Your strategy is wrong. Now commit to it.

Post will be updated. Currently testing.

I tweeted this a few days ago:

And wanted to elaborate a bit:

Decisions

I’m reading “Thinking in bets” these days. Halfway through it it’s a great read.

The best expression I’ve taken from the book is “Resulting”, as in focusing on the results not the decision that lead to the result.

An example to explain: You know there’s 90% probability of rain, so you bring an umbrella. It doesn’t start to rain, and you feel bad about your decision. The decision was correct, but you’re resulting.

These things are all around. Another version of this is survivor bias - excellently illustrated in this xckd (my favorite one actually - I’ve had this printed above my desk for the past few years). Tom Tunguz also writes brilliantly about this.

We all suffer from this to different degrees. But I believe we’ll all make better decisions just by being aware of it. So go read the book.

Repeatability

I’m a big fan of Steve Blank’s definition of what a startup is;

…an organization formed to search for a repeatable and scalable business model.

One thing I find myself talking a lot about lately is the “repeatable” part of the definition, and how important it is. While most founders understand that it’s important to get customers, fewer fully understand the value of multiple customers.

Having multiple customers show that you have figured out how to repeat your sales process. One time is chance, two is coincidence, third time is some proof of repeatability. And it’s proof that you understand what you are doing, and that you can do it again.

Thus, I would much rather invest in a company with 10 customers, each paying $1k, than 1 customer paying $20k (everything else equal). The former is a company that’s learned to repeat something, the latter has not.

This is also why it’s not always a good idea to start up by selling to large corporates (unless you have done such sales successfully before). The sales cycle is longer, meaning you are less likely to prove repeatability before you run out of cash.

Distribution

One thing I discuss with all startups is distribution. I use the term distribution to describe sales and marketing activities – everything related to getting customers. Unfortunately, most companies both suck at it and underestimate how important it is.

Many seem to think that “build it and they will come” is true. Others seem to think it’s a small detail that can be attended to in no time once the product is finished.

Truth is, distribution is really really hard. And it takes a long time to get right. I find that most respect that building (aka tech) is a craft/skill. The same can’t be said for distribution aka sales, even though it’s equally hard if not harder.

You can fix most product problems on your own just by spending enough time. But distribution requires external parties’ consent. It takes practice and time to get it right. 

If you don’t start doing it early chances are you don’t have enough time to get it right. And then your company dies instead. 

Hesitation cost

Test3

This is one of my favorite xckd-comics. Mainly because it relates to a topic I discuss with a lot of the companies we work with.

Most companies end up in situations where they have alternative paths forward, and incomplete data concerning what to do. The natural path forward from there is to explore all alternatives in parallel until you have enough data.

This is not an ideal situation to be in. Obviously, you’re spending time on an alternative you will choose not to pursue sometime in the future. But even worse, most spend too much time “analyzing whether alternative A or B is more efficient”.

Because of this, I argue you should reduce time spent in this situation. The best way to do this is to commit to a decision earlier – when you have less data. Jeff Bezos talks about at making decisions with 70% information, rather than waiting until you have 90% – because getting to 90% takes too much time.

It’s not an easy advice to give, because you are more likely to do mistakes by following it. But the alternative is not moving fast enough to make mistakes at all. Then I’d rather make mistakes and have time to course-correct.

VC signaling

We’re talking about VC signaling in early-stage these days, and I’ve been reading to understand more about how founders should relate to this. Figured I’d share a condensed version of what I’ve found out so far.

First: VC signaling is what happens when you take money from a VC, and they choose not to follow up their investment in later rounds. If they have inside information and choose not to invest more, why should someone on the outside take a bet on you?

If you’re a founder who just raised capital, you’ll be in one of three categories next time you raise money (more in Mark Suster’s brilliant post on this):

  1. Everything sucks. You have failed with your plan, missed all targets. Nobody will invest more in your business, including you. You gave it a shot and it didn’t work out. Nothing matters (including VC signaling).
  2. You’re like Facebook. You’re crushing all milestones; everyone wants to work for you, buy your product, buy your stock. You might have concerns, but not regarding VC signaling.
  3. You’re almost there. You’re doing okay, but not great. With more resources, you’re convinced you will pull it off. This is where most companies are, and where you potentially should be concerned about VC signaling.

Since you should hope for the best but plan for the worst, you should consider VC signaling before deciding who to pitch.

First, consider what the investor’s preferred entry point is? (discussed more by Brad Feld). Some investors do the thorough assessment right away, as they view the seed investment as either the only or the first round of several. If this is the only investment they do (like us), ensure they are consistent with this approach. One exception and every other portfolio company get a bad signal. 

If this is the first of several financing rounds they plan to do, explore whether they need an outside lead in the next round, or if they will take it? If they plan to lead, what milestones do you need to reach in order for this to happen? If they need an outside lead, how do they decide whether or not to follow/take pro-rata?  

