Why do startups wear their capital raises like a badge of honour?

Screen Shot 2015-07-29 at 11.37.47 AMYesterday I was reading an invitation to an event for startups.  It looked like a great event.  The company running the event apparently runs these regularly as, on the bottom of the invitation, they mentioned previous presenters they have featured.

It went something like this – “Joe Bloggs, raised $XM,  Fred Nurk, raised $XM, Jane Smith raised $XM”.  That got me thinking.

It seems to me that the measure of “success”, in the startup community anyway, is not the number of customers you have, not the turnover you have, but the funds you’ve raised.  Call me cynical, but since when is this true validation of a successful business?

I question whether some of these businesses are just drinking their own Kool Aid, caught up in the hype of startup world where the more you raise the bigger the hero you are.  You’re paraded around on startup stages about your superhero status, without anyone looking behind to see if you have a viable – or sustainable business – and possibly giving other starry-eyed startups the idea that you don’t have to have a solid business, you just need to be able to raise money – over and over again.

I saw this Kool-aid drinking in person several years ago on my first trip to Silicon Valley.  My Co-Founder, Alli and I, had just won our first ever pitching competition (before it, we didn’t even know what a pitch was) and the prize was a trip to TiECon in Santa Clara.

At one of the sessions, a gentleman named Rick Morini was being hailed as a god after steering his early stage startup through raising around $50M US (in three rounds) and using that to acquire 300M users.  His company, Branchout, was a job-finding platform that mined Facebook for jobs and job referrals by going through your friend network.  He proudly told a captive audience that he’d done 3 rounds after pivoting from a “sports fan” business, for which he’d also raised money.  (Um, for the record, that’s not a pivot, that’s a whole new business.)

Mr. Morini was being celebrated as a wunderkind after these massive raises and was talking about his unbelievable growth.  Duly impressed, Alli and I came back and started doing some research into Branchout and found a stack of forums with disgruntled users who were fed up with their Facebook contacts being “invaded” and wanting to know how to get out of Branchout.  Within a month, this business had lost half its users and the pundits were predicted that, at that rate, it could be defunct before the end of the year.

Branchout “pivoted” again and again but it just didn’t last and, just recently, it’s dev team and database was sold off leaving investors with a substantial deficit and proving that raising funds is not a measure of your success.

But that’s just one of hundreds of examples.  In thinking about this article, I did a whole lot of research into failed startups and the figures are staggering.  They parallel the well-known ABS statistic that states that around 90% of all businesses fail.  The difference is that a lot of startups fail with a lot of other people’s money.   And there’s plenty of local examples of big raises that have gone sour – we just don’t parade them on stage (although, interestingly, we did when they raised).

An article on TechCrunch gives this good example and quotes, “It’s also possible to raise too much money. Inexperienced executive teams sign up some customers, raise a big round and get a little out of control with high-priced office space and Google-esque perks. Then, for whatever reason, growth slows and all that capital quickly disappears.”  They cite the example of Ben Yoskovitz, the founder of Standout Jobs (interestingly another company in our space) and a postmortem written in 2010 by CB Insights. “I raised too much money, too early for StandoutJobs (~$1.8M). We didn’t have the validation needed to justify raising the money we did.”  He went on to say that “raising money felt like winning.”

That kind of media is, however, all too rare.  Rather than looking to set examples of businesses who’ve found a great product/market fit (the backbone of every successful business) or those who’ve gained great sales traction, or customers of a great calibre, we make heroes of those who’ve raised money.  Why is that?

Why are startup events full of “how to raise money” and “how to pitch” sessions instead of “how to grow a business” sessions or sessions on building killer – and in-demand – technology?   It appears we’d all rather hear sessions about Uber’s or Airbnb’s latest $500M round or how Pinterest or LinkedIn had raised millions – well before they had any revenue model.  The message is apparently – “don’t worry about revenue, they didn’t”.  Newsflash – “they” are the the exceptions rather than the rules!

Maybe it’s my business background but, to me, there just might be a lot of startup Kool Aid drinkers who are going to fall on their own swords.

We all hear questions about whether or not we’re in another “tech bubble”, whether all this money-throwing at startups is going to end in a bad way.  In my humble opinion, it might.  It could just take one or two big, bad stories to end sadly and this fantasyland we all currently live in, may also end.

My problem is not with raising money.  My problem is that we seem to define success with how much you’ve raised – and yet that, on its own, is no definition of success.

Yes, we have raised money – and we’re very aware of our obligations to the investors who have staked so much faith in supporting us in that way – but we certainly don’t pin our success to the value of our investment.  We try to reward our investors with revenue and customers and building great (and valuable) technology.

Would a $50M investment help?  Absolutely!  Would it make us superstars?   No, not just by raising the capital.  However, if we could take that capital and turn it into significant (and I mean 8, 9 or 10 figure) annual revenue, user traction, an enviable client base and long-term sustainability, then yes it would.

But then, I guess I’m old school.

No one ever made it big by being mediocre

fiona-ansan-blog-make-it-bigI made that statement last week, off the cuff, in a blog post – and, of all the things I’ve ever written, that one phrase seemed to evoke the most emotion.

It seems that we all want to achieve at something – perhaps it’s in the work that we do, perhaps it’s by being the best parent we can be, perhaps it’s the singing or acting career we aspire to, or being a superstar on the sports field or perhaps it’s just being the best human we can be. Regardless of what it is, the concept that we can’t achieve that by being ordinary, apparently really struck a chord.

