There’s a lot of misconception about the startup world and about being an entrepreneur. One of the very worst pieces of advice is “do what you love!”
This sounds marvelous. Do what you love and life will give you a gold star and perhaps even some glitter-glue as well.
Except of course it’s complete nonsense.
The problem with reality is that it doesn’t adjust itself to sound-bites and simple-minded nostrums. Reality is a hard, stubborn, intractable beast that reliably ignores human beliefs and human follies.
There are still people out there who strap feather wings onto their arms and try to fly and guess what? Reality doesn’t care about their crackpot ideas of why this really should work. Reality ensures these folk fail every single time and always will. Birds fly because they have massive pectoral muscles anchored to a massive backbone. They have hollow bones to reduce their mass. They have a whole host of other flight-related adaptations. Humans have none of these things and even if strapping feathered wings to your arms is what you love most, you’re still going to fail.
I’m what people used to call a serial entrepreneur. I’ve started five venture-backed companies over the years, raising capital on the back of solid business plans that clearly showed how to exploit certain market opportunities and get from loss to profit without requiring an Uber-scale injection of enough capital to run most developing nations for a decade.
And yet these five companies were a tiny fraction of the many ideas I’ve had in my life. These five companies weren’t focused on me, on “doing what I love,” but they were focused on tangible definable measurable market opportunities that could turn investor dollars into strong investor returns.
Even if I hadn’t needed to raise investment capital I’d still have applied the same process and headed in the same direction. I don’t have wealthy parents or a trust fund so I need to earn enough money to keep myself and my family afloat. My criteria are, at smaller scale, precisely the same criteria as applied by investors.
If you are fortunate enough to be living off a trust fund or have wealthy parents who will ensure you always have a place to live and food on the table then be my guest: go ahead and play at life, do whatever it is you love, and then say a quiet “thank you” for the fact you’re bankrolled by someone else and thus don’t have to care about any other aspect of reality.
For the rest of us, however, a hard and unrelenting focus on reality is essential.
So why did five of my ideas make the cut and get funded, whereas the hundreds of other ideas I’ve had were consigned to the trash bin?
Here’s what I know from watching and helping dozens of other people try to start companies, distilled down into a short Medium piece and therefore necessarily skipping over a lot of details.
Rule One: Ignore what everyone else is doing. It doesn’t matter if all your friends are having mini-orgasms over blockchain. History shows us that most people are wrong most of the time. It’s unlikely that this fundamental consequence of the tiny human brain will be re-written any time soon.
Moreover, if everyone else is doing it then there’s no market. I remember back in the mid-1980s when received wisdom was that every VC fund needed a database company in its portfolio. Result: lots of database companies burning venture cash but a market that only wanted and needed a small fraction of what was on offer.
Same thing with object request brokers, ADSL hardware, PKI companies, social media websites, and phone apps. VCs are no smarter than anyone else and will reliably over-invest in Trendy Segment du Jour, thus ensuring poor returns for nearly everyone pouring cash into that segment. So be smart: go where everyone else isn’t.
Ignoring the latest trend will likely make it more difficult for you to raise capital because all the “smart money” is busy being stupid, but it also means that your startup (if you can get it off the ground) is far more likely to be a big success in the end, rather than simply one of hundreds burning up venture cash and then failing because of an over-saturated market.
Rule Two: Focus on unserved need. It doesn’t matter how shiny or clever your product idea is. Unless there are lots of people who really truly need it because nothing else will help them as much, and unless a significant fraction of those folk also have the money and willingness to spend it, you don’t have a business.
Sure, there are much-hyped examples of serendipity where someone creates something no one seemed to want and suddenly the entire universe was buying it for $999 a pop, but in reality almost all these examples are spurious. And besides, do you really truly want to gamble money and time and effort on the hope that magic will happen? Far better to understand your target market deeply (you’ve prior experience, you know plenty of people in the segment, you understand the commitment dynamics, etc.) and then engineer your business plan to leverage this knowledge.
Rule Three: Keep it simple. There will be a boat-load of friction standing between your pristine idea and success. The more you can engineer friction out of your plan, the more you will be able to cope with the inevitable friction real life will throw into the works. Conversely if you have a plan that has built-in friction, you’re basically doomed.
What is friction? Anything that increases your dependency on external factors. Your new product relies on unproven technology, or on unproven adoption patterns, or on a range of partners all working with you seamlessly. There are plenty of examples to choose from. Forget about the idea that if X can benefit from working with you or using your product then they obviously will. Humans are incredibly obtuse most of the time. Just because something makes evident sense doesn’t mean people will do it. Most likely they won’t for a wide variety of small stupid reasons that you won’t be able to overcome. So the more you can control events between you and the market, the less likely you are to be killed by friction.
Rule Four: The numbers have to make sense. Sure, Uber and Tesla and a few other companies have raked in billions from gullible over-eager investors who ought to have known better (but didn’t). Mostly though, stupid ideas don’t get funded. And stupid ideas never succeed in the end. You’re about to commit a significant amount of your total life energy to starting and running a company. Don’t you want to be able to see profit instead of loss one day? To get there, your financial model has to be realistic.
