My dog-eared copy of this very good book.

A Compulsory Read for any Tech Startup

“Unicorn Tears is the smart entrepreneur's guide to startups. A full 92% of startups fail in the first three years — but failure is not inevitable.” – Unicorn Tears author Jamie Pride

I’ve just finished Jamie Pride’s Unicorn Tears. I loved it. I’d call it compulsory reading if you aspire to be a tech startup founder. It’s so good that I thought I’d do a quick book review and summary; call it a Kim’s Notes version if you will.

In my two-plus decades in finance and accounting, I’ve worked with nine unicorns – so far. Hopefully number ten will be around the corner but one never knows. In my experience I’ve seen startups do the right things and do the wrong things. And while sometimes even doing the right things doesn’t guarantee success, it definitely will give you a better chance than if you do the wrong things.

In his book Unicorn Tears, author Jamie Pride, who has been a part of many successful startups, offers his perspective and advice on what works and what doesn’t for entrepreneurs. I originally thought that the title was a reference to “crocodile tears”, which is an insincere display of emotion about an issue. I thought he was saying “don’t feel sorry for these rich, young kids who are getting millions of dollars to create some new iPhone app.” But he’s not.

In reality, Pride is describing the real impacts of a startup failure. Not just the large financial losses, but more so about the personal emotional impact of a failed startup. The failed relationships. The related health issues such as burnout, depression, addiction, etc. That is, the dark side of the startup world; these are the real tears. And I have seen them.

Pride states that most founders simply aren’t equipped with the skills they need to be successful, and we are only now starting to explore and understand why startups fail and how to prevent that. Pride’s goal in writing the book is “I want those founders, having learned from their mistakes, to come back and build bigger and better startups.”

 “I’ve made a lot of mistakes so you don’t have to. I have gone through the personal pain of startup failure. I’ve felt the sting of losing investors’ money and the embarrassment and stress of large-scale public failure. And I’m still here. I can teach you the lessons I’ve learned firsthand.” – Jamie Pride

There is a ton of excellent, useable information in this book. Very realistic, pragmatic, direct; for example: “yet humans have this inbuilt emotional belief that says, ‘If I want it badly enough, I’m going to be one of the exceptions.’” And unfortunately, pure desire isn’t enough. You gotta have a good plan.

There’s so much good advice, both on what to do and what to avoid, that I feel it best to break it down, chapter by chapter (don’t worry -- it’s a pretty short book!), so that you can get the most out of this very valuable tome.

Missing: Two key things that startups must do

I have to point out that a couple of things that Pride does not mention in the book. The first is the sub-optimal trait of “blowing the bank” on a particular hire, usually C-level like a CFO, who might be needed for getting funds, but obviously isn’t needed to do the day-to-day bookkeeping for example; this hire can be a huge waste of the hard-earned funding. I’ve seen it happen and it can be devastating for a startup.

The solution, of course, is to hire an interim or fractional CFO, i.e., someone with the clout to talk to investors and boards of directors, but who is only needed for those very few things, at least at the moment.

The second is having “rainy day” money set aside to protect your IP and your business. So, in the unlikely event that your venture doesn’t work out, you have something to leverage or sell in the long run. I was a CFO at a startup called InfreeDA, which unfortunately ran out of money, but which was still able to sell its IP to the AT&T telecommunications company, giving the founders a fair amount of money for their efforts.

I work with and also recommend a company called Multi-Innovation that helps company’s do just the above: protect their IP and their business and create a bit of a safety net for the founders. It’s a brilliant idea.

Read on to learn how you, too, can create a unicorn. Or at least have the best shot at one

For this review I’ll break down Pride’s book, chapter by chapter, and pull out the key takeaways from each.

The Unicorn Tears has a ton of great material. Fortunately the author has organized the book into very concise, logical components, making it not only very easy to read, but also easy to remember! To wit, Unicorn is divided into two basic parts: First, why startups fail, and then second, how to set your company up so that you avoid failure. Let’s dive in.

