Posts Tagged: entrepreneur

Let your values lead the way

A few weeks ago when Boris wrote about overcoming decision paralysis, I shared a comment that I make important decisions by evaluating my choices based on how they align with my core values. For years now, I have been encouraging nearly everyone that I meet to take some time to reflect on his or her values for this exact purpose (among many others).

People often talk about the importance of leading a value-driven life or business, but what exactly are values? They are at the core of our happiness, the source of our inspiration, and foundation of our close relationships. They serve as our compass and guide our decision-making.  They shape our character both in our personal lives and at work.

The importance of values in building a company

Values don’t just help you overcome decision paralysis. Living and leading with your values, as well as being mindful of the values of others, is helpful on many levels when building a startup. For example:

  • In finding your entrepreneurial purpose.  When you live and work in the Valley, the entrepreneurial spirit is contagious. I often meet engineers who have the drive to be a founder of a company but are stumped about what exactly to build.  In these cases, I encourage them to brainstorm pain points that they have experienced as well as reflect on how solving these problems aligns with what they value.  If you are building a surface solution that doesn’t resonate deeply with or inspire your core being, you will quickly lose your passion to build your startup.

  • In building a product. Many startups today understand the importance of staying lean and creating a minimum viable product (see our list of resources, under “Lean Startup”). But how do you stay focused on the priorities amidst a long list of features you want to implement? One effective method is to think about your users’ values. Create a persona for each user type – outline their demographic information, roles, personalities, and most importantly, their motivations/values.

  • In hiring.  Yes, it’s important to find the right technical talent. But you also need to hire people who are aligned with your company’s values and passions. Otherwise, you’ll be stuck with high turnover rates and hefty recruitment costs as employees choose to leave because of lack of fit.

  • In developing people and culture.  Free meals, gym memberships, etc. are perks, not culture. Great leaders constantly communicate their vision to their team. These leaders know that shared values lead to greater ownership and accountability, and ultimately more creativity and innovation. For instance, PayPal’s president, David Marcus, was criticized last week for chastising employees in an email for refusing to download the company’s app. However, David’s intent was to cultivate PayPal’s culture by strengthening their collective purpose and passion, while encouraging those who are less engaged to “go find something that will connect with [their] heart and mind elsewhere.”

  • In sales / fundraising.  Learn what your customers and investors value and appeal to these values with good storytelling. That’s the best way to make an impact.

Identifying your values

Years ago, while doing my PhD, I was introduced to an exercise designed to identify your core values. This was such a transformative experience that to this day, I continue to recommend it in some capacity to nearly everyone I meet.

To figure out what your personal or your startup’s values are, begin with a long list of values (as an example, see the bottom of this post).  Start by selecting all that you care about, and then narrow them down to 10, then down to 5, and maybe even 3.

My personal values are compassion, continuous learning, and freedom, while my professional values are leadership, positive change and optimization.  Knowing myself in this capacity made the decision to work in venture capital an obvious and right one for fostering my development and growth.

What are your core values?  Did you learn anything new or surprising about yourself in this process?

List of Values

Accountability

Excitement

Peace

Achievement

Fame

Persistence

Adventure

Fairness

Personal Expression

Aesthetics

Family

Play

Affection

Flexibility

Pleasure

Authenticity

Forgiveness

Power

Autonomy

Freedom

Purposefulness

Balance

Friendship

Quality

Beauty

Fun

Reason

Career

Faith

Recognition

Caring

Happiness

Relationship

Challenge

Health

Religion

Change / Variety

Honesty

Resourcefulness

Collaboration

Honor

Respect

Commitment

Humor

Responsibility

Communication

Influence

Safety

Community

Inner Harmony

Security

Competency

Innovation

Self-Worth

Competition

Integrity

Sex

Connectedness

Intellectual Status

Social Justice

Contribution

Justice

Social Status

Cooperation

Knowledge

Spirituality

Courage

Leadership

Stability

Courtesy

Learning

Strength

Creativity

Leisure

Success

Dependability

Location

Support

Dignity

Love

Team

Discipline

Loyalty

Tolerance

Drive

Mental Stability

Trust

Economic Security

Order

Truth

Environment

Organization

Wealth

Excellence

Partnership

Wisdom

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A good story is the key to any pitch

When it comes to putting together your pitch deck and preparing for an investor meeting, there are countless articles and advice you can refer to. For example, we have a list of articles on our Resources page (see under “Pitching”). And one of my favourite blog posts is Tomasz Tunguz’ “7 questions a startup should answer in their fund raising pitch.”

