Author Archives: Mukund Mohan

Does who you raise money from limit or grow the size of your ambition?

I was speaking to a prominent angel investors in the Seattle ecosystem yesterday. He has been pretty prolific, doing over 20 deals in the last 5 years. He does mostly syndicates and has a band of investors he works with. Having been a successful technology executive before, he understands the market and the landscape fairly well.

We got talking about accelerators and their place in the startup food chain.

Most VC’s and angels will tell you that in the last 2-3 years, accelerator backed companies have gone from 0 to about 5-10% of their portfolio. Many seed (angel, individual) investors still believe that proprietary deal flow is critical to their success in building a strong portfolio.

The thing that struck me was how he mentioned that in the last year he has changed his position from “angel investor education” to “entrepreneur education”.

The reason was that he felt entrepreneurs were not clear on the market landscape for exits and how angel investors need to make money as well. I can understand and empathize. If angel investors don’t make money, they wont be able to convince other new investors to come along.

He was talking about the example where most of his companies (of the ones that exited) have been acquired for between $25 and $100 Million. He has 4 exits, so there’s clearly insufficient data to form a trend.

Nonetheless, he felt it was important to ensure that entrepreneurs understand that the series A VC round was getting bigger and getting harder, so he was pushing for his entrepreneurs to be capital efficient and raise as little as possible, expecting to raise < $3 million ($500K – $1Mill, first seed, followed by a < $2M post seed). That way he felt, that a < $10 Million valuation in your post seed will still get you a 2 – 5X multiple return.

Normally I would have filed this under “investor that cares about returns only so don’t bother”, but this investor is really smart and has been helping his entrepreneurs successfully raise their follow-on’s. Of the 20+ companies, he has helped 80% of them raise follow on funding within 18 months. Pretty impressive.

Then it struck me as I was speaking to a valley VC later in the evening, who mentioned there was “frothiness” in the valley and that companies were raising money because everything is just so much more expensive. He was advocating the “Go big or Go home” strategy.

Turns out there are multiple options indeed for entrepreneurs – if you can get to the valley, and plug into the network, you tend to raise a lot more money, grow big and scale fast.

If you are not in the valley, you grow slower.

I have a few questions though:

1. Do you know what drives you – making good money or making a difference? – Saying both is an easy cop out. What would you prioritize?

2. Does the size of your ambition affect who you raise money from and where?

3. Does who you raise money from (not the amount) affect the size of your outcome as well?

I suspect the answer to all these questions is a qualified yes. I’d love your 1-2 sentence answer (or 140 character tweet) to these questions.

The analogies and words people use in your startup meetings define your culture

As a founder, it is important to define and constantly manage / prune your company culture. Why? It defines your growth, who you hire and how you respond to situations.

Most founders don’t understand, though, what the company’s culture really is. When you have more than a few dozen people, things change dramatically if you are not constantly pruning and hiring the right folks. Even the best leaders have a little more than 50% batting average when it comes to hiring stars, so it is no surprise that culture changes at a startup quickly if it is not nurtured.

What is then the best way to understand what your company’s culture is and how it manifests itself in your interactions?

The best way I have found you can understand your company’s culture is attend a critical kickoff meeting for a key project for every team, every so often.

Not as a contributor or a participant, but as an observer.

Sometimes folks in the room will be cautious about having the founder attend their meetings and be likely guarded in that meeting, so I’d recommend you ask to be on the conference call, not in person. Most people tend to forget folks on the conference call, and tend to be their natural self.

Then look for key words that people use to describe actions, situations, responses and milestones.

For example, at Microsoft teams use the words rhythm, cadence, muscle memory and “landing things” a lot on the sales side of the house. On the engineering side it tends to be “shipping bits”, agile, “landing things” and cadence a lot.

It is very useful to understand where those words come from and what people believe in when they are confronted with situations. They also though, define the culture of the organization.

As instrumental as these words are in understanding what people value, it is also indicative of what gets ignored.

The best way to have an understanding of the culture is to ask questions about quality, deadlines and budget.

These items will give you the best response into the psyche of the organization.

Another thing to look for is the analogies that people use to describe situations.

Most sales teams will use sports analogies (for example you will hear at Microsoft about “hail Mary” effort to secure a difficult customer effort by end of the quarter). Engineering teams tend to (at Microsoft at least) use science analogies – (for example you will hear frequency and amplitude of releases, and the signal to noise ratio of feature requests).

