Category: Startups

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Words of wisdom from Naval Ravikant

Back in 2012, I was kicking around ideas for a new startup, and a mutual friend introduced me to Naval Ravikant because he was “a pro at finding holes in ideas.” We spent an afternoon chatting about startups, being a founder, and the work he was doing at AngelList. I enjoyed our conversation and even seriously considered abandoning starting my own company and applying to work with at AngelList[1]. One particular piece of advice he shared stuck with me, and I continue to share it with aspiring entrepreneurs to this day:

Don’t start a company unless you’re willing to work on it for 10 years.

A succinct way to sum up the level of commitment you should have before starting a company. Startups aren’t a fast-track to riches. Most fail, and even those that succeed take 7+ years on average to exit[2]. If spending a significant portion of your career on your current idea doesn’t excite you, it might not be the one for you.

Notes
[1] I ended up co-founding HeartThis, but we did use AngelList to help with our fundraising.

[2] See CrunchBase Reveals: The Average Successful Startup Raises $41M, Exits at $242.9M

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If you’re not 10X better you don’t matter

My last startup failed. You may read that we were acquired, that it worked out well for our investors and team, and that we’re excited about new opportunities. That’s all true, but at the end of the day we still failed. More specifically, I failed. I didn’t move the needle for my investors, my employees didn’t make life-changing amounts of money, and our product didn’t make a significant impact on the world. We had all the right ingredients — funding, talent, relevant experience — but we came up short for one simple reason: we weren’t 10X better than our competition.

At HeartThis, our vision was to create the definitive online shopping site by putting all your favorite stores in one place. When we started, the market for shopping apps was already crowded, but our team had a secret weapon: we were experts at growing consumer services to massive scale without spending money on user acquisition (massive = tens or hundreds of millions of users). Viral growth was our 10X edge over the competition, but we failed to commit ourselves to growth at all costs. Every single action item should have been prioritized in terms of ROI on growth. Instead, we wasted time on product features and improvements that created an incrementally better user experience but didn’t directly drive user acquisition. We built monitors to make sure prices and inventory stock-info were accurate. We didn’t force users to follow friends on install because user tests showed that was a turnoff in some instances. We spent significant engineering resources ensuring that users always saw new content when they returned to the app. All nice features, but all 100% worthless without a 10X differentiator between us and our competitors. That lack of focus killed our company.

When raising a Series A or later round, investors aren’t willing to take a chance on a product that has a slightly better user experience and a slightly better growth rate than the competition, which is exactly what HeartThis offered. We would have been better served by putting more effort on growth and being able to point to an order of magnitude higher growth rate than all competitors even if that meant we had a merely adequate user experience. When it comes to post-seed investing, investors need a reason to believe that your company is a true outlier because they’re looking for the handful of superstar investments that return the fund[1].

It is extremely difficult to be an order of magnitude better than your competition at one thing, but it’s fairly easy to be incrementally better at many things. This creates a dangerous cycle. You feel a sense of accomplishment for each incremental win over your competition. As a result, rather than tackling the difficult task of turning a small advantage into a 10X differentiator, it becomes tempting to search for another easy win and the pleasant sensation of steadily increasing your value proposition relative to your competition. This will ultimately create a product that is slightly better than your competition in many ways…and then you will run out of money and your company will die.

Don’t fall into the trap of incrementally better. Figure out what makes your product 10X better than your competition and ruthlessly push towards that goal. Investors, employees, friends, family, and other well-meaning people will point out all of the other things you should be working on. Record all of their suggestions, then ignore them until after you hit your 10X goal. Users don’t abandon products they’re familiar with for incrementally better. Investors don’t throw money at companies that are incrementally better. Massive success isn’t born from incrementally better. If you’re not 10X better than you don’t matter. Once you are 10X better, then you can flesh out the rest. I learned that lesson the hard way, and I sincerely hope that you’re able to learn from my mistake.

Notes
[1] For more on how investors think, see Fred Wilson’s What is a good venture return?

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Finding Funding: It doesn’t count until the check clears

A lot of people have asked me about my experience fundraising for HeartThis over the last few months. We successfully raised funding from a fantastic group of investors (including Freestyle Capital, Google Ventures, 500 Startups and more), but if I had it to do all over again there are many things I would do differently.

