WeWork co-founder, Adam Neumann, is under intense scrutiny from potential IPO investors for cashing out more than $700M ahead of the company’s IPO. In fact, Neumann has been reducing his position in WeWork since 2014 and I would argue that startup founders could learn a lot from his diversification efforts. Investors like Benchmark’s Bill Gurley are critical of such sales, but given the binary nature of the startup game these early sales are prudent. While Neumann provides a good example for diversification his conspicuous consumption can give founders a good idea of what not to do as well.
WeWork co-founder, Adam Neumann
When Adam Neumann co-founded WeWork almost a decade ago he was advised to diversify his holdings during each funding event. Following that advice, beginning five years ago, he began selling his shares each time the company raised capital. To date Neumann has personally raised more than $700M from these diversification efforts. Typically, investors are critical of pre-IPO sales by founders, but they are more common than you might think.
Zynga Founder Mark Pincus — Sold $100M Prior to IPO
Groupon Founder Eric Lefkofsky — Sold $300M Prior to IPO
Snap Founder Evan Spiegel — Sold/Borrowed $28M Prior to IPO
Slack Founder Stewart Butterfield — Sold $4M Prior to IPO
Secret Founder David Byttow — Sold $6M Prior to IPO (Chapter 11)
Buffer Founder Joel Gascoigne — Sold $2.5M Prior to IPO
While Bill Gurley’s fund is an early investor in WeWork he made it clear that his criticism of founders who cash out prior to a company’s IPO were not directed at Neumann specifically. The truth of the matter is if a company has a successful IPO no one will remember early sales by founders. On the other hand if a company fails founders risk scorn (or worse) from the investment community. For example, when Secret blew-up shortly after co-founder David Byttow sold more than $6M of his shares, Bill Maris from Google Ventures suggested that they had been robbed and demanded that Secret’s founders return the money. For most founders the answer is simple: take the money when you can get it.
While it makes a lot of sense to diversify, founders should be VERY careful about how they spend their new found wealth. Neumann is perhaps the perfect example of what not to do. With his $700M pre-IPO warchest, the WeWork founder, has spent more than $80M on at least five homes including $10.5M Greenwich Village townhouse, $15M Westchester farm, $1.7M Hamptons house, and $21M Bay Area house (including a guitar-shaped room). He also is leasing a condo on Gramercy Park for $46K per month while his townhouse is being renovated. While these purchases are examples of the sort of conspicuous consumption founders should avoid prior to their company’s IPOs — Neumann’s greatest sin may be his real estate purchases that have created unnecessary conflicts of interest for the founder.
According to the Wall Street Journal, Neumann worked with JPMorgan Chase to borrow against his stock to facilitate loans to purchase office properties in New York and San Jose — four of which he leased to WeWork who in turn pays Neumann millions in rent. Investors pointed out that JPMorgan could have easily arranged those same loans for WeWork directly. After inquires from the media WeWork announced that they were going to buy the properties at cost from Neumann to eliminate the conflict. This is just the sort of unforced error that founders who cash out early need to avoid at all costs.
Founders should take away two things from Neumann’s example — sell early and often but avoid conspicuous consumption (i.e. no houses, planes, boats, or cars). Of course, as with most of my advice I haven’t followed it — for example when I was in my 20s, just a few days after I raised $15M for my first startup I bought a convertible Porsche — a move that created terrible optics on so many levels.
Alexander Muse is a serial entrepreneur, author of the StartupMuse, and managing partner of Sumo.
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
When working with startups (both as an investor and advisor), I like to focus on incentives. The more aligned your organization is, the better the performance will be.
Leo Polovets, Susa ventures
Commissioned salespeople are hustlers. Ever buy a used car? They do anything to get the sale, but they don’t care about the dealership. The majority of their compensation comes from sales. They don’t get a piece of the bigger pie, so why help other salesmen? It’s a bit of a dog-eat-dog world.
The other extreme (Corporate America) is just as bad.
If you’re working at a startup, you don’t just want a job. Your goal isn’t simply a paycheck and benefits — you want meaning. And upside.
Founders are crazy. They have to be to fight to bring something radical and new into the world. And they magnetize others to follow them.
But early startup employees are crazy too. They believe in the vision of building something bigger — but they also “own” the company in a sense. This is their baby. They have a stake in it and they create the culture from day one.
But it isn’t all fun and games…
A Pirate’s Life for Me?
Being a pirate is a lot like joining a startup — a rebel on the high seas setting sail into the unknown in search of treasure and adventure. And the seas aren’t usually smooth, but the rewards can be life-changing.
For ships to function, the entire crew must be aligned. Every mate has their job. Everyone relies on everyone else. There is little room for error, and the opportunities to die are endless.
The Pirate Captain
Everyone knows the captain is in charge — at least that’s the myth. In reality, leaders succeed (and survive), only when their crew permits it. Too much trouble, running out of food, stock price plummeting… mutinies occur. The collective pick the person who’s most able to help them achieve their goals. If it’s not you, you’re out.
It’s a bit like game theory.
That’s the motivation for this post: the pirate’s riddle. In essence, a captain has 100 gold coins. How does he divide them among the four members of his crew to maximize his share? Keep in mind the majority can throw him overboard if they feel cheated.
The riddle isn’t important. The consideration of others in the equation — specifically the equity equation — is.
Startup Equity
How much is too much?
That’s the number one question I get from founders. We’re hiring a VP of this or a head of that, and I don’t know how much equity to give them.
At 1–10 person companies, 0.5% — 2.0% is a pretty common range, though some companies fall outside of this range.
For 11–50 person companies, 0.1% — 1.0% is typical.
For 51–200 person companies, 0.01% — 0.2% is typical.
The truth is, there’s no perfect formula.
Instead, I encourage founders to consider the pirate example — see things from other people’s eyes. A smaller piece of a big pie still beats a personal pan pizza, but this can get founders in trouble as well. Being too free-wheeling with equity is dilutive and dangerous (although Sam Altman of YCombinator recommends being even more generous with equity).
Investors especially focus on this. I won’t invest if I believe the dilution required from future capital raises will demotivate the founder.
At a certain point, you can only give away so much of your company before it doesn’t feel like yours anymore. This is a trap. When founders own too little, the drive to build dies. It becomes a situation of a forced sale (or CEO replacement).
Somehow, investors want liquidity. And if the founder isn’t the one to bring the business to the promised land, the board will oust them.
Sure, shares are great, but ownership of an idea is often better. Employees need to feel like they’re part of the mission. The best founders create this culture early on. They work the phones, handle customer service, ask employees for advice and suggestions, and create relatively flat organizations.
There are many ways to make employees feel empowered. Here are three of my favorites:
Transparency/Company Updates — Think investors updates, but for employees. In a startup, it’s easier to trust the captain when you’re kept in the loop and see where the ship is headed.
Epic Job Titles (or none at all) — Bonobos has Customer Service Ninjas. That feels and sounds significantly cooler and more important than customer service agent (and gets way more applicants). Make every role mission-critical.
Encourage Brainstorming/Debate — Ray Dalio of Bridgewater Associates (the world’s largest hedge fund with $160B AUM) has a policy of “idea meritocracy,” where everyone has a say and the best decisions win out.
