I started my career in operations and then became a venture capitalist. But after a couple of years in that role, I realized that I really wanted to sit on the other side of the table. I wanted to build a team, a product, a brand that solved a problem for people. I had to become an entrepreneur. So I did. Now I am back in my role as a venture capitalist, with more wisdom and experience – and hopefully much more helpful to the entrepreneurs I meet and work with. Below are seven pieces of advice for anyone planning on launching a start-up.
1. Solve a problem that a lot of people care about…and that you care about
This may seem like common sense, but I often come across entrepreneurs focusing on small incremental improvements in an area where most customers already have a good enough solution. Tackle the problems that will enable you to improve the customer’s life measurably and exponentially. Your customers should be willing to pay you to ease their pain.
Make sure the problem is one affecting a significant number of people, giving you access to a large market. The larger the market and the more impactful the solution is, the bigger the opportunity and the more attractive your company will be to talent and to investors.
And most importantly, if you’re going to spend the next five to ten years pouring your heart and soul into building your company, make sure you are obsessively passionate about its mission.
2. Calculated, not blind optimism
As an entrepreneur, you are naturally optimistic. You believe you can make anything happen to fulfill your vision and that there is no insurmountable challenge if you put your mind to it. Your confidence is infectious and is one of your biggest strengths. It will help you mentally get through the tough times.
However, you need to make sure it doesn’t become your weakness. You need to ensure you don’t become victim of blind optimism. Be ambitious, but set stretch goals that you know you and your team can achieve. Because the moment you start repeatedly missing those goals, your team, partners and investors will lose faith in you. While they were once inspired by your vision and abilities, they will start to question and doubt them.
To master the balance of inspiring people to achieve what they once didn’t think was possible while not pushing them towards an unattainable goal, you need to appeal to their courage while having a detailed and honest understanding of your team’s limitation as well as the risks in the market. This is an art as much as a science, and it is what I call calculated optimism.
3. Cash is king
Cash dictates who you can hire, how long your business has to operate and how well you sleep at night. If you are not good with numbers then learn fast and hire someone who is. Every founder should know at any point in time how much cash she has in the bank and how many more months of runway there is left. If you don’t, your company will die a very quick and painful death.
Cash is your company’s oxygen. You don’t want to be surprised when you run out. You need to be prepared for the worst case scenario and have a back up oxygen tank. It is always easier to put a backup in place when you don’t need it because you have time and options. Therefore, aim to raise money when you need it the least, when your business is growing, and when you have at least 12 months of runway in front of you.
4. Focus on sustainability
If cash is king then sustainability is queen. From day one you want to focus on building a sustainable business: one with sound unit economics and sustainable sales, marketing, customer support, finance and legal. If your business is not sustainable you will lose any investor or talent you may have been able to convince with your vision.
The path to profitability needs to be clear. It may not happen tomorrow, but it needs to be achievable at some specific point in the future. Before you put resources behind building a product, ask your future customers whether they would pay for it. Calculate your cost of goods sold: is your gross margin positive? Look at the competition and assess how much you will need to spend on marketing in order to acquire customers. Consider the type of talent you will need to drive sales, products and marketing: how much will they cost? How large is the talent pool? And what kind of incentive structure can you set up? Evaluate the regulatory pressures in your market: how much will they weigh on your business? What legal resources do you need to have in place?
These are some of the questions that will help you understand how much investment you will need and whether you can build a sustainable business that is scalable and profitable.
5. Be decisive and be nimble
As an entrepreneur and founder of a company, you will constantly be asked to make decisions with limited amounts of data. You need to be able to make these decisions quickly, learn fast and iterate.
To help you, create a process whereby you are continually absorbing feedback from your team, customers, partners and investors in a constant state of awareness. Hire domain expertise where you need it. Build a culture where people make informed decisions quickly, implement them, learn from the results and iterate. You need to be nimble to quickly react to new information coming in, because as a start-up, everything moves incredibly fast – and so will you.
6. Choose your board wisely and use it
Just as much effort needs to be put in selecting your board and investors as in selecting the talent in your team. Never forget that the advice you get is as good as the person who is giving it. Do your research. Ask other entrepreneurs who have worked with a potential board member what their experience has been like. Understand the context of that experience relative to what your company will need. Create a balanced and diverse board. Bring together people with different expertise and points of view who can challenge you and each other.
Once you have put your board together, nurture it. Communicate with your board members. They have committed time and/or money to your company. They want to and should be used. Don’t surprise them and don’t wait until you have good news to deliver bad news. If they are experienced board members, they know that your start-up will go through many ups and downs, and they will see through your attempts to sugar coat the bad news.
7. The long game
Brace yourself, as this is a long game. If you are an entrepreneur, you are likely to be one for life. Be ready for the extreme ups and downs, the sleepless nights, the despair, the feeling of being alone, the hope, elation and the excitement. Hang on to your courage.
As you go along the ride, make sure you treat people fairly. Be straightforward and honest. If you need to let people go, do so with respect. If things aren’t working out with someone in your company, it generally means that they are not working out on both sides. Your employee’s talent will be better used elsewhere and he will be happier when he feels appreciated. Help him get to his next job if you can. Relationships transcend the life of a start-up, therefore nurture them with care.
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