I met with Nikhil Bhojwani and Alexander Brown, partners at Recon Strategy, a Boston-based consulting company that specializes on healthcare. At Recon, Mr. Bhojwani and Mr. Brown work with both large healthcare companies on traditional management consulting projects, as well as smaller start-up initiatives, helping their businesses grow. What, in their opinion, are the secrets of start-up success?
We met near the MIT campus during a hot summer day in Boston, when the sun turns on the heat to compensate for all of the winter lows. Nikhil ordered his iced coffee, and I started with a broad question about how to define start-up strategy. "Well, start-up strategy is like coffee," Nikhil started. "You either like it hot or iced, but nobody really likes tepid, or in between."
For young companies, growth is often synonymous with change. They are still testing their products; establishing relationships with customers; assembling a team. Young CEOs are just learning to take the reigns. Unlike traditional companies, which typically have the 5-year strategic plans, at startups, even two month forecasting sometimes sounds like it should be left to astrologists, rather than CEOs. How do you create a successful start-up strategy?
Nikhil and Alex are large proponents of the quantifiable start-up strategy. So, we either like coffee iced or hot, and not in between - and when start-ups work to define their strategy, it must be quantifiable and realistic, either way, having to make difficult decisions along the way. Suppose the start-up is aiming to sell licenses to General Electric; the initial goal is to develop a product and sell the license for $2 million. The key difference is that the start-up strategy should be flexible. Let's say that in the process, an opportunity comes along to slightly modify the product and sell $50 million worth of licenses. It is certainly a change from the original strategy - but it is a welcome change! Start-up strategy cannot be too rigid or determined too far in advance. In as short as two years, the competitive landscape might be entirely different. Start-ups can, and must, adapt in order to survive.
A common mistake start-ups make in their strategy is thinking of their value proposition in isolation of competition. Alex shared an example with me. Assume we have a magical wristband, this gold plated solution that tracks patients inside of the hospital and provides all the necessary data, at a cost of let's say, $3,000. It is easy for the founders to get excited and start drafting the market strategy; however, what they might not see is that the existing patient tracking system with no extra cost gets to deliver over 90% of the functionality. Now, is the hospital going to take on an additional cost of $3,000 to move from 90% to 99%? It is a tough call for the hospital manager making a purchasing decision, and it does not look good for the hypothetical gold plate wristband start-up.
How do the start-ups know they are on the path to success? "I know - once they have a paying customer!" I said. Isn't some "traction" the ultimate measure of success of the business strategy? According to Nikhil and Alex, however, start-up success is not so easy to achieve. Instead of just a paying customer, the true measure of success is a recurring paying customer. "One might be a fluke. Once you have two customers, you know you are legitimate. However, the true measure of success is when you have recurring customers - people that tried your solution, paid for it, and decided it was worth coming back for."
Honing the strategy. Fighting for the customers. Signing the repeat contracts. Navigating the investment landscape - start-up founders face a multitude of tasks! How do we train young founders so that they may succeed? What is the role of the investment community; consultants; venture capitalists; and other, experienced, members of the start-up ecosystem in helping young founders grow?
"In general, we don't do a good job mentoring young founders," said Nikhil. There are so many companies where the founders get replaced after a certain round of investment. The (unfortunate) pattern of thinking is that after taking the skills that the young founders brought to the table, large investments require a new level of skills, and there is not always a willingness to train the founders to prepare for their next role. It is seen as simply too much to expect from most founders - switch from a role of a founder of a growing business to the role of a manager of a large, well-financed, established business, with too little coaching in between.
Now, what is the most important skill that the founders in transition lack? "Most tech-driven founders have the intellectual horsepower. Where I think they should focus is the emotional intelligence," said Nikhil. Emotional intelligence is the largest predictor of selecting a successful team; of building a well-functioning sales operation and allowing a person with perhaps a different mindset to lead it as they choose; of continuing to maintain successful relationships with customers and investors. Emotional intelligence can be learned through daily habits and routines, but founders need the training and support to achieve such intelligence. Moreover, the idea of a superstar entrepreneur that is a lone wolf on his or her way to success is of course a myth. "We as society don't do many favors to the entrepreneurs", Alex said. "In reality, most successful entrepreneurs build tremendous teams around themselves and get the support from the investment community, their teams, and customers, in order to enable their ventures to succeed."
Finally, I asked Nikhil and Alex about the example of a company that gets it "right". Unanimously, they suggested Maxwell Health, a Boston-based company operating system for employee benefits. "Not only are they a well-run company with a fantastic product in the employer benefits space and great customers, but also they made a couple of really important strategic moves that were incredibly brave". Early after its original success, Maxwell Health started running into barriers that were preventing it from truly scaling. The company made the choice to pivot and move towards providing the benefits for employers. They had to change the product; change the customers; change the distribution channels. Thankfully, their risks paid off, and the company continued to grow. Nikhil and Alex credit their success to a very well thought-out quantitative strategy, as well as a CEO who was willing to truly listen to advisors and make the necessary, and difficult, changes.
Importantly, the success of Maxwell Health was not just as simple as "let's try it, and if it doesn't work, we'll try something else". Their approach worked because they set a concrete goal to test a few strategic hypotheses and measure progress from the very start. Too few young companies take the time to do it, and as the result they burn through a lot of investors' money with little to show for it. On the contrary, Maxwell tried the initial market approach, saw that it wasn't working as great as expected, and tried a few other hypotheses that they thoroughly researched. Maxwell was brave to try a very different track, but the key is doing it deliberately, thoughtfully, and strategically.
Personally, I would only like to hope that mentorship of start-ups will continue to deliver solid strategy, cohesive teams, long-term collaborations between founders and investors, and happier start-up ecosystems overall. Boston ecosystem is certainly growing, particularly in the healthcare sector, and even though there are some growing pains, there are many remarkable successes as well. I am all for better mentorship of young founders, to ensure the lasting success of their companies.
Start-up founders! Who are your most influential mentors? Tell me in the comments. I will reach out to the most prolific commenters for interviews in the future.