humbledMBA

They bounce back.

It's THE defining characteristic of being an entrepreneur.  Some

entrepreneurs are creative, some aren't. Some are tech-focused, some

aren't. Some are business savvy, some aren't.  But bouncing back.

Yeah, that's what makes an entrepreneur.

I'm working with some business school students right now on an

entrepreneurship project.  They're putting together a pitch deck as

part of their spring semester, and I'm advising them.  After 4 weeks

of work, they were still 'concepting' the investor deck and hadn't yet

produced a reasonable first draft.  I was growing concerned with their

progress.  They were doing typical MBA things that may have worked

well in, say, consulting, but were a poor match with entrepreneurship.

I was most concerned with their slow rate of adapting to the

entrepreneur's mindset.

Finally, after another week of too little progress, I emailed the group's

leader this message:

"I think it's wake-up call time for both you and the team.

I have significant concerns that this project will come to fruition

with any level of acceptable quality and depth, both in terms of

normal school standards and my standards, which are considerably

higher.  I'm not saying you won't get there, but as of yet, I've seen

no evidence that this team, as currently led, will make it.

I doubt there are many things in your life that you have done poorly.

I fully expect you to take a tough round of feedback in stride and

respond with gusto.  As always, I am on your side and available to be

helpful in any way that I can."

It was a pretty tough message to send and to receive (I assume, far

tougher to receive).  I do like being a nice guy, supporting people

with positive encouragement.  I come from a summer camp background and

believe in helping build people up.  

Except when that doesn't work.

And positive encouragement doesn't work with certain kinds of

smart people.  Some smart people (and lots of them go to business

school) have had too little failure in their lives.  They're so

successful in everything that they do, that they are not accustomed to

tough feedback, disappointment, gut-wrenching failure.  These smarties

develop an unhealthy fear of failure.

In my follow-up conversation with this student, we talked a lot about

the concept of iteration.  He had led his team through 4 weeks of

planning and discussion with no real output yet.  I told him to get

the team together and come up with a version in the next 3 days.

Whatever it is, at least then we could start iterating.  It made total

sense to me--enough planning, let's get to a minimum viable product!

His response took my breath away.  He said:

"If my team burns the midnight oil for 3 days, producing a deck and it

turns out to be no good, their morale will be crushed.  I can't do

that to them."

And that right there is fear of failure.  Five uber-smart,

accomplished people can't handle a tough round of feedback?  I highly

doubt that.  Actually, it's not fear of failure, it's fear of the

possibility of failure.

There are two massive implications to protecting yourself from

failure.  The first is that you limit yourself by choosing challenges

that are guaranteed wins.  You lose out on all sorts of experiences

that would've been incredible learning opportunities because you didn't want to risk failing.  

The second implication, which is far more dangerous, is that you actually believe

that your skills are limited.  When forced into new, tough situations,

you give up before trying.  Just think of how many times you've given up on

yourself without really testing your own limits.

I've failed at many, many things in my life.  I've become quite good at it actually.

I remember so vividly how I felt when my first company failed.

It wasn't just that the company had failed, it was that I had failed.

And in my mind, it was even more than that.  I had failed because I was

a failure.  I remember the regret I felt for skipping those traditional

business school job opportunities. Working at a consulting firm,

making a stable salary, and not failing.  In that moment, consulting felt like it would

have been the best thing in the world.  Instead, I was stuck in a very

lonely depression, unsure of what to do.

Funny thing though.  That only really lasted like 3 days.

Failure is like swimming in the deep end.  As long as you don't drown,

it's not as scary as you thought.  After 3 days, I called up my co-founders and we

agreed to do another start-up together--whatever that would be.  Four

weeks later, we started FlightCaster.

Entrepreneurs bounce back.

***

I had a really good talk with the MBA student leader a few days ago.  I

reiterated that I believed in him and that I am on his side, available

to help.  With half a semester left, he has plenty of time to bounce

back.  He had no plans to be an entrepreneur.  In fact, he picked this

project because he wanted to step outside of his comfort zone and

learn something new.  I am confident that he's going to blow

away all expectations, including his own.

