Today I gave a brief presentation to the team at IT Central Station, as part of their “Lunch and Learn” series. Here’s the deck, configured for stand-alone reading:
The benefits and risks of founding a startup to satisfy a personal need
(This is the second presentation deck I’ve published. The first was The most fatal mistake to avoid as a startup.)
Edited excerpt from If you’re “looking for a developer” you’ve already failed by David Olk:
I’m not telling you to become a professional manufacturer of software. I’m simply saying that learning how to code will be very helpful to the journey because it will:
(i) make you more interesting to the people you want to work with if you can speak their language – literally and figuratively;
(ii) show you’re not just another person who’s smarter than everyone with a big idea, but with no ability to learn, hustle, and execute;
(iii) provide the foundation where you can actually kick start your big idea on your own with your own time, money, and effort;
(iv) help you understand what you are actually asking people to build for you; and
(v) actually provide some relevant friends and colleagues that can ingrain you into the community you are seeking out in the first place – but from a different more appreciated angle.
I’ve personally found that software engineers love it when people try to learn how to code. They are always helpful and nurturing and accepting.
Anyway, learn how to code. It’s fun and not as hard as you’d think at a basic level. There’s so many resources to help now as well. Just check out Codecademy if you don’t even want to leave your house.
(1) Thank you John Gannon, founder of BEMAVEM, for the tip.
(2) Cf. Startup founders need to be learn-it-alls.
Edited excerpt from Why you should continue working on your bad idea by Joel Gascoigne:
Earn the required experience and learning
The chances are that you won’t hit the jackpot first time around. I often call my previous not so successful startup my “required learning” which led me to have more success with Buffer. Learning tends to only happen through doing.
You want to have something you’re doing
It’s very powerful to have something you’re actively working on which is your own, something to drive you. This “something” can be what causes you to reach out to someone, or attend or offer to speak at an event. These kinds of activities create serendipity which can have a huge impact.
Good ideas come through iteration
The startups which are most successful are vastly different today than the initial idea. I think that this is actually the norm rather than the exception.
(1) Joel titled his article “Why you should continue working on your bad idea”. But if you gave the idea a real shot, and now you have a better idea, shouldn’t you switch? So perhaps a better title would have been “Why you should always be working on an idea, even if it’s not yet working”.
(2) Joel’s assertion that good ideas come through iterating is a reason why you shouldn’t pivot too fast.
(3) Re. “Good ideas come through iteration”, cf. The best growth teams maximize the velocity of tests.
Edited excerpt from Peter Fenton, quoted in Sunday Conversation #1: Peter Fenton, Benchmark Capital by Semil Shah:
I think there’s a common trait that I would call ability to learn. My partner, Bob, likes to say, “Be a learn-it-all, not a know-it-all.”
The problem of being a founder, entrepreneur, CEO, your business is changing on you radically every year. So, as you scale from zero to 30 it’s very different at 30 than it is at zero, and then to 300 all over again, and then to 3,000 all over again. So, if you don’t have that curiosity and ability to learn, you can get left behind. The company will grow past your ability to grow with it.
Being a learn-it-all means you have to be very self-effacing around what you do and don’t know, apply critical thinking, and don’t assume that what you’ve been told is right. That trait is a muscle, I think, that you have to continually work on. Sometimes people lose that as they achieve success, and they become know-it-alls and they’re full of advice.
(1) Cf. Gary Burnison’s “learning agility”. Gary thinks you should look for learning agility in every job candidate.
(2) Cf. Adam Bryant’s “passionate curiosity” and “relentless questioning”.
Edited excerpt from Sunday Conversation #1: Peter Fenton, Benchmark Capital by Semil Shah:
I think there’s just a profound, deep, innate motivation. A lot of what happens after the fanfare of starting a company and hiring people is, “Why are we here, what’s the purpose, and why are we doing this?” Great entrepreneurs have a motivation that runs so deep that it feels insatiable, and that is infectious. It lets other people around them have that motivation.
I often ask the question of a company, what’s the purpose, why are you doing this. You’d be amazed at how few entrepreneurs can really answer that question. The great ones can. They have a real sense of the purpose, and it’s usually not about them.
(1) Motivation is strongly related to courage and the ability to persevere — see Every successful entrepreneur has this quality.
