A book that grabs short articles from famous entrepreneurs. Some interesting ideas, some basic ones too. Recommended to the tech entrepreneur that needs guidance in all the basic areas (financing, marketing, lean startup, etc.).
Date Finished: 10/07/2012
Here’s a link to the Amazon page.
Trust Me, Your Idea is Worthless
If you have a brilliant idea, it’s safe to assume that a few very smart people are working on the same thing, or working on a different approach to solving the same problem.
Almost anyone can (and has!) come up with a great idea, but only a skilled entrepreneur can execute it. Skilled in this case doesn’t mean experienced; it means flexible and action-oriented, someone who recognizes that mistakes can often be corrected, but time lost postponing a decision is lost forever. Ideas, however necessary, are not sufficient. They are just an entry ticket to play the game.
Focus on where most people balk and delay: exposing it to the real world. If you’re cut out for the ride, this is also where all the rewards and excitement live, right alongside the 800-pound gorillas and cliffside paths. That’s the fun of it.
Usage is Oxygen for Ideas
Usage is like oxygen for ideas. You can never fully anticipate how an audience is going to react to something you’ve created until it’s out there. That means every moment you’re working on something without it being in the public arena, it’s actually dying, deprived of the oxygen of the real world. It’s even worse because development doesn’t happen in a vacuum. If you have a halfway decent idea, you can be certain that there are at least a few other teams somewhere in the world independently working on the same thing. Something you haven’t even imagined could disrupt the market you’re working in. Just consider all the podcasting companies that existed before iTunes incorporated podcasting functionality and wiped them all out.
By shipping early and often you have the unique competitive advantage of getting useful feedback on your product. In the best case, this helps you anticipate market direction, and in the worst case, it gives you a few people rooting for you that you can e-mail when your team pivots to a new idea.
In a rapid iteration environment, the most important thing isn’t necessarily how perfect code is when you send it out, but how quickly you can revert. This keeps the cost of a mistake really low, under a minute of brokenness. Someone can go ffom idea to working code to production and, more importantly, real users in just a few minutes, and I can’t imagine any better form of testing.
You Never Need Another Original Idea
I first gave a talk about product management at TechStars during the summer of 2008. One of the things that I said that night caught the attention of all the founders, and we ended up talking about it for hours: “As long as I listen to my customers, I never need to have another original idea.”
It’s a simple concept. Go get customers, then listen. It really can be that simple.
The ability to listen is an important skill for any startup founder. We’re all accustomed to trying to persuade people to try our products, to invest in our companies, or to listen to what we have to say. If you’re doing that with customers, you’re doing it backward.
Too many startups build things that they think their customers will want. If you’re looking for creative ideas that can make your company better, simply spend time with your customers. It’s not rocket science, but I’m always surprised by how few companies are really good at doing this.
Hire People Better Than You
Here are some reasons why you want to hire people who are better than you:
- You can learn from those who are better, those who know more, or have done it before. Learning is a total blast—why wouldn’t you want to have a blast?
- Every day people who have skills that you don’t have will chal lenge you to develop, expand, and enhance your own set of skills.
- Great teams of people move much faster than teams of weak people, as great people feed off of each other. You want your company to do more faster, right? Time is always against you in a startup.
- Knowledge grows exponentially. The more your team knows, the more they can learn and ultimately will know.
- Better people are easier to manage and are more self-directed. Would you rather spend your time leading your company or with your head down in the trenches?
Hiring people better than you reflects positively on you. It’s a fundamental skill in managing a company, whether it’s a startup or an international conglomerate. The better you are at it, the better you will be perceived as a leader and manager. Also, remember that you are the entrepreneur. You demonstrate your strong leadership ability, insane work habits, and fanatical drive every day.Those qualities can’t be readily usurped. Ultimately, think of it this way: you are the hero when the organization is successful because you made it successful by building the best team.
