Startups as rockets: how founders and employees can approach fundraising and company-building
Startups love rockets. We launch our product and we want others to join our rocketships. Sometimes our startups really take off and sometimes we crash and burn. Some of us use rockets in our logos and some of us go as far as using them in our names.
There is a good reason for this -- startups and rockets share many similarities. And thinking of startups as rockets can yield valuable insights as we go through our journey of building our team, finding growth engines, fundraising, and more. This mental model is not a prescription for how to do things but a way of looking at the world and seeing things differently.
What kind of a rocket are we?
Rockets come in all shapes and sizes and they are built for different purposes. Ultimately, their purpose is to go from blueprint and into space. In this journey, they go through multiple stages.
Applying this mental model to startups, we see that startups that succeed and have lasting impact go through these stages:
- Bringing together good founders and a strong founding team
- Building a defensible product solving a real problem
- Getting strong validation from early customers
- Acquiring new customers predictably with strong unit economics
- Developing a team that repeats the process for new business lines
Startups may go through these stages in their own sequence but most will have a journey like the one above. As founders, we need to assess our companies honestly and identify our stage. It will tell us a great deal about what our top priority should be and where the majority of our time should be spent.
Imagine a startup with a great product for which no customer wants to pay. Should they fundraise to hire a team? Maybe their time is better spent finding customers who really want their product. Or building something for which customers will pay. It is important for founders to know the stage of the company and act on it.
When and how much funding should we take?
A startup’s journey is risky just like a rocket’s. So many things have to go right for a startup to succeed.
As founders, we need to remember that venture capitalists are not in the innovation business. They are in the investment business taking bets on innovative companies.
It is their job to invest their investors’ money prudently in companies that are most likely to deliver phenomenal returns. It is our job to convince them that our company is a great investment with an ambitious goal and a high likelihood of success.
Venture capital economics dictate that VCs will want companies that can have a huge economic impact. If they think our rocket is going to Mars or beyond, we have their interest. However, we need to be aware that venture investments come with expectations of incredible returns. A few failed investments are fine as long as some do very well.
Venture investment is jet fuel and it will make companies go faster in the direction in which they are already headed. We need to be absolutely sure our rocket is headed in the right direction before we ask for more fuel.
Venture capital also has limited investment opportunities due to their small team size and operating model. This means they will be extremely picky about the companies where they will invest. Demonstrating that a startup is not a risky investment is a great way to get them interested. Venture firms also have different risk profiles based on their philosophies, fund size, stage in which they invest, partner experience, and other factors. Some will want to jump in if they see an ambitious plan. Others will want to invest after a successful launch. Yet others will come in only after a startup demonstrates sustainable success. It is easy for founders to blame investors but it is our job to understand the risk appetite of different firms and approach those who are right for our stage.
Which company should I join?
When Sheryl Sandberg (now Facebook COO) was evaluating whether to join Google, Eric Schmidt (then Google CEO) told her, “If you’re offered a seat on a rocket ship, don’t ask what seat. Just get on.”
Everyone’s definition of a rocketship is different but the decision to join a company should be taken much like how an investor decides to invest in a company. We need to know the stage of the company and map it to the stage that we enjoy and are comfortable with. We also need to evaluate the risks the company has eliminated and see if we are OK with the remaining risks. At the very least, prospective employees should ensure that the company is headed in the right direction, has the right fundamentals, and sees a path to rapid growth.
When I joined Amazon Web Services, then a 250-member startup within Amazon, it was a clear leader in the cloud computing industry. I had an offer from a team whose products very few users could see and which received almost no press coverage. I took up the offer because I valued being a part of the explosive growth story of AWS. By the time I left, I had a rich working experience building a product that is a foundation of Amazon’s real-time computing strategy.
How do we evolve the team with the company?
As startups go through different stages of their growth, every aspect of the company changes. The salaries we can afford, our bar for hiring, whether we want specialists or generalists, who is interested in our companies, how many people are responsible for a given metric, and so on. One side-effect of this evolution is that the team that took the company to one stage may not be able to take it to the next one. They might have to move on or be topped up by someone with more appropriate skills. This is not necessarily bad, just something founders and employees need to be aware of.
Founders need to make sure they are not afraid to make bold personnel choices to take their business to the next level. They should not give employees important positions just because they joined at an early stage.
The famous Peter Principle says that managers get promoted to their highest level of incompetence. Startups cannot afford to have their early employees performing ineffectively at senior roles.
Good founders make sure that everyone is working on things they find enjoyable while also creating meaningful impact. Early employees should not take such changes as a judgement on their loyalty but use them as opportunities to re-evaluate whether and how they can contribute to the company.
In my two years at TaxiForSure, I grew from being a single app’s product manager to building and heading a 12-member product management team. Our team was responsible for every product the company was building. However, before I reached my highest level of incompetence, my boss and TaxiForSure CEO created a strategy team -- TFS Labs -- so I could work on figuring out new business opportunities for the company.
Was it a demotion to go from managing every product decision to running a vague-sounding strategy team? Or was it a promotion to get the opportunity to envision business lines and create new revenue streams for the years to come? It may not be the same answer for everyone, but I embraced the opportunity and we ended up launching two new business lines (Nano and auto) and conceptualised a driver-training university in a short span of four months.
When do we leave a company?
As a company grows, employees and founders should keep asking if they are the right fit for their role and if the company is the right fit for them. A rare few might grow with a company and contribute at every stage. However, most of us enjoy the challenges at one stage but not another and need to recognise when we need to move on.
We have seen numerous examples where founders have relinquished their CEO / CXO roles to operators who are more suitable for the job so they can then focus on things they enjoy more. Not everyone needs to work on moonshot projects like Sergey Brin. Founders could take up a more low-key role or even leave to work on new projects. The same applies to employees too. A company may not be growing as fast as we like. Or it might have grown too big for our liking. We can adapt with the company or join another one if we cannot or do not want to adapt.
Back in 2008, I joined an exciting startup with an ambitious goal of building software blocks that every company could use to create their business. I loved the team, the frenetic pace, and the uniqueness of the ideas that we worked on. We built products that would become hugely popular after other companies re-imagined them several years later. After almost two years of building the products, I decided to move on when I realised my aspiration was to build products that would be used by a lot more customers, something which that startup could not have offered me.
These were just a few ways of applying the startup as rocket mental model. Like all mental models, it is a different way of thinking about the world and analysing situations. I hope you use this approach and share your thoughts on how it helped (or did not!).