01 Jul 2014

The highs and lows of building a tech for good startup

By Lily

Written by Sinead Mac Manus, CEO and co-founder of Fluency

A year ago today, myself and my co-founder Ian stood nervously in the shiny new offices of Bethnal Green Ventures – the tech for good incubator we had won a place on. We were there to start our 12 week incubation programme for Fluency – our digital education company getting young people into work. Ian and I, along with the founders from the other nine teams, were about to embark upon a journey into the unknown. Steve Blank – the leading guru of startups – defines a startup as “an organization built to search for a repeatable and scalable business model” and that’s what we were. And as a “tech for good” startup we weren’t just search for the right business model, we were searching for a business model that would allow us to create as much social impact as we could. Ian and I shared a passion and a belief that digital skills could help a young person become more employable – and potentially – change their life for ever – but apart from that hypothesis we didn’t have much else on that hot day in July. So armed with a £15,000 investment we set out on our voyage into the unknown.

So one year later, as we celebrate our anniversary with a bottle of something fizzy and some cake, I wanted to reflect on the many highs and lows of our first year trying to change the world through technology. A warts-and-all story of trying to figure out what we are doing, running out of cash and hiring too soon. Maybe by sharing these lessons I can help you not make some of the mistakes we made along the way but maybe you’ll make them anyway – if there’s one thing I have learned over the past 12 months is that the best way to learn is to fail.

So here we go. My four pieces of advice for anyone embarking on a similar journey.

Don’t build any code – get to your Minimal Viable Product quicker

In his book, “The Startup Owner’s Manual“, serial entrepreneur Steve Blank describes the customer development approach that every startup today tries to follow. Instead of the old school way of building a business, launching it, and then hoping customers will come, this lean startup approach suggests that the startup founder builds what’s called a Minimum Viable Product (MVP) and then tries to validate the market by selling it/getting users. The MVP is the smallest thing that can be made to validate your hypotheses.

When we first started at BGV we were well versed in the lean startup methodology but still ploughed ahead spending months designing and coding a learning management system (LMS) from scratch and writing and recording original learning content. All this to have a ‘product’ to use in our pilot in the summer. In hindsight this was a terrible mistake. All we needed to do was to test some key hypotheses – can young people pick up digital skills online and apply them in a work situation? We could have used an on the shelf LMS and existing learning resources from the web to validate this hypothesis.

A year on our learning platform is a pretty cool piece of technology and we would have had a build it anyway at some stage but I wonder in hindsight if all those weeks last summer fiddling about with the platform would have been better spent getting out and validating that we could train young people.

Lessons learned: Stop writing code and go out and prove your hypothesis! It’s really hard to do I know – in a tech startup all you want to do is build some cool stuff but don’t. Use whatever tools are at your disposal – on and offline – to find out if your product is needed and who might potentially pay for it. Use this learning to build the right product not the one that you think might be the one.

Embrace the pivots – but try not to do too many pirouettes

The pivot is another startup word that founders love to bandy about. A pivot is a change of direction and can be a customer segment pivot which means you product stays the same but your target customer changes, or something like a zoom-in pivot which is where you just focus on one feature that your users love. My favourite zoom-in pivot is a company called Burbn who had a mobile check-in app log before Foursquare was popular. In the end they discovered that one of their features was super popular – the ability to take amazing pictures and add a filter. The company threw out most of the app and the rest is history. Instagram was sold to Facebook in 2012 for over $1 billion.

Pivoting is generally seen as a good thing in the startup world – don’t flog a dead horse – however, I think we founders can get a little carried away and use the pivot excuse to not stick to an idea for a while and really test it but rather chase after the next shiny ideas (or maybe it’s just me). We’ve had a few pivots over the past year and actually a few pirouettes – pivoting so fast that you end up where you started. When we started at BGV we were convinced that our business model would be that small business owners would pay on a subscription basis for access to the learning platform and that we would then use this money to give access away for free to young people. Many iterations afterwards, by trying stuff out and making a mess of things, and by listening to what our customers and our users where saying, we have finally found what we think will be our  product / solution to test – recruitment as a business model by introducing our young talent to companies looking for help.

Lesson learned: Listen to what the market, and your users, are asking for and be prepared to change your direction. But also stick with an idea for long enough to really try it out and either validate it or pivot. Don’t let your ideas take over at the expense of letting the data, the customers and your users tell you where to go next.

Raising investment and running out of cash

Being accepted onto the BGV incubator was one of the best things that has ever happened to me. Having someone believe in you and your idea enough to put their money where their mouth is is very motivating. The investment we got was not huge but enough to live off for a few months and focus full-time on the company. My belief at the time was this funding was just to get us to demo day where investors would be clamouring to give us more cash. In fact, nine months later we are only just closing our investment round.

