I admit it… When I make an investment, I know way less about the market, the opportunity and the challenges than the Founders do.. And that is fine by me. If I knew more than the Founders, then the Founders probably don’t know nearly enough to win.
The Founders vision is the oxygen of the start-up and it feeds the rest of the team, the customers and the investors. Regardless of the stage of the business, the Founders (and/or management) need to be the visionaries, not the investors. It’s not to say that the right investors won’t have a great positive impact on your vision, but the vision ultimately has to be shaped and driven by the Founders.
Before investing, sometimes I fall in the trap of trying to understand the vision too deeply and seek comfort through knowing everything. Sometimes I find myself trying to get a superior insight to the Founders so I can then look back from the future to make a judgement on their vision and their plans. Sometimes I fall in the trap of thinking that I can know more than the Founders.
In seed investing, I focus on working with the Founders pre-investment to question their understanding of the market, the opportunities and the challenges. I spend a lot of time hearing their life stories because I’m ultimately making a judgement call on whether their background, skills, passion and timing make them better placed than anyone else in the world to win. I need to believe in them and I need to see that they believe in themselves.
As a company grows the role of investors change but the custodian of the vision remains with the Founders (and/or management) and that’s exactly where it belongs.
Expectations in anything are very important because over time they become the norm and probably the ceiling.
For example in love, often in the courting process the lady starts off with very high expectations of the other half and if the guy is smart he is doing his best to meet them. Then of course, as the relationship matures, movies and a nice dinner at a restaurant gradually turns into tv and takeaway and the lady who started off saying she’d never spend her Friday night eating pizza and watching the footy has lowered her expectations of what it means to be in her perfect relationship.
Expectations for your start-up can kind of look the same if you’re not careful. When you first start out you have a bunch of expectations. They could be about how big your business will be, how exceptional your product will be, the quality of your hires or the quality of your customer service. You think of the examples of other great companies you will emulate in various facets (eg the simplicity of twitters design and the customer service of zappos) and everything seems possible and you have the highest of expectations for your business.
Then the rubber hits the road and you become tempered by the real world and if you’re not careful you’ll make critical decisions that are ultimately driven by lowering the expectations for your business.
Many entrepreneurs are instinctively aware when these critical decisions come up and good investors will make them aware of them too. At these moments you need to manage against the expectations you had before you started because it’s amazing how different things look through the jaded lens of being in the battle.
The greatest entrepreneurs know that the possible seemed impossible right up until the point it wasn’t anymore and somehow they maintained the highest of expectations for their start-up throughout the journey.
My suggestion to all my Founders is to write down your expectations as early as possible and make them as detailed as possible. Don’t be shy and don’t be afraid. Then as you go along your journey use them as a beacon and a benchmark.
The chances are you won’t be able to maintain all your expectations and when the time arises you may need to consider lowering one or several. Take it seriously and thoughtfully because the ones you maintain vs the ones you don’t will ultimately shape your companies destiny.
In the past couple of days I’ve come across two start-ups that have been given acquisition offers. In both cases the Founders are completely torn between taking the cash now which will give them a cushion of cash for the rest of their lives; or saying no to the offer and continuing on their mission and maybe selling it for a lot more or a lot less down the track.
From a financial perspective there are many ways to assess the merits of selling. I am not going to dive into that Pandora’s box here and instead i’ll share a more philosophical and non-financial way of thinking about the decision.
The first part of the decision process for mine is understanding and respecting the gift you’ve be given and not to disrespect it by thinking there’s a conveyor belt of these things and you’ll stick your hand out and grab another one. I’m a believer that getting the gift of a ‘problem worth solving’ and having the ability to actually solve it is very rare.
The ‘problem worth solving ‘ is in your hands right now and it is up to you to decide if it is the right time to hand it on to the next person to solve it. Without romanticising it too much; you need to decide if you’ve actually nurtured it to the point that the time is right for its next shepherd.
Not all acquisitions mean that the current management team goes, infact invariably they are encouraged and incentivised to stay. The dynamics around this are obviously very important, as are the economics of the decision, however purely from a shepherd perspective, the decision can still be taken by looking through one simple lens.
Assuming you truly believe in the problem and your solution and you think the acquirer does too, the simple lens to look through is to ask yourself if you think the acquirer will bring a more effective way to deliver your solution. More effective might mean faster or to a wider audience or better value or a bunch of other things depending on your business. It could also mean, depending on the state of your business, that an acquirer keeps your solution alive a little bit longer.
I know being faced with this decision is very difficult and assessing things like the effectiveness is very hard. The reality is that 99% of people gravitate toward the financial merits of selling in the end.
However I hope after reading this you’ll consider my perspective and balance it against the financial merits because I often wonder how many great companies haven’t been built because they were acquired (and probably stunted) early because the Founders sold out for the cushion of cash.
I think the best entrepreneurs have just the right amount of naivety… It’s just enough so they believe they can do it, but not so much that they’re too ignorant to make it happen.
