“Judge a man by his questions rather than by his answers.”
I have just come to the end of this semester’s Startup Secrets. This is a series of workshops I am lucky enough to teach in conjunction with the Harvard innovation lab and a great set of experienced entrepreneurs who bring it to life. Throughout it I continue to notice a common theme: many entrepreneurs think they need to have all the answers, even in the very early stages of their enterprise, when in fact they don’t. Instead, I often find myself drawn to entrepreneurs who ask the right questions around a central problem or idea, rather than assume they have to have all the answers. I cannot over emphasize this. No one has all the answers and the fact is market dynamics change, often rapidly. The average startup, in fact, has about four strategic pivots — which can be a soul-searching adventure — before they finally build the business to scale. Understanding how to ask the right questions during these inflection points can often help you through them more easily. The nature of starting your own company is high risk. Part of that risk is not knowing the answers before you start, and VCs are actually fine with that so long as the founders and early employees have the conviction to plough through the challenges and ask the right questions when problems come up.
When evaluating potential investments, I primarily look at the following three things:
The Team (usually about 65% of my focus)
The Market Opportunity (about 25% of diligence – because it always evolves)
The Breakthrough (about 10% of my initial attention)
Contrary to what you might think, the reality is that we like one of these three things to be truly outstanding rather than just be covering the bases on all three. And the emphasis I suggest above is just a guideline to show that it’s so much about the team, because ultimately a great team can evolve with a market need, and will develop the solution that’s required.
Incomplete stand outs are often better than complete stand ups!
(One of my personal favorite startup secrets)
For example, I’m working right now with a stand out team from MIT that is uniquely qualified to address a huge market opportunity, and we are developing the remaining aspects of the business. In general, we know starting a business is difficult and that there are tradeoffs. We don’t expect you to have everything set from day one – if you did, there would be no need for VCs or risk capital! The fact is, as a startup with limited resources, you’ll need to prioritize and iterate among developing these three areas. This will involve some strategic decision-making around which areas to pursue first while remaining open to move quickly when challenges or opportunities arise.
So based on my experience both as an entrepreneur for more than two decades and as an investor for over a decade – the gaps that exist during the early stages come in the following areas:
And many others…
Great as it might be, we absolutely expect you NOT to have a fully built out team in the early stages. In fact, it may even be preferable to lower your monthly burn rate and ensure you have time to get to your MVP and MVS (Minimum Viable Segment) and validate/test it in the market. However, there are some fundamental requirements for the founding team to have:
A uniquely qualified person to back – Usually this means the founder has had some specific experience in a prior position that gives her a unique perspective on a problem that needs to be solved. This can include domain expertise, but more importantly, this involves the individual’s thought process around the problem and potential ability to execute.
A great idea or insight into solving a real problem – This real problem should naturally correlate to the person’s area of expertise. Based on that expertise, they can be ready to build a business that’s designed to tackle a problem that is truly worth solving (e.g. one that allows you to get in front of a mega trend like cloud, big data or the quantified self movement) and that you are passionate about.
Value Proposition & Product
As noted above — at the center of that value proposition is you. What problems do you understand uniquely well? What can you deliver uniquely well? One of the classic mistakes of building a value proposition is diving headlong into the solution definition phase before really understanding the problem you’re looking to solve. To be clear, it’s often better to have a really well-defined problem statement of a well-formed view of the market opportunity than to be too far down the track on product development, trying to prove you have all the technical answers in the solution. Startups rarely fail on technical challenges.
On the surface, value propositions (link here) seem incredibly straightforward, but they are critical to the formulation of a successful startup. Come with the right questions of things you know you’ll need to prove out, and show awareness of your competition, as there’s always competition for mindshare and dollars, no matter how unique your idea is.
The key question here is what segment can you get repeatability in and how will you reach that audience. It’s very unlikely you’ll know that until you test it and validate it repeatedly.
For more information on GTM see some of our workshops and case examples here, including one that I’ve been lucky enough to see break through the billion dollar valuation mark this year.
Just to get you thinking. Even if you have a huge and attractive Vision, the name of the game here is all about focus in the early days. Counter-intuitively, what you want to do in the early stages is to shrink the market, looking for ways to test just those features that allow the product to be validated, and no more. Here, Minimum Viable Product and Minimum Viable Segment (link here) are key strategies that will help you build products that customers need and target narrow slices of markets to allow for repeatable customer wins where the use cases are similar enough. In this way, entrepreneurs can maximize information learned about both their products and target markets. I’ve seen many entrepreneurs fail because they feel they have the answers to defend too big a vision and they try to cover that vision and be all things to all customers, rather than focusing in on a narrow set of potential users who have completely aligned needs in an MVS so your MVP remains on track and headed in the right direction.
Many great consumer businesses like Twitter, Facebook and now Pinterest grew up with questions around their business model long before they succeeded in monetizing it. Expect to have questions. There’s no point trying to monetize an audience until you have one, so go and find out what they value by asking questions before assuming anything. The opportunity for a great business model may come from something you least expect such as the data you’re collecting, not the product you’re selling. And when you can find value that others have not exploited in the field, you may have the potential to be truly disruptive and that’s where you start to make breakthroughs and establish potential leadership as Google did when it offered Apps free versus Microsoft Office (link to example here).
In technology, it’s not uncommon for entrepreneurs to become so mono-focused on the novelty of product innovation that they forget to innovate equally around their business model. How can you change the game and rewrite the rules on potential competitors with a truly disruptive business model? Some helpful workshops and case studies can be found here.
So in summary, as investors, we’d rather you be self-aware and understand where you need help and what you don’t know. The best entrepreneurs are those who ask the right questions and know how to listen and incorporate many different viewpoints in a way that advances her original vision. I’m sure there are many more areas where entrepreneurs should inquire and explore – since everyone’s path is different. In fact, an entrepreneur that “has all of the answers” is often more in the dark than they may think. I’d love to hear your questions and experiences in the comments below.