Startup lessons - Afrikan Heroes

From Custos To Gokada, What And How Are The Commonest Internal Conflicts Plaguing Startups In Africa Resolved?

August 2, 2021

Amir Matar had been tilling at SWVL since the startup reached across to him to assist it with its legal compliance obligations. As a legal consultant, Matar was expected to help shape the company’s future by defining it in terms of the legal compliance strategies it needed to scale to the next stage. And so for years, Matar attended to this role in the hope that one day SWVL would grow to become a bigger establishment. But when the four-year-old ride-sharing startup recently announced it would be going public via SPAC at a valuation of $1.5 billion, Matar was nowhere to be found. In fact, he had since moved on. Not that that was his voluntary decision, but that he had been forced out by the company’s management.

“First of all, let me thank you for believing in Swvl. We believe that at the moment we can’t support part-timers anymore and we are working now on that across the whole company,” an email from Swvl’s CEO to Amir was quoted as saying. “We believe also that there is still some time until [redacted] becomes a core part of what we do so we decided collectively to end your employment at Swvl. Please consider Swvl your home and come back whenever you need. I am on a plane to [redacted] now, but let’s meet when I am back.”

According to Matar, he provided business development and legal advice to Swvl for no monetary pay, but was given stock in the company. When he approached Swvl’s CEO about the shares, he was told that they were promised on a one-year cliff, which he did not agree with, he said. Amir said that the offer and acceptance of shares made with him were made without any limitations.

While SWVL’s story is unique in that, aside from Matar, the firm has been the subject of several other employee-related complaints, several other African startup companies are presently experiencing or have had major internal conflicts that have jeopardized their very existence.

Understanding how and why these conflicts occur may serve as a major lesson for other startups that are considering or are just setting out on their journeys.

Africa startups conflicts — *Amir Matar has since moved on to Mastercard as Senior Counsel, Regulatory Affairs for Middle East and Africa. Image credits: LinkedIn*

Fights Among Co-founders

Unlike other causes, squabbles among co-founders have single-handedly destroyed the lives of startups in Africa; more so, if the dissenting co-founders carry enormous responsibilities with them.

Conflict among founders, most commonly, may result from the manner of equity distribution, access to key resources in the startup, compensation over time, among other reasons.

Interestingly though, fights among co-founders in Africa have mostly arisen immediately after major financial activities have occurred in the startups.

In Kenya, the disagreement between Kennedy Nganga, Lauren Dunford and Weston McBride of Safi Analytics, which led to the reportedly forcible ejection of Kennedy from the co-founding team (and invariably from the startup) happened soon after the startup landed its $1.8m investment from investors in 2018.

This is also true for Nigeria’s Cars45’s drama, where co-founders Etop Ikpe, Sujay Tyle alongside other executives moved out of the company in droves. The internal quarrels started in 2019, a year after OLX Group invested over $400m in the company. Insinuations are rife in the media that the co-founders were dissatisfied with the structure of equity holding in the company.

Also closely resembling this pattern of dispute is that among the co-founders of Gokada, a Nigerian ride-sharing startup. The exit of Gokada’s pioneer co-founder Deji Oduntan happened barely in March, 2019 just two months before the startup announced it raised $5.3m round from investors, suggesting uncertainties over issues related to finance and investments.

The fact that there is apparent difficulty resolving conflicts among co-founders shows that, in most cases, such conflicts can be fatal if they occur, and may affect a startup’s subsequent chances of accessing funding; and in worst case scenarios, cost it its life.

Employee-Management Fights

Virtually all internal conflicts plaguing startups in Africa have a touch of this colouration. Internal employee strife is rife. In fact, a major disagreement between ‘employees’ and Safeboda, partly ensured that the startup shut down its operations in Kenya recently.

Apart from shutting down operations, one major fall-out of the poor management of relationships between employees and management in African startups is that it has led to the resignations of the chief executive officers of the concerned startups.

This is evident in Wejapa, a Nigerian startup that helps tech talent gain access to job opportunities across the world. Following a series of complaints of exploitation and compromised payment standards from a host of the startup’s software engineers, CEO Favor Ori was forced to resign.

Where the rancorous relationships do not result in the shutting down of the operations or the resignations of the CEOs of the startups concerned, the startup may be subjected to intense public opprobrium and, and in worst cases, exposed to litigation liabilities (which are as a result of the employees deciding to slug it out with the startup company in courts.)

For instance, the rancorous relationships between SWVL and its employees over time have led to some of the employees leaving negative reviews for the startup in public domain — which may have significant effects on the startup’s quest to attract the best of talent. One example of how SWVL’s reputation has been impacted by this is this screenshot below of a LinkedIn interaction between a Swvl recruiter and an applicant (posted on Facebook).

