Tren Griffin is a well-known personality in the technology industry, and is also an investor.
He has gathered a bag-full of insights on entrepreneurship from three Silicon Valley coaches and 32 venture capitalists. These insights he has gathered range from leadership and staffing, to what venture capitalists should and do look for when investing.
Those he as interviewed for this book are behind some of the most successful IT firms in the world, including Google, Facebook and Apple.
“The raw material[s] for the book are interviews I have conducted and read over the past four years, with a group of incredibly talented individuals who have seen more highly successful businesses launched than any other single group on the planet,” the author explains.
Up in a downturn
The immediate relevance of this book for South Africa entrepreneurs and investors is based on this insight: The best time to start a business is very often in a downturn. Quality employees are easier to recruit, resources are less expensive, and competition is less intense.
Misunderstanding the nature of a start-up can lead to some unexpected errors. For example, most start-ups believe they must have a business plan. But start-ups are not smaller versions of larger companies; they are something very different.
Business plans are operating programmes for existing companies. Start-ups don’t even know what it is they are supposed to be operating. “A business plan is the last thing you want a start-up to write,” Griffin notes. “A rigid business plan gets one locked into a pre-set, invariant policy, like a highway without exits — hence devoid of optionality.”
A series of unknowns
A start-up is nothing more than a temporary organisation searching for a repeatable and scalable business model. Start-ups can’t execute a series of knowns: they are facing a series of unknowns. They are facing unknown customer segments, unknown customer needs, unknown product feature sets, and so on.
It is misunderstanding these realities that leads to the overconfidence that makes most entrepreneurs believe that they will be winners. Founding a start-up is hardly a rational act – one need only consider how tiny odds of success are. Most start-ups fail.
But, as George Bernard Shaw wrote “All progress depends on the unreasonable human being.”
That said where should an entrepreneur start? With a hypothesis. And then test it, and either prove it, or move on to other iterations of the hypothesis.
The best way to prove your hypothesis is to spent time with actual customers. The most successful founders, CEOs, managers, and engineers spend a huge amount of time with their customers. What needs to be proved is that ‘the dogs will eat the dog food.’
‘Can’ vs. ‘should’
You should spend time on the hypothesis while pursuing your day-job – before you commit three or four years of your life to it. The real question is never ‘Can this product be built?’ but rather ‘Should this product be built?’
Having a business coach early in your entrepreneurial career is probably close to a necessity. If you think that the talented don’t need coaches and only the weak do, it is worth knowing that leading business executives such as Steve Jobs of Apple, Jeff Bezos of Amazon, and Larry Page of Google and more, all did or still do.
These three executives used ex-university sport coach and investor, Bill Campbell. Their description of Campbell provides a good guide for your choice of a coach: he was effective, insightful, hardworking, humble, trusted, and loyal.
The good vs. the great
“The difference between great and not-great operating executives is that the former learns from mistakes, and make more new ones than old ones,” the author explains.
Both start-ups and established businesses are all about people. If you have the right people, you will end up with the right culture.
To increase the odds of success, you need incredibly different incredible people who see what you don’t. Being able to convince highly competent people to join your start-up, with its uncertain future, is a genuinely valuable skill.
This skill is not common, but then, neither is start-up success.
A glass bowl and no ice cream
Operating the business requires a very different set of skills to those needed to start the business. A great operator ‘makes the trains run on time’, which is hugely important, since terrible things can happen to a business if the ‘trains aren’t running on time’.
What do the best venture capitalists looks for in an investment? Great product and great people.
Having a feel for what could be a great product is where the challenge lies for the investor. Marketing alone won’t do it. Jeff Bezos put it clearly: “Trying to create a brand via marketing without great products is like trying to make an ice cream sundae with just a glass bowl and no ice cream.” That is rather obvious.
But there are more complex reasons why the same venture capital firms and venture capitalists consistently deliver a huge proportion of the financial returns of the venture capital industry.
One is that they have the best network of people who can help a start-up, beyond finance. They spend a lot of time and effort working on making the start-up a success. This commitment is not an attractive addition to their money, it is what differentiates the great venture capitalist from the also-rans.
Just as the investor looks for a great entrepreneur, in a great market, and then backs him or her, so must entrepreneurs look for a venture capitalist with time, expertise and great connections who are willing help them build their success.
Readability = Light –+– Serious
Insights = High +—- Low
Practical = High –+– Low
Written by Ian Mann, author of Executive Update. Views expressed are his own.