Worth Zero

Thanks for joining me here for a regular serving of BBQd startup sacred cow. I have developed a deep need to deliver reality to the early stage ecosystem. Penn and Teller do BULLSHIT, I am doing WORTH ZERO. You might be the Anthony Robbins type who bounds out of bed in the morning, does few star jumps and then runs 5 miles before updating your personal wealth and happiness plan. Please go somewhere else, you will get hurt here.

After almost 6 years around early stage ecosystem (inventors, investors, entrepreneurs, ‘consultants’, IP Lawyers, etc) I either have to put my head in an oven, or write about my experience and observations … I am a coward, so I am writing. Also writing a book about this stuff, but that’s a topic for another day.

It’s not to say that I don’t like the space. Actually, I love it and my own (ad) venture as investor / shareholder / CEO in Scarpar has been a huge learning experience. I can genuinely say that I had absolutely no idea what I was doing when I started the process and have, like most, made a stack of mistakes. With what I have learned, if I had the same opportunity again to get involved in Scarpar I would run a million miles. This said, it looks at this stage that despite half a dozen near death experiences we’ll get to market late 2010 / early 2011 thanks to a couple of  investors taking a punt on us at proof of concept phase. Pre-revenue investments are actually not as common as you might get the impression from the outside.

So, don’t take it that I think everything about Startup Land is bullshit. I don’t. However, there seems to be a disproportionate amount of bullshit around this space. I would say order of magnitude higher than corporates based on my experiences although granted there are deluded people surrounded by their own personal layers of bullshit there also. It reminds me of that famous scene in the movie The Accidental Hero with Dustan Hoffman …

I feel it is my duty to deliver a massive reality brochure. If I hear one more ‘power of the idea’ or another inventor tell me that they have found a solution to the Mexican Gulf oil disaster, I may still take the oven option.

Back to the point … so, why Worth Zero? That’s because I have learned that a great idea is in fact worth on it’s own; ZERO. Nada. Nothing. Ideas need action / execution and:

In addition, and I am the master of understatement here, it is really helpful if people actually want your product or service (idea) enough to pay for it! It’s also really helpful if they want your product or service enough that they’ll pay a price at which you can, not only make a PROFIT, but you can justify the cost of establishing the business. That relevance of whether or not the product or services is ‘good’ / unique / legendary / world changing / etc is small compared to having sufficient demand at the right price to justify commercialisation! Butter stick anyone?

This is clearly about commercialising new ideas / knowledge / intellectual property, not about establishing a corner store, a handyman business, or any similar business. The complexities of commercialisation do not exist in these types of ventures. Product managers do deal with commercialisation, but they have capital available not to mention colleagues with complimentary skills needed. This is not reality for most startups.

Many inventors I have come into contact with seem to think that they should be paid for their ideas. Bad News (and not the last) … nobody is going to pay for your good idea. In fact, in my day job, I deal with inventors as part of my role … about 500 in the past 18 months. There are some common themes. I have met and spoken to some very nice and bright people who are inventors as a result of my day job. I have also met and spoken to some absolute lunatics. Unfortunately, invention is seen as an easy path to riches. Nope. Well, rarely at best. So, the inventors are likely to get a fair bit of friendly advice here. Let me start by saying nobody is going to buy your ‘idea’ and do it for you, and we can build up from there.

Now onto investors. Most members of Angel Groups in Australia rarely invest. There are some exceptions, but groups have a lot of spectators in the form of consultants (looking for work), government folk, people who ‘just like to be around startups’, and (as perverse as it sounds) people who seem to like the gladiatorial aspect … Christians to Lions = ‘Pitchers’ to Angels.

Very few angels in Australia have done more than a couple of deals. In the US, it is (well, was) mostly different. I say was, because the GFC (and the years of very few exits) have greatly slowed the rate of investment. There does appear to be a higher level of honesty amongst many of the US investors on the good / bad / ugly of early stage. There is still a healthy amount of denial though even when faced with the facts. I do observe some common issues.

I haven’t met many investors who’ve made any money out of arms-length investments in early stage companies. This is not to say nobody makes money out of early stage investing, only that it’s hard even for people who’ve made a lot of money before as a senior exec or entrepreneur. Not many people do well out of it for a variety of reasons. I have a few theories about this, and since this is my blog kingdom, and I am the king here, I will be publishing my official royal decrees on this topic over time

A quick note to all those asking, “If you’re so smart why aren’t you rich?” The answer is because I invested all my cash into Scarpar! Not that I’d be rich now, but it has put a significant dint in the retirement schedule.

There are some powerful personalities in the investor ecosystem in the US and in Australia. Frank Peters talks about a room full of Type A personalities … I am afraid that I do not defer to their greater knowledge unless they publish the honest answers to the following:

1. How many arms-length companies have you invested CASH (not just time) in?

2. How many in the past year?