Poor management of employee-startup relationships has also landed some startups in courts, which have, in some cases, turned out again them. This is particularly the case of iKOKOtv, which has been subject of such litigation cases in recent time. Just recently, a Nigerian court gave judgment against the company in a suit bordering on wrongful termination of employment, interpretation of a non-disclosure agreement, among others.

Rancorous Startup-Investor Relations

At most, a poor relationship with investors will succeed in giving both the investor and the startup big red flags before watchers-by.

This is certainly what HAVAIC, the prolific South African investor, understood when it recently called off a $4.45m court case against Custostech, a South African startup that protects content using blockchain technology.

Before calling off the case, HAVAIC was said to have signed a termsheet with Custos Media Technologies to close a convertible loan investment with Custos. All of the investment arrangements were agreed upon, and Custos confirmed that the terms had been authorized by their board, the venture capital firm said. According to HAVAIC, Custos then breached the agreement and opted not to proceed with HAVAIC’s investment. Custos’ CEO G-J van Rooyen, on the other hand, refuted this claim, claiming that the business did not sign any agreement with HAVAIC and that it was within its rights to reject its investment offer.

“We believe the founders and Custos have enormous potential to be internationally successful. Our preference is to restore the breakdown and work with the business to its full potential,” Ian Lessem, the CEO of HAVAIC said, before settling out of court with Custos.

Similar incident was reported at HealthPlus, a Nigerian healthtech company. According to founder Bukky George, she was lured to transfer 51.1% stake to a private equity investor, which she said, allowed the investor to oust her as the CEO of the company and replace her with another person.

Prior to the dispute, George owned 48.9% of HealthPlus, while the other investors owned 51.1 percent. However, this shareholding structure proved problematic. George stated that the investors committed to invest $18 million in the company, but only $10 million had been released since the deal was signed in 2018, meaning that the investors were not fully entitled to the 51.1% stake they claimed in the company.

Uganda’s Dunamiscoins’ recent scandal also represents the mounting cases of poor investor-startup relationships, misrepresentations and breaks in communication.

Notably, poor investor-startup relationship appears to be the most powerful internal startup conflict that tend to have crushing effects on startups, as it tends to shrink the chances of future access to funding for the startups affected.

Also notable is the fact that most investor-startup disputes are not largely reported for fear of the effects it would have on the startup’s funding journey as well as on the reputation of the investors.

Ethical Misconduct And Frauds Involving Startup Executives

This has the effect of not only destroying the reputation of the persons involved, but also has the effect of returning the operations of the startup to zero, especially if a major co-founder (the brain behind) of the project is involved.

This was disastrous for South Africa’s Springleap, a subscription-based platform for brands and agencies to source solutions for creative briefs. Springleap’s co-founder, Eran Eyal, was arrested in 2018 on the instructions of New York Attorney General on the grounds that he masterminded the stealing of $600,000 from investors — by fraudulently soliciting investors to purchase convertible notes through false representations about his company, Springleap.

Eran was found guilty in 2019 and was finally deported to Israel from the US in 2020. The huge effects the whole saga had on the startup could only be imagined.

Apart from fraud, sexual harassment has the effect of instantly killing the career of co-founders, if convicted. This would, in turn, push the startup into an entirely uncertain situation.

But for the exoneration of the CEO of Nigeria’s Tizeti, by an independent special investigation committee, from an allegation of sexual harassment, Kendall Ananyi’s career would have hit a brick wall, as was the fate of Kenya’s Alternative Circle, Anthony Kariuki and Ushahidi’s Daudi Were.

S/N	NAME OF STARTUPS	BASE COUNTRY OF OPERATIONS	YEAR FOUNDED	NATURE OF INTERNAL CONFLICT	YEAR CONFLICT WAS REPORTED	HOW RESOLVED	YEAR OF RESOLUTION OF CONFLICT