Game Theory and Investors
The dynamics above are similar for investors as well. VCs and angel investors invest to make money, and they need returns to stay in the game. By working with your company, they signal that they believe in your startup.
But not all investors are created equal. As a founder, you must weigh investment offers carefully. All money isn’t good money.
Sure, all cash keeps the ship afloat, but specific capital often accelerates progress.
Sequoia or Benchmark can open doors for founders. Simply being funded by the darlings of Silicon Valley will get you meetings and give credibility to the investor community. And it helps with recruiting and sales. Plus, you’ll probably need more money, and Sequoia leads all VCs, continuing to follow on with 87% of their investments.
The network is key, too. Different investors run in different circles. And depending on your product and business, certain investors add significantly more value than others. This is especially true for industry-specific funds/investors. When a firm has industry experience, complementary portfolio companies, and connections to the enterprise buyers, they bring a lot to the table.
Accordingly, you should think long and hard about their offer, even if it’s below market rate. The right partner puts you on a path to a bigger pie.
But investors are not everything — they’re a small piece of the puzzle. And if one specific investor will make or break your company, you have bigger problems. Investors look for entrepreneurs that will succeed on their own, no matter what. We want to add fuel to these fires to help accelerate growth.
The Bidding War
When deals get hot, they can get dangerous. As a founder with a rapidly rising valuation, it’s hard to see how you can get burned. But you can.
The problem with valuations is expectations. Raise too high and the next round must exceed it. No one wants a down round. And $10M pre vs $20M pre have vastly different metrics.
Work with investors or advisors to plan out future fundraising. They should be able to help you with targets to aim for.
As a rule of thumb, Series A investors want at least $100k in MRR (monthly recurring revenue). Many founders are shocked by this (specifically by the amount of traction needed). But the fact is, if you don’t understand expectations you will come up short and fail to raise — or raise with bad terms.
Think carefully about this. The valuation isn’t the end game. It isn’t even that important — equity ownership of a rocketship is. Don’t get seduced by the big numbers…
The Problem With VCs
Most venture firms need to own at least X% of the company to make the economics work. This presents problems when you want less money. If you’re looking to raise $1M at a $10M pre and Andressen “has to have” 20% of the company to invest, you’re looking at 83.3% more dilution.
Here, competition can help. The more investors interested in your company, the more leverage you have. If Andressen really wants in and other investors are willing to match your ask, you might be able to negotiate.
The Flip Side
Raising money at good terms when you can is almost always a good idea. You never know when the capital markets will change or a key aspect of your business will fail. A war chest allows your team to continue or pivot as necessary — without relying on outside capital.
And in business, nothing is ever guaranteed.
Many investors are understandably wary of bridge rounds. They often ask, “Is it a bridge just to nowhere?”
But with money in the bank, that isn’t important. An extended runway lets startups figure things out and even make a few mistakes, and still have a shot at their goal…
It’s your choice.
Riding Off Into the Sunset…
The best startups are like special forces — a deadly unit where everybody busts their ass, does the dirty work, and keeps fighting until the bitter end.
And while developers might not take a bullet, their hardcore obsession with the mission drives disruptive innovation. 100+ hour work weeks are not uncommon — everyone is 100% committed (especially if they have equity…).
And while it’s unhealthy, it’s often what’s needed to succeed. Startups try to do the impossible — they take on the world, and they win. That takes superhuman effort.
You’re asking employees to risk everything to make your dream a reality. The best way to accomplish a dream is to help your team accomplish theirs.
Look at equity, look at incentives, look at culture — each plays a critical role.
Closing Thoughts
Pirates are pretty cool, and so are startups. But the truth is, both are glamorized. It’s a hard life filled with ups, downs, and uncertainty. The thing is, having an awesome crew can get you through tough times.
For founders: how have you handled equity in the past?
For investors: any advice from portfolio companies?
This is a hard balancing act — but getting it right sets your startup up for success. And remember, 10x employees are irreplaceable. Hire the best and you’ll always beat the rest.
Matt Ward is a startup advisor and entrepreneur
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 worl
CEOs and founders of startup businesses face many challenges: raising startup capital, building a management team, developing competitive products, starting a marketing program, finding early customers, and more. The prospect of launching a new startup can be daunting.
Managing Director and Global Head of M&A at VantagePoint Capital Partners
We have collectively been involved in hundreds of startups — as founders, CEOs, angel investors, Board members, leadership coaches, venture capital investors, and business and legal advisors. In this article, we seek to provide advice and lessons for startup CEOs and founders based on our many years of experience.
When trying to motivate a team to perform at the highest levels, it’s critically important that a shared understanding of what constitutes success is crisply and clearly communicated to every member. Spell out in no uncertain terms, for the core management team, what success looks like in 18 months, in three years, and beyond.
CEOs and founders of startup businesses face many challenges — are you prepared?
The ten key lessons below then become strategic priorities to achieve the well-defined success that is your ultimate goal.
1. Hire the Right Team
Of course, you should hire the right people for your team — that is a truism. Smart hiring is an incredibly important factor to get right for the long-term success of the business. And CEOs should not be reluctant to terminate those employees who just are not working out.
Here are some key questions a startup company should consider before hiring an employee:
Does the employee have the requisite skill set?
Will the employee be nimble and entrepreneurial, or are they too used to being in a slow-moving corporate environment?
Will the employee fit in with the company’s culture?
Will the employee be adaptable and able to play multiple roles within the company?
Does the employee exhibit a passion for the business?
Has the company been able to obtain credible positive references?
Will the employee add to the diversity of the company’s workforce?
Is the employee smart and quick thinking?
Will the employee work well with other team members?
2. Focus on Keeping Employees Motivated and Happy
A big part of the job of a startup CEO or founder is to put programs in place to incentivize employees and keep them satisfied with their jobs.
Here are some ideas that many startup companies use to motivate employees:
An employee stock option/stock incentive plan that grants equity incentives to all or nearly all employees (subject to continued employment vesting requirements as an employee-retention mechanism). The typical vesting schedule is one-year cliff vesting for 25% of the incentive, and then monthly vesting over 36 months for the remainder.
Flexible work hours
Ability for the employee to work remotely from home from time to time
Quarterly and yearly bonus payments to high-achieving employees
Health and wellness perks
Generous PTO policy
Recognition for great work
Fun team-building activities
Regular employee feedback and encouragement
Celebration of team successes
Learning and training opportunities
Goal-setting programs and career-advancement conversations
Transparency from the management team
Company focus on work-life balance.
3. Be in Continual Fundraising Mode
Raising angel, seed, or venture capital financing for a startup is often difficult and time consuming. Savvy CEOs and founders know they must be in continual fundraising mode, or at least always be fundraising ready. Being ready entails a number of things, including:
Having a complete up-to-date investor pitch deck available to be sent to prospective investors
Being open and responsive to investor inquiries (even if you have recently closed a round of financing)
Having an ongoing PR and marketing campaign that can reach potential investors
Being introduced to new investors by Board members, company lawyers, and existing investors
Having a great 30-second elevator pitch ready to give at any time
Having an online data room housing the company’s key contracts, corporate documents, intellectual property information, and other documents that an investor will want to review for due diligence purposes
4. Expect Big Challenges and Be Prepared for Them
The biggest challenges to starting and growing a business include:
Coming up with a great product or service
Having a strong plan and vision for the business
Securing sufficient funding and maintaining reasonable cash reserves
Finding great employees
Terminating bad employees quickly in a way that doesn’t result in legal liability
Working more that you expected
Not getting discouraged by rejections from customers
Managing your time efficiently
Maintaining a reasonable work-life balance
Knowing when to pivot your strategy
Maintaining the stamina to keep going even when it’s tough
Understanding that you will have to keep at it for the long run
5. Build a Great Product But Don’t Take Forever to Launch
Your product or service has to be at least good, if not great, to start out with. It has to be differentiated in some meaningful and important way from your competitors’ offerings. All else follows from this principle. Don’t dawdle on getting your product out to the market, as early customer feedback is one of the best ways to help improve it. But you do want to launch a minimally viable product to begin with.
