Startup tsunamis and how corporates face them

Most corporates think of startups as small businesses. Everyone knows that small businesses don’t matter. But startups move in waves. Sometimes waves are so big, we call them tsunamis. And tsunamis matter. This post will explain the nature of tsunamis. It will tell the story of a single earthquake that triggered two very different tsunamis. In the end, corporates know how to handle startup innovation. Do it.

In 2011, the most powerful earthquake in Japanese history triggered two devastating tsunamis.

The first tsunami hit the Japanese coast an hour later. A 40m tall mountain of water traveled 10 km inland demolishing everything in its path.

The second tsunami hit the global telco industry five years later. A cohort of chat apps reached maturity and shattered the future of telcos.

What happened was this: After the earthquake people wanted to call their loved ones, but the phone lines failed. Instead, people sought internet access and a group of developers developed a solution. They called it Line.

Line inspired entrepreneurs everywhere to build chat apps. Among these were: WeChat, Viber and Snapchat. All of them launched in 2011. A startup tsunami was in motion.

At this point, the telcos should have reacted. Today, we know they didn’t. The reason is the nature of tsunamis.

The nature of tsunamis

Tsunamis are always proceeded by an earthquake. Earthquakes are easy to read. The ground shakes and our needles move.

In contrast, tsunamis are hard to read. Only a fraction of earthquakes triggers one. When it happens, the tsunami is practically invisible. It travels underwater with the speed of a commercial jet. Just before the coast, it suddenly rises and darkens the horizon. At that point running is pointless.

The same happens in technology. Some big breakthrough occurs. Like an earthquake, the event is easy to read. Academics, research papers, and popular science media cover it in full.

In some cases, the technological breakthrough is practical enough for entrepreneurs to take advantage. In these cases, hordes of ambitious people found startups. The event has triggered a startup tsunami.

Like a normal tsunami, startups tsunamis also travel below eyesight. It moves through garages, co-working spaces, accelerators and obscure online forums. Places that are mostly invisible to corporates. But it moves fast, gain momentum and suddenly rises. At that point, innovation projects are meaningless.

Why corporates are paralyzed in face of startup tsunamis

Startups tsunamis travel for about 7 years before reaching shore. That means we get a rough picture about the future seven years in advance. If telcos had noticed the large cohort of chat apps launched in 2011, they could have saved themselves.

The problem is that most corporates don’t have proper sensors placed to detect these motions. And when they do, they don’t know what to do about the information.

Most corporates have no method to handle startups. Corporates normally have two defenses against competitors. They buy them or compete with them. But none of that works with startups.

Most M&A professionals would never consider buying a startup. It is simply too small. Why go through all the hassle to buy something small, when you can buy something big with the same amount of work.

Competing with startups seem equally silly. They have no market share.

The thing is this: startups are not competitors. In most cases, startups do not compete with the incumbents. Instead, they build a parallel industry that will eventually outperform the old industry.

Corporates have no answer to parallel industries. It’s not part of a standard MBA course. But there is a way.

Corporates must respond to startups by helping them build the parallel industry. Few founders want to disrupt. Most founders want to build. And when asked, an overwhelming majority of startups actually wants to collaborate with corporates.

If corporates help startups to build a new industry, the corporates will be a part of it. Luckily, new tools are available.

How to ride a startup tsunami

Corporates must take part in the startup tsunami. To do this, corporates need a dedicated interface towards startups. The interface can be an accelerator, incubator, VC arm or some other open innovation initiative. The most important thing is that the initiative follows these rules:

  1. It must scout startups globally. Innovation can arise anywhere.
  2. It must engage enough startups. The more exposure to the tsunami, the better you can react.
  3. It must have a value proposition that is attractive to startups. Startups don’t need you, so make them want to collaborate.
  4. It must include and incentivize all the relevant business units. To utilize synergies the startups must get access to operational decision makers.
  5. It must be rebranded. Even though your brand is a hundred years old and worth billions, startups don’t think it’s cool.

And most importantly….

  1. It must be run by people who know how to talk and deal with startup founders. Founders differ from the rest of humanity and disdain people who don’t get them.

Follow the rules above, and certain calamity becomes a possible future.

At Accelerace we help both startups and corporates.

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Why all startup founders should understand ICOs

Most people have heard about cryptocurrencies. Some have heard about ICOs. Few actually understand them. This post will tell you why ICOs are important news for startup founders. It will tell you how it all began and why the crowd is the best investor. In the process, you will learn about a prodigy of our time and see what communist regimes did wrong. In the end, founders have gotten a new tool for fund raising. Use it.