1	Safi Analytics	Kenya	2017	Kennedy Nganga, one of the ‘co-founders’ alleged that expat co- founders Lauren Dunford and Weston McBride dismissed him from the company immediately the company raised $1.8m, and after the failed to procure a negotiated exit from him.	2018	In April 2021, Nganga claimed that a crowdfunding campaign he initiated to institute a law suit against Safi was disapproved on M-Changa platform, one of Kenya’s crowdfunding platforms, citing his inability to meet the platform’s verification standards as one of the reasons for the rejection.	–
2	HealthPlus	Nigeria	1999	Founder Bukky George alleged that she was lured to transfer 51.1% stake to a private equity investor, which allegedly allowed the investor to oust her as the CEO of the company and replace her with another person. Mrs George owns 48.9% of HealthPlus, while the other investors own 51.1 percent. The reason for this is because the investors committed to invest $18 million in the company, but only $10 million has been released since the deal was signed in 2018.	2020	Under litigation	–
3	Cars45	Nigeria	2016	Co-founder, Etop Ikpe, Sujay Tyle alongside other executives (11 in total) left the company reportedly over squabbles related to equity structures and a potential buy-out. The squabbles started in 2019, a year after OLX Group invested over $400m in the company.	2020	Etop Ikpe has since proceeded to launch a rival company, Autochek.	–
4	Cellulant	Nigeria; Kenya	2014	Nigerian co-founder, Bolaji Akinboro resigned following reports of irregularities concerning post-audit results of the company’s platform, Agrikore. Also sacked were 35 employees for related offences.	2020	No reported case of how the conflict was resolved, but Bolaji finally left to found a new agritech platform, voriancorelli.com.	–
5	Risevest	Nigeria	2019	Former employee accused startup’s CEO of creating toxic work culture.	2021	CEO apologized, admitting that he mishandled the situation which culminated in the departure of the startup’s marketing lead from the company.	2021
6	Wejapa	Nigeria	2020	Developers accused startup CEO of extortion and underpayment for jobs and services they offered.	2020	CEO stepped down to allow for an independent investigation to be conducted. In the interim, co-founder and COO of WeJapa, took over the reins of the company.	2021
7	Gokada	Nigeria	2017	Co-founder, Deji Oduntan, resigned over unconfirmed reports of internal squabbles between members of the management team over funds management. In 2018, staff and software developers also exited the company enmasse, citing uncertainty about the company’s future. Ayodeji Adewunmi, Oduntan’s replacement (as Gokada President and Co-CEO.) also reportedly left the company in 2020.	2019	–	–
8	Ushahidi	Kenya	2018	Allegations of sexual misconduct against co-founder, Daudi Were.	2017	No official report, but co-founder proceeded to found a little known company Mikakati since 2018.	–
9	Tizeti (Wifi.com.ng)	Nigeria	2017	Allegations of sexual misconduct against CEO of the company, Kendall Ananyi, by a former Entrepreneur-in-Training at the Meltwater Entrepreneurial School of Technology (MEST).	2020	An independent legal counsel found, based on investigations, that no case of sexual harassment had been proved, a finding that was accepted by the Independent Special Investigation Committee. As a result, Tizeti’s CEO, Ananyi, has since been reinstated.	2020
10	Alternative Circle	Kenya	2016	Allegations of sexual misconduct against, against CEO Anthony Kariuki.	2017	–	–
11	Custos	South Africa	2014	Sued by investor HAVAIC. HAVAIC was said to have signed a termsheet with Custos Media Technologies to close a convertible loan investment by HAVAIC and its investors in Custos. All of the investment arrangements were agreed upon, and Custos confirmed that the terms had been authorized by their board, the VC said. According to HAVAIC, Custos then breached the agreement and opted not to proceed with HAVAC’s investment. Custos CEO G-J van Rooyen, on the other hand, refuted this claim, claiming that the business did not sign any agreement with HAVAC and that it was within its rights to reject its investment offer.	2020	Custos and HAVAIC reached an agreement on the 30th of November 2020. The dispute was said to have been settled in a friendly and discreet manner.	2020
12	Springleap	South Africa	2007	The New York Attorney General arrested founder Eran Eyal on August 23, 2018 and accused him the next day with stealing $600,000 from investors by fraudulently soliciting investors to purchase convertible notes through false representations about his company, Springleap.	2018	Eran was found guilty, in 2019, of cheating investors out of millions of dollars in three investment schemes, including a $42.5 million (R615 million) initial coin offering, by a New York court (ICO). He was finally deported to Israel from the US in 2020.	2019
13	WhereIsMyTransport	South Africa	2015	Internal employee squabbles suggested the company was in deep trouble, partly caused by mass retrenchment.	2018	Retrenchments occurred as a result of the company “going through a growth phase” and the necessity “to bring people of various experience into the business who are more focused on delivery and go to market,” according to WhereIsMyTransport.	–
14	iROKOtv.com	Nigeria	2011	By forming the firms known as africagent ltd. and freemedigital to operate the business of digital music distribution and offering other entertainment promotional services, iROKOtv.com sued former senior manager for breach of contract. According to iROKOtv, this is a violation of the non-compete and confidentiality duties outlined in the employee non-disclosure agreement signed by both parties on December 1, 2011.	2015	Court ruled against iROKOtv.com	2020
15	WiGroup	South Africa	2007	The company’s chief financial officer (CFO) resigned amid a “financial mismanagement” saga that struck the company. The incident unfolded just months after the company received funding from Virgin Group and retail solutions vendor Smollan to help it enter new and developed markets more quickly. The company had previously requested a forensic audit and as a result had been compelled to restructure its operations and downsize its workforce.	2018	–	–
16	SWVL	Egypt	2017	Several former Swvl employees, including the engineering team, gave Facebook testimonials regarding claimed cases of arbitrary dismissal, maltreatment, labor law violations, and a general atmosphere of discomfort and dread inside the company’s suburban Cairo headquarters.	2019	Founder has been making bold public relations moves to clear the allegations.	–
17	Dunamiscoins	Uganda	2019	Following 4,000 investor complaints, two of the company’s directors, Samson Lwanga and Mary Nabunya, were charged with 65 counts of collecting money under false pretenses and conspiracy to conduct a felony.	2020	Under litigation	–
18	Bitfxt	Nigeria	2016	Investor-startup squabbles that led to the startup $15m funding returned to the investors.	–	Funds invested repatriated to investors’ base.	–
19	Safeboda	Uganda	2015	Rancorous relationships with riders in Kenya	2020	Business operations shut down in Kenya.	–

Based on reported cases.

