Why I Don’t Invest in Entrepreneurs with a “Business Model Canvas”
Founding a company is hard. Building a company is harder. Creating something that can scale in a way that impacts the world, that is even tougher.
People often forget that. The problems only get more complex. When you get started, you have to establish a problem and a potential solution. You start with a few people and a single product. You most likely have deep experience with the problem you’re solving and have been in the trenches with key team members for years.
Invariably, success means that your product expands to a suite. You encounter edge cases you’ve never before experienced. You hire people you don’t know and don’t yet trust. You have less time for each issue in front of you and a greater variety of issues in total. And it keeps going. The more growth you experience, the tougher your job as a leader gets, the greater the variety of issues you have to solve, the higher the complexity of the solutions.
All of this plays a role in explaining why the leaders of business at scale are so awe-inspiring. Folks like Patrick Collison, Anne Wojcicki, Steve Singh, and Aaron Levie aren’t just larger than life characters because of what they accomplished. They are larger than life because of what they are capable of. They’re the founders that were able to ingest, interpret, and act on data so efficiently that they could handle the challenges of not only starting a business — but also those of running a business at scale. This is also the reason that titans of industry like Jamie Dimon, Mary Barra, and Satya Nadella are so universally revered. You have to be immensely capable to steer a multibillion-dollar organization towards sustained growth.
When you enter the room with one of these leaders, you feel it. You realize that it would be impossible to boil down their insights (on any situation) to a simple framework. These types of founders realize that the world is full of complexity that needs to be considered and planned against.
Sidenote: The conversations I think are most naive in the world are those with junior VCs enamored with themselves who see their startup founders as having equally complex jobs to Global 100 CEOs. They don’t understand. These VCs lack an appreciation for how hard it is to establish international operations. How hard it is to build teams with different cultures and labor laws. How tough it can be to serve customers with different perspectives on how the world should evolve. How impossible it can seem to build a relationship with employees you’ve never met. As I said, the problems only get more complex with greater scale.
All this is why I refuse to invest in teams that show off their initial plans to me in the form of startup frameworks (Business Model Canvas or otherwise). If you need to follow a guide by a so-called startup guru, you’re not good enough to run a business. Period.
If you require the business model canvas to tell you that it’s important to think about partners, customers, your value proposition, and more… then you should follow someone who gets that instinctively… not seek venture financing.
Venture Capital is an industry supported by outsized returns that accrue to a handful of companies. In the industry, it’s well known that the economics of investments follow power law distributions. If you don’t invest in one of the few “big winners” in technology, you’re not going to return capital as an investor to your limited partners.
Earlier in my investment career, I regularly found myself enamored with ideas. I would see founders at the beginnings of their journeys who had great ideas and new perspectives on markets. I would get so excited about the opportunity that they discovered that I regularly dismissed a lack of something else. It wasn’t necessarily that they lacked experience or intellect; they lacked something else that’s hard to describe. That something else came out in the fact that they often struggled to prioritize different activities, to empathize with their customers or partners without coaching, or struggled to convince others of their vision.
I always thought that these founders — with such incredible perspectives on how to attack a big problem in the world — would ultimately see their operational prowess and intuition catch up with their creative ability. In that, I was wrong. Across hundreds of companies, I have never seen one of these founders yield a business of meaningful return. If you lack that spark of what is almost a mythic level of intuition, you probably won’t build one of those outlier businesses that we all covet.
Unfortunately, gauging that capability is still a hard thing to do. But the easiest screen I have is whether you show up to a meeting with a Business Model Canvas or some very basic toolkit to explain how you’re going to build an organization of substance. If you need an explicit guide to communicate that testing something for early feedback is important… then being the CEO of a high growth business is not for you.
And you should note — this is not to say that business frameworks aren’t important. I love my copy of the Lean Startup. I enjoy every time I hear Eric speak. I consider my marked-up copy of the Innovator’s Dilemma to be sacred. But with any framework in business, the lessons and analogies put forward in each text must be taken with a grain of salt. No situation is clean. No analogy is perfect. And that means that as a founder or CEO, you will be expected to use your brain. Whether it’s your team, your investors, or your customers: your own methods for making tough choices, your unique way of dealing with the challenges you face, and your own way of demonstrating that you can see around corners.
Use whatever frameworks help you clarify your position. But it has to be your position and your way of communicating it. If an investor could insert another entrepreneur into your situation with the same tools and problem statement and get a similar outcome, you’re not the jockey to bet on. Because it only gets harder after the start.