I talk to a lot of entrepreneurs in my daily travels. This can take the form of informal guidance, formal advisory/board roles, writing a check as an angel investor or plugging-in operationally in a ‘permanent’ interim capacity.
Those who know me will tell you that beyond the pattern recognition that comes from doing seven start-ups, part of the goodness that I bring to the table is a clear, intellectually honest perspective that is actionable. While I may not always be right, at least I am not confused. ;-)
So, with that as a precursor, let me share some 'Essential Truths for Early-Stage Entrepreneurs.'
Execution, Not Ideas, Are What Matter
First and foremost is the truism that ideas are cheap. Trust that no matter how inspired and brilliant your idea is that another entrepreneur is within striking distance of essentially the same idea or addressing the same customer need via a different approach.
This should keep you focused on defining and documenting milestones and metrics that formally prove out the core assertions of your business or customer proposition. Always strive to know what has to go right for you to succeed and in what order, and track your progress methodically and diligently.
Second, many entrepreneurs confuse the big picture with the little picture. Specifically, they confuse macro industry trends and abstract customer pain points with there being an indelible need for your specific offering.
This is a by-product of confusing vision and strategy with tactical execution. This confusion can lead you to think that you are farther down the road than you really are, inasmuch as it sidesteps difficult questions of whether you have the technical know how to deliver your product or service, whether you have documented a clear product plan, built a working prototype, codified a financial plan, tested the water with prospective customers and the like.
90% of the entrepreneurs that I speak to fall prey to this one, and the body blow is palpable when I have to calibrate for them where they are actually at in terms of progress (i.e., pretty close to the starting line).
Third, an explicit part of your early stage planning should be to minimize the number of milestones you need to answer the above questions, as this has the effect of compacting the timeline and dollars needed to mitigate some piece of the risk equation, and success is all about risk mitigation.
The 1.0/3.0 Paradox
An essential truth here is that you cannot be all things to all people, especially when you roll out the first version of your product.
I call this truism ‘The 1.0/3.0 Paradox’ and it goes like this. Every start-up is born of their 3.0 vision of what their business looks like when their products are mature, their business is generating positive cash flow and they have fully penetrated the marketplace.
Unfortunately, start-ups can only initially deliver 1.0 functionality, and customers have repeatedly proven that they buy exclusively based on their 1.0 needs (relative to your actual 1.0 deliverables).
Thus, many a company dies because they fail to thread this particular needle. No less paradoxical, he who wins the customer at the 1.0 stage of the market is usually ‘good enough’ to not get dislodged in 2.0 and by then, it is game over for the competition so the paradox is solving a 1.0 problem that gets you into the game to become legacy in 2.0 while you execute on your 3.0 ambitions.
Fund Raising Realities
Similar to the above truths, you need to understand how investors think and their motivations. Save for your friends and family, investors invest to make money and preserve capital. Period.
It seems obvious, but many an entrepreneur forgets this essential truth, and the related truth that investors gravitate between fear and greed.
The more they have to speculate about the technical or market risk associated with your venture, the more they are going to default to fear mode, and pass on investing in your business.
By contrast, the more you can show how you have addressed and checked off the individual risk items relative to your stated business objectives, the more likely greed will prevail, and you will get a check.
I should caveat the above with the following. Many would-be entrepreneurs see comparable stage financings occurring based on less tangible goodness (from the just-funded start-up), and wonder, “What’s the Magic Key?”
The truth of the matter is that often the magic key is pedigree. Investors are much more likely to write a check in the early stage to back someone who has played a key role at another successful start-up or at a gorilla company, like Google.
‘Been there, done that’ is a form of risk mitigation, and a reasonable form at that.
If you don’t have pedigree, don’t bemoan it but do counter that essential truth by focusing on proprietary advantages, or more fundamentally, ‘proof’ in the form of having something built, and securing customer or partner traction.
When to Start Selling
Finally, when is the right time to start testing the water with users, customers, partners, etc?
Many entrepreneurs struggle with this one, fearing a wasted first impression and/or a fear of having their idea stolen.
Two comments here. One, in general you can not get out of the fishbowl quickly enough so long as you are not confusing having a PowerPoint with having a product.
The reason is simple. Often, what you think is the ‘dog’ (of your product) turns out to be the ‘tail,’ and vice versa, and the only way to discover this is by vetting your solution with customers.
(The efficacy of this point is even more so in the consumer realm since consumers are a notoriously fickle bunch, making watching what they DO infinitely more important than listening to what they SAY.)
Also, not all customers are created equal so you always have the option of targeting ‘B’ and ‘C’ caliber prospects while you are perfecting your product and your pitch, and saving your outreach to the ‘A’ list once you have worked out the bugs with the B/C list.
Take heart. Many a successful start-up turned tail early in the life of their venture to great success simply by virtue of being out their with a real product or prototype and actually listening and adjusting to the needs of the market.
Early stage is a scary, but exhilarating, place. There are plenty of different ways to thread the needle but some essential truths that you need to keep front and center.
Are there other truths that come to mind?
Related Links:
- "Strategic" vs. "Win-able": Early customers and The 1.0 /3.0 Paradox.
- Metrics of Success: You can't improve what you don't measure.
- Start in the Middle: Methodology for solving complex use cases.
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