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Until a startup achieves product/market fit, has a repeatable customer acquisition process, and enters scaling mode, it’s important to be as scrappy and cost effective as possible. Every dollar wasted is another dollar of dilution and a dollar closer to not having enough runway to figure out how to make things work (see Figure Out How to Stay in the Game Long Enough to Win). Once the business is scaling and is focused on maximizing growth, it’s important to slowly let go of some (not all!) of the scrappiness.

Entrepreneurs that have bootstrapped the business have an especially hard time letting go of some of the scrappiness as the business starts scaling. With so few resources to begin with, there’s no choice but to make every dollar count, such that scrappiness is deeply ingrained within all the team members. Only, as more and more market opportunity is presented, the tendency is to continue using the same approach when it’s better to ease up a bit and try new things to grow faster.

As an example, at Pardot we were having a hard time finding software engineers. We had always stayed away from using recruiters because we wanted to save money and figured that we’d eventually find great team members. After not having luck for several months we decided to hire recruiters (see Working with Recruiters in Startups) and offer a $10,000 referral bounty to anyone that sent a new hire our way (the bounty was for anyone, not just employees). By investing in ways to broaden our search for talent, we were able to bring on more engineers and grow the business faster. It was the right move to let go of some of our scrappiness.

What else? What are some other examples of slowly letting go of some scrappiness to grow faster?

Last week I was talking to an entrepreneur that was lamenting how he has to filter all the resumes that come in for a new position they just created. Inquiring further, I found out that he has 26 employees, has been in business for almost a decade, and is growing at low double digits each year. After hearing this, I asked why he’s still filtering resumes and screening candidates. He thought about it for a second and said that he still does it because he’s always done it since the beginning. Hmm, I thought, tasks like that should be handed off so as to focus on the areas of highest value.

Here are a few thoughts on eliminating trivial work and delegating tasks:

• Go on vacation for two weeks and require that someone else do all your standard tasks
• Think about every task that isn’t strategic and assign it as a responsibility to someone else
• Find an ambitious up-and-comer in your organization and hand off some of the “harder” tasks to him/her
• Spend a week jotting down everything that you spend time on, review it, and decide on what you should start/stop/continue doing

Making the entrepreneurial transition from working in the business to working on the business takes time and is often uncomfortable. An easy process is to slowly relinquish all trivial tasks that are readily accomplish by another team member.

What else? What are some other thoughts on eliminating trivial work and delegating more tasks?

Earlier this week I was talking to an entrepreneur about his new idea. He was selling me hard on how it was such a great idea and that it’d be super easy to sell. I then asked about competitors and who else was in the market doing it. So, I asked, “If you were a buyer, what search terms would you use on Google to find this service?” We tried a half dozen searches and had no luck finding anything related to this idea. Do I believe competitors exist? Absolutely. Could I find anything? No. Without being able to research the idea more by way of competitors, I recommended he assess market demand.

Here are a few ideas on assessing market demand:

• Browse LinkedIn for 50 people with the pain and send them an InMail message asking to talk
• Ask 20 friends for introductions to any of their friends or professional contacts that can help
• Visit five relevant trade shows and talk to 100 people
• Attend five local networking groups and share the idea with 20 people to get referrals to more people

As with any customer discovery, it’s hard to get in front of the right people and assess market demand. With the appropriate effort and time it’s readily accomplished, and invaluable.

What else? What are some other thoughts on assessing market demand?

The first two years of a startup are a grind, and that’s if it’s successful. If things aren’t going well, the grind can continue on indefinitely. Startups take a tremendous amount of time and energy to get off the ground, and it isn’t glamorous.

Here are a few things that are part of the first two years of the startup grind:

• Repeated customer discovery interviews
• Multiple pivots and iterations in the search for product/market fit (see Pivoting is More Common Than Expected)
• Tons of administrative tasks like getting a business license, health insurance, general liability insurance, and interfacing with lawyers
• Finding an office and getting furniture, internet, phones, and more (it’s a strange rite of passage many entrepreneurs go through dealing with the challenges of finding a good office with a short lease and flexible terms)
• Fundraising trials and tribulations to raise money from investors (raising money by selling products to customers is always best but sometimes it isn’t possible)
• Signing the first 10 paying customers that didn’t come from friendly introductions (think about doing Cross 10 Out of the Gate)
• Hiring a sales assistant and acting as the lead sales person, product manager, and CEO
• Achieving product/market fit and having confidence that it’s possible to build a repeatable customer acquisition process

This doesn’t include any personal challenges, hiring/firing issues, and more. Startups are a grind and the first two years are especially difficult.

What else? What are some other things that are part of the first two years of startup grind?

When people think of cool tech companies, firms like Google and Facebook come to mind. You know, consumer-facing tech companies. Personally, I love business software. Business software isn’t glamorous but it’s still great. How cool is it that you solve problems for people and companies pay you?

Here are a few reasons why business software is so great:

• Companies pay good money to solve problems and increase productivity
• Users provide direct feedback and suggestions for improvement (see Get Satisfaction)
• There’s an endless supply of new software needed
• New customers have little incremental cost (provides for great economies of scale and gross margins)
• Successful B2B startups follow a clear four stage path

After being in the business software world for 14 years, I can honestly say I love it. I enjoy building software, helping other people, and growing companies.

What else? What are some other reasons why business software is so great?

Three weeks ago a friend reached out to me about investing in tech startups. Now, he’s a corporate guy and has never been involved in startups, yet he wants to put some of his hard-earned savings into risky tech upstarts. His question reminded me of Jason Lemkin’s great post Why You Almost Certainly Shouldn’t Be Doing Seed Investments. The idea is as follows: an angel needs a broad portfolio of angel investments to do well (the same reason Vanguard is such a great product for public equity investors), seed investments of $25k or $50k also need follow-on dollars, so to do angel investing right, you need at least $1 million of cash.

Let’s look at the math:

• 20 investments at $25,000 each results in $500,000 (so, a portfolio of 20 startups)
• 5 of the 20 make good progress, so an extra $50,000 is invested in each, resulting in another $250,000 (important to reserve at least $2 for every $1 invested for pro-rata participation in future rounds — many people recommend reserving $3 for every $1 invested)
• 1 out of 20 is a rocket ship and another $250,000 is invested in it to maintain pro-rata
• $500,000 of initial investments plus $250,000 for first follow-ons plus $250,000 for a second follow-on results in a requirement of $1,000,000 in cash for a broad angel investment portfolio

Most people don’t have $1,000,000 in cash ready to invest in startups, and those that do don’t like the idea of little-to-no liquidity for 7-10 years (see Lack of Liquidity with Angel Investing). The cash requirements for a broad angel investment portfolio is much larger than people think.

What else? What are some other thoughts on cash requirements for a broad angel investment portfolio?

Recently I was talking to an entrepreneur that was trying to figure out the next step for his startup. After digging into things, I realized it was him and some outsourced developers working on the business. There really wasn’t a team since all the programming was contracted with a third-party and he was only person pushing the business forward. My advice was that he needed to find a co-founder that complemented his skills. He then asked what else he should look for in an entrepreneur.

I told him I like entrepreneurs that have already failed at one startup and are still eager and ambitious to do the next one.

Failure shouldn’t be celebrated, but it also shouldn’t be shunned. I don’t like failing, but whenever I fail, I learn a tremendous amount and it helps keep me humble. Entrepreneurship has high highs and low lows, so when an entrepreneur weathers the difficult times, and gets back up again, successes are that much more gratifying.

I favor entrepreneurs that have already failed and try again, all else being equal.

What else? What are some other thoughts on favoring entrepreneurs that have already failed?