Thoughts for startups (no. 7)

"He never created a finished product. Finished products are for decadent minds. His was an evolving mechanism..."

Isaac Asimov, 1964

Related to the over-hyped start-up concept of the Minimum Viable Product (MVP), on which more later, but also related to the Japanese manufacturing concept of kaizen, or continuous improvement, which in turn draws on martial art philosophies (or the power of practice).

Your tech product isn't finished, and isn't going to be. Ever. You might stop developing it and people might carry on using it, and preferably paying for it; but it's not finished. There will always be some improvement, however slight, that can be made to some aspect of it. But more importantly you won't really start to understand what your product does and can do until you make it. Great that you came up with an idea, tweaked it around a bit before realising it. But until you actually have it in front of you, there will be features, UI elements, loads of better stuff to do with it that you couldn't imagine before; and that's nothing to what happens when you put it in front of someone else.

Another lesson to draw is that those changes should be evolutionary as much as possible, at least from the end user perspective. So it's great that you can get a 10% improvement in UI responsiveness by redeveloping the entire back end - but make that change without disrupting the end user. Thought of 6 great ways you could improve the UI? Make them one at a time. Because each is like a product in its own right; seeing the change in use opens up a whole set of possibilities about how the product could be improved.

So make your product work and then improve it; don't be a decadent mind.

Market size: what's totally addressable (dude)

For some months now I've been wondering how med-tech startups were able to claim such huge global market sizes, and then I read this post from EC1 Capital. If I understand the definitions discussed in that post, then I've been using tiny Total Addressable Market numbers where I could have used much, much, much bigger numbers. As in several orders of magnitude bigger.

Med-tech companies sometimes quote global market sizes in trillions of dollars, which can only be the amount being spent on health or medical-related activity. So the equivalent for TwoTen...

Our product is designed for primary schools, nurseries & families, so we could use the same logic to claim that it has a total market size in the UK alone of over $100bn. I think.

This figure is derived as follows:

the estimated cost to parents of bringing up a child to age 21

=£225k

divide by the number of years to get a per annum figure

=£10.7k

Multiply by 5.2m - the number of households with children aged 10 or under (our target age group)

=£55.7bn.

Add in primary school state funding (approximates to the primary school budget)

Average funding per school £4100, times approx number of pupils 4.4m


=£18bn (those are figures just for England rather than UK, so this total is low)

Total figure, which excludes nurseries and private schools to avoid any double counting of parental expenditure, is then

=£73.7bn

which in USD means our market size, just in the UK

=$118bn

An 18* multiple seems fair for extrapolating the global market size. Conveniently, yay! Turns out we're also targeting a global market worth trillions of dollars!

This huge number makes for an interesting contrast with the financial figure we would normally quote. It's from a report from analysts ABI Research, which estimated the global market for parental control software will grow to a rather dull

$2bn

by 2018.

Again, based on the EC1 article, I think it's appropriate to use that as a starting figure for TwoTen's global Total Addressable Market (TAM) -  a starting figure because it excludes revenue sourced from schools, nurseries, mobile partnerships and special use cases. But still, that means our TAM is around only 0.1% of the market size derived above.

So while it's tempting to emulate those med-tech startups and use the big number, ours was always the more realistic and informative, simply because we can grow to dominate that dull figure, as all of it is expenditure on what we do (only we're doing it better, of course ;) ). On the other hand we would never, ever take more than a tiny fraction of that hugely cool first number, which includes spending on food, clothes, housing, primary and nursery staff wages, etc..

Similarly the med tech market size figure contains huge elements of expenditure that they can't expect to replace; nursing staff wages, medicines, food, power, buildings; so their figure might look impressive, their TAM is certainly smaller - and if they can't find a suitable analyst report, they're welcome to just apply our neatly calculated 0.1%.

Thoughts for startups (no. 6)

"Nine-tenths of tactic were certain enough to be teachable in schools; but the irrational tenth was like the kingfisher flashing across the pool, and in it lay the test of generals."

 T.E.Lawrence, Seven Pillars of Wisdom

A quote from that Lawrence, from his book that became the basis of the film Lawrence of Arabia. This is as true now in a business context as it was then and now in military campaigns.

You can't teach that vision element of strategy; an MBA can give knowledge that helps prevent mistakes, to understand laws and financial accounts, and provide tools to help you analyse how the organisation or a team or a product line are performing, and how that performance might be improved; so much can be taught in an MBA. Maybe a good MBA can help you to execute

But what can be taught is Lawrence's nine-tenths; but you need the vision, the deep inner understanding of your company's strengths and weaknesses, of what your product will become, of your market, the future. You need the irrational tenth

Thoughts for startups (no. 5)

There's a fairy tale, made famous by being included in a Brothers Grimm collection, called The Brave Little Tailor. A very, very short version goes like this:

There was a little tailor and the flies are bothering him. He strikes out and kills 7 with one blow. Impressed with himself he makes a belt inscribed with this achievement

"killed 7 with one blow"

He encounters a giant who, assuming the claim on the belt means men, challenges him to a competition of strength. The giant squeezes a drop or two of water from a stone; the tailor squeezes a rock (a cheese) and gets more drops of whey; the giant throws a rock a long distance, the tailor throws a rock (a bird) which disappears into the distance, etc..

