Startup Idea Secrecy: Why fearless learners change the world. And how to be one…

An open letter to entrepreneurs who think their idea is worth stealing…

Dear smart person with $$$$ idea,

Well done on your $$$$ idea. I don’t know what the idea is (you won’t tell me!), but I’m sure it’s good.

Ideas are the motors of innovation; they move the world forward, often to a better place. Without them, civilization stagnates and withers away, pining for its former glory. Innovation is as essential to the world as food to our bodies, as love to our souls. So, thank you for your inspiration and for providing momentum to the great human mission.

Your idea is worth a lot. $$$$, as I understand it. In fact, it’s worth so much that telling people about it is a huge risk. What if they steal your idea? And with it your chance for $$$$? What a miserable outcome that would be. All your clever idea-making for nothing.

This line of reasoning produces the following reaction in many entrepreneurs:

They tell no one.
They don’t ask anyone for help, input, feedback, partnerships or funding.
They take the $$$$ idea to the grave.
Safely.

No one will find it there.

idea secrecy 1

But what if you want to realise the dream? To execute your idea? That’s great. You’re the type of person who takes risks to make a difference. Your fearlessness to try and to be wrong again and again until you are right is supreme.

This is the crux of the matter. An idea alone means very little. No matter how innovative or original your idea seems, someone else has probably had the same idea. In fact, hundreds have probably had it.

What matters then is execution.

Execution over Idea. This phrase is now so often quoted that it seems cliché. But many people still fail to act on its message. So, why does execution trump idea?

As you start out on the journey of making your idea reality, every person you speak to will offer a slightly different perspective. The input of some will have more value than others, sure. But until you ask, it won’t be clear from which data points you will derive most value.

This is so important. What matters is that the more people you ask, the more data points you collect for decision-making. The more informed your decisions are, the better your execution will be. Without ‘talking’, how do you verify assumptions?

How do you know you are doing the right thing?

idea

The truth of it is that no product matches the original idea born in the ‘lightbulb’ moment. Ever. No good product is the same as its first version or its second etc, necessarily. Products which survive and thrive are updated, continuously. Changing customer demands require constant innovation. To execute well, companies must be alive to this. They must be able to listen to feedback and iterate if need be.

This is widely understood and accepted for products which already exist in the marketplace. But, many people don’t see that this holds true for products which are still ideas. Executing well from idea-stage to completed product should be a similar process to updating an existing product based on customer needs.

Otherwise, you are building something without knowledge, without guidance, based only on your own opinion and assumptions.

How can that be good?

It can’t.
Consider this:

Your mother is retiring after 45 years. Her hard work ensured that you were fed, educated and entertained in warmth and security. Every good memory you have can be traced in some way to the opportunities her labour afforded you. You have a lot to be thankful for. You want to find the perfect gift to encapsulate how much she means to you.

Do you:

a) Go with the first idea that comes to mind.

b) Jar of dirt with a rude note about your deprived and wretched upbringing.

c) Brainstorm a few ideas that seem good to you. Then approach people who know your mother and ask what they think of your ideas and/or what they would give her in your position.

No prizes here!

Maybe one in a thousand times you’ll be blessed with a moment of visionary inspiration and option a) will work. But, those are not good odds. Especially when your mother’s happiness or the success of your dream business is at stake.

idea secrecy buddha

Consider this too:

Imagine a hypothetical situation in which you have the choice of investing in one of two companies at concept stage. Which would you choose for a £100,000 investment?

1. An average idea guaranteed to be executed outstandingly

OR,

2. An outstanding idea guaranteed to be executed averagely

While it is possible for great ideas to be successful through semi-competent, muddled execution, in the game of probability, your best bet will be to focus on a concept which is being executed efficiently and powerfully.

This ties in with a point I made in my post “How do investors evaluate startup pitches?” The article was based on a piece by Silicon Valley investor Paul Graham on his blog. The core point was that good investors spend a large portion of their due diligence analysing the merits of the team behind the project. Why? Because they know that the idea in its current form will have to go through many iterations before it can be truly successful. Given this, they want to be sure that the team are good enough to navigate the choppy waters of building a great product to fit their market.

In other words, they want to be sure that the EXECUTION is going to be on point.

You should not be concerned about someone stealing your idea. You should be concerned about someone executing it better than you.

Some of the best businesses are simple ideas.

Google’s core concept allows people to search for stuff on the internet. But it wasn’t the first internet search engine. Henry Ford built the most successful car manufacturing company of the 20th Century. But he didn’t invent the automobile.

What made them so successful?

You guessed it.

Execution.

Google brought the dynamism associated with startups to the corporate level. This means that it can measure and respond to changing user demands rapidly (and that it is an attractive place for top talent). There is a great article on TechCrunch about this called Why Google beat Yahoo in the war for the internet. (Worth a read if you have time).

