A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

This is a short post, because one of the linked articles is long and both are critical reading if you are, or planning at some point to be, a founder.

Founded in 2007, Powa Technologies is the perfect poster child for everything an out-of-control founder can do — from raising just over $200 million in debt and equity in less than three years, giving Powa unicorn status, to sending it down the drain.

At best, the collapse of Powa looks like a wildly overambitious attempt to force consumer behavior to match the ideas of a self-styled visionary. At worst, Powa seems to be a case of willful ignorance and a failure to acknowledge serious shortcomings, at a cost of hundreds of millions of dollars to investors and hundreds of jobs for staff.

NGINX (pronounced “engine X”) started as an open source project in 2002 and became an actual company in 2011. Today powers 49% of the top 1,000 busiest websites in the world, including NASA, GoGo Inflight Internet, WordPress.com and Wikipedia. Since then it has raised only $41 million in 4 rounds and although its core product is still open source, it is generating substantial revenue from its paid services.

To actually make money, Nginx has a few menu items. First, Nginx Plus, an actual paid-software product that goes beyond the free version and offers customers deeper tools for managing their web apps.
Second, it has a consulting business, where its team of experts go in and help customers install and manage their Nginx-based architectures. That’s especially important as companies move toward microservices, which can be a bold new world for companies used to building software the traditional way. That business is growing quickly, Robertson says, with 300% more revenue in 2015 compared to 2014, though Nginx doesn’t disclose specific financials and he declined to comment on whether it’s profitable.

However, neither the investment nor the revenues have led to the typical lavish, San Francisco startup style.

Still, Nginx is keeping things fairly lean. Even with all of those users, its headcount only broke 100 recently, Robertson says, and the company tries to avoid “bloat” by adding only those features that users really need.

Read the articles.

Understand the actions and reactions.

Absorb the lessons.

Just be sure to sort them correctly.

Image credit: HikingArtist

“Brian” is an entrepreneur — an entrepreneur whose company just shut down after burning through $140K friends and family cash.

He burned through it as the result of a combination of overconfidence and ‘underdiscipline’.

It’s not the first time.

Nor the second.

His uncle, “Connor,” is a friend of mine and I asked why he keeps investing.

He said that he the ideas and plans sound solid and he does in depth due diligence, but something always happens.

Connor’s wife thinks Brian is a con artist.

Connor disagrees; he says there is a fundamental difference between the two.

“The difference between entrepreneurs and con artists is that entrepreneurs truly believe in the dreams they are selling — con artists are focused on the money.”

I told him so did pathological liars, who usually  exhibit above average verbal skills as opposed to performance abilities.

Which sounds exactly like Brian.

The takeaway is caveat emptor, whether the entrepreneur with the vision is family, friend, warm intro or cold.

Flickr image credit: Scott Akerman

Founders, closely follow those they wish to emulate, “names” they trust, peers, competitors, etc., mostly from the viewpoint of the media or their own self-generated content (blogs, articles, etc.)

In other words, content developed for either the entrepreneurial community or general public.

Whereas CB Insights was created to provide information to industry.

So in 2010, they launched CB Insights to use data, algorithms and predictive analytics to help customers answer questions about “what’s next?”

• What company is our next customer? Investment? Acquisition?
• What’s the next big industry we should position ourselves in?
• What are our competitors up to and what is likely their next move?

And while it’s doubtful you could afford a subscription, or that it even would pay to have one, its newsletter is a goldmine of information — plus it’s well-written and an enjoyable read.

I reached out to Anand Sanwal, CB Insights’ CEO / Co-Founder / Customer Service with the following questions.

Your About page states that CB is revenue-funded. Why did you make the decision not to seek funding?

We were revenue-funded for our first 5.75 years but did take $10M of funding in November 2015. More on that here. 

What special challenges did you find and how did you overcome them?

In the beginning, it was figuring out how to get our name out there since nobody had ever heard of us.  We started doing data-driven content to stand out and this worked.  It’s been our secret weapon.

Other than that, there are the perennial challenges of recruiting, building a great product and selling. These challenges are not unique to us. They just keep changing as the organization grows.

Regarding Lesson 1 of the CB Insights Quantitative Venture Capital Class, are there more lessons? If yes, are they also free and is there a tag/link that accesses them all?

There are several. They are here, here and here. (Be sure to use these links! Ed.)

How useful is your content to entrepreneurs?

Entrepreneurs waste inordinate amounts of time doing diligence on investors and markets, and so it’s very useful to them. Knowing who the most active investors are in a space or who has the highest follow-on rate saves them a lot of time.  

The alternative is Googling around doing lots of data janitor work.  Based on feedback/emails we get in response to our newsletter, founders have been very appreciate of us cutting through the noise with data.

Is there a best way for them to utilize it?

We’re an institutionally oriented product with a nearly $40,000 per year average price so the best way for them to use us is to subscribe to our free newsletter, follow us on Twitter (@asanwal)  and read our research blog. 

Our target customer is not founders/entrepreneurs.

Any other comments or advice that you think would be useful to founders?

I read a great quote (not sure who said this) to “never take advice from someone who doesn’t have to live with the consequences” so take this as my disclaimer.  

Everyone’s situation is different and so there are no absolutes.

But if I had to offer any advice to founders, it is to sell, sell, sell. We did it to some extent, but I wish we’d done it more aggressively because the best type of funding is from customers.  It shows your product is something they want and is the ultimate validation of what you’re doing.  Too many folks mistake raising money from investors and giving away equity as validation. It may not be.

I highly recommend CB Insights; what you’ll learn will provide high ROI for the time you spend. –Miki

A Friday series exploring Startups and the people who make them go. Read all If 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.

You and your organization will both benefit.

