Build different

A framework to think through your ideas

All startups are hard. Difficulty doesn’t scale linearly with opportunity. You will devote the coming years of your life to your startup, so make it matter and build something meaningful and different.

Whoever said the idea doesn’t matter is lying. Yes, you can pivot your way to success, but it’s time consuming, tiring and expensive. Idea’s matter, so think deeply about what you will build.

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Can you be passionate about the space

Your company will not succeed if you are not passionate about what you are building. There are founders who like the idea of building a company, and then there are missionary founders. Missionary founders deeply care about what they are building, and don’t just think, but know, that the problem they are working on needs a solution.

4 years ago, I was connected with Sam, with the following intro message.

James, please meet Sam Gill. Sam is a lawyer, looking to join StartupLand! He has up until now specialised in advising investment managers forming new funds and advisory businesses, but has a growing interest in environmental and CSR matters.

I’d just started my first business and met with Sam in a Soho coffee shop. He was a lawyer and had done some legal work in the carbon credits market. He didn’t know what exactly the idea was but he knew that he needed to start a business in climate. It was critical to him, the world was not doing enough, and he personally needed to be a catalyst for change. Working as a lawyer wasn’t going to do that. I don’t remember too much from the meeting, but Sam was smart and I do remember him being incredibly passionate about the climate space. More so that 99% of founders I speak to. So I connected him with a climate investor who later invested in their seed round, and we stayed loosely in touch. 6 months after meeting, Sam founded Sylvera. A climate tech company that 4 years later has gone on to raise $100m and become one of the darlings of the UK tech scene.

This almost radical belief in the problem you are going after is important for two main reasons. Firstly, founding a business is going be incredibly challenging at times and also incredibly lonely. When your key team member quits unexpectedly, a large client churns, a term sheet from a VC falls through, what is going to motivate you to keep going? To keep motivated enough to stay up contacting candidates, or working weekends to solve an internal challenge for Monday. To build a truly great company these are the things that are needed, and when things get difficult, if you don’t deeply believe that what you are building matters, your upside will be capped.

Is this the right person to build with

Great companies fail because founders fall out. The most important decision you make at the early stage is who you partner on to build your business. It is not enough to come together over a coffee or two and commit to the next 5-10 years of your life with this person. Make no mistake that this is a marriage. You will spend more time with this person than your partner, you speak to them more and it’s a lot harder to ‘breakup’.

Although fortunately none of the relatively limited number of startups I’ve invested in to date have failed due to co-founder conflict, it has almost happened a few times. Saying that, one of the founders previous businesses did go kapoot due to this. For the sake of this story we’ll call him B. B started his business with somebody who had a good skill fit. They were technical and B was a good salesman. They took their product to market and found success. There was always some disagreements and arguments between the founders. They kept building and selling, eventually raising a strong seed-round. At some point they had to bring in a COO to act as a mediator between the two of them. Growth started to slow at the million dollar ARR figure and things got more challenging. The relationship couldn’t last. Investors tried to resolve the issues. It couldn’t last. One of the founders quit. B followed suit.

There is no doubt in my mind that this could have been a great business and eventually a new CEO had to come in.

There are a number of factors that come into play when considering whether this is the right person to build with. When things get really hard will this relationship last? Do I completely trust this persons decisions? Do I feel comfortable challenging this persons decisions? Is this person competent? Is there clear ownership in roles?

It may be incredibly frustrating and take considerable time, but this is probably the most important decision you will make that determines the success of your company. More important even than the idea.

Can this scale

The adage ‘If you build it, they will come’ does not apply to startups. You need more than just a great product to build a great business. There is a whole separate blog that needs to be written on validating startup ideas, but validation goes beyond positive user feedback. Does your idea have the ability to really scale?

I learnt this the hard way in 2021. My business was at about $500k ARR and as founders do, we were looking for ways to not only maintain growth, but boost it. For a little context, we operate a patient engagement/education platform. Companies pay a subscription fee to access the platform but some of our clients were looking for personalised content. We didn’t want to become a content agency so after rigorous user interviews, we built an MVP marketplace that connected companies with medical copywriters and healthcare creators. We started testing the product with a few clients and things looked great! $10,000 in revenue the first month, $15,000 the next. The trial with existing clients was working great! So it was time to scale this ‘incredible’ product and offering we built. We could already see that this was a winner!

