Category: My entrepreneurial adventures

How The Most Valuable Start-Ups are Marketplaces

The focus of venture capitalists such as Andreessen Horowitz is on virtual marketplaces. They even follow the top 100 online marketplaces as the hottest ventures around. Those are the companies like Amazon, eBay, Airbnb, Uber and Lyft, Alibaba, Instacart…

A souk, one of the oldest marketplaces

That marketplaces or trading ventures are probably the most secure way to riches is well known for a long time (I use often the example of the Californian gold rush of 1849 or the Klondike gold rush – statistically the traders became richer, and in a far more reliable manner, than the prospectors). They are also the most easily scalable as they are not linked to production factors, only to logistics, therefore require relatively less capital to be setup and operated. They earn inter-mediation fees with relatively limited risk compared to the people that do the work.

No wonder marketplaces are hot for venture capitalists and investors. It is also probably one of the easiest kind of start-ups to get financed those days. However, the trader should not forget that at the end of the day it is relying on producers and they also need to find their benefit in the arrangement. Sustainable marketplaces need to maintain a fair treatment of producers. It is not quite yet the case in the virtual world with the gig workers, but will come soon.

If you want to launch a start-up, consider marketplaces. Easy to fund, less capitalistic, quicker to scale. Too bad I tend to prefer longer term, concrete innovative producers in my investments!

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How We Need to Take Time To Know Each Other Before Entering a Business Partnership

Building on our previous post ‘How Founder Compatibility Is Essential In Startups and Any Venture‘, this also obviously applies to other situations such as partnerships, mergers and acquisitions.

I have too often observed partnerships between companies, or plans for merger or acquisition falter because after the operation has been consumed, partners realize that they actually have a low cultural or values compatibility. The root cause is the lack of time taken to get to know each other, and specifically, identify and address misalignment.

When things are not well anticipated, one of the parties will generally take the lead and dominate to the frustration of the other. And it most cases it leads to botched projects with people leaving the resulting organisation.

In my business practice I now try to spend a lot of time getting to know presumptive business partners well, before committing into a more serious relationship where reputations or even survival can be affected. It is not always possible to spend as much time and effort as we would like because of the pace of business. Still there is nothing worse than entering in a partnership and then be anxious that the partner will not play fair, or aligned with our values.

Take enough time to know your counterpart intimately. Partnerships, mergers and other (friendly) acquisitions only will work with benevolence, trust, and minimal cultural and values alignment.

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How Company Ownership Can Be Extractive or Generative

In the very interesting (and recommended) book ‘The systems view of life‘, the work of Marjorie Kelly is mentioned about various ways of owning a company. She opposes extractive and generative ownership.

Her view of ownership design is that five essential patterns work together to achieve either an extractive or a generative design:

  • purpose,
  • membership,
  • governance,
  • capital
  • and networks.

Extractive ownership has a mainly a financial purpose: maximizing profits. It is actually the classical business organisation that emerges from the classical theory. Generative ownership, however, has a living purpose: creating the conditions for life. It is closer to non-profit organisations and is generally more characteristic of smaller, more human-size organisations.

I find this analysis quite interesting as it creates a distinct framework to analyse the economy and the economic actors. And it is quite true that many smaller organisations correspond more to the generative type, as they contribute to develop living networks without focusing exclusively on profit.

Generative vs extractive ownership is quite a useful distinction.

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How I Actually Am a Modern Artisan

As a consultant I realized I work as an artisan. An artisan in intellectual work, of course, but nevertheless an artisan. And I am perfectly happy doing this without trying to grow into an industrial approach.

old-fashioned artisan

In my daily consulting work, I spend my time adapting my knowledge and material to my clients’ situations, polishing it with a view on excellence, never twice producing the same although every time it is similar; learning from master and from practice to deliver ever better solutions and insights.

Thus we should see today artisans in a much wider sense than the usual touristy ‘artisan craft’ of old-fashioned love for manual work. And there are actually many artisans all over the modern world putting their love of things well done in their creations for needing clients. There are many more artisans that what you’d believe. And everyday I discover new small niche companies providing artisan-ware and services to many different parts of our societies.

Artisans are not disappearing, they are rather thriving in the new collaborative work as it allows them to have a wider audience and thus sustain their work. It co-exists with industries that are also needed to deliver the benefits of scale. Still we need dedicated artisans, and I am one of them.