Hire slowly, fire quickly
At Return Path, we always do a comprehensive 90-day performance and 360-degree review of every new or promoted employee and we aren’t afraid to part ways with someone who isn’t working out after 90 days in a newjob. While it can feel harder to remove a new employee who isn’t working out, it’s almost always better to make a clean break and try again as the effort to “fix the person” is likely greater than the time and effort to hire a better person, especially when time is your most precious resource.
Engage Great Mentors
Mentors should fit into your business, which means at any given time you should only be working with a few, but their experience should match up with the challenges you face. We found that when it came to finding the right mentor, the more specific the better.
Make sure that you continually close the loop when you work with a mentor. The initial discussion with mentors about a particular topic is like the beginning of a really good story. Make sure you keep them posted on all the juicy details of what you are doing with their advice, as well as whatever conclusions or resolutions you come to. It sucks to not hear the ending of a story, which is how the mentor will feel if you don’t close the loop.
Define Your Culture
I’ve attempted to define the characteristics of a great startup culture. I was aiming for a top 10 but ended up with a baker’s dozen (because in life it’s hard to beat a free bagel.)
1. No politics. In great startup cultures, everybody is giving every body else credit. Ideas are judged on the merits, not on who came up with them. People feel comfortable that they willget their due. In not-so-great startup cultures, everyone wants to make sure everybody else knows what he or she did, even if he or she didn’t do it.
2. It’s not a job, it’s a mission. Redfin’s CEO Glenn Kelman likes to talk about how invigorating it can be once you realize that you don’t have to be doing what you are doing. Great startup cul tures are composed of people who could be doing a hundred other things, but actually choose to work themselves silly over the particular product or service their company is building. These cultures are often centered around the belief that the company is working on something important.
3. Intolerance for mediocrity. Great startup cultures are psychically rewarding for A-players and thoroughly awful for those who are not pulling their weight. Instead of performing to the least common denominator, great startup cultures quickly reject those who are not meeting a high bar. Those who remain revel in the fact that they are surrounded by colleagues who are as good or, in many cases, better than they are.
4. Watching pennies. Great startup cultures make every dollar count. Expenses are viewed with the same kind of discretion as they are on the home front. The beauty of the Amazon.com making-doors-into-desks tradition was not that it was cheaper (it probably wasn’t), but rather the mentality that it engendered that Amazon was a place that didn’t waste money on fancy furniture. In its early days, Intrepid Learning Solutions used to give out “Scrappy Awards” to employees who demonstrated superhuman abilities to save money. The CEO won one for renting a U-Haul and personally picking up and then moving in a free conference table from a local company that was moving. A cost-conscious attitude can be cool and, in great startup cultures, contagious.
5. Equity-driven. Great startup cultures create a sense that every one on board is building something significant, an enterprise that willbe valuable in the long term. Employees want a piece of that future. Lessoptimal cultures are focused almost entirely on short-term cash incentives. That’s not to say that short-term cash incentives are always bad; in fact, in many cases, they can be helpful in driving toward short-term goals. But when employees are focused solely on cash and not the least bit interested in equity, that’s a sign that they may have lost faith in the business.
6. Perfect alignment. Great startup cultures are well aligned. The strategymakes sense and is aligned with the vision. People are doing what they are good at and in the right roles. Every employee, from the CEO to the office manager, is on the same page.
7. Good communication, even in bad times. Transparent communication is a hallmark of a great startup culture. No one is confused about the vision and where the company is headed. Communication is open and free-flowing. Hard issues are addressed directly,not ignored. Everystartup goes through ups and downs. The tendency is to not want to share bad news. It’s not as much fun. In great startup cultures, communication to all stakeholders actually increases during the down times.
8. Strong leadership. The founder of a startup should be the “cultural soul” of the company. A good leader takes that responsibility seriously and leads by example. I love this quote in David McCullough’s book Truman by former secretary of state and army general George Marshall about the importance of leading by example and maintaining a positive attitude. “Gentleman, enlisted men may be entitled to morale problems, but officers are not. I expect all officers in this department to take care of their own morale. No one is taking care ofmy morale.”
