In the two posts I wrote before and straight after the UK EU referendum I offered the same advice to startups and established businesses alike. Focus on your strategy and priorities. Stay calm amid the turmoil and noise. This is in line with the Lean In view expressed by 58 of the UK’s top Tech entrepreneurs this week.
Since the result was announced there has been plenty of political and market confusion. Trade, investment, talent and foreign exchange are topics of heated debate. Yet the reality remains that leaving the EU will make a marginal difference to UK business. Your team, your customers and your suppliers. All count for much more than anything the UK Government or the EU choose to do. So I thought it would be worth sharing some perspectives. Grounding the key issues in reality. And cutting out alarmism and hype. Most of this is written from a startup point of view. But applies equally to any business. Instead of rushing headlong into change keep these points in mind. Strategy and leadership - Keep your focus and priorities
There is a predictable flood of commentary and analysis on the implications of the EU vote for business. I have seen some pieces that suggest now is the time to review your strategy. For example in an otherwise sensible article After the Referendum Steve Turner recommends a review and update of your strategy and objectives.
I can’t agree with this point of view. Too much is unknown. Gather information. Listen to different points of view. But don’t make any hard decisions you don’t have to make. A change in strategy now is as likely to be wrong as right. Be patient and don’t rush off in a new direction when the road is shrouded by fog in all directions. In opportunity the only constant is change
Change creates opportunity for business. Even the worst circumstances (war, revolution etc) are catalysts for the entrepreneurial spirit. The best way to seize the opportunities of change is innovation.
By their nature, startups are geared to this mode. The best course for an existing business is not to second guess existing strategy. It is to improve capacity for innovation. This means looking at culture. And assessing how you open up to new ideas. Don't let FX damage your international ambitions
The biggest shift so far has been in currency markets. The pound has hit a 30 year low against the US dollar. Many people are advising that now is the time to address FX exposure. Remember:
Trade deals, single markets and the real world
Politicians and the media here in the UK obsess over national and supra national trade deals. At a macro level this matters. For any individual business it is a marginal factor. Because:
Do not allow the noise about trade treaties that will continue for years to come to distract you. If anything for a UK based business now is the time to step up plans for international growth. The currency offers a price advantage in key markets. Win customers now in European markets. And aim to build loyalty that survives any trade barriers. And don’t forget the optimistic case for leaving the EU. Various leave campaigners presented a vision of the UK much more active in trade. Opening up to global markets in India, Africa and beyond. Left to our politicians this will remain a fantasy. Only positive business leadership can make this happen. Prvacy, competition and regulation
There is also a possibility that the EU will put itself at a competitive disadvantage in digital. The current commissioner for competition, Margrethe Vestager, is well known for pursuing cases against Google and others.
Without the UK as a counter balance EU action against tech giants could intensify. (Acceleration doesn’t really happen in Brussels). A similar protectionist outlook could affect data privacy. And other important areas of regulation. The UK’s days as the tech capital of Europe may not be over. The war for talent
I am not sure how war became a preferred metaphor in recruitment. Its an odd way to describe the challenge of finding and hiring the best people for your team. Nor does it help address the challenge that businesses in the UK may face. In particular if the country takes a strong anti immigration turn post leaving the EU.
I don’t have any simple answers. To combat this risk business leaders need to think as if throwing a welcome party not fighting a battle. So two thoughts:
But the EU gives startups a lot of money?
The financial mechanisms of the EU are opaque. The basic principle is that countries contribute amounts to the budget. Based on the size and success of their economies. This is then distributed through a number of funds and subsidies. At the end the richest countries redistribute money to the poorest. So Germany and the Uk are the biggest net payers.
But lots of people and businesses in the UK still benefit from the money that is distributed. Two areas are of significant interest to business. In particular startups and innovative companies. Business support provided through the European Regional Development Fund (ERDF) and R&D funding. Once the UK leaves the EU, it will be open to the UK Government to spend this money in any way it chooses. Including the exact same use as the present arrangements. In the short term this will be the default option. For lack of time to think up anything else as much as any other reason. Over time the UK is bound to diverge from the EU policy. This might be good, bad or indifferent to the various interests involved. If you run a business that uses public funds, such as investment from Scottish Investment Bank or various grants awarded by Scottish Enterprise, then you need to do 2 things. Understand if any of this money originates from ERDF funds. (Hint: Most Scottish Enterprise funding does). And keep a close watch so that you can react to any policy changes in good time. Plus ca change
We sit in the eye of the storm right now. When the tempest is at its fiercest good strategy, leadership and decisions matter. Not the ins and outs of resolving the EU situation.
The keys to success will be calm thinking and innovation. Make decisions based on the best opportunities for your business. Don’t wait for Government to open up new opportunities. But don’t rush to change for the sake of it either.
Comments
The United Kingdom has voted to leave the EU. (Sorry I used the B word in a previous column but I can’t bring myself to type it again.) As I write this on the afternoon of Friday 24 June I find the future looks more unknown to me than at any time in my adult life. I really don’t know what this will mean.
