Startup or Scam?

Speaker A: 00:00:00

Hello and welcome to the Cognitive Engineering Podcast produced by me, Fraser McGruer for Aleph Insights. In this series of podcasts, we take a look at interesting topics and discuss what we think they tell us about analysis and decision making. I am here with Nick Hare and Jordan Fermanis of Aleph Insights, and this week we're discussing the Mad Bird Design Agency. So Nick, I know when you initially, we're actually already in a good position to talk about this, or maybe, I don't know, because you started a startup, right? Yeah. I think you were first going to call it Mad Aleph, and then you talked about Aleph Peach, and then... Aleph Lee. Aleph Lee, yeah. And so, yeah, so what's this business with Mad Bird? What's it all about? Well,

Speaker B: 00:00:50

there's a story on the BBC a few days ago about a chap called Ali Ayad. Well, he might have been called that, apparently there's some doubt about his true name, but he founded a design agency called Mad Bird. Yeah. Very design agency type name. Yeah. And hired something like 50 people who were all hired on the basis of the future commissions that they would earn, and visas. Now, it's an agency, so it's fair enough. Maybe they weren't salaried. It was like, we'll get you work. Yeah. And, you know, we'll pay you some share of the future work that you do and bring in and so on. And they, you know, got, as I said, everyone working there, in inverted commas, just believed that they were working for a design agency. Why wouldn't you? Anyway, then it turns out that a lot of the staff, some people got a bit suspicious about how successful they were, discovered that a lot of the staff were made up. So some of the senior people on the website were like stock photos. Right. And they had totally made up biographies and stuff. And also, sorry

Speaker A: 00:01:51

to interrupt, I think it was made possible by the fact, pandemic, right? So it's all remote and people around the world, internationally, that kind of thing. And although they kind of were physical offices, they weren't really. Oh, they were. Yeah, they were not offices at all.

Speaker B: 00:02:02

They were someone's house or something. Yeah. Yeah. Yeah. Anyway, so he, then he basically disappeared as soon as people were on to him. I think the BBC tracked him down. But I was, what I found strange when I was reading this article was I was like, I just found myself thinking, well, this sounds like most startups, you know, like a lot of startups, they have to pretend to be bigger than they are. They've got to kind of base it on future success. And I just, I wonder if the problem here was simply that it didn't succeed. That actually, you know, the only reason it was a scam was because they didn't get any work. Right. Because I don't. It's sort of true, but keep going. Yeah, I don't really see that he benefited very much from doing it. No. Other than perhaps his own ego or something. But it did make me think, well, you know, because I, so I felt like I could have been reading the origin story of a really successful startup, but it turns out. Saatchi and Saatchi. Although that did go down at one point. Right, they did stuff like. They hired actors, right? Yeah, they did all of that. I mean, and it's not uncommon for people to, you know, set up email addresses for members of staff who don't exist to try and make their company look like they've got more people in it and so on. All of these things, I'm not going to say that they're, you know, totally legit, but they're. They're fairly sort of par for the course. Right. So I suppose the question we want to discuss is what is the difference between a startup and a scam? Brilliant.

Speaker A: 00:03:25

OK, I can. I think there was one, maybe two lines that definitely were crossed here. I think the first one and sorry, Jordan, we'll come to you in a sec. I just interrupted you there. But yeah. Or do you want to do you want to say because I was just one of two differences.

Speaker C: 00:03:40

You go for it. Yeah, I think on Nick's point that I think there were some pretty key differences between a genuine sort of business in this in this case. It seems as though this guy sort of lied and hid things and misrepresented himself and the company to all of the staff.

Speaker A: 00:04:00

Yeah, I think that's one key thing. The internal kind of subterfuge. Yeah. So I think that kind

Speaker C: 00:04:07

of crosses the line between sort of genuine business and scam is when you start sort of spreading misinformation amongst your employees. But I think Nick's right in the sense that sometimes there is sort of ambiguities and sort of grey areas when you're starting up a business, especially in the startup world, it seems. So I think maybe had this continued, had it gone long enough for the business to start generating revenue or something like that, it would eventually turn into a genuine, a genuine business. So maybe it just got caught at that sort of period of time before it was able to flourish into a genuine business. Yeah. Actually, because this is a

Speaker A: 00:04:49

good case in point of well, what is the difference between a startup and a scam? Because I think it's partly that the internal lying, let's call it. And the second thing is the fact that people weren't paid. They weren't given a salary. Now, obviously, they were upfront about that. But that suggests, I think that is very unusual. Okay. They were on the verge of getting contracts. They weren't far off. Something else they did was pass off other people, other design agencies work as their own. Yeah. So it's almost... But just to say before you come in, Nick, I think something, I think a normal business model for an agency is you start off small, you get a contract, and you start to employ more people almost per contract. And that's how you build the business. And I think that's what he was trying to do. And he was just on the wrong side of certain things.

