Author: Tom Koor

Tom Koor

Help support the Geoff Carr Fellowship at Lupus Ontario

Help support the Geoff Carr Fellowship at Lupus Ontario

My annual fundraising campaign for Lupus Ontario is underway.  Over the past 17 years, family, friends, neighbours and colleagues have contributed over $260,000.

 Why am I fundraising?

My daughter was diagnosed with lupus in 1996, and I have personally experienced the challenges of this complicated disease.

 How does your donation help improve the lives of people living with lupus?

100% of the funds we raise are being directed towards the $65,000 Lupus Ontario Geoff Carr Fellowship. This Fellowship is offered annually to a qualified doctor to work under supervision at an accredited Lupus Clinic in Ontario.

The Fellowship also provides the recipient opportunities to conduct research in either adult or paediatric lupus, to gain additional in-depth knowledge of diagnosis and treatment options for the disease, and to provide patient care and education.

 For more information and to make a secure financial on-line donation, visit my fundraising page:

https://sna.etapestry.com/fundraiser/LupusOntario/research2023/individual.do?participationRef=12744.0.390020139

Thank you

Tom

Tom Koor

What is the purpose of my website?

What is the purpose of my website?

  • Help business leaders (current and emerging) succeed.
  • Help business leaders have a positive impact on society.

What is my overall framework for looking at companies?

 #1 What is your competitively differentiated talent?

  • The right talent will figure out how to succeed in a rapidly changing and competitive world
  • Do you have the right talent in the right places to succeed?
  • Do you have the right processes and technology to attract, retain, develop and exit talent?

#2 Who are your customers?

  • What are the problems and needs customers are willing and able to pay for?
  • How do customers perceive the value of addressing their problems and needs?
  • How do customers perceive your competitively differentiated value proposition?
  • How many of these customers are there?

#3 What does your company’s ecosystem look like?

A business ecosystem is the network of organizations—including suppliers, distributors, customers, competitors, government agencies, board of directors, C-Suite, employees, society, and so on—involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each entity in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each entity must be flexible and adaptable in order to survive as in a biological ecosystem.

Ecosystem members (even those with no direct involvement with your company), can have a massive positive or negative impact on your company e.g. social license to operate.

#4 What is your competitively differentiated business model?

Who is your customer, why they buy from you, and how do you make a profit?

Your business model describes, for a single point in time:

  • The value the company enables its customers to achieve.
  • The resources and capabilities to create, market, and deliver this value.
  • How to generate profitable and sustainable revenue streams.

#5 What is your competitively differentiated business framework?

  • The business model describes for a single point in time who your customer is, why they buy from you, and how you make a profit.
  • The business framework outlines the components needed for a complete company i.e. what’s necessary to plan, implement, operate, and change the business model.

#6 What are your competitively differentiated value creation plans?

  • Your company cannot exist without customers who are achieving value. Other members of your company’s ecosystem also need to achieve value. Thus the need for value creation plans.
  • There are multiple sets of value creation plans e.g. the board of directors has one, the CEO has one, other parts of the company have their own value creation plans. Al these must be aligned.
  • Value creation plans are explicitly focused on creating value. Strategy and strategic plans mean different things to different people.

 What is on my website?

My website has over 100,000 words of thinking, reflected in my points-of-view.  My points-of-view freely available for anyone to read and download.  I am constantly learning, and unlearning, which means the documents continue to evolve.

My points-of-view are organized into 9 sections. This links below will take you directly to each section.  There is also a section for my charitable support – the Geoff Carr Fellow at Lupus Ontario.

The following are links to sections of my website.  Each section contains my points of view.

Avoiding business failure

The startup journey

Understanding customers

Investor interactions

Corporate Governance

Only talent creates business value

Value creation planning (strategy)

Business transformation

Values, morals, and ethics

Charitable support – the charity I support.

Tom Koor

Note taking is key to value creation.

What is the purpose of this article?

  • Help people understand the value of note taking.
  • Identify some possible ways to take notes.

You can download a PDF of this article from: Note taking is key to value creation

What are the critical learnings in this article?

  • In today’s fast changing world you need to be constantly learning. Future value creation demands learning.
  • Note taking is different from transcription and minutes.
  • If you don’t take notes, it’s likely you’ll either forget or incorrectly remember what you heard.
  • Note taking improves your understanding and memory.
  • You need a structure process to maximise the value of note taking.

How is personal note taking different from transcription and minutes?

  • Transcription is a word for word documentation of what was said. E.g. transcription that is taken in court. This enables later review and analysis of what was said.
  • Minutes establishes a common understanding of key items in a meeting, such as; Decisions; who will do what by when; issues; facts; assumptions. Some examples are: board of directors minutes and company executive committee minutes.
  • Personal note taking is focused on learning and the association recollection of what was learned. You process what your are hearing, seeing, feeling, and thinking. Your notes reflect your key learnings.

Why must you take notes in presentations and meetings?

  • If you don’t take notes, it’s likely you’ll either forget or incorrectly remember what you heard.
  • “People forget 40%-80% of what they hear immediately. Half the information people do recall, is recalled incorrectly”1
  • The process of taking notes force you to think about what you are learning.

What are some other benefits of note taking?

  • Keeps your mind and body active.
  • Reduces drowsiness.
  • Helps you identify insights and organize your learnings.
  • Provides a record for later review and learning.

What are some ways to take notes?

