Most first-time founders enter the arena with only a handful of the necessary skills and snippets of domain knowledge required to make their idea work. Everything else has to be learned on the job.
The type of person who will drop everything to work on a startup usually learns pretty quickly, but being a fast learner is only part of the challenge. The important gaps in your knowledge aren’t enumerated up front for you to study and plug before you quit your cushy job. They’re revealed one-by-one, over time, usually in the form of the failure of something you had hoped would succeed.
The turbulent startup ride consists of almost daily finding out that you were wrong about some strategy, hypothesis or assumption. Each failure is a chance to fill a gap in your knowledge.
But not everyone is naturally good at learning from failures. I’m not.
Being a fast learner doesn’t make you naturally responsive to the lessons offered by a fresh defeat. The more you hope that some idea or strategy will succeed, the harder it is to see why it didn’t. Ego and denial creep in, confirmation bias blinds you, and it’s entirely possible to fail without realising or acknowledging it. Skipping class feels good in the short term.
Working on projects like Paydirt, it took me a long time to figure out I was doing it wrong.
The founders I knew who were making real progress — the ones I try to emulate
Entrepreneur. It's a tough word -- both to spell and to call yourself. Being an entrepreneur brings with it a love of leaping head first into the unknown. Life-long entrepreneurs love new challenges, and live their lives in a constant growth phase. One of the common resources an entrepreneur turns to is a mentor. Asking for advice and bouncing ideas off of others is essential to the success of an entrepreneur's journey.
I've been fortunate to have a variety of mentors over the years, and I can't imagine standing where I am if it wasn't for them. Despite all the challenges of running a business, the biggest constant in my life is those mentors, and their advice.
I also think it's important that mentors come from many different perspectives, as mine have. These are the five types of mentors I've had over the years, and the ones I think any entrepreneur can benefit from:
1. A friend that knew you before you started your own thing.
Perhaps no voice matters more than the one that knew you before you had a startup. They knew you when all this was just a dream, or when you didn't even know what a startup was. They can speak to your roots and ground you when you get lost in the startup haze.
For instance, when I go back home to the East Coast, my friends ask me about everything except tech and business. They tell me how impressed they are but remind me that I need to slow down, to live the life I want, doing what I love. No entrepreneur should lose sight of that.
2. A person with your similar skill set at your point of learning.
Having regular coffee dates or Skype chats with people who are in your similar phase of growth can lead to valuable relationships. I have a group like this, and we push each other and question each other's decisions. We have been there when things fell through and when our big days happened.
There is a confidence that can come with camaraderie like that. We understand what each of us is going through.
3. A colleague you don't love working with.
The 10 What Not To Do’s When Starting Your New Business
#1: Not Anticipating Your Customers’ Potential Needs
If you decided to open up a cake business, did you even consider that a good number of your future customers will also need to have the goods delivered to them as well?
Many businesses entail additional needs aside from their core product or service. If you can’t provide this yourself, coordinate with a third party to make your respective services a seamless package for your clients.
Taking the time to plan ahead will add to customer satisfaction and avoid headaches before they happen.
#2: Jumping The Gun
Although skimping on the essentials (e.g. a reliable computer) is a no-no, it’s dangerous to squander all of your resources at once. Allow yourself enough time to make the inevitable mistakes that will help you refine your business plan.
Give your business time to evolve organically and hold off on spending too much capital in the beginning. In the long run, you’ll need the financial leverage to make the necessary adjustments after you’ve experienced the hands-on feel of your business.
#3: Not Having A Unique Selling Point
Surprisingly, an alarming number of new business owners ignore this piece of startup advice. Everything starts with a vague idea, but you won’t get far if you haven’t refined exactly what you want your business to do.
To help you with this, think of the top three problems that your product or service solves. Being very specific about these fundamental goals adds clarity to your business goals and focuses your limited resources in the right direction.
