Note: A version of this post appeared in Fortune magazine’s Entrepreneur Insider network under the headline “How to Get Your Employees to Stop Wasting Time”
Congratulations. You’ve got some customers, you’ve raised some money, and now you’re ready to expand your business.
Now you’re in trouble.
The problem is that the very skills that got you to this point are largely unsuitable to take you to the next milestone. You need to change. You need to dodge hand grenades rather than jump on them.
The startups at Dreamit are all “A teams.” If there’s a problem, everyone raises their hand. Or as one of my partners likes to say, they see a hand grenade and everyone jumps on it. Sometimes they even wind up fighting over who gets the grenade. And even after they have assigned the problem to one team member, the rest of them will probably still end up walking over to that team member with more suggestions.
This is great when you’re an early-stage startup, but once you’re at 10 people or more, it’s just not workable. That team member will end up wasting more time interfacing with the other team members than actually solving the problem. You, the CEO, need to be able to assign the task to one person and have everyone else get out of his way and do their own work. Divide and conquer.
The change, though, has to begin at the top. Of all the un-scalable resources and all the un-scalable inputs in the world, the least scalable commodity of all is the CEO’s time. That’s why large corporations pay armies of people to guard their bosses’ time as if it were gold in Fort Knox. You’re not there yet, but you have to start thinking that way. Yes, you still need to be accessible. And yes, you still need to have your pulse on everything going on in the organization. But if you try to do everything, or even just the most important things, you won’t get anything done. You need to start dodging those grenades.
Start by drawing up a list of all of the important things that you need to accomplish over the next couple of months. Then, item by item, figure out who within your organization can tackle each task. The key here is not to find the person best suited to solving the problem, but rather to identify everyone capable of addressing it. This gives you the most options when it comes to divvying up your resources. If you find that you systematically are out of resources overall or lack resources to attack certain types of problems, then you know who your next critical hire is. Most importantly, your goal is to get as many of those things off of that list as possible so as to free up your time to focus on what’s going to move your business forward as a whole.
At this point, several of you are probably objecting. You’re probably thinking, “But these are mission critical items. I need to nail them perfectly, not just do them well enough.” Truth be told, the number of situations where that’s true is far fewer than you’d think. It’s more important that you focus your attention on growing your business than on resolving tactical issues, no matter how important that specific client is nor what the impact of a particular technical decision might be.
There’s a story I heard in business school about a professor who shows up to class with a bucket. He starts off by putting some rocks in the bucket, filling it to the top. He then asks his class, “Is this bucket full?” The class answers that it’s full. He then takes a bag of gravel and pours it over the rocks in the bucket. The gravel fills in the spaces between the rocks, and the professor turns to ask the class again, “Is this bucket full?” The class, again, seems pretty certain that the bucket is full. He then pulls out a bag of sand and starts pouring that on top of the rocks and the gravel. The sand filters into the spaces between the gravel and the rocks until it reaches the top of the bucket. The professor asks the class again, “Is this bucket full?” The class isn’t quite sure at this point, but ultimately most of them agree that it’s finally full. Then the professor takes a jug of water and pours it on top of everything in the bucket, and it seeps into the sand and the gravel and the rocks until it reaches the top of the bucket. The professor turns to the class and asks once more, “Now is the bucket full?” The class is, at this point, too uncertain to even answer, so the professor smiles and says, “Don’t worry, it really is full now. What does it teach you?”
The students decide it means that no matter how busy you think you are, if you’re smart about your time, you can always fit in a few more things. The professor looks at them sadly and says, “You missed the point entirely. If I’d started with the sand and the water, would I have been able to get the rocks into the bucket?”
The rocks are the big strategic initiatives that move your business to the next level. When your startup is very early stage, the rocks are obvious. In fact, pretty much everything is a rock at that point. But as you grow your business to the next stage, more and more of what you deal with are actually just pebbles and sand. That’s why you build your team up—to take small things off of your plate so you can focus on getting the rocks into your bucket.
