Business Lessons - Afrikan Heroes

Investors to Avoid For Your First Fundraise

February 8, 2020

Saptarshi Nath is formerly a co-founder @OvercartInc

First-time founders often have to raise small Angel rounds before they can get enough traction to raise serious money. Typically, such Angel investors will come from varying backgrounds — an ex-boss, a well-to-do friend, an experienced F500 executive, an ex-entrepreneur, or a family-business owner.

You will hear a lot of No’s — maybe dozens, or even hundreds — before you close your first Angel or seed round. So when a first Yes comes by, it is incredibly difficult to take a step back and assess the value of the Yes.

[Fund raising]’s filled with painful no’s: No’s that take your breath away in how quickly and rudely they’re delivered; no’s that are tied up in pretty little ribbons and disguised as “let’s keep in touch”; no’s that come in the form of deafening silence after a series of promising meetings.

Preethi Kasireddy, on What I wish I knew about fundraising as a first-time found

I’ve compiled here a list of by-no-means-exhaustive warning signs that can help you identify Angels that aren’t right for you. Most of the warning signs below assume that you’ve done your due diligence on the investor to ensure that (s)he is relevant to your business in the first place. Most Angel investors don’t like being just a cheque-book for your business — they also want to add value to your business along the way. Possibly through feedback on your product, introduction to clients, or connections to potential hires. If you’ve reached out to an Angel investor who knows she’s not the right fit, you may see all of the warning signs below.

Asks about long-term business metrics for your six-month old business.

Typically Angel investors that have not started businesses themselves are well-versed in how a large MNC operates but not as much about what a fledgling business with a few thousand dollars in the bank looks like. They may naively ask for metrics (such as customer life-time value) that don’t matter to a fledgling startup. They could mean well, but accepting that money could lead to a host of issues in the near future. Imagine struggling to meet your MNC investor’s expectations when trying to sign on the next paying customer, or deploy the next version of your app. As an entrepreneur, it is not your job to educate your Angel investor.

Is a bit too interested in your valuation and exit plans.

Counting the money too soon can ruin your business before you start.

Someone told this Angel how much money she made on an early-stage investment and our man can’t wait to make 10x on his money. Valuation, any valuation, for an early-stage business is meaningless. By default, unless it is illegal in your jurisdiction for some reason, use a convertible note (like Y-Combinator’s SAFE document) to raise your early investments.

Everyone wants an exit — heck, likely even you do! — but no one wants an investor that is in it only for the exit. Such Angels will become a pain in all the rear ends when your runway is short, and will likely try to force you to an acquihire or lowball deal to help save the $20,000 he put into your business. Be polite when showing them the door.

Is stuck on terms of the deal. Or suggests weird Board structures.

Non-standard terms in any term sheet at any round is a warning sign. Typically, Angel term sheets are overridden when you raise a Seed round from professional VCs. Most Angels who have done multiple deals understand this and won’t make a big deal of terms. Be wary of those that do.

This is rare, but once in a while you will come across an Angel that wants to see a Board with 5 Directors and an Independent Director. In those rare cases, it is ok to walk out — polite discourse be damned. While having a governance framework is beneficial, even critical at the appropriate time, it is nothing but an expensive distraction at this point.

Doesn’t respect your views or your time.

Keep reminding yourself — no one knows your business like you do. Unless you’re building the 175,345th copy of Groupon, this is probably true. If an Angel investor who’s just heard your 10-min pitch starts telling you how to run your business, you know you’re signing up for a rough ride if you take his money.

Sometimes, the investor’s perception of you is easier to observe: did he arrive late at the meeting without a viable excuse or apology? Did she get constantly distracted by her phone?

Unwilling to talk about his/her past investments.

Most investors love to talk about their past investments. Some like to talk only about their successes. Others like to talk about their failures. Still others talk about the ones they missed. No good Angel investor is unwilling to talk about past investments at all. Of course, there are exceptions and idiosyncratic characters — but most Angels haven’t earned their way into being idiosyncratic yet.

Offers to introduce you to other Angels without first committing himself/herself.

Of course, some Angel do invest with a friend or colleague — and that’s perfectly alright. Saying “I really like what you guys are doing but I typically invest with my friend, Shark. Do you mind if I connect you to him?” is legit. But if the investor looks like he’s trying to introduce you to as many people as possible to give himself more comfort around the investment, let him/her know as politely as you can that you don’t have too many spots left.

Finding the right Angel investor for your business is often as critical as finding the right cofounder. Your business is the most vulnerable in the first year and the wrong investor can have a lasting impact on your long-term viability. To maximise the impact of the time you put into fundraising, start early, build ongoing relationships, and don’t be afraid to ask for introductions. And, like all good salesmen, always be closing.

Saptarshi Nath is formerly a co-founder @OvercartInc

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

Three Major Reasons Why CanGo, The East African Delivery Startup Folded Up So Soon

February 6, 2020

CanGo/SafeMotos, the startup that delivers orders to its clients no longer exists, at least as long as taking up any further delivery orders is concerned. And it is not going to wear the shoes left behind by Jumia in Rwanda as it had previously announced anytime soon. In a quick succession of events, Barrett Nash, co-CanGo founder had heaved the final sigh that let go of the four year-old startup.

co-founder Barrett Nsha — co-founders Barrett Nash

“We’ve decided to make the challenging decision to stop while there is still enough money in the bank to pay our employees what we owe them,” said co-founders Barrett Nash and Peter Kariuki in an email sent to investors.

While Peter and Barrett had tilled so hard at CanGo, announcing this ground-shaking bad exit for one of Rwanda’s most valuable startups reveals so much about the difficulties of running a logistics or transport startup in parts of Africa.

For one thing, it is better to first understand how big CanGo was when it was still around and why its failure is so remarkable that it cannot just be ignored.

Volume of Transactions

First off, Barret let us into what the startup was worth on daily basis.

‘‘December [2019] was an incredible month for us,’’ he wrote in a statement he sent to CanGo’s numerous clients before winding down. ‘‘We reached trip volume of more than 4,000 trips per day, grew by 260% month on month and were achieving the sub metrics on user retention, resilience to increased pricing, low customer acquisition costs and high brand awareness that reaffirmed our deep belief that Kinshasa and Central Africa are ideal markets for a super app.’’’

If any of these disclosures are anything to go by, it could be summarised that CangGo was relatively healthy, by all business standards.

