Breaking Twigs (on the Startup Trail)- Navigating the Entrepreneurial Forest: Actionable Tips for First-Time Founders to Avoid Setbacks and Succeed.
Forest rangers and hikers always leave a trail behind for the people following them by breaking twigs. These twigs provide direction and a path to those who follow in the dense forest. Here is my attempt to “break a few twigs” for those stepping into the entrepreneurial forest so that they do not get lost. This post is for anyone starting out for the first time or who has faced a setback in the past.
As an employee, founder, advisor, and investor, I have been part of several ventures across various stages — Idea, Early, Growth, and Distress. I have succeeded, and I have faced setbacks. All these learnings are first-hand experiences while building products and businesses in the proverbial ‘entrepreneurial forest.’ This post is in an actionable list format (in no order of importance) to help you avoid Type A and B errors.
Some action items are very basic. However, you’ll be surprised how obvious mistakes creep in and cause havoc. Most of these insights are from consumer businesses with equal relevance in a B2B environment.
Before you Jump :( 1 to 2 months activity)
1. Ask the masters — WHAT, WHY, WHO, and WHOM — for permission to enter the entrepreneurial forest. This exercise is a personal decision-making process. No one can answer these questions for you. These questions will help you to get your priorities right. WHAT (business) are you building, and WHY (reason)? WHO is your partner, and for WHOM (customer) are you building this business? Also, check Jeff Bezos’ “regret minimization framework.”
2. Don’t climb the wrong hill. In the game of startups, you gotta know your industry inside and out. Do your research, study the competition, and understand the customer and the evolution of the market. This is crucial in identifying the “right hill” to climb. No excuses; you must know everything about your business. The key to coming up with solid startup ideas? Look for anomalies. Gotta stay ahead of the game.
3. Get a mentor: Want to reach the top? Find a mentor who’s been there. Seek out a successful entrepreneur in your field and location. But make sure they have no stake in your company, no prior investment or supervision ties. That’s key to unbiased and valuable guidance.
4. Complete your Business Plan Exercise. Prepare your thesis of one to two pages. Speak to your mentor, get feedback, and refine. Speak to a few customers to validate all aspects of your plan. Are you solving a real problem? Validate that millions of other people face the problem. Do a similar business plan exercise for your industry competitors and two to three other successful industry companies to understand all business components.
5. Study Success and Study Failure. Why have some companies succeeded, and why have some failed in your industry? The best way to do this is by asking questions. Start with Quora if you don’t know anyone in those companies.
6. Read all things Sam Altman, Ben Horowitz, Paul Graham, Reid Hoffman, Mark Suster, Mike Maples, and Marc Andreessen. Some priceless and distilled wisdom by these gentlemen is available for anyone with the patience to read.
7. Know the risks — i.e., all that can go wrong in your business, and then prepare your action plan. Partners and key hires will leave, the competition will come, you’ll run out of money, tech failure will happen, customer issues will arise, fraud and regulatory risks will occur, etc. All of this must be thought through. Risk is a function of awareness. When your awareness is low, simple things can appear to be very risky. Take calculated risks. That is quite different from being rash.
8. Build your network before you build the business. You will need it. You are not ready if the five people closest to you are not entrepreneurs. Ask other entrepreneurs for coffee meetings. You’ll be surprised at how helpful people are. The currency of real networking is not greed but generosity. Your network is your net worth.
9. Take stock of your personal finances. Be frugal and minimize your expenses. Tank up, save, and get your family ready. Be prepared to go without a salary for at least 12 months. There is a big difference between earning a great deal of money and being rich.
10. Start as early as you can in life, hopefully in your mid-twenties. Get two to three years of experience in your industry of choice. Learn what they do right and what they do wrong. Leave and build a company to fix it.
11. Have a business model and a revenue model. Not having a revenue model and not having revenue are two different things.
12. Find your success spot. Find your failure spot. You must see failure as the beginning and the middle but never entertain it as an end.
Building a Founding Team
13. Start LEAN. Never start alone. Always have a co-founder. You only need three people to start a business: one Seller/Growth, one Product/Tech, and one Operation/Finance. Co-founders must have complementary skills and clearly defined roles. Allocate equity amongst the founders in proportion to the value they bring to the table. Sign the agreement on day zero—no verbal agreements. Do not delay this. Your lawyer will help you with this. A 50:50 equity split is a bad idea.
