Notes from Shoe Dog on the Entrepreneur Behind Nike

After several friends recommend Shoe Dog: A Memoir by the Creator of Nike, I had to check it out. Wow, it’s an awesome book. The writing is superb. The stories are excellent. And, the message is clear: it’s incredibly hard to build a business.

Here are a few notes from the book:

  • Side Hustle – Imagine starting a shoe company in the 1960s with no money, no internet, and no place to begin. For 7+ years Nike was a side hustle while holding down a day job to pay the bills. Figure out how to make it work.
  • Get on a Plane – With the initial shoe manufacturer in Japan, and very little credibility, major issues required a face-to-face. When issues arise, get on a plane.
  • Sacrifices – Family was neglected. Friends were neglected. Nike constantly had major problems for years. Know that sacrifices are required.
  • Dad – Talking to your dad (or a mentor) every night for years about the business is powerful. Find a sounding board that cares and talk regularly.
  • Air – One day a crazy guy walks in off the street and says he figured out how to inject air into the sole of a shoe. A complete stranger. Then, only a few years later it’s the core of the most successful shoes in the world. Sometimes opportunity does knock on the door.
  • Going Public – Fight it as long as possible. Only after every other option is exhausted consider the public markets. Maintain control as long as possible.

Looking for a great entrepreneurial book about grit and resilience? Read Shoe Dog: A Memoir by the Creator of Nike.

What else? What are some more takeaways from the book Shoe Dog?

Not All Good Ideas Can be Good Companies

As a follow up to the previous post Every Spreadsheet Shared Shared is Another SaaS App, there’s an important point that needs to be made: not all good ideas can be good companies. I’ve met with hundreds of entrepreneurs over the years and heard their pitch. Truthfully, on the surface, most of the ideas made sense (I don’t have the domain expertise to assess the quality of the ideas). Only, 99% didn’t become good companies.

Here are a few reasons why all good ideas can’t be good companies:

  • Timing – Many ideas are too early such that that market isn’t ready yet. Some ideas are too late such that the market has already matured. My preference is to be slightly early to a market so that when the market crosses the chasm, the core foundation is already in place.
  • Cost of Customer Acquisition – Some ideas don’t provide enough value relative to the cost of acquiring and onboarding a customer. In fact, this is often the case and a root cause of startup demise. And, it’s also a common indicator of a nice-to-have product (especially vs. a must-have).
  • Competition – Competition is good. Markets are fairly efficient. Many ideas need some amount of scale to be a good company and most markets don’t support having a number of companies with scale.

Not all good ideas can be good companies, and very few ideas can be great companies. Consider these ideas and more when assessing a startup opportunity.

What else? What are some more reasons why not all good ideas can be good companies?

Startup Funding and Optionality

One of the challenges entrepreneurs face after achieving a repeatable customer acquisition process with great metrics in a big market is just how much money to raise. Initial thinking might be to raise as much as possible at the highest valuation possible. Only, investors have an expectation to make at least three times their money at the later stages and many more times that at the earlier stages. Couple this with the fact that only 2 out of every 100 venture-backed startups ever sell for $100 million or more, and raising substantial amounts of money greatly reduces the potential chance of a “successful” outcome.

Here are a few thoughts on startup funding and optionality:

  • Discuss this topic with potential investors before raising money to understand expectations and see if there is a fit
  • Ensure the founders, management, and board are aligned around desired outcomes
  • Recognize that not all outcomes are to sell the entire business as high growth tech companies are staying private longer and have more access to secondary liquidity
  • Sometimes raising money at a valuation lower than what’s possible makes sense to get the startup to the next milestone and keep more options open

The next time an entrepreneur wants to raise more money at all costs, explain how startup funding affects optionality. Raising too much money has made many acquisition offers not feasible due to the underlying motivations.

What else? What are some more thoughts on startup funding and optionality?

The Startup Stages in 8 Words

Continuing with yesterday’s post The Four Startup Stages, there’s another, much simper, way to describe the startup stages in eight short words:

  • Pilot it
  • Nail it
  • Scale it
  • Milk it

Pretty simple, right? “Pilot it” is the idea stage with a prototype. “Nail it” is the search for product/market fit. “Scale it” is the repeatable customer acquisition process and growth. Finally, “milk it” is maximizing value.

Need to describe the startup stages? Use these eight words.

What else? What are some more ways to describe the startup stages in a simple way?

The Four Startup Stages

Whenever someone tells me that want to join a startup, I always ask about their preferred stage. Typically, they don’t have a context for the stage name jargon so I go through the common ones:

  • Idea Stage – An idea is in place. Maybe there’s a team, maybe it’s just a founder. There isn’t much here yet other than an idea and a dream.
  • Seed Stage – The prototype works. Usually a few customers or beta users that are trying things out. Likely some friends and family funding or lots of sweat equity.
  • Early Stage – Product/market fit is solid and there are paying customers. Revenue is in the mid six-figures to low single digit millions. Customer acquisition is working and repeatability is the focus.
  • Growth Stage – Things are humming along nicely with the overall business cranking. Revenue is at least $5M and often much higher. Scaling is the main focus and there’s a path to the next major milestone.

With each stage comes the typical pros and cons as well as a risk/reward trade off for potential new employees. When seeking a job at a startup, it’s important to understand the standard stages and think through what’s most appropriate.

What else? What are some more thoughts on the four startup stages?

The Dilution vs. Growth Rate Trade Off

Once a startup finds product/market fit and a repeatable customer acquisition process, it’s off to the races to build a large, meaningful company (see The Four Stages of a B2B Startup). Only, when it’s really, truly working, there’s virtually no end to the capital available (assuming good unit economics and a fair valuation). More money is readily available, but every additional dollar of equity results in more dilution. Enter the dilution vs. growth rate trade off.

Here are a few questions to consider:

  • What are some low/no dilution options to grow faster? Venture debt? Raise a smaller round to get to the next milestone?
  • What’s the competitive landscape like? How hard are the competitors pushing (this is one of the reasons scaling SaaS is so expensive)?
  • How’s the growth rate now? What’s the estimated growth rate necessary to win the market? What’ll it take to close that gap?
  • How promising are the expansion ideas? Geographic expansion? Industry expansion?
  • Who’s gone through this before that can be a good sounding board?

Once a startup is working, it’s an amazing thing. Only, the dilution vs. growth rate trade off is real and should be constantly evaluated.

What else? What are some more thoughts on the dilution vs. growth rate trade off?