Entrepreneurial Iceberg — why many startups never scale
We’ve been asking the same question of different people over the past 3 years: why are there not more Impact Investment success stories?
There is no doubt in our mind that:
- More young people want to go their own road and become entrepreneurs rather than embark on corporate careers
- That a very large majority of them want to make the world a better place and see entrepreneurship as a good way of doing something meaningful
- That impact investment is on the rise with initiatives like What if Belgium that are leading the way to more sustainable investments.
Though we believe the above to be true, we think that there is a danger that this trend will not continue if we are unable to share stories of young social entrepreneurs who have been successful at creating significant impact in a financially sustainable way. We also think that over time, impact investors will be put off by the lack of return, lack of exit opportunities and often the lack of ambition.
Too much focus on hype
We cofounded BeeFounders a couple of years ago as we felt that we need to support Impact Entrepreneurs differently, particularly in the early stages. These startups tend to be higher risk, longer term and often low tech rather than high tech making them less attractive to traditional investors.
But beyond the need to support them better, the impact entrepreneurs themselves also need to take a look in the mirror to see why more of them are not scaling, creating significant impact and generating financially sustainable businesses with good investor returns.
We’ve met hundreds of them and many of them fall in love with the idea of creating impact without thinking through what it takes to really make change happen.
There is a lot of focus on the idea, the vision, the brand, the “why”, the digital marketing strategy and a lot less thought goes into all the other things which will be needed to scale. We call this the Impact Iceberg. (special credit to @chrismalapitan for the illustration)
They tend to focus on what everyone sees as that is where they get the recognition as opposed to what lies beneath the water line. This results in hype, visibility, lots of people giving them compliments on their courage to create change. Unfortunately, it also results in short-term thinking and taking tactical decisions linked to brand, positioning, pricing which will ultimately result in a major challenge to scale what they have built.
To “Lean” or not to “lean”
I would love to own a camper van and I have day dreams of driving around the south of Europe and stopping by a beach and pulling out the deck chair and living the hippie bohemian life. A friend of mine suggested that I should just rent one for a few weekends and try it out before making a big investment in buying one. That makes sense. Why would you invest a lot into something without having tested it? There are always ways of testing without investing too much.
David Mellett, Cofounder BeeFounders
That is the essence of lean for us, test before you invest and integrate feedback in a fail cheap & fast, continuous improvement mindset.
It makes sense BUT that doesn’t mean that you shouldn’t think longer-term when taking those tactical decisions. Many startups know the “Lean” methodology & theory and therefore they go fast with a landing page, prototyping and getting early market feedback. “Hey, I’m lean so I don’t have time for strategy”. Good for you but you’ll never scale the thing you’re testing if you don’t look below the water line at the rest of the iceberg.
What’s above the water line is often closer to their comfort zone, what they are passionate about, what they love talking about and the “sexy” front-end of the startup world. They understand that logistics, supply chain, governance, finance and all those other things are needed but it’s not what motivated them to start their startup.
An old colleague of mine who was particularly good in sales and pretty bad at delivery once said to me “Act first, apologies later”. In other words, sell what you can sell and then figure out how to deliver on your promise. We were working in a large company so his job was to sell. Marketing, IT, Finance then had to figure out the execution. As a startup, particularly for early stage founders you cannot think like that. You are the sales person but also very often the Marketing, Finance and the person who has to put the products in the post. If you “pre-sell” in crowdfunding or negotiate a deal with a large retailer and then you fail on the delivery, your business is dead.
What’s below the water?
Particularly when dealing with products in the food sector, clothing sector or retail more generally, there are lot’s of things you need to get right before you can scale. Supply chain, logistics generally, governance, fundraising, financial planning, ERP and other tools, team beyond the founder and very often, regulatory approval. Again, the passionate young entrepreneurs we meet didn’t decide to launch they innovative businesses in the hope of spending most of their time working on these things. If they don’t, somebody else does and it is one of the main reasons we created BeeFounders.
We need to build better foundations before already decorating the house. Luckily, there are lots of experienced people who have been doing the above for years with Unilever, Danone, Ikea and lots of other companies. They have the skills to get this done and allow the young founders to focus on the part they enjoy least but knowing that if they do sell, somebody has their back so that they don’t have to apologies later.
Marathon, not a sprint
In the VOCA world we live in, everyone feels as though they need to accelerate. It’s amazing how many startups are genuinely afraid that if they don’t get to market fast, somebody else will eat their lunch and take they place. Quite frankly, we wish it were true as if it was, there would be a lot more big companies creating a lot more positive impact.
Some of the sectors which impact entrepreneurs are disrupting have not changed significantly in decades. Yes there are lots of other startups out there doing the same thing as you but most of them are very small and probably also focused on what’s above the water. Don’t be afraid of competition and use it as an excuse to get to market fast and then end up failing but you’ve built a “mouton à 5 pattes” (sheep with 5 legs) which cannot be scaled.
Our advise
Be lean at the beginning but when taking decisions on suppliers, ERP tools, equity splits, team, product lines, investor profiles, brand: think SUCCESS, think LONGER TERM.
Assume your startup will be a big success some day and that the decisions you make when in lean mode won’t need to be completely reversed when you start to scale later. 🚀
