Pattern Interrupt

Brutal Bootstrapping

When I co-founded my most recent company back in 2007, my partner Steve and I shook hands on a commitment to bootstrapping this one with 100% self-funding. This decision was made not because we have anything against venture money, as both of us have had and currently enjoy positive experiences with venture-backed firms. We simply hypothesized that we had a capital efficient business model that could work as a self-funded play. We knew that if we could run hard to profitability on our own funds, we'd enjoy huge flexibility in how we run the firm, in perpetuity. We both agree today that it was absolutely the right call: We turned profitable in our first 12 months in the market and now we're growing very strongly into 2010. The gambit worked for us. This is the first time I've done a startup without any outside funds, and looking back now on the first 2 years, I have some insights that might help other entrepreneurs as they struggle with the very real question of growing organically (that is, your own money, or that of your friends and family that comes without institutional structures) or taking outside angel or VC money. It really comes down to a few variables around what you're capable of doing in your first year...

These are 5 questions to ask yourself if you're thinking of bootstrapping with modest funds:

1. Can you start selling quickly? If your initial business model requires an unspecified development or R&D period before you can even think about customers and a pricing model, its going to be almost impossible to self-fund your company to profitability unless you have really deep pockets and don't mind revising your spend plans every step of the way (not recommended.) We build software, but we also knew what we were building and exactly how long it would take -right down to the week- (thank you, Agile development methodologies!) in order to deliver a complete offering to our first paying customers.

2. Will customers pay you quickly? Its one thing to know you can build something you can sell quickly, but do you know if people or businesses will actually pay you? Seems obvious, but find out before you start. We actively interviewed prospective buyers of our software service before we wrote the first lines of code. We showed them detailed product mockups and how it would be used. We added capabilities they wanted. We talked to all kinds of users involved in the purchasing process. Doing that, we confirmed that if we built it, a handful of awesomely wonderful "believers" would buy it from us. Most importantly, we confirmed our payment terms. We pursued this as a collaborative process, and we came up with a pricing model that worked for them and us. Consumer and B2B plays have different paths to this knowledge, but you need to follow that process.

3. Can you build only things you can sell? Brutal discipline in offering design is non-optional. There is very little room for hunches about product acceptance when you're building on a shoestring. If somebody won't buy it, don't even think about building it or adding it, no matter how cool. We made this mistake at a feature level in our software a couple times in the first year... We allowed our desires to supercede direct market feedback. Those features are now long dead, but the cost of lost development cycles taught us a key lesson: You cannot be too obsessive about confirming that every aspect of your product is both desired and supportive of your revenue model  (confirmation = people who don't work for you saying that they want it and will pay for it.)

4. Can you commit to a true hiring process? As there is so little room for error in the first year of a bootstrap, you need to eliminate the possibility of an expensive dud hire. The way to do this is by having a true process. If you can work with folks you've worked with in the past, that's your best bet -get "the band" back together. If you have to hire strangers, then don't settle for less than total rockstars. Really dig deep on all potential hires. Take your time to get it right. If they are developers, demand to see some new work from designers, make back-end developers do real code challenges (our policy is that if a developer candidate whines about a code challenge, move on, no matter how talented they are) Give market or customer facing candidates personality tests (again, if they whine, move on), conduct background references, do brainstorming sessions to see how they work... Leave literally nothing to chance, or you will suffer for it financially and operationally. Of course, even if you do all of this, you'll still likely screw it up... We did all of this and we made one hiring mistake in our first year, but we solved it quickly, which is the next point.

5. Are you willing to cut a loss before its an actual loss? Here, a "loss" could be a non-productive hire, a bad product decision, a demanding customer, a recurring unneeded expense... literally anything that your gut is telling you COULD become a problem, lose it now, no matter how much your brain is telling you that your gut might be wrong. Your gut is probably right, but even if you're just being paranoid, you have to keep this raft afloat to profitability so you must execute with uncomfortable certitude.

In short, product, operational and fiscal paranoia is the fuel of the bootstrapped business in its first year. The paranoid self-funders who survive their first year in business can aspire to become well-adjusted entrepreneurs when they turn profitable.

 

Happy to hear any other perspectives on this.

