This is the second article in a three part series on Startup failure & success by Jamie Pride, author of Unicorn Tears: Why Startups Fail & How To Avoid It, published by Wiley in February 2018. Founder Fitness
On 9 July 2015, I listed my first company on the Australian Stock Exchange (ASX). REFFIND, a human resources technology company, allowed businesses to better communicate with their employees. It had a web portal for company content and a mobile application for employees to use. I had founded the company in 2014 and had good early success with some high-profile customers.
At the time, some great technology companies listed on the ASX, so we decided to list our business through an Initial Public Offering (IPO). The next four months are a blur. I spent weeks travelling between Sydney, Melbourne, Hong Kong and Singapore briefing institutional investors on the IPO. I was packing in eight to ten meetings a day, not to mention countless lunches, dinners and drinks. To add to the load, I had to step in as interim CEO just before listing. On the day of listing, I weighed 120 kilos, felt like shit and was completely exhausted. Then the hard work began!
The IPO was a success: we raised the capital easily and were many times oversubscribed, meaning there was far more demand than stock available. In fact, we had more than $50 million in demand and only $8 million of stock available.
The stock performed well at first, but investors then sold off hard. Over the course of the 30 weeks following listing, our stock price went from 20c to almost $2 (reaching almost $200 million in market capitalisation) and back again. It was the worst time of my professional career. As the saying goes, ‘Success has many fathers; failure is an orphan’. We went from being a darling to a dog. And with that went a lot of things that I hadn’t expected and certainly wasn’t prepared for.
Firstly, I wasn’t in good physical shape to deal with the stress. And stress there certainly was. Angry calls from investors, tough questions from the board and an increasingly hostile business press. And then there were the internet trolls — ‘heroes’ on discussion boards who are the best armchair generals in existence. I was spending more and more time in damage control, and less and less in managing the business. It had a huge personal impact on me.
It started with sleepless nights. I couldn’t switch my mind off, constantly turning over what I should be doing. I was getting maybe two or three hours’ sleep a night then getting up and working a 12- to 14-hour day. I became increasingly frustrated and angry at work and at home. Then came the death threats from nutcase investors. When your family is threatened, it puts things into perspective.
Things got progressively worse, and I started thinking dark thoughts. I felt I had no one to turn to. I was depressed and was self-medicating. The easiest way to get to sleep was to drink a bottle of wine every night. My board was hostile, though they had been all for the strategy when the stock price was going up. The stress and exhaustion were taking their toll. After six months, I was a physical and mental wreck. I had never felt this bad before. I felt like a failure at work and at home.
One night I was sitting on the lounge with my wife and was hit by massive chest pains. I couldn’t breathe. I went to the emergency department at the Royal North Shore Hospital and was rushed to the cardio ward. I thought I was done for. After two days of tests, the results came back: I hadn’t had a heart attack, but I did have acute pericarditis, which is an inflammation of the fibrous sac surrounding my heart. I was told it was most likely the result of being run down. Two Nurofen later and I was right for discharge. I kid you not!
For me, this was a wake-up call. It was time to make a change. That crisis forced me to think about what was really important to me: my health, my family and things other than work. It was time to put my life into perspective. I took some time off and got a personal trainer — Dan Adair, an absolute legend. He kicked my arse and got my diet in order. I lost 30 kilos, did the run leg of a corporate triathlon and am now the fittest and healthiest I have ever been. Oh, and I resigned from REFFIND.
Although it had a terrible personal impact on both me and my family, this experience changed my life for the better. It taught me an enormous amount about what it takes to be physically, mentally and emotionally fit enough to run a startup. I learned it the hard way — first hand.
The stakes are high
When we think about startup failure, the first thing that comes to mind is the financial impact — investors losing their money, which is terrible. But we sometimes forget the human impact — on founders and on the teams they lead. I’ve experienced this personally. I know and have spoken with many other founders who face a tremendous amount of stress and pressure. They have put their personal reputations on the line with investors and with their teams. They must deal with the fear of failure, the risk of public embarrassment, negative articles in the press, even hostile investors showing up at their homes. I’ve known founders who are massively depressed, even suicidal. Founders are numbing out, burning out and in some cases checking out.
But it’s not only founders. Many people are affected. When startups fail, people lose their jobs. They must go home and tell their partner that the startup they were working for has gone under and they need to find a new job. Startup failure has an enormous human impact. Reducing it not only decreases financial loss but ensures we will have founders and teams with innovative ideas who are willing to come back for a second try. We want to keep that talent in the startup ecosystem.
Founder fatigue: the elephant in the room
Founder fatigue is on the rise. It’s almost taboo to talk about the human aspects of business, but they are real. I see founders struggling with this, thinking, ‘Should I stay unemotional? Should I be impervious to this stress?’ The reality is that most founders suffer stress in one form or another, and it’s a lonely place to be if you don’t have a support network around you.
The conventional wisdom is that founders need to be like Apple’s CEO, the late Steve Jobs, or the product architect of Tesla Motors, Elon Musk, or Facebook’s Mark Zuckerberg. Idolised as they are, it is easy to forget they are human beings with flaws and failings like everyone else.
Being physically, mentally and emotionally ready as a founder is critically important. Long experience has taught me that an incredible amount of stress is placed on founders. If you’re not physically and mentally ready for it, it can have a horrible personal impact. Insomnia, depression, anger, lashing out at others — if you’re not ready for the pressure, the process of founding and operating a startup is going to suck.
As a founder, you are normally focused on your product, your business model, your team, the competition — everything but yourself. With 270 other things on your to-do list, reviewing your own strengths and weaknesses is usually the last thing on your mind.
I suggest you need to come first. It’s all about being prepared. There is a motto in the military: ‘Train hard; fight easy’. If you have thought through the challenges, and prepared for them, then the actual events will be way simpler to deal with. If you’re ready, you’ll be calmer, more energised and less stressed, and you’ll be able to keep both your physical and mental wellbeing in a good place too.
Capacity + capability = founder fitness
To be a great founder you need both capacity and capability. Often founders work only on building capability — that is, learning the specific skills they need to do the job. While having these skills is essential, having the capacity to go the distance is far more important. Capacity gives you reserves. It’s your fuel tank. It provides you with a solid foundation on which to build skills.
In part 3, Jamie will discuss capital raising for your startup, and why cash is king!
Jamie Pride is a serial entrepreneur and venture capitalist on a mission to help build better founders and a better venture capital ecosystem to support them.
As an entrepreneur, Jamie sold his first startup, Velteo, to New York– based system integrator Bluewolf, and has founded six technology startups. As an investor, he has raised more than $16 million in funding for startups via private and public markets, including completing an IPO on the Australian Stock Exchange in 2015.
He is the managing partner at Phi Digital Ventures, an early stage, social impact venture fund that seeks to invest in Australian companies looking to change the world. He is also the co-founder of The Founder Lab, an educational institution for entrepreneurs that seeks to build and support better founders. His book, Unicorn Tears: Why Startups Fail & How To Avoid it was published by Wiley in February 2018.