Tag: startup

Start-Ups: Endgame

After the two weeks-long enforced COVID pause I had to endure, now I am back with the last part of the StartUp Lifecycle series. In this part, we shall speak about what happens after the Start-Up has multiple rounds of bank loans and the usual working strategy after the Start-Up has reached the IPO. Previous parts of the series you can find here and here.

Now, once the Start-Up reaches the IPO status, the modus operandi has to change a bit. The company has to prove itself as a leader in the field and acquire as many clients as possible. Usually, the founders try to balance between too many bank loans and enough income to pay for the developed infrastructure and employees. At that phase, the Start-Up is no longer “categorized” as a Start-Up but usually as a mature and more giant company. Better and more mature processes are established, and usually, the management has to find a way to delegate and distribute the management power and duties.

On the diagram, you can see the standard lifecycle of the given company after IPO. A merger is the most common exit these days.

On the economic side of things, we could not expect new investments and fundings. Usually, the board of directors is trying to survive on IPO and profits. As a rule of thumb, we could expect the company to operate at a loss and cover this loss using IPO profits or bank loans. This way of operation usually gives a good long run of business execution. With this strategy, the company can survive for around 10-15 years, and during this lifespan, the company owners have three options:

  • To find another company for merger or acquisition: At this stage, the company usually has enough assets and IP, which could interest another company. Mergers and acquisitions are typically categorized as successful exits and will leave founders’ reputations intact.
  • To make the company run on profit: Some owners could decide to stop the company’s growth and focus on getting enough clients to keep the company on profit. That was not a rare choice in the past. However, many company owners will pursue option one because it gives them less risk in the long term.
  • To fill bankrupt: As everything in our world, companies could come to an end. Balancing between shares, bank loans, and profit could be tricky sometimes and lead to erroneous results. Significantly, the share price is sometimes quite volatile and could be affected by the CEO’s matters and life choices.

In conclusion, at that stage, companies rarely fall bankrupt. Most owners and major shareholders would prefer to sell the company and its assets instead of bankrupting. At least this way, the employees usually retain their jobs and can be moved to more successful projects in the new company/structure.

Game of loans

In my article on start-up unicorns, I already presented how most start-ups finance their operations and how efficient this way of work is. This article will show how companies and wealthy individuals finance their operations once they reach unicorn status and have already managed to execute a successful IPO or ICO.

But before explaining the financial workflow, let’s analyze what an IPO is and how it integrates with the standard capitalism-based system. At its core, IPO operates the same way as every ordinary bank. People trust the company doing IPO and are willing to buy common stocks of this company. Additionally, let’s analyze a little bit how banks evaluate a given company to calculate its value. Usually, it is a combination of all of its assets, including the common stocks from the stock exchange. So far, so good; however, the stock exchange evaluation rules are pretty exciting. More specifically, the rule of how the end-of-day price calculation is done. It is based on the amount of money an individual is willing to pay for a given stock. And here is the part that must bother us – one big chunk of a given company evaluation is entirely based on people’s trust in the company. It is not based on any real-life assets such as gold, art, or real estate. It is entirely based on faith. We can even safely assume that we ll are living in a trust-based economy.

On the diagram, you can see a standard way of how wealthy individuals finance their operations. They use the IPO/ICO to increase their liquidity and apply for a loan after that

But let’s go back to loans – how do we calculate the personal wealth of people. The answer is a simple one. The same way banks calculate the evaluation of a company – aka based on all personal assets, including stocks. When wealthy individuals decide to buy something or invest in something, they have two ways of doing that – to sell assets or to get a loan.

Usually, most of them are willing to get a loan based on the current evaluation of their stocks and payback later. However, to give the loan, the bank does the review based on the willingness of someone to buy the stocks at a given price. In traditional banking, this usually triggers the central banks to issue a new amount of the local currency to provide the bank with the amount of money necessary to give the loan. So, in short, every time the bank provides a loan based on stocks, we pump new money into the system and lower down the buying power of everyone attached to the local currency.

