Rick Chapman has nearly 30 years’ experience working in high tech industries. He’s been a developer, founder, exec and mentor – giving him a valuable perspective on what makes a startup successful.
Rick is currently an entrepreneur-in-residence at SETsquared Bristol, an incubator for new tech businesses, and supports other organisations in Bristol’s high tech cluster. He’s worked with close to 100 startups and can be mentoring up to 30 at any given time.
Ahead of his talk at Design/Build/Market next week, we spoke to Rick about success, failure and how to give your startup a fighting chance.
What does your role at Setsquared involve day-to-day?
It’s a bit like running a GP surgery – but for business issues. Any company can come in and talk about whatever’s taxing them that day. It may be they have an unhappy customer or a supplier problem, or they have an investor pitch coming up and want to do a run through. I’m like a GP in the sense that behind me are a group of specialists I can refer them to – if it’s a legal issue I may be able to give them the questions to ask the lawyer but I’m not a legal expert so I can’t give them the answers.
You’re never quite sure what’s going to come through the door so you have to be fairly well experienced and able to deal with the bulk of the questions. I never designed my career this way, it was a combination of opportunity and an open mind. I wouldn’t change it for the world.
What qualities do the most successful companies have in common?
Probably flexibility and nimbleness. Successful companies also recognise that as individuals – or as a founding team – they are going to have strengths and weaknesses. It’s about knowing you don’t know all the answers and being willing to ask for help.
Quite a lot of the companies that come in never get to trade – they come to what we call a controlled stop because the entrepreneur realises there’s a big issue – for example, the product is full of features but not benefits. Some have come back with their second or third idea and that’s been the winner. So having that openness and willingness to learn is helpful. You need to be able to have tough conversations and fully engage in the experience.
What would you say are the most common reasons for failure?
Not addressing issues early enough. If your sales are going well but you’re not making a profit, you have to find a different way to monetise things. It’s very easy to focus on things that are going well and not fix the issues before they become real problems – doing the hard stuff early and recognising warning signs helps.
“If you don’t know what sets you apart from the rest, you’re going to struggle.”
How do you help your companies set realistic goals?
Really get to know them. At the end of the day a business is its people, so you have to get to know the entrepreneurs and build a trusting relationship with them. You need to be able to have frank and open conversations about what you think they should be addressing. It’s about working with each entrepreneur to strengthen them and help them meet their challenges.
SETsquared doesn’t take any stake in the companies – we’re not financially incentivised to create high-growth businesses. We do it because that’s what we’re set up to do. I get to live vicariously through some of those startups and I won’t deny it’s a pleasure when I see them achieve their success. But I also wear the bruises when some do inevitably fail.
How important is a ‘killer idea’?
You need to be able to take your idea to market and clearly demonstrate the added value for your customer base. If you don’t know what sets you apart from the rest, you’re going to struggle.
But you can have a successful business even with a poor idea. You can copy and iteratively improve an idea that’s already out there – the 13th major search engine startup on the planet was Google. Many people had tried to solve the same problem before – Google just solved it better than everyone else.
At what point can you tell a venture is going to fail?
I often hear people say ‘we have lots of customer interest’ but what does that actually mean? Who’s willing to pay? How much?
There are tons of tyre-kickers out there, people who want a demo but aren’t actually going to pay. If you’re constantly getting interest but not commitment, there’s a mismatch somewhere. You may not be reaching the right customers, the product may be slightly wrong, it may be the way you’re marketing it. But the core problem is being overly optimistic and not analysing the issue.
The other indicator is an entrepreneur not investing their energy in the right places. If you wake up in the morning and you know that there are critical bugs in your code, angry customers on the phone and someone on your team has been bunking off for days – which issue are you going to deal with first? If the answer is the coding, you’re probably not an entrepreneur – you’re a developer. An entrepreneur has to prioritise and tackle the most damaging issues first.
“If you finish with some energy, resources and finance left over, you will recover much faster.”
What advice would you give to a venture that’s failing?
Only 2% of the companies who have ‘graduated’ from SETsquared have failed. But about 40% of the companies that come in never get to trade – they come to a controlled stop early on. We see that as very positive. Once you’ve raised investment and have actual customers, you don’t want to fail. So we make sure our businesses understand the risk of proceeding.
It’s about doing that ‘stop’ in the right way. A company I was involved with ran out of cash at the height of the last recession, so we closed it down in a very controlled manner. The company had no employees but it had money in the bank and retained all of its intellectual property (IP). Two years later, the IP was sold. Had we let the company go bust, that wouldn’t have been possible. Two years after we actively stopped working in the company, our investors got a return on their investment – it wasn’t such a failure after all.
What can you do to recover from failure faster?
First of all, fail quicker. Don’t let it be a death by a thousand cuts. Recognise that it isn’t going to work and stop before you’re out of energy.
I was desperate for my second startup not to fail, and probably kept at it for too long. I went without salary for a few months, anticipating a change around the corner. And actually it didn’t change the outcome at all, it just meant I dug into personal savings a bit deeper. So actually recognise the issues and act on them instead of deliberately – or through naivety – burying your head in the sand.
If you finish with some energy, resources and finance left over, you will recover much faster.
Is it better to start over straight away or have a break?
You need to give yourself time to learn the lessons of failure. Give yourself time to process the experience thoroughly but start up again when the idea is right.
You see plenty of people in the industry ‘resting’ between ideas. It doesn’t mean they don’t have something to contribute in the interim, either as an advisor, mentor or consultant. A healthy cluster (which we have In Bristol) will employ talent. Actually, if someone’s business has just failed, I might bring them in to talk about what they’ve learned from that so other entrepreneurs can benefit. We only fail if we stigmatise failure and don’t learn from it.
“Making a mistake is not a bad thing – making the same mistake twice is.”
Do you see failure as a natural step on the path to success?
It’s not an inevitable part of the process for an individual business – some do make it big with their first idea. But it’s a crucial part of our industry. Recognising why something failed and building that into the growth plans for the next idea is a fantastic learning experience.
I think it’s naive to assume there will be no failure and it’s short-sighted not to build in a mechanism to learn from that failure.
Do you think the startup industry is forgiving of failure?
I think it needs to be more forgiving. Making a mistake is not a bad thing – making the same mistake twice is. You’re only going to avoid repeating mistakes if you’re open about your reasons for failure. We’re all human and we all have egos. We don’t like to talk about our failures – we put a gloss on it and won’t peek under the surface. But that’s where the good lessons are most often.
Success is often also down to good luck, being in the right place at the right time. And you can’t scale luck. What you can do is reduce the probability of failure by being honest with yourself and preparing for every eventuality.
Gain more insight into building a successful startup at DBM #6
Join Rick Chapman and other speakers at Design/Build/Market: Successes and Failures on Thursday, 19th July. We’ll be exploring what successful companies have in common, what different kinds of success look like and how to turn things around when it all goes wrong.