A few months back I started working on a Proof of Concept project at the University of Strathclyde, and since Scottish Enterprise have written an article on the subject I thought I’d share it:

http://www.scottish-enterprise.com/news/2013/04/tech-start-commercialisation-newsletter/measuring-up.aspx

The most obvious place I observe it is in small design (and web design) agencies.  The process goes like this:

• A talented founder sets up as a freelancer
• The founder does great work and builds a great reputation, so wins more business than they can handle
• They hire others to do the work they can’t do themselves
• The staff are less motivated and often less able than the founder, so the quality of the work falls
  • Frequently the founder does not have the skills to hire or manage good staff
  • The reputation of the enterprise is eroded, and it fails or contracts

The founder is the “Hero” and the “Hump” is the barrier to building an enterprise that has more capacity than the founder alone can provide.

So what is needed to successfully overcome the “Hero Hump”?

• The Hero must become a leader and a manager as well as an implementer
• The Hero must be able to attract and motivate a team of top quality people

All too often the hero fails to recognise that their role must change, and fails to recognise just how hard (and expensive) it can be to hire really good people.

I have experienced this phenomenon as a customer on a number of occasions, where I’ve had great service and work from someone, but when I’ve gone back a couple of years later it has been a much less positive experience.  I shall name no names

It can’t be impossible however – I know a plenty of larger agencies which seem to do perfectly well.  They have the critical mass to attract good people, and sufficient resources to allow for professional management.

I feel like this problem is commonplace, but is it structural?  Are there some types of business which work either as one-man-bands or with 10+ people, but where growing is extremely difficult?  Perhaps it is the opportunistic approach to growth that is the problem?  Maybe the agencies that achieved scale set out to do that from the start rather than simply trying to exploit opportunity presented by demand?

Although some of these issues are specific to services businesses,  the same basic problem can apply to technology startups.  A brilliant founder needs to put a team together around them to build a business, but all too often they lack the experience to do so.    Often a part of the work that I do with a young company is helping the founding team to understand the need to develop their skills as leaders, managers and recruiters.

Getting Salient Point over the hump?

Ironically, while I may be trying to help others with this problem, I also face it in my own business.  I don’t apply the “Hero” moniker to myself, but I have a small services business based largely on my own work.  I have some intellectual assets, I have built a little bit of brand, and I already work with others on an associate basis from time to time.  Sometimes I have leads for business that we have no capacity to operate, which seems like a waste.   The associate model may have a little more mileage in it, but it is tempting to think that I could exploit the intellectual assets, brand and leads in my business to create more value.

In theory I should have the skills to overcome the hump, but I’ve worked in large consultancies before and I know how their cost base compares to mine.  I have ideas about how to build a larger business and I do come back to the this thought from time to time.  The question is, should I try to scale?  There are some compelling reasons to give it a go…

• Currently I’m limited by the number of hours in the day.  The only way to make significantly more from my business is to scale.
• My business currently has no real value.  Scaling could turn my business into an asset.
• I’m passionate about helping startups, and scaling would give me an (indirect) opportunity to help more companies.

It would undoubtedly involve a number of compromises too:

• I would have to spend more time managing my business and less doing the work I love in startups.
• I expect at some point I will want to join the team of one of the companies I work with.   Scaling my own business would make that a less straightforward choice.
• Startups tend have limited funds, so price is important.  Anything that builds my cost base will tend to push me away from working with startups.

The way I see the balance varies, but mostly I’m leaning towards the status quo.  Watch this space to see if I change my mind at some point…

In the meantime, I’ll be helping others in the startup community to grow their businesses.

It seems like a good time to point out that I have talked a lot on this blog about the importance of starting to build relationships with investors early on, not least in the Investment Series.

I know I keep linking to posts from Mark Suster, but once again he’s hit the nail on the head in explaining why this is important from the investor perspective too – it’s all about proprietary dealflow!

Good luck to everyone attending EIE13 – it looks like it should be a great day.

“In Autumn 2013, YCF plans to launch a Guide to Finance for Young Companies, online (as a website) and offline (as a printed publication).  This will include a directory of useful contacts such as investors and advisors, and a selection of articles giving guidance and advice.  The Guide will be free of charge, and will help young companies to consider the funding needs of their business through to profitability, and provide the information needed to find appropriate sources of finance.

We have set up an online survey to canvass views on the content of this Guide – please let us have your views and comments.“

I think this has the potential to be a great resource for the entrepreneurial community, so I’d really encourage you to give your input!

I recently listened to a Radio 4 programme on Zombie Companies (Transcript here: http://www.bbc.co.uk/programmes/b01ntfwh) which I found really interesting.

