How Can We Nurture More Diverse Startup Founders?
The Startup Genome report by Steve Blank, Berkeley and Stanford faculty claims that 92% of Venture Capital (VC) backed startups fail. A problem close to my heart is that less than 1% of VC backed startups are black owned, according to CB Insights. The question is, why are black-owned startups struggling to get funded let alone succeed at scaling? Over the last 12 months I have been sharing stories about founders & investors from diverse background. Looking back to last year a lot of my articles were about my lessons learned on the job as a Product Manager and from other practitioners in the field. In the last three months in particular I have got into countless discussions about one key question:
Why is there not more founders from diverse backgrounds in tech?
In other arena’s such as sport, music and even actors and actresses on the big screen we are used to seeing representative faces like ours. We have grown accustomed to tell stories of the greats, such as Ali in Rumble in the Jungle or Jordan from Basketball to Nike sneakers. But where are our heroes in tech? In tech there is a clear gap at the number of successful startups that have gone on to scale great products with a black founder at the helm. Black people consume technology as much if not more than any other race, how else does things like #BlackTwitter emerge?
Through the discussions and debates I have had in recent months, it was evident that many people felt that in the UK there is a funding gap at the heart of this issue. People felt there was a lack of access to capital to fuel growth. Not just from Venture Capitalist’s but even from the ‘Bank of Mum and Dad’ which is not an option for most. Furthermore debt financing (loans) such as Startup Loans from the UK government was cited as “not enough”. Others mentioned that this a UK-only issue as the US have a number of investors interested in cultural issues as well as black investors such as the 15 investors I named in my previous article (read here). The other unique stipulation in the US is that the black founders that traditionally struggled to get funding such as Tristan Walker struggled because they were solving a problem targeted at minorities. Whilst the investors he pitched at were not minorities, they were not willing to gain the cultural context to understand the problem he we solving. This could have been solved by investors by simply picking up the phone and speaking to just 10 black men to test the problem with the target audience. However I do not believe a lack of access to funding is the issue in the UK, I actually believe capital is readily available. I want to review four specific areas to address in order to increase the pipeline of black founders in the UK.
I will anchor my recommendations on the four areas that Y-Combinator’s (YC) Sam Altman lectures on in the Stanford class “How to Start a Startup.” These are Ideas, Product, Team and Execution.
“Ideas are overrated and execution is undervalued”
I am a firm believer that founders should work at the intersection between where your expertise lies, what you are passionate about and where there is a market need. That is the sweet spot. Domain expertise matters because it gives you the knowledge you need to solve a particular problem you know well. Do something your very passionate about, because it is likely to be so hard that if you are not passionate about it, any rationale person would give up. It is super rewarding when you work on something you are emotionally bought into and makes a big difference to the lives of others. It can be a lonely experience when you have an idea that you work on alone at first before sharing it with others and building a team. When you are trying to differentiate and do something different, there will be a gut moment where you doubt yourself. That should serve as evidence that your at the edge of your comfort zone, pushing the boundaries and could be onto something great.
Great ideas are usually unpopular to most except the founder at the start, but there is a thin line between great and crazy. Crazy is when you a pursue an idea for a startup when really you are just unhappy at work and may just need a new job. Startups are harder than 90% of day jobs. Investors are keen to see ideas that don’t address just a niche market need today but can grow to capture a huge market within the next 10 years, that’s what really excites them. For example, by 2040 the US will be mostly black and Latinx, that’s a huge future market. The growth rate of the great market trumps the growth rate of a startup in a bad market. As Marc Andreessen famously said, “the market always wins.” Think about the market first, the problem you are solving and who you are solving it for.
“What problem am I really solving?” start there, not with a solution.
Idea is the first step, but next an idea must become a product before it can grow into a company. Don’t limit yourself to think that you need to launch with a finished perfect product. Start by building just a feature that has been validated as valuable by your potential customers. It is ok to fail. Failing is the learning experience you need to test whether or not you are taking a step in the right direction. Continuous learning is product development. In the early days you should be spending as much time with users as possible, testing the product early and often and paying attention to user feedback. This should be measured by meaning metrics which are goal orientated and favour outcomes over outputs. For example retail website should care about sales as an outcome over the number of visitors to their website. Find users manually, whether it is at a coffee shop or at your local park. Quick, cheap and easy, plus you can see their body language as well as hear their feedback.
Your primary job is to build something that users love, not just like. Create avid fans not just a transaction. Even if it is a small meaningful audience, understand why they love it and expand from there. A great read on this is Kevin Kelly’s blog on 1,000 True Fans. How do you know people really love it? organic growth is the indicator. For example, Revolut’s mobile app spread like wildfire because everyone started spreading the word that it was a great card to use on holiday because the exchange rates were at inter bank rate. The product was simple, a card and an app to display balances. Revolut grew to over 600,000 fans in 24 months. Like Revolut you should start simple, make it easy to use and if it is great, users that love it will spread the word. Building something that users love leads to inspiring great people to join the team.
