I’ve heard every form of self-delusion known by talking with entrepreneurs. Entrepreneurs, I am damn sure one of those, cannot help but deceive themselves. Its not possible to always see reality and its a certainty that delusion is flourishing.
I’ve lost over $1mm investing in early stage companies but I also made 42x on one of them. I’m an Inc. 500 CEO, co-founder of four successful companies, raised over $250mm, acquired over 20 companies, filed for an IPO, and created over 1,000 jobs. Why do you care? You probably don’t. But now you undertand that I have lived in the world of startup kryptonite for 26 years and I’ve made every mistake possible. I want to help reduce your mistakes by sharing my experience.
There are many mistakes that entrepreneurs make at various times. Some of the mistakes are rookie mistakes that can be costly while others can be the end of the business. Entrepreneurs are optimistic by nature. Even the entrepreneurial engineers are optimistic. Even the pessimistic ones are optimistic. Its like Moore’s Law. This is the Law of Entrepreneurship — Pessimists are still optimists.
If we had any idea of the true challenges we were about to face when starting a company we wouldn’t start it. The challenges are debilitating, brutal, draining, and anxiety inducing. After we have an exit most of us scream “never again!” only to find ourselves wrapped up in another deal. Its what we do. Its not good or bad, its the way it is. I left Green Cloud Technologies in February and I cannot believe I’m actually contemplating starting another company. I must be insane.
Let’s talk about some of the Kryptonite. There are many pieces of Kryptonite, and I’ll probably add to this story over time, but, today, I’m going to touch on a few key pieces.
1. Uttering the phrase “Conservative Plan” — This is the jumbo-shrimp of the startup world. When entrepreneurs say Conservative Plan what professional investors hear is “rookie sucker that needs a liquidation preference”. The harsh reality is that you have no chance of hitting the plan you put in front of professional investors. No chance. Zero. You will never ever ever ever hit the plan you put in front of them. So when you say Conservative Plan its like screaming that you are inexperienced. I want to be crystal clear that you will miss your most conservative plan.
2. Believing you own Bologna — There is a difference between selling your story and being a religious zealot. Entrepreneurs tend to get swallowed up in their own story and, through the greatest self delusion, they begin believing they can’t be stopped. The problem with this line of thinking is that you become less prepared to handle adversity. That adversity is a certainty. Since you’re going to miss your financial projections you really can’t believe them. But, miraculously, I meet entrepreneurs all the time that are wholeheartedly convinced they can grow faster than Google and Facebook because they have a model that shows so. See my previous posts about the downfalls of Excel spreadsheets.
3. Marketing truth-stretching press releases — Once you put it out there its there for good. And when the smart VC’s start doing diligence you won’t be able to bullshit them. They are pros. They will review your public facing data versus reality and that can open up a can of business ethic worms. There is a difference between spinning and bullshitting.
4. Not having a co-founder(s) — Apple, Facebook, Google, Microsoft, Yahoo, AirBnB, Uber, Paypal. What do they all have in common? They have co-founders. I’m going to go out on a limb and say that without a co-founder(s) emerging tech startups have virtually no chance of real success (defined as $50mm+ Enterprise Value). This goes for investing in a single founder company. Just accept that its likely a write-off. VC’s do not generally invest in single owner, no-depth management teams.
5. Confusing VC calls with actual interest — When VC’s first start calling your company they generally have no interest in investing. When you are having calls with analysts each quarter thats not because they want to invest. They are simply tracking you and doing market research. Until partner-level personnel call and come to your office they are tire kicking. Do not think you’re getting funding because you had calls with VC’s. Also, go back and review the previous four headings, especially #4.
I made every mistake above at various points in building Nuvox, UCI, and Green Cloud. When I built Seruus I was so inexperienced I couldn’t even come up with enough decisions to even make bad ones. I was lucky. Even the sun shines on a dog’s ass every once in a while.
Startups are hard. To succeed, they need laser focus, great management, a drive for customer care, a pocket full of money, and lots of luck. Learning from another entrepreneur’s mistakes can help steer you from the Kryptonite.