6. Focus on Becoming a Great Salesperson
Most CEOs and entrepreneurs are not natural born salespeople. But high sales numbers are often the biggest indicator of business success. Here are practical ways to become better at sales:
Be prepared to spend a large amount of your time in sales mode
Talk frequently to customers, in person or on the phone
Communicate regularly with customers via email
Try to understand the key issues for your customers: Is it features, price, ease of use?
Understand the product/market fit and why your product outperforms the competition
Have constant contact with your sales team to motivate them and to be aware of the challenges they are encountering
Understand your sales cycle and determine what you can do to shorten it
Practice and refine your sales pitch
While not everyone can be an extrovert, strive to be confident and positive
Listen to your customers and follow up with them
Ask for the sale
7. Make Sure to Continually Monitor the Company’s Key Financial Metrics
Even if a CEO or founder does not have a financial or accounting background, it is imperative that he or she constantly monitor and analyze the company’s key financial metrics. Failure to do so can have serious negative consequences for the business. Depending on the nature of the business, the following monthly key metrics will be important:
Cash burn (or monthly positive cash flow)
Gross revenues (and key components thereof)
Gross expenses (and key components thereof)
Gross margin (the difference between revenue and costs of good sold divided by revenue, expressed as a percentage)
Lifetime value of a customer
Customer acquisition cost
Customer funnel metrics
EBITDA (earnings before interest, taxes, depreciation, and amortization)
Customer churn
8. Be Open to Suggestions, Advice, and Criticism
If you have a good team, you should listen to their suggestions and advice. Be open to new innovations and changes to your products, sales approach, and marketing strategy. Here are some ways other successful entrepreneurs have done this:
Hold company-wide meetings where employees at all levels can provide suggestions, insights, and improvements.
Practice an open-door policy for employees.
Get advice from other entrepreneurs who have dealt with similar challenges.
Set up an Advisory Board with people who can help your business and regularly consult with them (and motivate them by giving them stock options in the company).
Consider working with an outside CEO coach/mentor.
9. Keep Your Board of Directors and Investors Up-to-Date
Board members can be a great resource for challenges and problems faced by a CEO or founder. Keep in mind that Board members hate to be surprised at Board meetings with bad news.
One useful strategy is for the CEO to have a 30-minute call with each Board member individually before a Board meeting, previewing what will be presented at the meeting. This will allow the CEO to inform the members in advance and obtain advice that might impact what is actually presented at the Board meeting.
The CEO should also contact each Board member promptly when material developments occur. Depending on the nature of the matter, such contact should typically be by phone versus email, especially if potential litigation is involved (to avoid litigation discovery issues). Material developments could include:
Loss of a major client
Litigation or threat thereof
Claims of sexual harassment or discrimination
Material deviations from the Board-approved budget, especially if it affects cash on hand
Proposed hiring or firing of executive officers
Inquiries from potential acquirers
Governmental or regulatory inquiries
Data breach or cybersecurity issues
It’s also good practice to keep your investors updated on a monthly basis via email. The updates don’t need to be incredibly detailed, but here are some general items you should consider including in your updates:
Summary of the progress of the company
Summary of product development
Team and recruiting update
Recent press or PR
Key metrics you are paying attention to
Financials, including monthly burn rate and current cash position
Strategic issues you are facing
Request for help by introduction to prospective investors, partners, and customers (you want to leverage their networks)
You want to maintain great relationships and connections with your investors. And you don’t want them to be surprised when you need to go back to them for additional financing.
10. Be Aware of Important Legal Issues
Ignoring key legal issues can sink a startup. CEOs and founders should ensure that the company is taking steps to comply with applicable laws. Here are a number of the key legal points to focus on:
Has the company been properly organized?
Has the company complied with applicable securities laws in issuing stock or options?
Are appropriate steps being taken to protect the company’s intellectual property (such as through trademarks, copyrights, patents, non-disclosure agreements, etc.)?
Is each employee and contractor required to sign a comprehensive Confidentiality and Invention Assignment Agreement (assuring that any intellectual property developed by the employee or contractor related to the business of the company is deemed owned by the company)?
Does the company have appropriate policies in place to prohibit sexual harassment or discrimination?
Is the deal with any co-founders clearly documented, and in the event of a departure is it clear that there won’t be a dispute about the company’s equity ownership?
Does the company have a great form of customer contract, protecting the company and mitigating liability exposure?
Does the company obtain all the required documentation from employees (e.g., at will employment letters, benefit forms, IRS Form W-4, USCIS Form I-9, etc.)?
Conclusion
For startup founders and CEOs, it’s key to articulate to the team a clear vision of what constitutes success for the company. Offering that clear, shared vision of what you are all trying to accomplish helps to galvanize and energize the entire company. Incorporating the ten key lessons set forth in this article can help a CEO or founder achieve this success.
Richard D. Harroch is a Managing Director and Global Head of M&A at VantagePoint Capital Partners, a large venture capital fund in the San Francisco area.
Mike Perlis is an accomplished CEO, investor and Board member.
Chairman and Chief Executive Officer of Orrick
Mitch Zuklie serves as Chairman and Chief Executive Officer of Orrick, an international law firm.
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
If you miss the best-performing seed investment, you will eventually be outperformed by someone who blindly invests in every credible deal.
Conventional investing wisdom tells us that VCs should pass on most deals they see. But our research indicates otherwise: At the seed stage, investors would increase their expected return by broadly indexing into every credible deal.
Abe Othman, Head of Data Science, AngelList
That’s one of the results we found when we analyzed the thousands of deals syndicated by AngelList over the past seven years to test assumptions about the nature of venture capital returns. We’re presenting these findings in a first-of-its-kind report out today, Startup Growth and Venture Returns.
Theoretically Infinite Regret
According to our research, missing the best-performing seed deal can cause you a theoretically infinite amount of regret. What does that mean? Consider Mark Suster, who passed on the Uber seed round and was quoted in the Financial Times saying: “Aaaargh.”
How can you avoid missing the best seed deal? The simplest way is to put money into every credible deal. Maybe you have a crystal ball that gives you perfect foresight, in which case you can pick only the best winners. Even then, if your crystal ball is even a little cloudy eventually you will miss a winning deal—and that winning deal might have been the best-performing investment.
Simulations on 10-year investing windows for seed-stage deals suggest fewer than 10% of investors will beat the index, even if those investors have skill in picking deals. Like Vanguard has taught us in the public markets, individual investors could benefit from viewing the index as the default and then overlaying individual deals that they like.
