Why The 350 Dead Bangladeshi’s Are Our Fault

Ever shopped at Primark or any of the other 100’s of clothing stores who turn a blind eye to their supply chain?

How's that cheap t-shirt you're wearing feeling today?

How’s that cheap t-shirt you’re wearing feeling today?

The terrible irony of Primark (which is often the target of choice by campaigners against cheap labour etc)  is that it’s actually owned by Associated British Foods plc, which is a conglomerate which is 54% owned by a not-for-profit trust which does a lot for charity in the UK. I know this because on my way to Sweden last week I sat next to the Marketing Director (of ABF, not Primark) who explained this. According to omnipresent Wikipedia:

“Some 54.5% of ABF is owned by Wittington Investments.[17] and 79.2% of the share capital of Wittington Investments is owned by the Garfield Weston Foundation, which is one of the UK largest grant-making charitable trusts, and the remainder is owned by members of the Weston family.”

Garfield Weston are a family-founded, grant-making trust which has been supporting charities across the UK for over 50 years (check out their good work here) but lets get back to clothing and 400 dead Bangladeshi’s

Your leverage to affect change is directly related your choice to buy from a retailer who guarantees supply chain good standards and ethics, or not.

Your leverage to affect change is directly related your choice to buy from a retailer who guarantees supply chain good standards and ethics, or not.

Specifically Primark, with revenues of £2,730 million and 36,000 employees, itself has the resources if it so wishes to ensure it’s entire supply chain adheres to certain standards. The market (in this case the supply chain itself) would accordingly respond if this is what was demanded of it by the buyers (e.g. Primark).

The future is in your hands

So, the fix, is actually really rather straightforward. All that is needed is the impetus – best demonstrated by our own purchase choices along with -ideally- a PR outcry, in the same way that most people don’t want horse meat in their burgers from some far flung country, resold and transported half way across Europe.

So friends, the power to prevent another 350+ dead clothing workers really is in your hands; or at the very least, the catalyst for change resides in your wallet/purse.

UPDATE: Primark (and some other companies) have offered compensation to the victims (BBC News link)

Creating A Tech Start-up: Forty Point Checklist

This is my favourite quote by Winston Churchill:

“Success is the ability to go from one failure to another with no loss of enthusiasm.”

Unless you’re the absolute except to the rule (like the one-in-one-hundred-thousand such as Zuck) as an entrepreneur you can expect to fail repeatedly. And especially with technical innovation you have to fail day to day, to perfect your product or service.

The last thing you need, then, while surrounding yourself with the inevitable problems you will encounter while attempting something new and different, is for a known issue to be the one that becomes a major problem in your business.

With this in mind, while comment and opinion certainly has its place in this column, the key to any entrepreneurial venture is execution. So today I would like to offer a blueprint process to getting your start-up off the ground. This guide is inspired by a blog post by Basil Peters – indeed some of it is lifted verbatim, and I’m indebted to Basil for his original list.

Procrastination is just a worthy an adversary as poor planning, so let’s get started:

1. Build your start-up team.

2. If it’s still just you, repeat step one.

  • Statistically, start-ups with co-founders rather than single founders are over twice as likely to receive investment;
  • Some will work evening and weekends until you can raise capital, but do ensure they are definitely ready to leave their jobs if you do;

3. Agree that you want to start a company together. The next several dozen steps will test this.

4. Agree on an idea.

  • The idea is much less important than the team as the idea will likely change and evolve;

5. Agree on the time and money each of the founders will contribute.

6. Agree on areas of responsibility.

  • Choose a co-founder who complements your skills, not one which duplicates them;
  • Who will be on the board?

7. Agree on intellectual property ownership. This is essential.

  • The IP must reside in the company;
  • Create NDAs and employment contracts which you should ALL sign (even founders);
  • Create these even if you’re not paying yourselves anything;

8. Agree on how you will handle personal guarantees, credit cards and other personal liabilities.

  • Steer clear of personal credit card debt if you can;
  • If you rack up directors’ loans against your start-up as long term liabilities, bear in mind you may be pressured by future investors to convert these to equity;

9. Agree on founder compensation and equity allocation.

  • Allocate options to yourself and co-founder vesting (reverse vesting) over four years;
  • Include favourable terms for you the co-founders (eg six months’ redundancy pay, three months’ notice) and a three or six month probation period for staff – they may not work out;

10. Agree on the exit strategy now.

  • This does not necessarily mean running your company toward a quick sale – you should focus on creating a valuable, scalable business – and your aspirations may change, but being aligned monetarily and on life goals provides a foundation to build toward the same end game. Basil says “I know that’s not intuitive, but [not doing this] is one of the most common flaws”;

