Here's the deck from today's meetup. I'm going to reschedule the meetup in San Francisco due to the difficulties we had at the venue.
Please feel free to contact me if you have any questions about the proposed methodology for problem validation.
As my life is evolving, I need to restructure my personal living situation. So, I called my landlord who owns my apartment in San Francisco, to see if I can convince him to let me out of my lease early.
The good news is the rental market in Pac Heights / Cow Hollow couldn't be hotter right now. After two days, he's already found a replacement tenant. That's great for him and for me.
As I was explaining my situation, and why I need to leave early, he said something that caught my attention.
"Oh, so you're one of the crazy ones."
You may be familiar with the now super famous Apple commercial, written by Master Jobs himself. After hearing my landlord proclaim I'm crazy, I took it as a massive compliment. I responded simply.
"I guess I am. Thank you."
I'm not sure exactly when being "crazy" became a badge of honor for me, but it is. Perhaps it's because I've created six startups and personally lived through all the craziness that comes with it. Perhaps I was just always crazy and didn't know it. Perhaps I'm just choosing craziness over boredom. Perhaps I like to explore new areas, which are often chaotic, messy and undefined.
People who watch others do things that seem risky and have never been done before often say those people are crazy.
I'm preparing for a FounderSensei meetup right now. In the context of my presentation, I created a slide which attempts to summarize why I continue to choose craziness over sanity. In this context, craziness is the decision to do yet another startup. Sanity is choosing to become a venture capitalist, corporate innovator executive or some other kind of "real job" that comes with a steady paycheck.
If you are an entrepreneur, does this resonate with you?
If you are not an entrepreneur, what do you think of someone who describes himself this way?
Learn how to validate your problem with customers!
After a long hiatus, I'm so excited to announce two new FounderSensei meetups. We are having one meetup in Chicago and one in San Francisco. The focus of the meetups is on problem validation. The sessions will be informative, insightful and fun. They are designed for seed and concept stage entrepreneurs who are actively working on a startup.
Sign up for the Meetup in San Francisco on Feb 12th.
Sign up for the Meetup in Chicago on Feb 19th.
I hope to see you there!
Nobody votes for a new idea. If you really believe in it, you have to grind it out yourself and get it to a point where other people come along and say, "Hey, maybe you have something here. Maybe this is something we want to be involved in." - Robert Redford
Creating something from nothing is hard work. Entrepreneurs are special; they are not normal people.
I am at the Lake Forest Metra station at 8 am on December 31st, New Year's Eve. Normally packed during a work day, the parking lot is empty. The ticket office is closed.
I am here to take the train into the city. I have meetings with five Chicago startups. I'm meeting with the founders to determine the best way for me to help.
New Year's Eve was the best day for all of our schedules. It's the day everyone else is taking off.
When you are engaged and obsessed with your startup, there is no such thing as a holiday.
“Despite the overwhelming odds, tomorrow came.”
- Rise Against, Tragedy + Time
I’m in the middle of two big changes right now: exiting my SaaS startup and settling my divorce. Perhaps it is because these two things are happening simultaneously, but I see a lot of similarities. I’ve been thinking about this all year and it seems clear. Startups are like falling in love.
In my experience, there are seven phases of falling in love. There are also seven phases of doing a startup. Each phase of love has a corresponding phase in a startup.
Men are visual animals. When we see a woman that is attractive to us, we pay attention. It could be purely physical or it could be personality enhanced. There is nothing more sexy than a woman with a great personality.
Before I created my first startup, I was a corporate executive. It turns out that is a tough transition, but I didn’t think so at the time. I was unfulfilled working in Corporate America. A lot of my friends were doing startups in San Francisco. It was incredibly appealing to me, especially in dot com one in 1998 through early 2000. Startups were hot. The idea of doing a startup was just too attractive to pass up.
When an attractive woman captures my attention, I want to learn more. Is there more to her or is she just a pretty face? Is she too hot to be approachable? Does she think her shit doesn’t stink? What does she do? What makes her tick? These are important questions. If she’s attractive, I must answer them.
