Archive for the ‘startup’ tag
Entrepreneurial narratives are everywhere. From executive education classes to TED to General Assembly’s own enterprise programs, it’s not difficult to find the story of a successful entrepreneur in almost any industry. These stories inspire not just aspiring founders, but also innovators within Fortune 500 companies and creative agencies.
But what are we to take from those stories? How does anyone – even someone within a larger organization – draw meaningful, applicable lessons from an entrepreneur’s first-person account of success? After all, there’s a huge element of randomness in any new venture. For example, Chad Hurley and the founders of YouTube made a lot of great decisions, but they weren’t the first team of smart people to build an online video site. In the words of investor and entrepreneur Chris Dixon:
“I’d been around the web long enough to remember the dozens of companies before YouTube that tried to create crowdsourced video sites and failed. […] YouTube built a great product, but, more importantly, got the market timing just right.”
But every stock trader knows that timing markets can be impossibly hard, so taking lessons from YouTube’s success is not only difficult, it’s dangerous. Drawing the obvious but – in many cases wrong – conclusions from a entrepreneurial success story can lead to cargo cult thinking, wasted money and lost time.
Applying lessons from entrepreneurship within larger companies can be even more challenging. Innovators within large institutions and brands know that bringing new ideas to the table isn’t enough. In addition, they must overcome organizational inertia and traditional mindsets to effect change.
So how do we learn from these stories? Here are five tips from my experience:
1. Failure is a data point too. Many people focus only on entrepreneurial successes, when in fact just as much can be learned from the much-more-numerous failures. Learning from others’ failures is an efficient way to ensure you don’t repeat them. And keep in mind that even within successful companies there are always numerous products, initiatives, and hires that failed. Studying how great teams fail and react to failure is one of my favorite topics of conversation with entrepreneurs.
2. Appreciate the details. Entrepreneurship is a game of finer points, not broad strokes. Success is often the product of many small decisions on topics that can range from landing page design to company culture to early brand decisions. A deep discussion of these topics – and how entrepreneurs came to key decisions – can be far more informative and interesting than broad questions like “How did you come up with the idea?”
3. Meet the lieutenants. It’s practically a cliche to say that an entrepreneur should surround him- or herself with great people. But it’s also fundamentally true. Great entrepreneurs recruit great managers, and many of the critical decisions in a successful company’s history are made by non-founder operators, not the founders themselves. Often these operators know how to wield “soft power” in a way that is much more applicable to innovators within large organizations who don’t have a founder’s moral authority.
4. Understand persuasion. At the earliest stages, entrepreneurs need to convince others to see things their way, to ignore the obvious pitfalls and believe in a vision. Without that power of persuasion, it is impossibly difficult to find investors, recruit early hires, and close clients. Whether starting a new company or innovating within an existing organization, those abilities are universally applicable and one of the best practices to learn from successful entrepreneurs. When watching an entrepreneur speak, it can be more informative to pay attention to how they are saying something than what they are saying.
5. Metrics, metrics, metrics. Great entrepreneurs set key metrics closely tied to their success and drive their teams toward those metrics. Understanding how entrepreneurs chose the right – or wrong – metrics and incentivized their teams to pursue those metrics can paint a detailed picture of how a company’s operations, finances, and culture are all integrated. And like the other tips here, how a startup sets metrics should be very similar to how a department within a large company sets them, making the lessons very applicable across organizations. While the methodologies used to succeed may shift as a company grows, the key metrics should not.
I believe that anyone can learn from an entrepreneur’s story regardless of their role. With these pointers in mind, entrepreneurial stories can be vastly more educational and applicable.
My first childhood house was deep in the woods of rural southern Arkansas — about 30 miles away from the nearest grocery store and 100 away from the nearest mall, to give some perspective. The place was unabashedly country, not quite David Lynch but certainly not Rockwell or even Garrison Keillor in the pantheon of rural American archetypes. My dad loved trees — it’s what got us out there in the first place — and he spent a fair bit of time growing what a hipster might call an artisanal arboretum* in our backyard. To him, he was just growing interesting trees. A variety of pine, sycamore, cypress, poplars and other plants probably not meant to grow in the south rose out of the ground behind our house.