The Work/Life Flatspace

Just had an interesting insight with an entrepreneur friend of mine over the weekend. Alex is a technologist I'm working with on an early stage company just getting off the ground. We were colllaborating on an issue throughout the weekend. In the spirit of levity, I made an offhand comment about this weekend being heavily tilted towards the  "work" side of the "work vs life" balance.

But, Alex made an interesting retort with total sincerity, "I disagree. The notion that there should be balance between work and life is the problem itself. Its all just life flatspace with different nodes of activity. The more connectivity and intensity amongst the nodes, the more robust and novel the life."

Alex is right. It seems small, but its a useful reframe of mental model, especially if you are burning really long hours per week and fighting this sense that your "out of balance"... Instead, one can consider that you have a flatspace that is your entire life of activity. Some things you fill it with are professional, some are recreational. Some take lots of concentrated effort, some are relaxing. Some are stressful, some are blissful. Combining all of them creates novelty and robustness for all of your life's activity. The emphasis then becomes one of shaping an aggegrate quality of experience, regardless of whether it might be have been parochially defined as "work" or "play".

 

Momentum Trumps Prfectn

For any startup, there is an ever-shifting balance required between the desire to "Get Stuff Going" (Momentum) and the desire to "Get Stuff Just Right" (Perfection).

While the qualities of Momentum and Perfection are obviously both very important, I would argue that Momentum should always trump Perfection early on. Getting confused on this can screw up a company before it even gets started.

Momentum is the fuel for literally every aspect of the young company's operational success: Team assembly, product development, funding and revenues.

Starting a company is an unnatural act. It therefore requires an immense amount of energy to successfully come into being and reach the point of profitable self-sufficiency. The key to getting to that self-sufficiency is creating cycles of energy that become increasingly Perfected with every iteration... Think of it this way: Momentum buys you iterations to achieve Perfection. We have to plan intensely and well, get as close to a Perfect hire/product plan/market plan/capital raise as we can, then you have to just go execute, because that is how Momentum is established.

I would rather get things 80% right and be moving forward with increasingly effective (read: historical error-correcting) execution than to have perfected an aspect of the company at the expense of getting momentum. This might seem obvious, but its sometimes tricky to catch ourselves when we are inadvertently elevating Perfection above Momentum.

Here are 10 random examples that a team might be elevating Perfection over Momentum. I'm sure you can think of more:

1. Waiting for the entire team to get assembled to start developing product. (Start building what you can with who you have!)
2. Shopping for ideal funding terms when the ones you have are good enough (There is a big opportunity cost to execution for a small team to hunt the perfect whale for funding)
3. Trying to bake-in details of today's market reality into a product that won't be out for a year (You're probably over-designing.)
4. Developing go-to-market plans that hinge on contingent future successes ("When we achieve x, then y is a slam dunk. So, we should have z in 12 months.)
5. Holding off on a launch of a product because one or two key features are behind schedule
6. Not pursuing a big customer because you think they'll say no because the product is not "feature-rich" yet
7. Letting customer/user requests for features drive your product planning to excess (fear of disappointment)
8. Holding off on doing something because a future rockstar employee (architect, sales VP, new CEO) is supposed to be onboard in "the next month or so" (Rule of thumb: If something is truly happening at any time in the next 2 months, you'd already know exactly when. If you don't know exactly when, its at least a quarter away.)
9. Not firing an employee because you think you can fix their deficiencies in short order (aka, "Perfect" their wrongs... Newsflash: You can't usually do this in a startup. You made a bad hire. Get over it and get rid of them as fast as you legally and ethically can, even if it means a few things drop. Preserving team momentum and standards are worth it.)
10. Waiting to pursue additional funding until you think the company is in "optimal position" to get a good valuation. (It will take longer than you think, and you risk slowing everything down and decreasing negotiation leverage. Go for it early.)

Momentum is extremely powerful, but it means developing a tolerance for imperfection. We are not in the business of Perfect, we're in the business of making things happen that get closer to Perfect over time. "Fail forward fast" is a great saying by Tom Peters. That's exactly what we're talking about here when we value Momentum over Perfection.

 

What Stumbleupon Got Right

I've been fortunate to be close to the Stumbleupon team since the earliest days, first as an early user of Stumbleupon and then as the company's first investor and advisor who helped them get moved, incorporated and set up here in Silicon Valley. I have to say that I continue to be amazed at the number of things that the Stumbleupon team "got right" in its trajectory. Like all companies, it has its many warts and weaknesses, but it really nailed so many of the important things that are "must dos" for a startup.