I have been clear all along that I supported the Remain option. I am disappointed with the result but there are two things I know for certain. First, I repeat what I said in my article Why Startups Should Ignore the EU Debate. Regardless of what happens next we have innovation, passion and the human spirit on our side. A far more powerful set of levers than any Government action or political decision. The main focus for any and every business is to keep building. Stick to your strategy. Grow your market. Develop your teams. It will not be easy. In the immediate aftermath I have heard remain supporters talking about tragedy or disaster. One large company JP Morgan is also talking already about moving staff away from the UK. Another IAG has issued a coded profit warning. This is all wrong. It shows people as bad losers and it misses the point. Everything that happens in future is a choice as well. Only leaving has been decided. Nothing else. A democratic decision has been made. We now need to work to make the best outcome from this result for the whole country. And beyond. Any startup, any SaaS company, any business in fact needs to keep a calm head. Words like turmoil, chaos and confusion will be bandied around. Don’t get sucked into the negative. Even if the doom mongers are right it will not help. So a few things to bear in mind. Expect the unexpected
So many things may change. The mechanics, legal ramifications and logistics of leaving the EU have not been explored. Both campaigns have simplified the issues, ignored major questions and misled the electorate.
Some of the more obvious impacts of this are already starting. David Cameron has signalled his resignation. Jeremy Corbyn’s leadership is under challenge. Nicola Sturgeon talks of another referendum on Scottish independence. Sinn Fein are also calling for a vote on the unification of Ireland. The ripples are also spreading. Debate about leaving will be intensified in other parts of the EU. The UK referendum is already on the agenda for the upcoming election in Spain. Get your head around the possibility of change. In almost any area of Government, politics or economics. New leaders will emerge and some major public figures will fade from view. Different values and ideas will be discussed. Some good, some bad. Expect the unexpected. Its not just about trade
Most of the economic ‘debate’ has been about trade agreements. Note not trade. Trade is driven by businesses. For thousands of years human beings have been finding ways to trade. And overcoming barriers unimaginable today. International trade agreements only affect this at the margins. With the advent of the WTO there are also global limits to this impact.
So reaching trade agreements is not the economic priority in the new world. I suspect this question will fade rather quickly. Some sort of interim arrangement will be made to fudge over the immediate period after the UK leaves the EU. The rest will be left to the sort of trade talks that only geeks like me even know are happening. That does not mean economics are not important. The debate will centre on big areas like welfare, health and education. For businesses there may also be change in other critical areas. Corporate and international tax policies. Public funding for business through bodies such as Scottish Enterprise and Innovate UK. Finance and co-operation in science and research. All may be subject to radical change. Anger, disappointment and the blame game
I have just listened to Alastair Campbell on TV. Looking tired and drawn he mused about the bizarre situation we now find. Donald Trump is the voice of the dispossessed in the US. Boris Johnson may emerge as the spokesman for the disaffected in the UK.
The tone and texture of life in the UK will also be affected by the discontent that runs deep in many parts of the world. Since 2008 so called populist movements and causes have adumbrated this change. Signs range from the Arab Spring. To the election of right wing Governments in Poland and Hungary. And the emergence of left wing parties in Italy, Spain and Greece. Many of those who voted Leave on 23 June did so in a mood of anger. Protest against our established leaders and institutions of Government. Those hopes for change will be disappointed. For example, there will be no change in the management or control of immigration in the next couple of years. We could even see a rush of people trying to get into the UK before things change. The remainers who are grumbling now will soon fall silent. There will be anger and blame. Most of it will come from the same constituencies. The unemployed. The white male working class. Those in areas blighted by industrial decline. Poor pensioners. All the people who feel the country has abandoned them. A battle is lost but the fight goes on
I fear I the above seems negative. That is not my intention. I just want to set the scene. Negative facts, emotions and choices will dominate for a long time to come. Please don’t let this drag you down.
Voting to leave does not mean that the leave campaigners are now running the country. Both campaigns were in any case motley and ill matched groupings. Who agreed on little else other than remaining in or leaving the EU. And the winners are right in one important fundamental. The people of the UK are in charge of their own destiny. This is not changed by leaving the EU. We can all can vote, campaign and work for the vision of the country we want to see. So no matter how passionate you were about remain, you now have the opportunity to shape the UK in your image. Help build a better society. And really stick it to the nasty elements that lurked close to the surface of the leave campaign. For me the best way to respond to the Leave vote is not to wail and moan about a terrible decision. It is to work to build a better future. Put the UK at the forefront of human rights. Stand up for liberty, democracy and the rule of law everywhere. Lead the international effort to resolve crises and civil wars. Help our economy harness new technologies as a force for good. Build a more sustainable future for our young people to inherit. This is a bit of a random collection of thoughts and reactions. In the long road to a better world, a battle has been lost. Prepare yourself for the fight to go on.
Mattermark recently published an excellent post “A more perfect union” by Nic Brisbourne. It sets out the reasons why startups should be worried about the coming EU referendum in the UK. In case you are not aware, the UK will vote on 23 June on whether to leave the EU or remain.
