Category Archives: Entrepreneurship

Investor: “I’m interested but I don’t want to lead”

Whenever a potential investor tells me that they are ‘waiting on a lead’, this indicates that they are not capable/confident enough to make an investment right now.

Here’s the dilemma – once you have a lead investor, it will be way way easier to get investors to follow. So these ‘follow-only’ investors who hang around you early in the process are actually not that valuable.

Even though it’s tempting to keep around people that seem like they may want to give you money, I would be extremely wary of these folks. At best, they’re time-wasters. And at worst, they’re trying to earn an ‘option’ to buy your stock at a future date when someone else has taken the first (and biggest) risk on you.

Split them into two groups:

  1. Investors that are money-only: I would play hard-ball with these folks. Their value is limited anyways, so try to pressure them to commit money early, with the implicit (or explicit) understanding that it’s now or never for them to get into this round. Worst-case, you lose a weak investor. Best-case, you close easy money.
  2. Investors that are money + value: If they are truly interested and valuable, keep them on your list at an early part of your investor ‘funnel’. These are people that should get update emails when you convert investor commitments, sign pilots, or get positive press, but not people who you need to spend time meeting and pitching. Prepare to close them quickly once your lead investor signs.

‘Sprint and Follow’ Leadership

“Lead by example.”

This cliché, constantly provided to new entrepreneurs and first-time CEOs, is often terrible advice for the heads of large organizations (or founders of startups that aspire to be large). What entrepreneurs usually gather from this recommendation is that they simply need to work their asses off, and their team will follow them.

This kind of ‘sprint and follow’ leadership works great for short-term objectives and small companies, where the passion and charisma of a leader can will a team to a win. The original ‘sprint and follow’ leaders were Braveheart-style warriors, where the objective was victory in a single battle and the alternative was near-certain death. But on a scale of leadership, these people would be categorized as Level 3 or Level 4 leaders.They achieve significant performance standards from their teams, but find their gains unscalable to larger projects or longer durations.

One of the hardest parts of being a product-oriented CEO is learning to lead the team from the sidelines, instead of trying to make every play themselves. Mark Zuckerberg once famously operated in the latter fashion, continuing to work in the bullpen and driving Facebook’s heads-down, developer-centric culture from the front.

In this structure, motivation is often extrinsic and reinforcement is often negative. Bill Gates, the top product CEO of his generation, spent much of the first five years of his Microsoft career directly leading the technical development, often jumping into action to redo work when his employees did not perform up to his standards (and then openly berating them for the errors).

“At various stages of the company I’ve had to learn new things. In the first five years I didn’t let any line of code get out of the company that I hadn’t reviewed, and most people’s code I didn’t like as well as mine, so I’d mostly just rewrite it.” — Bill Gates, October 13, 2005

Confession time: I am not a Level 5 leader. But I come to work at LabDoor every day focusing on the skills and will necessary to earn that title.

In my early days at LabDoor, and at Avomeen before it, I was a ‘Sprint and Follow’ leader. My key metrics were hours worked and tasks completed. I reviewed every report and sat in every meeting. It was truly painful for me to watch a project get delegated and then completed less-than-perfectly. At Avomeen, if the output on a Scanning Electron Microscope reading looked a little blurry, I’d jump into the seat and spend thirty minutes developing a better image myself. During LabDoor’s time at Rock Health, it was a matter of pride for me to be the last person out the door each night, not just from our company, but amongst the entire accelerator class.

After about 30 straight months of this between the two startups, things started fraying at the seams. I found myself constantly exhausted, permanent bags under my eyes and increasingly losing my battle with the snooze button each morning. My team, which had loyally sprinted with me every step of the way, began to show signs of slowing down as well. We were a powerful force at the edge of our limits. I was building a lean startup in all the wrong ways.

LabDoor has since done a ton of things right. Starting at the top, I’ve trained myself to recognize and highlight my own shortcomings, especially to my own team. It’s given me the courage to ‘quit’ on projects and tasks that weren’t positively impacting our company. My two co-founders owned their departments, and led without being told to lead.

We had fewer team meetings. The press stopped hearing from us. Our perpetual ‘seed round’ quietly closed. And through it all, we had the most productive four months of our company’s existence.

Now, we’re lining up a series of huge milestones ready to launch in rapid fire over the next few months. We’re all working towards the same key metric — the amount of actionable scientific data delivered to our users.

