Entrepreneurs are Crazy - So What?

crazy looking man wearing a device that measures his brainwaves

An equity crowdfunding CEO wrote a piece praising 'crazy' entrepreneurs in Friday's Guardian. What do investors need to know about the people who run the businesses they invest in?  Short answer: some successful people are crazy. Most crazy people are not successful. For the longer version, read on.

"I think that’s something to be celebrated, rather than criticised" said Luke Lang of Crowdcube, and promptly name-dropped Syeve Jobs, the founder of Apple.  Jobs had an incredible eye for design and an attention to detail that meant Apple products have always sold at premium prices, but for the purposes of this discussion, we're supposed to think of him as one of the crazy people, rather than his co-founder Ronald Wayne, who sold his shares for $800 - shares that today would be worth around $35 billion. 

https://www.theguardian.com/small-business-network/2016/oct/07/entrepren...

Two more pieces of advice from the same article: 

"Entrepreneurs are not fond of abiding by the rules, but it’s this bravery, creativity and energy that enables them to challenge convention successfully."

"Making mistakes is not something that should be seen as a negative – if you’re not making mistakes, you’re not taking risks, and changing the status quo is impossible without doing that."

That tells you what to expect from startup founders, and what not to expect.  So, investors in startups can expect to see rule-breaking, non-conformity, and mistakes, and a team led by a visionary founder who sees the world in completely different colours and shapes to normal people? Is that it?

Um, no. We don't think so.

We'll offer you two examples of successful firms that raised through Crowdcube: JustPark, and The Camden Town Brewery.  

The first is an innovative solution to allocating parking spaces - which are scarce and hard to find - to drivers trying to park their cars - who are on the move, perhaps in a strange town, and need something immediately.  Just Park is an innovative solution, sure - but it's not exactly The Da Vinci Code.

The Camden Town Brewery is even simpler: make nice beer that drinkers will agree is worth the price you ask for it.

Every successful startup needs a good idea - without which there is no chance it will take any market share or bring in revenue - but after that, it needs a route to market, and a team that is capable of 'operationalising' the founders' vision, and delivering enough product to win that market share and grow it, or at least hang on it, thus bringing in enough revenue to pay the bills and make a profit.

Which means that the initial vision, although it might be 'crazy', has to be something that can be communicated to other people, and worked on by many different people with different skills.

This gives us a pointer to one way in which startups go bad. One of the first problems startups experience is a need to hire good people, quickly, and get them to be productive. There is a horrible temptation to recruit people who 'get it'; the people who agree with the existing team members, rather than the people who ask interesting questons, who bring a different perspective. Not a 'change the vision' perspective, but a 'fulfil the vision' perspective, is what will get a business to market, and earning revenues. 

So, our advice to investors is, expect reasonable standards of sanity, and very high standards of clear communication. Work out, as best you can, whether the team has all the skills it needs, and whether people's different perspectives complement one another, rather than cancel one one another out. If the company narrative relies too much on "we're doing something that's never been done before" either ask more questions, or walk away.  

At the end of the day, the business has to make sense to customers, suppliers and distributors, or it won't be sustainable. The craziness of a successful startup is not that different from the craziness of a successful sports team.  Use your judgment, and only invest if you feel comfortable.