For Sale - Tickets for the world's first passenger flight! I have heard it said that the key initial skill of the early stage ‘high growth' tech entrepreneur is to suspend disbelief. In other words, to sell tickets for the first passenger flight - and convince others that it will be safe to take off.
Many technology or otherwise high growth businesses never quite get to take-off, and circle the runway for a few years, neither taking off nor crashing. There could be several reasons for this behaviour. It might be to do with a lack of ambition or low scalability of the business idea but is often simply a failure to attract the resources, reduce the risks and build the momentum.
Let's skip forward a period in time. We are now cruising down the runway towards take-off. Investors on board - check; colleagues on board - check; suppliers on board - check; early customers on board - check; new brand on board - check; family on board - check; emotions fully on board - absolutely.
The first flight is never smooth. High drama is to be expected. But when the dramas have unfolded, there are really two typical outcomes of this attempted take-off; the business flies and is ultimately able to build a sustainable business model and build value, or it crashes, destroying the value of stakeholders and the dreams of founders.
If we characterise a Series ‘A' venture capital round as the round taken as the business is hurtling down the runway, a Series ‘B' as the capital taken when airborne and gaining altitude and a Series ‘C' or ‘D' as the capital taken when you are able to quantify the level of fuel required to get to a particular happy destination before landing. Each investment comes with less risk. But you can't ‘bootstrap' a passenger plane: there is no revenue before the plane is safe to fly. So the business will require external capital in various rounds even before the Series ‘A.'
Let's assume we have the primary attributes of ambition and a potentially scalable business model that would characterise a high growth business. I often hear about entrepreneurs as risk takers, which is undoubtedly true, but it is truer still to think of successful entrepreneurs as risk managers. The most challenging section of the process is getting the risks reduced and acquiring capital before you even get the plane near the runway.
I managed to get various rounds of capital into the business long before the plane was built. This is the story of how I convinced the stakeholders to suspend their disbelief and buy tickets for the first flight.
Chapter 4- On a Wing and a Prayer: Choosing angels for your first rounds
Chapter 3- Get your capital model right
Chapter 1- Suspend disbelief and discover new lands
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Will it fly?
I didn't start my business with a business plan. I started it with a bottle of Pernod (it happened to be in the house) and big cigar I found in a drawer. It was late summer. I sat on my back door step with a pencil and small notebook late into the night and scored through a dozen other ideas. They were eliminated on the grounds of scalability and the lack of potential for real ongoing innovation that would lead to optionality and repeat revenue streams.
In the end I was left with a hybrid business model that combined the trends of social media, immediacy of information and some newly created building blocks in web-delivered financial services technology, with a market that was still wedded to face to face financial services product distribution and where the consumer was dissatisfied with the (lack of) available channels. The original concept of Money Dashboard was born. Financial advice seemed to focus only on helping consumers at opposite ends of the wealth spectrum; those with substantial assets or those who were falling through the cracks and needing state intervention.
The first bit of market validation was at home with our family finances. It always seemed to be a real challenge to keep on top of all the bills, bank accounts and myriad financial relationships. The busier I became at work, the harder it became at home. It struck me that I must have at least double the relationships of my parent's generation, who moved home less frequently, typically stayed in one job and definitely had no broadband or mobile bills to think about. They would have known their bank manager for years, something that is not common for the mass market now.
Long before defining a product, a market entry strategy (forget the business plan for now) or raising capital, the next stage of validation was to take that initial market insight and see how to generate evidence of how deep and wide the market pain was being felt. What did the market and competitive landscape really look like? You have to be honest with yourself. Everything has some element of competition. People muddle by with what they have already.
Market research in key market sections were carried out. Focus groups were established. In the UK, assistance can be sought for this activity via the various development agencies established to promote business start-up. As I am based in Scotland, I was able to get financial and research help from Scottish Enterprise. The help given was truly first class and helped to establish key heat spots and market trend data. I was now convinced that this was a market pain worth solving.
I have become a strong believer in market orientated innovation, where you build a technology to solve a problem, rather than investing in research and development in the hope of finding a market. Having no market pain identified that is deep enough or wide enough to create a new market is the key business risk. If you get that piece sorted early, you have every chance of attracting the private capital for the next stage of risk mitigation.
Early angel investors will all ask themselves a variety of questions before making an investment. The foremost of these is, if executed properly - will it fly?
Chapter 4- On a Wing and a Prayer: Choosing angels for your first rounds
