A version of this article appeared in vccircle.com.
As the startup ecosystem mushrooms at a frenetic pace, it is important to understand a key driver for success - the alignment of vision between the 2 key stakeholders – the investors and the founders.
Before we proceed any further, it is important understand what really is ‘vision’ – a term much quoted, but equally less understood.
‘Vision’ of the founders of a startup
Whenever I start thinking about what a startup founder’s vision should be, I find it easier to answer the converse - what it should not be!
It should not be to ‘found’ an enterprise for the purpose of creating a valuation. The vision has to be about how the founders are looking to ‘change the world’, about the larger purpose that drove their passion to create the enterprise. It embraces how the founders wish to make some people’s lives different, if not better. Idealistic it might sound, but when one looks at most successful enterprises, their success can be attributed to the founders’ clarity of and adherence to the greater purpose.
Rendered in the context of the real world, the enterprise solves (or improves upon) actual life problems and if the solution is worthy people adopt it and some early believers even pay for it. As more adopters become believers, there is a wider group of stakeholders who find value in some facet of the product / service and hence are prepared to pay for it. As the cash flows increase, so does the valuation. Most instances of a successful commercial enterprise has been through this process. And hence, valuation is an outcome and cannot be the objective.
This vision for the startup translates into a set of action plans which is the ‘mission’ or the ‘how’ to achieve the vision. Since the vision is the purpose for the existence of the enterprise, it is reasonably broad and unlikely to change in the near to medium term.
What normally changes is the mission or the actionable/s to fulfil the purpose. Questioning the mission of the enterprise is actually productive since it encourages debate and challenges each underlying assumption and hypothesis and results into course corrections.
For a sports startup that I know, the broad and simple vision is ‘make the playing of sports easy and interesting, for all’. To fulfil this vision, it has created its mission which is:
·To make the sports enthusiasts aware of the venues in their vicinity and create a booking platform (phase 1)
Create a scoring platform and connect sports enthusiasts with each other towards community formation (phase 2)
Gamification and creating an environment wherein these enthusiasts adopt this platform as the be all for their sport needs (phase 3)
Alignment of vision
While it is important for founders to have a vision, it is even more important for the investors to share that vision. A startup is bound to experience peaks and troughs at various stages of the life cycle depending on whether the premise on which it is established is proving to be wholly true, partly true or untrue. With an alignment in vision, in times of stress, the bond between the ‘funders’ and the founders when tested, withstands these tests.
One of the key ingredients of this alignment is the trust between the investors and the founders. While trust is a key factor in every relationship, it becomes extremely important in the case of startups since:
Startups, by the nature of their business, are expected to face more frequent and many existential challenges. The absence of trust can create dysfunctional situations detrimental to the already charged up and high energy environment.
There is a limited or no exit route in sight for the investor. Hence, unlike public enterprises, there is a limited ability to disengage in the event of a breakdown in relationships
The lack of complete alignment at the larger vision level can at times commence once venture capital features in the scene. The rationale for that has nothing in specific with VCs per say but the nature of their mandate, which is to maximize the returns on the capital held in a fiduciary capacity. No less is the reason that their own rewards are significantly weighed towards achievement of financial goals. There could be instances when the investors are looking to scale up exponentially while the founders might feel that it is not possible to achieve that rate without compromising on delivery.
Having said that, every enterprise has to be financially viable in the finite term and be it the angel investors or the VCs, nobody has an infinite appetite to pump in capital, howsoever attractive the vision be. As long as the startup continues to push forward and monetize its vision, all is fine. The problems obviously arise when the potential for monetization seems to recede or vanish completely.