Henry Ford helped revolutionise factory efficiency by sponsoring the development of the assembly line, and in so doing, he was able to mass produce the first affordable car.

They did the idea best. There was no pretence to ownership of the idea; no notion of ‘my’ idea. They just found an idea and executed it. That’s how they now own it.

This is not to say that the idea isn’t important. Terrible ideas don’t get very far. But how can you truly know whether the idea is good or bad until you share it and learn?

I am not suggesting that it’s okay to be totally indiscreet. There is merit in hiding what you are doing from competitors etc. You should be judicious in your choice of people to share it with. But not to the point of telling no-one!

We sometimes encounter this problem on Angel Investment Network. An entrepreneur wants to raise money for their concept. They sign up and submit a pitch. But they don’t want to reveal too much in case someone pinches the idea. And their pitch ends up containing no interesting info for our investors.

The result? Surprise, surprise. Zero investor leads. And some-number-more-than-zero complaints directed at us.

idea secrecy sad

If you want to raise money from investors, you should be prepared to sell your idea. And to sell, you must tell; the story, the numbers, the notion. Otherwise, someone else will. It’s that simple.

In practical terms, there are protective measures available:

– NDA’s – You can ask anyone you show the idea to sign a Non-Disclosure Agreement. This means you have a contract with them. This can work out fine. But it is also a huge turn-off and friction point. Most VCs will tell you to get lost – they understand that execution beats idea!

– Teaser Pitches – you can try to write your initial pitch as a teaser which reveals enough to get people interested to sign an NDA. But this a real art form and there is a danger that you undersell the business and lose out on valuable feedback and/or leads.

– Patents/Trademarks – depending on your business, you can consider getting legal patents and trademarks for the idea.

These can all be useful ways of protection in some cases. But they do not grant 100% protection. And they can be impediments to getting useful feedback – the sort of feedback, which means your execution is good. The only way to get close to 100% protection is to make your business better than the rest! And to keep doing so. That’s what the best companies do.

In summary…

I commend you for your $$$$ idea. But I urge you to be brave. To hold your idea up for scrutiny. To listen to the feedback that will allow you to execute well; the feedback that will transform your idea into a successful and lucrative reality.

It is the fearless who change the world. Those with the courage to learn and listen; with the courage to face criticism; with the courage to be continuously wrong until they are right. And when they are right, they get it so right.

The startup community is an admirable one. You can expect a warm and attentive reception – the feedback will be critical, but that’s why it’s so useful. So, I encourage you to take full advantage of this. You can be sure your competitors will be (unless you still think they are trying to steal your idea).

I look forward to your feedback.

Happy Christmas!

Oliver

Startup Investment – How do you get good deal flow?

Investors are all looking for a startup investment they believe will be successful. That much is self-evident. Of course, some investors will be looking to invest in companies in which they are interested or experienced. But ultimately, everyone is linked by the shared ambition to back winners.

So that begs the question – How do you pick a winner?

Pick an investment winner

The answer to this comes in three parts: the first is to do with Deal Flow and will be discussed in this post; the second concerns Deal Evaluation which was discussed in a previous post; and the third part is to do with Due Diligence, which will be covered at a later date.

Deal Flow:

One of the most important factors in successfully picking a winner is to have a large and varied number of deals to choose from. Naturally, the more deals you can get eyes on, the more astute you will be when it comes to picking good ones to invest in. That statement comes with a slight caveat – the deals you view have to be of a reasonable quality for you to learn anything valuable.

So where can you find a constant stream of deals of reasonable to high quality?

Network, Contacts & Friends:

The traditional way to do this is through your contacts. If you’re acquainted with people in the startup/investment community, whether they be entrepreneurs or investors, it’s highly likely that they’ll send deals your way. Especially if you ask them. (Silicon Valley in the US is basically fuelled by referrals).

The more you get involved in conversations the more you’ll be included in further conversations. For instance, if a friend or investment broker, sends you a deal, even if you know you’re not going to invest this time around (for whatever reason), it’s still worth responding to them and thereby keep the conversation open by demonstrating your continued interest and engagement.

Many of our investors on Angel Investment Network say that carrying out Due Diligence on companies vastly increased their networks by the simple virtue of having conversations with the right people (even if most were via email!); and as a result, they all started coming across increasingly better opportunities.

In other words, the more you build and nurture your network within this sector, the more you will be exposed to better investment opportunities.

Angel Investment Sites:

Using your network, as set out above, is the traditional way, but it still holds just as true. However, since the digital networking boom with the rise of sites like LinkedIn, it has become easier to broaden your professional network in less ‘organic’ ways. You no longer have to know someone to know them.