How Startups Grow
Seed-stage returns tend to be more extreme than later rounds for two reasons: Startups tend to grow faster earlier, and seed investments have longer to compound these higher growth rates. By the time these companies go public, their growth rate has tailed off (consider Uber again, but this time at its IPO). We used AngelList data to compare the relative value of each year of a startup’s life on its compounded returns. We found that growth drops off in a startup’s second year of funding and continues to decrease from there:
Companies Staying Private Longer
Startups are staying private longer, meaning a powerful wealth-creating engine now exists entirely in the private markets. That’s why in our response to a recent SEC Concept Release we proposed steps to open broad-based early-stage venture capital indexing to the 90+% of retail investors who are unaccredited, while maintaining appropriate investor protections.
Disclosures
This post and the information contained herein is provided for informational and discussion purposes only and is not intended to be a recommendation for any investment, investment strategy, or other advice of any kind, and shall not constitute or imply any offer to purchase, sell or hold any security or to enter into or engage in any type of transaction. Any such offers will only be made pursuant to formal offering materials containing full details regarding risks, minimum investment, fees, and expenses of such transaction.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
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
If you’re thinking of starting your own business because you’re after the ‘glorious’ end and not the journey getting there, don’t bother! … If you’re not tenaciously persistent; get excited by seemingly insurmountable challenges; easily swayed or care too much about what others think and say, don’t bother! … If you think failing will be the ‘end of you’, also, don’t bother!
At Generics, we set out to solve for poor fitting, uncomfortable earphones. We mak(d)e custom eartips to the shape and size of individual ears through an App, photogrammetry and 3D Printing. I failed to raise cash fast enough to scale. Here are some of the lessons I learned along the way.
Make sure you’re really solving a problem, not a nuisance.
A solution to a ‘problem’ or pain-point is a must-have. Conversely, a solution to a ‘nuisance’ is a nice-to-have. You’re looking to deliver a pain-killer, not a vitamin! Solving for a problem will dramatically improve your chances of success. The added bonus of solving for a big, difficult problem is a higher barrier-to-entry and fewer competitors. If you don’t know how big the problem you’re solving is, find out quick. Ask ‘potential’ customers and consumers, not family and friends, whether they will go out of their way and pay for your product. @Generics, we knew the problem was prevalent, however, today, judge it was more nuisance vs. pain-point for most people. Be brutally honest with yourself.
Deliver the simplest solution to the problem.
In startup jargon, this is the minimum-viable-product (MVP). Don’t fall into the trap of ‘just one more feature to make product great’. Despite all your efforts to make your first product perfect, it will not be! Don’t waste time and resources trying to achieve the impossible. Just make sure your product provides value to users. Develop the ‘perfect’ solution later, when you better understand what your users want and have more resources. @Generics, we first made fully functional earphones. They had to fit well, feel comfortable, sound great, look beautiful, exude minimalism, have a rotating bezel, a removable ‘custom initials cap’, strong cable, cost less than $45… We should have focused only on making custom great fitting eartips for select earphone models, dropped everything else, we would have saved time and money. Be pragmatic, keep it simple.
Start fast, test faster and pivot faster still.
I took too long to decide I am starting my own business. Once I did, spent too much time developing an intricate business model that later proved worthless. Took too much time figuring out how to ‘sell’ my PowerPoint to investors. Took too long to raise money. Took too long to develop the MVP. To go-to-market. Almost 3 years! To get ‘paying’ consumers feedback. Took too long to make our first pivot, a little faster but still slow for our second pivot, even though I knew 73% of startups pivot (EPFL University). At the time, each of these felt really important and merited I spend ample time to get right, in hindsight, while important, they simply took too long. I should have skipped or completed much faster applying Pareto’s law. Don’t waste time, once your mind is made up, take the plunge, go all out, focus on the big things and correct course when you know you’re heading the wrong way.
Develop and test your ‘go-to-market’ as you build product.
Developing your commercial plan after you’re done building product is too late! Testing various go-to-market models will yield priceless learnings that will impact and shape your product development. Tweaking product to reflect learnings after you’ve locked development will waste time and money. Early results will also flush out ‘red flags’. You would rather find out quick there is no demand to what you’re building so you tweak or abandon project ahead of wasting months and hundreds of thousands in development. Don’t fear getting feedback on a ‘half-cooked’ product. Call it ‘beta’ and sell it at a reduced price if you must. Customers and consumers who don’t like it will not hold a grudge against you. When developing your ‘go-to-market’ don’t just think brand equity and key benefit communication. Think of your audience, the customers and consumers who are struggling most with the problem you set out to solve. Think ‘How’ and ‘When’ you want to reach them. @Generics, our audience were daily earphone users who listen to music while working out. We wanted to reach them during their exercise regiment as they experience their pain-point. Test different channels, figure out what works best for you and optimise for cost. Leverage digital, like SEM and social media, test others. Gabriel Weinberg & Justin Mares Traction is a great resource to help set your testing framework and inspire ideas. Prove product/ market fit.
Understand the skill-set required to build your product and commercial plan, only hire for that.
Make sure you have the ‘right’ people working your project. ‘Right’ are those with relevant expertise and/ or experience, those who are persistent and will keep at it. Only hire individuals working on your core solution. Make sure to focus their efforts on solving for and delivering your core product. Prioritise and make a deliberate choice to shed anything not fundamental to your core product. This will give you the best chance at successfully delivering solution, fast, without overhead costs spiraling out of control. Tell ‘under-performers’ what they are doing wrong, give them weeks to correct, otherwise, they are not the right fit. You will hesitate to let people go every time you think of the immense effort and time you must re-invest into searching, interviewing, on-boarding new team members. Time you could spend developing product and go-to-market. It remains the right thing to do. Keeping under-performing individuals will impact you more negatively vs. investing time to find the right hires. @Generics, it took me a while to figure out the required skill-set, didn’t find the right talent in the region, ended up developing product without a fully qualified team and only managed to do so due to the team’s intelligence, sheer will and extraordinary effort. Nonetheless, it came at a price! Sapped our energy and took way too long to develop. Another mistake was to front-hire, I expected a deluge of orders that never came. Hire for big impact, make sure individuals have the skills and attitude to succeed, hire slow and keep team focused on solving for core product.
Build traction. Build traction. Build traction.
Sell your product to every relevant customer and consumer you meet. Start selling day one, it’s never too early and it’s Ok if you start small! Apart from collecting learnings, it is imperative you build ‘sales-history’ or traction. Traction is like magic! With it everything is, at least, x100 times easier. Motivating yourself, your team and collaborators. Negotiating with suppliers, engaging your community and media. It is also pivotal for investor discussions. A growing sales trend over a sustained period proves customers and consumers want what you built. It is your single, strongest data point with potential investors. Growth hacking will help you get there. Apart from being one of startup world’s biggest buzzwords, growth hacking is combining programming and marketing know-how to get more and more people paying for and using your product. They need to become aware your solution exists, they need to feel compelled to try it and keep coming back for more. Sean Ellis & Morgan Brown’s Hacking Growth is an excellent resource to get started. @Generics, we held back on sharing product until we thought it was ‘perfect’. We also spent a lot of time developing equity, brand character and voice, tweaking our ‘look and feel’, however, kept it locked behind closed doors, didn’t test various channels, too afraid to reach out to our audience ahead of completing our product ‘masterpiece’. We wasted learning and optimisation opportunities. We disproportionately invested in ‘perfecting’ product and started building traction too little too late, when we had run out of money. Without traction our quest to raise more money and investor discussions were painful. Build traction.
