November 2014: The Trials of Life

I remember back in the early 1990s watching the David Attenborough written and presented documentary The Trials of Life and being stunned by the precariousness, transience and apparent brutality of life in the animal kingdom. I was reminded of this recently when considering the trials that start-ups—both capital markets firms in the form of hedge funds or other specialist money managers, and third-party technology vendors—need to negotiate in order to survive. Okay, so their tribulations are not quite as dramatic as those faced by wildebeest and Thomson’s gazelle on a daily basis on the Serengeti, or those encountered by sea lions on the coast of Southern Patagonia, as they attempt to elude the large number of killer whales that frequent the area in the summer months, not only in the shallows but often right up to the to very edges of the shingle beaches.

Technology start-ups face something of a catch-22 in their quest for survival, or at the very least, to make it to the next round of funding. It is crucial from the moment they open their doors for business that all their focus is on signing clients for two reasons: It’s the surest way of establishing recurring revenue streams and weaning themselves of their investors’ seed capital, which as anyone involved in a start-up knows, is a double-edged sword; and those first new names on the client roster are also an endorsement that the premise upon which the firm was founded and its offerings have made the grade. In other words, they are fit for capital markets consumption. And, if one of those first clients happens to be a household name and is prepared to act as a reference client, then so much the better. But this is where the catch-22 bites: Capital markets firms tend to err on the side of caution when it comes to implementing untried and untested technologies, and perhaps even more so when it comes to partnering with a fledgling technology provider with no track record and even fewer guarantees that it will be open for business in a year’s time. It’s a conundrum that all start-ups face and one that only a relatively small number are able to successfully negotiate.

But those that are able to fully fledge and leave the safety of their investors’ nest often go on to long and successful lives, although this next phase is not without its own set of unique trials, the most pressing of which is whether to opt for independence and self-determination or to accept an offer to become part of a much larger and better funded organization, a decision all successful technology providers face at one time or another.