A number of 1st time entrepreneurs have come to me recently asking for advice on choosing their investors.
Here’s my quick and dirty guide to choosing your investors:
Choose investors you want to work with. From my experience this is much more important than choosing based on valuation. Trust me, once you are within a few percentage points on the valuation, you will do better to choose the person you are most excited about rolling up the sleeves with than the person who puts forth the best offer. In the long run having the right person around the board room table is much more valuable then a few percentage points of the company. I know, this might not seem obvious when you think you are about to build the next $billion company, but when times are tough — and they likely will be someday — having the right people around the table matters most. I encourage you to do the “would I enjoy dinner” test. Ask yourself if you would enjoy spending 3 hours with the person at a one on one dinner. If no, move on. Then, do the “once a week” test. Ask yourself if you would enjoy talking with the person once per week for 30 minutes and consider it an opportunity, not a chore. If no, move on.
Related, choose investors you admire. Your investor should be a role model. They should have had some experience that you particularly appreciate and respect them for. You should respect their previous investment decisions. If not, move on.
Choose investors who are investing in you. Make sure they believe in your ability to build a valuable company and create a return on their investment. Make sure they are not seeing this just as an investment in a business or a product, rather an investment in the people who are running it. This is critical if you are ever going to change your strategy, pivot your business, take on new lines of business, or consider other tough decisions outside the scope of the initial investment thesis.
Choose investors who agree with your long term plan for value creation and exit strategy. You don’t need to know your exact exit path going in, but you should know what your goals are and make sure your investors are aligned with those goals. It doesn’t make sense to bring in investors who expect you to build a $1B business when you’re intent on selling for $100M. Remember, a VC expects a minimum 10x return on investment. Are you prepared for that?
Choose investors who get your industry and who really believe in your strategy. It’s not fun to convince an investor after the fact. They need to believe in the opportunity and your plan before they invest.
Choose investors who provide value-add with every interaction. I had a call with a potential investor today for example who gave me 4 truly valuable market insights and 2 awesome competitive tips to look at in a 20 minute call. That’s awesome. Be weary of a potential investor who doesn’t add much to your own team’s thinking.
Choose investors with a big rolodex. Often times the best thing an investor can do for you after their initial investment is open another door.
Choose investors who aren’t too busy to help. Stay away from investors who are hard to pin down on schedule during the investment phase. They are less likely to be there when you need them down the road.
Get references. Talk to the CEO’s your potential investors have previously invested in. Drill in to get the real scoop. Make sure to talk to a few CEO’s of companies that made it and a few that didn’t.
Look for investors who have backed the same entrepreneur multiple times. You want that sort of loyalty behind you.
I hope this helps.
What other tips do you have from your experiences?
You’ve either started a company or you haven’t. ”Started” doesn’t mean joining as an early employee, or investing or advising or helping out. It means starting with no money, no help, no one who believes in you (except perhaps your closest friends and family), and building an organization from a borrowed cubicle with credit card debt and nowhere to sleep except the office. It almost invariably means being dismissed by arrogant investors who show up a half hour late, totally unprepared and then instead of saying “no” give you non-committal rejections like “we invest at later stage companies.” It means looking prospective employees in the eyes and convincing them to leave safe jobs, quit everything and throw their lot in with you. It means having pundits in the press and blogs who’ve never built anything criticize you and armchair quarterback your every mistake. It means lying awake at night worrying about running out of cash and having a constant knot in your stomach during the day fearing you’ll disappoint the few people who believed in you and validate your smug doubters.
I don’t care if you succeed or fail, if you are Bill Gates or an unknown entrepreneur who gave everything to make it work but didn’t manage to pull through. The important distinction is whether you risked everything, put your life on the line, made commitments to investors, employees, customers and friends, and tried – against all the forces in the world that try to keep new ideas down – to make something new.
“Good competitors challenge you, and force you to think hard about your business. Are you any better than you competitors? If you are not any better, or cheaper, why should people buy from you? Are you serving different target customers? Your competitors can help you to examine your business, identify your competitive advantage, or further differentiate yourself in the market.”—Do not be afraid of your competitors - Josh’s Lessons in Entrepreneurship
They are willing to stop what they are doing and “drop out” to pursue their dreams.
