I have a hunch that one the key ways to maximize the probability of startup success is periodic and consistent questioning of operating assumptions. For example:
- What are the premises that underlie your vision/mission/strategy/etc.?
- Are these premises still valid?
- How valid are they?
- How will you further validate them?
- Are all underling assumptions fully enumerated?
- Is current thinking on these assumptions in-line with your current vision/strategy/tactics/etc.?
There are a lot of hard problems out there. You can steer yourself in the direction of hard problems that also line up with your desired career path.
I get asked a lot what keeps me motivated, especially from the perspective of a solo founder. I never really had a good answer until now.
This is not a fire engine siren, but just a general notification siren. It is very loud. It goes on for a long time and wakes me up sufficiently that I have trouble falling back to sleep.
This situation is a negative externality -- a situation where someone is negatively affected by something they aren't involved in. The canonical example is air pollution from manufacturing. The pollution causes health effects to people in surrounding areas who probably aren't involved in buying or selling the manufactured goods.
When I'm thinking about investing in a startup, I first tell my wife about it and give her my version of their pitch. If we do invest, I often find myself doing the same type of pitch to other angel investors.
My pitch often feels very different than the company's pitch. In a previous post I encouraged people to distill their pitch down to a compelling story and get rid of everything else. That's what I do.
After another year and half of angel investing, I have a bit more clarity on how I think you should structure your story. You want to address the following questions in this order.
Applications for the next Open Angel Forum in Philadelphia are now open! If you are involved in a startup that is looking for seed funding, please apply (there is no charge to apply or attend if selected):
I get asked a lot by founders which investors might invest in their startups (as I'm sure most investors do).
There are two sides to the answer. The first side is what investors are right for you? I'm not going to cover that side in detail here because it is a big topic and I want to cover the other side, but know that side is just as important. You want people that can help you but also that you really want to work with for many years.
The second side -- which investors will actually invest in you -- depends on your traction. I made the above graphic to illustrate this point.
Traction is of course in the eye of the beholder (and that's one problem with using the word itself). Generally speaking though, the more sustainable growth of engaged users/customers you have, and eventually the more sustainable growth of revenue/earnings you have, the more investors will be willing to invest in you.
The smaller your perceived traction the more you have to focus on investors that would invest in your idea and team. OK, so who is that?
When you're just starting out and have just an idea on a napkin, you're really asking people to invest in your team. There is so much risk in the execution of your idea (which may likely change dramatically) that investors are more making a bet on you personally.
There are currently two groups of investors that regularly invest only in teams:
1) Friends and family; in other words, people that really know you. I'm surprised how little I see founders take friends and family money (including their own money). It actually sends a very positive signal to the next series of investors even if it is a smallish sum of money, say 20K. You had enough conviction to put in your own money and put your reputation on the line with your family.
2) Accelerators. There is one or more in almost every major city now. This relatively new funding source dramatically opened up early money to teams, but you generally can't get too far on it alone.
A third category is also emerging in crowd funding.
After you get your team moving and have started actually building something (but don't have any real traction yet), you open up the investor universe just a little bit further to include investors who really buy into your idea. Who is that? Those are people who generally have deep expertise into what you're trying to disrupt. Look for investors that invested in the same general technology area (e.g. search) or previously sold a company similar to yours.
It is very hard to to convince investors when you have no traction. Your story itself is either going to click or it isn't, and it is much much more likely to click if the investor deeply knows the background to what you're doing already. Think about it. If the investor doesn't have the knowledge to see the obvious disruption that you see then they'll have to educate themselves on all that background knowledge to get to the same point you are.
Once you have some traction, the universe opens up further. But check out the chart -- even with a lot of traction the universe of investors that will actually invest in you is still small.
Investors have investing theses -- these can include a whole host of factors like geography, market size, technology area, valuation, amount invested, ownership requirements, control requirements, etc. When you match your company to these investing theses, most investors get excluded even for companies that have a decent amount of traction.
