Category Archives: Entrepreneurship

When you don’t know what made you successful, you make new mistakes

Most startup founders tell me they learn more from failure than they do from success. The reason primarily seems to be because you can point to one (or many) things that directly affected your failure, but success tends to have multiple factors contributing to it.

Then there’s the age old “I got lucky”. Which is interesting in itself, because the most successful people I know attribute their success to luck more than to anything else.

Success does have its challenges though in terms of being a good teacher. Most often we are told that what got you to a certain point wont get you to the next “level” and that you need to change your processes, systems, people and technology stack.

I had the chance to talk to 3 founders in consumer internet companies, over the last few weeks about their pilots and how their initial MVP’s are going – most of them had “successful” beta products with engaged users and many referrals. The one thing though they all felt was that they did not learn what made their products stick.

The superficial learning – about features in the product or the instant gratification a user got from their product was mentioned often, but that’s not enough.

To truly go from Minimum Viable Product (MVP) to Product Market Fit (PMF) the most important thing I have learned is that you need to know what made your product a “success” for your customers.

Let me give you one personal example and one professional one.

When I set out to lose weight and get fit (I lost 50 lbs in 25 weeks), I thought the key was to eat less and exercise more. In fact I thought they were equally important. I also believed a calorie lost was a calorie gained. Not true actually.

“A calorie lost is worth at least 2-3 calories gained”.

I learned this the hard way.

When I started, I put my data into MyFitnessPal (MFP) and it said I needed to eat 1650 calories each day or less. MFP, also tracks your exercise (automated via API from MapMyRun and FitBit). So the first few weeks I tracked what I ate and also automatically tracked when I exercised.

I would eat about 2000 calories and workout for about an hour to burn 550 calories and assume that it would turn my weight in the right direction. Turns out that was an incorrect assumption. My weight was flat.

When I truly started to eat less than 1650 calories, and still keep up the workout regiment was the only time I lost weight.

Then I experimented with my workouts and my eating. I tried eating 1500, then 1400 and finally 1300 calories or less each day for 3-4 weeks. My exercise regiment was constant. I lost a lot more weight than I anticipated.

I tweaked it further (because of travel) and reduced my workout to 45 min and still tweaked my eating for 3 weeks from 1500 to 1400, and finally to 1300 calories a day for 3 weeks. I lost the same amount of weight as I did when I worked out for 1 hour.

So the key to success was portion control and food, not exercise as much. That was something l learned. Now, that may work for my body type and may not for all, but it is important to experiment the key to ensure you understand the contours of your success.

Now for a more professional example.

I used to write more often that I do now, but over the last 8 years I have written about 800+ posts to average about 100 per year. Many are forgettable, so there.

I tried to experiment with writing short posts, then longer ones, then ones about current technology (newsworthy and topical) and finally about humor and self learning.

The ones about technology and news generate the most page views. Which, I know I am not supposed to care about, but I do.

The ones where I talk about what I learned from entrepreneurs generate the most comments, which I love again.

The blog posts which are short generate more likes on Facebook and the longer posts tend to get more shared overall.

I experimented more with length of my posts, the topic, the category, the sharing options, and the titles, but I don’t think I have found the formula for “success”.

The only thing I know is that if I write often, I tend to get more emails from entrepreneurs, talking about their own experiences, which I love the most.

So what happens when you don’t know what makes you successful – you tend to make more mistakes, but you tend to also learn a lot more.

If learning is your objective and constant learning at that, then I suggest you dont find out what makes you successful.

I learned that blog posts about my reflection tend to generate more interest than those written dispassionately about the world and its affairs.

I still have to find out what makes a successful blogger and have to define success first. Until I do that I have to be content with the assumption that I will learn more and make more mistakes, not knowing what made a post a “success”.

What value do #startup accelerators provide to #entrepreneurs?

Many entrepreneurs and other venture investors have a perspective of the accelerator space with little context or a construct to think about their value. I am biased and run the Microsoft Accelerator and I think most programs are extremely valuable, though I am an insider.

There are key questions I thought I’d answer that are top of mind of most entrepreneurs and investors about accelerator programs.

How do we think about accelerator programs?

The best construct to think about accelerators is the MBA program for entrepreneurs with new age changes and modifications.

Instead of tenured professors, you have (hopefully) experienced entrepreneurs who can share their story and journey towards entrepreneurship.

Instead of textbooks with theoretical knowledge you have playbooks based on actual experiences.

Instead of one teaching assistants you have mentors who have relevant experience in the area that you need help.

