Getting help for your startup

This article is the twelfth in the Startup Series on FirstPost’s Tech2 section and first appeared on March the 16th, 2017.

Asking for help is an essential founder survival skill. But founders often do not know when to seek help, whose help to seek, whose help to accept, and how to evaluate and pay for any specialist expertise about which they, as founders, know little. Here are some key questions founders ask (and should ask) about getting help.

What help is needed? The answer often depends on the stage of the startup’s life. For instance, a competent startup lawyer would help with the legal structure, the shareholding rights agreement and other key legal scaffold in the early days. Essential help pre-launch could also come in the form of strong introductions to early adopters, potential channel partners, or influencers who can shape early adoption or off-take for your product as well as to people who can help access angel or VC funding and make introductions to advisors or board directors. The help needed post-launch varies. Customer referrals & recruitment, partnerships for growth, raising growth capital, geographic expansion, possible exit conversations are some examples. It helps a founder to map out the first growth stages

Whose help is needed? In my experience, the advisors that work with startups fall into three broad baskets: specialists, hands-on warriors, and famous-names. The first two are self-explanatory categories and include advisors such as lawyers and accountants, and people who are rainmakers, door-openers and hustlers on your startup’s behalf. Some of these are needed short-term or as-and-when. Others may be involved for short or longer periods of time. The last category however often dazzles and confuses founders. I recently advised an innovative social enterprise one of whose founders is a “celebrity”. While keen to keep control and wanting to be CEO and board director, the celebrity cofounder does not have time to do any actual work. This is problematic especially given the brand gains from keeping the famous cofounder on board. Could another advisor perhaps have a word and clarify expectations? Think of Theranos as a cautionary tale! A stellar lineup of directors and advisors, assembled for their political connections not their scientific nous, has not helped but hampered the company’s goals.

How to assess the suitability of advisors? The best way is to use a combination of verifiable credentials and testimonials. If asked for references or testimonials, I introduce the founder who is asking and one or more of the other founders I have advised, and let them converse freely. But this is rare. More commonly, founders approach me because they have been referred by someone who knows us both well. In such a case, I am the one who asks questions. Due diligence is a two-way street after all. This is when I find founders unprepared to talk or share information. Some ask for NDAs before sharing anything. Others go overboard in talking themselves up. None of these works. Advisors have finite time, and if you cannot sell your idea and vision to them, you won’t keep their interest very long.

How to compensate advisors? Startups often struggle with this question. The varying degrees of involvement required thwarts one-size-fits-all approaches. Many founders are pleased that some advisors are happy to accept equity. But equity is really the founders’ only major bargaining chip. Giving it away like toffee is unwise. Investors may also not be very happy with too much equity in the hands of advisors not actively involved. Some advisors such as lawyers, whom you want involved long term as you grow, may be better candidates for equity or options, than some other advisors whose advice is short-term or highly specific in nature. Then again not all advisors may accept equity. In such cases, the founder has to ask how badly that specific advisor is needed by the startup. Whatever you agree, put it in writing, alongside the framework for engagement; especially where you are giving away shares or options, clearly state the cliff and the vesting schedule.

Finally, how to manage advisors? This is crucial not least if you are paying your advisors. The keenest of advisors will not chase you, the founder, to give their advice. You, the founder, have to figure out a way to get their input. It helps to have a framework in place. One of the best frameworks I have worked with specified the scope of advice, the time expected of the advisor per month including roll-overs if the agreed time was not used in a given month, and the mode of communication that also identified which of the founders will be their interface.

Not all advice will be good, implementable, or effective. Some advice may be just awful. The relationship between advisor and advisee needs to be mutually beneficial and subject to periodic review. As founder, it is finally your call. It is, after all, your dream!

Of diamonds and responsible eternities

Millennials, often described in media as hapless, poor and unfocused, reportedly dropped a cool $25 Billion on diamond jewellery in 2015. This indicator of current and future demand for sparklers notwithstanding, we are nearing the peak of natural diamond mining.