(2) Motivation is also similar to passion. See Necessary qualities in founders – Marc Suster’s shortlist.
(3) “Profound, deep, innate motivation” seems more foundational than the qualities listed by Ben Horowitz in Three key traits in a great CEO — and any leader.
Edited except from The Hard Thing About Hard Things by Ben Horowitz:
Marc: Do you know the best thing about startups?
Marc: You only ever experience two emotions: euphoria and terror. And I find that lack of sleep enhances both of them.
(1) Thank you Guy Cohen for the tip.
(2) Guy: “As founder and CEO of Seeking Alpha, do you feel the same way?” Me: “Yes. But because we’ve reached critical mass, it’s more clawing anxiety (about insufficient growth) than terror (about total failure).”
(3) Cf. (i) The psychology of startup founders and (ii) Finally, someone understands: What it’s like to be a CEO.
Excerpted (with edits) from Single Founders or Co-Founders? by Ben Yoskovitz:
As entrepreneurial communities grow all over the world, it’s becoming a lot easier to find other people with similar experiences. A single founder doesn’t have to sit in a room by herself and despair, she can go out for beers with other founders in equally difficult situations and commiserate.
That’s a huge thing. I would encourage more founders to do that and not stay locked up in a dark room alone. Sometimes founders just need to vent, but sometimes they can get constructive advice and input too.
From an interview with Jason Lemkin:
What advice would you offer to startup founders trying to build businesses today?
I’d give you maybe one bit of advice, at least in SaaS: Take your time. First, whatever you do, make sure you get the right team. As we’ve talked about, going it alone is really tough in SaaS. I think it’s impossible. If you’re good but your cofounder isn’t great, take a break and slow down. I know it seems like there’s a lot of competition and the world is moving quickly. But stop, find a better cofounder, build a better team. A great idea, a great beta, even a great MVP cannot fix a suboptimal team. If you have to wait, even if it seems like the market is escaping you, pause anyway, otherwise you’re wasting your life.
The other part is some folks should not do SaaS. There’s no quick wins here. It’s going to be a 7 to 10 year journey. The good news of recurring revenue is it recurs. Once you get to $10 million in ARR, I know you’re going to get to $20 million. It may take a while to get to $100 million, but you’ll get there. It takes a lot of time and energy to speed up the hill. If you’re not willing to commit to 10 years, go try to do an Instagram. Don’t do SaaS.
(1) “Whatever you do, make sure you get the right team.” Cf. The best thing you can do for your team.
(2) “It’s going to be a 7 to 10 year journey.” Cf. How committed are you as a founder? A simple litmus test.
From The Most Difficult Question I Ask Founders by Hunter Walk:
The most difficult question for some founders is “why do you want to spend 10 years of your life working on solving this problem.” Whoa, 10 years? Who said anything about 10 years?
Yeah 10 years is a long time. And that’s the point. Most startups won’t make it 10 years and the question doesn’t necessarily assume the founders will be in the same roles the entire journey. But my bet is the stronger your flinch to the question, the shorter the roadmap you have in your head and the smaller, less urgent, less valuable the problem you’re trying to solve.
(1) Hunter Walk’s question is pure genius. If he asked “Are you doing something valuable, and are you committed to it?”, every entrepreneur would simply answer “Yes, and yes”. Instead, he avoids the pitfall of asking a multiple choice question, in this case a direct question with a yes/no answer. So he probes the value of the problem you’re trying to solve and your commitment indirectly, with an open-ended question: “Why do you want to spend 10 years of your life on this?”
(2) Hunter is a VC; he uses this question to assess the founders of companies he’s considering investing in. The question is equally important for founders to ask themselves.
(3) Cf. Is your company truly disruptive? Try this simple litmus test, and the questions asked by Ben Horowitz for determining whether to sell your company.
From Nick Mehta‘s list of “things I wish I had known“:
You can find lots of blog posts about how to be a CEO:
In fact, in my first company, I came in with the classic enterprise software mindset and early-on tried to focus only on sales. Boy was I wrong.
After massive network outages, almost running out of money, customer support challenges, product scalability issues and marketing struggles (not at the same time!), I realized that SaaS is very unique. The business model depends on all functions working in harmony.
You may have natural skills in one area more than others (e.g., for me, culture and customers). You might be epic at product. You might be rubbish at marketing.