Here are 4 examples of how I dropped out in my career to pursue my own startup dreams.
One thing that very few people know about me is that I dropped out of school twice.
The first time I caught the startup bug was in 1991. I was a sophomore in college at the time and I parlayed volunteering in the beginning days of Bill Clinton’s 1st campaign for President into a fulltime gig. When they offered me the job it took me all of about 60 seconds to make my decision. An opportunity like that only comes once in a lifetime. My parents surprisingly were very supportive. They only asked that I promise myself (and them) to go back and finish what I started sometime soon, which I did after we won.
The second time I caught the startup bug was in 1999. I was a 2nd year MBA student at Stanford and, well, it was 1999 and the Internet was blowing up around me. I was approached with an opportunity to join the founding team of a well funded dot-com. Again, I didn’t hesitate. The company didn’t survive (most didn’t) but I learned a ton. (Footnote: And again, I went back and finished what I started afterward, ultimately graduating a year late in 2001).
The third time I dropped out was in 2003. I was in a pretty awesome corporate job at T-Mobile at the time, working on cool products like HotSpot, the first color-screen Blackberries, and the first smartphone devices. While there, I came up with this idea that I could build a company around using social networks for hiring. Mind you, this was before Facebook existed. The idea became an obsession and then 2 months later I “dropped-out” to pursue it fulltime. This was probably my hardest drop-out decision because the job I was in paid really well and it was very safe and comfortable while still working on some innovative stuff, and I had never started my own company and had no idea what I was doing. But I saw the opportunity, caught the bug, and in the end I had no choice but to pursue it; had I not I would have driven myself crazy. (Footnote: My original idea was essentially LinkedIn, but while Reid Hoffman and his team nailed it, we didn’t do nearly as well at Jobster).
The fourth time I dropped out was in 2009. I had sold my 2nd startup company, socialmedian, to XING AG (The LinkedIn of Europe) and I was having a blast working in Hamburg, Germany as Chief Product Officer of XING. The people at XING were amazing and we were making some incredibile strides during my tenure there at modernizing the XING product and making it more social and user-relevant. The problem was that I’m a startup guy and XING is a company of 300+ people. And, I had 20+ startup ideas banging around in my head and after a year it was killing me that I wasn’t pursuing any of them. I ended up dropping out a-year-to-the-day from the acquisition (and leaving some considerable money on the table), in order to pursue my next startup.
It strikes me that a lot of entrepreneurs have this recurring theme of dropping out to pursue their dreams.
In many cases it’s a tough decision to leave the comforts of a corporate job to live the tough startup life.
If you’re anything like me though, it’s not that hard of a decision. The harder decision for an entrepreneur is to not do it. I’d even go so far as to say that’s a solid test for whether you are ready to be an entrepreneur: If you’re grappling and struggling with the decision whether to “drop out” or not, maybe entrepreneurship is not for you. If the decision to “drop out” is a no-brainer, then you’re a startup guy/gal.
Entrepreneurs are not afraid to drop everything to pursue their dreams.
We wanted to take a few minutes to give you a behind the scenes account of what we’re up to here at Fab.com. Our hope is that this sort of transparency will give you a little more insight into who we are, what we’re all about, how we think, and how we do things around here.
Working at a startup is all about having the right people on the bus in the right seats.
But what do you do when the right person lands in your lap but you don’t have a role for them?
Or, what do you do when the person you hired for a specific job comes to you and says he or she wants to do something else?
This past week I faced this sort of situation with a new employee. I thought I’d share my experience and get everyone’s feedback and thoughts on these questions and on my response.
We put out an ad on LinkedIn for Director, Customer Service for Fab.com about a month ago. We got dozens of candidates, interviewed 3 of them, and then successfully hired our top choice.
As we are pre-launch, we needed someone who can step in and draw up the requirements for our customer service tools and processes.
The guy we hired is perfect for the job we needed filled. He has 8 years of experience creating and then managing customer service teams for fast growing community-based startups. He’s worked in B2C and B2B and subscription and transactional products. And, he most recently also served as for a short time as a product manager, so he gets how products are built and how requirements are created and then worked on with a development team.