Some Time-tested Recommendations On Managing Internal Conflicts In Startups

Strong public relations strategies: A startup should have strong PR strategies that will assist in managing its public image. This includes establishing friendly relationships with the press, etc.

Placing all official communications under ‘CONFIDENTIAL’, ‘WITHOUT PREJUDICE’ or “SUB JUDICE” to prevent unfavourable communications from leaking to the public without consequences.

Timely and effective employee crisis management strategies. Strategies should be decisive, fair and not prevaricating.

Entering into standard contracts with co-founders with clear clauses on communications, vesting, cliff and exit periods.

Strict due diligence on investors before acceptance on offers and investments, especially if the investments will involve some significant dilution of founders’ equity.

Crisis management off public radar. Internal disputes should strictly be treated as internal affairs.

Unethical conducts should also be handled off public radar, if practicable.

Strong and professional leadership from the CEOs. CEOs should limit the frequency of unnecessary vituperations on workers.

Use cool-off period and rebranding if the situation created by an internal impasse becomes severely unfavourable to either the startups or the affected persons.

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How African Startup Founders Handled Exit From Startups They Founded

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

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

How We Built a Startup that Produced 5x the Output

December 28, 2019

We deployed five different product offerings during the same period at less than half the cost of other startups of the same size.

Startups have been in my blood for the past two decades. Most startups failed for various reasons. Not a good product/market fit. Founders were inflexible for pivots. Too many pivots. Mismanagement of funds. Hired too early or built an ineffective core team. All these factors and a combination of others can lead to business closure before establishing a stable revenue stream.

Mistakes will be made along the way, but staying agile and nimble with small and frequent course corrections will allow companies to navigate back to a successful path. With a solid foundation built across the disciplines, handing the keys over to a new owner is redemption of previous failures.

Multiple factors contribute to success but will vary depending on industry and audience and their specific requirements. My focus will be catered around our last SaaS-based business platform and how we managed to get more done in the same period versus other startups.

Vision / Founder(s) / Funding

Ideas are fleeting and not worth the secrecy or paper on which NDAs are written. Ideas without execution fall short of a vision. A vision is what drives founders to risk their time, sweat, tears, and sometimes their money, into a venture.

A solution looking for a problem to solve usually fails to gain traction, whereas identifying and solving for an existing problem has a higher likelihood of pulling in investors for a seed round.

It is possible to raise too much money in any funding round, depending on dilution and projected valuation. You should only raise as much as needed to go to market within 12 to 18 months, with additional rounds following a similar pattern. There is a possibility that an innovative tech-based solution may generate an overabundance of interest with the likelihood of turning away investors.

The visionary founder usually stepped into the CEO or CTO role but wore multiple hats before hiring additional staff and resources. They should look into hiring subject matter veterans as a good foundation for the core team.

The founder(s) should quickly adapt to the tech landscape and welcome risks of emerging technologies which can launch their product to market quicker while being frugal with the funding. They’ll trust the assembled team has the experience and technical merit to transform the vision into a business.

Acceptance of criticism and feedback should balance passion as building blocks toward a stronger base of leadership. A founder should start as an individual contributor to get their hands dirty in the trenches before commanding the troops. Knowing the pain points of each department first-hand is the only way to understand how to fix them.

Our founder had executed on his vision, discovering a problem that plagued most businesses, including the current company he was leading. He decided to carve out some of his time to incubate this idea into something concrete by discussing it with colleagues and shopping around mockups to illustrate his concepts.

He had a voracious appetite for learning quickly, soaking up knowledge from everyone he engaged. With unfamiliar terminology, the next day, he was able to slip it into his sharp cadence of talking points. The context showcased his understanding as if he was the subject matter expert. He had high emotional intelligence and empathy for his colleagues. What he taught me was to identify and promote an individual’s “superpower” while coaching and strengthening their less-flexed muscles.

Working with a founder who can understand the needs of every department, but allowed them to make expert decisions, eased the friction inherent between superiors and subordinates within a traditional corporate structure. It reduced the decision churn and roadblocks, avoiding stalled initiatives.

Mission / Values

For a vision to permeate throughout the company, a mission statement should be written to convey a feeling of solidarity and purpose. Supporting the mission statement should be a set of values that define the qualities governing behaviors critical to the cause.