This conversation just happened.  I've written this post before I

actually know if he is going to make it.  The team's final project

isn't due until the end of May.  I've asked his permission to

publish this post now, and I'll update you all in a few weeks with

their progress.

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A few months ago, an entrepreneur friend called me up to ask about a meeting he had coming up with a VC.  He had met the partner at a conference, gave him the elevator spiel, and was now asked in to do a pitch.  He hadn't planned on fundraising yet, but now that he had this meeting in 2 weeks, he wanted help getting his pitch together.

I told him to cancel it.

Or at least, change it.  Make sure it's explicitly not a fundraising pitch.  Meet in a coffee shop, tell him you only need advice--do anything except pitch him.  And make sure he knows it's not pitch time.  The beginning of the fundraising needs to be a well orchestrated process.  You want to have already established a list of desired investors. Already have met them and shared your product. Already have built a personal rapport.  And, you want to control the timing of the start.

***

In 2009, having just completed Y Combinator, we were starting the fundraising process for FlightCaster.  My Startup Advisor had given me some tips on the fundraising process.  One of those tips was to stack the investor meetings altogether.  

And we did.  Our first week of fundraising was one of the most intense weeks of my life.  We had on average 5 pitches a day up and down Sand Hill Road.  While my co-founder drove between pitches, I would furiously email admins, arranging times and places.  Late into the night we would alter the deck.  It was absolute insanity.  In many way, we would have performed better if we had gone slower and given ourselves time to breath.  

That would have been a mistake though.  Doing a lot of investor pitches all in a row accomplished several important things for us:

Iteration

We were substantially changing the deck everyday, often times several times per day.  Every time, we got a new question, we built an appendix slide to answer it. Every time we got stuck in the flow of the pitch, we were able to alter the deck to flow better the next time. 

Rhythm

By the third day, the pitch just rolled off my tongue.  My co-founder and I had a give-and-take by that point that was just seamless.  When an investor had a nuanced question about the data inputs in our algorithm, I could skip to appendix slide 49 without looking down.  That level of conformability meant that I could spend more of our time and energy focusing on the investor and his decision making process than my own nervousness.

Buzz

Investors talk to each other.  A lot.  Especially if you're raising in Silicon Valley, you should expect that every investor that is meeting with you has already talked to a bunch of others or will as soon as you leave.  Most investors rely on social proof as part of their filtering mechanism.  You don't want an investor to call up his friends, mention that he talked to you, and find that he's the only one.  That's a clear indication that you're not going to be 'hot' deal.  Investors all want to be one step ahead of each other, but they rarely want to be more than one step ahead.

Syndicates

Especially if you're raising a multi-angel seed round, you'll most likely be building a syndicate.  When you stack your pitches, you get all the balls in motion at once. As other investors learn that their friends are negotiating term sheets or signing convertible notes, it becomes easier to bring them in on the deal.

Due Diligence

You want your investors to make quick decisions.  If you give them months to analyze your startup, than they will find something wrong.  Don't take it too far though.  If your round is overhyped and you rush the investors, than you'll be stuck with a bunch of people you don't really know and that aren't fully on board with your vision.

Synchronization

You want competitive term sheets because that's the best way to increase your leverage in the round. As PG tells us, term sheets breed term sheets.  It often is that the absence of a competitive term sheet process will mean that you get zero term sheets.

Speed

You want the whole fundraising process to take as little time as possible.  Several weeks for angel rounds and no more than a couple of months for VC rounds.  Most importantly, you desperately need to get back to your product and to your users.  Additionally, you need to be very careful that you don't become a shopped plan.  A shopped plan happens when you fundraise too long (usually 8+ weeks).  Investors hear that you've been out for awhile and start to wonder why no one else has bitten.  The lack of fundraising success itself becomes the reason that they won't invest.

All this means, that you should have a definitive 'start' to your fundraising process. And when you hit day one, it should be the beginning of busiest week of your life.   Done right, you'll meet with fabulous people who will all be rooting for your success, regardless of whether they choose to invest.  With awesome planning and a bit of luck, you'll have great options for investors that will be with you for the life of your company and probably your career.  Treat the experience with the respect it demands and do your homework far in advance.