No matter how hard you try, though, you will still be so busy that you won’t know what to do with yourself. The difference is that now you’ll be focusing on the things that actually matter.
Note: A version of this post appeared in Fortune magazine’s Entrepreneur Insider network under the headline “Here’s How to Know Your Business Is Headed for Disaster”
Something that never ceases to amaze me is how an idea will arise and suddenly come at me from several directions at once. Other entrepreneurs all swear to have come up with that same idea independently, and I believe them—it’s happened to me more than once.
To be clear, I’m not talking about x-for-y variations (e.g., Airbnb for cats or Uber for bicycles). I’m talking about genuinely new ideas. My theory is that startup concepts each rest on a set of memes and technical capabilities. When all of the relevant building blocks are in place, conditions are ripe for that startup concept to be discovered. And with enough really smart entrepreneurs actively and constantly alert for new opportunities, it’s only natural that several of them will come up with the idea simultaneously and independently.
That said, there are some startup concepts that are truly out of left field—that leapfrog a lot of these building blocks. So how do you know if you have a really revolutionary breakthrough or a more garden-variety disruption?
You start by searching. Before you build—before you even model your business in Excel—spend some time Googling up any possible description of the idea you have in mind. In many cases, you’ll find that four or five companies on the first results page are already doing it, and you can simply move on to the next idea.
If you don’t find anything, try searching using keywords that describe the problem you’re solving as opposed to keywords describing the solution you’re proposing. You may find direct competitors that way. At the very least, you’ll better understand how your prospective customers currently relieve the pain point, and you can assess whether you’re a quantum level better or simply an incremental improvement. (Hint: It’s really hard to get attention, much less change user behavior without a clear, compelling, and overwhelming benefit.)
If the field still looks open, go to AngelList and read the short description of every startup in the same sector or sectors that you cover. Yes, read every single one. Every. Single. One.
If you still think you have something new and awesome, go out there and talk to as many smart people as you can, especially if they’re investors or customers on the space.
Don’t worry about them stealing your idea. Most of the people you speak to will never quit their day job, and about 1% will be entrepreneurs with their own ideas. They aren’t going to suddenly look at their startup and think, “My baby isn’t so cute after all. Let’s go steal his baby.” Perhaps one in 1,000 will be entrepreneurs with the right skills, connections, and availability to run with your idea, and it will be immediately obviously who they are. Don’t sweat it.
Instead of worrying about people stealing your idea, ask them to break it. Ask them to tear it apart and show you all of the ways it can fail. And if they can break your idea—and you can’t fix it—thank them. They’ve just saved you years of your life and a lot of money chasing a doomed venture.
If after all this you find that you have something genuinely new, compelling, and unbroken, let me tell you about Dreamit‘s accelerator program.
Note: A version of this post appeared in Fortune magazine’s Entrepreneur Insider network. This column answers the question “What are some common mistakes young entrepreneurs make?”
Too many entrepreneurs don’t have it.
The biggest mistake first-time entrepreneurs make is building first and thinking later. They get so excited about an idea that they start building out a grand edifice without first thinking through quick, cheap ways to do so.
For instance, e-commerce sites typically live or die based on customer acquisition cost (among a few other factors). So instead of spending time and money designing and ordering the products and building out a store in Shopify, a potential e-commerce entrepreneur should take a few hours to model out the business in Microsoft Excel, understand what the highest cost per click he or she can afford is, and then set up a Google AdWords campaign. In a few weeks — and for a few hundred dollars — he or she can get a sense of whether it’s possible to get under that threshold. If not, move on to the next idea and save a lot of time and money.
One of the startups that went through Dreamit in 2009 was a blog discovery platform. The team wanted it to be a freemium service, so they modeled out the business and understood that they needed a 1% conversion rate. Anything above 1% meant they had a real business, and anything below that meant they were busted.