11. Agree on the capital structure at year three.

  • Create your own cap table now: a spreadsheet of how the capital structure/share register might look after two or three investment rounds. It also allows you to see what the investment will do to everyone’s equity;
  • Agree on the amount of equity for future employees and directors (create a share option pool – usually around 10 per cent but in the US it is often higher. I would recommend a minimum of 15 per cent);
  • Allocate your employees or founding team options over four years;
  • You can get away with a Options letter – include strike price, number of shares (not percentage), vesting schedule (when they have rights to each chunk of the shares);
  • If you are doing equity, not a convertible debt round, consider creating a class of non-voting shares and giving those to your angel round (if they will accept). This means that your voting rights will be different to the total ownership. Useful if, for example, your Series A is not at the stratospheric valuation you hoped and you want to avoid getting close to owning less than 51 per cent between you and your co-founder;

12. Think hard about whether the first dozen steps are fair and equitable. Try to imagine whether they will still seem fair and equitable in a year, or three years.

  • If everyone in the founding team is not absolutely in agreement, stop and try to work it out;
  • Write a letter of agreement outlining all these points. It will not be legally binding, but gets down in writing what has been agreed and makes people really think about what they are agreeing to;

13. Make sure your documents define the legal & corporate jurisdiction (choose which State if you are in the US).

14. Confirm the previous eight steps by signing:

  • Employment agreements;
  • IP assignment agreements;
  • Share options letters;
  • Non-disclosure agreements;

15. Agree on the company articles (the constitution of the business).

  • Change the standard articles so a 51 per cent vote is required to sell the company;
  • Provide for electronic communications for statutory shareholder requirements (one company I started had over 20 angel investors – chasing signed paperwork by post is a nightmare);

16. Check alignment among the founders for points 1-16.

  • If alignment is not perfect, it may now be time for the first offsite strategic planning retreat with an excellent facilitator (perhaps your mentor – see below);

17. Find a least one very experienced advisor, mentor and/or coach who can review and confirm the previous five steps and can help to be a sounding board.

  • If you are going to offer them equity, what remuneration, if any, they will have;
  • Choose someone who you both respect enough – and is strong enough – to challenge you both;
  • Sector expertise is useful as you don’t want to spend all your time explaining everything, but someone under the influence of the cool-aid can sometimes reinforce a bad decision, so get this balance right;

18. Incorporate the company.

19. Have the first board meeting to “hire” the officers and give them the authority to conduct business.

  • Have the first shareholders meeting and the first Annual General Meeting to elect the board;
  • If you do not do these things now by the book, expect a nightmare when it comes to due diligence on future funding. Admin is the last thing you want to do when you are starting a business – you want to build product! But this is not only good discipline, it is your legal responsibility as a company director;

20. Celebrate! You have have your own company!

21. Create a legal share register and issue share certificates.

  • Pay for your shares (in the UK you need to place money in the company bank for the nominal value of the shares. US Delaware companies don’t have nominal share values so check your jurisdiction on this process);
  • You must record the history of issuing shares in the company share register;

22. Have a board meeting to approve the capital structure and share register – another essential legal procedure.

23. Create an electronic minute book and an electronic Due Diligence folder.

  • Place copies of all the paperwork, agreements, NDAs etc in the DD folder (you’ll thank yourself later);
  • Have a folder for board meeting minutes AND record minutes for board meetings. These can initially summarise the main points, you don’t need to quote every word. This attention to process will give comfort to investors at DD time and help demonstrate you have some grip of how to run a business;

24. Create a 12 month budget and five year financial projections.

  • Many people just ask for three, but some ask for five. The worst thing in the world is having to add two years to projections you have already spent way too long on. Just do five from the start;
  • All the projections are complete rubbish. They will all be wrong. Give it your best shot anyway. It will help you understand short term capital requirements – and hopefully give your investors the big carrot of oodles of cash at the end of the rainbow;
  • Assume you will spend more than you will. Easy things to forget (for a UK start-up) include: directors indemnity insurance, employee AND employers’ National Insurance, VAT on sales and the accountant’s and legal bills;

25. Check that your projected capital structure still makes sense now that you have thought more about the numbers – update if necessary – at this stage you still can.

