Vitamins Are Great For Your Health But Not Your Tech Startup

Vitamins 

 

Back in the dot com boom I was pitching over and again in the UK & California to anyone that would care to listen to my awesome tech startup ideas. Over and again, I would hear an investor mantra that was repeated consistently and constantly – is this a painkiller or a vitamin? This has always stuck with me and resonates even more so today as it did 20 years ago.

With the gargantuan volumes of cash that were made and lost during the dot com bubble, investors became increasingly more savvy. Losses hurt; losses teach a tough lesson; and scarred memories litter the playing field. As a result, the investors’ filtration process has become even more finetuned today.

With the exception of many tech startup CEO’s, who may consider themselves masochists, no-one actually loves pain. Pain needs fixing and it needs fixing now – not in 6 months. If we have a headache we need a painkiller; right now! A vitamin, on the other hand, provides us with better health in the longer term. Whilst getting additional Vitamin tablets is clearly good for our overall wellbeing, it is not critical to our health, today. A vitamin is a “nice to have”, a painkiller is a “must have”. Consider this within the landscape of our customers – you know – that all too often elusive subspecies of the tech startup ecosystem that actually pays all our bills.

Pain represents significant customer problems and customers will pay to have them fixed. If a restaurant has a gaping hole in their ceiling, it needs it fixed before the restaurant can re-open and customers eat their food. A re-paint, on the other hand, merely adds to the restaurant ambience; it can always be delayed and put off. The bigger the pain, the greater importance attached to it, and the greater importance have it fixed – and to pay to have it fixed, right now. The degree of pain also helps define two key business metrics that investors love to see.

First, the potential for scale. If an industry has a core problem that is not being addressed – for example Identity security  – then the potential to address the industry issue presents the opportunity to scale, globally. If it is a “nice to have” for an industry, customers will be in two minds as to whether they actually need it. It becomes a much harder sell, and the potential for scale much lower.

Second, longevity.  Following the GFC, globally, times became tough; and when times get tougher we all cut back on those non-essential items – gym membership, the number of visits to the hairdresser etc. These expenses are not critical to our day to day lives. These are the vitamins in our lives and represent discretionary spending – that spending left after paying for the essentials.  Discretionary spending always falls in tough times.

As a result, investors will always look to back painkillers and not vitamins. After all they are not backing you for the goodness of their health, they’re backing you for the goodness of their wallets.


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