In 1997, a new era began.

For the first time ever, a rock band asked their fans to fund their upcoming tour. The fans went online and pledged $60,000. The press called it crowdfunding.

A decade later, crowdfunding would fund everything from paintings to high tech gadgets. In 2012, a dock for iPhones became the first project to raise more than $1 million on Kickstarter. Still, the biggest breakthrough was yet to come.

Crowdfunding mainly benefitted physical products. This makes sense because physical products have tangible value. In comparison, software hadn’t benefitted much. It was simply too hard to define what backers were pre-paying for. But that was about to change.

In 2013, a Russian prodigy named Vitalik Buterin made history. He designed a completely new Blockchain named Ethereum. It would prove to become a breakthrough in crowdfunding. Vitalik was 19 years old.

Ethereum made it easy for developers to create new cryptocoins. And that is immensely important because cryptocoins solves the biggest problem about crowdfunding software.

Cryptocoins allows software projects to provide a tangible asset to backers. The projects can mint digital coins that represent a specific value. A simple example would be a coin that can buy a song in a music app. Anyone wanting a song could buy the coin. If enough people buy the coins, the founders have enough money to build the app. That’s called crowdfunding.

But that’s not all. If the backer no longer wants the coin, he can sell the coin someone else with a click of a button.

Already ICOs have outpaced VC funding. And it is just getting started. I am about to tell you why.

The key to successful investing

Investing is fundamentally about information. The information investors need is this: How big will the demand be?

If you can assess how many people will use a new product, you also know how much to invest in the project.

How accurate you can assess the demand depends on how close the investor is to the demand. In other words, to the users.

The communist experiments of the 1950s show the consequence of making investment decisions too far from the demand. At the time, Moscow and Beijing decided how much food farmers should grow. But the communist elite had little feel for the true need. Economists call it: misallocation of resources. The consequences were catastrophic.

VCs exist because they have better feel for the demand for tech products than the big pension funds. In theory, VCs have superior information and can make better investment decisions.

However, there is a group with an even better feel for the demand. And that’s the users. They are the ultimate source of information because they are the demand side.

Why ICOs are great news for founders

Crowdfunding allows users to vote for products they want with their money. In aggregate, users are the ultimate investor and allocator of resources. If 100 backers need a product, the project receives exactly the right amount of funding to fulfill the demand.

For many software startups, the invention of cryptocoins is heaven sent. Most founders spent an enormous amount of time and effort to convince VCs that they have a market. Sometimes they succeed, but the investor takes a risk premium. The risk premium is unfair terms. Like milestones, liquidity preferences and downside protection.

But thanks to a young Russian prodigy, software startups can do what artists and gadget-makers have been doing for the past five years. To raise funding directly from users. And because users don’t have to guess the demand, they also don’t require risk premiums. The money comes without a nasty set of legal documents and a rigid due diligence.

Luckily, many have already taken advantage. As of this writing, software projects have raised more than $1 billion through ICOs. And many more will follow.

Many critics will point to fraudulent and overhyped projects. All of that is true. But that always happens in the early days of great innovations.

In time, ICOs will mature and software founders will finally have an alternative to the exhausting VC pitches.

At Accelerace, we will do our best to help founders take advantage.

Check out Accelerace. We invest in tech startups.

Why the best founders feel unsuccessful

Many startups look successful, but this post will tell you how most founder really feel. It will tell you how humans are different from other animals, and why this difference distinguishes the best founders from normal people. Most importantly, it will explain what good crazy is. Good crazy is power. Cherish it.

One day in 1982, a group of researchers at Georgia State University experienced something unexpected. A two-year-old chimpanzee by the name Kanzi suddenly started talking.

Kanzi wasn’t being studied. Instead, the researchers had been trying to teach another chimpanzee to communicate via a pad. But they had failed. The chimpanzee had nothing to say.

The experiment was suggesting that apes don’t think. That conclusion would have ended the long-standing dispute: Do animals possess human-like thinking?

When Kanzi accidently picked up the pad and started communicating, we got an answer to the question. But the answer was not: yes or no. It was both.

The difference between humans and animals

The interesting part wasn’t the fact that Kanzi communicated. It was what Kanzi said.

It turned out that Kanzi mostly expressed fundamental needs. Like, give me food.