Chapter 1: Counting the Cost

Pride provides a lot of data to support his supposition that startup failures cost more than money. For example, more than 100 million startups are founded every year (that’s about three every second), but 92 per cent of them will fail within three years — to which he states that these failures are largely preventable.

Most of these failed companies are a result of self-sabotage, where they have unconsciously eliminated any chance at success before they even get started. It’s not the economy, it’s not politics, it’s not external factors; failure comes from within. This book shows you how to be one of the unicorns — one of the 8% who make it.

Think about that: If you had an 8% chance of success on anything, would you do it? Definitely not with most things—like flying or skydiving!

But, if you follow the recipe in this book, you will have a much better chance than most of succeeding. Here’s that recipe, at a high level, in form of a list of the ten reasons that startups fail:

• founder(s) lack capacity
• founder(s) lack capability
• founder disharmony
• ran out of cash
• too much funding
• investor–founder disharmony
• solving an irrelevant problem (desirability)
• ineffective business model (viability)
• poor execution (feasibility)
• external threats/competition (adaptability)

Chapter 2: F is for Failure

I love the title of this chapter. When I was a kid if you did poorly on a homework assignment or subject you could get an “F”, which, we were told, was for failure. (Note: I grew in the time before PC was PC.) When that happened, you felt like a failure. I’m not sure if they still give out Fs in school, but to me, it was very motivating to not be a failure. (To be honest, for me getting a B - whatever that stood for – was a failure but that’s another story…)

What the F?

Pride starts out the book by categorizing startup failures in the three basic “Fs”: Founder Failures, Funding Failures, and Flawed business models, and then embellishes upon those to provide real world reasons to support each category and level.

Founder failure: Fun fact: There’s an estimated 450 million entrepreneurs working on startups at any given time around the globe. Nearly half-a-billion! Here’s how most of them don’t make it; they simply run out of:

• Founder capacity – they just cannot keep up with the demands of being a startup.
• Founder capability – they don’t have the skills, i.e., technical, communication, leadership, etc.
• Of the two, the author states that capacity is most important.

Compounding this problem is our current culture of ‘I’m crushing it’ which makes it hard for founders to admit they are struggling.

Funding failure. The obvious one is running out of money. This can happen for a number of reasons, but chiefly because the investors have lost confidence in the idea, or additional investors don’t have the confidence to join in on the idea. The author states that overfunding can cause failure, which can cause overconfidence and a “loss of hustle.”

Flawed business model – founders place too much importance on an idea, and confuse the product idea with a business model; they aren’t the same. Remember that of the 92% of startups that fail, one-third of those are due to, basically an idea – good or bad – that the market just doesn’t want. These failures fall into four broad categories:

• Lack of desirability: The product solves a problem that the target customer does not have.
• Lack of feasibility: Simply, a failure to execute, e.g., poor hiring, lack of focus, slow to react.
• Lack of viability: The product simply cannot be created and marketed within the measures of revenue, growth rates and expenses.
• Lack of adaptability: The market changes due to competition or government regulation, etc., and the startup fails to adapt.

“Don’t be a wantrepreneur, ie, those who are going into it for the wrong reasons,” admonishes author Pride. They are in love with the idea of running a startup, rather than the problem they are solving or the product they are building. They love their idea of the glamour, of being able to tell their friends, ‘I’m in a co-working space and I’m working on a world-changing product!” Sorta like “Look at me! I’m writing a best-selling novel!”

Similar to a Hollywood actor, you’ve got to be able to instantly answer the question: “what’s my motivation?” (More on the Hollywood angle in a bit…)

The first of many, “hand-crafted” – but very communicative – graphics.

Chapter 3: The founder myth

Describes how founders can be their own worst enemy. They fail on the aforementioned lack of capacity and capability, but also on founder disharmony. For the latter, I’ve seen this in real life. In rare circumstances to co-leaders work, as they did with Lewis and Clark, and Hewlett and Packard; but usually they do not. Two heads are not usually better than one, at least in my experience.

