• February 1, 2023

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Old news: most start-ups fail. So how does one reduce the chances of failure? There are 10 steps which focus on reality, but ultimately reduce to one: follow the money.

The 10 Step Program

How can you avoid start-up pain, suffering and death? Here are ten steps:

  1. First, rid yourself of start-up myths. While it’s obviously exciting to pursue one’s dreams, dreams should be brutally tempered with reality. Think about what’s possible, not likely, but possible. Manage your expectations, the expectations of your team and especially your investors. Grand slams mostly occur in movies. Unicorns are near impossible to find.
  2. You must understand the technology world you’re entering and the market your solution will address. Really, you must understand technology trends and consumer and business markets – and what your competitors are doing. Why the emphasis on domain understanding? Because I’ve encountered way too many entrepreneurs and PEVC Managing Directors who know next to nothing about the technology in which they invest other people’s money. Many of them would say they don’t need to know anything about technology – I know, because they’ve said so publicly – but trust me they need to know a lot more than they do. Otherwise, they’re just market players, which is fine until the market music stops. What do the people in your orbit really understand? It’s good to know.
  3. Watch out for entrepreneurial pitch men and women who are nothing more than pitch men and women. I’ve seen too many of them in action and, frankly, I often feel like I need a shower after they present. Everyone knows that success is often influenced by how connected, glib and attractive entrepreneurs are – not by what they know about the technology or market they want to enter (and maybe invent). I know, you may be thinking, nothing new here. But never forget that human beings are endlessly intrigued by, and interested in, what’s considered “attractive.” Style and substance are equally important regardless of how “attractive” style may be. In spite of how many showers you take, make sure you know the difference.
  4. Innovators, entrepreneurs and investors need to understand the whole start/build/exit process – which is usually twisted by players with conflicting agendas. As you build and grow your company, pay attention to business basics, organize your team as matrixed project managers, and make sure you let the world know you exist with every digital tool in the box. Learn about alternative valuation methods and models. Learn about deal terms and by all means take some time with your Operating Agreement (OA) and encourage your investors to do the same. Don’t plant landmines in your OA designed to kill investors who ask perfectly reasonable business questions about the state of your (and their) start-up. Don’t take money from friends, family or “dumb” Angels unless you’re prepared for the relationships to end.
  5. Be transparent: never hide things from your team, your investors or your customers. Keep your “necessary evils” – VCs, lawyers and investment bankers – at arms-length, but manage them carefully. (Which is of course a conundrum.) They see you as cash cows, nothing more, nothing less. Learn the basics of finance, accounting, digital marketing and the analytics around your performance. There’s no substitute for knowledge.
  6. Know when you’re good, bad and dying. When you’re good, proceed cautiously. When you’re bad, correct quickly and decisively. When you’re dying, accept it gracefully and do whatever you can to ease the pain of your team, your investors and your customers – the stakeholders who took the journey with you, a journey that ended badly. It happens a lot. In fact, it happens most of the time. Your personal and professional reputation will be defined by how you handle failure (as much as how you handle success). Handle failure well since it’s where you’ll likely end up. If you handle failure poorly, it will live with you forever. Dream of success but plan for less.
  7. Along the way, you need to carry a big mirror to assess who you really are, what you actually know, how you’re perceived and how you organize and manage your start-up. Look at it often and invite some objective professionals – not sycophants – to tell you what they see.
  8. You need to be objective about your team. I guarantee some of them are weak (or worse). Do you know who they are? Do you have a Consigliere? Will members of the team tell you when you’re screwing up? If you don’t have any truth-to-power folks around you, you better find some to help you scrub the team.
  9. Remember there’s a limit to what you can control. Financial markets crash, key people leave, investors grow weary and government policy is uncertain, to put it mildly. These and other events cannot be controlled. So, focus on what you and your team can control or at least influence.
  10. Finally, there’s one principle that’s undeniable. It’s the one you should apply to your entire start-up life: follow the money.

A Point of View

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Obviously, this 10-step program describes a point of view. I’m sure you could find entrepreneurs, private equity venture capitalists, lawyers and investment bankers who believe they exist to create lots of jobs, that they’re the champions of innovation and entrepreneurialism in the world, that without them critical products and services would never get to market, and that they’re the real engines of the digital economy. Some of them really believe these things as they move from one reality distortion field to another. VCs win even when their investors don’t. Venture attorneys fund their vacation homes with fees from start-up (and wind-down) transactions. Investment bankers sell valuable assets – or dump worthless ones – for generous fees. No, my friends, this is – and always was – about money.

The perspective is simple: technology innovation and entrepreneurialism are paths to wealth, just as oil, land, and brick-and-mortar retail were paths to wealth in previous economies. But since the paths are mined, you must understand minefields. If you don’t, you will explode – unless you get extraordinarily lucky and become a one- or two-hit wonder. But – as they say – luck is not a strategy.

Digital success is hard, but most of the most valuable companies in the world are technology companies. So opportunity knocks. But once again and always, just follow the money.

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