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The D Series: Tools to succeed at innovation

Is crowdfunding the new tech bubble? Or just a good old-fashioned junk bond?

Originally published on April 10, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-digital/innovation/is-crowdfunding-the-new-tech-bubble-or-just-a-good-old-fashioned-junk-bond/article23823686/

Despite the headline, I’m a proponent of crowdfunding and believe it can bring innovative ideas to market. Fundamentally, I feel that new forms of financing provide additional access to much-needed capital and bring healthy competition to the lender market, benefits that all entrepreneurs and inventors can appreciate.

So why the negative headline? It’s not meant to be sensational. I have real worries about the mania that seems to strike the markets with every shiny new opportunity. Some would call it systemic greed. Others may be more forgiving, and call it the cost of innovation. Whichever camp you choose, it’ impossible to deny that there’s extreme pressure on everyone in business to return continuous, increasing profits to shareholders – whether the shareholders are ourselves, our families or the public markets.

Crowdfunding, of course, is the rapidly growing practice of funding creative projects or startup ventures by raising small amounts of money from a large number of people, usually via specialty websites like Kickstarter and Indiegogo. Maybe the early days of crowdfunding were the best, when early adopters and other hipsters invested in new projects to receive finished products, T-shirts and other promotional, non-financial “perks.” But that’s the past, not the future.

My fears started to heighten at a recent panel discussion I attended on the emergence of equity crowdfunding – the practice of “mass” funding of opportunities in return for equity. One panelist urged the quick adoption of this new financing frontier because he didn’t want Canadian businesses and investors to fall behind or lose out on this incredible opportunity.

While the parallels are not exact, this rhetoric struck me as reminiscent of the rise of junk bonds, the 1999 Tech Bubble, and yes, the subprime mortgage scandals that drove us into the Great Recession, the economic slough from which many individuals, companies and countries are still just emerging.

I want to remind would-be investors that, on average, about 80 per cent of business startups fail. Even successful companies have a success rate of about 15 per cent on new product ideas. More often than not, new business initiatives just don’t work out the way that we want them to.

If you’re taking fun money from your cookie jar to support a cause you believe in or a new product you love, then crowdfunding provides you a new way to back your convictions that has never existed before. But you should understand the odds.

As securities regulators approve equity crowdfunding – probably by restricting how much investors can invest per year, and how much companies can raise – it seems likely that today’s low-stakes “pin money” culture is going to change. Investors, by definition, want a return on their money. If crowdfunding truly expands beyond the hobbyist market, it will only be because a consistent percentage of issuers actually create incredible value for their shareholders. But how likely is that to happen?

You can say this for “old-school” backers. The professionals, whether they’re banks, venture capitalists or experienced angel investors, push you to truly understand and articulate your project and its potential market. They pressure you to justify the risk and return involved. Without that initial and ongoing demand for due diligence, crowdfunding will likely create a less disciplined marketplace in which success becomes even harder to attain, and failures increase in number.

On the other side of the deal, if you are successful in seeking capital, understand that you will now have to report to “the many.” You’re the custodian of the hopes and dreams and expectations of people whose motivations you don’t know. You have an obligation to keep them in the loop – and can only hope to keep them happy.

Never underestimate the impact of the mob, the Web or social media on your company and its reputation if something goes wrong. Face-to-face funding may have been harder to get, but that was not necessarily a bad thing – for you or the markets.

Bottom-line: Crowdfunding is an exciting new wrinkle in innovation funding. But it won’t change the rules of the marketplace: investors expect value for their money. Nothing comes free. The more expectations you create, the more your crowds will expect you to deliver.

I am a huge proponent of new financing mechanisms, including crowdfunding. I simply don’t believe in the tooth fairy.

I do believe in the notion of ‘buyer beware, seller take care.’ With a little more common sense, and less frenzy, I believe crowdfunding will help to bring a lot of remarkable innovation to market. Without that discipline, I fear we’ll see a speedy series of failures, losses and resentment that will burst crowdfunding’s balloon faster than you can say “count me in”.

‘Fail fast, fail often’ may be the stupidest business mantra of all time

Originally published on March 13, 2015 as a Guest Column in The Globe and Mail: http://www.theglobeandmail.com/report-on-business/small-business/sb-growth/day-to-day/fail-fast-fail-often-may-be-the-stupidest-business-mantra-of-all-time/article23407206/

Who in his or her right mind would build a philosophy around failure? Let’s be real: there are few certainties in business. But I’m pretty sure that if you become too proficient at failure, you’re going to go bankrupt.