Kanzi was clearly thinking. However, Kanzi never expressed ideas. And that fact is immensely important for understanding humans.

Human cognition is unique because we are the only animal who have ideas. Only humans imagine things that don’t exists in the physical world. Like God or Harry Potter.

We can describe these ideas and infect other people. When many people have the same idea, it becomes a shared idea.

Shared ideas might be the most powerful phenomenon in the world. Shared ideas power Christianity, capitalism, and the $700 billion market cap of Apple.

A shared idea is immensely powerful because of its intersubjective nature. It exists among people and not just within people. This means that even though you abandon the idea, it still exists and governs everyone else infected by that idea.

Shared ideas create communities of people. Like the urban consumers, Harry Potter fans and the Apple evangelists.

Members of communities want success in their community. Urban consumers want to own and experience more things. Harry Potter fans want more people to read their fan fiction. Apple evangelists want to be first to get the latest upgrades.

Success in communities is defined by ideals. All communities have an ideal that shapes the hierarchy within the community. Ideals describe what a perfect manifestation of the idea would look like.

The perfect consumer eats sushi, owns designer furniture and weekend travel. The perfect christian is virtuous, attends church and lives in a nuclear family. The perfect Harry Potter fan writes fan fiction, plays quidditch and can dress up like a Gryffindor.

The closer you fit the ideal, the more successful other people in your community perceive you to be. The community upgrade your position in the hierarchy. Ascension feels good.

For this reason, most people spend their entire life attempting to fit the ideal of their community. But as you will learn, startup founders are different.

The difference between startup founders and normal people

For most people in developed countries, the biggest community is the idea of the urban consumer. And this fact can course great misery for startup founders.

The problem is that startups require founders to do things that break with the ideal of urban consumer.

Most founders in our portfolio are in their 30s. And for urban consumer, these are the years when the adult hierarchy sets in. The ideal is to buy the first house or apartment in a respectable neighborhood. Fill it with designer furniture. Drive an Audi and go skiing in winter. Kids in designer clothes, cooking gourmet food and keeping a dog give further plusses.

But for founders who choose the path of startups, life is very different. Most startups fail and all startups struggle. Founders usually scramble for two years before raising their first round of institutional capital. Even after raising funding, they still get very little salary.

The financial reality of most founders means that they actually descend on the hierarchy of urban consumers. They live on half the space, drive an embarrassing car and rarely fine dine.

Most founders occasionally feel the sting of inferiority and doubt. It happens when they meet old classmates, park their decade old Hyundai or check their Facebook feed.

To most people, this scenario is so scary that they give up their startup dream. They think it’s too risky. The risk is descending the social hierarchy. It doesn’t mean dying.

But this is where founders are different. They feel the sting, but they don’t succumb to the pressure of the ideal. Instead, the best founders we see have overwritten the ideal by the force of their startup vision.

To reject a pervasive intersubjective ideal is incredibly hard to do. And those who do are often regarded crazy. But at Accelerace, we call it being good crazy.

Conclusions made:

  • Only humans share ideas.
  • Shared ideas create communities.
  • Communities have hierarchy defined by an ideal.
  • In the developed countries, one of the biggest ideas is the urban consumer.
  • Startup founders often descend on the hierarchy of urban consumer communities.
  • Startup founders are special because they don’t succumb to the pressure of the ideal.
  • At Accelerace, we call it being good crazy.

Also visit Accelerace. We invest in startups.

The insane arrogance of startup investors

Most startup investors feel special. This post will tell you they are not. It will tell you that most investors evaluate startups using simple arrogance. In the process you will meet two groups of super humans, learn about one of the longest wars in history and get inside NASA. In the end startups will understand investors better. Hopefully investors will get inspiration on how to refine their selection. Improving is everything. Do it.

The world was at a war. And the president of the free world was losing it. But he was working on a secret project that would turn the tide. He called it Project Mercury.

He asked the military to find seven super humans. They should spearhead a new battle front. The elite group was found and became known as: The Original Seven.

The year was 1959, the president was Dwight D. Eisenhower and the new battle front was space. The Original Seven was the first team of NASA astronauts.

Since the Original Seven, NASA has graduated a total of 338 astronauts. However, this is a tiny amount compared to the large number of applicants. For 2017, NASA has received 18,300 candidate applications.

The thing is that only few people make world class astronauts. But you are about to learn something else. Even fewer people make world class startup founders.

