3 Pieces of Startup Advice

3 Pieces of Startup Advice

I’ll tell you something that no one told me when I started up: somehow, putting up your own shingle also means putting up a sign that you’re open to advice. All sorts of people start offering their words of wisdom — experienced executives, college students, and even people who’ve never actually done anything with that good business idea they won’t tell you about, because you’ll steal it.

While people generally do mean well, their advice often misses the mark. Here are three bits of advice that I’ve received or incorporated that have never led me wrong:

1. Build from your strengths. In today’s fast-paced and crowded market, being good simply isn’t good enough. Rather than building a business that will have you cap out at “good,” take the time to assess your team’s core capabilities and build from what you can be truly great at. It’ll galvanize your team and your market, and give you early momentum so that you won’t get by merely being good. Every business mistake I’ve made can be traced back to not getting our business out of the comfort zone of our strengths.

2. Fanatically focus on your customers. Your business really isn’t about you; it’s about how you provide a solution to your customers that is worth paying for. Growth comes from serving more customers better, and the fastest way to get there is to get to know the conversation going on in your customers’ heads. Note: This doesn’t mean that your customer is always right, but it does let you know what your customer needs and values are so that you can determine how and where you’re going to serve them best.

3. Failure is necessary for learning. As frustrating as it is, we usually don’t learn as much from success as we do from failure. Fortunately for us, success is usually harder to come by, so we therefore have a lot of opportunities to learn. To be an entrepreneur is to chart unfamiliar territory, and to turn opportunities with uncertain outcomes into economic value. To do that well, you’re going to have to try some things that may not work out. But to not try at all because there may be failure is worse than trying and failing, for you learn nothing from what you don’t try. Seth Godin has been saying “fail fast and fail cheap” for a while, and Jim Collins advocates a similar approach in Great by Choice when he show that great businesses “fire bullets, then cannonballs.” Find a growth opportunity in your business and start a small experiment — a big win is absolutely worth a few small failures.

Startup Advice - How Entrepeneurs Gain Credibility

Startup Advice: How Entrepeneurs Gain Credibility

While talking with young founders in Europe and the US over the last couple months, I have been asked the same question repeatedly -- how can an entrepreneur just starting out gain the necessary credibility to attract capital? It is an important question because, at its heart, a startup investment is an investment in the entrepreneur. And the earlier stage the investment, the more so this is true.

We all know the allure of the elusive "serial entrepreneur" -- the rare breed who has done it before (successfully) and will not fall victim to the same business pitfalls (he'll have to discover new ones). I have backed serial entrepreneurs before and will continue to back them. They have valuable startup knowledge to bring to bear on the company building process that we in the venture business clearly covet. But I have also backed first time entrepreneurs, sometimes just out of school. I did not back their extensive startup knowledge. I did not back their record of success. In many cases, I did not even back their domain expertise. In fact, some of the very best entrepreneurs with whom I have worked lacked any of the standard indicia of success that a venture investor might look for in a successful founder.

So how does an entrepreneur with little or no track record gain credibility? In my experience, they gain credibility in two ways -- they borrow it and they demonstrate it. Borrowed credibility runs on the same principle as guilt by association. If entrepreneurs surround themselves with people who have credibility, they gain credibility themselves. In the business world, reputations are paramount. As a result, when well-respected individuals vouch for an up-and-comer, it is meaningful. There are lots of ways someone can vouch for you as an entrepreneur. They can provide services to your company (awesome lawyers, accountants, recruiters, etc. are in great demand -- if they work with your company it means they were willing to bet on your success). They can lend their name to the company as an official advisor (ideally you will be able to clearly explain how they are working with your company other than merely lending you their name). They can invest in the company (if industry experts or startup/product/marketing gurus invest in your company, it is a huge vote of confidence in what you are doing). They can go on your board (business leaders have no more valuable resource than their time, so if they go on your board it is a huge recommendation of you and your company).

When it comes to borrowed credibility, there is perhaps no more important act than the initial introduction you are given to an investor. If you have no track record and you cold call an investor, you have huge reputational obstacles to overcome. This is particularly true because many investors will assume that you were either unable to find someone to make the introduction or too naive to realize the importance of an introduction. Either way, your likely success as an entrepreneur will be sharply discounted. On the other hand, if you are introduced to an investor by someone he or she trusts and respects, you are well on your way to a trusted relationship yourself.

The other way first time entrepreneurs gain credibility is to earn it. I don't mean this in some sort of hazing way. There isn't a clear path to earning credibility. You don't produce a particular amount of diligence. You don't deliver a particular number of industry reports. You don't call or email to followup a particular number of times. What you need to do is be really smart and well informed about the business you are pursuing.