Here's my list of things that the SU team did exceptionally well that contributed directly to their successful 14 month-to-$75 million exit to eBay in 2007 (and will likely inform their continued success post-spinout from eBay):

1. GOOD INITIAL TIMING. Stumbleupon started quietly in a downturn when nobody was paying attention. Talk about anonymity: Imagine it is the tail end of the last recession and you are 3 guys freezing up in Calgary with no tech business experience and no real funds and you decide to build a button that delivers random webpages as a downloadable toolbar for Firefox only... Not a lot of attention coming your way.  But, as many of us are finding in this most recent downturn, that is a massive blessing. Crazy ideas in recessions are a hallpass to create massive distance between you and any future competitor. You get more iterations and more failures under your belt without penalty. Best of all, you can execute in a space that doesn't even actually exist yet. When SU started, here is a shortlist of common things today that did not yet exist: Tag clouds, YouTube, bookmarking services like del.icio.us, Mechanical Turk, Digg, the concept of non-directed search ("discovery" today), plug-in or app stores and suffice to say, "web 2.0" was not yet a glimmer in Tim O'Reilly's eye (well, okay, maybe a glimmer. He's pretty smart.) Geoff, Garrett and Justin were riffing on all of these themes without identifying them. It was very fluid, very fast and a ton of fun. Everyone sensed something unique was happening, but did not have words for it yet.

2. RABID FREAK ADDICTS. The early community in Stumbleupon was full of people who gave up their lives to the algorithm (you know who you are, since you're probably the first people reading this post...) Understand that these people aren't just "raving fans", they're "Rabid Freak Addicts" (RFA herein) These users, a tight subset of the first 100,000 or so users of SU, were very unique. They are largely still intact as a core today and are the silent backbone of the community. These are people who way back then already had 20,000 stumbles under their belt. RFA pretty much lived to Stumble. They cared about the community deeply. They policed it, managed content, innoculated SU against spam, corrected category errors, tested features and drove the founders crazy... But there was a clear understanding that this group of Stumblers was critical. Their recommendation feedback on pages was essential to the success of the community and it wouldn't have worked without them. Any startup needs its version of RFA. In an enterprise startup, the RFA might be less freaky, but you want folks who take you beyond hardcore. You need a small cadre of hyper-passionate customers to make your play get escape velocity.

3. A BOOTSTRAPPING MENTALITY. The founders of SU did not have outside funds until they had already started generating revenues from their own proprietary advertising model, which is still its primary revenue source today. It was never an option to the founders to rely on some never-never future revenue stream by monetizing eyeballs and Adsense. They built their own way of making ad revenues with sponsored stumbles. It worked and its still a high leverage revenue stream that has never been successfully duplicated by a competitor. Most importantly, the founders had the mentality that they MUST have a revenue model. Was it perfect? Nope, but it was self-contained and basically true to the user experience and was therefore accepted by the community. This attitude then greatly informed how Justin, Garrett and Geoff looked at fund-raising when we got set up in San Francisco. They wanted just enough to hire folks and attract talent and not a penny more. One can argue the pros and cons of that attitude, but I would submit that its better to learn to get by on crumbs and then move to a small balanced meal rather than going hog wild at Old Country Buffet the moment that you can. There are exceptions to every rule, and I can argue either side of this depending on the company, but I think history bears out the value of "caloric restriction" on the early funding front for consumer web software plays.

4. SIGNAL TO NOISE DETECTION. The entire team from development to marketing at SU was very good at separating transient trends from resonant ideas with long-term impact. By the time the guys were down in San Francisco, the web 2.0 frenzy was revved and running strong. Because the team was from elsewhere and socially removed from Silicon Valley culture, they were wallflowers in the larger community (Garrett has now single-handedly made up for lost time :-) This was useful for perspective-building, as there was a ton of pressure and uncertainty surrounding the team about what the "right" moves were. "Be more like Digg", "emphasize social networking more", "develop a non-toolbar version ASAP"... On the whole, I think the founders did a great job ignoring pretty much everything that was distracting to their core mission of making a better stumbling experience. "Stumble is not web 2.0" was often uttered within the company office. Being in that community but not of it was critical to the team's focus.