9. Mutual respect. In not-so-great startup cultures, the business guys think the technical folks are more interested in cool technology than in building what the market wants. The technical side of the house thinks the business side isn’t smart enough (or technical enough) to understand what the market wants. The architects look down on the developers who look down on QA. The sales team thinks marketing isn’t doing its job in generating leads. Everyone thinks the sales team is overpaid and should be selling more. In great startup cultures, everyone shares a mutual respect for what each party brings to the table and celebrates wins from wherever they come. Heated but healthy debate leads to decisions that are accepted, even if not everybody agrees with them.
10. Customer-obsessed. Great startup cultures are maniacally focused on defining who the customer is, what the customer wants and needs, and whatthe customerwillvalueenough to payfor now. It starts well before a single line of code is written. These cultures value talking to as many potential customers as possible before a product is conceived. They make customer feedback a key part of the process once the product or service is delivered. Great startup cultures are rarely surprised by customer issues because they are proactive and process-oriented about understanding everything they can about their customers.
11. High energy level. You can literally feel it when you walk into a great startup culture. The room has energy. There’s a buzz. Doors are open. Whiteboards are filled with hieroglyphics. People are getting stuff done. Meetings are short and to the point. You might trip over a dog.
12. Fun. Startups shouldbe fun. In great startup cultures, everyone reinforces that fun is happening, even if it isn’t at that particular time. Employees tell their friends how much fun they are having. Whining is unwelcome.
13. Integrity. Great startup cultures do not cut corners. They maintain the highest integrity in the waythey treat customers, handle employee issues, write code, and go about their daily business. They have integritywhen it is easyand, more importantly, when it is hard. This kind of integrity should not be confused with lacking toughness. Integrity in this sense means having a team with enough confidence in what it is building, and then delivering to customers, that cheating in any form or even just going halfway, is unacceptable.
Two Strikes and You Are Out
I live my life by a simple rule that I call the “Screw Me Once” rule. I permit everyone I work with to screw me over once. When this happens, I confront them, forgive them, and move on. However, if they screw me over a second time, then I’m done with them forever.
While the definition of screw me is vague, I put it in the category of deceitful or immoral behavior. The phrase “screw me” is deliberately aggressive and hostile in this context; behavior that qualifies is also deliberately aggressive and hostile.
I don’t consider someone lettingme down, not following through on a commitment, or failing at something to fall into this category. Failure is a fundamental part of entrepreneurship and I embrace it as part of the process. I fail often and I expect people whom I work with to fail also—either dramatically, or in lesser ways such as not following through on commitments.
Systemic behaviorthat doesn’t correct, such as an inabilityto get closure on things, or a regular mismatch between the expectations that one sets and what one delivers, becomes a problem, but is not in the Screw Me category. Instead, this will decrease my desire to work with the person, lower my expectations about what will be accomplished, and make me cautious about my own engagement with them. But it won’t cause me to be done with them.
If you lie to me, deceive me, purposefully hurt me (or someone I care about), do something I consider immoral, or do something that is illegal, that’s one strike.
Occasionally, this approach simply doesn’t work. In these cases, I just disengage and assume I’m not going to be able to develop a substantive relationship with that person. In my experience, how ever, a deep and thoughtful conversation usually ensues, which also serves to build a much stronger relationship or at least the potential for one.
Once the confrontation is resolved, I’m in a happy place again and don’t ever think twice about whatever issue caused it. However, like a yellow card in soccer, you only get to trigger the Screw Me rule once. If it happens again, we’re done. Forever.
Be Open to Randomness
I think it’s important to be open to randomness in your life. Many of the most successful people I know are very deliberate about randomness.
Today, I too have the random day tradition. I’ve met some really interesting people, made new friends, and even found some investments this way.
Being open to randomness is about more than just taking meetings with people. It’s the idea of trying something you really have no reason to try. Recognize the fact that someone you meet or some thing that you do might ultimately be able to help you in some com pletely unexpected way. If you’re not open to randomness, you may miss a huge opportunity to advance your company, find a customer, a business partner, or maybe even a lifelong friend. How random is that?
