Startup Advising: Taking a Step Back
I have said the same tagline over and over again in meetings in shared work spaces and coffee shops: “sounds like a great idea, but let’s take a step back.” It’s not meant to be rude, belittling or judgmental. It’s my way of helping a founder hone their strategy and compartmentalize their ideas before they lose focus. By taking a step back, founders are able to clarify their business strategies and refocus their priorities.
I normally advise the stereotypical startup founder: young, excited, bold, ambitious and confident their idea is the next billion dollar company. They often come to me with well-thought out business ideas or products but often lack clear strategy of how to make their product successful. They know which market they want to capture, but not which business strategy best suits that market. Founders envision selling their product cheaply to the masses, but haven’t strategized how to minimize their production costs.
By taking a step back after an idea is pitched to me, I encourage the founder to consider fundamental gaps in their business strategy that they often neglect in their relentless pursuit of their idea or product. In a sense, I act as a “human white board” for founders to draw their idea, erase certain unnecessary portions and edit their idea until it is perfect.
Becoming an Adviser
Before and during law school I have advised founders at fledgling startups in New York City, mostly in the technology and community-subscription sectors. Most of the founders I work with come from friends of friends and I usually juggle three or four projects at a time. I primarily advise founders on their business strategy, marketing and brand development. I don’t build fancy charts or run advanced statistical analyses, and I certainly don’t offer legal, tax or investment advice. I leave that work to the MBA’s, lawyers and consultants. Nevertheless, founders seek my general advice from the very early stages of their idea, often when they are still deciding on the best path forward or which idea to pursue first. They are looking for advice that a spreadsheet or PowerPoint can’t provide.
I’ve always been a good listener, but I’m even better at asking questions. As an adviser, I have learned over the years which hard questions a founder needs to be able to answer before their product is ready for the market or before their first investment pitch. What problem does your product or service solve? Your product is so similar to something already on the market, how will you compete? Do you think people will pay money for this product? After working with founders for about a month, they begin to trust these questions rather than bristle; founders understand I am not asking them to extract an embarrassing answer. Rather, I am asking tough questions to force the founder to pause, reflect and strategize.
Therapist, Adviser, or Human White Board?
Therapists are often depicted in popular culture as steady arbitrators that ask questions but never provide direct answers. Acting as an adviser, in effect a human white board, for founders is similar to what many therapists practice with their patients. Listening carefully and earnestly, asking clarifying questions and providing a space where the client feels comfortable to reveal their inner thoughts are important tenets of the therapist-client relationship. Acting as an adviser to startup founders, especially young founders, is nearly identical to this type of relationship.
Being a human white board does not entail letting the founder draw whatever they want without some direction; an adviser helps the founder structure their thoughts, clarify unclear concepts and build more effective strategies. Working with a founder requires the adviser to listen carefully to the founder’s stream of consciousness as they describe their idea or product and identify issues or problems to discuss in detail with the founder. This is where the adviser helps the founder take a step back.
Returning to my tagline, how does an adviser work with a founder to take a step back from their idea? Being an effective adviser requires a couple steps:
1. Be a good listener. Listening is imperative to being an effective adviser. An adviser should spend most of the beginning sessions with a founder simply listening to their idea or pitch. I have sat through hour-long monologues before with founders without saying a word; an adviser has to hear the whole idea to know what’s at stake and what issues might arise. Often, issues compile and become more complicated as more information is revealed by the founder. Be patient and take detailed notes. I often draw flowcharts and other illustrations as the founder speaks to best capture their ideas to discuss later.
2. Identify issues, shortfalls and weaknesses. After listening intently, determine the best way to present issues back to the founder. An effective adviser should also prioritize issues in order of threat to the business’ success. If a founder says they have a supplier that can produce 5000 units a year but their financial model requires 100,000 units being sold to pay back a loan, then the adviser should make a note to return to that issue as a high priority.
3. Ask the right questions. In order to help a founder build an effective strategy, an adviser must strategically decide which questions to ask and how to ask. Using the 5000 unit issue above, an adviser should be asking “is your supplier scalable? And if so, did they pledge additional capacity to your product? Did you get that pledge in writing?” Be prepared to ask hard questions, but ask in a way that relays to the founder that you are acting in their best interest by asking these tough questions.
4. Balance expectations. An adviser should allow a founder’s ideas and goals wander, but not too much. A founder is a visionary (or at least thinks they are), so you have to give them some room to dream even if you think it is unrealistic. Being a human white board means that ideas can be edited, removed or re-prioritized. Let the founder draw what they want and then discuss.
5. Encourage dialogue. Rarely is an issue easily resolved in one sitting. Using the above supplier example, an adviser might ask the founder to identify alternatives to the small supplier. Even if the supplier guarantees a larger facility will be completed in several months, an adviser might suggest the founder weigh other options such as contract with a back-up supplier or split the orders between two suppliers. This type of advising gives the founder options to consider and still make the important decisions.
6. Advise, don’t control. There is a fine line when it comes to advising founders. Founders look to an adviser as a trusted confidant and a resource to help them make key business decisions, but don’t make decisions for them. Ask enough questions and help the founder build a strategy on their own. Just as a therapist helps a client become cognizant of their issues, an adviser should act as a guide for the founder to become more comfortable with their ideas and decisions.
7. Don’t be afraid to outsource. An adviser won’t know how to resolve every issue. Recently, a founder I advise was worried their product might require HIPPA compliance. The extent of of my knowledge of HIPPA is that it represents a burdensome regulatory hurdle for any company handling health data. It is best for an adviser to immediately disclose their inability to advise on the issue, but should offer to help identify potential experts or other advisers that specialize in that subject matter.
About the Author: Jared Arcari is a third year law student at Fordham University School of Law. Jared currently serves as the president of two student organizations, the Fordham Business & Law Association and the Entrepreneur Law Society. He is also a Notes & Articles Editor at the Fordham Journal of Corporate and Financial Law. When he isn’t writing about blockchain-related legal issues or startups, Jared enjoys serving as a research assistant to prof. Bernice Grant researching entrepreneurial topics including non-compete alternatives and improving access to capital. To contact the author, please email firstname.lastname@example.org.