The recent collapse of several well-regarded tech businesses and the downfall of their founders can be held up as examples of what not to do. We share four takeaways that other tech start-ups and businesses can learn.

 

The fall from grace of many high-flying tech entrepreneurs over the past few years has precipitated widespread analysis and introspection. From many reports, glaring operational or procedural gaps existed, and the due diligence performed on these companies – if done at all – would have been sketchy at best. Yet the companies and their leaders we held up as innovators and wunderkinder and became darlings of the investor community and those looking for sponsors and strategic partners with deep pockets.

Now, with these businesses in ruins and their leaders’ credibility virtually non-existent, with some of them even facing criminal charges, we have an opportunity to revisit some of the ‘truths’ we held dear about tech entrepreneurship. Though the Caribbean tech entrepreneurship space is very different from that in the United States (US), which arguably is seen as the gold standard, we still compare ourselves with that perceived ideal, which in turn has shaped our views on tech entrepreneurship in the region. We thus share four key takeaways that existing and prospective entrepreneurs and investors may find useful.

 

1.  There is a difference between a start-up and a business

Tech start-ups, by their nature, are scrappy organisms. Their founders might be bootstrapping the venture with support from family and friends. Often, the focus is to keep the venture alive at all costs, while it tries to gain some traction and find its market. Team members are thus likely to have multiple roles since funds are limited, and the record-keeping and documented operating policies and procedures would be virtually non-existent.

However, as the team grows and the start-up becomes more viable, structures are essential – not only to guide the development of the business but also to inculcate a culture of maturity, transparency and accountability in its operations. However, the techies who founded the start-up are often not equipped to establish the structures needed as their start-ups transition to becoming bona fide businesses.

 

2.  Beware of the echo chamber

We have all heard the saying, “If something is too good to be true, it usually is”. However, if someone is being touted as “the next wunderkind”, or a business is being held up as “the best thing since sliced bread”, increasingly, we cannot take it at face value and trust the source.

With the speed at which news and information move, we all want to have sources we can trust without question. However, in order to just keep up, many of our ‘trusted’ sources are copying or recycling information from other sources, and are not performing their own independent (and thorough) research before releasing their own articles or content on the subject. Hence, what might have started a seemingly modest news piece (or even a social media post) by a fledgling news outlet, or a glowing press release by a company about a recent success, can easily snowball into content published by reputable publications that have the eyes and ears of business leaders who in turn rely on that information.

However, the entire situation is like a house of cards that was built on sand. And when it comes crashing down, it is only then that it is realised that there was little or no basis for the acclaim and trust that had initially been bestowed.

 

3.  Growth should not override everything else

Without a doubt, securing funding for a fledging start-up can be a challenge. Often, depending on the venture, investors are looking for massive returns on their investment in a very short time frame. Businesses that are poised for growth and can promise at least 10 times the return on the initial investment tend to be the most attractive.

However, what appears to be happening when a start-up has enjoyed a reasonable amount of growth and popularity, and there is a good chance that the growth will continue or even increase in trajectory, the excitement for the opportunity can override prudence and due diligence. Some experts have been arguing that with high-growth investment opportunities being few and far between, and investors being eager to capitalise, there is an assumption that the business leaders know what they are doing, evidenced by the performance of their businesses so far.

 

4.  A resilient business may be more valuable that a high-growth one

Finally, in the tech start-up space, virtually every founder dreams of having a unicorn, which is a start-up worth over a billion US Dollars. To become a unicorn usually requires rapid growth. But growth at all costs can be tenuous, as it often requires the most optimal market conditions, in addition to the skill and fearlessness of its leaders. However, once the market conditions change – as occurred with the still ongoing crypto winter – the vulnerabilities of the business start to emerge, and the earlier and glowing unicorn valuations start to tumble.

There is thus a compelling argument for tech businesses in particular to strive for greater resilience – like a camel or cockroach. These animals are built for the long haul; so can survive droughts and other crises, and can even grow and evolve in adverse conditions.

Hence, when the focus is on resilience, it becomes crucial to have a clear and long-term vision. Short-term goals that prioritise speed and growth over stability and efficiency may be what builds unicorns and gets attention. But a more measured approach is more likely to result in a venture that lasts.

 

 

Image credit:  ijeab (freepik)