Getting to "yes" in a world of "no"…

Archive for the ‘Bootstrapping’ Category

Business Plans v2.0… what would they look like?

As I blogged here a while back, there’s broad agreement amongst the startup chatterati that traditional business plans are dead. MBA thinking is (allegedly) useless for entrepreneurs, bootstrapping (and low-end funded) companies are stuck at the front end of the [necessity—–strategy] spectrum, everyone is talking about Eric Ries’ “Lean Startups” (even if nobody yet knows how to fund them, grow them, or exit them) while Steve Blank’s customer development allegedly beats out old-school product development, etc etc. So far so loosely consensual.

Yet the problem with this is that nobody has stepped forward with an alternative – really, what should Business Plans V2.0 look like? As per normal, pointing out that something doesn’t work is a pathetically easy game to play: coming up with a viable alternative is much, much harder.

All the same, this isn’t just some temporary post-credit-crunch glitchette. At heart, a business plan should be designed as a precursor to substantive investment discussion between the parties – so even if you chortle knowingly at its hockey stick graphs and its optimistic market presumptions, it is an object designed to help channel the raw collaborative urge to form a relationship, to ‘get it on‘ (whatever ‘it’ is).

The problem with this is that, though always somewhat wobbly, the arrangement between angels, banks, and entrepreneurs has been pulled so taut of late that it has now has more holes than substance: the parties’ interests have diverged. What kind of business contract could ever equitably cover the post-sales angle of bank finance, the post-traction obsession of UK angels, and the late-prototype focus of UK entrepreneurs all at the same time? And what kind of business plan could possibly lay down a set of guidelines to bring such parties to any kind of agreement, when right now they don’t even seem to be in the same building as each other?

Putting startup theatre to one side, I’ll be honest: this is a difficult question to which I haven’t (yet) got a proper answer. Though I despair of the sub-MBA grandstanding most business plan templates are built on, these remain the de facto standard for the simple reason that they give you a pragmatically dull way of presenting loads of genuinely useful information. The reason I’m thinking about this right now is that I’ve been asked for an up-to-date business plan by some interested investors, but frankly I’m struggling to bring it all together in any kind of traditional format.

However, what I want to say is quite different from what all the templates seem to suppose – what kind of generic template has the cojones to say “if angels don’t invest in the next couple of months, I’ll negotiate a customer-funded deal within my industry instead, because that’s basically how damn close to market my startup is”? It’s all gone so far beyond the “here’s a nice little idea, will you fund it?” stage (you know, the one that government advisors think that all startups are at) that it’s just not funny any more.

So how can a pitch document ever communicate this urgency – how can it manage to get the core message across that “this is your last chance“? Though I’ve met so many great individual angels over the last 18 months, perpetually coming in second (as almost all of them habitually do) is perhaps the most effective procrastination tool yet devised – for with nobody to come in first while EIS is so heavily stacked against other ways of investing, ‘nobody leads‘ means ‘nobody invests‘, period. The single reason angels can even conceive of a 10x ‘home run’ on any startup investment is that they have to come in early – that’s the deal, that’s how it works. It’s not exactly an ISA, is it?

So, how best to present this? As always, I’ve got plenty of ideas: but even so, it’s a tough nut to crack. And yes, I’ve already had a trawl through various “business plan v2.0” sites (such as this one, PlanHQ, and even the rather laconic icon-based business plan summarizer from Rotterdam), but haven’t yet found anything that comes particularly close. Have I missed something really important? Leave a comment below, tell me what to look at!

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Technology Strategy Board’s “Tech City Launchpad 1” launch…

Ohhhhhh dear: Monday evening saw a group from the Technology Strategy Board (TSB) come to TechHub in Old Town Street with a £1m grant giveaway, fully expecting to have rose petals strewn in their path by hordes of grateful self-funded digital entrepreneurs (à la #StartupBritain launch). Unfortunately, they were not so much “egged on” as “rotten-egged on” by a crowd of digerati who can sniff a bad ‘un at a hundred paces. How did something so good go so badly wrong?

Firstly, in this TV age of Dragons Den and The Apprentice, everyone knows the anatomy of a bad pitch: the inability to make properly coherent points, not being on top of your brief, not really knowing your location or understanding your audience, responding to specific questions with the same over-general simplifications… and I’m sorry to say that checking these boxes was merely the start of the evening’s pain. For the audience, it was a lot like watching a slow-motion car crash: and it must have been close to torture for the other TSB people in the audience.