Is the MBA program great for everyone? No. It is only relevant for those that believe in the power of the network and want to take advantage of the connections (not only customers and investors but other fellow entrepreneurs as well).

What happens to existing MBA programs? Will they go away? No, but there will be a serious consolidation. I can see a future where MBA programs are catered to generating folks purely to be placed at a large company such as Goldman Sacs or Bain. Tier 2 colleges and MBA programs will have to fold up.

Is there value in other accelerator programs besides YCombinator? If you believe the MBA program construct, then this is a question that answers itself. Even though there are many that falsely believe there are no programs that are better, that’s like saying if you get a MBA from any other school than Harvard, then your MBA is useless. Similar to MBA programs you pay a lot (in the accelerator space you pay equity, not cash) to get that “stamp of approval” or “credibility”. Is that worth it? For most it probably is.

What value to accelerator programs provide? For most novice entrepreneurs it is advice, for amateurs it is mentorship and for the professional entrepreneurs it is guidance and connections (the network).

Do most entrepreneurs benefit from accelerators? Or just the young, first-time-as-an-entrepreneur do? Do most experienced professionals (who work before joining an MBA program) benefit from an MBA program – absolutely. In fact I would argue they benefit more from the program than young fresh graduates, because they are able to take advantage of the connections, network, mentorship and guidance immediately.

What does the future of accelerators look like? Similar to MBA programs, accelerators are beginning to specialize to compete better. There is a need for a lot of management thinkers for companies beyond the consulting and banking industries, which is why so many MBA programs are churning out graduates.

Depending on how you see entrepreneurship play out – will it be a winner-take-all market or a very competitive one with many startups and many entrepreneurs, there’s a likelihood that many accelerator programs will consolidate or get “acquired” by venture capital teams.

In a winner-take-all market, YCombinator wins. Which means, they get the 80% of the best entrepreneurs and rest are fighting for the scraps.

In a more competitive market, YC, like the others has good share, but only 30% of the best companies graduate from YC, and the rest from other programs.

I personally think it is unlikely that the accelerator market is winner-take-all. Similar to Venture capital firms, where there are tiers (Sequoia, Accel, A16Z, etc.) form the top tier, and there are over 300+ VC firms still doing well and many return good money to their LP’s. Granted the large funds deliver over-sized returns, but the rest are still doing pretty well.

Should entrepreneurs apply to multiple accelerator programs? It depends on the connections and networks you choose to leverage. If you are a health company, YC will be of value, but not by much. You want to attend YC to get the stamp-of-approval, but you will benefit a lot more from programs like Rock Health.

I don’t know of too many folks that have gone to attend multiple MBA programs, so I think that a startup going to multiple accelerators will just dilute themselves too much. Unless they attend a program that offers no dilution – like the Microsoft Accelerator program for example or many others.

Which is why TechStars is starting to offer their “equity back” (like a money back guarantee) program – You got value or your equity back.

What others questions do you have about accelerators? I’d love to think about this construct and see if it addresses more questions about the value of startup accelerator programs.

Entrepreneurship is an act of self realization more than of markets, technology or customers

Over my career spanning 15+ years, I have started companies, sold successfully and also failed and shut down companies. I have also started over 25+ side projects that have largely failed. I can claim I have learned a lot from both my successes and failures to write multiple books. What I have figured out though is that the act of solving a new problem and the ideas that flow have more taught more about myself than the markets I was operating in, the customer segments I was targeting, or the technologies I was working on.

There are multiple things you want to learn about yourself. Introspection is a good thing for most parts. There are multiple ways to learn about yourself. As long as you live every day you tend to learn about yourself, but all of the major milestones at your startup provide you an opportunity to learn more about your likes, dislikes, your fears, things that make you happy and those that make you sad. You also learn about the kinds of people you like to work with and those you’d rather avoid.

The key part is to document all your learning. I recommend the question bank approach to learning from your failures.

One of my side projects many years ago was a crowdsourced solution to price transparency for *everything*. I called the project “pricearoo” and started it exactly a year before “Priceonomics”.

The key difference was to allow users to “check in” their price for any item. I have the initial screen shots as well. It was a simple “I paid XX for YY” at “automatic location

Then you can see how much other people paid for the same thing, or where you can get it cheaper. The idea was pretty broad, and I could price anything from oranges to cars.

There were a lot of things wrong with the project. I launched it for Windows Phone (2012, pretty lame, I know) and it was pretty generic, instead of focused on one vertical. I also did a poor job getting the word out. So, while the prototype and the mockup were very well received by the initial users, the project failed miserably.

