Starting up in 2013…

 

Through 2012, you may well have seen a fair number of examples of UK entrepreneurs ably demonstrating two key skills they apparently have in abundance:-

1. Moaning how US startups are plainly in a vast unsustainable funding bubble (but can we have some of that here, please?)
2. Moaning how UK startups are plainly in a vast unsustainable non-funding lull (and why-oh-why can’t the government fix it?)

Yet as we move into 2013, both of these are ringing quite hollow. Unless you’re trying to get a refund on an unflattering top from a department store, moaning does not give you any kind of competitive advantage. Moreover, moaning about something that isn’t actually a problem is just pathetic.

For example, the real reason US startups are in a funding bubble is because (a) an unbelievable number of startups try to start up every year in the US, (b) US entrepreneurs are actually quite good at getting startups going, and (c) they genuinely try to create A+ startups with a real possibility of scale, for which ambitious VC-class investment is a sensible path. Contrastall  that with UK startups’ business plans, most of which seem to be based around C-grade social media hacks. Somewhat unpopularly, I would argue that it is UK entrepreneurs’ collective lack of ambition and vision that has made an effective seed-level VC sector pretty much untenable in the UK.

If you want to change this whole game, aim higher, go bigger, and astound the world.

But it is the non-funding lull moaning that makes me even more annoyed. Too many entrepreneurs assume that their only possible way to make a workable company is via a financial leg-up from someone else’s money. Yet the entire business landscape has changed: have they not noticed eBay, Amazon Marketplace, and a hundred other diverse routes to market that have opened up in every crack?

In fact, I would go so far as to say that a 2013 business plan that specifically relies on someone else’s money to make things happen is nothing short of dead in the water. Rather, a workable 2013 business plan says:

1. Here’s how my company is making money right now in niche sector A
2. Here’s the size of the much, much larger market B it can address if you come on board with £300K
3. Let’s get to it…

The most damaging thing about seeking funding is when it absorbs so much of your time and effort that it ends up costing you your company. So don’t do that: the sexiest thing you can put on a whiteboard is ongoing sales. Prove that you can both sell and deliver, and people will want in, big-time. Make that your goal in 2013, OK?

Influence, sway, pressure, persuasion, control…

For ever and a day, startups have written business plans - miserable, useless, charm-free slabs of cruft that serve no obvious purpose other than killing trees. Presuming that you did want to kill trees, of course (though personally, I try not to).

And so it should be no great surprise that I hate startup business plans, I really do. And though I have a hundred or more different reasons why this should be, they all boil down to one useless little lie entrepreneurs try to foist upon an disbelieving world: that they can control stuff in the outside world.

But they can’t – in fact, most entrepreneurs can barely control the stuff they’re building and/or doing internally, never mind anything roaming wild far beyond their work desk. Control falls in the realm of persuasion and politics (not in the sense of party politics, but of business politics), and we must have hundreds of ways to describe its shaded variants – influence, sway, pressure, give, push, shove, edge, nudge, wink, pull, yield, desire, want, need, hypnotize, beg, plead, offer, tempt, horsetrade, negotiate, and so forth. If you can’t outright control your customers’ behaviour, how do you plan to influence them? How do you plan to tempt them? How do you plan to sway them? These are things you really need to be honest about (both to potential investors and to yourself), because if you do somehow get funded (despite your rubbish business plan) these form the meat of what you’ll actually be doing for the next five years.

Yet how many times do you see any of these ‘shaded control’ words in a business plan in any way that that goes beyond mere buzzword bingo? Hardly ever, I’ll guess, even though these are arguably the key activities and forces which determine startup success and failure more than anything else. Given that (as I’ve long said) building a startup is a lot like trying to start a social revolution, it should be clear that these activities are in much the same way the basic political tools of the social revolutionary. Come the revolution, all your industry incumbents are like totally dead, mate.

Digging a little bit deeper, the underlying problem here is the (sadly widespread) misconception among tech entrepreneurs that they somehow wouldn’t need to engage with business politics because ‘people’ (some mythical perfect audience that’s never actually specified) will telepathically ’get’ what they’re doing and start throwing gold coins the minute their crappy MVP website soft-launches in Guatemala. As if!