So, this guy joined us this week and he immediately jumped in and added a ton of value. He was especially good at identifying customer service requirements and explaining those requirements at a product/feature level to our development team.
But then yesterday, just 4 days after he started with us, he came to me to have one of those “we’ve got to talk” conversations. It turns out that while he was interviewing for our Customer Service Director position he was also interviewing for a Product Manager position at another company. He accepted our position because he was really excited about what we are up to here at Fab, but it turns out that what he really wanted to do was to be a Product Manager, not a Customer Service Director. He’d already done CS for years and he was more interested in developing new skills and growing in his career. But, we had offered him a job first and he didn’t want to pass on a good opportunity so he had accepted our job anyway.
You can probably guess what he told me next: The other company had finally come back to him and offered him the Product Manager job, and while he liked our company more, he was going to have to take their position since his heart is set on becoming a product manager.
Oh no! What do I do? In just a few days this guy had already proven to me that we was very talented and capable. And, we really need someone like him to help us define our CS requirements. But, we weren’t hiring for a Product Manager, we needed someone to run Customer Service, and we didn’t have a Product Manage position in our budget for a few more months.
Here’s what I did.
I immediately offered him a job as Product Manager at Fab, stipulating that the first “products” that he would manage would be our customer service tools and admin tools. (That means his first two “customers” as a product manager would be our CS team — something he knows very well — and our own production team). This would enable him to cut his teeth as a product manager on 1 familiar problem set as well as a new problem set where we are the internal customer of his product. And, I promised to work with him to coach him to be a fantastic product manager and to help him develop his skills and expand his product portfolio to include more user-facing features and conceptual design over time.
In this case, we didn’t have a job but we had a great person. So we molded the job to fit the person. This meant rethinking our staffing plan and having to hire an extra person (we still need a customer service manager), but it enabled us to keep a great new team member on the team, and for him to feel really good about our commitment to his personal development.
What would you have done?
A related question that comes up all the time is: Do you hire the best person available or do you hire the person who best fits the job description? NFL teams face this question every year with the draft. Do you draft the best player left on the board regardless of position, or do you hire for the position you most need filled?
Which comes first: The Person or the Job?
Leave a comment here, or join in the discussion on Hacker News.
Far too often, teams focus on execution before defining the product opportunity and unique value proposition. The result is a familiar set of symptoms including scope creep, missed deadlines, overspent budgets, frustrated teams and, ultimately, confused users. The root cause of these symptoms is the fact that execution focuses on the how and what of a product. But in a world where consumers are inundated with choices, products that want to be noticed and adopted must be rooted in the why.
What do you do for office hours at your company? Do you enforce a strict time expectation for people to be in the office? Is it 9 to 5? Is it 10 to 6? What about work from home vs. in the office? How about vacation days? Do you count days off?
What’s best for startups in this regards?
Here’s my take on office hours:
I’ve always had a policy of “I’m not counting your hours nor your days as long as you are productive and don’t abuse it.” That’s fairly easy when you’re very small; gets harder as you grow.
I implemented such a policy even as Chief Product Officer at XING AG, a public German company, in 2009. And while some of my German co-workers thought I was crazy for not being more process oriented, the team loved it and it ended up working really well and boosting morale.
I have the same attitude regarding work-from-home vs. being in the office. It’s all about being where you are needed. Surely it helps to have people in the office as much as possible as it fosters camaraderie. At the same time, not everything needs to be done in the office. As an example, I work from home most days from 6am to 10 or 11 am. I’m on skype with team members from all around the globe during that time and it’s just easier and more productive for me to do that from home vs. running to the office at 5:30 a.m. or in between calls.
Back to another example from my XING days. I had this amazing product manager on our team who worked consistently from 9am to 7pm every day. About 6 months into my tenure there I learned that she had a 2 hour commute to work every day, which was killing her, but she had never spoken up about it because the company had a formal no-work-from-home policy. Needless to say I created a new policy and she was granted work-from-home Wednesdays. Sure, rules exist for a reason, but employee productivity and happiness comes first.