What makes a good or bad founder:

• Let’s look at what makes a bad founder first. It’s all the things you’d expect. And I am sure that you’ve seen these traits, like huge egos, arrogance, ignorance (a deadly combination), blaming others, rejecting criticism.
• Also, naivete. I’ve seen a lot of founders flounder as they have no idea how difficult and challenging it’s going to be. When the going gets tough, they can’t keep up and fold.

What makes a great founder?

In my personal experience great founders are much more rare, a pretty obvious statement borne out by the fact that most founders fail (remember the 92% failure figure). That’s not to say that great founders don’t fail; they are less likely to do so. Here are their traits:

• They walk the talk and are authentic; have a bias to action, i.e., hustle, encourage learning, create a collaborative environment with their teams and stakeholders.
• They have high integrity and are open to feedback. They are ‘coachable’ learn, empathetic and adapt quickly work well in ambiguous environments aim to deeply understand the customer and especially, the market.

Pro Tip: Choose your board wisely:

• Another aspect of selecting the right people is appointing board members. Most startups look for big names on their boards because they think that will help them raise money or provide them with credibility and kudos. My personal experience is that appointing high-profile directors to your board can be a bad idea. Unfortunately these big names won’t understand your business, or alternatively they will want to run it. The worst is when it turns out that instead of having four or five board members, you have four or five wannabe CEOs on your board, and they all think they know better than the actual CEO.
• This situation leads to disharmony (at best) between board and founders, and creates conflict in the business. I’ve seen it too many times. When entrepreneurs ask me about boards, my advice is to think carefully about what you want from your board. Is it strategy? Is it governance? Is it an introduction to investors or sales support?
• Smaller boards are better than larger boards. For an early-stage startup, if your board is bigger than five you have a problem. Next, ensure your board is an uneven number — boards of three, five or seven members work best. Then ensure you have a diverse mix of skills and backgrounds. You don’t want all VCs, or all men, or all entrepreneurs. A great board will be a huge asset to you. Choose it extremely wisely, and ensure they are compensated primarily with stock, not cash — you want them tightly aligned with your success.

Chapter 4: Ideas are cheap!

“Ideas are a commodity, the execution of them is not.” – Michael Dell

Among the 92 per cent of startup failures, ‘no market need’ is the predominant cause; i.e., in 32 percent of cases. So nearly one-third of the failures are due to someone having a great idea – in their mind anyway– but one that the market does not need nor want.

Ideas. Seems that everyone’s got one. Many founders rate the importance of their idea at a “change the world” level status. Why not, it worked for Steve Jobs and on more than one occasion. Unfortunately, overconfidence in ideas is the most common reason for startup failure — a failure that manifests itself in the aforementioned “no market need” category. Simply put: an idea is not a business. Of the ten reasons for startup failure, four of them relate to idea failure: solving an irrelevant problem (lack of desirability) ineffective business model (lack of viability) poor execution (lack of feasibility) external threats/competition (lack of adaptability).

Chapter 5: Cash is King

“It is important to remember when starting and growing a new company that cash is more important than your mother.” – Al Shugart, founder of Seagate Technology

In my Cash is Elvis LinkedIn post I describe the importance of positive cash flow. Cash is king when it comes to startups. It is the oxygen that keeps your business alive. Not enough and you’re going to die. Paradoxically, though, as the song goes, “if you get too much, you get too high,” which we discussed previously as an overconfidence/low hustle problem.

When a founder thinks about cash, they typically focus on fundraising, which is important, but not the most important, financial aspect that founders should consider. Of the ten reasons why startups fail, only three can be attributed to funding-related issues: running out of cash, being overfunded, and investor disharmony. Most founders understand the problem of being underfunded. But most don’t know the risks of being overfunded. Finally, the relationship you have with your investors is also extremely important. If you don’t get this right, then investors can make your life as a startup founder a living hell.