But as a SaaS CEO, you need to be everything-oriented.
(1) This applies to being CEO of any type of startup, not just SaaS companies.
(2) My experience: because you can’t do everything well at once, you have to rotate your focus to whichever aspect of your business needs the most attention.
Excerpted (with edits) from Single Founders or Co-Founders? by Ben Yoskovitz:
Why are 2+ founders (potentially) better? For me it’s about the camaraderie and partnership that emerges when two (or more) people decide to go on such an incredible journey together. And when the going gets tough (and it always does), it’s nice to have someone sitting beside you in the dark who knows exactly how you feel. There’s a comfort in that. A good partnership between co-founders usually means a good division of labor, and things can be a little less overwhelming for each individual. But that co-founder relationship takes constant work to maintain, and it can go sour surprisingly quick.
So what about single founders? Single founders have an advantage in that they don’t need to build consensus with other founders. They don’t need to work on the delicate co-founder relationship, they can just plow ahead. They may need to bring in additional senior talent, often on the technical side (which has its own challenges), but they’re 100% in control. There’s something just simpler about it overall.
So what’s the answer: single founders or co-founders? I don’t see a definitive answer.
(1) Seeking Alpha is a sole founder startup, but I’ve found that my relationships with some key people have developed into co-founder-like relationships, with the camaraderie that Ben Yoskovitz talks about.
(2) Cf. The danger of sole founder startups
From Why Your Startup is More Likely to Succeed if You’re Authentic and Passionate by Marc Suster:
In my Twitter bio, I say I’m “looking to invest in passionate entrepreneurs.” Along with “authenticity”, passion is one of the two key attributes I look for when I meet with companies.
We’ve gotten to the point where after the film The Social Network, and now with our own ironic HBO drama Silicon Valley, one might think starting a company is a bit like the gold rush where riches flow to you with ease.
The reality is quite the opposite. Running a startup is a grind. It wears you down. It’s full of mostly stresses and set backs. It requires absolute dedication, commitment and drive – even when things seem hopeless. When I’ve seen extreme success up close I can tell you it comes with absolute dedication to being number one 24/7 to the point of crowding out nearly everything else in your life.
It’s why being an entrepreneur isn’t for everybody. But if you’re going to try and compete your chances of success are greatly diminished if you aren’t pursuing an authentic passion.
(1) “Before product-market fit, find passion-market fit” — from Passionate founders and product-market fit.
(2) Cf. Every successful entrepreneur has this quality.
From All Great Entrepreneurs Have This by Jeffrey James:
What makes an entrepreneur successful?
Some people believe it’s the ability to innovate. However, many startups are refinements of existing business models or improvements on how everyday products and services are delivered.
How about access to capital? [But] there are plenty of successful startups that survived on the thinnest of shoestrings for their first few years.
Management skill? Give me a break. Entrepreneurs are famously short-tempered and few have the patience to coach employees.
There is one thing and one thing alone that every great entrepreneur absolutely must possess: courage. It takes courage to forego the predictability of a corporate job. It takes courage to sacrifice your nest egg to your startup. It takes courage to take the risk of failure. And it takes courage — lots of it — to hand over the reins when your startup grows beyond your ability to manage it.
From Leaving It All On The Field by Jeff Jordan:
Periodic 360 feedback from the organization
If you ask people for feedback and typically respond to it in a constructive way, then they will typically give it to you. I usually awaited this periodic feedback with a sensation somewhere between dread and abject terror each time it was coming. But done right this feedback was almost always constructive, and it invariably gave me a roadmap for what was working as well as what wasn’t, which led directly to the new skills I needed to develop.
Working with a talented coach that I trusted
If world-class athletes like Tiger Woods utilized swing and strength coaches, why shouldn’t executives who aspired to improve use a management and leadership coach? I ended up using a number of coaches over the years.
Find a mentor or mentor(s)
I eventually made the realization that I wasn’t the first person who had gone through this situation… One of the things that makes Silicon Valley unique is that it’s one of the few places in the world where hyper-growth companies are spawned with fairly high regularity. So over time I developed a few close relationships with people who had “been there, done that” that proved very helpful to me.
(1) Wish it was easier to find a mentor and talented coach outside Silicon Valley.
(2) Thank you Michael Eisenberg for the tip.
