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.

Before you know it, your startup is now a “big” bureaucracy with “approvals” for everything

Often when I meet wannabe entrepreneurs at events, I ask the question, why they are willing to give up their relatively easy job, with good pay to take up the roller coaster world of starting their own company. About 20% or so of the folks I meet at these events work at another startup (typically < 3 years old, about 20-50 people). I think of most of these companies as startups as well, so I am curious as to why, after seeing all that happens in an early stage startup, they want to start their own company.

Sometimes it is because they want to be their own boss, or they see the success of the founders, who they claim have little intelligence, but still managed to start their own company and be moderately successful. At other times, I hear the burning itch to start and solve a problem or other times it is because they always wanted to start one, but were not able to because of other constraints.

Every so often I will get a person who was the 1st or among the first 10 employees of a startup. They will reminisce about the “early” days of the startup they are working at and talk about how everything was simple and easy during those days and how bureaucratic their 50-100+ person startup had become.

When I press further about the “bureaucracy” and what makes things slow and inefficient, the word that always comes up is “approvals”.

“Approvals” are the tool misguided managers use to make themselves feel important.

If you are a person that needs to feel important so you can “approve” things, you dont have enough work to do.

Approvals are used by big companies to kill any ounce of individual responsibility and trust. They also kill the very initial set of values and culture that you might set out to build your company’s foundations on.

Approvals send one of many messages:

1. I did not hire the right person so I have to ensure they “stick” to the rules of the company that HR has arbitrarily come up with.

2. We have hired way too many people who dont have enough work to do, so they have to be around to “approve” things.

3. We need policies and procedures for everything since we dont trust the folks we hired to use their judgement.

Notice that the common word in these (and most other) examples is “hiring”.

Approvals are the child of poor hiring and recruitment.

You can cop out and say it is a HR problem. It is not actually.

As a founder, it is your responsibility to ensure that the vision and culture of the company are consistent with the ethos you started it out with.

The first 10 employees are indicative of the zeal you brought to the table, which convinced them to join a high risk startup at such an early stage.

If these first 10 and many other employees feel that the company is “approval” heavy and requires big company (productivity killing and sans accountability) procedures, then you have something wrong with your hiring, not with your HR policies.

Remember this, if a manager in your company feels so important to want to “approve” everything anyone does in his organization, he has practically no work and likely a heightened sense of importance.

How to come up with the “one metric” to track and improve at your startup

Yesterday, we had a discussion about OMTM (One Metric that matters) with Chase of GoSkip. There is lots of information about how to chose the metric that matters, and also enough about why it is important. The missing part is how do you choose the metric depending on the stage of your company, the industry you are in and the way to make sure the metric matters to your employees, customers and investors.

It is fairly easy to say that you need to focus on growth – which is fairly obvious, but the question becomes grow what? Users? Revenue? Shares? Likes? Churn?

Picking an arbitrary metric wont hurt you in the short term, but it will not get you to the point of moving your startup forward.

The OMTM changes by stage of the company – from idea stage to prototype and to MVP and PMF. In fact, you will be tempted to put one metric for each part of your organization – engineering, sales, funding etc. – I suggest you dont. It completely defeats the purpose of the OMTM.

There are 3 criteria you need to consider when coming up with your OMTM.

1. The direct impact of that metric to the monetization or valuation of your business – depending on how you intend to eventually monetize, you want to make sure the metric is very closely aligned with that number.

2. The validity of that metric for the duration (time period for which it will be valid). If you come up with a metric that’s going to be valid for less than your next major milestone, I would reconsider it.

3. The ability for anyone in your startup to action based on that metric. If you end up putting a metric together that most people cannot take a direct action within their span of work, you end up not having the metric be meaningful to most of your employees.

Accelerators, more than seed funds have created the glut in early stage companies

There are 3 major trends that have driven startup formation over the last 7 years.

First the cost of infrastructure, thanks to AWS has dropped from hundreds of thousands of dollars to hundreds of dollars – 3 orders of magnitude.

Second, the number of seed investors has gone up 5 fold, from 35 to over 250 now.

Third the number of accelerator programs has gone from < 10 to over 635 in the US alone.

The number of startups in technology has remained though constant, at about 20K to 30K per year from the US alone. There has been a slight increase, but not by much. So what gives?

Some questions – has the failure rate increased? The anecdotal evidence is yes, but the real data is inconclusive.

Are startups talking more time to mature? I call maturity as time to get to series A from the time they were formed. If you look at 2007 data, the time to get to VC series A funding (crunchbase data) was 2.2 years.

If you look at 2014 data, the time to get to series A has dropped to 1.6 years.

The size of the rounds have gotten higher, as startups are taking in more money.

The number of side projects (indicated by participation in hackathon’s, which is a proxy but not an easy to measure metric, has increased dramatically by 400%.

So, AWS has allowed you to really reduce the cost of experimenting, more than building a startup alone.

