By: Randy Komisar and Jantoon Reigersman
50 MINUTE AUDIO / 7,000 WORDS (28 PAGES)
For the 50 minute audio version join Plus
Are you interested in adopting a “startup mindset” in your corporate role? By understanding the approaches that Silicon Valley’s veterans have used to build and grow their companies, you can apply them for yourself, whatever your position. As you learn the ways that entrepreneurs successfully navigate topics such as finding the right investors, managing the board of directors, and pursuing liquidity, you too can glean valuable insights. Why is having two business plans a smart idea? How can you gain the most value from top talent without hiring full time? What does a healthy team dynamic look like, and how can a manager achieve it? Straight Talk for Startups details these tactics, and we show how they can be applied to your life and your role, whatever that may be.
“But entrepreneurship is more than mere invention; it is the best practice for creating market value from innovation, with limited resources.”
This book details 100 rules meant as guidance for aspiring entrepreneurs who’d like to bring their startups from conception to cash, outlined by two Silicon Valley and venture-capital veterans. However, it is also a helpful resource for anyone interested in shaking up their mindsets and methods at work. By applying these concepts to their day to day, anyone can learn how to innovatively create value with limited resources.
The 100 rules are categorized into five categories: 1. Mastering the Fundamentals, 2. Selecting Investors, 3. Fundraising, 4. Managing Boards, and 5. Achieving Liquidity. Of the 100 rules, we found 25 that are also applicable for those outside the world of startups and venture capital. Each rule is summarized here, and if it can be easily applied to other professional contexts, we’ll lay out the corresponding tactic as well.
Mastering the Fundamentals
1. Starting a venture has never been easier; succeeding has never been harder.
It’s easier to start a venture today because investment dollars are plentiful. This makes it harder to succeed, however, because these increased funds bring more competitors to the market and breeds less loyal employees.
2. Try to act normal.
Functioning as a successful entrepreneur takes a large dose of irrationality to believe that you and your company will survive and thrive in a hostile environment. If you have that in you, it’s best not to appear too wacky to potential investors, so try to act normal.
3. Aim for an order-of-magnitude improvement
Your business shouldn’t just be slightly better or a little bit different than an existing product or service. Instead, it should be at least ten times better, or better yet, a one-hundred fold improvement on the current offering.
The tactic for Rule #3
This rule is meant to evoke common sense in those who have become just a little too attached to their idea or invention. From a consumer’s perspective, it’s not hard to understand the logic of something needing to be A LOT better than an existing product to get a consumer to change. But, when it’s our “baby” that we’ve worked hard to develop, it’s much easier to fall into the trap of believing everyone else will love it too. Though a marketer who’s spent hours creating a landing page might expect visitors to read every word, there are technologies that show that most people just land, scroll to the bottom, and leave. But, it’s hard to be this realistic about our own work. That’s why marketing testing to ensure that customers perceive an order-of-magnitude improvement is important.
Apply this rule in your current role by thinking about the realistic hurdles you must surpass when launching something new, whether that be new workflows for your team, a new product offering, a department re-organization, or something else. Will this change bring about a marginal improvement? Twice as better? Ten times? By shooting for a least a ten-times improvement, you won’t waste valuable time, energy, and resources chasing something that is only slightly likely to be a success. And, get someone you trust to validate your perceptions of the opportunity.
4. Start small, but be ambitious.
Yes, the master plan for your venture should envision the ways your company will achieve market dominance. But, it’s crucial to “stage” your success, proving out the foundational business assumptions before moving on to the next step.
The tactic for Rule #4
“Even entrepreneurs fortunate enough to command the resources necessary to chase the big idea directly need to pace themselves, testing fundamental assumptions and removing risk methodically.”
When launching any new go-to-market strategy or approach, rather than begin with all pistons firing, think critically to identify the series of assumptions you are making about your market, product or service. What needs to be true to ensure your success? Then, set up your activities logically to prove out these assumptions in the correct order. This can significantly decrease the risk over time and ensure the most effective use of capital.
5. Most failures result from poor execution, not unsuccessful innovation.
Many aspiring entrepreneurs do indeed have an incredible innovative idea, but most fail to realize that bringing a product to market is an effort that requires more skill in execution rather than invention.
The tactic for Rule #5
“The creative process is essentially an execution process, not a eureka moment.”
There are six stages of growth. First, a compelling idea is conceived. Second, the required technology behind the product is developed. Third, the product is tangibly realized through the success of the technology. Fourth, demand for the product in the market is verified. Fifth, the financials of the product are proven to be profitable. Sixth, the business expands and scales. This can be a helpful framework for anyone bringing a new product to market in their particular industry or responsible for analyzing product performance. By organizing work in this sequence, it makes for the most efficient use of resources. Time and money exploring new markets is not spent before there is a clear demonstration that the technology is sound.