Five ways to take notes:

  • An outline: write down the key points and sub points
  • The Cornell method:
    1. Divide each page into two vertical sections. The right side is Notes, which are the notes you take in the meeting. Usually done in outline format. Left side is Cues, which are the main points, or questions answers, in the corresponding Notes. The Cues are usually done after the meeting, while reviewing Notes
    2. There is a Summary section at the end, summarizing the entire meeting.
  • Mind Map: this is a drawing of the inter-relationships between complex or abstract ideas. Visuals help with memory and learning.
  • Flow Notes: Combines text, arrows, diagram, etc. The intent is to maximize your learning while taking notes.
  • Writing on handout slides: Write your notes on the handout slides.

What are some note taking hints?

  • You are NOT a transcribing machine, writing down every word you hear or see.
  • You are processing what you see and hear, actively thinking and learning
  • Focus on the main points.
  • Write down: questions you have, actions to take later, and thoughts/learnings that occurred to you.
  • Be concise: use abbreviations, symbols, and bullets. Don’t write complete sentences.
  • After the meeting, review your notes. Good time to add summaries, questions, action items, and additional learnings. You may rewrite your notes.

Which is better: taking notes by hand or on your computer keyboard?

  • Any kind of note taking is better than no note taking.
  • Some research shows that handwritten notes require more thinking and thus improve learning and memory.
  • Some research shows that people taking notes on computers and phones are distracted and doing things other than focusing on learning from the meeting.
  • Computer keyboard note taking has the risk that you become a transcription machine rather than a thinker and learner.

What are your next steps?

  • Experiment with different note taking systems.
  • Gradually improve over time.
  • Remember, what’s easiest to do isn’t what’s best to do.

Footnotes

1 Lindsay Wizowski, Theresa Harper, and Tracy Hutchings, Writing Health Information for Patients and Families 4th Edition (Hamilton Health Sciences, 2014), Page 5

Tom Koor

Are you an Angel investor or gambler? V2

Are you an Angel investor or gambler? V2

 What is the purpose of this article?

Help you identify whether you are an Angel investor or a gambler.

This article does not provide tax, legal, or financial advice.

You can download a PDF of this article from: Are you an Angel investor or gambler V2

 What are the critical learnings in this article?

  • You may need to create a portfolio of 20 or more companies.
  • You might need to invest $800,000 or more.
  • You need the skills and time for both due diligence and helping founders succeed. Money by itself is not enough.
  • You need to determine if you’re putting capital into early-stage companies because: you are an investor; you are a gambler; or this is a charitable activity and not part of your overall investment portfolio.

How do you recognize if you are an investor?

  • The primary purpose of your investments is to grow and preserve your financial wealth.
  • There may be secondary purposes such as enabling social good.
  • You may have a variety of asset classes. These provide diversification, which may increase the probability of financial return and reduce the probability of financial losses.
  • You are tracking the return of your investments.

There are many other ways to spend money, other than investing

  • For most people, the major of their spending does not go into investments.
  • Hobbies, entertainment, social activities, intellectual stimulation, charities, giving back, and gambling are just some of the ways money is spent. g. I buy 6 lottery tickets a year at $3 each.
  • These other activities are not investing. I might win millions with my lottery ticket. Lottery tickets are not where I invest money.
  • If the primary purpose of your spending is other than growing and preserving wealth, then that spending is not part of your investing.

How do you recognize if your Angel investments are actually gambling?

Let’s assume you’ve decided to make Angel investments with the primary objective of making, growing, and preserving wealth.  You may be doing this because you’ve heard that this Asset class outperforms publicly traded equities but that the chances of an individual investment are low. What are the odds of success?  You don’t want to “invest” in a casino or lottery tickets.

What are the facts?

The following findings are from a 2020 study of more than 10,000 individual early-stage portfolios on AngelList.1

  • Angel investments, as an asset class, generate 15% IRR (combination of realized and unrealized gains)
  • Investors who made 1-5 investments had a median return of 0.0% IRR.
  • Investors who made 10 investments had a median IRR of about 6%. 32% of these investors lost money.
  • Investors who made 20 investments had a median IRR of about 7%. About 16% of these investors lost money.
  • Investors who made 50 investments had a median IRR of about10%. About 11% of these investors lost money.
  • Investors who made 100 investments had a median IRR of about 14%

Many, if not most, angel investors have a limited return, although the asset class as a whole performs relatively well. A small portfolio of investments has low median IRR and significant chance of losing some or all of your capital.

 How do you change the odds to be an investor rather than a gambler?

There are four ways to be an angel investor rather than a gambler.

 

#1 Create a portfolio of 20+ investments

This will require significant amounts of your time and capital.

#2 Spend more than 40 hours on your personal due diligence.2

  • Spend more than 20 hour of due diligence time for each potential investment.
  • Angels who spend less than 20 hours have an average return of 1.1X capital.
  • Angels who spend more than 20 hours have an average return of 5.9 X capital.
  • Angels who spend more than 40 hours have an average return of 7.9 X capital.

You must consider if you have the skills and knowledge necessary for an effective due diligence.  I don’t know the relationship between increased due diligence and the number of investments.

 #3 Join an angel investor group

  • The rationale is to reduce your due diligence workload.
  • I have no advice on how you can conduct due diligence on an angel investor group, considering its members, its processes, and its results.
  • I don’t know the relationship between increased due diligence and the number of investments.

