Entrepreneur of Girls Guide to Paris, Doni Belau has over 9 years experience providing women with the best of all things French and Paris. Continue reading “191. Doni Belau of Girls’ Guide to Paris on Product Diversity & Collaborating With Competitors”
11 takeaways from this talk: Continue reading “187. Critical Thinking: 8 Biases That Hinder Progress In The Workplace”
29 takeaways from this lecture: Continue reading “176. How To Start A Startup: 25 Reasons Businesses Fail Within 4 Years”
13 important lessons from this video:
00:00:40 There are common mistakes that I see new entrepreneurs make over and over. There are tons of advice available online about this subject, and the advice seems to come from anglo-saxons, which tend to have the insane perspective of portraying entrepreneurs as Superman: wake up everyday at 6:00am, drink coffee until 6:15am, at 6:25 you begin sending emails…
There are many entrepreneurs who live this lifestyle to the max, and they almost always follow the same line: they are motivated and rigorous for the first three months, and then they crash and burn.
Yes, starting a startup is extremely difficult, and it is imperative that you see your future in terms of phases.
Starting your business isn’t supposed to last a lifetime. If after 3 years your startup is still a startup, seriously consider giving up and moving on.
[EDITOR’S NOTE: In her lecture Growing from Zero to Many Users, Adora Cheung explains that a typical amateur and failed approach to starting a business is:
She also points out that to launch a startup you need to have a lot of compressed time in your schedule (1-2 days uninterrupted) where you can really dedicate yourself to its success.]
The beginning of a startup is difficult because the kinetic energy that must be created at the beginning is incredible. This phase tends to be extremely taxing on both your mental and physical health, and leaves you with plenty of obsessive behaviors and social handicaps. This is because during this phase you are obsessively committed to one single goal: getting your startup up and running. During this phase, winning or losing one additional client can mean the difference between failure and success. But once your business is up and running, winning or losing one client probably won’t make that much of a difference.
One of the best ways to avoid burnout during this phase is to understand that this phase is temporary, and to create a contract with yourself, committing yourself to focus on your start for a pre-determined amount of time and where you expect the project to be by that time. Then respect that contract. If you haven’t achieved your results within the amount of time you set aside for it, let it go and move on to another project.
Another way to avoid burnout is to understand that life consists of five fundamental elements:
- Everything else
Now choose only two. If you’re launching a startup, then you must choose only one more and forget the rest. You’re launching a startup and have a family (wife and kids)? Then forget your friends, hobbies and everything else. Once your startup gets moving on its own, then you can replace ‘work’ with another fundamental element, such friends or hobbies.
00:07:30 A specific yearly revenue, number of clients or users, number of press articles about your company… being an entrepreneur requires having your own clear definition of success (what you are doing and why you are doing it) of which to compare your current status, and this defintion needs to be periodically updated and put into the correct perspective.
Also, your definition of success shouldn’t involve blanketly applying somebody’s definition of success, and you shouldn’t project your definition of success upon anybody else.
[EDITOR’S NOTE: In our interview, Data Consultant Benjamin Descazal points out that your goals need to be SMART goals (Specific, Measurable, Acceptable, Realistic, and Time-bound).]
This is because the journey of reaching your succes is filled with highs and lows, and if you don’t have a clear subjective definition of the success you’re looking for, your journey to ‘success’ will be filled with more lows than highs – which will even further demotivate you and you’ll burn out.
00:13:32 With your private and family life, having a clear timeline and definition for success is extremely important when it comes to explaining it to your friends, family, husband or wife. Not having clear definitions means that the people you love and care about don’t understand what you are doing and why. As an entrepreneur, if you don’t have clear goals and definitions to communicate to people who aren’t in the startup environment, they will simply compare you to Bill Gates or Mark Zuckerberg.
This unfair comparision will only lead to misunderstandings, disappointment, judgement and arguments:
“You’re an entrepreneur, you should be making a million dollars a year by now. What’s wrong with you!?”
“You’re making good money, so why are you still spending 15 hours a day at the office. What’s wrong with you!?”
If, however, you explain calmly and clearly to your loved ones that:
“Over the next two years, I’m going to focus on X objective. My definition of success is Y, and I will know I have reached this level on success when Z.
…they have a clear sense of where you are, where you are going, what you are doing and why you are doing it, and they won’t compare you to Bill Gates and Mark Zuckerberg. This an be talked about and reasoned with. Secondly, if you reach your objective, you all have something to celebrate! You cannot imagine how much celebrating the achievement of a goal changes your perspective.