Sure, no one really knows when the revenues will begin to trickle in, nor the real expense composition. Income Statements are merely an exercise to show your investors that you’ve sufficient acumen to build a credible model (which VCs will then undermine by insisting on impossible revenue goals so they can pretend your company will return 100 times the initial investment and then they will beat you up at Board meetings because your company isn’t achieving their impossible numbers…). But there has to be a realistic underpinning to your assumptions about revenues and expenses. If even you can’t make the financial model work without cheating, this is a signal that something about your idea is fundamentally flawed.
Rule Five: I hope you’ve made it this far, because this is the most important rule of all. Focus on go-to-market.
It’s trivial to push electrons around. With enough time, money, and talent you can build almost any software or hardware product. It’s extremely, horribly, bone-crushingly hard to bring a product successfully to market. If you aren’t spending at least 80% of your time and effort thinking about how to go to market with the least possible friction, you’re basically doomed.
Here’s the harsh reality, the reason why doing what you love is terrible advice: no one else cares about your dream.
Influencers and decision-makers in your target segment have a thousand issues cluttering up their minds. They are fearful of anything new and unproven. They are fearful someone will hold them accountable if something goes wrong. They resent your glamour as an entrepreneur and so even if they need your product they’ll refuse to buy it so they can make themselves feel better about being merely a cog in someone else’s machine. They don’t have the budget. They tried something new a few years ago and it failed. They’re in the middle of trying something new right now and they can’t compound the risk by taking yet another step into the unknown.
There is an endless list of reasons people will not buy what you’re trying to sell. You can’t overcome all these objections with clever bullet-points and with reason. You’ll die in a ditch before succeeding.
So you need a go-to-market model that assumes all the problems above and about one hundred and fifty-eight more. Go-to-market is what breaks the vast majority of startup companies. Sure, one company in a million gets lucky and makes it without having a coherent plan but most flounder and ultimately fail. If you want to succeed, you must absolutely be relentless in focusing on go-to-market. Drive out every piece of friction you identify. Work out how to reduce your prospect’s fear of the unknown. Benefit-selling rarely works, because we humans fear loss far more than we desire gain. You’ve got to find a way to create a compelling mindset in your customers. If you can’t do this, you are doomed. It really is that simple.
Don’t tell yourself “my product is so great they’ll just have to buy it.” No one, ever, has to buy anything. Step away from your dream and look at it dispassionately from the outside, from the perspective of a career Vice President whose main goals in life are the avoidance of blame and avoidance of rocking the corporate boat. Look at it from the perspective of someone for whom the answer “no” is a million times easier than saying “yes.”
If, and only if, you can do this and still develop a credible go-to-market plan does your company have a tiny glimmer of hope.
This is why, of all the hundreds of ideas I’ve had in my life, I’ve started only five companies. Whenever I have a new idea I relentlessly stick pins in it, trying to make the shiny bubble pop. I actually want to find reasons why it will fail, because I don’t want to invest time and money and effort on something that has little or no chance of real-world success. I want to spare myself the ignominy and exhaustion I’ve seen in far too many other entrepreneurs. So I look at the shiny new idea from every angle, looking for weaknesses.
If, and only if, I can’t find any obvious flaws do I then move to the next phase, which is conducting in-person market research with relevant people in my target market segment. I always without exception learn important things in this phase. What I learn tells me either that the idea won’t work because of some factor(s) I didn’t previously know about, or that I need to make adjustments to the idea because of some factor(s) I previously didn’t know about. I iterate through this process until either the idea is dead or the idea is shaping up in a credible manner.
By going through the stick-pins-in-it process I’m exerting selection pressure, just like evolution does on every species. Most ideas die and that’s what I want because it means the very few ideas that survive are likely good enough that I can actually build a company around them. By the time I talk to my first potential investor I’ve already reached the stage where everything is clearly defined, each major challenge has a solution, and (ideally) there are people in the target segment who are willing to go on the record to validate the concept and express at least cautious enthusiasm about being an early adopter.
Even after this rigorous series of steps, real life often doesn’t co-operate. Two of my startups were acquired. One was crushed in the 2008 financial crisis. One achieved phenomenal customer adoption but was unable to raise essential expansion capital because institutional investors were busy throwing billions into a more trendy market segment (I clawed something back by licensing the intellectual property to a huge company and thus achieved a return). One was killed by a cabal of greedy investors who thought they could step in and take over the company just after I closed a couple of massive accounts. It’s impossible to control all variables and people reliably do really stupid stuff.
But without being rigorous in your evaluation process, you won’t even get far enough to be hurt by other people’s really stupid stuff. And if you’re fortunate you’ll have smart and ethical investors, you’ll have hired great employees, your customers will hand over hard cash for your product, and one day you can sit on the beach and re-write history to show how inevitable it all was and how smart and stable a genius you always were.
Until then, keep sticking pins in it.