The answers to these questions often lead to the next phase - infatuation. The stronger your imagination, the more powerful infatuation is.
In a short period of time, I’ve completely mapped out our future together. My imagination starts creating the future that I feel in my heart.
Ok, so you are working in the city, so we can stay here. You want two kids and so do I. You probably want to get married in a church with your family close by. You have an older sister so she can help plan the wedding. We will date for a while, where we will have more fun that human beings should be allowed to have. We will party, go to dinner, see a show, go snowboarding in Park City, and of course have ridiculously awesome sex every night. We will fall completely in love and it will be the best feeling in the world. Eventually, I’ll ask you to marry me. You will say yes. We will have a beautiful wedding. After a few years, we will move to the suburbs, where the schools are better, have two kids, raise them, see them off to college and live happily ever after.
That’s quite a dream for someone I just met.
The same holds for a startup.
Ok, so lead gen companies have a problem optimizing conversion rates in search marketing. The problem stems from the fact that it takes six months from the time the consumer fills out the form until they become a paying customer. This time lag makes it difficult, if not impossible, to fully optimize keyword bids all the way through to paying customers. As a result, search advertisers and their agencies only optimize up to form submit, which is obviously suboptimal, resulting in higher customer acquisition costs.
Our solution is a predictive analytics application that predicts which leads will convert six months in the future. With this new and proprietary insight, search advertisers can finally fully optimize their media spend by adjusting their bids based on predicted conversion rates.
Targus does some of this but their product sucks. It’s manual and the refresh rate is once every two years. Ours is once per day. Targus was purchased a few years ago by Neustar for $680 million. Our solution is better so we can build a $1 billion business, right? Right.
So, I’ll start this company, build a team, build an MVP, acquire a few enterprise customers. They will love our solution so much they will generate $1MM in SaaS revenue in the first year. We will use this traction to raise $5MM series A, even though we won’t really need the money since our EBITDA margin will be 45%. We will do it because we just want to grow faster. After building an awesome B2B SaaS business, we will sell it at 8x revenue for $1BN. Let’s do it!
That’s quite a dream for an idea I just came up with.
What can I say, entrepreneurs have great imaginations.
Nothing makes you fall in love faster than validation.
Validation is when the hot, sexy woman, who is the subject of your infatuation says she likes you too. Really? Oh wow. That is awesome. I’m in heaven. Let’s hang out. Let’s do something fun together and see where this goes.
Validation in a startup is when your prospect becomes a paying customer. When I received a signed agreement from our first customer, I swear it was better than sex. Seriously. Or at least, equally as good.
Validation is when your interest and infatuation is returned back to you. It feels really, really good. It feels so good because your dream is now one step closer to coming true.
Now that you have validation, it’s time to dive in and really go for it. There is no reason to hold back now.
In a startup, this means focusing all of your energy and resources on a single purpose - building a great company. Everything else becomes secondary.
Fueled by customer validation, you move forward full steam ahead. This dream really is going to come true! You can taste it! You know this business will be massively successful.
Yeah, you are probably getting ahead of yourself. But that’s the point. You aren’t acting rationally. You are love sick. You are like a runaway freight train and there is nothing that can stop you.
In your relationship, you are falling hard. You’ve been together a few times and it was like heaven on earth. She’s into you and you are into her in a big way. This feels good. This feels right.
Yeah, you are probably getting ahead of yourself. But that’s the point. You are love sick. She is your soulmate. You are like a runaway freight train and there is nothing that can stop you.
Every startup eventually runs into problems. The honeymoon period doesn’t last forever. Even with good customer validation, there are an infinite number of things that can go wrong. In the problem phase, you are now aware of at least one of them.