I learnt a lot about consumer applications, the launch process, how to build a Windows phone app and build a back-end system with Ruby on Rails. All that was great learning, and something I will keep for a long time.

There’s one thing though about these things I learned. Most have of the items about market, customer segments and product have a shelf life of less than 3,6 or sometimes a max of 12 months.

The most important flaw in my personality that I learned through this project was I like shiny new things more than the discipline and diligence to follow through one thing.

That one piece of learning has stayed with me ever since. I have written much about discipline vs. intellect since, but since that project, I focused on building my muscle memory around being a lot more disciplined. The “I am smart enough to figure things out” has been replaced by the “grin and bear it through the worst and best of times”.

Book review: “Average is over”; about the future of successful people

I tend to read about 1-2 books a month. Largely on my kindle and sometimes audio books. I was referred to Tyler Cowen’s book “Average is over” by a friend who reads more extensively than I do. She wishes that I dont give her unnecessary attention.

It is about $10 on Amazon Kindle. If you want to be the 0.01% of innovators, creators and influencers, then you should read this book.

I have believed in the theory that “normal”, “average” and “balanced” are the worst words in the entrepreneur’s dictionary. Things like “best practices” suck. If something is a best practice you are getting no value from it at all, since someone who found out about it in the first place got the most value from it.

The basic premise of this book is that the next generation of technologies, innovations and breakthroughs in the next decade will not result in economic gains for the “average” folks.

Instead the folks who are extremely driven, intelligent and motivated are the only ones who will make it big.

The rest will see their quality of life improve marginally, but will have to find other means to feel “good” about the contributions they make.

I would recommend you read this book (or skim it) if you have an interest in economic activity and the history of innovation.

Individually proficient, Collectively efficient; why your first hire matters

The first employee outside your founding team is like a founder, but not quite. Many times you luck out and get a great person who steps up to be a founder emeritus, but you will most likely get a very good employee.

From my observation of the 72+ companies I have personally observed at Microsoft Ventures Accelerator over the last 3 years, if you hire your first employee outside your known “network”, it is very likely you will not succeed as a company.

There is a direct correlation between the first hire and the caliber of people your startup attracts.

Let me say that again differently. The first person that joins your startup as an employee, sets the tone for the entire set of next 5-10 people and then the next 11-50 and finally the rest of the people.

I developed a system to figure this out, which I use as a benchmark to evaluate companies who get accepted to our accelerator program – I usually ask to speak to the first hire in most cases, rather than the founders alone.

Many times, founders dont have a first hire. I ask them to name the first person they’d hire if they were to hire in a week and I ask to speak to them.

Why does the first hire matter the most?

Simply because they will be the manifestation of the “company culture”. It is a test, of whether the founders have given enough thought to what kind of company they want to build.

Based on my interview with the first founders over the years, I have developed a pithy – Individually proficient, collectively efficient.

In most large companies, the “team” looks really good because 1 or maybe 2 people carry most of the load and the rest are “bit players”, who come in for cameo roles, but are largely coasting. A large company has the ability to scale since there are so many people, so even in an organization of 1000 people, 10 people’s (1%) collective work is a lot of momentum.

To compete as a startup, you will need to build that momentum, but with fewer than 10 people. Which means, your 10 people are competing against the larger company’s 100’s. In most cases you really are competing with the larger company’s 10 people, but lets say for the sake of argument, you have to compete with a larger team at a large company.

The 10 people you have to go to battle with have to be wedded to your vision and view of the world. The only way that happens is via constant communication and reinforcement.

Which comes back to the first employee. The first employee is the reinforcement of your culture and you need to not only make sure that your first employee is competent and a superstar contributor but also makes your team collectively rise up the scale.

Why is it so difficult to raise money for tech startups outside the valley? And how to fix it

I was in Chicago on Friday for a startup event at 1871. The accelerator and co-working space is the most happening place in that city. Over 100,000 sq. ft. of awesome startup space. Imagine 350+ early stage tech companies, a few investors, small teams from larger F1000 companies, a developer coding academy and great event space all rolled into one.

That’s the future for all cities, which I see increasingly – Denver has Galvanize, Provo, UT has Boom startups and Austin has Capital Factory.

These hubs concentrate the tech startup activity and provide a critical mass of community, local engagement and evangelism for startups. I was super impressed with 1871 and left very excited after the session at Boom startup and Capital Factory as well.

The one consistent theme I have heard from most of the founders is how hard it is for them to raise money in all those locations. Outside of the valley, funding in New York, Utah, Austin, Chicago and Seattle takes twice as long and you dilute twice as much.