One thing I learned is that no investment is a sure thing until the money is in the bank. You’ve probably heard this before, but it’s 100% true and important to keep in mind when pitching. I’ll cover three examples of how this can play out. Two come from personal experience, and one is a gut-wrenching example from a friend.

Insufficient funds
An individual angel investor expressed interest in backing HeartThis. We went over the details of the business, the team, and all the risks involved, and they remained solidly on board. However, when the round was closing and the time came to provide final details in order to receive financing documents I opened my E-mail to discover a message saying they had to pass for financial reasons. This is something you have to be aware of when dealing with individual angels. Often times they don’t have tens (or hundreds) of millions of dollars set aside specifically for investing, so their ability to invest is much more tenuous.

Failure to close
The HeartThis team has personal connections to a number of professional investors. We began speaking with one such individual early on. Between our personal ties and their warm reception, we were confident that they would participate in our seed round. Despite being positive towards our team and business, they ultimately declined to participate in our seed round. Losing their investment was primarily my fault. Our personal connection to this investor wasn’t through me, so I was less aggressive about following up and building momentum with them than with other investors. Instead, I let our team member with the closer connection manage the relationship. This was a mistake. Investors want to see the CEO take charge so they can have confidence in their ability to lead a new venture in the face of overwhelming odds. By playing a passive role in courting their investment I failed to instill that confidence, and I believe that ultimately led to them passing on our round.

Losing your lead
This story comes from a friend and fellow founder. Their startup was in the midst of wrapping up their Series A funding with a prominent VC leading the round. At the last minute, the firm decided that not only were they not going to lead the round, but they were not even going to participate. This put the company into a full-on crisis. The CEO went from feeling confident about raising a major round of funding to facing the prospect of not being able to make payroll the following month. They were forced to literally beg other participants in the round to not drop out and to instead consider increasing their investment. Anyone who has gone through fundraising before will recognize how terrifying a situation this would be. Most investors are followers, and they want to get in on hot deals that alongside name-brand firms. If you have a top firm back out of leading your round, the majority of other investors won’t even consider putting in money. The emotional toll on the CEO was immense, and the company came very close to disaster.

When it comes to fundraising, do not relax until the money’s in the bank. A positive feeling doesn’t matter. A verbal commit doesn’t matter. Even receiving term sheets doesn’t matter. None of them are legally binding, and there are countless examples of investors choosing not to invest (for both good and bad reasons) at the eleventh hour. Close investors as quickly as possible before they have time to cool off (consider closing in tranches!), and don’t stop actively pitching just because you think the round is filled. Good luck!

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Words of wisdom from Neil Joglekar

This past weekend I was out celebrating Neil Joglekar‘s birthday. Neil’s an old friend from Stanford and the co-founder and CEO of Reel Surfer. Neil spent a number of years bootstrapping the company and paying the bills by tutoring on the side before going through YC and raising VC funding. I figured he must have learned a lot along the way, so I asked him to share a few tips as I take my first shot at starting a company. Neil got very serious for a moment (a rarity) and gave me the following advice:

Manage your emotions, and hang out with people who don’t care that you’re running a company.

I thought that was some of the best advice I’ve received thus far when it comes to entrepreneurship.

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Prioritize needs over wants

As the HeartThis CEO, I constantly struggle with the conflict between what I need to do vs what I want to do. I spent most of my career as a software engineer and/or product manager, so I have a natural affinity for rolling up my sleeves and getting dirty building product. As CEO, that’s in direct conflict with my core priorities of setting the company vision, securing funding, and hiring and retaining a great team. As much as I want to slap on headphones and crank out a new feature, it’s my duty to set the team up for a long-term win. Focusing on hiring a new crack engineer who can do dev work full-time is a much higher leverage use of my time. Coding is a want, but recruiting is a need.

Similarly, while fundraising, it was painful to note the decreased speed of product development. I kept asking myself “what could we have accomplished if we spent these two months head-down building product rather than sitting in meetings talking to investors?” In reality, that was the ultimate short-term thinking. It’s true that fundraising slowed recruiting and product development down substantially, but it ultimately gave us the cash necessary to go out and hire top-notch talent.

A good leader has to learn to trust their team and stay focused on doing what needs to be done for the good of the company, even when it doesn’t perfectly align with what they want to do. I suspect this is one of the harder leadership lessons to learn for people who come from “hands-on” positions like engineering and design. I do still tend to do a small amount of dev work each week, but now it’s typically my lowest priority task that only gets addressed after everything else has been taken care of.

