Elizabeth H. or Defibrillation of Business Models

Found guilty for failing not fast enough!

The Elizabeth Holmes trial! The jury finds Theranos founder guilty on four fraud counts! The case is rare that founders are found guilty; however, what Holmes started at the age of 19 is bread and butter for every founder:

Convincing venture capital with a vision about a product that serves customer needs with an enormous total addressable market while struggling in each financing round to substantiate the bet by facts and data with a probability to fail of more than 90%. However, everybody who invests in a startup should know Goethe’s poem ‘Der Zauberlehrling’ and read Mary Shelley’s Frankenstein, fearless, accepting that they trust people in doing the foolish fail fast and often (too much)!

The old sorcerer

Has finally gone away!

Now the spirits he controls

Shall obey my commands.

I’ve noted his method,

What he says and does,

And with strength of spirit,

I shall work wonders too.

‘Beware; for I am fearless, and therefore powerful’ is the quote of Mary Wollstonecraft Shelly, Novelist, Writer of Frankenstein. The idea of Frankenstein was crafted in a very dark year at the Lake Geneva surrounded by a lot of smart people like Lord Byron.

The movie interpretation of the novel reminds me very much of a typical fearless attitude of a visionary founder team surrounded by venture capital driven by fear of missing out. Before defibrillating the startup’s business model a couple of facts are obvious:

About 90% of startups fail; nevertheless, only 10% fall in the first year.

  • Across all industries, startup failure rates seem to be close to the same.
  • The number one reason startups fail is misreading market demand in 42% of cases.
  • The second largest reason startups fail (29% of cases) is running out of funding and personal money.
  • Other notable failure cases are a weak founding team (23%) and being beat by competition (19%).
  • Failure because of competition most likely happens when a startup has been active for three to five years.

In 2018, 82% of businesses that went under did so because of cash flow problems.

Once the business model is failing and the first pivot is considered, analyze all obvious symptoms of the startup’s  business model to decide fast upon a focused, intensive care therapy plan:

  1. Management by walking around a deal
  2. Unleashing willingness and ability to hyper-grow
  3. Ensure the right Product/Market Fit
  4. Establish a proactive Product Management
  5. Ensure an integrated Sales & Marketing
  6. Clinch a resilient Research & Development
  7. Accept continuous Crisis Management

Clarity affords Focus – Thomas Leonard – is key at this step. An arrested or fibrillating start-up business model needs fast implemented ideas without boiling the ocean. Proofing the value for people, customers and investors hence unleashing the willingness and ability to hyper-grow. Providing relentless openness and developing organizational resilience to digest the painful truth. Ideation is the job of an operational business angel delivering value beyond advice and money.

Defibrillating Business Models as Operational Business Angel needs 

  • The proper focus avoiding boiling the ocean
  • To choose the right ideas to test, failing fast and often
  • Empathy for customers, corporates, startups, and scale-ups
  • Track record as business developer and entrepreneur
  • Experience as a board member and Venture Capital advisor

with expertise in

  • Strategic Change & Innovation
  • Product/Market Fit & Product Management
  • Sales & Marketing
  • Research & Development
  • Crisis Management

Self-awareness is a key for an operational business angel: “You can never walk alone!” true for Liverpool F.C. as for every startup. the better his/her eco-system is inspired the faster a pivot will work.

But where to start?

McKinsey with its 7S Model is a good route to success, comprising of:

Strategy is defined as the set of actions that a firm plans in response or anticipation of changes to its external environment. These actions allow a firm to improve its competitive positioning. Purpose of the business and the way the organization seeks to enhance its competitive advantage.

Structure – Structure allow the firm to focus on areas that are deemed important for its evolution. This includes division of activities; integration and coordination mechanisms.

Systems – These include formal and informal procedures for measurement, reward and resource allocation.

Shared Values – These values define the firm’s key beliefs and aspirations that form the core of its corporate culture.

Skills – The organization’s core competencies and distinctive capabilities. It is argued that old skills can often act as hindrance in developing new skills.

Staff considers people as a pool of resources, which need to be nurtured, developed, guarded, and allocated. It includes organization’s human resources, demographic, educational and attitudinal characteristics.

Style – Typical behaviour patterns of key groups, such as CEOs, managers, and other professionals.

Look at the Staff!

Venture Capital and Business Angels trust the founder team, however there are gaps.

Is the the staff capable of deploying and scaling innovations? Is willingness and ability available. Is the team united with a common purpose, shared goals and guided by rules of engagement. Are they able to discuss with the needed creative abrasion, able to deliver with the right creative agility and able to re-solution if they are wrong?

The better product is around the corner!

Some lessons learnt are easy to apply

  • Serve one market with one product 
  • It is not a Problem / Solution Fit
  • Ensure data-driven clarity
  • Decide upon MAKE or BUY of features
  • Empathize with the POINT of VALUE

Is the product serving the customers need and the right product management int place:

  1. Gathering Requirements
  2. Monitoring Market & Competitors
  3. Developing a product vision
  4. Aligning all stakeholders
  5. Prioritizing Features

Aiming for the right UX, technical features, value proposition to address unserved needs for the targeted customer and market.

Once having these things assured you can look into Sales & Marketing – this is easy enough best practices in the market. Clarity affords focus again:

  1. Sales systematically generates revenue with a product in a chosen market segment to gain market share
  2. Marketing is gaining understanding of the marketplace from the perspective of the customer
  3. Sales utilizes the work of marketing to drive direct sales results, however the time-shift is steady reason for conflicts to be mitigated.

Ensure resilience in Research & Development to tackle their main challenges:

  1. Data Security & Privacy
  2. Quality Management
  3. Risk Management
  4. Skill Development
  5. Roadmap Management

Research is seeing what everybody else has seen and thinking what nobody else has thought

Albert Szent-Györgyi

But unfortunately R&D guys tend more towards seeing and thinking and less towards telling.

What you have to be really aware of – is a start-up is in permanent crisis mode, even when achieving the extra-ordinary growth rates.

A coming-of-age start-up needs to adopt the principles of a continuous crisis management:

A scale-up is a permanent burning platform

  1. Stakeholder Crisis
  2. Strategy Crisis
  3. Product & Sales Crisis
  4. Profitability Crisis
  5. Liquidity Crisis

In Crisis Management, be quick with the facts, be slow with the blame

Leonard Saffier

Conclusion:

For founder and venture capital being fearless is important. Otherwise you cannot invest your time and your money in something which is doomed to fail (with a 90% probability) and exactly this attitude makes strong.

Beware; for I am fearless, and therefore powerful.

Mary Wollstonecraft Shelly

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