Noise is a term given to messages that can distract from a value proposition. When ventures are in their startup phase, they often fall prey to two types of noise, self-inflicted and market driven.
The best example of self-inflicted noise is when founders decide to overuse one-line descriptors like ‘we are the Uber of [insert industry]’. Many founders embrace the false sense of security provided by these statements believing that recipients will automatically make the association between their venture and the famous existing company.
That belief usually comes crashing down when people, particularly investors, are confused by the analogy, know that famous company better than the founder or have a clearer understanding of market dynamics in which the renowned company operates. I’ve been there, and the net result for the founder is going to the marketing drawing boards.
On the other hand, market-driven noise can come from various sources. Governments may change regulation which in turn creates uncertainty, and the resulting noise is speculation on how the government will act. Companies can leapfrog their competition by developing or acquiring new technology. And then there are examples where companies implode and create a different type of noise which can crool the pitch
for ventures operating in their market.
I don’t write much about my day job. I’m the CEO and Co-Founder at Drop Bio
. We are a building what we think is a remarkable platform to help people receive early-warning about chronic disease and achieve important life goals, like becoming pre-pregnancy fit.
The problem and opportunity are global from day one. Drop’s solution and network effect strategy are compelling and we are confident in our business model.
Yet, I have a slide about Theranos in my pitch deck.
The venture that should have crooled the pitch
Theranos was founded in 2003. It claimed to have novel technology to diagnose hundreds of diseases from a drop of finger prick blood. The company raised over 700M USD, and in 2013 and 2014 it was valued at 10B USD.
The founder’s vision was bold, and I think ultimately correct. However, Theranos closed in 2018 when it was revealed that the company couldn’t substantiate its claims and had significantly misled regulators, investors and its distribution partners.
The deceit and systematic failure that took place have created significant noise in the market. Even though it all could have been prevented with proper due diligence and an elementary knowledge of biology.
Theranos spooked some investors, while others consider it a chapter in innovation. And while the only intersection between Theranos and Drop Bio is the use of a small volume of blood, the reality is that the noise needs to be addressed.
There will be other ventures outside of healthcare and biotechnology that face a similar issue. One company makes decisions that spoil the opportunity for others (i.e. crool the pitch) and then those ventures need to not only sell their proposition to prospective investors, customers, partners and hires, they also need to demonstrate why they are authentic and forthright.
Own the noise
It’s easy for management teams to believe that their proposition and credentials will eliminate or substantially deflect the noise. This can be true when a venture has demonstrated traction. In this case, the numbers do the talking.
But when early-stage ventures are still developing that reputation, I think it’s essential to have a narrative that anyone in the company can use to address the noise. I am not suggesting that every team member be deputised to speak on behalf of the company.
What I am saying is that the founders and management team will not be able to insulate the organisation if there is public noise to address. And unchecked, that noise has the potential to demoralise teams.
In my experience, facts should be used to combat the noise. The trick is not to be fooled into thinking that people inside or outside of your business will arrive at those facts by themselves.
To illustrate that point, here is the Theranos side from our pitch deck.