To further buttress the point that CanGo did not fail for bad business strategies, the founders noted that…

‘‘……[CanGo’s] traction results since launch…were on par or better to highly successful comparison companies throughout the developing world and [CanGo] did it at a fraction of the unit economic price.

Funding

It is better to understand that CanGo had the funding by its side, at least until its closure. In terms of funding, the startup raised $1.1 mn in 2019. CanGo therefore qualified in its own rights to constitute a relatively well funded startup. However, whether the funding is enough to disrupt the East and Central African markets, or even its recently reported expansion to West Africa through the Nigerian market is another point to be considered separately.

Having established CanGo’s prowess in terms of funding and volumes of transactions successes, it is necessary therefore to proceed to critically analyse the factors that brought about its downfall and possible lessons startups can learn from them.

Funding Deficit

Quite noteworthy is the comment of the founders that CanGo’s failure to move on to its next stage was because it was unable to secure funds to leverage its success into increased runway for the company.
The founders stated that one of the startup’s goals was to secure at least close to $1mn by the end of 2019 to make way for a further $3–5mn Series A in the 2nd or 3rd quarter of 2020. Its inability to raise the estimated amount within the time frame therefore meant a big failure for the startup.

For a startup that had been in operation since 2015, raising barely over $1 million over the course of four years is definitely a major hindrance.

Consider its competitors elsewhere in Africa (although not in the same geographical region) such as Gokada which was founded in 2018 only to raise $5.3 million a year after in 2019. Similar to Gokada is MAX.ng which was founded in 2015 and has raised about $9 million dollar since then. Gozem, the Singaporean mobility startup operating in West, East and Central Africa has raised more than $3-million in funding since its launching in 2018.

A research by DigestAfrica in 2019 shows that it takes every highly valued startup in Africa approximately between 420–455 days to reach above a million dollar in funding threshold.

Therefore, the fact that CanGo only raised about $1.1 million in total funding since its inception four years ago shows that to a large extent, it was fast depleting its available funds. Hence, it was obvious from Barret’s tone in his final letter to investors that this was exactly what was at stake, and that CanGo was not ready for any further pivot.

‘‘Tectonics in venture capital investing change quickly,’’ Barret said. ‘‘While investor enthusiasm and interest has been high, it has not translated to checks being written.’’

A Big Question On The Viability of Logistics and Mobility Startups In East and Central Africa

CanGo’s news did not come as a surprise. It merely repeated what Africa’s first unicorn Jumia did. Jumia recently shut all its logistics and ecommerce operations in the East African countries of Rwanda, Tanzania, and the Central African countries of Cameroon and Congo. This means that Jumia now operates in just 12 of Africa’s 54 countries, with Egypt and Nigeria counting as its largest markets. Jumia’s action, particularly in the East African country of Rwanda where it shut down its food delivery business goes a long way to show that logistics, and by extension, mobility are still loss-making machines in that region.

According to Analytiqa report “Africa Logistics: Keep Cool for Growth; Charting growth trends in logistics markets to 2016”, logistics spending in Africa by manufacturers and retailers was estimated to increase by almost $28.8 billion, or 5.19 percent, in a four-year span, from $128.5 billion in 2012 to $157.3 billion in 2016. The PWC report also observed that African retail markets would grow significantly over the next decade.

The implication of this is that logistics holds a large opportunity for investors, however there are a lot of issues still facing the industry in Africa.

A 2016 Agility Emerging Market Logistics Index report shows that Sub-Saharan Africa remains a challenging frontier for many companies. Only 21.2 percent of more than 1,100 logistics industry executives surveyed said their companies have operations in the region. Another 12.7 percent said they are in the planning stages to enter African markets, while more than 43 percent said they have no plans to set up in Africa.

In truth, Africa probably isn’t the best destination for companies just looking for quick revenue boosts but it holds huge potential for businesses with long-term strategies who are willing to work with local governments. The reason is not far fetched — the continent needs better transport infrastructure, more connectivity across borders, and an improved business environment to reach its vast but largely untapped potential.

For example, according to the OECD report, only 27.6% of Africa’s 2 million kilometres of roads are paved (19% in sub-Saharan Africa, versus 27% in Latin America and 43% in South Asia). It will therefore require considerable investment to fix the thousands of kilometers of roads that need attention.

Again, Rwanda where CanGo previously operated has about 3,724,678 internet users as of December 2018, representing about 29.1% of the population, with about 39 percent of the population living below poverty line and 16 percent living in extreme poverty. The figure is even worse in Congo Kinshasa where poverty rate is 63.9 % (meaning that only about 29 million people out of a population of over 80 million are living above poverty line). It also means that out of these 29 million people, only about 5 million people, representing a meager 5.9% of the entire population have access to the internet.

Barret noted this in his farewell message to CanGo’s clients.

‘‘Kinshasa is among the most hostile environments on earth,’’ he said. ‘‘it needs proper capital to make a company successful here. This is not a shoestring environment. We’ve decided to make the challenging decision to stop while there is still enough money in the bank to pay our employees what we owe them.’’

Perhaps, CanGo’s choice of African markets to invest in was its greatest undoing. This also explains the fact that at a time when other foreign investors were busy scrambling for the Nigerian, Kenyan, Egyptian or South African markets (the same industry it was playing in) CanGo received little or no attention from them.

Remarkably, the 2016 Agility Emerging Markets Logistics Index singles out South Africa, Nigeria, Kenya and Ghana as being the most promising logistics markets in sub-Saharan Africa.

The fact that even with introducing a USSD-based system for customers in Kinshasa, instead of relying solely on internet-enabled devices shows that in a country as complex as Congo Kinshasa, one factor would not always give way for others. Therefore, solving internet penetration issue is one, but poverty rate remains largely one such strong factor that can shake up the entirety of a business model.

Pivot Would Always Be The Most Dangerous Point In A Startup’s History, Especially When It Was Forced

Take it or leave it, CanGo’s accidental pivot to win the trust of investors probably went beyond the limit of the startup’s elasticity.

Before altering the business line, the startup had been into transport operation in Rwanda since 2014, operating a commercial motorcycle business called SafeMotos.

The pivot or change in the company’s business model in September of 2019 meant that it became a taxi-moto hailing company stretching operations to Kinshasa instead of a bike-hailing platform. The result of this move was completing 500,000 trips in Kigali, even when industry giants such as Uber was already on ground.

