Startups

COMMENT

Three lesser-known reasons why startups fail

With the right focus and partners along with right information about potential pitfalls, a business can survive in the darkest of days

Ahealthy entrepreneurship ecosystem is good for economies. And massive funding for regional players, driven by businessfriendly government initiatives, sends a signal that the good times are just getting started. But while the region has become an undeniable epicentre for global entrepreneurship, success does not come with a guarantee. For every Careem, Washmen and RemotePass, there are hundreds of promising prospects that none of us have ever heard of because they failed to go the distance.

If you go looking for answers, answers you will find. There are plenty of reports packed with impressive-looking figures and charts in which the usual suspects are paraded for all to see. Access to capital, tough market conditions, talent shortages – the list goes on. And yet, it is incomplete. While the usual suspects undeniably play their part, in my own experience, the major culprit emerges as one of three factors that are often overlooked.

01.

INABILITY TO PIVOT Business founders have a vision. And sometimes, they can get so locked into that vision that it makes them hard-headed at the very moments when they need to be flexible. Obsessed with the central idea that

FOR EVERY CAREEM, WASHMEN AND REMOTEPASS, THERE ARE HUNDREDS OF PROMISING PROSPECTS THAT NONE OF US HAVE EVER HEARD OF BECAUSE THEY FAILED TO GO THE DISTANCE

launched their business in the fi rst place, it can be di cult to detach themselves from it when cashfl ow tightens and market dynamics shi t. The simple fact is this: if you are unable to monetise for a sustained period, it is time to pivot. For a younger company, the skills may not yet exist in-house for the more dramatic changes, but if the founder cannot consult the board on revenue models and operations shi ts, then they can turn to a coach, mentor, trainer or other neutral third party.

Certain scenarios will have obvious solutions. For example, if a B2B business model is bringing in a steady stream of revenue but a B2C product is not, then expending resources on the latter is wasteful. Formal and continual assessment of the e ectiveness of a product or service is critical. And businesses should not be afraid to discontinue those that do not measure up, despite what they may mean personally to a founding team member. Early focus is vital. Monetise that which is easily magnetisable and leave the more adventurous ideas for later.

02.

INFLATED VALUATIONS In lean times – such as during a pandemic, economic downturn or period of sustained infl ation – this is especially prevalent. Without an accompanying rationale, founders set high valuations. In the absence of any real data to back them up, high valuations rely on being able to convince a few angel investors to overlook how much of the company they obtain as long as they have skin in the game. Infl ated valuations can be highly detrimental to the company’s valuation in the future as institutional investors, who may warm to the founders and their ideas, will not see eye to eye with them on valuation terms. This will lead to a struggle to fi nd a solid institutional investor willing to give the same terms as the angels. Unfortunately, many founders have fallen into this trap, and have consequently been forced to take a “down round” which causes a loss in valuation, decelerates growth momentum, and becomes a permanent blemish on the company’s record, potentially warding o future investment from most institutional investors.

THE SIMPLE FACT IS THIS:

IF YOU ARE UNABLE TO MONETISE FOR A SUSTAINED PERIOD, IT IS TIME TO PIVOT

“THE MOST SUCCESSFUL FOUNDERS I HAVE ENCOUNTERED HAD SUCH METICULOUS PLANS IN PLACE THAT THEY KNEW WHICH INVESTORS THEY WOULD CALL, ON A SPECIFIC DATE AND WHY. FOR EXAMPLE, THEY MIGHT START CONVERSATIONS WITH A SERIES A INVESTOR WHILE THEY WERE STILL IN THE PROCESS OF RAISING PRE-SERIES A ROUNDS”

Ryaan Sharif, general manager, Flat6Labs UAE

EARLY FOCUS IS VITAL.

MONETISE THAT WHICH IS EASILY MAGNETISABLE AND LEAVE THE MORE ADVENTUROUS IDEAS FOR LATER

03.

POOR FUNDRAISING PLANNING Fundraising takes time and in fact, it takes a lot of time. The people to whom entrepreneurs pitch, typically require the approval of their bosses and their bosses’ bosses. Such an approval chain involves several rounds of due diligence, the sharing and verifi cation of data, multiple rounds of conference calls, and ultimately, a few investment committee meetings before all the required legal steps have taken place and before the funds can be released.

The most successful founders I have encountered had such meticulous plans in place that they knew which investors they would call, on a specifi c date and why. For example, they might start conversations with a Series A investor while they were still in the process of raising pre-Series A rounds. It is all about building rapport ahead of time, getting to know potential investors and allowing them to get to know you. You keep them informed of your milestones and explain how the fundraising is progressing for your current round. This builds confi dence so that when the time arrives for their support, you do not need to start from scratch. You should also be able to show that you have money in the bank. This also contributes towards building investor confi dence because it demonstrates good cash fl ow management.

HARD TIMES Yes, we are facing infl ation. Yes, we are amid a period of uncertainty. Yes, operational paradigms are shi ting, and we must adapt. All these things are true, but so is this: every challenge presents opportunity. With the right focus, the right partners and access to the right information about potential pitfalls, a business can survive and thrive in the darkest of days.