From Notes on Leadership by Ben Horowitz:
What makes people want to follow a leader? We [Andreessen Horowitz] look for 3 key traits:
The ability to articulate the vision. Can the leader articulate a vision that’s interesting, dynamic, and compelling? More importantly, can the leader do this when things fall apart? More specifically, when the company gets to a point when it does not make objective financial sense for any employee to continue working there, will the leader be able to articulate a vision that’s compelling enough that the people stay out of curiosity?
The right kind of ambition. Truly great leaders create an environment where the employees feel that the CEO cares much more about the employees than she cares about herself. In this kind of environment, an amazing thing happens: a huge number of the employees believe that it’s their company and behave accordingly.
The ability to achieve the vision. The final leg of our leadership stool is competence, pure and simple. If I buy into the vision and believe that the leader cares about me, do I think she can actually achieve the vision? Will I follow her into the jungle with no map forward or back and trust that she will get me out of there?
From The Five Cognitive Distortions of People Who Get Stuff Done by Michael Dearing:
Personal Exceptionalism. Definition: A macro sense that you are in the top of your cohort, your work is snowflake-special, or that you are destined to have experiences well outside the bounds of “normal”; not to be confused with arrogance or high self-esteem. Benefit: Resilience, stamina, charisma. Deadly risk: Assuming macro-exceptionalism means micro exceptionalism; brittleness.
Dichotemous Thinking. Definition: Being extremely judgmental of people, experiences, things; highly opinionated at the extremes; sees black and white, little grey. Benefit: Achieves excellence frequently. Deadly risk: Perfectionism.
Correct Overgeneralization. Definition: Making universal judgments from limited observations and being right a lot of the time. Benefit: Saves time. Deadly risk: Addiction to instinct and indifference to data.
Blank Canvas Thinking. Definition: Sees own life as a blank canvas, not a paint-by-numbers. Benefit: No sense of coloring outside the lines, creates surprises. Deadly risk: “Ars gratis artis”, failure to launch, failure to scale.
Schumpeterianism. Definition: Sees creative destruction as natural, necessary, and as their vocation. Benefit: Fearlessness, tolerance for destruction and pain. Deadly risk: Heartless ambition, alienation.
Note: Does any VC firm select for these founder characteristics?
From The Psychological Price of Entrepreneurship by Jessica Bruder:
According to researchers, many entrepreneurs share innate character traits that make them more vulnerable to mood swings. “People who are on the energetic, motivated, and creative side are both more likely to be entrepreneurial and more likely to have strong emotional states,” says Freeman. Those states may include depression, despair, hopelessness, worthlessness, loss of motivation, and suicidal thinking.
From While struggling to build companies, some founders also quietly battle depression by Dennis Keohane:
One common theme among the numerous founders and entrepreneurs I spoke to for this piece was the struggle with the aloneness and anxiety that comes with leading a company. ‘It’s such a roller coaster, and you are not able to ride either good or bad. You just yank the excitement out of the whole thing, because you have be steady.”
“The way you have to be able to manage your emotions is not to ride the highs and the lows,” said [CustomMade co-founder Mike] Salguero. “That’s where anxiety comes from,” [CustomMade co-founder Seth] Rosen added. “That’s why you have anxiety and depression. You can’t ride the highs and ride the lows, it’s just too hard.”
(1) Compare to Ben Horowitz’s remarkable description of what it’s like to be a CEO.
(2) I wonder whether as CEOs and managers we underestimate the importance of talking about personal issues.
(3) Thank you Aharon Frazer for the second article tip.
From Naval Ravikant:
Before product-market fit, find passion-market fit.
Building a product is a process, not a discrete action. And the Internet is efficiently arbitraged. Every single simple thing that can be done is being done, or has been done. The lesson of history is that product-market fit is very precise—one wrong tweak or slightly bad timing and you can miss the whole thing.
So the only way you’re likely to find product-market fit is if you’re almost irrationally obsessed with the market and if you’ve been working on it for a long time. Where the journey is the reward. Then, you’re likely to have unique insights (in the details) and consistent execution, through thick and thin, to find fit.
Often, the best companies are ones where the product is an extension of the founder’s personality…
Is passion about obsessing over the details more than anyone else? I’m not sure. Perhaps passion enables you to understand broad needs and opportunities in a way that someone without passion cannot. And that’s why first time entrepreneurs shouldn’t be worried.
