Align Interview: Investor Mike Powell on the journey from startup idea to product companies buy

The Align interviews offer the perspectives of CIOs and CISOs on technology, leadership, security and digital transformation. 

As an investor in startups, Mike Powell, looks for companies that “have a tailwind behind them, a tipping point where things are changing in the favour of the technology or the company.” He invests in and serves on the boards of various startups, including Veridium, in addition to being a managing partner at FinEx Capital. 

One common mistake startups make: believing that the idea you’re passionate about will quickly translate into sales. “The move between an idea and something that has some value someone will pay for is a journey that takes a lot longer than people genuinely imagine it does. Particularly when you’re trying to sell to large institutions they’re very opaque about how they buy,” he said. 

In this Align interview, he talks about how startups and established companies could better engage with each other, the importance of going digital and why every executive should step into the role of their users and try their company’s product.

As a board member, what do you want to hear from executives about during board meetings?

People have been collecting data without really knowing why. They produce these huge data lakes. They’ve now got to spend money on securing and protecting them. It’s only just really become apparent to them that this data has immense value. With big data comes big responsibility, you have to look after it. It’s now become a regulatory requirement. It should have been a requirement anyway really because you do responsibility for client information.

I’d encourage every executive to access the firm’s product via existing systems. It’s staggering how few people actually use their company’s product. I want to hear about the customer experience. Some executives need to see how challenging it is to get into your bank’s app, your insurance company’s website or information on your pension fund. They need to go through the process and see how clunky and difficult it is and how frustrating it is for users. And they can use that to improve the process. 

As we’ve seen on countless occasions, when things get hacked the excuses are very weak as to why they’ve lost data on thousands of customers. We’ve seen it with airlines. We’ve seen it with telecom companies. Customers are quite unforgiving now. They don’t want their data lost. People are starting to become increasingly aware that they give away data all the time. They’re starting to question whether that’s a good idea and if they can trust a company with their data and if the firm can be responsible in terms of managing and using it.

What business priorities should companies focus on in 2020?

Every company needs a digitalization plan. Everyone recognizes that traditional methods of obtaining goods and services  no longer appeal to people. That goes for physical goods, services,  car insurance, banking and pretty much everything. We’ve seen a rise in challenger banks. We’ve seen a rise in insurance tech. We’ve seen a rise in property tech. That’s a trend that’s already pretty well established. The only way businesses can really respond is by having digital solutions. That’s how consumers want to consume. Businesses have no choice but to match it. Then as you move into digital platforms, you need to make sure that all the data is secure. It’s usually a regulatory requirement but it should be a business requirement too.

You want to open up these channels and you want to engage with clients in a way that they’re comfortable with and in a secure way rather than a frivolous and foolhardy way.

Are there common mistakes that startups make?

One common error is believing that because you’re passionate about an idea that everyone is going to buy it. That just isn’t the case. The move between an idea and something that has some value someone will pay for is a journey that takes a lot longer than people genuinely imagine it does. Particularly when you’re trying to sell to large institutions they’re very opaque about how they buy. They’re very nervous about consuming from external vendors. I have been trying to advocate to some of the large companies that I advise that they have to open themselves up and provide a much better concierge service to technology. If they really want to be relevant then they have to do a better job engaging with technology companies.

For example, I would advocate that one tech company visit your office each week and meet with relevant sectors, whether it’s compliance, legal, sales or marketing. Invite them to present so you can see what’s going on in the startup end of the spectrum. And startups do not know how to engage with industry. They’re sitting in small offices. They know someone who knows someone, but there’s no obvious way to connect. Institutions need to manage how they engage with the startup community a lot better. And the startup community has to understand that just because they have a good idea and just because they may have a modest amount of engagement, that does not mean it’s going to translate into actual sales.

If there’s an economic slowdown on the horizon, how can startups weather it?

Funding is always the issue. If you’re looking at the growth versus revenue argument, which came about because of a bunch of IPOs where it’s clear that the private market values companies differently than the public markets. WeWork and Uber would be two examples where the public markets have massively discounted where the private markets we’re investing in them. These very fast growth companies that are sucking in a lot of investment that people are questioning whether that model can continue. 

We’ve seen some huge successes. What you don’t hear about — because there’s a survivor bias — is all the failures that have tried to use that strategy. If you are well funded, if you are genuinely looking to scale very fast and you have very deep pockets, and you can consistently demand higher valuations. And you are genuinely a game changer and you are the lead in that industry like the Ubers, then you have a chance.

Other than that, it’s a very difficult model to just chase growth because you will dilute constantly early shareholders. You will be constantly looking to fund growth with cash and if there is any downturn and there is less VC private equity money that’s not going to be possible. I think there is no one single answer but what is increasingly imperative is people are looking for validation of a product at least by some commercial sale. As you move from founding to seed to series A and B people are looking for validation that someone is at least buying the product. If someone is then you assume that others will as well. You can then access growth capital. This idea that you can just fund forever without any reference to genuine revenue is questioned by now the recent IPOs.

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