The BGV investment ran out after four months and Ian and I had to live off savings for two months until we were lucky enough to get a grant from the Forward Foundation in January. This cash also ran out (and with limited revenue coming in from a couple of projects) making payroll for our two staff – let alone paying paying ourselves – was, and still is, a real issue. The debt letters from HMRC demanding their tax and the bills are mounting. But according to startup lore, you’re not a real startup until you run out of money at least three times – so one more to go!

Dealing with investors for the past nine months has been one of the most painful processes of my life. There is not a culture in the UK of investing in high potential but high risk tech startups like there is in the US. Investors, especially in London, have made their money in the City and want to invest it in something that will return but without the risk. It seems that anyone here with £5,000 to ‘invest’ is someone to be convinced of your worthiness (even through with generous tax breaks from the government, their “investment” is a no-brainer). Business angel events all over London will try and get you to pay them to pitch your business to a bunch of City guys in suits who know nothing about the tech world and are just there to make themselves seem important. Some investors will run you around the houses having meeting after meeting only to say that your company is not for them. Nine long months of pitching and coffees – it’s exhausting and demoralizing. And if you’re in the tech for good space like we are, then just forget it – most investors don’t get the concept that you can make money and social impact at the same time.

My advice for other founders out there is be as lean as you can for as long as you can without having a nervous breakdown as you never know how long its going to take to get the next bit of cash in the door.

Lessons learned: Investors are only interested in two things: traction and revenue. Do not go to to pitching events expecting to get investment without at least one of these two. When dealing with investors be very upfront and ask in the first meeting (or even before) exactly how much money they have to invest. This sounds very un-British but it’s essential – some investors just like the idea of being an ‘angel investor’ and are very unlikely to come up with serious amounts of cash. Make the cash you have whether it’s from grants or an initial investment last as long as you can by being lean and getting to product / market fit as cheaply as possible. Then you can throw money at the problem to scale it but before you have a very good idea of what works.

Don’t hire staff – get help instead

One of our first mistakes last summer was thinking we needed to hire a third person to join our team who knew how to recruit and work with young people. This was a costly mistake and wasted much of our incubator funding. For the limited amount of young people we worked with for our pilots in the summer, I could have just used my network and gone out and recruited. So why did I hire someone? I think it was the fear – the fear of thinking I don’t know enough about this area and would be found out. There is a saying in startups about hire slow and fire fast. We did neither. We hired fast and instead of realising that this role was a drain on resources, we kept it on too long.

Our second mistake was getting some cash in the door and going on a (limited) hiring spree. We are blessed at having two amazing staff but in hindsight I would not have recruited for these roles on a permanent basis but perhaps looked for some freelance resource instead. Another issue with hiring while you are still looking for product/market fit (and plans may be changing every week) is that it is very unsettling for staff. I can sometimes see it in their eyes – “oh no, what’s Sinead up to this week.” As founders Ian and I are keen to move fast without knowing where we are going to end up but it’s harder for team members for embrace this. And although I’ve kept our financial problems to myself, I’m sure they’ve picked up on my stress.

And so to the issue of interns. We made a conscious decision when we started the company to not, as a rule, offer unpaid internships. If we are suggesting to other companies that to diversify the workforce they need to pay young people, then we have to do the same. But it’s hard. There are many people willing to work for free. We have been lucky to take advantage of two paid internship schemes from Queen Mary University and UCL that have enabled us to hire Ollie last year and Doina this year so finding any support from schemes like this is a no-brainer.

Our hiring plans after our investment closes have now changed. Where once we were planning on hiring two developers and a designer and another digital person, we are now going to hire only one developer. My aim is to stay as lean as possible until our next funding round and rather than throw people into roles that we think we need, we will let the business tell us where we need to put the resource.

Lessons learned: Hire slow, if at all. I know you’re tired and you want some help but put off hiring any full-time staff until you know that this is exactly what the business needs at that moment. Hire everyone on the loosest contracts you can get away with as you never know when you might need to contract.

Conclusion: The long road to finding product-market fit

As someone who devours Tech City News and reads TechCrunch posts religiously, I can sometimes imagine that the rest of the startup world is doing brilliantly and have never made any mistakes. Even companies like AirBnB (graduates from prestigious incubator YCombinator http://ycombinator.com/) couldn’t possibly have made as many mistakes as we have so far. But the truth is never as it seems. At a talk a few months ago with the CTO of AirBnB, Nathan Blecharczyk admitted, their first year almost killed him and his two co-founders. Everyone thought their idea was crazy. They had maxed out dozens of credit cards, could only afford to eat Ramen noodles and were working 24/7. Towards the end of that year they got an interview for YCombinator and famously Paul Graham hated their idea and their interview went badly. The only reason they got into the programme was because of a box of cereal they had designed (the “b” in AirBnB) that they handed to him on the way out.

Talking to lots of startups recently has made me realise that, even though the tech press like to champion the seemingly overnight success startups, in reality most companies take a few years to find their way. And I think as “tech for good” startups it can take even longer. If you are trying to solve some of society’s biggest problems, it’s not going to happen overnight and what we need more than anything is people to believe in us and help us keep the lights on as long as we can.