26. Check again that you still have team alignment on all the previous 25 points.

27. If you have not already, write a business plan.

  • A PowerPoint (or Keynote!) deck is fine. The list of slide headings on Sequoia’s web site is as good as any;
  • This is as much to clarify to you and your team plans and direction, as it is for investors;
  • No more than three points on each slide, it is a sales tool, not an exhaustive biography of your product or market analysis;

28. Appoint an accountant.

  • Early stage bootstrapping is all about saving money, but a rubbish accountant now will cost you money later;
  • Appoint an accountancy firm which is large enough to know what they are doing but small enough to care. If you’re in Shoreditch, London, http://www.dands.co.uk is a great example of experience combined with boutique size;

29. Open a bank account.

  • Agree on signing authorities for financial management;
  • If co-founders, allow single signatory but only up to a sensible cap (eg £5,000 or $10,000) with dual signatures required above that;
  • Make sure you have good online banking which ideally interfaces with your accountant’s software;

30. Check again the team is in alignment with last 29 items. Sometimes small disagreements can be a sign of a deeper disagreement.

  • Schedule an offsite strategic planning retreat to perfect alignment if necessary. (Choose an excellent, experienced facilitator to maximise chances of success – perhaps you mentor if he or she is capable);

31. Celebrate achieving the last 30 items!

  • It may not seem important, but it is for psychological reasons and bonding;

32. Get a simple subscription agreement for the founders’ investment.

  • Pay for your start-up equity by transferring the par value cash into the bank;

33. Learn about all of the taxes your company will have to pay.

  • Do not rely on your accountant to make the decisions; they cannot understand your business well enough to do this entirely themselves. You must understand taxes well enough to ensure you are paying all of the taxes the company owes and that you are not creating personal liability for your directors;
  • As directors, pay for anything you can get away with as expenses – all your travel (provided it doesn’t say on the ticket it’s to Disneyland). It is the most efficient way to get money out of the business. Don’t be fraudulent, just be tax efficient;
  • Use an electronic expenses tool (Xpenser, or Expensify) to collate your own and team accounts – all expenses are tax deductible;

34. Make sure none of your employees think they can be contractors outside of working on your start-up.

35. Understand the R&D tax credits program.

  • This allows you to claim back a large percentage of PAYE tax (this is an excellent R&D tax rebate available in the UK, others are available in Canada and other countries);

36. Get insurance (the insurance you really need, not what the broker wants to sell you).

37. Get an alarm system or check security before you move the computers into your office (unless you all have laptops). Two of the offices I had (including a shared one) were burgled.

38. Start planning you investment round and reaching out to investors. Make sure you adhere to EIS for angel investors – Google it – or in the US any legalities for private securities investing.

39. Agree on a fair valuation.

  • Get your external advisor to check and correct the capital structure and share register if necessary. (It’s still easy to fix this but that window is closing fast);
  • Don’t state your valuation in your first conversation with angel investors;
  • Consider convertible debt (offering a discount on the valuation at the next round);

40. Celebrate completing all of the absolutely necessary steps in building a successful start-up!

And then, as soon as the hangover clears, start working on the product, marketing, sales, recruiting, strategic relationships and exit strategy. Good luck…!

Note: This post was previously written by me for publication as an article in The Kernel magazine, an excellent deep-dive blog on the start-up scene. Think The Economist for technology. 

Investors & Entrepreneurs: Breakdowns in Communication

This post was originally published at The Kernel, an excellent deep-dive blog on the start-up scene. Think The Economist for technology.

Not being able to make it to a meeting for lack of cash in your pocket – not enough even for the bus – is a level of financial and emotional trauma that most people in business never experience. Well, good for them.

In the two decades since my first forays into entrepreneurship, aged 14 with an Atari ST fanzine, followed by an ill-fated satirical magazine called TIT (think Viz meets Private Eye), I’ve found myself entirely brassic more than once.

A desire for financial security is not a good character trait in those wanting to be entrepreneurs. Consequently, perhaps, most people have not chosen to create and run a start-up. By “create a start-up” I mean having an idea and starting from scratch, on your own, with no capital.

Most institutional technology investors have never run a start-up. That lack of experience at the coal-face of business is the root cause of many a problem between company founders and their investors. This is my subject this month.

GHOST FUNDS

Financial acumen should surely be a given for venture capitalists, although writing this sentence feels peculiar when tech venture is today one of the worst performing asset classes in Europe. Europe’s venture capital firms are being spurned by their limited partners, and most are unable to raise new funds. Many European firms have disappeared from the market, or are running as ghosts of their former selves.

Looking at the numbers, European IPOs from venture investments yield returns similar to the US, but European trade exits for tech start-ups underperform compared to our transatlantic cousins. The reasons are complex. A 2008 reportattributed the overall performance gap between Europe and North America to a segment of “poorly performing companies”, but this generalisation gives few tangible clues.