It raises the question as to why synthetic diamonds have not taken off.

After all, millennials as consumers are also focused on environmental consciousness and reportedly willing to pay a premium too. Further, laboratory-grown synthetic diamonds — not to be confused with diamond simulants, such as the non-precious cubic zirconia and the semi-precious white sapphire — are virtually indistinguishable from natural diamonds mined from the womb of the Earth in an energy intensive and ecologically intrusive process. The Gemological Institute of America now even certifies that the synthetic diamond you have just bought is real, authentic synthetic. Synthetic diamonds also come from a transparent supply chain with no human exploitation, which is an excellent reason to choose them.

Why then isn’t the world switching en masse to the more environmentally sensible option?

The answer lies in the deeper probing of what shapes our preferences. We don’t buy diamonds, diamonds are sold to us. There is hard nosed business behind shaping our desires even though the traditional reasoning behind engagement rings no longer holds water, and plenty of women can and do buy their own diamond rings.

The economics is simple enough. Synthetic diamonds sell at a considerable discount to real diamonds. Trade makes more money selling a real diamond than it does selling a synthetic one, even with a certificate. In turn, this means a consumer is likely to see many, many more real diamonds on offer than she will see synthetic ones. This shapes the consumer’s consideration set and undoubtedly influences what gets bought.

The value chain reason is more interesting. Making synthetic diamonds is a capital intensive business. The barriers to entry of a new player are significant. So unless the demand for synthetic diamonds is proven to exist, investment may not come pouring into the space. In a delicious but understandable irony and a strategic masterstroke, a De Beers group company owns a vast majority of patents in the manufacturing of synthetic diamonds. So while it is possible to manufacture synthetic diamonds, it may be darned hard to do so without committing patent violations. This is not trivial. From a consumer’s point of view, this changes nothing and everything at once. De Beers has invested in distribution as well as, since Frances Gerety’s virtually immortal “A diamond is forever” line in 1948, branding for diamonds. It would have been foolhardy and self-destructive, if De Beers did not try to hold on to those advantages.

The branding reason is, of course, the strongest.

Most diamond purchases are not rational purchases but rationalised, emotionally led buys. Feelings are notoriously difficult to dislodge and remarkably easy to hurt. For years, the intrinsically “forever” and “real” character of diamonds has been used as some kind of proof of eternal love and commitment. Would a synthetic diamond ring mean fewer flaws, more perfection but also fake, performative love on the cheap?

Here lies the opportunity.

The brand story for the category itself is ripe for change.

Millennials say they are willing to pay a premium for environmentally friendly products (though not always willing to make good on those intentions). If the positioning is right, synthetic diamonds need not be sold on the cheap. They could be positioned as the environmentally friendly, technologically advanced, ecologically savvy, energy conserving version of the gemstone for the new, tech-savvy generation, while their sparkle still remains celebratory.

Thanks to digital platforms, the engagement with millennials can be kept quite targeted and kept away from the prying eyes of the boomers or even Generation X, who may be confused by the messaging about synthetic diamonds or feel cheated.

Moves are afoot in the space already.

Until a few years ago, when I heard the word “diamonds”,  Dame Shirley Bassey’s booming “Diamonds are forever” rang in my ears. Mental concerts are a real thing, look them up.  The song is wall-to-wall marketing of the De Beers catchphrase of enviable longevity.

However nothing lasts forever, as the rock prophet Axl Rose reminds us.  Why then should sparklers bear this unfair burden of eternity and permanence?

Why not move the discourse from eternity and permanence to a more achievable and realistic exhortation to just “shine like a diamond”?

Move over Dame Shirley, Rihanna, the millennial maestra, is here.

 

Brand leadership has to change

A few years ago, shortly after the 2008 crash, American Express in the United States paid many of its less profitable customers to close their accounts and go away. The move garnered much attention and analysis then. It was seen as a de-leveraging move. Whatever hubbub surrounded the brand then has since died down and in an unscientific survey of my business-savvy friends, few remember that this happened at all.