Recently, I’ve taken to saying that 90% of being an entrepreneur is sales, and that the phrase “tech entrepreneur” shouldn’t somehow fool you into thinking that tech is even 50% of what’s important. (At best, the “tech” part is 50% of the 10% that isn’t sales… i.e. 5%). But from writing all the above, I can see that what I’m reaching towards is more like this: that 90% of being an entrepreneur is business politics, of which sales is merely the most obvious manifestation.

So: while your pitch needs to be pure psychology (a passionate riff on hope, ambition, greed, and profit), your business plan should be pure politics. When will you start using shaded control words in your business plan? That’s almost certainly what it’s missing!

What is “strategy”, exactly?

“Whenever I hear [the word] ‘culture’… I release the safety catch from my Browning!” – Hanns Johst (1933)
“Whenever I hear the word culture, I bring out my checkbook” Jean-Luc Godard in “Le Mépris” (1963)

For many business school professors, the issue of what strategy is (or indeed isn’t) has long been a hot topic. Yet in real world corporate contexts,”strategy” is that thing you try to put together when:

• Your company has been successful in the past (though nobody actually knows why or how)
• It still has a reasonable amount of cash in the bank, but…
• Its #1 cash cow has just died a sudden death (and you can see that #2 & #3 are swaying alarmingly too)

Moreover…

• Everyone has a radically different opinion on why it’s all gone pear-shaped, but
• Nobody has any actual idea.
• In fact, nobody even has any usable data, because the company has relied on vanity metrics since Day One

Basically, the company is staring imminent financial collapse in the face, and it’s a downright ugly sight. Yes, all those carefully-staged sales meetings in Las Vegas (you know, the ones with hot tubs, hotter women, designer Martinis and class-A drugs) will soon be ancient history, and you’ll all be back to wearing cheap suits and working in Basingstoke in some database firm’s middle-management cadre.

So, things aren’t just bad, they’re baaaaaaaaaaad. Hence it’s plain as day that you all really need to do something, and do it fast. However, the practical problems the company faces are intensely political:

• You’ve got more Chiefs than Native Americans (is that PC enough for you?)
• Everyone has been told for years how clever they are for making the investors rich, rich, rich
• Everyone has somehow come to believe their own stupid hype
• Nobody wants to lose one iota of their insanely cosseted privileges
• Everyone knows that something has to give, but
• Everyone wants the thing that has to give to be someone who isn’t them.

Moreover…

• Nobody honestly trusts anyone else (which, given what a bunch of sharks they are, is completely justified)
• There are three or four extraordinarily dysfunctional silos of wickedness actively plotting against each other
• Anyone trying to change even the smallest thing would end up being kicked around for weeks or indeed months
• Nothing that happened could have been anyone’s actual fault, everyone is a consummate professional, right?
• Even though everyone’s about to lose their job, they’re extremely fond of things the way exactly they are.

All in all, this is the real-world context for corporate strategy, because in almost every other case, what will actually get the nod is the default do-nothing position (i.e. “carry on doing what we’ve always done because it’s made us all rich, hasn’t it?“). Really, how hard do you think anyone is going to bother to fight against the (small-c) conservative wisdom of “if it ain’t broke, don’t fix it“?

So, your company’s stuffed in the short-to-medium term, but what on earth can you actually do about it? Is anyone inside this organization quite so foolish and personally reckless as to stick their stupid necks out by putting a turnaround plan in front of the board? Of course they aren’t, don’t be so utterly ridiculicolous. “I pity the fool”, etc.

This is the precise point in an ossified corporate’s lifecycle that external management consultants get parachuted in to propose an unconvincing MBA turnaround strategy: but in reality, what’s happening behind that whole strategic façade is that

• Investors are steeling themselves for a big hit on their portfolios
• Competitors are being sized up to see if they’re fool enough to buy the failing company
• Everybody is blocking every aspect of the turnaround strategy
• Everyone comes in every morning expecting to find a lot of blood (possibly theirs) on the carpet
• Everyone is fleshing out their long-dormant LinkedIn profiles
• The really proactive principals have already jumped

Needless to say, none of this normally ends well.

So, you could reasonably say that for corporates, “strategy” is essentially a billboard you plaster over a failing and grossly dysfunctional company to make it look good enough for a competitor to take off your investors’ hands.