The first thing is to recognise that even in the birthplace of venture capital, the United States, all is not perfect if you pull back the curtain. CNN Money summed up the US venture industry last year by saying: “It’s no longer a market of four tiers; it is the rarefied best and then the rest”.

But while early stage investment in Europe for tech start-ups is more plentiful than it ever has been, by most metrics the Old World lags behind the US, in both scale and success. In short, European tech venture performance continues to be a source of embarrassment.

Sadly, I can’t offer you a silver bullet. I’m no expert on the intricacies of the finance and investment industry. But let’s focus on the things that a VC can control. How can we help tip the European tech investment needle in the right direction? Ignoring a founder’s usual bark of wanting fairer deal terms, greater capital deployment and higher valuations, the most obvious target is a greater focus and understanding of what Sequoia calls “human capital”.

Many European tech investors lag behind the best of the US venture community in recognising how valuable a dedicated start-up founder can be, even if that individual might not be the perfect chief executive when a company scales.

This disdain for the entrepreneur can extend to an under-incentivisation of the start-up team as well (though that too can be the fault of the founder). Not many European start-ups have option pools of 20 per cent or over, but that is pretty normal in California.

One UK VC I worked with persuaded all non-execs and employees to sign away the rights to their options at investment, promising to re-instate them from a new pool. Unsurprisingly, none of the options ever re-appeared. Such behaviour is not only unethical, but naive in terms of motivating staff and creating good karma between investors and the senior management team. It does little for your reputation and deal-flow either.

It is true, of course, that the fabled West Coast has plenty of horror stories about “evil” or incompetent investors too, which leaves one counselling first time start-up entrepreneurs to view their new-found VC friends with suspicion from day one. Hardly ideal.

Maybe I’m now the one being naive, but this is not the most expedient way to create the next billion dollar start-up. Let’s face it: it is the few which feed the many in the venture capital model.

One big reason a chasm can form between founders and their investment overlords is practical: like the tragically blinkered army commanders of World War One, VCs often seem to carry arrogance and a sense of entitlement into the board room, consequently making poor strategic decisions, or, equally inappropriately, insisting on bad operational ones. Thankfully it just costs thousands of pounds, instead of thousands of lives.

Too many VCs I meet lack experience and wisdom forged in the trenches of the business battlefield. It is not surprising, then, that the experience of not having enough money for the bus would be an anathema to most venture firm associates, principals or partners.

It is also unrealistic to expect them to understand the pressures entailed in running a tech start-up or being a small business owner. Many VCs have not even run a team or a led a department in their (often all-too-brief) previous careers, let alone convinced a flock of disciples to follow them into the abyss and create something from nothing by starting their own business.

OUTSIDE THE COMFORT ZONE

Worse still, a career in banking, trading, consulting, distress capital or another process-driven corporate environment, with their clear hierarchical ladders and ample support infrastructure, often seems to give the VC misplaced sense of superiority.

“Success” in the financial sector is not to be derided, but the nitty-gritty of having to do everything yourself, on a shoe string, in a team of just two or three, with no money, while trying to persuade often intransigent investors to give you money, is a unique stress which is life-swallowing and not something you can understand from reading about.

And most people from a corporate environment simply don’t get it.

There are exceptions. Some of those exceptions are people I am happy to count as friends and respected acquaintances. These are people who understand, from real-world experience, what it takes to nurture a product or service from birth through difficult puberty to proud maturity – or premature death.

These people are the future of the European venture industry and if you are looking for money, I’d recommend seeking out this rare breed.

But the problems inherent to the European VC-entrepreneur relationship remain threefold. First, VCs often don’t even realise that their understanding of a technology or market is lacking.

Second, the entrepreneur-VC conversation is often at odds when it comes to aspects of managing the business or comprehending operational challenges.

Third, the worth of a founder in a start-up is often underestimated, causing at best ill-feeling and declining motivation, or, at worst, if the founder is removed, a large opportunity cost for the business and ultimately the fund itself.

Most entrepreneurs are pragmatic enough to recognise their failings, and will take on board sensible business suggestions, which are backed up with tangible facts or defensible experience. It is, after all, part of the start-up mantra to iterate, to discover what works. That, by definition, requires an acceptance of failure and the need for improvement.

As we’ve established, the problem is many VCs neither have this experience nor this working philosophy. Yet often they lecture start-ups on what their product should look like, or meddle too deeply in the operations of the business.

EMOTIONAL ATTACHMENTS

A shiny new VC associate once said to me “You entrepreneurs are all so emotional.” It was not meant as a compliment.

You have little choice but to operate somewhat emotionally when you are a start-up entrepreneur. Where would the endless energy to persevere come from otherwise? If you made decisions entirely logically, you would pack up immediately and do something with a greater statistical chance of success.