Leaving has acquired an ugly nickname - Brexit. On both sides the campaign has been marred by rhetoric - sorry strike that out - puerile posturing (better but still flattering) of the most abject nature. The whole thing just makes me angry. So this column departs from my usual calm analysis of business issues. Let me be clear, I agree with Nic’s conclusion 100%. The UK should remain in the EU. His article is also distinguished by being rational and relevant. Two things that cannot be said often in this campaign. I am generally a believer in being a part of the political process. But if you are running a startup you should vote remain and pay no more attention to it. Feel free to ignore the rest of this article! The problem is that the arguments on both sides are false. Based on misleading and dangerous premises. Exaggerated beyond belief. And nasty, parochial and small minded to boot. Followers of the US Presidential primaries may have a sense of deja vu at this point. I don’t have the time or the patience to go through this stuff in detail. So I will just summarise why the economics of the debate are so wrong. The lump fallacy
There is a concept in economics called the lump of labour fallacy. In essence its a version of a zero sum game. One which assumes the workforce is a static entity rather than a dynamic system. Much of the debate centres on what I will shorten to the Lump Fallacy. It treats everything as a static and immutable lump.
To be specific, UK public services are viewed as a lump. Finance, tax, health, education, agriculture. The lot. Once you start from this the conclusions reached are just rubbish. For example the NHS is treated as it has a fixed level of resource. Therefore it is struggling to cope. Because the British public has inconveniently allowed its health needs to grow. Add one person to the population and that becomes an extra strain. To be avoided at all costs. (See how immigration scares mingle with these sham economics). The truth is that UK economic growth today depends on an increasing population. Our productivity is flat or falling. And our population growth arises either from direct migration or from the children of recent migrants. So immigration is driving the increase in tax receipts. Which in turn is the means by which the resources available to the NHS are increased. On top of this, by increasing the working age population we also change the demographics. And many of the new arrivals also fill vital jobs in health and social care. In truth immigration is saving the NHS. Not imposing an additional burden. The trade agreement fallacy
The other dimension of the economic debate is just as dangerous. There is much talk of trade consequences and trade agreements. Nic refers to this at length in his article. Other elements of Government economic policy are also given over prominent positions.
All the squabbling is founded on a false premise. That the actions and influence of Government are the primary determinants of trade. This is also rubbish. Trade goes on everywhere. With or without agreements. There was an explosion of noise when President Obama entered the debate. It obscured the fact that neither the EU nor the UK have ever had a free trade deal with the US. Yet I still seem to be able to buy an iPhone, watch an American movie and the rest. Of course this is because there is a large section of the remain campaign don’t believe in free trade anyway. They are just using this as an economic fig leaf. Once the campaign is over attention will turn to the proposed TTIP agreement between the EU and the US. Expect many In campaigners to be among the most vocal opponents of this deal. Focus and frustration
Anyone in a startup, no matter how early stage, has a much more powerful set of levers in their hands. Innovation, passion and the dedication of the human spirit are the true drivers of the economy. Founders, investors and advisors in the startup ecosystem are dedicated to harnessing this power.
Government sits at the margins. The real economic outcome of leaving or remaining in the EU is impossible to predict. And of minor consequence. Not even worth a discussion. I will be voting Remain because I believe in working together. Co-operation and team work beats striking adversarial attitudes every day. You should vote as you choose. My only advice is to ignore the debate. Your time is valuable and you have far better things to do. Like focus on building a great business.
Silicon Valley has become an icon (or a cliche depending on your taste) for innovation, entrepreneurism and technology. Cities and Governments all round the world seek to imitate its success.
Scotland has long since harboured similar ambitions. Is imitation the sincerest route to success? Or should we learn the lessons and then map out our own route? What are the unique opportunities available in this Northern outpost? Of course we should start by thinking about what works elsewhere in the world. For example, the Bay Area is not the only cluster for exciting new business activity in the US. Innovation That Matters is just one recent report. It looks at cities that stretch from sea to shining sea. It concludes that Boston is best prepared for the digital economy. Not San Francisco or Palo Alto or New York. Specialise for success
I am not going to argue with that conclusion. My interest is in the factors that drive future success. One in particular. The report highlights the need for specialisation. It will no longer be possible for any city or ecosystem to lead new technology across the board. A strong reputation in specific sectors or technologies is needed.
And the authors identify one sector at the forefront of this trend. Digital health comprised 60% of all startups in the 25 US cities studied. More significant health was also the focus of 60% of the fastest growing companies. Embracing our diversity
Taken together this analysis offers some ideas for a different startup world like Scotland. We need to start by recognising and embracing our differences.
A new era of opportunity
Recent years have added to this mix. We have seen an amazing rise in talented people starting businesses of wonderful potential. But it would be foolish to deny that the depth and scale of our technology sector is tiny. In comparison to many US locations and even Europe, Africa or Asia.
