How the 3M's will change your opinion of investing or joining a start-up
Introduction
After I left my last start-up in March 2016, I began to think about the trajectories of companies I have worked with and reviewed how the business developed after certain actions, behaviours and decisions occurred. It lead me to what are the critical things for success in start-ups/innovations: the MVP, the Money and the Management (3M's).
Now I am dubious of war stories or pure recollections as they are based upon biased personal data, but fortunately, while mentoring at UBC`s entrepreneurial programme, the Top 20 reasons why startups fail came along and partially validated this 3M hypothesis.
THE THREE M'S
Investors always talk about what they invest in and they say "Team, Team and Team" and then the technology, market, the need or something else. For a person coming into the team either as an investor or employee, it goes without saying the team is critical but is only one component of the consideration set. What is more important and what needs attention and judgement are the 3M's - MVP, Money, and Management. Without high quality management,a solid MVP and solid money supporting the business, the chances of success will be greatly diminished for an innovative project.
Minimum Viable Product -"No Market Need & Poor Product"
The minimal viable product (MVP) is likely what a product manager, developer, designer, etc will be working on and thus understanding what the product features are and why the product/features exists for this innovative product is critical. The crucial thing is does the MVP make sense and aligned to the need? Are there reports, interviews, graphs and other data on the opportunity and is the MVP well laid out for everyone to see? Further, has the MVP been iterated or abandoned to get to the present situation? Does it have too many "bells and whistles', trying to do too much?
The minimal viable product is a critical milestone for the company and is the anchor for all the actions the team undertakes. Everyone on the (product) team will need to understand why the feature of the MVP were the chosen. Examining the customer interview write-ups and the market data together is a first step and from this it should be clear: what people/clients/companies desire. Specifically, is the most important feature(s) that the potential customer desires (biggest pain/gain) at the heart of the development? If not, the management must explain what is required. The key thing is how logical and aligned is the product (MVP) to the need, the closer the MVP is to the customers most important needs, the more you should buyin, the further away the MVP is the more you should stay away from the team.
If the data is not available or has not been written up, it is likely that the MVP is "held in one person head" and/or may not be agreed among the management. This means it is a changeable goal subject to the management`s "feelings"; again start-ups are volatile they can be made explosive with this kind of (product) management.
Another question to consider, has the MVP changed/pivoted due to new data or has the MVP been abandoned without explanation, logic or data? The former is fine, the latter is a cause for concern as it is just like building an MVP without the customer's voice. If the defined MVP has been abandoned and no one can say why and no one knows why the new one is being built or that the reason does not align with the customers need then team maybe building something that may not be needed.
Other things to consider
An over specified MVP is a common problem: too many features and few clear customer benefits. It is the result of a few things:
a) no customer voice which in turn is likely from lack of (start-up) management experience or exposure to marketing
b) inexperienced investors pressuring the inexperienced management to include the investors ideas.
The evidence that this is occurring is long development time (beyond expectations) and little evidence of any defined output. As new idea comes into the boss`s head, these new ideas push all the other developments off track. If this is the case seriously consider asking hard questions regarding the MVP (what is it and why), otherwise walk away as this is a failure waiting to happen.
Further, to develop the MVP, the customer's perspective is essential when building the MVP and the customer perspective would be contained in the writeups or the product brief/specification/marketing requirements. The more the team can hear the customers voice the better the product will be built. Finally, the surest way to fail is to build a product that does not address the pain, deliver the gain or deliver against the customer functional needs,
Before you invest your time or money ask about the MVP, this not only tells you about the management it tells you about what business the company is in.
Confession: I did the overspecified MVP and had no real customer voice in my first start-up, my second and third involved customers but not enough and by my fourth the customer was at the centre of development.
Money - "Ran out of Money"
I have seen lots of good ideas (pre-revenue) go no where. Why? No money or no ability/skill to raise or little access to money or no an appetite for this type of investment. Its is crucial to understand where the money is going to come from next. Parking revenue, does the company have backers who want this to succeed and not just "one round charlies" or poor unconnected angels who cannot bring in more funds; it takes a "team" to raise "money". If this source of money is not around, does the CEO/leadership team have good connections, demonstrated skills at raising capital, independent wealth or has potential business development deals/growing revenues to support the business? Ask these questions as you may work in vain for equity in a company with no future value; it is likely valueless now.