This rule can also be applied as a “filter” for understanding why a particular product may be performing poorly, working backwards from step 6. Is the product adequately supported in its growth, or does it lack the capital and distribution networks to maximize its potential? How do the unit economics (the cost to produce the good versus its sale price) look? If that is healthy, what does the market look like? Is it crowded, with competitors closing in? By analyzing each step individually, it’s possible to drill deeper into what may be hindering growth.
6. The best ideas originate with founders who are users.
It’s difficult to understand the precise needs and desires of customers unless you are one yourself.
7. Don’t scale your technology until it works.
It’s easy to charge forward with the assumption that the supporting technology will be built. But that’s dangerous – prove the technology before scaling.
8. Manage with maniacal focus.
To really get something right, it’s not a team effort but rather a single person with a laser focus on what’s important.
The tactic for Rule #8
“There is no democracy in product development”
It is not enough to set a plan into motion and allow a team of good-natured and well-meaning individuals to execute it. If you are the owner (of an initiative, a process, an event, etc.) assume that no one else will care as deeply as you do about the details. If you want to create something as beautiful and functional as Steve Job’s PowerBook (or the equivalent level of success in your organization), then you must be prepared to “manage with maniacal focus” to ensure that what you are developing meets the standards you’ve envisioned.
9. Target fast-growing, dynamic markets.
A common mistake is to pursue large markets. Yes, there is likely a lot of money there, but they are also probably quite crowded and competitive. Instead, shift focus to small, high-margin markets where you can become a leader.
The tactic for Rule #9
“Focus on becoming the leader within a market segment poised for fast growth, and expand from there.”
This tactic can be applied to your own personal career trajectory. It may be tempting to “join the pack” and align yourself with a specific business unit, practice, or function that is large, well-resourced, and provides reasonable career stability. However, the upside may be limited and the competition fierce to become a superstar in that particular area, littering your path to promotion with unnecessary hurdles. Instead, consider establishing relationships and pursuing a path that is more specialized, with fewer slots for your peers to move alongside you. Just as an entrepreneur focuses on the most streamlined path to success, so too can this approach put you on the fast track to a more senior role professionally.
10. Never hire the second best.
If you bring on sub-par talent, especially early on, those sins will multiply as those weaker performers in turn hire even weaker employees down the road.
The tactic for Rule #10
“It is said that A players are confident enough to identify and hire A players, while B players hire C players.”
The logic is clear here for anyone working in an organizational environment. This is especially important if you are building a new team. Instead of focusing on filling roles, concentrate on obtaining the highest quality talent possible. Early employees contribute greatly to the culture of an organization, as their preferences in hiring will become exponentially effective, as their hires bring on similar-minded staff, and so on.
11. Conduct your hiring interviews as if you were an airline pilot.
Rather than having a loose “behavioral”-style conversation, ensure a rigorous approach is in place for interviews. We all fall prey into thinking we are better at sizing people up than we really are.
The tactic for Rule #11
“Having many conversations with candidates is wise, but a hodgepodge of random opinions and inconsistent filtering mechanisms won’t serve the organization well.”
The rush to quickly find someone to fill a hole in your organization can lead to an interview process that lacks rigor and is subject to personal biases. This is true whether you work in a 100-year-old company or are making your first hire. That’s why it’s important to systematize the process. Just as airlines realized that airplane accidents were happening due to “overlooking routine precautions,” so too can hiring managers and interviewers create a checklist to avoid these accidents.
12. A part-time game changer is preferable to a full-time seat filler.
Just because someone isn’t available to come work for you full-time doesn’t mean you should give up on them. That person might be available on a part-time basis and still add incredible value.
The tactic for Rule #12
“The game changers are those people who can single-handedly reduce your white-hot risks.”
The best talent are those people who can create extraordinary impact with very little direction, time, or resources. These people are effective because of who they are and how they operate, not because of a formal role or title. Accordingly, if you find someone who could be a “game-changer” for your organization, it’s a no-brainer to get that person involved in any way possible. A part-time role could be a perfect fit. They may need or want to stay heavily involved in other commitments. Even if you only have them for a handful of hours a week, this may be enough to achieve what you need.
13. Manage your team like a jazz band.
The best team dynamic is one where players are individual stars who can perform spectacularly as soloists, but also harmonize beautifully with the rest of the group. This will maximize creativity and collaboration and minimize management and administration.