And the new era of digital and mobile is a chance to overcome our traditional disadvantages. Distance and isolation are no longer a barrier. Scotland can be at the heart of global ideas and the the global economy. Positions we have not occupied since the Enlightenment in the 18th Century. And Second City of the Empire days of the late Victorian era. Health is our greatest challenge and our best opportunity
Specialisation has to be the way forward for a small country. And health could be a great platform for Scotland. Life Sciences are a vigorous sector of our academic and business life. Our areas of wilderness and our range of wonderful fresh produce offer a rich choice of healthy lifestyles.
And yet… life expectancy in Scotland is 2 years below the UK average. Almost 3 years less than England. The City of Glasgow has the lowest life expectancy in the whole UK for both men and women. No satisfactory social or economic reasons have been advanced for this. We have a genuine problem in Scotland. The skills and desire to tackle it are in place. Our Government and citizens are wholly committed to devoting resources to finding and implementing solutions. All we need is a platform for change. Learning from the history of Silicon Valley
Here is my suggestion. We spend over £12 billion per annum on the NHS. Public and media debate centres on this as a cost. Willingly borne to be sure. But viewed as a drain on our finances. An ever rising burden which we fret about our ability to support in future.
Perhaps we can break this cycle by learning a lesson from the past. Remember the root of Silicon Valley’s success? It was Department of Defence spending in California during the post war decades. The US Navy was the customer that challenged smart people with big, difficult problems. And provided the market for the solutions. We cannot and should not replicate that today. But we have an alternative - the NHS budget. Change the culture and the approach. Use that £12 billion as the catalyst for innovation. In digital technologies and life sciences of course. But also in service delivery, care standards, sustainable building, rural health and a thousand other areas. Thinking about this idea reminds me why I got into the information and communication technologies in the first place. Tech has the power to change the world. By tackling the biggest challenges. I think we could turn this principle full force on local and global health challenges. How can we transform the NHS from a cost centre into our greatest opportunity for change? I would love to hear your ideas.
If you have not already read Bill Gurley’s article on the dangers of the Unicorn financing bubble then you really should. He outlines current financial exposures. Created by the fashion for mega round private finance in the last couple of years. And sets out how each main group of stakeholders are at risk. With some excellent cautionary advice for founders and employees in startups.
As Bill points out, many well funded companies are still hungry for cash. Massive burn rates mean that even the largest funding rounds evaporate fast. Much of this cash goes on sales and marketing. Direct sales teams, commissions, distribution channels, advertising, content and all the rest. This creates an ongoing demand for finance. And also raises a couple of other questions. Puncturing the investment assumption
Everything and everyone takes it for granted that the big money flowing into startup companies is investment. Companies raise investment. Angels, VCs and institutions make investments. Governments ease and enable investments. What happens when this (implicit) assumption is jettisoned?
All that cash was paid for shares. Then spent on building up market presence. Customers, brand and reputation in other words. Great if those stick when the dollars stop flowing. But for many customer loyalty may fade and the revenues will drift away. Because some companies need to keep spending just to stand still. Never mind grow. Turn off the spending tap and there will be real separation between the good, the bad and the ugly. Companies built on good products will survive and thrive. Those that have built a track record of value and a loyal customer base. Reputations created by spin, PR and heavy advertising spend will fare less well. Expect many more well known names to be tarnished. And the losers will have nothing on the balance sheet. Nor any intangible assets of substance. Even a few lines of code will look like a solid asset by comparison. There will be some angry investors around when this emerges. In more conservative investment ecosystems this could have a devastating long term impact. I already see a lot of investors who believe in patentable IP as the only solid basis for a technology business. A bunch of stories about "smoke and mirrors" startup growth will not help. The persuasion hurdle may be even harder to clear. A potential SaaSastrophe
SaaS sales & marketing companies will suffer the greatest exposure. Tom Tunguz is the ultimate authority on SaaS data. He points out that Sales (=1st) and Marketing (5th) are 2 of the top 5 business functions for spending on SaaS products. In another piece he looks at the 1875 SaaS marketing companies started by 2015 (2014: 947).
I think we all know that every startup uses one or more of these products. They are the vehicle for all that advertising spend. The day to day tool for the sales and marketing teams. And further chunk chunk of investors cash is going to pay all those subscriptions. This market is honestly crazy. Yes there are a handful of SaaS that I see everywhere. Hubspot and Intercom are prominent. In the enterprise space Salesforce has a strong position. And I know plenty of companies that generate real value using these products. But I also see a new product every week. Ranging from the doubtful to the out and out flaky. On top of this I get sales e-mail from new startups most weeks. Offering services which grow more niche and less clearly defined by the month. We have travelled from fragmentation to saturation to glut. Investment will soon be in short supply. Revenue will take a harder hit. There will be casualties. And desperate throws of the dice. It will not be pretty. In short, SaaS sales and marketing is a bubble waiting to be burst. I will not shed many tears. The proliferation of sales and marketing “solutions” has infected the whole SaaS market. In all categories and verticals there is too much focus on sales. And not enough on delivering real value to customers. We need to rebalance. A couple of simple precautions
If you are a startup (or indeed any company) using some of the products what should you do? I would not get too stressed about it. Keep two simple things in mind:
Contraction in the startup funding market is inevitable. The big dollar losses will be in unicorns that have raised or are raising gigantic private rounds. These are concentrated in the US and in the startup mega clusters. But everyone should beware the ripple effects.