 #4 Invest in an angel fund

  • The fund should have a large number of investments in its portfolio.
  • I have no advice as to how you could conduct due diligence on an angel fund, considering management, processes, and results.

How should you think about the amount of capital needed to become an angel investor and not a gambler?

The following example is based on assumptions:

  • You’re going to make 24 upfront investments over 1-3 years. As noted above, your median return may be a little more than 7%IRR.  Like that any exits in the first three years will be failures. These early exits may not provide any capital for reinvestment.
  • You’ll invest in pre-seed: 75% fail3
  • You’ll invest at seed stage, 50% fail3
  • You’ll invest in Series A; 50% fail3
  • You’re investing at seed and Series A for two reasons: these companies have survived; and later stage investor may impose terms (such as liquidation preferences) which reduce the value earlier investments.
  • At each stage, each individual investment is $25,000. In some cases, the startup may have larger minimum cheque sizes.
  • Your capital requirement may be: (Pre-seed: 24 X $25,000) + (seed: 6 X $25,00) + (Series A: 3 X $25,000) = $825,000

 What are your next steps?

  • You cannot predict the future. The above fact-based analysis is historical. Many changes have occurred in the past few years:  the amount of capital available at the early stage has exploded; many early-stage funds have been created; the number of early-stage investors has grown. You’ll have to determine what the future scenarios could be.
  • The angel asset class as whole may do well, but your personal results depend upon your investment process and thesis. Assess whether you have the appropriate skills and process to be an Angel investor.
  • Carefully review and understand published reports from investors and funds. Some state their results as including both realized and unrealized gains.
  • Make your own assumptions and analysis regarding the amount of capital you’re going to devote to angel investing.
  • Determine if you’re putting capital into early-stage companies because: you are an investor; you are a gambler; or this is a charitable activity and not part of your overall investment portfolio.

Footnotes

1 Nigel Koh, Abraham Othman, “How portfolio size affects early-stage venture returns”, AngelList, https://angel.co/blog/how-portfolio-size-affects-early-stage-venture-returns

2 Robert E. Wiltbank, PhD Willamette University, Warren Boeker, University of Washington, “Returns to Angel Investors in Groups, November 2007”

https://www.angelcapitalassociation.org/data/Documents/Resources/AngelGroupResarch/1d%20-%20Resources%20-%20Research/ACEF%20Angel%20Performance%20Project%2004.28.09.pdf

3 “Startups’ success and failure rate in 2023”

https://spdload.com/blog/startup-success-rate/

 What further reading should you do?

How profitable is angel investing?

https://koorandassociates.org/selling-a-company-or-raising-capital/how-profitable-is-angel-investing/

Tom Koor

Why would someone buy control of your company?

What is the purpose of this article?

Enable company owners or equity investors to discuss why someone would buy control of the company and the company’s value.

You may download a PDF of this article from: Why would someone buy control of your company

What are the critical learnings in this article?

  • Control buyers are different from ordinary equity investors.
  • There are different types of control buyers and different types of value they are seeking.
  • You must understand how a control buyer perceives your company relative to who the buyer sees as your competitors.

What is the difference between buying control and being an investor?

A common difference is that:

  • An investor may vote for board directors.
  • A control buyer may be able to elect or appoint a number of board directors, remove directors, and may have other decision rights.

What are the seven different types of control buyers?

  • Owner/operator;
  • Current CEO/Management Team;
  • Future CEO/Management Team;
  • Buyer who wants a steady stream of future income;
  • Buyer who wants to significantly grow the value of their investment by growing your company;
  • Buyer who will merge your company into their company;
  • Buyer who only values your assets e.g. Intellectual property, talent, technology, etc;

A control buyer may be a blend of different types.

What are the exit options for each type of control buyer?

  • In types 1 to 7 above, sell to another control buyer or group of buyers. 6) and 7) would be a divesture.
  • In types 1 to 6 above, there may be the option of going public.

What is the value each control buyer is seeking?

  • A type 1 buyer may want to increase the value of their investment and/or support their lifestyle using compensation, dividends, and covering other out-of-pocket costs.
  • Type 2-5 buyers typically want some combination of income and increasing value of their investment.
  • Type 6-7 buyers want to increase the value of the company doing the acquisition. The acquired business and/or assets fills gaps in the company’s value creation plan. E.g. talent, customer relationships, sales and marketing channels, intellectual property, technology, etc.

 What are your next steps?

  • Identify the type(s) of control buyer(s) who might be interested in your company and who you might consider selling to
  • For each type of buyer, outline their evaluation criteria and related due diligence process.
  • Analyze the value of your company from the control buyer’s perspective. Use their evaluation criteria and due diligence process.
  • Assess competitors using the same evaluation criteria and due diligence process.
  • Rank the potential acquisitions from the perspective of the control buyer.
  • Determine the costs and benefits of becoming the preferred company for the control buyer.
Tom Koor

Critical learnings from Collision 2023.

What is the purpose of this article?

  • Share my critical learnings from my three-day attendance at Collision 2023 in June 2023. Collision was a North American startup conference with 36,000+attendees, ranging from pre-revenue founders to large established companies, and investors ranging from angel investors to multi-billion-dollar funds.
  • The critical learnings section below are my key learnings from Collision. I believe that these learnings apply to any size company.
  • The observations section below are some of the facts and opinions shared by presenters. I believe these have massive short and long-term implications.  Reach out to me if you wish to discuss the implications.
  • The learnings and observations in this article are only a tiny subset of my 48 pages of notes.