Secondly, it became increasingly clear as the presentation continued that they hadn’t thought through the implications of what they were proposing. The TSB’s “Tech City Launchpad 1” grant is designed to back sub-12-month explicitly collaborative projects (though they fudged the issues of who would own what, and what exactly was being funded) “between small, medium-sized enterprises and micro firms” (though they fudged the issue of how these are defined) in or around Silicon Roundabout (though they fudged the issue of exactly where qualifies) “to develop a digital product or service to proof-of-concept and/or a user-facing trial” (though… you get the idea). The problem with all this? The vast majority of Silicon Roundabout startups are self-funded single-digital-project vehicles, not R&D labs with ample spare capacity to try something new. Digital startups’ key challenges are (a) surviving while prototyping their existing single digital project, and (b) customer development in a vast, largely hostile online world, while (c) trying to build critical mass to gain [supposed] angel funding. So… where in this landscape does the TSB think starting an entirely new project explicitly in collaboration with an SME would fit? Where’s the ‘product/market fit’?

Thirdly, the whole application format they’ve chosen – 2 minute video pitch, followed by a traditional business pitch round for the best 20, with the best ten getting a promissory note and access to VC / angel workshops to help them build a full funding round – would seem sensible in the hands of (say) Dave McClure, but seems somewhat misplaced for the TSB. A bit like asking your granddad to judge a street dance competition, I have to say. Oh well.

Overall, the paradox here is that the TSB seems to have assumed that the community of digital startups is a vibrant, static body of micro firms that are already making money consistently, but who need funding in order to take it to the next level. The reality is that it’s a dynamic (i.e. fast churn) community of hot desking mayflies trying to bootstrap their small companies to the first level – nobody’s funded right now, that’s just the way it is. Really, the minute I heard them quote Wired magazine’s statistics on Silicon Roundabout I knew that they had inhaled the fumes of the Tech City mythology – that they had built their proposal on the back of an acutely Cameronesque (i.e. optimistically distorted) view, that High Growth Digital Startups Can Turn The UK Economy Around.

Errrr… riiiiiiiiight.

Though it was good to see David Willetts (the current Minister of State for Universities and Science) at the launch too, I can’t help wondering whether the TSB and indeed the Government are currently outreaching to the wrong people. As I said to him afterwards, we clearly have no shortage of entrepreneurs, no shortage of ideas: what we’re missing is active angels, and indeed any kind of culture of investment. In fact, I have to note that, despite his fabled ‘Two Brains’, Willetts did leave me wondering whether any of the Powers That Be grasp the gratingly sharp differentiation between VCs and angels (hint: VC funding typically has one or more extra zeroes on the end). Does the TSB already have much in the way of dialogue with UK angels? If so, did they think to run this proposal past any of them before launch? (I guess not).

In summary, then…

On the one hand, I have long thought that the TSB’s quaintly anachronistic view of the way external funding works has meant that their competitions have only been applicable to SMEs with (say) £1m+/year turnover – I suspect that checking past applicants’ profiles would quickly bear this out. So let me be at the front of the queue applauding the fact that – following the repeated prodding of Glenn Shoosmith, it would seem – the TSB has at long last constructed a funding scheme based not around private pre-funding (which rules out the vast majority of self-funded tech startups) but around a 12-month promissory note to gain external funding.

At the same time, however, there is often a vanishingly small distance between ‘pilot’ and ‘pivot’: and what the TSB presented on Monday night was most definitely a pilot scheme in need of some pivoting if it is to make a real impact. In the context of European funding rules, I fully understand that it is hard for a body such as the TSB to construct a grant that isn’t perceived as distorting some market in some way. But sometimes these kinds of constraints lead grant-making bodies to put together grant packages that are highly impractical (e.g. the way European FP7 grants implicitly insist on cross-border collaboration is good in an idealistic way, but horrible expensive to arrange and manage). Like this one. 😦

Nanodome status update…

I thought, given the bold implicit claim on this blog’s mast-head, I ought to at least mention in passing how far towards its mythical future $1bn valuation Nanodome has progressed over the last few months. The honest (i.e. startup theatre-free) answer is: it’s hard to tell – as always, there’s good news and bad news…

The short-term good news is that Nanodome’s electronics all work fine (all that I’ve tested, anyway; thanks Bob!), insofar as the two bootloaders, the firmware, Linux, the video display & basic image processing are all functioning fine. Today, I’m plumbing the image sensor into Linux’s V4L2 layer (but wondering why the keyboard handler is so stubbornly silent). Of course, every startup worth its salt has a near-endless supply of Walls to get past, so none of this is really huge news, but all the same it’s always nice to have new stuff working.