The digital age offers new hope in communities across the world. A recent speech by Paul Graham and a well thought out book by Brad Feld describe some of the ways cities can build on this opportunity. These ideas are a great start. But more innovation is needed. Every community can find its own way to meet its own goals. This should be an ongoing and passion filled debate. This article shares my ideas and questions. What do you think?
Paul Graham gave a talk recently in his home town of Pittsburgh. His theme was how rust belt industrial city with a great heritage could nurture a startup ecosystem to rival Silicon Valley. I live in Glasgow. A city with a comparable past from its days as the second city of the empire. And the shipbuilding capital of the world. So Paul’s analysis got me thinking. The focus was on demographic and cultural factors. This is in contrast to Brad Feld’s excellent book Startup Communities. A book allows for more depth of course. But the approach is different as well. Brad looks into the proactive things various stakeholders can do to make startups happen. These are two smart guys who I admire. I must admit that Paul’s thinking sits a little more comfortably for me. That is a just a personal thing though. Both sets of ideas have merit. I suspect neither covers the whole story. The Scottish startup example
Scotland is the example I know best. We are by definition small, peripheral, cold and Northern. Comparisons to Pittsburgh only go so far. Yet we are experiencing some success. We have two unicorns (Skyscanner and Fanduel). Not bad when the whole country only has 5 million people.
We also have a good number of strong businesses. Led by great entrepreneurs with fantastic teams. Many of these are somewhere between Product/ Market fit and the ability to scale. Supported by a diverse and well organised Angel community. Larger VC investors are also starting to take a growing interest. Proactive Government (at EU, UK and Scottish levels) and Universities are also a feature of our scene. In a way which is not at all like either Paul or Brad’s models. And there are signs of successful startup communities from Trondheim to Nairobi. With an almost infinite range of circumstances and heritage. Startups offer hope for all our futures
But this is not a review of startup Scotland. Or any other ecosystem.
At the same time, we live in a world where economic progress is fragile at best. Many, many millions live in abject poverty. And/ or in war zones and despotic failed states where the situation is desperate. The “better off” working and middle classes in the developed world are disaffected. And disillusioned with their rulers and their lives. Mobile and digital technology are a beacon of hope in this landscape. Not the whole answer but a big part to play. Tech provides a potential outlet for restless, energetic and frustrated youth. Products and solutions that can the world for the better in many ways. And an accessible and available economic route to build or rebuild communities. Maybe even whole countries. Paul identifies some inherent attributes that Pittsburgh enjoys. And I wish them every success in leveraging those factors to build a great startup ecosystem. I attended the celebration dinner for Scotland’s Digital Technology Awards this week. the event shows how this kind of heritage can work. Held in a refurbished Victorian Fruit Market but with cutting edge video and a fun atmosphere. Well done to everyone involved.
But it can’t just be about places like Pittsburgh and Glasgow. Nor is everyone striving to emulate Silicon Valley a realistic or desirable goal. I don’t have answer, only questions. Yet I believe that everyone should be able to grasp the opportunity. Otherwise why are we using mobile to spread across the globe? Communities need the chance to do things their own way. Build their own futures. And make a real difference to their own lives.
Some ideas and questions to get started
I think this should be a running debate. With far smarter people than me contributing and developing ideas for years to come. Let me kick off with some ideas and questions that I have been kicking around. Some of these might even work!
For Scotland, the first priority is to remember what is great here. We have wonderful people and a great social and cultural environment. Our country stretches from historic and vibrant cities. To some of the most beautiful true wilderness in Europe. The legal and financial systems are stable, clean and supportive. And our Universities have global academic standing and nurture a big pool of talent. These are global advantages. Not all are unique but much is world leading. Our success depends on leveraging what we have. Not on dwelling on the things we lack. How do we maximise this opportunity? What works for other, diverse communities around the world? They are endowed with their own talents and qualities. We can learn from leaders like Paul Graham and Brad Feld who are generous enough to share. But we also need to innovate on for success. This should be a passionate and energising debate. I would love to hear what you think.
One of the most common mantras in the startup business is “solve a real world problem.” In other words base your business on something that people need or want. And are willing to pay for. Its kinda obvious to state that B2B SaaS needs to solve a real business problem.
Business problems can be a complex area. The collective challenge is for the organisation. The common good devolves into an intricate web of threats and opportunities. A different picture for all the units and individuals that make up the whole. This creates both enthusiasts and barriers in almost every situation. For business to change, people must change
There is no easy formula to define a business problem. At heart it is always about change. This is true for consumers as well. Read Nir Eyal’s excellent book Hooked to understand how changing habits is the key to engaging users in any product.
