And why so many would-be billionaires fail to get past GO

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A long time ago, when I was starting out as a tech entrepreneur, I had lunch with a venture capitalist who would subsequently invest in my first startup. Halfway through our meal two men appeared at the table and the VC apologized to me, telling me that he’d granted the two a few minutes to deliver a pitch.

The pair proceeded to outline their idea, somewhat incoherently, and the VC asked who else was on the core team. The two explained that they were the core team and that they’d hire everyone else after they received funding. The VC thanked them for the pitch and they departed. Then he looked at me and said, “We get thousands of ideas every year and most people don’t seem to understand that it’s not about the idea, it’s all about the execution. Those two don’t have a team, don’t have any idea what kind of talent they’d need, and frankly they haven’t thought through their go-to-market strategy at all.”

Since that long-ago lunch I’ve seen literally dozens of wannabe entrepreneurs who’ve all made the same mistake. They think they have A Great Idea and the rest is trivial. Sometimes these folk are deep techies, focused entirely on some obscure technical issue they personally are obsessed with but which is either without value to 99.9% of the tech market or, alternatively, impossible to deliver without spending a billion dollars over the next twenty years. Most other times these folk come from outside the tech world; they’re dentists or real estate developers or some other type of professional who’s been able to set aside a few tens of thousands of dollars with which they imagine they’ll build the next InstaChat or FaceSpace.

This means they approach the problem from precisely the wrong direction: “I’ve got $X so I can afford to pay someone $Y per hour for three months so I’ll ask for someone who can do everything I need at $Y per hour so I can get it all done with the cash I’ve set aside.”

As the would-be entrepreneur has no technical knowledge aside from being able to tap and swipe the pre-installed apps on their phone, they start off looking for talent that can turn their (usually rather undefined) dream into a multi-billion-dollar reality. And this is what they invariably ask for:

Programmer wanted to design and build amazing new smartphone app that combines Amazon with Facebook with Whatsapp with Tinder. Must define and code all essential features and also create marketing and sales strategy, secure first 100 million users, and walk my dog three times per day. Must be self-starter who can handle the big picture while taking detailed instructions from the CEO (me). Willing to pay $15 per hour.

Not surprisingly, none of these would-be billionaires ever gets further than resentfully burning through their savings account.

Here’s what a real founding team looks like: there is at least one person who possesses the knowledge and experience required for their role. Whoever owns the “big picture” has sufficient intimate knowledge of the target market that they can define very clearly the MVP the market needs. They also need to understand the economics, so it’s clear what the marketing and sales strategies must be. It’s no good thinking you’ll build an Oracle-style thousand-strong sales force if you’re selling an app that downloads for $0.99 per year. The “big picture” person is usually but not always the founding CEO.

The technical lead ideally needs to have been there and done that before, so they too have the big picture: what the development team will have to look like, who’ll handle DevOps and support, how testing and deployment will be managed, and so on.

The marketing person needs an equally deep understanding of the market as does the product visionary, and the salesperson needs to have experience driving adoption via the model that is economically viable for the product and market segment in question.

None of these people come cheap and all will require significant stock options. Ideally many if not most of these folk will have worked together before and thus won’t blow up midway through the project due to “personal difficulties.”

Securing this kind of qualified team requires capital, so unless the wannabe-billionaire can either stump up a few million directly or knows how to raise additional capital from legitimate sources, there’s no point dreaming of that private island in the Pacific. While it’s true that startups cost much less than was the case twenty years ago, thanks to cloud services and also the fact that most startups are merely doing trivial smartphone apps, it’s nevertheless also true that the cash required to go from vague idea to successful product will inevitably be far more than any dentist or real-estate developer can put aside into their rainy-day fund.

Sure, we can always cite the one-in-ten-million case where someone got lucky. Zuckerberg is perhaps the pre-eminent example of this as he had nearly no talent, no technical depth, and no market understanding. But for every Zuckerberg there are literally hundreds of thousands of people who’ve burned through their savings in order to self-fund their “can’t fail” idea that has, inevitably, failed absolutely.

Failure came because these wannabe entrepreneurs didn’t understand the first thing about building a company. They thought that it was all about them. “Hey, it’s my idea and my money, right?”

They never understood that it takes a team to create anything, and the team has to have both talent and upside. After all, good people have plenty of opportunities; why should they work for someone who’s got totally unrealistic expectations, pays basement wages, and expects to keep all the gain for himself?

Even properly structured, talent-rich, and well-funded startups fail most of the time. The VC hit-rate is abysmal. So it’s easy to see that if even the most plausible candidates fail, it’s a guaranteed certainty that a duct-taped mishmash will absolutely fail one hundred percent of the time.

The lesson is simple: if you believe you have a “great idea” then the very first thing you do is to contemplate whether or not it will be possible for you to assemble all the minimum necessary ingredients: market knowledge, talent, and capital.

Regarding capital you need to talk to people who’ve been down this road so you get a realistic idea of what will be required. You absolutely cannot start out from a budget-driven perspective. You need to understand what the job will take, and then create the budget that arises from the talent and time and resources you’ll need in order to get the job done. Startup budgets are always bottoms-up, never top-down. Always.

You have to accept that if you can do all of these things you’ll still most likely fail. And you have to accept that in the very unlikely event you get lucky and succeed, you’ll own a fraction of the company. Because that’s how it works.

If you can’t get past any one of these things then please, please, save everyone from wasted time and disappointment. Spend that rainy-day fund on a boat or a new car. Take a vacation somewhere exotic. But don’t place an ad for a programmer-marketing-genius-sales-leader-animator-designer-fundraiser-dog-walker that you’re willing to pay $15 an hour to turn your vague dream into a private island in the Pacific.

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