But the distance from civilization was taxing. The talk of moving was always close at hand, but it took several false starts before it finally happened.
During one of those false starts — I was probably 8 or 9 — I came upon my dad planting a new sycamore tree a hundred feet from our back deck. As my mind was occupied with thoughts of a move, I asked him: “If we’re moving next year, why’re you planting something? Why does it matter if we’re just going to leave?”
He paused for a moment as he put down his shovel, catching his breath in the humid southern spring day. And he said something that I’ve remembered to this day:
“Until then, there’s life.”
With that, he picked back up his shovel and kept digging.
When starting a company, it is easy to focus on the destination rather than appreciating the journey. Entrepreneurship is somewhat unique in this way — most teachers, for instance, are content to be teachers. They don’t consider “teaching” something that happens along the way to a greater goal. There’s a certain stability and peace in this. But because the popular lore of entrepreneurship has been built around the huge mega-exit, many founders focus solely on the goal and forget that until then, there’s life.
This is why I advocate entrepreneurship as a career choice as opposed to than the one-off notion of “doing a startup”. The venture business is a long game best played by those with time and patience. As as the canon of entrepreneurship is written by people like Eric Ries, Fred Wilson, Mark Suster, Steve Blank and others, the gulf between the founders who have taken the time to learn entrepreneurship as a vocation — usually by doing it repeatedly and immersing themselves in the community — and those who have not will widen. In the end we’ll judge ourselves not by the destinations we’ve reached, but the journeys we took to get there and the stuff we did along the way.
* As of this writing, there are zero results on Google for the phrase “artisanal arboretum”. You can thank me for this addition to the lexicon of artisanal things at a later point.
There’s a common misconception about why people become entrepreneurs. In my chats with founders, I’ve seen that the most common driver — ahead of earning fantastic returns, working flexible hours or learning new things — is simply getting away from a bad boss, or bosses at all.
To those on the outside looking in, the world of startups looks like a boss-free paradise. After all, you can name yourself the CEO, or at the very least have control of a menagerie of roles in your business. Unfortunately, it’s usually not. That’s because someone — perhaps an investor, a customer or a partner — is almost always playing the boss role.
Truly bossless businesses are tough to find; they have to follow a few major constraints. First, they need to hit cash flow positive almost immediately. Without that, you’ll either need to keep your day job (and your boss) or take investment (and investors, which are a different kind of boss). With cash flow, you’re only responsible to yourself and your business. Second, they need to have tons of customers, even at an early stage. That way, each customer isn’t important enough to justify appeasing them. Ideally, each customer is spending such a small amount that their process of dealing with you is automated (in B2B) or your business supports high churn (in B2C). Finally, executing the concept shouldn’t require more than perhaps one or two trusted partners.
There are a few broad categories of businesses that meet these constraints, and I’m fascinated by each of them:
Affiliate Marketing / Lead Gen: This is probably the easiest vertical to get into, as it doesn’t necessarily require any technical skills. Anyone with some marketing smarts and a WordPress install can start generating affiliate revenue, and it doesn’t really come with any obligation to anyone — affiliate program managers are often at least one level removed from the publisher (you), and it’s trivially easy to switch from one affiliate program to another.
One of the beautiful things about many affiliate businesses is that the entrepreneur is also building long-term value — typically, in a targeted email list or site that ranks high in search engines on certain keywords. In that way, affiliate and lead gen businesses are also fundamentally different from (say) consulting, in which it’s tough to argue that the consultant is building long-term value in their business.
Arbitrage: An extremely broad category, “Arb” is big umbrella that could include online advertising arbitrage, proprietary equity trading or perhaps even certain types of e-commerce. But it’s probably the most common of all bossless trades, with a huge number of independent prop traders making essentially bossless livelihoods. The downside of any arbitrage-based business, of course, is that the opportunity can (and will) disappear — of all the businesses discussed here, arbs are building the least long-term value in their enterprise.
Software Sales: To fit the criteria listed above, software business require some engineering skills. But if you’re a hacker, there are few better bossless businesses. This is especially true on the B2C side, with gaming as a prime example.
