Roadmap to success

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Roadmap to Success

Can you see yourself working through what in many cases is a multi-year roadmap to building a company? These businesses are usually longer and much harder than you expect, but when you finally get them right, they’re usually much bigger. Let’s look at the trade-offs you need to make and how important your decisions are to the impact of the business.

The Outlier Customer

Many times you’ll come up against your first customer and find their needs aren’t in line with what you thought was your product roadmap. Is that because your roadmap is wrong, or because the customer is the wrong one to pursue? You probably won’t know, but you’ll have to quickly discern what the customer is asking that’s really worth pursuing to move the business forward, versus the extraneous features that will take you off track. There’s another consideration: you may need to take that customer for pure cash flow reasons. There’s no one right or wrong answer, so long as you’re clear about what you’re doing and why, and how you’ll use them as a basis to move the business forward, whether it’s your product, target market, or business model that you validate. But if you blindly take customers without considering how they move the business forward, you can quickly find yourself with bloated products, extended timelines, and wasted resources as you fail to converge on product-market fit. Hopefully you find a series of customers with the same needs, whom you can deliver to consistently, to form your initial minimum viable segment and build momentum.

Other Challenges on the Path

• The funding mirage, which leads people to believe that just because they’ve raised money, they’re on a successful track. People come to me saying, “I’ve got my Series A, I must be doing great.” It’s irrelevant until you figure out what customers will actually pay for. The money from investors is meaningless until then. (There’s an article, “The Funding Mirage,” up on the site and on LinkedIn.)
• Reworking your business model.
• The near-death experience that comes out of nowhere: a major competitor entering, or a lawsuit that comes at you unexpectedly. All these things are just sent to try you. The key is not to lose sight of what you’re really doing: building something for the long term. The hardest times I’ve faced have all been about figuring out how to just take one step forward. If you keep doing that, you quickly move to a place where the view is very different, and the challenges you’ve left behind put you in a position to distance yourself from competitors.
• Human capital. One area never to take for granted is your human capital; it’s always the most important capital in your business. Figuring out how to constantly develop, evolve, and if necessary upgrade your team is critical.
• Growth versus leverage. As you get real repeatability, you’ll be faced with whether to focus on growth or getting leverage out of your business model. There’s no one right or wrong answer. Sometimes the market rewards growth, and it’s worth investing to dominate your market position. Other times it’s important to show real leverage in your business model, to put yourself in a position to control your own destiny profitably. Whatever the case, consciously make these decisions with a view to building lasting value that can sustain the business to ultimate long-term independent success.

The Stages of a Business, and Why the Founder Curve Drops

There’s a slide about the stages of a business: ideation, confirmation of your idea, creation of your product, validation, and so on. Many students said, “Great, I can go study all this and go through all these pieces.” But do we really think one size fits all in terms of the type of person who goes through all those stages? The stats say no. It’s a very rare person who can start off as the innovator, develop into the entrepreneur who turns the innovation into a business, then be a builder, and ultimately an operator of that business at scale. That’s why you see the curve drop from 100% founder to about 25% at IPO: those are very different qualities across the scale.

This is not just about raising money to go through the stages; it’s about evolving your business, and that includes your team. It doesn’t mean you’re a bad person if you don’t want to evolve that way. There are great entrepreneurs, like Stephan, who stay heavily involved providing guidance but don’t try to run the business. It’s less fun at the operator end, because things get more predictable and there’s less opportunity to whip things around and change your mind on the fly.

When Is the Right Time?

Timing is a tough thing to assess. Is it right out of college? There are plenty of stories of people who drop out (Stephan is a self-professed dropout). Is it after some real work experience, or after working for a large corporation, or just whenever? It’s when you, for your reasons, are ready to tackle the opportunity.