“We are expanding into Kinshasa later this year with a partner that has more than 50 years experience in DRC,” Barret Nash said in an interview in 2018.

This expansion vastly depended on investors who poured in hundreds of thousands of dollars in 2019.

CanGo had previously tested e-Bikes and targeted “Amazon-like” delivery and e-Payment services; however, the ground did not meet the horizon as it got no further funds from investors.

In simple and clearer terms, the startup changed its business strategy to meet the ends — leaving the rags behind and “bootstrap with a brand new pivot”, but the results were not favorable.

The point is not always that CanGo pivoted to a new business model but that it did so out of desperation to meet the interests of investors. This practice by founders therefore calls for caution when looking for or accepting investors since they can make or mar the startup’s existence altogether.

The Bottom Line

The bottom line of all of these is that CanGo, in desperation for funds, embarked upon an expansion, under the spell of heavy promises of breaking even, in a new, largely untested and extremely unfavorable environment that already had strong competitors such as Uber on ground.

Would CanGo have still existed but for its expansion out of Rwanda; and is Congo Kinshasa a bad market for CanGo’s business model?

These questions would remain open-ended for a longer time to come; but in the meantime, CanGo is no more.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

Gokada’s CEO Says Government’s Decision is Dream Killer

February 4, 2020

…..Vows to keep the Gokada dream alive

The Chief Executive Officer of Lagos-based motorcycle-hailing startup, Gokada Fahim Saleh has expressed shock and disappointment with the decision of the Lagos State government to ban all forms of motorcycle taxis including bike hailing-taxi start-ups such as Gokada. Saleh said that he is hurt by that decision because Gokada was a great outfit made up of an awesome team.

Speaking via a Twitter video, the CEO noted that Gokada met global best practices in safety and training and that they had one of the best team in the continent. He lamented the increasingly shrinking space innovative entrepreneurs are experiencing in Nigeria warning that “it is hard for entrepreneurs who want to contribute to the growth of this country to survive under such environment. “Gokada was everything to me, it was a mission not simply a business, that was why I put my time, resources, energy and everything I have got into Gokada to make a wonderful dream come true, and we were able to build a very special family” he added.

He added that Gokada was founded on the passion to give anyone who is willing and ready to work within a disciplined system the opportunity to work and earn a living. According to him, Gokada was a stage in the lives of its drivers many of whom want to pursue their dreams in life but needed a stepping stone to earn money and make a living. Gokada he said was a very safe with the safest drivers one can get as its accident rate was quite infinitesimal at 0.1 percent which was about 250 out of 350,000 rides that launched out.

“Our priority was not how much money we are earning but how safe we make the system for both our drivers and our customers” adding that Gokada imported helmets that met the highest safety standards and certified by the United States Department of Transportation. The decision by the State government he said has punctuated a blossoming dream of people who have passion to make a change in the society.

In an emotion laden voice Saleh said that “ If you want an amazing thing to happen, support those who want to make changes, and take risks to make it happen, those with passion for change in their society and go the extra mile to make positive impacts” he added.

While he promised never to give up, sources reaching Africa Heroes say that the company sacked all employees today. Launched in January 2018, Gokada raised a total of $5.6 million from two rounds and claims to have completed more than a million rides. However, amidst the fundraising and fanfare, there has always been a cloud of uncertainty within the start-up.

It could be recalled that a year and a few months after its launch Deji Oduntan who was CEO and co-founder stepped down for Fahim Saleh to take over. And again in August 2019, three months after raising $5.3 million series A and announcing Ayodeji Adewunmi as co-CEO, Saleh revealed plans to suspend all Gokada operations for two weeks. This according to him was part of an ongoing process to achieve a near perfect system as he complained many of the drivers were not adequately trained to operate the motorcycle-hailing service. This led to series of retraining exercises with brand new bikes and new Bluetooth helmets.

Aside from Gokada, other bike-hailing services such as Max.ng and Opay’s ORide are counting their loses with many Lagosians lashing out at the State government for not providing alternative transportation before embarking on such an action. Moreso, many are worried at the level of unemployment this decision will cause in a society that already suffers from huge unemployment figures.

Kelechi Deca

Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry

It Is Easier To Build Raise Funds And Build Out A Company Today Than It Was Several Years Ago— Mark Zuckerberg

February 3, 2020

Facebook founder Mark Zuckerberg has said when he first moved to Silicon Valley, at the age of 19-years, he “didn’t know anything about building a company,” and that “at the time, a lot of tools for building a company weren’t as built out as they are now.”

Zuckerberg said in an interview at the Silicon Slopes Tech Summit in Utah, United States that Facebook wouldn’t be based in Silicon Valley if it were launching out today.

According to Zuckerberg, “Back then it was a lot more complicated.”

He said it was difficult for Facebook to lease servers and data centers and to raise capital from investors.

“It really felt like it was going to be impossible,”he said.

However, things have drastically changed over the past few years. For someone starting a new startup, it is a lot easy to reach out to customers through social media, and expansion of server capacity is possible with Amazon Web Services cloud platform.

“I think the world is in a different place now,” Zuckerberg said. ‘‘I think the infrastructure exists for people to able to do stuff like this in more places.”

For Zuckerberg, there are several advantages to start a new company outside of Silicon Valley.

“Silicon Valley is like an all-tech town and there is not much of a diversity of how much people think about things as you’d like, in a lot of ways.”

For long, Silicon Valley has been considered as the hub of tech innovation. Apple, Google, Facebook, and Uber are known for attracting the best talent for high-tech jobs. But Silicon Valley is getting a lot of competition from cities like New York, which many say will take the crown from Silicon Valley as the tech innovation center of the world.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

Fundraising? Don’t Say These Things to Investors

February 2, 2020

SarahADowney is the Operating Partner at Accomplice. Formerly of Ovuline & Abine. She is also an angel investor

Avoid these ten instant disqualifiers

Fundraising is hard, especially for first-time founders. You have to learn a new language and skill set in addition to your day job (the not-so-minor task of getting a startup off the ground). Suddenly, you have to be conversant in valuations, SAFEs, fund theses, dilution, cap table math, term sheets, and allocations.

And if that wasn’t tough enough, nobody tells you that you’re tiptoeing around metaphorical landmines in the form of statements that investors hate to hear during fundraising.