Use Your Head, Then Trust Your Gut
You can’t manage what you don’t measure. The importance of instrumenting your business properly to enable intelligent decision making cannot be overstated. This is particularly true for companies that run their businesses on the Web.
On the other hand, starting a company and creating a product that didn’t previously exist in a market segment that may not have previously existed is a murky proposition at best. And there are often precious little data to go on in the earliest days of a company’s life. And when available, the data are often confusing. Furthermore, a company’s friends, mentors, advisors, and board members often give conflicting advice. Market research and user focus groups can yield inconsistent data and lead to conclusions that are in opposition to one another.
What is an early stage founder to do? Let me offer two bits ofcon flicting advice (get used to that!). First, be suspicious of your data. Consider everything that you hear, measure, and learn to be anecdotal even if it is corroborated by several sources. Second, especially early on, remember to gather as much data as possibleand measure every aspect of your business. If you don’t instill this discipline at the beginning, you’ll never catch up, and you’ll never have the right information to make the right decisions.
Be prepared for the data to give you a head fake. Constantly revisit the data—measuring the wrong things can be worse than measuring nothing.
Remember to think exponentially, especially in the world of technology. A few early data points on a geometric curve might lead you to conclude that you’re observing a linear phenomenon, which would lead to some seriously erroneous predictions about whatpoints farther up the curve might look like.
Progress Equals Validated Learning
Stories have led me to a definition of progress for a startup: validated learning about customers. This unit of progress is remarkable. First of all, it means that most aggregate measures of success, like total revenue, are not very useful. They don’t tell us the key things we need to know about the business: how profitable is it on a per-customer basis? What’s the total available market? What’s the return on investment on acquiring new customers? How do existing customers respond to our product over time?
Validated learning about customers locates progress firmly in the heads of the people inside the company and not in any artifacts the company produces. That’s why none of the dollars, milestones, products, or code can count as progress. Given a choice between what a successful team has learned and the source code they have produced, I would take validated learning every time.
Don’t Suck at E-Mail
There are many ways that new founders can suck at e-mail, but there are a few common ones that can be corrected quickly. First, change your attitude. The most common excuse, “I get too much e-mail,” is ridiculous. We all get a ton of e-mail.
If you accept the notion that “you can’t get too much e-mail,” you’ll then need a system for dealing with it. We recommend some thing similar to the Getting Things Done (GTD) system by David Allen, which includes tactics such as “inbox zero.” Your goal should be to touch every e-mail only once and either respond to it immediately or put it on a to-do list with a due date to be dealt with later. Then, delete the item from your inbox. Do not use your inbox as your to-do list—this is a guaranteed path to e-mail misery. This simple solution will keep most people from sucking at e-mail. If your inbox has 2,000 new messages in it right now, you probably suck at e-mail.
Use e-mail as a branding opportunity. Many entrepreneurs send e-mail from a generic gmail, yahoo, or hotmail address. This is silly—every time you send an e-mail like this you’re missing a branding opportunity for your company. Send and receive e-mail from your company domain so that every time someone gets an e-mail from you they will think about your company.
Taking weeks to respond to e-mail or not responding at all are also terrific ways to suck at e-mail. As a general rule, you should try to delete or respond to e-mail within a day or two. If you are on vacation or out of pocket, set up an autoesponder so that people know what’s going on. If you don’t know how to answer an e-mail, reply quickly and say that you’re going to think about it (and set up a to-do item).
Perhaps the biggest way that people suck at e-mail is simply by not being concise and direct. Enough said.
Quality over Quantity
Feature creep. The sound of those words should scare you to death. If you are a technical founder, please listen carefully: You don’t need to build a bunch ofnew features to make your startup successful. Trust me, I know.
So what is the secret behind building useful, meaningful features? First, focus on ease of use.Your site and your new features have to be very easy to use and graphically appealing. If you try to rush out a ton of features, it will not look good and will result in an unpolished, and hard to use product. One of the things we are most proud of about DailyBurn is that we’ve made the product look good while being very easy to use. We realize that a site to track your workouts and food intake isn’t an earth-shattering idea and that there are a lot of sites out there trying to do the same thing we do. The reason we have been able to grow is because we makeit as easy as possible for users to track their fitness on our site.
