Howard Love, the serial entrepreneur who has written books of the same name, introduced the concept of the J-Curve (reference: The Start-Up J Curve: The Six Steps to Entrepreneurial Success). The journey of the start-up from inception through to the moment of objective realisation. (whether that be exit or achieving a revenue/draw-down income for the owner).
This is only one example of a journey plotter, there are many others that you can research, but why is it important?
The reason I personally like the J-Curve is that it illustrates clearly that the journey is tough and you are likely to experience the lows before experiencing the highs (“The Valley of Death”). As we know from endless statistics, for example, Forbes.com state, 90% of start-ups fail (reference: https://www.forbes.com/sites/neilpatel/2015/01/16/90-of-startups-will-fail-heres-what-you-need-to-know-about-the-10/ ).
This can be due to a number of reasons:
- Misconception of the owner, they just don’t enjoy it, and cant see a clear success path
- The product or service isn’t relevant. If there is no market or the innovation is superseded, then growth will be difficult.
- Market conditions change, closing some markets and opening others at a different scale (I.e. potential scenario for Brexit post transition state).
- Labour costs and material costs such as office rentals and rates eat away your profits and float.
- You are unsuccessful in securing category funding to enable you to take advantage of a market condition.
- You run out of ideas of how to move forward and attain growth.
The J-Curve illustrates this for me during the Release and Morph phase. During this period you are likely to have invested the seed funding, have productionised your product or service and are now in the fight or flight stage. “Will people buy the product / service?”. This is where business agility and an agile mindset is key. We have a number of options during Release and Morph, however they come down to two main opposing poles of thought:
- “The head in the sand approach” – Staunch belief in what you have produced, and an unevidenced opinion that we’ve built it, so they will come. You may well achieve a plethora of initial sales, which buoys the mood and confidence, but if you are stagnant how do you deal with the second and third movers in the industry, how do you keep ahead of the competition?
- “The flexible, fail fast route” – At the other end of the spectrum we have the agile or ‘Growth Mindset’. In this position, we look to capitalise on the initial wins (or rectify the losses). Constantly looking for ways of tweaking the product or service to either make it better (for the customer) or make it more cost efficient (more profitable for us).
These polar opposite positions each have positives and negatives. The individual situation will determine how far the dial is turned to achieve flexibility or to control investment and stabilise. The important point is that during release and morph we, as business owners and entrepreneurs need to be looking to protect our position. Sometimes that will be to stabilise, othertimes will be to innovate or to redevelop. Ultimately, we must keep our eyes wide open to react to the market and the sales cycle we find ourselves in.
Coming out of the Release and Morph phase is only the start. However, if you make it out of these phases, you have found one or many coping mechanisms that will keep the passion and fire burning to build resilience and strength for growth.
As we move towards ‘Model’, there will still be the need to adjust the tiller to steady the ship along its course. There may come a point in time where you need to remodel the business in order to take the next step. Examples of remodelling could be to switch from an outsourcing of business units (e.g. HR, Finance, Recruitment etc.) to an insource model. The transition will need to be managed efficiently. You may choose to bring in an interim expert to oversee the transition or you may choose to oversee this yourself.
Whichever route you choose, you must be mindful on the impact to the business. Can the business survive if you are not on the coal face? Conversely, can the company afford an additional cost to hire the expert to transition to a target operating model (TOM)? No decision can be taken lightly, but a decision must be taken. Each decision would benefit from a fallback position to keep the “fail fast” mentality (Perhaps a better term is “learn fast”).
Once transition commences the need to be alert to key performance indicators (KPIs) is vital. That is not to say that you need to produce metrics for the sake of metrics. Any measure produced must be focused on value and returns. Are we investing too much time, effort or cash in the ‘initiative’. If the answer is yes and the rate of return is not as expected then me must review all of the constituent parts. Where necessary we may need to tweak areas or make wholesale changes to move us forward.
“Wholesale changes” can be very challenging. One such change that will test your resolve as an entrepreneur, leader and in most cases “friend” is taking the tough decision to change the role or remove an individual from the company. If this decision is reached collectively (including the impacted person), using the measures that are being collected then the impact will be minimal. However, if personal feelings are allowed to manifest themselves or the decision comes as a surprise then this can lead to acrimony and a break down in long-standing relationships. This is likely to have significant impact on all concerned and potentially the business.