You can download a PDF of this article from: Critical learnings from Collision 2023

What are the critical learnings in this article?

  • There is close to a universal belief that the critical aspects of talent are: collaboration, learning, and problem solving – and that these are hard to find. Hard skills are easier to find but of less value.
  • Generative AI was a universal them. Jobs with limited skills and experience will be eliminated or dramatically reduced in the next three years e.g. call centre staff, law firm associates.
  • There continued to be unlimited money available to start and grow companies BUT due diligence has dramatically improved with a stronger focus on competitively differentiated talent.
  • If a company can train, develop, and grow an employee who had spent decades in prison, I wonder why many companies are unable to train, develop, and grow their employees. Too often the easy approach seems to be fire and replace.

 What were my key observations?

  • The world is no longer predicable.
  • Hire people for purpose and values.
  • Ask people why they stay at the company. Do a NPS (Net Promotor Score) with current employees.
  • There’s a company that helps other companies hire former prisoners. This company hired someone who had been in prison for decades.  The person first started in customer support and ended up as a customer support manager.
  • A survey of over 200 Chief Technology officers revealed the top three things they were looking for in employees: ability to collaborate, ability to learn, ability to problem solve. Coding skills and knowledge of coding languages was not in the top 3.
  • 15 years ago, the competitive differentiator for software engineers was their coding skills. Today, the competitive differentiator is problem solving.
  • The most important factors in selecting founders are: what will enable them to survive the hard times; why are they doing the startup; what is motivating them.
  • Facebook paid $1 billion for Instagram with 13 employees. The capabilities of current and emerging tools will enable a single person to create and sell a company for $1 billion.
  • Apple Vision Pro will make remote work similar to being in person. Collaboration, team meetings, etc. will be far more effective than today.
  • Look at the customer ROI and customer risk, not just the company ROI and company risk.
  • Deliver to customers far more value than price. Willingness to pay is based on value.
  • Casetext, a legal AI firm, has launched CoCounsel, a legal AI assistant with the potential to replace law firm associates. Thomson Reuters announced they’re buying Casetext for $650 million US.
  • AI will change the talent pyramid in Financial Services.
  • Generative AI will increase polarization in society.
  • 50% of the people in a session I attended, use AI to create the emails they send.
  • ChatGbt-4 already scores in the top 10% in LSAT and SAT tests.
  • The capabilities of Generative AI are doubling every 3 months.
  • In the near future, everyone will be able to create movies themselves with personalized content. E.g. each person could be a character in the totally realistic movie.
  • Expedia has 70,000 terabytes of data.
  • The number of pre-seed and seed fintech raises are at a record level this year. The total dollar amount is lower.
  • A good portfolio company will run with bad news to their Venture Capital investors.

What are your next steps?

  • Identify the roles that have the great impact on the value proposition for your customers and users.
  • Determine the additional value the roles must provide, in this hyper-competitive world we live in.
  • Identify the additional talent requirements.
  • Determine how best, from a customer perspective, to meet those requirements i.e. what combination of human and Generative AI.
  • Benchmark your talent assessment, hiring, developing, promotion, succession and exits process, technology, and staffing relative to the best companies in the world. What are the implications in terms of your company’s long-term success? What changes do you need to make? Start with the board of directors.

 What further reading should you do?

Generative AI – by McKinsey

https://www.mckinsey.com/capabilities/quantumblack/our-insights/generative-ai

Is your company planning to fail?

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Tom Koor

Many are losing hope in our polarized and distrustful world.

What is the purpose of this article?

Provide business leaders with a perspective on how global society is perceiving the current world.

This article highlights a few key findings from the 2023 Edelman Trust Surveys (Global and Canadian Edition). All data is global, unless otherwise noted.

You can download a PDF of this article from: Many are losing hope in our polarized and distrustful world

Fear and anxiety are increasing and hope for the future decreasing

  • Only 28% of Canadians believe that their family will be better off in 5 years.

89% worry about job loss, 76% worry about climate change and 72% worry about nuclear war.

  • 62% believe their country’s social fabric has grown too weak to serve as a foundation for unity and common purpose.

We live in a polarizing world, with leaders driving polarization

There is limited trust in government

  • 46% of people believe government is a source of false or misleading information. Only 30% feel that way about business.
  • 41% trust government leaders while 64% trust the CEO they work for.
  • Only business is seen as competent and ethical. Government is seen as less competent and unethical.

Globally, 62% see the rich and powerful are dividing forces pulling people apart, and 49% feel the same way about government leaders

In the US:

  • 63% of the top quartile income earners trust institutions, while only 40% in the bottom quartile trust institutions.
  • Only 26% of US Republicans trust government while 61% of Democrats trust government

Few people would help, live, or work with those who strongly disagreed them.

  • Only 30% would help those in need
  • 20% would be willing to live in the same neighbourhood or have them as a coworker

What are your next steps?

  • Discuss the implications of the above findings: for the members of your company’s ecosystem; and for your company’s long-term success.
  • Survey the members of your company’s ecosystem. Compare those finding to Edelman’s findings. What are the implications of the differences?
  • Identify future scenarios, some better and some worse than today. What are the implications and what actions must you take to minimize the risk of long-term company failure?
  • Assess the actions and communications of your company. Are you building or destroying trust? Are you a unifying or polarizing force in society?

