The tradeoff Startup founders must never forget

Them:

So, we’ve just nailed our MVP and we are getting some real traction.  Next we’re going to raise capital, get some funding. We’ll probably go to the Valley as it’s easier to raise there. The valuations are more generous. We’re super pumped, finally getting our startup off the ground.

Me:

I thought you were an entrepreneur? 

Them:

What are you talking about? Of course I am – didn’t you hear what I just said?

Me:

Yes, but here is what I heard….  That you’ve finally got something people want, you’re probably solving a real problem and you’re on your path creating value for others, and eventually yourself. But in this process, you’ve got caught up in pop culture. You’ve forgotten that a big part entrepreneurship is independence – creating your own path. So, you’re off to raise money and get caught up in someone else’s objective – that of the venture capitalist. The same group of people who’d rather see you fail trying to build a billion dollar company,  than help you build a $10 million company. Their business model you see, is based on the former, not the latter. 

Venture Capital - the downside

If there is anything startup founders should remember it is why it’s worth doing at all. Startups are hard, and rarely a path to riches. Entrepreneurship is more about exploration and freedom than money. If you want to be rich, there’s more chance of that happening being an employee of a company that already has a billion dollar valuation.

In both cases: a funded startup or being employee – you’ll compromise control. In that case you may as well have the certainty of money that goes with stock options and employment. If you want to be answerable to anyone other than your customers that is.

It’s a rare event indeed when the deal terms favour the founder. Real entrepreneurs find ways to make money independently with that anti-modern thing called a profit. For every example of an entrepreneur succeeding with funding, there are 99+ that do not. It’s a bet I’d never take unless the VC came knocking on my door and / or I could maintain total control and independence.

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The first question early stage startups should ask themselves

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When we being our journey into a new startup we get excited by the possibilities of what we are about to build. Especially when it comes to raising capital to support the project. But in the moment there’s one question we should not forget to ask ourselves:

Is this a technology push or a problem pull?

The answer to this question changes the direction of the entire project. It changes who will care about what we are building. If making money is the objective, it makes more sense to be in the problem pull space. If you want to change the world, Peter Thiel or Peter Diamandis style, then it pays to be in the technology push arena. Both can become commercial success stories, and one isn’t superior to other, it just depends on what we are chasing – it’s really about the ‘Why?’ The thing that really matters is not confusing which of the two our startup plays in and ensuring our expectations match the funding, timeline and outcome realities.

New Book – The Great Fragmentation – out now.

The genius of Paul Graham – essays

Paul Graham of Y Combinator fame has to be one of the sharpest startup minds on this humble planet. His essays on the topics of business, culture and startups are nothing short of genius. I was catchup up on his work recently I found his essay on Frighteningly Ambitious Startup Ideas simply gripping.

If you haven’t happened upon his writings yet, I suggest you log out some time to do it. You’ll be so inspired you might just start to get amped up and take some serious action. They are another reminder of how lucky we are in this day and age to have free and omnipresent access to the worlds greatest thinkers who share their philosophy and ideas for free.

Paul Graham Essays

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The attention economy

My regular readers will know that 2 weeks ago I released a video of a Lego Space Shuttle that we got into actual space. Quite frankly I was surprised at how much attention it got both on-line and in mainstream media (TV, newspaper, magazine & radio). It has had over 1 million views on Youtube alone. It really got me thinking about what tends to win attention in today’s connected economy, and although I don’t really know the answer, it feels more like simply joys and personal interest work better on line than commercial intentions or hard nosed value equations.

And while I’d much rather one of my businesses get this amount of coverage – it has lead to a lot of interesting business opportunities and offers. The attention generated has become its own asset. It has become a proof point in the people behind it and so it creates intrigue from others who want to simply do cool stuff.

So the question for startup entreprenuers is this:

What cool side projects can we do to generate attention around, so that our bigger ideas can attract the resources they need?

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Facebook IPO repurcussions

The upcoming Facebook IPO is a very interesting scenario. Not just from a startup / social media or tech point of view but from an economic one. There are a lot of facts and figures being thrown around, but from my point of view I’m interested in just a few of them and what they mean for tech entreprepreneurs:

100 Billion Valuation: If the IPO is successful the expected valuation is 33 times their current revenue. And around 100 times their earnings. For comparison purposes Apple current has a 14 times earnings ratio while Google has 12 times. Both companies which have established and growing revenue streams. I know which companies I’d rather hold stock in.

68 Million in acquisitions: In the past year Facebook invested $68 million in purchasing other companies. They have an appetite for acquisition. And that appetite will only grow when the pressures of being public come to the fore. It means that startups who have invented ways to extract money from the Facebook platform are well placed to be bought by the mothership. If you have an idea on how to do this get moving, because the stock market pressures will ensure that startups with revenue generation via Facebook will be targeted.

The IPO will create 1000+ new millionaires: All of which will feel a sense of ‘owing the tech community’. Many of whom will feel like tech rockstars and want to start their own Angel funds. Which means there will be more startups being funded by the FB IPO gold rush. If there was ever a good time to seek money from the Valley, post FB float will be one of the good ones.

 

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I don’t…

I don’t have a rich Father

I wasn’t left a sum of money from my Grandma

I didn’t go to Harvard

I don’t live in Silicon valley

I wasn’t funded at Techcrunch 50 or Y combinator

I’m not technical genius

I can’t code the latest killer app

I guess I’ll just have to build my startup the old fashioned way. Work my ass off, invent my own revenue, build a team and improve what I have to offer as I learn from the mistakes I’m bound to make. If you’re still around in 10 years, look me up.

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How to pitch

There is more good than bad in these hilarious Ali G pitches to Venture Capitalists.

What to look for:

  • His tone of voice and pausing when speaking.
  • His reliance on talking. There is no powerpoint.
  • Taking them on a journey. Story telling.
  • Simple visuals. Having samples / props.
  • Supreme confidence

I’d seriously recommend this video on how to pitch versus most other examples we see on the web so long as we understand the context.

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