Weekly Briefing Note for Founders 4/1/24

3rd January 2024
CATEGORY:

This week on the startup to scaleup journey:

  • How founders can reduce stress
  • Founder coaching - more slots opening up


How founders can reduce stress

Founder stress levels are rising. The increasing risks and uncertainties of fundraising are the primary cause. Serial founders are most adept at handling these challenges. Experience counts. But first-time founders who can emulate their more battle-hardened counterparts can gain advantage. They will arrive at the start line for each funding campaign with much greater confidence. The key is to focus on 'value creation'.

Study into founder stress
In November, we highlighted a recent study into the impact of stress on founders. This research shone a light into a previously dark corner of the founder world.

Instead of anecdotes, rumour and gossip, this study revealed some hard facts about the lot of founders in 2023. When asked about the future of their startups, 54% said they were very stressed.

And what is the main source of stress today? 60% say it's the ability to fundraise.

Given the nature of the job, perhaps this is to be expected. But this level of stress is simply not sustainable over the long haul. As a result, 36% of founders say they already suffer from burnout, 13% from depression, and 10% have panic attacks.

Yet, 81% said they were not really open about their stress, fears and challenges. Only 23% of founders surveyed said they had sought some kind of help. And only 10% of founders say they turn to their investors to talk about such matters. This underlines what a lonely place the role of Founder/CEO can be.

The bottom line is that founders are ignoring their own wellbeing in order to achieve their long-term goal. They accept the mantra of ‘no pain, no gain’ often sold by today’s leading entrepreneurs.

In this vein, 8.3 out of 10 claim to be 'enjoying' the journey of being a founder. But the data highlights the distorted story that some founders tell themselves in order to keep motivated despite the hardships.

When stress levels start to rise
Why is fundraising the biggest cause of founder stress? The answer - at least initially - seem clear: The stakes couldn't be higher. Failure to raise presents an existential threat to the business. And as markets have worsened, there's been increasing uncertainty that the next funding campaign will be successful.

But we need to dig deeper to find the root cause. Here, it's useful to know that are 3 common types of burnout. The first two will already be familiar to founders: 1. 'Over-excursion burnout' - just trying to do too much. 2. 'Depletion burnout' - not recharging energy levels, and 3. Misalignment burnout.

Misalignment burnout is the least understood but rears its head strongly during fundraising cycles. It's where things seem to be going well but the actions you are taking in the here and now (to create a viable new business that delights customers) are not aligned with the future you are trying to create (build an investable business that also delights investors).

This becomes clear when we talk to serial founders about their prior startup experiences.

In preparation for those earlier rounds, they believed they had captured a compelling story. But investors, for one reason or another, just didn't share their excitement. For example, they had early revenues - but not the right 'type' of revenues. They believed they were hitting all the right 'hard metrics' - but investors seemed more interested in the 'soft metrics'. And the list goes on. There was clearly a disconnect between founder aspirations and investor aspirations.

And this is when the reality started to hit.

They suddenly realised there were big gaps between the core attributes of the business they were building and what investors expected to see for their given stage and sector.

And worst of all, this often came as a surprise just as their campaign was getting underway.

These gaps were sometimes so big that they couldn't be resolved by a simple repositioning of the current story. They revealed a wider disparity, nearly always associated with the potential to create significant and sustainable (enterprise) value.

Serial founders focus on value creation
For over a decade we have helped founders prepare for and execute funding campaigns. The transactional events are often the moments most reflected upon. But the highest impact 'moments' are those that sit between campaigns.

Such periods are where much of the invisible, value-creation work is done. It's where the hard graft of the long lead-time activities is ground out. It's where big strides are made towards the economic vision.

It's also where the outcome of the next funding round is usually decided. 

Funding campaigns are 'set-piece' events that culminate, hopefully, in a new injection of capital. But too often, founders arrive at the start of the campaign without the key value-creation evidence they need.

And, as a result, without the wholehearted support of existing investors who now sense downward pressure on valuation.

By studying the behaviour of serial founders, we have seen how their approach to the funding journey evolves with experience. They become more cognisant of the value-creation drivers that are peculiar to their sector and stage. As a result, they are continuously building an 'investable' business. A business that is capable of attracting high quality investors (not just great customers), time after time.

Serial founders know that value creation is the key measure of progress that investors care about. Because strong value creation ultimately delivers big returns. They know that the investment criteria (that evolve with each stage) are a proxy for demonstrating that serious value creation is underway.

How do serial founders manage to focus so resolutely on value creation? Our experience is that they develop a mental model for business-building that prioritises the value-creation drivers above all else. And they see funding as a continuum, a series of strongly-related waypoints on a roadmap of long-term value creation, not a one-off event.

Value creation framework
In October 2023 we introduced 'Founder to Funder', a coaching programme for first-time Founder/CEOs. This is designed to help founders navigate the startup funding journey with greater foresight and confidence.

The programme is based on deep insights from the methods practiced by serial founders. It is built around the same 'value-creation' framework used in our investment preparation service, Investment Analysis. This has helped founders raise $100M's of investment over the past decade.

Now, as the core of our founder coaching practice, it has a different but related purpose. It helps align both customer and investor priorities into one focus, well before the funding campaign begins.

It does this by providing a mental model for decision-making. It enables a tight focus on value creation by identifying the specific value creation drivers associated with each phase of company development, from initial idea to growth.

[For the latest news on the Founder to Funder programme, see below].

Bringing it all together
At its core, a startup is an engine for value creation. But there also needs to be a clear destination in mind and a supply of 'fuel' to get there.

The destination is the founder's economic vision and the fuel is the capital investment required to deliver it.

To gain conviction, investors must buy into the economic vision and the associated value-creation strategy. They must believe that the founder will ultimately deliver on both. And they need to see clear evidence that progress is being made at every funding step.

Founders must understand the specific value-drivers that are relevant to their sector and stage. They should integrate them into their business strategy from the earliest moment. In doing so they will align both customer and investor priorities into one focus and set their business up for funding success.



Founder coaching - more slots opening up

In October 2023 we introduced 'Founder to Funder', a coaching programme for first-time Founder/CEOs. The aim is to ensure that the economic vision, the value-creation engine that will deliver it, and the investor relationships required to fuel it, are marshalled together and brought into alignment from the very earliest point.

Unlike other programmes that are cohort- or group-based, Founder to Funder is personal, 1:1 coaching. It is tailored to fit the individual needs of each founder, taking into account the current stage, sector, and ambitions of the startup they are leading.

Having initially limited this new coaching programme to existing/former clients during the latter part of 2023, we are now starting to roll this out to new clients. We will be opening up a small number of additional coaching slots this month.

Founders that would like to know more about this programme should contact John Hall (john.hall@duetpartners.com). An information pack is available on request.

Happy reading!

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