by Ken Globerman
a marketing and investment professional operating in New York and Warsaw. He writes, teaches and works with investment funds, corporate accelerators and small to midsize companies on investment strategy, investment communication and strategic financing issues.
The start-up scene in Poland has evolved rapidly over the past decade. Thanks to the support of a few well-managed investment funds, select technology parks, EU public funds and supportive corporate accelerator programs, the Polish start-up ecosystem has moved beyond infancy, and is now making its way through economic adolescence. Like most adolescents, maturity comes with its fair share of growing pains. I’ve spent the better part of five years meeting and working with dozens of small businesses and start-ups in Poland. And while working with some very talented people, I’ve witnessed some basic missteps worth sharing. Here is my top seven:
#7: Feeding an addiction to “free” money
“Free” money refers to grant funding that needn’t be returned. Since joining the European Union in 2004, Poland has been a net beneficiary of economic development funds, with an eye towards supporting small businesses. The positive impact: a significant increase in local start-up capital. The negative impact: fund recipients conditioned to complete projects rather than build financially sustainable businesses. For serial entrepreneurs who prefer to build things rather than sell them, it’s clear how this construct could become addictive.
#6: #Making cool stuff rather than listening to what customers want
Polish start-ups are awesome at building things, they are often comprised of very technically talented teams that evolve out of academic projects or PhD dissertations. As a result, leadership is usually technically strong but lacks balance with softer intuition. Polish start-ups often get caught up building the perfect prototype with tons of cool features without stopping to invest appropriate energy into whether anyone is interested. It’s the “if you build it, they will come” philosophy.
#5: Copying foreign success for Poland
Many businesses have been built upon copying the success of others. But copying foreign success and focusing solely on the Polish market can be tricky. Poland’s relatively large European economy acts as both a blessing and a curse. The blessing is obvious. But the potential curse is that it’s neither quite strong enough nor big enough to scale most internet-enabled services start-ups in isolation. Successful start-ups from small countries like Estonia, Slovakia and Israel understand this right away. They build brands that avoid becoming constrained by geographical borders or pigeonholed by cultural bias.
#4: #Undervaluing sales, marketingand customer relationship management
The typical Polish technology start-up consists of a couple of co-founders with advanced technical degrees, perhaps a small technical support staff, and one totally inexperienced sales/marketing person. The sales/marketing person on board acts more like an order taker rather than a relationship manager or deal closer. Start-ups often downplay the role of sales and marketing, hoping they can rely on external sales partners, online marketing and social media. Now to be fair: can a sales channel strategy work? Sure. Have products gone viral through social media? Of course. But I’ve witnessed too many Polish start-ups completely miss the value of building a strong customer relationship management culture into their respective organizations from the onset.
#3: #Overstressing valuation.
Too little concern for everything else What’s my start-up worth? When it comes to raising capital, time and time again, I find co-founders fixated on valuation. I’m not suggesting valuation is unimportant, but most co-founders fail to prioritize it appropriately with the many other factors one can find in a term sheet, such as: preferred rights, operational control, board composition and other investment conversion features. Valuation should be considered in conjunction with all of the other details. Start-ups that work on raising their “Financial IQ” go a long way.
#2: #Awkwardly handling Polish roots with potential foreign partners
Poland is a wonderful place: full of rich landscapes, resilient people, interesting cities and a complex history. But few outside of the region are aware of it and you’ll rarely hear Poles express things quite this way (they see this language as “showing off”). No one likes a show- off, but the opposite impulse works against one’s natural ability to promote. Poland lacks a strong international identity. Combine this with poor promotional instincts, and you have a greater challenge selling to outsiders. Start-ups can enhance their success rate by fine-tuning their “Polish narrative” and learn to leave behind a positive, lasting impression.
#1: #Misinterpreting the investor/co-founder relationship
An institutional fund operates very differently from an angel syndicate or your Uncle John, who may personally invest in your new start-up. Family members have an emotional attachment, fund managers have partners to answer to, and angel investors come in many different forms. Start-ups in Poland often fail to recognize that how much capital they receive must be evaluated along with from whom they receive it. Closing early stage fundraising is less the end of a transaction and more the beginning of a relationship. And like in any relationship, everyone needs to be prepared for the long haul and expect to deal with unanticipated bumps in the road – together.