In conclusion, most wealthy individuals prefer to finance their operations using loans instead of selling stocks at the current value. However, getting a loan increases inflation because the central banks have to issue new money to fund these loans. Another question is how much is the buying power of our modern billionaires compared to the ones in the past. For sure, most of them can not afford to finance the operations of over 1000 public libraries with their own money.

Five mistakes to avoid when building your startup

For almost 18 years, I have been working in product-based Start-Ups. During this time, I have seen a fantastic range of mistakes made during virtually every stage of their lifecycle. This range starts with something small, such as wrong employees’ computer equipment and massive investments in expensive server equipment or shady marketing agencies. However, I can categorize five mistakes as showstoppers for every Start-Up. They can instantly kill your company:

  • No business need: Unfortunately, many companies start developing a product without proper business research. I have done that at least five times in my professional journey. However, creating a technical product without adequate business verification is the number one reason for a Start-Up failure.
  • Erroneous business team: As we speak about business, many entrepreneurs and investors follow the “A player” hiring mantra. The business development teams in the Start-Ups I was part of were with quite mixed backgrounds (including people from Harvard and St. Gallen). And still, the results were mixed. You will need the team, which can do the job for you, but not the team with the flashiest CVs.
On the diagram, you can see a standard distribution of the mistakes made in one start-up. The most significant percentage is always for no business need
  • Erroneous technical team: Absolutely the same as the previous point, but for your technical team structure. I have worked with people from different backgrounds (including people from companies such as Google, Facebook, Twitter, Amazon, etc.). Again the results were quite mixed. I cannot deduce a trend where the more prominent the background is, the better. The only trend I could figure was that your team needs the right attitude.
  • Not enough team compensation: Many entrepreneurs think they must take a big part of the equity pie after giving the money and the idea. However, this kind of thinking is wrong. Ideas and money are nothing without proper execution. And if you cannot motivate your team to execute, this is quite an excellent way to shoot yourself in the foot.
  • Aiming too high: Many Start-Ups aim too high in terms of customers. However, this is quite a harmful strategy, bearing in mind that big companies’ decision-making process is notoriously slow. Better start small and acquire a pool of smaller customers and then scale (ideally, you can bootstrap this part and take funding only for marketing and scaling). Using this strategy, you achieve two things – traction and early verification. Hunting deers and elephants[1][2] can come on the next iteration.

In conclusion, building Start-Ups is hard. Almost 95%[3][4] of the Start-Ups fail during the first 2-3 years of their lifeline. Keeping in mind that people around the World start over 100M new Start-Ups every year, this is a sad statement. The listed five mistakes and given that the average Start-Up founder comes with a huge ego are a recipe for trouble. Leaving you with a thought  – you can print new money, but you cannot issue new brains. Please treat your team well.

[1] – https://www.slideshare.net/theproductguy/elephants-deer-rabbits-choosing-the-right-customer-for-your-products

[2] – https://kimtasso.com/selling-basics-targeting-with-rabbits-deer-and-elephants-video/

[3] – https://www.investopedia.com/articles/personal-finance/040915/how-many-startups-fail-and-why.asp

[4] – https://medium.com/journal-of-empirical-entrepreneurship/dissecting-startup-failure-by-stage-34bb70354a36

We live in а bubble world, full of unicorns

If we can use one sentence regarding the startup culture for the past decade, it will be Bubbles and Unicorns everywhere. These days every entrepreneur is trying to create the next unicorn and to fill its bubble with money. Unfortunately, looking at the facts, this approach is unsuccessful and usually leads to the startup’s failure. 

But let’s analyze the definition of the unicorn in the startup culture – the unicorn is a startup with an evaluation of over 1 billion US dollars. Here is the essential point of our analysis. Evaluation is not the annual profit these companies are making. We could define evaluation as the “social” trust into a global brand, and we “evaluate” this “social” trust to 1 billion US dollars. Last year’s report showed that from 73 unicorn companies, only 6 had a positive net profit. And to make the situation even worse, 34 of these 73 unicorns had losses more significant than 30% of their revenue.

