Founders would do well to ask ‘why’ more often, as in “Why are we building/doing this?”
The importance of that particular ‘why’ is data-driven, which is important, since the tech world especially believes that everything important is data driven.
I can cite dozens of sources, but I’ll use data from CB Insights, since it’s a startup and it’s product is data.
Tackling problems that are interesting to solve rather than those that serve a market need was cited as the No. 1 reason for failure, noted in 42% of cases. Or, as Treehouse Logic said, “We had great technology, great data on shopping behavior, great reputation as a thought leader, great expertise, great advisors, etc, but what we didn’t have was technology or business model that solved a pain point in a scalable way.”
A lot of people don’t like asking ‘why’, because, more than most, it is an uncomfortable question.
It usually requires introspection and frequently doesn’t return the desired answer.
Founders don’t like the why question for the same reasons, especially when it interferes with their beloved vision, let alone their worldview.
There are two ways of internalizing that data.
The obvious: Not asking ‘why’ increases my chance of failing by 42%.
The less obvious: Asking ‘why’ increases my chances of succeeding 42%.
If you subscribe to the less obvious approach, or want to, the simplest was to implement it is to embrace the Lean Startup methodology
Doing so may mean abandoning your initial vision, or, at the least, tweaking it, which could bruise your ego, but the payoff is huge.
And the bruising should be easier to handle knowing that you got a 42% boost on the road to success.
I’m a fan of President Obama, who spoke at Rutgers University. I especially like his idea of “inflection points.”
I’m fond of quoting Dr. Martin Luther King, Jr., who said, “The arc of the moral universe is long, but it bends towards justice.” It bends towards justice. I believe that. But I also believe that the arc of our nation, the arc of the world does not bend towards justice, or freedom, or equality, or prosperity on its own. It depends on us, on the choices we make, particularly at certain inflection points in history; particularly when big changes are happening and everything seems up for grabs.
And, Class of 2016, you are graduating at such an inflection point.
But this idea has never been far from my mind: That most of us will wake up 28,762 days — and then one day – we won’t. (…)
Make all the days of your life matter.
Take risks and push boundaries
Learn from wise people who may know more than you do
And let serendipity happen.
Commencement speeches typically focus on lie and the brightness of the future, while Sheryl Sandberg’s speech at UC Berkeley focused on death. It is probably one of the most powerful, valuable, and best speeches I ever heard (read).
In case you missed it here is the transcript, but since most of the world likes video you can watch it yourself.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
Startup life, especially for founders, is notoriously fast-paced, with thinking time devoted to product development, funding, growth, funding, user acquisition, funding, hiring, funding, etc.
Add to that the need/desire to interact with family and friends, compulsion to keep up with social media and daily chores, such as eating, sleeping, bathing, etc. and many will say that carving out time for quiet reflection is a nonstarter.
That said, no thinking entrepreneur questions the enormous value of attending Steve Blanks annual Lean LaunchPad class — since it offers far more than any accelerator.
It’s the difference between buying fish and learning to fish — the latter provides a lifetime of value, while the former is short-lived.
Blank and his cohorts added a week to the course this year and the reason is of paramount importance — even to those not in the startup world.
This year we made a small but substantive addition to way we teach the class, adding a week for reflection. The results have made the class massively better. (…)
We realized that we had been so focused in packing content and work into the class, we failed to give the students time to step back and think about what they actually learned.
So this year we made a change. We turned the next to last week of the class into a reflection week. Our goal—to have the students extract the insights and meaning from the work they had done in the previous seven weeks.
Reflection — (in this context) a fixing of the thoughts on something; careful consideration
Back in 2011William W. George, Senior Fellow at Harvard Business School, found that making time for self-reflection was critical for anyone aspiring to a leadership role.
Before anyone takes on a leadership role, they should ask themselves, “Why do I want to lead?” and “What’s the purpose of my leadership?”
The kind of thinking/reflecting recommended by both Blank and George can’t be done while scanning email, texting, listening to music or any of the myriad of distractions that constantly bombard you.
