Archives for the month of: July, 2014

FailsThe Dreamstake team probably has more exposure to early stage tech startups than almost anyone else in Europe right now; over 150 startups at Google Campus Demo Days, as well as all those passing through our weekly startup academy.  We see a lot of great things but we also come across some common #fails.  We can all learn from these:

- Ignoring current best practice

Books like The Lean Startup have codified the startup process and made it easier for founders to follow a series of well defined steps. Experts such as Paul Graham and Steve Blank give excellent guidance through their books and blogs. Ignoring current knowledge will extend the launch phase and ultimately risk failure.

- Failing to solve a problem

This probably the most common fail.  Do not assume that there will be a market for your startup. It is too easy to assume that your idea for a social drinking app will find a ready market. However, you need to test your assumptions. This is called validating Problem/Solution fit. Firstly, check that others perceive that there is, in fact, a problem. Then check that the problem is not already solved by other solutions. Finally, check that your app. provides enough extra utility to make it worth switching.

- Scaling too soon

It is easy to fall into the trap of rolling out your app before checking that it adequately addresses the market need and more importantly that someone will pay for it.  In the early days obsess on proving that you have Product/Market fit by testing an MVP (Minimum Viable Product). Don’t convince yourself that you are ready just because an investor has agreed to fund you. It doesn’t matter how much money you pump into scaling your startup, it won’t happen if the proposition is not right.

- Failing to attract a team

Founders have lots of excuses for not having a good team around them; ‘no money to pay them’, ‘I can do it all myself’, ‘I can’t find anyone who will work with me’. These are all warning signs. There is little doubt that attracting a great team is the hardest part of launching a startup. However, if no-one buys into your vision, then maybe it is not so strong. Investors invest in teams. This is the only thing they have to go on at the seed funding stage. If you can’t afford to fund the whole team, you may have to be clever at managing some part-timers until the first round of funding comes through

- Believing that Dev is all you need

We commonly hear non-tech founders saying that they are looking for ‘a dev’. In reality, this is often the wrong starting point. Firstly, they need to get their own act together and get as far along the line of specifying the product in as much detail as possible. For consumer facing apps the next stage is to find a good UX designer.  Dev comes last, after the proposition has been fully specified.

- Under-estimating the difficulty of funding

Getting funded is always difficult and sucks up valuable management resources which should be directed to the product development. Tech startups invariably require multiple rounds of funding and each stage often takes as long as 6 months. Real investors rarely visit pitch sessions or read unsolicited business plans. Most source their deal flow from trusted third parties. Make sure your startup is totally investment ready before pitching to investors. We are always happy to help with this process.

To summarise, the startup process is well defined and simplicity is the key. Make sure to follow the main steps. Get some great advisory board members into the team and listen to what they say. Make use of the amazing resources that are available to tech founders and most importantly, Never Give Up!

Blog by Paul Dowling – Co-Founder of Dreamstake  an online network, that provides end-to-end support for entrepreneurs wishing to get a tech startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor startup progress and inject capital and support at the appropriate time.

A critical part during the early stages of the validating process for your startup idea is to determine what is the exact user problem you are trying to solve. In fact, Paul Graham goes as far recommending that you find problems before coming up with ideas.

A big complication in understanding user problems is that they come in many guises. They could be about product features (e.g. “no search engine available”), user activities (e.g. “unable find item of interest quickly”) or internal psychology (e.g. “fear of missing out”). This quite often creates a list of possible user problems that are difficult to organise and complicates the validation process.

A powerful yet simple way of framing user problems is Clayton Christensen’s “Jobs-To-Be-Done” framework.

The method works by describing the problem the product or service is trying solve in terms of a “job-to-be-done” for the user. For example, the “job” of a car is to get the user from location A to B via the road system. Employing something else to do the same job will give you different results. Give the “job” to a bicycle, the user might still get from A to B. However it would require much more effort and takes a lot longer. At the same time, it is more environmentally friendly and healthier for the user. Other “candidates” for the “job” could be a motorcycle, walking, taking the bus, etc; each comes their own advantages and disadvantages. If you are thinking about creating a better vehicle, you would use this method to figure out how your vehicle would perform the job better. The concept is very well explained in an excellent video where Clayton Christiansen introduces the framework using the “Milkshake” example.

So, when figuring out the exact user problem your startup idea is trying to solve, ask yourself the following questions:
- What job is it performing for the user?
- What services or products does user currently employ to do the same job?
- How does your solution perform the job better?