The hunt for super human entrepreneurs

About the same time as Eisenhower was fighting the cold war in space. A man named Arthur Rock was fighting an equally important battle.

His battle field was Silicon Valley. The fight was over one of the most important inventions in history. The transistor.

Arthur Rock was gathering his own team of super humans. They became known as The Traitorous Eight.

The Traitorous Eight became the founding team at one of the most influential companies ever built. Fairchild Semiconductor. Together, they ignited the modern technology age and helped make Silicon Valley the world’s superpower of innovation hubs.

Like NASA, Arthur Rock continued to find more amazing people. When he did, he would fund their businesses. In the process he invented what we today know as venture capital.

Today venture capital is a global industry. There are thousands firms. Lately, accelerators and angels have joined the party. And they are all looking for the same rare teams of super humans.

But they are a rare breed indeed. It’s estimated that 150 million startups are attempted every year by 300 million people. The number of startups that gets venture funding is limited to couple of thousands. And out of those, only a fraction actually succeeds. Suddenly, becoming an astronaut looks easy peasy.

Overserving and understanding what to look for

Going with the numbers, identifying the outliars among startup teams is much harder than identifying the outliars among astronaut candidates. But that’s not reflected in the selection process.

NASA spends two years in rigorous and intense interaction with candidates before selecting who to send into space.

Comparably, many startup investors just spend a few hours in meetings with the startups before throwing a term sheet. The following due diligence process is mostly legal work. To outsiders this seems insane. And it is.

The problem is that investors are incredibly arrogant. Most of us believe we have developed a special gift. That our unique backgrounds enable us to spot winners on eye sight. Like Mike Markkula meeting Jobs and Wozniak in a garage and just knowing they will become a huge success. Obviously, it’s a delusion.

This delusion fools investors into believing that we just need a pitch. Then our gut will accurately predict the fate of the startup. But the facts disagree.

95% of all venture returns comes from only 20% of the firms. Most investors cannot pick the winners. Of course not. No space agency would ever pick astronauts from pitches and coffee meetings. Sure, they would develop a gut feel about the candidate, but they wouldn’t be arrogant enough to actually follow their intuition.

Instead, space agencies acknowledge that some of the skills and traits that make up excellent astronauts cannot be accurately evaluated in applications and during interviews. Only observing candidates under certain conditions will provide an accurate assessment.

Could the same be true for startups. That you actually need to observe the founder team in action to actually assess their chance of success? I suspect so.

In my work with startups I participate in team meetings, participate in customer meetings and listen in on investor pitches. I see how they make decisions, how they solve problems and how they interact. It’s like NASA observing astronaut candidates operate tools in a vacuum tube or docking in a simulator.

This gives me insights that I couldn’t have gotten otherwise. Insights so important that I often find myself correcting my initial gut feel about the startup.

Startups are built in real life. During prioritization meetings, customer meetings, cold calls and strategic pivots. Participating in real work with the founders provide a true picture of the startup.

At Accelerace we have institutionalized this in our selection and acceleration process. Our application form is minimal. We engage instead. We take in a bigger batch than we graduate. We work closely with the founder team. We reasses and challenge our inituition..

We know what we are looking for and we assign scores. It might not be the right parameters, but we are on our way of proving them. Most importantly, it reminds us to leave (most) arrogance behind.

(The scoreboard used under observation is developed together with my great colleagues at Accelerace. If you think you can help us refine it or make use of it, contact us)

Conclusions made:

  • World class startup founders are rarer than astronauts
  • Most startup investors believe they have a special gift because of their unique background
  • The delusion of a special gift makes investors do extremely shallow assessments of startups
  • Investor can learn from NASA and do more real life observation
  • Accelerace have institutionalized observation and have developed a specific scoreboard

 

Why feasts are essential to startup success

Management literature is filled with long books about company culture. This post will tell you that winning culture is actually really simple. It will give founders an easy way to 10X the performance of their team. Simplicity is power. Use it.

A group of men armed with spears had cornered their prey. They felt excitement and relief. Soon they would return victorious to wild cheers from the tribe. The women had prepared for a feast. Tonight they would be eating, dancing and singing. It was the greatest part of being alive.

For more than 20,000 years, humans were hunters living in tribes. Life was harsh and brutal. Among the few pleasures was the feast. To get a feast required collaboration of the whole tribe. The adult men hunted. The boys assisted. The women prepared fire, fruits and water. Everyone contributed to their common goal. The feast.