‘Fail fast, fail often’ is cited by many startups and innovators as both the pathway and attitude that will lead organizations to sustained success. Business failure is apparently a good thing, as long as it teaches you a lesson.

But I’m not buying it and neither should you. Say it out loud. I’ve been in many meetings where the group leader cites the mantra, “fail fast, fail often.” Consistently, however, they choke by the third f-word. Maybe it’s too much alliteration – but I think it’s something more.

In a column entitled ‘Why Silicon Valley’s ’Fail Fast’ Mantra Is Just Hype,’ leadership expert Rob Ashgar quotes one tech entrepreneur in frank terms: “Many people here do talk about embracing failure, but that’s usually just hype… many of them fear any kind of failure, and the pressure to succeed is so intense that some new businesses instead find themselves looking for shortcuts.”

I understand the meaning of fail fast. We can’t have people afraid to try new things because they might fail. And if you don’t try you’ll never succeed. But instead of embracing the negative, why not redefine the positive? Our goal is to win. So let’s redefine the goal so that we figure out how to succeed, not fail.

Why focus on the negative? A pro baseball player who hits the ball three times out of ten and retires with a .300 lifetime batting average is bound for the Hall of Fame. No one cares that he failed to get a hit seven times out of ten! In the new book Just Start: Take Action, Embrace Uncertainty, Create the Future, authors Leonard A. Schlesinger and Charles F. Kiefer provide fodder for rethinking our approach. “In the face of an unknown future, entrepreneurs act,” they write.

“More specifically, they:

  • Take a small, smart step
  • Pause to see what they learned by doing so; and
  • Build that learning in to what they do next.”

Entrepreneurs try, learn and refine. It’s not about failing fast or slow, it’s about learning how to win.

Clearly we need a new mantra. I propose: “Succeed fast, adjust or move on.”

Isn’t that what innovation’s all about? Understanding whether or not a new idea, product, service or process has legs? The faster we figure that out, the sooner we can decide to stay the course, make corrections, or pull the plug.

Notice that this mantra still embraces the word “fast.” Increasingly, we live in a world where businesses – both private and publicly-traded – are expected to perform for the short term.

Shareholders judge firms by their quarterly results; customers want to know why the newest product update is two days late. This high-speed scrutiny has shortened the time in which new business ideas must prove themselves. This means you must constantly be changing up your swing in order to get maximum whacks at the ball before your half of the inning is over.

In our new mantra, the phrase “succeed fast” is code for “know whether your business idea is going to succeed before anyone else does.” And really, that’s as it should be. Before you launch a new product or service, you study the market, do your product research, and anticipate where the potential challenges will come from. Given your comprehensive knowledge about your project, you can react to early market indicators make dispassionate decisions about whether to refine or pull the plug.

Of course, the “dispassionate” part is never easy. Every entrepreneur needs to fall a little bit in love with his or her idea. It’s part of the process. But just as investors often hold on to a falling stock too long, entrepreneurs can also sink too much time, energy and money into a doomed concept. That’s why doing research, modelling and making continuous refinements are so important. If you don’t have a predetermined success metric in place before you start, the temptation will be to simply hope and pray that better results are around the corner.

The ‘ready, fire, aim’ crowd may think that all of this discussion of the words “fail fast” versus “succeed fast” is just semantics. But I believe this debate is real, and the outcome crucial. For the record, I’m not much of a karma guy, but I have a fundamental belief that you usually get what you aim for. And I’m sure as heck not aiming to “fail often.”

Why Is It OK When You Say It?

I recently asked a group of senior leaders how comfortable they thought people are telling their boss that they don’t know how to do something. The response was unanimously “not very”. The next question to this same group of leaders was “As a boss, what is your reaction when someone comes to you and says “I don’t know how to do this?”” The immediate response was, “How can I help?”

So why is it OK to be on the receiving end of the request for help and yet so difficult to be the person asking for help? Why is it that being vulnerable is still so hard to do?

Being vulnerable takes a great deal of business maturity and an environment of trust where it is safe to be exposed. And why would companies want to create such an environment?

Consider the business efficiency and effectiveness of an environment where people are encouraged to openly say “I don’t know”. It short-circuits the process of wondering, guessing and hoping that things will get done properly. Think of the time saved. Imagine what could be accomplished. Picture the engagement level of your employees and satisfaction levels of your customers.

Now consider how you make it OK to say “I don’t know” in your business.