For my SaaS startup, we stumbled building a repeatable, scalable path-to-customers. Our first enterprise customer came on service relatively easily. It turns out the other enterprise customers we not so easy. In addition, the market we were in turned south and our customers’ businesses started shrinking about 15% year-over-year. Budgets were cut. CMO’s were fired. It was a bloodbath. It’s tough to sell a strategic solution when your decision maker just got fired.
In addition, our SaaS business started to look a little like a consulting business. Customers didn’t have the data we needed to drive our analytics. We needed to integrate their systems with our tech. These activities are consulting esque if not full out consulting services. How did this happen? I’m not building a consulting firm, I’m building a SaaS business! Our customer needs got in the way of our clear vision.
In love, you will eventually run into problems. No one is perfect. People want different things. People change over time. We are all broken. After infatuation and the buzz of validation wear off, you are left will the reality of your relationship and are faced to deal with whatever problems you discover there.
In startups and in love, the question becomes, can you deal with the problems that you’ve uncovered? Or are they too much?
The answer to those questions determine the fate of your startup, and the fate of your other love relationship.
Resolution or Rejection
Hopefully, you find a way to resolve your problems.
In a startup, this means coming to terms that I have an enterprise sales business with some consulting elements. Or, it could mean we are going to pivot to a new market that is more SMB and self-serve. If you can come to terms with these things, and stop being in denial about them, then your dream might still come true. It just might play out a little differently.
If you cannot, then the dream dies, right then and there. That’s it. If the problems are too great and you can’t deal with them, you will fall out of love. Without love for your startup, it will certainly die.
In love, resolution means coming to terms with the problems you’ve discovered in the relationship. How big of a deal is this problem? Is this an annoyance, or is it fatal? Can I have a healthy, loving relationship with a person who (insert problem here)?
If resolution is not possible, then get ready, this is going to hurt. Rejection is really painful. It’s painful even if you are the one doing the rejecting.
The reason rejection is so painful is because you are dealing with a tremendous loss. Do you remember the dream of your $1 billion company? Do you remember the dream of your blissful, loving relationship with this awesome woman and your two beautiful kids?
Well, I’m sorry to tell you, but that dream is gone. It’s never going to happen. It was a mirage.
The pain from the loss is almost unbearable at times. It will drive you crazy. It’s similar to the loss of a loved one. In fact, it is the loss of a loved one in your mind. You loved your dream and now it’s gone. You will go through the stages of grief. It’s going to take time to heal and recover.
Deciding to abort a startup is by far the most difficult decision an entrepreneur will ever make. It’s a decision to kill a piece of you. It’s like cutting off your arm because if you don’t, you will die. Deciding to break up with the woman you love is equally as painful.
After you have recovered, after you have healed, you can dream again. One day, you will think something like this.
“I love going to concerts. But you know what I hate about concerts? It’s hard to find someone to come with me. What if there was a new social app that would solve this problem by…”
Or you might meet someone, maybe at a bar or maybe through a friend.
“Wow, she’s interesting. I wonder what her story is.”
And a new dream begins. And the cycle repeats.
I just re-read my post from Oct 2 entitled, Are Two Passions Better Than One? It's been exactly two months since I wrote this. Since then, I've been pursuing two passions at once, my SaaS startup and FounderSensei. I've learned this isn't working for me.
As a person with a lot of ideas, I struggle with the idea of focus. I recently read Essentialism, The Disciplined Pursuit of Less. The book resonated deeply and I think it's an important book. If you haven't read this book yet, I suggest you do it now. In it, Greg McKeown offers a simple illustration to make his point on the value of doing what is essential.
Our energy is finite. We can choose what we work on. My favorite quote from the book is,
"I can do anything but not everything."
When you are unfocused, you make a millimeter of progress in every direction. Your energy is diffused. When you are in this mode, you are reacting to what is coming at you. You use your inbound email as your todo list. You are serving others by simply responding to their requests. You aren't setting the agenda. You are reacting to someone else's agenda. You're like the customer service department, but with slightly more competence.
This is no way to live a fulfilled life of purpose.
"I heard about a woman once, who did everything ever asked of her.