From Punit Arora:
A study by researchers in the UK showed that there was no difference between the performance of first-time founders and “serial” entrepreneurs, which was similar to the results from two Norwegian studies that did not find any difference in their behavior or performance. A 2006 study in the U.S. compared performance of novice and serial entrepreneurs and found no evidence for either superior performance by serial entrepreneurs or effects of learning from failure. A very comprehensive 2013 study in the U.S. using data that tracked serial entrepreneurs for up to quarter of a century once again did not find any evidence for persistent learning effects.
Punit suggests that serial entrepreneurs aren’t more successful because they don’t learn from their mistakes. But there’s another possible explanation. Many successful companies are founded by entrepreneurs with passion to solve a real problem of personal interest to them, or where they have domain expertise. That doesn’t lend itself to serial entrepreneurialism.
From What do failed startups have in common? by Erin Griffith:
The top thing failed startups have in common, Hogan says, is that they’re sole founders without a partner. “That is the single biggest indicator of why they got in trouble,” he says, adding that it’s especially common for sole first-time founders to fail.
Scary — Seeking Alpha is a sole founder company. But we’re doing really well; we’ve become the must-read platform for crowdsourced equity research, have a rapidly growing subscription product for investment professionals, and are disrupting the market for real-time financial news. Which makes me wonder what the problem is with sole founders, and how we mitigated that.
From an HBR interview with Prof. Gautam Mukunda:
Mukunda: I was surprised by how unambiguous the data were, but they confirmed what I suspected: If you choose an insider who you know can do the job well, most of the time that person won’t perform any differently from any other top candidate with lots of experience. Such insiders—I call them “filtered leaders”—might be good, but they probably won’t be brilliant. It’s the unfiltered leaders, the outsiders without lots of experience, who perform the very best.
HBR: So should firms always hire outsiders without experience?
Mukunda: No, because those people are also more likely to crash and burn. Though the best leaders—Steve Jobs, Abraham Lincoln—were unfiltered, the things that made them so effective, such as their ability to think differently and not feel beholden to a certain way of doing things, often lead to terrible results. Unfiltered leaders are high risk, high reward. Filtered leaders—like Tim Cook and Neville Chamberlain—have deep knowledge and can be very effective in a stable situation. But they often can’t adapt to extreme, sudden change or are unable to disrupt the status quo, which an outsider feels freer to do.
Jason Lemkin, discussing what it’s like to be a startup founder, says:
You may only be in the office 30, 40, 50 hours a week, whatever. But every moment of every day, of every evening, of every shower, of every run, of every moment stolen with your kids and family — you will be thinking about your start-up. For years and years and years and years.
Yup, that sounds about right (although the formulation is too extreme: Thinking about Seeking Alpha the whole time is something I try to actively resist, particularly when I’m with with my kids and family). A friend calls this “being all-in”.
I wonder whether this characteristic — being all-in — only occurs in founders. I think the best people in Seeking Alpha share it as well.
From What’s The Most Difficult CEO Skill? Managing Your Own Psychology by Ben Horowitz:
If I’m Doing a Good Job, Why Do I Feel So Bad?
Even if you know what you are doing, things go wrong. Things go wrong, because building a multi-faceted human organization to compete and win in a dynamic, highly competitive market turns out to be really hard. If CEOs were graded on a curve, the mean on the test would be 22 out of a 100. This kind of mean can be psychologically challenging for a straight A student. It is particularly challenging, because nobody tells you that the mean is 22.
If you manage a team of 10 people, it’s quite possible to do so with very few mistakes or bad behaviors. If you manage an organization of 1,000 people it is quite impossible. At a certain size, your company will do things that are so bad that you never imagined that you’d be associated with that kind of incompetence. Seeing people fritter away money, waste each other’s time, and do sloppy work can make you feel bad. If you are the CEO, it may well make you sick.
And to rub salt into the wound and make matters worse, it’s your fault.
(1) This is a short excerpt. The full article is remarkable.
(2) As I read it, I kept thinking “Finally, someone understands what it’s like to be a CEO. And maybe this would be helpful for other CEOs and the people who interact with them: VCs, employees, spouses, and partners.”