And this statement suggests not just thinly-disguised contempt, but demonstrates perfectly a lack of empathy and understanding about what it takes to run a start-up company. For this VC, as for many, his is simply a job. A secure, well-paid step upward on the career ladder.

This ignorance is the same reason TV shows like “Back To The Floor” and “Boss Undercover” make such good television: the chief executive often has no comprehension of the day-to-day challenges facing his or her workers, the people who actually make things happen.

Morgan Stanley and McKinsey have the resources and departmental staff to support whatever you need to do to perform your role. In contrast, as a founder, you are the organisation: you are the department for everything.

On the bright side, having left a venture firm to create their own start-up, more than one VC has told me: “I had no idea how incredibly hard this is … it is 100 times harder than I imagined.”

If they ever return to the venture world, those students of experience will, I’m sure, be infinitely more successful than other investors who have no practical grasp of start-up challenges.

An experienced European VC said to me: “I think it is impossible for a venture guy who invests early not to have real operating experience. Even if it’s two years working for someone else’s start-up (most great VCs weren’t phenomenal company builders) you need to know the struggle it is to build something.

“I also think people need to know what it takes to grow something large, it’s a whole set of new lessons in scaling that again you just have to live through. This you can partially pick up from the board perspective but you need real experience to give you good perspective. I think guys in the US get this. Guys in Europe don’t. If you just count up the number of [VC] partners in the US who have operating experience you’ll see it.”

A lack of hands on, real-world experience is the biggest problem facing VCs and tech entrepreneurs, especially in Europe.

VETTING YOUR BACKERS

As an entrepreneur, what can you do? Well choose those VCs who have the hands-on business experience. And get drunk with them before you sign the deal. No, seriously. You’re getting married. You’d never marry a girl or guy you’d not got wasted with, would you?

Find out what makes them tick, what they’ve done in their lives. What have they learned in business? How have they failed? Discuss other start-ups, especially ones which have gone through difficult times. Discuss how they would handle a divorce.

My unnamed European VC says “Venture people are financiers, so we have to think and act like investors, meaning financial capital. But we’re also company builders, which makes a good 50-75% of our job about people … it’s a tough thing to understand if you’re not used to dealing with it.”

Do the following exercise: take the top 20 firms in the US. Look at the partners’ bios. Look at how many:

  • started a company
  • worked at a start-up
  • were execs of a start-up (VP or higher)
  • sold or took a start-up public
  • worked at a tech co
  • were execs of a tech co (VP or higher)
  • hold engineering degrees
  • have MBAs
  • worked in banking
  • worked in consulting

Then repeat that process with the top seven firms in Europe. The whole exercise should take you less than an hour. The resulting disparity is shocking.

If you are limited partner, you can help the European tech ecosystem (and your own return), you should only give your money to a fund if the team is entrepreneur-heavy.

Because, unlike regular businesses, start-ups are defined by a set of unknowns. They are not straightforward enterprises. It is usually a messy, pivoting, imperfect machine, run by one or more impassioned individuals who have sacrificed a regular life for the promised land of thenextbigthing.com.

But there could be a significant improvement for the success rate of European tech funds, and the start-ups they invest in, if venture firms simply hired more people with real, tangible hands-on experience, rather than the the cookie-cutter, MBA-toting ex-finance guys they favour.

Just look at career politicians for another example of what happens when people make decisions about things they have no real-world experience of.

Entrepreneurship: Timing Is Everything

First published in The Kernel last December, I share my biggest lesson so far: that in business, timing is everything.

No, none of these people are me.

Published article here: http://www.kernelmag.com/comment/column/196/timing-is-everything/  copy below.

 

One of the most famous British philosophers of our age said, “to realise the unimportance of time is the gate to wisdom.”

Clearly, Bertrand Russell had never started his own business, let alone a tech start-up. Russell died a full twenty years before the invention of the web, so we’ll forgive this infelicity – but while his protestation may be helpful as a bon mot about sagacity and wisdom, time is an all-too-often overlooked variable when it comes to starting a business, particularly in the technology industry.

Take a stroll through the graveyard of good ideas, and there are plenty of high profile disappointments to muse over. I’ve had my fair share, with too-early-to-market failures featuring particularly strongly. They were smaller and less glamorous than those of popular culture, but when you have, metaphorically, given birth to a child it is painful to lose it, whether it’s made the cover ofVogue or not.