I’m not delegating more or working harder. The real lesson is much, much simpler. I simply acknowledged my numerous weaknesses, eliminated them from my ‘job description’, and focused my one true strength — intense, unbridled passion — towards the stuff that was left. I’m still not a Level 5 leader, but I’m getting closer.

Launching a $1M+ startup for under $10K

Case Study: 10 Storks

The fastest and most effective way to build a business is to start selling. Customer development must precede product development. It doesn’t matter if all of your business processes are manual. And lack of experience is no barrier.

In June 2013, my partner Shoua had just graduated from college and was looking for a ‘real job’. My entrepreneurial sales pitch to her was simple – start a company instead. Worst-case scenario, she earns a ‘real-world MBA’ and increases her job prospects. Best-case, she builds a real business and gets hooked on startup life.

Together, we came up with the idea for 10 Storks, a subscription service that provides a mix of essentials and luxury items for pregnant women. Shoua’s years of nursing and women’s studies education fit perfectly, and after a little startup coaching, she was off talking to potential customers and designing products.

Key objectives:

  1. Go from idea to launch in under two months: You’re not a real startup until you ship product(s). One of the reasons why startup incubators are so successful at launching strong startups is that they have the built-in time pressure of Demo Day focusing founders on building and shipping.
  2. Positive unit economics on launch date: This is basically Business 101, but so many startups, especially those with VC money, completely ignore it. Our initial responsibility was to maximize the customer experience while (barely) breaking even on the product.
  3. Go from launch to a profitable business with $1MM+/year revenues: In all honesty, 10 Storks has the chance to be more small business, not startup. And that’s perfectly fine. Our goal here is to build a real company, one that pays real salaries and makes real profits.

Key limitations:

  1. No real development or design experience: For startups like 10 Storks, distribution is king. And subscription commerce distribution is 90%+ web-based. At a minimum, we needed a professional website with payment processing and the ability to launch and track SEM ads. We had to hack together a low-skill solution.
  2. A CEO with no real entrepreneurial history: Shoua is the kind of person who worked 30+ hours on nights and weekends while managing a full college work-load and making thousands of dollars selling stuff on eBay and Amazon on the side. Her mission is to prove that actions are more important than experience.
  3. Only one FTE: I work 80+ hours/week at my own awesome startup. My time commitment for 10 Storks was limited to ad-hoc ideation, nightly strategy sessions, and a few Sundays worth of amateur ‘web development’. 10 Storks was and will always be Shoua’s baby (no pun intended).

Getting started:

Here’s a very counter-intuitive, but extremely valuable, startup exercise. Sit down with a notebook and start writing down every reason why your new company will fail. Don’t be shy here. No investor or reporter will ever see this piece of paper, so if you sugarcoat anything here, you’re only lying to yourself. Try to hit at least 30 potential risks.

Now, rank-order these challenges, with #1 being the most likely to kill your business. Things like “Bank Account = $0” and “New Customers/Week = 0” should be at the top and “Someone steals my idea” and “Someone sues me” should be near the bottom.

Your job as a startup founder is now to orient your company and product decisions in a way that attacks these biggest risks first. This maximizes your velocity towards building a real business. It will also help you eliminate early monetary sink-holes. Ignore the big investments in scale, like inventory and infrastructure. Variable costs are your friend – money now is worth so much more than money later. And avoid anything that requires lawyers or accountants.

Five lean startup lessons from 10 Storks:

  1. Start saving early. When I launched my first startup in 2010, losing $10,000 would have put me seriously into the red. Now, we’ve built up enough of a personal runway to make a big bet on ourselves. It’s still a relatively large risk on my part, but we’re privileged enough to not have to live on the street if this all goes to zero.
  2. Earn supplemental income. In these calculations, the $10,000 is all for the business. You’ve also got to keep paying for rent and groceries. To help pay our bills during the early days of 10 Storks, we implemented an unusual income source – dog sitting. We have two dogs of our own, so it seemed like a small incremental effort to add a couple more for $30-40/dog/night. One weekend, we took care of a total of six dogs, all male, ranging from 20-80lbs, in our 700 sq. ft. apartment. Our apartment was half startup hub, half dog kennel.
  3. Choose one decision maker. At this early stage, many of the decisions you make will end up being wrong, whether you take 5 minutes, 5 days, or 5 months to make your move.  It’s fine to debate key strategic moves, but an efficient single trigger is essential. In 10 Storks, I deferred all final authority to Shoua.
  4. Favor instant gratification. Put off as many long-term investments as possible. Skip bulk purchasing – the lessons from your first five customers will inevitably change your product offering. A professional ‘Terms Of Service’ and ‘Privacy Policy’? Definitely not part of your minimal viable product.
  5. Do things that don’t scale.  Use your diminutive size to your advantage. Perfectly personalize the customer experience. One day, you’ll tell your salespeople to treat every customer like the most important person in the world. It’s time to live up to that ideal right now, especially since your first customers will truly feel that special.