5. SITUATIONAL AWARENESS. The founders of SU had a very good sense of larger macro-trends happening around them. They did not need to sell the company to eBay or any other company and they easily could have "gone long" and raised an insane amount of money from the best names in venture capital. Many very smart people were encouraging them to do so. However, I recall several intense and candid conversations where they all looked at the market arc taking place around them and realized that it simply was not sustainable. The web 2.0 bubble had created a once-in-a-lifetime situation and the founders wanted to execute into that opportunity. They had seen the rising M&A valuations of other extremely young companies like theirs and they correctly ascertained that it would not continue to rise indefinitely. Discussions of the larger economic environment also informed their thinking: would there be a tech recession in 2008? (they suspected it was 50/50) When would the next exit ramp be if so? 2011? 2012? Given the very small amount of funding they had taken at that time (a little over $1 million) the decision to sell was still completely theirs to decide...  in the future, with future funding, they knew that would not be the case. I think they made the right move. The real lesson for other entrepreneurs is that they had a keen situational awareness of their wider market realities and they were willing to act on their own best judgement.


Lots of great learning from a fascinating young company. I look forward to watching the guys do it again :-)

 

Passion Turns Cold Fish Into Sushi

My favorite restaurant in the world is a little sushi place in San Francisco. Roger, the owner/chef, is pictured center here with me and one of my good friends, Om. Roger is a true culinary genius. He's one the most passionate people I've ever met and there's so much a guy like him can teach anyone doing a startup.

1. Treat Work Like a Hobby. Roger works six days a week at his restaurant and he almost never takes a vacation. If he does, the whole place closes. He calls being a sushi chef his "hobby". I love that. He is not being coy, either. It reflects an honesty about vocation that is really rare. He loves to play, and his play is his work. Your startup should definitely be your hobby... just maybe not your only one...

2. Create An Experience. Roger loves to entertain his guests. His meals become a true experience from start to finish. The stories behind the fish, the banter, the creativity as he makes up a new dish on-the-fly, the revelation of something new he's experimenting with.  He knows that what surrounds a food makes the sensation of eating it all the more enjoyable. The same thing applies to whatever it is you're building in your company. If you're just pushing a product out the door, you're just serving cold fish... the opportunity to make your customers part of a larger mission/experience is a highly desirable goal.

3. Don't Take No For An Answer. When you first come to his place and sit at the sushi bar, Roger will ask you what you don't like. He may well then proceed to give that very thing to you if he senses that your objection is merely from a lack of exposure. I've seen it time and time again. "I hate Salmon"... up comes a plate with 4 kinds of Salmon, "Just try these. If you don't like them, you never have to eat Salmon again." He's made many a new Salmon lover, Mackerel lover, Octopus lover or Sea Urchin lover with this method... The lesson here is obvious: Customers don't always know what they like or dislike, they only think they do. Sometimes it pays to push their boundaries, just do so in a comforting way.

4. Go For Quality, Not Cost. Roger orders all of his fish directly himself every single day and he only buys what is fresh. He the only sushi chef in the city with several kinds of uncommon fish on any given day... stuff like flying fish or pencil fish or rare Japanese fish like Kinki. He buys the best because that's what his customers want. But they want it because Roger introduced them to that level of quality. If he had stayed focused exclusively on more cost-effective options, none of us would have the benefit of his exemplary artistry. In the tech industry, the same rules apply: "Pay" for quality people, resources, design, and even "pay" to get quality customers, especially in the early stages...  Pervasive hallmarks of quality add up to an entirely different level of execution. It sets the DNA of everything you do. Note that in the business case, the currency you pay might be time (waiting for the right hire) or labor (working to get it done right), not just money.

Roger is a joyous man operating at the apex of his profession. Whenever I see somebody like this, I know there's tons to be learned. You just have to shut up and watch... and in this case, eat!

The Tyranny of The Deck

Canned presentations (herein, "The Deck") have done a lot of damage to how we tell our company stories, especially in sales situations of all types (customers, partners, investors, etc.) There are several bad habits that preset slide narratives engender. I've made a concerted effort in my latest company to move completely away from a set sales presentation with PowerPoint. And I used to be a hardcore addict of The Deck. Now, I'm happy to say I'm 'clean and sober' and have not used PowerPoint in months. Our sales are actually accelerating in a profound way because of it (and our sales process has adjusted to this reality, which is another post, as well.)