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What I learned about entrepreneurship at the gym

In February, a few months before beginning full-time work on HeartThis, I decided to get serious about going to the gym. As I entered my mid-twenties, I figured it was a good time to whip myself into shape in the hopes of maintaining a high level of fitness as I get older. I focused primarily on strength training with plans for later emphasis on mobility and cardiovascular capacity. Knowing I respond well to steady tangible progress, I adopted a linear progression strength training program and careful tracked all my workouts. As work on HeartThis started to ramp up, I realized that a lot of the lessons I learned from strength training were directly applicable to starting a company. I’ll share the three lessons I’ve learned that I have been of the greatest assistance for me as an entrepreneur so far:

Beware of information paralysis
There is an enormous amount of information available on how to train for strength – thousands of books, blogs, online communities, etc. I was particularly drawn to subreddits like r/fitness and r/weightroom that provide a constant stream of new information. There are articles examining in minute detail of all aspects of strength training — from the ramifications of different squat stances to the ideal timing of protein consumption. Eventually, I realized that research rapidly hits a point of diminishing returns. There are only a few basic underlying principles for strength training, and after learning those (which you can do in couple of hours) I was much better suited hitting the gym and getting on with the rest of my life rather than researching how to optimize my routine. This is directly applicable to starting a company as well: there is no substitution for action. Completing an appropriate level of research and due-diligence is important, but at some point you have to set the books down and do the work. I also find that I gain greater benefit from both strength training and entrepreneurship research when I take frequent breaks to focus on implementing what I’ve learned rather than continuously acquiring more information.

Routines get you through the bad days
I generally enjoy working out, but there are plenty of times when I don’t want to go do it for one reason or another — I’m tired, it’s late, I’m hungry, and so on. The key turning point for me was to bake gym time into my weekly routine. Eliminating the question of whether or not I “feel” like going on any given day means it just happens, the same way I get up and go to work every day. It was always easy to go when I was well rested and full of energy, but now even on bad days I consistently go because there’s no longer a decision to be made that’s susceptible to mood swings. Routines and processes serve the same purpose when building a new company. They’re your safety net on days when you’re feeling unfocused and unmotivated. I currently use a simple process that I call “Three Per Day” to keep track of what I should be working on at any given moment with minimal mental effort. On days when I’m feeling great, I don’t really need the system because I have no problem spending the extra mental energy required to think through all the tasks at hand and the best order to tackle them in. On bad days, it’s a lifesaver because having to sort through and prioritize a mountain of potential action items would completely derail my productivity.

Environment affects performance
In the past, I always worked out in college gyms or traditional fitness centers like 24hr Fitness or Crunch. Recently, when my lifts started getting heavier I decided to seek tips from an expert and drove out to a professional powerlifting gym. It was like night and day. Many of the people at the gym were monstrously strong. At least 2-3x stronger than anyone I’d encountered at regular gyms (for those of you into lifting numbers, we’re talking as high as 600lbs bench press and 900lbs squat/deadlift). The usual flirting, showboating, and rampant narcissism found in gyms was completely absent. Instead, there was a deep sense of camaraderie and support as everyone was 110% focused on self improvement and putting a brutal amount of effort into every lift. It was even a surprisingly diverse community. Alongside the competitive powerlifters was an older gentleman doing rehab work, a high school athlete training in her off season, and a few beginning lifters not much stronger than myself. My training advanced more in a single session at that gym than it had in the past month training 3x per week on my own. The environment showed me firsthand that I was nowhere near the limit of what could be achieved if I worked hard enough and inspired me to push myself that much harder. I try to apply this lesson to building HeartThis as well. My goal is to surround myself with people who are highly focused and far superior to me in some respect. Right now I’m looking to hire two new software engineers, and one of the criteria I use is that they have to be a substantially better engineer than I am. By creating an environment where greatness combined with mutual support and encouragement is the norm, I am confident that individual performance levels will be far higher than in an average company. Unfortunately, the powerlifting gym is too far away for me to attend regularly. I try to maintain the same level of focus and effort at the local gym, but I can tell that even being aware of the difference can’t quite make up for being in the actual environment.