Image credit: HikingArtist

This post is for all the fact-loving, data-crunching guys who keep claiming that tech is a merit-based ecosystem where anyone with a good idea who is willing to bust their tail 80 hours a week will succeed.

If you are one of them you probably aren’t aware that March is Women’s History Month; a time to celebrate women’s accomplishments, especially in tech, since they are why you have a company/job.

How excited would you be if it took 10 years for your most important metric to double?

That’s what you see for founding teams with at least one woman — from 7.7% in 2006 to 17.5% today.

Whoopee.

It’s much worse for all-female founding teams — their funding dropped from 22.8 in 2014 percent to 18.9 percent now.

That totally sucks.

And it’s far worse when you add color to the equation.

What’s it going to take for this to change?

More female angels and VCs — happening very slowly.

More angels and VCs of color — a distant dream.

But more importantly, and hopefully sooner, more successful, entitled white guys will digest the numbers and decide it’s just plain wrong.

 Are you/will you be one of them?

BTW
Happy St Paddy’s Day to all my Irish and Irish wannabe readers!

Image credit: TechCrunch/flickr and Free-extras

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

You build an app that is greeted with raves.

You have 15 million installs and counting.

You have 36 talented, motivated employees.

You raise 35 million dollars from top investors, including Draper Fisher Jurvetson.

What’s your next step?

You shut it down before you run out of money.

Why?

Because you can’t identify a viable business model.

In short, you can’t figure out a way to generate revenue.

That’s what just happened to Everything.me.

The startup had seasoned founders and did everything right.

The investors were smart, savvy and experienced.

But one thing slipped by everyone’s radar.

No clear, or even murky, path to revenue.

Not profit.

You can live without profits, but you die without revenue.

Lesson learned: no vision/business plan is complete without a viable way to make money.

Image credit: HikingArtist

Sanity is waxing, while funding craziness is waning

This means you will be working even harder than you have been to move your vision forward.

With money getting tighter does that mean you should grab whatever funding available?

Short answer, NO — getting in bed with an investor should signal a long-term relationship, not a hook-up.

Longer answer, NO because…

All angels and seed investors are not created equal and it’s not the difference in money.

It’s the difference in MAP.

Money is only part of what you want from an investor.

Active interest, mentoring and contacts are what your investors should bring.

These are especially important with early-stage investors.

Just as important is a synergy between your values and the values of your initial investors, since values are what underlie your startup’s culture.

For example, if your values include a focus fairness, diversity and social give-back a la Salesforce and your investor’s values are strictly focused on minimizing costs to increase profits the relationship will be rocky, to say the least.

How do you know?

Smart founders do lots of due diligence and talking with founders of previously funded startups, whether they succeeded or failed.

Yes, it’s hard to say ‘no’ when the money is on the table.

But easier if you remember that while refusing funding may slow you down, taking it from the wrong person can kill you.

Flickr image credit: Michael Lehet

The questions on Quora provide a fascinating look into today’s mindset, which makes for a giant time-suck, so I rarely allow myself the luxury.

However, Why are VCs so adamant about warm intros? caught my attention, because I am asked it so often.

Most of the responses were justifications from VCs, but two provided a refreshing dose of reality.

Not surprising that neither are VCs.

The reason they want warm intros is because they are too lazy to research things themselves and many of them don’t know anything about starting a company or building one. The smart experienced guys at the top who have actually done something are too busy so they have the dime-a–dozen MBAs they hire do grunt work. Since the d-a-d has never actually built anything, and doesn’t really know what you do, they want a “warm” intro. Warm means someone else they can blame if they screw up yet again. —David Feldman, CEO, ZF Micro Solutions, Inc.

Classism. No further to look than that. Let’s not make it complicated by trying to avoid the unpleasant. —Michael O. Church

The ‘warm intro’ investor bias is one of the worst, because it raises the funding bar to almost insurmountable heights, which limits the entrepreneurial pool and even reduces the chances of success.

Whether it’s laziness, fear of the unknown or insecurity outside of their comfort zone doesn’t matter — the result is the same.

Too many good founders/companies don’t get funded.

Flickr image credit: Alexx Malev

This isn’t the first time we’ve delved into the “attractiveness bias”.

Whether you’re looking for a mate, a job, or funding, you will succeed faster if you are “attractive.”

Note this applies to males; attractive females get hit on.

However, the bias can be overcome.

The previous research was from Harvard, while this is from Wharton.

Harvard’s was text, while Wharton’s is a video.

Doesn’t change the findings.

YouTube credit: Knowledge @ Wharton

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Whether your goal is to be a horse or a unicorn, raising round after round of funding for a higher and higher valuation may do nothing more than give you a false sense of success and security.

Y Combinator’s Sam Altman summed it up in an article focused on the $1M-plus burn rate that is getting more and more common.

…it’s never good to be at the mercy of investors.

If you’re a founder, you shouldn’t want that,” he says. “If a company is profitable, the founder is in control. If it’s not, investors are in control.”

One tip he often offers Y Combinator founders: Treat every round of financing like it’s your last.

There’s a reason that popular wisdom, the kind that comes from experience claims that companies that start in moderate-to-cool and even bust economies fare better in the long-term.
As do hundreds of startups that aren’t on the receiving end of current largesse because their founders aren’t connected.

Bootstrapping or working with minimal funding forces founders, especially young ones to

• be savvy money managers;
• put financial controls in place;
• focus on productivity (not perks);
• monitor and constantly reduce customer acquisition cost (CAC); and
• become profitable or, at the least, breakeven as quickly as possible.

The founders who will be best positioned when the startup eco-system cools, as it always does, and funding is restricted are those who master the first four points and whose companies have embraced the fifth.

Image credit: HikingArtist