It was a story of a brand choosing its customers, rather than the dominant narrative that conventionally goes the other way round. The latter powers the nascent GrabYourWallet movement.  Another campaign, Sleeping Giants, is similarly holding brands and companies to account if they continue to advertise on extremist websites.

These are interesting times, as the Chinese curse goes.

As consumers, we profess to love brands that are “authentic“, never mind that in many cases, contrived authenticity, not rooted in values embedded into the business’s value chain, is all we are getting excited about.

What happens when “authentic brands” meet programmatic advertising? Unfortunate, inadvertent outcomes, that is what. Brands are left scrambling to do damage control.

What happens when “authentic brands” take a stand that is vastly unpopular? What happens when the brand’s CEO tells a customer she is free to leave if she does not like their philosophy? Isn’t that just the brand being authentic?

What when all signs point to the emergent challenges being bigger than the more popular political bugbear of the time?

Is authenticity malleable? Should it be?

What if a brand never had cause to reveal some of its stances before and is now choosing to do it in a way that consumers find abhorrent?

And when that comes to pass, should consumers force the brand to comply with their idea of authenticity, or choose to walk away with their wallets?* After all, wisdom says, when facts change, changing our minds is no bad thing.

These growing disagreements and schisms are why, more than ever before, brands need values at their foundation, in their DNA, embedded in their value chain.

Real, defensible, explicit values that the brand is willing to stand up for.

Not convenient values that change with the times or fads du jour.

It is then that brand managers will truly be able to use programmatic advertising as a tool to help them rather be helplessly enslaved by it, while they operate in a haze, whether it be about their brand values or technology.

It is then that “customer choice” will come to mean both that the customer chooses, or rejects, the brand and that the brand chooses, or rejects, the customer.

[* Switching costs for small businesses on a shopping cart platform are not negligible but then that is an economic argument, not one about values.]

 

Helmsmanship of a modern luxury organisation

Change is afoot in the luxury industry. Fewer than 5 weeks into 2017 and several luxury firms’ CEOs have left or are leaving. It is just days since we heard that Chloe Creative Director Clare Wright Keller in Richemont was to quit and while I was writing this piece, Riccardo Tisci’s departure from Givenchy was announced.

While LVMH issued a warning, Ralph Lauren maintains its earnings guidance, even though the share price dropped on the news that Stefan Larsson is leaving.

These creative and corporate developments are taking place against the backdrop of geopolitical uncertainty and also markets behaving exuberantly as if the stock market is somehow decoupled from the economic and political sentiment.

This may well be the year of reckoning for the luxury sector.

Luxury brands have too long dithered between their exclusive image and the effect of the democratic nature of the web. The digital consumer expects luxury brands to navigate the fine line between customising the experience for the consumer, because she is known to them but without becoming too familiar and intrusive. As various privacy related issues rear their head, and cultural expectations diverge, the problem becomes more challenging for luxury brands.

As “things” became more accessible, the pendulum swung towards exclusive “experiences” although this year is seeing the rise of the tangible, as Rebecca Robins, author of Meta-Luxury, says highlighting the resurgence of print books as well as millennials choosing Smythson and Moleskine notebooks to start their 2017.

The intangible and the physical however must both make money, retaining the interest and loyalty of customers across the demographic especially as millennials aren’t as broke as previously assumed.

When Larsson joined Ralph Lauren, its eponymous founder became chief creative officer stepping away from his CEO role, signalling the separation of creative from corporate, as it were. Differences over strategy is the given reason for Larsson’s departure.

Frankly this really isn’t the time for corporate and creative to cleave.

This is the time for corporate and creative to coalesce and pore collaboratively over the information contained both in the yottabytes of “big data” coming in from the many social media channels and consumer created content, as well as the “small data” that the brand’s heritage has yielded over the years.