What further reading should you do?

2023 Edelman Trust Barometer – global report

https://www.edelman.com/trust/2023/trust-barometer

2023 Edelman Trust Barometer – Canada

https://www.edelman.ca/sites/g/files/aatuss376/files/2023-03/2023%20Edelman%20Trust%20Barometer%20EN.pdf

Society’s trust in corporate leadership and political leadership is low

https://koorandassociates.org/values-morals-and-ethics/societys-trust-in-corporate-leadership-and-political-leadership-is-low/

Tom Koor

Is your company actually a startup?

What is the purpose of this article?

Help shareholders, the board of directors, and C-Suite have a fact-based discussion regarding the status of your company.

You can download a PDF of this article from: Is your company actually a startup

 What are the critical learnings in this article?

  • The leaders of many long-established companies are unaware that their company has become a startup.
  • As a result, the wrong type of talent is in place, taking the wrong actions.

Where is your company it its life cycle?

#1 a startup

A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.   Startups are not building a solution.  They are building a tool to learn what solution to build.

#2 most startups fail or end up as small companies.

#3 A scaling, growing profitable business enabling customers to achieve a competitively differentiated value proposition. Market share is growing, the overall market may be growing, customers are strongly recommending the company, employees want to join and stay, etc,

#4 Failure may occur at any time.  The company may end up being a startup again and not realize it.

#5 A large, slow growing or static company. Market size isn’t growing, market share isn’t growing, etc.

#6 Most large companies fail or disappear. Market size shrinks, market share shrinks customers no longer perceive that they achieve a competitively differentiated value proposition, hard to hire and keep the best employees.  The company has become a startup again.

#7 The company is constantly improving and changing to avoid becoming a start.  Transformation is continuous rather than a one-time event. Ongoing talent management transformation, starting with the board of directors, is the foundation for long -erm success.

The company can become a startup again at any time, but the leaders don’t realize that.

  • A company, at any stage, is competing in a hyper-competitive world, with constant massive changes in the ecosystem. A company can suddenly become a startup.
  • Companies must be constantly improving, changing, and transforming to avoid becoming a startup. There are trillions of dollars of capital available to fund the right talent.
  • Exceptional talent is much rarer than capital. The ability to determine future talent requirements, assess the future potential of talent, and successfully develop that talent is the core foundation of long-term growth.

 What are your next steps?

  • Do a fact-based analysis of where your company is in its lifecycle.
  • Identify the changes you need to your ongoing talent management processes.
  • Identify the changes you need to your talent, using your new talent management processes.
  • Your new talent will create and execute the appropriate plans.

 What further reading should you do?

Is your company planning to fail? Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

Tom Koor

What is a value proposition? V3

What is the purpose of this article?

  • Enable founders, investors, C-Suite, boards of directors, shareholders, etc. to understand what a value proposition is and to discuss their company’s value proposition.
  • This article encompasses all members of your company’s ecosystem, but focuses on customers and users.

You can download a PDF of this article from: What is a value proposition V3

What are the critical learnings in this article?

  • A value proposition is someone else’s perception of the value you provide, not your opinion.
  • All members of your company’s ecosystem have a perception of your company’s value proposition.
  • Your company’s growth and survival depend upon your understanding of the key members of your ecosystem and their perception of your competitively differentiated value proposition.
  • Some members of your company’s ecosystem may perceive a negative value proposition e.g. employees who are terminated as part of moving their jobs to lower cost employees elsewhere in the world.

 A value proposition is some else’s perception of the value you provide, not your opinion

  • This perception can be influenced by: facts, emotions, family & friends, social media, etc.
  • Perceptions are both based on fact and emotions. g. many people in the US believe that Donald Trump won the 2020 presidential election, although there are no facts supporting this.

How does someone perceive their value proposition?

Value proposition = (All their perceived achieved benefits) / (All their perceived incurred costs)

  • Perceived achieved benefits can include both financial and non-financial (e.g. time savings, convenience, status, alignment with personal purpose, values, morals, and ethics, etc.)
  • Perceived incurred costs can include financial (purchase costs, costs to switch to your company, other adoption costs, and ongoing costs) and non-financial (time, inconvenience, loss of status, mis-alignment with personal purpose, values, morals, and ethics etc.)

People may include in the value proposition impacts on other members of your company’s ecosystem as well as their personal impact.  E.g. cash paying customers considering buying from companies that pay employees a living wage or from companies that raise animals in a humane manner.

All members of your company’s ecosystem have a perception of your company’s value proposition. E.g.

  • Employees may consider: compensation, working hours, working location, alignment of your company’s purpose with their personal purpose, development programs which increase the value of the employee, etc.
  • Shareholders may consider: long-term shareholder price, company purpose aligned with shareholder purpose (reducing the company’s impact on climate change, increasing diversity (gender, race, sexual identity, sexual orientation, etc.) at all levels of the company.
  • Society may consider: your company’s impact on the environment, the % income tax your company pay’s vs the average taxpayer, whether you pay your employees a living wage, etc.

You need to understand both the customer and the competition.

  • What is the reason the customer wants or needs something?
  • How can you help the customer with what they need or want?
  • Do your customers believe your value proposition is more attractive than the customers’ current situation?
  • How do your customers perceive your value propositions’ competitive differentiators? And weaknesses?
  • How do your customers perceive your competitors’ value propositions differentiators and advantages? And weaknesses?