The Reality: Money Matters

There is no sugar-coating it: if you are a startup founder you need to be intimately across the financial model and performance of your business. If the thought of accounting causes you to break out in a sweat, then it’s time to tackle that fear. You cannot start and run a business without a good grasp of how it makes money.

On the bright side, you don’t have to do it alone. You need a bookkeeper from day one. You need someone who is going to be responsible for the finances of the business. When you can afford it, a great finance director or CFO is invaluable. But they are only there to support you. It’s crucial that you, as a founder, understand how the business operates at an economic level. For founders, it’s easy to ignore the financials and focus on other metrics, such as user growth. Trust but verify, as the saying goes…

Another myth is that startups don’t need to be profitable. This is simply not true, and the sooner founders realize that they need to build sustainable businesses the better. However, finding and building sustainable economic models is hard. Most people want to take that easy route and ignore the underlying financial model of their business.

My advice is that you have a good, self-sustaining cash flow before you get to, for example, series D funding. As we speak these later stages are getting harder and harder to find - https://news.crunchbase.com/venture/series-d-startup-funding-down/

 The Foundation: Build a financial model

Developing a financial model is the first step to understanding the economics of your business. And remember, you don’t have to do this alone; hire a good financial modelling expert asap. And start on your financial model as early as possible. Pride describes an adage in the venture community that goes, ‘The thing that is always right about early-stage financial models is that they are always wrong.’ When you’re preparing early-stage financial models, it’s best to model a maximum of 12 to 24 months ahead, but no more.

Funding tranches can be a win–win scenario for both the investor and the founder. Funding in tranches means an investor commits to a line of funding but provides the cash only once certain performance milestones are achieved. For example, an investor might say, ‘Okay, I’m going to provide you with $2 million, but I’m going to give it to you in $500,000 increments, based on your achieving certain mutually agreed measures of success.’

These tranches obviously protect the investor, but they are also extremely motivating to the founders.

More on funding can be found in Chapter 9: Funding Fitness. It’s a must-read for sure.

Chapter 6: Founder Fitness

In chapter 6, Pride describes that founders fail due to two things, capacity (endurance), and capability (skillset). Author Pride then describes how to fix these two problems.

The first issue, endurance, is reflective of “founder fatigue,” which the author calls the elephant in the room. The conventional wisdom is that founders need to be like Apple’s CEO, the late Steve Jobs, or the product architect of Tesla Motors, Elon Musk, or Cisco’s cofounder Len Bosack (who famously said, "Sincerity begins at a little over 100 hours a week.”^[i]). Idolized as they may be, it ​is easy to forget they are human beings with flaws and failings like everyone else.

Founder fitness model: How do you stack up?

Last, but most important, is sleep. Many founders wear exhaustion like a badge of honor, boasting about how little sleep they get. Sleep is a wonder drug. You can’t operate 24/7. Lack of sleep makes function well below your best.

Empathy and mental fitness are also very important. Gone are the days of the tyrannical founder, driving employees to impossible deadlines and inevitable burnout – empathy is the new way to go.

The next section in chapter six is titled, “Empathy is the New Black: Mental Fitness.” Which is pretty self explanatory. Investors look to see how mentally fit the founders are. And the best indicator of mental fitness is coachability, according to the author.

Mental fitness also plays into another emotion that founders need to control: fear. Fear of failure. Fear of disappointing one’s team and investors. When you raise capital, many of your investors are investing in you, especially in the early stages of the business. It’s exciting to be funded, but once you are it can be incredibly scary. Many overreact to this fear by working around the clock, thinking that if they just push harder…

Don’t worry. You’re not alone. Everyone has a fear of failure, of disappointing people, of letting your team down. It’s important to acknowledge the fear, but not to let it overwhelm you.