My first was Cambridge Virtual City, a localised web portal. In the late 1990s, I registered CambridgeVirtualCity.co.uk – and 150 more around the UK – with visions of a network of websites where you could work with local businesses, find information and more. But selling web advertising to businesses back then was not straightforward. “So you want us to advertise, locally, on the Internet. But isn’t the internet global?” Queue long pause. “Well, we don’t really understand the point, but you seem like a nice chap so you can build us a company website if you like?”

My failure to secure sufficient advertising revenue was as much to do with my inconsistent sales strategy and undue focus on product development as it was market timing, but the sales cycle was certainly bogged down by an education process for potential customers – something which, as a one-man enterprise, I didn’t have sufficient resources to get caught up in.

Being first to market, I learned, is rarely best. Thankfully, the virtual cities idea pivoted into a successful website development business, which I sold in 2001. I was undeterred by my experience launching products way too early. You might say it was to become my calling card. (All the more ironic for someone who at school once received a prize for being the most consistently late student, ever.)

Playtxt was my fourth start-up. It was a mobile location-based social network. Literally dreamed up in a pub, The Fort St George on Midsummer Common in Cambridge, it was pretty cool for its time. Text in your location by SMS and Playtxt would text back telling you where your friends were. You could message other people, share your location and share photos. Again, however, it was an anachronism. This was 2002, and we were unable to convince any of the infamous Cambridge Angels it was worthy of investment. “I just don’t believe any one is ever going to use a mobile phone for that sort of thing!” one of them told us.

And so we stumbled onward, hand to mouth, until 2004, when, from across the Pond, Dodgeball appeared. The first child of Dennis Crowley, better known now for Foursquare, Dodgeball had a New York swagger the American press eagerly lapped up. A new acronym was born, and I discovered that I was running a “MoSoSo” company, standing for Mobile Social Software. In fact, it was LoMoSoSo, Location-based Mobile Social Software. Thankfully, this awful abbreviation expired about the same time as both Playtxt and Dodgeball, shortly after 2005. Dodgeball was bought by Google. Playtxt was not.

* * *

Inside Google, Dodgeball starved and died. The lesson from this experience, alongside a growing suspicion that doing direct-to-consumer technology innovation in Europe was for martyrs, was that both services were way too early to market.

Ten years on, developing services for smartphones is still a painful, pricey experience and there is still no critical mass of people using location services for social interaction.

In fact, developing for today’s smartphones is like the first dot com days, only instead of different, incompatible web browsers, we have different, incompatible mobiles.

If you have made it this far, then most of your friends probably do have a smartphone, but – and this may come as a shock – most normal people still do not: smartphone penetration in the UK and North America is around 35 per cent of the population, depending on whose statistics you believe. When Facebook started in 2004, internet access was at 55 per cent of the US population. By the time they opened up the service beyond college students in 2008, over 84 per cent of the US population had internet access.

MySpace, Friendster and, before them, Black Planet, had tried to create lasting online social networks. Timing is not the only thing that killed them – Friendster, for example, had repeated scaling and engineering issues – but timing was certainly a big factor.

In 2002, I spent half my time at Playtxt explaining to friends, investors and potential users what the hell a “social network” even was. We were, of course, using the wrong words: the curse of knowledge had struck, and we failed to communicate our ideas in sufficiently simple or compelling language.

Luckily, there is now plenty of research into poor timing and better communication.

A great starting point when doing anything innovative is grasping Geoffrey Moore’s chasm; or rather, learning to leap over it. He splits your initial target market into enthusiasts and visionaries, after which the chasm needs to be jumped to reach early adopters, pragmatists, the conservative majority and finally the laggards. Many products or services never make it over the chasm, because they are simply much too early: the market is not ready for them, or a pre-requisite technology is not sufficiently widespread.

Even if you argue that – for example – a 35 per cent penetration of smartphones is a big enough target market, the public consciousness has to change to adapt to using these relatively new devices.

One recent report said that many people have yet to install a single app on their smartphone. My mother certainly hasn’t, and she is on her second Android handset. Market surveys, analysis, reports and research all help, but as is so often the case with something new, people do not even know what they want. Instead, you have to take base indicators – can people access my service? Does it solve a problem which exists today? – and find a way to test your assumptions as rapidly as possible. The hard part is being honest with yourself about the results.

Simple tests are often the best. When it comes to your message to the market, if you cannot explain what you do in one sentence in a way your mother understands, keep trying until you can. Then, using that same description, if you cannot find at least a handful of people you know who are desperate to use your product or service after hearing about it, that may be a warning that you are too early to market, you are in the wrong market, or even that your idea is just plain terrible.

Eric Ries’ recent book The Lean Startup has rightly been championed as a crash course in fail fast methodology. It is highly recommended reading.