Next, build one thing well. If you try to build every feature that comes to mind, the result will be an unfocused product with no chance of success. When we started DailyBurn we focused on one thing and one thing only—a social workout tracking tool that lets you track actual results. We did that one thing well, got an audience, and then listened to our users. User after user screamed for food and nutrition tracking, so we took our time and built high quality nutrition tracking. Now our food-tracking tool is even more popular than our workout tracking tools because we focused on quality.
Finally, listen to some, but not all, of your users. User feedback is good, but don’t listen to all of it. We had so many early requests for features (and we still get hundreds a day) that we would have drowned if we tried to implement a fraction of them. You have to be willing to say no to your users.
Want to know a secret? The next new big feature you are working on will only convert a marginal number of new users to paying users and not be your big ticket to acquisition next week. In fact, that big feature you are working on right now might be a complete bust and you could lose users. Measure the impact of every new feature so you’ll know for sure what kind of effect each of them has.
Focus on quality—not just quantity. And make something that makes you proud (notjust your mom).
Find Your Whitespace
When we look back on what we did to find our whitespace, it came down to a few things. First,weidentified a target market and re searched it by speaking to as many people in it as we could. Through this we found some early enthusiastic customers and developed a product to meet their specific needs. We iterated with them frequently and weren’t afraid of redefining our product or segment focus based on their feedback. This process made it clear that our competitors were not addressing the needs of top app publishers and we focused all of our product, marketing, and sales efforts on them. After getting over our initial concern about competitors, we didn’t worry about them. Instead, we learned as much as we could about them to make sure that we were articulating our differences— specifically whywe were better for certain customers.
Creating a startup in a crowded market can be intimidating and the typical ups and downs any startup experiences will be amplified. Realize that the reason your market is crowded is that there is big growth opportunity. If you understand your customers and your competitors wellenough, it usuallybecomes obviouswhat your whitespace is and what you’ll need to do to exploit it.
Focus On What Matters
It is very easy to lose your focus at a company of any size; to go chase some shiny object instead of making sure you have nailed down the single most important thing. This is most dangerous when you are a small company starting to gain traction.People are calling you! Other companies know who you are! Journalists know who you are! At this point in your company’s life, there are numerous opportunities to lose focus coming at you every day. Large financial opportunities appear that are off strategy but have big revenue attached to them. Strategic opportunities that are not central to what you are doing, but possibly could provide real lift and momentum to your business, show up at your doorstep. Each day you think about all the progress you could make if you just changed some of your priorities for next week, next month, and next quarter.
Focusing on what matters doesn’t mean that you should be obstinate about your strategy and never change it. The key is to test the hypotheses of your plan as quickly as possible so that you can understand if and when you need to change course.
It’s too easy to think there are nine things you should be doing as a company when you should really probably be doing only two or three. Always trim away what you don’t need to be doing and ask yourself, “What is the thing that matters most to making progress right now?” Focus on these and let the other bright ideas sit on the sidelines until the company has proven that it’s ready to tackle another opportunity.
You Don’t Have to Raise Money
The decision to bootstrap will affect many of your future operating decisions. We quickly realized that we needed to continue to drive revenue while controlling our costs. While this might have been obvious in hindsight, it caused us to focus on product decisions that resulted in a lot more revenue while operating under the constraints ofvery little cash. Our early revenue was composed primarily of advertising and sponsorships. We focused on growing revenues by searching for creative ways to increase traffic, optimizing our ads, and securing sponsorships.
With such a strong focus on maintaining profitability, we constantly evaluated the long-term feasibility of our revenue sources. As the online ad market soured, the constraints ofself-funding forced us to identify viable long-term revenue sources immediately. We made a transition from advertising to virtual goods as a primary source of revenue faster than many well-funded competitors. Embracing the constraints of self-funding has allowed us to build a solid company with annual revenues of seven figures and growing.
