4 Years to Achieve Material Traction

In the startup world there’s a common narrative that if the business is going to work, it’ll take off exponentially in a year or two from creation. Either you have crazy success right away, or it’s not happening. While that does happen on occasion, and many startup stories embellish the outliers, the reality is that it often takes longer, much longer.

Just this past week, two more unicorn stories were in the news and for each it took four years before the startup took off.

First, the startup world has been enthralled by the news that Adobe is acquiring Figma for $20 billion. At 50x the approximately $400 million of annual recurring revenue, deals like this make the venture capital industry work (extreme power laws). While Figma was founded in 2012, it wasn’t until 2016 when growth exploded. Four years of working through the details, refining product/market fit, earning those first loyal users, and still not knowing what lies ahead.

Second, this week’s Invest Like the Best show featured Trina Spear in the episode titled Billion Dollar Scrubs. Trina, the founder of publicly traded FIGS (note the random “fig” connection between the two companies), shares her story and recalls how the early years were a slow grind building a direct to consumer online scrubs business. In her words, it wasn’t until year four that growth and scale made it clear they were onto to something large.

While we all want the instant success, when it does work out, it almost always takes several years. From these anecdotal stories, and my personal experiences, four years feels like a more common length of time to know the startup is going to work and have enough traction to see a big opportunity ahead. Pace yourself, four years requires tremendous commitment and fortitude.

Seek Out These 3 Groups of People to Grow and Learn

Last week an entrepreneur was sharing about a concept he heard on a recent podcast episode from My First Million. Generally, one of the best ways to grow and learn is from other entrepreneurs. Only, it shouldn’t be done randomly. Instead, there are three groups of people entrepreneurs should seek out and building relationships with:

  • Done it Before
    Entrepreneurs that have done it before and are already successful is the most common and sought after group. This group is often the highest demand, so it can be challenging to break into, but often has rich wisdom and experience to share. Sometimes the best route to access this group is indirectly through service providers or other trusted connections. Ask your lawyer, accountant, and banker if they have any introductions. Also, try reaching out directly to people in this group through email or direct messages with a compelling reason why you’d like to meet them and talk.
  • Doing it Now
    Entrepreneurs actively in the arena scaling their company are my favorite group to learn from. Organizations like EO, YPO, and Endeavor have incredible programs and peer group forums designed specifically for learning and growing. Often, you can reach out directly to this group and share you’re in the same city, industry, or vertical. Check out a list like the Inc. 5000 to start searching for entrepreneurs.
  • Starting Out
    Entrepreneurs that are just starting out have the most energy, unique perspectives, and unbridled optimism. For entrepreneurs that have been doing it a while, this group can bring the newest ideas and freshest insights. Many communities have Meetup groups across a number of categories and topics that bring entrepreneurs together.

The next time an entrepreneur says they’re looking for help and mentorship from other entrepreneurs, share that they should seek out entrepreneurs from three different groups — ones that have Done it Before, are Doing it Now, and just Starting Out.

Founders Podcast

Several months ago Jon Birdsong introduced me to the Founders Podcast. I subscribed and started listening sporadically to some of the episodes. Then another friend sent me a link to an older episode #134 Edwin Land: A Triumph of Genius and I really enjoyed it. Finally, Invest Like the Best featured the entrepreneur behind the Founders Podcast recently in the episode David Senra – Passion & Pain, and it was excellent.

On the surface, it felt like this amazing podcast came out of nowhere. Of course, that’s not true. The first episodes started appearing in 2017, and new ones have been steadily produced ever since. With 250+ episodes now, Senra has clearly put the time and effort in to hone his craft and publish incredible content. From his site, he shares a quote that summarizes why he does what he does:

“There are thousands of years of history in which lots and lots of very smart people worked very hard and ran all types of experiments on how to create new businesses, invent new technology, new ways to manage etc. They ran these experiments throughout their entire lives. At some point, somebody put these lessons down in a book. For very little money and a few hours of time, you can learn from someone’s accumulated experience. There is so much more to learn from the past than we often realize. You could productively spend your time reading experiences of great people who have come before and you learn every time.”

Marc Andreessen

Ready to learn from the entrepreneurs that came before us? Head on over to the Founders Podcast and start immediately.

The #1 Question to Ask When Looking for a Startup Idea

This past week I was talking to a potential entrepreneur and he asked about startup ideas, markets, fundraising, and more. After sharing that I believe market selection is the main determinant for the scale of success, we started riffing on different startup ideas. He asked where the best startup ideas come from and I shared my favorite strategy. Ready for it? Ask an entrepreneur you respect the following question:

If you weren’t working on your current business, what business would you start?

Entrepreneurs, by definition, are active in their own company looking for ways to grow, improve, and generally win. Because they’re deep in their own idea, they’ve already gone through the process of evaluating markets, selecting an idea, and finding product/market fit.

Once an entrepreneur has gone through this process, they can’t help but see other startup ideas. New sales/marketing/product/finance/people challenge? Potential startup idea to fix it. A new process or strategy that’s working well? Potential startup idea to productize it.

