A few months ago, at a round table with second-year MBA students moderated by Luis Martín Cabiedes, Intelectium presented an advance in its study on the most common weaknesses detected in entrepreneurial teams in Spain.
For two years now, this has been precisely an aspect to which we have paid special attention and on which we have been working extensively to develop appropriate capacities within the firm in order to be able to provide more value to our clients. Based on this work, we have identified and classified up to nine weaknesses that, if properly resolved, make it possible to positively strengthen an entrepreneurial project, increasing its chances of obtaining adequate funding to consolidate its growth.A few months ago, in a round table with students in the second year of the MBA moderated by Luis Martín Cabiedes, Intelectium presented an advance in their study on the most common weaknesses detected in entrepreneurial teams in Spain. For two years now, this has been precisely an aspect to which we have paid special attention and on which we have been working extensively to develop appropriate capacities within the firm in order to provide more value to our clients. From this work, we have identified and classified up to nine weaknesses that, if properly resolved, make it possible to positively strengthen an entrepreneurial project, increasing its chances of obtaining adequate funding to consolidate its growth. Thanks to our work in the field of cognitive sciences developed by our group's company, Learningworks, we have long been aware that the only way to learn is through practical experience. That is to say that people “learn by doing”. We know that there is no other way to learn. Therefore, we understand that it is a perfectly natural fact that most entrepreneurs have a series of weaknesses. Most of these weaknesses are probably not the fault of either the education system or the lack of skills of entrepreneurs. It's natural that, when starting out, entrepreneurs don't know everything about the product or the industry or the right way to manage in one context or another. It's not a bad thing or out of the ordinary, but it's what's logical and expected. This is why this article is far from being a criticism of entrepreneurs in our country... quite the contrary. The group of entrepreneurs that Spain is developing today have the merit of being the first generation that is creating businesses in the context of a highly dynamic, highly competitive economy with a modern capital market. Therefore, the important thing is not to focus on why weaknesses exist but to take them as natural and simply try to understand what they are and how they can be resolved as soon as possible. Because the sooner weaknesses are identified and resolved, the greater opportunities for success our entrepreneurs and, consequently, our country will have. A first conclusion from our research is that we could classify these weaknesses according to the stage in which the project is at:
- Weaknesses of projects and entrepreneurs who have not yet come to the market to sell.
- Weaknesses of projects and entrepreneurs who have already set foot in the market and have been selling for a year or two.
Let's look at the weaknesses that can be included within the first group.Most common weaknesses in projects and entrepreneurs who have not yet come to the market/Little knowledge of the process of accessing capital for startupsIn the MBAs, they have explained to us over and over again that the process that startups follow is structured in stages. That these stages begin with a small amount of capital from family and friends, followed by a first round of seed capital provided by a specialized investment fund, followed by successive rounds of venture capital. In general terms, this is correct, but each market has peculiarities that it is important for entrepreneurs to know well. Looking for capital in Spain is not the same as looking for capital in the rest of Europe or the United States. In Spain, the availability of venture capital is quite limited. There is a lot of project supply and little funding. As a result, rounds with venture capital firms are few and expensive for entrepreneurs. On the other hand, unless the company is operating in another European country or in the United States, no foreign venture capital firm usually invests in Spanish projects, unless it is in co-investment or the project is absolutely exceptional, which happens very rarely. In return, Spain offers a series of very attractive public grants that make it possible to strongly leverage any private investment. In this way, a small private investment can be leveraged up to 5 times, thus obtaining an interesting initial capital starting from an “equity” figure that is available to any entrepreneur with a high-potential project. Knowing in detail how the Spanish venture capital market works allows us to define the correct strategy for each project, reducing the percentage of the company that entrepreneurs must give to investors, greatly shortening the time needed to search for capital.Shortage of truly innovative ideasWe mentioned it in the previous paragraph, but it is perhaps “the” issue that an entrepreneur should be most concerned about, since it is not the same to invest their time in a project with little potential as in one with high potential. This is perhaps the aspect that worries us most as consultants because of the difficulty involved in changing the course of action once an entrepreneur has launched into the business. Once a product has been developed, months and/or years have been invested in research and development, the entrepreneur has made an emotional investment of great proportions, which implies that turning back and changing radically is an unlikely course of action... until reality — which is stubborn and ends up putting everything in its place — prevails. Therefore, it is crucial for entrepreneurs to test their ideas as soon as possible in this process, through presentations, validation of concepts and, if possible, using prototypes. But in addition, it is important that entrepreneurs demand of themselves to create truly new businesses, even if it is based on existing technologies. As we will see later, it is not so important to create technology based on large doses of R&D but rather to combine technologies creatively in order to invent a new business model that allows solving a problem that a large group of consumers was already trying to solve previously. Investors are not interested in more social networks, price search engines, or more conventional Internet stores, even if there are small good businesses behind them... they are interested in highly innovative, strongly creative projects that don't exist yet, that have no competition or rival in any country in the world.Fall in love with the productIt is very common to meet entrepreneurs who are ecstatic with their product. This is a complicated phenomenon because obviously every investor requires that the entrepreneur believe in what he is going to do. But there is a subtle and important difference between believing in an idea (a problem to be solved) and being in love with a product (a specific way of solving a problem)... When that happens, all our alarms go off quickly... There is nothing worse than an entrepreneur, unable to see beyond his product, channeling high doses of energy to the wrong place. On the other hand, the entrepreneur must be in love with the problem that his clients have in order to be able to keep an open mind to looking for