This is the time for finding meaning in both of those and layering it with the essence of the luxury brand, to remain relevant in these times of change.

This is the time for the luxury sector — corporate and creative — to finally reckon with technology and find a new narrative of relevance that brings the sector in step with the times.

This is the time for creative and corporate leadership to reject Draytonesque kissing and parting, and choose Donne-like commitment to rejuvenate luxury’s relevance.

 

Risk culture and your startup

This article is the tenth in the Startup Series on FirstPost’s Tech2 section and first appeared on January the 23rd, 2017.

A healthcare startup founder I know was in a dilemma. For a pretty sizeable chunk of the equity pie, she had agreed to take on as cofounder a tech development guy. He would in turn build the platform which would enable her business model. As delivered, the platform however was far from adequate. The tech cofounder however was not amenable to taking feedback. Lately he had gone completely quiet and was not responding to emails or picking up calls. Our healthcare founder was left with a platform that did not work as expected, with no access to the source code, and now a growing dread that the company was slipping away from her even before it was built. She had no more money left to bootstrap or to pay for legal advice to buy out his share so she could get the code and find another solution.

When I heard about it, I asked her if the equity was his outright or had a vesting schedule, whether there were ways of clawing back some of the equity as a BATNA, what checks and balances had been built into the agreement between them. What I found was not encouraging.

Through some wrangling, this particular situation somehow found a cobbled-up solution. It is, however, illustrative of why your company’s risk culture needs to be thought of right at the time of creating the startup.

Whenever I bring this up with founders, they ask if entrepreneurship is nothing but risk taking by any other name. It sure is! It is about taking those risks that advance your goals, not risks that destroy your dream. It helps to develop the ability to tell the two kinds of risks apart.

I am not recommending that instead of building your product and your customer base, you spend your time writing huge formal manuals or official policies. I am, however, strongly recommending that you give some thought to the values, beliefs, knowledge, attitudes and understanding about risk shared by a group of people with a common purpose, collectively the risk culture.

How to shape your risk culture in early days? Here are some tips to clarify your thinking.

First, ask if the risk advances your objectives, your dream. At what cost?

In early days of developing a product, building user communities for early testing of features and pricing, capturing feedback and using it to improve the product, all cofounders may use their own devices to write code, collect information and user feedback, keep essential documentation. This is a good move to avoid spending a lot of cash on buying hardware that belongs to the company, if indeed the company as a legal entity exists at all in the early days. There are of course several possible existential risks at this stage. How is the repository for what the cofounders are learning being built and accessed? Where is the essential information — source code, names of suppliers, passwords for services to name a few — kept? Can all cofounders access it? Can it be lost or tampered with easily? What is the backup plan?

Second, think of mitigation plans required, should the undesirable event you anticipated comes to pass.

What if cofounders fall out, someone wants to leave, or someone dies? Can one cofounder hold the entire venture to ransom? What if your only supplier decides not to work with you, and they have copies of your sketches which they could as easily manufacture and start selling? It goes without saying that this mitigation planning needs to happen when you are making key decisions about cofounder relationships, product development, suppliers etc. One can, of course, deal with undesirables as they arise but it is likely to cost more money and time to fix than to prevent or have other recourse.

Last but not the least, by thinking through, however uncomfortable it may be, what happens if it all goes to the wall.

This is the tricky bit. Our healthcare founder was on the verge of incurring a heavy cost for not thinking through the apocalypse scenarios regarding her cofounder. His contribution was essential to her startup but his temperament and working style could not be mitigated by writing tough contractual terms. We don’t like to imagine doomsday situations, sometimes rightly so as they can be paralysing and demotivating. But it is important to know at some level what you would do to salvage your startup if the worst things you had not planned for happened.

Our risk propensity is about that we are willing to accept for just returns. A clear framework for the risk culture makes it easier to identify, preempt, accept or reject those risks. It is wise to start early.