John Hirschtick laid out a perfect framework, using MIT-style inequalities: when your worry that it’s too late to start becomes greater than your worry that it’s too early, that’s a good time to say, “Maybe I should start this.” And when you start to think the risk of not doing it is greater than the risk of doing it. That’s part of the motivation: John started another company because he began to feel the risk of not doing things was greater than the risk of doing them, even though he had a great job at SolidWorks that he loved. Eventually something causes you to say, “I’ve got to change jobs, I’ve got to start a company,” and it will be at least as emotional and gut-level as anything else. Most entrepreneurs reach that point and cannot stop themselves.

People assume that means a certain age or experience. Most would describe it as a bell curve, and yes, maybe more middle-aged people start tech companies, but there’s nothing stopping you in your college years. You may have more experience later, or more fear later, which is probably why fewer people 55 and above do this. Two reasons both ends of the spectrum are interesting:

• Youth: ignorance is bliss. You’re totally unaware and unlimited in what you think is possible, and you have nothing to lose. I started my first company at 18. Someone asked me to program a portfolio analysis system to trade bonds. I didn’t know what a bond was; I thought it was something James Bond started in a movie. So it was, “Okay, why not, I’ll do it.” I had no idea what I’d be challenged to do, and it was fun to try to break the rules. We figured out how to do bond trading portfolio analysis and sold it to the City of London. Then reality hit: you have to support this stuff, there are ongoing costs, and I still had to pay my bills at university and do my classes.
• Experience gives you confidence, stronger networks, deeper relationships, some resources to fall back on, and unfortunately more to lose (which is why the bell curve tails off).

So what’s the answer? There isn’t one, but some of the best teams are combinations of youth and experience. Youth (Y) plus Experience (E) equals Success (S). Your co-founder doesn’t have to be deeply experienced; it might be a board member or an adviser. Look at history: many of the greatest Nobel Prize winners and innovators are well into middle age before they do great things, and some come back as great second acts, like Steve Jobs.

The Career Path: There Is No One Story, and You Surf a Wave

There are lots of interesting career paths, and if you go through founders’ backgrounds you discover there’s no one story. Everybody creates their own path for their own reasons. On the perennial question “should I get experience at a big company or a startup”: if you want startup experience, get it in a startup. Even if a big company tells you they have entrepreneurship and innovation going on, you’ve got to know what it means to start from scratch with no business card that has Google on it, just your own wits.

There’s real truth to Malcolm Gladwell’s Outliers and the 10,000-hours rule: if you spend three hours a day for a decade doing something, you can become capable of being the next Tiger Woods. Many founders we back have deep expertise. The Salsify team had been in the e-commerce world and got their 10,000 hours at companies like Endeca. Ash of Actifio built his first company, AppIQ, became CTO of storage at HP, and understood the pain of the virtualized and cloud world before starting Actifio. John built SolidWorks and then realized, like Stephan, that there’s a major disruption with cloud, so why not do it again. But some of the greatest entrepreneurs have no experience whatsoever; Gail Goodman did on-the-job training and built Constant Contact along the way.

Would you do it again, and what’s the biggest learning to take forward? The recurring answer is timing.

John: “First, a plug for staying with your company. I stayed 18 years at SolidWorks and 14 years after we were acquired. When I started, my mission was bringing 3D CAD software to every engineer’s desktop. The opportunity for a company comes along; you can’t just sit there and say, ‘Now’s the time for this market to change.’ You’re usually surfing a wave. We didn’t make the internet or cloud computing; I recognized the conditions, I didn’t create them. I didn’t run around for 15 years saying, ‘I need to start a new CAD company.’ I watched things happening in the market and technology and said now is the right time. Too often people say, ‘Next September I’ll start my next company.’ How do they know the wave is coming in then? You’ve got to wait sometimes for everything to be the right moment to strike.”

Stephan: “Timing is enormously important. You can take everything you learn in business school, but this timing thing, nobody can. The entrepreneur has to decide what and when that is. If you’re right about it, things can still go wrong, but you have a much more resilient strategy and company. If you’re wrong about it, you can do everything else right and it’s not going to work.”