It is now easier than ever to expose yourself to quality investment deals and startup contacts online, and in so doing expand your personal network as never before. And you are, no doubt, aware of this as you browse this content on a site called Angel Investment Network!

Further to this, when you actually invest in a startup not only are you casting yourself in a very positive light to the company you invest in, but also to whoever was involved in brokering the deal, other investors you spoke to during your Due Diligence and to friends of the company you invested in. Once you’ve done this, you can guarantee that an increasing number of deals will come your way a) from the fact that you’ve expanded your network in the right way and b) from the fact that people know your serious and not a time waster.

Paul Graham says the following in support of this in a talk he gave at AngelConf in 2009 called ‘How to be an Angel Investor’;

“The best way to get lots of referrals is to invest in startups. No matter how smart and nice you seem, insiders will be reluctant to send you referrals until you’ve proven yourself by doing a couple investments. Some smart, nice guys turn out to be flaky, high-maintenance investors. But once you prove yourself as a good investor, the deal flow, as they call it, will increase rapidly in both quality and quantity.”

(Paul Graham is the guy who founded Viaweb (the first SaaS company) which was acquired by Yahoo in 1998 for a reported $49million. He then founded Y Combinator which has funded over 1000 startups since 2005, including Dropbox, Airbnb, Stripe, and Reddit. So he knows a thing or two about this.)

Startup Pitching & Networking Events:

The final string to your bow when it comes to receiving good deal flow is, of course, networking and pitching events. At these events, you’ll be able to both see deals pitched directly to you and to discuss them and network with other investors and entrepreneurs. You can learn a great deal and expand your network over complimentary drinks and nibbles.

There are tonnes of these events especially in startup-focused cities. We hold a pitching and networking event biannually. For information please send a quick email to info@angelinvestmentnetwork.co.uk.

Summary:

Ultimately, it all comes down to expanding your network and maintaining positive conversations with people in the industry. To recap the best ways to do this are:

– Startup events

– Angel Networking sites

– Investing

And in all cases, it’s the value of the interactions you make that will dictate the positive influence on your network and concomitantly, the standard and consistency of deal flow that gets referred to you.

Is Growth the Best Measure of Startup Success?

Startup Growth & Traction
Growth gets a lot of attention in the startup world. A lot of attention. If you Google “startup growth“, you’ll find a plethora of articles, blog posts and tools all suggesting that growth is the most important measure of your startup.

Paul Graham, the founder of Y Combinator, asserts that “The only essential thing is growth“.

In some sense, this attention is well-deserved. But it is often misunderstood and taken out of context.

Growth is, of course, important. Growth is a telling measure of your product/service’s popularity; and, as such, strong growth metrics are invaluable when you’re trying to raise money from investors.

But growth can, and often does, flatter to deceive. And this is something both entrepreneurs and investors should be wary of.

Entrepreneurs need to be careful because “…many founders hurt their companies by focusing on growth too soon“. This is what Sam Altman, the founder of Loopt and President of Y Combinator, wrote in a recent article on the topic of growth.

His reasoning is simple: if you focus too much on early growth and not on actually building a product people love, then at some stage you will encounter the leaky bucket problem where the customers you worked hard to onboard, leave in droves ne’er to return!

But, if you focus on building a great product then you will have better customer retention and, as a result, growth should become increasingly easy as word-of-mouth spreads.

Consider the example of AirBnB who worked and iterated for years before they got the product just right; and then it spread like wildfire because people loved it.

Equally, investors need to be careful because there are often more telling metrics indicating the potential for success of a particular company. An app, for example, may have achieved 100,000 downloads in its first week, but if 95,000 of those users had stopped using the app by the second week, then the impressive early growth suddenly appears deceptive.

So there we have it. Growth should always be important, but it is also important that entrepreneurs and investors espouse a more nuanced attitude to it than believing it to be the ultimate measure of potential and success.

FinTech Connect Event in London

FinTech Connect Live
FinTech Connect Live

We recently partnered with FinTech Connect, a company that was launched with the vision of building a platform and community for the global FinTech industry.

As part of this partnership, there are discounted tickets available to their next event in London (6th & 7th December 2016) for our readership. If you’re interested in the FinTech industry and think this might be of interest then check out the event brochure here.

If you want to attend use the code FTCL1627 to get a 25% discount on your ticket. Just head over to https://register.iqpc.com/SRSPricing.aspx?eventid=1002786

The Lean Startup Revisited – Does it really work?

The so-called ‘Lean Startup’ methodology, coined by Silicon Valley entrepreneur Eric Ries, has come into vogue in recent years and aims to address the problem of heavy cash outlay during the early stages of your business. In other words, it advocates proving your concept as far as possible without building the finished product. It aims to take the financial risk out of building a startup (as far as that is possible!).