One of our values that drove high production rates was “Leave your pride/ego at the door.” Regardless of title, tenure, or pedigree, everyone pitched in to get the job done.

We knew building a system from the ground up with modern web technologies would outpace the titans of the human capital market stuck in development molasses.

Fake It / Market Fit

The old cliche used in and around the startup world, “fake it before you make it,” is a practice which allowed early-stage companies to experiment and hone a product. It allowed testing for market fit before a line of code was written. A demo should be built using hi-fidelity or click-thru mockups to garner feedback from friendlies or early-adopter customers. Refinement from test-marketing these early prototypes should be iterated quickly to keep them involved and interested in the process.

The founder(s) should have created a pitch deck or business plan, which includes the problem definition, the solution, value proposition, staff and revenue projections, and ROI strategy. There should be multiple variations of the pitch deck curated to three specific audiences.

The first deck would be catered for investors to convince them to give you money. The second deck would target potential customers to persuade them to buy your product. And the last version would be used to entice future employees to join your company.

Early prototypes were used to sell our vision to sister companies who had similar problems and was searching for a solution. Using the customer-based deck along with mockups returned positive feedback and verbal acknowledgments, exposing an underserved area in the HR space. The anemic area was ripe for a complete solution. Legacy systems, built on old technology, tacked on substandard features simply to tick a checkbox in their offerings.

We knew building a system from the ground up with modern web technologies would outpace the titans of the human capital market stuck in development molasses. This validated our product/market fit and gave us a boost to move forward.

POC / Prototypes

Quick proof of concept (POC) projects and click-thru prototypes set a base for production-ready and user-friendly applications. Having a prototype quickly in front of users helps identify gaps or intices additional suggestions for a tightly-coupled feedback loop.

Fail fast, fail often is also a mantra thrown around startups that should be one of the founding principles woven into the company’s value. Waiting for perfection is a formula that will slow the process; instead, an iterative approach is vital to show progress and perfecting a product.

People / Talent / Structure

A small, focused core group of experienced A-players driven by a determined set of leaders, will out-perform a younger, less experienced team, regardless of their ambition and grit.

A flat structure should be established at first with minimal or no middle managers. A bad hire at an early stage could set back the company months. Multiple bad hires could wreck the company altogether. Establish a quick way to vet and hire candidates with a corresponding willingness to fire them as quickly.

Hiring too early for an idealized corporate structure will cause waste in terms of time, money, and effort. Generalists should be considered for core team members, while specialists can be brought in as needed in later stages.

We had a few missteps in hiring because we wanted to fill positions we thought would move us forward but instead set us back. It was too early. Not only did this cost us stress, money, and time, but it may have interrupted the career paths of those individuals we dismissed.

Vetting for requisite skills and talent overshadowed the need to evaluate a key criterion: the ability to overcome the culture shock of being transplanted from a structured corporate world, with significant support teams, into a startup mentality. We readjusted our hiring strategies to align with shorter-term company goals and accounted for a candidate’s resilience to change.

Our core engineering team of six outstanding members were rockstars who built the foundation and created the initial frameworks based on a progressive trailblazing technology stack. They were prolific coders who left their ego at the office door before coding at their keyboards.

We were able to accomplish feats of astounding progress throughout the years due to our talented server engineer and data architect. During the pioneering days of Node.js, we had to build most mechanisms ourselves. These included an event bus, pub/sub queuing, UI persistence, and caching. All of these homebrewed systems helped us own a unique codebase which can quickly be debugged when an issue was reported.

We were able to hire top engineering talent throughout the years who used their experience to springboard their careers into companies like Google and Amazon. Others branched out to become tech leads or founders of new startups.

As the talent started drying up, we dipped into the code academies’ graduate pool and found great developers looking for an entry into the tech world. This allowed us to enhance the makeup of our diversity. Our engineering team had over 40% of female staff, representing the same percentage company-wide, which was doubled the average in the tech industry.

A stack using the same programming language across all layers with a homogenous transport mechanism sounded like a dream.

Tech Stack / Open Source

Choosing the correct tech stack for building out the solution will affect the production cadence. Being faster to market on innovative features will steer customers to your product, even though larger, more established incumbents exist in the same space.

Some industries will influence the tech stack choice, while others are open to using the latest-and-greatest development language and tools available. The rising popularity of a framework may drive the tech lead’s decision, or it could pivot on the comfort of knowledge towards a specific stack throughout a leader’s career. Rarely does a tech lead deviate from their comfort zone, but those who challenge the status quo may be the one factor that disrupts the space and attracts top talent.

Our choice centered around context switching and fragmentation of languages. It was a conscious effort to reduce both of those factors to increase the speed of development. Even though we would be pioneers using this tech stack, the benefits outweighed the risks. A stack using the same programming language across all layers with a homogenous transport mechanism sounded like a dream.