Results:

10 Storks launched, on schedule, on August 1st, 2013. In June and July, we spent $260 on web development tools and templates1, $400 on operating expenses, $620 on prototype boxes for mom bloggers, and $3,450 for the contents of the initial run of 10 Storks boxes2. We still have over of the money left over to fulfill upcoming orders and start testing our initial marketing strategies.

Between pre-release beta testers and launch-day customers, we sold out our initial boxes by 4:30PM Pacific on August 1st, and tripled our order for box contents that evening. We barely managed to keep up with demand through the traffic, and are back accepting orders now. 10 Storks is on pace to have over 50 paying customers in month one, and we’re targeting 500 new customers over the next 3-6 months.

Past performance is no indicator of future success, but 10 Storks has exceeded every goal and milestone we’ve set for it so far. As for that $1M+ valuation, I have no doubt that Shoua could have investors lining up to blow that number out of the water. For now, she’s continuing to build the company the old-fashioned way, through customer orders.

This post was initially published at Medium.com. Also, buy a 10 Storks box.

Notes:

[1] Some of these costs can obviously be minimized or eliminated based on the capabilities of your team. Our team’s limitations, especially as they relate to my skills and available time commitment, drove a few of these purchases.

[2] There are whole categories purposely missing from our expenses list. For starters, total marketing costs equaled $0. All initial distribution was performed through social media, content, and reviews by mom bloggers. We also spent $0 on rent, salaries, lawyers, etc.

Traction?


“You’re too early for me.”

This classic investor line is a staple on the fundraising trail for early-stage startups. It deserves a place alongside “it’s not you, it’s me” on the pantheon of rejection lines. However, it seems like no investor ever has a straight answer for how much traction they really want to see. Instead, you’ll usually get a long, rambling response including the phrases ‘it’s not an exact science’, ‘we know it when we see it’, and ‘product-market fit’.

Who has the real data? According to AngelList, these are the traction numbers you need to hit to raise a $1MM seed round on their platform (Source):

  1. Enterprise: 1000 seats @ $10/seat/month
  2. Big Enterprise: 2 pilot contracts, some revenue
  3. Social: 100,000+ downloads/signups
  4. Marketplace: $50K revenue/month
  5. E-Commerce: $50K revenue/month

Nowhere close to these metrics? There are two directions to go:

  1. Investors will forgive certain entrepreneurs for lack of early traction. These include founders that previously executed successful exits (especially for the investor herself), founders with unique industry-specific experience, and founders they like.
  2. If you don’t fit into one of the categories above, it’s time to seriously consider downgrading to a smaller round led by friends & family or bootstrap the company until its next big milestone.

Many investors wrote off LabDoor immediately. Real science is super expensive, and there’s no obvious business model. We weren’t the hottest company on TechCrunch, and we didn’t have millions of users. But we stayed extremely focused on our strengths – team, product, and story. The best investors pick for extreme positives, not the lack of negatives. Find those people, and do whatever it takes to add them to your round.

And those investors who labeled you “too early”? Remember their names, and don’t be afraid to tell them that they’re too late when they show up at your Series A.

Surviving the first few months of a startup

Four months into LabDoor, I came home one night especially worn out following another 16+ hour work day. My girlfriend Shoua sat me down and asked me about my day. I said it was fine, and tried to change the subject. She then asked me how it really went. I decided to unravel all the things that were going wrong, from product development problems and troubles validating a business model, to our dwindling cash reserve. As my internal vent broke open and startup issues spilled out, I suddenly stopped in my tracks. Tears were running down Shoua’s face.

