It’s a fact: not enough businesses are making it in the startup world. There are plenty starting in all sectors with great ideas. There is a shed load of incubators and accelerators, support vehicles, and consultants, but still, only 33% of startups who get initial seed funding are making it to Series A rounds.
It should be much higher – right? So, what is the problem? Why are UK startups not cutting the mustard? Why are we not creating more Moonshotters? It’s staring us right in the face: it’s called Short-Termism.
We have too many building their ventures as quickly as they can. Why? To sell.
Having worked with hundreds of startup founders who work hard to secure that golden egg of £150,000 in a first round of funding, I am amazed at the small, in fact, tiny proportion, who then go on to raise the next round and grow. I can honestly count on my two hands those who have nailed next stage finance.
It gets worse: this is backed up by recent research that shows that one-in-10 firms that obtain seed funding in the UK go on to receive later stage fourth round investment, compared with nearly a quarter in the USA.
Entrepreneurship has become quite trendy. Having co-founded Entrepreneurial Spark in the UK, five years ago (I have now moved on from this from this venture), I see there is a huge appetite for people starting businesses.
So much so that NatWest has powered Entrepreneurial Spark to 13 hubs in the UK, each of them rammed with hopeful founders. This, like many programmes out there, is to be applauded, especially NatWest, who are putting their money where their mouth is. Giving new start founders the opportunity to just crack on is a good thing.
Techstars, The Bakery and so many other startup outfits all create a healthy ecosystem. StartUpBritain has completed research that shows startups were formed at a record pace of 80 an hour last year. Wow! So, what is missing? How is Short-termism killing off so many of them, so soon?
Our startup Founders in the UK are not thinking like architects.
Imagine if you will, an architect designing a house. She will ensure that the foundations are solid and all the load bearing beams are built to cope while plugging in all the services that the house needs to become a home e.g. electricity and sewerage.
The structure will be built to a specification that is built to last. It is built not for fun or to be sold, but to last. In short, the architect is building for the long term and all that that entails: multiple owners, weathering and wear and tear. Unfortunately, our startup Founders in the UK are not thinking like the architect.
We have too many building their ventures as quickly as they can. Why? To sell. This is key in determining why so many are failing to make it to round two and three of investment. Along with the surge in startup activity, there has been a race to the bottom in making investment the Holy Grail.
It’s time to re-think and re-imagine how we build new start ventures and founders who can think more long term. It’s time to create more business builders than startups that are not built for short term investment. “Business Building” may sound a bit old hat and not so sexy. But alas, it is what it is and while startup is a genre or movement, Business Building is the new black! It’s time to focus on post investment execution, albeit the pre-investment validation was sound.
Execution is where the battle is won or lost. Once the funding is in, the real work begins and you have to make it work. The problem is we are not teaching our startup founders how to run a business, how to execute. A startup is basically a bunch of capabilities and an idea all crashed together like mashed avocado.
Investors are also looking for more rounded founders who they believe will make it, at least to the next round.
But founders need to flip out of fund raising mode and put their big boy pants on. They need to run an operation so it has some operating rhythm. But, we have a generation of founders who cannot get to grips with this; who can’t grasp how central this is to them living or dying. It’s a failure that can be avoided with some real thought and action.
Short Termism is a mindset that we need to bring to life for new founders who are in ‘build my startup to get investment’ mode. Investors are also looking for more rounded founders who they believe will make it, at least to the next round.
Investors, of all people, want to see their investments succeed. So, whether you are starting, have started or are working with a startup, think about the Founder and her potential to skill up to run a business and not simply get a badge for bringing in seed investment at the SEIS cap.
It’s time for our startups to grow up.
About Jim Duffy
Having co-founded Entrepreneurial Spark, which is now the world's largest equity free business accelerator and written a best selling book - Create Special, I have now moved into:
The Moonshot Academy....
At the Moonshot academy with an ease team, we will take founders who wish to create their own moonshot and build a brilliant business to the next level. We co-create your business with you, take an option in your business and are wit you until exit. It's completely unique!!