Start-ups are all Naked in the Mirror

This is part of my ongoing series Startup Lessons

Building companies is hard work.  I started my first company in 1999 in London at the height of the dot com craze.  We also had facilities in Dublin, Ireland where our company was initially founded.

We went through the euphoria of massive exposure at the time of our launch due to an article that ran in the Financial Times.  We were unprepared.  Our software wasn’t fully baked.  We hadn’t even thought about having a customer support line or who would staff it.  Our phones rang off the hook.  Our company was completely euphoric.  We drank our own Kool Aid.

We had one of the largest US software companies talk about buying us.  Goldman Sachs (an investor in our company) told us we’d IPO within 18 months for $1 billion so not to take any offers.  My competitors from those days STILL love to talk about how much money we raised in February 2000 (get over it already!).  I acknowledge it was a mistake.

We were hot.  Until we weren’t.

As the economy soured and people grew wary of buying Internet software (we were SaaS as early as 1999 – our buyers were certainly “early adopters”) and life grew more difficult.  Our product releases took longer to ship than we had hoped.  Our customers were generally happy but they were pushing us hard for promised features.  Our business development discussions took longer than planned.  Reporters were no longer interested in talking about B2B eCommerce.  Our sales forecasts were revised downward – many times.

But still we made progress.  We had things to be proud of.  We were working hard and becoming a real company.  We downsized, developed processes and found our groove.  Everything I learned about entrepreneurship I learned in this period.  I think the fondest memories and bonds in life are developed between people who go through shit like this all together and come out survivors.  We developed deep kinship.

Yet there was one thing that was despirting in this time.  Our competitors seemed to be flawless.  We kept reading about their customer wins, their product releases and their biz dev deals.  Buzzsaw (owned by Autodesk) raised $90 million and was making weekly noise in the market.  Our largest US competitors merged and even European customers said that this proved this would be the knock-out blow.  The largest Germany construction firms announced that they were going to launch their own initiative and therefore not use 3rd-party vendors.  Shit.  SHIT!!!

These were stressful times.  My staff kept asking me about these competitor moves and I didn’t have answers.  I could tell some of my best people were losing confidence.  One of my closest friend (our CFO) left the company.  It didn’t add up to me.  How could they being doing so well in these difficult times?   And then it dawned on me.  I figured it out.  And I made a version of this company-wide speech to our employees:

“Look.  I know that you keep reading about how our competitors seem to been going from strength-to-strength in the press.  I know that we’ve made some mistakes.  I know that we haven’t brought in revenue as quickly as we had hoped.  I know it sucks that we had to reduce staff.

But here is the problem.  You’re only reading our competitor’s press releases.  Your reading the good stuff.  And you’re looking at ourselves naked in the mirror.  You see all of our flaws.  And I acknowledge that there are many.  But when you see them they’re wearing their fancy outfits, look stylish and ready to go out on the town.  They’re masking their internal flaws.  And you know that they have many flaws, too.  I’m betting more than we have.

I promise you that inside their offices they’re reading our great press releases, wishing life was as easy for them as it was at our company.  They’re looking at themselves naked in their mirrors, too.  Believe me.  They haven’t hit their revenue targets.  They’ve had staff defections.  They’re working evenings and weekends.

You need to stop comparing our internal issues with their press releases.  Every company has growing pains.  Every competitor is resource constrained.  We’re all scared that the next round of funding won’t come.

So please try to keep your confidence.  We’ve assembled a great team of people that are each expert in what you do.  If we all stay focused on serving our customers and delivering as best we can every day then we’ll be fine.  The minute you lose confidence we’re finished.  Bad morale is the enemy of any company let alone a start up.”

Why did I come to this conclusion?  Because I had started reaching out to competitor CEO’s.  I figured we had much in common with them and we could benefit from a support system.  Our biggest problem was market traction not each other.  It was uncanny how when I spoke openly with them about my concerns how similar their issues were.   Sometimes it is nice to have enemies to motivate you, but it’s also nice to have peers.

Here are my take aways from that experience:

1. Be careful about believe everybody else’s good press and drawing any judgment on your own internal performance.  Judge yourself against your own expectations for yourself and your customer feedback.

2. Let your compass be based on your customers.  Get feedback, find out whether they are happy and serve them well.  Over communicate with them.  Don’t obsess with product releases of competitors or biz dev deals.  In the scheme of things they come and go.  Google announced Google Wave and people are worried about the impact on your business?  Don’t.  Product announcements come and go.  You need to understand the impact of your competitor developments and learn from them.  Just don’t obsess with it.  And don’t let it be your compass.

3. Remember to communicate with your team frequently and openly.  Point out the naked mirror syndrome.  It is the elephant in the room anyways.  Believe me they’ll all have Google Alerts out on the competition and will read their announcements with interest.  If you don’t address it they’re minds are shaped by competitor PR.

4. Be careful about not over expressing your deepest concerns to your team.  You need to be open but not instill panic.  It’s OK to talk about fund raising challenges or customer losses.  You should.  But most people aren’t wired to deal with the nerve racking daily grind of life as a CEO.  If you shared every deep seated fear (that I know you have) and over hyped every victory (that never pays off as much as you had hoped) you’ll have people on your roller coaster ride.  Remember that most people aren’t wired this way.

5. Don’t underestimate the impact of good PR on your competitors.  You need to be sure that you’re constantly communicating with the market.  Having a conversation.  Getting your company news out.  Believe me your competitors are watching.  Reading.  Good PR can help slow down your competitors initiatives as they naively try to follow you.  No news from you strengthens their internal morale.

6. Reach out to the competitors.  Get to know them.  Be open and many will be open back.   Realize as a start-up you have much more in common with them in driving the industry adoption.  I think it’s best to have friendly competition the way you’d hope to in sports.  Compete to win – don’t get me wrong.  But in a gentlemanly way.  If you feel the need to have an “arch enemy” to motivate the team (as some CEO’s feel the need) then make it just one firm and befriend everyone else.  Reach out to the founders, not the staff.  Keep your conversations confidential.  I wouldn’t even disclose to the team that you’re having them.  They then start to think sinister thoughts.

7. Your strategic initiatives are unlikely to deliver knock-out blows – Just as most people overplay their competitors strengths, they also tend to overplay their own.  No matter was killer next feature set we were releasing that we thought would completely change the game in our market it was uncanny how every major competitor I had was (in retrospect) working on the exact same set of features at the same time.  They had all the same customer feedback and had they all had smart people around the table.  I believe winning is about constantly executing, year-in, year-out.  Not about some knock-out feature set, biz dev deals , pricing drops or market positioning.

8. Don’t overset expectations for your employees on the way in. I learned this the hard way.  Imagine calculating what 0.25% of your company is going to be worth when you go public 18 months after inception.  I know it sounds silly to those that weren’t around in the late 90’s.  But when that doesn’t pan out then people look to the door.  After a while I starting telling people on the way in, “join because you’re passionate about what we do.  Join because you’ll make a good not great salary.  Join because as we succeed so will you.  Join because every year we’ve improved your CV to have an even better job in the future.  And, oh, by the way.  We do hand out stock options.  If they’re worth something some day that would be gravy.  But if you’re joining for just that reason it would be better to work somewhere else.”