Ben Kepes, professional board member, business commentator and investor

As we move into 2023, the economic climate is looking rocky for startups. We’ve talked to a bunch of investors who’ve shared their insights into the world of investment, tips on how to find funding and the challenge of running a startup in the current economic climate. We’ll share their video interviews and blogs here and on our social channels. Subscribe and connect on Linkedin and Twitter and we’ll update you as we publish new interviews. 

Ben has worn the hats of both business owners and investors, investing in around 50 startups over the last 15 years. Here he shares his unique insights (and brutal honesty) on the world of Silicon Valley, talks about what he’s looking to invest in, and offers tips on protecting your business in 2023.

Ben’s Tips for Startups:

• Good mentors, advisors, and a good board of directors are really important. You need to be able to have honest conversations about your business and have some neutral, honest truth you can rely on.
• In these uncertain times, making a scenario plan around geopolitics and macroeconomics is important. Ask the question: ‘What if things get really bad? What if we have an ongoing recession and lose 50% of our revenue overnight? What does that look like, and how do we react?’
• Use whatever means you have to offer real and enduring value to your customer. As an investor, Ben values businesses that are creating or making something and seeing sustained profitability.
  

Interview in Full

Daniel: Thanks for taking the time to talk to me. Can you tell me a little bit about yourself and what you do? 

Ben: I do a bunch of different things, including owning my own businesses, working in Silicon Valley as an industry commentator and analyst, I do a lot of governance, and investment: early stage right through to listing and exit. I’m also a professional board member, so I’m on a bunch of boards – public, private, and non-profit, across multiple geographies. So a bunch of different things. 

Daniel: You’ve got your fingers in a lot of pies there!

Ben: Yeah, I don’t have a day job, so it makes it easier.

‘Now is a time (for a) real phase shift from the founders.’

Daniel: It must keep you busy – it sounds like you’ve got multiple day jobs. It would be great to understand your perspective from a founders perspective but also from an investors perspective.

Ben: That’s a really great point. I own a manufacturing business and have done for 30 years. I’ve been through the lifecycle of “make a widget, sell a widget, make two widgets, grow organically,” And I’ve spent 15 years investing in around 50 startups. I’ve had lots of failures but also lots of successful exits – so I’ve also experienced the whole hyper growth – scaling – (where) it’s all about numbers (and) profitability and even revenue doesn’t matter so much.

But then the other lens is that I’ve been through the GFC and what happened there – seeing the infamous Sequoia Capital “RIP Good Times” deck and all.  But out of that, all of those early stage SaaS companies started and I guess we’re entering a new and unknown cycle now.

‘People talk about the dot-com bust conceptually (like it) certainly couldn’t happen now. Well, it can happen now… it is happening now.’

Daniel: And how long have you been in the startup field?

Ben: I’ve been in tech, for 16-17 years, but business generally 30 plus years.

Daniel: So you’ve got a lot of experience in terms of the ups and downs of the industry. I think for a lot of our clients, as early stage founders or first time founders, it can feel like the sky is falling. When you’ve got 500 plates spinning and external factors that will affect the performance of your business. Do you have any initial thoughts and feedback for a founder in that position?

Ben: Absolutely. So there are two aspects. The sky is falling because of the 500 plates. Every startup has innumerable things to juggle and clearly mental health and balance and looking after yourself are really important – but you have to deal with it and that’s the reality. If you can’t deal with it then don’t do this stuff. 

You have typical external stuff but then you have this current situation – the big unknown. If you think about pre-covid (times) three or four years ago – yes there’s all those external factors: What’s hot right now?, Who’s investing in what? What are your competitors doing? What competitive tension does this bring to your situation? That’s all stuff you can’t control – but those are kind of known unknowns.

The thing now is that we have the unknown unknowns (I hate to quote Rumsfeld). Now, people don’t know what’s happening. Capital is really tight, layoffs are happening but we don’t actually know what’s going to happen in terms of the macroeconomic/ geopolitical climate – the unknown unknowns.

And there’s where I put on my hat of 30 years involvement in ‘real’ businesses – businesses that don’t only focus on growth at all costs – (but businesses) that need to be profitable and sustainable on an ongoing basis and now is a time (for startups) to be channelling some of that stuff, which requires a real phase shift from the founders.

The really difficult thing is that – I’ve got lots of VC friends, I’m an investor – I get it, but in times gone by – 3,4,5 years ago – founders made the mistake of believing that investors were on their side. Maybe you might get Angels who are doing it for different reasons but the reality is that VCs are not – they’re doing a job and the job is to make money for their investors. And so they will tell you – 4 years ago – spend all your money – grow at all costs, we’re going to be here for the next round. Now, they’re not doing that. I suggest that’s where having good mentors, good advisors, a good board of directors is really important because you need some neutral honest truth you can actually rely on because lots of people are going to push you down one particular path and it’s really important for a founder to maintain optionality.  

‘I think the biggest risk for Silicon Valley is that there is a lack of humility, honesty, authenticity.’

Daniel: Spoken like someone who’s been in the trenches. One of the reasons why it feels like the sky is always falling is often the case of lack of experience – they haven’t experienced the highs and lows of running big companies – or fast-growing companies before. It reminds me of the Gif of Tom and Jerry putting the track on the railway as they’re on the train. Do you think businesses are moving faster or do you think it just feels that way because we’re new? 

Ben: I don’t think it’s faster moving – it’s a different sort of motion. The space has always been moving fast, it’s just right now it’s going in crazy directions. Again, I think it’s really important for those of us who’ve been around for a while to not sugarcoat things – it is unknown and failure will happen – that is kind of the reality. It is totally unrealistic to think that you can make a 400X return simply by working hard for a couple of years and being smart.