We sell to a corporate audience, and our decision to step away from a "show up and throw up" approach to customer engagement helps us better meet our customers' actual needs, respond with our authentic expertise, and address their real questions instead of driving to our presumably safe talking points.

In a subsequent post, I'll share my thoughts on the good stuff that a well crafted and "open-ended deck" provides, since some businesses absolutely require one. Here are my gripes with The Deck that led me to give it up:

1. The Deck Gives False Security
A presentation deck gives you the completely false security that you're doing the right thing for your audience. Just because you've put a lot of thought into a presentation and it looks great does not mean you're connecting with the audience. Very few people are ever going to tell you, "You've failed to connect with me in a meaningful way because of your presentation's structure." It would be fun to say that to somebody, though...

2. The Deck Forces Linearity Where It Doesn't Belong
If you've done a presentation repeatedly with any given deck, you've probably felt irritation when the occasional audience member will take you "off-track" versus your normal pitch, right? Its actually your problem, not theirs. They may well be taking you towards their biggest pain or desire, but your past patterns of reliance on going section by section and slide by slide are forcing you into a rut. You're actually MAD at them inside for taking you to their concern because its not the way you like to tell your story. This is a really bad habit, especially when selling.

3. The Deck Makes You a Talker, Not a Listener
If you're selling with your deck, it means your doing a lot of talking and not listening to the customer. Period. This is bad. In a 60 minute meeting with a 15 slide deck, you're going to probably talk 70% of the time, minimum. You're giving a ton of information that may or may not be relevant. Its easier than thinking about detailed questions you'll want to ask a customer or partner to actually create a solution for them, but it sure feels safer! Listening means asking good questions that evoke the other side's engagement. Its far better than slide warfare.

4. The Deck Suggests New Objections For Your Audience
If you are using a big fat deck to sell to a customer or investor and you're doing a major "data dump", you're almost certainly bringing up questions that the other side would not have thought of on their own. You might think you're being thorough, but you're also creating the opportunity for somebody to say no for a reason they had not even considered. Showing what people want to see and know about is far superior to proactive presentation of what you've curated ahead of time.

5. The Deck Makes Business Boring For You And Your Audience
Last and most importantly, presenting to people with The Deck is really boring. I greatly enjoy how my sales calls go now knowing that I have only a general idea where my customer is going to take us. I have a method and a very sound approach, and I have all the data I need to answer any of their questions, but I am excited to have these open conversations with them because every single one of them is unique. "I thought today we'd have a structured but open conversation about what we do and what you may or may not need instead of me walking through a big, boring PowerPoint, is that okay?" The answer is always "Yes!"

Next post, I'll share some general thoughts on what needs to be in place to get beyond The Deck with a truly engaged presentation style. That way, even if you are using "a deck", it won't be The Deck!

6 Archetypes of the Advisor

Surrounding a startup with a useful advisory team is critical. Many young companies treat advisory recruitment as an ad-hoc process, or as a kind of reward for past deeds. The good news is that with minimal planning and awareness, a network of high-functioning advisors can be created that lifts an early-stage company to the next level.

The first step in getting systematic about advisor recruitment is identifying the types of advisors one can have and the roles those types play.

Here is my list of the 6 "Advisor Archetypes", based on personal experience. In reality, any individual advisor may well encompass multiple of these archetypes and they may change over time.