People need to change to deliver any business change as well. But this must be orchestrated and coordinated. Everyone involved needs to change in the same direction. Yet that does not mean the same change for everyone. A new automated purchasing ordering system will result in extensive changes. It demands different day to day habits for procurement staff. It will also offer front line sales staff a better way to manage inventory. But the new habits will be different in each case. In a business of any size this complexity carries an almost automatic penalty. Every change will be unwelcome to someone. There will be different impacts on each role or division or business unit. Somewhere in the business there is a real threat posed by new systems or processes. Change raises barriers every time
The benefit to the whole business may be huge. Yet there may be parts where change means extra cost. Or perhaps just a static outcome. Those who don’t feel the gain will feel the pain. Even if that is an illusion.
Those who obstruct change can influence the buying decision in large enterprises. Some blockers don’t wield influence before purchase. Yet they can destroy the value gained after implementation. Managing expectations and behaviours in a business customer is no simple task. Your B2B SaaS pitch must ask the right questions
So your B2B SaaS pitch is about much more than functions and features and benefits. Sure your customer wants to know what you SaaS can do. They have plenty of other questions as well. Some explicit and some hidden through the process.
Engaging with and selling to a complex enterprise is a process. A process of recognising and asking the right questions. Not about providing perfect answers. I would start with a question that is of paramount importance to you as the entrepreneur: “Are you willing to change the way you do business?" If the answer is No then qualify the opportunity out. No matter how great a fit the potential customer may seem. Answer Yes and the game is on. By the way I found this one in an interesting article from the BBC. It suggests any problem can be solved by this and two other questions…. Questions to probe the reality of business change
Now you need to look deeper. Beyond the functional benefits. To help your customer understand, prepare for and execute the change required to realise those gains. So the next question is:
“How will the business need to change to realise the benefits of your SaaS?" Once you have a clear picture of how much needs to change, a more delicate question arises: “Do you (the customer) need more help to execute the change?" This can lead to some tricky answers. The chances are that if help is needed a SaaS Startup will not have the resources or skills to offer it. You may need some implementation partners. Or at least a cooperation with some business change experts. The 2 biggest competitors to B2B SaaS
Too direct an approach could also pose a threat. The customer still has the option of not changing. Once they realise the work involved, will the benefits still stack up? Or the organisation you are talking to may feel they can manage the change themselves. They will appreciate you recognising the issue. But not the offer of help thank you very much.
Remember when you sell a business solution (and B2B SaaS is a solution not a product) the top two competitors are always: Do nothing and Do it yourself. Your always has at least one and usually both these options open. The final important set of questions are about the barriers and the blockers: “Who will be against the change required?” “Will there be real losers in the organisation, maybe even redundancies?" An upfront discussion about where the obstacles lie will be great for your reputation. Show some insight into how those challenges can be overcome and you will truly stand out. And this is an excellent approach to reveal the true extent of the change required. Think about both the timescale the value of the benefits your SaaS offers in this context. Your offer to a B2B customer will be much more credible. Selling B2B SaaS has elements in common with any new product. Show people the sexy stuff. The cool user experience. The real time data opportunity. And the new mobile app. But also engage them in a discussion about how they can reach out and take the prize.
I spent a long and fascinating day this week talking about a string of early stage companies. I watched pitches from four interesting companies. I listened to reports from a portfolio of startup investments. Including one that has failed in the recent past. Then I had an intense meeting with two friends about the plans for a new business. All the lessons from the day would amount to a good snapshot of the whole Scottish startup ecosystem.
In this post I want to focus on just one. Many of the conversations turned on sales. How could these companies generate their first revenue? Or grow fast enough to reach scale? No surprise. At two separate moments this discussion went deeper. The real problem emerged. How to focus on and clarify the right value proposition? Why is Startup value proposition so important?
Value proposition is one of those buzzword bingo phrases business people use. It appears on the business model canvas. And it used by McKinsey partners and Harvard Business School graduates. What do the fancy words mean?
Wikipedia says: A value proposition is a promise of value to be delivered and acknowledged and a belief from the customer that value will be delivered and experienced. This seems a neat summary so lets work with it for a minute. At the stage of proposition value is a promise from the seller and belief by the buyer. It matters because without that promise, your business has nothing to sell. If belief is absent, no customer will ever buy. That is why is precedes actual selling. There is no point in rushing out to hire sales people if you don’t have a clear statement of the value you will deliver. In fact your value proposition is fundamental to the whole customer lifecycle:
Once you add up these three principles it is obvious that value proposition is about more than sales. It is about what you offer and deliver to your customer. To get it right you need to know what your product does. What benefits it offers? Which customer will gain those benefits? How the value of those benefits compares to the price? (i.e. can you make money!) Value proposition is the heart of your strategy. As well as your sales. This value proposition stuff is simple?
All the above sounds obvious. Even without the theory any sensible founder would take this approach. Yet I meet many business that are struggling in this exact area. More often than not they don’t even realise. Some are head down convinced they are on track and confident of success. Others are finding it tough. But can find almost any other reason for their troubles. Not able to raise enough money to compete. Customers are not yet ready for their solution. Shortage of senior talent to do the selling. There is an endless list.