These are “instant disqualifiers” — things that almost always make us pass in our heads the moment we hear them. We may sit through the rest of your pitch, but we’re mentally checked out. Instant disqualifiers are more than red flags; red flags point you in the direction of “no” but don’t guarantee it. For example, here’s a list of founder-related red flags for angel investors.

All investors have their preferences, of course, but I’ve noticed some instant disqualifiers that seem pretty universal. The idea to make a list arose from a conversation I had with two of my fellow investors on The Pitch Show, Charles Hudson and Michael Hyatt. We’d just come out of a pitch where a founder had said something that made us all disengage in our heads immediately (he said his big vision for the company was to get acquired in a couple years.

We were talking about it in the green room after, and some of the producers for the show were surprised that a statement that seemed as innocent as “we want to get acquired” would cause all of us to recoil. We each threw out a few other phrases we never want to hear and overlapped on almost all of them.

So founders, listen up: don’t say or do these things if you don’t want to throw a colossal wrench in your chance of getting a term sheet. Of course, this list is filtered through my personal biases around things I really don’t like to hear; I’m not saying it’s 100% applicable to other investors. I’m all for speaking your mind and not censoring yourself, and authenticity is critical when meeting investors, but you should know the risk you face with these specific statements that investors are hard-wired to hate. My intent in sharing this list is to protect you from blowing up an otherwise fruitful investor interaction.

Obviously, note that avoiding these things doesn’t guarantee you an investment. Investors often see 100+ companies before writing one check. We’re looking for a magical fit and feeling (and as a founder, you should be as discerning too).

“We don’t have any competition.”

Not true. You do, so either 1), you don’t know about your competitors, which shows you’re unprepared on your market research; or 2), you’re overly confident in dismissing those companies because you think yours is better, which is the market’s decision to make, not yours.

It is extremely rare — outside of true frontier companies that are thinking 5–10 years ahead and creating new categories or spinning out lab-developed science — that a company doesn’t have any competition.

Absurdly high valuation

A way-too-high valuation shows an investor any number of bad things about you and your company: 1, you don’t understand how the market is pricing companies like yours today; 2, you’re surrounded by crappy advisors giving you crappy advice; 3, you know you’re pricing too high but you think you can pull one over on the investors.

Absurdly low valuation

Not quite as bad as the absurdly high valuation, but almost. It shows an investor that you either don’t know what you’re worth, or that you aren’t worth much. Sure, you’d be giving investors a good deal, but they don’t want to take advantage of someone who’s naive.

For a stunning example of both the absurdly high and low valuation playing out in real-time, listen to this episode of The Pitch Show where the founders came out asking for a $30M valuation, then dropped to $3M within five minutes.

“Our end goal is to get acquired.”

Or put another way, “We are going to flip this in a few years.”

The most likely outcome for any startup is failure. The most likely “success,” depending on how you define it, is an acquisition. But even though investors know that many startups are likely to end in an acquisition, we still don’t want founders to aim for that from the beginning. It signals that the founder isn’t in it for the long term.

Investors tend to believe that founders need to aim incredibly high — like building a big, long-lasting pillar company, or getting to an IPO — in order to land decently — with an acquisition. Aiming for an acquisition from the outset feels like you’re limiting your company’s future, and of course investing is all about the outsized opportunities. It’s like that phrase, “Shoot for the moon: even if you miss, you’ll land among the stars.” Which is technically crap, because the stars are much further out in space than the moon is. But I digress.

However, if an investor asks you, “what do you think the most likely acquisition outcomes are,” you need to be prepared with an answer. You should know which established companies today may want to buy your startup in the future, assuming that you accomplish what you’ve planned. But this is a reactive answer to a VC’s question and not a proactive strategy for the ultimate outcome of the company.

Rambling, unfocused pitch email

Look, we all get nervous speaking in front of others. Stutters, dry mouths, and mental blanks happen. But when you’re writing, you’ve got the time and safety to choose your words carefully. Your message should be clear. Thus if your first interaction with an investor is via a rambling, incoherent email, we’re done. It tells us that you lack several skills that we view as critical to being a good founder: communication, emotional intelligence, persuasiveness, judgment, and self-regulation.

I’ve seen investments happen despite an ugly pitch deck (rarely), but I’ve never seen them happen despite a poorly written first email.

Tips for a good first pitch email:

Get a warm intro from someone the investor knows. If you can’t do that, reference the investor’s interests, portfolio, or anything else that shows you care.
Keep it to one paragraph, maybe two if they’re short. Brevity wins over investors, both in writing and in person. As my Accomplice partner TJ Mahony put it, “if they say at any point in the conversation, ‘This is going to be a little long in the tooth, but bear with me,’” it’s almost always headed somewhere bad.
Grammar and spelling matter. With Grammarly, you’ve got no excuse.
Send either email copy by itself or add a (very brief) slide deck. Don’t ever send a business plan or a one-pager. Nobody outside of business school or 1990 uses or reads those.
Your deck doesn’t need to be beautiful, but it helps a lot. If it’s ugly, it tells us that you don’t value good design. Avoid hokey stock photos with smiling business people.

Creating false urgency around a fundraise

Founders are often coached to run a process with their fundraise and pit investors against each other to create urgency. Although this tactic can work, creating false urgency where none exists will backfire. Put another way, it’s smart to engage with all your investors at the same time so that, ideally, you can get term sheets around the same time and create competition. But saying you have a term sheet in hand when you don’t is not okay.

One example I experienced: two founders who had been relaxed and easygoing throughout our interactions suddenly told me they had multiple term sheets out of nowhere and I needed to act fast or miss out on the deal forever. It wasn’t an obviously strong company and the timing and urgency felt off. I called them on it, saying I’d really liked our meetings up until this point, but I felt like they were getting advice to create pressure where it didn’t truly exist and I was passing. Two days later they admitted that one of their existing investors told them to fabricate having term sheets.

This tactic doesn’t draw good investors in; it makes us remove ourselves.

Any substantive lie

Puffery happens during fundraising, especially during the first pitch where you’re trying to hook investors to bite. But there’s a difference between puffing up your story and lying. Lying means we’re out. The founder/investor relationship often spans decades and is based on trust. Violating that trust is a sure way to lose investors’ interest.

Technology company with no technical founders

It sounds crazy, but it happens way more than you might expect. If you’re building a technical business, you’d better have at least one technical founder, or at least a high-level exec already hired who’s on top of engineering. Three business people with zero technical skills aren’t going to build the next Google. And no, outsourcing your product development to an agency does not count.

