I have been at Amazon for a couple of years now. Probably a couple of years longer than most (including me!) would imagine.
But for someone who considers himself a member, and student, of the entrepreneurial landscape and ecosystem, there is no where else on the planet where I can see so many companies from the smallest startup to the largest enterprises up close.
I have spent significant time trying to understand the core building blocks of a successful startup, and more importantly where the critical moments where someone like me can add actual value (seriously, “added value” might be the most overused phrase in Startup Land. Second only to “smart money”) exist.
Here is what I learned. We are all doing it wrong.
Three of the most common myths that entrepreneurs hear that can be so detrimental to the future success of the company are:
If you can raise it, take it. There is no such thing as too much money.
Sam Altman wrote about this recently specifically calling out the practice of raising money too often or too early. One of the most interesting things about Y Combinator is their wealth of data via their portfolio (3200+ founders, 1470+ companies, total valuation $100B+, 50+ companies worth more than $100mm).
David Cohen of Techstars which has an expansive global footprint, with more than 1,000 companies who have raised more than $3B collectively, 100+ companies exit, and 25 programs around the world, often talks about the speed of effort in building a company and the “slow burn” of fundraising, where raising money is more about reducing distraction than a milestone.
This is also important when setting valuations (and why convertible notes can be dangerous over time). Yes, getting a high valuation can look good in Techcrunch, but it make future financings difficult. Think of it this way. Raising $2 million on a $10 million pre-money valuation means that you will most likely target a $15mm to $30mm pre-money on your next raise (of between $5— $10m). Or raise $2 million on $6 million and only need to target a $10 to $20mm Series A/B. Align expectations with future realities.
The ability to “right raise” vs “fund raise” often is the difference between a founder making actual money in a positive outcome vs. being yet-another Fake Exit Founder.
Everything should be geared towards milestones.
Yes. But.
Milestones are, by definition, moments in time. They are the mile markers on the marathon of company building.
Milestones as they are currently defined are not actionable.
Founder: “We hit our milestone of 1,000,000 users!”
Me: “Great! Now what are you going to do?”
Founder: …
Stat-based milestones look pretty in presentations, but fail to be “actual value,” if they do not direct your strategy.
What if, instead of moments of achievement, milestones were moments of leverage. Moments when the company was best positioned to increase its value? (renegotiate a contract, hire a new head of sales, raise money, acquire a company, sell, etc.)
Milestones should not mark moments in time or achievements. They should be calls to action.
Just because you are a founder, doesn’t mean you have to be CEO.
So often, we come up with an idea, maybe convince a few folks to help build a prototype, see some early success and decide it should be a company. We raise money, we hire people and all of a sudden we have a 20 person company, and a gig as CEO.
What the hell happened? We just wanted to build something that solved a consistent, common problem. We never got an MBA, because why would I ever do that? And now we are responsible for internal reporting, culture creation, hiring/firing, the bank account, and…and…and…and, everything but building the product.
The biggest mistake founders make is that CEO = control. It doesn’t. Neither does the title of founder.
Want real control of the company? Own enough voting equity to disallow the board from blocking your vision and decisions. For example, if you have a small amount of voting equity and want to sell the company, the board can block that transaction if the larger voting blocks decide it is a bad decision.
Being CEO doesn’t matter. Focus on voting ownership. What about your team? Will they only listen to the CEO? Your team will follow a leader. Where that leadership comes from is really dependent on the leadership team. There are plenty of examples of internal leadership driven by someone other than the CEO, even when the CEO is the face of the organization.
Why do so many founders fail at understanding the importance of voting and control? While governance issues can be complicated and complex, the more common reason is often a founder is afraid to ask for fear of looking uniformed or stupid in front of their investors.
Running a successful company is a mix of luck and skill. The biggest mistake most startup founders make is to buy into the tropes that are often pushed around company development. Focus on what you do well, find better people to do what you don’t.
How do you not fall into startup tropes?
- Ask questions.
- Listen to your gut.
- Define a culture based on HOW not WHO.