She died last week and her last words were, "it wasn't worth it.""
- The Gaslight Anthem, 1,000 Years
The challenge is in deciding what is truly essential. In essence, deciding where to focus, right now, in this moment. As Greg McKeown rightly states, if you don't proactively say no to things that are non-essential, they will be chosen for you by default. This is true.
Focus Vs. Selection
But where to focus? That is the question, isn't it? For someone with entrepreneurial ADD, choosing to focus on just one thing is painful. It's painful because of the loss you feel by not doing that other thing that you are also passionate about. Instead of feeling a sense of loss, tell yourself, "I'm going to do that other thing, just not right now. I'm putting it on the back burner for the moment." This thought will help reduce your feeling of loss.
As I've struggled with the question of focus, I now realize I've been confusing two things that are not the same. Finding focus involves three separate processes.
- Defining your options
- Selecting your best option
- Committing to your one thing and eliminating all other possibilities
When things aren't working out, it's important to realize what is happening. You have to go through the analysis and try to determine the root cause of why you aren't achieving your goals. If you don't get to the root cause, you won't be able to solve the problem.
In startups, there are three common areas where traction is obstructed. I like to think of these as Traction Stoppers. I spend several days in the FounderSensei program talking about Traction Stoppers. Below is an abbreviated list.
- Problem: Is this a real problem that our customers truly care about? What are their pains and gains?
- Solution: Does our solution really work given the value proposition, costs to our customers and the alternatives?
- Path To Customers: Do we have a scalable, repeatable path to customers?
In a startup situation, you never have complete information. In fact, most of the decisions you need to make right now won't reveal themselves fully until months or years later. This creates a fog of war for any startup founder. The trick is to develop enough judgment and intuition that your batting average is acceptable given your margin for error.
So, analysis, gut instinct and judgment are important components of identifying the root cause of why your startup is not meeting your expectations. From this root cause, comes your list of options.
Your options are nothing more than natural conclusions based on your analysis. For example, with our enterprise SaaS business, I finally came to face reality that our platform requires a two-year sales cycle for large customers. I didn't want to accept this reality for a long time. I was in denial. I thought surely we can do better than this.
I didn't like the idea of a two-years sales cycle because I totally blows up my growth plan. My expectations for traction and growth were different than the reality of how customers were behaving.
Wishing for a thing does not make it so. Once I finally accepted the reality of how large customers will behave, I could finally start looking at options. Instead of building an enterprise sales force, maybe we should focus exclusively on channel partners who already have these relationships? Maybe we should abandon big companies altogether. We could make the platform self-serve and go for SMB using inbound marketing. Should we make this dramatic pivot? Will that lead to more traction faster? These are the kinds of questions you need to ask to define your options.
With a list of reasonable, well-thought out options, the next step is to select which one we are going to pursue. Ask yourself, where do I want to go big?
I've found that different entrepreneurs have different comfort levels around how much information they need before selecting an option. Some entrepreneurs go completely on gut. Some require a lot of testing, data and analysis before making a selection. Some like to talk it out with co-founders, teammates or mentors. If you make the selection too quickly, without any insight, you may be wasting precious time that leads to a dead end. If you do too much analysis and take too long, you will run out of time and money. I think it's a balance and each entrepreneur should develop his or her own process for coming to a decision. This is where entrepreneurial experience and judgment really come in handy.
For me, I need some data. I need to get a "feel" for what the option looks like. Typically, I'll pick 2 or 3 options. I'll start learning about each option as quickly as possible. I'll look for analogs in the space. For example, how did Salesforce.com build their business? Let's learn everything I can about that in the next day or two. Who can I talk to who has done something similar? Who would our customers be? How can I talk to them? Let's set up some quick exploratory calls with customers in our target to get a sense for how they think about the problem and the available solutions.
I'm not talking about a lot of analysis here. I'm talking about a few days or a week or two. This is enough time to give me a "feel" for what this option looks like. Then, I try to pick the best option based on perceived opportunity and my level of excitement for pursuing it. If the option doesn't resonate, then I quickly eliminate it.