The founders aren’t full time

Not everyone has the financial stability to be able to quit their jobs and bootstrap a company. But by the time you’re pitching VCs for their commitment, you’d better be committed, too. And nothing says “I’m not committed” like having one foot in a startup and the other out the door at your old employer, not to mention the potential IP risks that come from developing a company while working somewhere else.

When founders plan to hire a salesperson before they have customers

This one came from Mike Viscuso, who’s not only an investor at Accomplice but the CTO and co-founder of Carbon Black, which went public and sold to VMWare for $2.1B in 2019. Let’s just say that Mike knows a thing or two about building and selling software and creating massive companies, and he tunes out when he hears this. I see this most often with founders who were salespeople in the past; it’s like they’re overly eager to build out a company function that they know and understand without regard for what makes sense (i.e., staffing a team to sell something that doesn’t exist).

@SarahADowney is the Operating Partner at Accomplice. Formerly of Ovuline & Abine. She is also an angel investor.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

The Key To Building A Successful Startup: Don’t Go It Alone

January 25, 2020

Stan Garber is the President at Scout RFP

Entrepreneurship is not for everyone. While the reward of building a business can be incredible, the path to success is fraught with challenges and pitfalls. Building a profitable organization from the ground up is something that takes an intrinsic drive and motivation to build teams, identify and solve problems, and, ultimately, create positive change.

An entrepreneur will invest time, emotion and whatever they can get their hands on to bring an idea to life. For the most successful founders, this pursuit is about much more than glory and cannot be done alone. It takes the help and support of mentors, deep market and buyer persona research, and lots of trial and error to be successful.

I have been tremendously lucky to have launched, nurtured and sold two technology companies with an amazing set of cofounders. Our most recent startup raised $60.3 million and secured venture backing from several leading investors.

While I have had a share of well-turned wins, I’ve also faced challenges that have helped me learn a lot along the way. With that in mind, here is the advice I would offer to my fellow entrepreneurs who are starting companies or bouncing back from attempts that did not quite take off.

Build a strong, supportive network, and do it early.

Throughout my journey as an entrepreneur, one of my biggest priorities was building a community of trustworthy colleagues and mentors who I could turn to for advice and assistance. Once that network is established, it is important to meet regularly with each person to seek advice and report on your company’s milestones and growth. Each of these meetings should be treated as an opportunity to learn something, so be sure to come prepared with an agenda to maximize the time you have. Most importantly, remember to always be yourself and be authentic.

In addition to a strong professional network, as you build your company, it’s critical to surround yourself with cofounders and colleagues who complement your strengths rather than mirror your skill sets. Building a business takes a diverse team composed of a variety of different backgrounds and experiences. This helps to ensure someone is in charge of — and held accountable for — every single aspect of the business. For example, if you’re excellent at building a product, find a partner who can run operations. Most importantly, as you assemble a formidable team, make sure that self-motivation and passion are traits you all share.

Validate before you build.

The number of times I have met a founder who has a compelling idea but does not have a solidified use case or clearly identified target market is overwhelming. Before launching Scout RFP, before writing a single line of code, we went out and listened to over 200 industry professionals about their top pain points. As an entrepreneur, you need to validate the market before you seek the funding to build a new solution for it. This validation enables you to prove that a viable market exists for your solution and uncovers the niche it can fill.

The surveyed professionals will likely have many thoughts, both positive and negative, about your product. While your company is growing, use this collaborative time as your chance to gather feedback and make necessary changes. Focus on deploying a minimum viable solution, and test and iterate on it based on feedback from professionals, early customers and the market you are selling to.

Identify your competitive differentiator.

Equally important to determining the audience is identifying your competitive differentiator. What sets your product apart from similar offerings, and why should someone purchase something new from you over something they might already have? These are critical questions to ask yourself as an entrepreneur and ones investors will repeatedly ask you to clearly define.

These are also important questions to ask your mentors, investors and others who are using your product. In the case of Scout RFP, early interviews with prospects uncovered that while most companies had an expensive software solution in place, it was often going unused. There were a variety of reasons for this, including the fact that available solutions were overly complicated and lacking when it came to user experience.

To address these industrywide concerns, we invited feedback from customers early on in the process to learn more about the user experience from actual users. From there, we made specific changes to the features and functionality based on their needs.

Stay motivated.

With all of the challenges of launching a startup, one of the questions I am asked most often is how to stay motivated in the face of stress and challenges. My advice: Love what you are doing, and do not worry about public success. Focus on learning, building and the joy of the small successes along the way.

A small success may look like your first paying customer, the first acknowledgement from the outside world that you exist, or the first time you make payroll to an actual staff with families living off of employment by your company. These are all remarkable achievements, even if they don’t represent the public’s definition of success.

Set high goals, and aim to exceed them. Enjoy every bit of the process. Your first company is always your best learning experience, as it gives you the foundation and knowledge to build your next one.

The path to building a startup is never a straight line, and for every achievement, there is a setback or two. The most important things to remember are to keep your eyes on the horizon and that failure is a normal course of action in business.

Many of the companies you hear about today were not always successful and experienced moments where they almost failed. If your first startup comes up short, try again. Remember to always believe in your passion, work hard, keep an eye to the future and surround yourself with hard-working colleagues.

Stan Garber is the President at Scout RFP and sets the marketing and growth strategy.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

Small businesses, big opportunities: Where to hunt for impact investments in Africa this year

January 19, 2020

Out of the gate, 2020 is being hailed as a comeback year for emerging-markets investing. In sub-Saharan Africa, the World Bank forecasts economic growth to pick up to 2.9% (from an estimated 2.5% in 2019.

But global investors watching indicators like oil and commodity exports may be missing the real story, according to local and regional impact investors.

“There are so many more investment opportunities in Africa than people will see from afar. If you only fly in and out, you won’t find them,” Goodwell Investments’ Wim van der Beek said in an interview with Impact Alpha “What we find most exciting are opportunities investors often misunderstand.”

For example? Financial inclusion, logistics and agriculture. Goodwell, with offices in Amsterdam, Nairobi and Cape Town, is raising a series of funds for its pan-African uMunthu impact initiative. Goodwell has recently invested in Nigeria’s MAX.NG, a motorcycle taxi hailing and finance startup, and South Africa’s Nomanini, which designed a digital payments platform for informal business owners.

