Tren Griffin's new book presents insights from 35 investors and business coaches. Here are some of the key takeaways on business models, product positioning, teamwork, leadership, customer development, marketing, and fundraising.
The book A Dozen Lessons for Entrepreneurs by Tren Griffin is in YourStory’s pick of the Top 10 Books of 2017 for Entrepreneurs. Each of the 35 chapters presents 12 insights from a venture capital investor or business coach, along with the author’s analysis of each tip. This is one of the few books for startups with insights from investors (see my reviews of Startup Checklist and Angel Investing by David Rose).
Microsoft’s Tren Griffin blogs at 25iq; he was formerly a partner at Eagle River, a private equity firm controlled by Craig McCaw. He was earlier at XO Communications and Teledesic. Tren is the author of six other books, including Charlie Munger: The Complete Investor.
The investors interviewed in the 320-page book are from legendary firms such as Sequoia Capital, Y Combinator, Benchmark, Union Square Ventures, Andreessen Horowitz, Greylock Partners, Draper Fisher Jurvetson, and Kleiner Perkins Caufield & Byers. The featured business coaches include Bill Campbell and Eric Ries.
Each chapter has insightful and witty quotes; see the separate compilation of quotes here, as well as the author interview and our weekly column Storybites, a curation of top quotes of the week from startup journeys.
“Startup building is hard. There is no manual for it,” says Ann Winblad of Hummer Winblad Venture Partners. Though there is no single success formula or recipe for founders, there is a wealth of insights from their peers and the investor community.
Here are my 15 takeaways for startups, in clusters ranging from business models and product positioning to leadership and fundraising.
- Taking advice
“Entrepreneurship is, at its very core, a discipline of reconciling contradiction,” explains Scott Belsky, Venture Partner with Benchmark and author of Making it Happen. Entrepreneurs need to balance skill with defiance, peace with chaos, insider insights with outsider naivete, customer focus with competitor paranoia, conventions with breakthroughs, ruthlessness with compassion, persistence with flexibility, and planning with improvisation.
“We are told to listen to our customers, but are reminded that customers seldom know what they need,” Scott says. Founders should reconcile the insights they get from others and triangulate their own approach.
“The single most important thing an entrepreneur needs to learn is whom to take advice from and on what topic,” agrees Vinod Khosla of Khosla Ventures.
“Brilliance can’t be taught, but the operational stuff can be,” says Bill Campbell, business coach of Steve Jobs, Jeff Bezos, and Larry Page. Systematic processes can be set in place for many startup activities such as prototype experimentation.
- Starting up
Startups are organisations in search of a repeatable and scaleable business model, which is then made more efficient as they evolve into enterprises, explains Steve Blank, author of The Startup Owner’s Manual.
Startups create innovation and best practices through iterative experimentation. Steve distinguishes between risk (known future states, known probabilities), uncertainty (known future states, unknown probabilities), and ignorance (unknown future states).
“A startup is an organisation dedicated to creating something new under conditions of extreme uncertainty,” explains Eric Ries (see my reviews of his books Lean Startup and The Startup Way). A minimum viable product (MVP) is created through iterations of Build-Measure-Learn to test the value hypothesis and growth hypothesis. The MVP is an experiment to generate validated learning about what customers value enough to pay for, Tren explains.
“If you’re spending the next five to ten years of your life doing something, pick your idea wisely,” advises Josh Kopelman of First Round Capital. Startups either create new, meaningful experiences or solve pain points for customers – preferably in fast-growing markets of large future scale.
“Successful VCs tend to back business opportunities that seem 'half-crazy',” says Tren. They prefer founders who work on unique ideas, even though the idea may not sound big at first. The idea should be different in significant and enduring ways.
“Ideas that most people derided as ridiculous have produced the best outcomes. Don’t do the obvious thing,” says Fred Wilson of Union Square Ventures. “Some of the most valuable businesses in the world were rejected repeatedly by venture capitalists,” Tren observes.
“The best ideas come from direct experience,” adds Chris Dixon of Andreessen Horowitz, drawing on the example of Silicon Valley’s Homebrew Computer Club. Many of its hobbyist members went on to build thriving businesses out of their hobbies.
“Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right,” says Amazon Founder Jeff Bezos. Investors and founders, therefore, accept the risks while exploring contrarian ideas.
- Founder qualities
“The best entrepreneurs don’t know what they don’t know, so they attempt to do the impossible. They often succeed,” observes John Doerr, Kleiner Perkins Caufield & Byers. But blindness to inconvenient facts can also be a liability. “The characteristics that help entrepreneurs succeed can also lead to their failure,” Eric Ries cautions.
