The complexity trap

One of the great privileges of my job is that I get to meet a lot of different startups and their founder teams and hear about their ideas, and how they have the ambition to take on the world and conquer it.

Among these great people are also seasoned veterans trying to turn great insights into new startups with, based on pure logic, really interesting potential, but who still seem to struggle raising the necessary funding to take off. And when I come across them, I wonder why it is that they struggle, when everything else seems to check out?

Of course there can be an element of timing. They can be too early for the risk profile, an investor has, or they can be doing their work outside the field of interest to the investor. That all makes a ton of sense. But I think there is something much more fundamental at play.

When I look at what make investors tick, it is things that either cater directly to the particular interests or experience of the investor in question or just seems like a super easy sell in the pitch deck; a story which everybody can understand and relate to.

Let’s face it: As investors we look at a lot of different pitch decks, and I think it’s fair to say that it’s easier to remember and get excited about those with a really compelling, easy-to-understand story that seems like something you have heard about before, than it is connecting to a complex pain and an even more complex solution for something, you have little personal relationship with.

Remember, investors are not experts in everything. Some aren’t even experts in anything except investing (which is also an essential skill, to be sure). And they are not particular fond of being put in a position, where they are reminded of all the things that they don’t know.

When that happens, the lack of insight by experience translate directly to a feeling of increased risk, and instead of getting into a complex discussion, it’s just easier and less painless for the investor to say ‘No’ before the discussion move too far.

And it makes a ton of sense too. Because when you look at startups trying to solve complex problems for complex customers, there is a myriad of questions presenting themselves:

How will you position the product towards the customers? How will you engage in the dialogue and show that you can be of value? How will you onboard users? How will you make them stay? How will you facilitate the necessary changes to the way the customer works in day-to-day operations in order to have the full impact of your product (if it’s a B2B related product, of course) etc. etc.

There are just so many complex moving parts that it more than compensates for any great team or idea. Because as an investor you know that a lot of things have to go the right way in order for this startup to be truly successful. And we are generally not looking for cases where a lot of factors align in the right way, before the startups, we invest in, can become successful.

It’s perhaps a bit brutal and to some extend a crying shame. And the obvious risk of it all is of course that brilliant startups founded on the ‘wrong’ complex pain and solution won’t get the funding they need and thus won’t be able to have an impact on the world and ultimately be successful.

But I just think it’s collateral damage to the way that a lot of investing in startups happen; unless you’re lucky and you have that influential person on the investor side, who has insights gained through experience and just knows that the solution has real merit, you as a founder can have a hard time of getting your startup funded.

So, in essence, the best piece of advice, I can give you, if you’re a founder with a less compelling ‘simple’ story to sell is to really spend time on finding investors – angels, VCs – whatever who has the hands-on background and experience that will make them truly see the potential in what you’re doing and sign off to help you achieve your vision.

Because for complex solutions to complex issues you not only need investment – you also need real hands-on help making it happen.

(Photo by Timo Volz on Unsplash)

The deceitful stories

The jury came back on Elizabeth Holmes of Theranos infamy yesterday in the landmark case against her; guilty on four fraud accounts. What that will translate to in terms of sentencing remains to be seen, and it’s more than likely that Holmes will appeal.

Nevertheless: Guilty.

The really great question now is whether the Theranos case and Elizabeth Holmes was a lonely swallow or if something more like a structural problem is afoot?

While there can be little doubt that the Theranos case based on its scale and tactics used is a land mark one, I would argue that some of the fundamentals that drove Holmes to where she landed herself and the company, is in play in many more places that you would probably think.

I.e. we have a structural problem on our hands. And one that is probably enforced by the speed of development and the somewhat easy access to cheap capital.

So what do I mean by that?

Two things.

The first issue is the outsized influence of storytelling on valuations of startups and even bigger corporations. As an (semi) old communications professional I should probably take great comfort in the role a great story plays for the valuation of a company:

You really can fake it until you make it by using the right words. And boost your valuation and overall attractiveness to customers and investors in the process.


Case in point?


Elon Musk is not in the business of manufacturing electric vehicles. He and Tesla is in the business of fighting climate change.

Notice the difference? It’s staggering. Not only to the total addressable market. But also to the valuation.

And due to the storytelling and investors believing in the story (and the founder myth associated with that particular founder and company) the valuation of the company when compared to the business fundamentals is about as far off the ground as the distance from Earth to Mars.

Tesla is perhaps just the biggest and most valuable example of using storytelling and words to grow your valuation, but most of the startups, I meet do it.

The stellar ones connect the story brilliantly to the problem they are trying to solve with the product, they’re building.

Most of them don’t have the product yet and are in the ‘believe me and take my words for it!’ category which is seldom that compelling.