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Some naiveté is an important part of doing a startup.  Startups are fueled on unrealistic dreams and contagious optimism.  The uber-successful entrepreneur always do things that no one thought would work.  Their pure insistence to do things their way becomes a new standard for how things are done.  

And we entrepreneurs know this.  We're so used to people telling us that something won't work that we have developed a little voice that continually tells us 'They just don't get.  I'll prove them wrong."  It's a healthy mindset.

The problem occurs when entrepreneurs take it to an extreme and fail to get any good advice because they want to do everything their way.  When I started my first company, I couldn't figure out how to split equity with my co-founders.  I hadn't read any good blogs and had never done this stuff before.  None of us were full-time yet and none of us had put money into the company.  We all had wavering levels of commitment.  We came up with this insane plan where we would track our time contribution each month and adjust equity dynamically.  We built a spreadsheet, talked through the variables, and mutually agreed that is was fair.  Each month, we would self evaluate our contribution as full-time, partial, or limited.  New shares would be authorized each month to take into account the varied work performed.

It was just insane.  We were being idiots.  

What would an investor have said if they had seen this insanity?  Eventually, we switched over to a normal equity split with vesting schedule according to standard docs, but it was a pain in the ass to convert over and involved some awkward talks amongst the co-founders.

What was really telling about our equity spreadsheet insanity was that no one told us that there much better solutions available.  We didn't have anyone to ask.

I think about that first equity spreadsheet whenever I talk to an entrepreneur with some dumb ideas about how to run their start-up.  As a rule, I never give product advice because I know for a fact that I'm horrible about predicting the future of industries.  As readers of my blog know, I give very strong opinions about process though.  There are many parts of the start-up process that don't need significant innovation.  An entrepreneur's education is to learn all these conventions that work well and then innovate on their product. One of the wonderful parts of our Hacker News community is that we're educating each other on all these conventions that work.

In addition to being a good reader of great blogs and books, you need a great group of advisors. Many people have covered the value of having an advisory board to help you with introductions, investor credibility, insight into an industry.  I'm not addressing that here.  

My recommendation is to find a 'Start-up Advisor'--someone that will advise you on the tactical and strategic parts of running your start-up.   At Openvote, we had some incredible senior advisors at the point that I came up with our idiotic equity plan.  However, they were either too senior to ask them about day-to-day execution details or too industry-focused to know how to help with start-up matters.

Do you have a great Start-up Advisor that is helping you paddle through the currents?

Attributes of great Start-up Advisors:

Only a few steps further down the path

A great Start-up Advisor gives advice that is undoubtedly relevant.  A entrepreneur that is several steps in front of you will still remember the challenges you are facing.   They can warn you about issues that aren't yet on your horizon.  My best Startup Advisors often seem to use the phrase, "then what's going to happen is..."  because they're tuned into your exact stage of development. Be careful with respected BigCo experts that are trying to be Startup Advisors.  Despite good intentions, their Google/Facebook/Amazon/Salesforce perspective may be wrong for start-ups at your stage.

Happy to help with the small challenges

You'll have big strategic questions with your startup.  Hopefully, all your advisors will help you with these big ticket items.  Meanwhile, you'll have a thousand small executional issues that will all be important in some small way and all cost you time to figure out.  How do I set-up an office?  What's an 83b?  Should we develop our iPhone app internally?  How do I write a terms of service?  A great start-up advisor will help you make good decisions on all these small items.  The aggregate of getting all this small stuff done right upfront is what becomes executional excellence.  

Willing to call you out on idiotic stuff

There are times when you're just wrong -- When you prevent getting good advice because you're in stealth mode.  When you dream up crazy equity vesting plans.  When you go way past your minimum viable product without launching.  A great Startup Advisor will give you advice with enough authority, credibility, and directness that you see the error of your ways and adjust without wasting too much time.

Is respected by your co-founders

A great Startup Advisor can break deadlocks or prevent them from even happening. Co-founder relationships take so much work to maintain, especially during the trough of sorrow, that it's relieving to have someone that can quasi-over rule everyone.  When a Startup Advisor weighs in on a dispute, small or large, that's one time when no one needs to win or lose the argument.