How can I involve my loved ones in my project so they understand?
00:17:01 From a business aspect, treat your relationship with your loved ones as you would an investor: there are things you say, and things you don’t.
Recall that the business consists of highs and lows. If you tell your loved ones too many positive and successful stories, then they will not understand or appreciate the low points and setbacks. Likewise, if you tell your loved ones too many stories of failures and setbacks, then they will not understand or appreciate your high points and successes. Ideally, keep the stories and updates you share balanced somewhere in the middle.
Optimizing for your startup versus Optimizing for you.
00:19:20 One of the best ways of keeping your storyline realistic, measurable, and positive is to maintain an entrepreneural CV (resume).
For example, many entrepreneurs optimize their company to obtain as much seed funding and Series A investment money as possible, and many entrepreneurs would rather gamble and turn down bad or mediocre offers in the hopes of a better offer. But now consider this from the perspective of the entrepreneural CV: that actually raising the funds and selling their company is an accomplishment that VERY, VERY few entrepreneurs can actually put on their CV; that the great majority of startups fail.
If the entrepreneur were to strategically accept a mediocre investment offer, then that entrepreneur has set himself/herself apart from all those other entrepreneurs, and this accomplishment will be a permanent fixture on his or her CV.
If, however, the entrepreneur holds out for a better offer, and that better offer never comes, then that entrepreneur will have nothing to put on his or her CV other than a failed business.
For example, Aaron Levie, CEO and Co-founder of Box has only 3% of his own company he created; a very low percentage in terms of the industry. Yet in accepting this he has joined the exclusive club of only a handful of entrepreneurs to create a billion dollar company.
[EDITOR’S NOTE: Aaron Levie, Cofounder of the box, gives an excellent talk on Choosing Between B2B & B2C Business Models.]
00:24:51 What counts isn’t your first entreprise, even though it is your baby; what matters is:
- your long-term reputation as an successful entrepreneur
- the lessons you learned from your previous ventures
- the revenue generated by your previous successful ventures that can be injected into your next project(s)
- your ability to attract investors in your future project(s).
[EDITOR’S NOTE: In his lecture A Checklist Of Counter-Intuitive Startup Rules, and his interview How Angel Investors Judge Startup Founders, Paul Graham of Y-Combinator makes a list of other personality traits and characterists of successful entrepreneurs, noting specificially that he looks for entrepreneurs who already have a few successful ventures on their entrepreneural CV.]
00:32:10 Many entrepreneurs are petrified of their initial success because they think “If I lose this, I lose everything!” This causes them to not spend the money they raise, and not take the risks they should take, for fear of losing everything.
This, ironically, is also why entrepreneurs are the most dangerous because they have absolutely nothing to lose, and so they come up with crazy ideas and solutions to problems: their business idea doesn’t take off? They didn’t have too much invested in it yet – he/she is pretty much already bankrupt.
But one day, if you don’t manage your entrepreneur CV correctly, you may have “everything to lose.”
The French entrepreneur ecosystem versus the US entrepreneur ecosystem
00:38:13 In the United States, the system is set up so that entrepreneurs get rich before their business becomes successful, whereas in France the idea is that the entrepreneur must suffer and work for next to nothing until his/her business becomes successful, and then the entrepreneur becomes rich.
The problem with this French model is that entrepreneurs working for so long under such stress are prone to fear and making errors in judgment and spending, errors that can increase the failure rate of an otherwise successful business idea. This is also why once the entrepreneur does come into money, he or she is so petrified of taking risk and spending the money he or she worked so hard to get for fear of ‘losing everything.’
In the US system, on the contrary, the entrepreneur begins with the necessary money he or she needs to successfully make a living and be able to focus all his or her energy on making the company successful without the fear of running out of money.
The entrepreneural ecosystem in Silicon Valley is so efficient that in the last 10 years (2005-2015ish) it has produced 170,000 entrepreneur millionaires. Include employees, and that number raises to @700,000 millionaires.