They had already launched their free services and had several thousand active users. Their plan was to spend the next two months coding the premium services, and their mentors at Dreamit convinced them to put up a page that upsold the premium features as if they were already built. If anyone clicked the “upgrade” button, they would see a “coming soon” message. Most importantly, they would have the conversion data they needed. They agreed, and in one week they had their answer: 0.1% conversion. Ouch.
They decided to kill their existing business and launch an entirely new startup — SeatGeek — which ended up raising $62 million during its Series C round this past April.
So what do you do when you’ve just disproved a key assumption?
Check the spreadsheet
It would be awful to abandon a promising startup just because a cell reference was off or a formula was wrong.
Check related assumptions
Variables are rarely independent. In the example above, a higher price point can compensate for a lower uptake rate. If you double the price, uptake will drop, but perhaps not as much as you think. It’s easy enough to test.
Check your model
Is this the only way to monetize your service? If you are solving a big enough pain point, someone will pay, and it may not be who you first expected.
Check your emotions
Entrepreneurs need to be persistent. We see a wall, and our first thought is “over, under, around, or through.” But sometimes, the immovable object wins. You can’t “work around” a fatal flaw. Resist the temptation to “table” a business-breaking issue while you solve other, ultimately minor issues. After all, wouldn’t you rather be building a unicorn than gilding a lemon?
Note: A version of this post appeared in my semi-regular column on AlleyWatch.
I both love and fear that phrase.
I love it because a deep network of qualified mentors is a major asset to an accelerator program. It is one of the big differentiators between a top 10 accelerator and the other 1000+ unproven* ones.
(Although you sometimes have to dig a bit to tell the difference between a page of impressive faces who are rarely actually engaged and bona fide mentors… but that’s a topic for a different piece.)
I fear it because so many of the offers I get come from people who aren’t really qualified to mentor startups and I struggle with finding a polite way respond to these offers. After all, their hearts are in the right place and it is hard to say no without sounding like an asshole.
The following is a response I wrote to a friend who said that a “big time lawyer” ** he knew had expressed an interest in mentoring startups. I tried really, really hard to be tactful.
TO: <My Friend>
Your friend needs to think very carefully about what specific expertise he can offer to startups. If I were to tell him “I’d like to give legal advice to large corporations”, he would recognize that for the ridiculous statement that it is. I have zero qualifications and any advice I gave would be as (or more!) likely to damage the recipient, as it would be to help. They would be fools to even listen to me.
But somehow when you change “give legal advice” to “mentoring” and “large corporations” to “startups”, it suddenly sounds plausible.
In my case, I *might* be able to give large corporations advice on a few very narrow topics like what terms are typical in early stage investments and how to approach contracts with startups (viz., keep it loose, don’t over lawyer it – their incentives to please a large corporate pilot customer mean that they will overdeliver but they don’t have time or money to waste on drafting minutely detailed contracts). But that’s it.
Most “big time lawyers” have never run a business, much less a startup, so the value of any strategic business advice they might give is questionable at best. Their tolerance for risk and ambiguity and their need for speed are both *way* lower than an entrepreneur’s is (or should be) so their tactical advice will likely also be off base.
If your friend has deep expertise in a heavily regulated industry, that advice would be relevant to startups in that space. If he has deep and varied connections with large corporations who he would be willing to introduce startups to so they can get those critical first big name clients, that would also be hugely valuable. Similarly, if he wants to try to get his own firm to pilot with startups (e.g., legal tech startups, relevant enterprise software), that would be helpful.
If he’s willing to give free legal advice/work in areas that are relevant to startups and has expertise in those spaces (e.g., real estate lawyers have no business drafting seed round docs and vice versa) in exchange for just seeing what cool stuff is out there (and possibly investing), that is ok too.
In all of these examples, the key is sticking religiously to what he knows well and that is also applicable to startups and not straying into areas that are fun and sexy but where he has no business giving advice. In all but the last example, it also means focusing narrowly on the right industry where he has value to contribute.
If he has given this some thought and has specific areas where he thinks he can contribute, I would be happy to have a conversation with him and help get him more involved.