14. The salary is for employees. All partners should be on vesting for a minimum of 5 years. There should be no salary for the first six months or until external growth capital is raised. If a co-founder wants compensation on day zero, then they are not ready. They are “early employees.” Move on. Hire them as early employees (on salary and ESOPs) once you have the growth capital. ( Unpopular take: In the 0–1 stage of company building, don’t bring in a cofounder who cannot work without a salary. Instead, hire them as part of the founding team when you have some revenue, product-market fit, or external funding. The biggest shift required to be a founder is the “mental shift/delayed gratification,” which requires rewiring for someone transitioning from an employee role to a founder role.)
15. Kill your ego. More businesses have failed due to co-founders’ egos than market reasons. Founders should treat each other with equal respect. Don’t work with people who don’t respect you. Mark Zuckerberg calls Sheryl Sandberg his partner. You are not a team because you work together. You are a team because you respect, trust, and care for each other. The ego is the only requirement to destroy any relationship.
16. Who you do business with is more important than WHAT business you do. Know your co-founder. You will be spending more time with them than your spouse. Understand their reality—what is their financial situation? Why do they want to build a company with you? Most successful co-founders have a shared work history during which they have calibrated their personal egos, skills, and working styles. Are they GIVERS? (Check Point 59. Teamwork begins by building trust.
17. Do the DEATH test. If you die tomorrow, Is your co-founder capable of running the business? Will they protect your financial interest? If not, don’t waste your time. If yes, Congratulations!
18. Do the SINK test. Are all founders in the same boat ?— i.e. Does everyone have the same priorities: the company’s success? If not, you might sink. Co-founders who are in the same place in life, values, and priorities work exceedingly well. If they are not in the same boat, they are not co-founders. They can be advisors, investors, etc. Choose the right partners.
19. Fire immediately if you have made a mistake. The business and everyone else are more important than one bad hire. Never hire someone who knows less than you do about what he’s hired to do. Hiring the right people takes time. Someone once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy.
20. Get a Team. The first two to three hires should be the people who’ll work with you even without a salary. They are real self-motivated people. I am/was lucky to have such people on my team. Generously share equity with everyone in the founding team.
21. Place a premium on failure. Try to get as many former entrepreneurs as possible on your founding team. Building a company from the ground up and successfully running it is hard work. Get people with founder/ownership DNA.
22. Work with young people. They have a longer-term worldview and are closer to the market. Youth is not a time of life. It is a state of mind.
23. Work with people who are more intelligent than you. You will learn more. Work with GIVERS (Check Point 59). Get a co-founder who is as good as or better than you, or else your startup will be doomed. Whatever you do in life, surround yourself with smart people who’ll argue with you.
24. Every person in the company must work on business growth. Get people who work harder than you. Find a group of people who challenge and inspire you, and spend a lot of time with them. It will change your life.
PRODUCT:
25. Get ten customers to pay for your product before writing a single code line. Don’t offer any discounts. Instead, offer value. Recheck your business thesis if no one wants to pay for your services or product. Revise. Revisit points 2 and 4.
26. Painkillers vs. Vitamins. Be sure of what you are building. People buy painkillers before they buy vitamins. Find a problem. Validate that millions of other people face the problem. Then, create a product to solve it. Don’t build a product and then go looking for a problem.
27. Tech is ‘the leverage’ for digital business. Use that leverage. ‘More people’ is not a solution. Find an engineering solution to the problem. WhatsApp has only 50 employees and serves one billion users worldwide.
28. Market-Product Fit>Product Market Fit(PFM). Also, PFM is a continuum. Focus all your energy on achieving it as soon as possible. Spending marketing dollars before PMF is a waste. People want to solve their problems and use a product that solves them. Product Market Fit requires an iterative and carefully coordinated process. First, focus on the problem and market, then search for the solution. Product-market fit is the defining quality of an early-stage startup. Getting to product-market fit allows you to succeed even if you aren’t optimized on other fronts. Read @pmarca’s insights here, and (1),(2).
29. Ship FAST and Iterate. The prototype should not take more than three to four weeks if you have a good tech cofounder. Anything longer, you either do not understand your product and market, you are trying to build too much into version 1.0, or something is wrong with your tech co-founder. Start with a basic web or mobile application. Forget a fancy Native-App. Let the PMF (Product Market Fit) discovery process guide you. It’s easy to move fast or be obsessed with quality, but the trick is to do both.
30. Involve customers in your product development process. Meet, listen, talk, share, and seek feedback from them. Iterate, fix the prototype and go back to them. See what features they use and what they don’t. Edit the features they don’t use. Repeat this process. The product person should also be responsible for customer service. After PMF, institutionalize the process. Ensure your users know that everything you do and make is for them.
31. Hire “Giants.” After PMF, when you enter the growth stage, hire “giants” and get a solid advisory board. Get people who have scaled large businesses in the past. For example, if you want to scale from 1M to 20M customers, get someone who has scaled the company from 1M to 50M users. Great vision without great people is irrelevant.
