An investor's take on what new founders should understand about themselves in the New Year

The Indian startup ecosystem still has a long way to go. Till we get to that hallowed state of real cash exits, Sanjay Nath of Blume Ventures shares a framework outlining two vital dimensions by which most entrepreneurs can be defined, measured, and tracked. For all the new founders, here's something to take away with you to 2018.

As another year in the startup ecosystem draws to a close, one has just a bit more time to reflect on the past years, with another eye focused on what 2018 has in store for us.

Are we closer to that Holy Grail that defines startup success – are we getting better and better at picking the breakout startup winners?

The answer isn’t simple – the early stage is well, still “early”. Only end results, in this case real cash exits (and not just one or two, but a series of them) will be the ultimate proof.

Till we get to that hallowed state, rather than attempt at offering a prescriptive answer, I’d prefer to share a framework outlining two vital dimensions we’ve come to see most entrepreneurs can be defined, measured, and tracked along.

Founders' core

1. Founders, keep dreaming

A favorite quote, from the Knight Management Center at Stanford’s Graduate School of Business (GSB)

Put simply, all founders are dreamers at their core. Their life stories and vision evolve from a pathological obsession around solving a core pain point for the customer/user. This gets sharpened, refined, and honed to a final offering. This capacity to dream is key to any founder’s core.

1. Making it happen

Entrepreneurs are different from “inventors” – dreaming is a necessary but not a sufficient virtue. Equally, founders have to also “make things happen”. Using a Hollywood-esque term, they have to convert their dreams into reality.

Good founders have or develop the ability to execute their vision, often with bootstrapped resources early in their lifecycle, further fuelled by angels and early-stage VCs (like Blume), to keep pressing ahead. They have to be great executors. 

Framework introduced

Translating this into our world of startups, let’s frame this discussion along two dimensions

• Dreamers (evangelisers) and
• Doers (executors)

The Evangeliser

Background

By nature, this founder has the ability to

• Excite early team members, including co-founders to join a startup at what is a risky stage.
• Similarly, excite the earliest angels and subsequently VCs to invest.
• Tell and sell the story to customers/users, early-stage/growth/late-stage VCs, and the ecosystem more broadly.
• Position himself/herself as an industry thought leader and the startup as the same.

Translated to the startup context

In the Indian-tech ecosystem, many consumer internet companies have been led by charismatic and energetic founders, who sold their narrative in a powerful way. Many of these (mainly consumer internet) companies were able to successfully raise multiple rounds of funding – some of them have done well and are still thriving, while others are somewhat surviving.

On the other hand, a fair number also died despite massive amounts of capital raises. A core reason could have been the inability to differentiate their startup and successfully execute – leading to suboptimal results, consistently missed targets, and an inability to build organisational scale.

So, evangelism by itself works, but only to a point. Decoupled from executional ability, the founders/startups in question would plateau at best, eventually faltering and failing.

The Executor

Background

By nature, this founder has the ability to

• Win users/customers (borrowing from the hit show 'Silicon Valley', “it's the tech that sells!”) by the product/service/platform quality.
• Build the startup from a “project” into a “business”, realising meaningful MRR/ARR metrics, growth, and scale, and eventually a clear path to profitability.
• Doesn’t necessarily require successive capital raises
• Exceed or at least meet quarterly/YoY targets

Translated to the startup context

Some of these execution-oriented businesses often include B2B startups, focused on achieving real business impact to large-scale enterprises – and are often not in typically “glamorous” sectors/areas.

A recent survey by a leading tech investment banking house showed 80 percent of all internet dollars went to the top five to six B2C giants. The rest was spread across B2C and a handful of B2B startups.

Some of these founders are not as easily able to excite angels and VCs (relative to their “evangeliser” brethren), but they are able to win users/enterprise customers. In today’s demanding state where investor scrutiny is much higher than in 2014-16, a founder’s execution ability can’t be over emphasised – it is vital to success.

Summary

• Revisiting the ExE framework, clearly, the top right-hand side quadrant is the ideal desired capability end state.
• Founders need both capabilities – after the “sell”, the quality of product itself will make the difference. However, the sell is an art as well.
• All too often, we are over-excited by the evangeliser who is able to excite early employees and investors. But the executor is able to win users/customers. If a startup has a growing base of customers/users, investment should follow (rather than the other way around).

Naval Ravikant of AngelList put it nicely: “The ideal combination of founders is a complementary duo – one who creates and executes the product (executor) and the other, who then commercialises and sells it (evangeliser).”

Here's a recent quote from the Appdynamics Founder-CEO Jyoti Bansal (which was recently acquired by Cisco for $3.7 billion): “There are startups in India – and then there are real startups/businesses.”

Finding a balance

We need both dreamers and doers. They are the yin-yang of startup entrepreneurship. One founder may or may not (in fact, will not) have both in equal measure. The best founders work hard to build capability along both measures, at least in aggregate and are able to scale their organisations as such.

In simple, direct, and jargon-less startup parlance, the ideal founding team should have in equal measure,

A founder/s “who can dream up s#@t”, and his/her co-founder/s who can “make that s#@t” happen”!