You need to set aside the time, turn off your devices and give yourself time to reflect and even do some deep thinking.
A Friday series exploring Startups and the people who make them go. Read allIf the Shoe Fits posts here
“I look back on my career and I didn’t change the world as an entrepreneur; I did as an educator. So I’m a little wistful. Now, my charge for twentysomething entrepreneurs is, do you want to be known as the guy who makes the next porn app or fart app or do you want to put men on Mars?” –Steve Blank
In light of Blank’s question above, you might want to take time to ask yourself ‘what am I doing’?
What value am I adding to my intrinsic worth as a human being?
Does my product/service make even a tiny portion of the world a better place in any way?
How will my kids describe/explain me to their kids?
What legacy will I leave behind?
How will I be remembered?
Will I be remembered?
Now write down your thoughts/answers.
Reread them over the next several days/weeks.
If you don’t like the profile that emerges it’s time to pivot your life.
Not randomly, but with the same consideration and planning you would use to pivot your company.
“If we live in a world where the technologies we’re talking about are for rich white people in Silicon Valley then we’ve failed. The idea is to try and distribute this technology as broadly as possible.” –Bill Maris, founder, Google Ventures
And then there is the question of what purpose our economic growth actually serves. The most common advice V.C.s give entrepreneurs is to solve a problem they encounter in their daily lives. Unfortunately, the problems the average 22-year-old male programmer has experienced are all about being an affluent single guy in Northern California.
The average U.S. entrepreneur is educated with a college degree, closer to mid-career in age, from a higher income household, and more likely to be male. He is likely to be opportunity-motivated and comparatively likely to be operating in the knowledge-intensive sector (business services).
Most of the under-thirty entrepreneurs whose startups have a strong social side found the problem while traveling or doing some kind of volunteer work and used ingenuity and tech-as-appropriate to solve it.
The opportunities to change the world are numerous, all you need to do is open your eyes — if a 13-year-old can think of way to change the world, so can you.
Steve Blank wrote a great post about changing culture in larger organizations. It’s a must-read for anyone in business, government or non-profit who is looking to juice innovation in their organization.
Blank agrees that there are four components to culture.
Two McKinsey consultants, Terry Deal and Arthur Kennedy wrote a book called Corporate Cultures: The Rites and Rituals of Corporate Life. In it they pointed that every company has a culture – and that culture was shorthand for “the way we do things at our company.” Company culture has four essential ingredients:
Values/beliefs – set the philosophy for everything a company does, essentially what it stands for
Stories/myths – stories are about how founders/employees get over obstacles, win new orders…
Heroes – what gets rewarded and celebrated, how do you become a hero in the organization?
Rituals – what and how does a company celebrate?
He goes on to explain what needs to be done for “innovation to happen by design not by exception.”
In reality it should be a subset of values/beliefs, but it is rarely thought about by bosses — they either do it or do the opposite automatically.
It can be summed up in four words, don’t kill the messenger—Pete Carroll, coach of the Seattle Seahawks, is a master of this mindset.
To be truly innovative means trying new stuff and a part of trying new stuff is accepting that it won’t always work.
Corporate culture in general and many bosses individually can’t seem to wrap their minds around the idea that some things will fail — it’s the dark side of the ‘but me mindset’ at work.
What they, and anybody setting out to change culture and encourage innovation, need to understand is that it only takes killing the messenger, i.e., responding negatively to the person who brings bad news, once to negate whatever progress had been made and put the effort back to square one.
TiEcon has become a huge event for entrepreneurs all over the world. It helps educate the entrepreneurs and connect them to clients, mentors and capital. They have many good programs for entrepreneurs like Mentor Connect, where people meet potential Mentors who are people with a lot of experience starting companies. They also have a Founder Connect program where people speak of their ideas and look for either founders or capital. I met people and reporters from Australia, Japan, Nigeria and Brazil, apart from the usual countries. This has become a global event, because TiE serves a big need. Saying “TiE is for South Asians” (Indians/Pakistanis) is like saying “the US is for Europeans”. The successes TiE and the US have accomplished require being open and inclusive.