This situation should be avoided wherever possible. As such, it is important that you are mindful to the feelings of the affected person and outline the problems, ask for comment on what is going wrong, how are they coping etc. Understanding the driving forces behind the performance concern will create a commonality within the room and should allow you both to reach consensus. In turn, we protect ourselves, our friendships and the business. Act fast, but act responsibly with compassion.
Once the model is modified and the economics of the business, the culture (via insource) and footings are finalised we now have a strong, collective foundation to move to scale. These first four phases are summarised as “The Valley of Death” by Howard Love. If you reach the other side you have proven:
- You have a product or service that customers want to buy
- You have listened to the feedback of customers or market movements and improved the product or service to remain relevant
- You have reviewed the workings of the business; making necessary changes to secure the business.
- You now have a team and a structure in place that is focused on the common goal
- You have made tough decisions, from a compassionate, level headed place to reduce negative impact and position the company for growth.
Once complete, we can start to look at scale. Scale can be a funny topic to address. There are many ways of scaling, these could include (where applicable):
- Franchising / White-labelling the product / service
- Adding new products or services to the catalogue
- Explore new markets
- Explore roll-out to new territories
- Merger & Acquisition
Each of the scale options have costs and benefits. In some respects we need to repeat elements of the “Valley of Death” for each option. For example, if we add new product(s) to our catalogue, we will need to release and morph based on customer and market feedback. If we explore new territories, the model may need to be adapted to cater for local culture, tax or business laws etc. We may need to set-up a satellite office in the new territory which will incur upfront investment and recruitment. Each will need our due-diligence and research to be significant to account for the risks and exposure and to minimise the impact on the core business.
The scale routine is very much dependent upon your individual risk appetite and the appetite of any investors that you have picked up along the way. The fail fast / learn fast approach should be maintained. If something isn’t working. Stop! Reevaluate the approach. Decompose the challenges and rebuild the components. Look for quick wins to set the foundations again. If your attempts don’t bare fruit then serious consideration should be given to a wholesale change in direction. The stock position for any decision should be “preservation”. By maintaining the business, we live to fight another day and explore a new opportunity backed up by our learnings from the approach that didn’t work.
During the scale phase, as you enjoy further success, building new markets and new revenue channels you need to prepare yourself for endless courtiers. Larger businesses or consortia are likely to approach to test your resolve with respect to buy-out. As with the other phases on the start-up journey, it is imperative that we as leaders and owners prepare ourselves mentally for an approach. We need to have a clear mind with respect to:
- What would be a serious offer to consider (I.e. what was your exit number)?
- Are you ready to sell?
- How will you keep the company focused whilst dealing with these approaches (you or a trusted advisor?)
- Why is this company making an approach? (Are they in trouble? Are they aligned to your vision? Are they testing the water and conducting a fact-find?)
If an approach is made, use the period of courting to your advantage. Explore the appetite for ‘a big exit’, what is the courtier’s business model, what tricks do they have up their sleeve? How can these meetings benefit ourselves to build our personal brand and effectiveness. How do we prepare for such a time where we invite potential buyers?
Be clear, be certain, and remember they have approached you. You and the business are a threat, and as the saying goes “keep your enemies close”; if that means buying the company, the immediate threat is neutralised, even if that does not remove all threats to market position, the position will be strengthened for your once competitor. Are you at ease with this prospect, don’t sell if you have more of the journey to take, don’t walk away a rich person with regret.
Assuming the scale phase builds value, builds the brand and reputation we need to determine what the harvest looks like. The harvest can take a few options, but fundamentally it will come down to some variation of:
- Exit – Someone buys the company
- Lifestyle – The company continues to scale and grow and you are able to take a step back to enjoy the fruits of your labour, yet still on hand to advise your team and represent the company in the industry.
Only you can decide what will give you the most happiness. If selling is the option that buys you the most options then great. If you want to slowly hand over the reigns, then taking a step back into a Chairperson role (for example), will enable you to keep informed of the direction and strategy, but will also allow you to separate yourself from the day to days stresses so that you can enjoy the fruits of your labour.
Seeking advice through peer groups or coaching experts will enable you to deal with both sides of the emotion for each option. Once you have come to terms with each option, so that no residual questions are in your head, you are able to follow either course. You will be mentally strong and mentally adapted to the realisation that under each option the company (at least in the day to day running sense) will not be yours.
Ultimately start-ups do fail, but there are steps to be taken along the way to identify opportunities of greatest return. Wherever you are on your journey, book a free initial consultation, and let us find your true colours.