The investors provide an extensive list of qualities of a successful founder, such as dedication, courage, perseverance, determination, resourcefulness, focus, grit, articulation, agility, humility, integrity, energy, tenacity, optimism, and continuous learning (see also my book review of Entrepreneurial Strengths Finder).
Founders should have an ability to synthesise, and willingness to sell their vision and convince others to join them in making the vision a reality. “Think for yourself. That is the most distinguishing characteristic of the great entrepreneurs,” advises Ben Horowitz of Andreessen Horowitz.
Good founders work ridiculously fast, are self-aware, are data-driven decision makers, and have contagious passion, adds Dave Levitan of Maveron.
“Whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble,” says Ray Dalio of Bridgewater Associates. This calls for independent thinking and strong opinions, but also being able to accept mistakes and adapt accordingly (a “Zen-style beginner’s mind”).
- Business models
The lean startup method helps create business models, strategies and designs. “Entrepreneurship is fundamentally iterative,” Eric Ries says. Founders should be prepared to persevere or pivot depending on customer data. A significant amount of growth should also happen organically without marketing spend.
“It’s one thing to be wrong about valuation and timing. It’s another thing to be wrong about the business model,” cautions Mary Meeker of Kleiner Perkins Caufield & Byers. Hence it’s important to get the model right as soon as feasible. “You can have a great team of people, but if they’re fishing in the wrong spot, they’re not going to catch any fish,” jokes Rich Barton of Benchmark.
“Business plans are the tool existing companies use for execution. They are the wrong tool to search for a business model,” explains Steve Blank. “Any business plan won’t survive its first encounter with reality. Reality will always be different. It will never be the plan,” according to Jeff Bezos of Amazon.
“Five-year plans aren’t worth the ink cartridge they’re printed with,” jokes journalist-turned-investor Michael Moritz of Sequoia Capital.
The business model should also sustain at scale. “It is incredibly challenging to build a long-term sustainable business on paid marketing alone,” cautions Kirsten Green of Forerunner Ventures.
Spending more than the lifetime value of users to acquire them is not an acceptable strategy, adds Sam Altman of Y Combinator. Frugal habits help stay focused on core business metrics in early stages, such as managing cash flow and minimising customer acquisition and service costs.
“Great execution is at least ten times more important and one hundred times harder than a good idea,” explains Sam. With low cash burn rate, founders should be able to effectively sell their idea to customers, employees, partners, investors, and media, and execute on the product vision.
Startups die due to starvation of funds as well as excess of funds (“indigestion”); they should guard against too many pivots, trying to do too many things at once, and premature scaling. Too much funding leads to complacency and insufficient critical thinking.
“Selling is honourable work – particularly in a startup, where it’s the difference between life and death,” says John Doerr of Kleiner Perkins Caufield & Byers. Founders should be good at networking, and have critical thinking; a sense of excitement and humour is a plus.
Good selling is a real skill but also scarce. Many people find it awkward to ask others for something. “People who were ‘A’ students often seem to think they should not have to ask,” jokes Tren. “It is a helpful life experience to spend some time selling something,” he advises.
Useful resources to master selling and negotiation include books like Getting to Yes. See also my book reviews of Sell: The Art, The Science, The Witchcraft (Subroto Bagchi) and To Sell is Human: The Surprising Truth about Moving Others (Daniel Pink).
“Huge value is locked up and lost to society when engineers with great ideas cannot bring them successfully to market,” observes Tren. Some like Bill Gates have been fortunate in this regard; his father was a lawyer, and growing up familiar with the language of law and contracts helped him in his early negotiations with IBM for Microsoft.
- Digital media
The internet is changing the very foundations of innovation by lowering the cost of experimentation and increasing the speed of discovery and quality of development. “Ten years ago, you needed $5 million to start a business. Today, you need $70 and some coding skills,” jokes Steve Anderson of Baseline Ventures.
“Software is eating the world. Everybody’s going to be on the internet,” adds Marc Andreessen of Andreessen Horowitz. As more and more businesses become digitally-enabled, investors naturally gravitate towards the scaleable models of digital startups.
These include multiple-sided marketplaces and user-generated content. “The race is won by those that build platforms and drive free cash flow over the long term,” says Mary Meeker of Kleiner Perkins Caufield & Byers.
Software can enable companies to expand in different directions, as in the case of Microsoft (from programming tools to operating systems), AOL (online video gaming to ISP) and Google (from search to online ads). The digital economy is also creating divides, and overcoming these divides presents an opportunity as well, eg. upskilling employees.