Various other things happen and eventually he beats some giants who are terrorising a kingdom and gets half the kingdom in return.

The appearance of a great achievement becomes a great achievement, once the tailor is given a chance. But right at the beginning it all depends on him presenting his achievements to date in the best possible light. Let's call this his traction...

Thoughts for startups (no. 4)

Maybe this is more one for the investment community than startups as such, but here goes.

The problem with elections as a way of choosing who should lead is that eventually those who get elected will be skilled in the art of getting elected and little else

That is loosely what Plato argues in The Republic - that those skilled in the art of persuasion are best at persuading others to vote for them, and hence that becomes the key skill for those who want to be elected. The skills that would make someone valuable as a political leader post election are irrelevant, because that is not how they are selected.

There is the same risk with this focus on selecting which startups to learn more about based on a 3 minute (or shorter!) pitch. It is hard to say anything really informative in 3 minutes, and hard to select what of all the things you could say about your disruptive startup[1] you will include. The best pitches will be delivered by those who have become good at pitching, good at choosing which things to say and good at saying them in a way that gets people's attention. The startups that deliver the best pitches become the startups the investors talk to.

But being good at pitching is not the same as having a good idea, being good at solutions, being good at people and project management, being good at building a business; so the selection criteria is wrong. Using this as a filter means investors can't expect to get to talk to the great startups, the next Google; they should expect to get "like Facebook, but for people who drive red cars" and other non-disruptors, with a team that don't have the right skills mix to deliver a high performance company, but can pitch better than a professional standup comic delivers one-liners. And then don't complain that the "quality of startups" that are coming through the filter is poor; fix your filtering process.

I don't know what a good filter looks like. The accelerators could be, but they too are limiting their entry based on pitches, as well as other very limiting criteria (age range and geographic location, for example, for any of the residential ones). But for sure 3 minute pitches are only a convenient, time efficient filter; they are not a good filter.

[1] Obviously it's far easier to choose what to say if you have a non-disruptive startup, but those are not the ones that make the big returns, are they?

Thoughts for startups (no. 3)

I have observed, throughout life, that a man may do an immense deal of good, if he does not care who gets the credit for it.

Father Strickland, an English Jesuit around 1863 

Another one of those sayings that's appeared in numerous forms, but Strickland appears to be the originator. When applied to startups, businesses or organisations in general, it's most useful thought of in relation to "if not me, who", "just do it" and "do as you would be done by". 

Don't spend time thinking about how to get credit for doing whatever is it that needs doing, nor resenting a lack of credit after the fact. There's other things to worry about, hopefully others are worrying about and resolving them while you're fixing this one.

All that matters is it needs to be done, so get it done.

Thoughts for startups (no. 2)

Though this is really a follow-on from no.1 (isn't that always the way with thoughts?) we'll let it standalone.

"it ain't what you don't know that gets you into trouble, it's what you know for sure that just ain't so"

and

"I once was lost but now am found,
Was blind, but now I see."

The latter is from the lyrics of Amazing Grace, written by the reformed slave ship captain turned abolitionist John Newton and published in 1779.

The former is peculiarly self referential, as most state it is a quotation of Samuel Clemens (possibly writing as Mark Twain). But research has failed to find any such line in his writings nor any contemporaries attributing the quote to him. Now that's irony, Alanis...

But regardless of origin, the point made stands. If you make strategic decisions based on your belief that something is so when it isn't, you'll make bad to disastrous decisions - but if you make decisions that accept uncertainty, bad decisions will be less likely.

But John Newton's lyric brings other concerns. The implication is that previously there was held a misplaced certainty; this error has been uncovered and the truth is now known. But what if the truth now known is not entirely the truth, the whole truth and nothing but the truth? What if, though different to the previous truth, it is equally incorrect?

Operating on the basis of uncertainty is a more sensible approach to strategy. It doesn't preclude the use of research, just an acceptance that research at best determines what has been, and never what will be and that truth is so very often relative. The future is certainly uncertain, and if you take that into account when making planning around your startup you'll tend to have better outcomes.

Thoughts for startups (no. 1)

Thomas Paine, British-born philosopher, French revolutionary and US founding father wrote any number of useful sayings, but I think this one is particularly apt for anyone trying to start a business that's on the leading edge:

"Perhaps the sentiments contained in the following pages, are not YET sufficiently fashionable to procure them general favour; a long habit of not thinking a thing WRONG, gives it a superficial appearance of being RIGHT, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason." 

Commonsense, 1776

So for our startup, TwoTen, getting people to see that "family protection" when it comes to Internet filtering makes no sense, because age-appropriate is utterly not the same as "not adult". Not so much a formidable outcry, but definitely some denial - though the same people would object to film certificates being changed to simply "adult" and or not.

Thanks to Alex Kablanian for prompting this post.

A start-up founder should...

A start-up founder should be able to man the support lines, develop strategy, make a sale, prepare financial statements, design a marketing plan, write website content, balance accounts, build a desk, set targets, comfort their staff, take orders, give orders, cooperate, act alone, solve equations, analyse a new problem, pitch to investors, programme a computer, cook up a business plan, grow efficiently, fail gallantly. Specialisation is for big corporates.

(with apologies to the ghost of Robert A Heinlein)