Having the previous paragraph in mind, we could easily deduce that without a proper IPO, these 34 unicorns would most probably end with a failure. Furthermore, the six profitable Unicorn startups (out of 73) did IPOs many years ago. No Unicorn startup among those announcing or doing an IPO since Zoom in August 2019 was profitable in 2019 (or 2020). The statistic suggests that the privately held Unicorns, which have yet to do IPOs, are primarily unprofitable. Thus, the record low profitability of startups is likely to get worse. 

On the diagram, you can see a standard workflow of the making of a unicorn startup. In every round, more and more companies decide to exit, or they fail. Others manage to attract new funding and continue until they reach the dreamt status of the unicorn

And here is one exciting statement – every IPO company acts as an investment bank. It needs the IPO investors’ money to fund its activities. However, we need to ask ourselves whether this is a sustainable approach and whether we should mark unicorns as “successful” business ventures, considering that they do not operate on profit. And here is a sample list of reasons, marking unicorn as successful is a bad idea:

  • No net profit from their main business idea: Making not enough profit from their business idea means that the business idea is not viable. Evaluation of 1 billion US dollars does not mean that the assessment of the concept is so much.
  • Need of IPO to survive: Going into IPO mode means that the unicorn is now a public investment bank. In that sense, it starts acting as a bank, but not as a business venture. Another hint that the business idea was not profitable enough.
  • The considerable margin between evaluation and revenue: Sometimes, there is a significant margin between profit and revenue. It is essential to understand that evaluation is based on mathematical formulas, and as with every formula, the results can be set up for enormous evaluation. So, in short, a significant evaluation does not mean a successful business idea.

In conclusion, I think it is suitable for every entrepreneur and investor to ask themselves whether it is good to operate a business this way. Maybe a more prudent approach to doing business and ensuring the company has a minimized positive net profit will make the startup environment much better and less stressful.

Why startups experience is like being in the SAS (Special Air Service)?

Authors around the World publish tons of books on how to create your startup and how to scale it to a multi-billion company. People read these books, praise them and try mimicking the strategies written there. Even courses train you to present yourself in front of investors and get the next significant investment for your startup. All of these books give hope and motivation to the current and future generation of entrepreneurs.

Still, year after year, we see the same trend – 90% of the starting companies will fail until their 2nd year. Or in more human-readable wording – 90% of the new companies can not reach the sustainable revenue phase, and their bubble burst until their 2nd year. At the same time, 97% of the latest companies fail until their 5th year. This statistics is quite sad because it shows that all the courses and books on the World are not enough for your startup to succeed. You need experience and first point of view knowledge of how things are working and what is necessary for success.

On the diagram, you can see a standard corporation versus startup skills distribution. Startups team members need to understand the business side much more than the regular corporation employee

Many people do not realize how difficult it is to create a startup. It would help if you had lots of experience to make it happen. 99% percent of the population on our planet do not have this experience, and to gain it, they need to fail. And to fail hard and often. Let’s analyze why 90% of the startups fail until their second year of running.

  • The average length of an IT project is between 18 and 24 months. If you do not manage to scale your product for this period, then, most probably, your business model does not work, and it will not scale at all.
  • The average person has some resources put aside for this period. If you are trying to make a bootstrapped business, this period is your lifeline to achieving any progress.
  • In case you manage to gain traction for your startup idea. Many people do not know how to scale it out and make this traction a sustainable business. One of the biggest problems is customer support after you manage to get the initial traction.
  • Let’s analyze the stats about startups’ failure. 90% of the startups fail until the second year. It directly says – you will need, on average, nine failures to pass the second year of startup life. If we multiply this number to 18 months (average lifetime of one IT project), then we receive 9 * 18 = 162 months or almost 14 years of working in startups to make one of them successful. That’s why most of the time, one startup needs at least two or three co-founders with enough experience in startups to scale.