If you look at people who have achieved great things – from Mother Theresa to Bill Gates, none of them did it by being mediocre.

Making brave decisions, going all-out and being game enough to step out of life’s boxes were the things that let them achieve what they did. They didn’t let norms or others’ expectations stop them. They didn’t mind their ps and qs to get things done – they just did them.

It doesn’t matter who you look at – those who have achieved great things all have one driver in common – passion, and one trait they share – guts.

For most entrepreneurs, mediocre scares the you-know-what out of us. Even more than failure. At least if we fail, we gave it a try, we learnt a lot and we, more than likely, went down fighting – but being an also-ran is just an insult. It tells us that we were just plain ordinary.

I look at the people who have inspired me and none of them are mediocre. From my son’s music teacher who makes a huge impact on the students she so passionately mentors into a hard-to-succeed-in industry, to people feeding the homeless who go out morning, noon and night in the heat and the cold to make sure others can eat, to those who inspire me in business by putting themselves out there and exposing themselves daily to the no-so-nice tall poppy haters, each of them is doing something they’re passionate about and doing it in a big way. And not all of them want any acknowledgement for it.

But playing big requires bravery, especially in Australia, where a healthy number of my fellow citizens, unfortunately, seem to take great pleasure belittling those who try to make a mark and/or make a difference.

In the face of that, people playing it big are not more thick skinned than others but they are prepared to run the criticism gauntlet because they simply believe in something bigger.

So here’s the kicker…

If you want to achieve something more, you are going to have to step out of the mediocrity comfort zone. You have to let your passion be your number one driver and ignore the naysayers, critics and those who think you’re just too big for your boots.

Regardless of whether it’s a cause you believe in, an industry you want to change or an empire you want to build, do it with gusto.

With a no-holds barred attitude and a “no fear’ philosophy.

In my humble opinion, if you fear anything at all, fear mediocrity. Do stuff – and do it big. Try big, succeed big or fail big – just don’t be ordinary.

Make risky choices – and owning the consequences

I’ve just read the most inspiring, daring piece of writing courtesy of the incredible Lisa Messenger.  Lisa is the Founder and Editor of The Collective magazine and, I’m sure she won’t mind me saying, one kick-ass – and gorgeously feminine – lady.

The piece was Lisa’s editorial in this month’s Collective magazine.  This month’s issue features a women, facing away, walking out on a ledge over New York City with only a man’s hand holding her back.  While it’s a fantastic picture, it’s an interesting choice for a magazine cover.

This image symbolises every that The Collective stands for – taking risks, getting out there and being gutsy – but that’s not why it’s such a brave choice.  Lisa admits that the reason it’s a brave choice is that, simply, famous faces sell magazines – and this is not only not a famous face, it’s not even a face.

In her editorial, Lisa mentions that she’s wanted to do this for months but, with her magazine empire growing into new markets, she’s needed to conform with famous faces to sell the magazine to new readers.   But this month, not only did she take the risky leap, she also accepted full responsibility for what might be a really bad decision.  In her own words “I’m prepared to take the risk, and prepared to take the hit”.

I admire this gutsy woman in so many ways, her transparency and complete honesty is so refreshing in what can sometimes be an entrepreneurial world of self-serving “spin”.

For entrepreneurs, each day is all about pushing boundaries and going against the grain – and, by doing that, you expose yourself to potential criticism about those possible bad decisions.  But, at the end of the day, if you’re prepared to wear the consequences – and wear them proudly – those risky decisions could be the best ones you’ll ever make.

No one ever made it big by being mediocre and so, if that’s your goal, you need to take those risks.

We do it every day at Workible.  We take risks – and we’re absolutely prepared to “fall on our swords” if they’re the wrong ones.  Sometimes we do, but most of the time, those decisions, while they might not be the big ground-breaking event we hoped for, give us valuable learning experiences.  And every now and again, one proves to be a killer idea.

We realize that if we don’t make risky choices sometimes, if we’re not prepared to go out on that ledge, we may stay mediocre forever – and, for an entrepreneur, that’s an awful thought.

CollectiveLisa, I so admire your need to go against the grain and take risks and I don’t think this cover is a mistake.  If fact, it just might be one of the best decisions you’ve ever made.

Lisa’s reminder in this editorial piece was this – “everyone is equal – the only difference is attitude and mindset.”  After a month of meetings with some of the biggest movers and shakers in the magazine publishing world in NYC, such as Vogue’s matriarch Anna Wintour and Conde Nast’s  CEO Chuck Townsend, Lisa’s statement that “they are just normal people like me, doing the best they can in their chosen field and in life to make a difference in the world” shows that these are just ordinary people making – and owning – big, risky decisions.  It also brings to mind a saying my Co-Founder, Alli Baker (another superstar woman) used to always say.  In conversations we’d have about people doing extraordinary things, Alli would say “My Dad always says, they still put their pants on like us, one leg at a time”.  Yep, they’re ordinary people.

So here’s the kicker…

We all have the capability to do great things, but, if we really want to achieve something extraordinary, we have to be brave enough to risk really pushing the boundaries and making those big, brave decisions and to take the hits – and the learning experiences that comes with them – if they don’t work out.  And we have to proudly own them.

(BTW if you haven’t yet, pick up The Collective Magazine.  It’s an amazing, inspiring read – each and every issue.)