The tactic for Rule #13
“With its emphasis on individual virtuosity, improvisation, and dynamism, a jazz ensemble depends on every member’s ability to embrace risk…”
When considering the dynamic of a team, compare it to a jazz band. In a jazz band, there is no clear “boss” responsible for holding everyone accountable for playing each note accurately. Instead, the expectation is that each member will listen, collaborate, and support one another, “pulling their own weight as individuals while taking cues from the other members about new opportunities to contribute.” This sets the conditions such that team members feel they can take healthy risks and exercise creativity freely without sanction. Consider this not just for permanent hiring decisions, but also for short-term groups like committees or task forces.
Of utmost importance here is management style. The best group of individuals will not flourish together unless the “leader” sets the conditions accurately. “The leader…is responsible for establishing a coherent strategy and set of priorities while empowering each member of the team…” Rather than dictators or micro-managers, ensure that your own working style and that of your managers is in line with that of a “jazz band leader.”
14. Instead of a free lunch, provide meaningful work.
Creating a positive environment where individuals can chase personal and collective success by developing to the best of their abilities is far superior to adding on costly perks like free lunches. Plus, if the going gets tough and those perks go away, it does horrible things for morale.
The tactic for Rule #14
“The people you want will trade free lunches for meaningful work and career growth…”
It will become a self-defeating practice to lure people into working with you or your organization through selling a cushy lifestyle or excellent perks. When assembling a team of existing employees or finding your next hire, be frank about the benefits of the work, but keep your ears open for those who seem more interested in the peripheral benefits rather than the work itself.
Likewise, when you yourself are job-searching or considering new opportunities at work, be laser-focused on what’s most important. How will this experience contribute to your growth and development? Will it expand your network and breadth of knowledge? Will it open new opportunities in the future that would otherwise be closed? A free lunch only lasts for as long as it takes to get hungry again. Meaningful work on your resumé is permanent.
15. Teams of professionals with a common mission make the most attractive investments.
Successful entrepreneurs are not one-man or one-woman shows. To exude legitimacy, it’s crucial to have a strong, cohesive team of professionals on your side.
The tactic for Rule #15
“It’s a red flag when you show up with a B team or with no one at all, suggesting that you are either too ignorant or too arrogant to realize you need more professionals on board.”
Avoiding over-hiring or over-compensating those you hire is important, but even more important is ensuring that whatever your position, you surround yourself with complementary and competent individuals. Don’t shy away from what you struggle with, but instead embrace it head on. If you are weak on writing or e-mail communication, ensure your junior associate or executive assistant can cover you in that arena. If you aren’t great with numbers, work with people who excel in that regard and ride their wave, while using your strengths to bolster the team as well. Doing anything else is “ignorant” or “arrogant.” While operating leanly is key, don’t skimp on hiring those who can do the job and make you and the whole organization look better.
16. Use your financials to tell your story.
When in doubt, analyze the numbers. Rather than just a list of facts and figures, the financials can be used to understand and illustrate countless facets of the organization.
17. Create two business plans: an execution plan and an aspirational plan.
To remain focused on running the day-to-day of your business, you must have an execution plan that will take you from point A to point B. However, when setting the larger vision and looking into the future, keep an aspirational plan in your back pocket.
The tactic for Rule #17
“This is not a fantasy plan, but rather one that, if some favorable events beyond your control come to pass, you can accomplish with hard work and diligent execution.”
Rule #17 can be applied in several different ways. First, in personal career planning, consider taking this approach to setting goals. Make two plans. Your execution plan should include ways to succeed and grow your career in your current position, regardless of your desire to remain in your current company or job for an extended period of time. It should detail the objectives and specific actions you will take in your current situation to expand your skill set, experiences, or network and set yourself up for success in the future. Your aspirational plan, however, is where you get to dream. If you want to switch industries, go back to school, or start your own firm, this is where you lay out the roadmap to take you there. Having two plans ensures that you don’t get stuck in the trap of 1) thinking your current job has nothing valuable to offer, or 2) that your dreams are just dreams, with no chance of becoming achievable.
18. Know your financial numbers and their interdependencies by heart.
In business, the different financial spokes (e.g., income statement, cash flow statement) are all intertwined with one another. Understanding how they all fit together can be the key to course-correcting a crucial issue.
19. Net income is an opinion, but cash flow is a fact.
What your income statement says you’ve made and the cash on hand can be different because of the timing lag to receive payment for the product or service you’ve provided. When vendors need to be paid sooner than your customers pay you, this can leave a business seriously strapped for cash, so beware.