For startups, though, strategy has a different meaning entirely. The central conceit of the business plan is that you have some kind of control over things, which for startups is almost always utterly false. Startups struggle even to influence buyers, let alone control them. In the same way, the whole (business school) notion of strategy fails abysmally for startups, because almost all are trapped in such a short-term cash-flow-centric view of the world that notions of long-term aspirational / strategic bets are simply out of scale to their cash-poor grimy suburban realities.

The terrible truth, then, is that strategies are like the mythological monkeys, in that there are only three of them: two corporate ones…

1. “Carry on doing the same” (because the company is succeeding)
2. “Pretend to be doing something new” (because the company is failing)

…and one startup one…

1. “Hang in there” (until people start paying you money for what you do)

Business school professors be warned: whenever I hear the word ‘strategy’, I take out my AK47…

Top 10 reasons your business plan blows chunks…

1. You found a business plan checklist on a celebrity VC blogger’s site, and followed it right to the letter.

• Wrong! VCs almost never invest in startups, so why on earth are you taking their stupid advice?

2. Your plan does exactly what Steve Jobs / Mark Zuckerberg / Alan Sugar / Anita Roddick / etc etc said in his/her book.

• Wrong! Most super-rich people got there in spite of what they did to get there, not because of it.

3. You’ve got an MBA.

• Wrong! Make money consulting for clients who have money and no brains, not for entrepreneurs with brains and no money.

4. The plan sells your business on its rational merits and a modest growth projection.

• Wrong! People will only back your plan if they think it’ll make them stupendously rich, despite all your flaws.

5. It’s a bit of an unsexy industry, but the figures are terrifically strong.

• Wrong! The cocktail party test = “Hey, Steve, what’s that company you’ve just invested in?”, “Oh, it’s a bit dull but…”

6. We have two patent applications pending, and a really strong IP angle going forward.

• Wrong! Patents scare the pants off most investors, who worry they will drain the coffers dry before you’ve sold a thing.

7. Though I’m a solo entrepreneur, I have deep experience & a fantastic industry network.

• Wrong! Angels worry that you’ll turn out to be a deluded nutter from an episode of Dragon’s Den they missed

8. I have a fantastic Advisory Board, including a former government minister & a retired general.

• Wrong! You gave away points in your business to know-nothing idiots like that? What were you thinking?

9. I follow Lean Startup principles religiously.

• Wrong! You’ll obviously believe any fairy-dust solution that drops in your virtual in-tray. Get real, OK?

10. I wrote it with the help of several mentors and a professional business plan writer.

• Wrong! You’re so anxious to hand your cash to startup parasites that none if it will go towards actually making money.

What Is A Business Plan?

A business plan is a tool you use to persuade somebody to support you in some enterprise. So, it’s not only a sales brochure for what you’re hoping/aiming to do, but also an evangelical gospel for your unique way of seeing things, as well as many other kinds of things simultaneously. Out of all these parallel aspects emerges a “Virtual You” – the self-constructed profile of yourself and your company that you present to potential backers. Remember that to them, you are so inseparable from your plan that, to all intents and purposes, you are your plan.

Yet if you look a little closer at what’s going on, you’ll find that business plans sit awkwardly in a limbo zone between financially-general persuasion tools (such as elevator pitches and executive summaries) that tend to contain few actual figures, and financially-specific persuasion tools (such as financial models, cashflow analyses, and management accounts) that are usually built around more detailed figures. So, which of these are they? The confounding answer often seems to be: both of them and none of them. Yes, it’s a mess.

The fundamental problem with business plans, then, is that nobody really knows what they should aspire to – at heart, should they be general or specific? As a result of this confusion, what usually happens is that they end up being amorphous catch-all documents containing a rag-tag mix of both, and with insufficient genuine focus to satisfy either kind of audience.

Hence if you’re ever told “you need to write a business plan to do [whatever]“, be very wary of what you set out to do! Different kinds of potential backers look for different things at different times: for example, quite a few UK angels (typically accountants and cashed-out Finance Directors) only actually want to see an executive summary and a cashflow analysis, while many others (typically cashed-out financial service professionals) look for a pitch deck and slides from your financial model. But don’t get tied up in the generalizations – everyone is different, and you may well need to prepare a whole raft of documents and presentations to give you a reasonable chance of “hitting the spot” for more than just a handful of them.