4. Starting Without An Online Presence
Unfortunately, not everyone gets to work with startups. Our company interacts with them nearly every minute of the day. Sometimes it's easy to forget that many people don't have the up-close and personal experience with this incredibly dynamic, high-paced section of the workforce. It's a lot of laughs, headaches, tough problems, big choices and many, many wows. While there are some things I would never advocate for anyone to replicate, there are many amazing lessons to be learned from the startup community, a couple of which I want to talk about below. Not every company can be a startup or be like a startup, but every company, every person and every community can implement some aspects of what -- in my humble opinion -- make startups a driving force in creating people who are dreamers, fighters and builders.
Take Risks
We are all too often governed by fear, due to a combination of biology and past experience. We have been programmed to retreat more often than we advance. Our brains create defenses for us to avoid fear, displeasure and dislike. At the same time, a negative past experience can hold us back from trying again. It takes four to five positive experiences to supersede a negative experience. At our core, we are more often professionally risk adverse then we should be. And it's contradictory because we are often able to incorporate extreme risk taking behavior into our personal lives. Think about all the times you stay out too late, date the person you shouldn't and book the vacation you can't quite afford. These are all the types of risks that we take frequently, often with impulsiveness. When it comes to our professional lives, we are less likely to expose ourselves, and act without trepidation and rumination over all possible consequences. We are uncomfortable asking for the raise, nervous about taking a project that we aren't sure we can excel at, and often fail to create company culture where risks are encouraged and rewarded.
This is not usually the case in startups. In fact their cultures are often built around the notion that risk isn't just accepted, it's an inherent part of growth and day-to-day functioning. New is the norm and to try things that you don't know and that haven't been done before is a daily reality. This doesn't mean everyone and everything comes up roses. In fact, there are dangerous consequences to this that often manifest themselves in negative aspects like pompous founders and incoherent strategies. However, I think the negative effects are worth it. Encouraging people to dream big, to try new things, and to constantly improve is something worth building a company culture around. It makes people more resilient and creative both at work and at home.
Finding the Edge
One of the most common mistakes entrepreneurs make in building their business is that they assume that some outside funding source will give them the cash to build their business. Statistically, the chances that an angel or venture capital investor will fund their business are about 1% to 4%. This is why it is critical to learn to bootstrap a business in its first year. This means that getting paying customers in the early stages in order to prove there is a viable business is critical.
Here are four other common mistakes:
1. Projecting revenues that are based how big the market is. Many entrepreneurs think it will be easy to build a business since all they have to do is “capture 1% of the market.” Many times they “mis-size” their market or do not have enough capital to exploit actually it. Every entrepreneur needs to show how they can build revenues from the ground up with an appropriate sales and marketing strategy.
2. Thinking their competitive advantage is based on “superior quality” of their product or that it is “first to market”. Every entrepreneur needs to assume that someone with more capital can always build a better mousetrap. Being first or the “best game in town” is never a long-term competitive advantage.
3. Waiting until the business is out of money before looking for other capital. If an entrepreneur runs out of cash, they are out of business. It is best to have 3 months of working capital in the bank to cover any contingency. (Remember, a business never goes to zero revenue overnight so the capital can last 6-9 months in a downturn.) This will prevent an entrepreneur from having to negotiate debt or investment terms when they are financially desperate.
4. Not focusing on the shareholder returns.
The financial crisis makes it harder to get funding, but those that prove themselves during this period will be better positioned to thrive
Landing venture capital is tough for startups (BusinessWeek, 2/1/08), even in a good economy. But given the ongoing financial crisis, how hard is it for early-stage companies to get funded right now? Venture capitalists say entrepreneurs face a much higher bar than in recent years. They liken the downturn to a period of natural selection, when weak businesses will fail but strong ones will prosper. New companies that prove themselves now, they say, are better positioned to thrive when the economy recovers.