Check your bias.
Yes you must be data-driven and yes you should ‘marry’ this with gut feel. However, what you think is right because of everything you learned throughout your career might not be right for your current challenge. @Generics, we developed a product to sell consumers. It was always very clear, we are a direct-to-consumer proposition, that’s what I have always done throughout my career. I am a Business-to-Consumer model guy. I overlooked the amount of resources it takes to build awareness, trial and equity (unless you’re lucky and your product goes viral). Throughout my career I was supported by marketing powerhouses, there was always ‘minimal’ support; in startup world there is no ‘minimal support’ at your disposal. We should have focused first on selling to earphone manufacturers (Business-to-Business) vs. trying to sell consumers directly. Take stock, give your innate reaction another thought, (re)assess what others in your space are doing before you decide on your course of action.
Surround yourself with the right advisers, they make a world of a difference.
What is a ‘right’ adviser? Individuals that bring something tangible and fast to the table. Who are ‘advisers’? Mentors, board members, consultants etc. You are not looking for ‘head-nodders’, they will just massage your ego. You also want to avoid constant challengers, they will tire you. You want people who have expertise in a certain area you need, at a specific stage of development, action-oriented and will say it like it is. Leverage advisers to solve a clear imminent challenge, such as introducing you to your first customers, retailers, partners, investors. Give you fast access to legislators and influencers. They will remove ‘roadblocks’. Once up and running, look for more strategic, less operational advisers that can help you make the right decisions long term. Be mindful your requirements will change at various stages of development, change advisers accordingly.
When it’s time for investors, make sure you understand their mindset and needs.
Move East or West if you’re building a hardware startup. I judge it’s ‘almost’ impossible to succeed building hardware in the Middle East today. Two key reasons, you will struggle to find (i) individuals with manufacturing expertise and (ii) the right investors. ‘Regional’ investors are not interested in and lack experience with hardware development and startups. The challenges, potential pitfalls and myths of building hardware are ‘top of mind’: takes more money and longer to develop, a mistake more costly vs. software, constricted Arab borders make distribution very difficult. And they are spoiled for choice behind the region’s explosive software startups growth. The good news is these same investors are hungry for software startups, have way more experience working with them. Many have developed best-in-class models for assessing a startup’s potential and providing the required support. Do your homework, research potential investors prior to engaging them, understand their mandate, startup portfolio, affinities and selection criteria. There is money out there for ‘software’ startups, you can get it.
Brace yourself for an emotional roller coaster ride (with a physical toll).
A snippet from my ride: Happiness at locking first round of funding… excitement at bringing team together… thrill of first working prototype… despair digesting magnitude of challenge… anguish at delayed production… delight at mass production completion… some sleepless nights… joy at beating crowdfunding target… gratification with first units shipped… elation and despair reflecting on early consumer feedback… anxiety with pivot… misery of new investor rejections… pride with 3rd party product endorsements… a few more grey hairs… heartache with more investor rejections… a minor slipped disc… distress with further investor rejections, as we run out of cash, as sales slow down to a trickle and higher cholesterol levels. The physical toll might be a consequence of me starting my entrepreneurial journey at 40, I am almost sure though stress played a co-starring role. My investors, friends and more importantly family were supportive, without them, I would not have kept on. Reach out to your confidants for emotional support when you need it.
I also made a few promises to myself early on that helped keep me steadfast, here are a few:
I promised myself to stay upbeat, optimistic and believe in what I am doing in the face of setbacks. Some days were really tough, I was tested on multiple occasions. Externally… I kept my promise, internally… I doubted myself on occasion, but kept going for my team, investors and self
I promised myself to stop if I am not learning. I am a better business person today vs. 2015
I promised myself I would not compromise my family’s pre-entrepreneurship ‘standard of living’. I slipped here, I intend to make it up over the next few years
I promised myself (and partner) to cap my losses at two thirds of my savings. Knowing when to call it a day is mandatory. I delivered.
I didn’t deliver on my goal: a successful, thriving business. Despite this failure, I loved and embraced the journey. I would do many things differently, however, after a recharge, I would do it all over again!
Bassel Idriss is the Co-Founder & Chief Executive Officer — Formidable Microfactory
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
A fresh round of seed funding for your startup from a venture capital is a big reason to celebrate. However, don’t start to celebrate too early. This is because experienced hackers are now trying their hands on bigger targets — seed funds of startups. In a real life scenario, cyber security firm Check Point revealed that a Chinese venture capital firm and an Israeli startup were recently duped of $1 million through a classic “Man-In-The-Middle (MITM) attack”.
While the Chinese venture capital firm actually wired $1 million to the startup, the young Israeli CEO and CFO never received it. Check Point did not reveal the names of both parties as it is investigating the fraud.
A day on the internet, according to the World Bank — Source: World Bank, World Development Report 2016 team, http://www.internetlivestats.com/one-second (as compiled on May 29, 2015)
“A Chinese venture capital firm was alerted by their bank that there was an issue with one of their recent wire transactions. A few days later, a young Israeli startup realised they didn’t receive their $1 million seed funding. Both sides got on the phone and quickly realized that their money was stolen,” said Check Point in a statement.
Both parties were quick to figure out that something strange going on with the emails between their emails. “Some of the emails were modified and some were not even written by them,” it said.
Check Point revealed that a few months before the money transaction was made, the attacker noticed an email thread announcing the upcoming multi-million dollars seeding fund and decided to intervene
“Instead of just monitoring the emails by creating an auto forwarding rule, as is seen in the usual BEC (Business Email Compromise) cases, this attacker decided to register 2 new lookalike domains. The first domain was essentially the same as the Israeli startup domain, but with an additional ‘s’ added to the end of the domain name. The second domain closely resembled that of the Chinese VC company, but once again added an ‘s’ to the end of the domain name,” it reported.
“The attacker then sent two emails with the same headline as the original thread. The first email was sent to the Chinese VC company from the Israeli lookalike domain spoofing the email address of the Israeli startup’s CEO. The second email was sent to the Israeli startup from the lookalike Chinese VC company domain spoofing the VC account manager that handled this investment,” it explained.
Incidence of cyber attacks on UK firms -Source: UK Government.
This is how the attacker was able to carry out the classic “Man-In-The-Middle (MITM) attack.” Every email sent by each side was in reality sent to the attacker, who then tweaked the conversation as per his needs and diverted the money. “Throughout the entire course of this attack, the attacker sent 18 emails to the Chinese side and 14 to the Israeli side,” it added.
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
After studying economics at University, and spending two years at Bain & Company in San Francisco, I went on to do marketing at a fast moving consumer goods company, before realising that “fast moving” was not fast enough for me. So, I focused my career more on digital, where you could see changes in lives in a matter of days, not months.
Anita Woods, the VP, Product at Wefarm
After moving to the UK, I did stints at Amazon and Google in product and marketing, and then started moving to smaller companies, where I felt increasingly at home. I found myself working at a fintech startup, then healthtech, and then I became VP of Product at Wefarm — a company that’s enabling smallholder farmers to connect with the people and resources they need to achieve their full economic potential.