These types of articles do a great job of telling you what to cover, but they don’t necessarily dig into how to deliver your message. And let’s face it. Bullet points alone rarely inspire; it’s the way your pitch flows and how you unveil information that gets your investors and customers excited.

Each day we connect with multiple entrepreneurs. Without a doubt, the ones who stand out are the ones who share a great story. We are more engaged when we hear a narrative of events as opposed to a list of facts, because we immediately decode the words into something meaningful to us.

If storytelling can make or break a conversation, pitch, or demo, how do you make sure you are telling your story in the most compelling way possible? Here are a few tips:

1. Tell your organic story

Fifty start-ups may have a relatively similar business model, so what makes you and your team unique? As investors, we want to hear the back-story: how is it that you came to the idea for your product and startup? For example, were you looking to solve a pain point that you experienced firsthand? That’s a great validation of both the need for your product, as well as your understanding of the space.

In addition, tell us why you and your team will be the ones to solve the problem and transform the industry. Why are you passionate about this space? What do you know that others don’t? And what have you and your team learned along the way of building your startup?

2. Know your audience

Entrepreneurs often tell me that, “Every VC wants us to modify our deck and see different metrics.” That’s true: every investor will have their own focus and interests and a good storyteller knows how to cater the story to their audience.

Do some homework on each investor beforehand to see what makes them tick. I personally like data and one can easily find that out after spending a few minutes on Google or LinkedIn. If you can’t find any details on the investor ahead of time, start the meeting by letting the VC tell you about him or herself. Then, use your improv skills to describe your product in a way that s/he can personally relate with it.  Don’t make the mistake of assuming that the investor has experience with the pain point you are trying to solve.

3. Why, how, and what

There are 3 elements to your story…why, how, and what. “Why” is your motivation and vision. “How” is your plan to achieve the vision (aka, your roadmap). And “What” is the product itself. Great storytellers touch upon all 3 parts. It’s the “Why” part of the story that will inspire investors, teammates, and users, while the “What” grounds us to the reality of the goals at hand.

4. Find the balance between features and pipe dreams

Imagine an idea spectrum where on one end, the story is too small and on the other end, it is too big. You don’t want to paint too narrow of a picture where you’ll be perceived as a collection of features and specs instead of a company. On the other hand, good investors won’t take you seriously if you offer a naïve pipedream instead of a realistic goal.

A good storyteller can strike a balance by illustrating that their current product is an MVP with many opportunities to grow into the overarching vision.

5. Nail your one-sentence pitch

Conciseness is important. By the end of the pitch, investors should be able to describe your business in one sentence. You can accomplish this by crafting one sentence, key message, or tagline and weaving it throughout the presentation.

Be as original as possible. You don’t just want to be the stoppers that plug the holes of a leaky bucket. You want to be a new bucket. In addition, be cautious of using the “We are X for Y/This for That” taglines (i.e. “AirBnB for Boats”), since it’s hard for us to get excited about these comparisons. If you haven’t already read it, check out Fred Wilson’s recent blog post about this.

6. Open and close strong

As all good stories go, a pitch needs a strong opening to capture the audience’s attention right out of the gate. Come out with a lot of energy in the first few seconds. Most importantly, you’ll want a strong closing to bring everything around full circle. So much of investing is rooted in intuition. Think carefully about what you want the investor to feel as he or she leaves the meeting. Then, be sure your closing point does everything it can to foster this feeling.