Regarding vacation days. My standard is to give everyone 3 weeks off contractually, but I’m not counting their days when they take them. Use what’s yours but don’t abuse it. Just please try to coordinate your vacations such that you are there when we need you there. Oh, and I’m a HUGE believer in the importance of vacation. Go, recharge! I expect and hope everyone will take 1 week every 3 to 4 months and completely unplug.
What’s your startup office hours policy?
What do you think the ideal “policy” should be?
UPDATE: This article is being discussed here on Hacker News.
Here at Fab.com we are pursuing a specific strategy to really put the social into social commerce and to use such social features to foster a community of enthusiasts and get as big as possible as fast as possible before launching the sales on our site.
For those of you who are not familiar with what we’re up to at Fab.com, we’re gearing up to launch a new form of flash sales site focused entirely on design. Our mission is: daily design inspirations and sales at up to 70% off retail. Unlike other flash sale site, we’re all about design. That’s our one thing. You can read more about it here.
As our team has a lot of experience building social products, we set it as a top priority to really incorporate social features into our site from the beginning. (Side note. While we have a lot of respect for the flash sale players, none of them really do social all that well. Even Groupon is marginally social. It’s viral, but not really social.). We believe that there’s A LOT more than can be done to make social commerce really social, especially in a space like design where there are so many diehards. We’re fond of saying design is a lifestyle, and it’s social. People love sharing great designs!
To wit, today we launched the first features on fab.com, the Fab.com Inspiration Wall, and it’s all about social and very little to do about sales. We think it’s a pretty cool product, but you can judge for yourself. The key thing is that we launched this first before we launch the sales on our site, as part of our strategy to build the community of enthusiasts ahead of the sales.
The Fab.com Inspiration Wall is an elegant, well-designed service which enables people to easily share and browse design inspirations. You can read more about it here, or just try it for yourself.
Going social first, coupled with our viral invites system, has enabled us to generate nearly 100,000 users before we launch a single sale. Our goal is to be much, much bigger than that by the time our sales launch in a few weeks. AND, we hope to have fostered a real community of design enthusiasts who are engaged and excited about sharing, discovering, and ultimately purchasing great design deals.
Will it work? Who knows. But it’s our best best at standing out from the pack and delivering some real user value.
In the coming days I’ll be writing more about the lessons we’ve learned in doing this and share some tips and tricks for fellow startup guys and gals.
This is the deal. We know that search engines want to provide sites that people (aka audiences) find valuable. We know that they use signals like social mentions and influence, and clickthroughs from search, and potentially dozens of other buzz-measuring indicators that go into determining if a site is something that people are really into or just some shallow content hanging around the web trying to feign legitimacy like Snooki at a Mensa convention….[A]s you create any content online ask yourself this question: “Self? How will this be more valuable to my audiences than what my competitors are doing?”
Being the CEO of a startup is a hard and complex job. Here’s my quick list of the 13 things every startup CEO should make sure to do each week:
Remember your One Thing. Your startup can only do one thing well at a time. Know Your One Thing. Write it on the wall. Repeat it every day. Put it at the top of every regular company-wide communication. Don’t let anything distract you and your team from it.
Remember that you’re only as good as The Team around you. Spend time cultivating your team. Bring in people who are better at their jobs than you could ever be. Motivate them and drive them to do things they never thought they could do. Give them freedom to roam and discover while guiding them towards the One Thing. Treat your co-workers like family. Startups can be a grind. Getting your team to love being part of your company is critical to success. A startup is not just a place to work, it’s a way of life. As CEO, your job is not to do everyone else’s job. Your job is to help everyone else do their jobs better. Also make sure to give regular feedback to your executives on your expectations for them and areas where you need them to improve.
Set the Tone. Everyone — your co-workers, your customers, your partners, your investors, the press, your Twitter and Facebook followers — takes their cues from you. Does your company value Speed? Analytics? Innovation? Customer Service? Ultimately your company culture will largely reflect how you function as CEO. So, don’t be a rude jerk. Walk the walk and personally act the way you want people to think about when they think about your company. It’s easy to get this wrong. If you run around like a chicken with its head cut off, your company will too. If you forget to smile, your company will too. If you lack patience, your company will too. If you don’t say please and thank you, neither will your company. The company is bigger than any one individual but it reflects the personalities and work habits of its employees, and you’re the leader.
