Startups: Watch Out For IcebergsJune 3, 2021
In this fresh new decade, startups need solid navigational skills to avoid some of the perils learned in the last decade. They need more sound navigation, solid foundation, and real fundamentals, and less fantasy and BS.
I’m anxiously optimistic to see if sanity and fundamentals creep back into business. Every business needing to be turned around is usually a tale of behavioral factors, and often tied to sextant-grade managerial/navigational skills in a time of GPS.
For every Tesla, Amazon, Uber, Netflix there’s been a Theranos and a WeWork. (It will be interesting to see whether WeWork is buoyant under new leadership.)
I see so many parallels between the nautical-themed movies and television that can teach us so many lessons about life, business, and startups in particular. However, if you’re a startup entrepreneur and your business culture and mindset is an amalgamation of Office Space and Shark Tank, you could be setting yourself up to be chum.
Startups must be sane, they must be sustainable.There must be a market for the product or service. It must be able to be marketed at a net profit, and at scale.
So, startup captain, while you may be feeling like Leonardo DiCaprio in Titanic bellowing “I’m the king of the world!” on the bow of the ill-fated ship, it’s best to remain grounded, even if coastline is nowhere in sight.
In Ang Lee’s film Life of Pi, a retrospective interview flashes back and forth illustrating the challenges a teenager encounters as he survives a shipwreck in which his family perishes, and is stranded in the Pacific Ocean on a lifeboat with a tiger named Richard Parker. Pi is able to survive by facing fears, mitigating threats and leveraging his creativity, intelligence and resourcefulness. Or, does he? Is sailing with a hungry tiger on a rickety boat a metaphor for when a startup gets into dangerous waters with its lenders?
In Robert Redford’s virtually silent All Is Lost, while on a solo voyage in the Indian Ocean, a veteran sailor (Robert Redford) awakes to find his vessel taking on water after being punctured by a floating stray shipping container. (there might be some symbolism regarding trade policy or supply chain issues there — perhaps a future article?)
With his radio and navigation equipment disabled, he sails unknowingly into a violent storm and barely escapes with his life. He does a pretty impressive job repairing the hole in the sailboat with fiberglass and resin (Gilligan’s Island “Professor” character take heed). In Adrift, a similar movie, it’s a bit confusing as to whether Shailene Woodley is immersed in dreams or reality; this can often be the case with inexperienced navigators.
In order for startups to thrive and survive, they need to sort nonsense from reality and get candor and clarity.
Let’s look for a bit at some startup buzzwords, phrases and general terminology:
Fail Fast is the dumbest thing I’ve ever heard in business. This is like intentionally crashing into the iceberg to see how deep the gash in the hull will be, or how many of your deck chairs will float. Prefer airplane analogies? It’s like crashing the plane to see how the black box works. Isn’t it best to prove out the concept and “measure twice, cut once?”
Fake it till you make it is equally ridiculous. There is no substitute for experience. If you don’t know a sales presentation from a balance sheet, if you can’t spell PO or P&L, you are headed for an iceberg. It’s like making believe you know celestial navigation with a sextant. Most of the turnarounds I’ve done with small companies have been necessary because they have inexperienced captains at the helm of the vessels. Don’t get Gopher, Doc or Isaac when you need Captain Stubing. (Stubing did seem to spend a disproportionate amount of time at the “captain’s table.”)
Perfect Storm. Rapid starts and rampups can be a window of opportunity or a funnel of water and it’s up to the managers and principals to work hard to steer and sail through rough waters of competition and intellectual property, and battle the elements of commercial launch.
Burn rate. If you are using other people’s money as tinder, kindling, or firewood, to power your ship forward, it’s only a matter of time before you have to burn your deck chairs to stay warm. The business is either going to be profitable, or not, and don’t hang on to the wheel of a sinking ship for too long.
Churn rate. This is the rate at which a potentially half-baked plan plans to lose customers. Really? Isn’t this the equivalent of throwing people overboard or not having an ample supply of lifeboats? Best to keep and grow customers and not give them a reason to jump ship.
