What it’s like to be a startup saviour

When you’re dealing with Steve Hogan, it means business is going badly. He’s part of a network of founders who have made their name turning around startups in danger of folding – and ever since the global pandemic struck, he’s been busy.

Steve Hogan believes in the Silicon Valley promise that innovation drives society forwards. But at 74, he’s also been around for long enough to know that most young companies set out with bright ideas before quickly burning out. Over the course of his career, he’s founded and sold two companies (one of them growing to around $80m in revenue), acted as CEO of five companies that sold, and personally directed turnaround efforts at another 27 companies ‘while only four didn’t make it – a pretty good track record’, he says. Tech-Rx – dubbed ‘Silicon Valley’s first turnaround shop’ – is his latest company.

Q.
Has Covid-19 created the worst business conditions you’ve ever seen?

'I don’t think so, not yet anyway. I’ve been around for long enough to remember how tough things were in the late 1970s, from a purely business standpoint. Inflation was rampant, growth wasn’t very good, the tech bubble had yet to begin. The political spectrum was also shifting. Throughout the first two years of Ronald Reagan’s presidency, there was a slowdown period, while they tried to get inflation under control, and that in turn led to a recession. Now that was tougher than tough. This is more unusual.'

Q.
How so?

'This slowdown is artificial in a lot of ways. Parts of the economy that are hurting are not necessarily the parts that are in need of innovation. Look at the folks who have lost their jobs in the US: those working in hospitality, in travel. These are not the areas where you see a lot of startup activity or innovation. There’s no one out there looking to make masses of improvements to, say, Italian restaurants.'

Q.
So is hospitality the hardest hit in all of this?

'The restaurant business was cutthroat to begin with: it runs on zero margin. People who run restaurants have to absolutely love restaurants – you wouldn’t do it to your family otherwise. After I sold my second company, we invested in a small restaurant operation and we always joked, ‘What does it take to become a $25,000 restaurant business? Start with $100,000.’ And that’s restaurant businesses in good times. I don’t know how these guys are going to get out of it. The retail industry is screwed, too. Where I live in the Bay Area, so much retail has closed down. That part of the economy isn’t coming back in the next five minutes. So we’ve got that overhang in the economy. There’s gonna be a big chunk of business that will be affected, because we’re going to be left with a lot of people who won’t have work for a while. We need to find ways to generate opportunities for those folks. Having said all this, none of this impacts innovation.'

Q.
So who are the biggest winners right now?

'Startups in remote conferencing and telemedicine are on a huge upswing.'

Q.
Tell us the kinds of companies that come to you.

'Our focus is early-stage companies that shouldn’t be early stage any more. They should be successful but aren’t meeting their goals. They’re likely to be unprofitable and running out of money. If we can determine the technology is worth saving, it does something worthwhile, and that the team for the most part is okay, then it becomes a question of how much cash it will take to get them in the right direction.

It’s sounds like a pretty straightforward formula, but there are about 10,000 unknowns. The problem could be as simple as the CEO doesn’t know how to understand cash. It could be that the leadership is crooked. So we don’t always know what we’re getting ourselves into. But you can spot the symptoms.'

Q.
Like what?

'A The key indicator of failure in early-stage companies is when there’s no co-founder. It’s almost a 99% correlation. If it’s a single person leading this company, inevitably with blind spots, and they don’t have a real co-founder – and I’m not talking about some fool they’ve just hired for the sake of it – then they’re screwed. The second key indicator is linked to lack of revenues, and that would be market fit. Sometimes it is as simple as how do you pick a path for your product. The blue market is 4m and the green market is 10m. Have you picked the wrong market? The third is undercapitalisation and poor planning. If you say the software will take a week, it takes a month. We take whatever units of time people are using and say: if they say three days, it will take three weeks. If we say three weeks, it will take three months. Three months, probably three years. And this happens, a lot. You’ll see people raise their first million, and they’ll have pretty nice offices. It’s pure silliness.'

Q.
What unique challenges are founders facing right now?

'Obviously with Covid-19 going on, it’s difficult to spend any face time with people. Yet business is based upon fundamental relationships and interactions with team members and investors. Without physical networking events, it can be hard to drum up excitement or demand for your product. But networking is so important. You go have a beer and a slice of pizza or whatever, and if your pitch is halfway decent, one thing leads to another and off you go. We’re telling founders to go to every single virtual networking pitching event that they can. Double, triple up on that. None of them are a waste of time. If you believe in what you are doing, keep pitching. I do not want to hear from anyone saying, ‘I’m not pitching my company at the moment’.'

Q.
What advice would you give businesses navigating the next three to six months?

1) Because 20-way Zoom calls aren’t ideal, you’ll need to sharpen up your online skills. We’re doing a lot of work listening to folks pitch to see what’s going right and what’s going wrong. It’s a challenge for people with English as their second language. One trick, for example, is to open up with an open discussion, and gently move over to a pre-canned pitch deck with a voiceover.

2) Maintain good relationships with your team. If your 10-person team is working from home, have lunch over Zoom.

3) Conserve your cash.

4) We have paycheck protection loans here in the US. It’s an easy way to get a couple hundred grand. The paperwork is so simple. Anyone who hasn’t tapped that yet is, quite frankly, an idiot.

5) Are you really focused on the right market? Should you pivot? I’m not saying hamburger stands should start delivering fine food, but sometimes the best business opportunities are right under your nose.

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