Small and growing

Van der Beek is bullish on opportunities for financial inclusion on a continent where as many as 350 million adults are still unbanked. The explosion of mobile money across the continent has created infrastructure to support a raft of new services. In agriculture, unlocking the productive capacities of nearly millions of smallholder farmers, he says, could fuel a “bottom-up agricultural revolution.” Efficient logistics has a knock-on effect on every other sector, from healthcare delivery to education.

The different approaches in different sectors, “all add up to the same thing, which is improving small business infrastructure,” the key to inclusive economic growth, van der Beek explains.

Other local and regional investors agree small and growing businesses represent the biggest impact opportunities on the continent.

“This segment of the market is the bread and butter of the African economy,” Nigeria-based Aruwa Capital’s Adesuwa Okunbo Rhodes told ImpactAlpha. Investing in these businesses’ growth is impact investing, she argues. That’s not something outside investors readily see. The gender-focused impact investor is targeting West African individuals and family offices to raise its first fund in order to show what’s possible

“Fundraising from them was intentional. They understand the ecosystem and know the companies in our pipeline,” Rhodes says. “We can take that portfolio and track record to institutional investors.”

Big tickets

A handful of high profile, big-ticket deals last year put Africa back on the radar of global investors, and stirred concerns about an Africa “bubble.” Medical drone delivery company Zipline scored a whopping $190 million from TPG Growth’s Rise Fund, Temasek, Goldman Sachs and others. Andela, an African tech training and job placement venture, took in $100 million. Off-grid solar companies in Africa raised hundreds of millions of dollars.

Digital financial services companies have set new records in both revenues and valuations. LeapFrog’s Andrew Kuper told ImpactAlpha that JUMO’s $70 million capital raise, led by Goldman Sachs in December 2018, was the first sign of maturing digital lending, followed by Tala’s $110 million Series D round last August. Digital remittance company WorldRemit raised $175 million in a Series D funding round. LeapFrog is an investor in both JUMO and WorldRemit.

LeapFrog raised $700 million for its third fund last year on the strength of its tally of exits and successes in under-capitalized segments of the African market. Kuper says access to basic services for tens of millions of people across the continent represents a major positive shift. “Impact investors have the rare opportunity to expand and accelerate that destiny,” says Kuper.

Kuper said LeapFrog “sees excellent deal flow continuing in consumer-led healthcare and financial services in 2020. He also expects to see more “buy-and-build deals,” such as Goodlife Pharmacy in Kenya.

Goodlife, a local chain of pharmacies, grew from six to 19 stores under its first private equity owner, then to 60 stores under its second owner. Many of its pharmacies have expanded into broader health hubs that provide nutrition advice and telemedicine consultations with doctors. “This is the future of healthcare, in resource-constrained environments, not just for Africa but for emerging and developed markets too,” Kuper said.

Proceed with caution

Fintech is one sector with both enormous impact potential and where impact investors should proceed with caution. In Kenya, for example, a proliferation of alternative credit-scoring services are providing first-time borrowers with near-instant access to mobile credit — at the same time usage of gambling apps is soaring among individuals who have secured quick and easy digital credit.

“Impact investors need to be careful” to scrutinize the fintechs’ underwriting models, van der Beek says. Goodwell and other investors last year collaborated via the Responsible Finance Forum on Guidelines for Responsible Investing in Digital Financial Services. “If services aren’t being offered in a responsible way, they can actually perpetuate financial exclusion.”

Pressure to deploy ever-larger volumes of capital, coupled with questionable due diligence practices and minimal to no local presence or expertise create the conditions for a correction or market shakeout.

“There’s a lot of herd behavior throwing money at a few initiatives,” cautions van der Beek. “It’s a scenario we’ve seen in emerging markets investing before. There will be some train smashes in the next few years.”

Jessica PotheringJessica is works with ImpactAlpha.com, with a focus on impact investing, social entrepreneurship and economic development.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com

How Startups Attract Corporate Investment

January 12, 2020

Joe Procopio is a multi-exit, multi-failure entrepreneur

If you’re thinking about raising money to fund your startup, you need to take a hard look at corporate investment.

More than 95% of all startup exits are by merger and acquisition (M&A) as opposed to initial public offering (IPO). All of those M&A exits came out of relationships that were built way in advance of the exit, including those that started with a single early investment in the startup.

Corporate investment is probably the most under-utilized form of startup capital. Gigantic, usually cash-heavy corporations are sometimes ill-equipped to foster speedy innovation at their size, making them perfect partners for startups aiming to unleash disruption in the same industry or vertical.

When you can’t build innovation, you buy it.

I’ve taken on corporate investment a number of times, most recently at my last startup and my current startup, so this advice is in real time. I’m also advising startups who are using corporate investment as a means to eventually get acquired.

Also, last week I got to sit in a session with John Somorjai, EVP of Salesforce Ventures, at a conference put on by one of my investors. Salesforce’s corporate investment portfolio includes 18 IPOs and 75 more companies acquired, with 13 of those acquired by Salesforce themselves. His advice confirmed a lot of my own experience.

So first, let’s look at the pros and cons.

Why Choose Corporate Investment

There are a number of good reasons to chase and take corporate investment, some obvious and others not so obvious. Here are what I see as the top reasons:

They’ll probably be your biggest initial customer. When you’re just starting out, having a known entity on board is a magnet for other customer prospects, large and small alike. Just make sure that one large customer doesn’t make up too much of your customer base for too long.

They take less equity and get less involved. Because of SEC rules and internal policies, corporations will only take a small percentage of the company, 15% or less. They also usually don’t ask for more than a board observer seat.

You can learn as you go. You’ll get a closer look at the operations of a company that’s 10 to 100 times your size — all the good, the bad, and the ugly.

They bring contacts and resources. Of course, you’ll go into the deal with a lot of restrictions on who your startup can work for and even who you can talk to, but you’ll get access to more than just the restricted list. They’ll also have tools, strategies, and even infrastructure you can lean on to grow.

They make a nice exit. Obviously, when a corporation invests in your startup, it’s a sign that acquisition is on the table. Maybe not today, maybe not ever, but it’s an option, and options are always good.

What To Watch Out For When You Take Corporate Investment

I don’t see a lot of negatives often, especially those that make a material impact on the startup. But if you know the potential traps ahead of time, you’ll be prepared if and when they happen.

They may be a bully. Make no mistake, with their size and your indebtedness, they can pretty much tell you what to do and when. You can say no, but there’s always going to be friction. You’re basically banking on their sense of fairness.

