“Gain traction fast, or fail fast and move on”. All start-ups hear this. The logic behind this is sound: if enough users attach to a product, the need must be strong enough to back. Then, it becomes a race hinged on marketing and viable customer acquisition. Create website, build prototype, beta and MVP. Get early adopters, iterate, refine, hit product market fit and then scale. If it’s taking too long, either you have the wrong product, wrong market or your team and funding aren’t enough.
But what if timing or the problem won’t allow you to fail fast?
It’s a common reaction that any problems where the market needs education, and / or multiple elements need to be in sync for a catalytic reaction, are “too hard to crack”. It’s also basic human nature to ask, “why can’t we crack it”? If we all went for low-hanging fruit, how would we tackle the hard stuff?
Tackling hard stuff needs resource. A lot of money and time goes into mining metals, or extracting oil. In resource extraction, if your drill doesn’t penetrate deep enough, you can’t get at the deeper lode. Many a mining company has sold a concession from it was unable to profitably extract, only to find that the new owners invested additional time and money to hit oil or gold or platinum.
Barriers to entry keep this out of the realm of the ordinary entrepreneur. Software, however, has few visible barriers. On the surface, anyone can see into the glass sphere at the centre of which the problem (and customers) sit, waiting patiently to be rescued from their ignorance / misery / undiscovered need. The thickness of this glass sphere, however, can be tricky to gauge. Each market’s sphere will be different. Then there’s the question of whether there is a door which needs a key, or if one’s merely able to push through.
The biggest barriers are knowledge, and time. And in high scrutiny markets like fintech and healthtech, regulation (which can be boiled down to time). Time, is effectively a function of resources, or in start-up-speak, funding. Funding gets you team (although team gets you funding) and that buys progress and patience. When a corporate has to abandon a project or new foray, it often absorbs the loss and either uses surplus cash or taps the capital or loan markets.
Smaller enterprises have only investors (or bootstrapping) to finance patience. And the pool of patient capital is not as deep as we’d like. But some of today’s big names went through their periods of ‘patience’. If shareholders or management hadn’t persisted, they would not have hit their moment of scaling, which from all accounts, was way, way beyond even their pessimistic expectations.
Taking an example within Fintech (accounting, small business services) we have Xero, a darling with VCs. Launched in 2006 and listing on the New Zealand exchange in 2007, the founders embarked on a long journey to tackle the fragmented world of small business accounting. I remember chatting with one of the founders about how much work and how long it took for him to get to 2000 customers. Looking back at their traction, it took Xero over 4 years to reach 30 000 customers by the end of 2010. Education and awareness eventually yielding return for a slow-burn customer base. Today, in 2015, Xero has over 500 000 customers and has raised and spent millions in scaling. The opportunity remains huge, as there are more non-users than users today and both Intuit and Xero lead the charge in the small business cloud accounting segment. By surrounding itself with an ecosystem of add-on developers, Xero has been able to create a real threat to Intuit, and Sage.
There are similar examples in other B2B areas. Anyone familiar with invoicing and procurement will know that the pundits have been predicting its inflection point for years. Conference and paper after paper celebrated the savings, and ‘no-brainers’ of impending public and private sector adoption of e-invoicing. Yet, only in the last couple of years have we seen meaningful recognition. And the long awaited EU directive is around the corner, with similar sentiment being echoed across the Atlantic. Online lending has exploded in the last couple of years. Prior to that, there were a handful of names (primarily in the US) who had a slow burn for years. These names are very much around today – all in high inertia markets, where the need is very real but understanding is limited, and where there are many moving parts, any of which can block a sale. All of these models could have failed fast. I’m sure that there are names we don’t know of who did just that. But I’m glad these founders and investors chose to keep at it.
Patience, founder and investor resolve.
Whether a start-up is in a slow-burn or no-fit market can difficult to assess. Founders are likely to believe that theirs is a slow-burn, and that once they ‘crack it’ the heavens will open. Add sunk costs to this, and many a founder can trap themselves in the cycle of “if I only fix this feature/segment, they will love it…”.
Investors & accelerators haven’t drunk the same amount of the ‘elixir’, and so their detachment from the business will prompt them to use traction to assess if it’s working. For simplex problems, this can be easier to spot. Multiplex problems however, are trickier. There’s always a reason someone else isn’t solving what the entrepreneur wants to reach for the skies with!
I’d love to hear about other experiences with this – either those that did not stop soon enough, or anyone that stopped too soon.