The Five Essential Keys To Startup Success

The FounderSensei program is all about helping entrepreneurs find scalable, repeatable business models. We focus on this area because in the end, it's the only thing that matters in the early stages of a startup.

Since our last five startups were profitable with no outside capital, people often ask me, "What is the key to success?" 

Here's what I think are the five most important keys to startup success.

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Register Today For The Founder's Workshop

I'm really excited to open registration today for the next Founder's Workshop. I love teaching this class and watching entrepreneurs learn how to apply the principles for creating profitable startups with very little capital. It's amazing to watch students transform from being somewhat skeptical to true believers after they see it for themselves.

Register today and start your transformational journey.

Dave Linhardt
FounderSensei

Eliminating Ego To Improve Resilience

The past few years have been very challenging for me. Forces outside my control have been reshaping my entire life. For what purpose I'm not quite sure. I've learned a lot from the experience. One of the insights from this process is that my intellect is not sufficient to deal with all of life's challenges. I know now I've been missing a spiritual element in my life.

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Follow Up on The Founder's Workshop, Week 1

Thanks for a great session yesterday to kick off the Founder's Workshop. It's truly an honor to work with such a dedicated group of entrepreneurs who are creating something from nothing. 

Here's a copy of the overview deck that we went through.

Also, I recommend everyone watch the session on Problem Validation. I gave this talk at a Meetup a few weeks ago. It describes a detailed and methodical process for validating a problem with customers. In the video, I define a standard for determining how you know if you've validated the problem with a set of customers. Please watch this video and let me know if this approach is different, better, or worse than what you've done to date.

We also discussed the Insight-Driven Iteration process and methodology. Our discussion was a brief introduction. Our first task is to figure out what you need to validate next, and define the best experiment you can run to do this. We went through the high-level framework to determine where everyone is right now.

1. Problem
2. Solution
3. Path To Customers

Two of the teams seem focused on Path To Customers, so I'll make that our focus next week.

I'm also going to put some additional thoughts together on the standards we should use for determining what is validated and what is not. I think a more detailed discussion on this topic will be helpful to everyone.

Our next session is next Wednesday at 1 pm central / 2 pm eastern and 11 am pacific. See you then unless we talk sooner.

Dave Linhardt

 

The Value In Selling Your Company Every Year

In the FounderSensei workshops, we focus exclusively on business model validation by running customer experiments. It's the right focus for us and we love it. To differentiate our stuff from accelerators, we don't focus on pitch training or understanding the early-stage investor market. Our hypothesis is if you create a great business, the investor stuff takes care of itself. While I still believe this is true, I've recently uncovered another process for validating enterprise value of a startup.

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Why Your Corporate Gig Doesn't Help Your Startup

I recently ran a couple of meetups focusing on problem validation. The idea was to help entrepreneurs who are just getting started. By my best estimate, 85% of attendees are working for established companies in a corporate environment. They have aspirations to create their first startup. Some have good ideas and are passionate about them. Others believe the grass may be greener in startupland because they are working at a job they hate. 

I made several observations from the meetups and there is one I'd like to focus on in this post - corporate experience and how it relates to entrepreneurship.

Startups Vs. Existing Companies

Let's consider Startups versus Existing Companies. I've worked at both so I have a perspective based on experience.

Steve Blank said it best when he said, "Startups are not smaller versions of big companies. Startups are something fundamentally different." I completely agree. The illustration below highlights the difference.

Image taken from SteveBlank.com

Image taken from SteveBlank.com

Existing companies have a defined, proven business model. The mission of the organization in an existing company is to IMPROVE business performance within the construct of the existing business model. Written corporate policies in every function serve to further define the "standard operating procedures" for how to run the company. These policies and best practices are the playbook for how to run the company.

Managers are tasked with defining the "strategy" of how they can incrementally improve business performance to delivery higher revenues and profits, typically by 10 to 20% year-over-year. They typically provide this improvement within the framework of the existing business model.

People who do well in existing companies tend to be good at following the rules, sticking to a script, and finding ways to do things just a little bit better than last year. They tend to value stability, well-crafted plans and above all professional execution. What turns them on is leveraging their "core competency" and doing their special thing very, very well. 

"This is what we do. This is what we are good at. And we do it very, very well. We are best in the world at doing this special thing," says the corporate manager and leader.

Existing companies leverage their assets, which are substantial and are exclusively focused on supporting the current business model. 

Existing companies are commonly run by professional managers, who are not normally the individuals who started the company.

Strategic planning focuses around developing a financial forecast, which details how revenues, expenses and profits will flow through the business every month for the next three to five years. Managers are rewarded for "hitting the plan" or for being "on plan." If you hit your plan, you are rewarded with a bonus and maybe a promotion.