Alan’s Corner

Alan O’Neill Managing director of Kara, change consultant and speaker

Four cultures of leadership

How cultural differences can impact leadership styles and tips to effectively adapt to them

About 10 years ago, the London-headquartered Selfridges Group acquired the Dutch de Bijenkorf chain of department stores. Buying and integrating any acquisition is a challenge, but in this case, the fi t with the overall group was strong. It was very clear that de Bijenkorf had more potential to grow sales and profi tability, once the expertise of the wider group was employed.

As the ink was drying on the contract, Selfridges Group team started to immerse itself in the new business and was careful to be non-directive and inclusive. Within a few months, I was invited to delve in and get to grips with the culture, the strategy and the mechanics of how the organisation was run.

It quickly emerged how cultural leadership can di er across countries. Despite us treading lightly, some of the Dutch leadership team saw us as interfering. Their expectation was that they would continue to operate forever as a standalone business, with the occasional update on progress to the group. That made for a steep learning curve.

AUTHORITY VERSUS DECISION-MAKING

The thing is, regardless of whether it’s during an acquisition or even just with business as usual, doing business across di erent cultures is challenging. In our day-to-day activities, most of us concentrate on strategy and operational detail.

We busy ourselves talking about new products, cutting costs, driving synergies and developing new markets. We just don’t give enough airtime to the topic of culture. I want to focus here on two key dimensions of leadership culture. One is authority and the other is decision-making. In some cultures, they are one and the same. But let me illustrate how they are very di erent.

Since modern management theory started to develop (mainly in the US) in the 1960s, we learned that being authoritarian is much less preferable and e ective than being democratic. In this culture, leaders encourage their people to speak up, to use fi rst names and, ultimately, are more inclusive. Empowerment became a buzzword and ‘management by objectives’ has become the norm. Tentative problem-solving is encouraged at ground level and then escalated to management for a decision. And it is expected that decisions are then made quickly by the boss.

In this context, Americans see the Japanese, Germans and Dutch as very hierarchical. Yet in Japanese and German culture, where positional authority is indeed still prevalent, decision-making is much more consensual and collaborative.

Problems are also discussed at the ground level and solutions are sought. Leaders then act more as facilitators, rather than decision-makers. It’s interesting that the di erent management styles I described earlier between the Selfridges and de Bijenkorf teams were within Europe, where only a few hundred miles separate us.

What can we say about culture differences from Dubai to Doha, Chicago to Cebu, and Mumbai to Mombassa?

AMERICANS SEE THE JAPANESE, GERMANS AND DUTCH AS VERY HIERARCHICAL. YET IN JAPANESE AND GERMAN CULTURE, WHERE POSITIONAL AUTHORITY IS INDEED STILL PREVALENT, DECISION-MAKING IS MUCH MORE CONSENSUAL AND COLLABORATIVE

THE THING IS, REGARDLESS OF WHETHER IT’S DURING AN ACQUISITION OR EVEN JUST WITH BUSINESS AS USUAL, DOING BUSINESS ACROSS DIFFERENT CULTURES IS CHALLENGING. IN OUR DAY-TO-DAY ACTIVITIES, MOST OF US CONCENTRATE ON STRATEGY AND OPERATIONAL DETAIL

HOW THE FOUR CULTURES OF LEADERSHIP WORK

Consider two dimensions, hierarchical and collaborative. Then consider the team you manage, their preferred style, and adapt accordingly.

01. Hierarchical and top down I was speaking with an Irish organisation that has a joint venture with a Saudi Arabian partner in Riyadh. This hierarchical culture of leadership is very prevalent in Saudi Arabia. My client needs to flip its default collaborative and democratic style and be more directive. That’s what the locals expect and need.

02. Hierarchical and collaborative This is where teams expect the boss to make decisions but will also expect to be consulted beforehand. The leader should therefore ask lots of questions but check for quality of input and reasoning behind opinions, before making a decision. I personally use this style in Germany.

SINCE MODERN MANAGEMENT THEORY STARTED TO DEVELOP (MAINLY IN THE US) IN THE 1960S, WE LEARNED THAT BEING AUTHORITARIAN IS MUCH LESS PREFERABLE AND EFFECTIVE THAN BEING DEMOCRATIC 03. Democratic and top down Regardless of your status in the team, speak up before the decision is made. But even if you don’t agree with the final decision, support it as if it was your own. You’ve had your say and you didn’t manage to convince the relevant person. So accept it and move on positively.

04. Democratic and collaborative This is where the team gets involved in making decisions and may get upset if the leader takes over. The leader’s job is to facilitate the process. Accept decision-making will take longer but the execution of decisions will be swift.

THE LAST WORD

Every organisation has a culture, even if it is not defined or written down. The challenge is to take time to understand differences. After all, individuals bring different styles to the job based on past experiences of other organisations. Recognising and embracing difference is your challenge.