder can always “pivot” into a related area. Note that his his concept of “idea” incorporates the problem being solved, market description, market size and growth as well as defensability. A founder will be working on an idea for up to ten years or more (assuming its successful) and so it is worth putting some effort into this. Some of the keypoints are:

  • Have an idea that is mission orientated – and which you are passionate about. It makes the rest easier
  • Build something that is difficult to replicate
  • Often inital ideas sound crazy – but that’s not bad as there will be less competition
  • A fast-growing, smaller market is normally preferable to a larger, stagnant market
  • Planning is important – or at least the process if not the plan
  • Ask yourself: “why now?” (and also “why me?”)
  • Build something that you personally need – or if not, get really close to your customers

He ends the section with a quote from 50 Cent about finding a market/audience then make or express yourself to them. Not vice versa – which is a common problem.
In terms of product, this is the key to building a great company (but must follow a great idea). It is critical to be in front of customers and building something that they want. And continually testing and refining with them. The main thrust of this part of the presentation is that it is more important to build something that a small number of customers love, than something that many customers like. This is the way to referral and then later scaling. Also start with something simple and do the important functional elements really well. Its easier to find customers to use (and love) something simple than an over-complicated product.

Do not be shy about going out and recruiting customers by hand and getting them involved in using your product. Also don’t worry if the product is not automated, you can do a lot of things manually (concierge-style) that you can worry about scaling later. Sam gives plenty of examples of this and refers to Paul Grahams article on doing things that do not scale (see link later).

He descibes the process of putting your product in front of a customer and asking what they like, would they pay for it and would they refer it to someone else. Then going back into the product refinement loop and cycling back through to the customer. Finally he talks about ensuring you are measuring the right growth metrics appropriate to where you are in development and what you are trying to achieve.

The last 20 minutes is handled by Dustin Moskovitz talking about why you should start a startup (and importantly what are the wrong reasons). He plays down the Hollywood hype and warns that it is a lot of very hard work, mostly un-glamorous and with huge risks. There are easier ways of making money and/or making a difference.
He ends by saying the only reason you should be launching a new business is if you simply “cannot not do it”.


The video is well worth watching if you can carve out the time. If you are in the process of starting out, at least watch the frst 25 minutes; and if you are still only considering becoming an entrepreneur, then the last 20 minutes may be even more valuable. The good news is that concepts are firmly embedded in the Mashauri accelerator programmes – and so by using our tools you can build your business while you learn these lessons.

We thank Stanford and Y Combinator for publishing this material and helping a lot of startups around the world increase their chances of success. We are proud to be able to extend this a little further via our site.


Sam Altmans slide deck
Dustin Moscovitz slide deck
Paul Grahams article on “do things that don’t scale”

We will continue to publish, and comment on, the material as it becomes available. Make sure you do not miss these updates by joining the Mashauri community of entrepreneurs.

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Please feel free to leave a comment or contact me directly at simon.gifford@mashauri.org