1. The One
This is the advisor archetype that messes with most entrepreneurs' heads: The famous or notable person, aka "The One". You hope The One will lend you instant credibility because they're either outright famous or highly regarded in their field (e.g. a regaled CEO/CTO, a famous scientist or academic, a celebrity, an author, a high-profile serial entrepreneur, etc.) Your desired projection to the world is that the sheer genius of your idea was sooo compelling that this incredibly successful individual -despite all odds- wants to work with little 'ol you. Indeed, having The One in your advisory network can be extremely useful in opening up doors and establishing much needed credibility. But this is skin deep if they really are not close to your company. The reality is that big names in and of themselves have minimal value... much less than the entrepreneurial team hopes they would carry. A company's voluntary mentioning of its famous advisors or investors seems roughly inversely corrolated to its operational maturity. If you are gunning for adding The One, be clear on their participation. Do they actually know you? What are your motivations for asking them? What are their motivations for being involved? How can you use their reputation to your benefit (be concrete)? Do you actually respect and want their insight or are you, to put it bluntly, "starf--king"? Resist the urge to include a big name if you do not have a clear rationale for doing so that you can articulate. Have a clear mutual understanding from them regarding their expected role. Just because they are "famous" does not mean you've abdicated the right to ask them what their commitment to your company will be. Here's the rule: If they're famous or noteworthy, its presumably for a reason, and that presumed reason for their success better align with your business objectives in some plausible way or you're wasting your time and indulging your vanity.

2. Money Bags
Investing and advising are distinct activities. When you forget that fact and think that "investing = advising" you open yourself up to a Money Bags advisor. This is a crapshoot. Some teams end up with an advisor that seems to be involved for no other reason than their high net worth and interest in entrepreneurship. When you first met with Money Bags, they may have seemed smart, they may have asked good questions, or expressed what I call "vague enthusiasm" about "being involved". They typically have little or no domain relevance to what you do everyday. They may have become one of your angel investors or they may just be an advisor that you selected because they seem like the kind of rich person that's useful to "have around you". In either case, you still walk away from every meeting with them having the sense that its all still sort of... vague... like you're living in parallel worlds. You really want this to make sense: they're rich, they're interested, alas, their value beyond that doesn't seem obvious. Money Bags is useful if they're also interested in investing in your company and they want the strokes of being considered an "advisor", but you will probably find them of very low mid to long-term utility unless they can morph into someone who provides real insights. Net worth in and of itself is of limited value in an advisor... and that's why investors exist. Find out what they can do for you on an ongoing basis. I've seen teams turn distant Money Bags relationships into very positive advisors for fund-raising, financial advice, operating advice or personal mentoring. 

3. Rolodexter
Amongst the most useful advisor archetypes is Rolodexter. As the name in implies, they're all about linking you up with people and companies. Rolodexters are unique because they derive significant personal satisfaction from the act of people meeting each other and watching the interaction take place. Rolodexters come in various flavors with different kinds of networks and levels of aggressiveness. The challenge with Rolodexters is that they don't want to be viewed just as an access gateway to other people for you. NEVER lead by telling a Rolodexter that you want them onboard because of their connections... You want them for their expertise in [insert area of expertise that makes most sense]. Thus, its imperative that you establish an onging relationship with them that allows one of their other areas of expertise to inform your company. Otherwise, they'll feel used and abused. Try to set up regular meetings with them to keep them abreast of your developments and solicit operational feedback from them. Don't pump them for names all the time. Their emotional connection to your company's tactical activities will fuel how much they talk you up in their myriad circles of influence. They'll do the work for you if you cultivate a real relationship around company operations. 

4. The Shrink
An overlooked archetype that more entrepreneurs really need to consciously recruit to their advisory roster is The Shrink. As you can guess, this is the advisor who supplies the team with more human-oriented wisdom and insight. They may well have a lot of operational experience, but what comes to the fore is an understanding of the interpersonal aspects of building a company. They may be a professional investor, an academic, another entrepeneur, or even a mature friend of the founders whom they trust 100%. Trust is what the The Shink is all about. They are the go-to advisor when shit-hits-fan and the team needs to get a 3rd-party mirror of what they should do (e.g. how to fire somebody, what to tell a board member, solving a private founder dispute, etc.). The challenge with The Shrink is that you usually cannot go find them. They usually show up after coming in some other context. They evolve into The Shrink based on shared trust with the team. You can spot them early, though. They're typically the individual who asks more candid questions about your team dynamic, how you're doing personally, what your goals and fears are. If you see those kinds of signals coming from an advisor, you may have found someone you can cultivate into a meaningful trust-based relationship that is very close to the team's mind and heart.