Speaker B: 00:05:36

Yeah. But of course, doing it by winning work is very old school. Well, I mean, if you think about, this guy's going to have, you can tell by looking at him with this sort of smart outfit and his carefully groomed beard, that he's got Silicon Valley startup guy as his model. And the idea that you build a business by winning work and using the revenue to grow is very old fashioned, isn't it these days? That's not how you build a successful business. Well, it is weirdly, which is why we are still in business. But yeah, the model is mainly to get investment on the promise of vast future earnings, get lots of investment, grow very, very quickly, and then get a product and a user base and then monetize, you know, in some cases, years down the line. But the point is that, you know, everything is about future revenue. And I think this guy sort of was really trying to jumpstart that process, a similar thing to get, start out by getting a big organization. And then of course, he can go into a boardroom and say, here's my pitch, we got 50 talented young designers from all over the world, you know, give us work. And that's obviously going to be a much better pitch than, you know, it's me and my mate in a garage. So it makes sense to me that his approach actually is a very standard one, even if it's not traditional, but it's always taking that kind of modern day, let's massively ramp up a company first, and then we'll get the work, which is the which is, you know, pretty much industry standard

Speaker A: 00:07:19

for Silicon Valley. And you absolutely, I think you sort of you kind of hinted at it. And you're right. I think you're right in when you're talking about, he was doing it in the new sort of way, because actually, you described the way he looked. But also, I know a lot of the kind of the vocabulary was very kind of influencer, Instagramming, entrepreneurial, that sort of, which is very sort of the way things are done now. So yeah, we'll come to Jordan, I've got a question

Speaker C: 00:07:46

I want to ask Jordan. I think what Nick was just describing, also sort of reveals why startups are susceptible to scams is because you can raise capital, essentially just off an idea, and venture capitalists will fund it, even before you've actually like figured out the core sort of business fundamentals. So I think that leaves open the possibility for scammers to sort of come in and

Speaker B: 00:08:13

the something or other act of: 1978

Speaker A: 00:09:56

Absolutely. And I think... And also the delusion and, you know, all the sort of the best lies or the biggest liars, you know, the liar themselves doesn't always realise that they're lying, they believe it himself. And I'm prepared to sort of, you know, he's somewhere in that line. But look, I mean, yes, you've done some definitions of fraud there.

Speaker B: 00:10:12

Well, I thought it might be worth looking at one case study, which is quite well known. I don't know. What did you unearth about that? What was left out? Elizabeth Holmes.

Speaker A: 00:10:26

Because for all you do, I feel we've answered this.

Speaker B: 00:10:29

No, no, no.

Speaker A: 00:10:29

Have we not? No, there's a lot more to delve into here. Well, let's hear from Jordan. My only point with that is that I think there's sort of this...

Speaker B: 00:10:37

years. And by: 2013

Speaker A: 00:12:58

s.: 1980

Speaker C: 00:14:19

worked out. That's my question. Jordan? Yeah, I think that's true. But I think to take the Theranos example, like I think there was some very, Saatchi and Saatchi is still like, even though they might have engaged in some malpractice or some dubious ethical things. Fundamentally, they were still like a business. Whereas I think the difference with Theranos and Madbird is that there was very little that you could say about them that would resemble a genuine business. Like I think it was, it was essentially a complete fraud.

Speaker B: 00:14:54

ill Gates saying he wanted in: 1980

Speaker A: 00:18:32

cut you off there, it reminds me of my first foray into the corporate world, because I was a teacher for a number of years and came back to the UK. And I worked as a sales guy, a telesales guy, right. And, and so we would, I worked in the conference industry, in for financial conferences. So basically, I was cold calling bankers, insurers, that kind of stuff. And it was actually, in retrospect, I didn't quite realise at the time, it was a very, very sales driven company. Now, that may sound an obvious thing, but it's not actually because most conference companies would have maybe one sales guy selling delegate seats on a conference. This company would have three people selling it cold calling people. Okay. But the key thing is, I remember, we had a sort of script that you would work to, and the conference is two months out, you haven't got anyone booked, you call up your first person, limited spaces, yeah, I'm calling you now, unless you do this right now, you're not gonna, you're not gonna come. Okay. I mean, it was clearly not true. However, I felt comfortable, more or less saying that truth, because what I did understand, if you don't say to people, look, you need to make a decision now, the conference will never happen. Okay. Or people only book on the last minute, you won't get as many. But, but, you know, it's because you, you believe it, you make it true, you make the truth.