I hope this is helpful and that you can phrase this response in a way that does not make me sound like a dick.
* How is that for diplomatic?
** I’m not picking on lawyers here. Some of my best – well, reasonably good – friends are lawyers. Feel free to substitute “accountant” or “banker” here if you’d like.
Note: A version of this post appeared in my semi-regular column on AlleyWatch.
My friend is at a private equity fund and is now actively looking to move into venture capital…
I get that a lot. Sometimes the friend is at a hedge fund instead and occasionally, I’m approached directly instead of through a friend but the overall picture is the same: they are bored with large, public/established, old-school companies and think VC is cooler.
I get it. Before running Dreamit’s NY accelerator program, I managed a family office and we had investments in many asset classes. I can testify from personal experience that PE & hedge funds are (with notable exceptions) mindnumbingly boring. What would you rather talk about: a rollup of mom & pop industrial gas distributors or shiny new potential unicorns?
And since Dreamit is also a venture fund in addition to being an accelerator, I get why they come to me. VC & PE funds both hold portfolios of generally illiquid investments. They are structured similarly. The exits are even the same: IPO or strategic sale It’s just with younger companies, right?
Actually, it’s fundamentally different.
You see, I work with pretty much the earliest stage startups that are anything more than a cocktail napkin and a dream. To grossly oversimplify, in these situations the key question is “will this (the idea, the team, etc.) work?” In PE, the key question is “what is the right price?”
These questions take very different skills to answer and in general the skills aren’t that transferable. They are analyzing the historical data, adjusting forecasts, looking at comparables. I have no historical data nor any comparables. I look at the team, the idea, the overall market size. When I look at a financial model at all, I have zero expectation that it will be even remotely correct; I use it to figure out what the make or break assumptions are… and to confirm that the founding team knows what those are as well and are doing everything possible to prove those assumptions out quickly & cheaply. Heck, a lot of the time PE funds go into the deal with a new team ready on the wings to replace senior management. I’d *never* go into a deal with a team that needed replacing.
Also, the key marketing challenge for seed stage investing is wading through the masses of under the radar startups and finding the gems before anyone else does. The startup is going to take the money and it is a rare deal when a startup turns down your money for someone else’s (although it really stings when it does happen).
In PE, they typically have more information to find and screen initial prospects (especially if they take public companies private). The real challenge is either to get the prospect to do the deal at all (e.g., an unsolicited purchase offer) or to choose that specific fund to work with.
Lastly, seed deals are ridiculously simple to structure. The outlines of the deal are largely standard; we typically just need to fill in the amounts. (Only a slight exaggeration.) The reason for this is simple. Startups typically come to the table with a blank slate and their outcomes are binary: win big or bust. There’s no need to get fancy. When it comes to terms, “don’t make me think” is solid advice.
PE deals have to account for a much wider range of possible outcomes and protect the fund from anything in the company’s past that might pop out of the closet. There are elaborate payout formulae, reps & warrantees sections the size of epic novels, and fees up the wazoo.
(Did you know that PE funds get paid if the deal doesn’t go through? Really. They are called “Broken Deal” fees. That’s chutzpah….)
So what’s a poor PE analyst to do?
I suggest looking at later stage VCs. At that point, the idea/team/market is largely derisked and the question is more about whether the growth potential supports the valuation so spreadsheets start to matter more in the traditional way. Also, the prospects for C- or later-stage investments should already be on the fund’s radar. The challenge is to convince the especially hot ones to take your money instead of some other fund’s. And as an added bonus, you get to have fun with liquidation preferences and other terms to come up with a deal that both the fund and the founders like.
Good. Because I need you in those later stage VCs. I’ve got a lot of startups getting ready to raise follow on rounds…
In preparation for AccelFest in Montreal in 2 weeks, I have retooled my “8 Types of Fund Investors” as a Slidebean presentation:
Link to presentation: https://slidebean.com/p/CASr7YHPRx/The-8-Types-of-Fund-Investors