00:42:00 To put all this together:
- Determine whether you are optimizing for your startup and/or optimizing for your entrepreneur CV
- Set clear and transparent goals, pay and bonus scales, time frames and definitions of success at the beginning of your startup venture
- Once you’ve reached your goal, celebrate your accomplishment and collect your reward you deserve for your hard work
00:44:00 As an entrepreneur, it’s your responsibility to be clear, transparent, and fair with the employees you hire who will help you build your business into a successful one, even with those employees who don’t know how to negotiate. The idea of paying it forward, and not burning your bridges or making enemies, is important. Once word gets out that this is how you treat people and do business, nobody will want to do business with you.
[EDITOR’S NOTE: For more information on attracting and hiring the right people, watch the lectures:
- Identifying & Developing Key Employees
- How To Keep Quality Employees (Part 1 of 2)
- How To Keep Quality Employees (Part 2 of 2)
- Surviving During Changes In Management
- How To Create A Successful, Long-Term Company Culture]
00:51:22 Money is a hard drug. Once you’re addicted, it’s very hard to get off of. And money doesn’t make you happy; living the life you want to is what makes you happy. Money should be viewed as a tool for living the life you want.
00:52:28 There are plenty of startups that exist, and are successful, that shouldn’t be. For example, many people have found themselves in a romantic relationship where one thing about the person is great, but then many other things are horrible.
The problem is at least you have a relationship that ‘works,’ you cannot work on finding a better suited partner or relationship while you’re in your current relationship, and trying to find a better relationship is just too much work. Eventually, you would prefer to be single than in bad company. This is the same idea with startups.
If you, as an entrepreneur, find yourself running a business that is making ‘enough’ money to keep running it, but you are miserable and not capable of pursuing other, better projects you enjoy, then you’re going to have to make the difficult choice of choosing between the money you’re making or walking away from that business.
16 important takeaways from this panel discussion:
00:00:42 Having interviewed thousands of entrepreneurs and invested in over 700 companies since 1994, there are several key things that go through my head within the first minute of our discussion:
- Are you a leader who can take charge?
- Are you focused and obssessed by your product?
- When I ask ‘What inspired you to create this product?,’ I’m hoping that your answer is based on solving a personal problem, and your product is the solution to that problem.
- Are you a solid communicator?
Two additional general concepts investors:
- Look for are extreme outliers
- Invest in is strength rather than lack of weakness
00:04:11 Often, many of the most sound business ventures have nothing special about them, while many of the most potentially lucrative business ventures have a few serious flaws to deal with. If investors follow a checklist and only invest in sound business models, they may make some money but will miss out on the really lucrative outliers.
00:04:47 When you pitch to an investor, you’ve got to be able to say in one compelling sentence – which you should have practiced like crazy! – what your product does so that the investor that you’re talking to can immediately picture the product in their own mind.
If you move on to your 2nd sentence and the investor has no idea what you do, then forget about it.
00:05:48 You have to make decisions. Once you have a great product, then it’s all about execution and building a great team.
Procrastination is the devil in startups.
00:07:46 Get your business so streamlined that it could almost be possible to not need investment; these are the kinds of businesses investors love to invest in.
Secondly, bootstrap (be self-sustaining without need for external sources) for as long as you possibly can.
Comedian Steve Martin wrote Born Standing Up, a great book on his startup career. His advice is to be so good that they can’t ignore you. Do that, then the whole discussion of raising money is beside the point. Being 1:1000 will make it harder and harder to raise money.
You’re almost always better off making your business better than you are making your pitch better.
[EDITOR’S NOTE: In our interview, Timoni West, Product Designer suggests that you should address the question of how good is your product already? If you have a very simple product and you’ve already nailed what your product does, and when people open up your app or visit your website they know exactly what it does and why they need it, then by all means don’t spend any more money on UX and invest in getting the word out about your product. But if when people go to your site people don’t know what it does or why they should use it, or if you’re having problems with growth because people aren’t being retained (or converted via signing up or purchasing) that means that there is a problem with your product or your product’s presentation.]
00:10:34 Raising venture capital is probably one of the easiest things a startup will do, as compared to recruiting the first 20 or so engineers, selling to customers, getting viral growth going on a consumer level, getting advertising revenue…
Raising venture isn’t the hardest thing, it just puts you in a strong position to do all of the harder things to follow.
00:11:37 One of the single biggest things entrepreneurs are missing when it comes to fundraising and how they run their companies is their relationship between risk and raising cash, and the relationship between risk and spending cash.
00:14:06 The relationship between investors and founders involves lots of trust. It’s not advisable to require potential investors to sign a non-disclosure agreement (NDA); Investors are rarely asked for this anymore because for an entrepreneur to request this is equivalent to saying “I don’t trust you.”