Personally, I think that there’s something a bit more subtle going on here, and that we should look more to the psychology of investing for our clues into the kind of sales documents we produce.

Specifically, the more speculative kinds of presentations play to investors’ desire for success, their aspiration, probably even their greed. So if a pitch or exec summary doesn’t leave them downright salivating, it has failed in its job. Similarly, the more detailed, empirical kinds of document are there to overcome technical financial objections, to assuage potential investors’ primal fear of losing their shirt - basically, to dampen down their fear of failure. That leaves a big space in the middle between the two: but what should go in there?

Ultimately, I believe that though they don’t tend to talk (or even think) about it much, business angels tend to be ruled by Two Big Fears - not just fear of business failure, but fear of being led up a bizarre garden path by someone who has become so good at fooling themselves that they end up fooling you too. That’s the whole “delusion” thing that Dragons Den / Shark Tank producers take such delight in foregrounding – is “bone marrow scented shaving foam for dogs” an incredibly brilliant idea or an unbelievably stupid one? Do you really want to invest £50K to find out which?

So having been thinking about this for years, I’ve come to believe that what should primarily be in business plans is simply things to do with the market – both macro-marketing (genuine market research you’ve personally carried out, together with brief analysis) and micro-marketing (genuine opinions of customers within the sector you’re aiming at). Things that validate your claims about what is going on in the big wide world. Things that ground your high-concept presentations and pitches in reality. Things that mean you’ve probably taken a bet against the market that is going to pay off.

Really, whatever the merry band of semi-retired forensic accountants posing as UK business angels may think, few startups have genuinely enough historical data to genuinely produce workable financial models, cashflow analyses or indeed management accounts. (I suspect that most of the time angels use these as a way of getting entrepreneurs to commit to unreachable milestones under impossible conditions… you have been warned.)

Hence the best-case scenario at such an early point in a startup’s history is simply that (a) the principals aren’t spending money very fast, (b) they’ve taken the time and effort to listen to their market first so as not to get taken in by a whimsical delusion, and (c) they have the wit, common sense and practicality to communicate that research to you.

So that, for me, points to what a business plan really is: a means of communicating the genuine market research you’ve carried out to test your ideas about (i) how the world works in your particular corner of it that forms your marketplace; and (ii) how you plan to improve it. Don’t be too general (leave that for your pitch) nor too specific (unless you genuinely happen to have a load of data), but concentrate on the view from the other side of the table – your customers’ side.

Let me know how you get on!

What would a genuinely credible 2012 business plan look like?

Over the last few years, a large part of me has come to despise business plans and formal pitches, the means that entrepreneurs typically employ to try to communicate their BBGF (“barely believable growth forecast“) to potential investors. It’s entirely true that almost all of these are formulaic, clichéd, and template-driven, with their Advisory Boards, edgy American clip art and dinky little hockey-stick curves: but the thing that “totes gets mah goats” is much, much bigger than any of these pettily lazy annoyances.

No, the big issue I have with them is this: that even though pretty much every startup has an interesting story to tell (particularly if you ask the founders about it in the pub), pretty much every formal startup presentation I’ve ever seen – including most of my own, ashamed as I am to say it – tells the company’s claimed growth story as viewed from the wrong side of the table. Which side is that? The company’s side. So which is the right side? The customer’s side.

Furthermore, it may sound like an obvious thing to say, but almost all the tech entrepreneurs you’re likely to meet are more interested in the tech part than the entrepreneur part. And the two parts aren’t 50-50, far from it: doubtless I’ll have to keep on saying it until I’m blue in the face, but 90% of entrepreneurship is sales. And the art of sales is the art of seeing things from the other side of the table.

So, here’s my challenge to you for today: what exactly is stopping you from building a business plan – or indeed a presentation or pitch – where at least 50% of it is from the point of view of those sensible-headed people who you claim will be buying whatever dog-shit fairy-dust your startup plans to sell? How can you find a way of putting their words into the presentation rather than yours?

Business isn’t about what you think ought to work, it’s about what will actually / slowly / eventually work for the largely rational consumers on the other side of the table. What does the world look like from over there? Do you really know? If you do, why aren’t you even remotely getting it across in your presentations?