The best founders and CEOs love their products as well as their customers. “Nothing drives the customer development process forward more efficiently than time spent with actual customers,” says Tren.
“Passion for the customer pain point is what creates the desired missionary quality,” he adds; the passion leads to perseverance. Great entrepreneurs have the gift of looking at the world from a customer’s viewpoint. Entrepreneurship is a calling, rather than a job.
“The most successful entrepreneurs tend to start with a desire to solve an interesting problem – one that’s often driven by personal frustration,” observes Roelof Botha of Sequoia Capital.
Solving a personal pain helps founders connect better with customers who also have the same problem and want a solution; it can ensure that the founders will drive themselves to solve the problem. The product should address and follow customer journeys like a “heat-seeking missile.”
The term product-market fit was coined by Andy Rachleff, co-founder of Wealthfront and Benchmark. A sign of good fit is when product growth happens via word of mouth. Alignment of product, business model and market can lead to almost magical effects.
“If you are not embarrassed by the first version of your product, you’ve launched too late,” says Reid Hoffman of Greylock Partners, urging founders to test their products soon and repeatedly.
“If a business has not discovered its core product value, no amount of growth is going to save that business,” says Tren. “Great companies capture at least some of the value they create,” says Peter Thiel of Founders Fund. It is not only the customer who should benefit from the offerings of the company.
“What wins in the market is being the first product-market fit rather than first to market,” advises Tren. For example, second or third movers in a market can also succeed, as in the case of Lotus, Dell, Cisco and Microsoft.
- Marketing and storytelling
The ‘4 Ms’ of success are market size, management, money and momentum, according to Mark Suster of Upfront Ventures. Successful marketing will be a mix of analytics (data patterns), public relations (great stories), and social media (engagement trends).
There will also be the “artist/storyteller who can move people to tears,” says Marc Andreessen. Stories help founders pitch better to investors. “The best way to quantify an uncertain opportunity is actually with a story,” says Tren.
“Good stories always beat good spreadsheets,” according to Chris Sacca of Lowercase Capital; it helps to sign up with communities like Toastmasters to improve communication skills. “Storytelling is the most underrated skill,” says Ben Horowitz of Andreessen Horowitz. See also my book reviews of Let the Story Do the Work (Esther Choy) and The Storyteller’s Secret (Carmine Gallo).
Founder stories are also woven into the brand. “Brands are not wrappers. Brands are based on the values of the founders,” says Dan Levitan of Maveron.
Rich Barton, who started Expedia from within Microsoft and spun it out as a public company, offers useful tips on branding and even the name of the startup. Uncommonly used letters like ‘Z’ and ‘Q’ stand out, and the name of the brand can itself become a verb, eg. Kleenex, Xerox.
Team members should complement founder skills and become multipliers of the vision and execution. Extending the founder’s “circle of competence” is important, so that with each hire “one plus one becomes more than two” and challenges like groupthink can be overcome.
“Diversity produces better outcomes,” says Tren. Having a diverse workforce helps with creativity, agility and resilience, and enables “happy accidents” via serendipity. See also my book review, The Innovation Code: how to harness the Artist, Engineer, Athlete and Sage in your organisation.
“The best venture capitalists know that the first hires are critical so they will often help founders with recruiting, especially at very early stages with first hires,” he adds. The right team and systems can create multiplier effects to scale growth; it is important to hire people who are hungry for success.
“One thing that founders always underestimate is how hard it is to recruit,” cautions Sam Altman of Y Combinator. “It’s key to hire the best and sharpest folks in the beginning so that you can build an organisationally wise company,” advises Rich Barton of Benchmark.
“Surround yourself with superstars. They hire superstars,” he adds. However, bad hires can be toxic. Business improvement will come from identifying, recognising and resolving team conflicts.
Founders need a good grasp of unit economics and should not confuse usage and revenue with profits. “Everyone on the team should know the metrics that will drive success,” Tren advises.
“Little companies have really two advantages: stealth and speed,” says Doug Leone of Sequoia Capital. The team should have the intellectual, physical and emotional stamina to survive and thrive in the startup journey. “The team you build is the company you build,” says Keith Rabois of Khosla Ventures.
“Every time you make the hard, correct decision, you become a bit more courageous, and every time you make the easy, wrong decision, you become a bit more cowardly,” observes Ben Horowitz. Courage begets courage and becomes self-reinforcing, Tren agrees.
“If you have not destroyed a cherished idea at least once a year, you probably have a broken learning process,” he adds, urging founders to never stop learning especially as changing circumstances force decision changes. “You must learn things others don’t, see things differently, or do a better job of analysing them – ideally all three,” he recommends.