As we’ve built out the business to be the largest digital farmer to farmer network, here are the top lessons I’ve found useful along the way:
1. Understand your user; don’t blindly chase KPIs
I love metrics and data-driven decisions, but while focusing on optimising KPIs, it’s crucial to remember who you are building for, and what’s valuable to them.
Often product teams are building products they also use themselves, and so it can be easy to fall into the trap of building what you want and losing sight of the end-user. Even when clear KPIs are in place, a lack of understanding of the end-user can lead to chasing goals in the wrong way. In one previous start-up I worked at, I was surprised to hear that we didn’t tell some users that a signature upon delivery was required. When I asked the reason for this, I was told it was because the conversion rate was higher if we didn’t mention the signature. While this may have been true in the short-run, it wasn’t in the long-run because of a dissatisfying post-purchase experience could have on repeat purchases.
At Wefarm, we have a lot of data on what farmers are asking and doing, that could be valuable to a multitude of businesses, governments, and non-profits. For each potential revenue opportunity we have, we think about whether our farmers would be the ones to benefit from this, and if we are doing things that earn their trust.
This really helps us to prioritise, and ultimately things that could increase revenue but without clear value to the farmer simply don’t make the cut. So, while it seems simple, the best lesson I have is spending time with the people you are building products for. Data without the underlying context of the people who sit behind it, is not that helpful. We have teams across the UK and East Africa, but we invest heavily in making sure everyone in the UK also has the space and time to be in Africa meeting with the farmers they are building value for.
2. Tech start-ups must look beyond digital offering
As mentioned, at Wefarm we’re enabling farmers to connect with both the people and the resources they need. A big piece of the latter means providing farmers access to the best quality inputs, at the best price. We’ve recently launched our marketplace to help farmers, manufacturers and retailers come together and do just that. However, when you think of the word ‘marketplace’ in product, it can be easy to immediately conjure images of a purely digital and automated Amazon-style service where we could predict exactly what farmers need to buy, and then generate automated messages to tell them about these products at the times that matter most. Whilst we want to get there, it’s also important to look at how farmers are using channels today, and, ensure we’re prioritising getting value to them via the path of least resistance.
After realising that most of our farmers like to view physical catalogues at their local agrovets containing all of the products we have available, we focused on automating the process for easily updating and printing new catalogues, and collaborated with our field teams to get them into the hands of our partner agrovets. More automation is still key to scaling our business, but for me, it was a useful sense check to realise that existing farmer behaviors are a combination of both digital and physical.
3. Communities don’t have borders
One of the things I remember from my first field visit in Kenya was hearing a farmer talk about why he responds to questions from other farmers that he has never met. He said he felt that it was his responsibility to help them because other people have helped him. The power of digital means that a sense of community and belonging is no longer based solely on physical proximity. My own personal experience of this has been with a Facebook group for parents of children with the same rare genetic condition that my daughter has. Within this community, there are people who play different roles, the information seekers, the advice givers, those looking for reassurance/validation, and of course, people can play different roles at different times.
I’ve sometimes been asked how we can work towards providing “perfect” answers to questions on our service. But what I believe is even more powerful is giving farmers across the world the context to make their own informed decisions. Like in any community the power lies in being able to bring more trusted voices into the fold. I think a common mistake of startups is to believe that you as a business have all the answers, and it’s your job to tell people what to do. But for me the lesson I have learnt in helping build a tech-startup in Africa, is that many farmers already have the answers, and a desire to share them, and therefore the real opportunity that I see for us is to provide a place where those farmers can be part of a global community, and help empower them even more to make their own decisions
Anita Woods is the VP, Product at Wefarm, a London-based peer-to-peer knowledge sharing platform for smallholder farmers which recently raised $13 million in a Series A round of funding led by True Ventures, with AgFunder, June Fund; previous investors LocalGlobe, ADV and Norrsken Foundation; and others also participating.
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
Twiga Foods, the Kenyan agri-tech startup trying to disrupt Kenya’s food demand and supply chains, understands that Kenyans need food, and need it badly. About 36.1%, representing nearly over 18 million of Kenya’s 48 million population are hungry. This figure is worsened by the facts that:
Peter Njonjo
Over 3.4 million people face acute food insecurity in the country; and
Agricultural productivity has been stagnating in recent years due to frequent droughts, floods, and climate change, leading to only about 20 percent of Kenyan land being suitable for farming.
Interestingly, Kenya’s agricultural sector contributes about 26% — more than one-quarter — to Kenya’s entire Gross Domestic Product. This is even as about 75% of Kenya’s entire workforce, mostly spread out in rural areas, is engaged in the agricultural sector.
Africa’s Food Security Index: Click To ExpandThese facts are the reasons Twiga Foods would be the startup of the future. The startup is going after Kenya’s food sector to break the jinx of inefficiencies presently in the sector, and to ensure that the limited resources available in Kenya’s agricultural sector are well-utilised.
Its simple business model is to aggregate all food retailers and dealers, from the banana vendors buying in bulk to the avocado retailers selling in stock, and then connecting them to Kenyan farmers producing quality farm produce. This is a classic example of a business-to-business (B2B) model, so that vendors looking to purchase agricultural produce don’t have to travel miles to meet local producers of the produce, thereby saving them the transportation and logistics cost, increasing the productivity and demand for the produce of the farmers, at the same time reducing food waste.
These metrics are what TLCom Capital looked out for when it invested in Twiga Foods.
“TLcom’s general investment thesis for Africa is that given the high penetration of mobile, there are very large markets where demand is already proven and technology can play a true role in offering a superior value proposition over existing solutions,” said Ido Sum, partner at TLCom Capital which syndicated Twiga Foods’ recent $30 million fund raising led by Goldman Sachs.
Quite noteworthy is the fact that TLCom Capital is often strategic with its investments, going mostly for early comers with the huge potentials. It went for Nigeria’s Kobo360, a startup pioneering digital trucking in Nigeria through the Goldman Sachs-led $20 million investment. It also went for Andela, one of Africa’s well-funded startups. Hence, that Venture Capitalist TLCom Capital preferred to invest in tech companies in their early to growth stages, such as Twiga Foods, shows that the startup is, to a large extent, home to disrupt.
The same is also said of Goldman Sachs, America’s leading investment banker which is recently interested in Africa and international institutional firms and VCs looking to invest on the continent at a time when other international investment banks such as Credit Suisse and Barclays have cut down or exited their African operations altogether. Goldman Sachs’ investment in Twiga Foods marks its first major deal in a Kenyan firm.
In view of all these, we therefore discuss a few strategies gleaned from Twiga Foods’ quest to disrupt the Kenyan food market.
Prove A Point First But Know That Scaling Is Important
First CEO Grant Brooke simply had to find a way to scale Twiga Foods, a startup in the often neglected African startup ecosystem — agritech. Of the whole investment made into Africa’s startup ecosystem in 2018, agritech got a meagre $20.2 million, out of which Twiga Foods got $10.2 million. Compared to fintech’s $284.6 million, this is discouraging for new comers to the agritech sector.
From all indications, these figures are a representation of the fact that even though Africa has a yawning food sufficiency gap, startups who take the path of agri-businesses often face low investment appetite from investors. Nigeria’s agritech startup Farmcrowdy, one of Africa’s top-funded agritech startups for instance, has been able to raise slightly above $2 million in funding from VCs since its founding in 2016.