Your personal level of excitement is perhaps the most important criteria in deciding which option to pursue. Whatever you do, please don't select an option that you are not personally excited about. It never works out well. You are going to need every once of excitement, passion and energy to get over the challenges in making your dream a reality. The process of creating something from nothing takes everything you have. I cannot overstate the importance of this enough.
For example, one of our options was to pivot into channel partners and sell our solution to search marketing agencies. While this was worth considering, I was getting the feeling there were two big problems with this option 1) search agencies are paid based on percentage of media spend and they don't have an incentive to be more efficient and 2) this is still enterprise sales at some level. For both of these reasons, I had difficulty getting excited about this option.
Sometimes, the two or three options you selected for further analysis don't lead to something you can get excited about. When this happens, don't panic. Just go back to the drawing board and brainstorm some new alternatives. If you get to the point where you are out of exciting options, it might be time to think about abandoning your project and moving on.
Stop Beating Yourself Up
I've beaten myself up for years on the question of focus. This isn't healthy and it leads to frustration, anxiety, negative thinking and second guessing. Instead, be mindful of where you are in the process.
Tell yourself the reason I'm not focused on just one thing right now is because I'm going through a quick analysis to determine where I should focus all of my energy. I am in the process of determining what is essential. Once I figure out what is essential, I'm going to go big on it and eliminate everything else. Once I become focused like a laser, by working on the right thing, I can cut through steel.
Think of your focus as the aperture of a camera lens.
There are times where it makes sense to focus like a laser. There are other times where you need to widen your aperture, take a look around, and figure out where you are going next. That's ok. It's normal and it is exactly what you should be doing right now to make your startup successful.
Too much focus all the time is limiting. It's inflexible. Not enough focus is also limiting because it diffuses your energy. The key is knowing where you are in the process and having the appropriate level of focus at the appropriate time.
I received an email from a friend today. She was asking me what's going on with FounderSensei. Here's my unedited response.
Hi. I’m well. I was a beta customer for LaunchPad Central. This is Steve Blank's software product. I haven’t found anything that I like in the lean startup software space. I was thinking of doing my own, but I haven’t had time to work on it. I use Trello, which is a generic kanban board.
I was thinking about you the other day. I’ve been thinking about FounderSensei lately. I’ve come a conclusion that I will eventually need my own fund in order to make FounderSensei into what I want it to be. I think what I’m doing is re-inventing the accelerator model. I think the current accelerator model really sucks. It’s wasteful and the failure rate is 99.8%. Certainly, we can do better.
I can’t raise a fund right now, I don’t think. I need to raise some money for A16E. But, we can move the ball forward with FounderSensei in the interim.
The plan for getting there looks something like this.
1. Run class with presentation to investors at the end of the class. I just need to call around to angels and VC’s and get a handful of people to say they will attend the demo day.
2. Get someone well known involved in the program. Mark Suster? Jason Calacanis?
3. Change the definition of demo day. Focus more on validated learning and evidence. Remove polish and make it more authentic.
4. Raise a seed fund. To run the experiment, I need 20 investments to test the thesis. I want to do this with a different fee structure. Instead of 2/20, I’ll offer 0/25. I’m not charging any fees. I’ll make money on the carry only. We need a $10MM seed fund if we invest up to $500K per company.
5. Mobile focus. I like the idea of being 100% mobile.
I’ve been feeling guilty about spending time on A16E and FounderSensei. But, you know what? Everyone does it. Look at all these Uber successful entrepreneurs who split their time between two passions:
Steve Jobs - Apple & Pixar
Elon Musk - SpaceX & Tesla
Jack Dorsey - Twitter & Square
I think it worked out pretty well for them.
So, fuck it. I’m doing both.
I recently ran a bunch of experiments to determine if there is a business model for FounderSensei with entrepreneurs as our target customers. I've learned a lot from these experiments. At the end of the day, I like FounderSensei better as a free service for entrepreneurs. So, we are going back to that and I'm excited to do it.