Speaker B: 00:19:51

You're doing something very similar to companies that rely on a network effect, in order to be successful. Exactly. So, you know, Facebook needs to, well, Facebook didn't, it had a small user base to begin with. But if I started my own social media company, now, I would have to pretend that everyone wanted to be on it. Yes. Otherwise, no one would want to be on it. Yeah.

Speaker A: 00:20:11

So there has to be that pretence first. And then in terms of that sort of, that conference company, what would definitely be a lie would be to go would be to sell them a conference that was irrelevant to them, let's say there was no point in them going to it, but somehow sort of, that would be a lie. And that's something, frankly felt pointless to do. And no one ever did.

Speaker B: 00:20:30

I think it's a fine line, to be honest. I think you're basically trying to absolve yourself from what you know was a massive fib. I'm not though, I feel really comfortable with it. You know that I hate marketing people anyway, but that's the kind of thing that really hacks me off. Yeah. Oh, you're booked now to avoid disappointment.

Speaker A: 00:20:47

Yeah. Well, do you know what? I was a great, yeah, I was a great sales guy. Anyway, I digress. Where are we? Look, we need to kind of move towards a conclusion. I don't feel we've got to the bottom of this. It just feels like scam startup. Yes, they are similar. There's a little bit of a line that everyone kind of intuitively feels knows what it is. Have we? Come on, haven't we? Can't

Speaker B: 00:21:05

we add more? I just have a couple of things to say. And I think this is more like, well, you're looking for red flags, right? Yeah. So and I think one of them is probably the sort of. Well, I don't I'm not as familiar with this one, but apparently very rapid hiring. So if you get hired, if so, if you if you say to someone, yes, I'd like to join your company, they go, great, you're in. That's a bad sign. And but also the just the type of technology, I think is another thing, the type of product should now in this case actually wouldn't have, Madbird wouldn't have flashed red. But because, you know, we know that those kinds of agencies exist and there's no reason that one shouldn't have been successful. But in particular, like I think recently the big startup successes have been in an industry, i.e. sort of software essentially, that is uniquely, like really uniquely suited to that kind of model. You know, what they always say about is sort of if cars are developed at the same rate as computers, then a car would be getting four million miles to the gallon at the moment. It just happens to be the case that with a kind of software product, you can kind of create them and market them and you get millions of users very quickly. It's much harder to do that with a real thing, with a thing that has to be produced in a factory, shipped out to shops, customers have to pick it up or buy it online. You know, it's much harder to do that. And it's particularly if it's a technology that doesn't exist yet, you know, a real kind of mechanical technology that doesn't exist. So, you know, things like Airbnb and Uber, like they got very big very quickly, but that's it's easy for them to do that. There's no kind of startup costs. We shouldn't be thinking that that's normal. That's a really unusual characteristic of this industry. Whereas I would say, you know, if Elon Musk came up to me and said, I've got this great idea. It's called SpaceX, and we're going to be on Mars. Or he said, I've got this idea for, you know, for sort of traveling at the speed of sound between cities in a giant tube. That would be a red flag if it weren't for the fact it was Elon Musk. Yeah, so that's just I think, my observation is that, you know, the model that we've all got in our head from the last sort of 30 years of a startup looks like this. You know, if you're not talking about software, you should be really suspicious of that claim.

Speaker A: 00:23:42

Yeah. And also, it goes back to what you said at the beginning, I think you sort of corrected me quite nicely, which is, and I said, oh, isn't this how you start an agency is you get a contract and you build on that. And you said that phrase that's really old school, you know, and what you just and that's accurate from what you've just described doesn't really work like that anymore, certainly for the sorts of areas that we're talking about. So I've got a question I probably want to ask. Jordan, anything to add at this point? I think the other thing that is interesting for

Speaker C: 00:24:12

me is I think there's also, in recent years, there's this sort of mythology around Silicon Valley and startups that's developed through figures like Steve Jobs and Elon Musk and these sort of founder visionaries that I think means that there's a lot of people out there that when they have an idea, they try to sort of emulate what they think those guys did. It's a naturally kind of hyperbolic universe there, right? Yeah. So I think to go to Nick's points about red flags, I'd say another red flag would be if the if the boss was sort of seemed as though he was trying to, you know, be this visionary that takes over the world, that could be a potential red flag. Yeah. Because sometimes they might do whatever they think it takes to kind of live up to that even

Speaker B: 00:25:02

deceptive or dubious practices. Everyone wants to be like Steve Jobs and Elon Musk, but not poor old poor old Bill Gates. You know, he's one of the most successful. He's just not cool enough.