So what makes a good value proposition? Let me illustrate first with a negative example. Digital health is a bit of a passion of mine. I am CEO of an early stage health startup called Triscribe. In the UK health is a common source of poor value propositions. Digital and more traditional life sciences alike. The usual story runs like this.
This all sounds great. Yet in practice it is no use to anyone. It has at least 4 fatal flaws:
What does great look like?
I could wallpaper the Forth Bridge with more examples. There is no single solution to what a great value proposition looks like. Nor is there a template or model which always works. Or even works some of the time. I love listening to Guy Kawasaki, chief evangelist of Canva and tech marketing legend. He gives some great examples like:
“Our business will take off when kids film the effect of putting a pack of Mentos into a bottle of Diet Coke.” - YouTube value proposition. “The secret sauce is going to be photos of cats scratching themselves.” Twitter value proposition. I guess some people are just visionary. I am not. And I still don’t have a formula. The answers I look for/ hope for/ cry over include:
The last question is often revealing. For example, think about the Kenyan mobile money system M-Pesa. One key to its success is ultra low rates for money transfer. Even with 20 million users it is far from obvious that Safaricom makes money from this product. However, the mobile operator has a dominant 60% share of the fast growing Kenyan market. Kenyan citizens get the value of low cost and extreme convenience. Safaricom has a loyal and valuable customer base. Where does this fit in your business?
I hope its clear why value proposition is so important. Your whole business strategy depends on it. You need it for everything you sell. It will change with time and as your markets needs and expectations evolve. I don’t think there is a template or a method which answers the question. I am suspicious of anyone who says there is.
I would offer two pieces of advice. Always think and reflect on the two key questions: What promise of value are you offering? Do your customers recognise and believe in that value? These are not easy questions. If you are not sure of the answers, get out and talk to people. Best talk to some customers and potential customers. Otherwise talk to advisors, mentors, non-execs or anyone who will listen. There is no more important question on which to seek advice. By all means avoid the business jargon of the words value proposition. But keep the concept at the heart of your strategy.
We had the annual budget statement in the UK this week. Chancellor George Osborne focused on the macro risks which face the global economy. Continued weakness in the Eurozone. Slowing growth in China. Turmoil in many emerging markets. Wherever you live you are familiar with the narrative.
The startup world has caught the bug. Many investors believe that the so called bubble in valuation is deflating. Blogs and analysis are full of advice about how to weather the storm. Cut costs. Focus on profitability. Use your cash to survive. This routine is just as well known. I was going to count all the articles I have read with this type of advice. But I ran out of fingers and I couldn’t be bothered. Because this is bulls**t. Sure if your business is weak a downturn will kill it. Then again if you don’t believe you are building a great business you should end it yourself. But if you do have that belief, an economic downturn is going to be the best opportunity you will ever have. The only way to make sustainable gains in market share
First, a shrinking market is the only true time for any business to gain market share. This truth about business strategy is often lost in startups. New businesses gain market share. Or create new markets. All the time. It is part of the cycle of innovation and disruption.
However in a growing market established businesses also survive. And grow! Look around in strong sectors and the old world companies are rising. Just not as fast as new entrants. Take a look back also into some “ancient history”. The iPhone launched in 2007. As the new device started to gain traction, the world entered its worst economic recession since the 1930’s. Much of the tech explosion was the new mobile ecosystem taking advantage of that downturn. So now is the time to attack the established players in your market. And the biggest opportunity lies with B2B SaaS. About a year ago Tom Tunguz pointed out that legacy companies still generated 93% of revenue in the software sector. The first mobile revolution was consumer led. Now is the time to change the face of the business IT market. Offer your customers more hope not less pain
For B2B SaaS the best way to take advantage of this opportunity is to offer your customers growth.
Every business from the leaders of the Fortune 500 to the corner shop will be hearing the same advice we are hearing in the startup ecosystem. Cut. Fire. Save. Survive. The biggest consultants are polishing cost reduction methods as we speak. The corporate finance guys are dusting down asset disposal proposals. All the experts know what to do. But companies don’t suffer because of high costs. When the market is tough the struggle is to find customers and close sales. The cost base looms up in the management reports because revenue is squeezed. And cutting costs is horrible. Firing people is inevitable. Letting go of cherished projects. Or eliminating positive stuff like benefits, training and that sales conference in Disneyland. Just talking about it wears management down. Another day of poring over spreadsheets. Trying to forget the people and products that lie behind those red numbers. Don’t join the circus. Make your SaaS different from the market. Think about how your product helps grow revenue. For example, maybe your software helps your customer save time. How can the buyer use that time to increase sales? Or offer a better service to customers? Or improve their reputation in the community? Two things will happen. Your customers will want to talk to you. An hour of positive news will be an island of joy in their schedule for the week. And they will start to buy. SaaS is the future
SaaS is perfect for this environment. There is no upfront cash cost. Business needs to change to meet new challenges anyway. So the hidden cost and barriers are reduced. Offer a positive, revenue growth message. And use this opportunity to change the enterprise software market forever.