That’s when I realized how tough my recent startup journey had been. Shoua had been with me through the entire lifecycle of my last startup, Avomeen. She was used to my long work schedules and knew how much pressure I put on myself to succeed. In LabDoor, I had bitten off an entirely different challenge. We were taking on a $36B industry filled with fakes and frauds, and attempting to fill a regulatory role previously only performed by government agencies with billion-dollar budgets. After months of fighting a strong current, it felt like we were exactly where we started, minus all of our energy.

There are many signs that your startup is taking a toll on you. Are you a 25-year-old with permanent dark circles or bags under your eyes? Experiencing unhealthy weight gain (or stress-induced weight loss, which may be even worse)? When you walk home at night, do you shuffle your feet, too exhausted to even pick up one foot at a time?

Startups are never easy. Here are six key tips to lessen the personal stress on your system:

  1. Remember why you’re here. Any startup founder worth their title knows exactly why they’re here. And it’s not the life-long dream to own the supercar that sat on your wall in your middle-school days. The great majority of startups don’t have an opening bell at the New York Stock Exchange in their future. Instead, focus on the big vision that launched this ship, and the tangible achievements that you can earn along the way. Savor the small wins, and keep your eyes on that audacious goal.
  2. Join an entrepreneur club. It doesn’t matter what form you choose – from a formal startup incubator program to late-night bar crawls – but it’s essential to share your experiences with other crazy startup folks like yourself. It always helps to know you’re not alone. And, if you’re lucky, you may even find a solution to your problems from an entrepreneur who recently tackled the same challenge.
  3. Hit the gym. The first thing that every new startup entrepreneur drops when work gets hard is their health. Don’t think you have time? I guarantee that you will be more productive in 14.5 hours/day of work after hitting the gym than you will with 16 hours/day of sedentary desk time.
  4. Take a day off. I promise your startup will survive 24 hours without your presence. Now whenever I feel like I’m in a serious startup rut, I make a point to stop spinning my wheels, stow away the laptop for a day, archive the unimportant emails, and take a personal day. When I return to work the next day, I can see the ruts, side-step them, and get on with my projects. (Note: This lesson took me until my third startup to figure out. Be smarter than me.)
  5. Regularly vent your pressure. We’ll call this the pressure cooker rule. This one is obvious. Don’t let it all explode.
  6. Loved ones are everything. Whether it’s a parent, sibling, spouse, roommate, or friend, the people who stick with you through these hard times are your true family. Be real with them, and accept their support with open arms. Just try not to make them cry.

Note: This story was initially published on Medium.com.

‘X for Y’

Or: How to create the next ‘X’

One of the most frustrating parts of my early investor pitches for LabDoor was my inability to generate an appropriate ‘X for Y’ comparison. The easiest way to help investors ‘pattern recognize’ and understand the concept and business model of a startup is to connect it to past successes. You’re bound to hear companies pitch ‘Uber for healthcare’, ‘AirBNB for boats’, or ‘Kickstarter for science’ these days. But think back to the launch of the predicate startups. How did Travis Kalanick, Brian Chesky, and Perry Chen first pitch their companies? The same goes for oft-imitated startups like Twilio and Jeff Lawson.

The hidden fact is that these startups faced serious hurdles in their early fundraising process. AirBNB and Twilio both repeatedly faced insolvency in their early attempts to gain traction. Good investors capitalize on a trend and ride the wave to outsized returns. But it takes a visionary investor to predict a new trend in its infancy. There are too few true visionaries in VC offices, just like there’s a limited set of real disruptors leading today’s startups.

The worst way to innovate is to find the last product with a billion-dollar exit and set up shop nearby. A number of startups jumped into the ‘Instagram for Video’ space right around the big Facebook acquisition, raising huge money at unearned valuations. A year later, Viddy and Socialcam were smaller, not bigger. What happened? Two things. First, market conditions change. Instagram definitely wasn’t the first photography app, but it was the best positioned for shifts in social and mobile usage. Second, platforms change. Viddy and Socialcam’s main distribution funnel was shut down by Facebook, which had been the major reason why they rose to prominence in the first place. Third, market leaders change. Facebook, Twitter, and Instagram itself all now have video sharing tools. The copycat applications usually have two fates, either get acquired quickly, or face a slow death at the hands of stronger players.