all possible solutions to solve that problem. Investors, who see hundreds of projects and entrepreneurs a year, have a very thin radar to detect entrepreneurs in love with products. In the past, war horses wore pieces of leather over their eyes, so that they could only see part of the stage, making it easier to direct them and not to be frightened. In this way, the horses were unaware of the dangers that lay in wait for them. In the same way, an entrepreneur in love with his product goes through life oblivious to the dangers that haunt his idea and, even worse, oblivious to what is truly happening around him.Lack of professional documentationFinally, among the startups that have not yet come out to sell, we tend to find little work at the level of supporting documentation for the project. This problem starts with an ineffective description of the business opportunity. Sometimes we spend more than half an hour patiently listening to an entrepreneur, without him having clearly transmitted to us the essence of the business opportunity that his project is pursuing. This is a clear symptom of a lack of conceptual work, which is then manifested in the lack of adequate documentation: an executive summary of the opportunity, a concise and “to the point” business plan, solid financial projections. So far the problems that predominate among companies that have not yet come to the market to sell. Among those that have already done so, we find that other types of weaknesses predominate, and especially those detailed below.Weaknesses of projects and entrepreneurs who have already set foot in the market and have been selling for a year or two. Little focus on sales. Flight forwardAs a continuation of the previous problem, when companies start to promote their products in the market, entrepreneurs tend to neglect sales if they err on an excessive focus on the product. Only entrepreneurs who have previously failed, or have experienced at least one traumatic experience, have developed a correct sensitivity to the importance of focusing heavily on sales in the earliest stages of companies. Selling is one of the most elusive skills for entrepreneurs, clearly one of the most difficult to develop. Faced with this harsh reality, which for cultural reasons in Spain is particularly difficult compared to other countries (long times to get meetings with decision makers, little permeability to new ideas, very inertial visions, etc.), entrepreneurs tend to prioritize other, less frustrating activities, such as the development of new products, the search for other opportunities diverted from the main business, etc. In the extreme case, this produces a flight forward, with strong investments in product development and little in sales, which leads to an increase in cash outflows, extending the time to reach break-even.Ignorance of the type of innovation they are managingNow about 10 years ago, Clayton Christensen, a professor at the business school at Harvard University, published under the title “The Innovator's Dilemma” a remarkable piece of research that revolutionized the understanding of the dynamics of innovation. Unfortunately, the findings of Christensen's research have not yet received enough attention from the entrepreneurial community as they should. Christensen understood that product innovations can be differentiated into two major classes, sustainability innovations — those that established companies carry out on existing products to better meet the requirements of the most demanding and profitable customers — and disruptive innovations — those most introduced into markets by new companies and characterized by introducing products with lower performance than existing ones but at prices significantly below those prevailing among existing products. The differences between the two types of innovation, but above all the implications of those differences, are truly impressive and the lack of awareness about them, as well as the inability to discern what type of innovation they are facing, can have dramatic consequences for entrepreneurs. The worst of all is that another competitor develops a disruptive product (lower performance than those of the entrepreneur's product and cheaper) and thus manages to develop a beachhead from which to make sustainable innovation and grow to eclipse the product of our entrepreneur.Wrong or vague international expansion strategyRecently, we were analyzing in depth with an entrepreneur what his international expansion strategy should be. This led us to study what other European companies had done before, looking for success stories as well as the biggest failures. In the course of this research, we have spoken with entrepreneurs and venture capital companies, both Spanish and European, to find that there are already a series of patterns that allow us to define international expansion strategies that are potentially more successful than others, obviously depending on the type and context in which each company operates. However, we also confirm through this research that among the vast majority of Spanish entrepreneurs this is a topic that they do not develop much.Difficulty projecting growthA key area in which there are major difficulties is the lack of sufficient information about past successes to project potential demand growth on a more or less solid basis. Most of the business plans that come to us project growth simply as an expression of the most optimistic desires of entrepreneurs. We have noticed that analysis and therefore in-depth knowledge of the markets is not abundant. Something in principle simple, such as identifying the number of potential buyers with their faces and eyes, is often not present among the analyses carried out. This last exercise, which is truly simple, is often revealing. Identifying potential buyers with a first and last name and interviewing them, using prototypes, can allow us to identify true market potential and help us define the marketing strategy from a more realistic perspective (since you begin to visualize who you have to target and therefore what is the most ideal way to achieve it).Weak and untimely administrative, accounting and financial management processes and deliverablesWe have to say that this is a problem generated not so much by entrepreneurs but by the market. Indeed, the offer of accounting and financial management services is not too bad. It is a service that we could say “sells by the peso”, probably due to the oversaturation of supply in the market. In general, entrepreneurs start by hiring a minimum service and then have a lot of problems identifying the need to change in time, either hiring a more suitable service that can advise them on tax matters (to take advantage of R & D deductions for example), or hiring a CFO (even if not semi-senior) capable of managing and organizing the area within the company. When is it time to tidy up the accounting area? There is a fairly clear trigger: when you leave the stadium you are financed exclusively by friends and family. Both the search for public funding and the decision to incorporate capital from a venture capital firm are events that require a higher and professional level of administrative and financial management.ConclusionEntrepreneurship is probably one of the most enriching and satisfying forms of work that can be chosen. Entrepreneurship, in these times, requires much more skills than it required 20 or 30 years ago. Mastering the topics discussed above is not strictly necessary to achieve success, but it is possibly necessary to preserve it.