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How the Horizon of Investors in Startups is Not Always Compatible With Their Development Cycle

Following up from our previous post ‘How Venture Capitalists Don’t Really Play the Role We Believe‘, I also observe as a Business Angel that the typical 5 to 7 years’ time expectation of investors, and investment funds in particular, is not always consistent with the time-frame for developing an innovative company.

As a Business Angel with industry experience I have a specific tendency to invest in start-ups that develop tangible innovative products mostly in B2B situations. For those start-up companies, between developing the technology in a sufficiently mature stage, the decision cycle of industrial managers and the time to effectively setup the hardware, the usual investment cycle of 5 to 7 years will often be too short to demonstrate the full value of the company. A horizon on the order of 10 years may be more realistic.

The 5 to 7 years horizon may be more suitable to virtual products in B2C mode and effectively in that space, this time-frame is often sufficient to show the value of the innovation.

I am a bit unclear whether this difference in startup situation is well appreciated by investors and there may be many cases where industrial start-ups will be forced to take decisions that are not supportive of their development after 5 to 7 years because many investors will want to leave at that point.

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How Venture Capitalists Don’t Really Play the Role We Believe

In this must-read Harvard Business Review article ‘Six Myths About Venture Capitalists‘, Diane Mulcahy shows that Venture Capitalists (VC) don’t really play the role that conventional knowledge would expect.

Diane Mulcahy is also famous for being a Venture Capitalist herself and having written a well-known report (‘We Have Met the Ennemy… and He is Us’ accessible here in pdf)showing that Venture Capitalist’s return on investment is quite abysmal.

So what are those 6 myths?

  • Venture Capital Is the Primary Source of Start-Up Funding
  • VCs Take a Big Risk When They Invest in Your Start-Up
  • Most VCs Offer Great Advice and Mentoring
  • VCs Generate Spectacular Returns
  • In VC, Bigger Is Better
  • VCs Are Innovators

Basically it appears that VCs encounter the paradox of being institutions that deal with something very fluid and unstable, startup companies. And obviously their constraints as institutions do not really allow them to provide the kind of support and value that startup would need. And VC does not scale well: it works best as a “cottage industry” – personally I can that ‘craftsmanship’.

The most interesting part is how little VCs actually contribute to the funding of young companies overall – less than 1% apparently. Still they seem to make the US startup scene quite dynamic, but behind the hype, the situations isn’t so rosy.

Venture Capital is only one solution for funding a fast-growing company, and it may not be the best or most adapted. And there’s too much hype and money to make it work as good as it should.

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How We Should Start Before We Are Ready

Have a glimpse at this clever post by Austin Kleon ‘Start before you think you’re ready‘. Of course that post is about writing but that can apply to any creative field.

He starts by a quote from Stephen Arrigan: “I think that when it comes to writing books, you have to start before you are ready, because you will always feel like you are never ready. I find that as you write the book, the road ahead becomes clearer; before that, the road ahead is just a distraction“.

The point Austin Kleon makes is that it is often more comfortable and exciting doing research rather than writing. But then when writing the road becomes clearer as to what really needs to be researched, so we should not wait too much before starting to write.

I find that this applies to any creative field, including entrepreneurship. In creative fields, some research is good, too much research is procrastination because we don’t know what to look for before we start. Interesting lesson!

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How Important It Is to Get Better Clients

In this post ‘Freelancing is a brave act‘, Seth Godin reminds us that the key as a freelancer is not necessarily to work more, but to get better clients. And I find this does apply to any service activity, at least for small companies.

“Better clients demand more, pay more and talk about your work. Better clients make it easier for you to level up, and better clients challenge you to dig deeper and do what you’re capable of.” In short, it may not be more comfortable working for better clients, but it is definitely more challenging and at the end more rewarding.

Working for better clients creates the seed for becoming masters of our work.

As a freelancer, or as a consultant, “You don’t do better by working more hours. You can’t work more hours. You do better by finding better clients.”

How good are our clients? What about dropping the worse ones and look for better ones?

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How Access to Data Is a Key Issue for Start-Ups

Following on our previous post ‘How Data Really is the New Oil, and Better‘, there are two issues for data like for oil: access to the data, and then the ability to process it to produce value.

It is easier for startups to find new ways of processing the data to extract value, because the way it can be processed is heavily dependent on the utilization and hence niches can be produced to provide the user with specific benefits. The way to massage the data to provide value requires a lot of user interaction.