Final thoughts

The perfect pitch doesn’t come naturally to anyone; it’s planned, practiced, and tweaked. Practice telling your story several times in front of different friends and colleagues. See which aspects resonate and where you start to lose their attention. When it comes to adjusting your pitch, use your best judgment: you want to be flexible and open to feedback, without straying too far from your vision.

 

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Growth versus capital efficiency

I often see two entrepreneurs executing on similar opportunities, but with two very different capital efficiencies. First, there’s the aggressive one who spends money very quickly, building a large team, buying early growth through aggressive marketing and sales, and hoping for a large upround in the next financing round. Then, there’s the bootstrapping entrepreneur who hires carefully (sometimes too little, too late), trying to get as much runway with the current money as possible and build a “real” business.

Finding the right balance between investing in growth and focusing on capital efficiency is one of the toughest challenges for entrepreneurs and early-stage start-ups. It can be particularly tricky as investors are usually looking for growth and evaluating start-ups as defined by growth.

Here are a few observations and pieces of advice to help you navigate which spending model is best for your start-up:

1. Don’t invest in marketing and sales until you have found product-market fit:

Marc Andreesen once categorized start-ups as before product-market fit (BPMF) and after product-market fit (APMF). When you are BPMF, you should be doing everything you can to get to product-market fit…whether that’s changing out your people, tweaking the product, moving to a different market. However, there’s no point in spending on marketing and sales at this point; until you’ve found the right product for your market, you’d simply be wasting your money.

2. Revisit product-market fit from time to time:

Don’t assume that what worked in the early days will continue to work for years to come. External changes in the market can impact your product-market fit, as may your own growth path. For example, as a SaaS company scales and targets larger enterprise customers, its initial product-market fit may no longer be as strong.

3. Evaluate your market: is it winner-takes-it-all?

If you’re targeting a winner-takes-it-all (or almost all) market, then focusing on saving money makes no sense. You’d be sacrificing market leadership. Think about it. Nobody remembers Ryze, or Spoke as early LinkedIn competitors. But if you’re operating in e-commerce or other non winner-takes-it-all markets, then you don’t have to be overly aggressive in the early stages. In this case, you can take your time to fine-tune your model before aggressively scaling up.

4. Get your metrics under control:

Putting the “pedal to the metal” makes the most sense if you understand your LTV (lifetime value) per customer and CAC (customer acquisition costs). As you scale, you should also have early warning systems in place to see if your new customers and acquisition channels are performing at least as well as the previous ones (weekly LTV/CAC cohorts are the best measure for this).

Final thoughts

As an investor, nothing is more impressive than meeting an entrepreneur that has built a great business in a short amount of time and with very little money. Being frugal and knowing how to spend money is one of the most important entrepreneurial traits – as long as it doesn’t come at the expense of growth. Jeff Bezos/Amazon is probably the best example where the right balance of frugality and growth is engrained in their DNA.

 

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Don’t listen to most of the advice you are getting

Good Advice

Good Advice (Photo credit: Wikipedia)

Getting good advice is critical for any entrepreneur and fortunately there’s plenty of advice to go around. Unfortunately, not all advice is worth listening to. Angel investor Allen Morgan (@allenmorgan) summed it up in a recent Tweet: “It’s a power law relationship: for entrepreneurs, >90% of the advice worth heeding comes from <10% of the advice givers.”

The reality is that entrepreneurs should not listen to the bulk of advice that comes their way. Yet, good advice from smart people can be an invaluable asset when trying to navigate your most pressing questions, from how many board members to have, to how much money to raise in Series A, or how to build a monetization strategy.

The key to getting advice boils down to knowing how to filter the good from the bad. Here are four simple ways to weed out the 90% of advisors that you should ignore and focus on the best advice for your situation:

1. Stick to your core values

If you don’t have a clear vision for where you are headed as a founder or startup, it’s nearly impossible to evaluate the advice you get. I’ve seen too many people change direction with every new piece of advice they hear. Before you can really take in advice, you need to have a strong sense of your core values. Then, you can weigh each bit of advice within the framework of your own convictions.