In the midst of chaos, there is also opportunity. In preparing for battle I have always found that plans are useless but planning is indispensable.
This is one of my favourite quotes. It rings true the first time you read it. Why? Ike was both a great strategist and a man who delivered. That is how he became an iconic leader. Success in both strategy and delivery is also the challenge facing a SaaS startup. Creating a new business is not just about having an idea. It is about execution.
And in my mind the definition of execution is two things. Completing the multitude of tasks needed to build, sell and support your SaaS product. And making good strategic choices. The second part of this definition is the key to the Eisenhower quote. Planning is about choices. Plans are just a schedule of tasks. (As a complete aside, this is the problem I have with all the planning and project apps out there. They are great for making lists. But useless for capturing points of decision or choice. An opportunity for someone?) And choice is awesome when you start your startup. You have a winning idea. And there is a whole world of choices out there. So many of them look like great options. It is more like putting the first marks on a blank canvas than picking from a menu. The Business Model Canvas
Perhaps you feel there are too many alternatives. Then you find some tools to give you a bit of structure. And make sure you don’t miss anything. There are plenty of options available. The Business Model Canvas, curated/ designed by Alex Osterwalder, may be the most popular.
Complete this picture and you have yourself a strategy. Or have you? The problem is you have not made real choices at this point. You have a list of things you want to do. Ideas to try out and see if they work. But that is not strategy.
The essence of strategy is choosing what not to do.
Don’t misunderstand me. The Business Model Canvas is an excellent tool for capturing business strategy. Working through the process is planning of the proper sort. However, in a startup that is not always enough. You will make a lot of positive choices. But miss the part where you actively opt not to do certain things.
Just picking some great strategies is a start. But you also need to challenge your thinking. And you need to ask deeper questions. To make hard choices. This brings you to real strategy. And to genuine focus. It is not just concentrating on the task in hand. Focus and strategy are a consistent set of actual choices. Collectively aimed at a clear objective. The alternative was described in simple terms by David Maister: Your market appeal will then come down to ‘tell us what you want us to do for you and we’ll do that. We’ll do something different for other people tomorrow!
Or as Andrew Miskin, an old friend and mentor of mine, used to put it. “You will just be doing stuff for money."
The Anti-BMC
Hard choices are a thought process. So to aid that process, I offer you the Anti-BMC. Or maybe the Business Model black hole. Not as an alternative to Mr Osterwalder’s creation (although it could be). Rather it is a way of getting a different perspective. Of developing a strategy with true focus. One that clearly states what you will not do. As well as all the great things you are going to achieve.
Think of this as just 4 questions:
Which customers will you turn away?
You have picked the customer segments that you want to serve. Will you say no to others? Does your focus on SMEs mean that you will not sell to large enterprises? If you are selling in Europe will you turn down business from the US?
A different way of saying no to customers would be to avoid certain channels to market. Again it is easy to state that you will choose a channel, for example online advertising. Is it also your strategy not to invest in other channels such as direct sales? Or will you move to these channels in the future? Which problems does your product fail to solve?
Your customers will have other problems. Similar or complementary to the one your product solves. Are you clear that your solution does not work for some things? Perhaps your competitor’s solution is better suited to certain problems.
How will you fail to achieve competitive advantage?
There are many ways in which you can gain competitive advantage. For example, quality, cost, variety, speed and design. Competing on all these factors is impossible. The classic trade off is between quality and cost. You want high quality you must pay more.
Other dimensions offer similar choices. Apple for example offers great simple designs. But a limited variety of products. Henry Ford was thinking the same way when he said “Customers can have any colour they want. So long as its black." Some other decisions can change as your business grows. For instance, you can move into selling through different channels at a later date. When your have greater resources at your disposal. It is much harder to move from being the lowest cost competitor to a high quality focus. Choosing which dimensions you will compete on. And where the competition might beat you. Clear thinking and tough decisions are needed. This is where you decide how your product will differentiate from the competition. Well worth thinking through. Which activities will not be part of your business?
The other big area where you need to be able to say no is around the activities, functions and assets of your business. Will you invest in premises or work from home? Which processes will be core to your business and which will you outsource? Or avoid altogether? How much will you invest in certain activities? For example, are you prepared to offer face to face customer support.
These decisions are less fixed. As you grow you can expand the activities of your business. Making a conscious choice is still a good idea. Just doing something because you can. Or to match other businesses. These are not good reasons to add to your cost base. Try it for size
Try this approach for your SaaS. And then step back and look at the result. Notice anything? Perhaps this example will help. This is the anti BMC as I imagine it for a B2B SaaS business I know well. It would also make a good basis for the strategy of a different type of business.
And that is the point. You are thinking about alternatives. Your strategy is actively disregarding things which could make money. Someone else could do the things you say No to and make a good business out of it. You are choosing the focus for your specific business. Not the only option in a losing game. In other words...
The opposite of strategy is strategy. |
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AuthorKenny Fraser is the Director of Sunstone Communication and a personal investor in startups. Archives
September 2020
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