We’ve had an extended period – of course there’s been failures – but where we’ve really only seen the upside. So the problem is that we’ve got a whole generation of entrepreneurs who really believe that they’ve cracked the code because they’ve never seen an alternative reality. And clearly people talk about the dot-com bust and the GFC and stuff like that but what I observe is that people talk about it really conceptually – this thing happened over here and it’s not realistic and it certainly couldn’t happen now. Well, it can happen now. It will happen now. It is happening now and people need to scenario plan for that.

‘We need to make sure that the business is sustainable and the ecosystem is sustainable and that will happen through real and enduring value.’

Daniel: I like the fact that you’re quite honest about how hard it is. I fell into the field because I love the concept of being able to come up with an idea and monetise it and create a business out of it. There’s nothing stopping you as long as people want what you’re trying to monetise. Do you think there comes a point where you start developing the skill of identifying what the market wants and you have a significantly higher chance of getting product-market fit than first time founders? It’s a skill that you need to fail at to get to that point. Most startups fail. What are your thoughts on what makes startups fail or succeed?

Ben: At the end of the day if you want to make a dent in the universe you have to have arrogance, self-confidence, bull-headedness, whatever, but at the same time realities are realities, you can’t change the laws of physics, you can’t change the macroeconomic climate.
Founders need to have a somewhat schizophrenic view of their business, which is like: I cannot doubt that this is going to be successful – this is going to be a 400X exit. But at the same time they need to be able to phase shift to ‘there’s some realities here’. And that’s very hard to do as a founder or even a founding team.

And that’s where I’m biassed because I’m a professional board member but I think it’s really important to have a formal or informal advisory board – even just good mentors who will be brutally honest with you and whom, maybe even more importantly, you can be brutally honest with. Then you have people you can take off that facade and say: ‘I am super-confident – this is absolutely a thing. However, X, Y and Z. It’s really important to have those honest conversations.

Having spent a significant time in Silicon Valley and those ecosystems trying to mimic Silicon Valley I think the biggest risk for Silicon Valley is that there is a lack of humility, honesty, authenticity – which is fine until it’s not. The facade starts to crumble when investors start to question what you’re doing. As an aside, that’s the opportunity for ecosystems outside of the Valley to get that awesome growth, creativity, innovation and agility, but in a more sustainable way.

‘I’d love for us (investors) to embrace true innovation.’

Daniel: That leads me into my next question, which is, this year, what changes would you like to see in the startup community?

Ben: I rail against hangers-on who are just there to monetise or get a few points of equity for the service they offer, and I’d love for all of that to fall aside. I’d love all of these organisations – whether they’re governmental or nongovernmental – who are just leaches – to fall to the side.  And I’d love for us to embrace true innovation. I love SaaS – I’ve invested in a bunch of SaaS companies – they’re awesome, but if you had to offer me the option of investing in a SaaS company or someone doing something really fundamental – building rockets or deep tech or making something – I would go with the latter.

Post GFC, as we hit the rise of SaaS, the model was – anything – any opportunity, any idea – finding a tiny slice of a tiny slice. It’s feasible to build a SaaS business. And now, all of these enterprises have 100s and 1000s of SaaS tools and now they’re realising they need to consolidate – to decide what actually delivers value and what doesn’t.
 

I’ve seen hundreds of investor pitch decksthat all talk about total addressable market and extrapolate that into their market opportunity, but how many of them do you believe? There aren’t enough billions of dollars for all of these tiny slices to capture that TAM. I hope that the next 12-24 months will be sufficiently bad economically that it forces us to reset economically.

The problem as I see it, from the GFC, is that, yes, some good things came out of that – enterprise SaaS etc – but it didn’t actually reset the value set of investors and more generally the ecosystem. That sounds like a very hippy-leaning statement but it’s actually for our own survival as an ecosystem. We need to make sure that the business is sustainable and the ecosystem is sustainable and that will happen through real and enduring value. 

‘I hope that the next 12-24 months will be sufficiently bad economically that it forces us to reset.’

Daniel: I really like that – particularly about the relationship between innovation and enduring value. I feel like that should be stuck on a wall, and you should always go back to it. As we’re coming to the end of the interview, I was wondering if you had any advice or words of wisdom for the community.

Ben: Definitely no wisdom! But I think now is a fantastic time for founders to have a really critical look at what they do, who their customers are, the value they deliver, their teams, their investments, essentially time to reset some models.

A really useful lens for that is scenario planning. Lots of organisations I’ve been involved with in the last few months have done some scenario planning around geopolitics and macroeconomics. If things get really bad, we have an ongoing recession and we lose 50% of our revenue overnight, what does that look like and how do we react?

A company I was involved with during covid did a bunch of that and as it happened what they saw was massive growth, but that was still a really useful exercise to do because it starts to build ‘muscle memory’ for reacting to chaos essentially. We don’t know what kind of chaos is coming down the line but we do know that something is coming.

‘We don’t actually know what’s going to happen in terms of the macroeconomic/ geopolitical climate – the unknown unknowns.’

Daniel: That’s a really cool idea. I think a lot of founders are busy running the company and don’t really think about what they would do if their biggest suppliers stopped working or their revenue significantly dropped. Doing some scenario planning can help you think about what you would do. What do we need in order to survive? A lot of people are afraid of the future but that often leads to paralysis.

Ben: It’s very hard to react to known situations, but you’re absolutely right, when it’s an unknown situation it can lead to paralysis. That’s where doing some scenario planning can help.

Daniel: Thanks for taking the time to talk!