Just like the underlying value of the US is the preservation of freedoms, TiE’s value is to nurture entrepreneurs and grow its community.
TiE’s organizers realize the value of being well connected to achieve its goals. They have succeeded in attracting large volumes of the right kind of attention.
At Mentor Connect, I met Seshan Rammohan and Siren Dutia, both veterans of the field. Typically Mentor Connect puts a single mentor with 5 founders looking for advice. Fortunately I got two mentors’ time and minds for the price of one.
The discussion was interesting because we heard about the problems that different founders face. The advice was very useful.
I went to a few talks, but I’ll cover three to keep it short.
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One superstar at TiEcon was Steve Blank, who originated the methodology that launched the Lean Startup movement as described in Eric Ries’ “The Lean Startup.” The core message is to start small, get out and talk to your market and build what customers actually need and want.
Startups are not small versions of large companies. They are in search of business models that work. Large business on the other hand execute strategies.
Steve mentioned a book with pictures called “Business Model Generation” for people who want to build a startup. I’m curious.
In a startup you build things that get you the maximum learning. Before you fire execs, it is a good idea to fire the plan and try another.
Startups are under a lot of pressure. They think in terms of their burn rate and their runway.
Startups should ideally plan on discovering a businesses that works. An exit should be the last thing on their mind. The reasons people acquire a startup are:
An existing product, e.g., whatsapp
P&L and good cash flow.
Technology: Oclulus
Acquahire — when they want the developers, but for something different.
Startups have a different culture. Assimilation into an existing business can wash out the productivity because the processes in place for execution are different from innovation, i.e., Key Performance Indicators (KPIs)
The cap table is the definition of who owns the company and their rights. It typically defines the stock holders, the debt holders and the liquidation preferences (who gets cash before whom).
A VC mentioned an interesting incident where he killed a company by asking who owned it. The founders got into a fight and decided not to form the company!
It is also a good idea to have a vesting schedule so that one of the founders doesn’t “… go to Brazil with his wife with his share of the company while the others work for their equity.”
20% of allocation of stock is usually based on role of people in past; the rest is about future.
Standard vesting for employees is 4 years.
Investors get preferred stock, because they want to get their money back first. This is changing with Y-Combinator’s SAFE and Founder Institute’s Convertible Equity ideas. Another reason to be careful is that option pricing would be set by investors if they take preferred.
The things to worry about in a funding round are:
Valuation: No one forgets this. Clearly, the higher the better.
Control: Who controls the board seats and voting rights. This is tricky because rights and seniority affect the way people think.
Rights: What special right do investors get, such as a board seat.
Seniority: Who gets their money first.
Founder rights: How can founders be removed from power? Typical statement is a felony., but you could ask for “willful and persistent gross negligence.” It is also important to negotiate severance as a part of this deal.
There is a difference between preferred and non-preferred stock. Preferred allows double dipping. Investors get their money back and then some more of the stock.
Usually investors own 25% after first round.
The difference between negotiation and begging is leverage. Get a few investors to land at the same time and you are in a much better negotiating spot.
An important decision is to file the 83b election within 30 days of getting equity. The founder will be required to pay taxes on the portion of equity that vests if this is not filed. This likely involves a cash flow mismatch because the founder may not have liquid cash when the equity vests.
The best time to plan to exit is as early as possible.
Early thought can include, Are there going to be a lot of companies that will be interested. Is it a good IPO idea?
Ashmeet Sidana says there are two exit scenarios.
… Approached for an exit.
… Or things don’t work out. A banker or a business relationship usually leads to an intro for these.
Lots of teams are typically involved in exits. The deal team will work on the deal. CPAs, lawyers and wealth managers are usually involved.
Then there is the question of what happens to the cash. Typically people use trusts to allow continued investment and avoid a steep tax. This also allows for a tax shelter for money designated for charity.
Exits are most intense periods. Cases where board meetings happen every 3 hours are common.
Think also of what to do next after the vacation at the end of the deal.