Luckily the investing theses are pretty well-known. A quick proxy is to look at companies an investor has already invested in; that is, their portfolio. If these seem to match you then you're probably in the right area.
Another way to look at this whole question is risk. When you start out you have a lot of risks in different areas, e.g. team, technical, market, financing, etc.
As you de-risk these areas with actual traction, more investors will want to invest in you simply because the deal is less risky. You also get valuation bumps as a result.
Your friends and family don't need traction to de-risk the team because they already know you. Knowledgeable investors (in your specific area) need less traction to de-risk technical and market risk because they already know your area.
As a corollary, if you're out raising money and people think you're crazy, you don't have enough traction yet to be talking to those people.
The main takeaway is to make sure you are focusing your efforts on raising money from the investors that might actually invest in you.
I find myself recommending virtual personal assistants to people quite frequently (among other services). I personally use Fancy Hands. (No, they did not ask me to write this post.)
I don't think many people I've recommended it to have converted, however. It's a way of life change, and those are hard to make.
"What do use it for?" is the standard question. To answer that question more effectively, here are my last twenty tasks (abridged):
- In-person meeting
- Audio (e.g. phone)
- Video (e.g. Skype)
- Personal email
- Mailing list
- Instant message (e.g. HipChat)
- Text message
- Online task manager (e.g. Asana)
- Public forum (e.g. Github issues)
If you're not growing significantly organically, you have to use a traction channel and either go out and reach people (ads, press, etc.) or set something up so that they are coming to you (SEO, content, etc.). Either way you will have to convert them.
Conversion ratios for viral are awesome. Conversion ratios outside of viral are not.
Startup wisdom holds that startup ideas don't matter too much because execution is everything. That's largely true, though I think markets do matter and the line between markets and ideas can sometimes be unclear. Also there are plenty of edge cases of ideas that do matter (powder-keg ideas, a deeply knowledgeable team that knows how disruption will unfold in 1-3 years, etc.). I'm not exploring these distinctions here though because I find this debate largely irrelevant in practice. Unless you have a track record, you generally need some traction anyway to get funding; and if you don't need funding, just go execute.
Within execution though, there are ideas that matter lurking. It is those ideas I want to unpack a little.
I remember someone asking me six or seven years ago what was next for mobile phones. I said something to the effect of everyone's going to have a smart phone and be able to watch video on it. Prescient? Not usefully. It's like predicting the demise of newspapers in the mid-nineties or long-distance in the early-nineties.
Not using any structured approach for getting traction is one of the most common traction mistakes, and yet there are simply not many traction frameworks out there to help you make sense of the process. In our upcoming Traction Book, Justin and I present the Bullseye Framework for getting traction. It is a simple approach that is meant to act on the following premises:
- In any given growth phase, usually one customer acquisition channel (traction vertical) is largely responsible for really moving the needle for a startup. This is a consequence of the fact that getting traction itself is usually (though not always) a power law problem.
- There are about 20 different traction verticals that we see startups use to get traction. It is hard to predict beforehand exactly which traction vertical will work best for your startup at a given time. You can make educated guesses (and you should!), but it is hard to tell until you start running tests whether a given vertical is the best one for you right now.
- Most startup founders have a significant bias towards (or against) using certain traction verticals, e.g. for ones they're already familiar with and against ones they know little about, find icky or involve a lot of perceived shlep. A corollary of this premise is that there are far too many startups focusing on the same traction verticals and that many potentially promising verticals get overlooked and are therefore under-utilized.
It bothers me when someone tells me about their startup and I ask how it relates to xyz company that did something similar in the past, and they have no idea xyz even existed. It's a negative signal common to first-timers.
I realize there is tremendous value in having a fresh perspective. But in startups there are so many paths to failure. If you are going to be a successful heat seeking missile, it really helps to know what has happened in your space and related spaces.