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Founder Success Comes from Ditching those Rose-Colored Lenses!

Plenty of startup companies are being formed all the time by talented and optimistic founders. They start with a good idea, passion, perseverance, and big dreams of quick success. They are inspired by stories like Slack, the work collaboration company founded by a Canadian that reached a $1B valuation in its second year of existence. Or stories like Robinhood, a financial service company founded in 2013 and now valued at $5.6B. Or Transferwise, an international money service business founded in 2011, now valued at $3.5B. The problem is; startup success is rarely a straight line or easily and quickly attained. True success comes from a large dose of founder realism while bearing down for a long path chasing the elusive and pin-in-a-haystack Unicorn status.

Startups experience setbacks and usually take more time than expected to grow as I’ve personally experienced many times. Founders must be vigilant and not let unrealistic optimism work against them. Be aware of your own blindspots, be humble and be ready to buckle down for the long haul while you practice wise risk management and funding strategies. Also, founders must adeptly evaluate signals from external information and data points, and use this to make smart and informed decisions quickly if you need to change course.

The Art of the Pivot

When setbacks occur, flexibility is key in order to evolve your company’s circumstances to a new set of variables. New competition, customer behavioral changes, market timing miscalculations, funding shortfalls, macro economy, regulation or industry shifts, lack of expertise and your own inexperience; the list is endless of the variables that can impact sales and growth expectations. You may need to pivot the business in a new direction and timing is paramount. Pivoting too late may not pay off, and too early may mean losing out on eventual success with more market maturity time. These decisions will come from data collection, analysing market and customer metrics, as well as employee and stakeholder feedback. You will need to constantly monitor product-market fit to ensure the product you love is still solving a tangible and painful problem in the eyes of the customer as their preferences and external variables around the business evolve .

As an investor in Allcann, a company that created a platform to help Canadian marijuana companies track internal production from seed to sale, our team experienced some early setbacks then had to execute a pivot. We were certified as a vendor by Health Canada in 2016 when there were 50 licensed growers and potential customers. We anticipated this would expand to 500 growers in 2017, but instead it reached only 200. To make matters worse, an unanticipated competitor, Ample Organics , had already gone to market and quickly amassed and locked up a heftymarket share. We had not done enough market and competitor research and miscalculated future market growth. We decided to pivot and realign the business through merging with a larger and complementary production/RFID tracking company Spacecode Technologies. In 6 months we repositioned our focus to international and acquired 3 major new clients. From Canadian growers, we shifted to target global cannabis distributors for tracking and tracing and proving the plant origin. We developed a digital passport to provide tracking visibility and consumer product authenticity. This was a scenario where a fast decision to pivot in a new, emerging market paid off by getting the business back on track.

Managing Financial Risk

Even with product-market fit achieved, if founders do not ensure they have adequate funding and prudently manage financial risk, then it is unlikely that their business will successfully scale. Fundraising takes effort, often at least 20% of a founder’s time to seek out and engage the right investors and funding sources before the funds are needed. Also, founders should manage their personal financial risk and not invest more of their own funds in the business than they feel comfortable losing. This is part of being realistic and grounded; founders should practice this throughout their business building journey. Don’t fall prey to over-promising and under-delivering based on your dreams of greatness; it’s best to be a realist. This extends to cash flow management and revenue projections also. If you think you need $50,000 to get the business off the ground, you might think about having $200,000 instead.

As an Advisor with the kids game company, Kiddology back in 2013, I got a lesson in financial risk management and having enough funding to cover setbacks impacting the time it takes to get to revenue. We had one of the first mobile apps in the kids category available in the Apple Store, but we had difficulty with pricing models and generating customer traction. With outstanding games developed by a talented team, it is unfortunately we had to fold the business. Our lack of subscription revenue model knowledge in an early, evolving market was part of the blame. We had a good business idea and an early entry advantage in a healthy and fast growing kids mobile game category, but bad planning regarding the revenue model, timeline required and funding we would need. We ran out of financial runway required to keep pivoting to find a winning combination of business, pricing and subscription model.

The main takeaway is that success for your startup business is a long and hard process to get off the ground to the scaleup and fast growth phase. Dreams of overnight success can take 10 years. Founders should always be grounded and realistic when they look to the future. Plan for success through adequate funding and managing financial risk to account for the many possible setbacks. Be ready to quickly change direction and pivot when warranted. Overall, you want to aim high, be passionate and dream big, but be real too!

Maxim Galash is Managing Director of BGS Venture LP, a pre-seed venture fund focusing on innovative early stage ivestments in add-tech, gaming, fin-tech and transportation industries.

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