Overprediction, the entrepreneurial curse…

Over the last few days, I’ve started to think about writing a book for entrepreneurs – a proper, meaty, practical book that helps you see through the fog of the business world around you (and believe me, there’s a whole lot of fog out there). It’s early days just yet, so we’ll all have to see how (or indeed if) this book takes shape. (As with all such projects, the only sure thing is that holding your breath waiting for it would be A Very Bad Idea Indeed.)

All the same, big books need to address big questions: and hence the big question I’ve been banging my head against is… why is it that nearly all startups fail? Or rather, what’s the big problem with starting up? It struck me that if I were to assemble, arrange & present all my thoughts in such a way as to answer that near-universal question in a pragmatic & accessible way, I’d have a book that would literally be worth its weight in gold (at today’s gold price, errrm, round about £15K for the weight of a 250 page softback).

Now, even though the following is only a part of a much larger picture, I think it’s fair to say that one of the biggest curses that plague entrepreneurs is overprediction – that is, not only predicting how people (whom you haven’t met or fully researched) currently behave, but also predicting how ecstatically & differently (in your favour) they’ll respond when presented with your game-changing Android-powered CyberFruitBowl 3000. Oh, and predicting how potential funders will evaluate what you’re doing, too.

You think that’s a reasonable ask? Oh, come off it! The world is a complicated place, and people have wildly varied & complex reactions to even simple things (yes, even to your lovely CyberFruitBowl 3000). Yet at the same time, there is an enormous pressure on entrepreneurs to present what they do with utter certainty (and using TechCrunch-style hyperbole), not only when pitching to angels but also when talking to everybody else.

In just about every useful sense, this yields an abysmal disparity – the ever-widening gap between (a) the way the world really works and (b) the overwhelming social compulsion to misrepresent that in order to paint a picture of your company as a credible tech startup. Being brutally realistic, this disparity will either crush your moral spirit in the short term or come back to financially bite your hairy yellow arse in the medium term (startups don’t do long term, of course).

Regardless, this means that what entrepreneurs pretty much have to do is to overpredict how things will work out for their development & product/service rollout, to a degree that wouldn’t even be realistic for a company that was already a market leader. If Apple / Samsung / Vodafone / Virgin wouldn’t put it on a slide, why would you?

In a way, the one good thing about the kind of discourse espoused by Lean Startup evangelists is that it focuses on genuinely not knowing anything (which is true for most entrepreneurs), rather than pretending to know everything. Of course, reality always lies squarely between these two extrema: but what would a Streaky Startup – i.e. neither excessively Lean nor foolishly Fatty - business plan look like?

The ‘Inventor Script’ 2.0…

Next week [21st March 2012], I’ll be giving a talk at the Kingston Round Table of Inventors, a thoroughly lovely local inventor group that meets once a month or so at Kingston University, chaired by the well-respected Bob Lindsey. Feel free to come along, everyone’s welcome & there’s normally lively discussion in the Grove Tavern afterwards (a mere couple of hundred yards away), all highly recommended.

Here’s a link to my slides for the evening – feel free to check them out beforehand, that’s perfectly fine by me.

The Inventor Script – v001

Essentially, what I’ll be discussing, with copious examples from my own security camera company Nanodome, is something that really bothers me: the widely held notion that an Inventor’s quintessential path is to progress linearly from…

• [Invention] (i.e. devising a new way of doing something, or a way of doing something new), to…
• [Innovation] (i.e. turning it into something real, forming a business plan, getting funding, turning it into a business, etc), to…
• [Success]

This simplistic three-step programme is what I call the ‘Inventor Script‘. Yet if you look at the way things actually work out in practice (such as the James Dyson story), you find extraordinarily different paths being followed, and in a vast variety of ways. Moreover, all three ‘steps’ are much more subtle and nuanced than people generally think. What is invention? What is innovation? What is success?

But even if you accept this as a model, the key problem it has is that startup funding (in the UK) is now just plain broken. It’s not just that the banks have left the stadium, or that grants have been rarer than hens’ bicuspids, it’s that angels have become hopelessly unrealistic, with their 10x ‘home run’ exit dreams yanked from US Venture Capital jargon handbook. Even Dragons’ Den has had a substantially negative effect on the whole sector. (And don’t get me started on Venture Capitalists, bless ‘em.)