"Almost by definition the entrepreneurs who have the moxie to walk through your door in tough times tend to have better ideas," says Mike Goguen, a VC with Sequoia Capital in Menlo Park, Calif. Goguen says many of Sequoia's best-performing companies have been founded around down times. Today, VCs report seeing stronger proposals from more serious entrepreneurs than in years when the economy was stronger.
Venture firms are still investing, and they emphasize that they have plenty of money to back good business ideas. But funding has slowed. U.S. venture funds invested $7.1 billion in 907 deals during the third quarter of 2008, down 7% from the prior quarter and 9% from the third quarter of 2007, according to the MoneyTree Report from the National Venture Capital Assn. and PricewaterhouseCoopers. "The funnel for dollars is becoming smaller and smaller," says Mark Heesen, president of the NVCA. VC funds also have to commit more time and capital to help existing portfolio companies weather the downturn while the potential for exits through acquisitions and initial public offerings has greatly diminished (BusinessWeek, 10/14/08), he says.
Cash Flow Proof
For entrepreneurs running startups, the game has changed. Speculative business models won't get funded, says Bob Ackerman, co-founder of Allegis Capital in Palo Alto, Calif. Companies need to demonstrate that their value proposition is real, and that they can hit measurable benchmarks toward generating revenue and positive cash flow, he says. In an environment where consumers and businesses are cutting spending, entrepreneurs need to ask, Is this a company that absolutely must be started now?
It’s a typical Wednesday for Sir Richard Branson -- and enough to make his 2.7 million Twitter followers tired just from following along. Fresh off a lavish gala in New York, where he walked the red carpet with the likes of Mayor Michael Bloomberg and actress Olivia Wilde and collected a Conde Nast Traveler Visionary Award for his work with ocean conservation, he boards one of his own planes for a Virgin America Instagram promotion, serves a tray of mimosas to surprised passengers, and grabs a quick nap en route to San Francisco, where he’s the marquee speaker at Salesforce’s annual conference for some 90,000 attendees. After that, it’s back to JFK, a stop in London to compete in a triathlon, and then on to Finland for a conference.
It’s a question for any entrepreneur who’s reached a certain level of success, but for the 62-year-old iconic founder of Virgin Group, one has to wonder, “What possibly keeps this guy going?”
Indeed, the British billionaire, who helped make Virgin a household name in everything from records to air travel, has crossed the Atlantic in a speedboat, circled the globe in a hot-air balloon (well, almost), and routinely swims with sharks and whales. When he does pause to catch his breath, it’s on his own island. The Virgin portfolio now includes some 400 companies, with revenues of $21 billion, and the aggressive expansion continues, including a foray into hotels. Then there’s Virgin Galactic, his effort to commercialize space travel, and Virgin Oceanic, which plans to send a sub to the deepest parts of the world’s oceans. Over the years, not every project has taken off (remember Virgin Cola?), but he’s certainly had more hits than misses since starting a magazine at the age of 16.
While Branson remains the very public, often mischievous face of the brand, he spends most of his time these days focusing on philanthropic efforts, including Virgin Unite, his foundation; the Elders, a group of world leaders, including Desmond Tutu and former President Jimmy Carter, that champions peace and human rights; and B Team, his newest initiative, which gathers business leaders like Puma Chairman Jochen Zeitz to focus on corporate social responsibility.
But Branson also remembers his startup days fondly, and frequently imparts a little wisdom from his journey to millions of fellow entrepreneurs around the world. Most are drawn not to his billions, but to a can-do spirit that has earned him the nickname Dr. Yes. We recently caught up with Branson -- at 35,000 feet, where else? -- for a candid conversation about mistakes made, lessons learned, and how to keep the entrepreneurial fire burning after all these years.
Edited interview excerpts follow.