That dream became a reality when Node.js was introduced to the world. Married to MongoDB, it became the powerhouse which gave us the springboard to outpace our competitors. Adding Google’s Angular.js for a front-end framework was another competitive advantage. Being fully open-sourced was a natural fit towards a lean startup mentality.

The significant advantage gained by using MongoDB was the speed of development. MongoDB is a NoSQL, schemaless storage engine with a rich and robust query language based on the JSON format. Designing a data architecture using documents, without the need for complicated table joins, allowed very fast reads. The mutability of structure added to the quick iteration through design, testing, and release of new features.

With Javascript and the JSON format used across all layers of our application, we transitioned into full-stack developers who were able to cross those boundaries easily. In turn, they shed the cost of context switching and eliminated the dilution of their knowledge with fragmented language concepts.

When we first adopted these new technologies, a Google search for “Node.js” barely returned results. We did not imagine other established companies were on a parallel journey with us, using the same components of this stack. These companies started converting their older platforms to use Node.js within significant systems. Adoption of Node.js by accomplished companies like Netflix, Groupon, Orbitz, Walmart, LinkedIn, Uber, PayPay, and eBay acknowledged our decision was a fit choice. It finally accumulated enough mainstream traction to attain an acronym, coined the MEAN stack.

One former employee adopted our entire tech stack and introduced it as a way to increase their productivity at a major logistics brokerage company. They have built a sizable team around the technology switch and is one of the most innovative companies in their space due to their speed of development.

Today we have continued to promote and use variations of the MEAN stack replacing the front-end framework with React (MERN) or Vue.js (VENoM). It continues to outperform other stacks across multiple criteria: cost of development time, broad community support, increased performance (non-blocking I/O — asynchronous programming), lower memory footprint, lightweight framework, and unparalleled commercial adoption.

Hiring / Onboarding / Training

Most of our early hires were through referrals or known associates. Eventually, our needs grew enough to hire an internal recruiter to churn through hundreds of resumes a week. When a noteworthy candidate was identified, we sent out a small code challenge to further weed out the weaker candidates or imposters.

If a solution to the challenge was returned, it was graded based on several criteria which indicated their level of experience. The candidate is then invited to an in-person office interview, where they will meet other team members and participate in a mock code review of their solution. This will further ferret out candidates if they cannot clearly articulate their thinking process while answering code-review questions.

If the candidate receives a positive consensus, an offer may be extended on the same day, moving them forward to the onboarding process.

Having a defined and quick onboarding process helps with productivity. The goal is to have a new hire up and running by the end of their first day. For engineering staff, they are assigned an onboarding buddy (who happens to be the last hire through the process).

New developers then joined a training team and assigned their first project, which is usually a low-level defect or smallish project. We called this training group, the Strike Team. Their goal, within the first week, should be a submission of their first pull request (PR). Also included should be scheduled 20-minute discussions with each of the engineering leads, product group, and other department heads. Any follow-up discussions should clear remaining questions about the team roles, responsibilities, code-base, and development process.

New hires are also allowed to be recruited by squad/guild leaders for exposure into their realm. By the time they graduate from the Strike Team, they will have an idea of which squad/guild they’d like to join. These guilds included: UI, Server, Data, Mobile, Integrations, QA, and Strike.

Infrastructure / IaaS / PaaS

Going to market fast can’t wait for an infrastructure to be built. Setting up servers, routers, phones, redundancy, security, business continuity (BC), and disaster recovery (DR) requires a substantial amount of resources and time. Reducing or eliminating the use of on-premise equipment refocuses all the efforts of an engineering team towards coding solutions instead of tinkering around with hardware setup.

Moving to a cloud-based infrastructure using combinations of services like Amazon AWS (infrastructure as a service — IaaS) and Heroku (platform as a service — PaaS) eliminated the need of an internal dedicated DevOps member. Both of these services have robust APIs, which allows developing scripts for quick setup, maintenance, deployment, and scaling through an automated process.

A lean startup could not house a big enough DevOps team to match the 24/7 capabilities of entire organizations dedicated to the maintenance, backup, redundancy, disaster recovery, security, and business continuity of your infrastructure. Using an IaaS or PaaS vendor gives you an entire DevOps team at hand to leverage their expertise in what they do best.

Plan an infrastructure for a worst-case scenario where the office has no power or possibly destroyed through fire or natural disasters. The SaaS platform should continue to hum along even if your headquarters have internet issues or leveled by a Category 5 hurricane.

We leveraged AWS S3, AWS CloudFront, AWS CloudTrail, AWS Lambda, and Heroku. Our MongoDB instance was also hosted on cloud-based services. We did not use Docker or Kubernetes because Heroku handled it through building out slugs (Heroku’s version of containers) and supported pipelining between environments. We were able to scale, release, and promote features through simple UI controls.