Some of these analogies are truly regional and defined by background, but once in a while, when you have a new leader who wants to redefine the culture they start to use different and new analogies, which stay for much longer than their tenure.

As a founder the best way to have these “grapevine” stories stick is to use analogies that folks will adopt because it creates a sense of “insider knowledge” or “tribal power”. It is also the best way to ensure that your culture has a cult following.

What to do the day after the launch of your company or announcing new features

There is always a sense of euphoria after a “launch” of any sort. Especially if you have been working on your product / service for many months and are not particularly sure how it will be received. Then you get a chance to go “public” with your features / product or company. It tends to be exhilarating, but brings its own set of things to do after the launch.

There are 3 major buckets of items that you will encounter the day after the launch.

They fall into the “do now”, “do later” and “do never” bucket.

First the “Do Now” bucket. I would put thanking people that supported you on the top of the list. Send personal emails to the reporter, initial users, advisors and mentors with a list of links (combine all coverage instead of sending multiple messages) that indicate the coverage your received for the launch. Even if all you did was launch it on HN, it helps to take a screen shot, or even provide a link to the comments. If you have a team, I’d highly recommend you collate all the links, and put them into a document to share and discuss when you meet. It helps to set context to something you have all been working on. Even if the feedback on the launch is negative or “meh”, I’d still recommend you put it together.

I’d also immediately put together a spreadsheet with the major items of feedback and perspectives, and put them into feature requests, comments, questions and general feedback. Some of them you can action and others likely not. Either ways, it is quicker and more helpful to capture all the feedback just after the launch rather than go back and revisit it later.

Finally I’d spend quite a bit of time providing customer support - helping answer user questions, addressing their issues (without coding new features immediately) and also documenting the bugs they encounter – maybe you might want to even fix the blockers or P zeros (priority zeros).

Second, for your “Do later” bucket. I’d write a blog post to collect your thoughts, and write about your experience overall – what were the highlights when you got your start, what the low lights were, what your journey was and how you made critical decisions. In that blog post I’d also add the links to the launch coverage.

I would also spend some time after day 1 on your traffic analytics - where did you users come from, where they spent time and finally what they did. These will help you prioritize the key elements of your go forward plan and help you target the right press or channels going forward.

This is also a good time (do later, not immediately) to check all your social channels – Quora, FB, Twitter etc. to capture your feedback. I dont put these in the do now bucket, because while you might get some feedback that needs immediate attention, they tend to be a big drain and time sink. You will end up responding to some of the feedback, but most of the response from your side will be emotional – either happy, because your launch was well received, or sad because you were panned.

Finally the “Do never” bucket. You will get a lot of email from potential recruiters – who have “a rock star ninja” who wants to join your team and mentioned your company by name, or potential partners who “want to set up time over coffee to talk about potential ways to partner” or other principals and associates at investment firms who “followed” your launch or were tracking you on angel list or tried your product and would like to setup some time to learn more.

These waste the most amount of your time. I’d highly recommend you push them all out by a few weeks and use it as a technique to buy some time and gauge their interest after 3-4 weeks. While I have learned that there’s some truth to the “strike when the iron’s hot”, these are rarely hot irons, but more “flat coal”.

I’d love your feedback. What’s been on your do now, do later and do never bucket after launch?

How “Clustering Illusion” stalls more #startups than any other bias

When you are doing your initial customer development, by talking to many potential users, there are many cognitive biases you need to be aware of.

Cognitive biases are tendencies to think in certain ways that can lead to systematic deviations from a standard of rationality or good judgment.

Usually most founders tend to solve problems they have exposure to or those they are aware of, or those they believe to be one that’s a large market. This stems from the “scratch your own itch” phenomenon.

I had a conversation with a founder who is building a consumer internet company, where viral effects of her product determine the growth trajectory more than any other metric. Or so, she had learned from many other founders experiences – both by talking to them and investors in the space.

After 3 months of building her mobile eCommerce product, she and her cofounder launched it in the marketplace. Initial traction was good and trending ahead of their expectations. Many of the early users were impressed with their product selection and merchandise.

Growth after the 4th month though, stalled as they were on the road trying to raise their initial funding. Most every entrepreneur knows that fund raising can be a full time job. In fact I have mentioned several times that fundraising is a poker game more than chess.