They’ll be looking for exclusivity. Why wouldn’t they? They won’t want your startup working or talking to their competitors, and they’ll even want to put restrictions on working with other companies outside of their industry or vertical. Negotiate this carefully.

They’ll want a lot of custom work. No matter what product or service you bring to the deal, they’ll want it to conform to their established ways of doing business. This means you’ll do a lot of work that can’t be reused.

They’ll keep you industry focused. My last startup, Automated Insights, started as a sports data company, and we turned down an investment from ESPN that would have locked us into sports. That wasn’t part of our plan.

They will move super slow. I don’t mean this in a bad way, but if the corporation could move quickly, they would have done what you’re doing by themselves. Be prepared and be patient. Speed is why you’re there, it’s not what you should expect.

Read also: How Startups Can Partner With Big Corporations In An Era Of Fierce Competition

What Your Startup Needs To Be Corporate Investable

According to Somorjai, 70% of the companies that Salesforce makes an investment in are at the early stage, so their investment is either a series A or B. This validates some unconventional wisdom, that your startup doesn’t need to have a ton of customers or a ton of revenue to be attractive to a corporate investor.

What your startup does need is compatibility with the investor. Somorjai notes that at the time of investment, the startup has either already integrated or is about to integrate with the Salesforce platform. Now, this isn’t as restrictive as it sounds, but it does hammer home the need to be in the same space as the investor. Somorjai stated that Salesforce will indeed pass on investments that don’t align with their company, even if the startup is a great investment.

Automated Insights took strategic investment from the Associated Press, which was a no-brainer for our automated content solution, and Samsung, which wasn’t as obvious a partner, but who had some of the same ideas for the future of automated content as we did.

Once you’re aligned with the corporation’s goals, keep in mind that there will be plenty of due diligence around the investment. Somorjai says, “Have your house in order because you only get one shot. If people find bad things, they won’t come back.”

This means the startup’s product needs to be rock-solid and robust, accounting for and perfectly managing all of those things that keep corporate management up at night. This includes data security, customer privacy, and any other legal or operational risks. Corporations aren’t afraid of competition or spending money, they’re afraid of headlines.

Due diligence also means that the idea behind the product or service needs to be unique. The idea and any processes should be wholly owned by the company and preferably patentable. No investment goes unnoticed, especially one from a public corporation, so there’s a good chance patent trolls will come out of the woodwork at some point between investment and exit.

And finally, the company must have all its investment accounted for neatly in a cap table that doesn’t have any red flags that the SEC might frown upon. Again, this is especially true when the investor is a public corporation, but even if they’re not, it will become an issue when it comes time to exit, and the investor will have this on their mind going into the investment.

While your startup doesn’t need to be in an entrepreneurial hot spot like San Francisco or New York, it will need to be located somewhere that will allow the startup to attract and retain talent. Your home city should be one where people migrate to, get educated in, stick around after graduation, and play in the same place they work.

Last but not least, and this is encouraging, Somorjai said the word “culture” a lot during his Q&A session. Company culture is quickly becoming a big factor in both the corporate investment process and the M&A process and there are couple reasons why.

First, good company culture tends to put to rest a few more of those corporate nightmares of headlines that cause public relations dumpster fires. But more importantly, big companies usually have poor or stagnant company culture, and an investment or acquisition sometimes provides both a strategic and a cultural shot in the arm for the corporation. It’s basically a two-for-one on the innovation front.

Like all outside investment, there are a ton a boxes to check to make your startup is attractive enough to get the attention and then the funding. It’s a hard enough process as it is, so make sure you’re considering all the players, even the ones you might be trying to disrupt.

Joe Procopio is a multi-exit, multi-failure entrepreneur. He has built and sold startups such as Spiffy, Automated Insights, ExitEvent, Intrepid Media.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award winning writer.
He could be contacted at udohrapulu@gmail.com

How to Become a Successful Founder in 2020

January 6, 2020

Rob Walker, Author of The Art of Noticing

A new study by investors debunks conventional wisdom when it comes to the most critical traits required of entrepreneurs.

What traits do you need to succeed as a founder? Usually, we think about the answer as if successful entrepreneurs were quasi-magical beings with skills so extreme and unusual we insist on calling them “superpowers.”

But Basis Set Ventures, a San Francisco-based fund focused on early-stage investments, has spent a year researching this question, and a useful theme emerges from its findings so far: Often, founders succeed not because of a single extreme trait, but rather by achieving a kind of balance. They use the term “nuanced superpowers.”

Okay, that’s a bit of an eye-roller, but the underlying notion is a great one to pursue in 2020: Stop obsessing about the extremes; focus on balance.

The research

Basis Set asked early-stage investors at funds with a cumulative $40 billion in assets under management to “rate 60+ founders on a number of dimensions including demographics, behavioral, and psychological traits, in an effort to understand what makes a successful (that is, IPO, raised substantial capital, large exit) or struggling (that is, shut down, stagnant, small exit) founder.”

This project produced a range of conclusions and assertions — see Basis Set’s fuller breakdown and slide deck here — but the most interesting piece involved an assessment of critical traits in founders. These include confidence, humility, storytelling ability, agile thinking, day-to-day effectiveness, and the like. The surveyed investors were asked to rate founders on each, and the results were used to create six founder “archetypes.”

Some of those archetypes — like the “Humble Operator” — correlate with success. Others, like the “Passionate Outsider,” didn’t. And the fascinating part is that what can separate the successful archetype from the also-ran isn’t the absence of a key trait — but an excess of that trait. Here are three examples of what that looks like.

Storytellers rule — but be careful

‍Basis Set quotes no less an entrepreneurial hero than Steve Jobs: “The most powerful person in the world is the storyteller. The storyteller sets the vision, values, and agenda of an entire generation to come.”

Still, it’s undeniable that some of the great business storytellers do not succeed. (Jobs stan Elizabeth Holmes of Theranos infamy being just one example.) Basis Set found that successful storytellers tended to exhibit not just confidence, but “agile thinking” — basically, an ability and willingness to “test and iterate quickly to incorporate market signals,” even if that meant revising their original vision.

Unlike these “Agile Visionaries,” those in the “Overconfident Storyteller” archetype may be charismatic and seem impressive, but become “too enthralled in their own vision” and “can’t adapt to market needs and often fail to find product-market fit.”