Rightsize it. Sometimes the concept or business plan is far beyond the working capital and cash flow resources of the founders and operators, and the business runs aground. A sandbar isn’t the worst thing in the world, and sometimes it gives you pause to re-chart course. There are times when you realize what you’re trying to accomplish is overzealous, or the idea is too big for you to tackle, and you need help. To paraphrase Roy Scheider’s character in Jaws to Quint, “we’re going to need a bigger boat.”
Pitch Deck. Essential basic document which explains what your company does, why it’s viable, and why someone would want to invest in it. If you don’t get this right, it will be like sitting in a chair with wheels on the “pitched deck” of the sinking ship. Do it right, and your plan will be buoyant. Anticipate the questions that prospective investors will ask, and be prepared to defend assumptions and projections.
Lean Startup. Don’t make this another phrase to describe fast fail. This means launch the enterprise as efficiently as possible. You don’t need to fly on a G6 and have caviar. Don’t need lavish offices. Don’t need too many “bodies” to look bigger than you are. Not there yet, but hopefully soon. Austerity, humility and confidence are called for here. Don’t lose sight of business fundamentals. All the lean austerity in the world, however, won’t offset a bogus product or business plan.
Charting Course. If you don’t know where you’re going, any road with get you there. Imagine this concept applied to the open sea, sans navigation. Your business needs to have a very concrete course charted, and you need to know as much about the size and location of icebergs as other ships in the night (Andrea Doria and Stockholm).
Maintain Roles. Even aboard the SS Minnow, the cast members, or castaways, knew their place and their roles. Yes, the professor struggled to patch the boat with a limitless supply of wood and glue, but he could make a dishwasher out of coconuts or a radio from Gilligan’s fillings. Everyone knew that Jonas Grumby, aka The Skipper, was in charge and that Gilligan was first mate. Ginger and Mary Ann added polarity, fashion sense and Gilligan’s favorite banana cream pie. The billionaire Howells, despite taking six months of wardrobe for a three hour bay tour, had to adapt to survive. All hands must be on deck and everyone must be clear what their roles and responsibilities are.
Who’s Your Captain Now? Your vessel needs experienced leadership. Even if your startup was your idea, you might not be the best person to be CEO. Many startup people are great at ideas and weak on execution. The closest many have come to navigational leadership is a summer job at Old Navy, a breakfast with Captain Crunch or a little too much time spent with Captain Morgan. Hire the right leadership because you might wind up being Captain Edward John Smith of Titanic fame. Can’t pay them? They might work for equity.
Maintain Watch. In June of 1945, the USS Indianapolis CA-35, after successfully completing it’s critical mission of delivering the world’s first atomic bomb to the island of Tinian, was fired on by a Japanese submarine and two out of six torpedoes hit the ship. In minutes, more than 900 of the 1100+ aboard went into the sea amidst a feeding frenzy of sharks. Miraculously, 317 survived after five days in the water. Even when you think the work’s done and the mission’s complete, you need to watch for both the torpedoes and the sharks.
Remember the phrase “Going Concern?” Which way are these concerns going?
Rearranging the deck chairs. Yes, we’ve all heard this one, while the iceberg is dead ahead and the management team is rearranging the deck chairs, or the band is playing on, but my concept on this is the sunken costs of engaging people in activities which not only waste time, but divert focus and other precious resources, so, don’t paint the Titanic’s stern with water-based paint.
Sailing A Vessel Full of Hypotheticals. Are your assumptions real? Or is everything you’ve assumed about your startup wishful thinking? Most of us probably remember the timeless scene of Rodney Dangerfield’s Thornton Melon character going at the stuffy clueless college economics professor in Back to School. Widgets? Tell that to the bank.
Taking Navigational Advice From Someone Who Has Never Sailed. This will sound harsh to the people branding themselves as business people but hiding safely in academia; taking seat of the pants, scary, “how will I pay the rent”-entrepreneurship advice from a professor who has guaranteed tenure and a salary, benefits, and retirement for life is even more ridiculous than having your high school guidance counselor tell you what it’s like to be an astronaut. It amazes me they put lifetime bureaucrats in charge of entrepreneurship programs.
Remembering Rule 7. On July 25, 1956 the Italian passenger liner Andrea Doria collided with the Swedish freighter Stockholm while approaching the coast of Nantucket, bound for New York. Despite both vessels having radar systems, still somewhat in their infancy, the top-heavy Andrea Doria just didn’t see it coming and it immediately listed to one side, making a majority of its lifeboats unusable. Amazingly, through some lessons learned 40 years earlier with the Titanic, just 46 lives were lost and 1,660 were rescued. The evacuated liner sank 11 hours later.