Below are some of my thoughts on the topic.
To Matt French from Up Global / NEXT Program
As you know, I've been running a ton of experiments on FounderSensei products, to determine if we can turn it into a business. I've come to a conclusion - I like FounderSensei better as a free service and as a give back to entrepreneurs.
The idea of charging entrepreneurs for mentorship is not a good one. When you look at what they can pay, the revenue isn't meaningful. But more than that, charging entrepreneurs creates a misalignment between Sensei and Apprentice. As a Sensei, my highest priority is to help the entrepreneur succeed and to help make his or her dreams come true. Taking precious dollars from him or her, works directly against that goal.
As a hustling entrepreneur who is scrappy and fighting for survival, would I pay a fee for mentorship? No, I would not. Case closed.
What prompted me to think about charging was really StarterSchool.com. They are in the adjoining conference room at 1871. They charge $33k per student for a course that is inferior to FounderSensei. I was feeling like kind of a dope for giving my class away for free. I now know this analysis was flawed. StarterSchool serves a different market and what they are doing is just irrelevant to what I'm trying to accomplish.
We did get a number of teams to signup for the Challenge. We also sold some personal coaching at a pretty good hourly rate. I'm refunding their money and offering them free admission into our next Group Learning Class, which I hope to kickoff soon.
I'm traveling today but let's talk next week if that is convenient for you.
Tristan Romer had some good questions for me on the FounderSensei Lean Startup Challenge. Here's the thread which I hope will help answer some questions about the program.
Brad Feld, my spiritual startup guide, did me a solid yesterday and tweeted about the Challenge. Thank you so much Brad! This is awesome! I'm looking forward to sharing what we learn in the process.
The FounderSensei Lean Startup Challenge is a 12-Week Lean Startup Contest for serious entrepreneurs who want to turn their idea into an awesome startup. Unlike business plan competitions that judge startups based on untested assumptions, the FounderSensei Challenge judges entrepreneurs based on hard data from customer experiments. The program kicks off with an intense one-day Lean Startup Bootcamp, where Founders learn how to build a successful startup. The contest includes a crowdfunded cash prize where 70% of the entry fee goes into a winner-take-all pot. To our knowledge, this contest is the only one of its kind that is 100% funded by the entrepreneur community.
Startups can exist anywhere in the world. The only requirements are that you have to be actively working on a startup, and your startup has to have less than $250K in gross lifetime revenue.
If you are a serious entrepreneur and are interested in discovering the keys to startup success, sign up today.
On 8/27, we will be having our final session as part of the 12-week basic training class. You don’t want to miss this one.
Having a framework for thinking about your startup is helpful. At least, I hope it has been helpful. Using a good framework, like Insight-Driven Iteration, helps you figure out where you are and where you need to go next with your business.
But something is missing. To be successful as an entrepreneur, you need more than an analytical framework. Knowing where to go is one thing. Getting there is an entirely different matter.
There is a missing ingredient that we haven’t talked about. I’ve never talked about it before in any FounderSensei class. It has nothing to do with Steve Blank or Customer Development. It has everything to do with you, your journey, your heart, and your mindset.
To succeed, an entrepreneur must have heart.
"If one advances confidently in the direction of his dreams, and endeavors to live the life which he has imagined, he will meet with a success unexpected in common hours." - Henry David Thoreau
Our next session will cover how to cultivate heart, resilience, positivity and the inner strength required to create something from nothing.
I hope to see you all on 8/27 at 2 pm.
Here’s the updated schedule for the remaining meetings. We will meet in the DeVry conference room at 1871.
8/27 - 2 pm, Heart, Resilience, Positivity & The Entrepreneur’s Mindset
9/10 - 2 pm, Pitch Training with Troy Henikoff
9/17 - 2 pm, Group pitch practice
9/24 - Investor meeting, time and location tbd