The problem isn’t that they’re not good enough storytellers. It’s that they’re too good for their own good.

The nuance of being stubborn

As Basis Set points out, some of the most celebrated entrepreneurs — Jeff Bezos, for instance — are renowned for their stubbornness: “They run through walls to make an idea work.” So is stubbornness a good trait?

Only (according to the fund’s research) when it’s paired with traits that temper that stubbornness — like results-driven behavior and fast learning and day-to-day effectiveness. A comment from Bezos actually helps clarify the point: “We are stubborn on vision. We are flexible on details.”

When humility is worth bragging about

The general public loves charismatic founders, but investors often prefer a different archetype — a humbler, hard-working, scrappy, and gritty entrepreneur who just gets it done. Basis Set cites some examples of an archetype it calls “Humble Operators” who pulled off successful IPOs in 2019: Eric Yuan of Zoom, and Olivier Pomel and Alexis Lê-Quôc of Datadog. “Working hard, that’s the only thing I know better than my competitor,” Yuan comments. “There are so many more smart people than me here in Silicon Valley.”

Still, we all know that hard work alone isn’t enough. This brings us back to the group that Basis Set called “Passionate Outsiders” — which exhibited similar levels of humility, resourcefulness, and grit. But they fell short of “Humble Operators” in other key areas, most notably “founder-market fit.” That is, a distinct advantage a founder may have in a market, based on experience or other expert knowledge.

The bottom line: Being a humble, hard worker is laudable — but you’ll also need sector-specific expertise to thrive.

What’s missing?

This theme of finding balance is echoed elsewhere in Basis Set’s findings, and there’s one last example worth noting. The report directly addresses a common assertion that the most important trait to look for in your potential co-founder is technical skill.

Turns out investors disagreed. It matters, but that emphasis is just too simplistic. (For a deeper dive on the subject, read Marker’s guide to “The Secret Alchemy of Co-Founders.”) More significantly, the Basis Set survey encourages pairing up co-founders with more generally complementary traits: “The best founders know their strengths and weaknesses and recruit a complementary team that maximizes the company’s chance of success.” It may not be as exciting as hyping your superpower — but it’s sound advice.

Rob Walker is the Author of The Art of Noticing.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world

How to Build a Strong Brand for Your Startup

January 4, 2020

A lightweight approach to branding for startups — no expensive agency necessary.

In my first startup, I dreamt of building a powerful brand that would earn its place next to iconic companies such as Apple, Google, and Facebook.

Coach, serial founder, angel investor, speaker

I decided to hire an agency to help us define our brand. We went through a number of classic exercises, like answering the question, ‘If your organisation was a car, what kind of car would it be?’ And at the end of the process, we were given a ‘brand book’ that provided guidelines on how we should use our new logo, and a list of words to include in our product messaging.

The agency also suggested a list of potential campaigns that were supposed to ‘enhance our brand’. On the list were expensive projects such as hiring a celebrity to endorse our app, or holding a launch party that served Veuve Clicquot. When I asked how we’d measure the return on these activities, I was told, ‘You probably won’t get any new customers, but this is an investment in your brand.’

The brand book sat on the shelf. We focused our energies on reaching product-market fit and investing in performance marketing. The campaign suggestions were parked for when we had some spare cash. That day never came.

So, how important is it for early-stage startups to define their brand? And what is a brand in the first place?

A More Useful Definition of Brand

If you equate branding with a pretty logo and some expensive publicity stunts, you’re leaving out the most important part.

In Sasha Strauss’s talk at Google, ‘Branding is the New Normal’, he puts forward a simple recipe for building a powerful, long-term, market-impacting brand. What I love most about his recipe is how simple it is:

‘A brand is a combination of a topic that your audience is curious about, and a belief system that intersects with it.’

Branding is the New Normal, Sasha Strauss

This simplifies the challenge of defining your brand:

Identify an important topic or activity that your customers care deeply about.
Create a belief system around this topic.

Taking the time to clarify these two questions has a lot of benefits. It can help you align your team by providing a framework for decision-making, especially in product and customer experience. It can help you focus your product messaging on what really counts. And it can help you create a deep emotional connection with your customers and employees.

‘The goal is not just to sell to people who need what you have; the goal is to sell to people who believe what you believe. The goal is not just to hire people who need a job; it’s to hire people who believe what you believe.’ Simon Sinek at Ted

How do you apply this at your startup?

1) Define Your Brand’s Topic

The first step is to define the topic your customers are interested in. Your brand topic should be narrow enough for people to have clear opinions, but broad enough that it’s not just about your product.

Consider this list of brands and their topics:

Notice how the brand topic isn’t necessarily the same as the industry. For example, Zappos famously built a brand around customer service — they just happen to sell shoes.

2) Articulate Your Belief System

When it comes to creating philosophies, few people were as good as the ancient Greeks. My favourite philosopher (yes, I have a favourite) was Aristotle. He argued that the role of the state is not to allow people to live, but to allow people to live well. He spent a lot of time thinking about what it means to live a good life.

If Aristotle were a modern entrepreneur, he’d probably build a killer brand. His topic would be ‘living the good life’ and his belief system would carry over into an awesome set of products designed to help customers live better lives.

This provides a useful question for entrepreneurs to reflect upon:

What is the right way to think about [___topic]?

To help tease out your beliefs, it’s often helpful to look at the extremes, both good and bad. You might consider a competitor, and reflect on why their product fails to meet a certain virtue that you believe is important. You might also consider what an unachievable ‘perfect’ solution might look like — and try to uncover ideals that you can strive for in your product.

For example, Zappos believe that the right way to do customer service is to deliver ‘wow’ through service. If you believe this too, you probably want to buy your shoes from Zappos.

When prompted for their beliefs, entrepreneurs often focus on their customer’s problem. But your customer’s problem shouldn’t be something you believe — it should be something real. You should focus on what you believe is the right way to think about your topic . . . not what the problems are.

The Link Between Brand and Product

Traditional marketing encourages us to sell benefits, not features. Brand marketing goes one level deeper and connects with people’s beliefs. However, there are often deep links between benefits and beliefs:

We believe that [___brand belief]. That’s why we built a way to [___feature] so that [___benefit].

When you speak to people on the level of their beliefs, you have an opportunity to connect emotionally — to customers, employees, and even investors.

The key question for you is: what do you believe?

Dave Bailey Coach, serial founder, angel investor, speaker.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world