Cares about you more than your startup

My best Start-up Advisor on both of my last companies is a childhood friend who has always been a few years ahead of me in start-up land.  He's a great friend first and a start-up mentor second.  When other advisors lost interest because we had failed to find product-market fit and it wasn't as fun anymore, he was always there with support and guidance. Absolutely invaluable.  By the way, Paul Graham and Jessica Livingston are this way.  They support their YC entrepreneurs first and the startup second.  

One of the great parts about being in the Y Combinator community is that we all serve as Startup Advisors to each other.  It's an incredible advantage. If you don't have easy access to great Startup Advisors like the YC alumni network, you need to find one anyways.  Until you do, you'll be making small idiotic decisions, never knowing that you're slowing digging your own grave.

As always, if there's anything I personally can do to be helpful to you, please do let me know.

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Well shit.

I'm not sure what happened with that post on the silliness of stealth startups.  Man, it sure took off.  200,000 page views, 800 Tweets, and still going.  I spent the week talking to dozens of entrepreneurs about their startups, answering Facebook and LinkedIn requests, chatting with people on Twitter.  Love it!

And then...the New York Times calls!  As my roomate would say, THAT'S HUGE!

I'm just getting around to posting about this now.  Check it out.  It's a nice write-up of the blog post.

New York Times, 2/21/2011:  Got a Great Idea? Tell Everyone!

 The author also added a nice quote from our interview that I keep meaning to write an entire blog post around:

"There’s one piece of advice that Mr. Freedman ignored, even though he heard it a lot from some wise, experienced people — that his idea wouldn’t work. Instead, he followed the wisdom offered decades ago by Arthur C. Clarke, the science fiction writer: “When a distinguished but elderly scientist states that something is possible, he is almost certainly right; when he states that something is impossible, he is probably wrong.”

Thanks David for the write-up.  And thanks to everyone who spread the love.  Much appreciated.

This is the easiest lesson.  Your ability to create a product is far more important than your ability to think up a product.  This is a hard lesson if you're not the one that will do the building, because it means that your contribution is not as valuable as you thought.

The adage is that if you have a good idea, there are 5 other people already doing it.  If you have a great idea, there are 15 other people already doing it.  One of the reasons you're foolishly in stealth mode is probably because you haven't done enough market research to realize that people are already working on this.

3.) Totally unique ideas generally don't make it

If you have a 100% totally unique idea, you're either too far ahead of the market or you've picked a market so small that no one cares.  Either way, you're in for trouble.

4.) The most likely cause of failure is your incompetence, not losing to the competition

Start-ups are really hard on so many levels.  The likelihood that you execute beautifully but then lose out to someone that stole your idea is so incredibly low, you shouldn't think about it.  The likelihood that you build a product that missed the mark, is an almost certainty.  Optimize around the problems most likely to shut you down.  Paul Graham always told us to focus on the one enemy that matters: the back button.

5.) You desperately need real feedback

Perhaps the biggest reason not to be in stealth is that you're robbing yourself of great feedback.  Most companies miss the mark on the first product.  The great companies learn quickly and iterate.  Skipping the learning part by being secretive just reduces the time you'll have to iterate before running out of money.

6.) First mover advantage is just silliness

The obit has been written on first mover advantage.  It rarely helps.  Facebook wasn't the first to social networking, Google wasn't the first to search, YouTube wasn't the first to video, yada yada.  First mover advantage was a flawed theory that helped pre-product internet companies raise billions of dollars in the 90s.

I could go on, but this is a fool's errand.  If you're reading this and don't agree, you're probably just not ready to do a startup and all the rationalizing in the world won't help.  Of course, it's incredibly pompous of me to make that judgement, and I do hope you prove me wrong.  I understand that you have your reasons and that there are certainly valid exceptions that my rash over-generalizations are not capturing.  

Stanford–GSB

Just my humble opinion...

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Over the last year, I've seen many Y Combinator companies raise funds.  YC companies are able to raise money faster than most companies, including those that have more progress to show.  While the YC name attached to a company definitely helps, there is more going on here.  YC companies get valuable advice from Paul Graham and the YC network of alumni.  Through feedback and iteration, they learn how to play the venture fundraising game.