Spend at least 75% of your personal time on your Product. Your company is only as good as its product. Put your stamp on it. Insist that it be excellent. Dig in and get your hands dirty and manage features and user benefits. Where I come from the CEO must be the Chief Product Officer. As CEO you should feel responsible for every pixel on the screen. I know that may seem like overkill but your product is the user-facing output of all your hard work and its every function should reflect your goals and objectives.
Run the Numbers. I’m talking less budget and cash flow here and more key metrics. Send a weekly email to your team summarizing all the key data that drives your business. Write this email yourself. Writing the email will force you to dig in and analyze the data. Own the data. Share the data. Make it your job to make sure that everyone in the company is focused on the numbers that really drive your business. Boil it down to at most 3 to 5 metrics that really matter.
Exercise. I can’t stress enough the importance of this. Make yourself go to the gym at least 4 days per week, preferably 5 or 6. Working out gives you the energy and stamina to solve complex problems. Being CEO is incredibly mentally challenging. Use the gym as a way to stay fresh and to clear your head. If you don’t do this already, I promise you you’ll be shocked at how much easier life gets when you are regularly working out. Step away from the keyboard and enter the gym!
Ask for Feedback. Guess what? You’re not as smart as you think you are. And you will make mistakes. Ask your employees, customers, partners, etc. for regular feedback. Make sure you have at least 1 executive on your team who can give you honest feedback about your own performance. Make sure you have at least 1 outside board member or close advisor who can give you regular input on corporate development issues (e.g. fundraising, board management).
Get Out of the Office. It’s all too easy to manage from behind the keyboard and just live around your email inbox. Get out of the office and talk to real customers, partners, suppliers, bloggers, press, etc. Listen to what they have to say and take it to heart. Don’t just feed them the vision. Stop and listen to the reality.
Blog, Tweet, Read, & Participate in CEO forums. Writing stuff like this is therapeutic. Share your lessons learned, pain points, and your tips and tricks. Don’t be afraid to hang it all out there and get feedback from your virtual network. Read hacker news to keep up on what other startup CEOs and tech geeks are sharing. Leverage your investors’ networks to get advice and input from other CEO’s who are in similar situations.
Manage Cash. Cash is your lifeblood. You must know at all times how much cash you have left, how long it can last you, and what the impact of decisions you make will have on your cash position. And don’t forget to raise more money long before you need it!
Act Like an Investor. At the end of each week, ask yourself the following question: Did our actions this past week increase value? What was the ROI on your time spent this past week? If you go 2 weeks in a row or 2 weeks in a month without a positive ROI on your time spent, you’re clearly doing the wrong things.
Have fun. This stuff is too hard and takes too much energy to not enjoy it. Make sure to have fun every single day. Even the tough days need to have some joy in them. If you’re not having fun, you’re doing the wrong things. One of my favorite sayings is, “mature, but don’t grow up.”
Love. Love your company. Love your co-workers. Love your investors. Love your partners. Love your suppliers. And most importantly, love the people you come home to — the people whose support makes it possible for you to get up and do it again each day.
There’s a lot of things I love about Instagram. It makes every photo a piece of art. It makes it really easy to get a visual glimpse into peoples’ lives. It is beautifully simplistic: Browse peoples’ photos without getting lost in the other bullshit they post. (i.e. tweets, status updates, links, etc.).
What impresses me most about Instagram though is how it supersets my other social networks. On Instagram I’m able to browse my Facebook & Twitter friends’ photos, which essentially means it brings together my close ties and my weak ties into one place. In that sense, Instagram is the first post-Facebook social network service I use. I call it a post-Facebook social network because it’s a social network that exists outside of Facebook and that fully functions and provides value to me in addition to the utility I get from Facebook. Facebook is clearly the best way to share with the people you know well. But Instagram is rapidly becoming a great way to discover the world through the eyes of people you find interesting.