QA / QC

Once a product hits the Beta milestone, unit-tests will not cover edge cases observed in the wild. A dedicated QA lead and team should be brought in to help ferret out defects. A good ratio of QA staff to developers is three developers to every one QA tech.

As the product grows, automated end-to-end testing should be added. A QA tech should lead the effort, recruiting developers to help write automated tests along with unit tests.

Leverage QA skill to help fix minor defects they find, by setting up QA machines as if they were developers. Train QA members to fix mistakes like typos, language files, and small CSS issues. Have them check those fixes into specific feature branches. This may have the added benefit of defining a career path for a QA tech to move from testing to development.

Let QA dictate the release cadence by allowing them to deploy and promote features. Isolate those feature branches into separate test servers before they are merged and deployed to an integration server. Since QA controlled the last gateway before the code went into production, it was logical to allow them to sign off and merge those feature.

We had multiple testing environments for QA to deploy features in isolation, which allowed them to target only the changed code. Environments for each guild type were also available for teams to deploy and test in a simulated live environment versus locally on their development machines. Exposing the feature opened it for stakeholders to access, verify, and validate it was working as designed.

Our QA leader increased coverage of tests by hiring an out-source company in India to augment our testing. She led an effort to set up a deployment server, allowing the remote QA team to deploy feature branches and test during off-business hours. This doubled the testing coverage across all of our products.

No precedence or articles existed described such a process. Internally we dubbed it zero iteration based development.

Process / Planning / Release

An established software development life cycle (SDLC) and the process around planning defines the cadence of releases to end-users. The agility to alter this cycle and flatten out roadmap speed bumps will increase the velocity of developed and released features.

Releasing features more frequently exposed issues earlier for real-world use and feedback, tightening the iteration loop, and allowing us to polish the product quickly. Development teams were able to push new releases as fast as they were coded, until paying customers started using the platform.

We organically grew into a weekly release cycle, intentionally not aligning with development sprints. QA would control the releases, in coordination with Product and Customer Success teams. QA being able to deploy, merge, and promote features allowed full control of the release cycle, including major, minor, and hot-fix releases. QA worked in a Kanban fashion, where features were cued up and dropped into the release when ready.

Development spans were usually planned into 2-week sprints, with larger projects spread across multiple phases. Deployments were scheduled weekly for Thursdays, during the day, with 100% uptime using the pre-boot feature afforded to us by Heroku. Sprint grooming, planning, and retroactive sessions were held on Friday mornings.

Eventually, when we documented our process, it did not match a traditional agile pattern but was based on time slice iterations. A feature being currently developed would represent the present time slice (T Zero). Developers would be working on the zero iteration. QA would be testing T-1 features, one iteration behind the development team. These were coded and approved pull requests (PR) waiting in a queue.

The Product team would be working on defining and writing specifications for T+1 features, one iteration ahead of development. Designers created mockups and wireframes two iterations ahead of development, working on the T+2 slice. Customer Success and Marketing would work in the T-2 slice, which was features tested and released by QA. Sales worked in two different slices: T+2 and T-2 slices. Sales had to market new upcoming features and promote already existing features.

T-2: Customer Success, Marketing, Sales
T-1: QA, UAT
T Zero: Research, Development
T+1: Product
T+2: Design, Sales

No precedence or articles existed described such a process. Internally we dubbed it zero iteration based development.

Multiple features across a few different squads were being developed in parallel. At any time, there could be five or six projects being engineered at once, one for each squad. When a larger initiative was launched, members of specific squads broke off from their group, swarmed into one large team, and pounded on their keyboards until completion. Once developed, they disbanded and returned to their respective squads.

At one point in our journey, developers were extremely prolific in their coding, which resulted in over 80 pull requests (PRs) slated for testing and deployment. We had to slow down and shifted our attention on helping QA test, merge, and deploy those features out to production. After our QA swarm, we were back down to our typical set of five to ten PRs in the queue.

Product Design / UX

Initial product design and management responsibilities landed on the founders, but eventually, the product grows big enough to demand a full-time product manager. The first product manager (PM) is a crucial hire to be added to the core team. They will evolve into a director of product and lead a team of their own.

The PM should have the ability to take on raw visionary concepts and convert them into wireframes and stories while incorporating their ideas smoothly along with a sense of design. During the early stage of a startup, PMs should seamlessly interact with almost every department in the company, switching hats effortlessly through the same stream of consciousness.

User interaction (UX) and UI design tasks also fell into the PM bucket, until the abundance of planned features starts to spill over. At this juncture, a UX lead should be hired to standardize the design across all products. A consistent look-and-feel and design language spanning the product offerings helped users transition smoothly across applications while flattening any steep learning curves.

Well defined stories and specifications drive efficiencies in development, testing, documentation, and validation by creating a blueprint of reference across all departments. When using the specs as an established reference, a feature moving from concept, through production, release, training, and support rarely gets snagged in a fast-paced assembly line.

