Getting to "yes" in a world of "no"…

Alex Payne is a software engineer (& Scala fan), an early Twitter employee, and now an angel investor: he writes succinctly and well, while pulling few punches. His excellent recent post “On Business Madness” tries to nail a number of Big Bad Ideas floating around the startup business noosphere. I’ll Powerpointify his major points first so I can get on to discussing them properly. 🙂

(1) Payne berates all “the chest-beating sound bites fed to hungry reporters” (what Eric Ries, bless ‘im, calls “success theatre”), and thinks that nobody in startups has any real idea what they are doing: “we mistake dumb luck for a machine that produces success”.

(2) He thinks VCs try to justify their herd behaviour by somewhat laughably calling their decision-making process “pattern matching” when it’s nothing of the kind (well, to a computer scientist, anyway).

(3) He thinks startups who believe tech clusters cause success (a foolishness even the UK government has promoted to the level of national policy in the last 12 months) have got it Just Plain Wrong.

(4) He thinks that Eric Ries’s Lean Startup, Steve Blank’s Customer Development, and even 37signals’ methodology are “process cults”, more useful for finding like-minded co-founders than for building proper businesses.

(5) He concludes by dismissing Facebook’s “hacker way” as a soon-to-be-discredited heir to such business cults as Taylorism & Japanese management theory, and thinks that the only probable business essentials are “a good idea, great people, the willingness to work hard, and an absolute shit-ton of luck.”

Nick’s thoughts:

–> (1) As generally practised, startup success theatre is deeply insincere: this promotes unsustainable relationships not just between between entrepreneurs and the press, but also between entrepreneurs and investors. Here in the UK, business angels routinely (and openly) divide projections given to them by entrepreneurs by three or more, numerically encouraging entrepreneurs to give them ever more inflated figures to compensate for this systematic pessimism. Similarly, somewhere along the line angels now routinely expect to see slideware pitches telling them of their likely 10x or 20x return, as if every single startup they’ll see is going to be that 1-in-a-1000 outlier!

Yet if as an entrepreneur you try to break this cycle, you can quickly find yourself accused of lacking ambition or – worse still! – of pitching a niche business. Though I have always tried to be utterly honest about my own startup’s situation, assets, and potential, I can’t help but wonder whether I’m missing the Painfully Big Inference: that lying slideware has become so endemic to the startup ecology that honesty in pitching actually moves you backwards.

–> (2) (As a UK entrepreneur, I have no real opinion on VCs. You might as well ask me what I think about Peruvian microbiologists – they have just about as much to do with early stage startup investment as Euro VCs do.)

–> (3) In my opinion, tech clusters are more likely to be the sign of a tech neighbourhood dying off than of being born (i.e. it’s a trailing indicator rather than a leading indicator), and in particular of rents rising to a level that non-vanity startups can’t afford: so I agree with Alex Payne. It all seems far more likely to me to be a logical fallacy: that success leads to tech clusters than tech clusters lead to success.

–> (4) Don’t get me started on process cults (particularly the whole Lean Startup thing) – tiny techy tails trying to wag big complex dogs, driven by people brandishing back-to-front telescopes all claiming to have invented a new way of seeing the business world. Yup, Alex pretty much nailed this one too. 🙂

–> (5) Here’s where I diverge slightly (but not actually too much). I personally think luck is something entrepreneurs contrive to make – or, more precisely, that a startup is best seen as an arena carefully laid out to enable lucky things to happen within. Entrepreneurs who try to define success in terms of their monolithic Business Plan are Big Fat Fakes, because life never, ever works that way: rather, the best business plans are ones that have wide-open holes large enough for Fate to enter through.

Hence, I think the only real question to answer when assessing a business proposal is: does this leave plenty of space for luck to happen, or is it determinedly driving into a wall it will never be able to break through? Of course, no angel would ever openly agree that this is right because their thinking is still so hugely dominated by the Oh-So-Foolish Cult of the Business Plan. But perhaps they might get better results from their portfolios if they did…

Comments on: "On Alex Payne’s “business madness”…" (7)

  1. There are few other “patterns” business angels use in their decision making, and I am speaking after spending one year trying to get investment:
    -citizenship – “we love the idea, we like the business model, but what if we are puting £££££ and you’ll fly the country”. Not a British citizen = slimest chances to get investment
    -valuation – “we understand you are early stage but your valuation seems a bit to high”. Agree! What will be your valuation? “It’s very hard to say, there are a lot of variables, we cannot say”
    -business plan – while teh business plan should be just a stepping stone to design an after-investment strategy most of BA just require one and after that don’t reply to emails. Great!
    -team – if you are a one-man-band forget about investment! Just forget! “You built the working concept, you prove it on the market, you are generating a very small amount of income, but you are just alone!” Yes, I need your investment to move forward! So, if you are alone forget about investment!
    -business model – “your business model is a bit disruptive and probably could be improved!” Yes, I have few options to improve it we can discuss how we can do it. “I am afraid is too risky for us”!
    -background – if you are an outsider just coming with a business concept, prove it on the market, and generating small income but don’t have the proper background (having spent some years in some given companies) forget about investment! It doesnt matter you’ve bui;t other companies in other markets, or different countries, you don’t fit the “entrepreneur profile” we work with
    -age – if you are over some age the chances of getting investment start to go south! Is not a beauty contest, for God sake!
    After kissing 100s of frogs without finding the prince I have big doubts with any BA or VC. If they are asking for business plan, company valuation or team just walk away – they are not looking to invest. If they are asking about business model, differentiation points, strategy, and just cash flow – might worth discussing with them.