However, if you miss your plan, you are toast. The organization will spit you out like the loser that you are! Bad, incompetent manager can't even hit his own forecast! What a dope!

Not surprisingly, investors in existing companies look for consistency, stability and predictability, and reward those managers who can provide it.

Startups are a very, very different animal. Startups are searching for a business model. They are trying to INVENT one. Their task is to define hypotheses and execute experiments. When they run experiments, they have expectations of what might happen, but they really have no idea of what is going to happen. That's why they run the experiment! They are trying to find out what happens to B when we do A. They are ok with the uncertainty that they don't know what will happen. That's what makes it exciting!

Startups actively seek out new problems to solve, and new ways of solving them. They like to do new things. There is no standard operating procedure because they are forging new territory.

Basically, Startups have no idea what they are doing, and whatever it is, it's going to change. I realize this isn't comforting for early-stage investors, but it's true. But it's critically important not to fear the fundamental nature of a startup. The strength of a startup is its willingness to seek out the truth and to dramatically transform itself, often times overnight, in an attempt to find product-market fit.

This is why I roll my eyes every time an early-stage investor asks for a forecast. How can I model a five year forecast for a business when I haven't even defined or validated the business model? Any forecast at this early stage is nothing more than a fantasy, a natural extension of my unvalidated reality distortion field. 

When I am forced to produce a forecast, I do. And I include this disclaimer.

"This business is a startup. It is nothing more than a highly speculative venture based on unvalidated assumptions. In this venture, as with all startup ventures, I am certain of only one thing: that almost all of the numbers above are going to be proven wrong as we get more experience with customers."

It is precisely the nebulous nature of the startup that gives the startup its competitive advantage. When a startup goes up against an existing business, all of the biggerco's "standard operating procedures" create tremendous rigidity within the business and organization. If the market is changing, and almost all markets are these days, then the "established" business is severely inhibited. The established business is trying to walk in cement shoes why the startup is running around the playing field in bare feet! 

To call Existing Businesses and Startups "business" is a dramatic oversimplification. Thinking they are the same is like thinking a 1-month old embryo is the same as a 45 year old man. They may be of the same species, but they think, act, need and behave in completely different ways.

The people who love startups, love doing new things. They like novelty. They are explorers. They are curious. They have many interests: they love to learn, and they regularly seek adventure. Moreover, people who thrive in startups are likely to be impulsive, high energy, flexible and irreverent. They are rebels, mavericks and pirates.

The people who love existing companies are builders. They tend to be calm, precise, managerial and social. They are modest, civic-minded and often popular. They are rarely impulsive, especially with their money, actions or feelings. Security is important to them. They value duty, loyalty, patience, persistence and service. They are pillars in their communities.

These tendencies are created by different systems in the human brain. 

It is possible for one person to thrive at an Existing Business and at a Startup, but it is rare.

Corporate Employee To Startup Entrepreneur

So what are the implications for the vast majority of corporate employees to come to the FounderSensei meetups to learn how to be an entrepreneur? 

1. Understand that if you create a startup, you are deciding to change careers, quite dramatically.

I worked at an email marketing company. When we sold the company, I created an email marketing startup the next day. It was the same business model, in the same market, with the same customers and the same suppliers. Still, that fact that it was a startup meant that I was in a completely different league. It wasn't even the same sport!

Making the leap from Corporate to Startup is a completely different career. You must approach the Startup opportunity with humility and with an empty cup.

If this is troubling to you, perhaps you should stay where you are.

 

2. Very little of what you've learned at your job is going to be helpful to you and your Startup.

In an Existing Business, a lot of manager's energy is focused internally. How do I get this approved? What is the process? Who do I need to talk to to convince of this? What is my role? Who has authority for this or that? Who's in my network that can help me?

None of this means jack shit to a Startup. It's totally irrelevant.

In a Startup, almost all of your energy is focused outside the company.

Stop making slide decks to explain your strategy to some hypothetical executive that doesn't exist.

Start talking directly to your customers. You are playing a different game now.

If this is unsettling to you, perhaps you should stay where you are.

 

3. Almost everything you take with you from your job will be toxic to your Startup.

Competitive advantage, core competency, buyer power, supplier power, competitive landscape, rivalry...these are the words used by strategy consultants and big company executives. If you talk in this way in an Existing Business, people will think you are smart. If you talk this way in a Startup, people will think you are an idiot.

Thinking this way is toxic for your startup. At best, it's completely irrelevant to what you have to do to be successful. At worst, it will crush your good ideas before they get a chance to breathe.

Michael Porter is a brillant man who works at Harvard Business School. The invented the Five Forces Framework that defines almost everything that corporate strategists revolve around.

Here's my question for Mr. Porter. How do you analyze an industry that doesn't exist? 