Bootstrapping is not without its challenges. While it is often viewed from a financial perspective, it can also present challenges in other parts of the company. Some of our early hires sought the peace of mind offered by the backing of a VC despite our growing revenues and profitability. Fewer stakeholders means there are fewer people with a vested interest in helping you achieve your goals. For some, bootstrapping may also pose working capital challenges, making it difficult to grow quickly.
Beware of Angel Investors Who Aren’t
I have been involved in several angel groups, and most of them have sucked. The reason is very simple—most of the members of most angel groups are not actuallyangel investors. They’re often there for whatI call gig-flow. They’re looking for startups that they can jump on board with, either as an employee or consultant. Or they are there to meet rich people, drink wine, and eat tiny sandwiches. Finally, they’re often there to preside overcute little startups that ask them for money. As a special bonus, they get to have a good laugh afterward.
After talking to a number of other active angel investors, I determined that while there were a few excellent angel groups, most of them were full offake angel investors. These fake angels are unlikely to fund your company. There’s also a second class of angel investors who really aren’t. They are the unscrupulous types that often use egregious tactics and terms.
One example that I seem to encounter over and over again is the bait-and-switch angel investor. He’s usually got an interesting back ground and it seems like he might have a pile of cash to invest. The story goes something like this. He offers to put together a half-million dollar round for you. He’s committing a hundred thousand dollars! So far, so good. However, once the round starts coming together, he starts backing off his personal investment (usually all the waydown to zero) and instead rides the momentum into a job. Instead of investing, he’ll become the CEOor chairman, and will take a bunch of equity to boot. Unbeknownst to you, this supposed angel investor is running this same game with asmanyinteresting (and struggling!) startups as he can until he finds one that people actually want to invest in. Bingo—the bait-and-switch angel investor just landed a year or two of guaranteed salaryand a bunch of equity on the backs of bright young entrepreneurs overly desperate to raise a round.
There are a handful of very straightforward tactics to making sure you’re dealing with a legitimate angel investor. First, ask the prospective investor how long he has been making angel investments, how many he has made, and how much he typically invests each time. If you get dodgy answers, or fundamentally tiny ones such as “I’ve done one angel investment in the last seventeen years”, beware. Don’t proceed with any other questions until you have this answer.
If an angel investor says he is just getting into making angel investments, this should set off your Spidey sense. In this case, do your homework and start checking highly trusted references that you source yourself. Check with known reputable angel investors and local venture capitalists on both the person and the companies he has been involved in to get a sense of how real the prospective investor is. Research his background—is he really likely to have the type of money necessary to make angel investments?
If your prospective investor says he’s been investing for a year or more, ask him to introduce you to two companies he has invested in during the last year. Ifhe can’t name two in the past year, then ask him for the last three he has invested in. If there aren’t three, recognize that this person is at best investing as a hobbyist and has very limited experience doing so. Now call or e-mail all three companies and ask to speak to the founders. Verify that the person actually invested dollars in that company. Check the reference while you’re at it and ask if they were helpful to the company or not.
None of these questions or tactics will be offensive to real angel investors. In fact, they will give the real ones more confidence in you. These tactics might offend the fake ones, driving them away. Recognize that that’s just fine.
Seed Investors Care about Three Things
Seed investors—people like me who are typically putting the first chunk of cash into a new startup—have the shortest checklist. Because we invest so early in the life of a company, a lot of the data points that later-stage investors are using to evaluate an opportunity are not yet available to us. So I focus on three things: “People, Products, and Markets.” Or actually:
People Products and Markets
First of all, the market the entrepreneurs are going after needs to be “big enough”. When you are investing very early, you want to make sure that the target market feels big enough; that is, that the company you are looking at investing in can reasonably grow revenues to $10 million or more in three years and $50-to-$100 million in five to seven years without needing 100 percent adoption.
