One of the side effects of my line of business is that I get to spend a lot of time meeting , talking to, networking with and working with many so-called start-up entrepreneurs. More often than not helping them to overcome an issue which from what appears from the outset as a technological problem but after further analysis actually stems from deeply rooted business problems.
I have recently been engaged on a number of these types of projects by being parachuted in to see if I can provide assistance in turning around the fortunes of company’s which have effectively become Zombie company’s but they still fail to acknowledge they have achieved such a salubrious status.
Many still cling to the hope that they will gain the funding they need to achieve their outlandish growth objective if only they can gain the funding on Seedrs, Kickstarter or any other popular crowd-funding platforms of choice.
For many of these types of organisations, it isn’t the first time they have visited the mythical money tree in order to secure the funding for their particular dream of disruption. It’s often their 3rd or fourth visit, inevitably after they have well and truly exhausted the other avenues of traditional bootstrapping, the 3 F’s of start-up finance comprising of Family, Friends and Fools.
I have previously discussed in Why is it so hard to make money from software , why many of these companies fail because for the most part, they think their idea is unique or is the only thing of real value. Despite the fact that this is proven time and again that an idea by itself has no value and is almost always dependent on the successful execution and implementation of the idea.
The primary reason why these so called entrepreneurial startups actually need to visit to market for funding is primarily they have failed to secure the most important form of funding any successful business needs – cash paying customers!
The CTO Dilemma
In almost all cases my initial meetings with these organisations I get to meet the guy who has been labelled as the CTO – Chief Technical Officer – in order to establish where I can help to provide the technical assistance to roll out the features which are perceived to be the pre-requisite for total market domination! However, even after two minutes of discussion, these are nothing other than alternate technical forms of Marshmallow cushions, candy rainbows, chocolate fountains and unicorns!
I can almost always guarantee, when I ask if there is any formal documentation of the development road map, that no there isn’t one which is often followed by
We like to keep things agile and fluid and need the flexibility to pivot
In actual fact this is Silicon speak for Bovine Dollops, which immediately tells me that root cause of the problem is that there just isn’t a strategy at all. For most of these CTO’s it seems that development strategy stopped when they decided they would use Node.JS, Ruby On Rails or any other concoction of software frameworks in order to deliver the wild assertions that the market needs a set of features!
Another guarantee I can provide, is when I ask them for the reasons why they have chosen the particular components of there system architecture, I’ll almost always be provided with Scalability, Performance and some kind of best of breed blah blah blah!
Which may sound impressive until you take a little peak under the hood and discover that the implementation and execution just do not reflect this. Primarily because code only reflects the standard of the management. It’s almost inexcusable that this should happen especially when Eric Ries took the time and effort to document these shortcomings in his book The Lean Startup: How Constant Innovation Creates Radically Successful Businesses
In my experience, a majority of the CTO’s I encounter seem to think their key responsibility is to be the technical expert of the organisation. The truth this is only one-third of the job requirement. The other two components are the most vital and they are understanding key business objectives and devising the profitable technical solutions should they be required. It’s understanding the existing systems and working within them to optimise for profitable solutions. New system development should not the first resort, Developing new software solutions, should be always be carefully considered, primarily because new software projects generally have 60% risk of failure, this doubles when there are no coherent and optimally defined business objectives and strategies.
To be an effective business CTO, one needs to have a solid business knowledge in order to define valid business solutions.
Getting down with the basics
My next favourite tactic is to ask the CTO to reveal the traffic figures of the application, in order to ascertain just how well the application if coping with the aforementioned scalability and performance challenges, only to find that this humble personal blog you are taking the time to read actually completely dwarfs their daily traffic count!
I haven’t taken any exceptional strategies and to be brutally honest I have not invested great swaths of money and effort into it. Yet, this blog is profitable in the aspect that it brings in more money that is spent on it every single month! For the most part, this blog is more profitable in pure percentage terms than most of the businesses I have consulted with over the past few months.
The other thing this blog has in common with those businesses is that it quite simply wouldn’t be able to sustain me in any shape or form. However, given the right care and attention with a sustainable and carefully implemented strategy it could.
Identifying Gaps in the market
In yet another bullet point of Woody’s list of why your start-up is failing is you may have identified a gap in the market that explicitly exists because most of the businesses that entered that gap failed just like yours is going to!
In 9/10 times there is a very good reason why a gap exists in the market and why you’ll also have a 1/10 chance of filling it! In most cases, it is because the gap simply isn’t profitable enough to fill and other organisations are making more than enough money where the gap doesn’t exist.
The secret to succeeding in the gaps is that you really do need a clear, comprehensive, well thought out and focused business strategy. Which can only be gained from a clear understanding, research and analysis.