Today our lives have changed. But our brains haven’t. Humans still get immense pleasure from collaborating to reach a successful outcome and then celebrate the victory together. When athletes win Olympic medals even the assistants and masseuses go bananas. And this fact is of great importance to startup founders.

The really simple way to build a winning culture

I coach startups on many different things. One of them is how to build a winning startup culture. And that is actually quite simple.

Founders must leverage the hunting tribe mentality. They must break down their journey into small milestones and turn these milestones into hunts. They must assign every team member a role in the hunt and provide a feast when it ends in success.

In practice it means this:

  • Have team meetings Monday morning.
  • Set one overall goal for the entire team to reach by Friday. Hang it on the wall.
  • Place desirable rewards on a table. Like champagne, dinner reservations or concert tickets.
  • When you reach the goal, celebrate hard and congratulate every single member of the team. Even the interns and advisors.

You now have a team that pulls in one direction. Now everyone knows their priorities. Now everyone is motivated and feels important and appreciated. And because of human history, you will develop a true winning culture in the process.

 

The essential questions founders should ask investors

Most founders do investor meetings like a job interview. They look their best and hope to be picked. Most founders know it’s a mistake but don’t know what else to do. This post will teach you to turn the table and interview the investor. It will provide you with a set of essential questions to ask. The answers are more important than you can imagine. Use them.  

I made a huge mistake. And I want you to learn from it.

When I was a founder, I thought VC money was the same.

Because of this delusion, I didn’t care who the investor was. So I approached all investors in the same way.

I showed off and hoped the VC would throw a term sheet. It was a show on my part. I thought I did good. I was mistaken.

In fact, I did terrible. My pitch was good. But I forgot the most important part of the meeting. To learn who I was talking to.

Why does it matter? Because the VC demands your time and attention. And that’s your most valuable asset.

You want the time and attention he demands to be beneficial for you. And that’s a function of three things:

1) The experience of the firm 2) his personal experience 3) his view of your startup.

I didn’t know. So I didn’t ask. You shouldn’t make the same mistake. So here is a list of questions I wish someone had given me:

Essential questions about his firm

  • How many funds have you managed?
    • Because experience is important. First funds tend to give bad returns.
  • Who are the Limited Partners of the fund?
    • Because in the end, the investor serves the interests of the Limited Partners.
  • How big is the fund?
    • Because fund size determines how little and how much they can invest. And how much follow-up funding they can provide in the future.
  • When did the active investment period start and when does it end?
    • Because the lifespan of the fund determines the urgency to invest and to exit again.
  • How is the management of the fund structured and how do you make decisions
    • Because it matters greatly how decisions are being made and who have decision power.
  • What is your investment thesis?
    • Because a clear thesis is an indicator of professional intellect. In other words, they know what they are doing.
  • What are the limitations of your investments?
    • Because it’s nice to know if the investment can be turned down because of technicalities.
  • Which companies in the portfolio have given you learnings and expertise to help us?
    • Because expertise matters. And real expertise comes from experience.
  • How do you do due diligence?
    • Because due diligence can be very long and costly. And you will pay.

 

Essential questions about the investment manager (the one to join your board)

  • What is your thesis about startup success?
    • Because a clear thesis is an indicator of professional intellect.
  • Which other companies in the portfolio are you managing?
    • Because he gets most of his learning and network through his own portfolio.
  • How do you approach the role of being board member?
    • Because you want to know if his style is compatible.
  • How can you add value to our company?
    • Because the answer reveals if he fundamentally sees himself as a controlling mechanism or someone who is there to help build the business.
  • How are you incentivized?
    • Because he will focus on what makes him rich.

 

Essential questions about his/their view of your startup

  • What do you think are main opportunities of the business?
    • Because the answer reveals if he has valid growth thesis.
  • What do you see as the main risks of the business and how would you mitigate those risks?
    • Because the answer reveal if he has experience with your type of business model.
  • What do you see as the main priorities the next 6 months?
    • Because the answer reveal if he is aligned on the short-term strategy.
  • How do you see the exit path of the company?
    • Because VCs are driven by exits and you want to know if they are aligned on the long-term strategy.

If you ask these question, you will get a conversation instead of an interview. It will be a conversation with between parties evaluating each other. And most investors will respect you for this.

Good luck in your next meeting.