We are an enterprise sales company but realised that our typical sales playbook didn’t make sense due to smaller contract values. So instead of utilising our sales team, we tried tried google ads, we tried linkedin, we tried webinars, we tried community building. Crickets…

We realised pretty quickly that due to the nature of the market, acquiring customers was going to be incredibly difficult and expensive. We’d put so much work into thinking about whether we could build a product people would use and come back to that we gave no thinking time to whether there would be a positive CaC:LTV. As they say:

First time founders focus on product, second time founders focus on distribution.

There are a number of reasons a company can’t scale, bad product, misaligned incentives, too high CaC (although this is typically a second order affect) etc…

A little bit of thinking to distribution will go a long long way.

A first principles approach to opportunity

First principles in this context is referring to breaking down your assumptions as to whether a large enough opportunity exists in the market and whether your assumptions make sense. This is so often overlooked by founders, especially first time founder. They think that just because there’s a problem, that a big business can be built. This is definitely not the case. Now this does come with some nuance that I’ll speak to but first an example to highlight this.

I dropped out of university in 2019 to build a marketplace that connected companies with corporate activities, mainly in the wellness space. Think booking a speaker on resilience or a yoga instructor for a team session. Through sheer force of will and a few intro’s at 18, I walked into the offices of LocalGlobe, a top VC fund, with my co-founder Jack. We sat down and gave our slick pitch.

As we opened for Q&A, the conversation went something like this:

VC: What’s the average booking cost
Me: About £150

VC: How much do you take
Me: 15%, so average take rate is about £20

VC: What does your ICP look like
Me: We typically see companies start to spend on this at about 50+ employees, so that’s a market of 40,000 businesses in the UK.

VC: So to get a company to £100,000,000 or annual revenue, you will need about 5,000,000 bookings a year. I don’t think that’s possible
Me: It is…

VC: There are about 40,000 businesses in the UK with more than 50 employees. Let’s assume that 70% of them are in cities and I’m going to ballpark about 1 in 5 actually spend on this. Sound about right?
Me: Yes…

VC: (iPhone calculator in hand) So in the UK there are 5600 businesses that spend on this. You’ll need each business to make an average of 892 bookings a year to reach venture scale.
Me: Ummmm….

This simple thought exercise would have saved a lot of time and money, and it was an expensive lesson to learn. But now when I sit down with founders, I often try to breakdown some of their assumptions and make sure that the opportunity really exists. You’d be surprised how often they are surprised at the results.

The nuance here is that some great businesses do get built where the economics/incentives are unknown and you can’t logic your way to success. Take Airbnb for example. The only way that business made sense was if they went beyond renting airbeds in peoples rooms at conferences (their initial product). That was something they figured out after launch, and that was a bet that the founders would figure it out. Irrelevant, this is still a valuable exercise to run to break down assumptions, on the incentives and size of opportunity.

Build different

In Ali Tamaseb’s book, Super Founders, he analyses the formula of a winning founder and startup. One key highlight stood out. You have a better chance of success building something unique. Sounds obvious but so many businesses are focused on incremental improvements in a product or process. The data speaks for itself.

Of all venture funded companies, Ali found that fewer than 40% were highly differentiated. But when he looked at the data for companies that had reached unicorn status ($bn+ valuation) he found that over 66% were highly differentiated. E.g

Highly differentiated: Snapchat (completely new type of social media)
Incrementally differentiated: Airtable (made spreadsheets easier to use)

Startups are fking hard for so many reasons. Mimetic desire is a strong force for founders. We see an AI company that makes it easier to send sales emails get $10m in funding and think we can build something similar, and you can. But you can do more than join the hundred other startups building the company that uses AI to make [fill in the blank] easier.

I can assure you that building the first versions of Airbnb, UiPath or Slack was not harder than the product that solves a problem 20% faster or cheaper, but they all ended up with stronger moats, better brands and creating generation defining businesses.

As a founder, you are in for the long run, it’s going to be hard. So make it matter.