The Long and Winding Road (with apologies to P. McCartney)

Twelve years ago, on a cold, wet evening in December, I started a company. I had until then been cloaked in the comfortable, albeit uninspiring warmth of a stable job, with a good salary, in a solid firm. Mortgage free, thanks to numerous cash bonuses in the good old days of investment banking when cash really was king, I had been able to build up enough ‘runway’ (to use a bit of VC-ese) to start my own derivatives analytics company. Why on earth, you might ask, would I have done that? Because I was bored, or frustrated? Because I thought I could do better on my own? Because I felt that the industry was crying out for such a company? Well, maybe a bit of all of the above, but to be honest the answer was simply this: because I could not NOT do it.

They say that entrepreneurs are born, not made. Of course the people who say that probably aren’t entrepreneurs, and who’s to say what is native vs what is learnt in the way we act. In my personal experience I would say that all the successful entrepreneurs I have met began with a constant, nagging feeling, that they had to embark on the (ad)venture because they knew that something could be done better. And that feeling just gnaws away at you until it becomes unbearable. Woe betide an entrepreneur without an understanding partner, by the way. Explaining to them why you’re leaving security for an ill-formed dream is reminiscent of Tom Good (for those of you as ancient as me) when he explains to his loving wife Barbara that he needs to solve ‘IT!’ She wanders round the garden in her mac for a few minutes and agrees. If you get any other reaction, maybe think again, because the next few years are going to be hell for both of you, and I use the word without fear of hyperbole. You will learn to block fear. You will learn to make do with no salary, for months, maybe years. You will work sixteen hour days, for months, alone probably, battling every conceivable challenge as a novice, and many more inconceivable challenges, always with the threat of annihilation through competition or plain old cash flow crisis, and it never stops. For the lucky ones, and that’s at best one in five, you’ll make it to some form of profitable expansion, but the threats simply magnify as you do. You will start this long journey into night alone. You will bring others along with you, and their families. So why, again, would anyone do this?

Because one day, you’ll wake up and go to work, and realise that you’ve created something of lasting value. That nagging feeling that something could be done better was right. You’ve made something that has solved a real problem for many people. Of course, if you hadn’t done it, someone else would have. You’re a Brunel, after all, not a Shakespeare. But the fact remains that you, and your incredible team, have made it happen. And in spite of the umpteen times you’re asked to do so, you can’t put a value on that.

Note that I said team. Over the years, I have been asked time and time again, ‘what’s your company’s USP?’ (For those of you who like actual English, this means ‘unique selling point’. Investors love acronyms. I guess they’re too busy for full blown words…) Well, what did we build? Derivitec built a fully functional, fully data sourced, cloud based risk analytics platform used across the world from small hedge funds to global family offices. So, is the technology the USP? Or is it the fact that it’s cloud based? Or is it the quality of the analytics? No, none of those are unique. The only thing you can comfortably claim is unique is your team. That amazing group of men and women who, for reasons known only to themselves, have decided to join you on this journey and share a common vision of what can be achieved. Just stop to consider that for a minute. They believe in you. How many people can truly say that of their colleagues? They believe in you, and you know this for a fact as you wouldn’t have survived otherwise. That fact, to me at least, is the greatest privilege of being an entrepreneur. It is a privilege to run a company. Never forget that.

So much for the outpourings…What were the actual challenges of building a business?

Challenge number one: you have no idea what you’re talking about. I started a risk analytics business with the intention of selling the analytics I’d built for a book on model risk analysis (fear not, the impact on the global rainforests was minimal at best. The impact on the global financial community less still…) But I realized that, to make analytics useful, and scalable, I needed to build a platform. Not having the money to invest in server farms, or any knowledge about servers, to be honest, I was drawn to the cloud, language of choice: C sharp. Of which I knew nothing. And indeed I knew nothing about databases, or parallel compute architecture, or security models, or stable code deployment models, or front end design, web or desktop. I basically knew how to code derivatives pricing models, and to be fair market data models, in C++. The learning curve from that to building a commercial software platform was roughly vertical. And very long. And so it goes back to team. I managed, through brutal chipping away at the obsidian monolith of my ignorance, to build a proof of concept which I was able to demonstrate at conferences. And that in turn brought a brilliant chief technology officer to redesign the platform properly, and a brilliant chief product officer to rewrite all of my own code. Know what you don’t know, and hire people to fill in the gaps as soon as you possibly can.

Challenge number two: you have no idea how to make money. Really, you don’t. My first business plan had me predicting profitable cash flow in two years. Ha that is ha. No. The problem is that you’re in a catch-22 where you can’t make money unless you have a product, and you can’t build a product without money. There are two ways out of this conundrum, internal money or external money. Internal will help on dilution, but will greatly strain your quality of life. External will be dilutive but will remove a substantial personal risk. In the end I was forced into the former for the first five years, and then managed to switch to the latter subsequently. Only through being able to fund the product build were we able to work out what it was that people actually wanted. And guess what, it was very different from my first ideas, and not just one thing. A multitude of things which kept on growing the more we could provide. When you finally have something that enough people want to fund the hire, build a sales team. There is a HUGE variation in quality across sales professionals, but a good one is worth the investment.

Challenge number three: you have no idea how to advertise. No one knows you, well at least no one who matters. In the beginning, you have nothing to promote, so you labour away in the darkness (this is euphemistically called ‘stealth mode’, incidentally. There is another word for the place that rodents scurry around trying to survive, but let’s not go there…) And when you do have something to promote, you’re so busy building and making it better, the last thing you’ll feel like doing is writing a ‘thought piece’ on it. (I am not aware of any pieces which do not involve some degree of thought, but again, let’s not dwell…) As per the sales challenge, hire a marketing team who actually know which channels you should be appealing to, what message, what approach etc. I have seen numerous software companies whose product is at best second rate, but whose marketing is excellent, largely thanks to a forgiving VC with unrealistic views on the quality of the company. Sadly, those companies are more likely to be successful than a great company with terrible marketing.

Challenge number four: you are never going to be safe. Anything that can go wrong, will go wrong. If you rely too much on one supplier, expect them to exploit that reliance at some point and jack up the price. If you rely too much on one client, heaven help you if they cancel. If you rely too much on one partner, prepare to be looking over your shoulder at other suitors. So diversify. Build in redundancy in supply, if you can afford it. Never stop expanding your partner networks and ‘ABC’, always be closing. No matter how stable things may look now, never stop building pipeline. And above all, in the words of the great Mr Jobs himself, NEVER stop innovating. I have seen huge software companies go through major client attrition as their product stops evolving to client needs. To use the old cliché, you are a shark. Stop swimming and you’ll die.

Some day, when all this is over, I’ll probably write a book for those who care, and expand on all of the above in a blow by blow history of all the forks in this long, painful road. Not that I think it will be of much use to anyone, as all businesses are so idiosyncratic that only the person running the business will be able to advise on how to do so. Essentially, if you need to buy a book on how to run your business, you probably shouldn’t be running it. However, every story of a successful business is an interesting one. Being an entrepreneur is one of the most fascinating, and terrifying, things someone can do. And in spite of all the pain, the results do, in fact, amply compensate in the end. That end however may be much further off than you think. The best of luck to all those who try.