Lessons from Entrepreneurs

I spent the best part of ten days travelling up and down the Bay Area, from San Francisco to Santa Clara. © 

Following the VC trek, a number of Kellogg students (including myself) visited startups in the Bay Area. The companies visited were Fusion One, Cubetree, Minekey, Terrapass, Hollrr, Widgetbox and Engine Yard. We then joined Kellogg's official Entrepreneurship Trek, visting Chegg, the Plug and Play Incubator, SnapLogic, Founder Institute, Sinexus, Yammer, EventBrite, Bump, and Meebo. What follows are some "lessons learned" that the entrepreneurs shared with us.

It is better to build a business that exits for $25M - $50M than one that exits for $1B. Building a $1B business is very difficult and requires extraordinary luck and/or skill. It usually also requires a lot of investment and dilution of your shares. The venture capital firms are looking to build $1B businesses, yet very few businesses ever become $1B businesses. In the meanwhile, there are many $25M - $50M exits where the founders have walked away with as much returns as those who have in a $1B exit. These exits are easier to execute. VC firms will not invest in a business that wants to exit at $25M - $50M, but it is a more realistic goal to create such a business.

Many successful firms start out doing one thing, with little success, but then discover they have acquired all the resources needed to do something else really profitably. As an example, Chegg started out as a Craigslist type classifieds service for students. There were many competitors doing similar things, but the growth of the business was small. They then experimented with renting text books and found this was proving to be a popular service. They suddenly found that the resources they had from the classifieds business, such as students lists and on-campus champions, put them in the perfect position to execute on this business. There were similar stories of experimenting, building resources and finding eureka monetization moments at other companies also.

Milestones are important. When building your business, you need to set milestones for when you are going to accomplish certain things, e.g. get FDA approval for a drug, release feature X or acquire 1M customers. If you don’t reach a milestone, you have to ask yourself why this is not the case – is it because of motivation? Because of resources or skills? If you are not able to address the shortcomings to reaching your milestones, you need to revisit what your business can accomplish. Milestones are paramount when it comes to fundraising; to obtain the next round of funding, you need to accomplish the milestones that give confidence to the next round of investors.

Networking is key. Several firms had obtained substantial expertise from others, people that the founders had worked with before. One particular firm had for its first two corporate customers two of the founders’ best friends from earlier in life. An executive from at another firm had previously roomed with an executive from yet another. The Bay Area seems to be full of incestuous relationships such as these – particular circles of people that control money and other resources, which ultimately enable the startups to succeed or fail. The difference was clear between those startups where the founders are "plugged in" to particular networks, and those where the founders seemed to continue to struggle with little success.

Viral growth. A lot of startups in the consumer internet space focused on building products that could create viral growth – this was the predominant growth strategy. If the product is good enough, the product will create huge engagement, as well as customer acquisition, purely from the way it works. Bump, the iPhone application, is an example of a product with huge viral customer acquisition.

Start with a core team. A startup needs a core team of 2 or 3 people who are extremely capable, work well together and can deliver and iterate the product quickly. This creates momentum and pushes the startup forward to funding and traction.

Don't spend time convincing people they have a problem. Instead, focus on finding the people who are already convinced that they have a problem. In sales, in hiring or anything else, targeting these people is the most effective use of your time. Convincing people from scratch that the problem exists consumes a large amount of time and effort.

Corporate IT departments are gatekeepers preventing SaaS from becoming a multi-billion dollar business. IT departments, threatened by the flocking of technology to the cloud (and consequent redundancy of their jobs), are proving to be resistant to SaaS adoption. Ultimately, in the long run, SaaS will win through, but their resistance is slowing the pace of adoption.

Laser focus on customers means competitors are not as important. If you focus on a particular segment and satisfy their needs really well, you don’t need to worry as much about competitors. Your product will simply be the best thing for the customers you are targeting.

The most important thing is getting traction. If your product is getting traction, everything else will be easy – getting investors, hiring, mentors etc. If users are flocking to your product, all these other resources and people will come and find you.

Doing a startup is an emotional rollercoaster. Experienced entrepreneurs become numb to the ups and downs. You just have to accept it and learn to manage it.

Realise the phases of a startup and do what you are naturally good at. E.g. the early phase of bringing an idea together versus the phase of building a business – know in which phase your capabilities lie and focus on that, handing over to other people for other phases.