Of course, investors are not to blame: entering early stage startups in Africa’s agritech startup ecosystem appears foolhardy, with all the risk associated with crop yields, partly brought about by changes in climate and diseases.
So Twiga’s strategies were to first avoid the crop production stage, in preference of the post production stage when crops are ready to be harvested; and to eliminate the final consumers from its model. Consumers in the African food markets are highly dispersed, making it grossly difficult to aggregate them. They are also highly unpredictable. Pursuing them would increase cost per acquisition for any startup, at the same breath, creating unnecessary competition from dispersed local markets where they are used to buying and selling from.
Therefore, by targeting the middleman between the farmer and consumers, Twiga found an easily large market to scale. The startup already has more than 17, 000 producers for direct delivery to more than 8,500 vendors.
Africa’s Agritech Startups Who Solve The Inefficiency Problem In The Agric Supply Chain May Win
Twiga’s other strategy is simple: find an efficient way to deliver to final consumers at lower costs. Inefficiencies in the supply chain have been blamed for high food prices in African cities, where close to 90 percent of the supply comes from informal retail outlets. Kenyans spend 45 percent of their disposable incomes on food, compared to 14 percent for South Africans and 10 percent for citizens of most European countries. To solve this problem, Twiga followed a simple pattern:
Get a farmer to sign up to join Twiga.
Twiga visits and assesses the farm, then adds farmer onto system.
Twiga issues a purchase order to book the produce and indicate date of harvest.
Twiga harvests and weighs farmers produce and issues you with a receipt.
Farmers receive payment within 24 hours.
All produce is gathered at over 30 Collection Centres across Kenya from the farms.
Produce goes to the Packhouse for processing, grading and dispatch to over 60 sales routes.
A vendor signs up to join Twiga.
Twiga sales representative visits vendor and registers them onto system.
Vendor places order with sales representative.
Twiga delivers produce directly to vendors shops.
Through this, the farmer benefits from: guaranteed market; transparent pricing as seen on price boards; farming advice;resources and access to credit from Twiga’s partners. On the part of vendors, the benefits include quality produce; free delivery; assured food safety through easy tracking; access to credit from Twiga’s partners; and fair prices for produce.
The end implication of this simple process is that Kenyans would spend less to purchase food produce. This would in turn encourage them to budget more on food.
Can Using Corporate Expertise Like Twiga Foods Assist Startups To Grow Faster?
To beat the glut in investment in Africa’s agritech startup ecosystem, Twiga quickly appointed Peter Njonjo to take over from founder Grant Brooke. Although the startup has previously raised $10.3m from investors and secured $2 million in grant funding from organizations such as USAID and the GSMA in 2017, followed by a 2018 $10m investment from the International Finance Corporation (IFC), TLcom, and the Global Agriculture and Food Security Programme, bringing Njonjo onboard the startup may seem more or less a strategic move to capture more market and scale quickly.
“Starting new ventures is really my skill-set and passion, while proficiently running institutions is Peter’s skill-set and passion. Twiga has an aggressive growth plan and this transition leverages on our respective expertise, ” Brooke said.
Njonjo was the most senior Kenyan at Coca Cola Company where he worked for 21 years, leading the multinational’s West and Central Africa business unit as President.
Peter Njonjo’s appointment, noted Mr Brooke, presents a first; with a senior executive in a Fortune 500 Company joining an African startup, a “clear testament of the increasing capacity of venture capital in funding and solving significant problems and harnessing opportunities on the continent.”
“If my leadership was the period in which Twiga was proving a point that there’s a better way to build food safe and secure markets, Peter’s leadership will be about institutionalizing this way of doing business and scaling it. Peter’s experience in building efficient supply chains and last-mile distribution in over 33 African countries makes him uniquely suited to lead us,” said the outgone Twiga Foods CEO Grant Brooke.
Currently, the startup has reached more $50 million in total funding since 2014 when it was founded, over $35 million achieved under Njonjo’s leadership.
Critically speaking, Twiga’s success could largely be attributed to Grant Brooke, who has built a career researching Kenya’s informal retail market, an experience dating back to his home city, Texas, in the United States. Njonjo’s appointment could be analysed as finally giving Twiga Foods an African outlook. Therefore, it is safe to say that Twiga Foods still has a long way to go in qualifying as a contemporary agritech startup founded and run by an African. Mr. Njonjo’s Africa’s first ever corporate touch at Twiga and its eventual success may however still be a lesson in strategy for African startups.
Twiga Foods: Bottom Line
To put Africa’s food needs into perspective, Kenyans have more certainty of having food than Ugandans, Rwandans, Togolese or Nigerians. This is a dire situation for the population of these countries combined, and a huge opportunity for many more African agritech startups to come onboard.
Twiga Foods has obviously found a large market for its business model. Africa’s farmers are still obscure, and remotely isolated from the large market. Twiga has started a show of allowing them to play a significant part with some force. It does this by collecting them together with technology and helping them to deliver their products to final consumers, in a safe, cost-effective and efficient way.
These are the lessons Twiga Foods has taught us in Africa’s complicated food supply chain, and why Twiga Foods may be Africa’s next unicorn (and indeed the first agritech startup to achieve such feat) in ten years to come, if it gets its processes and team right.
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
Startup success or failure is mostly dependent on founders’ hustle, resources and decision making. While external and uncontrollable factors can sometimes play a big role in the performance of a startup, rarely will a startup suddenly fail or succeed independently from entrepreneurs’ actions.
Every entrepreneur is prone to making bad decisions no matter their knowledge or experience. The 5 common mistakes listed below are fully controllable and easily avoidable. Here’s a reminder of what can negatively affect your startup success.
1. Short-Term Success
It’s easy to score a quick win even with just an idea. Every hard-working entrepreneur can hustle to get the first paying customers just by knocking on doors and selling a vision. Furthermore, today, anyone can build a product with or without a budget. The hardest part is building a sustainable startup. Follow these general business rules:
Start with a vision but set one short-term goal at a time.
Break down short-term goals into small achievable milestones and celebrate the small wins.
Be open for change.
Understand that one startup failure is one step closer to building a different sustainable startup even if the ideas are completely different.
Surround yourself with customers or future buyers since day 1. Let them help you build the product as if they’re co-founders in the venture.
Virtually any idea or feature can be tested before development. Pay attention to those validation signals and avoid convincing yourself that if you build it, things will change.
Work with the best. If you can’t afford working with the best, hire them as mentors and team leads.
2. Premature Growth
It’s easy to fake and justify startup success with resources. If you have funds, you can force an undesirable solution into a market and see a growing number of customers even if the numbers don’t add up. Many startups failed waiting for the time their customer lifetime value exceeds acquisition costs. Research shows that 70% of startups fail because of premature growth.
Instead, focus on building the foundation even if it takes years. The foundation of a startup is a product people use, recommend and pay for. Achieving those three pillars takes a series of product iterations. Once you’re there, even with just a few customers, it won’t be hard to scale to the next hundred and thousand buyers. The other way around is detrimental to a startup.
3. Hiring The Cheapest
Usually, the biggest portion of a startup investment is allocated to product development. It can be enticing to bet on a team who seem like they might be able to get the job done just because the cost of hiring the best is higher.