When they were trying to show their initial user growth, many investors had the same problem – was their product a trendy, 3-month-uptick or a sustainable-fast-growth business?

After hearing this from the 5th seed investor, they determined that they need to look closer at their numbers, their repeat purchase behavior and address the issue before they were going to raise any funding.

Looking at the initial numbers suggested their they had many buyers who got to know about them through word-of-mouth, and the repeat purchase was high.

She and her cofounder determined that they had to improve their virality coefficient.

This is the bias I see most often: clustering illusion.

The clustering illusion is the tendency to erroneously consider the inevitable “streaks” or “clusters” arising in small samples from random distributions to be statistically significant.

When you have very little data, you have very little data. That’s it.

Don’t make assumptions about the overall market based on very little data.

There are times when you have 60% of the data and you have to make a decision. There are times when you have 30% data and you have to make a decision.

The difference between 30% and 60% is a lot. In fact, most entrepreneurs I deal with confuse having 3% of data with 30% of data.

To reduce clustering illusion the only remedy is to get more data. You will have to run more, smaller, experiments, over smaller periods of time and do it consistently. Make your assumptions, document your hypothesis, but continue to work on getting more data.

Turns out the real problem for our entrepreneur was that the overall market was much smaller, and they found it after 1 year of trying to increase their virality coefficient. They did raise their initial funding, but have since pivoted to expand their merchandise offerings to cater to a larger market.

The toughest transition for a #startup founder: From a position of control to one of influence

One of the toughest transitions most entrepreneurs have to make when their organization becomes bigger is to move to being a leader with influence rather than control.

They will no longer be able to have the command and control over their product, customer relationships or employee engagement as they did when the company was smaller, when they did all those things themselves.

The most critical milestone is when you raise your series A. That’s typically only 10% of companies that start, or about 3000 companies a year in the US, about 100 in India, each year.

Of those, there are less than 10% of the founders who are engineers or developers.

They have the toughest time transitioning from being a founding entrepreneur to a CEO.

The series A typically involves getting institutional or professional investors on board, who have critical milestones they set and also help set the pace for the next set of milestones.

Usually during this period, many (not all VC’s) will have the conversation about bringing on a professional CEO on board.

Most investors will give the founding CEO a chance to make mistakes – usually 2-3 times before they start talking to one another about bringing “outside help” with “grey hair”.

The challenge I have seen most developer / hacker CEO’s have, is in understanding the move from being a founder with control to a CEO with influence.

If you have been lucky enough to hire smart and talented people on board, you will realize quickly that they have ideas, thoughts, vision, direction and strategies of their own as well. Which is why you hired them.

Unlike the first few “believers” they are more likely to join because of the market opportunity as well as the “founding team”.

So, as a founder you have to quickly adopt the influencing approach to leadership.

The most important thing to learn about influence is changing how you communicate.

Making room for other ideas, giving them space to voice their opinion and also get their thoughts heard is going to be the most important element of your leadership.

You no longer need to have all the ideas or solve all the problems.

There are others, many who are likely experts in their area of work, whose role it is to solve the problem.

Here are 3 examples of what the change means:

1. Asking more questions than giving answers. When folks come to you with questions, it is extremely hard to not get into a “brainstorming” mode and help think through the problem. Unfortunately, what they really want you to do is to help them come up with the answer.

2. Giving perspectives they have not thought through, than giving advice. People who work for you will come with a plan, strategy or a roadmap for implementing a program. Rather than give them your perspective, which is in most cases your opinion, you are expected to give them a 360 Degree view of the problem with perspective they have not yet thought though, so they can make a well rounded decision, instead of advising them on the way forward.

3. Encouraging problems to be brought out, instead of beginning with solutions. You will be given reverence as a founder, and most people wont want to call your baby ugly, so in many cases you will get a varnished view of the world. Instead you have to encourage problems or challenges to be brought forward so you can help the best minds come up with a solution.

All of this takes more time than before, which I believe is the biggest challenge for most founders. When things were smaller, you could move fast, but now that you have a series A and a larger organization, things might seem to move at a glacial pace.

That’s okay though, since you have more people to work on bigger initiatives than smaller problems you had to tackle earlier.

If you want to still be productive I suggest you always be an individual contributor as well.

Don’t apologize if you are building a life style business or a slow growth one

I had a friend come over to meet local investors and members this week to talk about his startup. It is a good company with very early traction. They are clearly not going to be a Unicorn in anytime soon.