I’ve also discovered that the benefits of working out on entrepreneurship are not a unidirectional. Starting a company has also improved my workouts! Sometimes when I’m feeling spent and ready to give up at the gym, I ask myself if I’m the type of person who just gives up when I’m tired, and what that would mean for my startup. I ask if I’m going to let down my coworkers, my investors, and myself by giving up just because building the company gets hard. Without fail that gives me the motivation to push through the rest of my workout as a way to prove to myself that I’ll be able to make it through the rough patches of starting a new company.

If you’re interested in what strength training program I use, I started with StrongLifts 5×5, and then advanced to my own modified version of Madcow 5×5. I highly recommend them for building raw strength, but if you’re going for aesthetics or cardiovascular fitness there are better alternatives.

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Finding Funding: Fundraising will kill your productivity

Over the past month, I’ve had to cope with the fact that fundraising for HeartThis has wreaked havoc on the team’s overall productivity. Instead of cranking out code and hiring new recruits, my time has been spent tweaking decks and pitching investors. When initial meetings go well, my co-founders also have to take time out of their duties to join the next round of meetings. Fundraising is an important (and necessary) process for many startups because capital is the lifeblood of a new business. However, I strongly recommend that you prepare yourself for the massive productivity disruption it can cause.

If you’re the point-person for fundraising (most likely the CEO), then assume that while fundraising you’re not going to have time for anything else. Make sure your team knows this and has the resources they need to keep moving forward with minimal input from you. Prior to starting fundraising in earnest, the HeartThis team had an intense hacking week where I was able to crank out a lot of code and see our product move forward in a tangible way. Over the last 3-4 weeks I’ve barely done any coding, and I have found myself frustrated with the lack of progress. I have to constantly remind myself that by raising funds I’ll have the resources necessary to bring on more developers and we’ll more than make up for any “lost” time. It can be particularly disheartening when meetings end in rejection because it feels like the epitome of wasted time. In reality, even meetings that don’t lead to checks can be extremely fruitful. Whenever an investor decides to pass, I push them to be specific about their reasoning. Sometimes it’s not anything actionable (ex. you don’t fit into their portfolio’s investment thesis), but occasionally I’ve gained insight into an underlying weakness in product or vision (or more often a weakness in how I convey the product or vision). In addition, the multitude of investor meetings has yielded valuable contacts for later funding rounds or even later companies.

There are some steps you can take to try to minimize the reduction in your own personal productivity while fundraising. Because of the multitude of meetings, it’s hard to find large contiguous chunks of time to tackle tasks. Instead, I have to be ready to get things done whenever I have a few spare minutes. This is far from my ideal work style. I strongly prefer getting in the zone and working nonstop with minimal distractions. In order to still be effective in the short blocks of time between investor meetings, I try to keep 3-5 small, high-priority tasks in my work queue at all times. As soon as I find myself with a few spare minutes I immediately start working on something of importance without wasting time wondering what to do. Even with this process in place I’m still not getting a huge amount of work done outside of fundraising, but it’s better than nothing.

There’s really no way around it: fundraising will kill your productivity. Just remember that it’s vital to the growth of your company, commit yourself to it fully, and when the cash is in the bank you can get back to building an awesome product. Good luck!

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Focus on strengths, protect against weaknesses

Perhaps the most important skill that every entrepreneur needs to learn is focus. A lack of of product focus leads to feature creep, a lack of design focus leads to weak user experiences, and a lack of personal focus leads to poor execution. Taking careful stock of your personal strengths and weaknesses and then zeroing in on how to leverage your strengths and mitigate your weaknesses will help determine your role in tackling the endless stream of challenges that you face when building a startup.

Focus on your strengths because that’s where you have the potential to be great, and winning at scale as a startup requires greatness. To identify your strengths consider what things are either inherently good at (ex. if you’re a naturally engaging public speaker) or things that you have built up expertise in through experience (ex. if you spent 10 years working in advertising and know the business inside and out). Next, aggressively develop these strengths, ideally to the point where you are materially better than your peers at them. Finally, ensure that a large part of your role in the company is centered around these unique strengths. This laser focus on identifying, growing, and leveraging your strengths will insure you’re making the greatest impact possible at your company.

