Top 5 FAQs from 2019 Entrepreneurs
1. Do you think this is a “good” business idea?
What’s interesting, is that the most frequently asked question of “Do you think this is a good business idea?” should never be the question that an entrepreneur focuses on — why? — because historically bad ideas create incredible companies, and good ideas produce lackluster results or disastrous failures.
A better refinement of that same question might be, “Why is this business idea a bad idea?”
By analyzing the inverse, with an honest fine-tooth comb, we can uncover the obvious obstacles that may await us on our path. Moreover, by taking a contrarian view, we can start to see our confirmation bias baked into our initial hunch, and more transparently determine what factors (assumptions) we’ve built our idea house of cards upon in the first place.
Savvy investors always ask themselves “Why this idea, now?” “What tailwinds support this today and tomorrow?”
Too often, entrepreneurs are looking for encouragement that they’re “on the right track”. I get it, the ideation phase is messy — full of wacky ideas, market hunches, mixed user feedback, half-baked prototypes, and varying co-founder opinions that creates an air of uncertainty and doubt as to where to dig for gold.
But, the desire for approval in order to move strengthens the wrong entrepreneurial fiber (the need for validation) and weakens the right one (the desire to act).
What happens if someone agrees with your idea, and then you screw up the execution? Are they to blame? How about if that idea was a great idea — but that’s just the thing — the idea was great. The way in which you managed the game of execution in the coming months to years didn’t produce the anticipated results. So, that’s not the idea’s fault — that’s yours.
A great business idea with bad execution creates a nothing burger, and a so-so business idea with incredible execution often produces good to outstanding results.
Maybe you should be asking your advisor what they think of how you’re executing, not if your idea has wings.
2. Can you intro me to Investors?
I heard this a lot — “So we’re going to be raising a Seed round and would really appreciate it if you can think of any investors we should talk with.”
Most of the founders who asked this question had yet to build a product — they were in the ideation phase. The problem with this phase is that it’s highly unlikely that many VCs will invest in an idea with an unproven founder. There are now Pre-Seed venture firms and investors who will fund ideas with just a sizzling elevator pitch and a gut-check, but for the most part, they need to at least see demonstrated skills and a working prototype with users to peak interest to write a sizable check.
VC’s often categorize themselves by similar markets/domains such as Seed, Venture, Growth, Late Stage, etc and then within that have different divisions that focus on specific verticals such as consumer internet, healthcare, biotech, AI, crypto, etc. For most young founders, they often are building a website (and often mislabel it as a “platform” when in reality it’s not a platform but a marketplace).
Getting back to my point, VCs usually do not proclaim that they handle “Video” startups or “Social Media App” startups — so identifying them is challenging based on their sub-sector focus. So, instead, we might look at what they’ve funded in the past — the problem with that is that the past was what they anticipated being hot in the future, and the future is now, so if your startup falls into the same bucket then what makes them interested to revisit the space again?
It’s true that investors prefer trusted intros from other favorable folks inside the ropes of their networks. This at least provides them with the vail of security and domain authority that helps them validate a meeting.
But the first question you should be asking yourself is, “Why do we need funding in the first place?” “How far can we take this company before we need to do an investor roadshow?”
By delaying a funding cycle until once you’ve established a team, product, and hopefully revenue, you’ll be in a great position to both get investor intros and also convert conversations into checks. Until you do, you’re dreaming of a check before you’ve built much of anything — and that’s the exact opposite of what 95% of investors want to see in the first place. They value action, not hype.
3. How do I find/pick a co-founder?
Dating is hard; finding a great co-founder is like going on 1,000 first dates.
With a sea of people to choose from, where do you discover the Woz to your Jobs? Do you troll Stanford University hoping to strike up a conversation? Do you post up at the local Starbucks and hope to catch the eye of the coder at his laptop? Do you go to a startup meet-up and press your luck on serendipitously finding Mrs. COO Right?
Finding Founder-Startup-Fit is a challenge because we desire someone who falls in love with our idea, wants to support the dream, and is willing to contribute usually a technical or operational skill that we lack in a big way (and without asking for a paycheck anytime soon).
But are Co-founders even worth it?
In many respects yes, but at what point in time? If you find someone too early, do they boo-hoo your big idea and suggest another? If you wait too late, and delay deployment, do you miss the market opportunity?
Does the perfect Co-Founder even exist?
If we pick the wrong person, our startup might be doomed. We’ve all heard horror stories of founder quarrels, break-ups over equity dilution, and even corporate implosion vis-a-vis differing opinions that led to poor execution and ultimately dissolution.
There seems to again be an addiction by entrepreneurs for peer validation of our ideas, “If I find a Co-founder that likes my idea so much that they want to take equity and work on it for a few months, then the idea is worth pursuing. Horay!”
The issue with this is that it further fuels our desire for external validation and congruence in order to sign off on our ability to pursue our own startup ideas. Yes, the journey is long, tiresome and disheartening — and a co-founder can comfort you — but you’ve got to get out on the actual trail before you ask someone to go hike up the mountain with you. For all you know, they might give up on the first plateau.
4. When should I raise money?
Ah, the age ‘ol question – “How do you build a product with no money, but how do you raise money with no product?”
It’s the quintessential chicken or the egg question that leaves founders dumbfounded and in an entrepreneurial conundrum – do they spend 3-12 months trying to raise capital for an idea, or do they spend that time trying to build a product to see if the world wants it?
I favor the latter, but call me old fashioned — if there ain’t no market, you either have none or will have to build one from scratch.
Again, instead of focusing on raising customers, the focus is back to raising capital. I just don’t get the desire for rocket fuel before you know if the engine even starts. Imagine if you never needed to raise any money, and you could never get voted out of your own company, you never had to report to any board member, and you had limitless amount of time and cash to do what you wanted to do with your business? Wouldn’t that be grand?
For many first time founders, the dream is the raise.
VC is a means to an end, not an end to a means. But the culture around the raise has become the ultimate tip of the hat in our approval-driven race for validation. The only approval that truly matters is from customers, but it’s not cool to say you grossed $3m, but a Series-A? #Winning
5. Should I build the product myself or outsource?
I get this question, but it always baffles me as to how many entrepreneurs try to build a company in a space they have no talent in.
If you’re a non-technical person, you’ll clearly either need a technical co-founder or capital to hire technical people. If you’re someone who has no idea how to cook, why would you start a restaurant? Because you enjoy eating? I do too, but that’s like saying, “I love how AirBnB works but I have no ability to build that, but I want to build the next AirBnB for houseboat rentals because I love being on the lake.”
Yes, if you have plenty of money to throw around, there are many developers who will line up to take your money and can build you your dream. But if the success of your idea for a company were as easy as writing a check to an IT dev team in name a country other than where you are today, why hasn’t anyone pursued this same idea and proven a market for it? Is something missing besides the physical development of it?
Often we have a Field of Dreams outlook — “it we build it, they will come” — approach to product design and deployment.
Most founders fail to realize that the equation to startup success looks a lot more like 20% product build, 80% marketing the hell out of it, and 100% more guessing what to do next.
If you’re spending all of your team hemming and hawing on how you should build the darn thing, you’re focusing on the wrong thing! You should be focusing on who the heck is going to pay you for this thing once it’s done? And how can you guarantee that they will?
Looking forward to helping Founders see clearly in 2020!
photo credit: Jon Tyson