Founders have to resist the urge to chase incremental efficiency in established industries. It’s worth it to innovate in all aspects of the startup ecosystem, including the business models. Creating a new path certainly isn’t the fastest way to a million dollars, but it’s where most of the billion dollar companies start.

I absolutely expect to see ‘LabDoor for Y’ comparisons spring up in the upcoming decade, especially in industries where LabDoor itself opts not to pursue. It is part of the startup cycle of life. While we will be mildly flattered by this imitation, we will also be preemptively moved to lead this movement away from incremental improvements and rapid exits and towards the creation of long-term value.

An ‘X for Y’ comparison may make it a little simpler to fundraise at the seed-stage, but most entrepreneurs miss the fact that it’s now easier to launch a startup than practically any time in history. The hard part is building it into a real business. Work diligently to innovate in that part of your company. This won’t make you an overnight success, but it will help you avoid becoming a one-hit wonder.

Is entrepreneurship contagious?

This post first appeared on August 2, 2013 at Forbes.com.

What made you an entrepreneur: nature or nurture? Can you really ‘catch’ the entrepreneurial bug?

For me, entrepreneurship was not a conscious decision. I was raised by immigrant parents who highly valued hard work and independence. My father always told me, “Don’t be a doctor or lawyer; work for yourself. Be an entrepreneur.” He ran an analytical chemistry laboratories from the time I was 2 years old, so it was little surprise when I launched my own lab shortly after graduating college. That path led me from technology startups to launching LabDoor, and it has been an amazing journey.

I love my career ‘choice’ and assume that everyone else would love it too. I’m always pitching my friends on new business ideas that I wish would exist. The target of most of these unwanted pitches is my partner Shoua, who usually shrugs them off without much thought.

But this June, Shoua’s eyes lit up when I told her my idea for a startup focused on making life happier and healthier for expectant mothers. She had studied nursing and women’s studies in college, and while she decided against a career as a nurse, she always loved her obstetrics rotation. After a couple of weeks of ideation and strategy sessions, we settled on a model and a name: 10 Storks. From there, Shoua’s passion took over, and she uncovered an entrepreneurial spirit she didn’t know she had. For better or worse, we are now a two-entrepreneur household.

Is entrepreneurship actually contagious? Not everyone is cut out for startup life, but there is clear evidence that startups are great for our communities and the economy. So how can we identify and promote potential entrepreneurs around us?

  1. Track entrepreneurial characteristics. Great entrepreneurs are risk-seeking, mission-driven missiles focused on a singular goal. Degrees mean little to a startup – you’re actually more likely to find a future CEO in the engineering department than the business school. Find people who are creative, flexible, and above all, willing to work hard and delay gratification.
  2. Plant the initial seed. First-time entrepreneurs often cite a lack of ideas as their main impediment to launching a startup. Meanwhile, ask the average serial entrepreneur about startup ideas, and you’ll probably find a journal full of concepts that will never be executed. Real entrepreneurs quickly learn that ideas don’t mean much in a vacuum, and they don’t have the time or energy to execute on multiple visions concurrently. Donate your startup ideas, and watch them spark entrepreneurial excitement elsewhere.
  3. Respect alternative career paths. For years, my dad, brother, and I –all entrepreneurial addicts– tried to convince my mom to join the cult of startups. We pitched her all types of companies, from small salons and boutiques to brands based on her amazing cooking skills. Despite our best intentions, she always told us that she was happiest with her current jobs: part-time work as an accountant and full-time work supporting our family. The world needs doctors and lawyers (and moms!) too.

Nearly every startup founder can trace back his or her entrepreneurial inspiration to an early mentor who motivated them to choose this unconventional career path. So pay it forward. Mentor a friend starting their first business. Inspire a stranger to join your next startup. Support a family member struggling through their early entrepreneurial months. Help spread startup fever to the next generation of great entrepreneurs.

 

It’s cool to stay in school.

“Should I drop out of college to become an entrepreneur?”

My only advice regarding potentially leaving school for a startup: Even the most successful college dropouts (see Zuckerberg, Gates, Dell, et. al) never came into their startup expecting to drop out. They just started building their product, and the amazing scale of the startup forced them out of school. I wouldn’t leave school unless you’re getting forced out of school by an amazing startup opportunity.

Just start building.