On average Silicon valley companies raise about $491K (Angel list data with cross-reference from Crunch base) for their seed round, which takes about 3 months to close. Since most of them raise a convertible note, it is fairly hard to understand seed stage dilution in the Silicon Valley.

Outside of the valley, which was reinforced with entrepreneurs from Chicago and Austin, there’s a real push from angel investors to have “sustainable revenue” and “proven product”. The average company outside the valley (in the US alone, in the top 7 cities – Chicago, Austin, New York, Boston, Seattle, Los Angeles and DC – raised about $230K for the seed round and took about 5 months to close.

From the 11 entrepreneurs who I spoke with in Chicago alone, the average dilution at the seed stage alone was about 15%. In the valley it would be closer to 8-10% would be my guess.

That roughly equates to twice as long and 1/2 as much money and I would bet that it would be that they diluted twice as much as well.

Comparatively, Bangalore companies would take even longer from my experience – 7-8 months, and raise the same amount of money as the average in the US, and dilute in the range of 20% at the seed stage.

Outside the valley, everyone is in the same slow boat, to raise funds, as an entrepreneur.

The angel investors are slow moving, have little motivation to invest at the early stage and have a very high bar for “funding”. It is not unusual to expect to have serious, sustainable revenue from startups before angel investors fund the company.

It is no wonder that most entrepreneurs outside the valley think they are the ones with bad luck.

This is the same in other cities such as Philadelphia as well.

Funding, one of the critical parts of the ecosystem is underdeveloped and very difficult for early stage startups, outside the valley.

Just to be clear, it is hard to get funded, in the valley as well.

If you are from one of the “it” companies, like Google or Facebook and have built a network of colleagues who you have worked with, who again, because they are in those companies, have done well, financially, and are willing to fund your seed round, then things are relatively smooth.

Else it is a pain.

On the flip-side, I hear from my angel investors that the ideas are “poorly formed” and have a lot more risk than other “safer” investments they have in place. Also, in many cases the local seed investors prefer to fund “known” businesses and not take a risk with unproven models.

So what’s the solution in other cities?

I suspect there’s no easy answer until you get some “winners” – both startups and investors who make it big and decide to “give back” by investing. Or forward thinkers who decide to “pay it forward”.

Until then, here are a few things that you can do:

1. Build relationships with investors way before you need their help. I would advice future entrepreneurs to build deep relationships with potential investors 2-3 years before you start if you can. Meet them at events, volunteer for their projects and show / prove to them that you can deliver.

2. Start with a kickstarter campaign. This may not be a perfect option for many types of projects, but you will be surprised with the diversity of crowd-funding models and types of companies that get funded.

3. Help organize local “angel list syndicates”. Get a bunch of folks who invest in the stock market to help them diversify into startups – this is a role that angel groups tend to do but they do a largely poor job of it.

4. Organize entrepreneur-driven funding showcases and invite (beg, cajole and excite) investors from Silicon Valley, who have possibly connections to your city to come.

5. Get local large companies (the F1000 in your city) to kickstart a pooled fund model, with some initial funds annually. The budget for this could come from their innovation funds. Find a way to help solve that companies problems with local startups.

How #investors judge #entrepreneurs. Yes it happens all the time.

Over the last 2 weeks I had the chance to do what I like best. Meet and learn from entrepreneurs at the earliest of early stages. Hear about their ideas, learn about their problems and find interesting new ways they are tackling problems of funding, building products, hiring and managing teams and getting users and customers.

Similar to the Mazlov’s hierarchy of needs I have formed a mental model of entrepreneurs and their categories or types based on what they think they “need” from me. Most of them have an ask – connections, funding, advice or referrals. Which is expected, after all I am asking the question with an intent to help.

The hierarchy of needs are fairly similar to most entrepreneurs but the most self assured ones behave differently and ask different questions. They seeks perspectives on the problems they are facing and guidance on their choices.

The rest seek funding.

If your answer to the question “How can I help?” is ” all I need is money”, then you have lost the plot. I think most investors wIll judge you right there and drop you down 2 or 3 notches on their scale. That’s tough to hear but that’s the truth.

If your answer to that question is “I need to get connected to x customer, or y potential employee or a person for a partnership”, you will be viewed as a tactician. Nothing wrong with that, but hey just like entrepreneurs judge  investors, they do the same.

If your answer is “We are facing these challenges  and would love your take on how you’d solve the problem, you will be viewed as a smart, talented and open-minded entrepreneur.

If you answer the question with “I want to start a company but I don’t have a good idea yet”, then you will be judged as a wannabe. Someone that always fantasizes about entrepreneurship but never does anything about it.