In reality, over the long run, the cost of hiring underqualified candidates can be significantly higher than the premium price paid for the right talent. Redevelopment, miscommunication, mistakes and slack will cost time and money.
Instead, even if you can’t hire the best, get them involved as advisors and guides to your team. Even if they don’t do the work, their leadership will increase the probability of success of your product and startup.
4. Picking The Wrong Battle
Building a successful startup is a challenging endeavor. To improve the odds of success, entrepreneurs are better off focusing on products where they can control most of the variables. For instance, entrepreneurs that aim to launch a startup in a new space will take more time to understand the market than founders who focus on areas they’re familiar with.
Creating products that help you overcome your own challenges is a good start. It is a great way to solve problems you are passionate about. Since longevity is a key ingredient of startup success, picking a battle you know you can compete in for many years is how you will succeed in business.
5. Long Performance Evaluation Cycles
There is always something that can be done to improve a product. The truth is, there is no such thing as a perfect product and long development cycles will only delay customer interaction and feedback.
It costs time and money to test new hypotheses. Therefore, the more insights you can gather before product development and the more involved customers are, the more likely you will build the right features. Building and releasing quickly is how you can minimize risk and expenses.
Avoiding these 5 mistakes will significantly increase the probability of your startup success. The truth is, applying those rules is easier said than done. To make sure you are moving in the right direction and making the right decisions, surround yourself with mentors and likeminded entrepreneurs.
Abdo Riani is a product development expert and a founder.
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
Youth, the playwright George Bernard Shaw famously claimed, “is wasted on the young”. But when it comes to the public perception of the qualities of a startup founder, thanks to Mark Zuckerberg and co, the appearance of youth seems to be prized above all other attributes.
And yet the truth is, if you delve into all the data available, the average age of founders of the most successful tech startups is 45. Moreover, according to a study published by Harvard Business Review, even the tech titans who did start out in their early twenties — Bill Gates, Steve Jobs, Jeff Bezos, Sergey Brin, Larry Page — experienced their biggest business success when they were middle aged. Steve Jobs and Apple launched the iPhone when he was 52, while Amazon’s future market capitalisation growth rate was at its peak when Jeff Bezos was 45.
“Every entrepreneur has a unique story,” says Aftab Malhotra, 41, founder of disruptive artificial intelligence tech startup GrowthEnabler. “That involves big exponential ideas, passion and courage.”
The qualities of a startup founder also include “patience, pattern recognition, grit, communication skills and authenticity”, argues serial tech entrepreneur Sachin Dev Duggal, chief executive of Builder.ai.
Age helps, he adds: “What I understand today, that I didn’t decades ago when I started out, is to be a successful entrepreneur you have to be able to see past the noise and darkness and brave your way to the other end.”
Wisdom build over the decades. “My fifth startup, Carbonite, just got sold for $1.4 billion and I’m almost three years into my sixth, Wasabi, data storage in the cloud,” says David Friend, founder and chief executive of Wasabi Technologies, now aged 71 and a successful, seven-time entrepreneur. “I finally feel like I know what I’m doing. My first startup, right out of college, was reasonably successful, but it makes me cringe to think of all the dumb mistakes I made.
“After more than 40 years as a CEO, you see many of the same issues emerge over and over again. Issues like how to put a team together, how to position and differentiate a product, building a corporate culture. After all this time, I have a sense of what will work and what won’t. More importantly, I have a higher degree of confidence in my day-to-day decisions and that sense of confidence ripples through the organisation.”
Qualities of a startup founder improve with age
Despite all the media emphasis on young entrepreneurs, the qualities of a startup founder are enhanced with age and this helps when it comes to seeking investment, scaling their business and ultimately achieving a successful exit after acquisition.
“I IPO’d a business I started in my twenties, I grew a not-for-profit in my thirties and now my latest business is growing at a pace that is exhilarating and terrifying in equal measure,” says Mark K. Smith, chief executive of tech company ContactEngine. “I’ve raised tens of millions of dollars and I’ve seen huge success.”
After more than 40 years as a CEO, you see many of the same issues emerge over and over again
But, like many other successful tech entrepreneurs, Dr Smith has also suffered, and survived, failure. He sums up his tale within the length of a tweet: “(12/04/2000) IPO on LSE, market cap of £100m, price dropped 40% in a day. Worth £8m at 8am, £5m at 4pm. Hero to villain in exactly 8hrs.” This happened when he was only 34.
“You’d imagine, wouldn’t you, that this experience might be the end of a career? Well it wasn’t for me. The thing is that when you IPO you are entering into a human construct that defies logical explanation. Markets ebb and flow not, as you might imagine, on the basis of science, but of the more nebulous metric of sentiment,” says Dr Smith.
Learning to embrace failure is key
Sentiment, on a national scale, explains our negative attitude to failure in the UK; we would not see having failed as one of the essential qualities of a startup founder.
“I’ll always remember the classic water cooler conversation with a friend of mine who told me she’d heard someone commenting on me,’ recalls Eric Mayes, CEO of the Cambridge tech company Endomag, which uses nanoparticle technology to help surgeons mark and remove cancerous tissue.
“They had said, ‘Eric has great ideas, but he’ll never deliver’, because my first venture failed. Of course, it hurts and touches you, even though you know it is narrow thinking. It’s always a shock to hear people think that way, when you have the kind of positivity that creates something out of nothing,” he says.
Older tech entrepreneurs who’ve overcome early disaster have resilience; they’re not afraid to ask questions or ashamed to admit they don’t know everything. “There is a certain power in not trying to be the oracle with all the answers,” Mr Mayes explains. “It frees you up to ask the questions that lead to better answers. It’s a great basis for managing people, projects or teams in general.”
By contrast, in the United States, failure is viewed as a nightmarish part of the American dream.
“‘Failing fast’ is a mantra that startups and entrepreneurs often quote,” says Mr Malhotra. “What that means is having the courage, passion and tenacity to do what others fear. Try things and challenge the way things are done. Being an entrepreneur is the hardest and most mentally exhausting undertaking and those who have the energy to try again and again will learn and grow at warp speed.”
The secret to being a successful startup founder?
Ironically, having been through failure is one of the ultimate qualities of a startup founder that give older business brains an advantage. “Entrepreneurs who ‘fail’ will eventually succeed and change the world. They will become the mavericks, the disruptors and the leaders the world admires,” says Mr Malhotra, giving 48-year-old Elon Musk (Tesla, SpaceX) and 81-year-old Ratan Tata (Tata Group) as examples.
Interestingly, Dr Smith sees the experience that comes with age as so integral to the qualities of a startup founder that he’s only really interested in investors who are at least 45 years old. “That seems rather specific doesn’t it? Well here’s why: the last tech crash’s 20-year anniversary is next April and, if you ignore the 2008 banking collapse when, oddly, the ‘new’ tech bubble avoided being burst, then we are due for a ‘correction’ quite soon,” he says.
“And if your investors are wee boys or girls and have not seen the trough and only the peak, then beware. Because you need to understand that shares go down as well as up. That is when ‘proper’ companies win out. Just another ‘Uber of’ or another social media silliness will crash and burn.”
Emily Hill is a writer at Raconteur Media Limited, London, United Kingdom
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
