A lot of people over the years have asked me for advice on starting companies. Most have the ambition but are unsure as to how to take the first step. I recently gave a short presentation on the subject as part of a seminar at Harvard on the most common questions and advice I give to entrepreneurs who want to found a company. The feedback was so positive that I’ve decided to share those suggestions in this blog post.
Before we begin I want to ensure I set the stage for how to interpret this advice. My entire experience has been in enterprise software, and even more narrowly focused in enterprise security software. So, be aware any advice needs to be seen through that prism of experience. Although, I hope the lessons I’ve learned will be applicable to other areas, too.
- Startups are awesome
- You have to raise a lot of money
- You need a billion dollar market
- You need to be first in market
Myth 1: Startups are awesome
Many people view startups as an amazing place where you get all the perks including free food, big money, and fantastic office space. Everyone is happy and playing ping pong and video games while the product and revenue grow quickly and millionaires are made overnight. And, no. Although this can and hopefully will happen, let’s set the record straight. Startups are a grind. It’s hard, it’s long, it’s stressful and a complete PIA. Everyone wants a CEO & Founder title on their business card — except the people who actually have that title. Keep this quote in mind: “All crap rolls uphill”. It’s a lonely and tough position. So be ready, and if you aren’t passionate about what you do, forget it. You will never make it.
Myth 2: You must raise tons of money
It’s easy to get distracted by so many stories of startup X raised a $10m A round, startup Y just raised a $25m B round, etc. It makes everyone think the only way to found a company is by raising a large round and that doing so is the primary definition of success and validation. Many people ask about raising a $3m-$5m seed/angel round and my first response is always to ask “why that amount?”. 90% of people pause and think about it and say “I don’t know, seemed like the right amount”.
I’ve found this to be a huge trend. In fact, I just gave a presentation at RSA Security Founders session called “Too much, Too fast” on how raising large amounts of capital before you are ready can actually be devastating (a topic worthy of pursuing on its own).
Think of it this way. Your idea is like a small spark. In order for it to catch fire you must slowly feed it the right type of kindling and do it very slowly and carefully. Once you have a small flame you have to slowly add bigger and bigger pieces of wood (resources, cash, people) until you have an actual fire. You have to nurture it, in other words. If you throw huge piles of wood or gasoline on it at this stage, you will get a big poof of a flame, sure, but your small fire will die, too. Put simply, too many resources at the wrong time will suck all the oxygen out. Once you have a real and sustainable fire, then you can grow it, not before. That’s when you throw large logs and douse it with gasoline to turn it into a bonfire, not before it’s ready. When you have traction & product fit — then it’s time to feed the fire. Apply this how you will, but remember that anytime I see startups with huge early funding, I become rightfully skeptical. In the beginning, it’s the idea, not the funding.
Know what you need, when and why you need it.
Myth 3: You need a billion dollar market
Maybe this is just a west coast mindset, but I see it creeping over onto the other coast, too. . Many people will want to chase the market for money vs having the passion of just solving a problem that means something. I cannot emphasize enough that you need to go after the passion of solving a problem, not chasing the money*. Many of the big companies that you see today started with solving a small but real problem and ended up growing due to that value and taking over other adjacencies (crossing the chasm anyone?). Do something and do it well. Focus. You never know what that toehold will turn into, and how high you can climb from that initial footing. I’ve seen way more companies that take this route and grow organically become hugely successful than I have those who the chase the large market. Those unfortunately tend to die more quickly than not.
*People who have the right experience can chase the market and do well when you realize it’s a sales & marketing game
Myth 4: You need to be first in market
Let me start this one out with a personal story. When I started my first company SPI Dynamics we were very early to market. There was only one other real competitor out there ,Sanctum. SPI was a bootstrapped company with cash only coming in via services and a few angels. On the other end of the spectrum, Sanctum was a silicon valley business with large venture capital behind it and a marketing & sales machine to boot. We never had the ability to go toe-to-toe with them. Instead, we took advantage of them by trailing behind in their wake. They spent the money to educate the market, and they made the mistakes that we were able to quickly respond to. This allowed us stay small and nimble, but also to grow quickly when we needed to. Over time we ended up dominating the market and exiting at a great number with 1/6th the amount of investment. Note: To my ex-watchfire friends — I love you guys but you know I’m right 😉
The point is that you should not hide your competition from the pitch decks. Brandish them loudly & proudly. It proves a market and shows the confidence that you know how to take advantage of them. No matter how big they are, there is always a way to do it better.
Hope this can help you aspiring founders. I will continue in the next post on Don’ts.