The answer is, you can't. If you decide to be an entrepreneur, you'll realize another valid answer to this question is, why would you want to? By the time the industry has taken shape, you've missed your opportunity!

I don't have anything against Michael Porter's framework. I just think it is most useful for companies who compete in existing, well-defined industries that can be analyzed. It's most useful for Existing Companies. This is rarely the case in an innovative startup that is doing something completely new.

Stop thinking about your competitive advantage. You don't have one yet. You need to find one by running customer experiments, search for a business model, and then validate it with more customer experiments. When it's all over, then you can make a pretty slide deck!

Instead, start talking to customers. Study their behavior. Find meaningful problems to solve. Solve them using awesome solutions that serve these customers. Figure out how to do this in a profitable, scalable way. That is your mission, should you choose to accept it.

If this is disturbing to you, perhaps you should stay where you are.

If you think I'm discouraging you from creating a new startup, I am. If it's working, then you aren't cut out to be a successful, startup entrepreneur. 

 

 

Thoughts On Problem Validation Meetup Last Night

Thank you to everyone who attended the meetup last night. I enjoyed the interaction very much.

Here's a copy of the deck that I walked us through. 

I have a few observations from the session that I'd like to share.

  • I think we had about 20 people in attendance. 3 were practicing entrepreneurs and 17 were newbies. This seems to be the normal mix for a meetup like this.
  • The vast majority of attendees (85%) are interested in starting a business, but they haven't yet.
  • Of the members who spoke up, the primary reason for wanting to start a business was lack of fulfillment with their current employment. Within this is an unmet need to be passionate about what we do for a living.
  • This begs the question for me, why are you waiting to get started?

1. Startups are not going to come to you. You have to muster your energy to create one. You are the driving force that changes the world, not the other way around.

In general, I think there are two work environments: institutions and startups. Institutions are schools, established companies, government agencies, etc. What they have in common are a) a defined business model, i.e., way of operating and making money and b) standard operating procedures and c) hierarchical organizational structure.

Startups have none of these things. Stop and think about that for a second. Startups have none of these things.

Institutions are like fully formed human beings. Startups are like embryos. Better still, startups are primordial goo. They contain the fundamental building blocks of life, but they are not recognizable as life in their current form. You can't look at a blob of goo and determine what it is going to be when it grows up. That's precisely why early stage investing is so difficult. It's impossible to predict what is going to happen.

When you create a startup, you have infinite degrees of freedom. You can solve any one of an infinite number of problems, for an infinite number of people in an infinite number of ways. That's a lot of freedom.

If you take someone who is used to being told what to do, how to do it, and had their compensation linked to how well they comply with the instructions, then you have someone who has been institutionalized. 

Genuine entrepreneurs don't do well in institutions. For some reason, they refuse to be institutionalized.

Institutions are designed to control people. Entrepreneurship liberates them.

Sometimes I think entrepreneurship is a mutation. Think about it. In my example, I was subjected to 18 years of schooling and 4 years working in large, established institutions. Every day, I was told what to do, how to do it, and how I would be evaluated on how well I complied with these instructions. After having this hammered into my brain everyday, somehow I resisted it completely. My performance reviews were all the same - brilliant guy, great ideas, impossible to manage. To which I would simply say, "Thank you."

To this day, I have zero respect for authority. I don't like anyone to tell me what to do. Perhaps this resistance is my super power. Perhaps it is a mutation. Whatever it is, I've observed it's a quality I share with all genuine entrepreneurs.

When you take someone who has been institutionalized, and you dump this person into the open ocean of infinite degrees of freedom, it's unsettling as hell.

I remember feeling a little out of sorts when I created my first startup. I loved it, but I was feeling disappointed that my experience and education didn't make me more prepared for the challenges I was facing. I thought I could write a pretty good book called, "What I Didn't Learn About Startups At Harvard Business School." This book would have to be a series as it would contain at least 10 volumes of content. I took the one entrepreneurial class Harvard offered at the time. Evidently, it wasn't enough.

And that's my first point - No institution, no matter how lauded, will prepare you for entrepreneurship. The only way to learn how to do it, is to do it.

My second point is when you make the transition from an institution to a startup, you have to realize that you are no longer the recipient of change, you are the driver of change. If you aren't focusing all of your energy on changing the world every day, it will never happen.

If you want to be an entrepreneur, you need to realize that your job is now to change the world.

No one is going to give you instructions or tell you what to do. You have to figure it out for yourself. No one is going to evaluate your performance based on those instructions. The evaluation for your performance is a self-evaluation. Satisfaction and happiness are intrinsic. They come from within. How you are doing is exactly equal to how you think you are doing. It's really that simple. 