Speaker A: 00:25:13

Yeah, yeah. Listen, newsflash just in. I think Kevin Costner, he's a scammer, right? What the hell are you talking about? Build it and they will come. Oh, you mean the character that he played in a film? Yeah, but he would know because he was lying because he wasn't really that guy. He was pretending to be that person. Good grief. Torn down the veil. Yeah. I think a lot of what we're talking about here is sometimes it's just the stretching of the truth and there's a point where it breaks, right? So my question to you is this. What is your best stretching of the truth that you've ever done? Or yeah, give us an example of you stretching the truth.

Speaker B: 00:25:58

Yeah. So I think having been a startup founder guy myself, I think it's probably fair to say that. And this is very much, it's not exactly stretching the truth, but it's a sort of a mission, if you like, a kind of failure to correct people's impressions, let's say, was that when I started the company, it was just me. And yet, you know, we're very clear that it was going to be a company and it was Aleph Insights. Nice business cards, properly designed logo, nice looking website. You know, we were a company. I didn't want people to assume that it was just me, you know, at home, but in fact, I didn't say that wasn't true. I didn't claim to have massive central London offices or anything like that. And I think it really did help. It helped be taken seriously. I don't think you stretched anything with that, by the way. But well, it's more that one person can be a company. It's true. But I'm happy to give the impression that, you know, we're a startup that people probably imagined we had an office somewhere that they probably, you know, imagined, you know, we were doing bits of work for people, which, you know, to be at the start, obviously, like any company, we weren't. So yeah, I think that's it. And I'm really glad I did, actually, because I think that, you know, just saying from the outset, I know, it's just me, but actually, Aleph Insights is going to be a bigger thing than just me. So let's act like a proper company. And that actually, that's a piece of advice I always give anyone starting a company. It's like, take yourself really seriously, get everything to look nice, get your branding done properly, so that you feel like the company is something other than just you. And I'm sure it's a big success factor.

Speaker A: 00:27:46

I thought you were going to say fake it until you make it. I've got some wise words here. So you might want to write this down. That's listeners, you as well, which is a journey of a thousand miles begins with a single step. I'll just leave you with that. I'll let you pause with that. I don't think you stretch the truth enough. I mean, you must have done way more than that, Nick, but we'll, you know, we won't push you on that. Jordan?

Speaker C: 00:28:12

I think in a similar vein to Nick, when I was freelancing writing, I often had to stretch the truth a little bit to sort of back up my credentials as to why I would get some work. And also, I think as Nick was sort of alluding to, in some ways you have to, like if you have to know your worth, especially when you're freelancing, if you're telling someone what your rate is, for example, or something, and maybe it's not exactly tied to some fact or truth, but it's something that the business, it's just how it works. And you kind of need to, you need to do it. And that does require maybe stretching the truth a little bit. But I think that's just, yeah, exactly. So yeah, and remember, it's not fraud,

Speaker B: 00:28:58

unless you're legally obliged to disclose that information.

Speaker A: 00:29:01

There you go. That's yeah. Nice. Some good advice there for any potential tempt. Oh, I'm not a lawyer. I'm not a lawyer. But look, it's interesting. I mean, of course, we were talking about the world of work and both the examples you gave of stretching the truth are in the world of work. But I think part of that is because, you know, even when you're starting a site up, because you mentioned freelance and starting your own company, I mean, the whole world of work is actually kind of pretending a bit, I think, which is, there's a, I mean, broadly speaking, certainly for 90% of people or more, there's a reason why you get paid to do work, which is, you know, you probably don't like it much, you wouldn't do it if you didn't get paid. I actually feel lucky. Because, you know, I do get paid to do stuff that I like that I enjoy. But for most of my career, that has not been the case. And you kind of have to every day you have to do a daily sort of, you know, pretend, right?

Speaker B: 00:29:51

I think you're unpicking adult life there, actually. I think when you pull on this thread hard enough, you'll find that almost everything we do starts to unravel. You know, but it's probably a topic for another podcast.

Speaker A: 00:30:03

Yeah, yeah. Just briefly, I mean, having spent, you know, a lot of my life in sales, I, you know, I spent my whole life stretching the truth and beyond. And on a personal front, I'm sure I do it all the time as well. I cannot think of one single example, because this is like every day for decades, there's been lots of them. So yeah. Look, let's stop there.

Speaker B: 00:30:25

By that time, you killed a shark, then a tiger, but you pretended you'd also killed an octopus.

Speaker A: 00:30:30

Yeah, that's it was just great storytelling. Yeah. Yeah, I don't think we've got anything to add, right? No. Okay, right. Let's stop there. Thank you, as always, for listening to the Cognitive Engineering podcast. I'm Fraser McGruer. I've been here with Jordan Fermanis and Nick Hare of Aleph Insights. Until next time, goodbye.