5. Kung Fu
Another advisor archetype of high importance to the emerging company is the outside domain expert who brings their otherworldly professional awesomeness to bear in your company. We'll call this operational magic Kung Fu. Kung Fu advisors can come from anywhere (academics, technologists, executives, government, etc.), but they are on the advisory team because they have a deep, robust knowledge in the company's area of operation. They figure stuff out in 2 steps where the team was spending 8. When they speak in a meeting with your team, mouths shut up and pens come out. When Kung Fu says, "that's not right", you're happy they said so. Their functional expertise could be anything: product design, business development, legal, marketing, etc. You need good Kung Fu. The good news is that they are typically the easiest to find, because your young company is already present in Kung Fu's sphere of activity, by definition. Kung Fu can also be recruited pretty easily, because their ability to grasp the foundations of the company are higher than anybody else's. Its important, however, that Kung Fu get recognized by the company for their expertise. You can't just suck their brain dry in exchange for a small percent of the company and expect them to be happy. I've seen more than one Kung Fu "master" feel taken advantage of, even with a traditional equity stake in the company. It's about emotional connection and respect. For example, find platforms for them to expound to your entire team about what they know so they get public or quasi-public recognition. Somebody who has dedicated their professional life to a given field wants to be recognized for that investment, so find ways to help them with their goals. Ask them what you can do for them so that its viewed as a mutually beneficial relationship.

6.Chess Master
The final archetype of the advisor is the individual who brings insight resulting from experience to the table. Unlike Kung Fu, Chess Master doesn't traffic in domain expertise, even if they have it. They're lasered-in at a different level, focused on The Game: Funding paths, new market entry, team expansion triggers, creating exits. This person is often an experienced entrepreneur or investor. But they might be a seasoned lawyer or technologist, too. What they share in common as Chess Master is a deep familiarity with company building of the very type you are engaged in. they've "been there-done that" multiple times. They've seen every opening gambit, and they've experienced both sides of checkmate. They can steer you clear of huge messes and provide insights and skill-sets that keep you on track. While these folks are easy to identify (you know them when you see them), it is actually very hard to get the Chess Master baked into your advisory network for one simple reason: Its a function of their time commitment to your company. You can have somebody who you think should be your Chess Master, but if you only talk to them twice a year, its not going to be all that useful. This points to the critical fact that establishing an upfront understanding with a potential advisor is critical. Tell them what you want from them in concrete terms and ask them how much time do they realistically think they can provide to your team (and cut whatever number they tell you in half). Note that in venture-backed startups, Chess Master is the self-annointed role many VC partners give to themselves, but that doesn't mean they're actually your Chess Master. Especially since some of your "moves" might at times entail decisions that run counter to your VC's wishes (e.g. follow-on financing round negotiations), it behooves you to have a Chess Master of your own as the entrepreneur.

Hope this exercise brings some clarity and planning to your advisory activities.

The Two Companies Every Startup Builds...

Any entrepreneur seeking funding for an early stage company needs to get straight about one key thing: The minute they start pitching outside investors, they are building two companies.

The "first company" in the startup cycle that an entrepreneur builds is the one that they automatically exit at the moment of funding.

The "second company" is the one that actually gets built on the shoulders of the first.

I've found this mental framework helps teams pitch with much better efficiency. It forces the recognition that investors have different pains and desires than a young company's potential customers do.

This first company is an odd duck, from start to finish... It should be much more open-ended and unsure of destiny. It doesn't need to have all the answers. It's a vast virgin territory with lots of natural resources to be mined and developed and the entrepreneurs are simply cartographers pointing out the wealth on a map.

Smart teams know that this first company is all about selling the potential to participate in the building of a company.  Its selling an experience to the investor. This calls for a very different kind of storytelling.

When I listen to fellow investors and VC friends talk about companies that excited them, they're discussing how "we" are building something cool, new, or groundbreaking with a fantastic team. There is always an implied participation. The power of investor inclusion is often missed by a lot of younger entrepreneurs. They come in and think that certitude and conviction (desirable traits) are best expressed through a highly detailed lock-step walk-through of a great business plan...Unfortunately, they're selling the second company already and they think that's what the potential investors want to hear. The best investor don't want that. On the contrary, the courage to be limber and responsive to fresh input -to admit where the team has been guessing- shows greater maturity and a disposition for success.

This first company must allow the investors to connect their own dotted lines. Let them discover key insights. Allow their organic ideas the space to take root in the team's garden. Less convincing, more exploring. Build openings for inquiry into the strutucture of the presentation itself.