Startup ideas are everywhere. Entrepreneurs in the arena are uniquely attune to opportunities that would make their own business better. And, knowing what they now know about their current business idea and market, they can’t help but compare potential ideas and markets to what they’re working on. Often, they have ideas that are even better than what they’re doing, but they have too much momentum, progress, and scale to change course.

Looking for a startup idea? Ask an entrepreneur what they’d be working on it if they weren’t already working on their current business.

Paying it Forward

Last week I was at an event for the Entrepreneurs’ Organization and I bumped into an entrepreneur that I had met only one time before, a full 10 years ago. A minute into the conversation he looked at me and said, “You changed my business.” Not remembering the conversation from such a long time ago, I had to probe further. He went on the explain that I recommended the book Predictable Revenue at our previous conversation and he promptly bought it, read it, and implemented it. The methodologies and ideas from the book worked and today his company is thriving with hundreds of employees.

Paying it forward through sharing lessons learned, building community, and helping the next generation of entrepreneurs is the real joy. Recommending a book that you believe in is easy. The harder part is proactively putting yourself in a position to be able to help. Whether it’s going to events in-person or online, participating in industry groups, or meeting people one-on-one, it takes time and effort to do so. Only, from that effort so many new relationships, opportunities, and insights emerge. Life blossoms.

Paying it forward is a strange concept. We’re wired to act in our own self interest optimizing for instant gratification. Yet, we’re also social creatures drawn to community and clusters of likeminded people. When we act in someone else’s interests, with no expectation of something in return, we’re helping move everyone forward, which in turn helps us.

The next time an opportunity emerges to pay it forward, do it. In a world of little certainty, there’s always value in trying to help and support others.

Atlanta Startups on the 2022 Inc. 5000

Inc. magazine just published their latest Inc. 5000 awards for the 5,000 fastest growing private companies in America and it’s an incredible snapshot of new industries, growth markets, and COVID accelerants. Every aspiring entrepreneur should study the list yearly and look for trends. It’s one of my favorite lists, especially to see what Atlanta startups made it.

Here are the Atlanta startups on the 2022 Inc. 5000 list with a three-year growth rate of at least 300%:

Congratulations to all the companies that made the Inc. 5000 list, especially these startups from Atlanta!

Activating Potential Founders

For the last 15 years we’ve been debating and experimenting with how to grow a startup community. From events to co-working to funding, we’ve tried thousands of ideas. One area that’s under-served is getting potential founders off the sidelines. I believe there are significantly more would-be founders that can build successful companies than are doing so. We need to increase the starting of startups.

Here are some questions we’re asking about how to activate potential founders:

  • What’s holding potential founders back from starting a company?
  • What’s needed from an education, skills, funding, and community perspective?
  • How do we elevate entrepreneurship in the city to make it more top-of-mind?
  • How do we get more people thinking about entrepreneurship in high school or college?
  • How do we get more people with existing careers working on side hustles that could lead to a startup?
  • How do we get existing companies to embrace local startups?

The rise of remote work due to COVID, especially in the startup world, has removed one of the traditional push backs: how are you going to find the talent to scale? Talent is more distributed than ever. While founders can also be anywhere, it behooves our community to have them here to create jobs (some of them, anyway), grow wealth, and give back. Plus, it’s more fun face-to-face. Let’s have the founders be local and the team be anywhere.

While we love when entrepreneurs move to the region, the most opportunity to grow our startup community is getting potential founders into the arena. 

What should we be doing? How do we activate more potential founders?

Priority Should Have No Plural Form

Lately I’ve been studying Andrew McConnell‘s new book Get Out of My Head: Creating Modern Clarity With Stoic Wisdom and listening to his interview on The Atlanta Story podcast. With a number of excellent personal stories and interviews with entrepreneurs, Andrew captures and translates our modern endeavors with that of the Stoics from thousands of years ago. Spoiler alert: many of our life learnings and philosophical outlooks aren’t new. What is new is making it relatable to our generation.

One of my favorite passages from the book was about the word priority. Here’s the text from the section “Less but better”:

“…the very word priority initially had no plural form. By definition it was singular. It was the thing prior to all other things. For five hundred years, from its entry into the English language in the 1400s all the way up to the 1900s, it remained as such.”

One of the most common mistakes I see entrepreneurs make is having too many priorities. When opportunity abounds and there are many different possible directions, it’s easy, and natural, to try and do too much. With the Simple Strategic Plan, there’s a section for “Quarterly Priority Projects” and upon asking entrepreneurs for their plan prior to meeting, 90% of entrepreneurs put more than three priorities and make the priorities too vague and broad. With too many priorities, there are no priorities.

Making it even more simple, there should be no more than one priority per person. Solo entrepreneur? Only one priority project. Three co-founders? Only three priority projects. Similar to the idea of a Directly Responsible Individual (DRI), one single person has to own the initiative and they’re solely accountable for the outcome.