So, with no serious access to ‘adventurous funding’ on offer (even with the SEIS), I think you can only sensibly conclude that the traditional Inventor Script is also broken. But what comes in its place? Basically, what does the ‘Inventor Script’ 2.0 look like?

I’ve got a fair few ideas about this which I’ll be discussing at the talk. The main one is that to bring inventions all the way to market, you need to be a bit like Superman, insofar as you need to bring a wide variety of business ‘superpowers’ to bear on the challenge to stand a reasonable chance. As a parallel, funding is (loosely speaking!) a lot like Kryptonite in that, as with Superman, it has the power to weaken, control, and destroy you if it gets too close.

So, funding is not only nearly impossible to get, but it can be very bad for your health even if you do get it. And the amount of effort you have to put in to raising funding would – in nearly every case – be much better spent on getting something to market. As a result, I truly believe that you should aim instead to apply your inventive mind to finding ways of building your product-exploitation company without any funding at all! Yes: zero, nil, none.

Anyway, feel free to have a look at my slides and leave comments here. They may well change a bit before the presentation, but the spirit will probably remain intact.

Looking back, I can see now that my startup funding timing was maximally bad. That is, I arrived on the startup ‘scene’ too late for the bear market party, too early for (what is slowly shaping up to be) the Lean Disco. But it is what it is, I am where I am. Hope to see you on Wednesday!

Startups and ‘anti-knowledge’ minefields…

For want of a better phrase, you can think of ’anti-knowledge’ as something passed off as the truth despite not actually being true. Of course, an outright lie would clearly qualify (duh), but probably the most dangerous type of anti-knowledge is a persuasive story built around a lie, particularly ones which serve to define an entire way of thinking.

I discussed a few such startup stories in the “Mythologies” section of my recent UCL entrepreneurship guest lecture, e.g. the cult of the “winner entrepreneur”, or the cult of the “powerful idea”. In fact, the more I looked at the whole entrepreneurship rationale, the more I concluded that it was nothing less than a sprawling minefield of (plausible-yet-false) anti-knowledge. The curious Zen gatekeeper challenge facing entrepreneurs therefore seems to be to find ways of unlearning these stories so that you can tackle the (arguably even greater) real challenge – of making money in a partially freefalling global economy.

Yet even this doesn’t quite sum up the extent of the problem. My wife pointed out this evening how a number of startup ventures I’ve been involved with over the years have been planned around (and built upon) the truth of various plausible-sounding stories about their business context, only to find (once I’d committed the venture to action) that the people telling me that story had deliberately not disclosed the whole story… a certain product wouldn’t ever get CE marking; a certain route to market would only open up once you had three products, not just one; and so forth.

But how can you ever test the truth of persuasive-sounding stories, short of actually relying on them? Startups have few enough positive assets that it’s extraordinarily tempting to treat these accumulated stories as a kind of knowledge capital, when they can just as well – if they are built around a lie or deliberate omission - turn out to be a kind of knowledge liability.

Perhaps there’s a core weakness of human nature at play here, a desire to trust despite the untrustworthiness of the folk business knowledge that surrounds us: and perhaps the entrepreneur’s biggest Achilles heel is when this desire becomes indistinguishable from a need. For we somehow need those manipulated anti-stories to be true in order to believe that we stand a chance of beating the odds… yet we will likely be brutally disappointed when the mine embedded in it blows up under our feet.

This is broadly the same snake-oil business schools sell their students too. That is, that the stories learnt in the entrepreneurship module lectures will help them beat the startup odds – really, that the deluge of positivistic “history as told by lottery winners” case studies and abstract models washing over them will yield some kind of ’trickle-down’ microeconomic benefit. And business school lecturers would, for their own self-esteem, dearly like the stories they expansively relate to students to have universal resonance and truth, for they would hate to think of themselves as accidental purveyors of anti-knowledge.

But startups are just not like that: last year’s edgy market knowledge quickly becomes this year’s concrete overcoat – as competitors appropriate, adapt and extend ideas, so those same ideas become retrogressive. If you’re not on the shoulders of giants, you’re probably under their feet. What price knowledge then?