The premise is roughly as follows:

Compared with previous recessions, fewer debts are being called in.  Partially this is because interest rates are so low that potentially crippling loans are affordable.  Companies and families stagger on in a “Zombie” mode.  They are unable to move on from their past debts, but neither are they forced into bankruptcy or receivership.  At the same time banks are being gentle with their creditors.  Those failing to pay their mortgages are being switched to interest-only products or allowed payment holidays instead of being evicted.  Companies are allowed to maintain or increase debt levels that are widely recognised to be unsustainable.

There are two alternative views on this.

This is a more humane recession.  There are fewer evictions and fewer companies are being forced to close down putting people out of work.  Employment remains higher.  The banks have received bailouts (or are in some cases effectively state owned) so it is only right that they should be gentle.  This represents a positive evolution of society.

Recovery is being held back.  We are failing to address our structural problems.  House prices remain artificially high because of an artificially low level of evictions.  Household debt remains unsustainably high.  Corporate debt remains unsustainably high, and people and assets are tied up in companies that are clinging on to life instead of being weeded out through an evolutionary process.   Assets are failing to deliver value and remain overpriced.  Banks are holding back on repossessions and corporate closures to maintain the illusion of strong balance sheets and minimise losses, not out of humanity.  We risk mimicking Japan’s “lost decade”, and will remain globally uncompetitive until we take action.

The popular view in the UK seems to be that this is a “humane recession”, but recovery remains weak (or non existent) and the evidence for austerity is being called into question.  Our economy overall is stagnant and inflation is devaluing incomes and saving every day.

Looking over the Atlantic to the US, they have taken the pain that we have avoided.  Evictions and unemployment were higher, but their banks and financial institutions have repaid huge chunks of the bailout they received and their growth figures are much better than ours.  Although the deficit remains an issue, it seems to me like they have done a better job of addressing their structural issues and are recovering better as a result.  Public debts and budget deficits seem a lot less scary in vibrant, growing economies than in stagnant ones.

There seems to me to be a certain sense in the idea that recovery is being held back by failing to properly address the mistakes of the previous economic cycle.  This seems to come at least in part from a feeling that those who would be repossessed or have their businesses closed “aren’t responsible” for the recession – it was those “naughty bankers”.  I don’t really buy that argument.  Anyone who took cheap credit or bought overpriced assets whether personally or for business purposes contributed to the problem (I include myself in that), and allowed  their personal greed to blind them to basics.

I believe that we should be a compassionate society and I’m not just paying that idea lip service – I volunteer for a charity that helps some of the furthest from employment gain the skills, confidence and experience they need to get into work.  However, I don’t want to see our country stagnate for years, or even a decade, and I believe that where debts are clearly unsustainable they should be called in.  People and companies should be freed from their debt using the appropriate legal processes, and banks should accept they made the wrong bets and take the losses.  Asset prices will adjust, money will be recycled into new projects, competition will do its work, and we can get back to a vibrant growing economy.

What of the people who lose their jobs, their businesses or their homes if this approach is followed?  Can we ever justify the individual pain and tragedy this will create?  Maybe rather than focussing on finger-pointing and austerity , it would be better to focus on how to ensure we move forward but still protect the people who are affected by it?  If only a fraction of the time, energy, effort and money spent on debates, recriminations, negative reportage and protest were instead spent on supporting those directly affected by the re-adjustments in finding accomodation, retraining, finding work, or even starting their owth businessses, maybe much of the tragedy could be averted.  Perhaps some of the talent and money could be recycled into new ventures, whether those are the high-tech businesses that I work with or other types of new and exciting opportunities.

I believe this to be of central importance because a vibrant and growing economy can do far more to be compassionate than a stagnant one.

I know these are huge and complex issues, and I’m doubtless oversiplifying, but I am fascinated by the concept of the “Zombie Recession” and it doesn’t seem right.  I started out by saying that I was economically ignorant – I guess I should end by confessing that I am also politically confused…

The harder I work, the luckier I get! 

I think this really captures something important about entrepreneurship,  Any young company needs some luck to succeed, but “luck” tends to turn up for those who are out creating opportunities.

To summarise Alex’s story very briefly:

• A first job with Acorn doing telephone support led indirectly to selling internet security software to Larry Ellison at Oracle
• Alex’s  brother had a chance meeting with a VC, and he and Alex used this to found nCipher
• Turning up at a conference with no booth booked, Alex took a hotel suite in the conference hotel and grabbed people in the corridors to demo to.  A case of mistaken identity led to a pitch to Fidelity
• Fidelity opened up connections in Netscape to allow the integration of the nCipher product
• nCipher floated on the stock exchange at the height of the tech boom, raising £110m in cash to be used for acquisitions
• In the crash that followed, the company lost 99% of its value, but still had its cash pile
• They made acquisitions using the interest from the £110m, and returned the full amount to shareholders
• After a false start where a sale was blocked under anti-monopoly rules,  the company sold to Thales.

