Blog

Several people commented how much they liked the Steve Blank video on how to build a great company from last week. For existing Steve Blank acolytes, it was the same excellent material found in his books and blogs. If you haven’t had the chance to watch the video, here are 11 great ideas from Steve Blank’s talk:

1. Startups are not smaller versions of larger companies (1:53)
2. Startups are searching for a business model (2:45)
3. A startup is a series of untested guesses (4:25)
4. Turn passion and faith into facts as quickly as possible (4:56)
5. There are no facts inside your building, so get the heck outside (9:40)
6. Startups aren’t allowed to hire a VP of Sales until a proven model as founders should be out selling at least 20% of the time (18:03)
7. Fire the plan instead of the executives as a startup goes from failure to failure in search of a business model (22:18)
8. A startup is a temporary organization designed to search for a scalable and repeatable business model (23:13)
9. The day the entrepreneur finds the repeatable business model, VCs perk up and start getting more involved because the chance of liquidity goes way up (27:35)
10. Three phases to the company: search, build, and execute (28:58)
11. It’s not about the technology. It’s about technology that has great customer fit. (40:37)

Entrepreneurs would do well to follow Steve Blank’s blog and read The Startup Owner’s Manual.

What else? What are some other great ideas from Steve Blank?

Ten years ago I was sitting in my office and an email popped in my inbox: Seeking Entrepreneurs for TV Show. Excited, I promptly replied to the inquiry and said I’d love to be on the TV show and share all about our growing startup. The “producer” immediately called me and spent five minutes getting me all chummed up before dropping a classic line: oh, also, there’s a $10,000 fee for you to be on our show for our costs and the PR from the show will pay for itself immediately. Boom. I was blissfully ignorant as to what was going on and finally the “ask” made it abundantly clear that this was a scam. I promptly said “no”, hung up, and cringed as the same scummy phone calls and emails came my way over the years. As expected, entrepreneurs aren’t immune to other people preying on their passion and ignorance.

Here are some of the more common scams targeting entrepreneurs:

• Pay to be on a TV / Radio Show – Be on an obscure TV or radio show that no one has ever heard of for an exorbitant amount of money
• Pay to Pitch Investors – Pay thousands of dollars for the opportunity to pitch an angel group (happens more often than people realize)
• Offer of Help and then Get a Bill – Many people say they’ll help an entrepreneur, but make sure and clarify the type of relationship before moving forward otherwise you could end up like me paying a lawyer to edit my business plan
• Service Providers or Advisors Seeking a Large Equity Stake – I’ve met entrepreneurs that have given up 10-20% of their company to a single service provider or advisor only to realize later that they were had. Only do large equity grants based on performance and not time (e.g. standard advisor shares of .25% is fine based on time but something more substantial should be based on results).

Entrepreneurs are easy targets, especially if caught on a low part of the emotional roller coaster. Watch out for scams targeting entrepreneurs.

What else? What are some other scams that target entrepreneurs?

For this week’s video, we’re watching Steve Blank talk about how to build a great company. Steve Blank is the father of modern startup thinking with his work on customer discovery and customer development. The next time an entrepreneur says they know what the market wants, tell them to get of out the building, and talk to customers. Here’s the video every entrepreneur needs to watch:

From YouTube: Join Silicon Valley serial entrepreneur-turned-educator Blank in a lively discussion with Dan’l Lewin of Microsoft. This program will introduce best practices, lessons and tips that have swept the startup world, offering a wealth of proven advice and information for entrepreneurs of all stripes. Hear about a tested and proven Customer Development Process, helping get it right –and how to “get, keep, and grow” customers.

With so many startups raising money at huge valuations, there’s a real risk that some won’t be able to meet expectations and grow into their valuation. As an entrepreneur leading a startup that doesn’t meet the goals to raise money at increasingly larger valuations, there are essentially two options: raise money at a lower valuation (down round) or let employees go to get to breakeven (assuming a fair amount of revenue).

Here are some challenges of a down round:

• Common shareholders often get wiped out depending on anti-dilution rights for the preferred investors
• Employees’ options are typically worthless providing less financial incentive to stay
• Morale suffers and good people leave
• Earlier investors are unhappy as their mark-to-market paper returns are negatively impacted

Here are some challenges of layoffs:

• Trust with the senior leadership is hurt
• Morale plummets and good people leave
• Employees are constantly worried that more layoffs will happen in the future
• Competitors use the layoffs as FUD when trying to win competitive deals

Neither a down round or layoffs (or both!) is ideal, but it happens more often than discussed. As more startups raise money at very forward-looking valuations, look for more of these challenges to occur.

What else? What are some more challenges associated with a down round or layoffs?

Entrepreneurs love talking about raising money. Now, I say “talking” because the reality is that most won’t raise any money. Many will try but few will succeed, and that’s OK. Now, so much of the fundraising process is driven by traction — real customer data — and not by big ideas (every idea can already be found with a Google search).

For entrepreneurs that are in a position to raise money (read: good metrics), here are seven things to consider before raising institutional money:

1. Once the first round is raised, expect to be on the fundraising treadmill every 12-24 months forever
2. Know that an exit of $300 million or greater is often needed for everyone to get a big helping
3. Make the explicit decision to be rich or king
4. Unlike a spouse, investors can never be divorced from the business
5. Remember that for every 1,000 venture-backed startups, less than 20 sell for $100 million or more
6. Do the math and prove to yourself that the company has to be 5x more valuable for it to make sense to raise money
7. Ensure that it’s truly a 10x better business model

Raising institutional money isn’t for most entrepreneurs but is absolutely right for the tiny percentage that can put it to work and build a huge company. The next time an entrepreneur says they want to raise institutional money, make sure they evaluate these seven things.

What else? What are some more things to consider before raising institutional money?

John Doerr, partner at Kleiner Perkins, is one of the most successful venture capitalists of all time leading initial investments in Amazon.com and Google, among others. One of the more fascinating parts of the video is the belief that his partnership is a builder of companies, and not merely a financier. Watch the video and learn more about his approach to leadership and investing. Enjoy!

From YouTube: Venture capitalist John Doerr discusses some of trends impacting the business and investing world, as well as what he thinks it takes to be a remarkable leader and entrepreneur today. He is joined by two other Kleiner partners and Stanford GSB alums, Trae Vassallo and Chi-Hua Chien. Trae leads many of Kleiner’s investments in the green technology, while Chi-Hua focuses on mobile technologies. Doerr is a partner at Kleiner Perkins Caulfield and Byers.