In order to pre-test your idea, he suggests finding the fastest, dirtiest ways to do so. For example, you can set up fake websites, drive some traffic and see what converts, before you write a single line of code for a “real” product. Starting simple is the cornerstone of Ries’ book and it should be the cornerstone of your start-up. Build something simple and test it. This may be the only way to know for certain if you are too early to market or not. Rapid iteration is essential if you are not going to die in the process of trying to find out.

Messaging, especially in a premature market or with an innovative product, is so critical it can make or break you – fast. When changing the headline wording on the Playtxt homepage, we found sign-up conversions changing by over 40 per cent in both directions. Exhaustive trial and error was the only way to find out what worked; had we done this before building the product, maybe our product would have been different.

Eventually, with Playtxt, we did find a message that worked and we had a product people wanted to use, having meanwhile built too much. Suddenly, sign-ups leapt to 1,400 a day, and with my credit cards maxed out, we ran out of money and had to switch off the service. (1,400 sign-ups a day does not sound like a vast number, but we had to pay for receiving the inbound texts and the SMSs back out to people’s phones.)

* * *

Mark Zuckerberg is smart. I joked with him once that I had educated the market for him by trying to sell the abstract concept of a “social network” and “social software” years before Facebook with Playtxt. In reality, I simply was not shrewd enough to target a homogenous group who all have the same vested interest – 10,000 hormonal Harvard students – and solve a specific problem for people. His original site, “The Face Book”, really sold sex: not the act, but the desire and promise. Who wouldn’t want to check out the other 9,999 students at their university?

* * *

So far, all my start-ups have been based in Europe. But I don’t think geography makes that much difference, insofar as if you are focused on a specific geography, you need to cater for the development stage of your demographic in that territory. The fabled Bay Area has an extremely high percentage of enthusiasts, visionaries and early adopters. In this regard, getting new and innovative services off the ground can be easier. Arguably, it gives the new kid on the block time to prove himself and learn the ways of the world, before leaving home to go and get a real job the other side of Moore’s chasm.

As for me, I’m considering what field my own next start-up should be. I hope I regress to my school days and, if anything, be late this time, not early.

A New Type of Tech Blog

The infamous wordsmith Milo Yiannopoulous has invited me to contribute a column to his new digital publication The Kernel.

Aside from it sporting an excellent name @Nero is intending his new venture to raise the game in Europe amongst the blogs and online publications covering the digital entrepreneurship sector.

My first column is a self flagellation on being too-early-to-market. Titled “Timing Is Everything” it is a brief cronical of two fairly visionary ideas, ultimately neither of which I executed on successfully.

The responsibility of course remains entirely mine for these failures. While mitigating circumstances certainly apply (for example, building forward thinking free-to-use direct-to-consumer services in Europe is almost impossible) the one who steers the ship is still responsible for it sinking in a storm.

You can read more here or if you’ve had enough of me already I highly recommend the other contributors, all of whom have made excellent launch contributions.

Unreal: 50% Of Start-ups I Researched Didn’t Have A Proper Contact Us Page

Based on 40 applications to the start-up competition I recently ran at the MLOVE confestival, 20 didn’t have a clear contact us page with email, 6 had no contact information at all and 4 had no web presence or even holding page.

I was astonished.

Admittedly, it is a small sample size and focused on very early-stage start-ups; but it I still find the fact baffling.

When you’re running a start-up, there is lot’s to do – I know I’ve done a few – but one key ingredient is to make yourself accessible:

  • to investors (who you may need later even if not today)
  • to future team members (who you want to begin enticing from day one)
  • to press
  • to potential partners
  • and to customers or users!

Having no website at all looks even worse (and yes even if you are in “stealth mode”). Have a holding page simply giving a project name and team; or be sensible and use something like LaunchRock or a simple google form to start collecting emails of your future users.

If you don’t want anyone to know you’re doing a new start-up, then perhaps don’t enter a competition!

Not like this

Stealth mode for a start-up is all very well, but don't be entirely aloof from contact, nor ignore business basics such as being easily contactable. By the way, I didn't make this poster, otherwise it would say "you're".

All these factors such as ease of contacting them, the website, the apps, contributed to our choice of the five finalists (and would no doubt contribute to the choice of a journalist to write about you or an investor to take an interest or reach out).

It simply doesn’t bode well for your attention to detail, your ability to design good product or your understanding of user psychology.

(Incidentally, the reason I needed to contact them all was I myself had made an error and neglected to add an email field to the application form…but at least this was a temporary competition!)