Much media attention focuses on the final victory of a startup, but there’s a lot of pain in what Scott Belsky calls the “messy middle” of business building. “Innovations seem inevitable in retrospect, but at the time it’s an uphill battle,” says Jessica Livingston of Y Combinator.
“Entrepreneurship is a team sport with very many lonely moments,” cautions Heidi Roizen of Draper Fisher Jurvetson. “Being a contrarian by definition means that you must be prepared to sometimes be lonely in some of your views,” adds Tren.
“Starting a business is an extreme sport. It works better if your significant other is a candidate for sainthood,” jokes Heidi Roizen of Draper Fisher Jurvetson. “Founders live day to day with a sense of uncertainty, isolation and sometimes lack of progress,” cautions Jessica Livingstone; they also have to face rejection and dismissal.
Entrepreneurship is about lifelong learning. “Approach with humility, have strong opinions but weakly held, change your mind a lot, and experiment and iterate,” advises Chamath Palihapitiya, of Social Capital. “Be a learn-it-all, not a know-it-all,” adds Peter Fenton of Benchmark.
“Increasing the ability of a business to adapt to a changing world has never been more important,” observes Tren; this is due to the constant onslaught of challengers. Focus should be balanced with flexibility in the face of new evidence, trends and competitors. Founders can prepare for the future but not always predict it.
Founders should also learn from their peers. Wartime CEOs are too busy to read management books by consultants who have never managed a fruit stand, jokes Jim Barksdale, former CEO of Netscape. Tren points to McKinsey’s famous botched up assessment of early mobile phones for AT&T as an example of wrong judgment of innovation (it assumed that those with landlines would not want to own mobiles).
The greatest founders are like artists and even alchemists, says Tren, by making things that others could not imagine until they saw it. Their “reality distortion field” to recruit teams is a very different skill from science, engineering or management, explains Steve Blank.
- From good to great
“Great entrepreneurs are far more missionaries than mercenaries,” observes Andy Rachleff, co-founder of WealthFront. Missionary founders work harder to solve the problem, whereas mercenaries may sell their business too early.
Missionaries go all out for their cause, mercenaries hedge their commitments. Mercenaries focus on making money, missionaries want to make meaning, adds John Doerr of Kleiner Perkins Caufield and Byers.
“What the smartest people do on the weekend is what everyone else will do during the week in ten years,” jokes Chris Dixon of Andreessen Horowitz. Good startup leaders will also need to make timely, wise, and quality decisions at high speed.
“When building a company, microeconomics is fundamental; macroeconomics is entertainment,” jokes Naval Ravikant of AngelList, urging founders to never ignore business fundamentals and daily operations.
“The best time to found a business is often in a downturn. since employees are easier to recruit, resources are less expensive, and competition is less intense,” says Tren. Only those with real conviction will stick on to the business. “It’s in the down market that real entrepreneurs are formed,” agrees Mark Suster of Upfront Ventures.
“The exciting thing about market economics is that stupidity equals opportunity,” jokes Paul Graham of Y Combinator, urging entrepreneurs to buck trends, be contrarian and unlock hidden value.
“All great inventions emerge from a long sequence of small sparks. Collaboration brings small sparks together to generate breakthrough innovation,” says Scott Belsky. Today, the internet is a massive connector and accelerator for small sparks.
Founders need to have thick skin to face continuous rejection from customer and investors, and be willing to live with a “constant knot” in their stomach. “In a functional culture, ‘failure’ is just another word for ‘experience,’” says Tren.
“Certainly it is less painful to learn from the mistakes of others, but personal failure is the most memorable,” he says, because it is so direct and vivid. “Maintaining an optimistic attitude in the face of uncertainty and repeated failure is a challenge,” he adds.
Startups may often go through near-death experiences in their journey. Many successful startups almost failed, and many failed startups almost succeeded. “Knowing when it is time to fold up the tent versus when it is worth continuing to fight is a skill acquired only with time and experience,” Tren observes.
“Good judgement comes from making bad judgments but learning from the experience,” he adds. Founders should spot their mistakes, correct quickly, and not repeat the mistake. “The excuse department is now closed,” jokes Mark Suster of Upfront Ventures.
Failure can be caused by internal and external factors. “The majority of companies fail by self-inflicted wounds from the leadership team,” cautions Ann Winblad of Hummer Winblad Venture Partners.
- Competitive moats
“Entrepreneurship is becoming truly democratised, which means nobody is safe,” says Eric Ries. Since barriers to entry have shorter lives than before, there has to be a moat or durable, sustainable business advantage.