Alex rounded up by saying he was lucky to be in the right place at the right time addressing the right problem with the right people.   As I listened, it felt pretty clear to me that  hard work and good judgement played a huge role in placing Alex in situations where luck could work its magic.  A fantastic lesson for us all!

If I speak to someone at a networking event I have to be very clear about where my expertise lies, because they may assume that I do one of two very different things.

I find that this can get rather confusing, so I felt it might be useful to set out what we mean by each.

Market research can mean: Researching the market

What this is: Scoping out the breadth of likely interest in your product or service by gathering data about the wider context in which your business is situated.

Where you get the data: Reports published by others.

Questions this might answer:  Which other businesses are already doing similar things?  Where do they operate?  How many products do they sell?  What is their turnover?

It’s a bit like: Competitor analysis, market analysis.

Type of research: Secondary research

Alternatively….

Market research can mean: Research with the market

What this is: Engaging directly with consumers or potential consumers (including members of the public or other businesses) to ask them what they think in response to your key business issues.

Where you get the data: Asking people questions in a structured way.

Questions this might answer:  What do consumers think of your business concept or direction or communications?  Which segments of society are most likely to buy your product or service?  What might put people off buying your product or service?

It’s a bit like: Survey, feedback form, interview, focus group, research, marketing research, evaluation.

Type of research: Primary research

Each of these types of ‘market research’ is a different discipline, demanding a different skillset.  Undoubtedly some individuals will have expertise in both, whereas others are expert in one or the other.

For the record, I am a primary research expert which means that I design, conduct and analyse new research with real people.

At Salient Point we have secondary research skills in the team too, so we are able to offer both services.

Never Say WordPress When Selling a Web Design Project

Over 90% work has been directly with young companies.

• My first contract with ATEEDA still is ongoing, and it has been great to see the company develop through several rounds of investment with Archangels and a first $1m customer contract.
• Contemplate has grown from an idea to a company with a released product and customers amongst the UKs top ten banks. I worked with the founders to develop the product concept, identify the first customers, win SE support and ultimately bring in a CEO. Now I have handed my operational role over to the CEO and I remain involved as a Non Exec.
• I’m very excited about Cytomos, a company that has the potential to revolutionise cell analysis in research and diagnostics. Currently operating a SMART project, I’m helping to raise a seed round to get us to the point having a product ready to build.
• I’m delighted to have started work recently with a Proof of Concept project team at Strathclyde University, commercialising innovations in optical spectroscopy.
• Other young companies I have worked with include Loc8er, StreamFlex and Nuergy, and I have worked for university commercialisation departments at Edinburgh and Heriott Watt.
• I have also done a little work for Scottish Enterprise, LINC Scotland and Young Company Finance.

The associate model has been very successful with Ruth Stevenson, and we have worked together delivering market research into both startups and strategic projects. Last year I tried to extend this working with Fahd Baig but we didn’t really have the formula right and Fahd’s ambitions have now led him to working full time on a single project.  I’m still excited about the potential that working with associates offers and I feel I have a much better understanding of what would be needed to make that work.

Another area I have experimented is using students to help carry out secondary research for projects.  When this has happened it has been really quite successful, and I hope it has been a beneficial experience for the students as well as useful to my enterprise.  It’s challenging making this work with the short timescales I usually have, but it’s something I hope to develop further.

Other highlights of the last three years include sponsioring the Saltire Foundation Aluminate Dinner, launching my first eBook ”Equity – A Resource for Startups“  in collaboration with MBM Commercial and Chiene+Tait Chartered Accountants and some of the feedback and interaction on this blog!.

There have been failures too.  I’ve not got the associate model right yet, and getting additional resource when I need it is still a problem.  We all worked hard to win a public sector framework contract but it hasn’t yielded any work – did we waste our time bidding or have we managed it wrongly?  With hindsight, I haven’t put enough work into some of the proposals I have put in, or perhaps invested enough in the intellectual assets of my own business.  I hope I can learn from these and not repeat them…

Developing Salient Point has been hard work, but it has also been a great experience.  Recently I’ve been so busy working with young companies that I’ve not been doing a lot of development work on my own, but I hope that will be redressed in the coming months!

A huge thank you to everyone who has helped and supported me – watch this space!