The short-term bad news is that I’ve been engaged in a bit of bootstrappery, i.e. doing basically the same kind of insanely high pressure getting-the-hardware-and-software-all-working-together for another UK security camera startup (albeit only for a few days a week). The reason I think bootstrapping is a problem is that  – though it does pay the bills, which is great – it almost always slows your main development down to a snail-like crawl (or do I mean ‘ooze’?): it can also be a hard habit to kick once you’ve started. Still, what can you do?

The long-term good news is that I’ve recently had a bit of a conceptual pivot, in that I’ve worked out how to apply a fair-sized part of Nanodome’s core tech development to the gigantic fixed camera market: and now have a distinctly contrarian view on what cameras in that segment should be aiming for over the next five years.

The longer-term bad news is that this means my level of ambition for Nanodome is now approaching VC grandeur levels, at a time when – despite sky-high government pro-startup rhetoric – new companies find it hard to borrow even £25K from a bank, all the while UK angels’ wallets continue to accumulate more dust than new investments. Still, with IFSEC coming up in mid-May, the best business development play will probably be to put together some kind of deal there – with a bit of luck, Nanodome will have plenty to show by then. 🙂

The secret history of bootstrapping…

It has become über-fashionable to talk about ‘bootstrapped business’: but… what is this, exactly?

The inspiration for the term “bootstrapping” seems to have been a 19th century tall tale in which somebody supposedly defied the laws of physics “to pull themselves up by the bootstraps” (the leather loops on the back of your boots) right up into the air and over to the other side of a fence. So, when used in its original manner the phrase properly brings with it a sense of ‘getting going in an impossible sort of way’.

And then in the 20th century, computer people appropriated the same term – with a fond sense of irony, I happen to think – to describe the quasi-magical processes by which computers spring to life when switched on. Even today, we still “boot” computers using “boot loaders” such as (the justly famous) Das U-Boot, which some might surely put forward as a powerful argument why clever German programmers should not be allowed to construct puns. 🙂

However… the problem is that the way people now talk about “bootstrapping startups” seems to have lost any of this gentle irony. Rather, this more modern concept of “bootstrapping” paints a starkly linear picture of computer pioneers carefully engineering a tricky technical solution to solve a long series of deterministic logical puzzles to get to an end line. So, if you view starting your own business as basically the same kind of activity as Steve Wozniak doggedly squeezing his Apple II disk drive loader into 256 bytes of PROM, then you’re probably happy with the whole concept.

Of course, I don’t happen to see it like that at all. How can you view winning the battle for people’s minds as a series of technical challenges? How can you build things without money? How can you build a Minimum Viable Product without its ending up the Least Attractive Thing In The Market? Honestly, buying into the whole bootstrapped credo falls not far short of wondering how many impossible things you can believe before breakfast.

Even at the best of times, starting up your own company is a hard, hard thing to do; and bootstrapping arguably makes it even harder and significantly slower. For what even the best bootstrapping proponents typically forget to mention is that while it’s true that your unfunded quest to build your own company on a ramen noodle burn rate will consume only a little bit of money, it will also take an awful lot of time.

Yet if you peer outside the blinkers of the fiercely competitive world of TechCrunchicon Valley me-too social media startups, you’ll see countless small companies slowly eking their way into existence, one hard-won customer or product  at a time. This isn’t because bootstrapping is fashionable, but simply because it’s the only practical funding path most entrepreneurs have – funding is a million moths and a few dim lights, all else is darkness.

Now, perhaps, you’ll understand why full-on entrepreneurs have to be at least five years ahead of everyone else: because if they’re not, then by the time – say, two or three years – they’ve managed to get whatever they’re doing to market they’ll be too darn late. In a nutshell: vision buffers bootstrapping.