32. Don’t spread too thin. Go a mile deep before you go a mile wide. Focus on getting traction in one customer category. Don’t try to conquer the universe on day zero. Facebook started with limited features, Google started with ‘search,’ and Amazon started with books.
33. Build product features around existing user behavior. Don’t expect people to change their behavior on day zero. It took millions of years for a monkey to become a man. Mental models are explanations of how we see the world. Understanding our users' mental models helps us better shape our product decisions.
34. Contact 1000 customers personally using your phone and email contacts. Speak to them. In the process, you will learn more about your market, product features, and competition.
35. A happy customer is the best salesperson. Sign up 1,000 early adopters without spending any marketing dollars. An early adopter satisfied with your product will spread the word. After that, the focus should be on the early majority. Ask: How much do you care about your customers? Customer support is an amazing reservoir of insights into what needs to change about the product.
36. Build a metric-driven environment. Use this list from a16z.
37. Don’t start with a mobile-app-only strategy. Keep options open for desktop and mobile web. In fact, begin with that. Mobile apps only work if they qualify for the toothbrush test. Decide about O.S. India is 85% Android.
38. A feature is not equal to a product. Building a product is not equivalent to building a business. Understand the difference. There’s a ten-mile difference between a great product and a great business. You need a minimum viable company, not a minimum viable product.
39. Get a Growth person immediately at the PMF stage. Stay away from marketing people. If this growth person cannot get you 100K customers through zero-spend growth hacks, they do not understand the business. Keep looking.
40. Don’t ever bribe (buy) a customer. These users are the first to leave when the tide turns and someone else offers more goodies. Read Negative Gross Margin by Fred Wilson.
41. Focus on building long-term customer loyalty, the only indestructible force on your side. Customer loyalty is the only metric that matters.
Capital Raise:
42. Don’t raise money unless absolutely necessary in the prototype stage. An MVP can be built for only a few thousand dollars. Bootstrap. Basecamp was built without any external funding. Read RECONSIDER by the awesome DHH(David Heinemeier Hansson). Be super scrappy and aim for profitability as soon as you can. As Paul Graham says, “Once you cross the threshold of profitability, however low, your runway becomes infinite.”
43. If you have to fundraise, raise seed money from angel entrepreneurs. They offer invaluable insights and networks.
44. You cannot make a good deal with a bad guy. A good investor at a reasonable valuation is better than a bad investor at a higher valuation. Do your investor due diligence.
45. Signing a term sheet means nothing. The deal is not done until the money is in the bank.
46. Focus on LP (Liquidity Preference) and preferred rights. You’ll be surprised how many entrepreneurs are clueless about this and the impact it can have on their fortune during a liquidity event. Get a good corporate lawyer to help you with the funding agreements. At the seed stage, go for “1X-Non Participating”.
47. If you have not met the decision-making partner in a VC firm, you’ve made zero progress. Insist on meeting them. If they do not want to meet you, move on. Focus on your product and business instead. If you are doing something right, VC partners will reach out.
48. Don’t work with an investor who makes you wait, does not answer your emails, or repeatedly cancels meetings. These are early warning signs. They won’t be there when you need them. Good VCs are friendly and humble people. A good VC will always be on the same side of the table as an entrepreneur.
49. Ask the following questions to a VC when you meet them: “Why do you want to invest in our venture?” “What will you worry about the most after investing?” Address their concerns. Respect investors as partners.
50. Meet the Dead. Ask VCs about their portfolio write-offs and what went wrong. Google these companies. Go and meet the “dead” entrepreneurs. Ask them what went wrong. Compare the answers. You’ll learn a lot more about your VC with this process.
51. Strategic vs. financial investor. Evaluate this at each stage of the company. A strategic investor will add different values than a financial investor. Know the difference.
52. Fundraising news, unicorn status, etc., is a vanity metric. You don’t congratulate a chef on getting the ingredients. Funding is one of the elements in building a business.
53. Capital only increases runway time. Raising funds is no certainty of commercial success.
54. Build a solid board of directors and advisors and operate with the highest level of corporate governance
55. Learn about cap tables and various classes of shares. The ‘ignorance’ price is very high when you are an entrepreneur.
Competition & Scaling:
56. Don’t see ghosts where none exist. Never underestimate or overestimate the competition. More startups fail because of internal reasons than external ones. Speed matters. The fast will beat the slow; fast does not mean stupid.
57. Learn to escape competition. Read Peter Thiel’s Zero to One. Startups are not about finding cracks in the present market but about finding insights and opportunities in the future. Startups are time-travel. In companies, markets can be mapped. In startups, you cannot segment the territory. Create a new category.