The next time someone mentions their priorities, think single priority and ask about the real priority. Priority should have no plural form. Priority is what comes prior to everything else.

Illiquid Startup Equity as a Feature

With the continued volatility in the public markets, which are now on a strong upswing, it’s tempting to look at the stock prices and investments on a regular basis. Great, the market is up 2% today, how’s my portfolio? Bummer, the market is down 1% today, how’s my portfolio? Of course, it’s outside our control and should be ignored, save for a periodic annual or quarterly review. But, the fact that it’s there, at our finger tips, makes it distracting and compete for our attention.

In the startup world, we have a few measures of the value of our equity. The most common, and often misunderstood, is the valuation from the latest funding round. Let’s say a venture firm invested $5M at a $20M pre-money valuation, such that the company is worth $25M. Well, that’s for preferred stock which often has a number of special features that make it more valuable than common stock (features like dividends and anti-dilution). The next type of valuation that’s well known is the 409A. The 409A is an independent appraisal of the fair market value of the common stock that’s accepted by the IRS so that employees will get long-term capital gains. Put another way, it’s an independent valuation so that employees can be granted stock options at a lower valuation and save on their taxes if everything goes well. As a ballpark, the 409A valuation is 40-50% of the last round’s valuation.

Even with these valuations, there’s often no way to sell stock. Sometimes, at the later stages, existing or new investors will offer to buy some of the employee stock. In addition, there are different marketplaces to buy and sell private stock, but they are often limited to the most well known and desirable startups (read: only famous startups have much trading activity) and many startups prohibit selling stock without approval (startups don’t want to violate government rules around too many shareholders and other challenges with unknown shareholders).

The biggest downside to lack of liquidity with startup equity is that it’s worthless most of the time and thus there’s no financial gain from it. The majority of startups fail, even after raising money from investors. Startups sell for less than the capital raised making the common stock worthless. Many startups are zombies where they continue to operate but don’t make enough progress to create substantial value, and thus no opportunities for liquidity.

Even with these illiquid challenges, for startups that work out, illiquidity is a feature. Why? When a startup succeeds, there’s a tremendous amount of compounding value. If there were opportunities to regularly sell shares, like with a public company, it’s too easy to do so and lose the upside. Compounding value is one of the most powerful forces. Forced deferral of selling startup stock, in scenarios where the startup is successful, is a feature because it creates the most value and wealth for the team.

Illiquid startup equity is a feature, not a bug, when the startup works out as there aren’t daily distractions of the stock price and the team benefits from compounding the value of their equity at a high rate for the life of their tenure. The next time someone laments about not being able to sell their startup stock, focus on the upsides.

Notes on Corporate Retreats for Startups

Earlier this month I had the opportunity to attend a corporate retreat for a large startup that’s now fully remote. As part of spending a couple hours at the multi-day event, I asked general questions about the retreat to a variety of team members from the frontlines to senior executives. Primarily, my questions where ones like what did you like, what didn’t you like, and what would you change.

Now, this was a big event with several hundred employees. The format was roughly two days of speakers ranging from company leadership to hired experts on topics like personal productivity. After the main event for all employees, some departments and teams stayed an extra day for more specific workshops and working sessions. Counting the time to fly in ahead of the first day and fly out after the third day, it was a full four day commitment for a huge number of people.

Here are some of the notes I took after talking to several people:

  • Multiple, interesting venues – The two main days were held at different locations with one being a stadium and one being a local theater. Employees enjoyed having different venues and getting a feel for two of the most iconic places in town. Without question, the theater was considered the better venue for acoustics as a large stadium usually isn’t ideal for sound quality.
  • Mix of corporate topics and “fun” topics – Team members liked how the company invested in great outside speakers and mixed them in with presentations on the roadmap, fireside chats, and general corporate topics. Quality speakers cost extra, but are well worth it if financially feasible.
  • Becoming an event planner / travel agent – Senior execs I talked to were emphatic that it took way more time and energy to plan and coordinate the event. One likened it to the effort to organize and run a giant wedding. From travel to hotel to food to venues to speakers, it was the equivalent work of multiple full-time people for the months prior to make it all happen.
  • Face-to-face is incredibly valuable – Without prompting, the first response from everyone was how great it was to see co-workers in person and build deeper relationships. Of course, there were some comments about how it’s natural to build up a more complete image of someone where you’ve only seen their head on a screen only to find out people were taller or shorter than expected, different mannerisms, and other characteristics you wouldn’t know without human interaction.
  • Ad-hoc questions and side-bar conversations – The last item I heard was around the value of ad-hoc questions and side-bar conversations. So often, typical meetings, chat rooms, and email exchanges have a specific focus or agenda. Hanging out at a multi-day event inevitably has downtime that leads to talking about so much more than the standard topics. There’s tremendous value here that’s hard to quantify.

With huge numbers of startups now remote or hybrid, the growth in corporate retreats is exceptional. Look for many more best practices and resources to emerge as this area of the startup world grows.

What else? What are your favorite best practices for corporate retreats?