Through a sister company, we had a successful introduction to a talented PM who we convinced to start with us, turning down an out-of-state job offer. It was a mutual risk on both sides, which resulted in an incredible hire.

Mobile App

A mobile application or mobile-friendly website helps engage users that are not tied to their desks. Targeting those organizations that are geographically dispersed with an easy interface providing the essential functions of your product is key to high engagement.

We planned to build a mobile app from inception and deployed to both iOS and Android platforms early in our roadmap. Using the same web technologies with a native wrapper allowed us to produce, update, and extend our mobile offering quickly to our users.

A major selling point to our platform was due to the tight parity between our mobile and web apps. With a dedicated internal squad working on mobile, we were way ahead of our competition, while other startups outsourced their mobile production.

Meetings / Standups

During the early stages, a majority of the day was spent in meetings, but as things fleshed out, they subsided. Weekly status meetings held steady, while operational meetings were called as needed.

Bringing Slack into our communications toolbox reduced email churn and eliminated some one-on-one meetings. Most meetings were reduced down to three major concerns: roadblocks, announcements/decisions affecting the participants/company, and show-and-tell. The exceptions were sprint planning, grooming, kickoffs, and retrospectives, which had standard concrete agendas.

Development standups were scheduled daily, 10:30 in the morning, as needed, and should last five to ten minutes. Each squad/guild can run them as they desired with specific agendas, as long as it moves the process forward. A weekly Scrum of Scrums (SOS) was held for significant announcements, shared by each squad/guild to sync on current projects or team building events.

In the end, it propelled us to the top of our space, caused us to grow at a faster pace as we produced our best work in a frenetic sprint of focused passion.

Pivots

When the initial execution of the business does not gain the expected traction, then it’s time to explore the possibility of a pivot. This change may include a reduction in staff, a refocus on a niche audience versus broad-spectrum, or, concentrating on specific types of campaigns.

One of the most successful pivots that have been publicized is how Groupon pivoted from a group activist site to a group purchasing site. Groupon started as a site called “The Point.” It promoted social activist campaigns that had required a specific number of users to sign on until it reached the tipping point for action. In 2008, one of the most famous and outrageous campaigns was to suggest building a dome over Chicago to control the weather, for a mere price of $10 billion. It had pledges of over $100,000 in a few days, but it never reached its tipping point.

The most popular campaigns that The Point promoted where group purchasing campaigns, where it would solicit bargain pricing from local retailers if it garnered enough pledges from users. The rest is history as they changed their name to Groupon, concentrated on discounts purchasing deals, and dominated the market.

Our pivot wasn’t quite as dramatic but organically grew from demand in the market place. Our vision was to cater to an underserved niche in the HR space, where SMBs were neglected. The projected revenue growth in this space gave us our hockey stick graph, but reality did not meet theory or the might of will. The amount of time and effort required to land an SMB account was about the same for Enterprise customers, but with an almost 10 to 20 times return on investment.

This switch affected all departments, but pushed us in the right direction, and forced us to optimize and scale to support a more extensive customer base. We had a staff reduction in the sales department but increased members of the engineering team. Moving from serving 5000-employee SMBs to 100,000-employee enterprises was a shift that taxed us mentally, financially, and physically. Weekend work was the norm until we launched our first enterprise account.

In the end, it propelled us to the top of our space, caused us to grow at a faster pace as we produced our best work in a frenetic sprint of focused passion.

Acquisition / Lather, Rinse and Repeat

If a startup has a foothold in their market and sticks out as a leader in the space, then suitors will be looking to acquire you. We were acquired by a private equity firm which had the resources that can move us to the next level of our growth.

There were many other factors involved with our successful acquisition, but the ones outlined were the most influential, producing the most results in a short span.

These factors interacted and comingled to produce a perfect storm of rapid growth, leading to a successful exit. We were the same size as other startups but were able to deploy five different product offerings during the same period at less than half the operating cost.

The excitement of building something out of an idea is why I continue to stay under the startup umbrella. The combination of talent, process, grit, determination, and the prospect of opportunity and learning pushed us to strive for success that others took for granted. The early days were filled with doubt and the unknown, encouraging a small group of passionate founding members to sacrifice every ounce of energy towards a shared goal.

We became a second family that celebrated the wins and bore the losses; lessons learned to be used as tinder for the next endeavor.

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

10 Important Startup Lessons For Founders And CEOs

December 15, 2019

Managing Director and Global Head of M&A at VantagePoint Capital Partners

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.

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.

Mitch Zuklie serves as Chairman and Chief Executive Officer of Orrick, an international law firm.

Charles Rapulu Udoh

Four Years & Two Million Dollars Later, Lessons from a Failed Startup

December 9, 2019

Bassel Idriss, Co-Founder & Chief Executive Officer — Formidable Microfactory

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