    • Dan: ‘no’s aren’t all equal! I suspect you have to learn to distinguish between objections (i.e. genuine things that are wrong with what you are proposing and stop people investing) and alibis (i.e. ways to shut down the conversation without losing face). It seems that most of the things you describe are just alibis, so my guess is that the real underlying problem might be indifference to what you are proposing. Can you think of any ways of making the story you’re pitching that much more engaging and exciting?

  2. I thought it might just be alibis but in this case why do they need alibis? If my pitch is wrong, if the business model is wrong, if I am wrong, why they are afraid to say it straight, in my face? They are the master-of-the-univers! I found very few people who spoke up their minds and I was grateful to them for being open – at least you get another perspective, some food for thought, and even some good ideas to grow further or improve the model.
    Anyway, thank you very much for your reply!

    • Dan: they are not “masters of the universe”, don’t put them on a pedestal. Rather, business angels are in most cases ordinary people who have worked hard and experienced a little good fortune, nothing more complex than that.

      When dealing with startup proposals, almost all say ‘no’ 100x more than they say ‘yes’: this is why they tend to develop sophisticated face-saving (and time-saving) ways of saying ‘no’, even if they aren’t hugely convincing.

      Hence all I can say is to cherish the honest feedback that you get and really try hard to take it on board, however much it may sting at first. Arguably the hardest life skill to gain is the ability to see things – particularly things close to your heart – from other people’s points of views, and to react and change accordingly. Don’t blame walls for hurting you when it’s you that keeps running into them!

  3. I am not blaming anyone anymore – I am the one who have dared to dream and now I’m just trying to wake up and move forward. I can understand their tactics to save time and face and I’ve always cherished honest feedback – with most of them still keeping in touch. As I mentioned I spent one year trying to get a business angel or a NED on board. I went to four pitches and each one generated at least an interested business angel. We spent months discussing the business, the strategy, the investment and when to sign the papers and put the money all of them stopped! With some of them I am still in touch! I’ve been invited to probably 10 paid-for pitches – never went. I am just tired to fight further, sorry! Thank you for spending time reading my posts and answering!

    • Dan: I’m sad to hear that your experience of business angels is (basically) as timewasters, even if it does mirror a lot of my own experiences. The UK has, for many years, been a terrible place to be if you are looking for funding, and I struggle to find positive things to blog about financing startups. I even get accused of being ‘negative’ (despite the fact that that’s the last thing on my mind): rather, I’m a positive person swimming against the same broad tide of negativity you’ve so clearly experienced, and all I can sensibly do in the context of a blog is tell it like it is.

      I completely understand how it has left you feeling tired (and plainly disillusioned): so this is surely the point where you have to take a time-out to reassess. At the risk of sounding like a motivational speaker, probably the biggest thing you have constructed during the (long, drawn-out, painful) process of trying to start up isn’t the startup itself but your pitching persona, i.e. you. So, even if the business you’re pitching doesn’t have legs right here right now, you yourself probably do. What have you learnt over this last year than can help you to pitch a new thing that’s 10x better? 20x better? 100x better?

      In a way, you have to remember that pitching to UK angels is a ‘lose-lose’ scenario: UK angels raises are generally too small to do anything really daring with, and so any business plans backable by angels are generally too restrained to be properly successful. Perhaps the big question is: if you had not wasted a whole year trying to raise the dead, could you have got your business (or something very close to it) off the ground organically without having to use any angel money at all? Sorry if I’m saying the obvious here, but it’s generally me that has to say it, nobody else seems to want to. 🙂

  4. It doesn’t sound motivational at all 🙂 but reading it Saturday night at least gave me a bit of hope, after all! I am not even too interested in the business angels’ money – connections and another brain might be worth a lot more than any money. I am tired and a bit disillusioned for just fighting this battle alone. The business is growing and I cannot build a team to sustain its growth without any money – no-one seems interested in sweat equity. I learnt a lot but I really do not think anyone might be interested in what I know, do, think, and so on. After this year I am thinking seriously to find somebody to give the business for free (I mean the website with almost 2,000 users) – people are using it, most of them are happy with the service and I am ashame I cannot offer it further neither develop it. In this way, at least, mentally it will make it easy for me to move forward, to forget about this experience and try to get another corporate job. It is this pain of being somehow forced to bury your still leaving dream.

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