This week on the startup to scaleup journey:
- Atoms are back. Are hardware startups suddenly more fundable?
Few reports this year have travelled as fast through founder conversations as Andreessen Horowitz's State of Markets, published at the end of September. Its verdict on hardware fits in four words: atoms are so back. After a decade in which software took the money and the multiples, chips, power, robots and rockets are suddenly where the returns are.
Many UK founders have quoted those four words back to us, usually with the same hopeful conclusion. If hardware is back in fashion, surely the investors who once winced at capital intensity will now take the meeting, and the deck that struggled last year will land this year.
Some will, and we made our own case for hardware as a moat in February. But that reading misses what the report actually measured, and it misses what is happening on this side of the Atlantic.
So, is hardware back in Europe? Not quite. In Europe, the money is not following hardware per se. It is following the buyers who have decided certain hardware is strategic: governments rebuilding defence and industry worried about resilience. Where such a buyer stands behind the demand, cheques are larger than ever. Where none does, the renaissance is much harder to find.
That makes the useful question for a hardware founder a different one. Not whether atoms are back, but whose demand underwrites the cheque.
This week on the startup to scaleup journey:
- The AI services land grab: why your business model decides who will back your startup
Lawhive set out to sell software to law firms. The firms, mostly small high-street practices, were reluctant to buy. So Lawhive stopped selling to law firms and became one itself. Today, about 500 lawyers work through its platform and annual revenue has passed $35m, up sevenfold in a year. In February it raised a $60m Series B to take the model across the United States.
Read that as a simple pivot story and you will miss the point. Lawhive changed its customer, its business model and, without quite announcing it, the kind of investment capital it needed. The same choice is now arriving for every founder building with AI in a services market, from accounting and IT support to lettings and law.
There are only three ways to reach a customer an incumbent firm already serves. Sell the incumbent software. Compete with it for the client. Or buy it, client list and all.
Most founders treat this as a technology choice. It is not. It is a choice about how you acquire customers, and each route is paid for with a different kind of capital. Pick the route and you have picked your investors, whether you meant to or not.
What makes this urgent is timing. In February, PitchBook's analysts declared SaaS dead. Yet in the same quarter, global venture deal value in enterprise SaaS reached a record $173 billion. The money has not left software. But the conviction is already moving, and the investors leading that move do not agree on which road wins.
For founders, that is the trap. You have to commit to a business model before anyone knows which one will win. Then you have to pitch it to investors who are already sure they know...
This week on the startup to scaleup journey:
- DeepTech founders beware: pragmatists don't buy technology breakthroughs
Your technology works. The evaluations went well, the engineers on the customer's side are impressed, and the early adopters who backed you are telling anyone who will listen. So why is the mainstream market still holding back?
Because pragmatic buyers don't buy technology breakthroughs. They buy complete solutions, and in DeepTech someone else often owns most of the solution. Who makes the rest decides how quickly you reach the mainstream market and how much of the solution value you keep.
Geoffrey Moore called the gap between early adopters and the mainstream market "the chasm", and two of our most-read pieces have explored it. The first looked at the chasm as the funding gap between Seed and Series A. The second asked why early adopters must share your belief. Both were written with software in mind.
DeepTech changes the shape of the problem. Not because the science is harder, but because the thing the buyer needs is usually bigger than the thing you make. That gap is wider for some DeepTech companies than for others, and in our experience how a founder closes it is one of the most consequential choices made between Seed and Series B.
This week we return to Moore's thesis, and to what it tells DeepTech founders that it never needed to tell software ones...
This week on the startup to scaleup journey:
- Your leadership team is full of promotions nobody made
Every successful founder reaches a point where the leadership team finally takes shape. The senior roles are filled: someone leading engineering, someone leading commercial, someone across operations and finance. After years of carrying most of it yourself, it feels like the transition from startup to scale-up is underway.
But is this truly the leadership team to take the company to the next level? Was each person selected for that particular role, or did they assume it by default?
In many cases, few of those roles were ever ‘decided’. Someone joined early, took on a little more each quarter, and became head of their function without anyone saying the words. The title caught up with a job they had already drifted into. The role kept growing, and no one stopped to ask whether the person who found themselves in the seat was still the right one to hold it.
Even posing the question feels like a betrayal of the people who got you here. It is not. The role has changed, and asking whether the person has changed with it is not just fair, it is a critical test for the aspiring scale-up founder/CEO.
There are two tests: Can the person stop doing the job that made them a high-value contributor in the first place, now that the senior role is a different job, not a bigger one? And are they able to step up to lead a large, complex function that may be way beyond their prior experience? Willingness and capability are different, and a founder has to weigh both...
This week on the startup to scaleup journey:
- Your leadership team meeting is holding your startup back
Picture the regular leadership team meeting. Each function takes its turn. Engineering reports where the build has got to, sales runs through the pipeline, finance walks the numbers, operations flags what is stuck. The founder listens, asks a sharp question here and there, and nods the room along. Everyone leaves informed.
It was a well-run report. It was not a team deciding anything.
Last week's note argued that a set of functional heads each reporting to the founder/CEO is not yet a leadership team but a hub-and-spoke management model: the founder as the one point every cross-functional decision has to pass through. This week is about the single forum where that structure is either replaced or unwittingly reinforced: the leadership team meeting, and what it is actually for.
Here is the most uncomfortable part first. The meeting most founders run, with each head reporting progress to the founder in turn, does more than eat time. It reinforces the hub-and-spoke structure, meeting after meeting, in plain sight. And because it looks so much like worthy diligence, it is almost impossible to see as the problem...
This week on the startup to scaleup journey:
- Why founders end up trapped by the leadership team they built
Ask a founder who has just closed their Series A to describe the leadership team and watch what they reach for. They point at the org chart. Head of Engineering here, a commercial lead finally hired, operations and finance each with a capable person in the box at last. After years of carrying those functions alone, the founder looks at the chart and feels something settle. The team is built.
Well, the chart might be complete. But the team does not exist – at least not yet.
More than thirty years ago, Jon Katzenbach and Douglas Smith drew a distinction every scaling founder should study: the difference between a working group and a real team. A working group is a set of strong individuals who each deliver in their own lane and meet mainly to share information; their output is the sum of individual bests. A real team produces something none of them could alone and holds itself mutually accountable for the result. It meets to make decisions. The two look identical on a chart and behave nothing alike.
Most founders, through the first institutional rounds, build the first and name it the second, in a structure with only one real point of connection: themselves. Each function reports to the founder, spoke to hub. So, every key decision that touches two functions at once has one place to go, up the spokes and back down through the one person connected to everyone. The founder has become the integration point for the whole company. Early on, that is an asset. It is about to become the thing that holds both the company and the founder back...