Let’s pretend for a minute that startup teams are easy to assemble, products build themselves, and product-market fit is a cinch. Smooth sailing from here on, right? It would be if enough people cared about your company and how you’re going to change the world. As it turns out nobody cares. It’s up to you to get their attention and tell your story and get them to stick with you. But what do you do when you’re just getting started? Here are a few ways to get things rolling:
1. Be yourself. I hear a lot of pitches from companies who are still at the concept stage. I try to stay awake; mostly I succeed. Invariably in the early days the most interesting part of the story is that of the founders themselves. There’s always a unique reason they are doing what they are doing and it’s usually pretty inspiring. Readers and press eat this stuff up so make sure to get good at telling your story because, face it, you are the brand until the company outgrows you!
2. Be friendly. I see a lot of founders trying to cram news down the throats of any blogger or reporter that they run into. Most of the time the news is a product launch with zero traction. Always make sure to have market validation (users, awards, investors) tied to any news. Try to walk in the writer’s shoes: what will make them successful and drive 1,000,000 pageviews? If you don’t have anything to say about yourself make sure to turn writers onto interesting companies and stories that you come across. When it’s your turn they are more likely to care.
3. Be viral.
Learn to Pursue the Right Opportunities
Though Brodsky is often sharing his thoughts and opinions with the many entrepreneurs who come to him looking for direction, he makes sure they understand that the decision is theirs and theirs alone. "Otherwise," says Brodsky, "they won't take responsibility if they fail. They will simply blame 'bad advice' and lose the opportunity to learn from failure, which is always the best teacher." So the next time you're faced with a difficult decision, begin by asking yourself what it is that you want to be doing for the next 10 years. Be aware of the potential downside of each decision and, more important, the time, money, and energy each will require. Never lose focus of your goal.
Keep Your Message Clear
"One of the most common mistakes you can make in business is to assume that potential customers think the way you do," advises Norm Brodsky. Consider Justin Esgar, who created an iPad app that allows you to sign PDFs on your iPad in hopes of helping to reduce the amount of paper in the world. He had been pitching his product as a way to go green, says Brodsky, but for most people, the real benefit has to do with the time and money it can save. "Not that Justin shouldn't continue to tout the green virtues of his product, but he'd probably sell more copies if he focused instead on the time-saving features that almost any professional with an iPad would gladly pay $3.99 for."
Attract More of the Right Kind of Customers
Generating publicity is key to getting the word out about your new business, but it oftentimes isn't enough to reach your target market. A mention in your local paper might not result in the surge of traffic you'd expect, probably because the article isn't targeted at a specific market, says Brodsky. Instead, he suggests, "make a list of the 10 categories of people most likely to want [your] services, along with ideas of how to reach each category." For example, if you're trying to target people planning to move, you could talk to moving associations about getting on their websites. "But building a business takes time," advises Brodsky. So don't be discouraged if your idea doesn't go viral overnight.
Exercise Sound Inventory Control
Social entrepreneurship has arrived. And even though some still look at the concept as quaint or the next level up from volunteering, the idea of having a business with a social mission will, in all likelihood, serve as the future foundation for many Gen Y startups to come. So it makes sense to get in at the ground level.
But if starting up your own social venture sounds too daunting, consider dipping your toe into the waters of social entrepreneurship by way of consulting. Here are four ways to get started. Who knows? Maybe you’ll like it.
1. Align your consulting approach and your mission. If you are a “greenefier,” — that is, someone who helps companies become more environmentally friendly and sustainable in their daily operations — you’ll probably focus on long-term strategies and shifts in mentality. As you show companies how to reduce waste, for instance, you might also want to incorporate an educational component. In other words, don’t just show them how to reduce waste, tell them why they should. This way, you’ll not only help validate your paycheck, you’ll potentially help contribute to a virtuous cycle where the companies you work with promote environmental sustainability and, by extension, so might their customers.
2. Address your clients’ clients. To become a go-to resource, your first stop should be low-hanging fruit. When I started in HR consulting for the nonprofit world, I realized that my clients’ beneficiaries (a.k.a. my client’s clients) could also be on the receiving end of my services. To give this theory a try, I approached an organization that was helping women reenter the workforce. I not only offered recruiting and development services to the organization itself, but I designed workshops for their “clients,” including career coaching, interviewing tips and resume reviews.