Chapters 7 & 8 – Hollywood as a business model

In my experience, the best founders are also great product people. By that I mean they have great natural skills in understanding customer problems and then can translate that often have outstanding insight into contrarian solutions to those problems. A disproportionate number of the best founders I know gravitate towards product development rather than sales. With that in mind the author has created the Hollywood

Pride’s ‘Hollywood Method’ of lean product research and development is worth the cost of the book alone, distilling so much into a simple template for minimizing risk and yet making it easy enough that anybody who’s ever seen a movie about the movie business will understand.

I recently watched an epic movie called The Fabelmans, a semi-autobiographical story based on Steven Spielberg's adolescence and first years as a filmmaker. In the film, the dad wants his son to understand that business is just like making films. He tells him that both disciplines need to have an idea, develop it, and then bring it to market. (Author Pride does the same.)

The four phases of making a movie are similar to the four phases of building a product – and a company. The author calls this “The Hollywood Method™” and yes, he did trademark it.

Nitpick: While I think the Hollywood Method has merit, the author devotes nearly a quarter of the book to this idea. It’s no doubt worth reading; personally I think that it could’ve fit into one – vs two – chapters.

Chapter 9: Funding fitness

I’ve helped many startups raise lots of money. For example, I created the financial models that enabled LimeBike (now Lime Micromobility) to raise over $460 million – nearly half-a-billion – that allowed them to expand exponentially all across the US and the world. So I’ve been there (and did that).

Naturally I am huge fan of Pride’s lessons on funding fitness. He really gets the financial aspects of things, at least at a high level. In a similar way that the founder must be fit, a startup has to keep its funding fit as well. Here are Pride’s lessons for doing just that:

• What is investor-centered design
• Building investor empathy
• Refine and iterate
• Persona: what to look for in an investor
• Proof: what investors look for
• Pitch: your investor value proposition
• Process: own it!
• Finally: Doing the Deal

 The author outlines four essentials of an investable idea: desirability (solve a relevant problem), viability (have an effective business model), feasibility (the resources to get the job done), and adaptability (manage external threats). For time’s sake I won’t dive into the details of these components, but I will say that the author is spot on in his descriptions of them. This section is a highly recommended reading. Make that a must read.

“My kingdom for a horse!”[ii] – Richard III; Shakespeare. Possibly the most notable example of feasibility (and required resources) ever written.

 Without going into a ton of detail on the subject, I did want to point out the author’s list of the five key elements of the Funding Fitness model (the five p’s?), as they are a good outline for your “get funded” process:

1. persona — choosing the right investor.
2. proof — what investors look for. ​
3. prep — preparing for the raise.
4. pitch — your investment value.
5. proposition process — driving a successful outcome.

 By focusing on these items, and by properly executing them, a startup has a greater chance of raising capital at the best possible deal from the best possible investors. 

Good advice from the author: “I hate to say it, but you will come across a lot of wannabe investors. Just as the startup community attracts founders who like the idea of running a startup but aren’t serious, you will meet people who claim to be investors but have never written a cheque. Questions to ask include: How many deals have they done? Over what time frame? When did they make their last deal? Do they lead or co-invest alongside someone else? Do they follow on or only make single investments? What is the size of their average cheque?”

The Bottom Line:

Among the 92 per cent of startup failures, ‘no market need’ is the predominant cause in nearly one-third of the cases. Pride’s book does an excellent job of addressing this issue as well as the fundraising issues, founder burnout, and other key elements of a how startups can succeed – or not.

Follow the advice in this wonderful book – no guarantees – and you will have a way better chance of success than if you just “wing it.” And please let me know if I can ever be of help. I’ve seen it all and can give you sound guidance on what to do – or what not to do.

Good luck!

All my best,

Kim

[i] https://news.ycombinator.com/item?id=481971

[ii] https://www.folger.edu/blogs/shakespeare-and-beyond/richard-iii-my-kingdom-for-a-horse/