This never includes inventing a solution to a problem you want people to have but you have to provide a solution to problem that people actually have. In most cases, your starting point will be an alternate take on an existing problem.
Netflix, is a primary example of this, they didn’t invent the hiring of movies. They didn’t even invent the concept of the hiring movies through the post, those particular trails had been blazed by numerous other contenders in space. However, what they did is that they just focused on delivering the right experience.
Over time Netflix, has continued to maintain that laser focus in identifying and exploiting niches within niches on how they can prosper. It’s all down to execution and strategy.
Over time Netflix has gradually evolved into a somewhat complex and unique business and can even in some regards call itself a technology based business yet in other aspects it is not reliant on its technology its technology aspect is just one of the many spokes in its wheel of business.
You are not unique
Over the years I have lost count of the times people have told me that their particular business idea is unique, or even how unique their solution is. The truth, no business idea is ever unique, in fact another one of my guarantees is that somewhere on this planet there are people working in garages, coffee shops or even bedrooms on exactly the same business idea. Some will give up, some will become distracted and others will move on to other more profitable ideas.
There is no advantage or wasting time thinking about unique business ideas. Instead, you should focus on the elements of your business idea that returns the highest percentage of profits. People don’t buy ideas, they buy solutions to problems they have!
Over time while ensuring your business is profitable by delivering the right mix of products and services to a loyal customer base, you will earn the right to call your business a unique business. You don’t just create a unique business out of what you think is a unique business idea.
Unique businesses are not created they evolveunknown
You are not a technology business
I hear time and time again that these new businesses almost always consider themselves to be technology businesses. Yet when taking a look at their code bases there is absolutely no evidence of this at all.
In fact, there is hardly any evidence of Patent-able solutions to problems and in most cases they have only correctly assembled the right blocks from previously existing solutions. I.e. Using the same Ruby On Rails Gems other startups have used to address similar problems.
In a large majority of cases, businesses who think of themselves as technology businesses are only using technology to deliver solutions to problems that nobody has!
The most disconcerting aspect of this, is that most CTO’s could bore me to death about the competitive advantages their particular technology platforms of choice, or even some of the great features and aspects of other platforms they evaluated. Yet, can’t for 1 minute tell me why there solution is not profitable or why engagement or take up of their system is so low! Fundamentally that is the sole responsibility of the CTO is ensure that the technological solution delivers value to the business.
As an investor, I care little that I have the fastest solution to a problem that nobody has instead I am more focused on extracting as much profit from a solution as possible. It completely mesmerises me that so many CTO’s fail to make this correlation.
Many hands do not make lighter work
Discussing technology problems with CTO or even CEO’s for that matter will often come round to the question “What is the ideal size of the team you need to solve the perceived issues and workload” . If I haven’t heard the answer 10 a thousand times, I haven’t heard it once.
On the face of it, 10 does sound like an ideal answer, in fact, if I’m honest in an ideal world that would be exactly the size of the team I would want. However, when you break down the figures 10 is not really an ideal number at all. For the most part, it is a number that will sink many start-ups.
The truth is, because 10 People will cost you 10x the burn rate a month, that is irrespective of which currency you use to calculate and budget your costs. Primarily because 10 people will require 10 computers, 10 office chairs, 10 desks, 10 office desk spaces, 10 coffee mugs, 10 salaries, 10 of almost anything you can think of.
The downside is staff, count of 10 almost never translates into 10X productivity and profitability delivered. In most cases, in all likelihood, the maximum return you’re likely to experience is between 45 to a maximum of 60% return on that investment on a month to month basis.
So potentially you’ll increase your burn rate by 100K a month to in the best case scenario expect to return a 60K maximum. It doesn’t take a mathematical genius to work out that the figures just don’t add up!
The moral of the story is, if anybody tells you that in an ideal world for them to succeed they will need a team of 10, they are never going to be the right person to deliver what your business needs.
The correct answer to answer to the question, is almost always going to be dependent on what the figure and objective the business is trying to achieve. The true answer is that there is no ideal figure to a team size it is always going to be constrained by the needs of the business even in an ideal world!
In order to be a good CTO or even to provide real business value to any business it takes a lot more than boring the socks of anyone about the technical features or advantages of your solution. Your core responsibility is to deliver profitable solutions!
The key skill you need to succeed is being able to understand and deliver profitable solutions and not about working with the new shiny to deliver scalable, adaptable and high-performance solutions to problems nobody has!
A unique background as business owner, marketing, software development and business development ensures that he can offer the optimum business consultancy services across a wide spectrum of business challenges.
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