How is your company going to grow and survive in the marketplace?

Your company will fail if you are not competitively differentiated.

  • Your company’s growth and survival depend upon your understanding of the key members of your ecosystem and their perception of your competitively differentiated value proposition.
  • How other members of your ecosystem perceive your value proposition for them may enable or destroy your company’s success.
  • You may need to provide other members of your company’s ecosystem with a competitively differentiated value proposition. E.g. your current and future employees.

You need to provide your cash paying customers with a competitively differentiated value proposition.

  • You must take market share and business away from competitors.
  • Your customers need to decide to stop dealing with current suppliers and start dealing with you.
  • Your customers need to stay with you.
  • Your customers need to recommend your company
  • You may be creating a new market (e.g. Apple with the iPad)

What are your next steps?

Understand how the critical members of your company’s ecosystem think and feel about your company.

  • Survey the individual members of your board of directors, C-Suite, and key shareholder to identify who they believe are the critical members of your company’s ecosystem.
  • Also ask them what they believe those members view as your company’s competitively differentiated value proposition.
  • Then individually survey those critical ecosystem members to determine how they perceive your company’s competitively differentiated value proposition.
  • Collect the facts regarding those critical ecosystem members e.g. customer/market share growth, customer churn, employee retention, etc.
  • Identify the implications of the above information.
  • Determine what needs to change, in your ecosystem’s members of your company’s value proposition, to enable your company’s future growth and survival

 What further reading should you do?

Do you understand your customers?

https://koorandassociates.org/understanding-customers/do-you-understand-your-customers/

An example of a business ecosystem: What does the Toronto Startup Ecosystem look like?

https://koorandassociates.org/the-startup-journey/what-does-the-toronto-startup-ecosystem-look-like-v4/

Thomas Ripsam and Louis Bouquet, “10 Principles of Customer Strategy”, PWC Strategy& website, https://www.strategy-business.com/article/10-Principles-of-Customer-Strategy?gko=083a5

Tom Koor

What does the startup journey look like? V4

What is the purpose of this article?

  • To illustrate the growth stages of a company, from startup, to mature company, to crisis or decline.
  • This article is intended for the board of directors, company leaders, and investors – to enable their discussion and understanding.

You can download a PDF of this article from: What does the startup journey look like V4

 

What are the critical learnings in this article?

  • This article applies to any size company at any stage in their evolution. Why? Any company, division, or major market/product segment may be in a startup or may become a startup through crisis or decline.
  • The market place determines what stage the company is in, not the company/
  • A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs. Startups are not building a solution.  They are building a tool to learn what solution to build.

How to read this article

Section 1 outlines some general concepts.

Section 2 outlines the journey from the perspective of obtaining customers.  There are 5 stages:

Stage 1 Find a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs.

Stage 2 Create a repeatable, scalable, and profitable business model.

Stage 3 Scale and rapidly grow the company. At this point, no longer a startup.

Stage 4 Continuously changing a mature company.

Stage 5 Crisis or decline

Section 3 outlines potential financing journeys.

Section 4 outlines potential leadership journeys.

What are your risks and challenges?

  • There is no guarantee that you will progress from Phase 1 to Phase 4.
  • At any point, your company may move backwards, even from Phase 4 to Phase 1
  • Many large and long-established companies in Phase 4 don’t realize that they have dropped to Phase 1.
  • Many large and long-established companies in Phase 4 don’t realize that they need to be constantly changing.
  • The talent you need in Phase 1 may be very different from the talent you need in Phase 4 when you are a large global company.

Section 1 Some general concepts

 What is a startup?

A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.

Startups are not building a solution.  They are building a tool to learn what solution to build.

What is a business model?

A business model describes how a company creates value for itself while delivering products or services to customers.  Who are your target C&U (Customers and Users)? What C&U problems are your solving? What C&U needs are you addressing?  What benefits and value are you enabling customers to achieve? What are the human and technology resources needed?  What are the channels and partnership?

Incubators and accelerators

  • Many startups work with incubators and accelerators.
  • Some startups work with several incubators and accelerators.

Section 2 The journey from the perspective of obtaining customers.

Stage 1 Find a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs. 

Your journey is driven by your understanding of your potential cash paying customers. E.g. before building a beef ranch, you must understand whether or not your potential customers are vegetarians.

Phase 1 has 8 steps. Steps may be parallel and iterative.  Some steps may be combined.  You may have to go back some steps – your journey is not always moving forward.

Step #1 The founders have an idea

  • The founders have an idea. They first agree upon: equity split, their expectations regarding startup, how decisions will be made, the purpose of the company, and who has the title of CEO.
  • The never-ending process of interviewing and surveying potential customers and users begins.
  • Before building anything, 100 potential customers and users will be interviewed and 100’s more surveyed. This begins the never-ending process of understanding the problems of potential cash paying customers

Step #2 Understand the potential customers and users before building a solution.

A business model canvas is a one-page document which easily defines and communicates the business model.  There are 9 components to the business model canvas: customer segments, customer value proposition, customer relationships, channels, key partners, key resources, key activities, cost structure, revenue streams.

On day one, this canvas will be only assumptions.  The interviewing and surveying process will validate or invalidate assumptions and identify new assumptions.