Sheen Yap is the  user experience and product expert with over 17 years’ experience spanning web, mobile and interactive TV. Currently working on his own startup, and helping other early-stage start-ups with product, user experience and design issues. Attend his free workshop User-Centric Product Development for startups .

Most tech startup founders will at some point wonder whether they should enter an accelerator programme.  At first it may seem a no-brainer but this is not a trivial decision. It involves devoting valuable time and resources at a crucial point in the startup’s life and often involves releasing a significant share of equity. There is little doubt that the elite accelerator programmes can add value but there are a few issues to take into consideration:

Is an accelerator the right solution?

Accelerators are generally based on the model developed by Y-combinator in 2008. The idea was to inject capital and support into a selected cohort of startups and develop them over a 12/16 week period. The model has been widely copied and similar programmes are now available around the world. However, it is worth it to look into the new sources of early stage capital available in Europe. Since the cost of developing a prototype has gone down, in many cases it makes more sense to bootstrap to product/market fit and obtain larger amounts of angel investment at a better valuation.

Is it the right time?

Selecting the right time to join an accelerator is a prime importance.  Joining too early or too late does not work. The window is extremely short. The right time to participate in a programme is after establishing problem-solution fit but before proving product-market fit. After this point accelerators can do little to add value because the main task is to scale. Joining an accelerator simply to get industry contacts is a bad move.

What kind of accelerator makes sense?

We are currently experiencing an accelerator bubble. This has lead to accelerators fighting for the best startup cohorts. This in turn has seen a trend towards industry niche accelerators, such as fintech or fashtech. There is still little conclusive evidence that these will add significant value.  Niche accelerators receive significant financial support from the industry sector they are established to serve.  This sets up a conflict of interest and risks screwing the startups strategy towards the needs of the corporations rather than the consumer they are there to serve.

To summmarise, there is little doubt that Y-combinator has had a positive effect on the global startup scene.  Their unique combination of great startups selection, quality mentoring and access to huge amounts of capital has produced great results. The results elsewhere are inconclusive and the business models are rapidly evolving.  If as a founder you have the chance to participate in Y-combinator I would suggest jumping at the chance. Otherwise, look beyond the marketing and check that you are not about to give away equity for nothing.

Blog by Paul Dowling – Co-Founder of Dreamstake  an online network, that provides end-to-end support for entrepreneurs wishing to get a tech startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor startup progress and inject capital and support at the appropriate time.

Who plays the most significant role in the financing process? You might think there are only two obvious parties – the entrepreneur and the investor. However, you will be surprised that there are a few other very significant influencers that are involved, incl. mentors, angel investors and lawyers.

Depending on how experienced your lawyer is in startup financing, he can be either invaluable to you startup or a disaster. Don’t forget that a VC closes deals on a daily basis, whereas an entrepreneur raises money just occasionally, if not only once. A startup founder can easily fall into one of the legal financing traps.
So think again before you hire your cousin, a property lawyer, as this can cost you more than you think..

1. A great lawyer will help you focus your attention on the terms that really matter. The control and economic terms are the most important in a term sheet. Some vc’s will waste a lot of your time on negotiating ‘the unnecessary things’ as a strategy to get you distracted. An experienced lawyer will be aware and warn you about it.

2. Your lawyer is an ambassador for your startup. He represents you in the startup world where your reputation can be very important. An unexperienced lawyer will not take that into consideration and can cause you a lot of damage.

3. Reduce unnecessary stress in the negotiation. After the funding process is finished, you will become partners with your investors and you do not need the unnecessary tension, caused by an unexperienced lawyer during negotiations.

4. Lawyers usually charge per hour and a typical financing process can cost you several thousands pounds depending on the firm and the city. The experienced lawyer can cap your bill in advance. If the lawyer is not agreeing to a reasonable cap, you should question if they really understand what they are doing.

5. Stay involved in the process and be in the control. If a startup lawyer and a vc lawyer do not get along, the bill will be sky high. Moreover, a good lawyer will take way less time for the deal than the average one, thanks to his experience and things re-use of standard documentation.

This all said, remember that you are the only person responsible for the final results and it is entirely your decision who to hire. So don’t let your vc talk you out of the lawyer, just because he is not coming from a well known firm. To make sure everything goes well, you need to stay close enough to the negotiations and ensure your lawyer communicates your decisions clearly and in a friendly matter.

Blog by Marina Atarova – Co-Founder of Dreamstake an online network, that provides end-to-end support for entrepreneurs wishing to get a startup funded in the shortest possible time. The startup rating system allows entrepreneurs and investors to monitor progress.