If you look at 2007 data and see the number of seed funded companies that got VC funding as a percentage, the % has reduced by 2014 – largely because there are a lot more companies getting seed funding.

The real difference is the accelerators in the US – they have gone from bringing out 250 companies in 2007 to over 2000 in 2014.

That’s the big (4 times the number of early stage companies) change from 2007.

Accelerators are causing the glut in startups getting in front of institutional investors more than angel funds.

The self inflicted wounds that cause early burnout among startup entrepreneurs

Envy.

That’s the word of the day.

Try to avoid keeping up with the Kevin’s. That’s the digital entrepreneur equivalent of keeping up with the Joneses.

I know many entrepreneurs who are constantly comparing themselves to other fellow founders and wondering a) how did they raise money for “xyz” company, or “how did they raise money so quickly? b) why did I not come up with that idea? or c) how come they are growing faster than us? d) how are they able to get more press than we can or e) why is everyone talking about their company more than ours?

There are any number of reasons why entrepreneur’s envy other founders.

Envy causes a ton of stress. It is not limited to entrepreneurs alone, take the case of MIT students.

Stress causes you also to make irrational conclusions and bad decisions. When you operate under stress, you will end up making the mistake of “good data, wrong conclusion, bad decision”.

So, how do you handle stress? Since this is largely a self inflicted wound, it is “curable”, but requires a lot of discipline.

1. The most important thing I have learned is to keep routines and exercise to relieve stress. Many folks read to relieve stress, others cook, still others eat. The worst of the 3 of these is to eat. I have known at least 30% of the founders who come to our accelerator program, gain more weight after the program. The biggest reason for the weight gain is the increased food intake, especially bad foods such as those with excess sugar.

The time that I found most of our entrepreneurs eat the worst is between 2 pm in the afternoon and 6 pm in the evening. The afternoon snack is likely the worst.

Most entrepreneurs tend to wake up late, so they tend to skip breakfast. Lunch, most likely will be relatively healthy since they tend to have guilt from the previous night’s drinks. Dinner is takeout for most days among the founders I know. The older ones tend to eat at home with the family, so they tend to eat a healthy dinner.

2. Make healthy choices about eating. More than not exercising eating bad causes more weight gain. That’s one of the prime reasons to carter food to your office, instead of “grabbing a burger” for lunch. Sit down with the team and eat healthy. That’s going to work wonders for the team and you tend to eat a lot healthy.

3. Have small milestones weekly that you can celebrate. I am a big fan of frequent celebrations, for achievements, how ever small. They reinforce the belief that your team is in it together and everyone is contributing towards building the company. Celebrations also tend to reinforce culture.

Above all, try to reduce your stress by not comparing your startups progress to others, even the competitors. It may seem to be that winning is all important and that you have to beat the competitors, but I found that the founders that achieve the best or “top dog” status, believe that their sacrifices were rarely worth the stress.

Why accelerators focus so much on “Pitch Preparation” than operating plans

Josh at First round capital is usually attributed to the quote:

As I always say, there’s nothing like numbers to f*** up a good story.

Here’s the rub though, the story is not as simple as that. That’s not the reality.

Here’s a better way to think about numbers and funding, actually.

Story and Numbers

Story and Numbers

See the 2X2 Matrix above. The easy cases are when you have good numbers and story (funded) or if you have poor numbers and story (not going to be able to raise money).

If you have good numbers (traction, growth, revenues, users, etc.) but have a poor story, you are much likely to not get funded.

If however, you tell a good story and have poor numbers you are more likely to get funded than the person with good numbers.

That’s not just a hypothesis, that’s the truth outside the valley.

If you go to Chicago, Bangalore, Boston or Berlin, the entrepreneurs show great numbers – likely in revenue, but their funding prospects in the valley and locally are slim.

The reason for this is that as investors most of us are fooled by slick, great PowerPoint slides more than we are jazzed by 3 layer Excel spreadsheets.

So, if you want to raise money, even if investors tell you to master your numbers, I’d first master your story more than your spreadsheet.

Which is the biggest reason most accelerators focus on “Pitch preparation”, more than “Operating plans”.

That’s not the case with what I advocate at our accelerator, but I have tried that for 3 years and failed constantly to help great companies with good strong numbers to get funded.

The problem is that in the absence of funding, most entrepreneurs judge accelerators by “connections to investors”, knowing that they cannot force and investor to put money, but they can give the entrepreneur more “at-bats”.

If, as an accelerator, you want to give strong introductions to investors, you are going to likely send an email with a short pitch or at best a deck. You wont send a spreadsheet with numbers.

So, getting the story is more important than showing strong traction, but all else being equal, I’d recommend doing both.

That’s also the reason why you hear stories of “entrepreneurs from Google or Facebook” raising “seed funding just on napkin drawings”.

My advice to entrepreneurs, is that you have to master both to guarantee funding, but if you have to make a choice (a poor one, but that happens), focus on getting you story right.

That’s poor advice, actually and dangerous, for some entrepreneurs, but that’s the truth.