Value proposition

This is the customers and users perception of value.  What are all the financial and non-financial benefits achieved? e.g. time savings, convenience, status, reducing negative emotions or risks, benefits achieved (financial and non-financial) achieved by the customers?  What are all the costs incurred by the customer (purchase costs, costs to switch to your company, other adoption costs, ongoing costs)?

Customer journey map

The customer journey map is a visual representation of the customers’ experiences with your company across all touchpoints. Customers interact via social media, email, live chat, or other channels, mapping the customer journey out visually helps ensure no customer slips through cracks. The journey also illustrates the customer interaction with influencers and other who impact the customer. The following are some examples of customer journey maps.

https://blog.uxeria.com/en/10-most-interesting-examples-of-customer-journey-maps/

The business model canvas, value proposition, and customer journey map are continuously validated and revised throughout the life of the company.

Customer engagement

Customer engagement is the relationship and interactions between customers (existing and potential) and the company.  Engagement may include: useful content on the website, newsletters, interviews, surveys, etc.  Engagement continues and improves throughout the life of the company.

Step #3 Create a Wireframe

Provide a visualization of the potential user/customer interface of what will the customers/users will perceive in the MVP.  Note that customer/user interfaces are evolving to include voice interaction, hand gestures, augmented reality, neural monitoring, etc.

Step #4 Create Proof of Concept

The purpose of the proof of concept is to gain customer/user and domain expert feedback to validate specific critical assumptions of the future MVP.

Step #5 Create a Functional Prototype

The hardware or software prototype is only the hardware or software components of the MVP. The prototype’s purpose is to enable learning from customers/users and support demonstrations to customers/users.

Step #6 Pilot Solution

This is the MVP, including onboarding, customer support, and exiting.  The customer may not be paying for the pilot.  The two-fold purpose of the pilot is to identify any issues which prevent customer/user problems and needs being solved and to identify any issues which prevent the customer/user from being delighted. The pilot is providing specific feedback on the value the customers/users are achieving. The pilot helps determine what price should be charged.

Step #7 MVP (Minimum Viable Product)

This should really be called Minimum Viable Solution. A product or service with just enough features to have delighted early cash paying customers by enabling them to solve some urgent problems or needs, and to provide customer/user feedback for future development.  The MVP includes onboarding, customer support, and customer exiting. What the customer does not see or interact with (i.e. all the behind the curtain resources and activities) will likely be inefficient, have manual components, technology that is temporary, etc.

Customers/users determine whether or not there is an MVP, not the startup team.  If the MVP does not solve some core customer/user problems and needs that the customer is willing to pay for there isn’t an MVP.  The startup needs to learn from customers and users what needs to change to enable an MVP.  It may take several attempts before there is an MVP.

The initial MVP will have a small number of customers and users.

Step #8 Evolve the MVP until there is product market fit

The MVP will be iterated and enhanced until there is product market fit.

You know you have product/market fit if:

  • Your customers are so delighted that they are recommending it to others.
  • Your customers would be extremely disappointed if your solution disappeared.
  • Your customers can describe the big problem they had and the big benefit they achieved from your solution.
  • There is clear demand in the market place for your solution.
  • You are clearly and obviously differentiated from competitors in terms of the value customers achieve.
  • There are a large number of potential customers who believe their problems are urgent enough to buy your solution, and they can also afford your solution.

You do not have product/market fit if:

  • Your customers are not recommending you to others.
  • Your customers would not be extremely disappointed if your solution disappeared.
  • You customers cannot describe the big problem they had and the big benefit they achieved from your solution.
  • The marketplace is not demanding your solution. You have to persuade/educate your customers that they have a big problem with a big opportunity.
  • You are not clearly and obviously differentiated from competitors in terms of the value customers achieve. Your only differentiation is price.
  • There are not a large number of potential customers who believe their problems are urgent enough to buy your solution, and they can also afford your solution.

Your metrics, facts and analysis show that:

  • There are a large number of potential customers who believe their problems and needs are urgent enough to buy your solution, and they can also afford your solution.
  • The customers and users believe you have a better value proposition than the competitors.
  • The Net Promoter Score is excellent.
  • Churn is low and retention is high.
  • There is a metric for new customer value achievement (e.g. for Slack it was 2,000 team messages sent within 60 days).
  • Measuring and analyzing new customer value achievement metric (e.g. % of new customers achieving new customer value achievement indicator within 60-90 days).

Marc Andreessen’s definition of product/market fit:

“The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.” The following is a link to the article with quote:  On product/market fit for startups

Conclusion of Phase 1

  • You have found a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs.
  • The leadership may not be able to create and lead a company that can scale. e.g. A Chief Technology Officer who was a great coder many not have the skills to manage a team of coders.
  • The existing processes and technology may be inefficient and unable to scale cost efficiently.
  • Many processes to enable rapid growth will be missing e.g. the capability to recruit, onboard, and develop large numbers of employees, profitability analysis by customer segment, cohort, channel, and partner.
  • Customer acquisition costs may exceed the lifetime value of the customer.
  • Your metrics may show an unprofitable business with customer acquisition costs exceeding life time customer profitability. Your analysis will show the potential for a profitable business with life time customer profitability exceeding customer acquisition costs.,

Section 2 The journey from the perspective of obtaining customers.

Stage 2 Create a repeatable, scalable, and profitable business model.

  • Ensure the leadership able to create a company is in place.
  • Changes may be required at the board of directors, advisory board, CEO, C-Suite, advisors, and consultants.
  • Develop a plan to create the company. New and changed talent, processes, technology, channels, and partners are required.

