Three entrepreneurs who recently passed through the London Business School incubator share their key lessons on launching a startup.
Mistakes are a part of the learning process in any walk of life, but in business especially it is all too easy to know what you should have done in hindsight. Here three recent LBS graduates, Rosie Bailey SLN2019, Pedro Cabrero MIFFT2019 and Nasi Rwigema MBA2020, share their learnings in the hope that others can benefit from their hard-won insights and avoid some of the pitfalls that lie in wait for all founders.
Eight founding fundamentals
- Always have a plan B
- Build a tribe of mentors
- Listen to your customers
- Find the right people
- Set small targets
- Pay early attention to equity splits
- Play the numbers game when fundraising
- Don’t die!
Always have a plan B
All three founders agree on the necessity of having a plan B, but for Nasi Rwigema, as the sole founder of Umwuga, a social network for tradespeople, service industry workers and the people who hire them, it was particularly important; not least when it came to fundraising. He remembers: “My approach to the first fundraise was completely wrong. I took the easy route. I was practicing my pitch on an angel investor/friend and at the end of the practice session, I said, ‘Amen. Fundraising is done – let’s just wrap this thing up.’
But I hadn’t figured out the valuation and I didn’t have a plan B. I over-relied on the fact that we had a friendship before we looked at getting into business together. And things went sour. And when they did, I didn’t have a backup plan. We had really gone into the process and it was quite difficult to unwind at that point.
“That was crucial learning for me. I’m slowly learning that, in every aspect of the business and in every way possible, you need always to have a plan B, because things will go wrong. And you don’t want to have to start scrambling from scratch. My biggest mistake was on the fundraise and running out of money – it’s the easiest way to kill your startup dreams.”
Making sure to share the load with others is another invaluable lesson. Nasi says: “The one thing I wasn’t ready for was the emotional journey. Going into this new venture, at some point you are going to [have to] lift your head up and say, ‘Hello world, this is me and this is what I’m making.’ And you can feel extremely self-conscious about putting yourself out there.
Build a tribe of mentors
“You’re living [the business] all the time and figuring out how to build this thing as you go. You’re learning how to be a founder, you’re learning how to excel in your industry, you’re learning how to be a manager, how to be a CEO, you’re learning everything. [It’s vital] to have people who can help you along the way. I had one great mentor in the beginning and I thought he could help me with everything, but that’s [never going to be] the case. We got to a point where his experience capped out and I was still asking for help, for things that he hadn’t done before, and he was doing his best.
“I realised I could do with a team of people, and not just for business-related things. [I realised] it would also be great to have someone I could call and just say, ‘Is it okay to be feeling so self-conscious, so anxious, so almost immature about what I’m doing and about whether I’m doing it right? You don’t feel great [in that moment] – you don’t feel like a powerful senior. If you have someone who has been through that and knows what you’re feeling and can help you, and someone else who can help you with a financial model and someone else who can help you with a marketing strategy, it will really take you some ways down the road as an early-stage founder – especially if you’re a solo founder. So, have a tribe of mentors.”
Nasi is also clear about the need to think about the areas where you are weak or need help and search out mentors that can help you address the gaps. He has these reassuring words concerning the “right” kind of mentor: “The best mentors would open the door to you asking for their help, but they would never push themselves on you. That told me that they don’t have any motive other than speaking to [you] because what [you’re] doing sounds interesting and perhaps they’d been through it before and really just wanted to help. It was important for me that they had had similar experiences – otherwise, it is just advice from someone who is trying to be nice to you. You want to go into the weeds for some things, tell them what you’re struggling with and hope they can really help you.”
Having the right support network in place is a fundamental that resonates strongly with Rosie Bailey. She says, “You need cheerleaders and you need people who will pick you up and say, ‘The fundamental idea is brilliant – keep going’. And that’s not always the people in your operational team. Sometimes it’s people at home, sometimes it’s people in your formal mentor or senior advisory group, but often it’s people on the periphery of your network.”
Listen to your customers
It’s impossible to pass through business school without hearing the critical importance of listening to your customers reiterated over and over again – but, says Nasi, it’s surprising how often founders are so taken with the brilliance of their idea that they neglect this key lesson: “I was told a billion times, but probably still need to be told a billion more: listen to your customers. We did all the good stuff, all of the customer discovery, which was really diligent in the beginning, speaking to people and finding out that the problem we’re trying to solve is real. But I think we stopped listening at some point, we thought, ‘This is interesting – we have something. We’re going to build a business on this.’
“And you end up trying to shove your solution down people’s throats, being arrogant and saying, ‘They just need to understand. When they see the magic, they will start doing it my way because it’s obviously brilliant.’ And it took us somewhere between four and six months to go back to emails and messages where they had been telling us exactly what they wanted from the beginning.
“Please be better than I was – really listen to your customers and do not fall in love with your solution, even if that means turning into an entirely different business than the really cool, sexy one you have in mind right now. The problem your customer has is what you’re doing this for, and the solution that you find with them might be a fluid and moving thing, but get it from them and make sure it’s the one that they want to use.”
Find the right the people
The most crucial piece of advice Rosie Bailey, Co-founder and CEO of e-commerce negotiation chatbot Nibble, has is about people: “In terms of my lessons, the first and possibly the most important thing is that it’s all about the people. I strongly believe that you shouldn’t go into it on your own. If you’re a founder, you should try and find a co-founder. My partner, Jamie Ettedgui [also an LBS alumnus] found me much more than I found him. We are complementary and different. We are capable of having a hot debate about issues and not losing a friendship and a working partnership. And we’re good at different things – that gives you a huge amount of confidence in your own decisions; to have someone to bounce ideas off and have someone to share the ups and downs with.
“The most important people are the founders, but then there are also key hires. I didn’t realise how hard it was to find the right people (although sometimes it’s easy) and how important it was to focus on the quality of people who you work with.
“We’ve had a stream of fantastic interns; really amazing interns whom we’ve learned stuff from. And we continue to focus on making sure that the only people who we work with are [not only] really smart, really diligent and really switched on, but who also have the ability to be lighthearted and see the funny side of things. We’ve got a copywriter who writes all the copy for Neville [the Nibble chatbot] and lives the dream of pretending to be a smart AI chatbot every day.
“We’ve networked like crazy for the last year and we will continue to network like crazy. For the last year, one of our most important senior advisors was a chance encounter [with someone] in a part of my periphery network, and that person was instrumental in introducing us to our first client. It’s all about the people, and that’s what makes it fun. There’s no point working with people you don’t enjoy working with.”
Pedro Cabrero, who worked as an equity trader for the likes of Citi and UBS in his native Mexico and who had already founded three startups before co-founding Yayzy, a fintech platform for sustainability, in July 2019, fully endorses Rosie’s advice, but stresses the importance of hiring senior people in early stages, particularly for tech businesses: “[Making] senior hires is very relevant for this. Most entrepreneurs fall into the trap of hiring an army of interns. In my experience, that’s not the way to go.”
Pedro learned the hard way: “We started developing the Yayzy app with junior talent. I’ve got a background in finance, not in product management, and we made all possible mistakes, literally. And we had to redo it all. It took us about a year to hire the right team and six months or more to rebuild the app. All these rookie mistakes drain a lot of resources, valuable time, money and focus. And today in tech businesses quality expectations are super-high. People are expecting apps that solve customer problems very fast and are also very high quality. So, if you do something that’s very like an MVP and is not ready for the end market, you’re going to hit a lot of walls.”
“Interns are great, but not for key business functions. The key learning for me is, whenever you’re doing something that requires a lot of skill, and [launching] a product that is expected to be of high quality, it’s better to do it with people that are experienced. Getting talented people early on your journey is super, super important.”
Set small targets
For her part, Rosie sets great store in a maxim that may strike many entrepreneurs as counter-intuitive: set achievable goals for your team: “It’s good to have ambition. But if you want to keep motivated and keep the team motivated, set small targets, small steps, small goals, and celebrate the little wins – celebrate completing a sprint on development, celebrate getting somebody to phone you back when you’re cold calling. It’s small things. You’ve got to celebrate those wins because it is an exponential thing. The mathematician Hannah Fry says there’s only one way to explain exponential: you don’t see the truck coming in the 15 minutes before it hits you.”
Pay early attention to equity splits
Rosie has another piece of advice concerning a critical area that entrepreneurs frequently think can be sorted out down the line: equity splits. She says: “Everybody tells you this is important and difficult. They’re right – it is important and difficult. Don’t underestimate the importance of getting it right. Have an honest conversation as early as possible on what the right equity split between the founding team is. People [emphasise] its importance and you think, ‘Yes, yes, that’s fine’, but it’s an emotional thing and I think it pays to recognise that.”
Focus on one metric
Pedro urges early-stage founders to focus on proving one metric, rather than be suckered into going all-out for growth from the get-go: “Focus on proving one metric with a small group of customers then, once you nail that business metric, focus on traction and growth. The key here is not to fall into the trap of trying to achieve growth if you have not nailed one business metric.”
He reveals disarmingly: “It’s been two years since we incorporated the company and most of the time we’ve been focused on the wrong thing – too much time, more than eight months, spent on fundraising and six months of trying to generate traction and growth without having a product-market fit. So, basically, we’ve been swimming against the tide. You have to figure out one simple business-model equation and optimise it. And that equation is linked to the problem that you’re looking to solve, which is different for every business.”
“If you focus on this simple business-model equation and optimise it, funds and traction will follow naturally, not the other way around. This way you will reduce product-market-fit risk.”
Play the numbers game when fundraising
Pedro’s final piece of advice stems from his experience in fundraising for Yayzy. Never, he says, put all your eggs in one basket when looking for finance, because “fundraising is a numbers game.” He used his master’s in finance to good effect to secure £120,000 from an early-stage VC investor to develop the product (of four VCs approached, the company got three nos and one yes; a “pretty good” hit rate of 25%), but found the going much harder when the Covid-19 pandemic hit in spring 2020.
After spending considerable time pitching to angel investors and VCs in Europe, the founders decided to shift their funding strategy and try a crowdfunding campaign. The change in strategy worked: “We raised our target of £250,000 on the first day of launching. Over a month, we totalled over £700,000 from more than 1,000 investors. After that, a few angel syndicates followed and we did a follow-on round of £500,000 from a few angel syndicates from Europe and the US, so the advice is to open as many doors as possible and to be flexible. There’s a lot of capital in the market for strong entrepreneurs – you end up getting money from sources that you never anticipated. It’s just a matter of increasing your odds.”
Nasi concludes by putting his unique take on some pearls of wisdom that are flung only too often at aspiring entrepreneurs: “I heard somewhere that the three things a founder has to do at this stage are (1) don’t fight with the co-founder (I don’t have one, so that’s okay); (2) get to product-market fit (that’s what I do every day and it’s fun, I love that); and (3) don’t die. We’re still alive! If I had known that a year ago, [I would have known] that it would be worth continuing.
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