58. Learn to scale. Read and watch Blitzscaling by Reid Hoffman and others.
Personal Growth:
59. Be a GIVER. There are only two types of people in the world: the GIVER and the TAKER. The GIVER gives, and the TAKER takes from the system. Excellent GIVERs are also good RECEIVERs. The world continues because of excellent GIVERs. The GIVERs always MULTIPLY what they receive and pass it back into the system, while the TAKERs take it out and never put it back into the system. Learn these formulas:
· Giver + Taker =Lose, Win
· Taker + Taker= Lose, Lose
· Giver + Giver (Receiver) = Win, Win
The GIVER shares their knowledge, time, passion, and resources; the world is better because of them. You will know when you meet a GIVER. I consider Sam Altman, Bhorowitz, Paul Graham, Reid Hoffman, Richard Branson, Mike Maples Jr, and many more GIVERs.
60. Step out of the frame: you cannot see the picture if you are in the frame. From time to time, objectively review your life, business, and industry.
61. Face the Mirror. Focus on your development. Conduct yourself as a leader must. Be humble. Avoid arrogance. Never lose your cool. Be nice and fair to everyone.
62. Have FUN. Step out of your regular rhythm. Life is too short. Go to the movies on a Monday morning. Sign up for a gym or spin class. Start a book club. Binge-watch Game of Thrones, House of Cards, or Seinfeld. Meet interesting people.
63. Don’t take yourself too seriously. Encourage massive doses of humor in the workplace. Take your work seriously.
64. Read about human psychology, money, capitalism, mass markets, and attention. Read about history.
65. Stay away from toxic people, parasites, and freeloaders. These people ask for equity without doing anything. You know who they are.
66. When someone cheats on you, learn from the experience. Forgive them and immediately cut them out clinically from your life. Never get cheated again by the same person.
67. If you screw up, apologize to your partners, teammates, and investors. There are good people in the world. I was lucky to have them.
68. Quitting is not equal to giving up. Failure is only when you give up. So dust off and start again. 50% success in entrepreneurship is about showing up every day.
69. Find your North Star. Take a long-term view. For centuries, sailors have used the North Star to navigate during storms or dark nights. Keep moving towards your North Star. You will never get lost.
70. Reach out if you need help. There are many good people in the world willing to help you.
71. Finish what you start. Stay in the game. Keep moving forward. Focus on just one thing at a time. Whatever it takes to finish something, finish.
72. When things don’t add up, start subtracting.
73. A rich man can sell any philosophy. Beware of influencers. Don’t let other people’s opinions become your facts. Start to think for yourself.
74. Run your own race. Establish your own definition of success. No one can tell you what success is. Value gets created when you (your product) serve millions.
75. Drink from the Fountainhead. Stop reading newspapers, cut the noise, and avoid the echo chambers. Stop drinking someone's gargled water.
76. Always participate in important decisions. If you’re not at the table, you’re on the menu.
77. Outsource everything that is non-core. Strategy is about resource allocation.
78. Make mistakes, but don’t repeat them. A mistake repeated is not a mistake; it is a choice.
79. Never lose your cool. I repeat, never lose your cool. Temper is a weapon that we hold by the blade.
80. Create a council of “wise men.” You will need them.
81. Always keep your word. This is very important. Your honor and words matter. No one likes a rich liar.
82. Be hands-on. Attend customer service calls personally. You will learn more.
83. Move fast, fail forward. Time is the only finite currency. Cut losses and move on. Don’t run in a zombie state.
84. Magic happens when team members meet daily. In the early stage of a startup, everyone should operate from the same office.
85. See what people do, not what they say.
86. Stay away from brokers and advisors in the first two years.
87. Get a good lawyer and operations/ finance person.
88. Your arc will change the day your venture is no longer a start-up. Remember this: David is always a hero until he becomes Goliath.
Go conquer the world. Be a GIVER and ‘break a twig’ for someone following you.
Gaurav Sharma is a finTech entrepreneur and currently building a Bank of the Future for Consumers and SMBs.
Other posts by Gaurav:
FinTech Wave-2 isn’t Digital. It’s Hybrid. Lessons from Wave-1 and What’s Next?
Credit is older than Money (and Fintech)
“Blood and Sand”: The Moment of -Truth for Mobile Wallets in Asia
ChatBots, API, Voice, Zero UI, and the future of Mobile Apps.
Artificial Intelligence (AI) and FinTech — Part 1
Of Suits, Hoodies, and Ripped Jeans- Transcending the “Expectation Chasm” in Banking