In conclusion, making a startup is hard. It is not for everyone, and many people lost time and money trying to create one. Without the proper experience and coaching, the failure of startups will continue. From my personal experience working in startups, some of them, relatively underfunded; if you pass the second year, your chances of success improve dramatically. And yes, the SAS drop rate is, on average, around 94%.

Cybersecurity tactics for small teams – Physical Security – part 2

Please check the previous part – here.

The same concerns as to real estate apply to all vehicle-related threats. Hackers can use your vehicle to track your activities and to decide when to execute an attack towards you. As a final list of perils, I would like to mention the dangers related to garbage. Most people do not consider their garbage as a cybersecurity threat. However, the truth is – this is usually the best source of intel for a given hacker organization. Let me list the different threats your garbage generates, and after that, we can create a simple budget of how to keep your and your devices secure:

  • Paper: Every paper document with personal data, addresses, or buying preferences leads to information leaks, which any hacker group can use to penetrate your defenses. A paper retention policy is a must for every organization these days.
  • Hard Drives: Techniques for data forensics become more and more advanced. Hackers can use these techniques to retrieve data from hard drives and SSD drives found in the garbage. It is better to treat your Hard and SSD drives as paper documents and not resell or throw them away.
  • Mobile Phones: Modern mobile phones are computers. Deleting data from them is pretty tricky. To keep your organization safe, you must treat them similarly to paper documents and hard drives. 
  • Electronic Devices: Every smart device in your home and office is a low-level mini-computer that stores and records data. Hackers can read the storage chips of these devices with proper machinery. They can use the data stored there for malicious activities.
You can see a diagram showing how a small organization or even a freelancer handles their priorities in terms of cybersecurity. Everything starts with the digital garbage and its retention policy.

You can notice that the number of attack vectors to your persona is quite significant. And we are only in the physical security realm, without mentioning any digital space. As promised at the beginning of the article, I shall present a simple list of tools and activities, together with a budget. Using them, you can set up your cyber defenses on a limited budget:

  • Hardware toolkit (100$): This toolkit will give you the availability to disassemble all of your electronic devices and destroy them. If you have better knowledge of electronics, you can cut the power of your laptop microphone and camera. 
  • Paper Shredder (50$): A shredding machine can destroy paper documents, credit cards, and everything which looks like a paper-sized card. Still, cutting through the papers is just a first step, but not enough.
  • Camping Gear (50$): There is no better way of document destruction than burning them. With camping gear, you can go to the woods, have a barbecue, and meanwhile destroy all of your not-needed documents.
  • Safe (500$): Paper is the ultimate data storage. With proper care, it can survive over 100 years or more. Still, you must keep the paper somewhere, and there is no better place than a safe. For this money, you can get a safe the size of a standard desktop drawer unit. It is more than enough to store all of your documents.
  • Home And Vehicle Security Systems (4000$): Still using security systems without a network system can be pretty advantageous for you. An isolated security system can send you SMS messages when an event happens. Sure it is a little bit more expensive, but the only way of disabling such systems is by bringing a Faraday cage.

With a total budget of around 4700$, we achieved a pretty good level of security. Still, a determined attacker can penetrate this setup, but it will take him more time and resources. To break a safe, you should cut through it. And this generates sound. Sound is terrible for attackers, and it can alert neighbors.

In conclusion, just one more piece of advice. When you choose electronic devices (including a car) for your home, please research how smart the device is. The more intelligent it is, the more prone it is to hacking. Devices without Internet access are the best because the chance of hacking is relatively low or nearly zero.

Next part – here.

Photo of my last garbage destruction event. You can see the old paper documents burned.