The best way to earn credibility with investors is to have good answers to the questions you are asked. At August we want to invest in people who know more about their business than we do. We want to be excited about what you're doing and get more excited as you thoughtfully answer questions about your business. That doesn't mean that you need to have all the answers. You don't. You just need to be thoughtful when you don't and explain 1) how you intend to get the answer, 2) what you predict the answer to be, based upon what you do know, and 3) how you expect to gain the answer over time. Domain experts are best positioned to answer questions about a domain specific business. But being a domain expert does not require direct experience in a particular business. It may be sufficient to borrow the knowledge of those who have worked in the industry. In fact, oftentimes the most interesting ideas come from people who are not mired in traditional ways of thinking about an industry but know everything there is to know about how things are done today.

Credibility also comes from doing what you say you are going to do. Sometimes that means following up on a question from a meeting (If you say you'll get back to an investor with an answer and you do so promptly, you'll gain credibility; if you don't, you are done). Sometimes that means hitting numbers you say you will, or closing on a customer you expect you will. I once gave a term sheet to an entrepreneur because he delivered on a number of assertions he'd made about his business at a meeting three months earlier. There's nothing better than an entrepreneur who delivers the goods.

If one of these techniques for garnering credibility is good, all of them together are great. Get introduced to an investor by someone he or she trusts. Build an advisory board and board of directors of industry experts and admired professionals. Do your homework -- know everything there is to know about the market you are pursuing. Welcome questions about your business -- answer them well when you know the answer and admit when you don't. And always do what you say you are going to do -- whether that is delivering promised followup materials or hitting your numbers. In combination, these techniques can give any entrepreneur, no matter how young and/or inexperienced, the credibility necessary to attract great investors.

Your spouse is your first investor, treat him or her like one

Your spouse is your first investor, treat him or her like one



 

The idea of marriage is that you share success and failure, not just matching rings.


I recently met with an entrepreneur in Western Canada who’s turned his family’s life upside-down in his quest to build the startup of his dreams. The family moved cities, they are living without many of the physical comforts that middle-aged Canadians expect to enjoy, and he is always, always working.

My hunch at the time was that his business would succeed, but I wasn’t sure his wife would still be with him when it does.

The entrepreneurial life is not for the faint-hearted. The doers and dreamers who start businesses rarely regret the long hours and the capital spent (or salaries forgone) in chasing their business plans. But spouse and family are not always offered a say in these decisions and this can lead to trouble.

I once met a woman who said she had asked her husband, an entrepreneur, to pick up their children from school one day. He got lost on the way there. Another entrepreneur’s wife complained to me of the boom-and-bust lifestyle; sometimes they’re in the money, and sometimes they’re clipping coupons and evading the landlord. Living with a successful entrepreneur is stressful enough, but what if the company is struggling, or if it’s an ambitious startup with a 50-50 chance of success?

Entrepreneurs had better have a good idea of the risks they are asking their spouses to accept and consciously carve out time for their partners, never taking their support for granted.

This relationship is explored in detail in a recent guest blogpost at Startup Revolution, a blog run by Colorado entrepreneur and investor Brad Feld. The article by Scott and Kathy Yates titled “Your Spouse Is Your First Investor” recommends treating him or her like an investor.

“While your spouse won’t be signing a term sheet, there’s little doubt that your spouse will be invested in your success,” the Yates write. “Before you can go out and get investors, or even customers, we think it’s important that you convince the person closest to you that you have a good idea, a good market, that the opportunity is ripe, and that you are the one to go after it.”



A spouse is directly invested in your startup. He or she may be supporting you financially, or just putting up with the mess, or spending way more time alone than they’d signed up for, they write. In fact, they are likely more heavily invested than your formal investors. Angels and venture capitalists stand to lose only a bit of money if your business fails, whereas your spouse may have suffered in silence (or perhaps not so silently) for years.

As the authors note, “There’s a reason we use the same verb for money and time — spend… Entrepreneurs are asking a huge spend of one or the other and most often both.”

Pitching a deal like this is “brutally hard,” the Yates say. Many entrepreneurs skip this sale, putting their heads down and never really negotiating for their spouse’s support. “They cheat. They essentially steal that money and/or time because they think they won’t be able to make the sale. Suddenly a spouse looks up and two years and/or all the savings are gone and they don’t really even know what happened.”

Take the time, the Yates advise: “You need to convince that first investor to go all in with you.” The post notes that Scott has done this with Kathy in three different startups, taking care each time to share his vision for the business, explain the potential risks and rewards, and demonstrate the market analysis he had done that suggested each gamble would be worth it.

Only with sincere effort and full disclosure can entrepreneurs assure themselves of the “all-in” support they will need. But this investment will pay dividends.

“The idea of marriage is that you share success and failure,” the Yates write. “If an entrepreneur doesn’t work hard to convince a spouse of the merit of an idea, they are both robbed of the joy of celebrating success together. If the business suffers a setback, the entrepreneur can’t take solace with the one person who is supposed to always be there.”

Rick Spence