Moat creation and maintenance are difficult, cautions Tren. A good test would be to envision what you would do if you were your own competitor, or by roping an independent assessor.
Startups and incumbents will face stiff competition in the coming years. “Business models can be a weapon against incumbents,” says Jim Goetz, Sequoia Capital.
“In tech, if you are not continually thinking about the next curve, one of the curves will get you,” cautions Reid Hoffman of Greylock Partners. For example, Yahoo was a dominant player in the early internet, but failed in social media and other trends.
- Funding and investment
VC investors are looking for “grand slams,” an investment return of one or more times the size of an entire fund. Rather than looking for many small successes, they look out for hits or a few large successes; magnitude wins over frequency. “It doesn’t matter how many losers you have, all that matters is how big your winners are,” Andy Rachleff of Wealthfront advises investors.
New categories may be more attractive than just a new player in an existing category. “Successful investing is the marriage of a calculator and a contrarian streak,” says Seth Klarman of Baupost Group.
VCs look for a good fit between the idea, opportunity and team. They prefer exponential growth of revenues and profits; companies not in this profile should look for other sources of funding.
Other firms may turn out to be less failure-prone than high-growth startups, but give lower financial returns to investors. “Doing things at the edge is what venture is about,” explains Vinod Khosla.
From years of experience, successful investors acquire pattern-recognition skills, gut feelings, and instincts about founding teams. “The best venture capitalists and founders are learning machines,” says Tren.
The nature of the business is also cyclical, and investors are aware of the risk of missed opportunities (“mistakes of omission”) while also guarding against “fear of missing out” (FOMO). An investor can properly serve only a limited number of companies, and scarcity of time may lead to missing out on potential winners due to lack of bandwidth.
Good investors are also humbled by the mistakes they make, and wrong initial impressions. “We thought Airbnb was a bad idea. We funded it because we liked the founders,” recalls Paul Graham of Y Combinator.
“Founders should understand the fit between the company, their sector, the VC firm, and the partner in charge,” advises Jenny Lee of GGV Capital. Founders should look out for value-added capital from investors who get highly involved with the business, and not fair-weather investors.
The founder-VC fit should be strong since this is likely to be a long relationship going beyond just a deal. At the same time, founders should carefully inspect the terms of the deal and avoid giving away too much equity; dilution can lead to less decision making power and unfavourable future investments.
“A startup is a founder’s whole life, but just a lottery ticket for an investor,” says Chris Dixon. The key for the partnership is to agree on the terms of “meaningful ownership.”
Good investors are more than cheerleaders – they are troubleshooters who stand shoulder-to-shoulder to help struggling entrepreneurs. “Get the highest-octane fuel in the tank when choosing a venture capitalist,” advises Rich Barton of Benchmark.
The best investors are those who provide not just current and future rounds of funding (“rocket fuel”), but value-added capital via business connections and mentorship. They engage with activities such as hiring people, closing sales and distribution, and forming boards of directors and advisors.
Funding in later stages, though, is less about discovery and building, and more about scaling and replicating. Fred Wilson of Union Square Ventures explains that founders should understand the contributions of seed funding (launch), Series A (product-market fit), Series B (scale), Series C (profitability) and IPO (liquidity for investors and the team). “Equity capital is expensive. Every time you do a raise, you dilute,” he cautions.
Investors and mentors help provide “stomach lining” for founders in their tough journey. Good board members will ask tough questions and apply critical thinking, as opposed to just asking for updates, says Peter Fenton of Benchmark.
Some investors have a platform-based approach to providing a wide range of services, others have a lighter-touch approach. Chris Dixon of Andreessen Horowitz distinguishes between smart money, dumb money, high-integrity money, and low-integrity money.
Problems are caused by insufficient as well as hyper-funding. “The dangers of over-capitalisation are, in many cases, even higher and graver than under-capitalisation,” cautions Jim Bryer of Bryer Capital.
“The role of venture capitalists is to be great opportunists. The visionaries are the entrepreneurs,” observes Ann Winblad of Hummer Winblad Venture Partners. “If you can’t invent the future, the best thing is to fund it,” jokes John Doerr.
In sum, the book is a testimony to the power of open startup ecosystems, where entrepreneurs and investors reinforce each other’s learnings and experiences (see also my book review of Startup Communities by Brad Feld).
It would be appropriate to end the book review with this message for innovators from Nassim Taleb, author of Anti-Fragile: “Most of you will fail, disrespected, impoverished, but we are grateful for the risks you are taking and the sacrifices you are making for the sake of the economic growth of the planet and pulling others out of poverty. You are the source of our anti-fragility. Our nation thanks you.”