The Stockholm, despite a damaged bow, made it to New York harbor. Why did one sink and not the other? Luck? Design? Lots of theories abound, but there is a management lesson there — one of organizational behavior, one of change, one of the dynamics of colliding cultures, whether they be in the form of generational change inside the company, or forces (such as merger, acquisition) from outside the company.
Four decades earlier, the Titanic didn’t see the iceberg until it was too late. The Andrea Doria didn’t see the Stockholm until it felt the Stockholm, and the Stockholm didn’t know how to read the signals that it was going down the wrong charted course — it had radar, it just didn’t know what it was saying. (Trivia: The priceless one-off Ghia designed Chrysler Norseman was aboard the Andrea Doria)
From USCG RULE 7: “Assumptions shall not be made on the basis of scanty information, especially scanty radar information.”
Has anyone ever worked in a company with great systems, software, controls, yet the compass is spinning, the captain is nowhere in sight and the crew is fighting with each other?
There is a management lesson here about risks to the organization, or in this case, the vessel, because of the sometimes self-serving or confused behavior of senior managers or management teams. One of the common situations when senior executives are being moved around, or there is the threat of new or further management changes on the horizon, is that rational self-interested behavior can take over, or worse, apathy.
Often when orchestrating organizational realignment, it’s frightening to look back and imagine what could have happened had the “captain” trusted his or her senior officers (or, vice versa) to chart and sail course independent of his or her engagement.
In the case of the Andrea Doria and Stockholm, both ships’ navigation efforts told them they were plotting the right course, yet there was a collision and the hull of the Stockholm rammed into the thin skin side of the Andrea Doria.
The one constant managers have is incomplete information. It takes collaborative effort to routinely and regularly check course and make minor adjustments.
Ironically, despite all of the available sailing, navigation and positioning technology, the United States Coast Guard still enforces something called “Rule 7” of which there are variations for inland, international and other waters — but generally it is as follows:
(a) Every vessel shall use all available means appropriate to the prevailing circumstances and conditions to determine if risk of collision exists. If there is any doubt such risk shall be deemed to exist.
(b) Proper use shall be made of radar equipment if fitted and operational, including long-range scanning to obtain early warning of risk of collision and radar plotting or equivalent systematic observation of detected objects.
© Assumptions shall not be made on the basis of scanty information, especially scanty radar information.
(d) In determining if risk of collision exists the following considerations shall be among those taken into account:
(i) such risk shall be deemed to exist if the compass bearing of an approaching vessel does not appreciably change;
(ii) such risk may sometimes exist even when an appreciable bearing change is evident, particularly when approaching a very large vessel or a tow or when approaching a vessel at close range.
These are great guidelines for managing an organization through times of noise, fog, uncertainly of location or bearing, or confusion and misdirection among the senior officers on deck.
The captain of an organization can never make assumptions — and he or she needs to be able to trust his or her instincts and to validate the crew’s position and regularly plot their progress. Relying on instruments and what others say, and trying to hear through noise and see through fog, are part of the daily life of the vessel’s commander, but it is that captain’s duty to always seek and ascertain unbiased, objective information to avoid any unnecessary collisions with unforeseen stationary or moving objects (or situations).
In short, the captain must be prepared and ready for anything, as storms and noise and fog arrive quickly and in various forms. The captain must also be prepared for things he or she cannot see below the surface, such as rocky ledge or sandbar.
In management, just as in navigation, there are risks and rewards, there are knowns and unknowns, but there is always incomplete information and the ever present dangers of assumptions and uncertainty.
Never underestimate the value of the mix of hard work, attentiveness, diligence and objective and accurate data in charting organizational course.
PostScript: The Lost At Sea Exercise:
Lost At Sea exercise. Want a great exercise to do with your management group? Take the “Lost at Sea” exercise, here are a few links to examples:
You will learn much about yourself and your team. It’s a great retreat exercise and what becomes readily apparent is the value of experience and common sense, two elements your startup will need to stay afloat, and sail into the sunset.