Sure, if you have investors they will evaluate how you are doing. But it's really simple for the investor. "I gave you X and you returned Y." If X>Y, the investor is ok. If X<Y, then you're just one of 9 out of 10 deals that didn't work out. If X>30 * Y, the investor is ecstatic and will be your investor for life. The truth is, most investors don't give a damn how you made them money. It's simply enough that you did. They may have opinions, but it's your job to define it, execute on it and deliver results. Period. How you do it is entirely up to you!

Which brings me to my third and final point to the mindset change that you need to go through. 

You can't be passive any more. That simply won't cut it. You must be proactive. Embrace this fully. 

If you are sitting around wondering what makes the world go around, you've already lost. You need to wake up and realize it is YOU that makes the world go around. If you don't, nothing good will happen.

You must realize that you can and you will make it happen. First with vision and imagination, then with force of will and focused execution, and then by learning what is working, what is not, and making the right pivots. Rinse, and repeat.

I realize this is a dramatic shift in mindset. As you leave the comfort of a well-defined institution and decide to swim across the ocean on your own, you must make this shift in thinking and in how you see the world around you.

The process is difficult but it's simple. Forget everything you know. You're starting a new life from scratch. Embrace this fact and allow yourself to be reborn.

2. Startups are satisfying work.

Malcolm Gladwell has a great definition of satisfying work in Outliers

"For work to be satisfying, it must have three things: autonomy, complexity and a connection between effort and reward. Those three things are, most people will agree, the three qualities that work has to have if it is to be satisfying.” Startups have these three things in abundance!

There are no guarantees in startups save one: if you commit yourself to the venture, your work will be satisfying.

It doesn't mean your particular venture will be successful. Odds are it will not. It doesn't mean you will become rich. Odds are you will not. It doesn't mean your life will be easy. For sure, it will not. 

It does mean, you will have satisfying work, work that provides autonomy, complexity and a connection between effort and reward. And here's a bonus benefit. If you commit yourself to your startup, you will be transformed by the process. If this feels right, you will be on your way to becoming the person you were meant to be.

 

3. Startups are not for everyone. In fact, they are not a fit for 98% of us.

Like I said, entrepreneurship is a mutation. I estimate only 2% of the population are genuine entrepreneurs. While I think I can detect good entrepreneurial DNA, I'm sure I'm wrong all the time.

The best way to determine if you have what it takes to be an entrepreneur is to create a startup and commit yourself to it. I promise you that you will learn if you are an entrepreneur or not. If you do it, there won't be any doubt. 

If you are an entrepreneur, then you may have found your calling.

If you are not an entrepreneur, then now you know for sure, and you can proceed accordingly.

Either way, you win!

 

4. Don't live a life of regret.

It's been said the only regrets in life are things you don't do. I think this is true. 

I've had my share of startup successes and failures. Even my worst, most painful failures, I don't regret doing them. The lessons I learned in failure are some of the best lessons I've learned in life. The lessons, and pain associated with them, have transformed me into who I am now. I wouldn't change a thing.

I know that I am now prepared to handle anything. When you've come back from the brink as many times as I have, you get a feeling of confidence that you can always do it. The truth is, I can always come back from failure, not matter how bad the failure is. There's always a new day, a new play to make, a new idea, a new way, a new problem to solve, a new product to build, new customers to serve, a new channel to develop and a new flavor of anything and everything. It's never-ending.

Entrepreneurship opens up an eternal font of opportunities that are so abundant no one could never pursue them all in a thousand lifetimes.

You can't see them now because you haven't been working your entrepreneurial muscles. Once you start, you will see opportunities everywhere.

Don't live a life of regret.

When you are lying on your death bed, what are you going to say? Don't be one of those people who say, "I had a really good business idea. It would have been great! I wish I would have done it."

By then, it will be too late.

A life filled with regret is a life wasted.

 

5. Sometimes the hardest thing is taking the first step.

As I finished our session on Problem Validation, a thought occurred to me.

"These guys are all Newbies. They don't know where to start." 

I talked about the FounderSensei Basic Training Program, features, benefits and costs. For most of you, I'm wondering if this is too much of a commitment. 12 weeks is a long time. I'm going to hold you accountable, and maybe that scares you.

To that end, I have a new idea:

First Step Workshop - The best way to get started on your business idea.

This workshop will include hands on guidance in defining your key business model hypotheses, problem template, and the easiest, simplest, first baby step to turn your idea into a business. I'm envisioning a Saturday session, 4 hours, with a handful of Newbies as we work through your business ideas together. The cost will be $199 per person, food and refreshments included.

Does that solution resonate with you?

If it does, send me an email at dave@foundersensei.com. If enough people do, I'll make it happen as  way to help you get started.

If you are reading this and you are not in Chicago, don't worry. We'll make the session virtual and you can participate via video conference.