For example, the core values of Twitter’s management helped guide them through the monetization question. Countless experts and pundits were pushing them to monetize via relatively obvious examples like paid premium products or CPM ads. Yet, Twitter took the time to come up with a native monetization model that is not only much better for the user experience, but is also more scalable in the long run. Twitter would be a far different experience today had their management team jumped on the first bit of advice they heard.

2. Listen to people who listen

People who give the best advice are good listeners. They try to understand your specific situation first, rather than instantly spouting off their words of wisdom without any context. Turn to people who ask good questions and seem genuinely interested in the particulars of your question or challenge.

Additionally, you should pay close attention to those individuals who refrain from giving you advice at times because they outright admit they aren’t sure or don’t have the right expertise. Such people will be far more trustworthy in future situations than those who dispense advice just for the sake of feeling important.

3. Change/expand advisors as you grow

Someone who gave you great advice last year could well be a trusted resource in the future, however you need to be cognizant that your needs change over time. Most advice givers are helpful in certain phases of the startup lifecycle, but very few are experts in every area or challenge you face.

For example, a mentor who helps you navigate early-stage product questions may not necessarily be the right person to ask about HR issues as your company grows to 100 people. Again, the most trustworthy advisors will let you know right away if they feel a certain situation is out of their realm of expertise.

4. The final decision is always up to you

There is no standard process for making a good decision. In some cases, you may need to talk to ten different people and weigh each option carefully. In other cases, the right direction will hit you instantly. In most, if not all cases, you need to trust your gut.

No matter how many advisors you talk to, the most important lesson to getting good advice is to never forget that you are running the show. Mentors and advisors can help you build your opinions, but they should never make decisions for you. Don’t listen to people who adamantly push for a certain direction as they most likely have their own agenda.

Lastly, remember that there’s no benefit in being able to blame someone else for a poor decision which is why you should never put an advisor in the position to make the final call. You’re running the show, which means final decisions are always up to you.

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If you need to pivot, pivot hard

Managing Business Models

Left or right?

For many startups, there comes a time when it becomes clear that things are not going exactly as you planned. You can read the writing on the wall that you haven’t found a product-market fit, and you’ve run out of ideas on how to get there.

Typically, if you don’t see signs of traction after six to nine months with a SaaS or e-commerce model, it’s time to reassess your market or model (note: a marketplace-based business often requires a longer time table). And if it’s time to pivot, I have one piece of advice: pivot hard.

Too often, I see pivoting startups try to keep too many elements of their original business. This is to be expected. After all, founders invest untold time and energy into building a product and team. It can be downright heartbreaking to feel like you’re throwing it all away.

However, once you’ve decided to pivot, it’s time to forget about your existing business and have laser-like focus on the new opportunity. Don’t let history cloud your thinking about your future business. It’s time to ask yourself the following questions:

1. What opportunities should I be pursuing independent of all the assets (product, customers, teams) already built-up from the current business model? Explore your new opportunity with a fresh set of eyes: if you were starting up today as a new founder, what would you want your new business and business model to be?

2. What should the new product look like independent of what’s already been built? Don’t try to derive a new product based on trying to salvage your current code base. First think about what you need for your new product, then (and only then) look at what code can be reused.

3. What should the future team look like? Consider what roles, skills, personalities, and expertise you’ll need for the new business model. All hiring decisions should be based on the positions you’re trying to fill now, rather than trying to piece together how your current team members can fit into the new venture.

4. What financing do I need to execute on the opportunity? It’s critical to take a realistic look at how much you’ll need for the new opportunity, rather than thinking of what money is available. Underfunded startups can’t and won’t execute and you shouldn’t move forward if you don’t have a plan for sufficient funding and a long enough runway.

Course changes happen all the time and can lead to brilliant things. But when pivoting, you need to completely separate your old and new businesses. Approach your pivot as if it were a completely new startup. Then see which pieces of your current setup (people, product, etc.) can potentially help you accelerate the new opportunity.

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