Have you got what it takes?

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Have You Got What It Takes?

The most frequently asked question I get is: what does it take to build a company? How do I start one? It’s really the billion-dollar question. Each of the founders you’ll hear from tonight (John Hirschtick, Stephan Schambach, and Gail Goodman) has built billions of dollars of value, and each took their own path. There is no straight line.

I often get asked, “How can I be as successful as you?” I just laugh, because like most entrepreneurs I consider myself paranoid that I’m not successful and that I’ve still got lots to learn. But the most important thing is not what it’s like for somebody else; it’s what it is for you. Have you got what it takes? In your own understanding of what you’re passionate about and want to make happen, have you got what it takes to go out and build a real business? All I can really give you are not frequently asked questions but a lot of frequently questioned answers, because there is no one answer. That’s why this subject is best done in interview and discussion rather than from a textbook.

The Reality: It’s Easy to Start, Hard to Build

Things like the cloud and technology platforms have dramatically reduced the cost of building a product or service, whether on Amazon or as an app for the app store. The barriers to building something and getting it launched are dramatically lower, by an order of magnitude over the last decade. Getting to MVPs and figuring out product-market fit is not the challenge to focus on, because getting the product, and even product-market fit, is a very small fraction of what it takes to build a company.

So should you just jump in because you can, because it’s cheap and available? Maybe. But first ask: why are you doing this? What’s in it for you? Is it about lifestyle, because you want to work for yourself? Fame, because you’re excited about becoming rich and famous? Power? Something else? The reality has rarely been written about, but articles in Inc. and The Economist have started to tell the truth about how much pressure it is. Saying “I want to change the world” is an easy thing to say and a very hard thing to do. From my experience as an entrepreneur for 20-plus years, it was a massive sacrifice: putting everything else aside, and unfortunately in many cases putting things on hold that might have made for a more balanced lifestyle. So stop and think about how long you’re willing to do it.

Here’s the reality: in this uncertain world, the ventures you build today will take about 7 to 10 years on average (8.3 in the venture business) to come to fruition, to reach a place where they go public and become billion-dollar enterprises. This is not a six-month product cycle. Thousands of companies go through the process of trying to get funding, and even of those that get funded, about one in 10 turns out to be a breakout. And it’s not easy at any level. There’s been anecdotal research on how few companies actually become Facebook-like or Google-like: about 45 in total in a recent study on so-called unicorns, breakout multi-billion-dollar companies. The dream is exciting; the reality is not so easy.

We always hear the highlights. If you’re a golf fan like I am, you see the guy make the 30-foot putt; you don’t see the 28 players who missed three-foot putts, because they’re not interesting to watch. Steve Jobs was honest enough to make a prophetic statement: it’s really hard to connect the dots looking forward. We think if we’ve read every business book and taken every class, we must be able to figure it out, that it’s an easily traversed path. The reality is a much more chaotic line. Whether it’s about funding, figuring out product-market fit, how you iterate and pivot, or whether you get repeatability, it’s tremendously uncertain. The only thing I can tell you is you’ll have to make your own path, and as you do it, expect the unexpected.

A little more reality on validation. When you get customers, how do you prove you’ve got validation? If you get a customer like Fidelity, they’re a complete outlier; they might write you a big check, but they do everything themselves, uniquely, so they’re not typical of your next five customers. Every customer in a marketplace is not equal. The more important thing is understanding segments, where individual customers line up with real aligned needs and you can start to get repeatability. That’s when you learn whether you’ve actually got a marketplace or a product that can be scaled.

I can joke about this with Stephan in the audience, because we were on the board together. There was a point in Demandware’s history where our business model looked to everybody, including my partners, like it was broken, like we couldn’t implement customers fast enough to turn the corner to profitability. Fortunately, we saw underneath that: it was just a timing issue, because the software-as-a-service model Stephan’s team was inventing wasn’t fully understood. It took longer to get customers to show the same profitability, but as they became profitable they also became incredibly sticky, closely aligned with your future, so your revenue became more definable and the company more valuable. That challenge had us sitting in a funding trough where nobody wanted to fund the business. There were many challenges along the way, including team upgrades. People who are great in what I’d call the Lewis and Clark model (crossing the country with no map, no compass) are not good when you start giving them very clear, paved roads to travel on, because they keep wanting to find their own path. They’re just different kinds of people.

The good news is that most of these businesses are usually longer and much harder than you think, but when you finally get them right, they’re usually much bigger.

The Ungame

There’s a game you’ve got to get used to. It’s called the ungame. If you’re going to have a breakthrough, you’re going into uncharted territory, unexplored areas, with undefined bases on which to figure things out, like your business model or go to market. You’ll run into the unexpected because nobody’s been here before, and you’ll have great uncertainty. So how can you be an entrepreneur that takes advantage of the unexpected? What rules should you write?

I’ve spent a lot of time with great entrepreneurs and great CEOs, and they’ve shared five watchwords I’ve culled:

• Be a realist. When you run into a problem, confront it head-on, shine a spotlight on it, and be very clear about what you’re seeing.
• Give clarity to people so they fully understand the situation. Accept it, and then with humility get customers, partners, and employees to work with you to understand the problem and how to address it.
• Once customers and your team are with you, empathizing with what you’re dealing with, establish a basis to get credibility back by explaining what you learned. (“Perhaps I shouldn’t have had only one supplier; I should have had a couple.”)
• Build credibility by delivering your product or improved solution better before you measure whether you’re back on track.

These aren’t perfect; they’re just examples: humility, credibility. Learn to develop them to play the ungame.

Here’s an example that drives right to the uncertainty issue, from my own experience. We were dealing with about a $30 million customer, and they rolled out a new product with our product integrated into their stack, so we were totally dependent on them. Neither our integration nor their new product had been tested properly, and we were measuring risk for them on hundreds of millions of dollars’ worth of transactions, and the results being reported, unknown to us, were wrong. So what do you do? We called the team together and asked, “What do we know?” We didn’t know anything. Nobody knew why the results were coming out wrong: not the customer, not their engineering team, not ours. Everybody was trying to figure out who to point fingers at, which wasn’t constructive. So we decided to get to clarity on what we knew. We took our piece, they took their piece, the customer took theirs, and we very humbly said we’d all suffer as much as possible if we couldn’t figure this out. There was a very senior woman whose job was on the line who said she needed our help, and we said vice versa. We pulled the whole team, the customer, and the partner together into a single point to understand it. And we learned a lot about each other: that we had this extraordinary process where we rolled out software without ever doing integration testing at the customer level (we might have at the product level), and worse, we never went to figure out how the customer actually saw the final end result for their risk metrics. We just assumed that if the customer told us it was working great, it was. After we fixed all of that, everybody built a much stronger solution, and we turned that customer into a much larger customer. From tough stories come great results, if you’re willing to build these attributes into your approach.

But this is not a usual game. Do you have those kinds of attributes? Do you want to go through that kind of trauma? Are you willing to put up with that pressure, to pull all-nighters and pull all sorts of people together to go to the ends of the earth to get through these challenges? They’re the norm.

The One Thing to Take Away: Be Mindful

To finalize before the panel: don’t set out to create a billion-dollar company by finding an idea. Instead, set out to solve a billion-dollar problem, and think mindfully about where you’ll involve your talents, your skills, and everybody else you bring along, to build an enduring company. The key word is mindful. If we can do nothing else other than get you to think about what it takes to build a company, we’ll have achieved something. The biggest challenge to being an entrepreneur is to be mindful of all the many opportunities as well as challenges that exist to build great companies.