Confession: I made this mistake on my first start-up, thought revenue would be the answer in the second and the third the money was partially there and the idea crystalised in my fourth.
Management - "Not the Right Team"
Without being completely banal, management should be considered through the lense of experience and attitude - avoiding the smartest guy in the room disease. The key thing to remember about management, like any job, the manager/your boss can make what is a great job with a fantastic team feel "terrible" or simply a slog, because the manager has to "feel" in control. In a start-up this problem/issue is intensified as typically startups have smaller teams, spend more time together and there is more pressure to "deliver".
It is very important to understand if the"boss" have some of these dimensions:
a) early start-up management experience (not necessarily a successful company)
b) significant relevant (technology/industry/process, etc) management,
c) professional training in management
d) a "natural" managers disposition.
Without depth in 2 dimensions there is a great chance for a mis-step. If your manager has been part of a successful start-up, this provides clues as to the key ingredients but if the manager in question was not part of the previous management team but a worker bee, they will not really know much about the crucial data that is needed to make the business critical decisions. This person is a great team member but relying upon them for making decisions is extremely dangerous.
When hiring a technical lead/manager - the key thing to determine about the manager, is the management experience relevant for what they are doing. Letting a technical lead handle the techical team is brilliant but letting them loose beyond that without considerable experience/training in general management is a recipe for problems. A technical lead, leads from expertise plus intelligence and experience which means they are brilliant in the role. In general management, this expertise and experience support disappears and the manager maybe just be "swinging in the wind". The same is true for a general manager - managing the minutae of technical development is extremely risky and largely will fail without proper support.
The most basic way to determine if the "boss" have had real/relevant management experience and training is by looking at their Linkedin account for:
1) more than 15-18 months of management experience; -short term roles reduce the chance to develop compentency
2) they have worked for a well regarded firm with strong management ethos or training programme - well managed companies develop strong management training programmes
For potential employees
The goal of all this analysis is to understand how the person (your future boss) reacts to pressure and in the interview process you need to be able to see past their desire to hire you and your desire to have a good and exciting job and ask the tough questions to reveal the manager's character . For example, what would they do if the timeline was jeopardised, how are decisions made, and what was the critical factor in determining what makes up the MVP? It is important to see how the manager deals with power and ego issues as these are likely the places where their emotions will push them when they are in trouble and this is where poor decisions emerge.
Another way to see how they operate is to spend time with them when there is a stressful event going on; if you have time. People will resort to their base character if not properly trained or they will act like a character they have read about that appeals to their ideals but is not anchored by experience; what they are doing here is learning on the job, which for you an employee can be brutal.
Smartest guy in the room issue. If your boss is a chief something or other (CSO, CTO, CEO, COO, etc) and/or they have the need to be right all the time even if it is not where they have experience and training, be careful. Managers believe because they are experts in their field and very smart that this will extend and allow the manager to solve all the company problems; unfortunaley this is a logical fallacy. Further, these managers are demonstrating that they do not have the experience on when they should rely on the team.
It is true common sense gets you quite far and this can be bolstered by reading up on the subject but it only gets you 95% of the way there in start-ups. Typically, these managers will use one data point to justify their stupefying decisions, aggressively ignoring those around them with actual experience or data. If the team is presented with this consistently, it is like planting a seed in a desert, nothing will flourish.
The manager is using power (knowledge coupled with position) to manage and dominate their team. The approach is outdated, given management (empowered) theory and impractical when managing experienced knowledge workers. The consequence for employees and the company is miserable employess and eventually upset investors (as this behaviour will be tried on with them). This demonstrates the managers inability to manage and a "year in the wilderness" will help them learn from these errorsbut letting the errors manifest themselves. It is best to observe from afar.
Confession: Again I have seen these problems consistently in start-ups and I have worked steadily and gently to correct these issues. In fact, I have made most of these errors when I lead my first start-up and apologies to all of you who suffered through that.
Like all complex and messy things there will be exceptions to these guidelines. If there is a steady supply of money, experienced management and an solid, well reasoned and researched MVP , plus a great team, the chances of success are significantly enhanced.
Francis Steiner is a seasoned entrepreneur who has done all the hard stuff - raised money, created business development relationships,built teams and grown and mentored 10 plus start-ups. He would like to thank University of British Columbia (UBC) for mentoring their new businesses.