The best entrepreneurs probably skirt the border of naivety throughout the growth of their companies. Perhaps they know that with the right level of naivety they’ll continue to lean into doing things that what would otherwise seem impossible.
The right amount of naivety has probably been a factor in some of the biggest success stories of our generation. I mean who in their right and rational mind of experience and influence would take on the incumbent paradigms that have been upturned over the past 20 years. Imagine over those 20 years how many Founders were told by friends, family, colleagues or investors that they’re wrong or it won’t work or they just don’t know what they’re talking about.
Perhaps in a world where you’re trying to achieve the conceivably impossible, the wisest way to be is naive.
Almost every day I speak to Founders about their teams. Because I like people, I like thinking about how to bring groups of them together over a period of time to achieve something amazing – it’s a conversation that comes up alot. Plus I believe that building the team is one of the most important things in a start-up.
All things being equal, people-planning is probably not only the most important thing you can do as a Founder but it is also one of the most difficult. In each of our investee companies we try and have org charts mapped for (at least) the next 12 months and split into quarterly maps.
In a start-up the Founder is essentially wearing every hat of responsibility and overtime they need to work toward getting rid of hats until they are left with the ones that suits their skills, passions, experience and value. At a high level, hats may include sales, marketing, customer service, product design, technology etc.
As early as possible, Founders need to decide which hat/s suits them long term and start people planning for the rest.
The most common mistake I see Founders make is not really thinking through what they need right now and what they will need over the next period of time. They make hires on the fly and often make mistakes. Unfortunately they then compound the hiring mistake by keeping the person for too long.
A hiring mistake isn’t always easy to identify. I mean, of course it is easy to let someone go if they are obviously not doing their job well, the real challenge is when you have someone that is on the border and you’re not sure if you should persist for longer or move them on and take the punt on someone new.
When I am approached to help in this situation the first thing I do is try and judge whether the Founders expectation of what they want from the Role is reasonable because sometimes the Role can actually be just too big for any one person.
Assuming the Role isn’t too big, the next question is if the expectation is reasonable given the amount of money they’re paying this person… Sometimes you’ll see champagne expectations on a beer budget. In that case, do we infact either up our budget and find a more expensive (and presumably better) person or do we reduce our expectation and the Founder (or other team members) shoulder the margin?
As Founder or Manager, if you’re comfortable that you’re expectations are reasonable for what you’re paying, then I think you need to give the person some chances to improve and prove they’re the right candidate. However, there are only so many chances and you can’t compound your hiring error because you don’t want to admit you made one. Sometimes you just need to bite the bullet and move someone on.
Wayne Gretzy, the famous ice hockey player, said ‘a good player knows where the puck is, a great player knows where the puck is going to be’.
For the sake of this blog entry, you can think of customers as the puck.
A great Founder has a point of view of where the world is going… I don’t mean the whole world, I mean a subset of the world. And when I say a subset of the world, I really mean a subset of customers.
To put it more elegantly; A great Founder has a point of view of where a subset of customers will be in the future.
A great Founder sees a problem and is iterating on a solution to it. The chances are the customers don’t realise they have the problem yet but when they discover the solution they can’t imagine how they survived without it.
I see so many Founders trying to build companies where the customers already are and heaps of other companies are already trying to service them. Often they end up competing on nuanced irrelevant features or worse they compete on price. Normally this means the value is out of that subset of customers, for now anyway.
I think it’s really hard to make lots of money if you aim for where the customers already are. I think you’re better off having a point of view on where you think a subset of customers are going to be and pitch your tent there.
I’m an entrepreneur. And i’m also an investor. For me, they’re pretty much the same thing because my business is in investing in start-ups.
Back in 2004 I co-founded CountryCars.com.au with my best mate. We worked hard, had some luck and sold it to Fairfax in 2008. Since 2008 my start-up has been Green Lane Digital where we invest in start-ups. Investing is fun but it’s very hard to get right.
Currently I spend my time working closely with several of the start-ups I have investments in and meeting Founders in Australia and the United States. You can learn more about that at GreenLaneDigital.com.au
Paul Simon (recording artist) one said ‘every generation throws a hero up the pop charts’. I love lyrics and I think that lyric is pretty spot on. I also think ‘every generation throws a start-up and it’s Founders up the app charts’. Think AOL, Yahoo, Microsoft, Google, Facebook, SnapChat etc.
I have a passion for identifying and working with the Founders that’ll be the next generations’ heros. I spend my working life identifying them as early as possible and empowering them to be the best entrepreneurs they can be. Currently i’m working closely with the Founders of with Duck.Space, BuySomewhere, GeoSnapShot, mPort, Zova and igrain. Time will tell if any of them are heros. 😉
This blog is about me trying to find a scalable a way to communicate the lessons I am learning and the insights I am having with my investee Founders. Generally you’ll see the content is related to helping Founders [entrepreneurs] in some way or another.