Believe in ideas enough so that you can visualise it and paint a picture in the minds of others so they believe it too.
Don’t just keep your ideas to yourself. Competitive advantage comes from assembling intelligence around:
- Does this idea work?
- Who is the right team?
- What are the right learning’s needed to validate it?
Truth be told, I have a hypothesis that team represents the biggest gap for most black founders. It starts with the struggle of finding a strong technical co-founder. Founders need to find a partner that is intelligent, has integrity and is a joy to work alongside as they work hard. Sadly many of the networks we develop from growing up in ‘Endz’ to the circles we raved with or bonds we formed at university never had many if any software developers. As a consequence I hear of people attending ‘founder dating.’ The odds of you finding a technical co-founder this way is similar to the odds of you proposing to someone on a first date. Truth is, an intelligent, experienced investor will want to see:
- The strength of your relationship with your founder
- How long have you known each other?
- What evidence have you got of working well together?
- Whether you both ride the storms and successes of the startup journey?
If you are reading this and still young and at university, network and remember you could be meeting your potential co-founder. If not, join a strong tech company like Netflix, make friends and develop relationships over time and potentially you could find a co-founder with technical skills.
The number 1 cause for startup failure that YC noticed was ‘co-founder divorce’. The second most crucial mistake startups make is not understanding that A-players hire A-players. As the founder, you need to ensure you are an A-player and hire great Engineers initially as they will go on to hire other great Engineers. The worse thing you can do is hire an average Engineer, as C-players will never hire A-players, they don’t identify with them. The cost of getting this wrong can be costly. AirBnB spent 5 months interviewing their 1st employee and in their first year they only hired 2 people. Why? because mediocre Engineers don’t build great companies, don’t compromise on quality initially.
Don’t outsource your core competence which is the tech. If you look at the top 5 favourite apps such as Netflix, Spotify, Gmail, Citymapper and Slack, none of these startups outsourced their core tech. Furthermore none of them had remote co-founders in different locations, that too is a ‘No-No.’
90% of startups fail in their first year as they build products people do not love (based on THEIR initial idea, but not tested with users and matched to their NEEDS).
The two biggest challenges are executing on your idea and attracting people to help you along the way. Execution is a hurdle for many founders because they end up using all their cash, time and resources building products with user feedback along the way. Building a startup is essentially like conducting a scientific experiment. Think about what the smallest possible test is that will take the least effort that you can run to validate a concept, audience or feature with potential customers quickly. This is often referred to as the Minimum Viable Product (MVP). Coming from humble backgrounds I know that most diverse founders can’t afford to make the costly mistake of burning through their money developing products no one loves. As we are not rich! we literally can’t afford it, which is why cost-effective MVP’s are the best way to incrementally test and develop your product with customers. Delivering value early and often to customers.
Remember startups get funded based on growth and growth potential. Either user acquisition or revenue growth. Rapid growth in an accelerated timescale. So using Dave McClure’s Pirate Metrics is a great place to start. Measuring a combination of Registrations, Activation, Cohort Retention, Referrals and Revenue. Execution means different things to different people. An engineer may think writing code is execution, people who don’t know how to code could think setting up their social media profiles is execution. Execution is simply about learning what people want, and continuously addressing your assumptions to close the gap between what you identify as a problem and the actual problem customers want solved. Netflix solves the problem of watching ad-free movies and TV shows on-demand at your convenience across devices. Your hair brush solves the problem of sorting out your messy hair to make it presentable. Focus on your problem and execute on continuously learning from customers what needs you can meet to solve their problems.
Finding a technical co-founder is a difficult problem to solve, but it is one that deserves our attention. For me, this is the most prominent barrier depriving the market from a diversity of thought from black founders. Addressing this issue could be the key to unlocking more success stories. Innovative programmes have spun up in the last 5 years that provide both funding and training for niche communities. In the US there is Div Inc, a pre-accelerator focused on improving tech inclusion. Whilst in the UK, Entrepreneur First have a pre-seed program for engineering talent interested in starting a startup. In the UK, I am excited of the promise of Rare Seed Capital, committed to investing in founders from diverse backgrounds.
So where do I stand on this ongoing debate on how to improve diversity in tech? For me, my sweet spot lies between my experience in product management, my passion for tech and the market need for more diversity in tech ecosystems worldwide. The most meaningful contribution I can make is to support and equip founders from diverse backgrounds with the chops they need to raise funds, scale diverse and inclusive startups and build products people love.
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QUICK PLUG: My inspiration is my mother, she became an entrepreneur at age 60, but she needs our help. She is raising funds to buy a shuttle bus to support low-income families in picking up their children for Nursery in Ghana. Check it out here: https://www.gofundme.com/juliets-nursery-mini-bus-campaign