Been spending quite a bit of time lately thinking about success factors in business.
In particular the venture business and in early stage technology startups. This is the time
of year when our partnership goes out to our investors with fund updates (yes, venture
capitalist have to answer to investors as well!). Brad Feld has an interesting post/thread
on the subject of venture capitalist performance. But you arent reading this to hear
about me, I am sure you would rather hear about how VCs (I can only speak for myself
actually) think about entrepreneural success.
My job as a VC is actually pretty simple. For any given venture, optimize success f
actors and minimize downside risk factors. We tend to take larger risks than public market
investors due to the stage of investments, basically early stage and less baked (hopefully more
than half baked). Successful VCs have proven their ability to manage the levers of start-up
risk over time. I split start-up risk into two categories: market and execution.
There is not much a VC or a start-up can do about market risk. Start-ups dont make
markets, they (hopefully) participate. That is why I like market sizes that start with
a "B". Everybody has an up and to the right hockey stick projection. The analyst are
always wrong. I prefer teams who do bottoms-up customer driven market sizing.
Dont even bother to paint me the 5-year out picture. When listening to a market
entry strategy for a new company, the most important to me is the knowledge of market
adoption over the next 12-18 months. Convince me that you know your customers and
have a go to market plan that is reasonable. When you have to change consumer behavior
or ask them to adopt a new behavior, you just raised the market risk by 10x. All these social
networking deals are triple tall market risk deals. They hinge on a very large number
of people changing their current behavior and starting to integrate these sites into their
daily lives. Most people today in these networks are tirekickers. Tirekickers do not a
market make.
Now to the fun stuff, execution risk. These are mostly factors under the control
of the management and VCs. Can you hire the right team? Can you develop the product?
Can you develop it in time? Can you define a defensible competitive advantage? Can you
reach customers cost effectively with your message? Can you attract the right partners?
I could write for the next year on the many success factors in each of these categories
and many more.
You might not know it from reading the past few paragraphs, but what actually
triggered this post in my mind was one simple characteristic. Awareness. Two things
brought me here. First I am reading Awareness by Anthony De Mello. Second, in the
past few weeks it seems that I have run into an above average number of start-up teams
that are stunningly unaware of their own markets, competition, and strengths/weaknesses
as a team.
Let me be even more specific. I believe a heightened sense of awareness is a critical
sucess factor for a CEO (and the whole start-up team in fact). The CEO must be aware
of and have thought through every major issue in the company and market. If, in a half
hour presentation, I as a VC can stump the CEO with questions he has not considered
yet, it is time to call ground control, we have a problem. If I can name competitors that
the CEO doesnt have intimate knowledge of their strengths and weaknesses, again a problem.
The CEO also must be eminently aware of their own strengths and weaknesses. A CEO
who tries to run every department of a company is a disaster. When I was a CEO, I knew
I was great at the outside thing with investors, customers and partners. I knew I didnt have
the patience for internal operations. I hired a COO/President. The board didnt tell me to do
that. I didnt think it was a threat. It was the right thing to do to maximize my strengths.
We have all heard about the importance of delegation, but I believe adequate awareness
of ones self is necessary for effective delegation. Awareness of the capacity of the delegatee
is also essential. In my early days as a CEO I made the mistake more than once of dumping
a lot of work on someone with a good resume without really drilling on their ability or following
up adequately. This will always end up coming back to you. It is ok to ask people to stretch,
but know who you are stretching and how much. Dont let your people break.
Awareness is also related to engagement. An CEO who is truly engaged in her market
will become aware of the major moving parts over time. An engaged CEO will worry about
what he doesnt know about his customers, partners, product development life cycle, even
purchasing patterns and expense reports. When you have a conversation with someone
who is truly engaged with you there is an noticable difference. You may be surprised by
the number of start-up teams I see that are not engaged with their audience while presenting.
The last point I will make around awareness relates to a CEOs ability to not drink too
much of their own kool-aide. The CEO needs to lead the troops up the hill, but he has to be
aware enough of the true state of the battle to make objective decisions. During the bubble,
we saw many examples of CEOs being unaware that their market had disappeared underneath
them. Many of these people hit the wall hard and fast.
Focus on being aware of every aspect of yourself and your business. Your market,
company, and investors will thank you!