3. Draw them in with your expertise. Borrowing from the long-standing traditions of consulting, show potential clients what you can do for them. If through your consulting practice you’re trying to achieve a certain social goal, consider issuing a white paper that can be housed on your website or sent to potential clients. The paper could outline why you’re more than just another expert in your field. It can also mean writing up a blog post based around a game-changing innovation or contributing an article to an industry publication on responsible-corporate practices.
4. Think long-term.
When entrepreneurs start companies, they all dream about the same place. I call this place “the end.” The end is where the entrepreneur would like to take their company. Some dream of growing their company, selling it, and receiving a multi-million dollar check. Others dream of taking their company public and reaping further riches.
Regardless of the specific vision of each entrepreneur, the big vision is always the same: to use their company as a vehicle to accumulate vast riches. And this makes perfect sense. If there wasn’t a large potential pot of gold at the end of the rainbow, why would they start their company in the first place? (Yes, there are exceptions of people starting companies out of dire necessity to earn an income, but these are the minority.)
Unfortunately, for most entrepreneurs, this mindset of starting at the end, disappears soon after they begin to run their companies. Why? Because the entrepreneur quickly realizes that running the company is harder than they originally anticipated. Getting new customers is harder. Hiring and motivating employees is challenging. And so on. And inevitably, the entrepreneur soon finds herself spending hours each day to simply ensure the business runs smoothly, rather then trying to grow the business. Specifically, they end up spending time in every aspect of the business, from customer service to managing vendors, to make sure the business runs just right.
What happens in these cases is that the entrepreneur begins to focus solely on the short-term. They lose sight of their long term vision of the end, and rather devote their time to making sure the business operates today, this week and/or this month. And if any plans are created to grow, the plan is focused on how the company can grow revenues and/or profits this month…regardless of whether this month’s results progress the company towards its long term objectives.
Read More:
As the market improves, many start-up owners are likely be thinking about raising funding. With my latest startup, I’m now a venture-backed startup founder (I’ve raised $33 million in three rounds of capital for my startup).
There’s already lots of great content on the web about raising capital and understanding deal terms. But, I figured it wouldn’t hurt to share some of the “lessons learned” from my own experiences.
1. Get the first round right: The terms of your Series A deal are very important. Not just because of the impact on that first round, but because many of those same terms are likely to carry through to future rounds. It’s tempting to concede on some important terms but try to resist that temptation. When negotiating the term-sheet for your Series B or Series C round, the “base” terms (the starting point of negotiations) is whatever terms were in your Series A. So, if you agree to some non-favorable terms on the “A” round, you’re likely going to continue to pay the price for that in future rounds as well.
2. Avoid valuation infatuation: Entrepreneurs often become obsessed with the pre-money valuation on the deal. Though this is certainly an important element of the transaction, there are other factors at play that have significant impact on the raw direct economics of the transaction including the employee stock option pool (and who pays for it). If you get close to finalizing a deal, it is imperative that you have a spreadsheet that helps you understand the economics of the deal. (See Jeff Bussgang’s article on the topic.)
3. Raise more than you need: Regardless of how much capital you raise, you’re probably going to have wished you had raised more. Within reason, if you have access to capital and the terms are decent, raise more than you think you need.
To help overcome the fear of dilution, build a simple spreadsheet that models the actual financial impact to your personal bottom-line based on various outcome scenarios. What you will likely find is that if things go really well, the extra dilution is not going to change things all that much. And, if things go really poorly, it won’t matter either (because those extra common shares aren’t going to make you money).
While you might raise the additional capital in a future round at a much higher valuation, it’s easy to forget the transactional cost of the additional round. Raising a venture-round is a very time consuming process and when your bank balance is getting low, you’re going to really want to just keep working on the business instead of shifting focus back to the funding game
4. Know what “market” is:
