Why technical prowess is a startup myth
Wed 17 Aug 2016
Ian Lucey, CEO, Lucey Fund, explains how startups are succeeding without that ‘much-needed’ technical co-founder or headline-worthy funding round…
There is a prominent stereotype which circles the startup scene; the belief that the community is built up of 22-year-olds in hoodies. In reality, it’s quite a different demographic – qualified professionals in their 30-40s wanting to start a business, and taking a risk in the middle of a successful career to do something for themselves.
While these individuals are experts in their industries, they lack the necessary technical resource to help them get kick-started. They need a team of people to help design and build a product, and guide them in establishing key strategic partnerships. Our philosophy at Lucey is to wrap a technical team around a startup from the initial stages, right the way through to internationalisation, and raising capital.
I dub this approach ‘Venture Tech’ – which stems from the idea that there are lots of people starting companies without ever having run software businesses before. They need the technical skillset to support their relevant industry knowledge.
The mythical CTO
Last year we had 3,500 startups apply for funding with us. Only 4% of companies we have invested in have a technical founder, over 50% are single founders, and around 63% have at least one female founder. The model is so popular as we are able to offer a technical skillset which would otherwise be a struggle to source.
Startups assume that they need a mythical CTO to advance their project. Mature professionals are wondering around incubators and accelerators trying to figure out how they’re going to find and pay for a technical director; but all they really need is someone to architect their system, from which point developers and designers can take over. It is nigh impossible to find a single person to take on a CTO role in a startup, and moreover work for free, when they’re among the most in-demand professionals in the world.
In the short-term it is crucial to get a product released, even if it’s a Minimum Viable Product
A further misconception is that the coolest startup is the one that’s raised the most money. The focus should instead be on creating a self-sustaining businesses model, which gets up and running and is able to sell. They may need capital in order to grow, but in the short-term it is crucial to get a product released, even if it’s an MVP (Minimum Viable Product), to see if the consumer is actually prepared to buy into it in the first place.
When we find a company with the right formula, we’ll have the contract completed within a week. Normally, we will then spend 4-6 weeks working on the idea and finishing a formal tech spec. Many people come to us with lists of features but they’re not necessarily mapped out for development purposes.
The build stage comes next, and this period depends on how big the project is – it typically lasts a couple of months. The company is then fully set up with a product. During the build, we also help the companies raise more capital if needed, and prepare the product for initial customer sales. Our hope is that within 12 months the company will transition out of our ecosystem, and start to hire its own staff.
Understanding client behaviour
As more startups fail than succeed, it is important for early stage businesses not to shoot themselves in the foot. Primary reasons for failure include not setting the right product/market fit, not charging enough, and not selling enough. It is a rarity that the actual product is the issue, a lot of the time people are just building the wrong thing.
Everybody starts their business thinking they’re going to build the next big brand but, for the majority, sales will be coming from partnerships. For example, the amount of people who could build the next Facebook is incredibly small, but the amount who are going to build a feature that might interact with it is much more practical. Founders need to know their place in the wider process, because when you’re small and lean there are great opportunities.
You shouldn’t be changing people’s behaviours; you should be making those behaviours more efficient.
A further stumbling block is that some startups attempt to change clients’ behaviour. Sean Parker always talks about disrupting the music industry with Napster – but he didn’t. Back in the 80s everyone had ghetto blasters and you could easily make a copy of a cassette, or listen to the radio and hit record. People were stealing music for 40 years before Napster came along and decided to make the process digital. Parker simply made that sharing more efficient – fundamentally people were just continuing to steal music the way they always had done. You shouldn’t be changing people’s behaviours; you should be making those behaviours more efficient.
The same is evident in internet banking. How we bank hasn’t changed, the process has just got more efficient. The biggest innovation in banking was 150 years ago when the counter was invented, then 30-40 years ago the ATM was introduced. Now, we do those same transactions ourselves. The bank has actually transferred the workload from its employees and branches into the hands of the consumer. The consumer loves this, as it’s just a more efficient way of doing something that they were already doing.
Hailo and Uber have also played on this dynamic. It is much more efficient to pull out your phone, immediately know which is the nearest taxi, and get a ride in minutes, rather than picking up a phone, getting through to a really busy person on a phone line, sitting on hold for a few minutes while the operator decides how best to deploy the resources, and then get into a taxi after a twenty-minute wait. In this way, startups must consider how their product is going to seamlessly fall into the paths of their potential customers.