Startup Lessons! Since my Startup Day presentation on VC funding I've gotten more questions about fundraising and building a starup. Here are what I've boiled down to what I'll call my Top 10 Startup Rules. Credit to Madrona Venture Group, TPP, Sequioa Capital, mentors and others who have influenced my thinking along the way:
1. It’s all about the product. The demo is the PowerPoint
If you want to show something to VCs, you'd better have a demo. Invest in sweat equity before you try to ask for real dollars. I realize this rule may not apply if you're a succesful serial entrepreneur or rock-star CEO. Otherwise you have to demo.
2. Being early is the same as being wrong
You have to hit the market at the right time with the right product. Another way of saying this is as follows: make sure the market is ready for you before you scale up you burn rate. This is now called the Lean Startup. How many pivots can you make before you run out of cash? Do your market validation on a very lean budget. Only when you know it's working do you ramp up the team.
3. Fast beats perfect
Get the product to market. Don't overbuild for scale until you know someone is interested in what you're doing. If you have the idea, so do lots of other people. You don't have to be first - think of all the storage startups that failed before Dropbox. But you have to get it out there and innovate.
4. It’s better to sell to a large number of small customers than a small number of large ones
This one I'll admit is a bias. Some people like selling big deals to a few customers. But if you want to grow quickly the best way and keep growing is to find a product that lots of people need around the globe. The Internet is the world's largest distribution system for great ideas. If you have one, you'll find out quickly.
5. Build a product that's inherently viral
Some products like Dropbox (file sharing) and Docusign (online contracts) are inherently viral. Just by using the product, you add more users. Then they add more users. This is the scale effect of social networking that means potentially exponential growth. If you don't have it, work on how to make it part of your offering.
6. Never stop iterating on your business model. Success is a million tiny improvements
I heard this from the CEO of Constant Contact. Particularly in SaaS, you have to resell the user every time they get out their checkbook, and they'd better be happy to do it. There is no rest for the weary in technology.
7. The most important milestone is when you are out of cash
If you don't know when you run out of cash, you need a new CFO. You should know what milestones you need to achieve to get to the next financial milestone. This doesn't mean everyone in the company needs to be thinking about cash all the time; it makes them distracted. However, in a startup there's a risk that big company people don't generally understand: going out of business. Know this and act accordingly.
8. Hire people who know not only what to do, but when to do it
I heard this from a very successful CEO of a startup that grew into a successful public company. If you hiring a branding expert, you'll get branding. If you hire a startup marketer who knows how to put all the parts together to go from a 1-person team to CMO, you're more likely to get the right results at the right time. In a startup, there's little time to learn on the job, so you'll probably get what some has done before. Expect it.
9. Fundraising takes longer than you think
Fundraising windows open and close. Sometimes fundraising is easy and sometimes it's hard. In terms of planning, though, assume the worst. Investors have time on their side. You don't. Also, assume that if you're the CEO, fundraising is going to be a big distraction, but your team has to be able to execute while you're away. While you're fundraising, the strategy and plans you have in place are likely the plans you'll get.
10. Small decisions early have large impact later
This one comes from experience. When Optify was getting started, it was 2008. We bought some nice office furniture from a company that raised a lot of money and went bust. The furniture was a great deal. The problem was, when we grew, we had to buy more - at retail!! The lesson is, small patterns early become an invisible pattern that is very, very tough to change. The first year sets the stage for how you operate for a long time.
Bonus: Know what makes you successful
Know what you want to do well, make it available for sale, and outsource everything else. Amazon does this extremely well. Is your data available through APIs, both internal and external? Are you spending your time on benefit programs, or product plans? For CEOs: if you're running a web company, don't delegate the product. In a web company, the product is the company.
Comments? I'd love to hear what you think.
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