The worst ones make so little sense, it’s painful to listen to and really just helps to enforce the point that inflated storytelling is something we need to be mindful of and skeptical about as investors (and customers for that matter).

It turns out, you really can have too much of a good thing.

The second – and potentially more serious – issue is a consequence and side effect of the first one:

The fabled customized KPIs.

Customized KPIs are typically what happens when a startup feels a need to come up with a new measurement that (1) takes into account all the things, you want to showcase, while (2) trying at the same time to hide those things that will have people asking questions about how your business is really doing.

The classic example is WeWork, who came up with “community adjusted EBITDA” as a public metric in their prospectus. An ingenious invention that would basically allow the ambitious co-working space giant to report earnings as pure profit without accounting for much of the cost.

Obviously a deeply flawed approach. Which they – quite rightly – got flamed for.

Customized KPIs are toxic because they are an unholy mix of two potent weapons; storytelling and data. While each can and most often serve good in their own right, the combination can be lethal. Especially as it is usually only brought to light, when a startup has a clear interest in getting a story out while camouflaging it as data.

In that way customized KPIs essentially becomes the most deceitful of all; it takes the most positive spin on a story, it can find, and it makes it look like solid data.

While too much storytelling in itself may raise an eyebrow, customized KPIs should make every serious investor stop in their tracks, look hard and think again about what is really going on inside the startup in question.

Because why have the need for the masquerade?

Sadly – and this is the real point – that doesn’t happen as much as it should.

Instead the endless hype based on the great storytelling and the impressing numbers coming from customized KPIs run the risk of misleading investors to think that they really are on to ‘the next big thing’, and that they better close the deal, before someone else does it and the opportunity is missed.

There simply isn’t allotted the right amount of time and pause to step back, think, ask questions and get to the right conclusion.

And that – ultimately – is exactly why despite all the talk about Theranos and Elizabeth Holmes being a unique case that will never happen again, I am absolutely confident, we will do so again. And again.

The only questions are: What will it be next time? How much will it cost? And what will the fallout from it be?

(Photo by Diane Picchiottino on Unsplash)

Find focus in a story

I have always found that one of the most efficient ways to establish a focus is to start with the desired outcome and then tell the story about what everything will be like, when that outcome is achieved.

My experience is that by doing that you can build a narrative of a desired future state that is so compelling that you’re willing to do your utmost to get there. Which of course means doing whatever is necessary to stay the course during the journey.

Of course, sometimes thing won’t go according to plan, and there will always be some deviations along the road. And in extreme cases you may even need to pivot. But no matter what you still have your story to stick with to help inspire you to continue despite the odds stacked against you.

You can call these stories many things. Some call it ‘purpose’ but personally I find it a bit to inefficient to stick to. I like going that bit deeper into the story and make it more tangible by putting scenarios and faces towards it. I find that by making it personal, it gives me more energy and allows me to focus better. But maybe that’s just a matter of individual taste.

No matter how you go about doing it, having a compelling story about the outcome you’re trying to achieve with everything that you do is always a good idea. It will bring you energy, when you need it, and it will also help you in figuring out, when you have arrived, and you can truly celebrate your achievement.

Photo by Elena Taranenko on Unsplash)

The power of a (new) story

Back when I took the Prof G Strategy Sprint with Section4, one of the things that stayed with me was just how powerful a great story is in shaping entire companies.

I was reminded the other day, when I had a meeting with a seasoned communications professional, where we talked about what great people with a background in communications have to offer a startup board of directors.

The answer is: More than you would think.

Because aside from offering advice and help out on the PR and communication strategy and associated activities, what they can also help do is reimagine the entire mission of the company.

Now, why would you ever want to do that, you may ask?

Simple, really.

When you start out you may have a rather narrow mission in mind. You’re pretty set on the problem, you’re looking to solve, and who you’re solving it for. If you’re good (and lucky) you will have an excellent North Star guiding the first part of your startup journey.

But what happens when you have got that first product in market, and you have started seeing some traction? Do you focus on doubling down and getting even better at delivering your value proposition to that particular client segment, or do you start looking for ways to expand your footprint into new segments?

If you decide on the latter, it will most often take reimagining the vision. If fx you’re a MedTech company looking to serve a particular niche of hospital clinics, you may wonder if you could go direct to consumer – or direct to patient as it would be in this case.

That would entail a new storytelling. A broader vision and mission that can still be tied down to the original purpose behind the company so as not to alienate anyone on the team in process.

Done right this re-crafting of mission or purpose, if you will, could unlock the journey towards new value propositions, new products, new revenues – and new highs for the startup.

And having someone close to the company – eg on the board or an advisory board – with deep experience within communication could be the ideal catalyst for that sort of transformation.