The Lean Startup for Entrepreneurs - Does it really work?

The lean startup methodology is all about experimentation, feedback and iteration. Or to use the vernacular of a school science teacher: hypothesis, evidence, synthesis and improvement. The idea is that rather than spending hours and hours writing a ‘perfect’ business plan, keeping your ideas hush-hush and finally launching a fully developed product in the hope that investors and consumers will be won over, you test hypotheses by collating customer feedback from your MVP (Minimum Viable Product).

The Lean Startup Experimentation Loop

For example, you could throw up a landing page selling a product/service that, as yet, does not exist, and measure the popularity and interest in it. By this means, you can calculate whether the idea is worth pursuing and how it can be optimised; or whether you should ‘pivot’ or iterate, or change the concept entirely. For more information on what lean startup means, you can visit www.theleanstartup.com/.

But in this post I want to address the question of how far this lean startup method has proven itself as viable. Ted Ladd is a professor and entrepreneur who has conducted research on this question and recently published his findings in an article for the Harvard Business Review. Click here to read the full article.

In a nutshell, he concludes that while the experimentation and customer feedback produced by following the method does impress investors and presentation panel judges, it does not necessarily indicate subsequent success. He states a number of possible reasons for this:

– Too much feedback erodes entrepreneur confidence
– Method may produce ‘false negatives’ when there is no clear rule in place to stop testing and start scaling. In other words, entrepreneurs are experimenting so much that they always end up with negative results.

This leads him to say that while the lean startup method has considerable benefits for entrepreneurs, it is important that the testing and experimentation on a micro-level is combined with a broader strategy. That way, only the priority areas are tested; and time and confidence are not wasted testing every aspect.

He ends his article with the following:

“The popularity of the lean startup method is well deserved. But, as is true of any business process, the method must be tailored and employed with reflection and constraints, not blind allegiance. Just like the new ventures it creates, it will improve as researchers and practitioners propose, test, and incorporate refinements.”

Food for thought…

How to get started on your business (for total Novices)…

I just got sent this simple infographic from our friends at www.personalicome.org. It’s a great reminder of all the avenues open to you if you’re starting out as an entrepreneur for the first time. Some should be pretty obvious, but there are a couple of interesting ideas.

Check it out:

7 Innovative Ways To Raise Money For Your Business

AIN on IntelligentCrowd.tv

Xavier Ballester, the co-director of our brokering division, appeared on Intelligentcrowd.tv offering some pearls of wisdom to investors and entrepreneurs alike, including:

– How we evaluate startups worth working with
– Why we exchange part of our cash success fee for equity shares in our clients
– Recent exits and hot prospects including Brightnorth, Superawesome and What3Words
– How we raise money for our clients

Check out the interview below:

Proposal Tip of the Week

Tip #4 “How big’s the itch and is it spreading…like a rash?”

To continue the itch metaphor from proposal tips #2 and #3 (which dealt with the importance of giving a clear explanation of the itch you scratch and how you scratch it), in this post I’d like to touch on the size of the itch and how it’s growing.

For those of you beginning to find my strangled metaphor tedious, I’ll stop. I’m talking, of course, about the market your business operates/plans to operate in.

It’s no use solving a problem – even if you solve it unbelievably well – if it’s a problem only extant for a single hermit on the remote island of Tristan de Cunha, then it’s great for the hermit, but not a viable business (unless he’s sitting on pots of gold).

The problem you solve has to be one that a large and growing number of people suffer from without a solution; and are willing to pay for.

The more statistics you have to indicate this, the more prospective investors are likely to give your idea credence! There are plenty of websites available to help you with this, so don’t skip this bit…

Proposal Tip of the Week

So far in this series we’ve discussed 2 of my 3 recommended first steps for starting your pitch in a way that makes investors instantly grasp the value of your idea.

Third up is the natural corollary of the problem, that is, the solution.

Tip #3 “How do you scratch that itch?”

Once you’ve made the effort, as set out in Proposal Tip #2, to give a cogent explanation of the problem, and the investors have started to relate to the pain point, then you hit them with your solution.

How you do this will depend hugely on what your solution is, but the key point is to make it super clear. No one will understand your solution as well as you do – so don’t expect them to. Set out your explanation in as simple as possible terms as if explaining to a total novice.

Entrepreneurs often make the mistake of being too technical at this stage under the mistaken belief that if they sound like a genius then the prospective investor will fall head over heels and want to invest.

Wrong.

If someone doesn’t understand your idea quickly they’ll look elsewhere for an idea they can understand and relate to quickly.

You’ve been warned for this week…