The amazing part was he was not even looking for investment or money. He was seeking support and had a very nebulous but simple ask – get one person to lead the Seattle chapter of his startup and be the local champion to host events and hackathons.

Naturally, to an audience of seasoned investors and entrepreneurs, this seemed to be a small ask. There were a barrage of questions about “Why not do a bigger thing?”, “What is the market size?”, etc. Not withstanding the fact that his startup was already “in the market” with some meaningful traction. The entrepreneur was not looking to “Go Big or Go Home”, but really make a difference and also make some money.

In this market, where most everyone wants to invest in social networking applications that share real time video or a social network for dog lovers, he was building a different kind of company.

It was clear that he was not being able to tell his story and the impact his organization was making, since he was unable to convince most folks that what he was doing was material.

It would be a collective insult to the intellect of the room, if we did not support his cause actually or come up with ideas to help the entrepreneur.

When he was asked these important, but tangential questions, he chose to apologize. Many of his answers were “Yeah, we dont have that”, or “We only do this one small part” or “We have not had that level of impact yet”.

Surprisingly he had more impact on young kids and women in other regions, than I suspect 97% of the people in the room.

Yet, he was the one who was apologizing.

As an entrepreneur, you set out with a vision to change the world, however small. Sometimes you just have a small problem you want to solve. You wont even understand in most cases, the unintended consequences of your product or startup.

Never mind.

Just dont apologize to any self-righteous, unicorn chasing investor.

Tell your story, stick to your convictions and be humble, but stand up to criticism about the market you chose, or the growth you have had. Even if they chose not invest, remember that it is easier to throw rocks than to collect them and build a house.

Keep collecting all the rocks thrown at you. You will need them to build your house made of solid rock.

Until then, please dont apologize.

Vision, Execution and Communication, what makes entrepreneurial founders, great CEO’s

It is often said that the most important things a startup founder and CEO needs to focus on is setting the vision and communicating it effectively, hiring the right people and making sure there’s enough money in the bank.

In the early stages though, the vision is less clear for a company for many founders. What’s more clear (to most entrepreneurs) I assume is the problem they are trying to solve. Or, in many cases the solution they are trying to build.

If you over index on good or excellent execution but have not a clear, well thought out vision, the market, investors and employees will give you time and room to develop. Case in point, it was not always clear what Twitter’s vision was to most people (and probably is still not clear).

So, if you have a great, compelling vision for the future of how the industry (like Marc Benioff did with Salesforce.com), then it does make it easier to grow, fund and scale the company, but if you dont, I wont sweat it.

There are many forms of communication, but the 3 I am focusing on are public speaking, written communication and articulation in a personal setting.

Not surprisingly, if you are afraid of public speaking (which apparently is the 2nd most feared thing for most people after death), the market does give you some leeway. There are many entrepreneurs and senior executives who I know, personally, who are poor public speakers and are not at all charismatic. That usually does not seem to stunt their progress though.

If you are not great at written communication, (which can easily be fixed BTW, with practice), the world is not going to end. It does help, but you only have to keep in mind that over 80% of successful founders in the unicorn list have trouble writing something meaningful even with the 140 character limit that Twitter proposes.

If however you can’t articulate the problem you are trying to solve in 1-1 situations or answer the difficult questions about why your company exists, what it does and how it will solve a problem, then potential co-founders, employees, investors and customers will not give you much leeway.

There are certain situations when even poor articulation (which I have seen multiple times when folks come to pitch their product to us) is something we accept and assume we can help with.

That situation is when someone has executed very well. Whether it is building a compelling product, getting early customers, growing user base or raising funding rounds, doing beats telling 95% of the time.

From time to time, we (potential employees, customers or investors) get enamored by a good story, articulated by a charismatic, passionate and visionary founder, and it may happen more than in exceptions than the rule.

The thing is though, you can’t argue with execution at the partner meeting or at the customer review or when you are talking to your friends about a company you want to join.

Either they did what they did or did not – either they got users and growth or not. They have customers or they dont. They have a product that users like or they dont.

They executed or they did not.

Which is why, even if you being told you dont have a great vision or that you are poor at telling your story or you have bad communication skills, take heart.

If you out-execute and show the proof in the pudding, by numbers, metrics and growth, the market and the participants will let you get away with your “weaknesses” or perceived faults in vision or communication.