Even Some Launched Start-ups Don’t Have One

There was even a service (I’ll leave unnamed) I tried this week which was live and trying to garner users but which had no team page, no contact us page and not even a terms and conditions of use. This is just sloppy, lazy or naive. I’m not sure which of those is worse.

In summary then…

If you have a start-up and have no holding page or contact us form or page with email address that I can find in under 8 seconds or preferably faster, then ADD ONE RIGHT NOW TODAY!

This is certainly one of those blog posts I never, ever expected to be writing.

Incidentally, the winners of the MLOVE11 Start-up competition were Booklet Mobile; congratulations!

More Reading:

Build Something Boring Like Groupon – Then Execute Your Real Vision

When Groupon came out, I simply could not understand what the hype was about.

A random, untargeted mass group discount coupon spammed to me every day or week, with some discount which may or may not represent good value ?

Coupons and discounts had been around for years, but as is so often the case in business when the timing for a real explosion in take up is ripe the incumbent at that moment has the best chance of winning the day.

Whatever factors were relevant and converging at the time Groupon started it’s ascent (the discussion of which belongs elsewhere) they had reached critical mass and the Groupon team began hitting a home run.

As an entrepreneur, I should love Groupon. The thing is, it’s not a sexy business. Sending out coupons by email? If you’d asked me will it work back in 2008 I might have wrongly answered that the market was covered already (there’s a lesson there which people I’ve worked with recently have yet to learn!).

Financially though it is quite a sexy business, assuming you ignore the complaints of 50%+ of its business customers (more complaints here) and ignore the naysayers that claim Groupon has a vacuous model and point out that it is losing a lot of money. Yet more negative analysis from Techcrunch about Groupon here. That is a lot to ignore…

Launched in November 2008, they executed a classic city by city roll out starting in Chicago, followed by New York City, Boston and Toronto off the back of $1 million seed funding (only in the US would £700,000 be described as “seed” funding).

As a customer, the reason I’ve not liked Groupon is that it’s dumb.

I don’t want to feel like one of 10,000 mass consumers and most of the deals I am sent don’t appeal to me. They waste my time. Groupon should know what I like, not send me crap I don’t want; but there are enough users out there who the service DOES appeal to: 40 million plus users by most counts.

In under a year of Groupons launch copycat sites appeared like wildfire; within a mere 20 months we had another mulit-zillion dollar company being courted by the Googles and sighted as another start-up mega success. May 2010 Groupon bought European service MyCityDeal, helping secure their position as dominant player in the space.

Well their future isn’t going to be about emailing mass discount coupons ..and our relationship with Groupon as a customer is going to evolve and change…assuming the company doesn’t crash and burn post any future IPO.

But what IS their space?

My hunch about Groupons roadmap became clear when they purchased Pelago in April. Pelago had pivoted a couple of times with their consumer product Whrrl and although there were differences between Pelago and Rummble, I suspect (despite sitting on x20 as much funding as Rummble) they had struggled with some of the same early-to-market problems that I had at Rummble (a company the author founded in 2007. Trying to run a mobile-location based discovery tool for sharing your favourite experiences, with only a few smartphone handsets in circulation and pre-iPhone, was always going to be hard).

So what does the Pelago purchase mean? To my mind Groupons biggest current competitor is Foursquare and the leviathan of Facebook with its local deals.

Google seems to be struggling still to make an impact in the local social space, despite its’ dominance on the web with Adwords.

Groupon will grow into something which looks far more social and Foursquare-like than most people previously expected. The Pelago team bring a wealth of experience in how not to do this and will accelerate Groupon to something beyond a daily deals discount site. With a revenue stream and a base of 40 million users and growing fast, they have the reach and capital to evolve into a major platform. Foursquare is nudging 10 million.

The old school check-in review companies don’t want to be left in the shade either, with acquisitions like Qype buying Cooledeals, everyone is converging on the local deal space.

So Here’s The Beef

There’s a lesson here, which is that IF you can find the backers/investors with the long term vision and understanding (and that is hard to do) you can build a revenue generating company off the back of something boring in order to create something interesting – and wait for the market to mature in the process.

The big question is, was that the game plan all along? Did Andrew Mason have this vision from day one, or did it, like most companies, become clear on the journey. Mr Mason, feel free to complete the comments box below…

STOP PRESS: Foursquare announce a coupon sharing partnership; I guess the adage Keep Your Friends Close, Your Enemies Closer has not been lost on Dens. I wouldn’t be surprised if Groupon buys Foursquare, if he [Dens] ever agrees to sell.

..and more negative press on coupons and groupons: http://techcrunch.com/2011/06/11/google-offers-daily-deals-business-die/