Customer understanding continues

  • Interviews and surveys continue.
  • The solution is enhanced to enable the company to understand whether or not customers and users achieve value, and how many achieve that value.

Section 2 The journey from the perspective of obtaining customers.

Stage 3 Scale and rapidly grow the company. At ths point, no longer a startup

  • Execute the plan from Phase 2
  • Add additional geographies, channel, partners, and customer segments. Drop unprofitable ones.
  • Add additional and different types of employees.
  • The customers and users are profitable (i.e. life time customer value is much larger than customer acquisition costs). The cash flow and accounting statements may show a loss because the customer acquisition costs are incurred upfront while the customer profits are achieved over the lifetime of the customer.
  • Continue to maintain or improve the value achieved by customers and users. Improvement actions are based on: Ongoing customer interviews surveys, and analysis of customers; Ongoing analysis of the competition, adjacent market, trends in the ecosystem including  technology and customer behaviour.

Section 2 The journey from the perspective of obtaining customers.

Stage 4 Continuously changing a mature company.

  • Market size is constant or growing. Market share is constant or growing.
  • The company still needs to be continuously improved due to ongoing competition, changes in customers problems and needs, and trends in the ecosystem.
  • The company must continuously monitor the external world to determine if major changes are required. Blackberry and Nokia used to be leaders in phones.  Their leadership crumbled due to changing customer problems and needs combined with competitors focused on meeting those changes.

Section 2 The journey from the perspective of obtaining customers.

Stage 5 Crisis or decline

Market size is shrinking and or market share is shrinking.

This could be for many reasons: e.g. the number of customers who perceive they have a problem they are both willing and able to pay for declines, customers perceive that they can achieve a better value proposition from competitors, changing regulations impact customer problem and needs, and/or your solution, etc.

Section 3 Potential Financing journeys

Financing stages

The startup may bootstrap (i.e. no equity or debt financing other than friends and family) or go through one of more stages of raising external financing.

#1 Friends and family

Most early startups depend upon founders, friends and family for funding.

#2 Angel investors, pre-seed investors.

These are the first investors outside of friends and family

  • Only 24% of angel deals in the US in 2019 were for pre-revenue companies.

https://www.angelcapitalassociation.org/angel-funders-report-2020/

  • in 2019, only 2.4% of the applications to Canadian angel groups received funding

https://investorreadiness.ca/cdn/bba/NACO-AngelActivityReport.pdf

#3 Seed investors

These are the second round of investors, after pre-seed investors

#4 Series A, B etc. investors

These investors are funding the rapid growth of the company

#5 Longer term

  • Company is bought and merged into an existing company;
  • Long-term private equity investors; or
  • Public markets

Types of financing

There are many types of financing:

  • Equity e.g. common stock, preferred stock.
  • Convertible debt.
  • SAFEs (Simple Agreement for Future Equity). The SAFE is a contract which gives the investor the right to purchase stock in a future equity round (should there be one) subject to the terms and conditions in the SAFE contract.
  • Government grants, loans, tax credits.
  • Funding for research.
  • Paid pilots.
  • Profits and revenue sharing.
  • etc.

Section 4 Potential leadership journeys

The skills, experience, and capabilities which leaders need to create value at each stage of the company are different.  Leaders need to learn and transform themselves, be replaced, or lead the company into failure.

  • The company starts out as a very small team, searching for a repeatable, scalable, and profitable business model. Efficiency, profitability, and scalability are not the day one objectives.
  • Then the company needs to create a business which has the potential to be repeatable, scalable and profitable..
  • The company then grows through rapid growth.
  • Finally, a mature company is reached – massive rapid growth has ended.

The types of board directors also change. The skills, experience, and capabilities needed to grow and preserve the value of the company change.

The role of the CEO changes. There are three things only the CEO can do, and no one else in the company:

  • Create and maintain alignment of people with the purpose of the company;
  • Nurture the company’s values, morals, and ethics (often referred to as culture);
  • Hire the leadership team and ensure they work well together. Up to 50% of the CEO’s time will go hiring and managing the leadership team. At least 1/3 of the leadership team hires will not work out and must be exited.

65% of the failures of high-potential start-ups are due to people problems: relationships, roles and decision-making, and splitting the income. More than 50% of founders are replaced as CEO by the C round of financing.  In 73% of these founder replacements, the CEO is fired rather than voluntarily stepping down.1

Footnotes

1 ,Alistair Croll, Benjamin Yoskovitz, Lean Analytics – Use data to build a better startup faster, Sebastopol California, O’Reilly Media 2013, Page 41

2“The Founder’s Dilemmas”, by Noah Wasserman. Pages 299, 301 Noah was the Professor of Clinical Entrepreneurship at the University of Southern California and the director of USC’s Founders Central Initiative.  The book is based on his study of 10,000 founders from 3,500 startups.

What are your next steps?

  • Determine what stage your company is in.
  • Determine your talent requirements for the stage you are in, and the stage you want to move to
  • Assess your talent, and talent process, relative to the stage you are in.

What further reading should you do?

“The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers” by Ben Horowitz.

Ben describes the incredibly tough challenges and experiences he went through in the process of his ultimately successful startup.  He then became a successful venture capitalist.

Startup terminology and metrics, https://koorandassociates.org/selling-a-company-or-raising-capital/startup-terminology-and-metrics/