At the level of emotional dynamic (which is where invest/no invest decisions get made), the more a pitch meeting resembles a constructive brainstorming session, the more likely a startup team is to succeed in getting that investor or firm to imagine themselves actually working together in the future.

Of course, do homework, know markets and products, have general GTM plans and pro forma answers at-the-ready, but come to the meeting selling the first company, not the second one that will be built with the capital from "exiting" the first!

There Is No Such Thing As a Crisis

You've heard this before: "We have a real crisis situation on our hands here!"

...Your last option for funding your venture just fell through and you're out of cash next Friday.

...The entire system crashed and the most recent data backup is from last month.

...Your two key employees just emailed you to say that they quit to join your biggest competitor.

Are any of these a legitimate business crisis for a growing company?

I would argue that you should calmly say "nope". Saying "yes" to the idea of a crisis is giving yourself permission to be reactive and slip into non-action or victimhood. That will never help solve the situation.

If you have time to label something a crisis, you're actually just experiencing a sub-optimal situation.

We think we're dealing with a crisis because our body is telling us in no uncertain terms, "WHOA, THIS IS A CRISIS!!" What's that feel like? We're stunned and on the ropes. Increased heart rate and blood pressure. A sense of tightness in the chest. Heavy legs. Dizziness. Dry mouth. You might feel like you want to run and hide under a rock. You might start screaming at your colleagues. You might fall into resignation and do nothing like a lamb at slaughter.

When we experience crisis triggers, we're not in a position to think or act our way through a business situation and that makes us even more anxious. Even though that anxiety-ridden bodily reaction won't help us, it happens anyway. We're dealing with a physiological reaction to "bad" information that has come into our body. The information is not what we want to have happening to us. We show ourselves a very quick movie of a high-res doomsday scenario resulting from this bad information and it is so utterly convincing to our body that it goes into an evolutionarily adaptive response that unfortunately has no place in the conceptually abstracted world of 21st century business.

In other words, our bodies think they're about to fall off a cliff and our minds are worried about insufficient future cash flows. Something has to get re-aligned here.

The metaphor of telling oneself or somebody else to "control your emotions" does not work. Emotions are, by definition, beyond rational control. Don't fight what we're feeling, but instead give it a larger frame of reference so that our emotions themselves ease up and expand back to normalcy. Imagine a pinball machine with the ball bouncing around violently. That's our emotional state when in a perceived crisis. Now imagine the playing field of the pinball machine being 10x bigger with the little metal ball itself staying the same size... What would that look like? A heck of a lot more space between bumpers means a lot less banging around, less kinetics. That's the kind of space we need to create for our emotions to run their natural course and return to normal.

To achieve this goal,  there is a conversational exchange that two or more team members can have when the inevitable "we have a crisis" situation shows up in your company (and they always will)... It only requires one person to be the Calm One to however many Freaked Ones there happen to be with bulging veins and dry mouths.

Calm One: "Okay. This sounds serious. Question for you, do we have time to react to what is happening around us on this?"

Freaked One: ".... Yes."

Calm One: "Okay, then lets remember that we are not in a crisis, we are merely in a situation. Do we have time right now to formulate a series of actions?"

Freaked One: "Yes, I suppose so."

Calm One: "Okay, so we have room to work on this calmly. Cool. So, can you take a guess at how many decision cycles we can go through before we run out of time?" (Force a guess on the Freaked. It doesn't matter.)

Freaked One: "I have no idea... I'm guessing maybe 7 potential things we can do, maybe 8 if we have til Friday." 

Me: "So, we have plenty of time to use our minds to think logically through this situation and come to 7 iterations of decisions. Okay. Sounds like we are in a time-sensitive situation but we can execute into this. Is that right?"

This sort of exchange helps quickly reframe that we are, in fact, not helpless and faced without options. It creates an expanse of available working space with which to solve business problems. Such a situation might be time-challenged, but it is not a crisis. Crisis is not a useful term. We almost always have actions available to us, and more than we initially think.

Whenever your team comes in with an emotionally charged reaction to a "crisis", help them shift back into execution mode NOT by smothering out the emotional state or denying it, but simply by changing the assumptions of the current situation. Expand their perspective to include the more than ample time to engage actions that can lead to a solution.