 

Why all founders should know their scale down rate

Most founders think they know their metrics. This post will tell you they don’t. It will reveal the most overlooked metric among startups. A metric so important that many startups fail because they don’t track it. This post will help you not make that mistake. Use it.

One of the biggest disasters in human history was unfolding. Panic spread like wild-fire as people realized they were doomed. When it ended, more than 1500 people had suffered a gruesome death.

Two hours and forty minutes earlier, First Officer William Murdoch had taken over command. He couldn’t believe how lucky he was. He was steering the largest and most prestigious ship in human history. The RMS Titanic.

The water was calm as glass. The air was so clear that the lookouts didn’t even need binoculars. In such conditions threats could be spotted on eye sight. And the crew would have plenty of time to steer around any problem ahead. During the next 30 seconds, First Officer William Murdoch would learn he was mistaken.

At 23:39, the lookouts spotted the iceberg. William Murdoch didn’t panic. He knew exactly what to do. He ordered the engines reversed. It would reduce the speed enough to steer the ship around the iceberg. He knew because he had been sailing for 12 years.

But William Murdoch was about to learn a new lesson. The RMS Titanic was different. And he didn’t have enough time. Half a minute later the iceberg ripped the ship open and unleashed a true Armageddon.

The lesson: Knowing the stopping distance of your ship is rather important.

Startups sail in dangerous waters

Early startups differ from established companies. And the difference can conveniently be illustrated using ships as the analogy.

A company is like a cargo ship carrying goods from one port to another. It sails a fixed route in a well-known environment. It’s low risk and the reward is predictable.

But a startup is like a treasure ship in unknown water. It often changes direction and must avoid all the icebergs floating around. It’s extremely risky but the reward can be massive.

In the world of startups, the most common iceberg is this: Premature scaling.

Premature scaling is so common that is basically synonymous with failure. Premature scaling happens when the founders decide to employ more people and increase marketing spend too early. Too early is before they have found product-market fit.

The result of premature scale is this: Cost increases more than revenue. The bank account sinks until there is nothing left. The empty bank account is the iceberg. And the engines must be reverse early enough to change course. First Officer William Murdoch of the RMS Titanic would agree.

The importance of the scale down rate

All startups meet icebergs. Like an online game called Glitch. The team raised angel funding. Then series A. Then series B. For every round they hired more people. The costs exploded. The revenue didn’t. The iceberg was approaching rapidly.

The team decided to reverse the engines and change direction. They survived, succeeded and eventually found gold. Today we know them as Slack.

But the story of Slack isn’t unique. In fact, most startups experience the following in some form: The founders have a vision. Investors fund them. Founders take salary. Costs increases. Revenue is lacking. Founders raise more money. The team grows. Costs increases even more. But the revenue is not picking up.

The founders try to raise more money, but investors are becomingly increasingly unwilling to fund them. The iceberg is approaching. And at this point, founders need to know their most important metric. The scale down rate.

A good scale down rate

All founders should track their scale down rate. It must give an updated and accurate measure of the stopping distance. How fast can you eliminate costs to a sustainable level? Most founders don’t know.

The scale down rate is a function of the structure of your agreements and liabilities. Such as, employment terms, loan terms, payment terms to suppliers, access to credit lines, etc. Ideally founders must seek to structure these agreements with respect to their stopping distance. The stopping distance is how long it takes to eliminate costs to operating breakeven levels.

Founders must optimize for flexibility in all agreements. Have the option to delay payment against penalty. Hire people on flexible terms. Decrease monthly salary and replace with end of the year bonuses. Avoid lengthy office rentals. Get a credit line. Keep savings so you can defer salary for a period of time.

What is a good scale down rate? It depends on the icebergs in your water. Delayed funding rounds are relatively predictable. But founder breakups, Google ranking penalties and bankrupting key customers can come sudden. Assess your unique environment.

A rule of thumb would be 1% per day. If you can slash 50% of your costs in 50 days, that should give you enough time avoid most icebergs. And every time you do, you get another chance of finding gold.

Conclusions made:

  • Most founders don’t track their scale down rate.
  • Most startups will experience the need for rapid scale down.
  • Most successful startups have succeeding scaling down and pivoting to something else.
  • If startups don’t know their scale down rate, the risk of losing everything when critical problems arise is very big.
  • A good scale down rate is different for each startups.
  • A rule of thumb is 50% of the costs in 50 days (1% per day).

Check out Accelerace. We invest in tech startups.