Forest rangers and hikers always leave a trail behind for the people following them by breaking twigs. These twigs provide direction and 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 has faced a setback in the past.
I have been part of several ventures across various stages — Idea, Early, Growth, and Distress — as an employee, founder, advisor, and investor. 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. Before you start running, read about your industry, do in-depth research about the customer, competition, the evolution of industry and product category, and forces affecting the marketplace. Build your own thesis. These are called “unique insights” and will help you to identify the “correct hill.” You have to know everything about your business; there is no excuse.
3. Get a mentor, preferably a successful entrepreneur in your industry and geography. The mentor should not be an investor, previous supervisor, or someone with any equity in your company.
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 the problem is faced by millions of other people. Do a similar business plan exercise for your industry competitors and two to three other successful industry companies, to understand all components of the business.
5. Study success, study failure. Why have some companies succeeded, and 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, and Marc Andreessen. Some priceless and distilled wisdom by these distinguished gentlemen is available for anyone who has the patience to read.
7. Know the risks — i.e. all that can go wrong in your business, and then prepare your response and action plan. Partners and key hires will leave, the competition will come, you’ll run out of money, tech failure will happen, customer service issues will arise, frauds 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. Ask an astronaut. Increase your awareness.
8. Build your network before you build the business. You will need it. If the five people closest to you are not entrepreneurs, you are not ready. Ask other entrepreneurs for coffee meetings. You’ll be surprised at how helpful people are.
9. Take stock of your personal finances. Be frugal and minimize your expenses. Tank up. Save, get your family ready. Be prepared to go without a salary for at least 12 months.
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.
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 Operations/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. 50:50 equity split is a bad idea.
14. The salary is for employees. All partners should be on vesting for a min of 3 years. There should be no salary for the first six months or until external growth capital is raised. If a co-founder wants a salary 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.
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.
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? A majority of successful co-founders have a shared work history, during which calibration of personal egos, skills, and working styles has happened. Are they GIVERS? (Check Point 59)
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. everyone has the same priority: 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 wrong hire. The business and everyone else is more important than one bad hire.
20. Get Team. The first two to three hires should be the people who will work with you even without a salary. These are real self-motivated people. I was lucky to have a few such people on my team. Share equity with everyone in the founding team.
21. Place a premium on failure. Try to get as many former entrepreneurs as possible in your founding team.
22. Work with young people. They have a longer-term view of the world and are closer to the market.
23. Work with people who are smarter 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, else your startup is doomed.
24. Every person in the company must work on business growth. Get people who work harder than you
25. Get 10 customers to pay for your product before you write a single line of code. Don’t offer any discounts. Instead, offer value. If no one wants to pay for your services or product, check your business thesis again. 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 the problem is faced by millions of other people. 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 or tech solution to the problem. WhatsApp has only 50 employees and serves one billion users worldwide.
28. PMF is an inflection point and the only thing that matters. Focus all your energy to achieve it as soon as possible. Spending marketing dollars before PMF is a waste. People want to solve their problems and will use a product that will solve it for them. This is called Product Market Fit and requires an iterative and carefully coordinated process. PMF is not luck. Anything that is not leading to PMF is a waste of time and resources. Read @pmarca’s insights on PMF here.
29. Ship fast. 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 not right with your tech co-founder. Start with a basic web or mobile application. Forget a fancy native app. Let the discovery process of PMF (Product Market Fit) guide you.
30. Involve customers in your product development process. Meet, listen, talk, share, and seek feedback from them. Iterate, fix the prototype and go back. See what features they use and what they don’t. Edit the features they don’t use. Repeat this process until PMF is achieved. The product person should also be responsible for customer service. After PMF, institutionalize the process.
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 business from 1M to 50M users.
32. Don’t spread too thin. 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.
34. Reach out to 1000 customers personally. Use your phone and email contacts. Speak to them. You will learn more about your market, product features, and competition in the process.
35. A happy customer is the best salesperson. Signup 1000 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 getting the early majority.
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.
39. Get a Growth Hacker (GH) immediately at the PMF stage. Stay away from marketing people. If a GH 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.
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 also come with 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 clauses. You’ll be surprised how many entrepreneurs are clueless about this and the impact it can have on their fortunes during a liquidity event. Get a good corporate lawyer to help you with the funding agreements. At 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 cancels meeting again and again. These are early warning signs. They won’t be there when you need them. Good VC’s are nice and humble people. A good VC will always be on the same side of the table as an entrepreneur. Read Not all VCs are Assholes by Mitchell Harper.
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 VC’s as partners.
50. Meet the Dead. Ask VC’s about their Portfolio write-offs and what went wrong. Google those companies. Go and meet the “dead” entrepreneurs. Ask them what went wrong. Compare the answers. You will learn a lot more about your VC with this process.
51. Strategic vs. financial investor. Evaluate this at each stage of the company milestones. A strategic investor will add different value than a financial investor. Know the difference.
52. Capital 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 the business.
53. Capital only increases runway time. Raising funds is no certainty of commercial success.
54. Build a solid board of directors and advisors. Maintain the highest levels of Corporate Governance
55. Learn about cap-tables and various classes of shares. The price of ignorance is very high when you are an entrepreneur.
Competition & Scaling:
56. Don’t see the 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.
58. Learn to scale. Read and watch Blitzscaling by Reid Hoffman and others.
59. Be a GIVER. There are only two kinds 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 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’s share their knowledge, time, passion, and resources, and the world is a better place because of them. You will know when you meet a GIVER. I consider Sam Altman, Bhorowitz, Paul Graham, Reid Hoffman, Marc Andreessen, Richard Branson, Mike Maples Jr, and many many more as 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 the 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 Pilates 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 behavior, mass markets, and attention. Read about history.
65. Stay away from toxic people. Stay away from parasites and freeloaders. These people ask for equity without doing anything. You know who they are.
66. When someone cheats you, learn from it. 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.
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 else’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.
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.
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 to 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 SMB’s.
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