Other investors consider seed deals to be options; a foot in the door to get more information – and postpone the real assessment until next time the company fundraises. You should be especially alert when approaching this group, as the risk of signaling is higher. Chris Dixon elaborates

“_when you take any money at all from a big VC in a seed round, you are effectively giving them an option on the next round, even though that option isn’t contractual…Even in the good scenario when the VC does wants to follow on, you are likely to get a lower valuation than you would have had you taken money from other sources of funding_“.

This is because new investors expect existing investors to follow. Jason Lemkin explains; ”_The bigger the brand of the fund, the more important it will be [that they follow]_”. By already being shareholders, brand name VCs have leverage in the following round. You could say that the more tempting is to bring an investor onboard early, the more harmful if said investor doesn’t follow. Which is somewhat counter-intuitive, but true. There’s examples of VCs offering to sell back shares if they don’t follow, but my impression is that’s not the norm.

To mitigate this risk, make sure you discuss potential investors’ seed strategy before taking their money. But further, don’t overthink it too much. Signals exist everywhere, regardless of how you go about fundraising. Going back to Mark Suster’s post, that has a few examples of other signals:

You’re on your second company. A prominent VC funded your first company but isn’t currently investing in this company. Think that’s not a signal? Think again.

Or you’ve never done a startup but your last boss from Google, Facebook or Yahoo! is now a VC. Many are. They didn’t invest in your company? Signal, signal, signal.

OK, so your boss didn’t become a VC. You were a VP at a startup company that sold for $100–200 million making the founder very wealthy. You’re startup raised angel money and is now looking for VC. That founder wasn’t one of your angels. Think that the VCs looking at your deal won’t wonder why? Think they won’t call him? Signal.

In conclusion, signals exist and you should be wary of them when you fundraise. Discuss this with potential investors, and you know what to expect. Then go back to focusing on what you can control, which is the performance our your own company. Do everything you can to become a type 2 company, and you don’t have to worry about signaling whatsoever 🙂

Press

As a startup founder, you will most likely be asked about or try to get press at some point during your company’s life. While it might seem like a good idea to always say yes, I’d argue otherwise. Doing PR/media unintentionally is a distraction.

Number one mistake is doing it because you want customers. You might get a spike in traffic, but nobody has nor will use PR/media as a sustainable customer acquisition channel. There might be exceptions but they are hard to come by. Focus instead on learning to acquire customers sustainably.

Number two mistake is doing it because your investors want you to. They might want to market themselves through you, but more than that they want a return on invested capital. You doing unintentional PR/media most of all show that you are unable to focus on what’s most important for your business.

You should do PR/media because you want to hire. You could call this “employer branding”, and it can be impactful. 

You should do PR/media because you are planning to raise more funding. Investors read, and being in the press might increase the attractiveness of your round (FOMO) and lead to better terms for you.

Some should do PR/media because they perform better with external pressure. Telling the world they exist increases motivation, the work harder not to fail.

Don’t do press unless you know why you’re doing it. 

Triangulation

There’s a lot of advice being given in startup world. Most advisors have good intentions, but that does not mean that most give good advice. 

Everybody wants to be helpful, and when asked a question we all try to answer the best way we can. But many times we do not know enough about the matter in question to give a good answer. And unfortunately, many fail to disclose this potential lack of understanding when answering, sometimes leading to entrepreneurs following bad advice blindly.

One should always assess advice based on the arguments supporting it, rather than the credentials of the person giving it (but sometimes a person’s credentials is a supporting argument in itself). Talk to multiple people, and triangulate to figure out what kind of hypothesis you want to move forward with.

I find myself giving advice to entrepreneurs once in a while, and in such settings, I try to always mention this.

image

Introductions

Wanted to elaborate a bit on this.

I do more and more introductions. It’s a great way to be helpful, but done the wrong way it can do more harm than good. From my perspective, there are two essentials to keep in mind:

1. Always allow for double opt-in
This is elaborated on here. In brief, you want to make sure both sides are okay with being introduced before connecting them. This way you avoid connecting people where one side does not want to follow up, and it also makes both the connector and one receiver look bad. 

2. Send something forwardable. 
This is elaborated on here. In brief, have one side send something that makes it easier for you to ask the other side for the meeting (double opt-in style). Be short and specific about what you do and why you want the meeting. More often than not the receiver is high in demand, so if your forward mail is too long you often end up not getting a reply at all. 

Building premium products

The reMarkable team is shipping their first product days. So far it’s been a great success, with the most pre-orders for any European company ever, and some great reviews. Still lots of risk left, but the way they’ve maneuvered through obstacles since we first invested tells me they’ll manage whatever challenge they face in the future as well.

Their pre-sales campaign is one of many things they really nailed. The most natural thing for an entrepreneur wanting to do pre-sales would be to do a Kickstarter campaign. The infrastructure is there, “all” you have to do is create the content. But the guys at Remarkable were early determined not to do pre-sales that way – Kickstarter was associated with gadgets, not premium products.

So they set up their campaign on their own website. It’s quite easy to integrate payments to any website these days, so technically it was no big deal. By doing it this way, they controlled the full experience. No minimum sales target, and the design/feel was 100% remarkable (pun intended). From the start their product felt more like a premium product.

Their newest product video (top) is truly great, and really speaks to that (premium) fact.