Where does the money get wired? At the time the M&A term sheet is signed the probability of acquisition is 40%. In contrast the probability of funding is 80% in VC rounds.
Time can kill deals in M&A. However clarity is important as well. A CEO once took time to work out every detail and the final deal was very close to the term sheet.
Ask what is the reason people are acquiring the company? Alignment is important. Avoid conflicts of interest at this critical time. Try to create a separation from noise in the markets.
Founders should negotiate to get some liquidity early to pay for costs.
Sales people present their product as the solution to customers’ “problems/pain”.
As a candidate you should do both.
The smartest candidates recognize this and position themselves as high-value solutions that will make the manager look good to the higher-ups.
Steve Blank’s video explains how to identify and evaluate the value proposition of your product or service, but with very little tweaking you can apply it to yourself.
Candidates who focus primarily on what the company will do for them a la compensation, stock, benefits, promotions, etc., will miss many of the best opportunities, because managers see that attitude as a form of narcissism.
In other words, managers have problems and hire the best solution, i.e., candidate, to solve them.
Or to paraphrase JFK, think not what the manager/company can do for you, but what you can do for the manager/company.
Do you live in Silicon Valley or one of the Silicon clones (Alley, Forest, etc.)?
Do you focus your early marketing efforts on the tech world of which you are a part?
If so, you may be in for a shock or should I say rude awakening?
The problem is that that market is not the world and much of the “common wisdom” regarding early adopters is misleading or just plain wrong.
Common wisdom says that blacks are not early adopters or a prime target market. But according to Tristan Walker, who helped build Foursquare and was entrepreneur-in-residence at Andreessen Horowitz, that so-called wisdom is way off base.
“The demographic is starved for a company that cares about it,” he said, noting that while blacks tend to be among the early adopters and consumers of social technologies, it is rare for companies to acknowledge that or to market to them directly.
Common wisdom would expect techies to be the perfect audience for Aarthi Ramamurthy’s service that lets people try out high-end tech gear before purchasing it, but they weren’t.
“I thought it would be Google and Facebook employees with disposable income,” she said. But as it turns out, she added, it’s the “middle of the country that is very interested” in the service. (…) but much of the early adoption of its business occurred in states like Texas and Idaho.
Common wisdom says a company that sends customers boxes of personally tailored clothing would resonate with fashionistas in urban areas, but Katrina Lake, founder of Stitch Fix, found her service just as hot not only in less urban areas, but also with an unexpected customer.
“But the service was received almost as well by women in Wyoming, Alabama and Minnesota (…) Ms. Lake said she had expected her market to be busy women in their 20s and 30s who have no time to shop but want nice clothes for brunches and engagement parties. “But it turns out that concept really resonated with moms and people who were busy with their kids and families,” she said.
Common wisdom says that if you spend two years developing a product with the help and input of a specific audience they should be your customers, but that’s not always true.
The Mira Medicine Team…spent years building their first tool MS Bioscreen, which was developed for the physicians at the UCSF Dept of Neurology. So they naturally believed that their first customers would be neurologists. [They weren’t] 70 customers later they are no longer talking to neurologists.
Here are the three critical take-aways—
Common wisdom is often wrong.
Niches are often larger than they appear.
‘Should’ is a bad assumption and never a guarantee.
If the founders walk away with a few million each after the investors take their 3-5X return, what will be left for your people?
Those are the people who made the company successful enough to be bought in the first place.
Most of you will agree that the great majority of startups will not have exits similar to Facebook or Google.
Knowing that, it is your responsibility to honor the social contract you made with your employees, when they traded their compensation for equity in your startup.
Therefore, it is of paramount importance for founders to never lose sight of the numbers; the more investment you take the lower your team’s return when the company is acquired.
Entrepreneurs face difficulties that are hard for most people to imagine, let alone understand. You can find anonymous help and connections that do understand at 7 cups of tea.
Crises never end.
$10 really does make a difference and you’ll never miss it,
Startup life, especially for founders, is notoriously fast-paced, with thinking time devoted to product development, funding, growth, funding, user acquisition, funding, hiring, funding, etc.