Cybersecurity tactics for small teams – Physical Security – part 1

In the next couple of months, I shall write series of articles covering the topic of cybersecurity on a limited budget. The idea is to show you different methodologies for how to keep you safe without spending too much. The articles will cover various topics such as physical, computer, and mobile security. Additionally, as part of this series, I shall publish two articles covering business security and public image preservation. A final overview article will summarize all written and consist of a sample budget to cover your cybersecurity needs. It will be a good reference for startup and SME organizations. They can use it to establish or upgrade their cybersecurity defenses.

Different authors wrote many books and articles on keeping your computer and mobile phone safe for the past couple of years. Unfortunately, most of these writings ignored one fundament of cybersecurity. Without properly secured hardware devices, all of your defenses are meaningless. Of course, other authors wrote whole books on physical security, but no one covered it from a cybersecurity perspective. This article aims to cover this perspective and give an exemplary workflow of achieving adequate protection on a tight budget.

You can see a sample dependency graph of how an organization must structure its cybersecurity defenses on the diagram. As you can see, everything starts with physical security, and after that, you build more pieces on this fundament.

So let’s start it. 

There are multiple online threats to your security, and let’s start with them. During my time working in different companies, I saw many people neglecting these threats. Fortunately, these mistakes did not lead to escalation. But let me list them and give a short explanation of how they can affect you.

  • Social Platforms: Sharing your life is an excellent way to keep in touch with your friends and relatives. At the same time, it opens possibilities for hackers to monitor you. Monitoring is essential for other types of attacks. Usually, hackers execute these attacks in the following phases.
  • Shared Travel: Shared travel is a new way of traveling around. It increases comfort and lowers down the price of travel. At the same time, travelers organize the travel in public social media groups. Everyone can join this group and monitor when you travel. Such information is valuable, mainly if attackers target your home or office space.
  • Cyberstalking: Your online persona can trigger destructive emotions, and usually, this evolves into cyberstalking. It is essential to limit down exposure to such threats because they can end up into physical ones.
  • Navigation Devices: Using online navigation is lovely in terms of comfort, but most navigation software collects a considerable amount of data. Hackers can correlate this data to your real persona and monitor your life and travel plans.

As you can see from the list, different parties can monitor a good number of your online activities. With enough time and resources, these parties can execute future attacks on you. For real estates, we can create a similar list:

  • Social platforms: The situation is the same as in the previous paragraph. Attackers can execute multiple attacks using the information gathered by your social media accounts.
  • Smart Home Assistants: Smart assistants are hardware devices placed in your home. Usually, they have always turned on microphones to catch your commands and execute different orders regarding your house. At the same time, they can be hacked and used to monitor your activities.
  • Camera arrays and sensors: These days, many people install cameras and sensors attached to the Internet. Without proper cybersecurity protection, attackers can use these hardware devices to monitor your activities.
  • Laptop and smartphones: Same is true for laptops and smartphones without a proper security defense. Hackers can use them for monitoring your activities.

Intruders can use all of the upper threats to execute next-stage attacks on your real estate. Another aspect of your physical security is the security of your vehicle (car, truck, and other vehicles). As vehicles become more and more intelligent and automated, their vulnerability to hacks increases. Next are the common threats you can face with intelligent vehicles:

  • WiFi Access Points: Modern cars have WiFi access points in them. Or in simple words, this is a network router, which is part of your car’s computer. This router can be hacked and used for malicious activities.
  • Smart Locks: The current trend in the automotive industry is making cars more and more intelligent, including their locks. Of course, this is a wrong decision in cybersecurity because the makers increase the penetration surface with new functions and capabilities. Some of these locks use older encryption protocols, not updated with years.
  • Autopilot: Most modern e-cars support autopilot as a feature. Autopilot is a fancy name for a sophisticated computer program, which drives the car for you. And being a program, autopilot runs on a computer, and this computer can be hacked and used for malicious activities.
  • Real-time Updates: Newer car models receive constant updates on the fly. They follow the process your operating system uses to update itself. How secure this process is rarely publicly disclosed.

Next part is – here.