Next, I look for products thatwin users over.You either have users (alpha, beta, gamma, whatever you call them doesn’t matter) or you don’t. If you don’t, I’ll look at mockups and demos to figure out if what you are building will get the traction that you are claiming it will. But it is tough to figure this out since having users is real external validation that your product is perceived as interesting, valuable, and differentiated and one day, maybe, someone would actually pay for it.
But, most importantly, it’s all about the Peeps. Until recently, my trifecta “People, Products, Markets” used to be “People, People, People” but I adjusted it because the product and market clearly have impact on my early stage investment decisions. I’m looking for a variety of characteristics in early stage entrepreneurs, such as:
- Determination, dedication, and tenacity
- Raw intelligence
- Agility and resourcefulness
- Clarity and focus
- Natural leadership
- Working smart rather than working hard (okay, working hard, too)
- Team dynamics
I’ve recently started using the following tag line for my firm SoftTechVC:
Seeking the perfect combo: “a smart-ass team with a kick-ass product in a big-ass market”.
I think that it perfectly embodies what I am doing for a living, and it’s easily shortened to “The Three Asses Rule” once you know the long version.
Practice Like You Play
With so many factors at play, there are numerous issues that can derail a financing. The trick is to present a compelling solution to a big problem and then have the right answers to every conceivable question the potential investor might ask.
So, to be successful at fundraising, I practiced like crazy. I must have rewritten our pitch 100 times and practiced it 500 times. The benefit of running it past dozens of people for feedback was in valuable because it’s nearly impossible to separate yourself from the day-to-day business long enough to put together a high-level pitch that makes any sense.
Fundraising is a full-timejob and it requires the full attention of at least one team member and the cooperation ofthe rest of the team to prepare the presentation, hear the pitch over and over, and help brainstorm potential questions and the right answers to those questions. People want to invest in winners. Winners are confident, andconfidence comes from practicing like you play. This means pitching in front of people, getting grilled by colleagues, mentors, and friends, and explaining your business until answering the question of how you’re going to make money is so boring it makes you sick. How are you going to get someone to write you a check if you can’t confidently describe what they will get in return?
If You Want Woney, Ask Your Advice
When you want advice, askfor money. When you want money, ask for advice. I believe there are three reasons this adage holds true. Investors say no more than they say yes.
An investor is constandy being bombarded by requests for capital. It’s fundamental to his job. Statistics vary, but it wouldn’t be unusual for an investor to say yes less than 1 percent of the time. Given that there are only two answers to the question “Will you invest?” they become adept at quickly discovering weaknesses and saying no. When approached, in on the negatives of the company. Most investors don’t want to turn you away empty-handed, though, so they will offer advice for overcoming any weaknesses.
Risk mitigation. Getting investors and mentors involved early in your company before you start raising capital provides them a way to track your progress and learn about you before any risk is taken. Asking for guidance here doesn’t have to be a yes or no question. You can ask for open-ended advice, such as “Which business model might work better in this market?” Many are willing to put in time and mentorship to get you to a point at which you are a lower risk than another investment opportunity.Also, engaging them earlygets them excited aboutyour company andyou, notjustin the investment, so initially they will be focused more on the business instead of the returns.
What someone helps write, they will help underwrite. Once you begin soliciting and following the advice of mentors and investors, they are more likely to be actively engaged with you and the business. Once they see they can have a direct impact on your decisions and the directions of the company, they’ll begin to feel a sense of ownership in the outcomes. And once they have that sense of ownership, they will go to lengths to help you get to the next level. Whether it’s through introductions, endorsements, fundraising, or just spending more time, they will help underwrite your business if they feel like they’ve had a part in creating it.
If you’re looking to raise capital later, engage great mentors and investors from the beginning, before you start fundraising. Seek their advice and guidance early on. Learn when to take their advice, but be sure that you communicate the reasons why some guidance wasn’t followed. Let them and their experience help shape the company, the vision, the direction, the product, and the execution. Make them an active part of your team, let them see the progress you’ve made, and get them excited about what you’re doing. When it comes time to raise capital, you’ll have a champion on your side who ismore likely to open the checkbook and encourage others to do the same.