Tech startups offer an enticing risk-reward tradeoff but if your clients underestimate the risks they’re unlikely to reap the rewards.
AdvisorOne recently asked Cameron Chell (left), co-founder of venture creation firm Podium Ventures in Calgary, Alberta and an experienced startup investor, for his top rules for successful investing.
Rule No. 1: Check the egos.
“When you’re investing in a startup you’re not investing in the idea, you’re investing in the people that are doing it. The number one thing that I’ve seen kill startups are founders who think their idea is either infallible or not subject to challenge,” explains Chell. “They often have their own personality or sense of value wrapped up in the success of the idea and their thinking.
“They believe that what they’re bringing to the table is the idea as opposed to the leadership and the vision and the energy. Ninety-nine point nine percent of startups with those types of personalities are going to crash,” the entrepreneur says. “They need strong personalities but they need more than one to create that constructive conflict. So, the number one rule is making sure that the egos are in check.”
Rule No. 2: Be sure the startup really understands what it’s doing.
There are three broad phases that are very distinct for a startup, according to Chell.
“The first phase is does the startup even have a product that people want. In that phase, money and resources have to go into doing certain things. The next stage is after they’ve determined quantitatively that they have a product that people or businesses want they have to tailor that so they can get it into the market,” he shares.
“They have to make that product fit the market and fit the business rules of the customers they’re selling it to. Those resources that they have and are getting from investors need to go into a different set of priorities,” Chell points out.
The final stage, he notes, is scaling: “How do you get the product market on scale and meet your margins and that type of thing? That’s a whole different set of tactics that will take up your resources.
“A lot of startups think they have to do everything at once,” Chell adds. “They don’t realize that if they’re in the first stage, the most important thing to do is learn. If they’re in the second stage, the most important thing to do is specify what the customer wants. If you’re in the third stage it’s all about how you grow sales and marketing and scaling and those types of things.”