That being said, another one of the biggest mistakes entrepreneurs make is not getting things in writing. Fundraise as quickly and as efficiently as you possibly can without obsessing over it. As mentioned before, fundraising is fundamental, but it is but a tiny step in a long process of starting and running your business; don’t let your ego get too involved in this process. When someone makes a committment to you, get it in writing immediately. And don’t make financial decisions on a commitment until you get it in writing because investors will quickly forget that they promised to invest in you, or how much, or that they were going to introduce you to co-investors, etc.
Take notes in all your meetings and follow up with an email in writing on whats important.
00:16:08 When seeking to procure seed stage funding, make sure you have a really great executive summary. Usually, at this stage, if the investor calls you and then goes on to set up a meeting with you, then you are probably well on your way to procuring that investor.
At the series A stage, investors typically only invest in two kinds of startups:
- Those which have already raised the seed round
- Successively lucrative entrepreneurs the investor has already worked with in the past.
Very rarely will investors go straight to series A with startups.
00:20:16 When it comes to negotiating terms, the first and foremost decision is picking the right seed investors because they will lay the foundation for your future fundraising events and make the right introductions.
00:23:02 There seems to be a threshold for seed stage companies. Ask more than the threshold, and you may not get it; ask just under the threshold, and it you might be able to raise more. So be sure you set the right valuation for your business. Focus on getting just the money you need, and no more. At the end of the day, whether you raise 12, 9, or 6 million in investments, it’s likely not a huge deal for your company.
00:24:05 When deciding how much of your company to sell to investors, during series A funding you may sell up to 20-30% of your company simply because venture capitalists tend to be more ownership-focused than price-focused.
At each round you need to have as close to the amount of money needed as possible, otherwise once you get to the C, D, and E series rounds, your ownership may be too diluted to be worth it for you.
As the owner, you need to decide from the outset “At what point does my ownership start to demotivate me?” If there is a 40% dilution during an angel round, the owner has doomed himself; you will own less than 5% of the company if yours is a normal company, yet you’ll be the one doing all the work.
00:32:30 When you start a company, you HAVE TO go and find somebody as good as or better than you to be the co-founder. If you do this, your chances of success grow astronomically. The Mark Zuckerberg phenomenon where it’s mainly one owner; that is the extreme outlier.
That being said, if you pick competent investors that have domain expertise and big rolodexes, they’re going to add a lot more value than just the money they put in. Those are the types of investors you should be looking for.
00:35:34 If you walk into an investors meeting with a ridiculously viral idea such as Pinterest or Instagram, then investors will just ‘feed the beast’ and let it go itself. However, if you have an idea which requires significant investment over several years, then the decision to invest will come down to the quality, comprehensiveness, and preciseness of your business plan and operational excellence.
00:36:47 Signs you should avoid an investor? In no particular order:
- Lack of mutual respect
- Lack of domain expertise in your company
- Lack of a rolodex or ability to introduce you to other quality investors: both for business development and in helping you procure funding for series A
- If the person is ONLY out to make money
- You can’t see yourself in a long-term ‘marriage’ relationship with the person…
00:41:34 Many investment firms have conflict policies to prevent them from pitting one startup against another. The only time this could become a problem would be when a startup pivots, or morphs into a company that moves into the domain of another startup the investment firm is investing in. If the investment firm does have a conflict, they generally will disclose it to both companies. Again trust is the main issue. You’re off to a bad start if you and your investor don’t trust each other.
A lot does come down to opportunity costs – the idea that everything that you do means that there will be a whole bunch of things that you can no longer do. The risk is not so much “We invest $5M in a company, and if the company goes bankrupt we lose that money.” The greater risk investors are worried about is locking yourself out of a category because every investment you make means you won’t abandon your original investment or invest in a competitor. This can be a difficult decision to make because you can only know the companies that exist and fall under your radar today.
If you invested in Myspace, and a year later Facebook launched, you’re tied to Myspace. This brings us back to what was said earlier about what quality investors look for in investments. At the startup stage, products tend to morph a lot, so investors prefer to invest in the owner and team rather than the product.
[EDITOR’S NOTE: For more information on procuring funding through angel investment, watch the interview How To Start A Startup: How Angel Investors Judge Startup Founders with Paul Graham and Charlie Rose.
Also, read the interview Do Startup Names Matter? with Max Garrone.]