In addition to strengths, we all have weaknesses. In the time and cash-constrained environment of a startup, time and effort spent trying to improve personal weaknesses should be minimized. Self-improvement is a long and difficult process, and chances are that even with significant effort you will not be able to turn your weakness into great enough strengths to be considered a competitive advantage. Instead, try to protect against your weaknesses. The easiest way to do this is by allying yourself with people whose strengths complement your own. It sounds simple, but you would be shocked at how many people, particularly in leadership positions, try to handle everything themselves. I’ve been guilty of it myself in the past, and I can tell you from personal experience that it does not end well! It should be noted that identifying your own weaknesses is fairly difficult, so I highly recommend enlisting the help of trusted peers to generate an honest assessment.

Mark Zuckerberg is a great example of someone who successfully focuses on strengths and protects against his weaknesses. I don’t know him personally, but my understanding through mutual connections is that Mark truly excels at product and engineering. However, prior to Facebook ,he had no real large-scale operations/management experience and doesn’t have a natural inclination for either. Rather than spend time trying to master all skills necessary to run a multi-billion dollar behemoth, he mitigated his shortcomings by establishing an excellent team of advisors with experience growing successful companies. Most importantly, he hired Sheryl Sandberg as Facebook’s COO. This was a brilliant move. Sandberg knows business and ops inside and out, and by letting her guide those functions at Facebook Mark is able to fully leverage his product and technology strengths. One tell-tale sign of a great leader is if they are strategic about surrounding themselves with complementary talent.

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My 5 favorite tech blogs

I’m keeping it simple this week with my top 5 picks for blogs everyone in tech should read.

1. First Round Review
Hands-down the best resource for actionable tactics and practical advice straight from industry leaders. My first recommendation to founders and product team members looking for fast effective learning resources.

2. @AndrewChen
I have a high bar for bloggers write about growth (most are a waste of time), and I consider Andrew Chen the gold standard. A must-read for anyone working on growth.

3. AVC
Fred Wilson of Union Square Ventures’s blog gives a fantastic look into how investors think. Make sure to check out the MBA Mondays posts for practical advice on everything from employee equity to revenue models.

4. Elad Blog
Insightful, honest, and practical posts from serial entrepreneur Elad Gil. Very helpful in the early days of a new startup.

5. Paul Graham Essays
Not as directly practical as some of the previous resources, but Paul Graham’s essays always provide excellent food for thought.

 

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Finding Funding: A/B test your pitch

As the founder of a startup, a large portion of your time is spent pitching — to investors, to potential employees, to your friends and family when they start wondering if you’re really just unemployed — you’re constantly tasked with explaining and validating your business idea to others. There are numerous articles written on best practices for pitching (I strongly suggest all entrepreneurs read everything by Naval and Nivi over on Venturehacks), but in this post I will focus on one specific process for perfecting your pitch: A/B Testing.

A/B testing has become a favorite tool for iterating on consumer web products, but I’ve found it incredibly useful for improving how I convey my business idea. When HeartThis was still at the ideation stage, I was often reluctant to discuss the idea. Not because I didn’t believe in its potential, but because I knew that I wasn’t able to convey the full concept in a concise and engaging way. If you find yourself in a similar situation, don’t fall into the trap of trying to independently come up with “the perfect pitch.” Do the exact opposite. Discuss your ideas openly and as frequently as possible while having a process for systematically improving your pitch. Here’s how to do it:

1. Write down an exhaustive description of your business. Feel free to go into as much detail as you like.

2. Based on your description, identify the key 2 or 3 components that make your business unique.

3. Come up with 3 elevator pitches for describing your business that touch upon the points identified in step 2. These should be no longer than 2 to 3 sentences and should be as different from each other as possible. For example, one could draw a parallel between a company in another industry, one could focus on your team, and one could position you against direct competitors.

4. Start using your new elevator pitches. Talk to as many people as possible and rotate through your different versions making note of how people respond.

Typically, you will quickly find that one version of your story clicks with people much more so than the others and starts to be your go-to pitch. Based on that learning, repeat steps 3 and 4 until you end up with an impactful pitch that immediately captures your audience’s interest. You may also find that different versions of your pitch resonate with different groups (ex. investors vs potential customers), so you can begin developing a specific pitch for each audience. This strategy is also helpful because in order to get enough data points you’ll be forced to do a lot of pitching, and like most things in life, when it comes to pitching practice makes perfect.