Fred Destin miniseedcamp lecture, ohhhhh dear… :-(

As recommended yesterday by Ben Markland on the London OpenCoffee meetup forum, here’s a video from July 2011 you might enjoy: a 50-minute lecture + Q&A session by Fred Destin at Miniseedcamp Ljubljana. Fred’s a smart guy, and manages to squeeze in the whole lifecycle of startups: founders (the magic number is two), funding, launch, build, the Chasm, scaling, all the way to maturity. As a rapid precis of currently accepted startup wisdom presented by a communicative ex-Euro VC (now in Boston), you’d think it would be hard to beat.

Except that, as a unified body of knowledge, it really sucks – basically, the pieces don’t fit together .

Here’s the paradox: even though Fred really likes lean startups (he lauds Steve Blank’s Customer Development Cycle and Eric Ries’ Lean Startup Movement), he clearly doesn’t believe that lean scales up – at some point, you have to put your lean ways behind you and go “fat”, he says. So do you think smart, well-connected VCs who are anything like him would make VC-scale investments in lean startups while they are still lean? No chance.

So, the lesson to be learned from that would seem to be: Lean Is Good, Except If You’re Pitching To VCs.

But that’s only half the paradox. Here we have a top-flight VC exhorting a roomful of startup people to go lean, even though he personally wouldn’t invest in them while they’re still lean. Clearly, he must be expecting other investors – specifically business angels – to step in and fund lean startups, to build them to the point where they can sensibly exit and pass the equity baton onwards to eager VCs.

But those seed funding rounds are clearly problematic, and Fred is well aware of the problems of getting funding going: he discusses (in the Q&A) the initial “funding no-man’s land” many startups get stuck in , and advises entrepreneurs to “always move the company forward”, and not to get caught in a waiting-for-funding-rather-than-actually-doing-stuff “death trap”.

Yet the problem is that by endorsing Lean as the best startup methodology of the day, I’d say he’s making that initial funding no-man’s land wider. I like lean, but it comes with an implicit set of values, pretty much all of which are antithetical to angel investing principles:-

• We don’t initially know what to do, but we plan to keep failing fast until the market teaches us
  (Angels want to put their money into building something, not funding your education)
• We don’t have a business plan, just a set of vague market opportunities we’re trying to incrementally build into
  (Angels want a business plan and cash flow forecast to negotiate the equity value of their investment)
• We don’t see any division between customer development and product development: we constantly (micro-)pivot
  (Angels like to work with people who put their money to a specific use, not changing their mind all the time)
• We wear many hats simultaneously, and the business side is tightly interwoven with the development side
  (Angels prefer dealing with non-business-savvy entrepreneurs, who are more ‘coachable’ and ‘malleable’)

How on earth can angels price investment into Lean Startups? In fact, “are there any ‘Lean Angels’ out there?” I asked Eric Ries a while back, “And since engineers already ‘get’ Lean so readily [probably because it's so much like mechatronics development], why are you lecturing them rather than angels?” He didn’t really have an answer then (beyond “well, there are a few… in the US”), and sadly I don’t think he’s got one now. There is no Lean Funding Movement. Unless someone can explain to me otherwise, I assert that Lean is basically unfundable by the current generation of angels (and I’ve met more than 130), unless you dress it up as something that it ain’t.

Fred is right about the importance of the pre-funding quagmire: I suspect this has got worse of late because angels’ and entrepreneurs’ focuses have progressively diverged – angels want more certainty before putting their money in (though still with a 10x return, ha!), while entrepreneurs are trying to find cost-effective ways of managing product/market uncertainties (e.g. Lean). There is - at least in the UK - less shared conceptual ground between these two camps than ever.

Right now, the only lean path to huge growth seems to be patient bootstrapping over an extended period – basically, to self-fund beyond the point that lean is a central part of the business mix. (Sure, feel free to set lean sweat teams in motion later, but that’s the icing on a cake you’ll have already baked by then.) And where do angels and VCs fit into that business landscape? Angels and VCs love evangelists, customers, traction, metrics, virality: but the kind of patient, bootstrapped, self-reliant, compact development that’s at the heart of Lean is a terrible fit for their explosive, percussive business models.

Ultimately, a lean business is not an angel business, nor is it a VC business. What a mess!