I observe that access to data is an issue for startups and the usual internet suspects have of course a substantial advance on that aspect.

In my limited experience as Business Angel with start-ups I observe that access to the data is often the most frustrating part. Governments’ public cata availability initiatives (open data) have not yet delivered in all countries and areas of public life. Private data can be difficult to get to help develop a product without entering legal issues, and they are often difficult to use technical as well because of their inconsistency or historical aspects. In that context data cleansing and preparation is becoming a real trade.

Hence for start-ups, access to relevant data is often the bottleneck and this aspect must be carefully vetted before launching a venture, because it is where you may fail or have to surrender to some data hoarding giant.

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How Important It Is to Understand the Root Causes Before Treating the Symptoms

This post is written in the context of business for professional services, but of course the title applies more widely. Nevertheless, it is an essential aspect to be considered because as consultant we are often contacted because of some symptoms that have been noticed. And we should seek to understand the root causes before jumping into solely treating the symptoms.

Understanding the root causes often requires to take a more systemic view of the organization or the situation, looking in some details at all relevant aspects to identify if the symptom is isolated or only revealing a deeper issue. This should be the first step of the intervention, what I call the ‘discovery phase’. And it is essential that it is addressed in the most comprehensive manner so as to identify and treat the relevant root cause.

The ‘systematic’ approach here is essential as in any complex system: it needs to be considered in its entirety including the interfaces and relationships with external stakeholder to allow to identify the root causes.

In the past months I have been continuously amazed, as we have made this approach more systematic, at how we uncover root causes that are unexpected but relevant – requiring a lot of discussion with our clients.

This approach is not always understood even from clients who want a ‘quick fix’ solution, but that should be part of our ethics as professionals not to allow to just put a band-aid on a situation, but have a wider view of its causes. It is in any case absolutely essential for the sustainability of any change we intend to bring in the client organization’s or way of working.

It also applies in coaching situation and any situation of dysfunction: take the time at first to carefully assess the situation of its root causes so that you can treat the issue at its root.

This post is a follow-up from the post ‘Useful Lessons Learnt for the Professional Services Business‘ based on Pamela Slim’s post ‘23 Lessons from 23 years in business‘.

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How We Should Prioritize Impact over Income in Professional Services Businesses

While the title of this post is a bit provocative, I am convinced that it is essential in professional services businesses to ensure to have sufficient professional impact. Beyond the fact that it should be the essential objective, it is an essential condition for sustainable success – and hence income. And this should be a priority, which means that a number of activities must be undertaken that generate impact even with low or limited income.

Of course income is important but it should be viewed as a means to generate impact. And success means more income, that allows to generate even more impact.

Impact is an essential pre-condition to be noticed and respected as a competent contributor. It must hence be publicized for a large part (which may sometimes be difficult in services of a confidential nature – in that case some general publications are needed). It is also essential to provide clients with sufficient confidence to hire our services and have some idea of the benefits they can expect.

And finally, what are we here for if it is not to generate impact, if possible much, much larger than the cost of our services? And develop ourselves and our business to generate even more impact? The impact we should seek should also of course be ethically positive impact, i.e. provide our clients with tangible, positive and ethical benefits.

I encounter too many professional services professionals that don’t prioritize sufficiently impact and prefer to seek income. This is not a sustainable proposition, and they miss the point of providing this type of services. Let’s prioritize impact more consciously in our daily activities!

This post is a follow-up from the post ‘Useful Lessons Learnt for the Professional Services Business‘ based on Pamela Slim’s post ‘23 Lessons from 23 years in business‘.

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Useful Lessons Learnt for the Professional Services Business

I love this post by Pamela Slim ‘23 Lessons from 23 years in business‘, because it resonates with my experience while providing a useful perspective. Of course it is mainly applicable to professional services such as coaching and consulting, although after consideration, its relevance is actually quite far reaching. I really recommend the short read.

Here are some of the lessons that resonate the most with me:

  • we often don”t know but we have the find out attitude (through the depth of our network or reference basis)
  • the importance of professional ethics – any lapse will catch up later
  • be conservative on the financial side and on the commercial expectations to survive on the longer term
  • it’s actually more work and pain than you’d expect first!
  • seek impact rather than income
  • the importance of the client in our success and development
  • the need to look for root causes instead of going straight for the symptoms brought to our attention initially by the client

In some follow-up posts, the last three specific topics will be developed further because I believe they are so important.

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