Note that in some of these businesses — especially B2B software sales — there’s a fine line that prevents customers from becoming bosses, and many entrepreneurs accidentally cross over that line by doing custom work, failing to automate sales processes or relying too much on a few large buyers.
This stuff isn’t for everyone, but I think there is some inherent (particularly American) desire for freedom from people looking over you shoulder, setting deadlines and making demands. And to many of us, that freedom is being a founder. Just be careful what you choose to found.
If you’ve taken a deep dive into tech startups, you know about the scene. The scene is the siren song of the innovation community. The scene will kill you.
The scene is building sexy things that gain the approval of a certain (small) group of people. Sexy things get lauded, and celebrities coalesce out of the blogosphere’s protoplasm. The scene builds and sells a dream. Skip to the beginning of the line; pass go; collect $200 and a DUMBO loft. Get in SAI 100, speak at conferences and spend your Friday nights at launch parties. The scene lends these things great importance. The scene assigns value to popular acknowledgement of value rather than actual value. The scene is all these things – it is at once a state of mind as well as a loose community of people in any city with a large startup community.
I will spend this weekend’s post on a warning: the scene will kill you. It will misdirect your efforts and focus your attention on the cool and the shiny rather than the substantive. Your product will be driven by the spotlight rather than the user or the dollar. It will inspire envy of your co-founders, your friends and your colleagues.
People in the scene don’t say nice things about other people when they aren’t around. They’re too political, too strategic for that. Don’t expect these people to watch your back. If you’re in the trenches building a product or raising money, you must surround yourself with people you trust. You cannot tolerate politics and political people.
Building a startup requires blinders. Fred Wilson is right — being agnostic to the zigs and zags of competitors is critical. But it’s not just about ignoring competitors; it’s about identifying fads and unproductive behaviors and mercilessly cutting them out of an organization. And if you don’t do it, someone else will — and they’ll have a competitive advantage, whether for market share, talent or financing.
The scene provides a useful disguise for wannabes and dilettantes. The back-biting and politics of the scene enable B- and C-level players to skip from venture to venture, destroying value and poisoning relationships.
The scene is why I enjoy hanging out with developers. Developers/engineers tend to be grounded by a sense of the inherent usefulness and value of products. In a city like New York that is swimming with smart, non-technical entrepreneurs, it’s surprisingly easy for an entire community to be distracted from building meaningful things that tackle real problems. The webutante is dying, but not quickly enough.
The scene will kill you and your company. That’s as clear as I can make it. The scene is the antithesis of innovation and collaboration. Avoid political people and cut them out of your organization wherever you find them. This won’t necessarily make you successful, but it will let you be happy with yourself regardless of how things turn out.
Most B2B entrepreneurs have a general sense of the ROI they would get by selling to any particular client. Sell your product to the government, for instance, and be prepared for years of investment and dedication before seeing any money. But once you’re in, your company has a client that is willing to pay very well for your work. If you were to sell to smaller organizations, you could likely get away with much shorter sales cycles — but there is a significantly tinier pot of money on the other end.
So there’s a direct relationship between the amount of money a client can spend and their difficulty in spending it. But it’s certainly not a perfect relationship, and I’ve seen the imperfections trap many entrepreneurs — including me. In fact, the relationship probably looks something like this:
When selling software or services, being below the line of best fit is critically important to keep yourself sane and your margins high. Go too far above the line and it’s unlikely that you can even make the business work — the cost of selling each unit will overwhelm the available revenue.
I learned much of this the hard way. My first company, GoCrossCampus, promoted campus-wide games through student governments. Another company I was involved in sold software to technology transfer offices within universities. For both of these businesses, the amount of bureaucratic red tape involved in the purchasing process was way out of proportion to the amount of money our clients were able to spend. University bureaucracies are notoriously budget-constrained, and student governments can rarely spend more than a few hundred bucks on any particular purchase.
While there are often fewer competitors in these difficult markets, I would caution any entrepreneurs against reading too much into the competitive landscape. Often, highly frictional organizations will stick with fundamentally inferior products (e.g., mainframe systems) rather than switching to any new solution — yours or your competitor’s. If there isn’t any competition because all the other firms have entered or left, that isn’t a good thing. In other words: when you see a graveyard, don’t play there.