20. Unit economics tell you whether you have a business.
Whether or not you make money on an individual sale is the crux of your success. Growing your customer base for the sake of growth while not making money on the sales is a recipe for disaster.
The tactic for Rule #20
“Bleeding capital on every sale is no joke.”
With so many meetings, metrics, demands, and distractions in the workplace, it can be easy to lose sight of what will ensure sustainability of your organization. Yes, crisp marketing is important. Yes, your net promoter score is key. And of course, employee satisfaction and morale are crucial indicators of organizational health. However, none of these items alone will ensure that your business will be around tomorrow. Instead, ask yourself whether an individual sale of your product or service is making money for your company. If not, perhaps it is time to adjust organizational priorities. Whatever your position or level of seniority, focusing on unit economics can be a powerful way to add value.
21. Manage working capital as if it were your only source of funds.
Some ventures can grow through freeing up their own existing cash by moving products more quickly out the door. If possible, pursue this route towards growth, as it’s the most cost effective and efficient.
22. Exercise the strictest financial discipline.
Focus on extracting the most value out of every penny you receive or earn.
23. Always be frugal.
Similarly, make it a part of your company culture to meticulously review all spending.
The tactic for Rule #23
“Every contract…should be reviewed, sharpened, and challenged, and each party should be held accountable for the work.”
Keep your team on their toes by showing you will watch how money is spent. This is especially important when dealing with outside contractors or consultants. As the speed of work accelerates, don’t let your agreements get away from you. It’s tempting to sign a contract and have faith that the work will be done to your specifications and that the expenses will be allotted as agreed. If you do this, you’ll expose yourself to being taken advantage of along the way. Spend frugally, and ensure you and your team get your money’s worth with each dollar spent. If needed, delegate this oversight to a competent subordinate.
24. To get where you are going, you need to know where you are going.
Employ measurement as a powerful tool for driving organizational and individual behavior and performance.
25. Measurement comes with pitfalls.
Keep your metrics and measurements loose until you know they will drive the results you are looking for.
The tactic for Rule #25
“Key performance indicators…that are too rigid can effectively become a straitjacket for your venture.”
Metrics and other means of determining whether you’ve been successful should only become standard and regimented after it’s been proven that you’re marching down the right path. Because metrics incentivize people to accelerate down a specific avenue, it’s extremely important that there is collective agreement that you’ve picked the right ones. When working with your team or other colleagues to set objectives and metrics, first establish them temporarily to prove out whether you’re on the right path. Play around with a variety of metrics and analyze the types of behaviors they promote and discourage. And don’t rush to lay any in stone too quickly.
26. Operational setbacks require swift and deep cutbacks.
At the first sign of financial difficulty, do not hesitate to reduce staffing or other spending to stabilize your company. Not making these decisions quickly or as extensively as needed will be a steep regret.
27. Save surprises for birthdays, not for your stakeholders.
Do not save bad news for big meetings or share it in groups. As soon as unfortunate information comes to your attention, share it in one-on-one meetings or phone calls so you can gauge reactions and get input on how to respond from each individual.
28. Strategic pivots offer silver linings.
When leadership identifies that a shift in strategy needs to happen and plans accordingly, it is usually appreciated rather than criticized. Rather than spiral into panic mode, realize that this is merely another problem-solving exercise.
Selecting the Right Investors
29. Don’t accept money from strangers.
Easy cash is just what it sounds like – too good to be true. Be wary of people who are too quick to offer funding. Instead, appreciate that investors will be your business partners, and treat them as such, with the according due diligence.
30. Incubators are good for finding investors, not for developing businesses.
Incubators can primarily hone your skills in pitching your startup and connecting you with funders. You’ll need to come in with your value proposition and business plan largely fully formed.
31. Avoid venture capital unless you absolutely need it.
Understand that venture capital firms repay their funders by ensuring the investments become liquid at some point. If you accept venture capital, be sure this aligns with your priorities for your business.
32. If you choose venture capital, pick the right type of investor.
Know that there are different types of venture capital firms, and don’t waste your time pursuing those that are not a good fit for you.
33. Conduct detailed due diligence on your investors.
Get to know your investors as people, and be sure to ask questions – lots of them. Talk to as many people as possible who have partnered with them in the past, in both failed and successful relationships.
34. Personal wealth does not equal good investing.
There are many people who have lots of money but without the experience or skills to help you grow your business. Avoid those types of investors.
35. Choose investors who think like operators.
Your investors should not only be good at investing, but also have the track record of being an operator. There is significant risk that your priorities will not align if not.